NEW GIANT CORPORATION
As filed with the Securities and Exchange Commission on
August 31, 2007
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM S-4
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF
1933
NEW GIANT CORPORATION
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
2361
|
|
26-0405422
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
814 Livingston Court
Marietta, Georgia
30067
(770) 644-3000
(Address, including zip code,
and telephone number,
including area code, of
registrants principal executive offices)
Stephen A.
Hellrung, Esq.
Senior Vice President, General
Counsel and Secretary
814 Livingston Court
Marietta, Georgia
30067
(770) 644-3000
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
Copies to:
|
|
|
William Scott
Ortwein, Esq.
Justin R. Howard, Esq.
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
(404) 881-7000
|
|
David J. Sorkin, Esq.
Andrew W. Smith, Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
|
Approximate
date of commencement of proposed sale of the securities to the
public: As soon as practicable after this registration
statement becomes effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
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
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant 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, as amended, or until the
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
CALCULATION
OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proposed
|
|
|
Proposed
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
Maximum
|
|
|
|
Title of Each Class of
|
|
|
Amount to be
|
|
|
Offering
|
|
|
Aggregate
|
|
|
Amount of
|
Securities to be Registered
|
|
|
Registered
|
|
|
Price Per Share
|
|
|
Offering Price
|
|
|
Registration Fee
|
Common Stock, par value of $0.01
per share
|
|
|
230,297,656(1)
|
|
|
$4.73(2)
|
|
|
$1,089,307,913(3)
|
|
|
$33,442(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents the maximum number of shares of the common stock of
New Giant Corporation (New Graphic) estimated to be
issuable upon the completion of the transactions (as defined in
the accompanying prospectus) in respect of the shares of Graphic
Packaging Corporation (Graphic) common stock.
Pursuant to the transaction agreement (as defined in the
accompanying prospectus), each share of Graphic common stock
outstanding at the effective time of the merger will be
exchanged for one share of the common stock of New Graphic.
|
|
(2)
|
Pursuant to Rules 457(c) and 457(f)(1) under the Securities
Act of 1933, as amended, the registration fee for the shares of
the common stock of New Graphic to be issued in respect of the
shares of Graphic common stock is based on (i) the average
of the high and low sales prices of Graphic common stock, as
reported on the New York Stock Exchange on August 28, 2007,
of $4.73 per share and (ii) the estimated maximum number of
shares of the common stock of Graphic that may be exchanged for
the common stock of New Graphic being registered, including the
shares of Graphic common stock reserved for issuance pursuant to
Graphics incentive plans as of August 28, 2007.
|
|
(3)
|
Estimated solely for purposes of calculating the registration
fee pursuant to Rule 457(f)(1) and Rule 457(f)(2) of
the Securities Act of 1933, as amended, based on the product of
the estimated maximum number of shares of New Graphic common
stock to be registered in respect of shares of Graphic common
stock multiplied by the proposed maximum offering price per
share calculated as described in (2) above.
|
|
(4)
|
Calculated by multiplying .0000307 by the proposed maximum
aggregate offering price.
|
The information in this preliminary proxy statement/prospectus
is not complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities
and Exchange Commission is effective. This preliminary proxy
statement/prospectus is not an offer to sell these securities,
and it is not soliciting an offer to buy these securities, in
any state or jurisdiction where the offer or sale is not
permitted.
|
PRELIMINARY COPY
SUBJECT TO COMPLETION, DATED
[ l ],
2007
BUSINESS COMBINATION
PROPOSED YOUR VOTE IS IMPORTANT
To our stockholders:
I am pleased to invite you to attend the special meeting of
stockholders of Graphic Packaging Corporation
(Graphic) to be held on
[ l ],
[ l ],
2007 at 10:00 a.m., local time at the offices of
Alston & Bird LLP, Atlantic Center Plaza,
1180 West Peachtree Street, 15th Floor, Atlanta,
Georgia 30309. At the special meeting, you will be asked to
consider and vote on (1) a proposal to adopt the
transaction agreement and agreement and plan of merger, dated as
of July 9, 2007, that Graphic and certain of its affiliates
entered into with Bluegrass Container Holdings, LLC
(BCH), the company that holds all of the equity
interests of Altivity Packaging, LLC (Altivity), and
BCHs equity holders, which provides for the combination of
the businesses of Graphic and Altivity, (2) a proposal to
approve provisions in New Giant Corporations restated
certificate of incorporation authorizing 1.1 billion shares
of capital stock, including 1 billion shares of common
stock and 100 million shares of preferred stock, and
(3) any proposal by Graphic to adjourn or postpone the
special meeting, if determined to be necessary.
If the transactions contemplated by the transaction agreement
are completed, you will receive one share of common stock of a
new company, currently named New Giant Corporation, which we
refer to as New Graphic, for each share of
Graphic common stock that you held immediately prior to the
effective time of the merger. New Graphic will also issue shares
of its common stock to BCHs current equity holders such
that upon the completion of these transactions, BCHs
current equity holders will own approximately 40.6% of New
Graphic common stock, and holders of Graphic common stock
immediately prior to the effective time will own approximately
59.4% of New Graphic common stock, each calculated on a fully
diluted basis. In connection with these transactions, New
Graphic will be renamed Graphic Packaging Holding Company, and
its common stock will be listed on the New York Stock Exchange
under the symbol GPK, which is the symbol under
which Graphic common stock is currently traded on the NYSE.
The board of directors of Graphic has unanimously approved the
transaction agreement and the transactions and has determined
that the transactions are advisable and in the best interests of
Graphic and its stockholders.
This proxy statement/prospectus describes these transactions and
provides specific information concerning the special meeting. We
encourage you to read this entire document carefully.
Sincerely,
David W. Scheible
President and Chief Executive Officer
For a discussion of certain risk factors that you should
consider in evaluating the transactions contemplated by the
transaction agreement and an investment in New Graphic common
stock, see Risk Factors beginning on
page 20.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the
securities to be issued in connection with the transactions or
passed on the adequacy or accuracy of this proxy
statement/prospectus. Any representation to the contrary is a
criminal offense.
We may amend or supplement this proxy statement/prospectus from
time to time by filing amendments or supplements as required.
This proxy statement/prospectus is dated
[ l ],
2007, and is first being mailed to Graphic stockholders on or
about
[ l ],
2007.
GRAPHIC
PACKAGING CORPORATION
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD
[ l ],
2007
To our stockholders:
Graphic Packaging Corporation (Graphic) will hold a
special meeting of its stockholders on
[ l ],
2007 at 10:00 a.m., local time, at the offices of
Alston & Bird LLP, Atlantic Center Plaza,
1180 West Peachtree Street, 15th Floor, Atlanta,
Georgia 30309, for the following purposes:
1. To vote on a proposal to adopt the transaction agreement
and agreement and plan of merger, dated as of July 9, 2007,
by and among Graphic, Bluegrass Container Holdings, LLC
(BCH), TPG Bluegrass IV, L.P., TPG Bluegrass IV-AIV
2, L.P., TPG Bluegrass V, L.P., TPG Bluegrass V-AIV 2,
L.P., Field Holdings, Inc., TPG FOF V-A, L.P., TPG FOF V-B,
L.P., BCH Management, LLC, (collectively with TPG Bluegrass IV,
L.P., TPG Bluegrass IV-AIV 2, L.P., TPG Bluegrass V, L.P.,
TPG Bluegrass V-AIV 2, L.P., Field Holdings, Inc., TPG FOF V-A,
L.P., TPG FOF V-B, L.P. and any transferees of their interests
in BCH, the Sellers), New Giant Corporation
(New Graphic) and Giant Merger Sub, Inc.
(Merger Sub) and to approve the transactions
contemplated by such transaction agreement. The transaction
agreement contemplates, among other transactions, that:
|
|
|
|
|
Merger Sub, a new, wholly-owned subsidiary of New Graphic, will
merge with and into Graphic, as a result of which Graphic will
become a wholly-owned subsidiary of New Graphic (the
merger);
|
|
|
|
each share of Graphic common stock outstanding immediately prior
to the merger will be converted into the right to receive one
share of the common stock of New Graphic pursuant to the
merger; and
|
|
|
|
immediately after the merger, the Sellers will transfer all of
their equity interests in BCH, the company that holds all of the
equity interests in Altivity Packaging, LLC, to New Graphic in
exchange for shares of common stock of New Graphic (the
exchange, and together with the merger, the
transactions).
|
2. To vote on a proposal to approve provisions in New
Graphics restated certificate of incorporation authorizing
1.1 billion shares of capital stock, including
1 billion shares of common stock and 100 million
shares of preferred stock. THIS PROVISION WILL ONLY BE
IMPLEMENTED IF PROPOSAL 1 IS ALSO APPROVED.
3. To vote upon any proposal by Graphic to adjourn or
postpone the special meeting, if determined to be necessary.
A copy of the transaction agreement is attached to this proxy
statement/prospectus as Annex A. The certificate of
incorporation and by-laws of New Graphic to be in effect
following the merger are set forth as Annex B and
Annex C, respectively, to this proxy statement/prospectus.
The board of directors of Graphic has unanimously approved the
transaction agreement and the transactions and has
determined that the transactions are advisable and in the best
interests of Graphic and its stockholders. The board of
directors of Graphic recommends that you vote FOR
the adoption of the transaction agreement and the approval of
the transactions, FOR the approval of the provisions
of New Graphics restated certificate of incorporation
increasing New Graphics authorized capital stock, and
FOR the adjournment or postponement of the special
meeting, if determined to be necessary.
Only Graphic stockholders of record at the close of business on
[ l ],
2007 are entitled to notice of, and to vote at, the special
meeting and any adjournments or postponements of the special
meeting. No business other than the proposals described in
this notice will be considered at the special meeting or any
adjournment or postponement thereof. A complete list of Graphic
stockholders of record entitled to vote at the special meeting
will be available for inspection at the special meeting.
Your vote is very important, regardless of the number of shares
you own. Graphic cannot complete the transactions unless the
transaction agreement is adopted and the transactions are
approved by the affirmative vote of a majority of the issued and
outstanding shares of Graphic common stock. Please submit your
proxy as soon as possible to make sure that your shares are
represented at the special meeting.
For your shares to be voted, you may complete, sign, date and
return the enclosed proxy card or you may submit your proxy by
telephone or over the Internet. If you are a holder of record,
you may also cast your vote in person at the special meeting. If
your shares are held in an account by a broker, bank or other
nominee, you must instruct them on how to vote your shares.
If you do not submit your proxy, vote in person or instruct
your broker, bank or other nominee how to vote, it will have the
same effect as voting AGAINST the adoption of the
transaction agreement and the approval of the transactions.
By order of the board of directors,
Stephen A. Hellrung
Senior Vice President, General Counsel and Secretary
[ l ],
2007
REFERENCE
TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business
and financial information about Graphic from other documents
that are not included in or delivered with this proxy
statement/prospectus. The Securities and Exchange Commission
(the SEC) maintains a website that contains annual,
quarterly and current reports, proxy and information statements
and other information regarding registrants, like Graphic, that
file reports with the SEC electronically. The SECs website
address is
http://www.sec.gov.
You may also read and copy any document Graphic files with the
SEC at the SECs public reference room,
100 F Street, N.E., Washington, D.C. 20549.
Please call the SEC at
1-800-SEC-0330
for further information on the operation of its public reference
room. The information Graphic files with the SEC and other
information about Graphic is also available on Graphics
website at
http://www.graphicpkg.com.
However, the information on Graphics website is not a part
of, nor incorporated by reference into, this proxy
statement/prospectus. For a listing of the documents
incorporated by reference, please see Where You Can Find
More Information.
You can also obtain those documents incorporated by reference in
this proxy statement/prospectus without charge by contacting
Graphic at:
Graphic Packaging Corporation
814 Livingston Court
Marietta, Georgia 30067
(770) 644-3000
Attention: Investor Relations Department
In order to ensure timely delivery of requested documents,
any request should be made at least five business days prior to
the date on which an investment decision is to be made and, in
any event, no later than
[ l ],
2007, which is five business days prior to the special
meeting.
i
TABLE OF
CONTENTS
|
|
|
|
|
|
|
Page
|
|
|
|
|
i
|
|
|
|
|
1
|
|
|
|
|
5
|
|
|
|
|
13
|
|
|
|
|
18
|
|
|
|
|
19
|
|
|
|
|
20
|
|
|
|
|
20
|
|
|
|
|
22
|
|
|
|
|
27
|
|
|
|
|
29
|
|
|
|
|
30
|
|
|
|
|
33
|
|
|
|
|
33
|
|
|
|
|
37
|
|
|
|
|
40
|
|
|
|
|
46
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
53
|
|
|
|
|
54
|
|
|
|
|
54
|
|
|
|
|
57
|
|
|
|
|
59
|
|
|
|
|
70
|
|
|
|
|
70
|
|
|
|
|
74
|
|
|
|
|
76
|
|
|
|
|
86
|
|
|
|
|
86
|
|
|
|
|
92
|
|
|
|
|
92
|
|
|
|
|
92
|
|
|
|
|
107
|
|
|
|
|
116
|
|
|
|
|
121
|
|
|
|
|
124
|
|
|
|
|
124
|
|
|
|
|
131
|
|
|
|
|
132
|
|
|
|
|
132
|
|
ii
QUESTIONS
AND ANSWERS ABOUT THE SPECIAL MEETING
The following questions and answers are intended to briefly
address some frequently asked questions regarding the merger (as
defined below) and the exchange (as defined below and together
with the merger, the transactions) contemplated by
the transaction agreement (as defined below). These questions
and answers may not address all questions that may be important
to you as a stockholder of Graphic Packaging Corporation
(Graphic). You are urged to read this entire proxy
statement/prospectus carefully and the other documents to which
Graphic and New Graphic (as defined below) refer you before
casting your vote on adoption of the transaction agreement and
approval of the transactions.
|
|
|
Q: |
|
When and where is the special meeting? |
|
A: |
|
The special meeting will take place on
[ l ],
2007, at 10:00 a.m., local time, at the offices of
Alston & Bird LLP, Atlantic Center Plaza,
1180 West Peachtree Street, 15th Floor, Atlanta, Georgia
30309. |
|
Q: |
|
What am I being asked to vote on? |
|
A: |
|
You are being asked to vote to adopt the transaction agreement
and agreement and plan of merger, dated as of July 9, 2007
(the transaction agreement), by and among Graphic,
Bluegrass Container Holdings, LLC (BCH), the company
that holds all of the equity interests in Altivity Packaging,
LLC (Altivity), TPG Bluegrass IV, L.P., TPG
Bluegrass IV-AIV 2, L.P., TPG Bluegrass V, L.P., TPG
Bluegrass V-AIV 2, L.P., TPG FOF V-A, L.P., TPG FOF V-B, L.P.
(collectively with TPG Bluegrass IV, L.P., TPG Bluegrass IV-AIV
2, L.P., TPG Bluegrass V, L.P., TPG Bluegrass V-AIV 2, L.P.
and TPG FOF V-A, L.P., the TPG Entities), BCH
Management, LLC, Field Holdings, Inc. (together with BCH
Management, LLC, the TPG Entities, and any transferee of their
interests in BCH, the Sellers), New Giant
Corporation (New Graphic) and Giant Merger Sub, Inc.
(Merger Sub) and approve the transactions. The
transaction agreement contemplates, among other transactions,
that: |
|
|
|
Merger Sub, a new, wholly-owned subsidiary of New
Graphic, will merge with and into Graphic, as a result of which
Graphic will become a wholly-owned subsidiary of New Graphic
(the merger);
|
|
|
|
each share of Graphic common stock outstanding
immediately prior to the merger will be converted into the right
to receive one share of the common stock of New Graphic pursuant
to the merger; and
|
|
|
|
immediately after the merger, the Sellers will
transfer all of their equity interests in BCH to
New Graphic in exchange for shares of common stock of New
Graphic (the exchange).
|
|
|
|
Upon the completion of the transactions, Graphic stockholders,
in the aggregate, will hold approximately 59.4%, and the Sellers
will hold approximately 40.6%, of the outstanding common stock
of New Graphic, each calculated on a fully diluted basis. |
|
|
|
For a more detailed discussion about the transactions, please
see The Transactions beginning on page 33 and
The Transaction Agreement and Agreement and Plan of
Merger beginning on page 59. |
|
|
|
You are also being asked to vote to approve a provision in New
Graphics restated certificate of incorporation authorizing
1.1 billion shares of capital stock, including
1 billion shares of common stock and 100 million
shares of preferred stock. |
|
|
|
In addition, you are being asked to vote to approve any proposal
by Graphic to adjourn or postpone the special meeting, if
determined to be necessary. |
|
Q: |
|
What will I receive after the transactions are completed? |
|
A: |
|
After the transactions are completed, you will receive one share
of New Graphic common stock for each share of Graphic common
stock you hold. |
1
|
|
|
Q: |
|
Are there any important risks related to the transactions or
New Graphics business of which I should be aware? |
|
A: |
|
Yes, there are important risks involved. Before making any
decision on whether and how to vote, Graphic urges you to read
carefully and in its entirety the section entitled Risk
Factors beginning on page 20. |
|
Q: |
|
Will my rights as a stockholder of New Graphic be different
from my rights as a stockholder of Graphic? |
|
A: |
|
Yes, there are certain material differences between your rights
as a stockholder of Graphic and your rights as a stockholder of
New Graphic. We urge you to read the section entitled
Description of New Graphic Capital Stock beginning
on page 124 and Comparison of Rights of Graphic
Stockholders and New Graphic Stockholders beginning on
page 131. |
|
Q: |
|
What stockholder approvals are needed to approve the
transactions? |
|
A: |
|
The adoption of the transaction agreement and the approval of
the transactions and the approval of the provision in New
Graphics restated certificate of incorporation each
requires the affirmative vote of a majority of the issued and
outstanding shares of Graphic common stock as of the record date. |
|
|
|
Pursuant to the voting agreement, dated as of July 9, 2007,
entered into by and among BCH, Graphic, certain members and
affiliates of the Coors family (the Coors Family
Stockholders), Clayton, Dubilier & Rice
Fund V Limited Partnership (the CDR Fund) and
EXOR Group S.A. (EXOR), each of the Coors Family
Stockholders, the CDR Fund and EXOR has agreed, subject to
limited exceptions, to vote all of its shares of Graphic common
stock in favor of adopting the transaction agreement and
approving the transactions and any other action reasonably
requested by BCH in furtherance thereof. The Coors Family
Stockholders, the CDR Fund and EXOR collectively hold
129,376,414 issued and outstanding shares of Graphic common
stock, which represented approximately 65% of the total number
of shares of Graphic common stock issued and outstanding
as of July 9, 2007 and as of the record date. |
|
Q: |
|
Who is entitled to vote at the special meeting? |
|
A: |
|
Graphic stockholders as of the close of business on
[ l ], 2007, which
is the record date for the special meeting, are entitled to vote
at the special meeting. As of
[ l ], 2007, there
were
[ l ] shares
of Graphic common stock issued and outstanding and entitled to
be voted at the special meeting. Each share of Graphic common
stock outstanding on the record date will entitle its holder of
record on such date to one vote on the transaction agreement and
the transactions. |
|
Q: |
|
Who can attend the special meeting? |
|
A: |
|
Only stockholders, their designated proxies and guests of
Graphic may attend the special meeting. If you plan to attend
the special meeting, you must be a stockholder of record as of
[ l ], 2007 or, if
you have beneficial ownership of shares of Graphic common stock
held of record by a broker, bank or other nominee, you must
bring an account statement or letter from your broker, bank or
other nominee showing that you are the beneficial owner of
shares of Graphic common stock as of the record date in order to
be admitted to the special meeting. |
|
Q: |
|
What happens if I sell my shares of Graphic common stock
before the special meeting? |
|
A: |
|
The record date for the special meeting is
[ l ], 2007. If you
transfer your shares of Graphic common stock after the record
date but before the special meeting, you will retain your right
to vote at the special meeting but will transfer the right to
receive one share of New Graphic common stock for each share of
Graphic common stock you hold (if the transactions are
completed) to the person to whom you transfer your shares. |
|
Q: |
|
If I would like to submit a proxy, what do I need to do
now? |
|
A: |
|
If your shares are registered directly in your name at
Graphics transfer agent, you are considered a stockholder
of record and you may submit your proxy (i) by mail by
completing, signing, dating and returning the enclosed proxy
card by mailing it in the enclosed postage prepaid envelope
provided for |
2
|
|
|
|
|
receipt prior to the date of the special meeting or (ii) by
telephone or through the Internet until
11:59 p.m. Eastern Time on
[ l ], 2007.
Instructions for voting by telephone or through the Internet are
contained on the enclosed proxy card. Please submit your proxy
as soon as possible so that your shares may be represented at
the special meeting. |
|
Q: |
|
If my shares are held in street name by a broker,
bank or other nominee, will my broker, bank or other nominee
vote my shares for me? |
|
A: |
|
If your shares are registered through a broker, bank or other
nominee, your shares are considered to be held beneficially in
street name. Your broker, bank or other nominee will vote your
shares for you only if you provide instructions to it on how to
vote. You should follow the directions your broker, bank or
other nominee provides on how to instruct it to vote your
shares. If your broker, bank or other nominee holds your shares
and you wish to vote your shares in person at the special
meeting, please bring a letter from your broker, bank or other
nominee identifying you as the beneficial owner of the shares
and granting you a proxy to vote those shares at the special
meeting. |
|
Q: |
|
What do I do if I want to change my vote or vote in
person? |
|
A: |
|
You may revoke your vote at any time before the special meeting
by: |
|
|
|
executing and submitting a revised proxy (including
by telephone or over the Internet);
|
|
|
|
sending written notice of revocation to
Graphics Secretary at the address provided at the
beginning of this proxy statement/prospectus; or
|
|
|
|
voting in person at the meeting.
|
|
|
|
If your shares are registered directly in your name, you are
considered the stockholder of record and you may vote in person
at the special meeting. If your shares are held beneficially in
street name and you wish to vote in person at the special
meeting, you will need to obtain a proxy from the broker, bank
or other nominee that holds your shares. Please note that even
if you plan to attend the special meeting, Graphic recommends
that you submit your proxy card voting your shares before the
special meeting in case you later decide not to attend the
meeting. |
|
Q: |
|
What will happen if I do not send in my proxy or if I abstain
from voting? |
|
A: |
|
If you do not send in your proxy or if you abstain from voting,
it will have the effect of a vote AGAINST the
adoption of the transaction agreement and the approval of the
transactions, and AGAINST the approval of the
provisions in New Graphics restated certificate of
incorporation increasing the authorized capital stock of New
Graphic. If you do not send in your proxy it will not affect the
proposal to adjourn or postpone the special meeting, if
determined to be necessary. If you return your proxy, but mark
abstain, it will have the effect of a vote
AGAINST the proposal to adjourn or postpone the
special meeting, if determined to be necessary. |
|
Q: |
|
Should I send in my stock certificates now? |
|
A: |
|
No. If the transactions are completed and you hold stock
certificates evidencing your shares of Graphic common stock, New
Graphic will send you written instructions for exchanging your
Graphic stock certificates. |
|
Q: |
|
How will Graphic solicit proxies? |
|
A: |
|
Proxies may be solicited by mail or facsimile, or by
Graphics directors, officers or employees, without extra
compensation, in person or by telephone. Graphic will reimburse
brokers, banks and other nominees for their reasonable
out-of-pocket expenses for forwarding solicitation material to
the beneficial owners of Graphic common stock. |
3
|
|
|
Q: |
|
Who can help answer my questions? |
|
A: |
|
If you have any questions about the special meeting or the
transaction agreement or the transactions, or if you need
additional copies of this proxy statement/prospectus or the
enclosed proxy card, you may contact: |
|
|
|
|
Graphic Packaging Corporation
814 Livingston Court
Marietta, Georgia 30067
(770) 644-3000
Attention: Investor Relations Department |
4
This summary is qualified in its entirety by the more
detailed information included elsewhere in this proxy
statement/prospectus. Because this is a summary, it may not
contain all of the information that is material or important to
you. You should read this entire proxy statement/prospectus
carefully, including the section entitled Risk
Factors, as well as Graphics periodic and other
reports filed with the SEC under the Securities and Exchange Act
of 1934, as amended (the Exchange Act), and
incorporated by reference in this proxy statement/prospectus
before making a decision. See Where You Can Find More
Information.
The
Companies
GRAPHIC
PACKAGING CORPORATION
814 Livingston Court
Marietta, Georgia 30067
(770) 644-3000
Graphic is a leading provider of paperboard packaging solutions
for a wide variety of products to multinational food, beverage
and other consumer products companies. Graphic strives to
provide its customers with packaging solutions designed to
deliver marketing and performance benefits at a competitive cost
by capitalizing on its low-cost paperboard mills and converting
plants, its proprietary carton designs and packaging machines,
and its commitment to customer service.
Graphic focuses on providing a range of paperboard packaging
products to major companies with well-recognized brands. Its
customers generally have prominent market positions in the
beverage, food and household products industries. Graphic offers
customers its paperboard, cartons and packaging machines, either
as an integrated solution or separately. Graphic has long-term
relationships with major companies, including Kraft Foods, Inc.,
Anheuser-Busch Companies, Inc., General Mills, Inc., SABMiller
plc., Molson Coors Brewing Company, and numerous
Coca-Cola
and Pepsi bottling companies.
BLUEGRASS
CONTAINER HOLDINGS, LLC and ALTIVITY PACKAGING, LLC
1500 Nicholas Boulevard
Elk Grove Village, Illinois 60007
(888) 801-2579
Bluegrass Container Holdings, LLC is a privately-held holding
company that conducts no operations and its only material asset
is its membership interest in Altivity Packaging, LLC
(Altivity). Altivity, headquartered in the Chicago,
Illinois area, is a provider of packaging solutions, including
folding cartons and paperboard, multi-wall bags, flexible
packaging and labels. The end-markets for Altivitys
products are primarily consumer oriented, which provides
stability and long-term predictable growth. Altivity has
approximately 7,900 employees and owns 6 boxboard mills, 23
folding carton plants, 12 multi-wall bag and specialty
facilities, 10 flexible packaging and labels facilities and 5
ink facilities.
Across its businesses, Altivity provides packaging solutions to
customers in the consumer packaged goods, agriculture, pet care,
building materials and chemicals industries. These end-markets
are generally characterized by stable and predictable demand
growth. Key demand drivers in these markets include rising
disposable income levels and increased consumption of
non-durable goods among consumers. Altivitys customer base
includes a number of well-known, blue-chip companies.
5
NEW GIANT
CORPORATION
814 Livingston Court
Marietta, Georgia 30067
(770) 644-3000
New Graphic was formed in June 2007 as a Delaware corporation
and is currently a wholly-owned subsidiary of Graphic. To date,
New Graphic has not conducted any activities other than those
related to its formation and the completion of the transactions.
In connection with the transactions, New Graphics name
will be changed to Graphic Packaging Holding
Company, and its common stock will be listed on the New
York Stock Exchange (NYSE) under the symbol
GPK, which is the symbol under which Graphic common
stock is currently listed on the NYSE.
GIANT
MERGER SUB, INC.
814 Livingston Court
Marietta, Georgia 30067
(770) 644-3000
Merger Sub was formed in June 2007 as a Delaware corporation and
is currently a wholly-owned subsidiary of New Graphic. To date,
Merger Sub has not conducted any activities other than those
related to its formation and the completion of the transactions.
In the merger, Merger Sub will be merged with and into Graphic,
with Graphic as the surviving corporation.
6
Organization
of New Graphic
The following chart depicts the anticipated organization of New
Graphic upon the completion of the transactions and certain
post-closing inter-company reorganization steps that New Graphic
expects to take to position BCH and Altivity as subsidiaries of
Graphics operating company, Graphic Packaging
International, Inc.
The
Transaction Agreement and the Transactions
(Page 59)
The
Transaction Agreement
The transaction agreement, a summary of which is provided
beginning on page 59 of this proxy statement/prospectus, is
attached as Annex A to this proxy statement/prospectus. You
are urged to read the transaction agreement in its entirety.
Merger
of Graphic and Merger Sub
The transaction agreement provides that Merger Sub, a new,
wholly-owned subsidiary of New Graphic, will merge with and into
Graphic. As a result, Graphic will survive the merger and become
a wholly-owned subsidiary of New Graphic.
What
Graphic Stockholders Will Receive in the Merger
Upon the completion of the merger, each outstanding share of
Graphic common stock will be converted into the right to receive
one share of New Graphic common stock.
7
Contribution
from the Sellers to New Graphic
Immediately after the completion of the merger, the Sellers will
transfer all of the outstanding equity interests of BCH to New
Graphic in exchange for 139,445,038 shares of New Graphic
common stock.
Ownership
of New Graphic Upon Completion of the Transactions
Upon the completion of these transactions, Graphic stockholders,
in the aggregate, will hold approximately 59.4%, and the Sellers
will hold approximately 40.6%, of the outstanding common stock
of New Graphic, each calculated on a fully diluted basis.
Recommendation
of Graphics Board of Directors (Page 37)
Graphics board of directors has unanimously determined
that the transaction agreement and the transactions are
advisable, fair to and in the best interests of Graphic
stockholders, and has unanimously approved the transaction
agreement and the transactions. Graphics board of
directors recommends that you vote FOR the adoption
of the transaction agreement and approval of the transactions.
If the board of directors of Graphic amends, modifies or
otherwise changes its recommendation regarding adoption of the
transaction agreement and approval of the transactions, Graphic
is still obligated to submit the transaction agreement and the
transactions to a vote of its stockholders.
Reasons
of Graphic for the Transactions (Page 37)
The Graphic board of directors, in reaching its unanimous
decision to approve the transaction agreement and the
transactions and recommend them to Graphic stockholders,
consulted with Graphics management, its financial advisor
and its legal counsel, and considered the following factors,
among others described herein, as generally supporting its
decision:
|
|
|
|
|
The Graphic board of directors believed that the combination of
the operations of Graphic and Altivity would provide stronger
and more stable cash flows, and therefore greater financial
stability, than could have been achieved by Graphic on a
stand-alone basis. This enhanced financial performance and
position should permit New Graphic to accelerate its debt
reduction, enhance the companys credit profile, improve
leverage ratios and finance ongoing investments.
|
|
|
|
The complementary product offerings of Graphic and Altivity,
which when combined create an ability to offer comprehensive
consumer packaging solutions to existing and new customers of
both companies.
|
|
|
|
The new company will have expanded market reach into smaller
specialty segments of the folding carton market, as well as new
packaging markets, including labels, flexible packaging and
multi-wall bags.
|
|
|
|
The opportunity to achieve significant cost synergies identified
in connection with the transactions, including:
|
|
|
|
|
|
operating and overhead expense reductions;
|
|
|
|
supply chain procurement improvements;
|
|
|
|
facility optimization; and
|
|
|
|
manufacturing process improvements.
|
|
|
|
|
|
The opportunity for additional cost savings from Altivitys
ongoing integration of Smurfit-Stone Container
Corporations Consumer Packaging Division and the Field
Companies (as defined below) as a result of manufacturing
network optimization efforts, overhead reduction and supply
chain improvements.
|
8
|
|
|
|
|
The opinion of Goldman Sachs, dated July 9, 2007, provided
to the Graphic board of directors, that, as of the date of the
opinion, and based upon and subject to the factors and
assumptions set forth in the opinion, the
139,445,038 shares of New Graphic common stock, taken in
the aggregate, to be issued by New Graphic in exchange for 100%
of the outstanding BCH equity interests pursuant to the
transaction agreement was fair from a financial point of view to
Graphic, as more fully described below under The
Transactions Opinion of Financial Advisor to
Graphic.
|
In making its determination to approve the transaction agreement
and the transactions, the Graphic board of directors did not
assign any relative or specific weights to the various factors
that it considered in reaching its determination that the
transaction agreement and the transactions are advisable, fair
to, and in the best interests of, Graphic and Graphic
stockholders. Rather, the Graphic board of directors viewed its
position and recommendation as being based on the totality of
the information presented to it, and the factors it considered.
In addition, individual members of the Graphic board of
directors, in making their decisions, may have given different
weight to different information and factors.
Opinion
of Financial Advisor (Page 40)
On July 9, 2007, Goldman Sachs delivered its opinion to
Graphics board of directors that, as of July 9, 2007
and based upon and subject to the factors and assumptions set
forth in the opinion, the 139,445,038 shares of New Graphic
common stock, taken in the aggregate, to be issued by New
Graphic in exchange for 100% of the outstanding equity interests
in BCH pursuant to the transaction agreement was fair from a
financial point of view to Graphic.
The full text of the written opinion of Goldman Sachs, dated
July 9, 2007, which sets forth assumptions made, procedures
followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as
Annex G. Goldman Sachs provided its advisory services and
opinion for the information and assistance of Graphics
board of directors in connection with its consideration of the
transactions. The Goldman Sachs opinion is not a recommendation
as to how any holder of Graphic common stock should vote with
respect to such transactions or any other matter. Pursuant to an
engagement letter between Graphic and Goldman Sachs, Graphic has
agreed to pay Goldman Sachs a transaction fee of
$20 million, all of which is payable upon consummation of
the transactions.
Interests
of Certain Persons (Page 48)
In considering the recommendation of the Graphic board of
directors with respect to the transaction agreement and the
transactions, Graphic stockholders should be aware that some of
Graphics executive officers and directors have interests
in the transactions and have arrangements that are different
from, or in addition to, those of Graphic stockholders
generally. The Graphic board of directors was aware of these
interests, which include the vesting of certain equity
compensation awards, arrangements under certain executive
officer employment agreements, continuing board positions,
indemnification obligations and reimbursement of certain legal
fees, and considered them, among other matters, in reaching its
decisions to approve the transaction agreement and the
transactions and to recommend that Graphic stockholders vote in
favor of adopting the transaction agreement and approving the
transactions.
Conditions
to the Transactions (Page 60)
The obligations of the parties to complete the transactions are
subject to, among others, the following conditions:
|
|
|
|
|
the adoption of the transaction agreement and the approval of
the transactions by Graphic stockholders;
|
|
|
|
no law, order, or judgment having been issued, enacted, entered
or enforced by any court or other governmental authority
preventing or making illegal the consummation of the
transactions;
|
9
|
|
|
|
|
the expiration or termination of any waiting period applicable
to the transactions in respect of filings by Graphic and BCH
under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act).
|
|
|
|
the approval of the listing on the NYSE of New Graphic common
stock to be issued in connection with the transactions;
|
|
|
|
the registration statement of which this proxy
statement/prospectus forms a part shall have become effective
under the Securities Act of 1933, as amended (the
Securities Act) and shall not be the subject of any
stop order or proceedings seeking a stop order; and
|
|
|
|
other customary conditions set forth in the transaction
agreement, including the receipt of tax opinions, the accuracy
of the representations and warranties, and the performance of
obligations under the transaction agreement having been
satisfied or waived.
|
Regulatory
Approvals (Page 49)
The transaction agreement requires that Graphic and BCH submit
filings with, and obtain certain orders or approvals from the
Federal Trade Commission and the Department of Justice
(DOJ) pursuant to the HSR Act and the German Cartel
Office. Clearance of the transactions from the German Cartel
Office was received on August 28, 2007. A request was
received on August 22, 2007 for additional information,
commonly referred to as a second request, from the
Antitrust Division of the DOJ regarding the transactions. The
second request extends the waiting period imposed by the HSR Act
until 30 days after the second request has been
substantially complied with, unless that period is extended
voluntarily by the parties or terminated sooner by the DOJ.
No
Solicitation (Page 62)
The transaction agreement generally prohibits Graphic, BCH and
each Seller from directly or indirectly soliciting or
participating in discussions or negotiations regarding any
takeover proposal other than the transactions. If, however,
prior to obtaining its stockholders approval of the
transactions, Graphic receives an unsolicited bona fide, written
takeover proposal that the Graphic board of directors determines
in good faith, after consultation with its legal advisor and
financial advisor, would reasonably be expected to result in a
superior proposal, as described herein, Graphic may furnish
information to the person making such takeover proposal and
participate in discussions or negotiations regarding such
takeover proposal, if and only to the extent that the Graphic
board of directors concludes in good faith, after consultation
with its counsel, that the failure to take such action would be
reasonably expected to violate its fiduciary duties under
applicable law.
Termination
(Page 64)
The transaction agreement may be terminated at any time prior to
the occurrence of the transactions under any of the following
circumstances:
|
|
|
|
|
by mutual consent of the Sellers Representative (as defined
herein) and Graphic;
|
|
|
|
by either the Sellers Representative or Graphic if:
|
|
|
|
|
|
any governmental law or order prohibiting the completion of the
transactions becomes final;
|
|
|
|
the transactions have not been completed by March 31, 2008
(which date may be extended to May 31, 2008 if the delay is
the result of the failure to obtain antitrust approvals);
|
|
|
|
Graphic stockholders fail to adopt the transaction agreement and
approve the transactions at the special meeting; or
|
|
|
|
there shall have been a breach by the other party of any of the
covenants, agreements, representations or warranties of such
other party contained in the transaction agreement in a material
way; or
|
10
|
|
|
|
|
by the Sellers Representative if the Graphic board of directors
(i) changes its recommendation regarding the transaction
agreement and the transactions or (ii) fails to publicly
reaffirm its recommendation regarding the transaction agreement
and the transactions or if Graphic otherwise breaches certain
provisions of the transaction agreement relating to its
obligations not to solicit alternative takeover proposals.
|
Termination
Fees (Page 65)
If the transaction agreement is terminated in certain
circumstances in which the Graphic board of directors adversely
changes its recommendation regarding the transaction agreement
and the transactions or takes certain other specified actions,
Graphic may be required to pay BCH a termination fee of
$35,000,000. If the transaction agreement is terminated in
certain circumstances in which a takeover proposal has been made
prior to the transaction agreement being terminated, but the
takeover proposal is not consummated, Graphic may be required to
pay BCH an amount equal to the documented out-of-pocket fees and
expenses of BCH incurred by BCH and the Sellers in connection
with the transaction agreement and the transactions, up to a
maximum amount of $5,000,000. If within 12 months of such
termination Graphic consummates or enters into a binding written
agreement with respect to a takeover proposal, Graphic shall pay
BCH the excess of the difference between $35,000,000 and any
out-of-pocket expenses previously paid.
Financing
(Page 54)
Graphic currently expects to complete the following financing
transactions through its wholly-owned subsidiary, Graphic
Packaging International, Inc., in connection with the
transactions:
|
|
|
|
|
The closing of a new $1.2 billion senior secured term loan
facility to refinance the outstanding amounts under BCHs
existing first and second lien credit facilities.
|
|
|
|
The closing of a new $600 million senior secured
asset-based revolving credit facility. However, if an
asset-based revolving credit facility containing terms that are
satisfactory to Graphic cannot be arranged prior to the closing
of the transactions, Graphic Packaging International, Inc. may
instead elect to increase the size of its existing revolving
credit facility to up to $400 million from
$300 million.
|
|
|
|
An amendment or amendment and restatement of Graphic Packaging
International, Inc.s existing May 16, 2007 credit
agreement to, among other things, accommodate the transactions
and to allow for the reprioritization of liens in connection
with the above-described asset-based revolving credit facility
if obtained.
|
The foregoing financing transactions are referred to in this
document as the refinancing.
Assuming hypothetically the transaction closed on June 30,
2007, Graphic and BCH currently expect that approximately
$1.2 billion of borrowings and cash-on-hand would have been
required to consummate the refinancing and pay fees and expenses
related to the refinancing and the transactions with
approximately $1.1 billion expected to be drawn under the
new senior secured term loan facility and approximately
$5 million expected to be drawn under the revolving credit
facility. With the borrowings under the amended or amended and
restated credit facility
and/or the
new senior-secured asset based revolving credit facility,
Graphic and BCH expect that all outstanding amounts under
BCHs existing first and second lien credit facilities
(estimated to be approximately $1.1 billion at the time of
the transactions) will be repaid in full and such BCH credit
facilities will be terminated. Undrawn amounts under the
revolving credit facility will be available on a revolving
credit basis for general corporate purposes of the borrower and
its subsidiaries.
No
Dissenters Rights (Page 32)
Although Graphic stockholders that are not subject to the voting
agreement may vote against adoption of the transaction agreement
and approval of the transactions, under no circumstances are
holders of Graphic
11
common stock entitled to dissenters rights of appraisal
under Delaware law in connection with the transactions.
Material
U.S. Federal Income Tax Consequences (Page 50)
The parties have structured the transactions to qualify as
exchanges under Section 351 of the Internal Revenue Code or
a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The exchange of Graphic shares for
New Graphic shares will generally not be taxable to Graphic
stockholders. The completion of the transactions is conditioned
upon, among other things, Graphic receiving an opinion of
Alston & Bird LLP regarding the tax treatment of the
transactions and BCH receiving an opinion of Simpson
Thacher & Bartlett LLP regarding the tax treatment of
the transactions.
Tax matters are very complicated and the tax consequences of the
transactions to each Graphic stockholder will depend on such
stockholders particular facts and circumstances.
Graphic stockholders are urged to consult their tax advisors
to understand fully the tax consequences to them of the
transactions.
Restated
Certificate of Incorporation and Amended and Restated By-laws
(Page 124)
Effective upon the closing of the transactions, New
Graphics certificate of incorporation and by-laws will be
amended (as amended, New Graphics certificate of
incorporation and New Graphics by-laws,
respectively) to set forth certain rights, preferences, powers
and restrictions of the capital stock of New Graphic and will
govern certain aspects of the internal affairs of New Graphic. A
summary of these rights is set forth in Description of New
Graphic Capital Stock. New Graphics certificate of
incorporation and New Graphics by-laws, in the forms which
give effect to certain changes contemplated in connection with
the merger, are attached as Annex B and Annex C,
respectively, to this proxy statement/prospectus.
You are urged to read these documents, as they will govern your
rights as a stockholder of New Graphic, which will be different
from your rights currently as a Graphic stockholder. For further
discussion regarding these differences, please see
Comparison of Rights of Graphic Stockholders and New
Graphic Stockholders.
The
Stockholders Agreement (Page 70)
Certain entities that will be significant stockholders of New
Graphic after the completion of the transactions, which we refer
to as the covered stockholders, have entered into a
stockholders agreement that will become effective upon
completion of the transactions. The covered stockholders are the
Coors Family Stockholders, the CDR Fund, EXOR, Field Holdings,
Inc. and the TPG Entities. The stockholders agreement is
attached as Annex E to this proxy statement/prospectus, and
you are urged to read the stockholders agreement in its
entirety. The stockholders agreement, among other things:
(i) provides the covered stockholders certain rights to
designate members of New Graphics board of directors;
(ii) restricts the ability of the covered stockholders to
transfer their shares of New Graphic common stock; and
(iii) limits the covered stockholders from acquiring
additional shares of New Graphic common stock and from taking
certain other actions with respect to New Graphic.
The
Registration Rights Agreement (Page 74)
The covered stockholders, certain other individuals who will
become stockholders of New Graphic and New Graphic have entered
into a registration rights agreement that will become effective
upon completion of the transactions. The registration rights
agreement is attached as Annex F to this proxy
statement/prospectus, and you are urged to read the registration
rights agreement in its entirety. The registration rights
agreement, among other things, provides the parties thereto with
the right to request registration of their New Graphic common
stock with the SEC
and/or
participate in registered offerings of common stock by New
Graphic.
12
SUMMARY
HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED/COMBINED FINANCIAL DATA
Summary
Historical Consolidated Financial Data of Graphic
The following summary historical consolidated financial data of
Graphic as of December 31, 2006 and 2005 and for the years
ended December 31, 2006, 2005 and 2004 have been derived
from Graphics audited consolidated financial statements
incorporated by reference in this proxy statement/prospectus.
The following summary historical consolidated financial data of
Graphic as of December 31, 2004, 2003 and 2002 and for the
years ended December 31, 2003 and 2002 have been derived
from Graphics audited consolidated financial statements
which are not included in, or incorporated by reference in, this
proxy statement/prospectus. The following summary historical
consolidated financial data of Graphic as of June 30, 2007
and for the six months ended June 30, 2007 and 2006 have
been derived from Graphics unaudited condensed
consolidated financial statements incorporated by reference in
this proxy statement/prospectus. Graphics unaudited
condensed consolidated financial statements were prepared on a
basis consistent with that used in preparing its audited
consolidated financial statements and include all material
adjustments that, in the opinion of Graphics management,
are necessary for a fair presentation of Graphics
financial position and results of operations for the unaudited
periods. The summary historical consolidated financial data of
Graphic set forth below should be read in conjunction with
Graphics Managements Discussion and Analysis
of Financial Condition and Results of Operations and
Graphics historical consolidated financial statements and
the notes thereto included in its Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 and in its
Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2007, each
incorporated by reference herein. Historical results are not
necessarily indicative of results that may be expected for any
future period. The historical results of Graphic are not
necessarily indicative of the results that may be expected for
New Graphic for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(a)
|
|
|
2002
|
|
|
|
(unaudited)
|
|
|
In millions, except per share amounts
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,256.0
|
|
|
$
|
1,205.9
|
|
|
$
|
2,413.0
|
|
|
$
|
2,384.0
|
|
|
$
|
2,386.5
|
|
|
$
|
1,683.3
|
|
|
$
|
1,247.3
|
|
Cost of Sales
|
|
|
1,103.3
|
|
|
|
1,066.0
|
|
|
|
2,109.8
|
|
|
|
2,071.3
|
|
|
|
2,026.7
|
|
|
|
1,398.5
|
|
|
|
984.8
|
|
Selling, General and Administrative
|
|
|
97.0
|
|
|
|
100.6
|
|
|
|
201.2
|
|
|
|
206.1
|
|
|
|
202.3
|
|
|
|
153.1
|
|
|
|
117.3
|
|
Research, Development and
Engineering
|
|
|
5.0
|
|
|
|
6.0
|
|
|
|
11.4
|
|
|
|
9.9
|
|
|
|
9.6
|
|
|
|
7.4
|
|
|
|
5.2
|
|
Other Expense (Income), Net
|
|
|
1.6
|
|
|
|
(0.5
|
)
|
|
|
0.3
|
|
|
|
9.8
|
|
|
|
32.3
|
|
|
|
18.2
|
|
|
|
(0.6
|
)
|
Income from Operations
|
|
|
49.1
|
|
|
|
33.8
|
|
|
|
90.3
|
|
|
|
86.9
|
|
|
|
115.6
|
|
|
|
106.1
|
|
|
|
140.6
|
|
Interest Income
|
|
|
0.3
|
|
|
|
0.4
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
1.0
|
|
|
|
1.4
|
|
Interest Expense
|
|
|
(86.6
|
)
|
|
|
(84.7
|
)
|
|
|
(172.2
|
)
|
|
|
(156.5
|
)
|
|
|
(149.6
|
)
|
|
|
(144.5
|
)
|
|
|
(147.4
|
)
|
Loss on Early Extinguishment of Debt
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45.3
|
)
|
|
|
(11.5
|
)
|
Loss before Income Taxes and Equity
in Net Earnings of Affiliates
|
|
|
(46.7
|
)
|
|
|
(50.5
|
)
|
|
|
(81.3
|
)
|
|
|
(69.0
|
)
|
|
|
(33.4
|
)
|
|
|
(82.7
|
)
|
|
|
(16.9
|
)
|
Income Tax Expense
|
|
|
(13.8
|
)
|
|
|
(9.5
|
)
|
|
|
(20.2
|
)
|
|
|
(23.3
|
)
|
|
|
(28.9
|
)
|
|
|
(14.3
|
)
|
|
|
(33.1
|
)
|
Loss before Equity in Net Earnings
of Affiliates
|
|
|
(60.5
|
)
|
|
|
(60.0
|
)
|
|
|
(101.5
|
)
|
|
|
(92.3
|
)
|
|
|
(62.3
|
)
|
|
|
(97.0
|
)
|
|
|
(50.0
|
)
|
Equity in Net Earnings of Affiliates
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
1.0
|
|
|
|
1.2
|
|
|
|
1.4
|
|
|
|
1.3
|
|
|
|
1.0
|
|
Net Loss
|
|
|
(60.0
|
)
|
|
|
(59.5
|
)
|
|
|
(100.5
|
)
|
|
|
(91.1
|
)
|
|
|
(60.9
|
)
|
|
|
(95.7
|
)
|
|
|
(49.0
|
)
|
Loss Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.30
|
)
|
|
|
(0.30
|
)
|
|
|
(0.50
|
)
|
|
|
(0.46
|
)
|
|
|
(0.31
|
)
|
|
|
(0.65
|
)
|
|
|
(0.43
|
)
|
Diluted
|
|
|
(0.30
|
)
|
|
|
(0.30
|
)
|
|
|
(0.50
|
)
|
|
|
(0.46
|
)
|
|
|
(0.31
|
)
|
|
|
(0.65
|
)
|
|
|
(0.43
|
)
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
201.5
|
|
|
|
200.9
|
|
|
|
201.1
|
|
|
|
200.0
|
|
|
|
198.9
|
|
|
|
148.3
|
|
|
|
115.1
|
|
Diluted
|
|
|
201.5
|
|
|
|
200.9
|
|
|
|
201.1
|
|
|
|
200.0
|
|
|
|
198.9
|
|
|
|
148.3
|
|
|
|
115.1
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
11.8
|
|
|
|
7.3
|
|
|
|
7.3
|
|
|
|
12.7
|
|
|
|
7.3
|
|
|
|
17.5
|
|
|
|
13.8
|
|
Total Assets
|
|
|
3,203.5
|
|
|
|
3,346.2
|
|
|
|
3,233.6
|
|
|
|
3,356.0
|
|
|
|
3,465.3
|
|
|
|
3,612.0
|
|
|
|
2,251.2
|
|
Total Debt
|
|
|
1,968.4
|
|
|
|
1,998.0
|
|
|
|
1,922.7
|
|
|
|
1,978.3
|
|
|
|
2,025.2
|
|
|
|
2,154.6
|
|
|
|
1,528.4
|
|
Total Shareholders Equity
|
|
|
134.8
|
|
|
|
214.2
|
|
|
|
181.7
|
|
|
|
268.7
|
|
|
|
386.9
|
|
|
|
438.4
|
|
|
|
87.8
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(a)
|
|
|
2002
|
|
|
|
(unaudited)
|
|
|
In millions, except per share amounts
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
103.5
|
|
|
|
98.8
|
|
|
|
196.0
|
|
|
|
205.3
|
|
|
|
228.9
|
|
|
|
160.4
|
|
|
|
133.8
|
|
Capital Spending(b)
|
|
|
42.6
|
|
|
|
43.4
|
|
|
|
94.5
|
|
|
|
110.8
|
|
|
|
149.1
|
|
|
|
136.6
|
|
|
|
56.0
|
|
|
|
|
(a) |
|
Graphic (formerly known as Riverwood Holding, Inc.) was
incorporated on December 7, 1995 under the laws of the
State of Delaware. On August 8, 2003, the corporation
formerly known as Graphic Packaging International Corporation
(GPIC) merged with and into Riverwood Acquisition
Sub LLC, a wholly-owned subsidiary of Riverwood Holding, Inc.
(Riverwood Holding), with Riverwood Acquisition Sub
LLC as the surviving entity. Riverwood Acquisition Sub LLC then
merged into Riverwood Holding, which was renamed Graphic
Packaging Corporation. |
|
(b) |
|
Includes capitalized interest and amounts invested in packaging
machinery. |
14
Summary
Historical Consolidated Financial Position of BCH
Altivity Packaging, LLC (formerly known as Bluegrass Container
Company, LLC) (Altivity, or the
Successor), a Delaware limited liability company and
a wholly-owned subsidiary of BCH, purchased substantially all of
the assets of the Consumer Packaging Division (CPD
or the Predecessor) of Smurfit-Stone Container
Enterprises, Inc. (SSCE), a wholly-owned subsidiary
of Smurfit-Stone Container Corporation (SSCC) (the
CPD acquisition). BCH is majority-owned by
investment vehicles affiliated with TPG Capital, L.P.
(TPG). Bluegrass completed the CPD acquisition on
June 30, 2006. On August 16, 2006, Bluegrass completed
the acquisition of substantially all of the operational assets
of Field Holdings, Inc., a Delaware corporation, Field Container
Company, L.P., a Delaware limited partnership and Field
Container Management Corporation, a Delaware corporation
(collectively, the Field Companies) (the Field
acquisition).
The following summary historical consolidated financial data of
BCH, the company that holds all of the equity interest of
Altivity, as of December 31, 2006 and 2005 and for the
period from July 1, 2006 to December 31, 2006, the
period from January 1, 2006 to June 30, 2006 and for
the years ended December 31, 2005 and 2004 have been
derived from BCHs audited consolidated financial
statements included in this proxy statement/prospectus. The
following summary historical consolidated financial data of BCH
as of December 31, 2004 and 2003 and for the year ended
December 31, 2003 have been derived from BCHs audited
consolidated financial statements which are not included in this
proxy statement/prospectus. The following summary historical
consolidated financial data of BCH as of June 30, 2007 and
2006 and for the six months ended June 30, 2007 and 2006
have been derived from BCHs unaudited condensed
consolidated financial statements included in this proxy
statement/prospectus. BCHs unaudited condensed
consolidated financial statements were prepared on a basis
consistent with that used in preparing its audited consolidated
financial statements and include all material adjustments that,
in the opinion of BCHs management, are necessary for a
fair presentation of BCHs financial position and results
of operations for the unaudited periods. Financial data as of
December 31, 2002 and December 31, 2003, and for the
fiscal year ended December 31, 2002 is unavailable and has
been omitted.
15
The summary historical consolidated financial data of BCH set
forth below should be read in conjunction with BCHs
Managements Discussion and Analysis of Financial
Condition and Results of Operations and BCHs
historical consolidated financial statements and the notes
thereto included in this proxy statement/prospectus. Historical
results are not necessarily indicative of results that may be
expected for any future period. The historical results of BCH
are not necessarily indicative of the results that may be
expected for New Graphic for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor
|
|
|
Predecessor
|
|
|
Successor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Company
|
|
|
Company
|
|
|
|
Predecessor Company
|
|
|
|
Six Months Ended
|
|
|
July 1, 2006 to
|
|
|
|
January 1, 2006 to
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
In millions
|
|
|
|
|
|
|
|
Statement of Operations
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
1,000.3
|
|
|
$
|
789.4
|
|
|
$
|
964.2
|
|
|
|
$
|
789.4
|
|
|
$
|
1,584.4
|
|
|
$
|
1,541.2
|
|
|
$
|
1,520.2
|
|
Cost of Sales
|
|
|
870.2
|
|
|
|
699.0
|
|
|
|
881.3
|
|
|
|
|
699.0
|
|
|
|
1,381.1
|
|
|
|
1,338.2
|
|
|
|
1,316.8
|
|
Selling, General and Administrative
|
|
|
96.9
|
|
|
|
75.4
|
|
|
|
89.7
|
|
|
|
|
75.4
|
|
|
|
141.0
|
|
|
|
137.9
|
|
|
|
136.5
|
|
Litigation Charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Restructuring Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
|
|
1.9
|
|
|
|
10.8
|
|
Loss (Gain) on Sale of Assets
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.1
|
)
|
|
|
0.1
|
|
|
|
0.1
|
|
Gain on Insurance Claim
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
34.2
|
|
|
|
15.1
|
|
|
|
(6.8
|
)
|
|
|
|
15.1
|
|
|
|
53.4
|
|
|
|
63.1
|
|
|
|
56.0
|
|
Interest Expense, Net
|
|
|
(47.4
|
)
|
|
|
(0.6
|
)
|
|
|
(45.8
|
)
|
|
|
|
(0.6
|
)
|
|
|
(1.2
|
)
|
|
|
(0.9
|
)
|
|
|
(0.8
|
)
|
Other (Expense) Income, Net
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
|
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
0.4
|
|
Income (Loss) before Income Taxes
and Cumulative Effect of Accounting Change
|
|
|
(13.4
|
)
|
|
|
14.5
|
|
|
|
(53.0
|
)
|
|
|
|
14.5
|
|
|
|
52.3
|
|
|
|
62.4
|
|
|
|
55.6
|
|
Income Tax Expense
|
|
|
(1.1
|
)
|
|
|
(5.8
|
)
|
|
|
(0.5
|
)
|
|
|
|
(5.8
|
)
|
|
|
(20.9
|
)
|
|
|
(24.8
|
)
|
|
|
(22.1
|
)
|
Income (Loss) before Cumulative
Effect of Accounting Change
|
|
|
(14.5
|
)
|
|
|
8.7
|
|
|
|
(53.5
|
)
|
|
|
|
8.7
|
|
|
|
31.4
|
|
|
|
37.6
|
|
|
|
33.5
|
|
Cumulative Effect of Accounting
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
Net (Loss) Income
|
|
|
(14.5
|
)
|
|
|
8.7
|
|
|
|
(53.5
|
)
|
|
|
|
8.7
|
|
|
|
31.4
|
|
|
|
37.6
|
|
|
|
33.4
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
100.0
|
|
|
|
|
|
|
|
99.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
1,691.6
|
|
|
|
836.0
|
|
|
|
1,671.2
|
|
|
|
|
836.0
|
|
|
|
821.8
|
|
|
|
841.8
|
|
|
|
|
|
Total Debt
|
|
|
1,159.1
|
|
|
|
17.0
|
|
|
|
1,163.3
|
|
|
|
|
17.0
|
|
|
|
16.9
|
|
|
|
17.6
|
|
|
|
|
|
Total Equity
|
|
|
242.9
|
|
|
|
615.0
|
|
|
|
244.5
|
|
|
|
|
615.0
|
|
|
|
576.6
|
|
|
|
587.9
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
44.3
|
|
|
|
20.4
|
|
|
|
42.5
|
|
|
|
|
20.4
|
|
|
|
40.4
|
|
|
|
39.5
|
|
|
|
36.8
|
|
Capital Spending
|
|
|
39.9
|
|
|
|
39.0
|
|
|
|
21.4
|
|
|
|
|
39.0
|
|
|
|
37.9
|
|
|
|
31.5
|
|
|
|
37.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Financial data as of December 31, 2003 is unavailable and
has been omitted. |
16
Summary
Unaudited Pro Forma Condensed Combined Financial Data of New
Graphic (Page 76)
The following summary unaudited pro forma condensed combined
statement of operations data of New Graphic for the year ended
December 31, 2006 and for the six months ended
June 30, 2007 give effect to the transactions as if they
had been completed on January 1, 2006. The following
summary unaudited pro forma condensed combined balance sheet
data of New Graphic as of June 30, 2007 give effect to the
transactions as if they had been completed on June 30, 2007.
The summary unaudited pro forma condensed combined financial
data of New Graphic for the year ended December 31, 2006
and as of and for the six months ended June 30, 2007 are
based on the unaudited pro forma condensed combined financial
information set forth elsewhere in this proxy
statement/prospectus. See Unaudited Pro Forma Condensed
Combined Financial Information. Such financial data does
not purport to reflect what New Graphics actual results of
operations and financial position would have been had the
transactions in fact occurred (i) as of January 1,
2006 (in the case of the unaudited pro forma condensed combined
statement of operations data for the year ended
December 31, 2006 and the six months ended June 30,
2007) or (ii) as of June 30, 2007 (in the case of
the unaudited pro forma condensed combined balance sheet data as
of June 30, 2007), nor are they necessarily indicative of
the results of operations that New Graphic may achieve in the
future.
The summary unaudited pro forma condensed combined financial
data of New Graphic set forth below should be read in
conjunction with Graphics Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the financial statements and the notes
thereto included in Graphics Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 and in
Graphics Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2007, each
incorporated by reference herein. The summary unaudited pro
forma condensed combined financial data of New Graphic set forth
below should also be read in conjunction with Unaudited
Pro Forma Condensed Combined Financial Information and the
historical financial statements of BCH and the notes thereto and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of BCH included in
this proxy statement/prospectus. The historical results of
Graphic and BCH are not necessarily indicative of the results
that may be expected for New Graphic for any future period.
The pro forma financial information included herein does not
include adjustments for any transactions other than the
transactions contemplated by the transaction agreement. The
financial condition, results of operations and cash flows of the
Field Companies have not been included in the combined financial
statements of BCH as of any dates or for any periods prior to
its acquisition by BCH.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
In millions, except per share data
|
|
|
Statement of Operations
Information
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
2,234.3
|
|
|
$
|
4,364.3
|
|
Income from Operations
|
|
|
67.2
|
|
|
|
70.2
|
|
Loss per Basic and Diluted Share
|
|
|
(0.22
|
)
|
|
|
(0.43
|
)
|
Balance Sheet
Information
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents
|
|
|
14.0
|
|
|
|
|
|
Total Assets
|
|
|
5,261.9
|
|
|
|
|
|
Total Debt
|
|
|
3,073.7
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
794.5
|
|
|
|
|
|
17
HISTORICAL
AND PRO FORMA PER SHARE DATA
The following table shows selected historical per share data for
Graphic and unaudited pro forma per share data for New Graphic.
The pro forma data gives effect to the transactions as if they
had occurred on January 1, 2006. We compute basic earnings
per share based upon the weighted average number of shares of
Graphic common stock outstanding during the period presented. We
include options to purchase shares of Graphic common stock and
restricted stock units or other securities convertible into
shares of Graphic common stock granted to Graphics
directors, officers and employees in the computation only after
the options or stock units become fully vested and only if
Graphic or New Graphic has positive net income. We compute
diluted earnings per share based upon the weighted average
number of shares of Graphic common stock and dilutive common
stock equivalents outstanding during the periods presented. The
diluted earnings per share computations include the dilutive
impact of options to purchase common stock which were
outstanding during the period calculated by the treasury
stock method, unvested stock grants and other restricted
awards to directors, officers and employees. The pro forma data
gives effect to the issuance of the total number of shares to be
issued in the transactions (based on the weighted average number
of shares outstanding during the year ended December 31,
2006 and the six months ended June 30, 2007).
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
|
|
|
|
Six Months
|
|
|
As of and for the
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
(0.30
|
)(1)
|
|
$
|
(0.50
|
)(2)
|
Pro forma
|
|
|
(0.22
|
)
|
|
|
(0.43
|
)
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Historical
|
|
|
(0.30
|
)(1)
|
|
|
(0.50
|
)(2)
|
Pro forma
|
|
|
(0.22
|
)
|
|
|
(0.43
|
)
|
Dividends per share
|
|
|
|
|
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
|
|
|
|
|
|
Book value per share
|
|
|
|
|
|
|
|
|
Historical
|
|
|
0.67
|
|
|
|
0.91
|
|
Pro forma
|
|
|
2.32
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts derived from Graphics unaudited condensed
consolidated financial statements as of, and for the six months
ended June 30, 2007. |
|
(2) |
|
Amounts derived from Graphics audited consolidated
financial statements as of, and for the year ended
December 31, 2006. |
18
PER SHARE
MARKET PRICE INFORMATION
Historical
Price Range of Graphic Common Stock
Graphic common stock is traded on the NYSE under the symbol
GPK. The following table shows the high and low
sales prices per share of Graphic common stock for the periods
indicated, as reported on the NYSE composite transaction tape.
On July 9, 2007, the last trading day before the public
announcement of the execution of the transaction agreement, the
last reported sale price of Graphic common stock was $4.89 per
share. On
[ l ],
2007, the last reported sale price of Graphic common stock was
$[ l ]
per share. As of
[ l ],
2007, Graphic common stock was held by
[ l ]
holders of record and, as of
[ l ],
2007, the number of outstanding shares of Graphic common stock
was
[ l ].
The historical range of the high and low sales price per share
for each quarter of 2007 (year to date), 2006 and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
6.04
|
|
|
$
|
4.11
|
|
Second Quarter
|
|
$
|
5.40
|
|
|
$
|
4.52
|
|
Third Quarter (through
[ l ],
2007)
|
|
$
|
[ l ]
|
|
|
$
|
[ l ]
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
3.00
|
|
|
$
|
1.94
|
|
Second Quarter
|
|
$
|
4.09
|
|
|
$
|
2.09
|
|
Third Quarter
|
|
$
|
4.09
|
|
|
$
|
3.20
|
|
Fourth Quarter
|
|
$
|
4.57
|
|
|
$
|
3.45
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
7.42
|
|
|
$
|
4.26
|
|
Second Quarter
|
|
$
|
4.63
|
|
|
$
|
2.98
|
|
Third Quarter
|
|
$
|
3.97
|
|
|
$
|
2.72
|
|
Fourth Quarter
|
|
$
|
3.04
|
|
|
$
|
2.09
|
|
Dividend
Policy
No dividends have been paid since 1996 to the Graphic common
stockholders. New Graphic does not intend to pay dividends at
this time. Additionally, Graphics credit facilities and
the indentures governing its debt securities place substantial
limitations on Graphics ability to pay cash dividends on
its common stock. New Graphic expects the credit facilities to
be entered into in connection with the transactions to contain
similar restrictions.
19
RISK
FACTORS
Risks
Related to the Transactions
In addition to the other information included or incorporated
by reference in this proxy statement/prospectus, Graphic
stockholders should carefully consider the matters described
below to determine whether to vote to adopt the transaction
agreement and approve the transactions. Many of the risks
described below are present with Graphics current business
activities and opportunities and will continue after the
completion of the transactions.
|
|
|
The
anticipated benefits of combining the operations of Graphic and
Altivity may not be realized, and New Graphic may face
difficulties integrating Altivitys
operations.
|
Graphic and BCH entered into the transaction agreement with the
expectation that the transactions would result in various
benefits, including, among other things, cost synergies and
operating efficiencies. However, the achievement of the
anticipated benefits of the transactions, including the cost
synergies, cannot be assured or may take longer than expected.
In addition, New Graphic may not be able to integrate
Altivitys operations with Graphics existing
operations without encountering difficulties, including:
|
|
|
|
|
inconsistencies in standards, systems and controls;
|
|
|
|
the diversion of managements focus and resources from
ordinary business activities and opportunities;
|
|
|
|
difficulties in achieving expected cost savings associated with
the transactions;
|
|
|
|
difficulties in the assimilation of employees and in creating a
unified corporate culture;
|
|
|
|
challenges in retaining existing customers and obtaining new
customers; and
|
|
|
|
challenges in attracting and retaining key personnel.
|
These risks may be exacerbated by the fact that Altivity is the
result of the combination of the Smurfit-Stone Container
Corporations Consumer Packaging Division and the Field
Companies in 2006, and Altivity continues to integrate these
predecessor companies and receive integration support from
Smurfit-Stone Container Corporation. As a result of these risks,
New Graphic may not be able to realize the expected revenue and
cash flow growth and other benefits that it expects to achieve
from the transactions. In addition, New Graphic may be required
to spend additional time or money on integration efforts that
would otherwise have been spent on the development and expansion
of its business and services.
|
|
|
Graphic
and Altivity will be subject to business uncertainties and
contractual restrictions in advance of the transactions, which
could have a material adverse effect on their
businesses.
|
Uncertainty about the effect of the transactions on customers or
suppliers could cause customers, suppliers and others that deal
with Graphic and Altivity to seek to change existing business
relationships with Graphic and Altivity prior to the close of
the transactions, which may have an adverse effect on New
Graphic. In addition, if key employees depart because of issues
relating to the uncertainty and difficulty of integration or a
desire not to remain an employee of New Graphic, New
Graphics business could be materially affected. In
addition, the transaction agreement restricts Graphic and
Altivity, without the other partys consent, from making
certain acquisitions and taking other specified actions until
the transactions occur or the transaction agreement terminates.
These restrictions may prevent Graphic and Altivity from
pursuing otherwise attractive business opportunities and making
other changes to their businesses that may arise prior to
completion of the transactions or termination of the transaction
agreement.
|
|
|
The
failure to complete the transactions could cause Graphic to
incur significant fees and expenses and could lead to negative
perceptions among investors, potential investors and
customers.
|
In the event the transactions are not completed, Graphic may
bear certain fees and expenses associated with the transactions
that would not be offset by any benefits from the transactions,
in addition to the
20
significant costs incurred prior to any termination of the
transaction agreement. In addition, investors, potential
investors and customers may consider the failure to complete the
transactions to be a significantly negative development
regarding Graphic. The market price of Graphic common stock may
reflect positive market assumptions that the transactions will
be completed and the related benefits will be realized. As a
consequence of any or all of the foregoing, Graphics stock
price may be negatively impacted by the failure to complete the
transactions.
|
|
|
Graphic
may waive one or more of the conditions to the transaction
agreement that is important to you without your
approval.
|
Each of the conditions to Graphics obligation to complete
the transactions may be waived, in whole or in part, by Graphic,
to the extent permitted by applicable law. Graphics board
of directors will evaluate the materiality of any waiver to
determine whether amendment of this proxy statement/prospectus
and resolicitation of proxies is necessary. If Graphics
board of directors determines that a waiver is not significant
enough to require resolicitation of its stockholders
proxies, it will have the discretion to complete the
transactions without seeking further stockholder approval. See
The Transaction Agreement and Agreement and Plan of
Merger Conditions. Because certain conditions
may not be satisfied prior to the date of the special meeting,
there is a risk that Graphics board of directors may waive
a condition that is important to you without your approval.
|
|
|
The
transactions are subject to various regulatory approvals,
approval by Graphic stockholders and other customary closing
conditions prior to consummation.
|
The transactions, which have been unanimously approved by the
boards of directors of Graphic and New Graphic and the board of
managers of BCH, are subject to various regulatory approvals,
approval by Graphics stockholders and other customary
closing conditions. If the necessary approvals are not obtained
by the contractual deadline of March 31, 2008 (which may be
extended to May 31, 2008 if the delay relates solely to the
failure to obtain antitrust approvals), the transactions may not
be completed, which could cause Graphics earnings or stock
price to decline.
With respect to the approval required from the Federal Trade
Commission and the Antitrust Division of the DOJ, a request was
received on August 22, 2007 for additional information,
commonly referred to as a second request, from the
Antitrust Division of the DOJ regarding the transactions. The
second request extends the waiting period imposed by the HSR Act
until 30 days after the second request has been
substantially complied with, unless that period is extended
voluntarily by the parties or terminated sooner by the DOJ. In
addition, the DOJ, the Federal Trade Commission or others could
take additional action under the antitrust laws with respect to
the transactions, including seeking to enjoin the consummation
of the transactions before the effective time of the
transactions or to impose conditions on, or to require
divestitures relating to, the divisions, operations or assets of
Graphic or BCH. These conditions or divestitures may jeopardize
or delay completion of the transactions or may reduce the
benefits of the transactions and negatively impact the pro forma
financial information included in this proxy
statement/prospectus. Even if all governmental approvals are
obtained, no assurance can be given as to the terms, conditions
and timing of the governmental approvals.
|
|
|
Certain
directors and executive officers of Graphic may have interests
in the transactions different from, or in addition to, the
interests of other stockholders of Graphic.
|
Certain of the directors and executive officers of Graphic are
parties to agreements or participate in other arrangements that
give them interests in the transactions that are different from,
or in addition to, your interests as a stockholder of Graphic.
In voting on the adoption of transaction agreement and approval
of the transactions, you should consider whether these interests
may have influenced the decisions of Graphics directors
and executive officers in pursuing, executing, approving and
recommending the transaction agreement and the transactions.
These different interests include vesting of certain equity
compensation awards, arrangements under certain executive
officer employment agreements, continuing board positions,
21
indemnification obligations and reimbursement of certain legal
fees and are described under The Transaction
Interests of Graphics Directors and Executive Officers in
the Transactions.
Risks
Relating to the Business of New Graphic
After completion of the transactions, New Graphic will be
subject to many risks and uncertainties. Many of these risks are
substantially similar to the risks currently faced by Graphic.
New Graphics risks and uncertainties include the following.
|
|
|
New
Graphic will have significant debt that could negatively impact
its business, and its credit ratings are anticipated to be less
than investment grade.
|
New Graphic will be highly leveraged and will have pledged
substantially all of its assets to secure its debt. Assuming
hypothetically that the transactions were closed on
June 30, 2007, on that date New Graphic would have total
pro forma net debt (defined as total debt minus cash and cash
equivalents) of $3.1 billion, which includes:
|
|
|
|
|
debt outstanding under New Graphics credit agreement, as
amended or amended and restated in connection with the
transactions, which is expected to include term loans in an
aggregate outstanding principal amount at the time of the
consummation of the transactions equal to $2.2 billion and
revolving loans in an aggregate outstanding principal amount
equal to approximately $5 million;
|
|
|
|
$425 million of 8.5% Senior Notes;
|
|
|
|
$425 million of 9.5% Senior Subordinated
Notes; and
|
|
|
|
approximately $15.2 million of other debt.
|
New Graphics significant level of debt could:
|
|
|
|
|
make it difficult to satisfy its financial obligations,
including debt service requirements;
|
|
|
|
limit its ability to obtain additional financing to operate its
business;
|
|
|
|
limit its financial flexibility in planning for and reacting to
business and industry changes;
|
|
|
|
impact the evaluation of its creditworthiness by counterparties
to commercial agreements;
|
|
|
|
place it at a competitive disadvantage compared to less
leveraged companies;
|
|
|
|
increase its vulnerability to general adverse economic and
industry conditions, including changes in interest rates and
volatility in commodity prices; and
|
|
|
|
require it to dedicate a substantial portion of its cash flows
to payments on its debt, thereby reducing the availability of
its cash flow for other purposes including its operations,
capital expenditures and future business opportunities.
|
New Graphic may incur additional indebtedness as part of
completing the transactions and in the future. If new debt is
added to the current debt levels of New Graphic and its
subsidiaries, the related risks that New Graphic and its
subsidiaries face could increase significantly.
|
|
|
The
payment of dividends on New Graphic common stock will be
restricted and, moreover, subject to the discretion of New
Graphics board of directors.
|
The financing agreements under which certain of New
Graphics subsidiaries will be borrowers and
New Graphic will be a guarantor will contain certain
restrictions on the payment of dividends on New Graphic common
stock similar to those to which Graphic is currently subject.
See Per Share Market Price
22
Information Dividend Policy. Moreover, even if
permitted under New Graphics financing agreements,
dividend payments on New Graphic common stock will be at the
discretion of New Graphics board of directors. Graphic has
not paid a dividend on its common stock since 1996, and New
Graphic does not intend to pay dividends at this time.
|
|
|
New
Graphics access to the capital markets may be
limited.
|
New Graphic will be a highly leveraged company that may require
additional capital from time to time. Unlike those companies in
New Graphics industry that are investment
grade and for which the capital markets are typically
open, New Graphics access to the capital markets may be
limited (following the closing of the transactions). Moreover,
the timing of any capital-raising transaction may be impacted by
unforeseen events, such as strategic growth opportunities, which
could require New Graphic to pursue additional capital in the
near term. New Graphics ability to obtain capital and the
costs of such capital are dependent on numerous factors,
including:
|
|
|
|
|
general economic and capital market conditions;
|
|
|
|
covenants in its existing debt and credit agreements;
|
|
|
|
credit availability from banks and other financial institutions;
|
|
|
|
investor confidence in New Graphic;
|
|
|
|
its consolidated financial performance;
|
|
|
|
its levels of indebtedness;
|
|
|
|
its maintenance of acceptable credit ratings;
|
|
|
|
its cash flow;
|
|
|
|
provisions of tax and securities laws that may impact raising
capital; and
|
|
|
|
its long-term business prospects.
|
New Graphic may not be successful in obtaining additional
capital for these or other reasons. An inability to access
capital may limit New Graphics ability to pursue
development projects, plant improvements or acquisitions that it
may rely on for future growth and to comply with regulatory
requirements and, as a result, may have a material adverse
effect on New Graphics financial condition, results of
operations and cash flows, and on its ability to execute its
business strategy.
|
|
|
New
Graphic will be dependent on key customers and strategic
relationships, and the loss of or reduced sales to key customers
or changes in these relationships could result in decreased
revenues, lower cash flows and harm New Graphics financial
position.
|
The loss of one or more key customers or strategic
relationships, or a declining market in which these customers
reduce orders or request reduced prices, may result in decreased
revenues, negatively impact New Graphics cash flows
and harm its financial condition. New Graphics success
will depend upon its relationships with the key customers of
Graphic and Altivity, including Anheuser-Busch Companies,
SABMiller plc, Molson Coors Brewing Company, numerous
Coca-Cola
and Pepsi bottling companies, Inbev, Asahi Breweries, Kraft
Foods, Inc., General Mills, Inc. Nestle Group, Unilever,
PepsiCo, Inc., The Schwanns Food Company, and Perseco,
among others. Graphics top ten customers accounted for
approximately 48% of its net sales in 2006, and Altivitys
top ten customers accounted for approximately 29% of its net
sales in 2006.
From time to time New Graphics contracts with its
customers will come up for renewal, and New Graphic may be
unable to renew agreements with its key customers. New Graphic
may not be able to enter contracts with new customers to replace
any key customers or strategic relationships that are lost or
reduced. In addition, Graphics and Altivitys
contracts typically do not require customers to purchase any
minimum level of products and many of New Graphics
contracts will permit customers to obtain price quotations from
its competitors, which New Graphic would generally have to meet
to retain their business.
23
|
|
|
New
Graphic will face intense competition and, if it is unable to
compete successfully against other manufacturers of packaging
product solutions it could lose customers and its revenues may
decline.
|
Graphic and Altivity currently are, and New Graphic will be,
subject to strong competition. New Graphic has a number of large
domestic and foreign competitors in the paperboard packaging
industry. New Graphics primary competitors in one or more
of the segments in which it competes include Caraustar
Industries, Inc., Cascades, Inc., Stora Enso (OYJ) Corporation,
Ponderosa Paper, LLC, Klabin S.A., Hansol Paper Manufacturing
Company, International Paper Company, MeadWestvaco Corporation
(MeadWestvaco), Packaging Corporation of America,
R.A. Jones & Company, Inc. and Rock-Tenn Company. In
addition, companies not currently in direct competition with
Graphic or Altivity may introduce competing products in the
future, and New Graphic may face increasing competition from
products imported from Asia and South America. There are also
substitutes for paperboard packaging for many products currently
packaged in paperboard, including plastic, corrugated and
shrink-wrap packaging.
New Graphics highly leveraged capital structure could
limit its ability to respond to market conditions or to make
necessary or desirable capital expenditures as quickly as its
competitors. In addition, New Graphic could experience increased
competition if there are new entrants in segments in which it
operates. In beverage multiple packaging, cartons made from CUK
board compete with plastics and corrugated packaging for
packaging glass or plastic bottles, cans and other primary
containers. Plastics and corrugated packaging generally provide
lower-cost packaging solutions.
New Graphics paperboard sales for use in consumer products
packaging are affected by competition from other substrates,
including CUK board, solid bleached sulfate and recycled
clay-coated news and, internationally, white lined chip board
and folding boxboard. Paperboard grades compete based on price,
strength and printability. There are a large number of suppliers
in paperboard packaging which are subject to significant
competitive and other business pressures. Suppliers of
paperboard compete primarily on the basis of strength and
printability of their paperboard, quality, service and price.
These grades of paperboard face substitution in folding carton
applications for each other or by alternative substrates
including corrugated paperboard, flexible packaging and a
variety of paper and film laminated structures.
|
|
|
Significant
increases in prices for raw materials, energy, transportation
and other necessary supplies and services could adversely affect
New Graphics financial results.
|
Increases in the cost and availability of raw materials,
including petroleum-based materials, the cost of energy,
transportation and other necessary services could have an
adverse effect on New Graphics financial results. New
Graphic may also be limited in its ability to pass along such
cost increases to customers due to contractual provisions and
competitive reasons.
|
|
|
There
is no guarantee that New Graphics efforts to reduce costs
will be successful.
|
New Graphic will utilize a global continuous improvement
initiative that uses statistical process control to help design
and manage many types of activities, including production and
maintenance. New Graphics ability to implement
successfully its business strategies and to realize anticipated
savings is subject to significant business, economic and
competitive uncertainties and contingencies, many of which are
beyond New Graphics control. These strategies include the
infrastructure and reliability improvements at New
Graphics West Monroe mill. In addition, Altivity has been
actively engaged in integrating the recently acquired
Smurfit-Stone Container Corporations Consumer Packaging
Division and the Field Companies, and New Graphic will continue
to focus on realizing cost savings from manufacturing network,
overhead and supply chain improvements. If New Graphic cannot
successfully implement the strategic cost reductions or other
cost savings plans, it may not be able to compete successfully
against other manufacturers. In addition, any failure to
generate anticipated efficiencies and savings could adversely
affect New Graphics financial results.
|
|
|
Loss
of key management personnel could adversely affect New
Graphics business.
|
New Graphics future success will depend, in significant
part, upon the service of David W. Scheible, who will be its
President and Chief Executive Officer, and Daniel J. Blount, who
will be its Senior Vice
24
President and Chief Financial Officer. New Graphic has
employment agreements with each of these executive officers. The
loss of the services of one or both of these executive officers
could adversely affect its future operating results because of
their experience and knowledge of New Graphics business
and customer relationships. New Graphic does not expect to
maintain key person insurance on any of its executive officers.
|
|
|
Work
stoppages and other labor relations matters may make it
substantially more difficult or expensive for New Graphic to
manufacture and distribute its products, which could result in
decreased sales or increased costs, either of which would
negatively impact New Graphics financial condition and
results of operations.
|
Approximately 46% of Graphics and Altivitys
workforce is represented by labor unions, whose goals and
objectives may differ significantly from New Graphics. The
collective bargaining agreements covering these employees expire
between June 30, 2007 and April 30, 2011, with three
agreements covering approximately 4% of the labor union
workforce expiring in 2007, and seventeen agreements covering
approximately 37% of the workforce expiring in 2008. Graphic is
currently negotiating the agreements expiring on June 30,
2007 and October 15, 2007. Graphic or New Graphic may not
be able to successfully negotiate agreements on terms that are
advantageous to New Graphic without work stoppages or other
labor difficulties. These events may also occur in the ordinary
course of business apart from contract re-negotiations. In
addition, labor organizing activities could occur at any of New
Graphics facilities. Increased unionization of the
workforce or a prolonged disruption at any of New Graphics
facilities due to work stoppages or other labor difficulties
could have a material adverse effect on its net sales, margins
and cash flows. In addition, if new union agreements contain
significant increases in wages or other benefits, New
Graphics margins would be adversely impacted.
|
|
|
New
Graphic may not be able to adequately protect its intellectual
property and proprietary rights, which could harm its future
success and competitive position.
|
New Graphics future success and competitive position
depend in part upon its ability to obtain and maintain
protection for certain proprietary carton and packaging machine
technologies used in its products, particularly those
incorporating the Fridge
Vendor®,
IntegraPak®,
MicroFlex
Q®,
Micro-Rite®,
Quilt
Wave®,
Qwik
Crisp®
and
Z-Flute®,
Alti-Kraft®,
Alti-Print®,
Cap-Sac®,
DI-NA-Cal®,
Force
Flow®,
Kitchen
Master®,
Lithoflute®,
Lustergrip®,
Master
Impressions®,
Master
Coat®,
Peel
Pak®,
Shape
FX®,
Soni-Lok®,
Soni-Seal®,
The Yard
Master®
technologies. Failure to protect New Graphics existing
intellectual property rights may result in the loss of valuable
technologies or may require it to license other companies
intellectual property rights. It is possible that any of the
patents owned by New Graphic may be invalidated, circumvented,
challenged or licensed to others or any of its pending or future
patent applications may not be issued within the scope of the
claims sought by New Graphic, if at all. Further, others may
develop technologies that are similar or superior to New
Graphics technologies, duplicate its technologies or
design around its patents, and steps taken by New Graphic to
protect its technologies may not prevent misappropriation of
such technologies.
|
|
|
New
Graphic will be subject to environmental, health and safety laws
and regulations, and costs to comply with such laws and
regulations, or any liability or obligation imposed under such
laws or regulations, could negatively impact its financial
condition and results of operations.
|
New Graphic will be subject to a broad range of foreign,
federal, state and local environmental, health and safety laws
and regulations that change from time to time, including those
governing discharges to air, soil and water, the management,
treatment and disposal of hazardous substances, solid waste and
hazardous wastes, the investigation and remediation of
contamination resulting from historical site operations and
releases of hazardous substances, and the health and safety of
employees. Compliance initiatives could result in significant
costs, which could negatively impact New Graphics
financial position, results of operations or cash flows.
25
Any failure to comply with such laws and regulations or any
permits and authorizations required thereunder could subject New
Graphic to fines, corrective action or other sanctions.
In addition, some of New Graphics current and former
facilities may be the subject of environmental investigations
and remediation resulting from historical operations and the
release of hazardous substances or other constituents. Some
current and former facilities have a history of industrial usage
for which investigation and remediation obligations may be
imposed in the future or for which indemnification claims may be
asserted against New Graphic. Also, potential future closures or
sales of facilities may necessitate further investigation and
may result in future remediation at those facilities.
|
|
|
New
Graphics operations outside the U.S. will be subject
to the risks of doing business in foreign
countries.
|
New Graphic will have a mill and several converting plants in 7
foreign countries and will sell its products worldwide. For
2006, before intercompany eliminations, net sales from
operations outside of the U.S. represented approximately
21% of Graphics net sales and approximately 5% of
BCHs net sales. New Graphics revenues from
export sales will fluctuate with changes in foreign currency
exchange rates. At December 31, 2006, approximately 8% of
Graphics total assets and approximately 4% of BCHs
total assets were denominated in currencies other than the
U.S. dollar. New Graphic will have significant operations
in countries that use the Swedish krona, the British pound
sterling, the Australian dollar, the Japanese yen, the Euro, the
Canadian dollar and the Mexican peso as their functional
currencies. New Graphic cannot predict major currency
fluctuations. New Graphic will continue to pursue Graphics
currency hedging program in order to limit the impact of foreign
currency exchange fluctuations on financial results.
New Graphic will be subject to the following significant risks
associated with operating in foreign countries:
|
|
|
|
|
compliance with and enforcement of environmental, health and
safety and labor laws and other regulations of the foreign
countries in which New Graphic operates;
|
|
|
|
export compliance;
|
|
|
|
imposition or increase of withholding and other taxes on
remittances and other payments by foreign subsidiaries; and
|
|
|
|
imposition or increase of investment and other restrictions by
foreign governments.
|
If any of the above events were to occur, New Graphics
financial position, results of operations or cash flows could be
adversely impacted, possibly materially.
|
|
|
If New
Graphic issues a material amount of its common stock in the
future, certain New Graphic stockholders sell a material amount
of New Graphic common stock, or a material amount of interests
in the indirect stockholders of New Graphic are sold, New
Graphics ability to use its net operating losses to offset
its future taxable income may be limited under Section 382
of the Internal Revenue Code.
|
New Graphics ability to utilize previously incurred net
operating losses (NOLs) of Graphic to offset future
taxable income would be reduced if New Graphic were to undergo
an ownership change within the meaning of
Section 382 of the Internal Revenue Code. In general, an
ownership change occurs whenever the percentage of
the stock of a corporation owned, directly or indirectly, by
5-percent stockholders (within the meaning of
Section 382 of the Internal Revenue Code) increases by more
than 50 percentage points over the lowest percentage of the
stock of such corporation owned, directly or indirectly, by such
5-percent stockholders at any time over the
preceding three years. Under certain circumstances, issuances of
New Graphic common stock by New Graphic or sales or other
dispositions of New Graphic common stock by the Coors Family
Stockholders, the CDR Fund, EXOR, the TPG Entities or other
stockholders could trigger an ownership change, and
New Graphic will have limited control over the timing of any
such issuances, sales or other dispositions of New Graphic
common stock. Additionally, under certain circumstances,
issuances, sales or other dispositions of interests in the CDR
Fund, the TPG Entities or other stockholders
26
could trigger an ownership change, and
New Graphic will have no control over the timing of any
such issuances, sales or other dispositions of interests in such
entities. Any such future ownership change could result in
limitations, pursuant to Section 382 of the Internal
Revenue Code, on New Graphics utilization of NOLs to
offset its future taxable income.
More specifically, depending on prevailing interest rates and
New Graphics market value at the time of such future
ownership change, an ownership change under Section 382 of
the Internal Revenue Code would establish an annual limitation
which might prevent full utilization of the deferred tax assets
attributable to Graphics previously incurred NOLs against
the total future taxable income of a given year. The
transactions will increase the likelihood that previously
incurred NOLs will become subject to the limitations set forth
in Section 382 of the Internal Revenue Code. If such an
ownership change were to occur, New Graphics ability to
raise additional equity capital may be adversely affected.
The magnitude of such limitations and their effect on New
Graphic is difficult to assess and depends in part on New
Graphics value at the time of any such ownership change
and prevailing interest rates. For accounting purposes, at
December 31, 2006, Graphics United States federal net
operating loss was approximately $1.3 billion and the
related deferred tax asset attributable to its previously
incurred NOLs was valued at approximately $514.3 million
fully offset by a corresponding valuation allowance. Graphic
believes that it has generated material incremental NOLs in 2007.
Risks
Associated with New Graphic Common Stock
|
|
|
The
value of the shares of New Graphic common stock that you receive
upon the completion of the transactions may be less than the
value of your shares of Graphic common stock as of the date of
the transaction agreement or on the date of the special
meeting.
|
The exchange ratio of Graphic common stock for New Graphic
common stock in the merger, as well as the number of shares to
be issued to the Sellers, is fixed and will not be adjusted in
the event of any change in the stock price of Graphic or the
value of BCH before the completion of the transactions. The
relative price of shares of Graphic common stock and the value
of BCH may vary significantly between the date of this proxy
statement/prospectus, the date of the special meeting and the
date of the completion of the transactions. These variations may
be caused by, among other things, changes in the businesses,
operations and results of Graphic or BCH, market expectations of
the likelihood that the transactions will be completed and the
timing of completion, the prospects of post-transaction
operations, the effect of any conditions or restrictions imposed
on or proposed with respect to New Graphic by regulatory
agencies and authorities, general market and economic conditions
and other factors. In addition, it is impossible to predict
accurately the market price of New Graphic common stock to
be received by Graphic stockholders after the completion of the
transactions. Accordingly, the price of Graphic common stock on
the date of the special meeting may not be indicative of its
price immediately before the completion of the transactions and
the price of New Graphic common stock after the transactions are
completed.
|
|
|
A few
significant stockholders may influence or control the direction
of New Graphics business. If the ownership of New Graphic
common stock continues to be highly concentrated, it may limit
the ability of you and other stockholders to influence
significant corporate decisions.
|
The interests of the Coors Family Stockholders, the CDR Fund,
EXOR and the TPG Entities may not be fully aligned with your
interests and this could lead to a strategy that is not in your
best interest. Following the completion of the transactions, the
Coors Family Stockholders, the CDR Fund and EXOR will
beneficially own approximately 18.4%, 10.0% and 10.0%,
respectively, and the TPG Entities will own approximately 38.6%
of New Graphic common stock, each calculated on a fully diluted
basis. As a result, the Coors Family Stockholders, the CDR Fund,
EXOR and the TPG Entities will exercise significant influence
over matters requiring stockholder approval. New Graphic has
entered into a new stockholders agreement that will become
effective upon the completion of the transactions, pursuant to
which the Coors Family Stockholders, the CDR Fund, EXOR and the
TPG Entities will have the right to designate for nomination for
election, in the aggregate, six members of New Graphics
board of directors following the completion of the transactions.
The concentrated holdings of the Coors Family Stockholders, the
CDR Fund, EXOR and the TPG Entities and the
27
presence of their designees on New Graphics board of
directors may delay or deter possible changes in control of New
Graphic, which may reduce the market price of New Graphic,
or may otherwise result in New Graphic either taking actions
that New Graphics other stockholders do not support or
failing to take actions that New Graphics other
stockholders do support. See Other Agreements
Stockholders Agreement and Description of New
Graphic Capital Stock.
|
|
|
New
Graphic stockholders may be adversely affected by the expiration
of the transfer restrictions in the stockholders agreement,
which would enable the Coors Family Stockholders, the CDR Fund,
EXOR and the TPG Entities to transfer a significant percentage
of their New Graphic common stock to a third
party.
|
The transfer provisions in the stockholders agreement, subject
to specified exceptions (see Other Agreements
Stockholders Agreement Transfer Restrictions),
restrict the covered stockholders from transferring shares of
New Graphic common stock. Many of these restrictions will expire
180 days from the date of the closing of the transactions.
When the transfer restrictions in the stockholders agreement
expire or are terminated, the covered stockholders will be free
to sell their shares of New Graphic common stock, subject to
certain exceptions and limitations under the securities laws, to
any person on the open market, in privately negotiated
transactions or otherwise in accordance with law. In addition,
at any time after 180 days from the date of the closing of
the transactions, the covered stockholders will be able to
exercise their rights, subject to certain limitations, to
require New Graphic to register their shares of New Graphic
common stock for resale in a public offering. These sales or
transfers could create a substantial decline in the price of
shares of New Graphic common stock. See Other
Agreements Stockholders Agreement and
Other Agreements Registration Rights
Agreement.
|
|
|
New
Graphics proposed certificate of incorporation, by-laws,
stockholder rights plan and Delaware law may discourage
takeovers and business combinations that its stockholders might
consider in their best interests.
|
Provisions in New Graphics proposed certificate of
incorporation and by-laws attached to this proxy
statement/prospectus as Annexes B and C, respectively, New
Graphics proposed stockholder rights plan and provisions
of Delaware corporate law, may delay, deter, prevent or render
more difficult a takeover attempt which is not approved by New
Graphics board of directors but which New Graphic
stockholders might consider in their best interests. These
provisions include:
|
|
|
|
|
authorization of the issuance of preferred stock, the terms of
which may be determined at the sole discretion of the board of
directors;
|
|
|
|
a classified board of directors with staggered, three-year terms;
|
|
|
|
provisions giving the board of directors sole power to set the
number of directors;
|
|
|
|
limitation on the ability of stockholders to remove directors;
|
|
|
|
prohibition on stockholders calling special meetings of
stockholders;
|
|
|
|
establishment of advance notice requirements for stockholder
proposals and nominations for election to the board of directors
at stockholder meetings; and
|
|
|
|
requirement that the holders of at least 75% of outstanding
common stock approve the amendment of New Graphics by-laws
and provisions of New Graphics certificate of
incorporation governing the classified board and the liability
of directors.
|
These provisions may prevent New Graphic stockholders from
receiving the benefit from any premium to the market price of
New Graphic common stock offered by a bidder in a takeover
context. Even in the absence of a takeover attempt, the
existence of these provisions may adversely affect the
prevailing market price of New Graphic common stock if they are
viewed as discouraging takeover attempts in the future. These
provisions may also make it difficult for stockholders to
replace or remove New Graphics management. See
Description of New Graphic Capital Stock.
28
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus includes or incorporates by
reference statements reflecting assumptions, expectations,
projections, intentions or beliefs about future events that are
intended as forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of
1934, as amended. All statements included or incorporated by
reference in this proxy statement/prospectus, other than
statements of historical fact, that address activities, events
or developments that New Graphic or its management expects,
believes or anticipates will or may occur in the future are
forward-looking statements. These statements represent New
Graphics reasonable judgment regarding the future based on
various factors and using numerous assumptions and are subject
to known and unknown risks, uncertainties and other factors that
could cause, among other statements, the actual results and
financial position of New Graphic and the effects and
consequences of the transactions to differ materially from those
contemplated by the statements. You can identify these
statements by the fact that they do not relate strictly to
historical or current facts. They may use words such as
anticipate, estimate,
project, forecast, plan,
may, will, should,
expect and other words of similar meaning. In
addition to factors previously disclosed in Graphics SEC
reports and those identified elsewhere in this proxy
statement/prospectus, including those matters discussed under
the caption Risk Factors the following factors,
among others, could cause actual results to differ materially
from forward-looking statements or historical performance:
|
|
|
|
|
the ability of Graphic and BCH to complete the transactions;
|
|
|
|
the success of the business of New Graphic after the completion
of the transactions;
|
|
|
|
the successful integration of Graphic and BCH after the
completion of the transactions;
|
|
|
|
the anticipated benefits of combining Graphic and BCH;
|
|
|
|
beliefs and assumptions about costs relating to the transactions
and integrating Graphic and BCH;
|
|
|
|
inflation of and volatility in raw material and energy costs;
|
|
|
|
New Graphics substantial amount of debt;
|
|
|
|
continuing pressure for lower cost products;
|
|
|
|
New Graphics ability to implement its business strategies,
including productivity initiatives and cost reduction plans;
|
|
|
|
currency movements and other risks of conducting business
internationally;
|
|
|
|
the impact of regulatory and litigation matters, including those
that impact New Graphics ability to protect and use its
intellectual property;
|
|
|
|
the availability of net operating losses to offset future
taxable income; and
|
|
|
|
the interests and actions of the Coors Family Stockholders, the
CDR Fund, EXOR and the TPG Entities and the implications of
these stockholders significant influence over New Graphic.
|
Undue reliance should not be placed on such forward-looking
statements, as such statements speak only as of the date on
which they are made and New Graphic undertakes no obligation to
update such statements.
29
THE
SPECIAL MEETING
General
The Graphic board of directors is using this proxy
statement/prospectus to solicit proxies from the holders of
shares of Graphic common stock for use at the special meeting.
This proxy statement/prospectus and accompanying proxy card are
first being mailed to Graphic stockholders on or about
[ l ],
2007.
Date,
Time and Place of the Special Meeting
Graphic will hold its special meeting of stockholders on
[ l ],
[ l ],
2007, at 10:00 a.m., local time, at the offices of
Alston & Bird LLP, Atlantic Center Plaza,
1180 West Peachtree Street, 15th Floor, Atlanta,
Georgia 30309, or at any reconvened meeting after an adjournment
or postponement of the special meeting.
Purpose
of the Special Meeting
At the special meeting, holders of Graphic common stock will be
asked (1) to adopt the transaction agreement and approve
the transactions, (2) to approve the provisions in New
Graphics restated certificate of incorporation authorizing
1.1 billion shares of capital stock, including
1 billion shares of common stock and 100 million
shares of preferred stock and (3) to approve any proposal
by Graphic to adjourn or postpone the special meeting, if
determined to be necessary.
The Graphic board of directors has unanimously approved the
transaction agreement and the transactions and recommends that
Graphic stockholders vote FOR the adoption of the
transaction agreement and the approval of the transactions,
FOR the proposal to approve provisions of New
Graphics restated certificate of incorporation authorizing
additional capital stock and FOR the adjournment or
postponement of the special meeting, if determined to be
necessary. Implementation of the proposal relating to the
authorization of additional capital stock is conditioned upon
the adoption of the transaction agreement and approval of the
transactions.
Record
Date and Outstanding Shares
The Graphic board of directors has fixed the close of business
on
[ l ],
2007 as the record date for determining holders of outstanding
shares of Graphic common stock entitled to notice of, and to
vote at, the special meeting or any adjournment or postponement
of the special meeting. As of the record date, there were
outstanding
[ l ] shares
of Graphic common stock held of record by
[ l ]
stockholders. Graphic common stock is the only class of
outstanding securities entitled to notice of, and to vote at,
the special meeting. Each holder of Graphic common stock is
entitled to one vote at the special meeting for each share of
Graphic common stock held by that stockholder at the close of
business on the record date.
Quorum
In order to carry out the business of the special meeting, there
must be a quorum. This means that at least one-third (1/3) of
the outstanding shares eligible to vote must be represented at
the special meeting, either by proxy or in person. Proxies
received but marked as abstentions and broker non-votes will be
included in the calculation of the number of votes present at
the special meeting for purposes of calculating whether a quorum
is present.
Vote
Required
Adoption of the transaction agreement and approval of the
transactions and approval of the provisions of New
Graphics restated certificate of incorporation increasing
the authorized capital stock requires the affirmative vote of a
majority of the issued and outstanding shares of Graphic common
stock. In accordance with the rules of the NYSE, brokers, banks
and other nominees who hold shares in street name for customers
may not exercise discretionary voting authority with respect to
the adoption of the transaction agreement and
30
the approval of the transactions. Thus, absent specific
instructions from the beneficial owner of such shares, brokers,
banks and other nominees may not vote such shares with respect
to the adoption of the transaction agreement and the approval of
the transactions. Shares represented by these broker
non-votes will not vote, effectively counting as votes
AGAINST the proposal to adopt the transaction
agreement and approve the transactions and the proposal to
approve provisions of New Graphics restated certificate of
incorporation increasing the authorized capital stock of New
Graphic. Abstentions also have the same effect as shares voted
AGAINST the proposal to adopt the transaction
agreement and approve the transactions.
Approval of a proposal to adjourn or postpone the special
meeting, if determined to be necessary, requires the affirmative
vote of holders of a majority of the shares present in person or
by proxy and entitled to vote at the special meeting (whether or
not a quorum is present). Abstentions and broker non-votes with
respect to the adjournment or postponement of the special
meeting, if determined to be necessary, will have the effect of
a vote against such proposal.
Voting
Agreement
Pursuant to the voting agreement, dated as of July 9, 2007,
entered into by and among BCH, Graphic, the Coors Family
Stockholders, the CDR Fund and EXOR, each of the Coors Family
Stockholders, the CDR Fund and EXOR has agreed to vote all of
its shares of Graphic common stock, subject to certain
exceptions, in favor of adopting the transaction agreement and
approving the transactions and any other action reasonably
requested by BCH in furtherance thereof. The Coors Family
Stockholders, the CDR Fund and EXOR collectively hold
129,376,414 issued and outstanding shares of Graphic common
stock, which represented approximately 65% of the total number
of shares of Graphic common stock issued and outstanding as of
July 9, 2007 and as of the record date. See The
Transactions Voting Agreement.
As of the record date, Graphics executive officers and
directors (excluding representatives of the Coors Family
Stockholders, the CDR Fund and EXOR) had the right to vote less
than 1% of the shares of Graphic common stock outstanding and
entitled to vote at the special meeting. Graphics
directors and executive officers have indicated their intention
to vote their shares of Graphic common stock for the adoption of
the transaction agreement and the approval of the transactions.
Solicitation
of Proxies
Graphic will bear the cost of soliciting proxies. Proxies may be
solicited by mail or facsimile, or by Graphics directors,
officers or employees, without extra compensation, in person or
by telephone. Graphic will reimburse brokers, banks and other
nominees for their reasonable out-of-pocket expenses for
forwarding solicitation material to the beneficial owners of
Graphic common stock.
Questions concerning the proposal to be acted upon at the
special meeting should be directed to Graphics Investor
Relations Department at
(770) 644-3000.
Additional copies of this proxy statement/prospectus or the
proxy card may be obtained from Graphics Investor
Relations Department at its principal executive office at 814
Livingston Court, Marietta, Georgia 30067, and the telephone
number is
(770) 644-3000.
For a period of at least ten days prior to the special meeting,
a complete list of stockholders entitled to vote at the special
meeting will be available for inspection during ordinary
business hours at Graphics executive offices by
stockholders of record for proper purposes.
Revocation
of Proxies
The enclosed proxy, even though executed and returned, may be
revoked at any time before the special meeting by:
|
|
|
|
|
executing and submitting a revised proxy (including a telephone
or Internet vote);
|
|
|
|
sending written notice of revocation to Graphics Secretary
at the address provided at the beginning of this proxy
statement/prospectus; or
|
|
|
|
voting in person at the special meeting.
|
31
In the absence of a revocation, shares represented by proxies
submitted in response to this solicitation will be voted at the
special meeting.
Voting by
Telephone or Internet
Stockholders of record can simplify their voting and reduce
Graphics costs by voting their shares by telephone or
through the Internet. The telephone and Internet voting
procedures are designed to authenticate stockholders
identities, allow stockholders to vote their shares and confirm
that their instructions have been properly recorded. If your
shares are held in the name of a broker, bank or other nominee,
the availability of telephone and Internet voting will depend
upon the voting processes of the broker, bank or other nominee.
Accordingly, stockholders should follow the voting instructions
on the form they receive from their broker, bank or other
nominee.
Stockholders who elect to vote by telephone or through the
Internet may incur telecommunications and Internet access
charges and other costs for which they are solely responsible.
The telephone and Internet voting facilities for stockholders of
record will close at 11:59 p.m., Eastern Time, on
[ l ],
2007. Instructions for voting by telephone or through the
Internet are contained on the enclosed proxy card. Voting your
shares by telephone or through the Internet will not affect your
right to vote in person if you decide to attend the special
meeting; however, if you attend and vote at the special meeting,
any votes you cast previously via telephone or the Internet will
automatically be revoked and superseded by the votes cast at the
special meeting.
Voting by
Mail
Stockholders who elect to vote by mail are asked to sign, date
and return the enclosed proxy card using the postage-paid
envelope provided. The persons named as proxies on the proxy
card were designated by the Graphic board of directors. All
shares represented by properly executed proxies received in time
for the special meeting will be voted at the special meeting in
the manner specified by the stockholders giving those proxies.
Properly executed proxies that do not contain voting
instructions will be voted FOR the adoption of the
transaction agreement and approval of the transactions and
FOR any proposal by Graphic to adjourn or postpone
the special meeting.
Special
Meeting Attendance and Voting in Person
Only stockholders, their designated proxies and guests of
Graphic may attend the special meeting. If you plan to attend
the special meeting, you must be a stockholder of record as of
[ l ],
2007 or, if you have beneficial ownership of shares of Graphic
common stock held by a broker, bank or other nominee, you must
bring an account statement or letter from your broker, bank or
other nominee showing that you are the beneficial owner of
shares of Graphic common stock as of the record date in order to
be admitted to the special meeting.
If your shares are held by a broker, bank or other nominee and
you wish to vote your shares in person at the special meeting,
please also bring a letter from your broker, bank or other
nominee granting you a proxy to vote those shares at the special
meeting.
Dissenters
Rights
Although Graphic stockholders that are not subject to the voting
agreement may vote against adoption of the transaction agreement
and approval of the transactions, under no circumstances are
holders of Graphic common stock entitled to dissenters
rights of appraisal under Delaware law in connection with the
transactions.
32
THE
TRANSACTIONS
Background
of the Transactions
In 2006, having substantially completed the integration of
Graphic Packaging International Corporation and Riverwood
Holding, Inc. and related business optimization initiatives,
Graphic began exploring various strategic alternatives to
strengthen its business, expand its product offerings, and
increase stockholder value, including potential acquisitions and
business combinations.
In October and November 2006, representatives of Goldman Sachs,
Graphics financial advisor, met several times with Stephen
M. Humphrey, President and Chief Executive Officer of Graphic,
and David W. Scheible, then Senior Vice President and Chief
Operating Officer and, as of January 1, 2007, President and
Chief Executive Officer of Graphic, to discuss a potential
transaction with Altivity.
On October 24, 2006 Messrs. Humphrey and Scheible and
representatives of Goldman Sachs met with Michael G. MacDougall,
a partner of TPG and a member of the Altivity board of
directors, and discussed briefly the potential for a transaction
between Graphic and Altivity.
On November 16, at a regularly scheduled meeting of the
Graphic board of directors, representatives of Goldman Sachs
discussed several potential acquisition opportunities for
Graphic, including Altivity. At this meeting, the Graphic board
of directors authorized the retention of Goldman Sachs to assist
it in evaluating a potential transaction with Altivity and
authorized Graphic management to continue their work in such
regard. After the adjournment of the Graphic board meeting,
Graphic executed an engagement letter with Goldman Sachs.
During November and December 2006, Goldman Sachs and Graphic
management commenced a preliminary financial analysis of the
Altivity business and began to evaluate strategic considerations
related to the acquisition of Altivity by Graphic based on
publicly available information and the limited information
exchanged by the parties.
On December 21, the Graphic board of directors held a
special meeting by teleconference to discuss the preliminary
financial analysis of the Altivity business. Goldman Sachs and
Graphic management discussed the results of this valuation and
answered questions from the board of directors. At the
conclusion of this meeting, the Graphic board of directors
authorized Goldman Sachs to begin discussions with TPG regarding
a transaction in which Graphic would acquire Altivity.
During late December and early January, Mr. Scheible and
representatives of Goldman Sachs held several conversations with
Mr. MacDougall and other representatives of TPG to discuss a
potential combination of Graphic and Altivity and to exchange
further limited information on the two companies.
On January 9, 2007, Mr. Scheible held an introductory
meeting with Altivity and TPG representatives in Chicago to
discuss the business and prospects of Graphic and Altivity and
the potential for a transaction between the two companies. As a
result of the favorable discussions at this meeting, the parties
agreed to conduct preliminary due diligence activities and to
exchange limited non-public information about their respective
businesses. On January 10, TPG, Altivity and Graphic signed
a customary reciprocal confidentiality agreement.
During January, the parties exchanged limited, high level due
diligence materials and conducted discussions about the Graphic
and Altivity businesses and the potential benefits of a
combination of the two companies.
On January 29 and 30, Mr. Scheible, Daniel J. Blount,
Senior Vice President and Chief Financial Officer, Michael P.
Doss, Senior Vice President, Consumer Products Packaging, other
representatives of Graphic and Goldman Sachs met with
Mr. MacDougall, Nathan Wright, Jeffrey Liaw and Benjamin
Landis, representatives of TPG, Lawrence I. Field, a member of
Altivitys board of directors and the President of Field
Holdings, Inc., George V. Bayly, Chairman and interim Chief
Executive Officer of Altivity, Donald Sturdivant, Executive Vice
33
President of Operations of Altivity, and representatives of
Altivitys financial advisor, Banc of America Securities
LLC. At this meeting, the parties discussed their respective
businesses and financial performance as well as the benefits and
challenges of a combination. Based upon these initial
discussions, the parties agreed to initiate a process to further
explore a transaction including high level discussions regarding
the financial performance and outlook of the respective
businesses.
On February 8, the Graphic board of directors held a
special meeting by teleconference to discuss the potential
transaction with Altivity and related matters. Mr. Scheible
and representatives of Goldman Sachs reported on the meeting
among the parties at the end of January. At this meeting, the
Graphic board of directors authorized management to expand its
due diligence investigation of Altivity and discussions with
Altivity and TPG and their advisors regarding a potential
transaction.
During the remainder of February, the parties continued high
level due diligence investigations focused primarily on the
historical financial performance and prospective outlook for the
respective businesses and worked with their respective financial
advisors to determine an appropriate ownership split in the
combined entity between the equity holders of each company in a
potential combination transaction.
On March 2, the Graphic board of directors held a special
meeting by teleconference to discuss the progress of the
companys investigation of a potential transaction with
Altivity. At this meeting, representatives of Goldman Sachs
discussed their preliminary financial analysis relating to a
potential transaction with Altivity, and the board and
management discussed potential valuation ranges for Altivity and
other proposed principal terms of a potential transaction,
including board composition and other governance matters. The
Graphic board of directors then authorized Goldman Sachs to
discuss with Altivitys financial advisors a proposed
division of ownership interests in a combined entity prepared by
Graphic management and other principal terms of a potential
transaction.
On March 6, based on the then-known information and subject
to confirmatory due diligence, Goldman Sachs, on behalf of
Graphic, had discussions with TPG and Altivitys financial
advisor relating to preliminary terms of a potential transaction
in which Graphic proposed that the owners of BCH would receive
40% of Graphics common stock in exchange for their
ownership interests in BCH and the Graphic stockholders would
retain 60% of Graphics common stock. Graphic also proposed
that the post-closing Graphic board of directors be comprised of
a majority of independent directors with Graphic designating
five of the independent directors and TPG designating one
independent director and the balance of the board to be
comprised of two TPG designees, one designee from each of the
Coors Family Stockholders, the CDR Fund and EXOR and the Chief
Executive Officer of Graphic. In addition, Graphic proposed that
the current Graphic Chairman of the Board John R. Miller would
become Chairman of the Board of the combined company, that
Mr. Scheible would become President and Chief Executive
Officer and that the headquarters of the combined business would
be in Atlanta, Georgia. The proposal also noted that there would
be a registration rights agreement with customary terms and a
stockholders agreement that was generally consistent with the
terms of the existing Graphic stockholders agreement.
The parties participated in several telephonic discussions
regarding the preliminary terms between March 6 and
March 14. Among other things, later in the week of
March 6, BCHs financial advisors, at the direction of
Altivity, proposed to Goldman Sachs that Altivitys owners
should receive 45% of the common stock of the combined company
and greater governance rights in the combined company. On
March 14, Graphic again proposed that the equity holders of
BCH should receive 40% of the combined company and that the
current Graphic stockholders should receive 60% of the combined
company, in each case on a fully diluted basis and subject to
adjustments relating to the apportionment of transaction costs.
The parties continued to discuss the ownership split proposed by
Graphic and the other Graphic proposed terms, including board
composition over the next two weeks. During these discussions,
TPG indicated that it would be a condition to any transaction
that each of the Coors Family Stockholders, the CDR Fund and
EXOR, agree to support the transaction.
Also during this period, Graphic, TPG and their respective
financial and legal advisors began preliminary discussions
regarding potential transaction structures that would provide
the owners of BCH with tax-free
34
treatment of any Graphic common stock received in the
transaction, which was also indicated by TPG to be a requirement
of a transaction with Graphic.
On March 28 and April 9, the Graphic board of directors
held special meetings by teleconference to discuss the proposed
principal terms. At these board meetings, management and
representatives of Goldman Sachs updated the board as to the
status of negotiations with TPG regarding the potential
transaction with Altivity. Also, at the board meeting on
April 9, representatives of Alston & Bird LLP,
legal advisors to Graphic, advised the directors as to their
fiduciary duties under Delaware law and discussed issues
relating to the transaction and the issuance to affiliates of
TPG of a significant percentage of Graphics outstanding
common stock.
On April 13, Graphic distributed a term sheet that included
modified proposals regarding board composition and other
governance matters. Discussions were held during this week among
Messrs. Miller, Scheible, MacDougall and Liaw and
Graphics and TPGs respective financial advisors
regarding board composition and other governance matters.
In late April, based on the progress reached with respect to the
principal terms and the preliminary results of high level due
diligence, the parties agreed to conduct more detailed due
diligence investigations. During late April through early June,
the parties performed detailed due diligence, including several
meetings among Graphic and its advisors and TPG, Altivity and
their advisors.
During April and May, the parties held several meetings with a
consulting firm to discuss potential cost savings and other cost
synergies from a combination of the two companies.
Also during this period, the parties and their advisors agreed
on the proposed structure of the transaction involving the
creation of a new holding company as described in detail
elsewhere in this proxy statement/prospectus.
On May 15, the Graphic board of directors held a meeting
and discussed the status of the transaction and due diligence.
Messrs. Blount and Scheible reported on the status of the
discussions between the parties and the progress of due
diligence. Graphics legal advisor discussed some of the
specific governance provisions being negotiated, including the
board composition and proposed standstill provisions that would,
among other things, restrict TPG from acquiring additional
shares of Graphic common stock after completion of the
transactions. Graphics legal advisors also advised the
directors as to their fiduciary duties under Delaware law and
discussed potential issues relating to the antitrust clearance
process in connection with the potential transaction. The
directors discussed the status of the proposed transaction and
due diligence and asked questions of management and
Graphics financial and legal advisors.
From May 15 through May 17, Messrs. Scheible, Blount
and Doss, and other Graphic representatives met with
Messrs. Liaw, Wright, Sturdivant, Landis and Byczynski and
other TPG and Altivity representatives for mutual management
presentations and discussions regarding year-to-date
performance, 2007 full-year forecast and potential cost savings
opportunities. The meeting was also attended by representatives
of the legal, financial and other advisors to Graphic and
Altivity.
On May 16, Mr. Scheible met with Kelvin L. Davis, a
senior partner of TPG, to discuss the management team of the new
combined company, as well as potential approaches to appoint key
managers following the close of the transactions.
On May 25, Altivitys legal advisors, Simpson
Thacher & Bartlett LLP, circulated an initial draft
transaction agreement and agreement and plan of merger. On
May 29, Graphics legal advisors circulated an initial
draft stockholders agreement and registration rights agreement.
On June 4, Altivitys legal advisors circulated an
initial draft voting agreement that contemplated that the Coors
Family Stockholders, the CDR Fund and EXOR would agree to vote
all of the shares of Graphic common stock owned by them in favor
of the adoption of the transaction agreement at the special
meeting of Graphic stockholders that would be called to consider
the transaction agreement.
35
On June 5, representatives of TPG, Altivity and Graphic,
including their respective legal and financial advisors, met to
discuss plans to finalize their respective due diligence
processes. At this meeting, it was decided that KPMG,
Graphics accounting advisor, would be granted additional
access to Altivity management to finalize their diligence.
Representatives from KPMG and Mr. Blount traveled to
Altivitys offices in the Chicago area on June 7 to spend
additional time with management on key open diligence points,
primarily related to the cost savings initiatives at Altivity.
Also on June 5, Graphics legal advisors delivered to
Altivitys legal advisors comments on the draft transaction
agreement. During the period from June 5 through July 9,
Graphics and Altivitys legal advisors negotiated the
provisions of the transaction agreement and the related
disclosure schedules. The negotiations, among other things,
addressed the nature of the representations and warranties to be
made by the parties, the limitations on the conduct of business
between signing and closing, the extent of Graphics
obligation to take actions to obtain requisite regulatory
approvals, the parties respective rights and obligations
in the event a third party sought to make a takeover proposal
for Graphic and various provisions relating to termination fees
and expense reimbursements.
In addition, during that period, Graphics and
Altivitys legal advisors, together with representatives of
and advisors to the Coors Family Stockholders, the CDR Fund and
EXOR, negotiated the provisions of the voting agreement, the
stockholders agreement and the registration rights agreement.
The negotiations, among other things, addressed the
circumstances under which these stockholders would be required
to vote their shares of Graphic common stock in favor of the
transaction agreement and transactions, board and committee
composition and related designation rights, the mechanics,
timing and limitations under which these stockholders could sell
New Graphic common stock, and the restrictions and limitations
on the ability of the parties to acquire additional shares of
New Graphic common stock and to take other actions with respect
to controlling New Graphic after completion of the transactions.
On June 6 and 7, Messrs. Blount and Liaw and other
representatives from Graphic and Altivity held several
conference calls with potential lenders regarding the
transaction financing. Throughout this period and through
July 8, representatives of Graphic, in particular
Mr. Blount, with the assistance of potential financing
sources, including representatives of TPG, negotiated the terms
of the financing for the transactions with representatives of a
bank group that included Bank of America, N.A., Goldman Sachs
Credit Partners, L.P. and JPMorgan Chase Bank, N.A.
On June 11, the Graphic board of directors, together with
Graphics legal and financial advisors, met by telephone.
During this meeting, Messrs. Scheible and Blount updated
the directors on the status of the negotiations of the
transactions. They also provided a summary of due diligence
conducted by representatives of and advisors to Graphic. In
addition, Goldman Sachs discussed a preliminary financial
analysis of Altivity, and Graphics legal advisor discussed
some of the principal transaction terms. The directors asked
management and Graphics financial and legal advisors
questions related to these matters and discussed the information
presented.
On June 12, representatives of the Coors Family
Stockholders, the CDR Fund, EXOR, Messrs. MacDougall and
Liaw and representatives of Graphics and Altivitys
financial and legal advisors met in New York to discuss the
prospects of the combined company and to negotiate terms of the
stockholders and registration rights agreement, including, among
other things, board and committee composition and related
designation rights, the mechanics, timing and limitations under
which these stockholders could sell New Graphic common stock,
and the restrictions and limitations on the ability of the
parties to acquire additional shares of New Graphic common stock
and to take other actions with respect to controlling New
Graphic after completion of the transactions.
On June 14, Messrs. Blount and Liaw met by telephone
to discuss the status of the financing for the transaction and
related matters.
On June 15, Messrs. Scheible and Liaw and a
representative of the Coors Family Stockholders met to discuss
issues relating to the mechanics, timing and limitations under
which the stockholders could sell New Graphic common stock
following the transactions.
36
On June 22, Messrs. Scheible and Liaw continued
ongoing discussions regarding the calculation of shares of New
Graphic common stock to be issued to the Graphic stockholders
and the equity holders of BCH in the proposed transactions.
These discussions continued until shortly before the
announcement of the transaction agreement in July.
On June 25, the Graphic board of directors held a special
meeting by teleconference to discuss the status of the
transaction. Representatives of Graphics financial and
legal advisors were also in attendance.
On July 2, Mr. Scheible, representatives of TPG and
representatives of Graphics and Altivitys financial
and legal advisors held a conference call in which they
negotiated and finalized substantially all remaining issues in
the transaction documents, including the number of shares to be
issued to the equity holders of BCH in the transactions.
On July 9, the Graphic board of directors held a telephonic
meeting, which was attended by Graphics legal and
financial advisors. At the meeting, Graphics legal
advisors summarized the principal terms of the draft transaction
agreement and voting agreement, including the key deal
protection provisions, the stockholders agreement and
registration rights agreement, and again reviewed the fiduciary
duties of the directors under Delaware law. Goldman Sachs
reviewed its final financial analysis and rendered its oral
opinion (subsequently confirmed in writing) to the Graphic board
of directors that, as of July 9, 2007, and based upon and
subject to the factors and assumptions therein, the
139,445,038 shares of New Graphic common stock, taken in
the aggregate, to be issued by New Graphic in exchange for 100%
of the outstanding equity interests in BCH pursuant to the
transaction agreement was fair from a financial point of view to
Graphic. The board of directors then discussed with
Graphics management team and its legal and financial
advisors the terms of the proposed transactions and, based on
the factors outlined below under Reasons for the
Transactions and Recommendation of the Graphic Board of
Directors, determined to proceed with the proposed
transactions. The Graphic board of directors, by unanimous vote,
determined that the transaction agreement and the transactions
were advisable, fair to and in the best interests of Graphic
stockholders, and unanimously approved the transaction agreement
and the transactions and the voting agreement, the stockholders
agreement and the registration rights agreement. The Graphic
board also approved an amendment to Graphics existing
stockholder protection rights plan to exempt the transactions
and related actions from the provisions of the plan.
Thereafter, in the evening of July 9, Graphic, New Graphic,
Giant Merger Sub, Inc. and the other parties thereto executed
the transaction agreement and Graphic, the Coors Family
Stockholders, the CDR Fund, EXOR and BCH executed the voting
agreement. In addition, New Graphic and certain individuals and
entities that will be stockholders of New Graphic after the
completion of the transactions entered into the stockholders
agreement and the registration rights agreement. Graphic also
entered into financing commitment letters with several
institutional banks relating to the proposed refinancing of
Altivitys outstanding indebtedness and other debt
facilities. See The Transactions
Financing for a detailed discussion of the terms of the
proposed financing.
On July 10, before the opening of trading on the NYSE,
Graphic and Altivity issued a joint press release announcing the
execution of the transaction agreement. The terms of the
transaction agreement, the voting agreement, the stockholders
agreement and the registration rights agreement are detailed
below under The Transaction Agreement and Agreement and
Plan of Merger, The Transactions Voting
Agreement, Other Agreements Stockholders
Agreement and Other Agreements
Registration Rights Agreement.
Reasons
for the Transactions and Recommendation of the Graphic Board of
Directors
The Graphic board of directors, in reaching its unanimous
decision to approve the transaction agreement and the
transactions and recommend them to Graphic stockholders,
consulted with Graphics management, its financial advisor
and its legal counsel, and considered the following factors as
generally supporting its decision:
|
|
|
|
|
The Graphic board of directors believed that the combination of
the operations of Graphic and Altivity would provide stronger
and more stable cash flows, and therefore greater financial
stability, than could
|
37
|
|
|
|
|
have been achieved by Graphic on a stand-alone basis. This
enhanced financial performance and position should permit New
Graphic to accelerate its debt reduction, enhance its credit
profile, improve leverage ratios and finance ongoing investments.
|
|
|
|
|
|
The complementary product offerings of Graphic and Altivity,
which when combined create an ability to offer comprehensive
consumer packaging solutions to existing and new customers of
both companies.
|
|
|
|
The new company will have expanded market reach into small
specialty segments of the folding carton market, as well as new
packaging markets, including labels, flexible packaging and
multi-wall bags.
|
|
|
|
The expansion of product growth opportunities for the combined
company in the packaging market.
|
|
|
|
The opportunity to achieve significant cost synergies identified
in connection with the transactions, including:
|
|
|
|
|
|
operating and overhead expense reductions;
|
|
|
|
supply chain procurement improvements;
|
|
|
|
facility optimization; and
|
|
|
|
manufacturing process improvements.
|
|
|
|
|
|
The opportunity for additional cost savings from Altivitys
ongoing integration of Smurfit-Stone Container
Corporations Consumer Packaging Division and the Field
Companies as a result of manufacturing network optimization
efforts, overhead reduction and supply chain improvements.
|
|
|
|
The potential for enhanced liquidity for stockholders.
|
|
|
|
Potential tax savings from Graphics net operating losses.
|
|
|
|
The balance of rights and restrictions in the stockholders
agreement. While the TPG Entities would have a significant share
ownership position in New Graphic, the stockholders agreement
and the New Graphic stockholders rights plan, subject to
their terms, would prevent the acquisition of additional equity
securities of New Graphic and restrict the ability of the TPG
Entities to exert control over New Graphic.
|
|
|
|
The transactions are intended to be tax-free to Graphic
stockholders. The transactions are not intended to result in any
adverse tax consequences to a Graphic stockholder that does not
have certain tax attributes. See Material
U.S. Federal Tax Consequences to Graphic Stockholders.
|
|
|
|
The terms and conditions of the transaction agreement, including:
|
|
|
|
|
|
the closing conditions to the transaction;
|
|
|
|
the provisions of the transaction agreement that allow Graphic
to engage in negotiations with, and provide information to,
third parties, under certain limited circumstances in response
to an unsolicited written takeover proposal that the Graphic
board of directors determines in good faith, after consultation
with its legal advisors and its financial advisors, would
reasonably be expected to result in a superior proposal (defined
below), if the Graphic board of directors concludes that the
failure to take such action would be reasonably expected to
violate its fiduciary duties;
|
|
|
|
the provisions of the transaction agreement that allow the
Graphic board of directors, under certain limited circumstances
if required in order not to violate its fiduciary duties under
applicable law, to change its recommendation that Graphic
stockholders vote in favor of the adoption of the transaction
agreement. Such a change, if made in connection with a superior
proposal, would reduce the percentage of the shares of Graphic
common stock owned by certain parties to the stockholders
agreement that are required to be voted in favor of the adoption
of the transaction agreement under the terms of the voting
agreement; and
|
38
|
|
|
|
|
the termination fee of up to $35,000,000 and the circumstances
under which such fee is payable (including a termination due to
a change of recommendation, as referenced above), which the
Graphic board of directors concluded were reasonable in light of
the benefits of the transactions and commercial precedent.
|
|
|
|
|
|
The opinion of Goldman Sachs, dated July 9, 2007, provided
to the Graphic board of directors, that, as of the date of the
opinion, and based upon and subject to the factors and
assumptions set forth in the opinion, the
139,445,038 shares of New Graphic common stock, taken in
the aggregate, to be issued by New Graphic in exchange for
100% of the outstanding BCH equity interests pursuant to the
transaction agreement was fair from a financial point of view to
Graphic, as more fully described below under
Opinion of Financial Advisor to Graphic.
|
The Graphic board of directors also considered the following
risks and other potential adverse consequences of the proposed
transactions to Graphic:
|
|
|
|
|
The difficulty of integrating Graphic and Altivity, including
difficulties in the ongoing integration of Smurfit-Stone
Container Corporations Consumer Packaging Division and the
Field Companies.
|
|
|
|
The risk that the identified cost synergies will not be fully
attained within the expected time frame, or at all.
|
|
|
|
The substantial costs to be incurred in connection with the
transactions, including transaction expenses and costs related
to integration of the two companies.
|
|
|
|
The initial highly leveraged financial position of the combined
company.
|
|
|
|
The presence of a new large stockholder.
|
|
|
|
The potential that the transactions would not be consummated and
the resulting expenditure of resources without receipt of the
expected benefits.
|
|
|
|
The risk that various provisions of the transaction agreement,
including the requirement that Graphic submit the transaction
agreement to its stockholders even if the Graphic board of
directors changes its recommendation of the transaction
agreement and the transactions, and the voting agreement may
have the effect of discouraging other persons potentially
interested in an acquisition of, or combination with, Graphic
from pursuing that opportunity.
|
|
|
|
The absence of contractual indemnities for breaches of
representations and warranties by BCH.
|
|
|
|
Loss of customers or key employees.
|
|
|
|
The other risks described in Risk Factors beginning
on page 20.
|
The Graphic board of directors determined that these potential
adverse consequences were outweighed by the potential benefits
of the transactions.
This discussion of the information and factors considered by the
Graphic board of directors is for illustrative purposes only and
is not intended to be exhaustive. In making its determination to
approve the transaction agreement and the transactions, the
Graphic board of directors did not assign any relative or
specific weights to the various factors that it considered in
reaching its determination that the transaction agreement and
the transactions are advisable, fair to, and in the best
interests of, Graphic and Graphic stockholders. Rather, the
Graphic board of directors viewed its position and
recommendation as being based on the totality of the information
presented to it, and the factors it considered. In addition,
individual members of the Graphic board of directors, in making
their decisions, may have given different weight to different
information and factors.
Graphics board of directors has unanimously determined
that the transaction agreement and the transactions are
advisable, fair to and in the best interests of Graphic
stockholders, and has unanimously approved the transaction
agreement and the transactions. Graphics board of
directors recommends that you vote FOR the adoption
of the transaction agreement and approval of the transactions.
If the board of
39
directors of Graphic amends, modifies or otherwise changes its
recommendation regarding adoption of the transaction agreement
and approval of the transactions, Graphic is still obligated to
submit the transaction agreement and the transactions to a vote
of its stockholders.
Opinion
of Financial Advisor to Graphic
On July 9, 2007, Goldman Sachs rendered its opinion to
Graphics board of directors that, as of July 9, 2007,
and based upon and subject to the factors and assumptions set
forth therein, the 139,445,038 shares of New Graphic common
stock, taken in the aggregate, to be issued by New Graphic in
exchange for 100% of the outstanding equity interests in BCH
pursuant to the transaction agreement was fair from a financial
point of view to Graphic.
The full text of the written opinion of Goldman Sachs, dated
July 9, 2007, which sets forth assumptions made, procedures
followed, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as
Annex G. Goldman Sachs provided its advisory services and
opinion for the information and assistance of Graphics
board of directors in connection with its consideration of the
transactions. The Goldman Sachs opinion is not a recommendation
as to how any holder of Graphic common stock should vote with
respect to the transactions or any other matter.
In connection with rendering the opinion described above and
performing its related financial analyses, Goldman Sachs
reviewed, among other things:
|
|
|
|
|
the transaction agreement;
|
|
|
|
annual reports to stockholders and Annual Reports on
Form 10-K
of Graphic for the three fiscal years ended December 31,
2006;
|
|
|
|
audited financial statements and accompanying notes of Altivity
for the two fiscal years ended December 31, 2006;
|
|
|
|
the unaudited balance sheet of BCH as of March 31, 2007;
|
|
|
|
certain interim reports to stockholders and Quarterly Reports on
Form 10-Q
of Graphic;
|
|
|
|
certain other communications from Graphic and Altivity to their
respective equity holders;
|
|
|
|
certain internal financial analyses and forecasts for Altivity
and BCH prepared by the management of BCH;
|
|
|
|
certain internal financial analyses and forecasts for Graphic
prepared by its management; and
|
|
|
|
certain financial analyses and forecasts for Altivity and BCH
prepared by the management of Graphic, which we refer to as the
forecasts, including certain cost savings and
operating synergies projected by the management of Graphic to
result from the transactions, which we refer to as the
synergies.
|
Goldman Sachs also held discussions with members of the senior
managements of Graphic and BCH regarding their assessment of the
strategic rationale for, and the potential benefits of, the
transactions and the past and current business operations,
financial condition, and future prospects of Graphic and BCH. In
addition, Goldman Sachs compared certain financial and stock
market information for Graphic and certain financial information
for BCH with similar financial and stock market information for
certain other companies, the securities of which are publicly
traded, reviewed the financial terms of certain recent business
combinations in the paper-based packaging industry specifically
and in other industries generally and performed such other
studies and analyses, and considered such other factors, as it
considered appropriate.
For purposes of rendering the opinion described above, Goldman
Sachs relied upon and assumed, without assuming any
responsibility for independent verification, the accuracy and
completeness of all of the financial, accounting, legal, tax and
other information provided to, discussed with or reviewed by it.
In that regard, Goldman Sachs assumed with Graphics
consent that the forecasts, including the synergies, were
reasonably prepared on a basis reflecting the best then
currently available estimates and judgments of Graphic. In
addition, Goldman Sachs did not make an independent evaluation
or appraisal of the assets and liabilities
40
(including any contingent, derivative or off-balance-sheet
assets and liabilities) of Graphic or BCH or any of their
respective subsidiaries, and Goldman Sachs was not furnished
with any such evaluation or appraisal. Goldman Sachs
opinion does not address any legal, regulatory or tax matters.
In addition, Goldman Sachs opinion does not address the
underlying business decision of Graphic to engage in the
transactions or the relative merits of the transactions as
compared to any strategic alternative that may be available to
Graphic, nor does it express any opinion as to the prices at
which shares of Graphic common stock or New Graphic common stock
will trade at any time. Goldman Sachs assumed with
Graphics consent that all governmental, regulatory or
other consents and approvals necessary for the consummation of
the transactions will be obtained without any adverse effect on
Graphic or BCH or on the expected benefits of the transactions
in any way meaningful to Goldman Sachs analysis. Goldman
Sachs opinion is necessarily based on economic, monetary,
market and other conditions as in effect on, and the information
made available to it as of the date of its opinion, and Goldman
Sachs assumed no responsibility for updating, revising or
reaffirming its opinion based on circumstances, developments or
events occurring after such date.
The following is a summary of the material financial analyses
delivered by Goldman Sachs to the Graphic board of directors in
connection with rendering the opinion described above. The
following summary, however, does not purport to be a complete
description of the financial analyses performed by Goldman
Sachs, nor does the order of analyses described represent
relative importance or weight given to those analyses by Goldman
Sachs. Some of the summaries of the financial analyses include
information presented in tabular format. The tables must be read
together with the full text of each summary and are alone not a
complete description of Goldman Sachs financial analyses.
Except as otherwise noted, the following quantitative
information, to the extent that it is based on market data, is
based on market data as it existed on or before July 9,
2007 and is not necessarily indicative of current market
conditions.
Goldman Sachs analyzed the relative potential contribution of
Graphic and BCH to the combined companys equity value
following consummation of the transactions based on earnings
before interest, tax, depreciation and amortization, or EBITDA,
and net cash provided by operating activities less capital
expenditures, or free cash flow, in each case before taking into
account any of the possible benefits that may be realized
following the transactions. This analysis was performed based on
fiscal year 2006 EBITDA for Graphic and BCH provided by their
respective managements, in each case as adjusted by Graphic
management, and estimated EBITDA and free cash flows for fiscal
years 2007 through 2009 for Graphic and BCH provided to Goldman
Sachs by Graphic management. In addition, for illustrative
purposes, Goldman Sachs also used in its analysis fiscal year
2007 EBITDA estimates provided by BCH management (unadjusted by
Graphic management). For purposes of this analysis, Goldman
Sachs assumed BCH was valued at Graphics trading multiples
for fiscal years 2006 through 2009. Goldman Sachs also assumed
Graphics share price of $4.91 as of July 6, 2007,
203.9 million fully diluted shares outstanding and
estimated net debt of BCH and Graphic based on amounts
outstanding as of March 31, 2007 for each company. The
following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA Capital
|
|
EBITDA Ordinary
|
|
Free Cash
|
|
|
EBITDA
|
|
Expenditures(1)
|
|
Capital Expenditures
|
|
Flow(2)
|
|
Graphic Contribution to Combined
Company Equity Value
|
|
|
55 68
|
%
|
|
|
59 80
|
%
|
|
|
52 70
|
%
|
|
|
43 79
|
%
|
|
|
|
(1) |
|
BCHs capital expenditures for fiscal years 2007 through
2009 include capital expenditures to achieve standalone cost
savings. |
|
(2) |
|
BCHs free cash flows for fiscal years 2007 through 2009
exclude capital expenditures and other expenditures to achieve
standalone cost savings. |
|
|
|
Analysis
of Transaction Implied Multiples
|
Goldman Sachs calculated an implied enterprise value of
approximately $1.8 billion for BCH based on the
approximately 59% pro forma ownership of the combined company by
Graphic stockholders, net debt of
41
BCH of approximately $1.1 billion, and Graphics
equity value of approximately $1.0 billion as of
July 6, 2007. Goldman Sachs then calculated the implied
ratio of enterprise value to both EBITDA and EBITDA minus
ordinary capital expenditures for BCH, in each case for fiscal
years 2006, 2007, 2008 and 2009 based on the Graphic management
forecasts for BCH. Goldman Sachs then compared such multiples
with those of Graphic and Rock-Tenn Company.
|
|
|
Illustrative
Discounted Cash Flow Analysis
|
Goldman Sachs performed an illustrative discounted cash flow
analysis on Graphic and BCH using projections for the respective
companies prepared by Graphic management. Goldman Sachs
calculated indications of net present value as of
September 30, 2007 of unlevered free cash flows for Graphic
and BCH for fiscal years 2008 through 2010 using discount rates
ranging from 10.0% to 14.0%. Goldman Sachs also calculated
illustrative terminal values in fiscal year 2010 for each of
Graphic and BCH based on multiples ranging from 7.0x EBITDA to
9.0x EBITDA. These illustrative terminal values were then
discounted to calculate implied indications of present values
using discount rates ranging from 10.0% to 14.0%. The ranges of
discount rates were chosen to reflect a theoretical analysis of
weighted average cost of capital for Graphic and BCH. The
following table summarizes the illustrative ranges of equity
value for Graphic and BCH implied by the illustrative discounted
cash flow analysis and illustrates Graphics and BCHs
equity holders implied pro forma ownership of the combined
company calculated on this basis.
|
|
|
|
|
|
|
|
|
|
|
Illustrative Equity Value
|
|
Implied Pro Forma
|
|
|
(US$ in millions)
|
|
Ownership (%)
|
|
Graphic
|
|
|
1,039 - 2,017
|
|
|
|
64.06 - 64.74
|
|
BCH
|
|
|
566 - 1,132
|
|
|
|
35.26 - 35.94
|
|
|
|
|
Selected
Transactions Analysis
|
Goldman Sachs analyzed certain public information relating to
the following selected transactions in the folding carton and
paper-based packaging industry since 1994 (listed by acquirer,
followed by target and announcement year):
|
|
|
|
|
Carter Holt Harvey Limited International Paper
Companys beverage packaging business (2007);
|
|
|
|
Texas Pacific Group Field Container Company, L.P.
(2006);
|
|
|
|
Texas Pacific Group Smurfit-Stone Container
Corporations consumer packaging segment (2006);
|
|
|
|
American Capital Strategies Ltd. Ranpak Corporation
(2005);
|
|
|
|
Rock-Tenn Company Gulf States Paper Corporation
(2005);
|
|
|
|
Sonoco Products Company CorrFlex Graphics, LLC
(2004);
|
|
|
|
Riverwood Holding, Inc. Graphic International
Corporation (2003);
|
|
|
|
Solo Cup Company Sweetheart Holdings Inc. (2003);
|
|
|
|
SCA Packaging International BV Tuscarora Incorporated
(2001);
|
|
|
|
Chesapeake Corporation First Carton Group Limited
(2000);
|
|
|
|
Westvaco Corporation IMPAC Group, Inc. (2000);
|
|
|
|
International Paper Company Shorewood Packaging
Corporation (2000);
|
|
|
|
Westvaco Corporation Mebane Packaging Group Inc.
(2000);
|
|
|
|
Chesapeake Corporation Boxmore International PLC
(1999);
|
|
|
|
Chesapeake Corporation Consumer Promotions
International, Inc. (1999);
|
|
|
|
Gulf States Paper Corporation Laird Packaging, Inc.
(1999);
|
42
|
|
|
|
|
ACX Technologies, Inc. Fort James Packaging
Corporations packaging business (1999);
|
|
|
|
Caraustar Industries, Inc. Tenneco Packaging
Inc.s folding carton division (1999);
|
|
|
|
Caraustar International Paper Companys
boxboard mill (1999);
|
|
|
|
Chesapeake Corporation Field Group P.L.C. (1999);
|
|
|
|
Huhtamaki Royal Packaging Industries Van Leer N.V.
(1999);
|
|
|
|
Madison Dearborn Partners Tenneco Automotive
Inc.s containerboard business (1999);
|
|
|
|
IMPAC Group, Inc. Tinsley Robor PLC (1998);
|
|
|
|
Packaging Dynamics Corporation Bagcraft Corporation
of America (1998);
|
|
|
|
Shorewood Packaging Corporation Queens Group, Inc.
(1998);
|
|
|
|
Huhtamaki Oy Sealright Co., Inc. (1998);
|
|
|
|
The Blackstone Group Graham Packaging Holdings
Company (1997);
|
|
|
|
ACX Technologies, Inc. Britton Group plc (UPC
packaging only) (1997);
|
|
|
|
Caraustar Industries, Inc. Oak Tree Packaging
Corporation (1997);
|
|
|
|
Cravey, Green & Whalen Mebane Packaging
Group (1997);
|
|
|
|
Ranger Waldorf (1997);
|
|
|
|
Heritage Partners Klearfold, Inc. (1996);
|
|
|
|
Caraustar Industries, Inc. Tenneco, Inc. (Ritman and
Tana plants) (1996);
|
|
|
|
Caraustar Industries, Inc. GAR Holding Company
(1995);
|
|
|
|
Clayton Dubilier Riverwood International Corporation
(1995);
|
|
|
|
Republic Group Incorporated Halltown Paperboard
Company/Dillard Investment Corporation (1995);
|
|
|
|
Ranger Olympic Packaging (1994);
|
|
|
|
Alusuisse-Lonza Holding AG Lawson Mardon Group Ltd.
(1994); and
|
|
|
|
Shorewood Packaging Corporation Premium Packaging
Group of Cascades Paperboard International, Inc. (1994).
|
For each of the selected transactions, Goldman Sachs calculated
and compared levered aggregate consideration as a multiple of
latest twelve months sales and EBITDA. While none of the
companies that participated in the selected transactions are
directly comparable to Graphic, the companies that participated
in the selected transactions are companies with operations that,
for the purposes of analysis, may be considered similar to
certain of Graphics results, market size and product
profile.
The following table presents the results of this analysis:
|
|
|
|
|
|
|
|
|
Levered Market Capitalization
|
|
Selected Transactions
|
as a Multiple of:
|
|
Range
|
|
Median
|
|
LTM Sales
|
|
|
0.6x-1.9x
|
|
|
|
0.9x
|
|
LTM EBITDA
|
|
|
4.8x-10.3x
|
|
|
|
7.2x
|
|
|
|
|
Illustrative
Future Stock Price Analysis
|
Goldman Sachs performed an illustrative analysis of the implied
present value of the future stock price of Graphic, which is
designed to provide an indication of the present value of a
theoretical future value of a companys equity as a
function of such companys estimated forward EBITDA and its
assumed EBITDA
43
trading multiple. For this analysis, Goldman Sachs used the
financial forecasts for Graphic prepared by its management for
fiscal years 2008 through 2010 under three scenarios:
|
|
|
|
|
Scenario one: Graphic continuing as a standalone company;
|
|
|
|
Scenario two: Graphic combining with BCH, assuming synergies for
fiscal years 2008, 2009 and 2010, and no limitations on the use
of Graphics net operating losses, or NOLs; and
|
|
|
|
Scenario three: Graphic combining with BCH, assuming synergies
for fiscal years 2008, 2009 and 2010, and an NOL limitation per
Graphic managements guidance.
|
Goldman Sachs calculated implied per share values for the common
stock under each scenario for each of the fiscal years 2007 to
2009 by applying a forward EBITDA multiple of 8.5x to EBITDA
estimates prepared by Graphic management of fiscal years 2008 to
2010 adjusted to include synergies, but which excludes costs to
achieve such synergies. Goldman Sachs then discounted those
values to July 6, 2007 using an equity discount rate of
12.0%. Goldman Sachs assumed 343.4 million pro forma
diluted shares outstanding of the combined entity. Based on the
foregoing, the implied present values per share of Graphic
common stock was higher in scenario two and three, as compared
to scenario one, for each of fiscal 2007 to 2009.
|
|
|
Pro
Forma Merger Analysis
|
Goldman Sachs prepared illustrative pro forma analyses of the
potential financial impact of the transactions using earnings
estimates for Graphic on a standalone and combined basis
prepared by Graphic management. For each of fiscal years 2008
and 2009, Goldman Sachs compared the projected earnings per
share, cash earnings per share and free cash flows per share of
Graphic common stock, on a standalone basis, to the projected
earnings per share, cash earnings per share and free cash flows
per share of the common stock of the combined companies,
respectively. The earnings per share and cash earnings per share
calculations added back expensed cost to achieve synergies.
Goldman Sachs assumed no limitations on the use of
Graphics NOLs. Based on such analyses, the proposed
transactions would be accretive to Graphic stockholders on an
earnings per share, cash earnings per share and free cash flows
per share basis in fiscal years 2008 and 2009.
Goldman Sachs also performed the foregoing analyses assuming an
NOL limitation per Graphic managements guidance. Based on
such analyses, the proposed transactions would be accretive to
Graphic stockholders on an earnings per share basis in fiscal
years 2008 and 2009; accretive on a cash earnings per share
basis in fiscal year 2008 and neither accretive nor dilutive in
fiscal year 2009; and dilutive on a free cash flow per share
basis in fiscal years 2008 and 2009.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Goldman Sachs opinion. In arriving at its
fairness determination, Goldman Sachs considered the results of
all of its analyses and did not attribute any particular weight
to any factor or analysis considered by it. Rather, Goldman
Sachs made its determination as to fairness on the basis of its
experience and professional judgment after considering the
results of all of its analyses. No company or transaction used
in the above analyses as a comparison is directly comparable to
Graphic or BCH or the contemplated transactions.
Goldman Sachs prepared these analyses for purposes of providing
its opinion to Graphics board of directors as to the
fairness, from a financial point of view to Graphic, of the
139,445,038 shares of New Graphic common stock, taken in
the aggregate, to be issued by New Graphic in exchange for 100%
of the outstanding equity interests in BCH pursuant to the
transaction agreement. These analyses do not purport to be
appraisals nor do they necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based
upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or
less favorable than suggested by these analyses. Because these
analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the
44
parties or their respective advisors, none of Graphic, BCH,
Goldman Sachs or any other person assumes responsibility if
future results are materially different from those forecast.
The transaction consideration was determined through
arms-length negotiations between Graphic and BCH and was
approved by Graphics board of directors. Goldman Sachs
provided advice to Graphic during these negotiations. Goldman
Sachs did not, however, recommend any specific amount of
consideration to Graphic or its board of directors or that any
specific amount of consideration constituted the only
appropriate consideration for the transaction.
As described below, Goldman Sachs opinion to the
Graphics board of directors was one of many factors taken
into consideration by the Graphic board of directors in making
its determination to approve the transaction agreement. The
foregoing summary does not purport to be a complete description
of the analyses performed by Goldman Sachs in connection with
the fairness opinion and is qualified in its entirety by
reference to the written opinion of Goldman Sachs attached as
Annex G.
Goldman Sachs and its affiliates, as part of their investment
banking business, are continually engaged in performing
financial analyses with respect to businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and other transactions as well as for estate,
corporate and other purposes. Goldman Sachs has acted as
financial advisor to Graphic in connection with, and have
participated in certain of the negotiations leading to, the
transactions contemplated by the transaction agreement. An
affiliate of Goldman Sachs entered into financing commitments to
provide Graphic with one third of the senior secured credit
facilities in connection with the consummation of the
transactions, and has agreed to act as joint lead arranger and
bookrunner in respect of the syndication of such credit
facilities and the consummation of certain amendments to
Graphics existing senior secured credit facilities, in
each case subject to the terms of such commitments and
agreements. Goldman Sachs expects to receive fees in connection
with these financing commitments and facilities that are
contingent upon their closing upon consummation of the
transactions.
In addition, Goldman Sachs and its affiliates have provided
certain investment banking and other financial services to
Graphic and its affiliates from time to time, including having
acted as joint book manager in connection with the refinancing
of Graphics senior secured credit facility in May 2007.
Goldman Sachs also has provided certain investment banking and
other financial services to Clayton, Dubilier and Rice, Inc., or
CD&R, an affiliate of a significant stockholder of Graphic,
and its affiliates and portfolio companies from time to time,
including having acted as its financial advisor in connection
with the sale of Kinkos, a former portfolio company of
CD&R, in February 2004; and as its financial advisor in
connection with the sale of VWR International, a former
portfolio company of CD&R, announced in May 2007. Goldman
Sachs also has provided certain investment banking and other
financial services to TPG Capital, or TPG, a significant equity
holder of BCH, and its affiliates and portfolio companies from
time to time, including having acted as its financial advisor in
connection with the acquisition of Texas Genco Holdings Inc. by
TPG in December 2004; as underwriter with respect to the initial
public offering of shares of common stock of Burger King
Holdings, Inc., or Burger King, a portfolio company of TPG, in
May 2006; as underwriter with respect to the initial public
offering of shares of common stock of J. Crew Group, Inc., or J.
Crew, a portfolio company of TPG, in June 2006; as joint
bookrunner with respect to a follow on offering of shares of
common stock of J. Crew in January 2007; as joint
bookrunner with respect to a follow on offering of shares of
common stock of Burger King in February 2007; as financial
advisor to the consortium that includes TPG with respect to its
proposed acquisition of Biomet, Inc, including acting as joint
bookrunner and joint lead arranger with respect to the financing
of such acquisition, announced December 2006; and as financial
advisor to the consortium that includes TPG with respect to its
proposed acquisition of TXU Corp., announced in February 2007.
Goldman Sachs may provide investment banking and other financial
services to Graphic and its affiliates and CD&R and TPG and
their respective affiliates and portfolio companies in the
future. In connection with the above-described services Goldman
Sachs has received, and may receive, compensation.
Goldman Sachs is a full service securities firm engaged, either
directly or through its affiliates, in securities trading,
investment management, financial planning and benefits
counseling, risk management, hedging, financing and brokerage
activities for both companies and individuals. In the ordinary
course of these
45
activities, Goldman Sachs and its affiliates may provide such
services to Graphic and its affiliates, BCH, CD&R and TPG
and their respective affiliates and portfolio companies, may
actively trade the debt and equity securities (or related
derivative securities) of Graphic, BCH and affiliates and
portfolio companies of CD&R and TPG for their own account
and for the accounts of their customers and may at any time hold
long and short positions of such securities. Affiliates of
Goldman Sachs have co-invested with CD&R and TPG and their
respective affiliates from time to time and such affiliates of
Goldman Sachs have invested and may invest in the future in
limited partnership units of affiliates of CD&R and TPG.
The board of directors of Graphic selected Goldman Sachs as its
financial advisor because it is an internationally recognized
investment banking firm that has substantial experience in
transactions similar to the transactions. Pursuant to a letter
agreement dated November 13, 2006, as amended on
July 9, 2007, Graphic engaged Goldman Sachs to act as its
financial advisor in connection with the contemplated
transactions. Pursuant to the terms of this engagement letter,
as amended, Graphic has agreed to pay Goldman Sachs a
transaction fee of $20 million, all of which is payable
upon consummation of the transactions. In addition, Graphic has
agreed to reimburse Goldman Sachs for its expenses, including
attorneys fees and disbursements, and to indemnify Goldman
Sachs and related persons against various liabilities, including
certain liabilities under the federal securities laws.
Voting
Agreement
The following is a summary of the material provisions of the
voting agreement. This summary is qualified in its entirety by
reference to the voting agreement, which is incorporated by
reference in its entirety and attached to this proxy
statement/prospectus as Annex D. This summary may not
contain all of the information about the voting agreement which
is important to you, and we encourage you to read the voting
agreement in its entirety.
Concurrently with the execution of the transaction agreement,
BCH executed a voting agreement with the Coors Family
Stockholders, the CDR Fund, EXOR and Graphic to facilitate the
transactions. As of July 9, 2007 and as of the record date,
the Coors Family Stockholders, the CDR Fund and EXOR
collectively beneficially owned 129,376,414 shares of
Graphic common stock, which represented approximately 65% of
Graphic common stock outstanding as of July 9, 2007 and as
of the record date.
Under the voting agreement, and as further described below, each
of the Coors Family Stockholders, the CDR Fund and EXOR has
agreed, prior to termination of the voting agreement, at the
special meeting and at any other meeting of the stockholders of
Graphic, however called, including any adjournment or
postponement thereof, and in connection with any written consent
of the stockholders of Graphic, such stockholder shall, in each
case to the fullest extent that its shares of Graphic common
stock are entitled to vote thereon or consent thereto, vote or
consent:
|
|
|
|
|
in favor of the adoption of the transaction agreement and
approval of the transactions and any other related proposal
submitted for a vote of Graphic stockholders in furtherance of
the transaction agreement, as reasonably requested by BCH;
|
|
|
|
against any action or agreement submitted for a vote or written
consent of Graphic stockholders that is in opposition to, or
competitive or materially inconsistent with the transactions or
that would result in a breach of the transaction agreement by
Graphic or of the voting agreement by such stockholder; and
|
|
|
|
against any takeover proposal and any other action, agreement or
transaction submitted for a vote or written consent of Graphic
stockholders that would reasonably be expected to impede,
interfere with, delay, postpone, discourage, frustrate the
purposes of or adversely affect the transactions contemplated by
the transaction agreement or the voting agreement or
Graphics performance of its obligations under the
transaction agreement or by such stockholder of its obligations
under the voting agreement.
|
The obligations of the Coors Family Stockholders, the CDR Fund
and EXOR to vote as described in the paragraph above apply
whether or not the transactions or any action described above is
recommended by the
46
Graphic board of directors. However, if the Graphic board of
directors changes adversely its recommendation with respect to
the transaction agreement in connection with a takeover
proposal, the obligation of such stockholders to vote in the
manner described in the paragraph above will only apply to an
aggregate number of such stockholders shares equal to 32%
of the outstanding shares of Graphic common stock. In that
instance, each of such stockholders has agreed to cause its
remaining shares so entitled to vote to be voted in a manner
that is proportionate to the manner in which all shares of
Graphic common stock (other than shares voted by the
stockholders subject to the voting agreements) which are voted
in respect of such matter, are voted.
In furtherance of the voting agreement, each of the Coors Family
Stockholders, the CDR Fund and EXOR granted an irrevocable proxy
to designated officers of BCH to vote its shares in the manner
described in the two immediately preceding paragraphs.
|
|
|
Transfer
and Other Restrictions
|
Each of the Coors Family Stockholders, the CDR Fund and EXOR has
agreed that beginning July 9, 2007, until the termination
of the voting agreement, it will not:
|
|
|
|
|
sell, transfer, assign, pledge or similarly dispose of its
shares of Graphic common stock or any interest in Graphic common
stock (except for certain transfers to related parties of the
stockholders that agree to be bound by the voting agreement);
|
|
|
|
enter into any agreement, arrangement or understanding with any
person, or take any action that would violate or conflict with
its representations, warranties, covenants or obligations under
the voting agreement or that would restrict or otherwise affect
its legal power, authority and right to perform its covenants
and obligations under the voting agreement; or
|
|
|
|
take any action that could restrict or otherwise affect such
stockholders legal power, authority and right to comply
with and perform its covenants and obligations under the voting
agreement.
|
No Solicitation
Each of the Coors Family Stockholders, the CDR Fund and EXOR has
also agreed not to, and not to permit any of its subsidiaries,
representatives or affiliates to:
|
|
|
|
|
solicit, initiate, or knowingly encourage or knowingly
facilitate any takeover proposal or the making or consummation
of a takeover proposal;
|
|
|
|
enter into, continue or otherwise participate in any discussions
or negotiations regarding, furnish any confidential information
in connection with, or otherwise cooperate in any way with any
takeover proposal;
|
|
|
|
waive, terminate, modify or fail to enforce any provision of any
standstill or similar obligation of any person other than BCH;
|
|
|
|
make or participate in any solicitation of proxies, or powers of
attorney or similar rights to vote, or seek to advise or
influence any person with respect to the voting of Graphic
common stock other than to recommend the adoption of the
transaction agreement;
|
|
|
|
approve, adopt or recommend or allow any of its subsidiaries to
execute or enter into, any letter of intent, memorandum of
understanding, agreement in principle, merger agreement,
acquisition agreement, option agreement, joint venture
agreement, partnership agreement, or other similar contract or
any tender or exchange offer providing for, with respect to, or
in connection with, any takeover proposal; or
|
|
|
|
agree or publicly propose to do any of the foregoing.
|
47
For purposes of the voting agreement, the term takeover proposal
has the meaning described under The Transaction Agreement
and Agreement and Plan of Merger No Other
Transactions Involving Graphic or the Sellers.
The voting agreement terminates on the earlier to occur of:
|
|
|
|
|
the closing of the transactions;
|
|
|
|
the date of termination of the transaction agreement in
accordance with its terms; and
|
|
|
|
the delivery of written notice of termination by the
stockholders to BCH following any amendment to the transaction
agreement, without the prior written consent of the Graphic
stockholders, if such amendment changes the form or reduces the
amount of consideration to be paid in the merger.
|
Interests
of Graphics Directors and Executive Officers in the
Transactions
In considering the recommendation of the Graphic board of
directors with respect to the transaction agreement and the
transactions, Graphic stockholders should be aware that some of
Graphics executive officers and directors have interests
in the transactions and have arrangements that are different
from, or in addition to, those of Graphic stockholders
generally. The Graphic board of directors was aware of these
interests, which include the vesting of certain equity
compensation awards, arrangements under certain executive
officer employment agreements, continuing board positions,
indemnification obligations and reimbursement of certain legal
fees and considered them, among other matters, in reaching its
decisions to approve the transaction agreement and the
transactions and to recommend that Graphic stockholders vote in
favor of adopting the transaction agreement and approving the
transactions.
|
|
|
Equity
Compensation Awards
|
The transaction agreement provides that upon completion of the
merger, each Graphic stock option, including those held by
executive officers and directors of Graphic, will be converted
into an option to purchase New Graphic common stock on a
one-for-one basis. In addition, the transaction agreement
provides that, upon completion of the merger, each share of
restricted stock or performance unit and other equity awards
based upon shares of Graphic common stock other than restricted
stock units, including those held by executive officers and
directors of Graphic, will be converted into equity-based awards
with respect to New Graphic common stock on a one-for-one basis.
In accordance with the terms of Graphics 2004 Stock and
Incentive Compensation Plan, 4.8 million restricted stock
units will immediately vest and become payable upon completion
of the transactions. In connection with the payments in respect
of these units, New Graphic will issue an aggregate of
1.8 million shares of New Graphic common stock and make
aggregate cash payments of $14.7 million. The executive
officers of Graphic listed below have restricted stock units
that will vest and become payable, one-half in shares and
one-half in cash, upon completion of the transactions. The gross
number of shares and gross amount of cash payable (prior to the
withholding of shares and cash for taxes) is set forth beside
each such officers name:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Cash*
|
|
Daniel J. Blount
|
|
|
128,052
|
|
|
$
|
590,320
|
|
Michael P. Doss
|
|
|
79,188
|
|
|
$
|
365,057
|
|
Stephen A. Hellrung
|
|
|
131,910
|
|
|
$
|
608,105
|
|
Stephen M. Humphrey
|
|
|
579,093
|
|
|
$
|
2,669,619
|
|
Wayne E. Juby
|
|
|
123,498
|
|
|
$
|
569,326
|
|
David W. Scheible
|
|
|
257,178
|
|
|
$
|
1,185,591
|
|
Michael R. Schmal
|
|
|
133,702
|
|
|
$
|
616,366
|
|
Robert M. Simko
|
|
|
115,541
|
|
|
$
|
532,644
|
|
|
|
|
* |
|
Based upon an assumed market value of Graphics common
stock of $4.61 per share, the closing price of Graphic on
August 28, 2007. |
48
|
|
|
Continuing
Executive Positions
|
Although final determinations have not been made with respect to
the senior management of New Graphic, other than the President,
Chief Executive Officer and Chief Financial Officer, New Graphic
expects that some, if not all, of Graphics executive
officers will serve as executive officers of New Graphic upon
completion of the transactions. Although New Graphic has not
finalized its management team, New Graphic expects to retain the
majority of Altivitys employees, including members of
Altivitys management team.
|
|
|
Continuing
Board Positions
|
New Graphics board of directors will consist initially of
13 directors. Eight members of Graphics current board
of directors, John D. Beckett, G. Andrea Botta, Kevin J. Conway,
Jeffrey H. Coors, Harold R. Logan, John R. Miller, Robert W.
Tieken and David W. Scheible, are each expected to serve as
members of New Graphics board of directors.
|
|
|
Indemnification
Obligations
|
New Graphic has agreed to indemnify officers, directors and
managers of BCH, Altivity and Graphic against claims arising
from facts or events that occurred before the closing date of
the transaction agreement to the fullest extent permitted by law
(including with respect to the advancement of expenses). Such
provisions will not be amended, repealed or otherwise modified
for six years from the closing date of the transaction agreement
in any manner that would affect adversely the rights of
individuals who at or at any time before the closing date of the
transaction agreement were employees, directors, members or
managers of BCH, Altivity and Graphic, as applicable.
|
|
|
Reimbursement
of HSR Filing Fees
|
Graphic has previously reimbursed each of the Coors Family
Stockholders, the CDR Fund, and EXOR $125,000 for filing fees
associated with filings submitted by each of them relating to
the transactions under the HSR Act and has agreed to reimburse
them for legal fees incurred in the preparation of the filings
under the HSR Act and negotiation of the transactions.
New Graphic will account for the transactions using the purchase
method of accounting in accordance with generally accepted
accounting principles in the United States (GAAP),
with Graphic being treated as the acquirer for accounting
purposes. Under the purchase method of accounting, the purchase
price will be allocated to the individual tangible and
intangible assets acquired and liabilities assumed from BCH
based on their fair market values at the date of the completion
of the transactions. Any excess of the purchase price over these
fair market values will be treated as goodwill. The acquired
assets, liabilities and results of operations will be
consolidated into the assets, liabilities and results of
operations of New Graphic on a prospective basis after the
completion of the transactions.
In order to complete the transactions, Graphic and BCH were
required to submit filings with, and obtain certain orders or
approvals from, a number of regulatory authorities. The material
regulatory approvals and filings are described below. Graphic
and BCH are not aware of any other material approvals or filings
that are required before completing the transactions.
49
The transactions are subject to the requirements of the HSR Act
and the rules and regulations promulgated thereunder. Each of
Graphic, BCH, the Coors Family Stockholders, the CDR Fund, EXOR
and the TPG Entities have submitted their required filings under
the HSR Act to the Federal Trade Commission and the DOJ. A
request was received on August 22, 2007 for additional
information, commonly referred to as a second
request, from the Antitrust Division of the DOJ regarding
the transactions. The second request extends the waiting period
imposed by the HSR Act until 30 days after the second
request has been substantially complied with, unless that period
is extended voluntarily by the parties or terminated sooner by
the DOJ. In addition, the DOJ, the Federal Trade Commission or
others could take additional action under the antitrust laws
with respect to the transactions, including seeking to enjoin
the consummation of the transactions before the effective time
of the transactions or to impose conditions on, or to require
divestitures relating to, the divisions, operations or assets of
Graphic or BCH. There can be no assurance that a challenge to
the transactions on antitrust grounds will not be made or, if
such a challenge is made, that it would not be successful.
The transactions are also subject to the approval by the German
Cartel Office. On August 2, 2007, Graphic made a filing
with the German Cartel Office. Clearance of the transactions
from the German Cartel Office was received on August 28,
2007.
Material
U.S. Federal Income Tax Consequences to Graphic
Stockholders
The following summary discusses the anticipated material
U.S. federal income tax consequences of the transactions to
Graphic stockholders. This summary does not deal with special
situations. For example, the summary does not address:
|
|
|
|
|
tax consequences to holders who may be subject to special tax
treatment, such as expatriates, brokers and dealers in
securities or currencies, financial institutions, mutual funds,
tax-exempt entities, traders in securities that elect to use a
mark-to-market method of accounting for their securities
holdings, and insurance companies;
|
|
|
|
tax consequences to Graphic stockholders who acquired their
shares of Graphic common stock pursuant to the exercise of
employee stock options or warrants or otherwise as compensation;
|
|
|
|
tax consequences to persons holding Graphic common stock as part
of a hedging, integrated, constructive sale or conversion
transaction, a straddle or other risk reduction transaction;
|
|
|
|
tax consequences to holders of outstanding Graphic stock options;
|
|
|
|
tax consequences to U.S. holders, as defined
below, of Graphic common stock whose functional
currency is not the U.S. dollar;
|
|
|
|
tax consequences to certain
non-U.S. holders,
as defined below, subject to special rules such as
controlled foreign corporations, passive
foreign investment companies and foreign personal
holding companies;
|
|
|
|
alternative minimum tax consequences, if any; and
|
|
|
|
any state, local, foreign or other tax consequences.
|
If a partnership holds Graphic common stock, the tax treatment
of a partner in the partnership generally will depend upon the
status of the partner and the activities of the partnership. If
you are a partner in a partnership holding Graphic common stock,
you are strongly encouraged to consult your own tax advisor as
to your tax treatment as a partner.
This summary is based on the Internal Revenue Code, its
legislative history, Treasury Department regulations, IRS
rulings, and judicial decisions, all as of the date hereof. Any
of these authorities may be
50
changed, possibly retroactively, so as to result in
U.S. federal income tax consequences different from those
discussed below. This discussion assumes that Graphic
stockholders hold their Graphic common stock, and will hold New
Graphic common stock, as a capital asset within the meaning of
Section 1221 of the Internal Revenue Code.
This summary is not binding on the IRS and no ruling will be
sought from the IRS as to the tax consequences of the
transactions. This summary is not a complete analysis or
description of all potential U.S. federal income tax
consequences of the transactions. There can be no assurance that
the IRS or the courts will agree with the statements and
conclusions in the summary. Accordingly, you are strongly
encouraged to consult your own tax advisor concerning the
specific U.S. federal income and estate tax consequences to
you of the transactions relating to your own personal tax
situation and any consequences arising under the laws of any
state, local, foreign or other taxing jurisdiction.
|
|
|
Tax
Treatment of Transactions
|
Alston & Bird LLP, counsel to Graphic, will deliver a
tax opinion to Graphic, dated as of the closing date of the
transactions, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion, the
exchange of Graphic common stock for New Graphic common stock,
taken together with the exchange of equity interests of BCH held
by the Sellers for New Graphic common stock, will constitute an
exchange to which Section 351 of the Internal Revenue Code
applies, or the exchange of Graphic common stock for New Graphic
common stock will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code, or both.
Any change in currently applicable law, which may or may not be
retroactive, or failure of any factual representations or
assumptions to be true, correct and complete in all material
respects, could affect the continuing validity of the
Alston & Bird tax opinion.
|
|
|
Considerations
for U.S. Holders of Graphic Common Stock
|
The following is a summary of the material U.S. federal
income tax consequences if you are a U.S. holder of Graphic
common stock. Certain considerations for
non-U.S. holders
of Graphic common stock are described under Considerations
for
Non-U.S. Holders
of Graphic Common Stock below.
U.S. holder means a beneficial owner of Graphic
common stock that is for U.S. federal income tax purposes:
|
|
|
|
|
a citizen or resident of the United States;
|
|
|
|
a corporation, or a partnership or other entity treated as a
corporation for U.S. federal income tax purposes, created
or organized under the laws of the United States or any
political subdivision of the United States;
|
|
|
|
an estate the income of which is subject to U.S. federal
income taxation regardless of its source; or
|
|
|
|
a trust if (i) it is subject to the primary supervision of
a court within the United States and one or more
U.S. persons have the authority to control all substantial
decisions of the trust, or (ii) it has a valid election in
effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
|
You will not recognize gain or loss on the exchange of your
Graphic common stock for New Graphic common stock pursuant to
the transactions. Your aggregate tax basis in New Graphic common
stock received in the transactions will be the same as your
aggregate tax basis in Graphic common stock exchanged in the
transactions. Your holding period for New Graphic common stock
received in the transactions will include the period for which
you held Graphic common stock exchanged in the transactions. If
you acquired different blocks of Graphic common stock at
different times and at different prices, your tax basis and
holding period in your New Graphic common stock may be
determined with reference to each block of Graphic common stock.
Distributions, if any, on New Graphic common stock will
constitute dividends for U.S. federal income tax purposes
to the extent of New Graphics current or accumulated
earnings and profits as determined under U.S. federal
income tax principles. To the extent that a U.S. holder
receives a distribution on common stock that exceeds New
Graphics current and accumulated earnings and profits, the
distribution will be treated first as a non-taxable return of
capital reducing the holders tax basis in New Graphic
common stock. Any
51
distribution in excess of the U.S. holders tax basis
in the common stock will be treated as capital gain. Dividends
paid to an individual U.S. holder in taxable years
beginning before 2011 that constitute qualified dividend income
generally will be taxable at a preferential rate of 15%.
A U.S. holder of New Graphic common stock will generally
recognize gain or loss upon the sale, exchange, redemption or
other taxable disposition of such common stock measured by the
difference between:
|
|
|
|
|
the amount of cash and the fair market value of any property
received; and
|
|
|
|
the U.S. holders tax basis in such stock.
|
Gain or loss on the disposition of New Graphic common stock will
be capital gain or loss and will be long-term capital gain or
loss if the holding period of the common stock disposed of
exceeded one year. Net long-term capital gain recognized by
non-corporate U.S. holders prior to 2011 is generally
taxable at a maximum rate of 15%. The deductibility of net
capital losses is subject to limitations.
|
|
|
Considerations
for
Non-U.S. Holders
of Graphic Common Stock
|
The following is a summary of the material U.S. federal
income tax consequences if you are a
non-U.S. holder
of Graphic common stock.
Non-U.S. holder
means a beneficial owner of a share of common stock that is not
a U.S. holder. Special rules may apply to certain
non-U.S. holders
such as controlled foreign corporations,
passive foreign investment companies, and
foreign personal holding companies. All
non-U.S. holders
are strongly urged to consult their own tax advisors to
determine the U.S. federal, state, local, and other tax
consequences that may be relevant to them.
You will not recognize gain or loss on the exchange of your
Graphic common stock for New Graphic common stock pursuant to
the transactions. Your aggregate tax basis in New Graphic common
stock received in the transactions will be the same as your
aggregate tax basis in Graphic common stock exchanged in the
transactions. Your holding period for New Graphic common stock
received in the transactions will include the period for which
you held Graphic common stock exchanged in the transactions. If
you acquired different blocks of Graphic common stock at
different times and at different prices, your tax basis and
holding period in your New Graphic common stock may be
determined with reference to each block of Graphic common stock.
Any dividends paid to you with respect to your shares of New
Graphic common stock generally will be subject to
U.S. federal withholding tax at a 30% rate or such lower
rate as may be specified by an applicable treaty. However,
dividends that are effectively connected with the conduct of a
trade or business within the United States or, where an
applicable tax treaty so provides, are attributable to a
U.S. permanent establishment, generally are not subject to
the withholding tax, but instead are subject to
U.S. federal income tax on a net income basis at applicable
graduated individual or corporate rates. Certain certification
and disclosure requirements must be complied with for
effectively connected income to be exempt from withholding. Any
such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an
additional branch profits tax at a 30% rate or such lower rate
as may be specified by an applicable treaty.
A
non-U.S. holder
of shares of New Graphic common stock that wishes to claim the
benefit of an applicable treaty rate is required to satisfy
applicable certification and other requirements. If you are
eligible for a reduced rate of U.S. withholding tax under
an income tax treaty, you may obtain a refund of any excess
amounts withheld by filing an appropriate claim for refund with
the IRS.
|
|
|
Information
Reporting and Backup Withholding
|
Generally, the amount of dividends paid to you and the amount of
tax, if any, withheld from those payments must be reported to
the IRS and to you in information returns. If the provisions of
certain income tax treaties apply to dividend payments made to
you, copies of those information returns may be made available
to the tax authorities of the country where you reside.
52
In general, if you are not a U.S. person you will not be
subject to backup withholding with respect to payments that are
made to you provided that:
|
|
|
|
|
there is no actual knowledge or reason to know that you are a
U.S. person, as defined under the Internal Revenue Code,
that is not an exempt recipient; and
|
|
|
|
you have provided your name and address, and certified under
penalties of perjury, that you are not a U.S. person, which
certification may be made on the appropriate IRS
Form W-8BEN;
W-8ECI,
W-8EXP or
W-8IMY or
substitute IRS
Form W-8BEN,
W-8ECI,
W-8EXP or
W-8IMY.
|
If you are a U.S. person, you generally will not be subject
to backup withholding if you provide a taxpayer identification
number and other information, certified under penalties of
perjury, or otherwise establish, in the manner prescribed by
law, an exemption from backup withholding.
Information reporting and, depending on the circumstances,
backup withholding at a rate of 28%, subject to future
adjustment under applicable law, will apply with respect to the
proceeds of the sale or other disposition of New Graphic common
stock within the United States or conducted through certain
U.S.-related
financial intermediaries, unless:
|
|
|
|
|
the payor of the proceeds receives the statement described above
and does not have actual knowledge or reason to know that you
are a U.S. person, as defined under the Internal Revenue
Code, that is not an exempt recipient;
|
|
|
|
you provide the payor with a taxpayer identification number and
other information, certified under penalties of perjury; or
|
|
|
|
you otherwise establish, in the manner prescribed by law, an
exemption from backup withholding.
|
Backup withholding is not an additional income tax. Any amounts
withheld from a payment to a holder under the backup withholding
rules will be allowed as a credit against the holders
U.S. federal income tax liability and may entitle the
holder to a refund, provided that the required information is
furnished to the IRS.
This summary is not a complete analysis or description of all
potential U.S. federal income tax consequences of the
transactions. This summary does not address tax consequences
that may vary with, or are contingent on, individual
circumstances. In addition it does not address any non-income
tax or any foreign, state or local tax consequences of the
transactions. Accordingly, you are strongly encouraged to
consult your own tax advisor concerning the specific
U.S. federal income and estate tax consequences to you of
the transactions relating to your personal tax situation and any
consequences arising under the laws of any state, local, foreign
or other taxing jurisdiction.
Federal
Securities Laws Consequences; Stock Transfer
Restrictions
If the transactions are completed, Graphic will delist its
common stock from the NYSE and will deregister its common stock
under the Exchange Act, as a result of which Graphic will no
longer be required to file annual, quarterly, current and other
reports with the SEC. The stockholders of Graphic will become
stockholders of New Graphic and their rights as stockholders
will be governed by Delaware law and by New Graphics
certificate of incorporation and New Graphics by-laws. See
Description of New Graphic Capital Stock and
Comparison of Rights of Graphic Stockholders and New
Graphic Stockholders.
All shares of New Graphic common stock received by Graphic
stockholders in the merger will be freely transferable under the
federal securities laws, except that shares of New Graphic
common stock received by persons who are deemed to be affiliates
of New Graphic under the Securities Act, at the time of the
special meeting may be resold by them only in transactions
permitted by Rule 145 or as otherwise permitted under the
Securities Act. Persons who may be deemed to be affiliates of
New Graphic for such purposes generally include individuals or
entities that control, or are controlled by or are under common
control with, New Graphic and may include certain officers,
directors and significant stockholders of New Graphic, such as
the Coors Family Stockholders, the CDR Fund, EXOR and the TPG
Entities (although the shares being issued to
53
the TPG Entities and the other Sellers in the exchange are being
issued in a transaction exempt from the registration
requirements of the Securities Act and not under this
registration statement).
Graphics registration statement on
Form S-4,
of which this proxy statement/prospectus is a part, does not
cover the resale of shares of New Graphic common stock to be
received in connection with the transactions by persons who may
be deemed to be affiliates of New Graphic, and no person is
authorized to make any use of this document in connection with
any such sale. However, the Coors Family Stockholders, the CDR
Fund, EXOR and the Sellers are parties to a registration rights
agreement with New Graphic. This registration rights agreement
provides each of the Coors Family Stockholders, the CDR Fund,
EXOR and the Sellers with the right in certain instances to
demand registration of their shares of New Graphic common stock
or to participate in registered offerings of shares by New
Graphic. See Other Agreements Registration
Rights Agreement.
The Coors Family Stockholders, the CDR Fund, EXOR, the TPG
Entities, and certain other owners of BCH equity interests have
also entered into a stockholders agreement that restricts their
ability to transfer shares of New Graphic common stock to be
received in connection with the transactions. See Other
Agreements Stockholders Agreement.
Rights
Agreement
Graphic entered into a rights agreement dated August 7,
2003, with Wells Fargo Bank Minnesota, N.A. (now known as Wells
Fargo Bank, N.A.) as rights agent. Under this agreement, Graphic
effected a dividend of stockholder rights that carry certain
conversion rights in the event of a significant change in
beneficial ownership of Graphic. One right is attached to each
share of Graphic common stock outstanding and is not detachable
until such time as a person or group of affiliated or associated
persons acquires beneficial ownership of 15% or more of
Graphics outstanding common stock. The time that such an
acquisition occurs is referred to in the rights agreement as a
stock acquisition time. Each right entitles each registered
holder (excluding the acquiring person or group) to purchase
from Graphic one-thousandth of a share of Series A junior
participating preferred stock, par value $0.01 per share, at a
purchase price of $35.00 per one-thousandth of a share.
Registered holders would receive shares of Graphic common stock
valued at twice the exercise price of the right upon exercise.
Upon the occurrence of a stock acquisition time, Graphic is
entitled to exchange one share of its common stock for each
right outstanding, or to redeem the rights at a price of $0.001
per right. The rights will expire on August 8, 2013.
In connection with the proposed transactions, Graphic and the
rights agent amended the terms of the rights agreement so that
the execution and delivery of the transaction agreement and
voting agreement and the consummation of the transactions will
not constitute a stock acquisition time. This means that holders
of Graphic common stock will not obtain the detachable rights in
connection with the proposed transactions.
Also, in connection with the proposed transactions, the board of
directors of New Graphic will adopt a new stockholder rights
plan. See Description of New Graphic Capital
Stock New Rights Plan.
Financing
Refinancing
Transactions
As contemplated by the commitment letter between Graphic and
each of Bank of America, N.A., Goldman Sachs Credit Partners,
L.P. and JPMorgan Chase Bank N.A., Graphic currently expects to
complete the following refinancing transactions through its
wholly-owned subsidiary, Graphic Packaging International, Inc.,
in connection with the transactions:
|
|
|
|
|
The closing of a new $1.2 billion senior secured term loan
facility to refinance the outstanding amounts under BCHs
existing first and second lien credit facilities.
|
|
|
|
The closing of a new $600 million senior secured
asset-based revolving credit facility. However, if an
asset-based revolving credit facility containing terms that are
satisfactory to Graphic cannot be arranged prior to the closing
of the transactions, Graphic Packaging International, Inc. may
instead elect to increase the size of its existing revolving
credit facility to up to $400 million from
$300 million.
|
54
|
|
|
|
|
An amendment or amendment and restatement of Graphic Packaging
International, Inc.s existing May 16, 2007 credit
agreement to, among other things, accommodate the transactions
and to allow for the reprioritization of liens in connection
with the above-described asset-based revolving credit facility
if obtained.
|
The foregoing refinancing transactions are referred to in this
document as the refinancing.
Existing
Graphic Indebtedness; Certain Amendments to Senior Secured
Facility
On May 16, 2007, Graphic refinanced its existing senior
secured credit facility with various lenders and Bank of
America, N.A., as administrative agent. The current credit
facility consists of a $300 million revolving facility
having a maturity date of March 16, 2013 and a
$1,055 million term loan facility due on May 16, 2014.
The revolving facility initially bore interest at a rate of
LIBOR plus 225 basis points but is subject to adjustment
pursuant to a pricing grid based upon Graphics
consolidated leverage ratio. The term loan facility bears
interest at a rate of LIBOR plus 200 basis points.
Under the terms of the existing credit facility, Graphic must
comply with a maximum consolidated leverage ratio covenant and a
minimum consolidated interest coverage ratio covenant. In
addition, covenants under the facility impose restrictions upon
Graphics ability to, among other things:
|
|
|
|
|
incur additional indebtedness;
|
|
|
|
incur guarantee obligations;
|
|
|
|
create or permit liens on Graphics assets;
|
|
|
|
dispose of assets;
|
|
|
|
prepay other indebtedness;
|
|
|
|
make dividends and other restricted payments;
|
|
|
|
make certain debt or equity investments;
|
|
|
|
make certain acquisitions;
|
|
|
|
engage in certain transactions with affiliates; and
|
|
|
|
change the business conducted by Graphic and its subsidiaries.
|
Graphics obligations under the credit facility are secured
by substantially all of the assets of Graphic.
Pursuant to the refinancing, the above-described existing
Graphic credit facility will remain in place but will be amended
or amended and restated to accommodate the transactions, to
permit the incurrence of the new senior secured term loan
facility that will be necessary to refinance BCHs existing
first and second lien credit facilities and to allow for the
reprioritization of the lien in connection with the
above-described senior secured asset-based revolving credit
facility, if obtained. However, the amendment or amendment and
restatement of the existing Graphic credit facility will not
materially alter certain of the principal economic terms of the
existing credit facility including the maturity dates of the
facilities and the interest rate applicable to the existing term
loan and the revolving credit facility, if such facility remains
in place. The amendment or amendment and restatement will modify
various affirmative, negative and financial covenants from those
contained in the existing facility.
On August 8, 2003, Graphic also issued its
8.50% senior notes due August 15, 2011 in an aggregate
principal amount equal to $425 million and its
9.50% senior subordinated notes due August 15, 2013 in
an aggregate principal amount equal to $425 million. Each
issuance of notes was issued pursuant to an indenture, each
dated August 8, 2003. It is expected that the senior notes
and senior subordinated notes will remain outstanding after the
transaction and their terms and the terms of the indentures will
not be amended.
55
New
Graphic Credit Facilities
Pursuant to a commitment letter dated July 9, 2007, Bank of
America, N.A., Goldman Sachs Credit Partners L.P., JPMorgan
Chase Bank, N.A. and certain of their affiliates (which we refer
to as the joint bookrunners) have committed to
provide the refinancing, subject to certain conditions. Graphic
Packaging International, Inc. will be the borrower under the new
credit facilities and is referred to in this summary of the new
credit facilities as the borrower.
The new credit facilities are expected to provide for aggregate
maximum borrowings of $1.8 billion under (1) a term
loan facility providing for term loans in an aggregate principal
amount of up to $1.2 billion, and (2) an asset-based
revolving credit facility providing for up to $600 million
in revolving loans to the borrower (including letters of credit
and swingline loans) outstanding at any time. However, if an
asset-based loan facility that is satisfactory to Graphic cannot
be arranged prior to the closing of the transactions,
Graphics existing revolving credit facility, as described
above, will be increased to up to $400 million from
$300 million.
Availability. The availability of the new
credit facilities are subject to conditions precedent, which
include the following:
|
|
|
|
|
the consummation of the transactions in all material respects in
accordance with the transaction agreement without modifications,
amendments or waivers material and adverse to the lenders;
|
|
|
|
the negotiation, execution and delivery of definitive loan
documentation, provided that such documentation will not contain
any provisions which would cause the new credit facilities to
not be available if the explicit conditions in the commitment
letter are met and representations and warranties will be
limited to those representations and warranties in the
transaction agreement to the extent material to the interests of
the lenders and certain specified representations and warranties;
|
|
|
|
the delivery of certain financial statements; and
|
|
|
|
the delivery of certain customary closing certificates and
opinions.
|
Maturity; Prepayments. The new term loans are
expected to mature on May 16, 2014, the new asset-based
revolving credit facility, if obtained, is expected to mature on
the date six years after the closing of the transactions, and
the increased revolving credit facility is expected to mature on
May 16, 2013, if the asset-based facility is not obtained.
Amortization of the principal amount of the new term loan
facility will be required semi-annually in an annual amount of
1.0% of the original amount of the term loans thereunder. (It is
expected that the amortization of Graphics existing
$1,055 million term loan will remain unchanged and will
continue to amortize in an annual amount of 1.0% of the original
amount of the existing term loans payable in semi-annual
installments.)
Subject to certain exceptions, the new credit facilities are
expected to be subject to mandatory prepayment and reduction in
an amount equal to:
|
|
|
|
|
the net proceeds of certain debt offerings by the borrower and
its subsidiaries (other than debt offerings permitted by the
credit facilities); and
|
|
|
|
the net proceeds of certain non-ordinary asset sales by the
borrower and its subsidiaries if the borrowers secured
leverage ratio exceeds an agreed level.
|
Security; Guaranty. The obligations of the
borrower under the new credit facilities are expected to be
guaranteed by Graphic and each existing or future domestic
subsidiary of the borrower (including BCH and its subsidiaries).
In addition, the new credit facilities and the guarantees
thereunder are expected to be secured by security interests in
and pledges of or liens on substantially all of the material
tangible and intangible assets of the borrower and the
guarantors, including pledges of all the capital stock of the
borrower and certain direct or indirect domestic subsidiaries of
the borrower and of up to 65% of the capital stock of each
direct foreign subsidiary of the borrower. If the asset-based
revolving credit facility is obtained, the lenders thereunder
shall obtain a first-priority security interest and lien upon
all accounts receivable and inventory of the borrower and the
guarantors and a second-priority lien and security interest on
substantially all of the other tangible and intangible assets
(including property, plant and equipment and general
intangibles) of the borrower and the
56
guarantors. In such case, the lenders under the existing and new
term loans will obtain a first-priority security interest and
lien upon all tangible assets of the borrower and the guarantors
(including property, plant and equipment and general
intangibles) excluding all accounts receivable and inventory and
a second-priority security interest and lien on the accounts
receivable and inventory. If the asset-based revolving credit
facility is not obtained, the lenders under the revolving credit
facility and the term loan facility will share in all collateral
security on a pari passu basis.
Interest. The commitment letter provides that
the interest rate on Graphics existing term loan and on
Graphics new term loan will bear interest at LIBOR plus
200 basis points, subject to limited adjustment. The
outstanding borrowings under the asset-based revolving facility
are expected to bear interest at LIBOR plus a margin ranging
from 125 basis points to 175 basis points depending
upon excess availability thereunder, subject to adjustment. (If
the asset-based revolving facility is not ultimately
consummated, the interest rate on the existing Graphic revolver,
as increased to $400 million from $300 million, will
remain unchanged and will continue to bear interest at LIBOR
plus a margin ranging between 175 basis points and
225 basis points depending upon Graphics consolidated
leverage ratio.)
Fees. Subject to the consummation of the
transactions, Graphic has agreed to pay (or cause the borrower
to pay) certain fees with respect to the new credit facilities,
including (i) fees on the unused commitments of the
lenders, (ii) letter of credit fees on the aggregate face
amount of outstanding letters of credit plus (minus in the case
of the asset-based facility) a fronting bank fee for the letter
of credit issuing bank, (iii) quarterly administration fees
and (iv) arrangement and other similar fees.
Covenants. It is anticipated that the new
credit facilities will be subject to covenants similar to those
contained in Graphics existing credit facility, as the
same is amended or amended and restated, including certain
financial covenants and covenants that, among other things,
would limit or restrict the ability of the borrower and its
subsidiaries to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay subordinated
indebtedness, make restricted payments, create liens, make
equity or debt investments, make acquisitions or engage in
mergers or consolidations.
Events of Default. It is anticipated that the
new credit facilities will be subject to customary events of
default similar to those contained in Graphics existing
credit facility, as the same is amended or amended and restated,
including non-payment of principal, interest or fees, failure to
comply with covenants, inaccuracy of representations or
warranties in any material respect, cross default to certain
other indebtedness, loss of lien perfection or priority,
material judgments and change of ownership or control.
Sources
and Uses of Funds
Graphic and BCH currently expect that approximately
$1.2 billion of borrowings and cash-on-hand will be
required to consummate the refinancing and pay fees and expenses
related to the refinancing and the transactions. Assuming the
transaction closed on June 30, 2007, approximately
$1.1 billion would have been required to be drawn under the
new senior secured term loan facility and approximately
$5 million would be expected to have been drawn under the
revolving credit facility. With the borrowings under the amended
or amended and restated credit facility
and/or the
new senior secured asset-based revolving credit facility,
Graphic and BCH expect that all outstanding amounts under
BCHs existing first and second lien credit facilities
(estimated to be approximately $1.1 billion at the time of
the transactions) will be repaid in full and such BCH credit
facilities will be terminated. Undrawn amounts under the
revolving credit facility will be available on a revolving
credit basis for general corporate purposes of the borrower and
its subsidiaries.
Exchange
of Shares
Exchange
Agent
Prior to the transactions, Graphic will appoint an exchange
agent to effect the exchange of certificates representing shares
of Graphic common stock for certificates representing shares of
New Graphic common stock. Prior to the completion of the
transactions, New Graphic will deposit with the exchange agent,
in trust
57
for the holders of Graphic common stock, certificates
representing New Graphic common stock issuable upon conversion
of shares of Graphic common stock.
Exchange
of Graphic Shares
Promptly after the transactions, the exchange agent will mail to
each holder of certificates of Graphic common stock a letter of
transmittal and instructions explaining how to surrender such
certificates to the exchange agent.
Graphic stockholders who surrender their stock certificates to
the exchange agent, together with a properly completed and
signed letter of transmittal and any other documents required by
the instructions to the letter of transmittal, will receive New
Graphic common stock certificates representing such number of
shares as such holders are entitled to receive in accordance
with the transaction agreement.
Graphic common stock certificates should not be returned with
the enclosed proxy card and should not be forwarded to the
exchange agent except with a signed letter of transmittal and
any other documents that may be required by the exchange agent,
as provided in the instructions that will accompany the letter
of transmittal, which will be provided to Graphic stockholders
following the transactions.
58
THE
TRANSACTION AGREEMENT AND AGREEMENT AND PLAN OF MERGER
Graphic, BCH, the Sellers, Merger Sub, and New Graphic entered
into the transaction agreement on July 9, 2007. The
transaction agreement, in general, provides for the combination
of the businesses of Graphic and BCH. The following is a summary
of the material provisions of the transaction agreement. This
summary is qualified in its entirety by reference to the
transaction agreement, which is incorporated by reference in its
entirety and attached to this proxy statement/prospectus as
Annex A. This summary may not contain all of the
information about the transaction agreement which is important
to you, and we encourage you to read the transaction agreement
in its entirety.
The transaction agreement has been included to provide you
with information regarding its terms, and we recommend that you
read carefully the transaction agreement in its entirety. Except
for its status as the contractual document that establishes and
governs the legal relations among the parties with respect to
the transactions, we do not intend for its text to be a source
of factual, business or operational information about Graphic,
New Graphic or BCH. That kind of information can be found
elsewhere in this proxy statement/prospectus and in the
documents incorporated herein by reference. The transaction
agreement contains representations and warranties of the parties
as of specific dates and that may have been used for the
purposes of allocating risk between the parties and not for
establishing matters as facts. Those representations and
warranties are qualified in several important respects, which
you should consider as you read them in the transaction
agreement, including contractual standards of materiality that
may be different from what may be viewed as material to
stockholders. Except for the parties themselves, under the terms
of the transaction agreement only certain other specifically
identified persons are third party beneficiaries of the
transaction agreement who may enforce it and rely on its terms.
As stockholders, you are not third party beneficiaries of the
transaction agreement and therefore may not directly enforce or
rely upon its terms and conditions and you should not rely on
its representations, warranties or covenants as
characterizations of the actual state of facts or condition of
Graphic, New Graphic or BCH or any of their respective
affiliates. Moreover, information concerning the subject matter
of the representations and warranties may have changed since the
date of the transaction agreement and subsequently developed or
new information qualifying a representation or warranty may have
been included in this proxy statement/prospectus.
The transaction agreement provides for the Sellers to exchange
BCH equity interests owned by each Seller for newly issued
shares of New Graphic common stock. New Graphic will issue an
aggregate of 139,445,038 shares of New Graphic common stock
to the Sellers for all of the equity interests of BCH. The total
number of shares of New Graphic common stock issued to the
Sellers is expected to constitute 40.6% of the total number of
shares of New Graphic common stock on a fully diluted basis
(which includes, in addition to outstanding shares of Graphic
common stock, Graphics restricted stock units, in
the money stock options, phantom stock and stock issued in
connection with Graphics employee incentive program), and
the total number of shares of New Graphic common stock issued to
Graphic stockholders is expected to constitute 59.4% of the
total number of shares of New Graphic common stock on a fully
diluted basis.
The transaction agreement also governs the merger of Merger Sub,
a wholly-owned subsidiary of New Graphic, with and into Graphic,
the result of which will be the conversion of each outstanding
share of Graphic common stock into the right to receive one
share of New Graphics newly issued common stock. Pursuant
to the transaction agreement, New Graphic and the Sellers have
entered into, and will enter into, additional agreements in
connection with the transactions, including the following
agreements:
|
|
|
|
|
the voting agreement;
|
|
|
|
the stockholders agreement; and
|
|
|
|
the registration rights agreement.
|
With regard to certain matters pertaining to the transaction
agreement, the Sellers have appointed TPG Bluegrass V-AIV
2, L.P. as their representative to act on behalf of the Sellers
under the transaction agreement. When acting in this capacity,
we refer to TPG Bluegrass V-AIV 2, L.P. as the Sellers
Representative.
59
The
Transactions
Merger
of Graphic and Merger Sub
In connection with the merger, Merger Sub, a new, wholly-owned
subsidiary of New Graphic, will merge with and into Graphic. As
a result, Graphic will survive the merger and become a
wholly-owned subsidiary of New Graphic. Upon the completion of
the merger, each outstanding share of Graphic common stock will
be converted into the right to receive one share of New Graphic
common stock.
Contribution
from the Sellers to New Graphic
Immediately after the completion of the merger, the Sellers will
contribute all of the outstanding equity interests of BCH to New
Graphic in exchange for 139,445,038 shares of New Graphic
common stock.
Upon the completion of these transactions, Graphic stockholders,
in the aggregate, will hold approximately 59.4%, and the Sellers
will hold approximately 40.6%, of the common stock of New
Graphic that will be outstanding, each calculated on a fully
diluted basis.
Conditions
Conditions
to the Obligations of Graphic, BCH and the Sellers to Complete
the Transactions
The respective obligations of each party to complete the
transactions are subject to the satisfaction or waiver on or
prior to the closing date of the transactions, of the following
conditions:
|
|
|
|
|
the adoption of the transaction agreement and the approval of
the transactions by Graphic stockholders;
|
|
|
|
no law, order, or judgment having been issued, enacted, entered
or enforced by any court or other governmental authority
preventing or making illegal the consummation of the
transactions;
|
|
|
|
any required clearance or approval of the German Cartel Office;
|
|
|
|
the expiration or termination of any waiting period applicable
to the transactions in respect of filings by Graphic and BCH
under the HSR Act;
|
|
|
|
the approval of the listing on the NYSE of New Graphic common
stock to be issued in connection with the transactions; and
|
|
|
|
the registration statement of which this proxy
statement/prospectus forms a part shall have become effective
under the Securities Act and shall not be the subject of any
stop order or proceeding seeking stop order.
|
Conditions
to the Obligations of the Sellers to Complete the
Transactions
The Sellers obligations to complete the transactions are
further subject to the satisfaction or waiver on or prior to the
closing date of the transactions, of the following additional
conditions:
|
|
|
|
|
the representations and warranties of Graphic must be true and
correct on the date of the transaction agreement and as of the
closing date of the transactions as though they were made on and
as of such date, except for representations and warranties which
speak as of an earlier date, which must be true and correct as
of such date, except where the failure of such representations
and warranties to be true and correct does not have, and would
not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, as described below, on
Graphic;
|
|
|
|
Graphic, New Graphic and Merger Sub must have performed in all
material respects all obligations required to be performed by
them under the transaction agreement prior to the closing date
of the transactions;
|
|
|
|
BCH must have received an opinion from Simpson
Thacher & Bartlett LLP, counsel to BCH, regarding the
tax treatment of the merger and the contribution of the equity
interests of BCH by the Sellers as exchanges under
Section 351 of the Internal Revenue Code and that the
exchange and subsequent
|
60
|
|
|
|
|
liquidation of certain corporate Sellers will be treated for
federal income tax purposes as transactions described in
Section 368(a) of the Internal Revenue Code; and
|
|
|
|
|
|
New Graphic, along with any of the TPG Entities that make such a
request of New Graphic, shall have entered into management
rights agreements substantially in the forms of the existing
management rights agreements certain of the Sellers have entered
into with BCH.
|
Conditions
to the Obligations of Graphic to Complete the
Transactions
Graphics obligations to complete the transactions are
further subject to the satisfaction or waiver, on or prior to
the closing date of the transactions, of the following
additional conditions:
|
|
|
|
|
the representations and warranties of the Sellers and BCH must
be true and correct as of the closing date of the transactions
as though they were made on and as of such date, except for
representations and warranties which speak as of an earlier
date, which must be true and correct as of such date, except
where the failure of such representations and warranties to be
true and correct does not have, and would not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect, as described below, on BCH;
|
|
|
|
BCH and the Sellers must have performed in all material respects
all obligations required to be performed by them under the
transaction agreement prior to the closing date of the
transactions; and
|
|
|
|
Graphic must have received the opinion of Alston &
Bird LLP, counsel to Graphic, to the effect that the exchange of
BCH equity interests and Graphic common stock for New Graphic
common stock pursuant to the transactions, taken together, will,
with respect to Graphic, be treated for Federal income tax
purposes as a transaction described in Section 351 or 368(a) of
the Internal Revenue Code.
|
Material Adverse Effect means, with respect to any
person, any event, condition, change, occurrence, development or
state of circumstances which, individually or in the aggregate,
has or would reasonably be expected to have a material adverse
effect on the business, financial condition or results of
operations of such person and its subsidiaries considered as a
single enterprise, or on the ability of such person to
consummate the transactions. However, none of the following
events, conditions, changes, occurrences, developments or states
of circumstances shall be deemed, either alone or in
combination, nor considered in determining whether any matter
has or would reasonably be expected to have, a material
adverse effect on the business, financial condition or
results of operations of such person:
|
|
|
|
|
changes or developments in financial, economic, political or
industry conditions in the United States or any other
jurisdiction in which such person has substantial business
operations (except to the extent those changes have a materially
disproportionate effect on such person);
|
|
|
|
changes or developments resulting from factors generally
affecting any business in which such person has substantial
business operations (except to the extent those changes have a
materially disproportionate effect on such person and its
subsidiaries);
|
|
|
|
changes or developments, after the date of the transaction
agreement, in any laws or generally accepted accounting
principles or the interpretation or enforcement thereof;
|
|
|
|
changes or developments resulting from or caused by natural
disasters, outbreak of major hostilities in which the United
States is involved or any act of war or terrorism within the
United States or directed against its facilities or citizens
wherever located;
|
|
|
|
changes or developments relating to the announcement of, entry
into, pendency of, actions contemplated by or performance of
obligations under, the transaction agreement and the
transactions or the identity of the parties to the transaction
agreement, including any termination of, reduction in or similar
adverse impact on relationships, contractual or otherwise, with
any customers, suppliers, distributors, partners or employees of
such person relating thereto;
|
|
|
|
failure by such person to meet internal or third party
projections or forecasts or any published revenue or earnings
projections for any period; provided, that this exception shall
not prevent or otherwise affect
|
61
|
|
|
|
|
any determination that any event, condition, change, occurrence,
development or state of facts underlying such failure has or
resulted in, or contributed to, a Material Adverse Effect;
|
|
|
|
|
|
changes in the market value or the market price or trading value
of the publicly traded securities of such person; provided, that
this exception shall not prevent or otherwise affect any
determination that any event, condition, change, occurrence,
development or state of facts underlying such change has or
resulted in, or contributed to, a Material Adverse
Effect; or
|
|
|
|
actions required or contemplated to be taken by such person
under the transaction agreement or taken at the express request
or direction of the other party to the transaction agreement.
|
No Other
Transactions Involving Graphic or the Sellers
No
Solicitation of Takeover Proposals
Graphic, BCH and each Seller have agreed that neither it nor its
subsidiaries will, and each of Graphic and the Sellers will use
its reasonable best efforts to cause its and its
subsidiaries representatives not to directly or indirectly:
|
|
|
|
|
solicit, initiate, knowingly encourage or knowingly facilitate
any takeover proposal, as described below or the consummation
thereof;
|
|
|
|
enter into, continue or otherwise participate in any discussions
or negotiations regarding, or furnish to any person any
information in connection with, or otherwise cooperate in any
way with any takeover proposal; or
|
|
|
|
waive, terminate, modify or fail to enforce any provision of any
standstill or similar obligation of any person.
|
A takeover proposal means any inquiry, proposal or
offer from any person, other than the Sellers, New Graphic,
Merger Sub or any of their affiliates, relating to:
|
|
|
|
|
any direct or indirect acquisition or purchase, in one
transaction or a series of related transactions, of assets or
businesses that constitute 15% or more of the consolidated
revenues, net income or assets of BCH or Graphic, as the case
may be, or 15% or more of any class of equity securities of BCH
or Graphic, as the case may be; or
|
|
|
|
any tender offer or exchange offer, merger, consolidation,
business combination, recapitalization, liquidation,
dissolution, joint venture, share exchange or similar
transaction that if consummated would result in any person
beneficially owning 15% or more of any class of equity
securities of BCH or Graphic or any resulting parent of BCH or
Graphic, as the case may be;
|
in each case other than the transactions.
If, however, prior to obtaining its stockholders approval
of the transaction agreement, Graphic receives an unsolicited,
bona fide, written takeover proposal that the Graphic board of
directors determines in good faith, after consultation with its
legal advisors and financial advisors, would reasonably be
expected to result in a superior proposal, as described below,
Graphic may furnish information to the person making such
takeover proposal pursuant to a customary confidentiality
agreement (including standstill provisions) not less restrictive
than the provisions of the confidentiality agreement between
Graphic and BCH and participate in discussions or negotiations
regarding such takeover proposal, if and only to the extent that
the Graphic board of directors concludes in good faith, after
consultation with its counsel, that the failure to take such
action would be reasonably expected to violate its fiduciary
duties under applicable law.
A superior proposal means any bona fide written
offer made by a third party that if consummated would result in
such person owning, directly or indirectly, more than 50% of the
shares of Graphic common stock or of any other surviving entity
then outstanding or all or substantially all the assets of
Graphic, which the Graphic board of directors determines in good
faith (after consultation with its legal advisors and financial
advisors) taking into account all relevant financial, legal,
regulatory and other aspects of such proposal,
62
including any
break-up
fee, expense reimbursement provisions and conditions to
consummation, and the person making the proposal:
|
|
|
|
|
to be more favorable to the stockholders of Graphic from a
financial point of view than the transactions (after giving
effect to any changes proposed by BCH in response to such offer)
and reasonably capable of being completed in a timely manner on
the terms set forth in the proposal; and
|
|
|
|
for which financing, to the extent required, is reasonably
assured of being obtained.
|
Change
in Graphic Board of Directors Recommendation
The Graphic board of directors may not:
|
|
|
|
|
withdraw, modify, or qualify in any manner or take any action or
make any public statement that is inconsistent with, its
recommendation of the transaction agreement and the transactions;
|
|
|
|
approve or recommend, or publicly propose to approve or
recommend, any takeover proposal; or
|
|
|
|
allow Graphic to execute or enter into, any letter of intent,
memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint
venture agreement, partnership agreement, or other similar
contract or any tender or exchange offer providing for, with
respect to, or in connection with, any takeover proposal;
|
unless, prior to obtaining its stockholders approval of
the transaction agreement, the Graphic board of directors has
concluded in good faith, after consultation with, and taking
into account the advice of, its legal advisors, that the failure
of the board of directors to change, amend or otherwise modify
its recommendation would be reasonably expected to violate its
fiduciary duties under applicable law. If the Graphic board of
directors makes such a determination, then the Graphic board of
directors may adversely change its recommendation regarding the
transaction agreement and transactions, so long as Graphic has:
|
|
|
|
|
provided to BCH five business days prior written notice
advising BCH that the Graphic board of directors intends to take
such action and specifying the reasons therefor in reasonable
detail, including, if applicable, the terms and conditions of
any superior proposal that is the basis of the proposed action
by the Graphic board of directors and the identity of the person
making the proposal (any material amendment to such superior
proposal will require a new written notice to BCH plus two
additional business days); and
|
|
|
|
during such five business day period, if requested by BCH,
engaged in good faith negotiations with BCH to amend the
transaction agreement or make other agreements in such a manner
that failure to take the proposed action by the board of
directors would not be reasonably expected to violate its
fiduciary duties under applicable law.
|
Graphic shall, as promptly as practicable (and in any event
within 24 hours after receipt), advise BCH orally and in
writing of any takeover proposal or any matter giving rise to a
change in the recommendation of the Graphic board of directors
regarding the transactions and the material terms and conditions
of any such takeover proposal or any matter giving rise to a
change in the recommendation of the Graphic board of directors.
Graphic shall keep BCH informed on a reasonably current basis of
material developments with respect to any such takeover proposal
or any matter giving rise to a change in the recommendation of
the Graphic board of directors.
Stockholder
Meeting
The obligation of Graphic to call, give notice of, convene and
hold a stockholders meeting so Graphic stockholders can vote on
the adoption of the transaction agreement and approval of the
transactions is not limited or otherwise affected by the
commencement, disclosure, announcement or submission to it of
any takeover proposal. If the board of directors of Graphic
amends, modifies or otherwise changes its recommendation
regarding the transaction agreement and the transactions,
Graphic is still obligated to submit the transaction agreement
and the transactions to a vote of its stockholders.
63
In addition, the transaction agreement does not prohibit Graphic
from taking and disclosing to Graphic stockholders a position
contemplated by
Rule 14e-2(a)(2)
or (3) under the Exchange Act or making a statement
required under
Rule 14d-9
under the Exchange Act with respect to a tender or exchange
offer by a third party; provided, that compliance with
those rules will not limit or modify the effect that any action
pursuant to such rules has under the transaction agreement and
in no event shall Graphic, or its board of directors or any
committee thereof take, or agree or resolve to take, any action
recommending that Graphic stockholders tender their shares of
Graphic common stock in connection with any such tender or
exchange offer unless the Graphic board of directors determines
in good faith (after consultation with its financial advisor and
legal counsel) that the failure of the Graphic board of
directors to take such action would be reasonably expected to
violate its fiduciary duties under applicable law, and Graphic
shall have complied in all material respects with all of its
obligations under the takeover proposals provisions of the
transaction agreement.
Termination
of the Transaction Agreement
The transaction agreement may be terminated at any time prior to
the completion of the transactions (regardless of whether
Graphic stockholders have adopted the transaction agreement)
under any of the following circumstances:
|
|
|
|
|
by mutual consent of the Sellers Representative and Graphic;
|
|
|
|
by either the Sellers Representative or Graphic if:
|
|
|
|
|
|
any judgment, decree, injunction, ruling, award, settlement,
stipulation or order permanently restraining, enjoining or
otherwise prohibiting the completion of the transactions becomes
final and non-appealable, except no party may terminate the
transaction agreement if such partys failure to fulfill
any obligation under the transaction agreement has been the
cause of such action;
|
|
|
|
the transactions have not been completed by March 31, 2008
(which date may be extended by Graphic or the Sellers
Representative by written notice to the other prior to
March 31, 2008 to May 31, 2008 if the delay is the
result of the failure to obtain antitrust approvals), except no
party may terminate the transaction agreement on such date if
such partys failure to fulfill any obligation under the
transaction agreement has prevented the completion of the
transactions from occurring prior to such date;
|
|
|
|
Graphic stockholders fail to adopt the transaction agreement and
approve the transactions at the special meeting;
|
|
|
|
there shall have been a breach by the other party of any of the
covenants or agreements or any of the representations or
warranties on the part of such other party, which breach, either
individually or in the aggregate, would result in, if occurring
or continuing on the closing date of the transactions, the
closing conditions under the transaction agreement to fail to be
satisfied, which breach is not cured within 30 days after
notice of such breach or which cannot be cured within such time
frame; provided, however, that no party may terminate the
transaction agreement under this provision if such party is in
material breach of any covenant or other agreement or in willful
and material breach of any representation or warranty; or
|
|
|
|
|
|
by Sellers Representative if, prior to the time the transaction
agreement has been adopted and the transactions approved by
Graphic stockholders,
|
|
|
|
|
|
the Graphic board of directors (i) withdraws, amends,
modifies or qualifies or publicly proposes to withdraw, amend,
modify or qualify its recommendation, approval, adoption or
declaration of advisability of the transaction agreement or has
recommended that Graphic stockholders reject the transaction
agreement or the transactions; or (ii) fails to publicly
reaffirm its adoption and recommendation of the transactions
within ten business days of receipt of a written request by BCH
to provide such reaffirmation following a takeover
proposal; or
|
64
|
|
|
|
|
Graphic has materially breached certain provisions of the
transaction agreement relating to the non-solicitation of
takeover proposals and such breach is not cured within
30 days after notice of such breach or exempts any person
from any Delaware interested stockholder law or
amends its stockholder rights plan to exclude any person for the
purpose of permitting an acquisition of shares of Graphic common
stock.
|
Fees and
Expenses
General
Whether or not transactions are consummated, all costs and
expenses incurred in connection with the transactions shall be
paid by the party incurring such expense, except as discussed
below, although BCH may pay expenses of the Sellers. If the
transactions are consummated, New Graphic shall pay, or cause to
be paid, any and all property or transfer taxes imposed on the
parties hereto in connection with the transactions, and expenses
incurred in connection with filing, printing and mailing this
prospectus/proxy statement will be paid by Graphic.
Payment
of the Termination Fee by
Graphic.
Under the terms of the transaction agreement, Graphic will be
obligated to pay to BCH a termination fee in the amount of
$35,000,000 if the transaction agreement is terminated:
|
|
|
|
|
by either Sellers Representative or Graphic, if the transactions
have not been completed by March 31, 2008 (which date may
be extended by Graphic or Sellers Representative by written
notice to the other prior to March 31, 2008 to May 31,
2008 if the delay is the result of the failure to obtain
antitrust approvals) and the Graphic board of directors had
previously adversely changed its recommendation regarding the
transaction agreement and the transactions;
|
|
|
|
by Sellers Representative due to a breach by Graphic of any of
its covenants or agreements or representations or warranties,
which breach, either individually or in the aggregate, would
result in, if occurring or continuing on the closing date, the
closing conditions under the transaction agreement to fail to be
satisfied, which breach is not cured within 30 days after
notice of such breach or which cannot be cured within such time
frame and the Graphic board of directors had previously
adversely changed its recommendation regarding the transaction
agreement and the transactions; or
|
|
|
|
by Sellers Representative prior to the time the transaction
agreement has been adopted and the transactions approved by
Graphic stockholders, if (i) the Graphic board of directors
(x) withdraws, amends, modifies or qualifies or publicly
proposes to withdraw, amend, modify or qualify its
recommendation, approval, adoption or declaration of
advisability of the transaction agreement or has recommended
that Graphic stockholders reject the transaction agreement or
the transactions; or (y) fails to publicly reaffirm its
adoption and recommendation of the transactions within ten
business days of receipt of a written request by BCH to provide
such reaffirmation following a takeover proposal; or
(ii) Graphic has materially breached certain provisions of
the transaction agreement relating to non-solicitation or
takeover proposals which such breach is not cured within
30 days after notice of such breach or exempts any person
from any Delaware interested stockholder law or
amends its stockholder rights plan to exclude any person for the
purpose of permitting an acquisition of shares of Graphic common
stock.
|
Additionally, in the event that prior to obtaining the approval
of the Graphic stockholders of the transaction agreement and the
transactions, a takeover proposal (substituting 50% for each
instance of 15% in the definition of takeover proposal above)
shall have been made to Graphic or shall have been made publicly
to the stockholders of Graphic or shall have otherwise become
publicly known or any person shall have publicly announced an
intention to make a takeover proposal and, in each case, such
takeover proposal is not withdrawn or abandoned at least
15 days prior to the earlier of (i) the date of the
Graphic stockholders meeting and (ii) the date of
termination of the transaction agreement and thereafter the
transaction agreement
65
is terminated in the following circumstances (but does not
otherwise result in the payment of the termination fee):
|
|
|
|
|
by either Sellers Representative or Graphic, if the transactions
have not been completed by March 31, 2008 (which date may
be extended by Graphic or the Sellers Representative by written
notice to the other prior to March 31, 2008 to May 31,
2008 if the delay is the result of failure to obtain antitrust
approvals);
|
|
|
|
by either Sellers Representative or Graphic, if Graphic
stockholders fail to adopt the transaction agreement and approve
the transactions at the special meeting; or
|
|
|
|
by either Sellers Representative, due to a breach by Graphic of
any of its covenants or agreements or representations or
warranties, which breach, either individually or in the
aggregate, would result in, if occurring or continuing on the
closing date, the closing conditions under the transaction
agreement to fail to be satisfied, which breach is not cured
within 30 days after notice of such breach or which cannot
be cured within such time frame;
|
then Graphic shall pay to BCH an amount equal to the documented
out-of-pocket fees and expenses of BCH incurred by BCH and the
Sellers and their representatives (excluding any consulting,
investment banking or similar fee) in connection with the
authorization, preparation, negotiation, execution and
performance of the transaction agreement and the transactions,
up to a maximum amount of $5,000,000. If within 12 months
of such termination Graphic consummates or enters into a binding
written agreement with respect to a takeover proposal
(substituting 50% for each instance of 15% in the definition of
takeover proposal above), Graphic shall pay BCH the excess of
the difference between $35,000,000 and any out-of-pocket
expenses previously paid.
Other
Covenants
Employee
and Employee Benefit Matters
For a period of twelve months following the closing of the
transactions, New Graphic shall provide to officers and
employees of BCH and Graphic who become employees of New Graphic
employee benefits on terms and conditions which are no less
favorable in the aggregate than those provided to such employees
immediately prior to the closing of the transactions. New
Graphic will review, evaluate and analyze the existing Graphic
and BCH benefit plans with a view towards developing an
appropriate and effective benefit plan for employees of New
Graphic on a going forward basis. New Graphic will also honor,
in accordance with their terms, all vested or accrued benefit
obligations to, the employees of New Graphic, including, without
limitation, any benefits or rights arising as a result of the
transactions.
Conduct
of Business Pending the Closing
The transaction agreement provides that each of BCH and Graphic
will conduct its business in the ordinary course and use its
reasonable best efforts to preserve substantially intact its
business organization, and to preserve its present relationships
with customers, suppliers and other persons with which it has
significant business relations.
In addition, subject to certain exceptions each of BCH and
Graphic have also agreed, prior to the closing of the
transactions, not to:
|
|
|
|
|
pay any dividends;
|
|
|
|
split, combine or reclassify any capital stock;
|
|
|
|
redeem any shares of capital stock;
|
|
|
|
issue any additional shares of capital stock or rights to
purchase such shares;
|
|
|
|
amend its governing documents;
|
66
|
|
|
|
|
acquire in any manner assets of any third party, except for
certain capital expenditures not in excess of $20 million,
ordinary course transactions or other acquisitions not in excess
of $1 million;
|
|
|
|
sell, lease or encumber any of its material properties or assets
to third parties, except for disclosed agreements, ordinary
course transactions or other sales, leases or encumbrances on
assets not exceeding $10 million in the aggregate in any
6 month period;
|
|
|
|
redeem or incur additional indebtedness, except in the ordinary
course of business under current agreements;
|
|
|
|
settle, waive or assign any claims or rights material to such
person;
|
|
|
|
enter into, materially modify, terminate or cancel any material
contract;
|
|
|
|
adopt, enter into, terminate or amend any Benefit Plan;
|
|
|
|
make any material changes in accounting methods, principles or
practices, except as required by GAAP; or
|
|
|
|
make any material changes in its method of tax accounting or tax
elections.
|
Reasonable
Best Efforts
The parties to the transaction agreement have agreed to
cooperate and to use their reasonable best efforts to take all
actions necessary, proper or advisable to complete the
transactions as soon as practicable.
In addition, the parties to the transaction agreement have
agreed, among other things, to make, appropriate filings
pursuant to the HSR Act. Graphic and BCH made these filings on
July 23, 2007. On August 22, 2007, Graphic and BCH
received a second request from the DOJ regarding the
transactions, which extends the waiting period imposed by the
HSR Act until 30 days after Graphic and BCH have
substantially complied with the second request, unless that
period is extended voluntarily by the parties or terminated
sooner by the DOJ. The parties have agreed to supply as promptly
as practicable any additional information and documentary
material that may be requested pursuant to applicable antitrust
laws. See The Transactions Regulatory
Approvals
Hart-Scott-Rodino
Act.
Each of Graphic and BCH have agreed to use their best efforts to
cause the expiration or termination of the applicable waiting
periods under the HSR Act and the receipt of required approvals
under antitrust laws as soon as practicable, including selling,
holding separate or disposing of any business or assets or
conducting its business in any specified manner. However,
neither Graphic nor BCH would be required to take any such
action:
|
|
|
|
|
if doing so would, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect on New
Graphic; or
|
|
|
|
that is not conditioned upon the completion of the transactions.
|
Graphic and BCH have further agreed that they will use
reasonable best efforts to:
|
|
|
|
|
cooperate with each other in connection with any filing or
submission and in connection with any investigation or other
inquiry;
|
|
|
|
promptly inform each other of the status of any of the matters
contemplated by the transaction agreement, including copies of
any written communication received by or given to any
governmental authority or in connection with any proceeding by a
private party regarding the transactions; and
|
|
|
|
consult with each other prior to any meeting with any
governmental authority or in connection with any proceeding by a
private party and give the other party an opportunity to
participate in such meetings.
|
If any objections are asserted with respect to the transactions
by any law or governmental order or any administrative or
judicial action or proceeding is instituted (or threatened to be
instituted) challenging the transactions as violative of any
antitrust law, or if any law, order or decree is enacted,
entered, promulgated or
67
enforced by a governmental entity that would make the
transactions illegal or would otherwise prohibit or materially
impair or delay the consummation of the transactions, each of
Graphic and BCH have agreed to use its best efforts to resolve
such objections, actions or proceedings to permit the
consummation of the transactions, including selling, holding
separate or disposing of any business or assets or conducting
its business in any specified manner, subject to the limitations
described above. Each of Graphic and BCH have also agreed to use
its best efforts to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent, that is in effect and that
prohibits, prevents or restricts consummation of the
transactions and to have such statute, rule, regulation,
executive order, decree, injunction or administrative order
repealed, rescinded or made inapplicable so as to permit
consummation of the transactions.
Other
Customary Covenants
The transaction agreement contains other customary covenants
relating to the completion of the transactions, including
covenants relating to this proxy statement/prospectus and the
special meeting of Graphic stockholders that will be convened to
vote on the transaction agreement and the transactions, the
listing of New Graphic common stock, access to information,
confidentiality, public announcements, preservation of books and
records, compliance with certain SEC matters, restrictions on
transfer of BCH equity interests, amendment to the Graphic
stockholder rights plan, establishment of a New Graphic
stockholder rights plan and a mutual release by each Seller, on
the one hand, and BCH and New Graphic, on the other hand, and
certain tax matters.
Representations
and Warranties
Graphic, BCH, New Graphic and Merger Sub have made various
representations and warranties in the transaction agreement.
These representations and warranties relate to, among other
things:
|
|
|
|
|
organization, standing, power and foreign qualifications;
|
|
|
|
capitalization, including the capitalization of New Graphic;
|
|
|
|
authorization and the absence of conflicts;
|
|
|
|
necessary consents and approvals for the completion of the
transactions;
|
|
|
|
subsidiaries;
|
|
|
|
reports, financial statements and no undisclosed liabilities;
|
|
|
|
absence of certain changes or other material adverse effect;
|
|
|
|
litigation;
|
|
|
|
brokers or finders fees;
|
|
|
|
employee benefit plans;
|
|
|
|
taxes;
|
|
|
|
environmental matters;
|
|
|
|
compliance with law;
|
|
|
|
labor matters;
|
|
|
|
real and tangible property;
|
|
|
|
material contracts;
|
|
|
|
intellectual property;
|
|
|
|
information supplied in this proxy statement/prospectus;
|
68
|
|
|
|
|
affiliate transactions; and
|
|
|
|
insurance.
|
The Sellers have made various representations and warranties in
the transaction agreement. These representations and warranties
relate to, among other things:
|
|
|
|
|
organization, standing, power and foreign qualifications;
|
|
|
|
the ownership of equity interests;
|
|
|
|
authorization and the absence of conflicts;
|
|
|
|
accredited investor status.
|
|
|
|
information supplied in this proxy statement/prospectus; and
|
|
|
|
brokers or finders fees.
|
Amendment
The transaction agreement cannot be amended except by an
instrument in writing signed on behalf of each party thereto.
The transaction agreement may be amended at any time, except
that if Graphic stockholders approve the transactions, then no
amendment may be made to the transaction agreement that would
materially and adversely affect the rights of such stockholders
(except for a termination of the transaction agreement pursuant
to the terms thereof) without the further approval of such
stockholders.
Governing
Law
The transaction agreement is governed by and is to be construed
in accordance with the laws of the State of Delaware. The
parties have agreed that all litigation arising out of or
related to the transaction agreement must be brought in any
state or federal court sitting in Delaware.
69
OTHER
AGREEMENTS
Stockholders
Agreement
The following is a summary of the material provisions of the
stockholders agreement. This summary is qualified in its
entirety by reference to the stockholders agreement, which is
incorporated by reference in its entirety and attached to this
proxy statement/prospectus as Annex E. This summary may not
contain all of the information about the stockholders agreement
which is important to you, and we encourage you to read the
stockholders agreement in its entirety.
Certain individuals and entities that will be significant
stockholders of New Graphic after the completion of the
transactions, which we refer to as the covered
stockholders have entered into the stockholders agreement,
that will become effective upon completion of the transactions.
The covered stockholders are the Coors Family Stockholders, the
CDR Fund, EXOR, Field Holdings, Inc. and the TPG Entities. The
parties thereto have made certain agreements regarding matters
further described below, that, among other things:
(i) provides the covered stockholders certain rights to
designate members of New Graphics board of directors;
(ii) restricts the ability of the covered stockholders to
transfer their shares of New Graphic common stock; and
(iii) limits the covered stockholders from acquiring
additional shares of New Graphic common stock and from taking
certain other actions with respect to New Graphic.
Composition
of New Graphics Board of Directors
Under the terms of the stockholders agreement, the board of
directors of New Graphic will initially consist of thirteen
members, which will include eight of the nine current members of
Graphics board of directors, classified into three
classes. Class I will initially consist of five members,
and classes II and III will each initially consist of
four members. The initial term of each class, starting with
Class I, will expire at the first, second and third annual
meetings of stockholders following the completion of the
transactions.
Upon consummation of the transactions, New Graphics board
of directors will consist of John R. Miller (who will be the
non-executive chairman), G. Andrew Botta, Jeffrey H. Coors,
Kevin J. Conway, Harold R. Logan, Jr., David W. Scheible,
John D. Beckett, Robert W. Tieken, George V. Bayly (the current
interim Chief Executive Officer of Altivity), Kelvin L. Davis,
Michael G. MacDougall, Jeffrey Liaw, and one additional
independent director (as described below) to be designated by
the TPG Entities and acceptable to Graphic. Jeffrey H. Coors is
the Coors Family Stockholders designee; Kevin J. Conway is
the CDR Funds designee; and G. Andrew Botta is EXORs
designee. Kelvin L. Davis, Michael G. MacDougall and Jeffrey
Liaw are the TPG Entities designees.
Designation
Rights
The stockholders agreement provides that each of the Coors
Family Stockholders, the CDR Fund, EXOR and the TPG Entities
will have the right, subject to requirements related to stock
ownership, to designate a certain number of individuals for
nomination for election to the board of directors of New Graphic
as described below. Each of the Coors Family Stockholders, the
CDR Fund and EXOR is entitled to designate one individual for
nomination for election to the board for so long as each such
stockholder owns at least 3% of the fully diluted shares of New
Graphic common stock.
The TPG Entities, as a group, are entitled to designate the
following number of individuals for nomination for election to
the New Graphic board of directors for so long as they meet the
requirements related to stock ownership specified below:
|
|
|
|
|
three individuals for so long as the TPG Entities own at least
20% of the fully diluted shares of New Graphic common stock in
the aggregate;
|
|
|
|
two individuals for so long as the TPG Entities own at least the
lesser of (i) 16% of the fully diluted shares of New
Graphic common stock in the aggregate or (ii) the
percentage of New Graphic common stock then held by the Coors
Family Stockholders, but not less than 10%; and
|
70
|
|
|
|
|
one individual for so long as the TPG Entities own at least 3%
of the fully diluted outstanding shares of New Graphic common
stock.
|
The stockholders agreement further provides that each of the
other directors, not designated in the manner described above,
will be independent directors, as described below, designated
for nomination by the nominating and corporate governance
committee of the board.
Pursuant to the stockholders agreement, at each meeting of the
stockholders of New Graphic at which directors of New Graphic
are to be elected, New Graphic will recommend that the
stockholders elect to the board of directors of New Graphic the
designees of the individuals designated by the Coors Family
Stockholders, the CDR Fund, EXOR and the TPG Entities. In
addition, the then serving Chief Executive Officer of New
Graphic shall be nominated for election to the board.
In the event that the Coors Family Stockholders, the CDR Fund,
EXOR or the TPG Entities lose the right to designate a person to
the board, such designee will resign immediately upon receiving
notice from the nominating and corporate governance committee
that it has identified a replacement director, and will resign
in any event no later than 120 days after the designating
person or entity loses the right to designate such designee to
the board. The board seat formerly occupied by such designee
shall become a seat for an additional New Graphic independent
director to be selected solely by the nominating and corporate
governance committee or the board may determine to reduce its
size by the number of vacated board seats.
An independent director is a director who:
(i) is not an officer or employee of New Graphic or any of
its affiliates, (ii) is not an officer or employee of any
covered stockholder or, if such covered stockholder is a trust,
a direct or indirect beneficiary of such trust and
(iii) meets the standards of independence under applicable
law and the requirements applicable to companies listed on the
NYSE.
Agreement
to Vote for Directors; Vacancies
Each covered stockholder agrees to vote all of the shares owned
by such covered stockholder in favor of the CEO director and
each of the parties designees to the board, and to take
all other steps within such covered stockholders power to
ensure that the composition of the board is as contemplated by
the stockholders agreement.
As long as the Coors Family Stockholders, the CDR Fund, EXOR or
the TPG Entities, as the case may be, has the right to designate
a person for nomination for election to the board, at any time
at which the seat occupied by such partys designee becomes
vacant as a result of death, disability, retirement,
resignation, removal or otherwise, such party will be entitled
to designate for appointment by the remaining directors an
individual to fill such vacancy and to serve as a director. New
Graphic and each of the covered stockholders has agreed to take
such actions as will result in the appointment to the board as
soon as practicable of any individual so designated by the Coors
Family Representative, the CDR Fund, EXOR or the TPG Entities.
In addition, each covered stockholder has agreed that:
(i) it will not vote or give any proxy or written consent
in favor of the removal as a director of New Graphic of any of
the designees of the covered stockholders (other than such
covered stockholders own designee) without the prior written
consent of the applicable covered stockholder unless such
designee has taken any action contrary to the stockholders
agreement; (ii) it will not give any proxy with respect to
shares of New Graphic common stock entitling the holder of such
proxy to vote on the election of directors unless the holder of
such proxy has agreed to comply with the obligations of the
stockholders agreement; and (iii) if, in connection with
the election of any director, any covered stockholder indicates
that it will not vote as required by the stockholders agreement
or votes or gives any proxy in contravention of the stockholders
agreement, such breaching covered stockholder constitutes the
covered stockholder whose interests are detrimentally affected
by such failure to vote as the breaching covered
stockholders irrevocable proxy and attorney-in-fact to
vote the breaching covered stockholders shares in
accordance with the stockholders agreement.
At any time at which a vacancy is created on the board as a
result of the death, disability, retirement, resignation,
removal or otherwise of one of the independent directors before
the expiration of his or her term as director, the nominating
and corporate governance committee will notify the board of a
replacement who is
71
a New Graphic independent director. Each of New Graphic and the
covered stockholders has agreed to take such actions as will
result in the appointment of such replacement to the board as
soon as practicable.
Actions
of the Board of Directors; Affiliate Agreements
The stockholders agreement provides that actions of the board
will require the affirmative vote of at least a majority of the
directors present in person or by telephone at a duly convened
meeting at which a quorum is present, or the unanimous written
consent of the board, except that a board decision regarding the
merger, consolidation or sale of substantially all the assets of
New Graphic will require the affirmative vote of a majority of
the directors then in office. In addition, a decision by New
Graphic to enter into, modify or terminate any agreement with an
affiliate of the Coors Family Stockholders, the CDR Fund, EXOR
or the TPG Entities will require the affirmative vote of a
majority of the directors not nominated by a covered stockholder
which, directly or indirectly through an affiliate, has an
interest in that agreement.
Committees
of the Board of Directors
The stockholders agreement provides for the board to have an
audit committee, a compensation and benefits committee and a
nominating and corporate governance committee as follows:
|
|
|
|
|
the audit committee will have at least three members, each of
whom will be an independent director;
|
|
|
|
the compensation and benefits committee will have three members,
each of whom will be an independent director;
|
|
|
|
the nominating and corporate governance committee will have five
members, consisting of the directors designated by the Coors
Family Stockholders, the CDR Fund, EXOR and two of the directors
designated by the TPG Entities. The chairman of the nominating
and corporate governance committee shall be any member of the
committee chosen by an affirmative vote of a majority of the
members of the committee; provided, however, that initially the
chairman shall be John R. Miller, who shall be a non-voting
chairman, and in which case the committee shall have six members.
|
Each of New Graphic and the covered stockholders has agreed to
take all steps within their power to ensure that the composition
of the boards committees are as provided in the
stockholders agreement. The rights described above of each of
the covered stockholders to have its director designee sit as a
member of board committees will cease at such time as such
stockholder holds less than 3% of the fully diluted shares of
New Graphic common stock, and in the case of the two TPG
Entities designees on the nominating and corporate
governance committee, one such designee shall resign from the
committee at such time as the TPG Entities have the right to
designate only one director for nomination for election to the
board. The New Graphic board of directors will fill any
committee seats that become vacant in the manner provided in the
preceding sentence with independent directors. The board is
prohibited from forming an executive committee.
Transfer
Restrictions
The covered stockholders are generally restricted from
transferring their shares until the expiration of a
lock-up
period of 180 days after closing of the transactions. After
the expiration of the
lock-up
period, the covered stockholders may transfer their shares:
|
|
|
|
|
to New Graphic or in a transaction approved by the New Graphic
board of directors;
|
|
|
|
to certain affiliated permitted transferees that agree to be
bound by the stockholders agreement;
|
|
|
|
pursuant to a public offering; or
|
|
|
|
pursuant to a transfer made in accordance with Rule 144 of
the Securities Act or that is exempt from the registration
requirements of the Securities Act, to any person so long as
such transferee would not own in excess of 5% of the fully
diluted shares of New Graphic common stock.
|
The share certificates owned by each covered stockholder will
bear customary legends with respect to transfer restrictions.
72
Standstill
Agreement
The covered stockholders are also subject to standstill
provisions that generally restrict the covered stockholders from
acquiring additional equity securities of New Graphic (or any
rights to purchase equity securities) that would increase such
covered stockholders beneficial ownership of New Graphic
common stock on a percentage basis greater than the percentage
held as of the closing date of the transactions, or otherwise
take action to increase such covered stockholders control
over New Graphic. These restrictions prohibit the covered
stockholders from taking the following actions, among other
items:
|
|
|
|
|
acquiring the beneficial ownership of additional equity
securities (or the rights to purchase equity securities) of New
Graphic, subject to certain exceptions;
|
|
|
|
making or participating in any solicitation of proxies to vote
any securities of New Graphic in an election contest;
|
|
|
|
participating in the formation of a group with respect to shares
of New Graphic common stock (except to the extent such group is
formed with respect to the stockholders agreement or the
registration rights agreement);
|
|
|
|
granting any proxy to any person other than New Graphic or its
designees to vote at any meeting of the New Graphic stockholders;
|
|
|
|
initiating or soliciting stockholders for the approval of one or
more stockholder proposals with respect to New Graphic;
|
|
|
|
seeking to place a representative on the New Graphic board of
directors, except as contemplated by the stockholders agreement;
|
|
|
|
seeking to publicly call a meeting of the New Graphic
stockholders;
|
|
|
|
making any public announcement or proposal with respect to any
form of business combination involving New Graphic; and
|
|
|
|
disclosing any plan to do any of the foregoing or assist or
encouraging any third party to do any of the foregoing.
|
Once the TPG Entities transfer New Graphic common stock such
that their aggregate percentage holdings of the outstanding New
Graphic common stock drops below 25%, and then below 15%,
respectively, the TPG Entities may not acquire beneficial
ownership on a percentage basis of shares greater than 25% or
15%, as the case may be.
Effectiveness;
Term of Stockholders Agreement
The stockholders agreement will not be effective until the
closing of the transactions. In addition, the stockholders
agreement will terminate under the following circumstances:
|
|
|
|
|
by the unanimous consent of New Graphic and the covered
stockholders;
|
|
|
|
with respect to any covered stockholder, at such time as such
covered stockholder holds less than 3% of the fully diluted
shares of New Graphic common stock;
|
|
|
|
except with respect to the standstill provisions, at such time
as no more than one of the covered stockholders holds more than
3% of the fully diluted shares of New Graphic common stock;
|
|
|
|
except with respect to the standstill provisions, at such time
as approved by each of the covered stockholders who holds in
excess of 3% of the fully diluted shares of New Graphic common
stock; or
|
|
|
|
upon the fifth anniversary of the effective date of the
stockholders agreement; provided, however, that the
confidentiality provisions of the stockholders agreement shall
survive for one year following the termination of the
stockholders agreement.
|
73
Notwithstanding the foregoing, the standstill provisions of the
stockholders agreement will terminate on the earlier of the date
on which the TPG Entities or the covered stockholders other than
the TPG Entities collectively, beneficially own less than 10% of
the fully diluted shares of New Graphic common stock and the
third anniversary of the closing of the transactions;
provided, however, that in no event will the standstill
provisions of the stockholders agreement terminate prior to the
second anniversary of the closing of the transactions.
Registration
Rights Agreement
The following is a summary of the material terms of the
registration rights agreement among New Graphic and the Coors
Family Stockholders, the CDR Fund, EXOR, the TPG Entities and
certain other anticipated stockholders of New Graphic This
summary is qualified in its entirety by reference to the
registration rights agreement, which is incorporated by
reference in its entirety and attached to this proxy
statement/prospectus as Annex F. This summary may not
contain all of the information about the registration rights
agreement which is important to you, and we encourage you to
read the registration rights agreement in its entirety.
Demand
Registration Rights
The registration rights agreement, dated as of July 9,
2007, becomes effective immediately upon the completion of the
transactions. The registration rights agreement provides that
180 days following the closing, the stockholder parties to
the agreement representing 10% of the number of outstanding
shares of New Graphic (for the first two requests) and 5% at all
times thereafter (which percentage drops to 3% to the extent the
stockholder has less than 5% for more than 180 days prior
to the request), may request on one or more occasions that New
Graphic prepare and file a registration statement (including,
except as to the initial registration, a shelf registration
statement pursuant to Rule 415 under the Securities Act,
providing for an offering to be made on a continuous basis, if
so requested and if New Graphic is eligible to use
Form S-3)
relating to the sale of their New Graphic common stock.
Notwithstanding the previous sentence, the first request must be
made by at least two of four of the Coors Family Stockholders,
the CDR Fund, EXOR, and the TPG Entities, although only one of
four such stockholders actually need offer its shares, and the
first registration and offering must be a marketed underwritten
offering.
Upon receipt of such a request, New Graphic is required to
promptly give written notice of such requested registration to
all holders of registrable securities under the registration
rights agreement and, thereafter, to use its reasonable best
efforts to effect the registration under the Securities Act of
all registrable securities which it has been requested to
register pursuant to the terms of the registration rights
agreement. New Graphic is not required to effect a registration
requested by the stockholder parties for 180 days after the
effectiveness of the registration statement for the first
registration effected pursuant to such a request. In all cases,
New Graphics obligations to register the registrable
securities are subject to the minimum and maximum offering size
limitations set forth below.
The stockholder parties have the right to request that any
offering requested by them under the registration rights
agreement be an underwritten offering. In such case, the
requesting stockholder parties by majority of shares requested
to be included in the registration will have the right to select
one or more underwriters to administer the requested offering,
subject to approval by the finance committee (described below),
which shall not be unreasonably withheld.
With respect to the first two requests to effect a registration,
New Graphic will not be required to effect such registration if
such requests relate to less than 10% of the outstanding shares
of common stock. Any request for registration after the first
two requests will be subject to a minimum offering size of 5% of
the outstanding shares of New Graphic common stock.
If the stockholder parties request registration of any of their
shares of New Graphic common stock, New Graphic is required to
prepare and file a registration statement with the SEC as soon
as possible, and no later than 60 days after receipt of the
request (45 days in the case of a
Form S-3
registration statement), subject to the right of New Graphic and
the finance committee described below to delay such filing.
74
New Graphic is permitted to postpone an offering for a
reasonable time period that does not exceed 60 days if the
New Graphic board of directors determines that the offering
would reasonably be expected to materially adversely affect or
materially interfere with a material financing of New Graphic or
a material transaction under consideration by New Graphic or
would require disclosure of information that has not been, and
is not otherwise required to be, disclosed to the public, the
premature disclosure of which could materially adversely affect
New Graphic, subject to certain limitations.
If New Graphic is participating in a sale with other
stockholders who have requested registration and New Graphic and
holders of a majority of the shares requesting registration
determine that the offering should be limited due to market
conditions, New Graphic is permitted to include no more than 25%
of its shares in the total number of shares of New Graphic
common stock being offered in such offering.
Incidental
Registration Rights
In the event that New Graphic proposes to register equity
securities, subject to certain limitations, New Graphic is
required to promptly give written notice of such proposed
registration to all holders of registrable securities (as
defined below). Under certain circumstances, New Graphic will be
obligated to include in such registration the securities of such
stockholders desiring to sell their New Graphic common stock. If
New Graphic is advised by the managing underwriters (or, in
connection with an offering that is not underwritten, by an
investment banking firm of nationally recognized standing
involved in such offering) that the offering should be limited
due to market conditions, securities being sold by New Graphic
will have priority in being included in such registration.
Fees
and Expenses
New Graphic is generally obligated to pay the expenses related
to such registrations, except in the cases where stockholders
requesting registration have refused to proceed with the
transaction.
Finance
Committee
Under the terms of the registration rights agreement, New
Graphic and the New Graphic stockholders party thereto will
create a finance committee which will initially consist of two
representatives designated by the TPG Entities, the chief
executive officer of New Graphic, and one representative of each
of the Coors Family Stockholders, the CDR Fund and EXOR. Each
partys right to membership on the Finance Committee ends
at the same time as its right to nominate members of the New
Graphic board of directors ends under the stockholders
agreement. The finance committee will have the authority to
specify reasonable limitations on a registration or offering
requested pursuant to the registration rights agreement,
including setting the maximum size of the registration or
offering, the timing of registration or offering, the
underwriters and the plan of distribution. Notwithstanding the
foregoing, the finance committee does not have the authority to
delay a proposed registration or offering for more than three
months, subject to certain further limitations.
Termination
The registration rights agreement will terminate on the earliest
to occur of its termination by unanimous consent of the parties
thereto, the date on which no shares of New Graphic common stock
subject to the agreement are outstanding, or the dissolution,
liquidation or winding up of New Graphic.
75
UNAUDITED
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined statements
of operations of New Graphic for the year ended
December 31, 2006 and for the six months ended
June 30, 2007 give effect to the transactions and the Field
acquisition as if they had been completed on January 1,
2006. The following unaudited pro forma condensed combined
balance sheet of New Graphic as of June 30, 2007 gives
effect to the transactions as if they had been completed on
June 30, 2007.
The unaudited pro forma condensed combined financial information
of New Graphic, which has been prepared using the purchase
method of accounting for business combinations with Graphic as
the acquirer, is based upon the historical financial statements
of Graphic and BCH (the holding company of Altivity Packaging,
LLC) and does not reflect any of the synergies and cost
reductions that may result from the transactions. In addition,
this unaudited pro forma condensed combined financial
information of New Graphic does not include any transition
costs, restructuring costs or recognition of compensation
expenses or other one-time charges that may be incurred in
connection with integrating the operations of Graphic and BCH.
The unaudited pro forma condensed combined financial statements
of New Graphic for the year ended December 31, 2006 and as
of and for the six months ended June 30, 2007 are based on
certain assumptions and adjustments by the management of Graphic
as discussed in the accompanying Notes to Unaudited Pro Forma
Condensed Combined Statements of Operations and accompanying
Notes to Unaudited Pro Forma Condensed Combined Balance Sheet
and do not purport to reflect what New Graphics actual
results of operations and financial position would have been had
each such transaction in fact occurred (i) as of
January 1, 2006 (in the case of the unaudited pro forma
condensed combined statements of operations for the year ended
December 31, 2006 and the six months ended June 30,
2007) or (ii) as of June 30, 2007 (in the case of
the unaudited pro forma condensed combined balance sheet as of
June 30, 2007), nor are they necessarily indicative of the
results of operations that New Graphic may achieve in the future.
The unaudited pro forma condensed combined financial information
of New Graphic set forth below should be read in conjunction
with Graphics Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the financial statements and the notes thereto included in
Graphics Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006, and in
Graphics Quarterly Report on
Form 10-Q
for the quarterly period ended June 30, 2007, each
incorporated by reference herein. The pro forma financial
information included herein does not include adjustments for any
transactions other than the transactions contemplated by the
transaction agreement.
The unaudited pro forma condensed combined financial information
of New Graphic set forth below should also be read in
conjunction with Summary Historical and Unaudited Pro
Forma Condensed Consolidated/Combined Financial Data, the
historical financial statements of BCH and
Managements Discussion and Analysis of Financial
Condition and Results of Operations of BCH included in
this proxy statement/prospectus. Because of the timing of
acquisitions, period-to-period comparisons and analyses of
financial condition and results of operations of BCH may not be
helpful for understanding the financial and operational
performance of BCH as a whole.
The historical results of Graphic and BCH are not necessarily
indicative of the results that may be expected for New Graphic
for any future period.
In creating the unaudited pro forma condensed combined financial
statements, the primary adjustments to the historical financial
statements of Graphic and BCH were purchase accounting
adjustments, which include adjustments necessary to allocate the
purchase price to the tangible and intangible assets and
liabilities of BCH based on their estimated fair values.
76
NEW GIANT
CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Graphic
|
|
|
BCH
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
In millions
|
|
|
ASSETS
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Equivalents
|
|
$
|
11.8
|
|
|
$
|
100.0
|
|
|
$
|
(26.0
|
)(a)
|
|
$
|
14.0
|
|
|
|
|
|
|
|
|
|
|
|
|
(71.8
|
)(b)
|
|
|
|
|
Receivables, Net
|
|
|
261.8
|
|
|
|
193.2
|
|
|
|
(5.0
|
)(c)
|
|
|
450.0
|
|
Inventories
|
|
|
297.9
|
|
|
|
233.5
|
|
|
|
22.9
|
(d)
|
|
|
554.3
|
|
Other Current Assets
|
|
|
25.1
|
|
|
|
10.0
|
|
|
|
|
|
|
|
35.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
596.6
|
|
|
|
536.7
|
|
|
|
(79.9
|
)
|
|
|
1,053.4
|
|
Property, Plant and Equipment, Net
|
|
|
1,436.7
|
|
|
|
611.6
|
|
|
|
90.5
|
(e)
|
|
|
2,138.8
|
|
Goodwill
|
|
|
642.3
|
|
|
|
375.4
|
|
|
|
51.4
|
(f)
|
|
|
1,069.1
|
|
Intangible Assets, Net
|
|
|
144.2
|
|
|
|
138.6
|
|
|
|
325.3
|
(f)
|
|
|
608.1
|
|
Deferred Tax Assets
|
|
|
345.6
|
|
|
|
|
|
|
|
|
|
|
|
345.6
|
|
Other Assets
|
|
|
38.1
|
|
|
|
29.3
|
|
|
|
(38.5
|
)(b)
|
|
|
46.9
|
|
|
|
|
|
|
|
|
|
|
|
|
18.0
|
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,203.5
|
|
|
$
|
1,691.6
|
|
|
$
|
366.8
|
|
|
$
|
5,261.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short Term Debt
|
|
$
|
23.7
|
|
|
$
|
10.5
|
|
|
$
|
|
|
|
$
|
34.2
|
|
Accounts Payable
|
|
|
191.0
|
|
|
|
156.8
|
|
|
|
(5.0
|
)(c)
|
|
|
342.8
|
|
Other Accrued Liabilities
|
|
|
174.7
|
|
|
|
85.7
|
|
|
|
8.8
|
(a)
|
|
|
269.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
|
389.4
|
|
|
|
253.0
|
|
|
|
3.8
|
|
|
|
646.2
|
|
Long Term Debt
|
|
|
1,944.7
|
|
|
|
1,148.6
|
|
|
|
(53.8
|
)(b)
|
|
|
3,039.5
|
|
Deferred Tax Liabilities
|
|
|
484.9
|
|
|
|
0.2
|
|
|
|
|
|
|
|
485.1
|
|
Accrued Pension and Postretirement
Benefits
|
|
|
207.5
|
|
|
|
45.1
|
|
|
|
|
|
|
|
252.6
|
|
Other Noncurrent Liabilities
|
|
|
42.2
|
|
|
|
1.8
|
|
|
|
|
|
|
|
44.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
3,068.7
|
|
|
$
|
1,448.7
|
|
|
$
|
(50.0
|
)
|
|
$
|
4,467.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS
EQUITY
|
Preferred Stock
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Contributed Capital
|
|
|
|
|
|
|
314.2
|
|
|
|
(314.2
|
)(a)
|
|
|
|
|
Common Stock
|
|
|
2.0
|
|
|
|
|
|
|
|
0.1
|
(a)
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
(a)
|
|
|
|
|
Capital in Excess of Par Value
|
|
|
1,190.3
|
|
|
|
|
|
|
|
1.7
|
(a)
|
|
|
1,876.7
|
|
|
|
|
|
|
|
|
|
|
|
|
684.7
|
(a)
|
|
|
|
|
Accumulated Deficit
|
|
|
(961.1
|
)
|
|
|
(68.0
|
)
|
|
|
68.0
|
(a)
|
|
|
(989.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(10.6
|
)(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.6
|
)(b)
|
|
|
|
|
Accumulated Other Comprehensive
Loss
|
|
|
(96.4
|
)
|
|
|
(3.3
|
)
|
|
|
3.3
|
(a)
|
|
|
(96.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders
Equity
|
|
|
134.8
|
|
|
|
242.9
|
|
|
|
416.8
|
|
|
|
794.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity
|
|
$
|
3,203.5
|
|
|
$
|
1,691.6
|
|
|
$
|
366.8
|
|
|
$
|
5,261.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
NEW GIANT
CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Graphic
|
|
|
BCH
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
In millions, except per share amounts
|
|
|
Net Sales
|
|
$
|
1,256.0
|
|
|
$
|
1,000.3
|
|
|
$
|
(22.0
|
)(c)
|
|
$
|
2,234.3
|
|
Cost of Sales
|
|
|
1,103.3
|
|
|
|
870.2
|
|
|
|
(22.0
|
)(c)
|
|
|
1,962.3
|
|
|
|
|
|
|
|
|
|
|
|
|
5.1
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.7
|
(f)
|
|
|
|
|
Selling, General and Administrative
|
|
|
97.0
|
|
|
|
96.9
|
|
|
|
5.3
|
(f)
|
|
|
199.2
|
|
Research, Development and
Engineering
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
5.0
|
|
Other Expense (Income), net
|
|
|
1.6
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
49.1
|
|
|
|
34.2
|
|
|
|
(16.1
|
)
|
|
|
67.2
|
|
Interest Income
|
|
|
0.3
|
|
|
|
2.4
|
|
|
|
|
|
|
|
2.7
|
|
Interest Expense
|
|
|
(86.6
|
)
|
|
|
(49.8
|
)
|
|
|
15.6
|
(b)
|
|
|
(120.8
|
)
|
Other
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
|
|
(0.2
|
)
|
Loss on Early Extinguishment of
Debt
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes and
Equity in Net Earnings of Affiliates
|
|
|
(46.7
|
)
|
|
|
(13.4
|
)
|
|
|
(0.5
|
)
|
|
|
(60.6
|
)
|
Income Tax Expense
|
|
|
(13.8
|
)
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Equity in Net Earnings
of Affiliates
|
|
|
(60.5
|
)
|
|
|
(14.5
|
)
|
|
|
(0.5
|
)
|
|
|
(75.5
|
)
|
Equity in Net Earnings of
Affiliates
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(60.0
|
)
|
|
$
|
(14.5
|
)
|
|
$
|
(0.5
|
)
|
|
$
|
(75.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.22
|
)
|
Diluted
|
|
|
(0.30
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.22
|
)
|
Weighted Average Shares
Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
201.5
|
|
|
|
|
|
|
|
141.2
|
|
|
|
342.7
|
|
Diluted
|
|
|
201.5
|
|
|
|
|
|
|
|
141.2
|
|
|
|
342.7
|
|
78
NEW GIANT
CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Year Ended December 31, 2006
|
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
BCH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
|
|
|
Successor
|
|
|
Field
|
|
|
|
|
|
Condensed
|
|
|
|
|
|
|
Jan. 1-
|
|
|
Jul. 1-
|
|
|
Jan. 1-
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
Graphic
|
|
|
June 30
|
|
|
Dec. 31
|
|
|
Aug. 16
|
|
|
Adjustments
|
|
|
Combined
|
|
|
|
In millions, except per share amounts
|
|
|
Net Sales
|
|
$
|
2,413.0
|
|
|
$
|
789.4
|
|
|
$
|
964.2
|
|
|
$
|
229.2
|
|
|
$
|
(31.5
|
)(c)
|
|
$
|
4,364.3
|
|
Cost of Sales
|
|
|
2,109.8
|
|
|
|
699.0
|
|
|
|
881.3
|
|
|
|
197.9
|
|
|
|
(31.5
|
)(c)
|
|
|
3,878.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.5
|
(f)
|
|
|
|
|
Selling, General and Administrative
|
|
|
201.2
|
|
|
|
75.4
|
|
|
|
89.7
|
|
|
|
25.1
|
|
|
|
10.5
|
(f)
|
|
|
401.9
|
|
Research, Development and
Engineering
|
|
|
11.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.4
|
|
Other Expense (Income), net
|
|
|
0.3
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
2.5
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
90.3
|
|
|
|
15.1
|
|
|
|
(6.8
|
)
|
|
|
3.7
|
|
|
|
(32.1
|
)
|
|
|
70.2
|
|
Interest Income
|
|
|
0.6
|
|
|
|
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
3.3
|
|
Interest Expense
|
|
|
(172.2
|
)
|
|
|
(0.6
|
)
|
|
|
(48.5
|
)
|
|
|
(3.8
|
)
|
|
|
30.3
|
(b)
|
|
|
(194.8
|
)
|
Other
|
|
|
|
|
|
|
|
|
|
|
(0.4
|
)
|
|
|
1.2
|
|
|
|
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Income Taxes and
Equity in Net Earnings of Affiliates
|
|
|
(81.3
|
)
|
|
|
14.5
|
|
|
|
(53.0
|
)
|
|
|
1.1
|
|
|
|
(1.8
|
)
|
|
|
(120.5
|
)
|
Income Tax Expense
|
|
|
(20.2
|
)
|
|
|
(5.8
|
)
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
(27.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Equity in Net Earnings
of Affiliates
|
|
|
(101.5
|
)
|
|
|
8.7
|
|
|
|
(53.5
|
)
|
|
|
0.3
|
|
|
|
(1.8
|
)
|
|
|
(147.8
|
)
|
Equity in Net Earnings of
Affiliates
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(100.5
|
)
|
|
$
|
8.7
|
|
|
$
|
(53.5
|
)
|
|
$
|
0.3
|
|
|
$
|
(1.8
|
)
|
|
$
|
(146.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.43
|
)
|
Diluted
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.43
|
)
|
Weighted Average Shares
Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
201.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141.2
|
|
|
|
342.3
|
|
Diluted
|
|
|
201.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
141.2
|
|
|
|
342.3
|
|
79
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
|
|
Note 1.
|
Basis of
Presentation
|
These unaudited pro forma condensed combined financial
statements have been prepared in conformity with accounting
principles generally accepted in the United States
(U.S. GAAP) and pursuant to the rules and
regulations of the SEC and present the pro forma financial
position and results of operations of the combined company based
upon historical financial information after giving effect to the
transactions, the Field acquisition by BCH, and financing
transactions and adjustments described in these footnotes.
Certain footnote disclosures normally included in financial
statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to such rules and regulations.
The unaudited pro forma condensed combined financial statements
are presented for informational purposes only. These unaudited
pro forma condensed combined financial statements are not
necessarily indicative of the results of operations that would
have been achieved had the transaction actually taken place at
the dates indicated and do not purport to be indicative of New
Graphics future financial position or operating results.
The unaudited pro forma condensed combined financial statements
should be read in conjunction with the historical financial
statements described below.
The pro forma balance sheet was prepared by combining the
historical consolidated balance sheet data as of June 30,
2007 of Graphic and BCH, assuming the transactions and related
financing transactions had occurred on June 30, 2007. The
pro forma statements of operations for the six months ended
June 30, 2007 and the year ended December 31, 2006
have been prepared by combining the consolidated statements of
operations for those periods, assuming the transactions and
related financing transactions had occurred on January 1,
2006. In addition, the combined pro forma statement of
operations for the year ended December 31, 2006 includes
the unaudited historical results of the Field Companies for the
period January 1, 2006 through August 16, 2006. On
August 16, 2006, BCH completed the acquisition of
substantially all of the assets of Field Holdings, Inc., a
Delaware corporation, Field Container Company, L.P., a Delaware
limited partnership, and Field Container Management Corporation,
a Delaware corporation (collectively, the Field
Companies). Subsequent to August 16, 2006, the
results of operations of the Field Companies are reflected in
the BCH results of operations. Management has included the
historical results of the Field Companies as these operations
will be part of the ongoing entity.
The transactions will be accounted for using the purchase method
of accounting. The transactions are accounted for such that
Graphic is treated as the acquirer and BCH as the acquired
company. Under the purchase method, the purchase price is
allocated to the tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values as of
the acquisition date. Any excess of the purchase price over the
estimated fair value of the net assets acquired (including both
tangible and identifiable intangible assets) is allocated to
goodwill.
The unaudited pro forma combined financial statements and
purchase price allocations have been prepared based on available
information and preliminary estimates and assumptions that
management believes are reasonable. However, the allocation of
purchase price has not been finalized and the actual adjustments
to our combined financial statements upon the closing of the
transactions will depend on a number of factors, including
additional information available and the net assets on the
closing date of the transactions. Accordingly, there can be no
assurance that the final allocation of purchase price will not
differ from the preliminary allocation reflected in the
unaudited pro forma combined financial statements.
The unaudited pro forma condensed combined financial statements
do not reflect significant operational and administrative cost
savings that management of the combined company estimates may be
achieved as a result of the transactions.
80
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
|
|
Note 2.
|
Pro Forma
Transactions
|
On July 9, 2007, Graphic entered into a transaction
agreement and agreement and plan of merger (the
transaction agreement) by and among Graphic,
Bluegrass Container Holdings, LLC (BCH), TPG
Bluegrass IV, L.P. (TPG IV), TPG Bluegrass IV-AIV 2,
L.P. (TPG IV-AIV), TPG Bluegrass V, L.P.
(TPG V), TPG Bluegrass V-AIV 2, L.P. (TPG
V-AIV), Field Holdings, Inc. (Field Holdings),
TPG FOF V-A, L.P. (FOF V-A), TPG FOF V-B, L.P.
(FOF V-B), BCH Management, LLC (together with Field
Holdings, TPG IV, TPG IV-AIV, TPG V, TPG V-AIV, FOF V-A,
FOF V-B and any transferee of their interests in BCH, the
Sellers), New Giant Corporation, a wholly-owned
subsidiary of Graphic (New Graphic), and Giant
Merger Sub, Inc., a wholly-owned subsidiary of New Graphic
(Merger Sub). Under the terms of the transaction
agreement, Merger Sub will be merged with and into Graphic (the
merger), and Graphic will become a wholly-owned
subsidiary of New Graphic. As a result of the merger, each
issued and outstanding share of Graphics common stock will
be converted into the right to receive one newly issued share of
New Graphic common stock. The transaction agreement also
provides for each Seller to exchange BCH equity interests owned
by each Seller for newly issued shares of New Graphic common
stock (the exchange, and together with the merger,
the transactions). Contemporaneously with the
closing of the transactions, New Graphic expects to take certain
reorganization steps such that BCH will become a wholly-owned
subsidiary of Graphic Packaging International, Inc., a direct,
wholly-owned subsidiary of Graphic.
The effect of the transactions and post-closing reorganization
is that New Graphic will directly hold all of the equity of
Graphic and indirectly hold all of the equity interests of BCH.
Graphics current stockholders will initially own
approximately 59.4% of New Graphics common stock, while
the equity holders of BCH will initially own approximately 40.6%
of New Graphics common stock, each calculated on a fully
diluted basis.
In connection with the transactions, the combined company
intends to refinance the existing bank financing of Graphic and
BCH. For accounting purposes, the purchase price of BCH of
$1,871.2 million, including assumed debt of
$1,159.1 million, is based upon the estimated fair value of
139.4 million shares of New Graphic common stock to be
issued in the transactions which approximates
$686.1 million plus estimated direct transaction costs to
be incurred of approximately $26 million (comprised of
Graphics financial advisory and legal fees and excluding
transaction-related expenses). The estimated value of New
Graphic common stock of $4.92 per share used in the calculation
of the purchase price is based upon available information and
managements best estimates as of July 6, 2007. The
actual fair value of New Graphic common stock and the purchase
price may change subject to final valuation.
The purchase consideration of $1,871.2 million was
allocated to assets acquired and liabilities assumed based on
their estimated fair value as of the acquisition date. A
preliminary allocation of the purchase cost has been made to
major categories of assets and liabilities in the accompanying
unaudited pro forma condensed combined financial statements
based on managements estimates. The final purchase price
allocation is dependent on, among other things, the finalization
of asset and liability valuations. As of the date of this proxy
statement/prospectus, only a preliminary valuation has been
completed to estimate the fair values of the assets acquired and
liabilities assumed and the related allocation of purchase
price. The total estimated purchase price, calculated as
described above, has been allocated to the unaudited pro forma
condensed combined balance sheet, to the assets acquired and
liabilities assumed based on preliminary estimates of their fair
values. A final determination of these fair values will reflect
consideration of a final valuation. This final valuation will be
based on the actual net tangible and identifiable intangible
assets that existed as of the closing date of the transactions.
Any final adjustment will change the allocations of purchase
price, which could affect the fair value assigned to the assets
and liabilities and could result in a change to the unaudited
pro forma condensed combined financial statements, including a
change to goodwill and a change to the amortization of tangible
and identifiable intangible assets. The actual allocation of
purchase cost and its effect on results of operations
81
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
may differ significantly from the pro forma amounts included
herein. The excess of the purchase cost over the net tangible
and identifiable intangible assets acquired and liabilities
assumed has been allocated to goodwill.
The preliminary allocation of the purchase consideration is as
follows (in millions):
|
|
|
|
|
Estimated Purchase Price
|
|
$
|
686.1
|
|
Estimated Acquisition Costs
|
|
|
26.0
|
|
Assumed Debt at Fair Value
|
|
|
1,159.1
|
|
|
|
|
|
|
Total Estimated Purchase
Consideration
|
|
$
|
1,871.2
|
|
|
|
|
|
|
Preliminary Allocation of Purchase
Price:
|
|
|
|
|
Property, Plant and Equipment
|
|
|
702.1
|
|
Inventories
|
|
|
256.4
|
|
Customer Relationships
|
|
|
444.5
|
|
Patents and Trademarks
|
|
|
8.4
|
|
Other Identifiable Intangible
Assets(a)
|
|
|
11.0
|
|
Deferred Taxes(b)
|
|
|
|
|
Other Net Assets Acquired(c)
|
|
|
22.0
|
|
Goodwill
|
|
|
426.8
|
|
|
|
|
|
|
Total Estimated Fair Value of Net
Assets Acquired
|
|
$
|
1,871.2
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes other identifiable intangible assets consisting of
non-compete agreements of $10.9 million, favorable lease
agreements of $2.1 million, and unfavorable supply
contracts of $2.0 million. |
|
(b) |
|
Graphic recorded deferred tax liabilities of $168.8 million
as a result of the
step-up in
net assets. These deferred taxes were offset by the release of a
corresponding amount of the valuation allowance related to
deferred tax assets associated with net operating losses of
Graphic. As such, there was no impact on goodwill in the
purchase price allocation. |
|
(c) |
|
Includes cash, accounts receivables, prepaid expenses, other
assets, accounts payable, accrued liabilities and lease
obligations. At the date of the acquisition, it was assumed that
the book value approximated fair market value. |
|
|
Note 3.
|
Pro Forma
Adjustments for the Acquisition
|
The unaudited pro forma condensed combined financial statements
give effect to the transactions described in Note 2, as if
they had occurred on June 30, 2007 for purposes of the
unaudited pro forma condensed combined balance sheet and
January 1, 2006 for purposes of the unaudited pro forma
condensed combined statements of operations. The unaudited pro
forma condensed combined statements of operations do not include
any material non-recurring charges that will arise as a result
of the transactions described in Note 2. Adjustments in the
unaudited pro forma condensed combined financial statements are
as follows:
a. This adjustment reflects the elimination of the
historical equity of BCH and reflects the new equity structure
of the combined company, including the following:
|
|
|
|
|
Issuance of 1,775,667 shares of common stock under
Graphics long-term incentive plan which become vested and
payable upon change in control. Note that the pro forma combined
statement of operations do not reflect the $4.9 million
non-cash expense nor the $5.7 million cash expense for the
vesting of the restricted stock units as these amounts are
directly related to the transactions and are not expected to
have a continuing impact on operations.
|
Issuance of 139,445,038 shares of common stock
to BCH at a share price of $4.92.
|
|
|
|
|
Acquisition costs of approximately $26.0 million.
|
82
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Upon completion of the transactions, approximately
342.2 million shares of $0.01 par value of combined
company common stock would have been outstanding as of
June 30, 2007.
b. As contemplated by the commitment letter between Graphic
and each of Bank of America, N.A., Goldman Sachs Credit
Partners, L.P. and JPMorgan Chase Bank, N.A., the combined
company intends to refinance the existing bank financing of
Graphic and BCH as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refinanced
|
|
|
|
|
|
|
Pro Forma Combined
|
|
|
|
Existing Combined
|
|
|
Debt at
|
|
|
|
Debt at June 30, 2007
|
|
|
June 30, 2007
|
|
|
Bank financing
|
|
$
|
2,203.8
|
|
|
$
|
2,203.8
|
|
Senior and senior subordinated
notes
|
|
|
850.0
|
|
|
|
850.0
|
|
Revolving credit facilities
|
|
|
58.5
|
|
|
|
4.7
|
|
Other debt
|
|
|
15.2
|
|
|
|
15.2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,127.5
|
|
|
$
|
3,073.7
|
|
|
|
|
|
|
|
|
|
|
Refinanced pro forma combined debt at June 30, 2007 is
classified in the unaudited pro forma condensed combined balance
sheet as follows:
|
|
|
|
|
Short-term debt
|
|
$
|
34.2
|
|
Long-term debt
|
|
|
3,039.5
|
|
|
|
|
|
|
Total debt
|
|
$
|
3,073.7
|
|
|
|
|
|
|
The pro forma adjustments reflect the refinancing of the
combined companys bank financing, including the write-off
of unamortized debt issuance costs of $38.5 million
(representing a write-off of $17.6 million and
$20.9 million of Graphic and BCH unamortized debt issuance
costs, respectively), and the repayment of $53.8 million of
combined debt which is reflected as a reduction to other assets
and cash in the combined balance sheet at June 30, 2007;
and the recognition of new debt issuance costs related to the
refinancing of $18 million which is reflected as an
increase to other assets in the combined balance sheet at
June 30, 2007. The new debt issuance costs of
$18 million will be amortized using either the effective
interest or straight line method depending on the debt
instrument to which the costs pertain. Note that the pro forma
combined statement of operations do not reflect the
$17.6 million impact of the write-off of the unamortized
debt issuance costs as the amount is directly related to the
transactions and is not expected to have a continuing impact on
operations.
The pro forma interest expense adjustments reflect an average
variable interest rate of LIBOR +2.0% for the combined
companys new bank debt. The pro forma cash interest
savings of $11.4 million and $23.0 million for the six
months ended June 30, 2007 and the year ended
December 31, 2006, respectively, were increased by the
lower amortization of debt issue costs of $4.2 million and
$7.3 million, respectively. A 0.125% change in the assumed
variable interest rate related to the bank financing, without
taking interest rate hedges into account, would change annual
pro forma interest expense by approximately $3 million. The
total blended interest rate utilized in the pro forma
adjustments approximated 8%.
c. During the periods presented, Graphic sold coated
unbleached kraft (CUK) folding boxboard to BCH for
use in certain cartons manufactured by BCH. This pro forma
adjustment eliminates the sales and cost of goods sold and the
respective accounts receivable and accounts payable related to
these transactions.
d. Represents a $22.9 million
step-up in
inventory basis to fair market value of inventories acquired in
the transactions. The pro forma combined statement of operations
does not reflect the impact on cost of sales of an increase of
$22.9 million of the estimated purchase accounting
adjustment to value inventories at estimated selling prices less
the sum of costs of disposal and a reasonable profit allowance
for the selling
83
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
effort. The amount is directly related to the transactions and
is not expected to have a continuing impact on New
Graphics operations. Note that as a result of the Field
acquisition by BCH, BCH recognized a
step-up in
inventory basis to fair market value in the amount of
$7.6 million, which is recorded as cost of sales in the
historical financial statements of the Successor during the
period from July 1, 2006 to December 31, 2006.
e. Property, plant and equipment acquired in the
transactions were
stepped-up
by $90.5 million to fair market value at June 30,
2007. This adjustment of $90.5 million will be depreciated
on a straight-line basis over the remaining useful life of the
respective assets, which ranges from 3 years to
15 years. The incremental depreciation expense related to
the fair market value adjustment approximates $5.1 million
and $10.1 million for the six month period ended
June 30, 2007 and the year ended December 31, 2006,
respectively, and is reflected in cost of sales in the
statements of operations.
|
|
|
|
f.
|
The fair market value of acquired intangible assets was adjusted
as follows at June 30, 2007:
|
|
|
|
|
|
Customer Relationships
|
|
$
|
320.0
|
|
Trademarks and Patents
|
|
|
2.7
|
|
Lease and Supply Contracts
|
|
|
2.6
|
|
|
|
|
|
|
Total fair market value adjustment
to intangible assets at June 30, 2007
|
|
$
|
325.3
|
|
|
|
|
|
|
This adjustment of $325.3 million will be amortized on a
straight-line basis over the remaining useful life of
16 years for customer relationships, 4 years for
trademarks and patents, and the remaining contractual period for
the lease and supply contracts. Incremental amortization expense
recorded for the transactions was $11.0 million and
$22.0 million for the six month period ended June 30,
2007 and the year ended December 31, 2006, respectively,
and is reflected in cost of sales and selling, general and
administrative in the statements of operations. In addition, as
a result of the transactions, goodwill, which has an indefinite
life, is estimated to be $426.8 million, which results in
an adjustment of $51.4 million.
g. Represents the estimated tax effect of the pro forma
adjustments at a statutory rate of approximately 38.2%. All
current federal tax expense has been fully offset by the
utilization of Graphic net operating loss carryovers. This also
results in a corresponding reduction of Graphics deferred
tax valuation allowance. Graphic has recorded the valuation
allowance because it is more likely than not that the deferred
tax asset will not be realized.
|
|
Note 4.
|
Unaudited
Pro Forma Loss Per Share
|
The following table sets forth the computation of unaudited pro
forma basic and diluted loss per share (in millions, except for
per share information):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
Six Months Ended
|
|
|
|
December 31, 2006
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
Per share
|
|
|
|
|
|
|
|
|
|
Per Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
(Loss) income per basic share
|
|
$
|
(146.8
|
)
|
|
|
342.3
|
|
|
$
|
(0.43
|
)
|
|
|
$
|
(75.0
|
)
|
|
|
342.7
|
|
|
$
|
(0.22
|
)
|
Loss per diluted share
|
|
$
|
(146.8
|
)
|
|
|
342.3
|
|
|
$
|
(0.43
|
)
|
|
|
$
|
(75.0
|
)
|
|
|
342.7
|
|
|
$
|
(0.22
|
)
|
84
NEW GIANT
CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
Shares utilized in the calculation of pro forma basic and
diluted loss per share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
In millions of shares
|
|
December 31, 2006
|
|
|
June 30, 2007
|
|
|
Weighted average Graphic shares
outstanding
|
|
|
201.1
|
|
|
|
201.5
|
|
Shares issued in the transactions
|
|
|
139.4
|
|
|
|
139.4
|
|
Shares issued for restricted stock
units
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
342.3
|
|
|
|
342.7
|
|
Other potentially dilutive securities consisting of stock
options, totaling 12.7 million and 14.9 million for
the six months ended June 30, 2007 and the year ended
December 31, 2006, respectively, were excluded from the per
share calculations above, because of their anti-dilutive effect.
85
INFORMATION
ABOUT GRAPHIC PACKAGING CORPORATION
Graphic is a leading provider of paperboard packaging solutions
for a wide variety of products to multinational food, beverage
and other consumer products companies. Graphic strives to
provide its customers with packaging solutions designed to
deliver marketing and performance benefits at a competitive cost
by capitalizing on its low-cost paperboard mills and converting
plants, its proprietary carton designs and packaging machines,
and its commitment to customer service.
Graphic focuses on providing a range of paperboard packaging
products to major companies with well-recognized brands. Its
customers generally have prominent market positions in the
beverage, food and household products industries. Graphic offers
customers its paperboard, cartons and packaging machines, either
as an integrated solution or separately. Graphic has long-term
relationships with major companies, including Kraft Foods, Inc.,
Anheuser-Busch Companies, Inc., General Mills, Inc., SABMiller
plc., Molson Coors Brewing Company, and numerous
Coca-Cola
and Pepsi bottling companies.
This proxy statement/prospectus incorporates important business
and financial information about Graphic from other documents
that are not included or delivered with this proxy
statement/prospectus. For a listing of the documents
incorporated by reference in this proxy statement/prospectus,
see Where You Can Find More Information.
INFORMATION
ABOUT BLUEGRASS CONTAINER HOLDINGS, LLC
AND ALTIVITY PACKAGING, LLC
Overview
Bluegrass Container Holdings, LLC is a privately-held holding
company that conducts no operations and its only material asset
is its membership interest in Altivity Packaging, LLC
(Altivity). Altivity, headquartered in the Chicago,
Illinois area, is a provider of packaging solutions, including
folding cartons and paperboard, multi-wall bags, flexible
packaging and labels. The end-markets for Altivitys
products are primarily consumer oriented, which provides
stability and long-term predictable growth. Altivity has
approximately 7,900 employees and owns 6 boxboard
mills, 23 folding carton plants, 12 multi-wall bag and
specialty facilities, 10 flexible packaging and labels
facilities and 5 ink facilities.
Across its businesses, Altivity provides packaging solutions to
customers in the consumer packaged goods, agriculture, pet care,
building materials and chemicals industries. These end-markets
are generally characterized by stable and predictable demand
growth. Key demand drivers in these markets include rising
disposable income levels and increased consumption of
non-durable goods among consumers.
Altivitys customer base includes a number of well-known,
blue-chip companies. As these large consumer product companies
have increasingly focused on product positioning as a
differentiating factor on retail shelves, packaging has become
an integral part of a products merchandising strategy.
Effective packaging communicates quality, product attributes,
product differentiation, and brand identification to potential
customers. Across all segments, Altivity works closely with its
customers in the early stages of product development to engineer
and create innovative packaging solutions.
Altivitys business includes three major segments:
|
|
|
|
|
Folding Cartons & Paperboard
|
|
|
|
Multi-wall Bags
|
|
|
|
Flexible Packaging/Labels
|
Folding
Cartons & Paperboard
Altivitys folding cartons and paperboard segment is an
integrated folding carton platform with a long history of
delivering value-added packaging solutions to a roster of
well-known customers. Altivity offers
86
customers one of the industrys widest ranges of converted
boxboard products made from a complete array of recycled and
virgin boxboard grades.
The segments folding carton operations include a national
network of 23 converting facilities, strategically located to
enable timely product delivery and exemplary customer service to
customers. The integrated business is supported by
Altivitys six low-cost coated recycled boxboard mills.
The low-cost paperboard mills house seven paper machines and
produce approximately 715,000 tons annually, making it among the
largest paperboard production bases in North America.
Altivitys scale in paperboard production enables
optimization across facilities and provides savings through
procurement and freight, as well as supply chain reliability for
customers.
The segment is a major supplier to the cereal/dry food, cookie
and cracker, bakery goods, soap and detergent and facial tissue
end-markets.
Multi-wall
Bags
Altivitys multi-wall bags business is the leading supplier
of multi-wall bags in North America. Altivity produces
approximately 1.1 billion bags annually and operates 12
multi-wall bag and specialty plants that print, fold and glue
paper into packaging. Altivity and its predecessors have made
significant investments over the past four years to install
state-of-the-art equipment at major plants to expand the
businesss ability to manufacture a full range of products.
In addition to a full range of products, Altivity provides
multi-wall bag customers with value-added graphical and
technical support, customized packaging equipment solutions and
packaging workshops to help educate customers.
Altivitys multi-wall bag facilities are strategically
located throughout the U.S., allowing it to provide a high level
of service to customers, minimize freight and logistics costs,
improve order turnaround times and improve supply chain
reliability. Furthermore, with relatively comparable
manufacturing lines in each of the major facilities, Altivity
has the capacity and the flexibility to manufacture all of its
primary multi-wall bag product lines at each location.
The Altivity multi-wall bag business had traditionally provided
packaging for low-cost, bulk-type commodity products. However,
with the continuing evolution of materials management, bag
construction, and distribution systems, the business has gained
access to end-markets in which higher-value products are now
being packaged in multi-wall bags. For example, todays
applications include custom-designed barriers (caustic soda),
variable package sizes for varying product weights and
increasingly higher quality graphics for enhanced consumer
appeal. The business provides customers in a wide variety of
end-markets with high-end graphical printing solutions that
enable Altivity to grow with its customers.
Flexible
Packaging/Labels
Flexible
Packaging
Altivitys flexible packaging segment operates five modern
and technologically competitive manufacturing plants in North
America and produces products such as shingle wrap, batch
inclusion bags and film, retort pouches (such as meals ready to
go), medical test kit and transdermal patch overwraps,
multilayer laminations for hard-to-hold products (such as
iodine) and plastic bags and films for building materials (such
as ready-mix concrete).
Altivitys flexible packaging business has an established
position in end-markets for food products, pharmaceutical and
medical products, personal care, industrial, pet food and pet
care products, horticulture and military and commercial retort
pouches. With the capacity to extrude up to seven layers of
multi-layer films and state-of-the-art printing capabilities,
the business is ideally positioned to service a variety of niche
flexible packaging applications such as
stand-up
pouches, condiment containers for the fast food industry and
plastic valve and shipping sacks.
87
Altivitys flexible packaging manufacturing facilities
consist of four U.S. and one Canadian based operation.
These plants offer flexographic and rotogravure printing,
thermoforming and barrier coating, mono layer and co-extruded
films, extrusion lamination, adhesive lamination both stand
alone and in-line with flexographic printing, polyethylene bags
and rolls, shipping sacks and valve bags.
Labels
Altivitys labels business focuses on two product lines:
heat transfer labels and litho labels. As a result of recent
investments, Altivity has penetrated new markets such as shrink
sleeve, pressure sensitive and in-mold labels.
Altivitys labels plants in St. Charles, Illinois, Norwood,
Ohio and Greensboro, North Carolina feature state-of-the-art
lithographic printing presses, including eight color sheet-fed
and roll-to-roll equipment that produce both cut and stack,
pressure sensitive and heat transfer labels. The labels business
can provide customers with high quality labels utilizing
virtually any technology application.
Altivitys labels business includes cut &
stack labels and pressure sensitive labels which are
predominantly sold to food product manufacturers and industrial
and household product manufacturers. Finally, heat transfer
labels are commonly used in health and beauty applications, as
well as in food, beverage, household and automotive markets.
Competition
Although a relatively small number of large competitors hold a
significant portion of the paperboard packaging industry,
Altivitys business is subject to strong competition.
Altivitys primary competitors include, in the folding
cartons and paperboard segment, Rock-Tenn Company, International
Paper Company, Caraustar Industries, Inc., MeadWestvaco,
Simkins-Hallin Lumber Company, The Specialized Packaging Group,
Inc., White Pigeon Paper Company, The Newark Group and Cascades
Inc., and in the multi-wall bag segment, Hood Packaging
Corporation, Exopack LLC, Bemis Company, Inc., Mondi Group and
Mid-America
Paper Recycling Co. Additionally, Altivity faces increasing
competition from products imported from Asia and South America.
There are a large number of producers in the paperboard markets,
which are subject to significant competitive and other business
pressures. Suppliers of paperboard compete primarily on the
basis of price, strength and printability of their paperboard,
quality and service.
Energy
and Raw Materials
Paper board, natural kraft, recycled fiber and other paper
substrates, poly sheeting and plastic resins used in the
manufacture of folding cartons and coated recycle paperboard,
multi-wall bags, flexible packaging and labels, as well as
various chemicals used to produce coated recycled paperboard
represent the largest components of Altivitys variable
costs of production. The cost of these materials is subject to
market fluctuations caused by factors largely beyond
Altivitys control.
Folding
Carton
The majority of external board purchases are acquired through
long term arrangements with major industry suppliers including
Smurfit Stone Container Corporation, MeadWestvaco,
Georgia-Pacific LLC and International Paper Company. The folding
carton business also purchases a variety of other raw materials
and supplies for the converting operations, including adhesives,
inks and coatings, and printing press consumables such as plates
and blankets. These materials are purchased from a diverse
supplier base that includes both direct manufacturers and select
third-party distributors under a range of short-term and
longer-term contractual agreements.
88
Mills
Altivitys coated recycled board is made from 100% recycled
fiber that is currently sourced primarily through a supply
agreement with Smurfit Stone Container Corporation. Altivity
believes that this agreement provides better stability in its
long-term fiber supply relative to its competitors. In addition,
ready-access to a consistent, stable and familiar fiber source
results in increased manufacturing efficiencies and a more
consistent level of coated recycled product quality.
The mills also purchase a variety of other raw materials and
chemicals such as latex, kaolin and titanium dioxide from a
diversified base of suppliers. Altivity has secured access to
these materials under a variety of mid to long-term contracts
and enjoys a long-standing relationship with a majority of its
supplier base.
Multi-wall
The multi-wall bag operations use a combination of natural
Kraft, high performance, bleached, metallic and clay coated
papers in its converting operations. The paper is supplied
directly through North American paper mills, including Smurfit
Stone Container Corporation, KapStone Kraft Paper Corporation,
Georgia-Pacific LLC, Fraser Papers, Tolko Industries Ltd. and
Canfor Corporation, under supply agreements that are typically
reviewed annually.
Flexible/Label
The flexible packaging group currently purchases the majority of
its primary raw material of polyethylene resins or additives
from Equistar Chemical Company, Dow Chemical Canada, Inc., AT
Plastics, Inc., Nova Chemicals, Spartech Plastics and Pliant
Corp. Other key material purchases include films, such as nylon,
both saran coated and not, polyester film, metallized polyester
film, polypropylene films for retort pouch packaging, aluminum
foil, inks and adhesives that are secured through a variety of
short and mid-term agreements.
The label group purchases its primary raw materials, which
includes heat transfer papers and coated one-side and two-side
papers from a limited number of suppliers. In addition, the
group purchases wet strength and metallized paper for specific,
niche label applications and shrink sleeve film substrates
through short and mid-term agreements.
Energy, including natural gas, fuel oil and electricity,
represents a significant portion of Altivitys
manufacturing costs. Altivity has entered into contracts
designed to manage risks associated with future variability in
cash flows and price risk related to future energy cost
increases for a portion of its natural gas requirements,
primarily at its U.S. mills through March 31, 2008.
Altivity plans to continue its hedging program for natural gas
as discussed in Note 10 in the Notes to BCHs
Consolidated Financial Statements included herein.
Altivity purchases a variety of other raw materials for the
manufacture of its products, such as inks, aluminum foil,
plastic filling, plastic resins, adhesives, process chemicals
and coating chemicals such as kaolin and titanium dioxide. While
such raw materials are generally readily available from many
sources, and Altivity is not dependent upon any one source of
such raw materials, Altivity has developed strategic
long-standing relationships with some of its vendors, including
the use of multi-year supply agreements, in order to provide a
guaranteed source of raw materials that satisfies customer
requirements.
Altivity is negatively impacted by inflationary pressures,
including higher costs for energy, chemical-based inputs and
freight. Since negotiated contracts and the market largely
determine the pricing for its products, Altivity is at times
limited in its ability to pass through to its customers any
inflationary or other cost increases that Altivity incurs.
Seasonality
Altivitys net sales, income from operations and cash flows
from operations are subject to moderate seasonality, with demand
usually increasing in late summer and early fall due to the
seasonality of the folding carton business.
89
Research,
Development and Engineering
Altivitys research and development staff works directly
with its sales and marketing personnel in meeting with customers
and pursuing new business. Altivitys development efforts
include, but are not limited to, new product and innovation
teams to assist in working with customers, sales, marketing and
manufacturing to develop new package features, modifications and
designs; technical assistance to provide test programs for new
or existing packages to provide recommendations for performance
packaging modifications, product fitness for use and shelf life
improvements and to determine package construction and design;
addressing customers questions related to the compliance
of Altivitys products to federal, state and local
regulations; production of samples for marketing evaluation,
checking the package size or other evaluations; and assistance
to identify and quantify the key characteristics of materials
which affect product and package performance.
Patents
and Trademarks
As of December 31, 2006, Altivity had a large patent
portfolio, presently owning, controlling or holding rights to
more than 61 U.S. and foreign patents, with more than
30 U.S. and foreign patent applications currently pending.
Altivitys patent portfolio consists primarily of patents
relating to packaging machinery, structural carton designs,
multi-wall bag packaging and manufacturing methods. These
patents and processes are significant to Altivitys
operations and are supported by trademarks such as
Alti-Kraft®,
Alti-Print®,
Cap-Sac®,
DI-NA-Cal®,
Force
Flow®,
Kitchen
Master®,
Lithoflute®,
Lustergrip®,
Master
Impressions®,
Master
Coat®,
Peel
Pak®,
Shape
FX®,
Soni-Lok®,
Soni-Seal®,
and The Yard
Master®.
Altivity takes significant steps to protect its intellectual
property and proprietary rights. Altivity does not believe that
the expiration of any of its patents at the end of their normal
lives will have a material adverse effect on its financial
condition or results of operations, and Altivitys
operations are not dependent upon any single patent or trademark.
Employees
and Labor Relations
As of December 31, 2006, Altivity had approximately
7,900 employees worldwide (excluding employees of joint
ventures), of which approximately 59% were represented by labor
unions and covered by collective bargaining agreements. Altivity
considers its employee relations to be satisfactory.
Certain employees in the U.S. are covered by collective
bargaining agreements at 35 different sites with
49 union contracts. Altivity has contracts with
International Brotherhood of Teamsters (IBT),
International Association of Machinists (IAM),
International Brotherhood of Firemen and Oilers
(IBFO), United Food and Commercial Workers
International Union (UFCW), International Union of
Operating Engineers (IUOE), United Steelworkers
Union (USW), International Brotherhood of Electrical
Workers (IBEW), Communication, Energy and
Paperworkers Union of Canada (CEP), and Sindicato de
Trabajadores de Industrias, which are summarized below:
|
|
|
|
|
Type of Facility and Location
|
|
Name of Union
|
|
Expiration of Agreement
|
|
Paperboard Mill:
|
|
|
|
|
Pekin, IL
|
|
USW
|
|
October 31, 2005
|
Middletown, OH
|
|
USW
|
|
June 1, 2008
|
Battlecreek MI
|
|
IBT
|
|
April 2, 2010
|
Battlecreek MI
|
|
IAM
|
|
April 2, 2010
|
Battlecreek MI
|
|
IBEW
|
|
April 2, 2010
|
Battlecreek MI
|
|
IUOE
|
|
April 2, 2010
|
Wabash, IN
|
|
USW
|
|
June 19, 2010
|
Philadelphia, PA
|
|
IBFO
|
|
June 19, 2010
|
Philadelphia, PA
|
|
IUOE
|
|
June 19, 2010
|
Philadelphia, PA
|
|
USW
|
|
June 19, 2010
|
Santa Clara, CA
|
|
IBT
|
|
August 31, 2010
|
90
|
|
|
|
|
Type of Facility and Location
|
|
Name of Union
|
|
Expiration of Agreement
|
|
Folding Cartons:
|
|
|
|
|
Queretaro, MX
|
|