** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

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**FORM 10-Q**
| **x**      | ** ** | **QUARTERLY REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|----------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                               |
| ** ** | ** ** | **For the  quarterly period ended March 31, 2006**                                                  |
| ** ** | ** ** | ** **                                                                                               |
| ** ** | ** ** | **OR**                                                                                                   |
| ** ** | ** ** | ** **                                                                                               |
| **o**      | ** ** | **TRANSITION REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934** |

 

**Forthe transition period from           to           **

**CommissionFile Number:  333-114105**

**Merisant Company**

(Exact Name of Registrantas Specified in its Charter)
| **Delaware**                                                     | ** ** | **52-2218321**                           |
|------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |
|                                                             |       |                                     |
| **10  South Riverside Plaza, Suite 850  Chicago, Illinois** | ** ** | **60606**                                |
| (Address of  Principal Executive Offices)                        |       | (Zip Code)                               |

 

Registrant’s telephonenumber, including area code:  **(312) 840-6000**

Former name, former address and former fiscal year, if changed sincelast report:**Not applicable.**

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes x    Noo

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct.

Largeaccelerated filer  o                 Acceleratedfiler  o                 Non-acceleratedfiler  x

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).    Yes     o     No     x

Indicate the number ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.

As of May 12, 2006, the registrant had 100 shares of common stock,par value $0.01 per share, outstanding, all of which were owned by MerisantWorldwide, Inc.

 

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MERISANT COMPANY

INDEX TO REPORT

FOR THE QUARTER ENDED MARCH 31,2006
| PART I—FINANCIAL  INFORMATION |
|-----------------------------------------|
|                                    |   |   |
| Item 1.                                 |   | Financial Statements of Merisant Company |
|                                    |   |   |
|                                    |   | Unaudited Consolidated Balance Sheets at  December 31, 2005 and March 31, 2006 |
|                                    |   |   |
|                                    |   | Unaudited Consolidated Statements of Operations and  Comprehensive Loss for the Three Months Ended March 31, 2005 and 2006 |
|                                    |   |   |
|                                    |   | Unaudited  Consolidated Statements of Stockholder’s Deficit for the Three Months Ended  March 31, 2006 |
|                                    |   |   |
|                                    |   | Unaudited  Consolidated Statements of Cash Flows for the Three Months Ended  March 31, 2005 and March 31, 2006 |
|                                    |   |   |
|                                    |   | Notes to Unaudited Consolidated Financial Statements |
|                                    |   |   |
| Item 2.                                 |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |
|                                    |   |   |
| Item 3.                                 |   | Quantitative and Qualitative Disclosures About Market  Risk |
|                                    |   |   |
| Item  4.                                |   | Controls  and Procedures |
|                                    |   |   |
| PART II—OTHER  INFORMATION    |
|                                    |   |   |
| Item 1.                                 |   | Legal Proceedings |
|                                    |   |   |
| Item 1A.                                |   | Risk Factors |
|                                    |   |   |
| Item 6.                                 |   | Exhibits |

 

2

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**PART I**—**FINANCIAL INFORMATION**

Item 1. Financial Statements of Merisant Company

**MERISANTCOMPANYUnaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                         | ** ** | **At December 31,  2005** | ** ** | **At March 31,  2006** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------|------------|
| **ASSETS**                                                                                         |       |                                |       |                             |       |
| Cash and cash  equivalents                                                                         |       | $                                   | 18,064     |                             | $          | 25,777 |   |
| Trade accounts  receivable, net of allowances of $3,616 and $316, respectively                |       | 66,323                              |       | 63,211                           |       |
| Other  receivables                                                                                 |       | 10,793                              |       | 10,417                           |       |
| Inventories                                                                                        |       | 29,201                              |       | 25,774                           |       |
| Prepaid expenses  and other assets                                                                 |       | 2,753                               |       | 2,776                            |       |
| Current portion  of note receivable from director                                                  |       | 970                                 |       | 970                              |       |
| Deferred income  taxes                                                                             |       | 474                                 |       | 807                              |       |
| Total current assets                                                                               |       | 128,578                             |       | 129,732                          |       |
| Property and  equipment, net                                                                       |       | 29,681                              |       | 27,858                           |       |
| Trademarks, less  accumulated amortization of $128,587 and $134,140, respectively                  |       | 213,432                             |       | 207,879                          |       |
| Goodwill                                                                                           |       | 107,209                             |       | 107,209                          |       |
| Deferred  financing costs, less accumulated amortization of $5,995 and $6,661,  respectively  |       | 13,705                              |       | 14,627                           |       |
| Non-current  portion of note receivable from director                                              |       | 3,430                               |       | 2,485                            |       |
| Investment in  equity affiliate                                                                    |       | 362                                 |       | 369                              |       |
| Other  non-current assets                                                                          |       | 1,309                               |       | 1,352                            |       |
| Total assets                                                                                       |       | $                                   | 497,706    |                             | $          | 491,511 |   |
|                                                                                               |       |                                |       |                             |       |
| **LIABILITIES AND STOCKHOLDER’S  DEFICIT**                                                    |       |                                |       |                             |       |
| Accounts payable                                                                                   |       | $                                   | 16,237     |                             | $          | 15,301 |   |
| Income taxes  payable                                                                              |       | 1,933                               |       | 1,615                            |       |
| Accrued interest  expense                                                                          |       | 12,855                              |       | 6,867                            |       |
| Accrued trade  and consumer promotions                                                             |       | 18,648                              |       | 17,816                           |       |
| Accrued expenses  and other liabilities                                                            |       | 18,692                              |       | 19,484                           |       |
| Current  maturities of long-term obligations                                                       |       | 25,750                              |       | 37,461                           |       |
| Total current liabilities                                                                          |       | 94,115                              |       | 98,544                           |       |
| Long-term obligations                                                                              |       | 415,428                             |       | 412,997                          |       |
| Deferred income  tax liabilities                                                                   |       | 14,317                              |       | 15,028                           |       |
| Other  liabilities                                                                                 |       | 14,257                              |       | 12,681                           |       |
| Total liabilities                                                                                  |       | 538,117                             |       | 539,250                          |       |
| Commitments and  contingencies (Note 7)                                                            |       |                                |       |                             |       |
| Stockholder’s Deficit:                                                                        |       |                                |       |                             |       |
| Common stock, $0.01 par value, 100 shares  authorized, issued and outstanding                      |       | —                              |       | —                           |       |
| Due for purchase of shares in Merisant  Worldwide, Inc.                                       |       | (767                                | )          | (767                             | )          |
| Retained deficit                                                                                   |       | (32,613                             | )          | (40,139                          | )          |
| Accumulated other comprehensive loss                                                               |       | (7,031                              | )          | (6,833                           | )          |
| Total stockholder’s deficit                                                                   |       | (40,411                             | )          | (47,739                          | )          |
| Total  liabilities and stockholder’s deficit                                                  |       | $                                   | 497,706    |                             | $          | 491,511 |   |

 

The accompanying notes are anintegral part of these unaudited consolidated financial statements.

3

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**MERISANT COMPANY****Unaudited Consolidated Statementsof Operations and****Comprehensive Loss****(Dollars In Thousands)**
| ** **                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------|------------|--------------------------------------------------|------------|
| ** **                         | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| Net sales                          |       | $                                                | 75,905     |   | $ | 69,667 |   |
| Cost of sales                      |       | 31,415                                           |       | 29,015 |   |
|                               |       |                                             |       |   |   |
| Gross profit                       |       | 44,490                                           |       | 40,652 |   |
|                               |       |                                             |       |   |   |
| Operating expenses:                |       |                                             |       |   |   |
| Marketing and selling expenses     |       | 21,219                                           |       | 16,908 |   |
| Administration expenses            |       | 11,429                                           |       | 11,699 |   |
| Amortization of intangible assets  |       | 5,556                                            |       | 5,554 |   |
| Restructuring expenses             |       | 1,348                                            |       | 2,291 |   |
|                               |       |                                             |       |   |   |
| Total operating expenses           |       | 39,552                                           |       | 36,452 |   |
|                               |       |                                             |       |   |   |
| Income from  operations            |       | 4,938                                            |       | 4,200 |   |
|                               |       |                                             |       |   |   |
| Other expense (income):            |       |                                             |       |   |   |
| Interest income                    |       | (141                                             | )          | (148 | ) |
| Interest expense                   |       | 11,249                                           |       | 10,912 |   |
| Other expense (income), net        |       | (4,323                                           | )          | 209 |   |
|                               |       |                                             |       |   |   |
| Total other expense                |       | 6,785                                            |       | 10,973 |   |
|                               |       |                                             |       |   |   |
| Loss before  income taxes          |       | (1,847                                           | )          | (6,773 | ) |
| Provision for  income taxes        |       | 2,203                                            |       | 253 |   |
|                               |       |                                             |       |   |   |
| Net loss                           |       | $                                                | (4,050     | ) | $ | (7,026 | ) |
|                               |       |                                             |       |   |   |
| Net loss from  above               |       | $                                                | (4,050     | ) | $ | (7,026 | ) |
| Other  comprehensive income (loss) |       | (2,881                                           | )          | 198 |   |
|                               |       |                                             |       |   |   |
| Total  comprehensive loss          |       | $                                                | (6,931     | ) | $ | (6,828 | ) |
|                               |       |                                                  |       |   |   |

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

4

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**MERISANT COMPANY****Unaudited Consolidated Statementsof Stockholder’s Deficit****(Dollars In Thousands)**
| ** **                                     | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Shares in  Merisant  Worldwide, Inc.** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total** | ** ** |
|------------------------------------------------|------------|-------------------|------------|----------------------------------------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|-----------|------------|
| Balance at  December 31, 2005             |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (32,613    | )         | $          | (7,031 | ) | $ | (40,411 | ) |
| Foreign currency  translation adjustment       |       | —            |       | —                                                                                 |       | —                |       | 198                                         |       | 198       |       |
| Distribution to  Merisant Worldwide, Inc. |       | —            |       | —                                                                                 |       | (500                  | )          | —                                      |       | (500      | )          |
| Net loss                                       |       | —            |       | —                                                                                 |       | (7,026                | )          | —                                      |       | (7,026    | )          |
| Balance at  March 31, 2006                |       | $                 | —     |                                                                                   | $          | (767                  | )          | $                                           | (40,139    | )         | $          | (6,833 | ) | $ | (47,739 | ) |

 

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

5

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**MERISANT COMPANYUnaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**
| ** **                                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| **Operating Activities**                                                                   |       |                                             |       |   |   |
| Net loss                                                                                   |       | $                                                | (4,050     | ) | $ | (7,026 | ) |
| Adjustments to  reconcile net loss to net cash provided by (used in) operating activities: |       |                                             |       |   |   |
| Depreciation                                                                               |       | 2,557                                            |       | 2,178 |   |
| Loss on sale or disposal of fixed assets                                                   |       | 14                                               |       | 50 |   |
| Amortization of intangible assets                                                          |       | 5,556                                            |       | 5,554 |   |
| Amortization of deferred financing costs                                                   |       | 602                                              |       | 666 |   |
| Euro-denominated loan foreign exchange (gain) loss                                         |       | (2,439                                           | )          | 583 |   |
| Unrealized gain on derivative instruments                                                  |       | (2,437                                           | )          | — |   |
| Realized gain on derivative instruments                                                    |       | —                                           |       | (694 | ) |
| Equity in income of affiliate                                                              |       | (52                                              | )          | (7 | ) |
| Deferred income tax provision                                                              |       | 690                                              |       | 375 |   |
| Changes in  operating assets and liabilities:                                              |       |                                             |       |   |   |
| Trade accounts receivable                                                                  |       | 7,115                                            |       | 3,232 |   |
| Other receivables                                                                          |       | 658                                              |       | 1,314 |   |
| Inventories                                                                                |       | (14,321                                          | )          | 3,418 |   |
| Prepaid expenses and other assets                                                          |       | (450                                             | )          | (72 | ) |
| Accounts payable                                                                           |       | (3,044                                           | )          | (952 | ) |
| Accrued expenses and other                                                                 |       | (6,431                                           | )          | (6,888 | ) |
| Net cash provided by (used in) operating activities                                        |       | (16,032                                          | )          | 1,731 |   |
| **Investing Activities**                                                                   |       |                                             |       |   |   |
| Proceeds from sale of property and equipment                                               |       | 55                                               |       | — |   |
| Purchases of property and equipment                                                        |       | (564                                             | )          | (473 | ) |
| Net cash used in investing activities                                                      |       | (509                                             | )          | (473 | ) |
| **Financing Activities**                                                                   |       |                                             |       |   |   |
| Borrowings under revolving credit facility                                                 |       | 23,000                                           |       | 11,000 |   |
| Principal payments on long-term obligations,  excluding revolving credit facility          |       | (2,551                                           | )          | (2,302 | ) |
| Payment of deferred financing costs                                                        |       | (1,049                                           | )          | (1,588 | ) |
| Distributions to stockholder                                                               |       | (582                                             | )          | (500 | ) |
| Net cash provided by financing activities                                                  |       | 18,818                                           |       | 6,610 |   |
| Effect of  exchange rate on cash and cash equivalents                                      |       | (142                                             | )          | (155 | ) |
| Net increase in  cash and cash equivalents                                                 |       | 2,135                                            |       | 7,713 |   |
|                                                                                       |       |                                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                          |       | 9,096                                            |       | 18,064 |   |
| Cash and cash  equivalents at end of period                                                |       | $                                                | 11,231     |   | $ | 25,777 |   |

 

Theaccompanying notes are an integral part of these unaudited consolidatedfinancial statements.

6

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements****(Dollars In Thousands)**

**1.**              Principlesof Consolidation

Theconsolidated financial statements and notes do not contain certain informationincluded in the annual consolidated financial statements and notes of MerisantCompany (the “Company”) and subsidiaries. The consolidated balance sheet at December 31,2005 was derived from the Company’s audited consolidated financial statements,but does not include all disclosures required by generally accepted accountingprinciples in the United States of America. The remaining consolidatedfinancial statements are unaudited. In the opinion of management, all normal,recurring adjustments necessary for a fair presentation of such unauditedfinancial statements have been included therein. For interim reportingpurposes, certain marketing and advertising expenses are charged to results ofoperations as a percentage of sales. Interim results may not be indicative ofresults for a full year. These unaudited consolidated financial statements andnotes should be read in conjunction with the Company’s annual consolidatedfinancial statements.

The preparation of consolidated financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities,disclosure of contingent assets and liabilities at the date of the consolidatedfinancial statements and the reported amounts of revenues and expenses duringthe reporting period. Actual results could differ from those estimates.

The Company adopted FASB No. 123(R), “Share-Based Payment—AnAmendment of FASB Statement No. 123 and 95” on January 1, 2006, whichrequires a fair value approach to expensing the cost of stock-based payments toemployees. Adoption of this pronouncement had no impact on the Company’sconsolidated financial statements.

**2.****                       ****Segment Information**

TheCompany manufactures and markets primarily low calorie tabletop sweetenersglobally. Therefore, the Company’s reportable segments are organized andmanaged principally by geographic region: North America; Europe/Africa/Middle East, referred to as EAME; LatinAmerica; and Asia/Pacific. The Company’s management reviews Operating EBITDA toevaluate segment performance and allocate resources. Operating EBITDA consistsof segment earnings before interest expense, income tax expense, depreciationand amortization as well as items such as expenses related to start up costs,restructuring charges, certain significant charges related to new productdevelopment and launch costs, costs related to the transition to a newexclusive distributor in the United States and certain other non-cash orexcludable charges or losses. Other expense (income), net, as reported in theunaudited consolidated financial statements, is included in Operating EBITDA ofthe respective reportable segments, except for the portion of other expense(income), net that relates to the foreign currency transaction gains or losses associatedwith the Company’s euro-denominated debt (see Note 5) and unrealized gains orlosses on derivative instruments. Corporate expenses include corporate staffand related amounts. Corporate expenses, interest and other expenses and theprovision for income taxes are centrally managed and, accordingly, such itemsare not presented by segment since they are excluded from the measure ofsegment performance reviewed by management. The Company launched a new productline in North America in the first quarter of 2006 which management will beevaluating and managing separately from its other North American operations. Assuch, this item will also be excluded from the measure of segment performancereviewed by management. The Company’s assets, which are principally in theUnited States and Europe, are also managed geographically. A summary of theCompany’s results of operations by reportable segment for the three monthsended March 31, 2005 and 2006 is as follows:

7

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**For the Three Months Ended March 31, 2005**
| ** **                                                      | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
|                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Total net sales  for reportable segments                        |       | $                  | 28,209     |     | $          | 34,338             |       | $                  | 8,446      |             | $          | 4,912 |   | $ | 75,905 |   |
|                                                            |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                |       | $                  | 9,585      |     | $          | 7,119              |       | $                  | 2,403      |             | $          | 1,107 |   | $ | 20,214 |   |
| Less (plus):                                                    |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                             |       | 6,182              |       |
| Restructuring  expense                                          |       | 1,348              |       |
| Depreciation  expense                                           |       | 2,557              |       |
| Loss on sale or  disposal of fixed assets                       |       | 14                 |       |
| Amortization  expense                                           |       | 5,556              |       |
| Currency gain on  euro debt                                     |       | (2,439             | )          |
| Unrealized gain  on derivative instruments                      |       | (2,437             | )          |
| Provision for  doubtful accounts excluded from Operating EBITDA |       | 141                |       |
| Other non-cash  expense                                         |       | 31                 |       |
| Other income,  net                                              |       | 4,323              |       |
| Income from  operations                                         |       | 4,938              |       |
| Interest  expense, net                                          |       | 11,108             |       |
| Other income,  net                                              |       | (4,323             | )          |
| Loss before income  taxes                                       |       | $                  | (1,847     | )        |

** **

**For the Three Months Ended March 31,2006**
| ** **                                                           | ** ** | **North  America** | ** ** | **EAME** | ** ** | **Latin  America** | ** ** | **Asia/  Pacific** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------|------------|--------------------|------------|----------|------------|--------------------|------------|--------------------|------------|------------------|------------|
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Total net sales  for reportable segments                             |       | $                  | 29,892     |     | $          | 28,797             |       | $                  | 6,415      |             | $          | 4,545 |   | $ | 69,649 |   |
| Plus: Net sales  related to new product launch                       |       |               |       |     |       |               |       |               |       | 18               |       |
| Total  consolidated net sales                                        |       |               |       |     |       |               |       |               |       | $                | 69,667     |   |
|                                                                 |       |               |       |     |       |               |       |               |       |             |       |
| Operating EBITDA                                                     |       | $                  | 10,585     |     | $          | 9,365              |       | $                  | 1,124      |             | $          | 1,526 |   | $ | 22,600 |   |
| Less (plus):                                                         |       |               |       |     |       |               |       |               |       |             |       |
| Corporate  expenses                                                  |       | 7,391              |       |
| Restructuring  expense                                               |       | 2,291              |       |
| Depreciation  expense                                                |       | 2,178              |       |
| Loss on sale or  disposal of fixed assets                            |       | 26                 |       |
| Amortization  expense                                                |       | 5,554              |       |
| Currency loss on  euro debt                                          |       | 583                |       |
| Realized gain on  derivative instruments                             |       | (694               | )          |
| Loss on  liquidation or sale of subsidiary                           |       | 144                |       |
| Loss related to  new product launch                                  |       | 540                |       |
| Transition costs  for new exclusive distributor in the United States |       | 592                |       |
| Other non-cash  expense                                              |       | 4                  |       |
| Other expense,  net                                                  |       | (209               | )          |
| Income from  operations                                              |       | 4,200              |       |
| Interest  expense, net                                               |       | 10,764             |       |
| Other income,  net                                                   |       | 209                |       |
| Loss before income  taxes                                            |       | $                  | (6,773     | )        |

 

8

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**3.****                       ****Restructuring Expenses**

During the threemonths ended March 31, 2006, the Company continued to evaluateopportunities to increase efficiency and reduce costs. This review resulted inthe continuation of workforce reductions and planned changes in the Company’sglobal business model. These actions are designed to improve both financialresults and the long-term value of the business. Restructuring expenses forworkforce reductions of $1,348 and $2,291 were recorded for the three monthsended March 31, 2005 and 2006, respectively. The 2006 charges principallyrelate to planned termination costs for employees, including charges related to47 additional personnel that were notified of their termination during thethree months ended March 31, 2006 and to continuing provisions forpreviously notified employees being recorded over their stay periods. Severancepayments and benefits are scheduled to be made over the next eight months.

Reconciliationof the restructuring liability as of March 31, 2006 is as follows: 

| Restructuring liability at  December 31, 2005                     |   | $2,677 |   |
|------------------------------------------------------------------------|--------|--------|--------|
| Restructuring  expenses for the three months ended March 31, 2006 |   | 2,291  |   |
| Cash payments  for the three months ended March 31, 2006          |   | (1,490 | )      |
| Restructuring liability  at March 31, 2006                        |   | $3,478 |   |

 

The restructuring liability at December 31,2005 and March 31, 2006 is included in the line item “Accrued expenses andother liabilities” in the accompanying consolidated balance sheets and includes$1,529 due to a director of the Company as of March 31, 2006.

The following table representsrestructuring expenses included in each segment and corporate expenses for thethree months ended March 31, 2005 and 2006:

|                     | ** ** | **March 31, 2005** | ** ** | **March 31, 2006** | ** ** |
|---------------------|------------|------------------------------|------------|------------------------------|------------|
|                |       |                         |       |                         |       |
| North America       |       | $                            | —     |                         | $          | 64 |   |
| EAME                |       | 1,057                        |       | 1,233                        |       |
| Latin America       |       | 77                           |       | 588                          |       |
| Asia Pacific        |       | —                       |       | 452                          |       |
| Corporate  expenses |       | 214                          |       | (46                          | )          |
| Total               |       | $                            | 1,348      |                         | $          | 2,291 |   |

 

**4.**              Inventories

Inventoriesconsisted of the following at December 31, 2005 and March 31, 2006:

|                                  | ** ** | **December 31, 2005** | ** ** | **March 31, 2006** | ** ** |
|----------------------------------|------------|---------------------------------|------------|------------------------------|------------|
|                             |       |                            |       |                         |       |
| Raw materials  and supplies      |       | $                               | 15,594     |                         | $          | 13,360 |   |
| Work in process                  |       | 1,822                           |       | 1,591                        |       |
| Finished goods                   |       | 16,221                          |       | 14,909                       |       |
| Inventory  obsolescence reserves |       | (4,436                          | )          | (4,086                       | )          |
| Total                            |       | $                               | 29,201     |                         | $          | 25,774 |   |

 

9

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**5.**              Debt

The Company and its parent, Merisant Worldwide, Inc. (“MerisantWorldwide”), are highly leveraged. At March 31, 2006, Merisant Worldwideand its subsidiaries, including the Company, had $550,536 of long-term debtoutstanding, consisting of $100,388 aggregate principal amount of MerisantWorldwide’s 12 1⁄4% senior subordinated discount notes due 2014, $225,000aggregate principal amount of the Company’s 9 1⁄2% senior subordinated notes due2013 (the “Notes”) and $225,148 aggregate principal amount outstanding underthe Company’s senior credit agreement (the “Senior Credit Agreement”),excluding capital lease obligations of $310 and unused commitments on therevolving portion of the Senior Credit Agreement. The Company’s high leverageand declining net sales and Bank EBITDA have resulted in successive downgradesof its credit ratings. Currently, Moody’s Investors Service and Standard &Poor’s rating agencies have assigned ratings to the Company’s overall creditand to its senior secured debt and the Notes of Caa3, Caa1 and Ca and CCC+,CCC+ and CCC-, respectively. Bank EBITDA is the measure upon which thecovenants contained in the Senior Credit Agreement are measured. However, BankEBITDA is not a measure of liquidity under GAAP. Accordingly, while providinguseful information with respect to an assessment of liquidity as impacted bythe covenants in the Company’s primary debt obligations, this measure shouldnot be considered in isolation from, or as a substitute for, consolidatedstatement of cash flow data prepared in accordance with GAAP as an indicationof liquidity. In addition, the Bank EBITDA measure presented may differ from,and may not be comparable to, similarly titled measures used by othercompanies.

At March 31,2006, borrowings under the Senior Credit Agreement included $27,000 principalamount of a revolving loan bearing annual interest of 8.92%, $33,159 (“Term A”)principal amount of a loan bearing annual interest of 6.78% and $164,989 (“TermB”) principal amount of a loan bearing annual interest of 8.92%. The Term Aloan is euro-denominated and is translated into U.S. dollars at the spot rateas of March 31, 2006. At March 31, 2006, $8,000 of the Company’smaximum $35,000 borrowing capacity was available under the revolving loanfacility under the Senior Credit Agreement.

TheCompany paid interest on borrowings under the Senior Credit Agreement and onthe Notes totaling $16,092 and $16,176 for the three months ended March 31,2005 and 2006, respectively.

On March 29, 2006,the lenders holding a majority of the aggregate principal amount of outstandingloans and revolver commitments under the Senior Credit Agreement agreed toamend the terms of the Senior Credit Agreement (the “Fourth Amendment”) andwaived a technical default related to the use of proceeds from the repayment ofthe inter-company loan between the Company and its Swiss subsidiary. Amongother things, the Fourth Amendment amended the financial covenants as of December 31,2005, adjusted the financial covenants through the maturity date of loansoutstanding under the Senior Credit Agreement, incorporated new financingcovenants, adjusted the interest rate on borrowings under the Senior CreditAgreement, amended the definition of Bank EBITDA to provide additional “addbacks” related to the Company’s restructuring and new product developmentefforts, and amended certain covenants.  The Company was in compliance with itscovenants under the Senior Credit Agreement, as amended, as of March 31,2006.

Under the terms of the Fourth Amendment, the Companymust raise approximately $85,000 of new borrowings to repay a portion of theoutstanding term loans and revolver loans under the Senior Credit Agreement. Alternatively,the Company could seek to refinance the Senior Credit Agreement in its entirety.The Fourth Amendment also includes a new event of default if the Company doesnot complete this partial  refinancing orif the Senior Credit Agreement is not refinanced in its entirety by January 2,2007. On April 14, 2006, the Company announced that Jefferies &Company and Credit Suisse Securities had commenced the marketing of up to$85,000 of new borrowings that will be secured by a second lien on all assetsthat now secure loans outstanding under the Senior Credit Agreement. Thispartial refinancing will not increase the overall leverage of the Company inany material respect, although the Company anticipates that its interestexpense will increase as a result of the transaction.

10

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

The FourthAmendment increased the interest rates of all term loans and revolver loans to euro-LIBORor LIBOR plus 425 basis points commencing on the date of the Fourth Amendment. Theinterest rate on all loans outstanding under the Senior Credit Agreement willincrease to euro-LIBOR or LIBOR plus 525 basis points beginning on June 30,2006, and then to euro-LIBOR or LIBOR plus 625 basis points beginning on September 30,2006 if the Company has not completed the partial refinancing or a refinancingof the entire Senior Credit Agreement by those dates.  The Company will also be subject to a minimumBank EBITDA test during the period prior to completing the partial refinancing.As a result of the Fourth Amendment, the Company’s cash interest cost for theoutstanding balances on the Term A and Term B loans under the Senior CreditAgreement as of March 31, 2006 will increase by approximately $499 for thethree months ended June 30, 2006 if the partial refinancing is notcompleted by June 30, 2006, then by approximately $988 for the threemonths ended September 30, 2006 if the partial refinancing is notcompleted prior to September 30, 2006 and then by approximately $1,464 forthe three months ended December 31, 2006 if the partial refinancing is notcompleted prior to December 31, 2006.

**6.**              Transactionswith Related Parties

The Company has adeferred compensation payable to Arnold Donald, its former Chairman and acurrent director, and a note receivable from Mr. Donald. The Companyrecorded $67 and $55 of interest income on the note receivable for the threemonths ended March 31, 2005 and 2006, respectively, and an equal amount ofinterest expense in the respective quarters.

The Company had been a party to a sublease agreement with The DigitalHome/Digital Office, LLC (“Digital Home”), pursuant to which the Companysubleased office space located at One North Brentwood Boulevard in Clayton,Missouri to Digital Home for a term that expired on March 31, 2006 at arate of $9 per month. At the end of the term of the sublease agreement, DigitalHome acquired the office furniture and equipment at no cost. The underlyinglease expired on March 31, 2006 and the Company had leased the officespace for $15 per month. The acquisition value of the furniture and equipmentwas $225 and the net book value of these assets was zero, subsequent to animpairment charge of $143. Digital Home is controlled by Mr. Donald.

On March 28,2006, the Company acquired from Pegasus Partners II, L.P. all of the issued andoutstanding limited liability interests of Whole Earth Sweetener Company LLCfor $1. At the time of the acquisition, the only assets of Whole EarthSweetener Company LLC were trademark applications for the **SweetSimplicity** trademark.

Duringthe three months ended March 31, 2005 and 2006, the Company madedistributions of $582 and $500, respectively, to its sole stockholder, MerisantWorldwide.

**7.**              Commitmentsand Contingencies

The Company has aninvestment in an affiliate located in the Philippines that is accounted forusing the equity method. The affiliate, a 50/50 joint venture, distributessugar substitute sweeteners for the international consumer food markets,primarily under the *Equal®* and *Nutrasweet®* brands. In addition to itsinvestment in the joint venture, the Company is committed to a 50% share in anynew borrowings of the joint venture. As of December 31, 2005 and March 31,2006, there were no additional joint venture borrowings.

In October 2004,the Company requested the National Advertising Division of the Council ofBetter Business Bureaus, referred to as the NAD, to review advertising andother claims made by McNeil Nutritionals, LLC (“McNeil”) in connection with its*Splenda®* brand sweetener. The Companybelieved and continues to believe McNeil’s *Splenda®*advertising to be false and misleading. Despite McNeil’s previous use of theNAD for such disputes and the NAD’s industry-wide, self-regulatory nature,McNeil refused to allow their advertising claims to be judged by the NAD andinstead sought to have the issue considered by the United States District Courtfor the District of Puerto Rico. Under NAD rules, McNeil’s filing in PuertoRico precluded the NAD from reviewing the matter or referring McNeil’sadvertising to the Federal Trade Commission. In order to have McNeil’sadvertising

11

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

addressed by ajury and court in the continental United States familiar with McNeil’s claims,on November 26, 2004, the Company filed a federal and state falseadvertising complaint against McNeil in the United States District Court forthe Eastern District of Pennsylvania. That suit continues today and seeks tohave McNeil’s *Splenda®* campaign stopped becauseof its misleading nature and seeks significant damages resulting from theimpact McNeil’s false advertising has had on the Company’s sales. On January 13,2005, McNeil voluntarily dismissed its action in Puerto Rico and in April 2005,McNeil amended its answer to the Company’s complaint in the Pennsylvania actionto add a counterclaim against the Company alleging that its *Equal® Sugar LiteTM* packaging andadvertising were misleading. McNeil alleged that on a volumetric basis, *Equal® Sugar LiteTM* does not deliver halfthe calories of a cup of sugar. The Company’s own investigation has confirmedthat when measured by weight, in accordance with the formulation for *Equal® Sugar LiteTM,*measurements for *Equal® Sugar LiteTM* are correct under theFDA compliance standards for measurement by weight. While certain productproduced by third party vendors had measurements that may have been volumetricallyinaccurate due to manufacturing and packaging issues, the manufacturing andpackaging process for *Equal® Sugar LiteTM*has since been adjusted to ensure volumetric accuracy, all the while ensuringthat the product’s weight remained accurate in accordance with FDA compliancestandards. The Company notified consumers of the volumetric issues and offereda replacement package of *Equal® Sugar LiteTM*ora coupon for a dollar off a new package of the product to affected consumers. AtMarch 31, 2006, the Company believes that sufficient reserves are in placeto address any remaining inventory on hand or lingering returns from customersassociated with this issue.

On February 15, 2006, a putative consumer class action lawsuit wasfiled against the Company in the United District Court for the NorthernDistrict of Illinois Eastern Division alleging that the Company’s *Equal® Sugar LiteTM* packaging andadvertising were misleading. The plaintiffs alleged that on a volumetric basis,*Equal® Sugar LiteTM* does notdeliver half the calories of a cup of sugar.  On April 17, 2006, the Company filed amotion to dismiss the lawsuit for failure to state a claim upon which reliefmay be granted. If the court does not grant the Company’s motion to dismiss,the Company intends to vigorously oppose the merits of the lawsuit, as well asthe appropriateness of class certification.  As noted above, the manufacturing andpackaging process for *Equal® Sugar LiteTM*has been adjusted to ensure volumetric accuracy, all the while remainingaccurate in accordance with FDA compliance standards based on weight.  In addition to ensuring that manufacturing andpackaging processes were accurate, the Company took steps to correct statementson packaging at distribution centers containing *Equal® Sugar LiteTM*product that may not have beenvolumetrically accurate, provided notice to consumers on its website andoffered consumers who may have purchased such product without correctedpackaging a replacement package of *Equal*®*Sugar Lite*Ôor a coupon for a dollar off a new package of the product. As such, the Companyalso believes the putative class action suit to be moot. In an unrelateddecision by management related to consumer demand for the product, the Companystopped manufacturing *Equal® Sugar LiteTM*in November 2005.

Merisant Europe B.V.B.A., Merisant’s Belgium subsidiary, entered into aco-branding agreement with Galleria Srl, a company through which the Italiandesigner Elio Fiorucci operates. Under this co-branding arrangement, MerisantEurope produced a line of *Canderel*®tablet dispensers that featured designs and trademarks from Mr. Fiorucci’s“Love Therapy by Elio Fiorucci” collection. The co-branding arrangementcontains a representation and warranty that Galleria owns all rights in thename “Love Therapy by Elio Fiorucci” and associated designs and furtherprovides that Galleria will indemnify and hold Merisant Europe and itsaffiliates harmless against damages resulting from or related to Merisant’s useof the name and designs pursuant to the agreement. Beginning in 2005, MerisantEurope sold tablet dispensers with the “Love Therapy by Elio Fiorucci” designsin Italy. Edwin & Co. Ltd. has claimed that it owns all rights in Mr. Fiorucci’sname and in the designs used by Merisant and has filed suit against MerisantEurope in Milan, Italy. On or about March 17, 2006, the court in Milanenjoined Merisant Europe from producing or selling the tablet dispensers afterthe date of the court order. Merisant no longer produces the dispensers and hasstopped selling dispensers to its distributor in Italy and to customers throughthe Internet. Merisant Europe has filed an appeal and will vigorously opposethe court’s order. Merisant Europe will also enforce its indemnification rightsunder its co-branding arrangement with Galleria Srl.

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

The Company has indemnifiedMonsanto, the Company’s prior owner, for certain liabilities that may arisesubsequent to March 17, 2000. The Company does not believe that theindemnification will have a material adverse effect on the Company’sconsolidated financial position or results of operations.

The Company is subject to variousother claims, pending and possible legal actions for product liability andother damages, and other matters arising out of the conduct of the Company’sbusiness, including tax uncertainties arising from doing business in variousEuropean jurisdictions. The Company believes, based on current knowledge,recorded accruals, and consultation with counsel, that the outcome of suchclaims and actions will not have a material adverse effect on the Company’sconsolidated financial position or results of operations.

**8.**              ConsolidatingGuarantor and Non-Guarantor Financial Information

The following tables set forth the consolidating statements ofoperations and cash flows for each of the three month periods ended March 31,2005 and 2006 and the consolidating balance sheets as of December 31, 2005and March 31, 2006. The following information is included herein as aresult of the guarantee by certain of the Company’s wholly owned U.S.subsidiaries (“Guarantor Companies”) of the Notes. None of the Company’s othersubsidiaries guarantee the debt. Each of the guarantees is joint and severaland full and unconditional.

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**MERISANT COMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended March 31, 2005**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 28,901                       |       | $                               | 48,775     |             | $          | (1,771 | ) | $ | 75,905 |   |
| Cost of sales                                                              |       | —                |       | 13,848                   |       | 19,338                       |       | (1,771                          | )          | 31,415           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 15,053                   |       | 29,437                       |       | —                          |       | 44,490           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 6,233                    |       | 14,986                       |       | —                          |       | 21,219           |       |
| Administration expenses                                                    |       | —                |       | 7,149                    |       | 4,280                        |       | —                          |       | 11,429           |       |
| Amortization of intangible assets                                          |       | 2,164                 |       | —                   |       | 3,392                        |       | —                          |       | 5,556            |       |
| Restructuring expenses                                                     |       | —                |       | 214                      |       | 1,134                        |       | —                          |       | 1,348            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 2,164                 |       | 13,596                   |       | 23,792                       |       | —                          |       | 39,552           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (2,164                | )          | 1,457                    |       | 5,645                        |       | —                          |       | 4,938            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (3,102                | )          | (4                       | )          | (59                          | )          | 3,024                           |       | (141             | )          |
| Interest expense                                                           |       | 11,238                |       | 2,454                    |       | 581                          |       | (3,024                          | )          | 11,249           |       |
| Other expense (income), net                                                |       | (9,232                | )          | 4,312                    |       | 597                          |       | —                          |       | (4,323           | )          |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | (1,096                | )          | 6,762                    |       | 1,119                        |       | —                          |       | 6,785            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (1,068                | )          | (5,305                   | )          | 4,526                        |       | —                          |       | (1,847           | )          |
| Provision for  income taxes                                                |       | —                |       | 1,211                    |       | 992                          |       | —                          |       | 2,203            |       |
| Equity in  consolidated subsidiaries                                       |       | (2,982                | )          | 3,534                    |       | —                       |       | (552                            | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (4,050     | )                        | $          | (2,982                       | )          | $                               | 3,534      |             | $          | (552 | ) | $ | (4,050 | ) |

 

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of OperationsFor the Three Months Ended March 31, 2006**
| ** **                                                                 | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net sales                                                                  |       | $                     | —     |                     | $          | 31,674                       |       | $                               | 38,973     |             | $          | (980 | ) | $ | 69,667 |   |
| Cost of sales                                                              |       | —                |       | 14,155                   |       | 15,840                       |       | (980                            | )          | 29,015           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Gross profit                                                               |       | —                |       | 17,519                   |       | 23,133                       |       | —                          |       | 40,652           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Operating expenses:                                                        |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Marketing and selling expenses                                             |       | —                |       | 7,866                    |       | 9,042                        |       | —                          |       | 16,908           |       |
| Administration expenses                                                    |       | 20                    |       | 8,362                    |       | 3,317                        |       | —                          |       | 11,699           |       |
| Amortization of intangible assets                                          |       | 2,164                 |       | —                   |       | 3,390                        |       | —                          |       | 5,554            |       |
| Restructuring expenses                                                     |       | —                |       | 18                       |       | 2,273                        |       | —                          |       | 2,291            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total operating expenses                                                   |       | 2,184                 |       | 16,246                   |       | 18,022                       |       | —                          |       | 36,452           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  from operations                                             |       | (2,184                | )          | 1,273                    |       | 5,111                        |       | —                          |       | 4,200            |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Other expense (income):                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Interest income                                                            |       | (66                   | )          | (15                      | )          | (67                          | )          | —                          |       | (148             | )          |
| Interest expense                                                           |       | 10,910                |       | (2                       | )          | 4                            |       | —                          |       | 10,912           |       |
| Other expense (income), net                                                |       | (92                   | )          | 404                      |       | (103                         | )          | —                          |       | 209              |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total other expense (income)                                               |       | 10,752                |       | 387                      |       | (166                         | )          | —                          |       | 10,973           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Income (loss)  before income taxes and equity in consolidated subsidiaries |       | (12,936               | )          | 886                      |       | 5,277                        |       | —                          |       | (6,773           | )          |
| Provision for  income taxes                                                |       | —                |       | 39                       |       | 214                          |       | —                          |       | 253              |       |
| Equity in  consolidated subsidiaries                                       |       | 5,910                 |       | 5,063                    |       | —                       |       | (10,973                         | )          | —           |       |
|                                                                       |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net income (loss)                                                          |       | $                     | (7,026     | )                        | $          | 5,910                        |       | $                               | 5,063      |             | $          | (10,973 | ) | $ | (7,026 | ) |

 

15

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**Condensed Consolidating Balance Sheet****At December 31, 2005**
| ** **                                                         | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                         |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash equivalents                                          |       | $                     | 98         |                     | $          | 924                          |       | $                               | 17,042     |             | $          | — |   | $ | 18,064 |   |
| Trade accounts receivable, net of allowance for  doubtful accounts |       | —                |       | 17,844                   |       | 48,479                       |       | —                          |       | 66,323           |       |
| Other receivables and intercompany receivables                     |       | 551                   |       | 5,523                    |       | 9,932                        |       | (5,213                          | )          | 10,793           |       |
| Inventories                                                        |       | —                |       | 19,336                   |       | 9,865                        |       | —                          |       | 29,201           |       |
| Other current assets                                               |       | 533                   |       | 1,749                    |       | 1,915                        |       | —                          |       | 4,197            |       |
| Total current assets                                               |       | 1,182                 |       | 45,376                   |       | 87,233                       |       | (5,213                          | )          | 128,578          |       |
| Property and equipment, net                                        |       | —                |       | 21,601                   |       | 8,080                        |       | —                          |       | 29,681           |       |
| Trademarks, less accumulated amortization                          |       | 79,712                |       | —                   |       | 133,720                      |       | —                          |       | 213,432          |       |
| Goodwill, less accumulated amortization                            |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred financing costs, less accumulated  amortization           |       | 13,705                |       | —                   |       | —                       |       | —                          |       | 13,705           |       |
| Other non-current assets                                           |       | 3,897                 |       | 508                      |       | 334                          |       | —                          |       | 4,739            |       |
| Investment in subsidiary and intercompany debt                     |       | 321,754               |       | 203,625                  |       | 362                          |       | (525,379                        | )          | 362              |       |
| Total assets                                                       |       | $                     | 420,250    |                     | $          | 378,319                      |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |
| **Liabilities**                                                    |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Accounts payable and intercompany payables                         |       | $                     | 2,704      |                     | $          | 10,319                       |       | $                               | 9,315      |             | $          | (6,101 | ) | $ | 16,237 |   |
| Income taxes payable                                               |       | —                |       | —                   |       | 1,933                        |       | —                          |       | 1,933            |       |
| Accrued expenses and other liabilities                             |       | 13,729                |       | 18,692                   |       | 17,774                       |       | —                          |       | 50,195           |       |
| Current maturities of long-term obligations                        |       | 25,535                |       | 215                      |       | —                       |       | —                          |       | 25,750           |       |
| Total current liabilities                                          |       | 41,968                |       | 29,226                   |       | 29,022                       |       | (6,101                          | )          | 94,115           |       |
| Long-term  obligations and intercompany debt                       |       | 415,264               |       | 191,913                  |       | —                       |       | (191,749                        | )          | 415,428          |       |
| Other  liabilities                                                 |       | 3,429                 |       | 25,203                   |       | (58                          | )          | —                          |       | 28,574           |       |
| Total liabilities                                                  |       | 460,661               |       | 246,342                  |       | 28,964                       |       | (197,850                        | )          | 538,117          |       |
| **Stockholder’s Equity (Deficit)**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total stockholder’s equity (deficit)                          |       | (40,411               | )          | 131,977                  |       | 200,765                      |       | (332,742                        | )          | (40,411          | )          |
| Total  liabilities and stockholder’s equity (deficit)         |       | $                     | 420,250    |                     | $          | 378,319                      |       | $                               | 229,729    |             | $          | (530,592 | ) | $ | 497,706 |   |

 

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**Unaudited Condensed ConsolidatingBalance Sheetat March 31, 2006**
| ** **                                                | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
| **Assets**                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash equivalents                                 |       | $                     | 2,866      |                     | $          | 3,923                        |       | $                               | 18,988     |             | $          | — |   | $ | 25,777 |   |
| Trade accounts receivable, net of allowances              |       | —                |       | 18,867                   |       | 44,344                       |       | —                          |       | 63,211           |       |
| Other receivables and intercompany receivables            |       | 130                   |       | 5,282                    |       | 10,151                       |       | (5,146                          | )          | 10,417           |       |
| Inventories                                               |       | —                |       | 16,122                   |       | 9,652                        |       | —                          |       | 25,774           |       |
| Other current assets                                      |       | 533                   |       | 1,409                    |       | 2,611                        |       | —                          |       | 4,553            |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current assets                                      |       | 3,529                 |       | 45,603                   |       | 85,746                       |       | (5,146                          | )          | 129,732          |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Property and equipment, net                               |       | —                |       | 20,440                   |       | 7,418                        |       | —                          |       | 27,858           |       |
| Trademarks, less accumulated amortization                 |       | 77,547                |       | —                   |       | 130,332                      |       | —                          |       | 207,879          |       |
| Goodwill                                                  |       | —                |       | 107,209                  |       | —                       |       | —                          |       | 107,209          |       |
| Deferred financing costs, less accumulated  amortization  |       | 14,627                |       | —                   |       | —                       |       | —                          |       | 14,627           |       |
| Other non-current assets                                  |       | 2,952                 |       | 534                      |       | 351                          |       | —                          |       | 3,837            |       |
| Investment in subsidiary and intercompany debt            |       | 316,837               |       | 208,784                  |       | 369                          |       | (525,621                        | )          | 369              |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total assets                                              |       | $                     | 415,492    |                     | $          | 382,570                      |       | $                               | 224,216    |             | $          | (530,767 | ) | $ | 491,511 |   |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Liabilities**                                           |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Accounts payable and intercompany payable                 |       | $                     | 3,519      |                     | $          | 8,813                        |       | $                               | 9,257      |             | $          | (6,288 | ) | $ | 15,301 |   |
| Income taxes payable                                      |       | —                |       | —                   |       | 1,615                        |       | —                          |       | 1,615            |       |
| Accrued expenses and other liabilities                    |       | 7,079                 |       | 17,916                   |       | 19,172                       |       | —                          |       | 44,167           |       |
| Current maturities of long-term obligations               |       | 37,289                |       | 172                      |       | —                       |       | —                          |       | 37,461           |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total current liabilities                                 |       | 47,887                |       | 26,901                   |       | 30,044                       |       | (6,288                          | )          | 98,544           |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Long-term  obligations and intercompany debt              |       | 412,859               |       | 192,309                  |       | —                       |       | (192,171                        | )          | 412,997          |       |
| Other  liabilities                                        |       | 2,485                 |       | 25,274                   |       | (50                          | )          | —                          |       | 27,709           |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total liabilities`                                        |       | 463,231               |       | 244,484                  |       | 29,994                       |       | (198,459                        | )          | 539,250          |       |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Stockholder’s Equity (Deficit)**                   |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total stockholder’s equity (deficit)                 |       | (47,739               | )          | 138,086                  |       | 194,222                      |       | (332,308                        | )          | (47,739          | )          |
|                                                      |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Total liabilities and stockholder’s equity (deficit) |       | $                     | 415,492    |                     | $          | 382,570                      |       | $                               | 224,216    |             | $          | (530,767 | ) | $ | 491,511 |   |

 

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of Cash Flows For the Three Months Ended March 31, 2005**
| ** **                                          | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) operating activities |       | $                     | (8,111     | )                        | $          | (18,888                      | )          | $                               | 11,519     |             | $          | (552 | ) | $ | (16,032 | ) |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Proceeds from sale of fixed assets                  |       | —                |       | —                   |       | 55                           |       | —                          |       | 55               |       |
| Purchases of property and equipment                 |       | —                |       | (303                     | )          | (261                         | )          | —                          |       | (564             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in investing activities          |       | —                |       | (303                     | )          | (206                         | )          | —                          |       | (509             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Borrowings under revolving credit agreement         |       | 23,000                |       | —                   |       | —                       |       | —                          |       | 23,000           |       |
| Principal payments on long-term obligations         |       | (2,500                | )          | (51                      | )          | —                       |       | —                          |       | (2,551           | )          |
| Payment of deferred financing costs                 |       | (1,049                | )          | —                   |       | —                       |       | —                          |       | (1,049           | )          |
| Receivable/payable, parent company                  |       | (10,951               | )          | 19,242                   |       | (8,843                       | )          | 552                             |       | —           |       |
| Distribution to stockholder                         |       | (582                  | )          | —                   |       | —                       |       | —                          |       | (582             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) financing activities |       | 7,918                 |       | 19,191                   |       | (8,843                       | )          | 552                             |       | 18,818           |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of  exchange rate on cash                    |       | —                |       | —                   |       | (142                         | )          | —                          |       | (142             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net increase in  cash and cash equivalents     |       | (193                  | )          | —                   |       | 2,328                        |       | —                          |       | 2,135            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period   |       | 245                   |       | —                   |       | 8,851                        |       | —                          |       | 9,096            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period    |       | $                     | 52         |                     | $          | —                       |       | $                               | 11,179     |             | $          | — |   | $ | 11,231 |   |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |

 

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**MERISANTCOMPANY****Notes to Unaudited ConsolidatedFinancial Statements (Continued)****(Dollars In Thousands)**

**UnauditedConsolidating Statement of Cash Flows For the Three Months Ended March 31, 2006**
| ** **                                          | ** ** | **Merisant  Company** | ** ** | **Guarantor  Companies** | ** ** | **Non-Guarantor  Companies** | ** ** | **Consolidating  Eliminations** | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|------------------------------|------------|---------------------------------|------------|------------------|------------|
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Operating activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) operating activities |       | $                     | (15,749    | )                        | $          | 3,541                        |       | $                               | 24,912     |             | $          | (10,973 | ) | $ | 1,731 |   |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Investing activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Purchases of property and equipment                 |       | —                |       | (434                     | )          | (39                          | )          | —                          |       | (473             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash used in investing activities          |       | —                |       | (434                     | )          | (39                          | )          | —                          |       | (473             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| **Financing activities**                            |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Borrowings under revolving credit agreement         |       | 11,000                |       | —                   |       | —                       |       | —                          |       | 11,000           |       |
| Principal payments on long-term obligations         |       | (2,233                | )          | (69                      | )          | —                       |       | —                          |       | (2,302           | )          |
| Payment of deferred financing costs                 |       | (1,588                | )          | —                   |       | —                       |       | —                          |       | (1,588           | )          |
| Receivable/payable, parent company                  |       | 11,838                |       | (39                      | )          | (22,772                      | )          | 10,973                          |       | —           |       |
| Distribution to stockholder                         |       | (500                  | )          | —                   |       | —                       |       | —                          |       | (500             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net cash provided by (used in) financing activities |       | 18,517                |       | (108                     | )          | (22,772                      | )          | 10,973                          |       | 6,610            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Effect of exchange rate on cash                     |       | —                |       | —                   |       | (155                         | )          | —                          |       | (155             | )          |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Net increase in  cash and cash equivalents     |       | 2,768                 |       | 2,999                    |       | 1,946                        |       | —                          |       | 7,713            |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at beginning of period   |       | 98                    |       | 924                      |       | 17,042                       |       | —                          |       | 18,064           |       |
|                                                |       |                  |       |                     |       |                         |       |                            |       |             |       |
| Cash and cash  equivalents at end of period    |       | $                     | 2,866      |                     | $          | 3,923                        |       | $                               | 18,988     |             | $          | — |   | $ | 25,777 |   |

 

**9.****                 SubsequentEvent**

H. J. Heinz Company (“Heinz”) and Merisant US, Inc.entered into a  termination agreementdated March 31, 2006 pursuant to which the Heinz retail grocery and foodservicedistribution agreements were terminated effective May 4, 2006.  Inaccordance with the termination agreement, the Company placed $2,500 into anescrow account on May 3, 2006 for the purpose of reimbursing Heinz  for expenses incurred by Heinz relating to trade promotion programs associatedwith products distributed by Heinz prior to May 4, 2006 and that had beenapproved by the Company.  Any unused funds in the escrow account, less$500, will be remitted to the Company on August 1, 2006. All remaining funds not subject to a disbursement request from Heinz willbe remitted to the Company on September 15, 2006.  At March 31, 2006,the Company believes that sufficient reserves are in place toaddress any remaining obligations to Heinz. ACH Food Companies, Inc. became the Company's exclusive distributor inthe United States effective May 5,2006. 

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**Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations**

*The following discussion should be read in conjunction with the Company’s  unaudited consolidated financial statementsand accompanying notes included elsewhere in this document. The Company’sdiscussion of results by reportable segment should be read in conjunction withNote 2 to the Company’s unaudited consolidated financial statementsincluded elsewhere in this document, which illustrates the reconciliation of OperatingEBITDA to loss before income taxes. Unless otherwise indicated or unless thecontext requires otherwise, all references in this discussion to “Merisant” or “theCompany” mean Merisant Company and its consolidated subsidiaries.*

**Overview**

Merisant is a worldwide leader in the marketingof low-calorie tabletop sweeteners, with an estimated 24% dollar share as of December 31,2005 of a growing global retail market, which the Company estimates at $1.5billion. Merisant believes that it has the leading dollar market share as of December 31,2005 in approximately half of what it estimates as the top 20 markets forlow-calorie tabletop sweetener sales. The Company’s premium-priced brands, *Equal*® and *Canderel*®, are among the most recognized low-calorie tabletopsweetener products in the world, with aided brand awareness estimated atbetween 77% and 97% in the Company’s four top markets. In addition to *Equal*® and *Canderel*®, Merisant markets its products under approximately20 other regional brands that enjoy significant brand recognition in theirtarget markets. Merisant sells its brands in over 85 countries.

Merisant’s business is the result of over25 years of history in the low-calorie tabletop sweetener industry, first as adivision of G.D. Searle & Co. (“Searle”) and later Monsanto Company(“Monsanto”). Searle invented the key sweetening ingredient in Merisant’sproducts, aspartame, in 1965. Aspartame was first approved for consumer use inFrance in 1979, where Searle marketed the product under the *Canderel*® brand. By the early 1980s, *Canderel*®was being marketed in much of Europe. In 1981, the U.S. Food and DrugAdministration approved the tabletop use of aspartame. The following year,Searle launched *Equal*® in the United States. Monsantoentered the sweetener market in 1985 through its acquisition of Searle.Merisant Company is a Delaware corporation that was formed in 2000 by aninvestor group led by an affiliate of Pegasus Capital Advisors, L.P. toacquire Monsanto Company’s tabletop sweetener business.

This business legacy has providedMerisant with a global infrastructure dedicated to the manufacture, marketingand distribution of low-calorie tabletop sweeteners. Merisant’s worldwideheadquarters are located in Chicago, Illinois, and its principal regionaloffices are located in Mexico City, Mexico, Neuchâtel, Switzerland, Paris,France and Sydney, Australia. Merisant owns and operates manufacturingfacilities in Manteno, Illinois and Zarate, Argentina and owns processing linesthat are operated exclusively for Merisant at plants located in Bergisch andStendal, Germany. As of March 31, 2006, Merisant had twenty-five directand indirect subsidiaries, including three subsidiaries in the United States, tensubsidiaries in European countries, eight subsidiaries in Mexico, CentralAmerica, South America and the Caribbean, and four subsidiaries in the AsiaPacific region, including Australia and India. In addition, Merisant’s Swisssubsidiary holds a 50% interest in a joint venture in the Philippines.

The Company’s corebusiness continues to be products sweetened with aspartame, and the *Equal*® and *Canderel*® brands accounted for approximately 86% of theCompany’s net sales in 2005. The majority of the Company’s 20 other regionalbrands around the world are also sweetened with aspartame. In July 2005, theEuropean Ramazzini Foundation of Bologna, Italy published new findings of along-term study on aspartame conducted in rats. Scientists from the RamazziniFoundation concluded in their study that aspartame causes cancer and thecurrent uses and consumption of the low-calorie sweetener should bere-evaluated (“Ramazzini Report”). TheCompany experienced sales declines in Europe, primarily in France and Italy, asa result of the publication and wide reporting of the Ramazzini Report. TheEuropean Food Safety Authority (“EFSA”) and the U.S. Food and DrugAdministration (“FDA”) requested and received from the Ramazzini Foundation some underlying data from theRamazzini Report.  On May 5, 2006, EFSArejected the conclusions of the Ramazzini Report and re-confirmed the safety ofaspartame. The Company does not yet know the extent to which EFSA’s action willallay any lingering concerns about the safety of aspartame that consumers mayhave. The FDA announced on May 8, 2006 that it would complete its own review ofthe Ramazzini Report and would announce its conclusion about the study soon.

**Sales Trends andStrategy**

Merisant’s premium-pricedbrands had enjoyed a dominant market position among low-calorie sweeteners inmany of the Company’s key markets. In recent years, however, Merisant has facedsignificant competition from McNeil Nutritionals LLC, a subsidiary of Johnson &Johnson (“McNeil”), which markets and distributes the artificial sweetener*Splenda*®. *Splenda*® is sweetened with sucralose, which is produced byTate & Lyle PLC through a complex chemical process that convertssucrose molecules into a synthetic compound. Between December 2002 and December 2005,*Splenda* ®’s dollar share of theUnited States retail grocery market has grown from approximately 15% to 60% andhas surpassed that of *Equal* ® tobecome the number one premium low-calorie sweetener in the United States. Whilethe Company believes that the introduction of *Splenda*®has increased the size of the market for low-calorie sweeteners in general,Merisant’s net sales have declined during this period, particularly in NorthAmerica which had accounted for 46% and 37% of Merisant’s net sales in 2003 and2005, respectively. As a result of declining net sales, Merisant hasexperienced significant declines in its Bank EBITDA from $110.2 million in 2003to $68.0 million in 2005. For a description of Bank EBITDA and a reconciliationof Bank EBITDA to cash flow from operating activities, see “—Liquidity andCapital Resources”.

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Managementbelieves that there are opportunities for future growth in the low-calorietabletop sweetener and sweetened food category and that the Company ispositioned to pursue these opportunities. Despite recent declines in net sales,Merisant’s premium brands *Equal* ® and *Canderel* ® are among the most recognized low-calorietabletop sweetener products in the world, with aided brand awareness estimatedbetween 77% and 97% in its top four markets.

Paul Block wasappointed Chief Executive Officer in November 2004 and has led aninitiative to strengthen Merisant’s core brands, improve the efficiency of theCompany’s operations, reduce costs and transform Merisant into a consumerfocused sweetener and sweetened food company.  Mr. Block has recruited individuals fromoutside the Company and promoted individuals from within the organization toform a new senior management team with the goal of developing a culture ofinnovation with a focus on invasive marketing campaigns combined with thedevelopment and launch of new products designed to revitalize the existingconsumer base and attract new consumers.

The Company seeksto stabilize and then grow revenues through four strategic initiatives. Merisantwill promote new usage among existing consumers and expand the *Equal* ® and *Canderel* ®brand positioning to attract new customers through invasive marketing campaignsand improved sales execution. The Company has increased the pace of its productinnovation to bring new aspartame sweetened products and brand extensions tothe market, and the Company plans to launch eight new products in 2006 withnumerous additional products in the development pipeline. Merisant has alsodedicated significant resources to improving the efficiency of its operationsby, among other things, implementing supply chain-based programs to streamlineits manufacturing capabilities and improving the efficiency of certain supportservices. Finally, Merisant continues to develop and test products that havethe potential to transform its brand portfolio. The Company has developed anall-natural, zero-calorie sweetener that measures like and has the texture ofgranulated sugar, and the Company anticipates launching this new productnationally in the second quarter of 2006. This innovative product will bemarketed under the *Sweet Simplicity*TMbrand for the Whole Earth Sweetener Company LLC, a newly formed entity andwholly owned subsidiary of Merisant.

Managementbelieves that the development and introduction of new products under its *Equal* ® and *Canderel* ®brands may help to stabilize its core business while innovative, all-naturalsweeteners and sweetened food products under its *SweetSimplicity*TM brand for the Whole Earth Sweetener Company presentgrowth opportunities for Merisant. However, the Company may be constrained inits ability to realize fully the value of these new products as a result of itscurrent capital structure. The successful launch of new products and marketingof its core brands requires capital, and Merisant must use a significant portionof its cash flows from operations to service its outstanding debt. The Companyhad an aggregate of $450.1 million of long-term debt outstanding at March 31,2006 and paid $41.9 million in interest costs for the year ended December 31,2005, $23.0 million of which represented interest payments on Merisant’s 9 1⁄2%senior subordinated notes due 2013 (the “Notes”). If the Company cannotgenerate cash flows from operations significantly in excess of its short-termdebt obligations, Merisant may not have the resources required to fully realizethe value of its strategic initiatives.

On March 29,2006, the lenders holding a majority of the aggregate principal amount ofoutstanding loans and revolver commitments under Merisant’s senior credit agreement(the “Senior Credit Agreement”) agreed to amend the terms of the Senior CreditAgreement (the “Fourth Amendment”) and waived a technical default related tothe use of proceeds from the repayment of the inter-company loan between theCompany and its Swiss subsidiary. Among other things, the Fourth Amendmentamended the financial covenants as of December 31, 2005, adjusted thefinancial covenants 

21

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through thematurity date of loans outstanding under the Senior Credit Agreement,incorporated new financial covenants, adjusted the interest rate on borrowingsunder the Senior Credit Agreement, amended the definition of Bank EBITDA toprovide additional “add backs” related to Merisant’s restructuring and newproduct development efforts, and amended certain other covenants.

TheFourth Amendment avoided an immediate default under the Senior Credit Agreementresulting from the decline in the Company’s Bank EBITDA and, managementbelieves, affords the Company the time needed to stabilize its core businessand improve operating efficiencies during 2006 while pursuing refinancing andrestructuring alternatives. See “—Liquidity and Capital Resources—FourthAmendment” for a more detailed description of the Fourth Amendment.

The FourthAmendment requires Merisant to raise approximately $85 million of newborrowings and use the proceeds to prepay loans currently outstanding under theSenior Credit Agreement by January 2, 2007. On April 14, 2006, theCompany launched its efforts to raise additional borrowings that will besecured by a second lien on all the assets that currently secure loansoutstanding under the Senior Credit Agreement. This partial refinancing willnot increase the overall leverage of the Company in any material respect,although the Company anticipates that its interest expense will increase as aresult of the transaction. See “—Liquidity and Capital Resources—Senior SecuredFinancing”.

As noted above,the Fourth Amendment provides that the Company will be in default under theSenior Credit Agreement if the Company does not complete the partialrefinancing or refinance the Senior Credit Agreement in its entirety byJanuary 2, 2007. The Company will evaluate whether all of the Company’slong-term debt must be recorded as current debt in subsequent quarters if theCompany has not completed the partial refinancing or entire refinancing by thedate by which it will file subsequent Quarterly Reports on Form 10-Qwith the Securities and Exchange Commission.

**Results of Operations**

The following table sets forthcertain of the Company’s financial data for the three month periods ended March 31,2005 and 2006 (totals may not foot due to rounding).
| ** **                        | ** ** | **Three Months Ended  March 31,** | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                        | ** ** | **2005**                                         | ** ** | **2006**                                         | ** ** | **2005** | ** ** | **2006** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                        | ** ** | **(in millions)**                           | ** ** | **as% of Sales**                       | ** ** | **Dollars** | ** ** | **%** | ** ** |
| Net sales                         |       | $                                                | 75.9       |                                             | $          | 69.7 |   | 100 | % | 100 | % | $ | (6.2 | ) | (8 | )% |
| Cost of sales                     |       | 31.4                                             |       | 29.0                                             |       | 41 | % | 42 | % | 2.4 |   | 8 | % |
| Gross profit                      |       | 44.5                                             |       | 40.7                                             |       | 59 | % | 58 | % | (3.8 | ) | (9 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Operating expenses:               |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Marketing and selling expenses    |       | 21.2                                             |       | 16.9                                             |       | 28 | % | 24 | % | 4.3 |   | 20 | % |
| Administration expenses           |       | 11.1                                             |       | 11.1                                             |       | 15 | % | 16 | % | (0.0 | ) | (0 | )% |
| Research and development expenses |       | 0.4                                              |       | 0.6                                              |       | 0 | % | 1 | % | (0.2 | ) | (63 | )% |
| Amortization of intangibles       |       | 5.6                                              |       | 5.6                                              |       | 7 | % | 8 | % | 0.0 |   | 0 | % |
| Restructuring expenses            |       | 1.3                                              |       | 2.3                                              |       | 2 | % | 3 | % | (0.9 | ) | (70 | )% |
| Total operating expenses          |       | 39.6                                             |       | 36.5                                             |       | 52 | % | 52 | % | 3.1 |   | 8 | % |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Income from  operations           |       | 4.9                                              |       | 4.2                                              |       | 7 | % | 6 | % | (0.7 | ) | (15 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):         |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Interest income                   |       | (0.1                                             | )          | (0.1                                             | )          | 0 | % | 0 | % | 0.0 |   | 5 | % |
| Interest expense                  |       | 11.2                                             |       | 10.9                                             |       | 15 | % | 16 | % | 0.3 |   | 3 | % |
| Other expense (income), net       |       | (4.3                                             | )          | 0.2                                              |       | (6 | )% | 0 | % | (4.5 | ) | (105 | )% |
| Total other expenses              |       | 6.8                                              |       | 11.0                                             |       | 9 | % | 16 | % | (4.2 | ) | (62 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Loss before  income taxes         |       | (1.8                                             | )          | (6.8                                             | )          | (2 | )% | (10 | )% | (4.9 | ) | (267 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes       |       | 2.2                                              |       | 0.3                                              |       | 3 | % | 0 | % | 1.9 |   | 89 | % |
| Net loss                          |       | $                                                | (4.0       | )                                                | $          | (7.0 | ) | (5 | )% | (10 | )% | $ | (3.0 | ) | (73 | )% |

 

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For each of the periodsdiscussed below, the information set forth under the caption “Consolidated Results”represents an overview of the Company’s results of operations on a consolidatedbasis. Additional detail regarding the results of operations can be found under the caption “—Segment Results” for each period discussed below.

***Three Months Ended March 31, 2006 Compared to Three Months Ended March 31,2005***

**ConsolidatedResults**

                *Net sales.*Overall, net sales declined in the first quarterof 2006 compared to the first quarter of 2005, although net sales in the NorthAmerican retail grocery and drug channels appear to have shown some signs ofstabilization over the past nine months. A foreign currency translation loss ofapproximately $2.4 million, nearly all of which occurred in the EAME region, aswell as lower sales in the EAME and Latin America regions primarily contributedto the decline in consolidated net sales. Sales declined in France as a resultof a weakened economy which affected the low-calorie sweetener category ingeneral, as well as continuing health concerns about aspartame stemming from theRamazzini Report. A price increase in December, 2005 also depressed sales in Francein January, 2006. In addition, sales declined in Portugal as the newdistributor purchased more inventory than required to be on hand as of December 31,2005 and in Italy, Belgium and Hungary due to declines in the market, timing ofpromotional activities and the Company’s efforts to reduce distributorinventory levels. In Latin America, sales were lower due mainly to reducedvolumes in Mexico and Colombia. Net sales improved in the grocery and drugchannels in the United States and in the UK and the Middle East.

                *Cost of sales.* The Company realized some improvedefficiencies in its manufacturing conversion costs due to lower spending andheadcount reductions and improved overhead absorption through contractmanufacturing activities.  Lower salesand favorable currency translation also contributed to lower cost of sales. Freightcosts partially offset these improvements. Overall, the gross profit percentagestayed relatively flat  from 58.6% forthe three months ended March 31, 2005 to 58.4% for the three months ended March 31,2006 as changes in sales mix offset the cost improvements previously discussed.

                *Operating expenses.*Marketing and selling expenses decreasedmainly due to lower brand support in the UK, France and at the regional EAMElevel, favorable foreign currency translations and lower variable selling costsin the EAME region. These favorable impacts were partially offset bytermination costs relating to the transition from H. J. Heinz Company (“Heinz”)to ACH Food Companies, Inc. (“ACH”) as the Company’s exclusive distributor inthe United States. Administration expenses improved significantly due to thenon-recurring $1.4 million charge related to the Food Brokers, LTD receivablethat was incurred in the period ended March 31, 2005 after Food Brokers,LTD went into receivership. This favorable impact was nearly offset by anincrease in corporate expenses mainly related to higher performance basedincentive expense and a favorable adjustment in EAME related to capital taxesin the period ended March 31, 2005 that did not recur in 2006. During thefirst three months of 2006, the Company continued its initiatives to improveboth financial results and the long-term value of the business. As a result ofthese actions, the Company recorded restructuring charges for workforcereductions of $2.3 million in the first three months of 2006 as compared to$1.3 million in the first three months of 2005. The restructuring chargesincurred in the first quarter of 2006 relate primarily to new employeetermination costs in the EAME, Latin America and Asia Pacific segments and areexpected to be substantially paid by the end of the second quarter of 2006. Additionalinformation regarding restructuring charges and the related liability can befound in Note 3 to the unaudited consolidated financial statements.

                *Interest.*The Company successfully closed the registeredexchange offer of the Notes in October  2005 which resulted in thediscontinuation of penalty interest. The penalty interest went into effect asthe Company had not consummated the registered exchange offer prior to thepreviously agreed deadline. Net interest decreased as a result of thediscontinuation of the penalty interest.

*Otherincome/expense, net*. Theunfavorable variance of $4.5 million is mainly attributable to a $2.4 millioncurrency gain on the euro-denominated debt for the period ended March 31,2005 as compared to a $0.6 currency loss on the euro-denominated debt for theperiod ended March 31, 2006, as well as a $2.4 million unrealized gain onderivative instruments for the period ended March 31, 2005 as compared toa $0.7 million realized gain on derivative instruments for the period ended March 31,2006. The gain or loss on derivative instruments relates to the interest rate 

23

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swaps required by the SeniorCredit Agreement, which we have marked to market through our statement ofoperations since the debt refinancing in July 2003. The derivativeinstruments have all expired as of March 31, 2006.

                *Taxes.*For the three months ended March 31, 2006, theCompany recorded a $0.3 million tax provision on a loss before income taxes of$6.8 million. The unusual relationship of the Company’s tax provision to itspre-tax loss in the first quarter of 2006 relates to a combination of factors,including increased tax loss carryforwards generated for which the Company hasnot recorded a tax benefit and additional tax expense recorded in the UnitedStates. With regard to the deferred income tax assets on the tax losscarryforwards, the Company determined that it has not satisfied the “morelikely than not” test and has increased its total valuation allowance by $3.2million in the first quarter of 2006 to a total of $53.8 million. The Companywill continue to assess the valuation allowances, and, to the extent theCompany determines that such allowances are no longer required, these deferredincome tax assets will be recognized in the future.

**Segment Results**

Thefollowing table presents net sales and Operating EBITDA expressedin millions of dollars for each of our reportable segments (totals may notfoot due to rounding):
| ** **                    | ** ** | **Net Sales**                           | ** ** | **Operating EBITDA (1)**                 | ** ** |
|-------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **Three Months  Ended  March 31,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** | **Three Months  Ended  March 31,** | ** ** | **Better/(Worse)  than Prior Year** | ** ** |
| ** **                    | ** ** | **2005**                                     | ** ** | **2006**                                      | ** ** | **$** | ** ** | **%** | ** ** | **2005** | ** ** | **2006** | ** ** | **$** | ** ** | **%** | ** ** |
| ** **                    | ** ** | **(in millions)**                            | ** ** | **(in millions)**                             | ** ** |
|                          |       |                                         |       |                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| North America  (2)            |       | $                                            | 28.2       |                                          | $          | 29.9 |   | $ | 1.7 |   | 6 | % | $ | 9.6 |   | $ | 10.6 |   | $ | 1.0 |   | 10 | % |
| Operating EBITDA  Margin      |       |                                         |       |                                          |       |   |   |   |   | 34 | % | 35 | % | 1 | % |   |   |
| EAME                          |       | 34.3                                         |       | 28.8                                          |       | (5.5 | ) | (16 | )% | 7.1 |   | 9.4 |   | 2.2 |   | 32 | % |
| Operating EBITDA  Margin      |       |                                         |       |                                          |       |   |   |   |   | 21 | % | 33 | % | 12 | % |   |   |
| Latin America                 |       | 8.4                                          |       | 6.4                                           |       | (2.0 | ) | (24 | )% | 2.4 |   | 1.1 |   | (1.3 | ) | (53 | )% |
| Operating EBITDA  Margin      |       |                                         |       |                                          |       |   |   |   |   | 28 | % | 18 | % | (11 | )% |   |   |
| Asia/Pacific                  |       | 4.9                                          |       | 4.5                                           |       | (0.4 | ) | (7 | )% | 1.1 |   | 1.5 |   | 0.4 |   | 38 | % |
|  Operating EBITDA Margin |       |                                         |       |                                          |       |   |   |   |   | 23 | % | 34 | % | 11 | % |   |   |
|                               |            |                                              |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

(1)             “OperatingEBITDA” as used with respect to the Company’s operating segments is a measureupon which management assesses the financial performance of these segments. OperatingEBITDA excludes interest expense, income tax expense and depreciation andamortization, as well as items such as start-up expenses, restructuringexpenses, certain significant charges related to new product development andlaunch costs, cost related to the transition to a new exclusive distributor inthe United States and certain other non-cash items. See Note 2 to the unauditedconsolidated financial statements for a description of Operating EBITDA and areconciliation of Operating EBITDA to loss before income taxes. OperatingEBITDA margin represents Operating EBITDA as a percentage of net sales.

(2)             NorthAmerica segment results exclude results related to a new product launch whichmanagement evaluates separately from this geographical segment.

***North America***

                *Net sales.*The increase in net sales in the North Americasegment was principally attributable to improved sales volumes in the groceryand drug channels as well as increased sales related to contract manufacturingactivities. The increase in the grocery channel is mainly related to lowerdistributor inventory levels as of December 31, 2005 as compared to December 31,2004, resulting in more normalized sales in the first quarter of 2005. In thedrug channel, the increase is related to improved consumer demand. Thesefavorable impacts were partially offset by lower sales in the club channeldriven by timing in promotional activities at Costco and lower sales in thefood service channel due to decreased consumption.

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*OperatingEBITDA.*The increase inOperating EBITDA was primarily related to the margin impact of the improvedsales volumes, lower conversion costs related to reduced spending and improvedoverhead absorption costs related to increased contract manufacturing activities,partially offset by increased distribution costs relating to fuel surcharges. OperatingEBITDA margin increased slightly due primarily to the favorable conversioncosts and overhead absorption previously discussed.

***EAME***

                *Net sales.*In EAME, sales declined primarily as a result ofa $2.4 million unfavorable currency translation and lower sales in France.Sales declined in France as a result of a weakened economy which affected thelow-calorie sweetener category in general as well as continuing health concernsabout aspartame stemming from the Ramazzini Report. A price increase inDecember, 2005 also depressed sales in France in January, 2006. In addition todecreased sales in France, sales declined in Portugal, Italy, Belgium andHungary. In Portugal, the Company had closed its office and converted itsproprietary distribution operation into a third party distributor operation atthe end of 2005. The new distributor acquired more inventory than normallyrequired as part of its start-up of the distributorship, which had the effectof unusually lower sales to that distributor in the first three months of 2006.In Italy, although the Company maintained its market share, sales decreased asa weak economy led to a decline in the overall low-calorie sweetener categoryresulting in higher inventories at the Company’s distributor at year end. InBelgium and Hungary, timing of promotional activities negatively impacted salesand, in Hungary, a customer delisting and lower sales in the non-sweetenercategory also contributed to the sales decline. These negative variances wereoffset by increased sales in the UK, where the sales improvement was greaterthan the market growth due to increased distribution.

                *Operating EBITDA.*Despite lower sales, Operating EBITDA increasedmainly due to a sizable decrease in brand support at the regional level as wellas in the UK and France, lower variable selling costs and the $1.3 millioncharge related to the Food Brokers, LTD receivable that was incurred in theperiod ended March 31, 2005 that did not recur in the corresponding periodin 2006. The increase in Operating EBITDA margin was primarily due tosignificantly lower marketing costs as a percentage of sales and the impact ofthe charge related to Food Brokers, LTD that negatively impacted OperatingEBITDA margin in the period ended March 31, 2005.

***Latin America***

                *Net sales.*The decrease in Latin American sales was mainlydue to lower sales volumes in Mexico and Colombia. In Mexico, reduction ofdistributor inventory levels was the primary cause for lower sales. InColombia, a decline in the category and a shift in the timing of sales ordersnegatively impacted sales.

*OperatingEBITDA.*The decrease inOperating EBITDA was mainly related to the unfavorable margin impact of lowersales and the unfavorable year over year impact of inventory costs, partiallyoffset by lower brand support and marketing and selling administrative costs.  Operating EBITDA margin decreased primarilydue to lower gross profit percentage and higher administrative costs as apercentage of sales.

***Asia/Pacific***

                *Net sales.*Net sales in the Asia/Pacific region decreasedprimarily due to reduced low margin contract manufacturing related sales.

                *Operating EBITDA.*Operating EBITDA and Operating EBITDAmargin increased significantly due to reductions in brand support and selling and general administrativecosts, mainly in Australia and India.

**CorporateExpenses**

                Corporateexpenses increased from $6.2 million in the first three months of 2005 to $7.4million in the first three months of 2006, primarily due to higher performancebased incentive expense and litigation costs, partially offset by lowerconsulting costs and lower human resources and information technology costsrelated to restructuring actions.

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**Liquidity and Capital Resources**

The Company’s liquidity needs are primarily met through internallygenerated cash flow. From time to time, the Company borrows money under itsrevolving line of credit under the Senior Credit Agreement. The Company’sprimary uses of cash are cost of sales, operating expenses, debt service,capital expenditures and distributions to its stockholder. The Company’s foreignsubsidiaries generated approximately 59% of its consolidated net sales duringthe three months ended March 31, 2006, and it has relied upon therepatriation of cash from its foreign subsidiaries to satisfy many of its cashrequirements. Historically, the Company had received a vast majority of fundsfrom its foreign subsidiaries through its Swiss subsidiary in the form ofpayments pursuant to a promissory note. This promissory note was repaid in fullin January 2006. On March 30, 2006, Merisant issued a revolver noteto its Swiss subsidiary, which will mature in 2011. Merisant may borrow up to$200 million from its Swiss subsidiary during the term of the revolver note,and the Company expects to repatriate cash to the United States throughborrowings under this revolver note.

Accounts receivable levels, timeto payment and inventory levels impact the amount of internally generated cashflow. The following table shows information with respect to our accountsreceivable and inventory as of December 31, 2005 and March 31, 2006. Accountsreceivable decreased in the three months ended March 31, 2006 primarilydue to lower sales in the first quarter of 2006 as compared to the fourthquarter of 2005.  The decrease ininventory was the result of a significant aspartame purchase in 2005 inconjunction with the satisfaction of a minimum volume commitment that is beingconsumed throughout 2006.

|                                    | ** ** | **December 31, 2005** | ** ** | **March 31, 2006** | ** ** |
|------------------------------------|------------|---------------------------------|------------|------------------------------|------------|
|                               |       |                            |       |                         |       |
| Accounts  receivable (in millions) |       | $                               | 66.3       |                         | $          | 63.2 |   |
| Days sales  outstanding            |       | 78                              |       | 76                           |       |
| Inventory (in  millions)           |       | $                               | 29.2       |                         | $          | 25.8 |   |
| Days sales in inventory            |       | 81                              |       | 73                           |       |

 

***Three Months Ended March 31,2006 Compared to Three Months Ended March 31, 2005***

For the three months ended March 31,2006, net cash provided by operating activities was $1.7 million, whereas inthe three months ended March 31, 2005, net cash used in operating activitieswas $16.0 million. Operating cash flows increased $17.8 million versus thethree months ended March 31, 2005, primarily due to an increase in thecontribution from working capital of $16.5 million coupled with increased netincome after adjusting for non-cash items. The contribution from workingcapital increased mainly due to a significant decrease in aspartame inventoriesas the Company consumes quantities purchased in the first quarter of 2005 inconjunction with the satisfaction of a minimum volume commitment.

Net cash used in investingactivities totaled $0.5 million for the three months ended March 31, 2006and the three months ended March 31, 2005. Capital expenditures in thethree months ended March 31, 2006 were slightly lower than in the threemonths ended March 31, 2005.

For the three months ended March 31, 2006, financing activitiesprovided $6.6 million in cash, a $12.2 million decrease compared to the threemonths ended March 31, 2005. In the three months ended March 31,2006, cash was provided from borrowings of $11.0 million under the Company’srevolving loan facility, compared to borrowings of $23.0 million under theCompany’s revolving loan facility as of March 31, 2005. Borrowings in theperiod ended March 31, 2006 were significantly lower as a revolver balanceof $16.0 million was carried into the first quarter of 2006 from 2005, whereasthere was no revolver balance carried into the first quarter of 2005 from 2004,thus requiring a significantly higher draw on the revolver in the first quarterof 2005. For the period ended March 31, 2006, the Company used cash mainlyto pay its scheduled principal payments under the Senior Credit Agreement andto pay fees related to amendments to its Senior Credit Agreement, as was alsothe case for the period ended March 31, 2005. In addition, distributionsof $0.5 million and $0.6 million were made to the Company’s sole stockholder inthe first quarter of 2006 and the first quarter of 2005, respectively, for thepurpose of paying financing fees and other administrative expenses.

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***Capital Expenditures***

Capitalexpenditures in 2006 are expected to be in the range of $3.0 million to$5.0 million. The Company  believesthat internally generated cash flow, together with borrowing available underits  Senior Credit Agreement, will besufficient to fund capital expenditures over the next 12 months.

***Financing***

On July 11, 2003,Merisant issued $225.0 million principal amount of its Notes and refinanced itsthen existing credit facility with the Senior Credit Agreement. A portion ofthe proceeds of the Notes and the new Senior Credit Agreement were used to paya dividend. The Senior Credit Agreement provides for aggregate commitments ofup to $310.0 million, consisting of a revolving loan facility of $35.0 million,of which a portion is available at Merisant’s option in euro or dollars or inthe form of letters of credit denominated in dollars or euro, as well as termloan facilities of $275.0 million, consisting of a Euro Term Loan A of $50.0million, and a Term Loan B of $225.0 million, denominated in dollars. The EuroTerm Loan A and the revolving loan facility have a maturity of five andone-half years while the Term Loan B has a maturity of six and one-half years.The Senior Credit Agreement is guaranteed by Merisant’s sole stockholder andeach of its domestic subsidiaries. The Senior Credit Agreement and theguarantees of the guarantors are secured by a first-priority security interestin substantially all of Merisant’s assets and the assets of the guarantors.

Commencing July 5, 2004,the interest rate on the Notes increased 0.25% over the stated rate as Merisantdid not consummate the registered exchange offer for the Notes prior to theagreed deadline, and commencing on each of October 5, 2004, January 5,2005, April 5, 2005 and July 5, 2005, the interest rate on the Notesincreased an additional 0.25% for a total increase of 1.25%. The cumulativeimpact of the 1.25% additional interest was approximately $0.2 million permonth. As a result of the consummation of the exchange offer on October 5,2005, the interest rate of the Notes returned to its stated rate of 9.5% perannum.

As part of Merisant’srefinancing in 2003, it incurred significant financing costs that are beingamortized in accordance with the terms of the respective debt instruments. Asof March 31, 2006, the deferred financing cost balance related to therefinancing of the Senior Credit Agreement, the issuance of the Notes in July 2003,the 2005 registered exchange offer with respect to the Notes and the executionof any subsequent amendments to the Senior Credit Agreement was approximately$14.6 million.

**RestrictiveCovenants and Bank EBITDA**. The indenture governing the Notesand the Senior Credit Agreement contain covenants that limit, among otherthings, Merisant’s ability to:

·         pay dividends,

·         incur additional debt,

·         create liens,

·         engage in transactions with affiliates,or

·         sell or purchase property and equipmentand take certain other actions with respect to the business.

In addition, the SeniorCredit Agreement contains covenants that require Merisant to maintain aspecified maximum leverage ratio and senior debt ratio and a minimum fixedcharge ratio and interest coverage ratio. These ratios are measured on thebasis of Bank EBITDA for the four fiscal quarters ending at least 45 days priorto the payment date. Bank EBITDA is discussed here because it is the measureupon which the covenants contained in the Senior Credit Agreement are measured.However, Bank EBITDA is not a measure of liquidity under GAAP. Accordingly,while providing useful information with respect to assessing the Company’scompliance with covenants under its primary debt obligations, this measureshould not be considered in isolation from, or as a substitute for, consolidatedstatement of cash flow data prepared in accordance with GAAP as an indicationof liquidity. In addition, the Bank EBITDA measure presented may differ from,and may not be comparable to, similarly titled measures used by othercompanies.

Bank EBITDA as originallydefined in the Senior Credit Agreement excludes interest expense, income taxexpense and depreciation and amortization, as well as items such as expensesrelated to restructuring expenses and other non-cash items. On October 20,2004, Merisant entered into an amendment to its Senior Credit Agreement. Pursuantto the amendment, fees of up to a maximum of $4.5 million related to thewithdrawn offering of income 

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deposit securities of Merisant’s parent, MerisantWorldwide, were excluded from Merisant’s Bank EBITDA calculation and Merisantwas permitted to make distributions to Merisant Worldwide in an aggregateamount not to exceed $4.5 million for the payment of such fees and expenses. Inaddition, the existing limit on restructuring costs excludable from Merisant’sBank EBITDA calculation was increased by $2.0 million. On March 11, 2005,Merisant again amended its Senior Credit Agreement. Pursuant to this amendment,the existing financial condition covenant ratios were revised and an additionalfinancial condition covenant ratio, consolidated senior leverage ratio, wasadded. In addition, charges related to obsolete or slow-moving inventory oruncollectible receivables or indebtedness, up to a maximum of $5.0 millionsince September 30, 2004, and transaction fees related to the execution ofthis amendment were excluded from the Bank EBITDA calculation and the existinglimit on restructuring costs excludable from the Bank EBITDA calculation wasincreased by $4.0 million. Among other things, the Fourth Amendment amended thedefinition of Bank EBITDA to permit the Company to add back the followingadditional items:  (i) up to $11.0million of extraordinary, non-recurring cash losses or expenses arising fromthe implementation of the Company’s restructuring plan; (ii) up to $4.0million of extraordinary, non-recurring cash losses or expenses arising fromthe transition from Heinz to ACH as the Company’s exclusive distributor in theUnited States; (iii) cash expenses related to the waiver or any default oramendment to the Senior Credit Agreement, including the fees and expenses ofattorneys and financial advisors retained by the administrative agent inconnection with the Fourth Amendment; and (iv) up to $3.0 million ofexpenses incurred by the Company prior to January 1, 2007 in connectionwith the development and commercialization of an all-natural, zero-caloriesweetener to be marketed under the *Sweet Simplicity*TMtrademark. Bank EBITDA for the three monthsended March 31, 2006 was $15.2 million. Merisant was in compliance withits covenants under the Senior Credit Agreement, as amended, at March 31,2006.

The following table illustratesthe reconciliation of Bank EBITDA to cash flow from operating activities, whichmanagement believes is the most nearly equivalent GAAP measure:

 

|                                                                   | ** ** | **Three Months  Ended  March 31, 2006** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                        | ** ** | **(in millions)**                                 | ** ** |
| Net cash  provided by operating activities                        |       | $                                                      | 1.7        |   |
| Provision for  income taxes, net of deferred income tax provision |       | (0.1                                                   | )          |
| Interest  expense, net of non-cash interest expense               |       | 10.1                                                   |       |
| Restructuring  expenses (a)                                       |       | 2.3                                                    |       |
| Other items (b)                                                   |       | 1.3                                                    |       |
| Equity in  (income) loss of affiliates                            |       | 0.0                                                    |       |
| Net change in  operating assets and liabilities                   |       | (0.1                                                   | )          |
| Bank EBITDA                                                       |       | $                                                      | 15.2       |   |

 

(a)                                  The charges principally relate to planned employeetermination costs that have been announced in the  period presented. The restructuring liabilityas of the end of each period is included in accrued expenses and otherliabilities in our consolidated balance sheets.

(b)                                 Other items consist mainly of certain non-cashexpenses (income) and charges related to certain new product development andlaunch expenses that are excluded from the definition of Bank EBITDA.

***Fourth Amendment***

Asnoted previously, the Company entered into the Fourth Amendment to the SeniorCredit Agreement on March 29, 2006. The Fourth Amendment requires Merisantto raise approximately $85 million of new borrowings under the SeniorCredit Agreement (“Senior Secured Financing”) before January 2, 2007,including pursuant to loans secured by a second lien on all of the assets thatcurrently secure loans outstanding under the Senior Credit Agreement (“SecondLien Financing”). Among other things, the Fourth Amendment amended thefinancial covenants as of December 31, 2005, adjusted the financialcovenants through the maturity date of loans outstanding under the SeniorCredit Agreement, incorporated new financing covenants, adjusted the interestrate on borrowings under the Senior Credit Agreement, amended the definition ofBank EBITDA to provide additional “add backs” related to the Company’srestructuring and new product development efforts, and amended certaincovenants. The following summary of the

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Fourth Amendmentshould be read in conjunction with the Fourth Amendment which has been filedwith the Securities and Exchange Commission.

**Amended Financial Covenants at and for thePeriod Ended December 31, 2005**. The Companygenerated $68.0 million of Bank EBITDA for the year ended December 31,2005. As a result of this decline in Bank EBITDA, the Company would havedefaulted under certain financial covenants for the four quarters ended December 31,2005. The Fourth Amendment amended the financial covenants under the SeniorCredit Agreement for the four fiscal quarters ended December 31, 2005. TheCompany was in compliance with the amended covenants and thereby avoided animmediate default under the Senior Credit Agreement.

**Amended Definition of Consolidated EBITDA**.The Fourth Amendment amends the definition of “Consolidated EBITDA”, referredto in this report as Bank EBITDA, so that certain costs and expenses related tothe Company’s restructuring and new product development efforts would notreduce this non-GAAP measure of cash flow. As previously discussed, the Companyis permitted to add back to its consolidated net income before interestexpense, taxes, depreciation and amortization the following additional items incalculating Bank EBITDA:  (i) up to $11.0million of extraordinary, non-recurring cash losses or expenses arising fromthe implementation of the Company’s restructuring plan; (ii) up to $4.0 millionof extraordinary, non-recurring cash losses or expenses arising from thetransition from Heinz to ACH as the Company’s exclusive distributor in theUnited States; (iii) cash expenses related to the waiver or any default oramendment to the Senior Credit Agreement, including the fees and expenses ofattorneys and financial advisors retained by the administrative agent inconnection with the Fourth Amendment; and (iv) up to $3.0 million of expensesincurred by the Company prior to January 1, 2007 in connection with thedevelopment and commercialization of an all-natural, zero-calorie sweetener tobe marketed under the *Sweet Simplicity*TMtrademark.

**Amendments to Existing Financial Covenants**.The Fourth Amendment revised the ratio levels for Consolidated Leverage Ratio,Consolidated Interest Coverage Ratio, Consolidated Fixed Charge Coverage Ratioand Consolidated Senior Leverage Ratio, each as defined in the Senior CreditAgreement.

*Consolidated Leverage Ratio*.The Fourth Amendment revised the Consolidated Leverage Ratios for each of theperiods through the maturity of the loans under the Senior Credit Agreement asfollows:

| Quarter-End Date               | ** ** | **Consolidated  Leverage Ratio** | ** ** |
|-------------------------------------|------------|---------------------------------------|------------|
|                                |       |                                  |       |
| December 31,  2005             |       | 9.80                                  | x          |
| March 31,  2006                |       | 9.80                                  | x          |
| June 30,  2006                 |       | 9.80                                  | x          |
| September 30,  2006            |       | 9.80                                  | x          |
| December 31,  2006             |       | 9.80                                  | x          |
| March 31,  2007                |       | 8.00                                  | x          |
| June 30,  2007                 |       | 8.00                                  | x          |
| September 30,  2007            |       | 7.50                                  | x          |
| December 31,  2007             |       | 7.50                                  | x          |
| March 31,  2008                |       | 7.50                                  | x          |
| June 30,  2008                 |       | 7.25                                  | x          |
| September 30,  2008            |       | 7.25                                  | x          |
| December 31,  2008             |       | 7.00                                  | x          |
| March 31, 2009 and  Thereafter |       | 7.00                                  | x          |

 

*Consolidated Interest Coverage Ratio*.The Fourth Amendment revised the Consolidated Interest Coverage Ratios for eachof the periods through the maturity of the loans under the Senior CreditAgreement as follows:

| Quarter-End Date               | ** ** | **Consolidated  Interest Coverage Ratio** | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
|                                |       |                                                |       |
| December 31,  2005             |       | 1.00                                                | x          |
| March 31,  2006                |       | 1.00                                                | x          |
| June 30,  2006                 |       | 1.00                                                | x          |
| September 30,  2006            |       | 1.00                                                | x          |
| December 31,  2006             |       | 1.00                                                | x          |
| March 31,  2007                |       | 1.20                                                | x          |
| June 30,  2007                 |       | 1.20                                                | x          |
| September 30,  2007            |       | 1.30                                                | x          |
| December 31,  2007             |       | 1.30                                                | x          |
| March 31,  2008                |       | 1.30                                                | x          |
| June 30,  2008                 |       | 1.30                                                | x          |
| September 30,  2008            |       | 1.35                                                | x          |
| December 31,  2008             |       | 1.35                                                | x          |
| March 31, 2009 and  Thereafter |       | 1.40                                                | x          |

 

*Consolidated Fixed Charge Coverage Ratio*.The Fourth Amendment revised the Consolidated Interest Coverage Ratios for eachof the periods throughthe maturity of the loans under the Senior Credit Agreement as follows:

| Quarter-End Date               | ** ** | **Consolidated Fixed  Charge Coverage Ratio** | ** ** |
|-------------------------------------|------------|--------------------------------------------------------------|------------|
|                                |       |                                                         |       |
| December 31,  2005             |       | 0.65                                                         | x          |
| March 31,  2006                |       | 0.65                                                         | x          |
| June 30,  2006                 |       | 0.65                                                         | x          |
| September 30,  2006            |       | 0.65                                                         | x          |
| December 31,  2006             |       | 0.65                                                         | x          |
| March 31,  2007                |       | 0.75                                                         | x          |
| June 30,  2007                 |       | 0.75                                                         | x          |
| September 30,  2007            |       | 0.80                                                         | x          |
| December 31,  2007             |       | 0.80                                                         | x          |
| March 31,  2008                |       | 0.80                                                         | x          |
| June 30,  2008                 |       | 0.80                                                         | x          |
| September 30,  2008            |       | 0.80                                                         | x          |
| December 31,  2008             |       | 0.80                                                         | x          |
| March 31, 2009 and  Thereafter |       | 0.80                                                         | x          |

 

*Consolidated Senior Leverage Ratio*.The Fourth Amendment revised the Consolidated Senior Leverage Ratios for eachof the periods through the maturity of the loans under the Senior CreditAgreement as follows:

| Quarter-End Date               | ** ** | **Consolidated  Senior Leverage Ratio** | ** ** |
|-------------------------------------|------------|---------------------------------------------------|------------|
|                                |       |                                              |       |
| December 31,  2005             |       | 6.00                                              | x          |
| March 31,  2006                |       | 6.00                                              | x          |
| June 30,  2006                 |       | 6.00                                              | x          |
| September 30,  2006            |       | 6.00                                              | x          |
| December 31,  2006             |       | 5.25                                              | x          |
| March 31,  2007                |       | 5.00                                              | x          |
| June 30,  2007                 |       | 5.00                                              | x          |
| September 30,  2007            |       | 5.00                                              | x          |
| December 31,  2007             |       | 5.00                                              | x          |
| March 31,  2008                |       | 5.00                                              | x          |
| June 30,  2008                 |       | 4.75                                              | x          |
| September 30,  2008            |       | 4.75                                              | x          |
| December 31,  2008             |       | 4.75                                              | x          |
| March 31, 2009 and  Thereafter |       | 4.60                                              | x          |

 

**New Financial Covenants**.The Fourth Amendment incorporated three new financial covenants; namely, aminimum Bank EBITDA test for the first three quarters of 2006, a one-timeconsolidated first lien senior debt ratio related to the Senior SecuredFinancing and a consolidated first-lien leverage ratio.

*Minimum Consolidated EBITDA.*TheFourth Amendment included a minimum Bank EBITDA test for the first threequarters of 2006. The minimum levels are as follows:

| Test Period                           | ** ** | **Minimum  Consolidated EBITDA** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|
|                                       |       |                                  |       |
| Three Months  Ended March 31, 2006    |       | $                                     | 5,400,000  |   |
| Six Months Ended  June 30, 2006       |       | $                                     | 16,600,000 |   |
| Nine Months Ended  September 30, 2006 |       | $                                     | 32,500,000 |   |

 

*One-Time Consolidated First-Lien Ratio*.The Fourth Amendment defined “One-Time Consolidated First 

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Lien Ratio” as the ratio of (x) the sum of the aggregate principalamount of all Tranche A Term Loans and Tranche B Term Loans as of such date plusthe aggregate principal amount of all Revolving Loans as of such date to (y) theBank EBITDA for the fiscal quarter immediately prior to such date. The Companymust test the One-Time Consolidated First Lien Ratio on the closing of theSenior Secured Financing, and the ratio must be equal to or less than 3.00xafter giving effect to the Senior Secured Financing and the use of proceedstherefrom.

*Consolidated First-Lien Leverage Ratio*.The Fourth Amendment defined “Consolidated First-Lien Leverage Ratio” as theratio of (x) the sum of the aggregate principal amount of all Tranche ATerm Loans and Tranche B Term Loans as of such date plus the aggregateRevolving Credit Commitments as of such date to (y) the Bank EBITDA forthe four quarters immediately prior to such date. The Consolidated First-LienLeverage Ratio test will only be applied after the closing of the SeniorSecured Financing. The Consolidated First-Lien Leverage Ratios through thematurity of the Senior Credit Agreement are as follows:

| Quarter-End Date               | ** ** | **Consolidated  First-Lien Leverage Ratio** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|
|                                |       |                                                  |       |
| September 30,  2006            |       | 3.25x                                                 |       |
| December 31,  2006             |       | 3.00x                                                 |       |
| March 31,  2007                |       | 3.00x                                                 |       |
| June 30,  2007                 |       | 2.50x                                                 |       |
| September 30,  2007            |       | 2.50x                                                 |       |
| December 31,  2007             |       | 2.50x                                                 |       |
| March 31,  2008                |       | 2.50x                                                 |       |
| June 30,  2008                 |       | 2.50x                                                 |       |
| September 30,  2008            |       | 2.50x                                                 |       |
| December 31,  2008             |       | 2.50x                                                 |       |
| March 31, 2009 and  Thereafter |       | 2.25x                                                 |       |

 

**Other Amendments**. TheFourth Amendment amended the Senior Credit Agreement to delete certainexceptions to negative covenants that are no longer applicable to the Company,reduce basket levels prior to the consummation of the Senior Secured Financingand amend certain covenants. The Fourth Amendment also deleted provisions andreferences related to receivable financing, the inter-company loan from theCompany to its Swiss subsidiary that has been repaid, and the issuances ofnotes by Merisant Worldwide and the Company in 2003.

*Indebtedness*. TheFourth Amendment revised the negative covenant in the Senior Credit Agreementthat limits the ability of the Company to incur additional indebtedness by permittingthe Company to raise up to $85 million in connection with the Senior SecuredFinancing, borrow up to $200 million from its Swiss subsidiary under arevolving note that will mature in 2011 and to lend up to $500,000 per year toMerisant Worldwide to cover that entity’s operating expenses. Prior to theconsummation of the Senior Secured Financing, the Company will not be permittedto incur secured indebtedness except in the form of capital leases related tothe acquisition of information technology equipment, the basket for ForeignOverdraft Guarantees, as defined in the Senior Credit Agreement, will bereduced from $10 million to $5 million, the general $5 million basket for otherindebtedness may not be used, and the Company may not incur indebtedness inconnection with the acquisition of any entity.

*Liens*. The FourthAmendment permits the Company to secure any of the indebtedness incurred inconnection with the Senior Secured Financing with liens on the collateral thatsecured the loans outstanding under the Senior Credit Agreement. The FourthAmendment also permits the Company to place up to $3.0 million of cash intoescrow in connection with reimbursement of trade promotion expenses of Heinzduring the transition from Heinz to ACH.

*Disposition of Property*.The Fourth Amendment reduces the aggregate amount of asset dispositions thatthe Company may complete during any fiscal year from $25 million to $10 millionand further limits asset dispositions prior to the consummation of the SeniorSecured Financing to those related to the Company’s restructuring program.

*Restricted Payments*.The Fourth Amendment restricts the Company’s ability to pay dividends toMerisant Worldwide for the purpose of purchasing the common stock of MerisantWorldwide and provides that Merisant Worldwide may incur management fees solong as these fees accrue but are not paid until after all of the loansoutstanding under the Senior Credit Agreement have been paid in full.

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*Investments*. TheFourth Amendment reduces the aggregate amount of inter-company investments thatthe Company may make in its foreign subsidiaries from $15 million to $5 millionprior to the consummation of the Senior Secured Financing. The Fourth Amendmentalso reduces the general basket for investments not permitted by otherexceptions to the limitation on investments from $30 million to $5 millionprior to the consummation of the Senior Secured Financing. In addition, theFourth Amendment permits the Company to acquire Whole Earth Sweetener CompanyLLC from Pegasus Partners II, L.P. This acquisition was completed on March 28,2006.

*Joint Ventures With Affiliates*.None of Merisant Worldwide, the Company or any of their subsidiaries will bepermitted to make or incur any expenditures, direct or indirect, includingwithout limitation overhead, in connection with, or permit any of theiremployees to devote any of their time to, the development, marketing,manufacturing, or distribution of any products (including without limitationsweetener products) unless all proprietary rights to such products are whollyowned by the Company or a wholly owned subsidiary of the Company. This covenantwill not apply to transactions with unaffiliated third parties and Merisant’sjoint venture in the Philippines so long as the transaction is consistent withpractices in the ordinary course of the Company’s business or otherwiseconsistent with the Company’s existing manufacturing production methods, linesof business, and products.

*CorporateRestructuring*. Currently Merisant Company 2, Sarl, Merisant’sSwiss subsidiary, is owned through two intermediary foreign entities. TheFourth Amendment contains an undertaking by Merisant to use diligent efforts totake such corporate actions as may be necessary, including the consolidation orliquidation of the intermediary foreign entities, so that all of the capitalstock of Merisant Company 2, Sarl will be owned directly by Merisant Company ora domestic subsidiary of Merisant. Merisant’s Swiss subsidiary will bepermitted to make loans to Merisant pursuant to the intercompany revolver notein lieu of paying dividends to the extent and only for so long as the paymentof dividends would be adverse to Merisant’s business, property, operations orcondition (financial or otherwise), is not permitted by applicable law or issubject to any necessary corporate or governmental approvals that have not beenobtained and remain in effect.

**Increased Interest Expense.**The Fourth Amendment increased theinterest rates of all term loans and revolver loans to euro-LIBOR or LIBOR plus425 basis points commencing on the date of the Fourth Amendment. The interestrate on all loans outstanding under the Senior Credit Agreement will increaseto euro-LIBOR or LIBOR plus 525 basis points beginning on June 30, 2006,and then to euro-LIBOR or LIBOR plus 625 basis points beginning on September 30,2006 if Merisant has not completed the Senior Secured Financing or arefinancing of the entire Senior Credit Agreement by those dates.  The Company is also subject to a minimum BankEBITDA test during the period prior to completing the Senior Secured Financingor a refinancing of the entire Senior Credit Agreement. As a result of theFourth Amendment, the Company’s cash interest cost for the outstanding balanceson the Term A and Term B loans under the Senior Credit Agreement as of March 31,2006 would increase by approximately $0.5 million for the three months ended June 30,2006 if the Senior Secured Financing is not complete prior to June 30,2006, then by approximately $1.0 million for the three months ended September 30,2006 if the Senior Secured Financing is not complete prior to September 30,2006 and then by approximately $1.5 million for the three months ended December 31,2006 if the Senior Secured Financing is not completed prior to December 31,2006.

Including theimpact of Merisant’s open interest rate protection agreements described under “Quantitativeand Qualitative Disclosure About Market Risk — Foreign Currency and InterestRate Risks”, the effective cash interest rate on all borrowings under theSenior Credit Agreement was approximately 9% as of March 31, 2006. Theincreases in the euro LIBOR and LIBOR spreads as a result of the FourthAmendment and the impact of any Senior Secured Financing or refinancing of theSenior Credit Agreement are all expected to result in an increase in theeffective cash interest rate in the future.

Merisant’sability to make scheduled payments of principal of, or to pay the interest on,or to refinance its indebtedness, including the notes and its Senior CreditAgreement, or to fund planned capital expenditures will depend on its abilityto generate cash in the future. This ability, to a certain extent, is subjectto general economic, financial, competitive, legislative, regulatory, and otherfactors beyond Merisant’s control.

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***Senior SecuredFinancing***

Merisant must use the proceeds of any Senior Secured Financing to repaya portion of the outstanding term loans and revolver loans under the SeniorCredit Agreement. Alternatively, Merisant could seek to refinance the SeniorCredit Agreement in its entirety. The Fourth Amendment also includes a newevent of default if Merisant does not complete the Senior Secured Financing orthe Senior Credit Agreement is not refinanced in its entirety by January 2,2007. In such event the lenders under the Senior Credit Agreement would bepermitted to accelerate all outstanding loans under the Senior CreditAgreement.

The FourthAmendment provides that the terms of the Second Lien Financing must besatisfactory to the Requisite Lenders, as defined under the Senior CreditAgreement. There is no assurance that the Requisite Lenders will agree to theterms and conditions of any Second Lien Financing even if the terms andconditions may be customary for such financings and otherwise reasonable. As aresult, the Requisite Lenders have sole discretion to cause the Company to bein default under the Senior Credit Agreement by not agreeing to any Second LienFinancing.

The FourthAmendment also stipulates certain provisions of any inter-creditor agreementbetween the current lenders under the Senior Credit Agreement (the “First LienLenders”) and the new lenders in connection with the Second Lien Financing. Theserequired terms include the following:

·                                          subordinationof the liens securing the indebtedness incurred in connection with the SecondLien Financing;

·                                          theagreement of the Second Lien Lenders that any liens acquired by them after theclosing date of Second Lien Financing on any asset or property (whether or notin existence at such closing date) of the Company or any subsidiary of theCompany will be immediately released if the First Lien Lenders have notreceived a senior security interest in such asset or property from the Companyor such subsidiary of the Company, and in the event the Second Lien Lendersreceive any recovery on any lien on any asset on which the First Lien Lendersdo not have a lien, such amounts shall be held in trust for, and remitted to,the First Lien Lenders;

·                                          the right ofthe First Lien Lenders to control the enforcement of remedies with respect tothe collateral securing the loans outstanding under the Senior CreditAgreement, subject to a 180-day standstill period, and to control therelease of the collateral (and related guaranty provisions) in connection withany exercise of remedies by the First Lien Lenders and any sales or otherdispositions;

·                                          theagreement of the Second Lien Lenders to hold in trust for, and turn over to,the First Lien Lenders, all proceeds received from the collateral securing theloans outstanding under the Senior Credit Agreement;

·                                          a limitationon the aggregate principal amount of the loans under the Senior CreditAgreement that are secured by a first priority lien on the collateral;

·                                          in the eventof an insolvency proceeding of any kind, if the First Lien Lenders consent tothe Company’s or any guarantor’s use of cash collateral or debtor-in-possessionfinancing (a “DIP Financing”), then the administrative agent for theindebtedness incurred in connection with the Second Lien Financing (the “SecondLien Agent”) and the Second Lien Lenders will consent to and will not raise anyobjection to such use of cash collateral or such DIP Financing (includingwithout limitation any objection based upon a lack of adequate protection oftheir second priority lien in the affected collateral) and the Second LienAgent and the Second Lien Lenders will subordinate their liens in thecollateral to the liens securing such DIP Financing so long as the aggregatecommitments of any such DIP Financing shall not exceed $325 million;

·                                          subject tothe foregoing, the Second Lien Agent and the Second Lien Lenders would retainall rights to seek adequate protection of their second priority liens in thecollateral in the form of replacement liens; provided that any liens or claimsprovided to the Second Lien Agent or the Second Lien Lenders as adequateprotection shall be junior in priority to the liens and claims provided to theFirst Lien Lenders;

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·                                          in the eventthat the administrative agent on behalf of the First Lien Lenders consents to asale or other disposition of all or any portion of the collateral free andclear of its liens pursuant to Section 363(f) of the Bankruptcy Code(with such liens to attach to the proceeds of such sale), the Second Lien Agentand the Second Lien Lenders would consent to and would not raise any objectionto or otherwise oppose such sale or other disposition and, the Second LienAgent and the Second Lien Lenders shall affirmatively consent to such sale orother disposition; and

·                                          upon anevent of default under the Senior Credit Agreement, the Second Lien Agent andthe Second Lien Lenders will have the option to purchase all outstanding loansunder the Senior Credit Agreement that are secured by a first priority line onthe collateral at a price equal to par plus accrued interest and fees.

On April 14,2006 the Company launched its efforts to raise Second Lien Financing.

***Forward Looking Statements***

Certain information included or incorporated in thisreport may be deemed to be “forward-looking statements” within the meaning of Section 27Aof the Securities Act and Section 21E of the Exchange Act. All statements,other than statements of historical facts, included or incorporated in thisreport, are forward-looking statements. In particular, statements made underthe heading “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” relating to overall volume trends, pricing trends andindustry forces, anticipated results, expectations for funding capitalexpenditures and operations and increased market share and the sufficiency ofcapital to meet working capital, capital expenditures requirements andstrategies are forward-looking statements. When used in this document, thewords “anticipate,” “estimate,” “project” and similar expressions are intendedto identify forward-looking statements.

These statementsare based on assumptions and assessments made by management in light of theirexperience and their perception of historical trends, current conditions,expected future developments and other factors they believe to be appropriate. Anyforward-looking statements are not guarantees of future performance and aresubject to risks and uncertainties that could cause actual results, developmentsand business decisions to differ materially from those contemplated by suchforward-looking statements. The Company disclaims any duty to update anyforward-looking statements. Some of the factors that may cause actual results,developments and business decisions to differ materially from thosecontemplated by such forward-looking statements include the following:  changes in consumer preferences andnutritional and health-related concerns; increased competition; changes in theterms on which the Company may obtain aspartame; damaged consumer confidence inthe Company’s products as a result of health-related allegations; productliability claims; fluctuations in exchange rates and other currency risks;disruptions in the Company’s business as a result of strikes or work stoppages;changes in the Company’s relationship with its largest distributor; and changesin economic and political conditions in the countries in which the Companymarkets and produces its products.

**Item 3:  Quantitative and Qualitative DisclosuresAbout Market Risk**

***ForeignOperations***

With approximately64% and 59% of Merisant’s consolidated total net sales generated by itssubsidiaries outside of the United States in the three months ended March 31,2005 and March 31, 2006, respectively, Merisant’s ability to obtain fundsnecessary to meet its obligations is subject to applicable laws, foreign taxesand intercompany pricing laws, including those relating to the flow of fundsbetween Merisant’s foreign affiliates pursuant to, for example, purchaseagreements, licensing agreements or other arrangements. Historically, theCompany received a 

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vast majority of fundsfrom its foreign affiliates through its Swiss subsidiary in the form ofpayments pursuant to a promissory note. The note was repaid in full in January 2006.On March 30, 2006 Merisant issued a revolver note to its Swiss subsidiary,which will mature in 2011. Merisant may borrow up to $200 million from itsSwiss subsidiary during the term of the revolver note, and the Company expects torepatriate cash to the United States through borrowings under this revolvernote. Regulators in the United States and other foreign countries whereMerisant operates may closely monitor its corporate structure and how iteffects intercompany fund transfers.

In addition,as of March 31, 2006, foreign affiliates comprised approximately 46% ofMerisant’s consolidated total assets. Accordingly, the Company has experiencedand will continue to be exposed to foreign exchange risk.

***ForeignCurrency and Interest Rate Risks***

Inherent inMerisant’s operations are certain risks related to changes in foreign currencyexchange rates and interest rates. The Company bears foreign exchange riskbecause a majority of its financing was obtained in U.S. dollars although a significantportion of its revenues are earned in the various currencies of its foreignsubsidiaries’ operations. Under Merisant’s Senior Credit Agreement, a portionof its financing was obtained in euros. This euro-denominated loan decreasesMerisant’s transactional exposure to euro exchange fluctuations until the europrincipal and interest are repaid. Any decrease in sales and earnings from eurodenominated countries that results from the euro weakening against the U.S.dollar is currently more than offset by the decrease in the euro denominateddebt obligations (i.e., foreign currency transaction gain) and interest expensethat also results from such a decrease in exchange rate. Likewise, any increasein sales and earnings from the euro denominated countries that results from astrengthening euro against the U.S. dollar partially offsets the increase inthe euro denominated debt obligations (i.e., foreign currency transaction loss)and interest expense that results from such an exchange rate increase.

A significantportion of the Company’s debt bears interest at a fixed rate. Interest rateexposure results from Merisant’s floating rate borrowings. For the threemonth period ended March 31, 2006, a 1.0% per annum increase or decreasein interest rates would have resulted in an increase or decrease in cashinterest expense for the Company’s Term A and Term B loans of approximately$0.5 million, excluding the impact from the interest rate derivatives that werestill in place for the majority of the three month period ended March 31,2006.

In the normal course of business, Merisantidentifies risks relating to foreign currency exchange rates and interest ratesand mitigates their financial impact through corporate policies and, at times,through the use of derivative financial instruments. Merisant uses derivativesonly where there is an underlying exposure and does not use them for trading orspeculative purposes. The counter parties to the hedging activities are highlyrated financial institutions. The Company did not have any foreign currencyforward exchange contracts or interest rate derivatives outstanding at March 31,2006.

***InflationRisk***

Inflation isnot expected to have a material impact on the Company’s business, financialcondition or results of operations. In markets outside the United States incountries with higher inflation, Merisant generally has been able to offset theimpact of inflation through a combination of cost-cutting measures and priceincreases.

**Item 4. Controls and Procedures**

# ***Evaluation ofDisclosure Controls and Procedures***

The Company conducted an evaluation,under the supervision of the Chief Executive Officer and Chief FinancialOfficer, of the effectiveness as of December 31, 2005 of the Company’sdisclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)).Based on this evaluation, the Chief Executive Officer and Chief FinancialOfficer have concluded that, as of December 31, 2005, the Company’sdisclosure controls and procedures need improvement and were not effective toprovide reasonable assurance that information required to be disclosed by theCompany in reports that it files with the SEC or submits under the Exchange Actis recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms. In making this conclusion, theChief Executive Officer and Chief Financial Officer considered the materialweaknesses in the Company’s internal controls over financial reporting and thestatus of the corrective actions to remedy those material weaknesses describedbelow. In its reevaluation of the Company’s disclosure controls and proceduresas of March 31, 2006, the Chief Executive Officer and the Chief FinancialOfficer noted certain incremental improvements. However, the 

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Company has not formallydocumented and tested all of its potentially remediated controls toaffirmatively conclude that such controls are operating effectively.

The certifications of the Chief ExecutiveOfficer and Chief Financial Officer required in accordance with Section 302of the Sarbanes-Oxley Act of 2002 appear as exhibits to this report. Thedisclosures sets forth in this Item 4 contain information concerning theevaluation of our disclosure controls and procedures, and changes in internalcontrols over financial reporting, referred to in paragraphs 4(b) and (c) ofthe certifications. The certifications should be read in conjunction with thisItem 4 for a more complete understanding of the topics presented.

## *MaterialWeaknesses Identified*

In a letter to the Company dated September 24,2004 related to the audit of the Company’s financial statements for the yearended December 31, 2003 and through discussions with management and theaudit committee of its board of directors on April 14, 2005 related to theformer auditor’s audit of its financial statements for the year ended December 31,2004, the former auditor identified certain matters involving the Company’ssystem of internal control and its operation that the auditor considered to bematerial weaknesses as defined in the Public Company Accounting Oversight Board’s,or PCAOB’s, Auditing Standard No. 2, *AnAudit of Internal Control Over Financial Reporting Performed in Conjunctionwith an Audit of Financial Statements* (the PCAOB’s final standardwill apply to the Company’s audit for the year ended December 31, 2007).The Company’s former auditor noted the balance sheet accounts for income taxes,fixed assets, inventory, and accrued trade promotions were not reconciled, ornot reconciled in a timely manner. As a result, the Company made materialadjustments to the financial statements that were not initially identified byits internal controls over financial reporting.

## *CorrectiveActions*

There have been some improvements, asdescribed more fully below, in the Company’s internal control over financialreporting that occurred during the period covered by this report that havematerially affected, or are reasonably likely to materially affect, itsinternal control over financial reporting. During the period covered by thisreport, the Company has taken steps to improve its internal control structureand procedures regarding disclosures in its financial reporting, includingthose contemplated by Section 404 of the Sarbanes-Oxley Act and the rules andregulations of the SEC promulgated thereunder, with which the Company isrequired to be in compliance as of December 31, 2007. The Companycontinues to take further steps with regard to these matters.

During the period covered by this report,the Company has taken steps to improve its control activities and proceduresover financial reporting. The Company continues to make further enhancementswith regards to its entity level disclosure controls. These actions include thefollowing enhancements.

·                  The Company’sdisclosure committee has been expanded to include management at the corporate,regional and local levels to discuss operational and financial issues for thereporting period. At a minimum, the committee meets once aquarter, just prior to releasing results for the quarter then ended. Thecommittee meetings provide the necessary forum to give reasonable assurancethat the information required to be disclosed in the reports filed pursuant tothe Exchange Act is analyzed, reviewed and included where relevant.

·                  A monthly regional resultsreview is held between corporate and regional financial management to discusseach region’s financial results, including explanations of significantvariances between the actual results as compared to projections and prior year.For the quarter, additional corporate financial personnel attend the meeting toparticipate in the financial review and to discuss the quarterly financialclose process and any pending issues.

·                  Aquarter-end review checklist which documents that key controls in the financialclose process were performed is sent to financial personnel at both theregional and headquarter levels. The checklists are now submitted on a timelybasis and are reviewed by corporate and regional financial personnel during theregional results review for the quarter.

The Company reviewed the mattersidentified by its former auditor and initiated an effort to implement controlsto mitigate the identified control weaknesses and implement plans to fullyremediate these weaknesses. This process is ongoing, and during the periodcovered by this report, the Company continued to make material changes

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in the following areas.

*Income Taxes*. Theincome tax accounts were reconciled at year-end and quarter-end. The Companycontinues to use an outside adviser to assist with its taxes andreconciliations on a regular basis as well as to assist with training ourfinance personnel on tax accounting matters. In addition, the Company has hiredan internal tax manager to further build its core competencies in the tax area.

*Inventory*. Theinventory accounts were substantially reconciled at year-end and quarter-end.While the entire inventory process, from acquiring raw materials to shippingfinished goods, requires frequent manual intervention, the Company hasimplemented critical monthly and annual controls to ensure that the inventoryaccounts presented in our financial statements are fairly stated. Specifically,the following actions are taken:

·                  The Company reconciles thethird-party warehouse inventory system to the Company’s inventory system,monthly.

·                  The Company conducted its annualphysical inventory at its largest inventory location at year-end, whichrepresented approximately 59% of the consolidated inventory value, excludinginventory reserves. The resulting adjustment was less than 1% of totalinventory value. Internal and external auditors observed and validated that theinventory taking procedures surrounding the physical inventory were wellcontrolled.

·                  In 2006, the Company intends toreassess its analytical procedures to ensure that each inventory account andthe post physical inventory adjustment is thoroughly analyzed and reviewed.

*Fixed Assets*. TheNorth America fixed asset accounts were reconciled at year-end and quarter-end.Prior to 2004, certain fixed assets were accounted for on a manual spreadsheet,which led to errors. In 2004, the fixed asset spreadsheet was reviewed andcorrected. The corrected asset values and depreciable lives were uploaded intothe SAP fixed asset module, automating the process. In the EAME region, themanual fixed asset process mentioned above is currently used. During 2005, theCompany performed a physical inventory and reconciliation of fixed assets,including reviewing each asset’s depreciable life. The Company intends toimplement the SAP fixed asset module for the region. All fixed asset accountswere reconciled at year-end and quarter-end.

*Accrued Trade Promotions*.The accrued trade promotion account was reconciled at year-end and quarter-end.Throughout 2005 and the first quarter of 2006, the Company has continued torefine its detailed methodology for estimating and accruing trade marketingexpenses.

The Company believes that the changes ithas implemented are sufficient to mitigate the material weaknesses described above.However, while the Company has enhanced the design of the current controls andimplemented additional controls, there are still opportunities for additionalimprovements in certain areas. Additionally, the Company has not yet tested theon-going effectiveness of the new controls. In addition to the continuingefforts described above, the Company has made significant progress indocumenting, testing and remediating its system of internal controls inpreparation for compliance with the requirements of Section 404 of theSarbanes-Oxley Act and the rules and regulations of the SEC promulgatedthereunder, with which it must be in compliance by December 31, 2007.

# ***Changes in InternalControl Over Financial Reporting***

Except as otherwise discussed above, there have beenno changes in the Company’s internal control over financial reporting duringthe most recently completed fiscal quarter that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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**PART II**—**OTHER INFORMATION**

**Item 1. LegalProceedings**

From time to time,the Company is involved in litigation concerning its business operations.

In October 2004,Merisant requested the National Advertising Division of the Council of BetterBusiness Bureaus, referred to as the NAD, to review advertising and otherclaims made by McNeil Nutritionals, LLC (“McNeil”) in connection with its *Splenda®* brand sweetener. Merisant believed and continues tobelieve McNeil’s *Splenda®* advertising to be falseand misleading. Despite McNeil’s previous use of the NAD for such disputes andthe NAD’s industry-wide, self-regulatory nature, McNeil refused to allow theiradvertising claims to be judged by the NAD and instead sought to have the issueconsidered by the United States District Court for the District of Puerto Rico.Under NAD rules, McNeil’s filing in Puerto Rico precluded the NAD fromreviewing the matter or referring McNeil’s advertising to the Federal TradeCommission. In order to have McNeil’s advertising addressed by a jury and courtin the continental United States familiar with McNeil’s claims, on November 26,2004, Merisant filed a federal and state false advertising complaint againstMcNeil in the United States District Court for the Eastern District of Pennsylvania.That suit continues today and seeks to have McNeil’s *Splenda®*campaign stopped because of its misleading nature and seeks significant damagesresulting from the impact McNeil’s false advertising has had on Merisant’ssales. On January 13, 2005, McNeil voluntarily dismissed its action inPuerto Rico and in April 2005 McNeil amended its answer to the Company’scomplaint in the Pennsylvania action to add a counterclaim against the Companyalleging that its *Equal® Sugar LiteTM*packaging and advertising were misleading. McNeil alleged that on a volumetricbasis, *Equal® Sugar LiteTM* doesnot deliver half the calories of a cup of sugar. The Company’s owninvestigation has confirmed that when measured by weight, in accordance withthe formulation for *Equal® Sugar LiteTM,*measurements for *Equal® Sugar LiteTM*are correct under the FDA compliance standards for measurement by weight. Whilecertain product produced by third party vendors had measurements that may havebeen volumetrically inaccurate due to manufacturing and packaging issues, themanufacturing and packaging process for *Equal®Sugar LiteTM* has since been adjusted to ensure volumetric accuracy,all the while ensuring that the product’s weight remained accurate inaccordance with FDA compliance standards. The Company notified consumers of thevolumetric issues and offered a replacement package of *Equal® Sugar LiteTM*or a coupon for adollar off a new package of the product to affected consumers. At March 31,2006, the Company believes that sufficient reserves are in place to address anyremaining inventory on hand or lingering returns from customers associated withthis issue.

On February 15,2006, a putative consumer class action lawsuit was filed against the Company inthe United District Court for the Northern District of Illinois EasternDivision alleging that the Company’s *Equal®Sugar LiteTM* packaging and advertising were misleading. Theplaintiffs alleged that on a volumetric basis, *Equal®Sugar LiteTM* does not deliver half the calories of a cup of sugar.  On April 17, 2006, the Company filed amotion to dismiss the lawsuit for failure to state a claim upon which reliefmay be granted. If the court does not grant the Company’s motion to dismiss,the Company intends to vigorously oppose the merits of the lawsuit, as well asthe appropriateness of class certification. As noted above, the manufacturingand packaging process for *Equal® Sugar LiteTM*has been adjusted to ensure volumetric accuracy, all the while remainingaccurate in accordance with FDA compliance standards based on weight.  In addition to ensuring that manufacturing andpackaging processes were accurate, the Company took steps to correct statementson packaging at distribution centers containing *Equal® Sugar LiteTM*product that may not have beenvolumetrically accurate, provided notice to consumers on its website andoffered consumers who may have purchased such product without correctedpackaging a replacement package of *Equal*®*Sugar Lite*Ôor a coupon for a dollar off a new package of the product. As such, the Companyalso believes the putative class action suit to be moot. In an unrelateddecision by management related to consumer demand for the product, the Companystopped manufacturing *Equal® Sugar LiteTM*in November 2005.

Merisant Europe B.V.B.A.,Merisant’s Belgium subsidiary, entered into a co-branding agreement withGalleria Srl, a company through which the Italian designer Elio Fioruccioperates. Under this co-branding arrangement, Merisant Europe produced a lineof *Canderel*® tablet dispensersthat featured designs and trademarks from Mr. Fiorucci’s “Love Therapy byElio Fiorucci” collection. The co-branding arrangement contains arepresentation and warranty that Galleria owns all rights in the name “LoveTherapy by Elio Fiorucci” and associated designs and further provides thatGalleria will indemnify and hold Merisant Europe and its affiliates harmlessagainst damages resulting from or related to Merisant’s use of the name anddesigns pursuant to the agreement. Beginning in 2005, Merisant Europe soldtablet dispensers with the “Love Therapy by Elio Fiorucci” designs in Italy. Edwin &Co. Ltd. has claimed that it owns all rights in Mr. Fiorucci’s name and inthe designs used by Merisant and has filed 

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suit against Merisant Europe in Milan, Italy. On orabout March 17, 2006, the court in Milan enjoined Merisant Europe fromproducing or selling the tablet dispensers after the date of the court order. Merisantno longer produces the dispensers and has stopped selling dispensers to itsdistributor in Italy and to customers through the Internet. Merisant Europe hasfiled an appeal and will vigorously oppose the court’s order. Merisant Europewill also enforce its indemnification rights under its co-branding arrangementwith Galleria Srl.

The Company is subject to various other claims, pendingand possible legal actions for product liability and other damages, and othermatters arising out of the conduct of the Company’s business, including taxuncertainties arising from doing business in various European jurisdictions.The Company believes, based on current knowledge, recorded accruals, andconsultation with counsel, that the outcome of such claims and actions will nothave a material adverse effect on the Company’s consolidated financial positionor results of operations.

**Item1A:  Risks Related to Our Business**

The most significant risk factors applicable to theCompany are described in Part I, Item 1A “Risk Factors” of theCompany’s Annual Report on Form 10-K for the year ended December 31, 2005.There have been no material changes from the risk factors previously disclosedin the Company’s report on Form 10-K.

**Item 6. Exhibits**
| Exhibit No. | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                       |
|------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1             |       | Fourth Amendment to the Credit Agreement, dated as  of March 29, 2006, among Merisant Company, Merisant  Worldwide, Inc., the lenders named therein and Credit Suisse, as  administrative agent (incorporated by reference to Exhibit 10.5 of Merisant  Company’s Annual Report on Form 10-K filed on March 31,  2006). |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 10.2             |       | Revolver Note dated as of March 30, 2006 from  Merisant Company to Merisant Company 2, Sàrl (incorporated by reference to  Exhibit 10.7 of Merisant Company’s Annual Report on Form 10-K  filed on March 31, 2006).                                                                                                     |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 10.3             |       | Termination Agreement dated March 31, 2006 by  and between Merisant US, Inc. and Heinz U.S.A., a division of H. J.  Heinz Company (incorporated by reference to Exhibit 10.1 of Merisant  Company’s Form 8-K filed on April 4, 2006).                                                                                   |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 10.4             |       | Distribution Agreement dated February 14, 2006,  by and between Merisant US, Inc. and ACH Food Companies, Inc.  (incorporated by reference to Exhibit 10.1 of Merisant Company’s  Form 8-K filed on February 17, 2006).                                                                                            |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 10.5             |       | Employment Agreement dated January 24, 2006  between Jonathan W. Cole and Merisant Company (incorporated by reference to  Exhibit 10.2 of Merisant Company’s Form 8-K filed on  January 30, 2006).                                                                                                                           |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 10.6             |       | Merisant Company 2006 Supplemental Incentive Plan  (incorporated by reference to Exhibit 10.1 of Merisant Company’s  Form 8-K filed on January 30, 2006).                                                                                                                                                                         |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 31.1             |       | Certificate of Paul R. Block pursuant to  Rule 15d-14 under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                 |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 31.2             |       | Certificate of Anthony J. Nocchiero pursuant to Rule 15d-14  under the Securities Exchange Act of 1934.                                                                                                                                                                                                                                          |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 32.1             |       | Certificate of Paul R. Block pursuant to 18 U.S.C.  Section 1350.                                                                                                                                                                                                                                                                                |
|             |       |                                                                                                                                                                                                                                                                                                                                                  |
| 32.2             |       | Certificate of Anthony J. Nocchiero pursuant to 18  U.S.C. Section 1350                                                                                                                                                                                                                                                                          |

 

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the registranthas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.
|                          |   | MERISANT COMPANY |
|--------------------------|--------|------------------|
|                     |   |             |   |   |
|                     |   |             |   |   |
| Date: May 12,  2006 |   | By:              |   | /s/ Anthony J.  Nocchiero |
|                     |   |             |   | Anthony J. Nocchiero |
|                     |   |             |   | Chief Financial  Officer |
|                     |   |             |   | (on behalf of the  Company and in capacity |
|                     |   |             |   | of principal financial  officer) |

 

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