** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,DC 20549**

**FORM 10-Q**

x             **QUARTERLY REPORT PURSUANT TO SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended March 31, 2006**

**OR**

o               **TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

**For the transition period from**            **to**            

**Commission FileNumber:  333-114102**

** **

**Merisant Worldwide, Inc.**

(Exact Name of Registrant as Specified in its Charter)
| **Delaware**                                                     | **52-2219000**                           |
|------------------------------------------------------------------|------------------------------------------|
| (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 telephone number, including areacode:  **(312) 840-6000**

 

Former name, former address and former fiscal year, ifchanged since last 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   No o

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   ý

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

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 9,089,380 shares of commonstock, par value $0.01 per share, outstanding.

 

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MERISANT WORLDWIDE, INC.

INDEX TO REPORT

FOR THE QUARTER ENDED MARCH 31, 2006
| PART I—FINANCIAL  INFORMATION |
|-----------------------------------------|
|                                    |   |   |
| Item 1.                                 |   | Financial  Statements of Merisant Worldwide, Inc. |
|                                    |   |   |
|                                    |   | 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 Stockholders’ 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. FinancialStatements of Merisant Worldwide, Inc.

**MERISANTWORLDWIDE, INC.Unaudited Consolidated Balance Sheets(Dollars In Thousands, Except Per Share Amounts)**
| ** **                                                                                                | ** ** | **At December 31,  2005** | ** ** | **At March 31,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                | ** ** | ** **                          | ** ** | ** **                       | ** ** |
| **ASSETS**                                                                                                |       |                                |       |                             |       |
| Cash and cash  equivalents                                                                                |       | $                                   | 18,073     |                             | $          | 25,939 |   |
| 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                                                                        |       | 2,796                               |       | 2,798                            |       |
| Current portion of note  receivable from director                                                         |       | 970                                 |       | 970                              |       |
| Deferred income taxes                                                                                     |       | 474                                 |       | 807                              |       |
| Total current  assets                                                                                     |       | 128,630                             |       | 129,916                          |       |
| 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 $6,227 and $7,280, respectively               |       | 16,172                              |       | 17,020                           |       |
| 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                                                                                              |       | $                                   | 500,225    |                             | $          | 494,088 |   |
|                                                                                                      |       |                                |       |                             |       |
| **LIABILITIES AND STOCKHOLDERS’  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                                                                   |       | 19,041                              |       | 19,534                           |       |
| Current maturities of  long-term obligations                                                              |       | 25,750                              |       | 37,461                           |       |
| Total current  liabilities                                                                                |       | 94,464                              |       | 98,594                           |       |
| Long-term obligations                                                                                     |       | 512,877                             |       | 513,385                          |       |
| Deferred income tax  liabilities                                                                          |       | 14,317                              |       | 15,028                           |       |
| Other liabilities                                                                                         |       | 14,257                              |       | 12,681                           |       |
| Total  liabilities                                                                                        |       | 635,915                             |       | 639,688                          |       |
|                                                                                                      |       |                                |       |                             |       |
| Commitments and  contingencies (Note 7)                                                                   |       |                                |       |                             |       |
| Stockholders’ Deficit:                                                                               |       |                                |       |                             |       |
| Common stock,  $0.01 par value, 10,000,000 shares authorized, 9,169,552 issued and 9,089,380  outstanding |       | 91                                  |       | 91                               |       |
| Due for purchase  of common stock                                                                         |       | (767                                | )          | (767                             | )          |
| Retained deficit                                                                                          |       | (126,262                            | )          | (136,370                         | )          |
| Accumulated  other comprehensive loss                                                                     |       | (7,031                              | )          | (6,833                           | )          |
|                                                                                                      |       | (133,969                            | )          | (143,879                         | )          |
| Less cost of  treasury stock (80,172 shares)                                                              |       | (1,721                              | )          | (1,721                           | )          |
| Total  stockholders’ deficit                                                                         |       | (135,690                            | )          | (145,600                         | )          |
| Total liabilities and  stockholders’ deficit                                                         |       | $                                   | 500,225    |                             | $          | 494,088 |   |

 

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

3

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**MERISANT WORLDWIDE, INC.Unaudited Consolidated Statements of Operations andComprehensive 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                                           |       | 11,759 |   |
| Amortization of intangible assets  |       | 5,556                                            |       | 5,554 |   |
| Transaction fees                   |       | (60                                              | )          | — |   |
| Restructuring expenses             |       | 1,348                                            |       | 2,291 |   |
| Total operating expenses           |       | 39,492                                           |       | 36,512 |   |
| Income from  operations            |       | 4,998                                            |       | 4,140 |   |
|                               |       |                                             |       |   |   |
| Other expense  (income):           |       |                                             |       |   |   |
| Interest income                    |       | (141                                             | )          | (148 | ) |
| Interest expense                   |       | 14,101                                           |       | 13,934 |   |
| Other expense (income), net        |       | (4,323                                           | )          | 209 |   |
| Total other expense                |       | 9,637                                            |       | 13,995 |   |
| Loss before  income taxes          |       | (4,639                                           | )          | (9,855 | ) |
| Provision for  income taxes        |       | 2,203                                            |       | 253 |   |
| Net loss                           |       | $                                                | (6,842     | ) | $ | (10,108 | ) |
|                               |       |                                             |       |   |   |
|  Net loss from above          |       | $                                                | (6,842     | ) | $ | (10,108 | ) |
| Other  comprehensive income (loss) |       | (2,881                                           | )          | 198 |   |
| Total comprehensive  loss          |       | $                                                | (9,723     | ) | $ | (9,910 | ) |

 

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

4

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**MERISANT WORLDWIDE, INC.Unaudited Consolidated Statements of Stockholders’ Deficit(Dollars In Thousands)**
| ** **                               | ** ** | **Common  Stock** | ** ** | **Due for Purchase  of Common Stock** | ** ** | **Retained  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Treasury  Stock, at  Cost** | ** ** | **Total** | ** ** |
|------------------------------------------|------------|-------------------|------------|-----------------------------------------------------------|------------|-----------------------|------------|---------------------------------------------|------------|------------------------------------|------------|-----------|------------|
|                                     |       |              |       |                                                      |       |                  |       |                                        |       |                               |       |      |       |
| Balance at  December 31, 2005       |       | $                 | 91         |                                                      | $          | (767                  | )          | $                                           | (126,262   | )                                  | $          | (7,031    | )          | $ | (1,721 | ) | $ | (135,690 | ) |
| Foreign currency  translation adjustment |       | —            |       | —                                                    |       | —                |       | 198                                         |       | —                             |       | 198       |       |
| Net loss                                 |       | —            |       | —                                                    |       | (10,108               | )          | —                                      |       | —                             |       | (10,108   | )          |
| Balance at  March 31, 2006          |       | $                 | 91         |                                                      | $          | (767                  | )          | $                                           | (136,370   | )                                  | $          | (6,833    | )          | $ | (1,721 | ) | $ | (145,600 | ) |

 

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

5

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**MERISANT WORLDWIDE, INC.Unaudited Consolidated Statements of Cash Flows(Dollars In Thousands)**
| ** **                                                                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                 | ** ** | **2005**                                         | ** ** | **2006** | ** ** |
| **Operating  Activities**                                                                  |       |                                             |       |   |   |
| Net loss                                                                                   |       | $                                                | (6,842     | ) | $ | (10,108 | ) |
| 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                                                   |       | 671                                              |       | 740 |   |
| Interest accretion on senior subordinated discount  notes                                  |       | 2,738                                            |       | 2,939 |   |
| 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                                             | )          | (53 | ) |
| Accounts payable                                                                           |       | (3,044                                           | )          | (952 | ) |
| Accrued expenses and other                                                                 |       | (7,005                                           | )          | (7,186 | ) |
| Net cash provided by (used in) operating activities                                        |       | (16,591                                          | )          | 1,383 |   |
|                                                                                       |       |                                             |       |   |   |
| **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                                                        |       | (1,058                                           | )          | (1,588 | ) |
| Net cash provided by financing activities                                                  |       | 19,391                                           |       | 7,110 |   |
| Effect of  exchange rate on cash and cash equivalents                                      |       | (142                                             | )          | (155 | ) |
| Net increase in  cash and cash equivalents                                                 |       | 2,149                                            |       | 7,865 |   |
|                                                                                       |       |                                             |       |   |   |
| Cash and cash  equivalents at beginning of period                                          |       | 9,103                                            |       | 18,074 |   |
| Cash and cash  equivalents at end of period                                                |       | $                                                | 11,252     |   | $ | 25,939 |   |

 

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

6

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**MERISANT WORLDWIDE, INC.Notes to Unaudited Consolidated Financial Statements(Dollars In Thousands)**

**1.****                       ****Principles of Consolidation**

Theconsolidated financial statements and notes do not contain certain informationincluded in the annual consolidated financial statements and notes of MerisantWorldwide, Inc. (the “Company” or “Merisant Worldwide”) and subsidiaries.The consolidated balance sheet at December 31, 2005 was derived from theCompany’s audited consolidated financial statements, but does not include alldisclosures required by generally accepted accounting principles in the UnitedStates of America. The remaining consolidated financial statements areunaudited. In the opinion of management, all normal, recurring adjustmentsnecessary for a fair presentation of such unaudited financial statements havebeen included therein. For interim reporting purposes, certain marketing andadvertising expenses are charged to results of operations as a percentage ofsales. Interim results may not be indicative of results for a full year. Theseunaudited consolidated financial statements and notes should be read inconjunction with the Company’s annual consolidated financial 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 lossesassociated with the Company’s euro-denominated debt (see Note 5) and unrealizedgains or losses on derivative instruments. Corporate expenses include corporatestaff and related amounts. Corporate expenses, interest and other expenses andthe provision for income taxes are centrally managed and, accordingly, suchitems are 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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**MERISANTWORLDWIDE, INC.Notes to Unaudited Consolidated Financial 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                                             |       | 6,122              |       |
| 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                                         |       | 4,998              |       |
| Interest  expense, net                                          |       | 13,960             |       |
| Other income,  net                                              |       | (4,323             | )          |
| Loss before income  taxes                                       |       | $                  | (4,639     | )        |

 

**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                                                  |       | 7,451              |       |
| 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                                              |       | 4,140              |       |
| Interest  expense, net                                               |       | 13,786             |       |
| Other income,  net                                                   |       | 209                |       |
| Loss before income  taxes                                            |       | $                  | (9,855     | )        |

8

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**MERISANTWORLDWIDE, INC.Notes to Unaudited Consolidated Financial 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 the threemonths ended March 31, 2006 and to continuing provisions for previouslynotified employees being recorded over their stay periods. Severance paymentsand 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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**MERISANTWORLDWIDE, INC.Notes to Unaudited Consolidated Financial Statements (Continued)(Dollars In Thousands)**

**5.****                       ****Debt**

The Company is highly leveraged. At March 31, 2006, the Companyand its subsidiaries, including Merisant Company (“Merisant”), had $550,536 oflong-term debt outstanding, consisting of $100,388 aggregate principal amountof the Company’s 12 1⁄4% senior subordinated discount notes due 2014 (the “DiscountNotes”), $225,000 aggregate principal amount of Merisant’s 9 1⁄2% seniorsubordinated notes due 2013 (the “Notes”) and $225,148 aggregate principalamount outstanding under Merisant’s senior credit agreement (the “Senior CreditAgreement”), excluding capital lease obligations of $310 and unused commitmentson the revolving portion of the Senior Credit Agreement. The Company’s highleverage and declining net sales and Bank EBITDA have resulted in successivedowngrades of its credit ratings. Currently, Moody’s Investors Service andStandard & Poor’s rating agencies have assigned ratings to the Company’soverall credit and to Merisant’s senior secured debt and the Notes of Caa3,Caa1 and Ca and CCC+, CCC+ and CCC-, respectively. The credit ratings on theDiscount Notes from Moody’s Investors Service and Standard & Poors areC and CCC-, respectively. Bank EBITDA is the measure upon which the covenantscontained in the Senior Credit Agreement are measured. However, Bank EBITDA isnot a measure of liquidity under GAAP. Accordingly, while providing usefulinformation with respect to an assessment of liquidity as impacted by thecovenants in the Merisant’s primary debt obligations, this measure should notbe considered in isolation from, or as a substitute for, consolidated statementof cash flow data prepared in accordance with GAAP as an indication ofliquidity. In addition, the Bank EBITDA measure presented may differ from, andmay not be comparable to, similarly titled measures used by other companies.

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 Merisant’s maximum$35,000 borrowing capacity was available under the revolving loan facilityunder its Senior Credit Agreement.

Merisant paid interest onborrowings under the Senior Credit Agreement and on the Notes totaling $16,092and $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 Merisant and its Swiss subsidiary. Among otherthings, 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 Merisant’s restructuring and new product development efforts,and amended certain covenants.  Merisantwas in compliance with its covenants under the Senior Credit Agreement, asamended, as of March 31, 2006.

Under the terms of the Fourth Amendment, Merisant mustraise approximately $85,000 of new borrowings to repay a portion of theoutstanding term loans and revolver loans under the Senior Credit Agreement. Alternatively,Merisant could seek to refinance the Senior Credit Agreement in its entirety. TheFourth Amendment also includes a new event of default if Merisant does notcomplete this partial refinancing or if the Senior Credit Agreement is notrefinanced in its entirety by January 2, 2007. On April 14, 2006,Merisant announced that Jefferies & Company and Credit Suisse Securitieshad commenced the marketing of up to $85,000 of new borrowings that will besecured by a second lien on all assets that now secure loans outstanding underthe Senior Credit Agreement. This partial refinancing will not increase theoverall leverage of the Company in any material respect, although the Companyanticipates that its interest expense will increase as a result of thetransaction.

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**MERISANTWORLDWIDE, INC.Notes to Unaudited Consolidated Financial Statements (Continued)(Dollars In Thousands)**

The FourthAmendment increased the interest rates of all term loans and revolver loans toeuro-LIBOR or LIBOR plus 425 basis points commencing on the date of the FourthAmendment. The interest rate on all loans outstanding under the Senior CreditAgreement will increase to euro-LIBOR or LIBOR plus 525 basis points beginningon June 30, 2006, and then to euro-LIBOR or LIBOR plus 625 basis pointsbeginning on September 30, 2006 if Merisant has not completed the partialrefinancing or a refinancing of the entire Senior Credit Agreement by thosedates.  Merisant will also be subject toa minimum Bank EBITDA test during the period prior to completing the partialrefinancing. As a result of the Fourth Amendment, Merisant’s cash interest costfor the outstanding balances on the Term A and Term B loans under the SeniorCredit Agreement as of March 31, 2006 will increase by approximately $499for the three 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.****                       ****Transactions with Related Parties**

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

Merisant had been a party to a sublease agreement with The DigitalHome/Digital Office, LLC (“Digital Home”), pursuant to which it subleasedoffice space located at One North Brentwood Boulevard in Clayton, Missouri toDigital Home for a term that expired on March 31, 2006 at a rate of $9 permonth. At the end of the term of the sublease agreement, Digital Home acquiredthe office furniture and equipment at no cost. The underlying lease expired on March 31,2006 and Merisant had leased the office space for $15 per month. Theacquisition value of the furniture and equipment was $225 and the net bookvalue of these assets was zero, subsequent to an impairment charge of $143. DigitalHome is controlled by Mr. Donald.

On March 28,2006, Merisant 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.

**7.****                       ****Commitments and 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’s advertisingto the Federal Trade Commission. In order to have McNeil’s advertisingaddressed by a jury and court in the continental United States familiar withMcNeil’s claims, on November 26, 2004, the Company filed a federal andstate false advertising complaint against McNeil in the United States DistrictCourt for the Eastern District of Pennsylvania. That suit

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**MERISANT WORLDWIDE, INC.Notes to Unaudited Consolidated Financial Statements (Continued)(Dollars In Thousands)**

continues todayand 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 the Company’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 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.

The Company has indemnifiedMonsanto Company, its 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.

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**MERISANT WORLDWIDE, INC.Notes to Unaudited Consolidated Financial Statements (Continued)(Dollars In Thousands)**

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.**                        SubsequentEvent

H. J. Heinz Company (“Heinz”) and Merisant US, Inc. entered intoa  termination agreement dated March 31,2006 pursuant to which the Heinz retail grocery and foodservice distributionagreements were terminated effective May 4, 2006. In accordance with thetermination agreement, Merisant placed $2,500 into an escrow account on May 3,2006 for the purpose of reimbursing Heinz for expenses incurred by Heinz relating to trade promotion programsassociated with products distributed by Heinz prior to May 4, 2006 and thathad been approved by Merisant. Any unused funds in the escrowaccount, less $500, will be remitted to Merisant on August 1,2006. All remaining funds not subject to a disbursement request fromHeinz will be remitted to Merisant on September 15, 2006. At March 31,2006, the Company believes that sufficient reserves are in place to address anyremaining obligations to Heinz. ACH Food Companies, Inc. became Merisant’sexclusive distributor in the 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’sunaudited consolidated financial statements and accompanying notes includedelsewhere in this document. The Company’s discussion of results by reportablesegment should be read in conjunction with Note 2 to the Company’sunaudited consolidated financial statements included elsewhere in thisdocument, which illustrates the reconciliation of Operating EBITDA to lossbefore income taxes. Unless otherwise indicated or unless the context requiresotherwise, all references in this discussion to “Merisant Worldwide” or “theCompany” mean Merisant Worldwide, Inc. and its consolidated subsidiariesand all references to “Merisant” mean Merisant Company and its consolidatedsubsidiaries..*

**Overview**

Merisant Worldwide is a worldwide leader in themarketing of low-calorie tabletop sweeteners, with an estimated 24% dollarshare as of December 31, 2005 of a growing global retail market, which theCompany estimates at $1.5 billion. Merisant Worldwide believes that it has theleading dollar market share as of December 31, 2005 in approximately halfof what it estimates as the top 20 markets for low-calorie tabletop sweetenersales. The Company’s premium-priced brands, *Equal*®and *Canderel*®, are among the mostrecognized low-calorie tabletop sweetener products in the world, with aidedbrand awareness estimated at between 77% and 97% in the Company’s four topmarkets. In addition to *Equal*®and *Canderel*®, Merisant Worldwidemarkets its products under approximately 20 other regional brands that enjoysignificant brand recognition in their target markets. Merisant Worldwide sellsits brands in over 85 countries.

Merisant Worldwide’sbusiness is the result of over 25 years of history in the low-calorie tabletop sweetenerindustry, first as a division of G.D. Searle & Co. (“Searle”) and laterMonsanto Company (“Monsanto”).  Searleinvented the key sweetening ingredient in the Company’s products, aspartame, in1965.  Aspartame was first approved forconsumer use in France in 1979, where Searle marketed the product under the *Canderel*® brand.  By the early 1980s, *Canderel*® was being marketed in much ofEurope.  In 1981, the U.S. Food and DrugAdministration approved the tabletop use of aspartame.  The following year, Searle launched *Equal*® in the United States.  Monsanto entered the sweetener market in 1985through its acquisition of Searle. Merisant Worldwide is a Delaware corporationthat was formed in 2000 by an investor group led by an affiliate of PegasusCapital Advisors, L.P. to acquire Monsanto Company’s tabletop sweetenerbusiness.  

This business legacy has providedMerisant Worldwide with a global infrastructure dedicated to the manufacture,marketing and distribution of low-calorie tabletop sweeteners. The Company’sworldwide headquarters are located in Chicago, Illinois, and its principalregional offices are located in Mexico City, Mexico, Neuchâtel, Switzerland,Paris, France and Sydney, Australia. The Company owns and operatesmanufacturing facilities in Manteno, Illinois and Zarate, Argentina and ownsprocessing lines that are operated exclusively for the Company at plantslocated in Bergisch and Stendal, Germany. As of March 31, 2006, MerisantWorldwide had twenty-six direct and indirect subsidiaries, including its whollyowned subsidiary, Merisant, 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.  Themajority of the Company’s 20 other regional brands around the world are alsosweetened with aspartame. In July 2005, the European Ramazzini Foundationof Bologna, Italy published new findings of a long-term study on aspartameconducted in rats.  Scientists from theRamazzini Foundation concluded in their study that aspartame causes cancer andthe current uses and consumption of the low-calorie sweetener should bere-evaluated (“Ramazzini Report”).  The Company experienced sales declines inEurope, primarily in France and Italy, as a result of the publication and widereporting 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, EFSA rejected the conclusions of theRamazzini Report and re-confirmed the safety of aspartame. The Company does notyet know the extent to which EFSA’s action will allay any lingering concernsabout the safety of aspartame that consumers may have. The FDA announced on May 8,2006 that it would complete its own review of the Ramazzini Report and wouldannounce its conclusion about the study soon.

**Sales Trends and Strategy**

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 

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size of the market for low-calorie sweeteners ingeneral, Merisant’s net sales have declined during this period, particularly inNorth America which had accounted for 46% and 37% of Merisant’s net sales in2003 and 2005, 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”.

Management believesthat there are opportunities for future growth in the low-calorie tabletopsweetener and sweetened food category and that the Company is positioned topursue these opportunities. Despite recent declines in net sales, the Company’spremium brands *Equal*® and *Canderel*®are among the most recognized low-calorie tabletop sweetener products in theworld, with aided brand awareness estimated between 77% and 97% in its top fourmarkets.

Paul Block wasappointed Chief Executive Officer in November 2004 and has led aninitiative to strengthen the Company’s core brands, improve the efficiency ofthe Company’s operations, reduce costs and transform the Company into aconsumer focused 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*® brandpositioning to attract new customers through invasive marketing campaigns andimproved 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. The Company 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, the Company 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 it anticipates launching this new product nationally inthe second quarter of 2006. This innovative product will be marketed under the *Sweet Simplicity*TM brand for the Whole Earth SweetenerCompany LLC, a newly formed entity and wholly 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-natural sweeteners andsweetened food products under its *Sweet Simplicity*TMbrand for the Whole Earth Sweetener Company present growth opportunities forthe Company. However, the Company may be constrained in its ability to realizefully the value of these new products as a result of its current capitalstructure. The successful launch of new products and marketing of its corebrands requires capital, and the Company must use a significant portion of itscash flows from operations to service its outstanding debt. The Company had anaggregate of $550.5 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, it may not have the resources required to fully realize thevalue 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 creditagreement (the “Senior Credit Agreement”) agreed to amend the terms of theSenior Credit Agreement (the “Fourth Amendment”) and waived a technical defaultrelated to the use of proceeds from the repayment of the inter-company loanbetween Merisant and its Swiss subsidiary. Among other things, the FourthAmendment amended the financial covenants as of December 31, 2005,adjusted the financial covenants through the maturity date of loans outstandingunder the Senior Credit Agreement, incorporated new financial covenants,adjusted the interest rate on borrowings under the Senior Credit Agreement,amended the definition of Bank EBITDA to provide additional “add backs” relatedto Merisant’s restructuring and new product development efforts, and amendedcertain other covenants.

TheFourth Amendment avoided an immediate default under the Senior Credit Agreementresulting from 

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the decline inMerisant’s Bank EBITDA and, management believes, affords the Company the timeneeded to stabilize its core business and improve operating efficiencies during2006 while pursuing refinancing and restructuring alternatives. See “—Liquidityand Capital Resources—Fourth Amendment” for a more detailed description of theFourth 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,Merisant 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 Merisant will be in default under the SeniorCredit Agreement if it does not complete the partial refinancing or refinancethe Senior Credit Agreement in its entirety by January 2, 2007. TheCompany will evaluate whether all of its long-term debt must be recorded ascurrent debt in subsequent quarters if it has not completed the partialrefinancing or entire refinancing by the date by which it will file subsequentQuarterly Reports on Form 10-Q with the Securities and ExchangeCommission.

**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           |       | 11.0                                             |       | 11.2                                             |       | 14 | % | 16 | % | (0.1 | ) | (1 | )% |
| 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          |       | 39.5                                             |       | 36.5                                             |       | 52 | % | 52 | % | 3.0 |   | 8 | % |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Income from  operations           |       | 5.0                                              |       | 4.1                                              |       | 7 | % | 6 | % | (0.9 | ) | (17 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Other expenses  (income):         |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Interest income                   |       | (0.1                                             | )          | (0.1                                             | )          | 0 | % | 0 | % | 0.0 |   | 5 | % |
| Interest expense                  |       | 14.1                                             |       | 13.9                                             |       | 19 | % | 20 | % | 0.2 |   | 1 | % |
| Other expense (income), net       |       | (4.3                                             | )          | 0.2                                              |       | (6 | )% | 0 | % | (4.5 | ) | (105 | )% |
| Total other expenses              |       | 9.6                                              |       | 14.0                                             |       | 13 | % | 20 | % | (4.4 | ) | (45 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Loss before  income taxes         |       | (4.6                                             | )          | (9.9                                             | )          | (6 | )% | (14 | )% | (5.2 | ) | (112 | )% |
|                              |       |                                             |       |                                             |       |   |   |   |   |   |   |   |   |
| Provision for  income taxes       |       | 2.2                                              |       | 0.3                                              |       | 3 | % | 0 | % | 1.9 |   | 89 | % |
| Net loss                          |       | $                                                | (6.8       | )                                                | $          | (10.1 | ) | (9 | )% | (15 | )% | $ | (3.3 | ) | (48 | )% |

 

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For each of the periodsdiscussed below, the information set forth under the caption “ConsolidatedResults” represents an overview of the Company’s results of operations on aconsolidated basis. Additional detail regarding the  results of operations can be found under thecaption “—Segment Results” for eachperiod 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 fromthe Ramazzini Report. A price increase in December, 2005 also depressed salesin France in 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% for the three months ended March 31,2005 to 58.4% for the three months ended March 31, 2006 as changes insales 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 distributorin the 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 employee terminationcosts in the EAME, Latin America and Asia Pacific segments and are expected tobe 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 and Merisant Worldwide’s 12.25% senior subordinateddiscount notes due 2014 (the “Discount Notes”) in October 2005 which resultedin the discontinuation of penalty interest. The penalty interest went intoeffect as the Company had not consummated the registered exchange offer priorto the previously 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 

17

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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$9.9 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 $4.2million in the first quarter of 2006 to a total of $63.8 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 | % |   |   |
|                          |            |                                              |            |                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)            “Operating EBITDA” as used with respect to theCompany’s operating segments is a measure upon which management assesses thefinancial performance of these segments. Operating EBITDA excludes interestexpense, income tax expense and depreciation and amortization, as well as itemssuch as start-up expenses, restructuring expenses, certain significantcharges related to new product development and launch costs, cost related tothe transition to a new exclusive distributor in the United States and certain other non-cash items. See Note 2 tothe unaudited consolidated financial statements for a description of OperatingEBITDA and a reconciliation of Operating EBITDA to loss before income taxes. OperatingEBITDA margin represents Operating EBITDA as a percentage of net sales.

(2)            North America segment results exclude resultsrelated to a new product launch which management evaluates separately from thisgeographical 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 healthconcerns about aspartame stemming from the Ramazzini Report. A price increasein December, 2005 also depressed sales in France in January, 2006. In additionto decreased 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 distribution operation atthe end of 2005. The new distributor acquired more inventory than  normally required as part of its start-up ofthe distributorship, which had the effect of unusually lower sales to thatdistributor in the first three months of 2006. In Italy, although the Companymaintained its market share, sales decreased as a weak economy led to a declinein the overall low-calorie sweetener category resulting in higher inventoriesat the Company’s distributor at year end. In Belgium and Hungary, timing ofpromotional activities negatively impacted sales and, in Hungary, a customerdelisting and lower sales in the non-sweetener category also contributed to thesales decline. These negative variances were offset by increased sales in theUK, where the sales improvement was greater than the market growth due toincreased distribution.

                *Operating EBITDA.*Despite lower sales, Operating EBITDAincreased mainly due to a sizable decrease in brand support at the regionallevel as well as in the UK and France, lower variable selling costs and the$1.3 million charge related to the Food Brokers, LTD receivable that wasincurred in the period ended March 31, 2005 that did not recur in thecorresponding period in 2006. The increase in Operating EBITDA margin wasprimarily due to significantly lower marketing costs as a percentage of salesand the impact of the charge related to Food Brokers, LTD that negativelyimpacted Operating EBITDA 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 $6.1 million in the first three months of 2005 to $7.5million 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 underMerisant’s revolving line of credit under its Senior Credit Agreement. TheCompany’s primary uses of cash are cost of sales, operating expenses, debtservice and capital expenditures. The Company’s foreign subsidiariesgenerated approximately 59% of its consolidated net sales during the threemonths ended March 31, 2006, and it has relied upon the repatriation ofcash from its foreign subsidiaries to satisfy many of its cash requirements. Historically,the Company had received a vast majority of funds from its foreign subsidiariesthrough its Swiss subsidiary in the form of payments pursuant to a promissorynote. This promissory note was repaid in full in January 2006. On March 30,2006, Merisant issued a revolver note to its Swiss subsidiary, which willmature in 2011. Merisant may borrow up to $200 million from its Swisssubsidiary during the term of the revolver note, and the Company expects torepatriate cash to the United States through borrowings under this revolvernote.

Accounts receivable levels, time to payment and inventory levels impactthe amount of internally generated cash flow. The following table showsinformation with respect to our accounts receivable and inventory as of December 31,2005 and March 31, 2006. Accounts receivable decreased in the three monthsended March 31, 2006 primarily due to lower sales in the first quarter of 2006as compared to the fourth quarter of 2005.  The decrease in inventory was the result of asignificant aspartame purchase in 2005 in conjunction with the satisfaction ofa minimum volume commitment that is being consumed 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 byoperating activities was $1.4 million, whereas in the three months ended March 31,2005, net cash used in operating activities was $16.6 million. Operating cashflows increased $18.0 million versus the three months ended March 31,2005, primarily due to an increase in the contribution from working capital of$16.8 million coupled with increased net income after adjusting for non-cashitems. The contribution from working capital increased mainly due to asignificant decrease in aspartame inventories as the Company consumesquantities purchased in the first quarter of 2005 in conjunction with thesatisfaction of a minimum volume commitment.

Net cash used in investing activities totaled $0.5 million for the threemonths ended March 31, 2006 and the three months ended March 31, 2005.Capital expenditures in the three months ended March 31, 2006 wereslightly lower than in the three months ended March 31, 2005.

For the three months ended March 31, 2006, financing activitiesprovided $7.1 million in cash, a $12.3 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 Merisant’srevolving loan facility, compared to borrowings of $23.0 million under Merisant’srevolving loan facility as of March 31, 2005. Borrowings in the periodended March 31, 2006 were significantly lower as a revolver balance of$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 Merisant’s scheduled principal payments under the Senior CreditAgreement and to pay fees related to amendments to the Senior Credit Agreement,as was also the case for the period ended March 31, 2005.

***Capital Expenditures***

Capital expenditures in 2006 are expected to be in the range of$3.0 million to $5.0 million. The Company believes that internallygenerated cash flow, together with borrowing available under the Senior CreditAgreement, will be sufficient to fund capital expenditures over the next 12months.

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***Financing***

On November 12,2003, the Company issued $136.0 million stated aggregate principal amount atmaturity of its Discount Notes. A portion of the proceeds of the Discount Noteswas used to pay a dividend to the Company’s shareholders. The Discount Notesare unsecured obligations and are subordinated in right of payment to all ofthe Company’s existing and future senior indebtedness. The Discount Notes hadan initial accreted value of principal of $.551 per $1 fully accreted statedprincipal amount at maturity. The accreted value of principal of each DiscountNote increases from the date of issuance until November 15, 2008 at therate equal to the interest rate then in effect.  The initial annual rate of accretion was12.25%, which increased as described below. Cash interest will accrue and willbe payable semiannually in arrears on May 15th and November 15th, commencing on May 15, 2009. The DiscountNotes mature on May 15, 2014.

Commencing July 19,2004, the interest rate increased 0.25% over the stated rate for the DiscountNotes as the Company did not consummate the registered exchange offer for theDiscount Notes prior to the agreed deadline, and commencing on each of October 19,2004, January 19, 2005 and April 19, 2005, the interest rate on theDiscount Notes increased an additional 0.25% for a total increase of 1.0%. Thecumulative impact of the 1.0% additional interest was approximately $0.1million per month. As a result of theconsummation of the exchange offer on October 5, 2005, the interest rateof the Discount Notes returned to its stated rate of 12.25% per annum.

Aspart of the refinancing in 2003, the Company incurred significant financingcosts that are being amortized in accordance with the terms of the respectivedebt instruments. As of March 31, 2006, the deferred financing costbalance relating to the issuance of the Discount Notes and the 2005 registeredexchange offer with respect to the Discount Notes  was approximately $2.4 million.

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 Worldwide and each ofMerisant’s 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 asMerisant did not consummate the registered exchange offer for the Notes priorto the agreed 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.

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In addition, the SeniorCredit Agreement contains covenants that require Merisant to maintain aspecified maximum leverage ratio and senior debt ratio and a minimum fixed chargeratio and interest coverage ratio. These ratios are measured on the basis ofBank EBITDA for the four fiscal quarters ending at least 45 days prior to thepayment date. Bank EBITDA is discussed here because it is the measure uponwhich 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 Merisant’scompliance with covenants under its primary debt obligations, this measureshould not be considered in isolation from, or as a substitute for,consolidated statement of cash flow data prepared in accordance with GAAP as anindication of liquidity. In addition, the Bank EBITDA measure presented maydiffer from, and may not be comparable to, similarly titled measures used byother companies.

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 deposit securities of Merisant Worldwide, wereexcluded from Merisant’s Bank EBITDA calculation and Merisant was permitted tomake distributions to Merisant Worldwide in an aggregate amount not to exceed$4.5 million for the payment of such fees and expenses. In addition, theexisting limit on restructuring costs excludable from Merisant’s Bank EBITDAcalculation was increased by $2.0 million. On March 11, 2005, Merisantagain amended its Senior Credit Agreement. Pursuant to this amendment, the existingfinancial condition covenant ratios were revised and an additional financialcondition covenant ratio, consolidated senior leverage ratio, was added. Inaddition, charges related to obsolete or slow-moving inventory or uncollectiblereceivables or indebtedness, up to a maximum of $5.0 million since September 30,2004, and transaction fees related to the execution of this amendment wereexcluded from the Bank EBITDA calculation and the existing limit onrestructuring costs excludable from the Bank EBITDA calculation was increasedby $4.0 million. Among other things, the Fourth Amendment amended thedefinition of Bank EBITDA to permit Merisant to add back the followingadditional items:  (i) up to $11.0million of extraordinary, non-recurring cash losses or expenses arising fromthe implementation of Merisant’s restructuring plan; (ii) up to $4.0million of extraordinary, non-recurring cash losses or expenses arising fromthe transition from Heinz  to ACH asMerisant’s exclusive distributor in the United States; (iii) cash expensesrelated to the waiver or any default or amendment to the Senior CreditAgreement, including the fees and expenses of attorneys and financial advisorsretained by the administrative agent in connection with the Fourth Amendment;and (iv) up to $3.0 million of expenses incurred by Merisant prior to January 1,2007 in connection with the development and commercialization of anall-natural, zero-calorie sweetener to be marketed under the *Sweet Simplicity*TM trademark. Bank EBITDA for the three months ended March 31, 2006 was $15.2million. Merisant was in compliance with its covenants under the Senior CreditAgreement, as amended, at March 31, 2006.

The following table illustrates thereconciliation 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                        |       | $                                                          | 1.4        |   |
| 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                   |       | 0.2                                                        |       |
| Bank EBITDA                                                       |       | $                                                          | 15.2       |   |

 

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(a)                                  The charges principally relate to planned employeetermination costs that have been announced in the period presented. Therestructuring liability as of the end of each period is included in accruedexpenses and other liabilities 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 Merisant’s definition of Bank EBITDA.

***Fourth Amendment***

As noted previously, Merisant entered into the Fourth Amendment to theSenior Credit Agreement on March 29, 2006. The Fourth Amendment requiresMerisant to raise approximately $85 million of new borrowings under the SeniorCredit Agreement before January 2, 2007, including pursuant to loanssecured by a second lien on all of the assets that currently secure loansoutstanding under the Senior Credit Agreement (“Second Lien Financing”). 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 Merisant’s restructuring and new product development efforts,and amended certain covenants. The following summary of the Fourth Amendment shouldbe read in conjunction with the Fourth Amendment which has been filed with theSecurities and Exchange Commission.

**Amended Financial Covenants at and for thePeriod Ended December 31, 2005**. Merisantgenerated $68.0 million of Bank EBITDA for the year ended December 31,2005. As a result of this decline in Bank EBITDA, Merisant would have defaultedunder 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. Merisantwas in compliance with the amended covenants and thereby avoided an immediatedefault 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 toMerisant’s restructuring and new product development efforts would not reducethis non-GAAP measure of cash flow. As previously discussed, Merisant ispermitted to add back to its consolidated net income before interest expense,taxes, depreciation and amortization the following additional items incalculating Bank EBITDA:  (i) up to$11.0 million of extraordinary, non-recurring cash losses or expenses arisingfrom the implementation of Merisant’s restructuring plan; (ii) up to $4.0million of extraordinary, non-recurring cash losses or expenses arising fromthe transition from Heinz to ACH as Merisant’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 Merisant prior to January 1, 2007 in connection withthe development and commercialization of an all-natural, zero-calorie sweetenerto be 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          |       |

 

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| 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          |

 

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| 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 Secured Financingand 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 Lien 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 aggregateprincipal amount of all Revolving Loans as of such date to (y) the BankEBITDA for the fiscal quarter immediately prior to such date. Merisant musttest the One-Time Consolidated First Lien Ratio on the closing of the SeniorSecured Financing, and the ratio must be equal to or less than 3.00x aftergiving 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            |       | 3.25                                                  | x          |
| December 31,  2006             |       | 3.00                                                  | x          |
| March 31,  2007                |       | 3.00                                                  | x          |
| June 30,  2007                 |       | 2.50                                                  | x          |
| September 30,  2007            |       | 2.50                                                  | x          |
| December 31,  2007             |       | 2.50                                                  | x          |
| March 31,  2008                |       | 2.50                                                  | x          |
| June 30,  2008                 |       | 2.50                                                  | x          |
| September 30,  2008            |       | 2.50                                                  | x          |
| December 31,  2008             |       | 2.50                                                  | x          |
| March 31, 2009 and  Thereafter |       | 2.25                                                  | x          |

 

**Other Amendments**. TheFourth Amendment amended the Senior Credit Agreement to delete certainexceptions to negative covenants that are no longer applicable to Merisant,reduce basket levels prior to the consummation of the Senior Secured Financingand amend certain covenants. The Fourth Amendment also deleted

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provisions and references related toreceivable financing, the inter-company loan from Merisant to its Swisssubsidiary that has been repaid, and the issuances of notes by MerisantWorldwide and Merisant in 2003.

*Indebtedness*. TheFourth Amendment revised the negative covenant in the Senior Credit Agreementthat limits the ability of Merisant to incur additional indebtedness bypermitting Merisant to raise up to $85 million in connection with the SeniorSecured Financing, 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, Merisant will not be permitted toincur secured indebtedness except in the form of capital leases related to theacquisition 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 Merisant may not incur indebtedness inconnection with the acquisition of any entity.

*Liens*. The FourthAmendment permits Merisant 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 Merisant to place up to $3.0 million of cash into escrowin connection with reimbursement of trade promotion expenses of Heinz duringthe transition from Heinz to ACH.

*Disposition of Property*.The Fourth Amendment reduces the aggregate amount of asset dispositions thatMerisant 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 Merisant’s restructuring program.

*Restricted Payments*.The Fourth Amendment restricts Merisant’s ability to pay dividends to MerisantWorldwide for the purpose of purchasing the common stock of Merisant Worldwideand provides that Merisant Worldwide may incur management fees so long as thesefees accrue but are not paid until after all of the loans outstanding under theSenior Credit Agreement have been paid in full.

*Investments*. TheFourth Amendment reduces the aggregate amount of inter-company investments thatMerisant 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 Merisant to acquire Whole Earth Sweetener Company LLCfrom Pegasus Partners II, L.P. This acquisition was completed on March 28,2006.

*Joint Ventures With Affiliates*.None of Merisant Worldwide, Merisant 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 their employeesto devote any of their time to, the development, marketing, manufacturing, ordistribution of any products (including without limitation sweetener products)unless all proprietary rights to such products are wholly owned by Merisant ora wholly owned subsidiary of Merisant. This covenant will not apply totransactions with unaffiliated third parties and Merisant’s joint venture inthe Philippines so long as the transaction is consistent with practices in theordinary course of Merisant’s business or otherwise consistent with Merisant’sexisting manufacturing production methods, lines of business, and products.

*Corporate Restructuring*.Currently Merisant Company 2, Sarl, Merisant’s Swiss subsidiary, is ownedthrough two intermediary foreign entities. The Fourth Amendment contains anundertaking by Merisant to use diligent efforts to take such corporate actionsas may be necessary, including the consolidation or liquidation of theintermediary foreign entities, so that all of the capital stock of Merisant Company2, Sarl will be owned directly by Merisant Company or a domestic subsidiary ofMerisant. Merisant’s Swiss subsidiary will be permitted to make loans toMerisant pursuant to the intercompany revolver note in lieu of paying dividendsto the extent and only for so long as the payment of dividends would be adverseto Merisant’s business, property, operations or condition (financial orotherwise), is not permitted by applicable law or is subject to any necessarycorporate or governmental approvals that have not been obtained and remain ineffect.

**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.  Merisant is also subject to a minimum BankEBITDA test during 

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the period prior to completing the Senior Secured Financing or arefinancing of the entire Senior Credit Agreement. As a result of the FourthAmendment, Merisant’s cash interest cost for the outstanding balances on theTerm 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 the impact of Merisant’s open interest rate protection agreementsdescribed under “Quantitative and Qualitative Disclosure About Market Risk —Foreign Currency and Interest Rate Risks”, the effective cash interest rate onall borrowings under the Senior Credit Agreement was approximately 9% as of March 31,2006. The increases in the euro LIBOR and LIBOR spreads as a result of theFourth Amendment and the impact of any Senior Secured Financing or refinancingof the Senior Credit Agreement are all expected to result in an increase in theeffective cash interest rate in the future.

Merisant’s ability to make scheduled payments of principal of, or topay the interest on, or to refinance its indebtedness, including the notes andits Senior Credit Agreement, or to fund planned capital expenditures willdepend on its ability to generate cash in the future. This ability, to acertain extent, is subject to general economic, financial, competitive,legislative, regulatory, and other factors beyond Merisant’s control.

***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 Fourth Amendment provides that the terms of the Second LienFinancing must be satisfactory to the Requisite Lenders, as defined under theSenior Credit Agreement. There is no assurance that the Requisite Lenders willagree to the terms and conditions of any Second Lien Financing even if theterms and conditions may be customary for such financings and otherwisereasonable. As a result, the Requisite Lenders have sole discretion to cause Merisantto be in default under the Senior Credit Agreement by not agreeing to anySecond Lien Financing.

The Fourth Amendment also stipulates certain provisions of anyinter-creditor agreement between the current lenders under the Senior CreditAgreement (the “First Lien Lenders”) and the new lenders in connection with theSecond Lien Financing. These required terms include the following:

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

·                                          the agreementof the Second Lien Lenders that any liens acquired by them after the closingdate of Second Lien Financing on any asset or property (whether or not inexistence at such closing date) of Merisant or any subsidiary of Merisant willbe immediately released if the First Lien Lenders have not received a seniorsecurity interest in such asset or property from Merisant or such subsidiary ofMerisant, and in the event the Second Lien Lenders receive any recovery on anylien on any asset on which the First Lien Lenders do not have a lien, suchamounts 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;

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·                                          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 toMerisant’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 adequate protectionshall be junior in priority to the liens and claims provided to the First LienLenders;

·                                          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 Merisant launched its efforts to raise SecondLien Financing.

***Forward LookingStatements***

Certain information included or incorporated in this report may bedeemed 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 statements are based on assumptions and assessments made bymanagement in light of their experience and their perception of historicaltrends, current conditions, expected future developments and other factors theybelieve to be appropriate. Any forward-looking statements are not guarantees offuture performance and are subject to risks and uncertainties that could causeactual results, developments and business decisions to differ materially fromthose contemplated by such forward-looking statements. The Company disclaimsany duty to update any forward-looking statements. Some of the factors that maycause actual results, developments and business decisions to differ materiallyfrom those contemplated by such forward-looking statements include thefollowing:  changes in consumerpreferences and nutritional and health-related concerns; increased competition;changes in the 

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terms on which the Company may obtain aspartame; damaged consumerconfidence in the Company’s products as a result of health-related allegations;product liability claims; fluctuations in exchange rates and other currencyrisks; disruptions in the Company’s business as a result of strikes or workstoppages; changes in the Company’s relationship with its largest distributor;and changes in economic and political conditions in the countries in which theCompany markets and produces its products.

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

***Foreign Operations***

With approximately 64% and 59% of Merisant’s consolidated total net salesgenerated by its subsidiaries outside of the United States in the three monthsended March 31, 2005 and March 31, 2006, respectively, Merisant’sability to obtain funds necessary to meet its obligations is subject toapplicable laws, foreign taxes and intercompany pricing laws, including thoserelating to the flow of funds between Merisant’s foreign affiliates pursuantto, for example, purchase agreements, licensing agreements or otherarrangements. Historically, the Company received a vast majority of funds fromits foreign affiliates through its Swiss subsidiary in the form of paymentspursuant 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 Merisant 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 comprisedapproximately 46% of Merisant’s consolidated total assets. Accordingly, theCompany has experienced and will continue to be exposed to foreign exchangerisk.

***Foreign Currency and Interest Rate Risks***

Inherent in Merisant’s operations are certain risks related to changesin foreign currency exchange rates and interest rates. The Company bearsforeign exchange risk because a majority of Merisant’s financing was obtainedin U.S. dollars although a significant portion of its revenues are earned inthe various currencies of its foreign subsidiaries’ operations. Under Merisant’sSenior Credit Agreement, a portion of its financing was obtained in euros. Thiseuro-denominated loan decreases Merisant’s transactional exposure to euroexchange fluctuations until the euro principal and interest are repaid. Anydecrease in sales and earnings from euro denominated countries that resultsfrom the euro weakening against the U.S. dollar is currently more than offsetby the decrease in the euro denominated debt obligations (i.e., foreigncurrency transaction gain) and interest expense that also results from such adecrease in exchange rate. Likewise, any increase in sales and earnings fromthe euro denominated countries that results from a strengthening euro againstthe U.S. dollar partially offsets the increase in the euro denominated debtobligations (i.e., foreign currency transaction loss) and interest expense thatresults from such an exchange rate increase.

A significant portion of Merisant’s debt bears interest at a fixed rate.Interest rate exposure results from Merisant’s floating rate borrowings. Forthe three month period ended March 31, 2006, a 1.0% per annum increase ordecrease in interest rates would have resulted in an increase or decrease incash interest expense for Merisant’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, the Company identifies risks relatingto foreign currency exchange rates and interest rates and mitigates theirfinancial impact through corporate policies and, at times, through the use ofderivative financial instruments. The Company uses derivatives only where thereis an underlying exposure and does not use them for trading or speculativepurposes. The counter parties to the hedging activities are highly ratedfinancial institutions. The Company did not have any foreign currency forwardexchange contracts or interest rate derivatives outstanding at March 31, 2006.

***InflationRisk***

Inflation is not expected to have a material impact on the Company’sbusiness, financial condition or results of operations. In markets outside theUnited States in countries with higher inflation, the Company generally hasbeen able to offset the impact of inflation through a combination ofcost-cutting measures and price increases.

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**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 Company has notformally documented 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.

## *Material WeaknessesIdentified*

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 

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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 fully remediatethese weaknesses. This process is ongoing, and during the period covered bythis report, the Company continued to make material changes in the followingareas.

*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 the third-partywarehouse 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 describedabove. However, while the Company has enhanced the design of the currentcontrols and implemented additional controls, there are still opportunities foradditional improvements in certain areas. Additionally, the Company has not yettested the on-going effectiveness of the new controls. In addition to thecontinuing efforts described above, the Company has made significant progressin documenting, 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 

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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,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 addressed by a jury and court in the continental United Statesfamiliar with McNeil’s claims, on November 26, 2004, the Company filed afederal and state false advertising complaint against McNeil in the UnitedStates District Court for the Eastern District of Pennsylvania. That suitcontinues 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 the Company’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 its use of the name and designspursuant to the agreement. Beginning in 2005, Merisant Europe sold tabletdispensers with the “Love Therapy by Elio Fiorucci” designs in Italy. Edwin &Co. Ltd. 

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has claimed that it owns all rights in Mr. Fiorucci’sname and in the designs used by the Company 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. The Company no longer produces the dispensers andhas stopped selling dispensers to its distributor in Italy and to customersthrough the Internet. Merisant Europe has filed an appeal and will vigorouslyoppose the court’s order. Merisant Europe will also enforce its indemnificationrights under its co-branding arrangement with 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 mostsignificant risk factors applicable to the Company are described in Part I,Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005. There have been no material changesfrom the risk factors previously disclosed in 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 Worldwide, Inc.’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 Worldwide, Inc.’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  Worldwide, Inc.’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  Worldwide, Inc.’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 Worldwide, Inc.’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  Worldwide, Inc.’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 WORLDWIDE,  INC. |
|--------------------------|--------|---------------------------|
|                     |   |                      |   |   |
|                     |   |                      |   |   |
| 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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