<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
Commission File Number 333-48821
IMPAC Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
23-2923682
(I.R.S. Employer
Identification No.)
1950 North Ruby Street, Melrose Park, Illinois 60160
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (708) 344-9100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] YES [_] NO
Number of shares of Series A Common Stock, $0.001 par value per share (the
"Series A Common Stock") and Series B Common Stock, $0.001 par value per share
(the "Series B Common Stock" and, together with the Series A Common Stock, the
"Common Stock") outstanding as of the close of business on August 6, 1999:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
---------------- ----------------------------
<S> <C>
Series A Common
Stock 161,920
Series B Common
Stock 4,500
</TABLE>
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Condensed Consolidated Statements of Income for
the Three Months Ended June 30, 1998 and 1999.............. 3
Unaudited Condensed Consolidated Statements of Income for
the Six Months Ended June 30, 1998 and 1999................ 4
Unaudited Condensed Consolidated Balance Sheets as of
December 31, 1998 and June 30, 1999........................ 5
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Six Months Ended June 30, 1999.............. 6
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1998 and 1999............ 7
Notes to Unaudited Condensed Consolidated Financial
Statements................................................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.. 23
PART II--OTHER INFORMATION.............................................. 24
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
IMPAC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Net sales.................................................... $35,734 $66,082
Cost of goods sold........................................... 28,316 46,926
------- -------
Gross profit................................................. 7,418 19,156
Selling, general and administrative expenses................. 6,551 14,221
------- -------
Operating income............................................. 867 4,935
Other income (expense):
Interest income............................................ 66 27
Interest expense........................................... (2,932) (5,714)
Loss on sale of fixed assets............................... (125) (112)
------- -------
Income (loss) before income taxes............................ (2,124) (864)
Income (taxes) benefit....................................... 755 247
------- -------
Net income (loss)............................................ $(1,369) $ (617)
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
Net sales................................................... $51,535 $130,273
Cost of goods sold.......................................... 40,734 93,461
------- --------
Gross profit................................................ 10,801 36,812
Selling, general and administrative expenses................ 9,082 28,551
------- --------
Operating income............................................ 1,719 8,261
Other income (expense):
Interest income........................................... 72 58
Interest expense.......................................... (4,154) (11,339)
Loss on sale of fixed assets.............................. (125) (140)
------- --------
Income (loss) before income taxes and extraordinary item.... (2,488) (3,160)
Income (taxes) benefit...................................... 882 749
------- --------
Income (loss) before extraordinary item..................... (1,606) (2,411)
Extraordinary charge for early retirement of debt,
net of tax benefit of $368................................. (552) --
------- --------
Net income (loss)........................................... $(2,158) $ (2,411)
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1998 1999
------ ------------ -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash................................................. $ 4,239 $ 3,137
Trade accounts receivable, net of allowances of
$1,517 in 1998 and $1,880 in 1999................... 44,361 44,336
Other receivables.................................... 4,278 3,974
Inventories.......................................... 23,982 25,284
Deferred income taxes................................ 3,160 3,727
Prepaids and other current assets.................... 1,650 3,152
-------- --------
Total current assets............................... 81,670 83,610
Long-term assets:
Property, plant and equipment, net................... 107,669 110,712
Goodwill, net........................................ 163,623 155,779
Deferred financing costs, net........................ 10,449 10,617
Restricted cash...................................... 426 430
Other assets......................................... 2,498 2,605
-------- --------
Total assets....................................... $366,335 $363,753
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current liabilities:
Bank overdraft....................................... $ 4,804 $ 5,621
Current maturities of long-term debt................. 5,487 6,502
Trade payables....................................... 20,289 20,915
Accrued expenses..................................... 23,800 25,791
-------- --------
Total current liabilities.......................... 54,380 58,829
-------- --------
Long-term debt........................................ 235,072 240,791
Deferred income taxes................................. 10,477 10,083
Other noncurrent liabilities.......................... 823 782
-------- --------
Total liabilities.................................. 300,752 310,485
-------- --------
Mandatorily redeemable preferred stock................ -- 15,929
-------- --------
Shareholders' equity:
Common stock, series A, $.001 par value; 1,000,000
shares authorized, 191,746 and 161,585 shares
issued and outstanding at December 31, 1998 and
June 30, 1999, respectively......................... 0 0
Common stock, series B, $.001 par value; 50,000
shares authorized, 4,500 shares issued and
outstanding at December 31, 1998 and June 30,
1999................................................ 0 0
Paid in capital...................................... 98,625 79,774
Warrants outstanding................................. -- 4,207
Carryover basis adjustment........................... (37,143) (37,143)
Accumulated other comprehensive income............... (681) (10,576)
Retained earnings.................................... 4,782 1,077
-------- --------
Total shareholders' equity......................... 65,583 37,339
-------- --------
Total liabilities & shareholders' equity........... $366,335 $363,753
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months ended June 30, 1999
(in thousands except number of shares)
<TABLE>
<CAPTION>
Common Stock
----------------
Accumulated
Carryover Other
Number of Paid-in Warrants Basis Comprehensive Retained
Shares Amount Capital Outstanding Adjustment Income Earnings Total
--------- ------ -------- ----------- ---------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998................... 196,246 $ -- $ 98,625 $ -- $ (37,143) $ (681) $ 4,782 $ 65,583
Issuance of stock
warrants............... -- -- -- 4,207 -- -- -- 4,207
Repurchase of common
stock.................. (34,661) -- (18,851) -- -- -- -- (18,851)
Accretion of mandatorily
redeemable preferred
stock.................. -- -- -- -- -- -- (1,294) (1,294)
Foreign currency
translation
adjustment............. -- -- -- -- -- (9,895) -- (9,895)
Net income (loss)....... -- -- -- -- -- -- (2,411) (2,411)
------- ------ -------- ------ --------- -------- ------- --------
Balance at June 30,
1999................... 161,585 $ -- $ 79,774 $4,207 $ (37,143) $(10,576) $ 1,077 $ 37,339
======= ====== ======== ====== ========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(2,158) $(2,411)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Extraordinary charge for early retirement of debt........ 552 --
Depreciation and amortization............................ 2,864 9,176
Amortization of goodwill................................. 300 2,035
Loss on sale of fixed assets............................. 125 140
Deferred income taxes.................................... (390) (961)
Changes in assets and liabilities--
Trade accounts receivable, net......................... (1,318) 25
Inventories............................................ (4,465) (1,302)
Trade payables and bank overdraft...................... 4,133 1,443
Other assets and liabilities........................... 2,454 311
------- -------
Net cash provided by operating activities............ 2,097 8,456
------- -------
Cash flows from investing activities:
Capital expenditures....................................... (4,452) (15,923)
Acquisition of AGI Incorporated, net of cash acquired...... (64,163) --
------- -------
Net cash used for investing activities............... (68,615) (15,923)
------- -------
Cash flows from financing activities:
Net change in borrowings under revolving credit line....... -- 11,115
Repayment of long-term debt................................ (29,850) (506)
Proceeds from senior subordinated notes.................... 100,000 --
Decrease in capital leases................................. -- (2,684)
Decrease (increase) in restricted cash..................... 209 (4)
Proceeds from issuance of common stock..................... 4,600 --
Repurchase of common stock................................. -- (18,851)
Proceeds from issuance of preferred stock and stock
warrants.................................................. -- 18,842
Change in deferred financing costs......................... (4,714) (982)
------- -------
Net cash provided by financing activities............ 70,245 6,930
------- -------
Effect of exchange rate differences on cash.................. -- (565)
------- -------
Increase (decrease) in cash.................................. 3,727 (1,102)
Cash, beginning of period.................................... 194 4,239
------- -------
Cash, end of period.......................................... $ 3,921 $ 3,137
======= =======
Supplemental Cash Flow Information:
Interest paid.............................................. $ 963 $10,638
Income taxes paid.......................................... (19) 667
</TABLE>
The accompanying notes are an integral part of these financial statements
7
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
Note 1--Basis of Presentation
The interim unaudited condensed consolidated financial statements presented
herein include the accounts of IMPAC Group, Inc. ("IMPAC") and all of its
domestic and foreign wholly-owned subsidiaries (together, the "Company"). All
intercompany transactions have been eliminated in consolidation.
These interim condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC"). In the opinion of management,
the accompanying unaudited condensed consolidated financial statements are
presented on a basis consistent with audited financial statements and contain
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position, results of operations and the changes in
cash flows at June 30, 1999 and for all periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the audited financial statements as of and for the year ended
December 31, 1998 in the Company's Form 10-K as filed with the SEC.
Note 2--Acquisitions
Acquisition of AGI Incorporated--
On March 12, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), acquired all of the common stock of AGI
Incorporated ("AGI") for $69.0 million including $54.6 million of cash and
$14.4 million of newly issued common stock, plus acquisition costs.
Concurrently, KFI funded the retirement of $8.3 million of indebtedness
outstanding under AGI's credit facility immediately prior to the transaction.
The acquisition was funded by the proceeds from the issuance of $100.0 million
of 10 1/8% Senior Subordinated Notes due 2008 ("Senior Subordinated Notes") and
$4.6 million of new common stock. Upon consummation of this acquisition, KFI
changed its name to "IMPAC Group, Inc."
Acquisition of Tinsley Robor plc--
On September 11, 1998, the Company acquired the common stock of Tinsley
Robor plc (subsequently renamed IMPAC Europe Limited and referred to
hereinafter as "Tinsley") for $137.7 million plus acquisition costs.
Concurrently, the Company funded the retirement of $18.5 million of
indebtedness outstanding under Tinsley's credit agreements immediately prior to
the transaction. The acquisition was funded through additional borrowings of
$93.7 million under the Company's Amended and Restated Multicurrency Credit
Facility dated as of July 7, 1998 (the "Credit Facility"), $58.6 million in
proceeds from the sale of common stock to the Company's existing stockholders
or their affiliates and the issuance, in aggregate, of $8.5 million of five
year promissory notes to former Tinsley shareholders.
Acquisition of Music Print B.V.--
On November 24, 1998, the Company purchased the outstanding capital stock of
Music Print B.V. ("Music Print"), a Netherlands limited liability company, for
approximately $5.3 million plus acquisition costs. Concurrently, the Company
retired approximately $0.2 million of outstanding indebtedness of Music Print
and purchased the facility in which Music Print operates for $1.3 million. The
acquisition was funded through additional revolver borrowings under the Credit
Facility.
8
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unaudited Pro Forma for Acquisitions--
The acquisitions of AGI, Tinsley and Music Print have been accounted for as
purchases and, accordingly, their operating results have been included in the
Company's consolidated financial statements from the dates of acquisition. The
following unaudited pro forma information for the three and six months ended
June 30, 1998 presents certain operating data calculated to reflect the
acquisitions of AGI and Tinsley and the additional borrowings incurred to fund
those acquisitions as if they occurred as of January 1, 1998.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1999 1998 1999
----------- ------------ ---------- ------------
(Pro forma) (As reported) (Pro forma) (As reported)
<S> <C> <C> <C> <C>
Net sales................ $61,798 $66,082 $119,615 $130,273
Net income (loss)........ (2,683) (617) (4,351) (2,411)
</TABLE>
This pro forma data does not purport to represent what actual operating
results would have been had the acquisitions been consummated on the dates
indicated or what such results will be for any future period.
Note 3--Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
------------ --------
<S> <C> <C>
Raw materials.......................................... $ 9,597 $ 8,931
Work in process and finished goods..................... 14,385 16,353
------- -------
$23,982 $25,284
======= =======
</TABLE>
Note 4--Equity
Preferred Stock Issuance and Common Stock Repurchase--
On January 12, 1999, IMPAC issued 20,000 shares of Series A Mandatorily
Redeemable Preferred Stock (the "Preferred Stock") with a face value of $20.0
million together with detachable, ten-year warrants (the "Warrants") to
purchase 6,913 shares of Series A Common Stock at an exercise price of $0.01
per share, for net proceeds of $18.8 million. IMPAC used the net proceeds from
the sale of Preferred Stock to acquire 30,088 shares of outstanding Series A
Common Stock. The Preferred Stock accrues dividends on a cumulative basis at
14% per annum for years 1-5, 15% per annum for year 6, and either 14% or 15%
per annum for years 7-10 depending on whether the dividends are paid in cash or
with additional Preferred Stock, respectively. During the first six years after
issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain significant changes in the ownership of IMPAC. IMPAC is
required to redeem all outstanding shares of Preferred Stock on December 31,
2008 at face value plus all accrued and unpaid dividends. IMPAC may redeem some
or all outstanding shares of Preferred Stock at an earlier date, provided,
however, that a premium of up to 10% be paid. The Preferred Stock is not
redeemable at the option of the holders of Preferred Stock. The Preferred Stock
contains covenants, among others, limiting additional indebtedness, restricted
payments, guaranties, advances to affiliates, mergers, asset sales and
dispositions. The Preferred Stock ranks senior to all classes of common stock
with respect to dividend distributions and distributions upon the liquidation
or dissolution of IMPAC.
9
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Upon issuance of the Preferred Stock, the Warrants were valued at $4.2
million and the shares of Preferred Stock were valued at $14.6 million. The
difference between the carrying value and the face value of the Preferred
Stock, along with dividends accrued, is being accreted using the effective
interest rate method over the period the Preferred Stock is outstanding, and is
recorded directly to retained earnings.
Stock Options--
In connection with the acquisition of Tinsley, the Company offered former
Tinsley optionholders the opportunity to either exercise their existing options
in Tinsley for cash or to convert their options into options of the Company.
Pursuant to this offer, on February 27, 1999, the Company granted options to
purchase approximately 3,457 shares of Series B Common Stock of the Company at
a weighted average exercise price of $303. Additionally, on March 31, 1999 and
April 29, 1999, the Company granted options to purchase approximately 8,900 and
8,299 shares, respectively, of Series A Common Stock of the Company at an
exercise price of $513, the estimated fair market value at that date, to
certain key employees. The options to purchase Series A Common Stock vest over
a four-year period.
Other Common Stock Repurchase--
On June 11, 1999, the Company purchased approximately 73 shares of Series A
Common Stock from a former employee for $37.
Note 5--Comprehensive Income
Prior to the acquisition of Tinsley, the Company had no amounts to report as
other comprehensive income pursuant to Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." The Company's
comprehensive income consisted of the following:
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30, June 30,
---------------- -----------------
1998 1999 1998 1999
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net income (loss)..................... $(1,369) $ (617) $(2,158) $ (2,411)
Foreign currency translation
adjustment........................... -- (3,778) -- (9,895)
------- ------- ------- --------
Comprehensive income (loss)........... $(1,369) $(4,395) $(2,158) $(12,306)
======= ======= ======= ========
</TABLE>
Note 6--Segment Information
The Company operates in one business segment, providing specialty packaging
for various consumer products markets. During the third quarter of 1998, the
Company expanded its specialty packaging operations geographically to include
the United Kingdom and Europe. The following table presents sales and other
financial information for each geographic region as of and for the six months
ended June 30, 1999:
<TABLE>
<CAPTION>
Operating Identifiable
Geographic Regions Sales Income Assets
------------------ -------- --------- ------------
<S> <C> <C> <C>
United States............................... $ 73,994 $6,389 $149,453
U.K. and Europe............................. 56,295 3,471 203,655
-------- ------ --------
Total geographic segments................... 130,289 9,860 353,108
Elimination of sales........................ (16) -- --
Unallocated corporate expense............... -- (1,599) --
Corporate assets............................ -- -- 10,645
-------- ------ --------
Consolidated totals......................... $130,273 $8,261 $363,753
======== ====== ========
</TABLE>
10
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 7--Guarantors and Financial Information
The following unaudited condensed consolidating financial information is
presented for purposes of complying with the reporting requirements of the
subsidiaries of IMPAC that have guaranteed IMPAC's obligations with respect to
the Senior Subordinated Notes (the "Subsidiary Guarantors"). The Subsidiary
Guarantors are directly or indirectly wholly-owned subsidiaries of IMPAC and
have fully and unconditionally guaranteed the Senior Subordinated Notes on a
joint and several basis. During the first quarter of 1999, certain foreign
subsidiaries of the Company that were formed or acquired in connection with the
acquisition of Tinsley provided full and unconditional guarantees on the Senior
Subordinated Notes and are included in the unaudited condensed consolidating
financial information below as Subsidiary Guarantors. The Company, at its
discretion, controls the receipt of dividends or other payments from its
domestic and foreign subsidiaries subject in the case of certain foreign
subsidiaries to limitations that may be imposed under the laws of the
applicable jurisdictions of organization. These limitations are not considered
to be material to the Company as a whole. Separate financial statements and
other disclosures with respect to the Subsidiary Guarantors are not presented
because the Company believes that such financial statements and other
information would not provide additional information that is material to
investors. The unaudited condensed consolidating financial information presents
unaudited condensed consolidating financial statements as of June 30, 1999 and
for the six months ended June 30, 1999 of:
(a) IMPAC on a parent company only basis ("IMPAC Parent"), carrying its
investments in subsidiaries under the equity method;
(b) the Subsidiary Guarantors, which include IMPAC's domestic
subsidiaries AGI Incorporated, Klearfold, Inc., KF-International, Inc., and
KF-Delaware, Inc. and IMPAC's foreign subsidiaries IMPAC Europe Holdings
Limited, Levelprompt Limited, IMPAC Europe Limited, James Upton Limited,
Tinsley Robor Labels Limited, Tinsley Robor Sales Limited, Sonicon Limited,
Tophurst Properties Limited and Printing Resources Limited, carrying its
investments in subsidiaries under the equity method;
(c) the subsidiaries of IMPAC that have not guaranteed IMPAC's
obligations with respect to the Senior Subordinated Notes, which include
IMPAC's foreign subsidiaries Van de Steeg Packaging B.V., James Upton
Holding B.V., James Upton B.V., James Upton GmbH and Music Print B.V.
(together, the "Non-Guarantor Subsidiaries");
(d) elimination entries necessary to consolidate IMPAC Parent and its
subsidiaries, and
(e) IMPAC on a consolidated basis ("IMPAC Consolidated").
11
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $105,183 $25,781 $(691) $130,273
Cost of goods sold...... -- 74,918 19,234 (691) 93,461
------- -------- ------- ----- --------
Gross profit............ -- 30,265 6,547 -- 36,812
Selling, general and
administrative
expenses............... 1,599 22,803 4,149 -- 28,551
------- -------- ------- ----- --------
Operating income
(loss)................. (1,599) 7,462 2,398 -- 8,261
Equity earnings (losses)
in subsidiaries........ (625) 1,404 -- (779) --
Interest expense, net... (1,367) (9,476) (578) -- (11,421)
------- -------- ------- ----- --------
Income (loss) before
income taxes........... (3,591) (610) 1,820 (779) (3,160)
Income (taxes) benefit.. 1,180 (15) (416) -- 749
------- -------- ------- ----- --------
Net income (loss)....... $(2,411) $ (625) $ 1,404 $(779) $ (2,411)
======= ======== ======= ===== ========
</TABLE>
12
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash.................. $ 317 $ 367 $ 2,453 $ -- $ 3,137
Trade accounts
receivable, net...... -- 38,829 5,507 -- 44,336
Intercompany
receivables.......... 19,181 40,146 5,096 (64,423) --
Inventories........... -- 23,606 1,678 -- 25,284
Other current assets.. 136 9,443 1,274 -- 10,853
-------- -------- ------- --------- --------
Total current
assets............. 19,634 112,391 16,008 (64,423) 83,610
-------- -------- ------- --------- --------
Property, plant and
equipment, net....... -- 85,602 25,110 -- 110,712
Goodwill, net......... -- 135,712 20,067 -- 155,779
Intercompany
receivables.......... 164,409 16,568 -- (180,977) --
Investment in
subsidiaries......... 75,946 41,543 -- (117,489) --
Other assets.......... 10,192 2,597 863 -- 13,652
-------- -------- ------- --------- --------
Total assets........ $270,181 $394,413 $62,048 $(362,889) $363,753
======== ======== ======= ========= ========
Current liabilities:
Current maturities of
long-term debt....... $ 2,418 $ 3,030 $ 1,054 $ -- $ 6,502
Trade payables........ -- 21,381 5,155 -- 26,536
Intercompany
payables............. -- 32,762 31,661 (64,423) --
Accrued expenses...... 2,421 20,431 2,939 -- 25,791
-------- -------- ------- --------- --------
Total current
liabilities........ 4,839 77,604 40,809 (64,423) 58,829
-------- -------- ------- --------- --------
Long-term debt.......... 212,074 26,099 2,618 -- 240,791
Other noncurrent
liabilities............ -- 10,815 50 -- 10,865
Intercompany debt....... -- 166,933 14,044 (180,977) --
-------- -------- ------- --------- --------
Total liabilities..... 216,913 281,451 57,521 (245,400) 310,485
-------- -------- ------- --------- --------
Mandatorily redeemable
preferred stock........ 15,929 -- -- -- 15,929
-------- -------- ------- --------- --------
Total shareholders'
equity................. 37,339 112,962 4,527 (117,489) 37,339
-------- -------- ------- --------- --------
Total liabilities and
shareholders' equity... $270,181 $394,413 $62,048 $(362,889) $363,753
======== ======== ======= ========= ========
</TABLE>
13
<PAGE>
IMPAC GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
UNAUDITED CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Non-
IMPAC Subsidiary Guarantor IMPAC
Parent Guarantors Subsidiaries Eliminations Consolidated
-------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net cash provided by
(used for) operating
activities........... $ (1,100) $ 2,888 $ 6,668 $ -- $ 8,456
-------- ------- ------- ----- --------
Cash flows from
investing activities:
Capital expenditures.. -- (8,464) (7,459) -- (15,923)
-------- ------- ------- ----- --------
Cash flows from
financing activities:
Net change in
borrowings under
revolving credit
line................. 11,115 -- -- -- 11,115
Repurchase of common
stock................ (18,851) -- -- -- (18,851)
Proceeds from issuance
of preferred stock
and stock warrants... 18,842 -- -- -- 18,842
Loans and advances
(to) from related
parties.............. (4,356) 6,183 (1,827) -- --
Other financing
activities........... (1,016) (2,313) (847) -- (4,176)
-------- ------- ------- ----- --------
Net cash provided by
financing
activities........... 5,734 3,870 (2,674) -- 6,930
-------- ------- ------- ----- --------
Effect of exchange rate
differences on cash.... (4,636) 687 3,384 (565)
-------- ------- ------- ----- --------
Increase (decrease) in
cash................... (2) (1,019) (81) -- (1,102)
Cash, beginning of
period................. 319 1,387 2,533 -- 4,239
-------- ------- ------- ----- --------
Cash, end of period..... $ 317 $ 368 $ 2,452 $ -- $ 3,137
======== ======= ======= ===== ========
</TABLE>
Note 8--Subsequent Events
On July 30, 1999, IMPAC issued approximately 1,887 shares of Series A Common
Stock to certain key employees and directors of the Company for net proceeds of
$945. IMPAC used the net proceeds to acquire approximately 1,552 shares of
outstanding Series A Common Stock.
14
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
On March 12, 1998, KFI Holding Corporation ("KFI"), the parent company of
Klearfold, Inc. ("Klearfold"), completed both its acquisition of AGI
Incorporated ("AGI") and also the issuance of the Company's 10 1/8% Senior
Subordinated Notes due 2008 ("Senior Subordinated Notes"). Upon consummation of
these transactions KFI changed its corporate name to IMPAC Group, Inc.
("IMPAC"). On September 11, 1998, IMPAC acquired substantially all of the
outstanding capital stock of Tinsley Robor plc ("Tinsley"). IMPAC funded the
acquisition of Tinsley through borrowings under the Amended and Restated
Multicurrency Credit Facility dated as of July 7, 1998 (the "Credit Facility"),
proceeds from the sale of common stock to IMPAC's existing stockholders or
their affiliates and the issuance of five year promissory notes to former
Tinsley shareholders. References below to the "Company" mean IMPAC Group, Inc.
and its consolidated subsidiaries.
As a result of these transactions, the Company's historical consolidated
financial statements for the three and six months ended June 30, 1999 and 1998
are not comparable due to the inclusion in the consolidated financial
statements of AGI's and Tinsley's assets, liabilities and operating results
from the dates of acquisition. Management believes that the pro forma results
of operations for the three and six months ended June 30, 1998, which assume
that the acquisitions of AGI and Tinsley and the borrowings incurred to fund
those acquisitions occurred as of January 1, 1998, present a more meaningful
basis from which to compare the Company's historical operating results for the
three and six months ended June 30, 1999. As such, the discussion and analysis
of the historical results of operations and financial position for the three
and six months ended June 30, 1999 and 1998 are supplemented with the
discussion and analysis of the results of operations and financial position for
the historical three and six months ended June 30, 1999 compared to the pro
forma three and six months ended June 30, 1998.
IMPAC is a holding company with no material assets or operations other than
its investments in its direct and indirect wholly-owned subsidiaries. All of
the Company's domestic subsidiaries and certain foreign subsidiaries of the
Company have guaranteed the Senior Subordinated Notes on a full, unconditional,
joint and several basis, subject to the subordination provisions in the related
Indenture (the "Subsidiary Guarantors"). Separate financial statements and
other disclosures of the Subsidiary Guarantors have not been presented in this
Form 10-Q because the Company believes that such financial statements and other
information would not provide additional information that is material to
investors. However, the condensed consolidating financial information of IMPAC,
the Subsidiary Guarantors and the subsidiaries of IMPAC that have not provided
guarantees on the Senior Subordinated Notes have been presented in Note 7 of
the Unaudited Condensed Consolidated Financial Statements for purposes of
complying with the reporting requirements.
Overview
The Company is an international designer, manufacturer and marketer of high-
end, value-added specialty packaging for various consumer products markets
including entertainment, cosmetics and personal care. The Company offers
innovative specialty packaging solutions for customers that seek to
differentiate their products in the consumer marketplace. In addition, the
Company utilizes a broad range of paper, paperboard and transparent rigid
plastic materials for its products.
Pro Forma Results of Operations
Historical Three Months Ended June 30, 1999 Compared to Pro Forma Three Months
Ended June 30, 1998
The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the pro forma three months ended
June 30, 1998 (the "1998 period") and the historical three months
15
<PAGE>
ended June 30, 1999 (the "1999 period"). The unaudited income statement data
for the three months ended June 30, 1998 are presented on a pro forma basis as
if the acquisition of Tinsley and the borrowings incurred to fund that
acquisition occurred as of January 1, 1998.
<TABLE>
<CAPTION>
Three Months Ended June
30,
------------------------
1998 1999
----------- ------------
(Pro forma) (Historical)
<S> <C> <C>
Income Statement Data:
Net sales........................................... 100.0% 100.0%
Cost of goods sold.................................. 76.3% 71.0%
----- -----
Gross profit........................................ 23.7% 29.0%
Selling, general and administrative expenses........ 20.8% 21.5%
----- -----
Operating income.................................... 2.9% 7.5%
Interest expense, net............................... 8.7% 8.8%
----- -----
Income (loss) before income taxes................... (5.8%) (1.3%)
Income taxes (benefit).............................. (1.5%) (0.4%)
----- -----
Net income (loss)................................... (4.3%) (0.9%)
===== =====
</TABLE>
Net Sales for the 1999 period were $66.1 million compared to $61.8 million
for the 1998 period, an increase of 6.9%. This increase was due to a $3.7
million increase in entertainment packaging and a $3.9 million increase in
cosmetics packaging, partially offset by a $3.2 million decrease in other
consumer products packaging. The entertainment packaging increase was due
primarily to an increase in music packaging sales resulting from improved
market penetration relating to the start-up of the Company's Grover, North
Carolina facility in April 1998 and the acquisition of Music Print in November
1998, as well as strong growth in the sales of multimedia packaging to the
Company's U.K. and European customers. The increase in cosmetics packaging
relates primarily to increased volume to the Company's existing customers
resulting from improved sales and marketing efforts and favorable market
conditions. The decrease in other consumer products packaging resulted
primarily from lower volume in personal care packaging and sales to the
commercial print market, partially offset by an increase in food and beverage
packaging sales.
Gross Profit for the 1999 period was $19.2 million compared to $14.6 million
for the 1998 period, an increase of 31.0%. The increase in gross profit was due
to the sales increase noted above and an increase in gross margin. The increase
in gross margin from 23.7% to 29.0% relates predominantly to the realization of
improved efficiencies as a result of the Company's Grover, North Carolina
facility being fully operational in 1999 as compared to its start-up phase in
1998.
Selling, General and Administrative Expenses for the 1999 period were $14.2
million compared to $12.8 million for the 1998 period, an increase of 10.7%.
SG&A as a percentage of sales increased from 20.8% to 21.5%. The increase in
SG&A was due primarily to increased costs associated with the Company's
integration to a new enterprise resource planning ("ERP") system and increases
in anticipated payouts under various compensation programs tied to sales and
profitability.
Operating Income was $4.9 million for the 1999 period and $1.8 million for
the 1998 period due to the factors discussed above.
Net Interest Expense for the 1999 period was $5.8 million compared to $5.4
million for the 1998 period, an increase of 7.1%. The increase is due primarily
to an increase in revolver borrowings under the Credit Facility.
Income Taxes for the 1999 period were a benefit of $0.2 million compared to
$0.9 million for the 1998 period. The Company's effective rate of tax benefit
for the periods was less than the U.S. federal statutory rate primarily due to
the effect of non-deductible goodwill amortization of approximately $1.0
million.
Net Loss for the 1999 period was $0.6 million compared to $2.7 million for
the 1998 period due to the factors discussed above.
16
<PAGE>
Historical Six Months Ended June 30, 1999 Compared to Pro forma Six Months
Ended June 30, 1998
The following table sets forth certain unaudited income statement data
(expressed as a percentage of net sales) for the pro forma six months ended
June 30, 1998 (the "1998 period") and the historical six months ended June 30,
1999 (the "1999 period"). The unaudited income statement data for the six
months ended June 30, 1998 are presented on a pro forma basis as if the
acquisitions of AGI and Tinsley and the borrowings incurred to fund those
acquisitions occurred as of January 1, 1998.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1998 1999
---------- -----------
(Pro forma) (Historical)
<S> <C> <C>
Income Statement Data:
Net sales.............................................. 100.0% 100.0%
Cost of goods sold..................................... 74.3% 71.7%
----- -----
Gross profit........................................... 25.7% 28.3%
Selling, general and administrative expenses........... 21.4% 21.9%
----- -----
Operating income....................................... 4.3% 6.4%
Interest expense, net.................................. 9.0% 8.8%
----- -----
Income (loss) before income taxes...................... (4.7%) (2.4%)
Income taxes (benefit)................................. (1.1%) (0.5%)
----- -----
Income (loss) before extraordinary item................ (3.6%) (1.9%)
===== =====
</TABLE>
Net Sales for the 1999 period were $130.3 million compared to $119.6 million
for the 1998 period, an increase of 8.9%. This increase was due to a $8.1
million increase in entertainment packaging and a $5.0 million increase in
cosmetics packaging, partially offset by a $5.1 million decrease in other
consumer products packaging. The entertainment packaging increase was due
primarily to an increase in music packaging sales resulting from improved
market penetration relating to the start-up of the Company's Grover, North
Carolina facility in April 1998 and the acquisition of Music Print in November
1998, as well as strong growth in the sales of multimedia packaging to the
Company's U.K. and European customers. The increase in cosmetics packaging
relates primarily to increased volume to the Company's existing customers
resulting from improved sales and marketing efforts and favorable market
conditions. The decrease in other consumer products packaging resulted
primarily from lower volume in personal care packaging and sales to the
commercial print market, partially offset by an increase in sales of a
hologravure label application for a customer in the personal computer market.
Gross Profit for the 1999 period was $36.8 million compared to $30.7 million
for the 1998 period, an increase of 19.8%. The increase in gross profit was due
to the sales increase noted above and an increase in gross margin. The increase
in gross margin from 25.7% to 28.3% relates predominantly to the realization of
improved efficiencies as a result of the Company's Grover, North Carolina
facility being fully operational in 1999 as compared to its start-up phase in
1998.
Selling, General and Administrative Expenses for the 1999 period were $28.6
million compared to $25.6 million for the 1998 period, an increase of 11.3%.
SG&A as a percentage of sales increased from 21.4% to 21.9%. The increase in
SG&A was due primarily to increased costs associated with the Company's
integration to a new enterprise resource planning ("ERP") system, increases in
anticipated payouts under various compensation programs tied to sales and
profitability and costs associated with the restructuring of certain of the
Company's European operations.
Operating Income was $8.3 million for the 1999 period and $5.1 million for
the 1998 period due to the factors discussed above.
17
<PAGE>
Net Interest Expense for the 1999 period was $11.4 million compared to
$10.8 million for the 1998 period, an increase of 6.2%. The increase is due
primarily to an increase in revolver borrowings under the Credit Facility.
Income Taxes for the 1999 period were a benefit of $0.7 million compared to
$1.3 million for the 1998 period. The Company's effective rate of tax benefit
for the periods was less than the U.S. federal statutory rate primarily due to
the effect of non-deductible goodwill amortization of approximately $2.0
million in each period.
Net Loss for the 1999 period was $2.4 million compared to $4.4 million for
the 1998 period due to the factors discussed above. The pro forma net loss for
the 1998 period does not include an extraordinary charge of $0.6 million, net
of tax, related to the early extinguishment of debt.
Historical Results of Operations
Historical Three Months Ended June 30, 1999 Compared to Historical Three
Months Ended June 30, 1998
The results of operations for the three months ended June 30, 1998 (the
"1998 period") do not include any results of Tinsley. The results of
operations for the three months ended June 30, 1999 (the "1999 period")
include the results of Tinsley for the entire period. The Company's growth in
net sales, gross profit and operating income during the 1999 period as
compared to the 1998 period relates primarily to the effect of the Tinsley
acquisition. Net interest expense increased from $3.0 million in the 1998
period to $5.8 million in the 1999 period primarily due to the additional
borrowings incurred to fund the acquisition of Tinsley. Income taxes for the
1999 period were a benefit of $0.2 million compared to $0.8 million for the
1998 period. The Company's effective tax rates decreased from a benefit of
35.5% in the 1998 period to 28.6% in the 1999 period primarily due to the
effect of an increase in non-deductible goodwill amortization of approximately
$0.8 million. The net loss for the 1999 period was $0.6 million compared to
$1.4 million during the 1998 period due to the factors discussed above.
Historical Six Months Ended June 30, 1999 Compared to Historical Six Months
Ended June 30, 1998
The results of operations for the six months ended June 30, 1998 (the "1998
period") include the results of AGI from March 13, 1998 and do not include any
results of Tinsley. The results of operations for the six months ended June
30, 1999 (the "1999 period") include the results of AGI and Tinsley for the
entire period. The Company's growth in net sales, gross profit and operating
income during the 1999 period as compared to the 1998 period relates primarily
to the effect of these acquisitions. Net interest expense increased from
$4.2 million in the 1998 period to $11.4 million in the 1999 period primarily
due to the additional borrowings incurred to fund the acquisitions of AGI and
Tinsley. Income taxes for the 1999 period were a benefit of $0.6 million
compared to $0.9 million for the 1998 period. The Company's effective tax
rates decreased from a benefit of 35.5% in the 1998 period to 23.7% in the
1999 period primarily due to the effect of an increase in non-deductible
goodwill amortization of approximately $1.7 million. The net loss for the 1999
period was $2.4 million compared to $2.2 million during the 1998 period due to
the factors discussed above. The net loss for the 1998 period includes an
extraordinary charge of $0.6 million, net of tax, related to the early
extinguishment of debt.
Liquidity and Capital Resources
Net cash provided by operating activities for the six months ended June 30,
1999 (the "1999 period") was $8.5 million compared to $2.1 million for the six
months ended June 30, 1998 (the "1998 period"). Income from operations before
non-cash charges increased to $8.0 million from $1.3 million primarily due to
the acquisitions of AGI and Tinsley. In the 1999 period, income from
operations before non-cash charges of $8.0 million, the issuance of 20,000
shares of Series A Mandatorily Redeemable Preferred Stock (the "Preferred
Stock") and detachable, ten-year warrants (the "Warrants") to purchase 6,913
shares of Series A Common Stock, $11.1 million of revolver borrowings under
the Credit Facility and a $0.5 million decrease in
18
<PAGE>
working capital requirements were used to fund the repurchase of Series A
Common Stock, the repayment of $0.5 million of bank borrowings, $1.0 million of
debt issuance costs, a $2.7 million decrease in capital leases and $15.9
million of capital expenditures. In the 1998 period, income from operations
before non-cash charges of $1.3 million, the issuance of the Senior
Subordinated Notes and Series A Common Stock, $0.2 million of proceeds from the
Company's industrial revenue bonds and a $0.8 million decrease in working
capital requirements were used to fund the acquisition of AGI, the repayment of
$29.9 million of bank borrowings, $4.7 million of debt issuance costs and $4.5
million of capital expenditures.
The Company's primary cash requirements historically have related to capital
expenditures, working capital and debt service. The Company has historically
funded these requirements through internally generated cash flow, borrowings
under bank credit arrangements and the issuance of industrial revenue bonds.
The Company currently expects to spend $30.0 million on capital expenditures in
1999. The Company expects to fund its capital expenditures and other working
capital requirements in 1999 through internally generated cash flow and
borrowings under the Credit Facility.
On January 12, 1999, IMPAC issued 20,000 shares of Preferred Stock with a
face value of $20.0 million together with the Warrants to purchase 6,913 shares
of Series A Common Stock at an exercise price of $0.01 per share, for net
proceeds of $18.8 million. IMPAC used the net proceeds from the sale of
Preferred Stock to acquire 30,088 shares of outstanding Series A Common Stock.
The Preferred Stock accrues dividends on a cumulative basis at 14% per annum
for years 1-5, 15% per annum for year 6, and either 14% or 15% per annum for
years 7-10 depending on whether the dividends are paid in cash or with
additional Preferred Stock, respectively. During the first six years after
issuance, dividends on the Preferred Stock are payable solely by issuing
additional shares of Preferred Stock. The Preferred Stock accrues dividends at
24% per annum if certain events occur, including an event of non-compliance as
defined and certain significant changes in the ownership of IMPAC. IMPAC is
required to redeem all outstanding shares of Preferred Stock on December 31,
2008 at face value plus all accrued and unpaid dividends. IMPAC may redeem some
or all outstanding shares of Preferred Stock at an earlier date, provided,
however, that a premium of up to 10% be paid. The Preferred Stock is not
redeemable at the option of the holders of Preferred Stock. The Preferred Stock
contains covenants, among others, limiting additional indebtedness, restricted
payments, guaranties, advances to affiliates, mergers, asset sales and
dispositions. The Preferred Stock ranks senior to all classes of Common Stock
with respect to dividend distributions and distributions upon the liquidation
or dissolution of IMPAC.
IMPAC is a holding company with no operations of its own. The Company's
ability to make required interest payments on the Senior Subordinated Notes
depends upon its ability to receive funds from its domestic and foreign
subsidiaries. The Company, at its discretion, controls the receipt of dividends
or other payments from its domestic and foreign subsidiaries, subject in the
case of certain foreign subsidiaries to limitations that may be imposed under
the laws of the applicable jurisdictions of organization. These limitations are
not considered to be material to the Company as a whole. There are no
contractual restrictions, under the Credit Facility or otherwise, upon the
ability of the Subsidiary Guarantors to make distributions or pay dividends,
directly or indirectly, to IMPAC.
Since its acquisition of Tinsley, the Company is exposed to currency
exchange rate risk with respect to its net assets, transactions and the related
net income denominated in U.K. Pounds Sterling, Dutch Guilders, Irish Punts,
Austrian Shillings and the Euro. Business activities in various currencies
expose the Company to the risk that the eventual net dollar cash inflows
resulting from transactions with foreign customers and suppliers denominated in
foreign currencies may be adversely affected by changes in currency exchange
rates.
Adoption of New Accounting Standard
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This statement
is effective for fiscal years beginning after June 15, 2000. Due to the recent
release and complexity of this new standard, an assessment of the impact it
will have on the financial position or results of operations has not been
completed.
19
<PAGE>
Year 2000 Issues
The information provided below constitutes "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Disclosure Act and is
subject to the terms thereof. The following description of the Company's
remediation process is meant for information purposes and not as a form of
covenant, warranty, representation or guarantee of any kind. In addition, many
of the Company's year 2000-related efforts are dependent upon third parties
that are effectively beyond the Company's control.
General
As many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, they may be unable to
accurately process certain data during or after the year 2000. This is commonly
known as the year 2000 ("Y2K") issue. The Y2K issue can arise at any point in
an entity's supply, manufacturing, processing, distribution and financial
chains.
IMPAC and its wholly owned domestic subsidiaries, AGI and Klearfold, are
undertaking an initiative entitled IMPAC 2000 (the "Domestic Project"). While
addressing the Y2K issue specifically, the Domestic Project is intended to
change the entire business systems infrastructure and make it Y2K compliant.
The Company believes that Tinsley has substantially addressed the Y2K issue,
with Tinsley's information technology ("IT") systems, subject to the
installation of a Y2K compliant patch, being in compliance with Y2K. With
regard to non-IT issues, Tinsley has contacted vendors who have provided
assurances that the relevant systems are in compliance.
Projects
The Domestic Project is divided into 4 major areas: (i) Infrastructure
Systems, (ii) Applications Software, (iii) Manufacturing Equipment, and (iv)
External Stakeholders. At the present time, the Infrastructure Systems portion
of the project is believed to be complete in so far as it pertains to Y2K. This
includes personal computers, local and wide area networks and telephony. In
addition, desktop environments have been standardized and all such applications
are now believed to be Y2K compliant. At present, AGI and Klearfold operate
different Applications Software, both of which the Company believes are Y2K
compliant. These systems will be harmonized with the implementation of the
ORACLE ERP system. The Company has retained an outside consultant to assist in
the integration of the business and systems processes into an ORACLE ERP
solution. With respect to AGI, this implementation is approximately 85 percent
complete with full implementation expected by the end of 1999. The
implementation of ORACLE at Klearfold will take place after the year 2000. With
respect to the Manufacturing Equipment portion of the project, a comprehensive
review of Manufacturing Equipment has been completed and the Company believes
that substantially all significant equipment is Y2K compliant. With respect to
its External Stakeholders, the Company is in the process of contacting its
material suppliers and Electronic Data Interfaces with third party customers
and vendors are in the process of review.
Tinsley implemented the SAGE accounting application for its UK subsidiaries
in the second half of 1998. The European subsidiaries, except for the Austrian
subsidiary, operate stand-alone accounting systems, which the Company believes
are Y2K compliant. A new Y2K compliant accounting system is currently being
installed in the Austrian subsidiary, the completion of which is expected by
the end of 1999. In addition, the Company expects that the IMPRINT management
information system, which is used by Tinsley, will become Y2K compliant during
the balance of 1999 when a patch is installed.
Costs
The total cost associated with required modifications to business systems is
not expected to be material to the financial position of the Company. The
estimated cost of the Domestic Project, excluding the costs of the ORACLE
implementation at Klearfold, is $10.0 million, of which $3.3 million was spent
through December 31,
20
<PAGE>
1998 and $3.7 million was spent in the first half of 1999. The residual amount
of $3.0 million is to be spent during the remainder of 1999. The Company will
fund the Domestic Project, along with its other capital expenditures, with
internally generated cash flows along with borrowings under the Credit
Facility, as necessary.
Risks
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the results of
operations, liquidity and financial condition of the Company. Due to the
general uncertainty inherent with regards to Y2K issues, resulting in part from
the uncertainty of the Y2K readiness of third-party suppliers and customers,
the Company is unable to predict what consequences any Y2K failures would have
on its results of operations, liquidity or financial condition or on the most
reasonably likely worst case scenario. The domestic and foreign projects will
continue to significantly reduce the level of uncertainty about the Y2K problem
and, in particular, about the Y2K compliance and readiness of its material
suppliers. The Company believes that, with the implementation of the new
business systems and completion of the projects listed above as scheduled, the
possibility of significant interruptions of normal operations should be
reduced.
Euro
The European Community introduced a common European monetary unit, called
the Euro, effective January 1, 1999. The UK, where Tinsley is headquartered,
has opted not to adopt the Euro. However, certain subsidiary operations are in
countries such as The Netherlands, the Republic of Ireland and Austria, which
participated in its introduction. The new SAGE system implemented at Tinsley is
capable of handling multicurrency transactions, with the Euro being a currency
in its portfolio. The Company does not believe that the introduction of the
Euro will have a material adverse effect on the results of its operations. See
Liquidity and Capital Resources for further discussion of currency and exchange
rate issues.
Cautionary Note
This Form 10-Q may contain "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended, including, but not limited to statements regarding:
the redemption by the Company of the Preferred Stock; the funding of and the
projected amount of capital expenditures in 1999; the development by the
Company of a currency hedging program; the impact of the new FASB statement;
the Company's projects with respect to Y2K issues and the possibility of
interruptions caused therefrom; expectations regarding the Company's Y2K
compliance; the effect of the introduction of the Euro; the Company's ability
to incur substantial additional indebtedness; and, certain other statements
identified or qualified by words such as "likely", "will", "suggests", "may",
"would", "could", "should", "expects", "anticipates", "estimates", "plans",
"projects", "believes", or similar expressions (and variants of such words or
expressions). Investors are cautioned that forward-looking statements are
inherently uncertain. Actual performance and results of operations may differ
materially from those projected or suggested in the forward-looking statements
due to certain risks and uncertainties, including, without limitation, those
described below:
. In connection with the consummation of the acquisitions of AGI and
Tinsley, the Company incurred a significant amount of indebtedness and,
as a result, the Company is highly leveraged. Subject to certain
covenants, the Company is permitted to incur substantial additional
indebtedness in the future.
. The Company's ability to make scheduled payments of principal of, or to
pay the interest or liquidated damages, if any, on, or to refinance, its
indebtedness (including the Senior Subordinated Notes), or to fund
planned capital expenditures and any acquisitions will depend on its
future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control.
21
<PAGE>
. The Senior Subordinated Notes and the related subsidiary guarantees (the
"Subsidiary Guarantees") are subordinated in right of payment to all
current and future senior debt of the Company and the Subsidiary
Guarantors. The Senior Subordinated Notes indenture (the "Indenture")
permits the incurrence of substantial additional indebtedness, including
senior debt, by the Company and its subsidiaries in the future.
. IMPAC has no operations of its own and derives substantially all of its
revenue from its subsidiaries. Holders of indebtedness and trade
creditors of subsidiaries of IMPAC would generally be entitled to
payment of their claims from the assets of the affected subsidiaries
before such assets were made available for distribution to IMPAC.
. Several of IMPAC's foreign subsidiaries are not required to deliver a
guarantee with respect to the Senior Subordinated Notes. Additionally,
IMPAC is allowed under the Indenture to acquire or create additional
foreign subsidiaries that may not be required to deliver a guarantee
with respect to the Senior Subordinated Notes.
. Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, the Senior Subordinated
Notes or the Subsidiary Guarantees, could be voided, or claims in
respect of the Senior Subordinated Notes or the Subsidiary Guarantees
could be subordinated to all other debts of IMPAC or any Subsidiary
Guarantor. In addition, the payment of interest and principal by IMPAC
or any Subsidiary Guarantor pursuant to the Senior Subordinated Notes
could be voided and required to be returned to the person making such
payment, or to a fund for the benefit of the creditors of IMPAC or any
Subsidiary Guarantor.
. Upon a change of control, as defined in the Indenture, the Company will
be required to offer to repurchase all outstanding Senior Subordinated
Notes at 101% of the principal amount thereof plus accrued and unpaid
interest and liquidated damages, if any, to the date of repurchase.
However, there can be no assurance that sufficient funds will be
available at the time of any change of control to make any required
repurchases of Senior Subordinated Notes tendered or that restrictions
in the Credit Facility will allow the Company to make such required
repurchases. Furthermore, upon certain ownership changes, the dividend
rate on the Preferred Stock will increase to 24%.
. Prior to March 1998, the Company had no prior history as a combined
entity and its operations had not previously been managed on a combined
basis. Prior to the combination of AGI and Klearfold in March, 1998 and
the acquisition of Tinsley in September, 1998, AGI, Klearfold and
Tinsley were operated as separate entities. The 1998 historical and pro
forma financial information presented in this Form 10-Q may not
necessarily be indicative of the results that would have been attained
had the Company operated on a combined basis.
. A substantial portion of the Company's business is now conducted in
international markets. Risks inherent in foreign operations, such as
fluctuations in foreign currency exchange rates and changes in social,
political and economic conditions, could materially adversely affect the
Company's business.
. The Company's packaging products are almost entirely targeted to
consumer products companies. Sales of consumer products are subject to
changing tastes and technologies that cannot be predicted. In addition
to technical and new product changes that could affect demand for the
Company's products in traditional distribution channels, demand for the
Company's products could also be materially affected by change in retail
distribution channels, such as the anticipated growth in electronic
commerce distribution channels in which products are sold directly to
customers over the Internet. The Company's success will depend, in part,
upon its continued ability to manufacture products that meet changing
customer needs and industry-wide shifts, successfully anticipate or
respond to technological changes in manufacturing processes on a cost-
effective and timely basis and enhance and expand its existing product
offerings.
. A significant portion of the Company's business is attributable to
special projects relating to particular hit movie or music releases. The
existence and timing of such major releases may cause the Company's
quarterly and annual revenues to vary significantly.
22
<PAGE>
. The Company may in the future pursue selective acquisitions within the
specialty packaging industry. In the event that such acquisitions were
to occur, there can be no assurance that the Company's business,
financial condition and results of operations would not be materially
adversely affected.
. Many of the Company's products are sold in highly competitive markets in
the United States, the U.K. and Europe. Competitive pressures or other
factors could cause the Company to lose existing business or
opportunities to generate new business or could result in significant
price erosion, all of which would have a material adverse effect on the
Company's business, financial condition and results of operations.
. The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the
environment, the handling and disposition of wastes, the recycling,
composition and recycled content of packaging, or otherwise relating to
the protection of the environment. In addition to the effects of
regulation, the Company's business may also be affected by environmental
concerns of consumers with respect to packaging.
. The Company's majority stockholder or its affiliates and certain members
of senior management own substantially all of the outstanding voting
stock of IMPAC, which is the sole stockholder of AGI, Klearfold and
Tinsley and, by virtue of such ownership, have the power to control all
matters submitted to stockholders of IMPAC and to elect all directors of
IMPAC and its subsidiaries, including AGI, Klearfold and Tinsley.
. The Company's ability to successfully address its Y2K issues will depend
on the availability of resources, the Company's ability to discover and
correct those potential Y2K problems which could have a serious impact
on specific Company facilities and the ability of vendors to bring their
computer systems and other equipment into Y2K compliance.
Risk factors, cautionary statements and other conditions that could cause
actual results to be adversely affected are contained in the Company's filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Annual
Report") and the foregoing discussion should be read in conjunction with the
Cautionary Note section of Management's Discussion and Analysis of Financial
Condition and Results of Operations of the 1998 Annual Report.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk exposures
since December 31, 1998.
23
<PAGE>
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 7, 1999, the Company's stockholders consented, in lieu of a
meeting, to the sale of certain shares of the Company's Series A Common Stock
by each of James Oppenheimer and Dean Henkel to Heritage Fund II Investment
Corporation. Such stockholder action was consented to by the affirmative vote
of the holders of approximately 125,914 shares of the Company's Series A Common
Stock with respect to the sale by Mr. Oppenheimer and approximately 135,911
shares of the Company's Series A Common Stock with respect to the sale by Mr.
Henkel.
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -------------------------------------------------------------------
<C> <S>
3.3 Second Amended and Restated By-laws of the Company.*
Fourth Amended and Restated Certificate of Incorporation of the
3.5 Company.*
10.109 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and James Oppenheimer.
10.110 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Dennis McGuin.
10.111 First Amendment to Agreement Relating to Employment and Stock
Ownership, dated as of January 13, 1999, by and between the Company
and Robert Eliason.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference to the same numbered exhibit to the Registrant's
Form 10-K filed by the
Registrant for the fiscal year ending December 31, 1998.
(b) Reports on Form 8-K
None
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
IMPAC Group, Inc.
/s/ David C. Underwood
By: _________________________________
David C. Underwood
Chief Financial Officer
Date: August 10, 1999
25
<PAGE>
EXHIBIT 10.109
FIRST AMENDMENT TO
EMPLOYMENT, NON-COMPETITION
AND STOCK REPURCHASE AGREEMENT
This First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement (this "Amendment Agreement") is dated as of January 8, 1999, is made
--------- ---------
by and between IMPAC Group, Inc., a Delaware corporation, with its principal
executive offices at 1950 North Ruby Street, Melrose Park, Illinois 60160-1178
(the "Company"), and James Oppenheimer (the "Employee"), an individual residing
------- --------
at 1115 West Shubert, Chicago, IL 60614, and amends that certain Employment,
Non-Competition and Stock Repurchase Agreement, dated as of March 12, 1998, by
and between the Company and the Employee (the "Employment Agreement").
---------- ---------
WHEREAS, this Amendment Agreement is being entered into in connection with
(a) the Securities Purchase Agreement of even date herewith, by and among the
Company and the Purchasers, as defined therein, and (b) the Company's Fourth
Amended and Restated Certificate of Incorporation of even date herewith (the
"Charter Amendment");
------- ---------
WHEREAS, pursuant to the Charter Amendment, certain additional restrictions
are being placed on the Company's ability to make payments in cash of the
repurchase price for Shares (as defined in the Employment Agreement) being
repurchased by the Company under the terms of the Employment Agreement; and
WHEREAS, in consideration for, among other things, the Employee's
confirmation of his acceptance of the Charter Amendment as a "Subordinating
Agreement", as defined in the Employment Agreement, the Company has agreed to
make certain amendments to the Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Employee agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to them in the Employment Agreement.
2. Amendments. Upon the date of the effectiveness of the Charter
Amendment, the Employment Agreement shall be amended as follows:
2.1. Section 1 (Definitions) shall be amended by adding the following new
definitions in the appropriate alphabetical order:
"Severance Release" means a release of any claims of the Employee against
-----------------
the Company and its stockholders, directors, officers, employees, agents or
other affiliates
<PAGE>
-2-
arising out of his employment relationship (other than claims to any
compensation or benefits payable under or to be provided pursuant to Section 5
hereof, or any rights of the Employee under Sections 6 or 7 hereof) duly
executed by the Employee and reasonably satisfactory in form and substance to
the Company.
"Subordinating Agreement" has the meaning specified in Section 7.1(a)(y)
------------- ---------
hereof."
2.2. Section 1 (Definitions) shall be further amended by deleting
therefrom the definitions of "Severance Extension Notice" and "Severance
Notice".
2.3. Sections 5(a) and 5(b) shall be amended by deleting such Sections in
their entirety, and substituting therefor the following new Sections 5(a) and
5(b):
"(a) If the Employee's employment with the Company terminates pursuant
to either Section 4(c) (by the Company without Cause) or Section 4(d) (by the
Employee for Good Reason) (other than a Termination upon Retirement) during the
Designated Term, then the Company shall, upon its receipt of a Severance
Release, continue to pay and provide to the Employee (A) the compensation
payable to him pursuant to Section 3(a) hereof, and (B) the benefits provided to
him pursuant to Section 3(c) hereof (the compensation and benefits described in
clauses (A) and (B), together, such Employee's "Base Severance Compensation"),
---- --------- ------------
and, unless such Termination of Employment was a Termination for Under-
Performance, (C) any bonus accrued or earned by the Employee pursuant to the
Bonus Plan and attributable to the Employee's performance for the portion of the
year prior to his Termination of Employment, on a one-time only basis payable at
the time of payment of bonuses to other executive employees under the Bonus
Plan, and (D) for each year, 50% of an amount equal to the compensation payable
to the Employee pursuant to Section 3(a), multiplied by a fraction, the
numerator of which equals the aggregate bonus actually payable with respect to
the preceding year to the Company's other executive employees in the same bonus
pay-out range as the Employee was in prior to his Termination of Employment, and
the denominator of which equals the aggregate salary of such other executive
employees for such preceding year (the compensation described in clauses (C) and
(D) together, such Employee's "Variable Severance Compensation") for a period
-------- --------- ------------
(the "Initial Severance Period") equal to the longer of (i) the remainder of the
------- --------- ------
Designated Term, and (ii) (x) if such Termination of Employment was a
Termination for Under-Performance, the one-year period following the date of
such Termination of Employment, or (y) if such Termination of Employment was not
a Termination for Under-Performance, the eighteen-month period following the
date of such Termination of Employment. In the Company's sole discretion, the
Company may elect by written notice to the Employee given no later than thirty
(30) days prior to the end of the Initial Severance Period, to continue to pay
and provide to the Employee his Base Severance Compensation for an additional
period (the "Additional Severance Period") of up to one year following the end
---------- --------- ------
of the Initial Severance Period, provided that such Additional Severance Period
shall in no event extend beyond the second anniversary
<PAGE>
-3-
of the Employee's Termination of Employment. Upon payment in full of the
Employee's Base Severance Compensation and, if and when applicable, his Variable
Severance Compensation, as described in this Section 5(a), the Company's
obligations to pay and provide the Employee with any other compensation
otherwise payable to him pursuant to Section 3 hereof, and all other rights of
the Employee under Sections 2, 3 and 5 hereof, shall cease as of the date of
such payment in full.
(b) If the Employee's employment with the Company terminates pursuant
to either Section 4(c) (by the Company without Cause) or Section 4(d) (by the
Employee for Good Reason) (other than a Termination upon Retirement) at any time
after the end of the Designated Term, then the Company shall, upon its receipt
of a Severance Release, continue to pay and provide to the Employee his Base
Severance Compensation and, unless such Termination of Employee was a
Termination for Under-Performance, his Variable Severance Compensation for a
period (the "Initial Post-Term Severance Period") equal to (i) one year
------- --------- --------- ------
following the date of such Termination of Employment, if such Termination of
Employment was a Termination for Under-Performance, or (ii) eighteen months
following the date of such Termination of Employment, if such Termination of
Employment was not a Termination for Under-Performance. The Company may elect,
in its sole discretion, by written notice to the Employee given no later than
ninety (90) days prior to the end of the Initial Post-Term Severance Period, to
extend the period during which the Employee's Base Severance Compensation shall
be payable and provided to the Employee for an additional period (also referred
to herein as an "Additional Severance Period") of up to one year from the end of
---------- --------- ------
the Initial Post-Term Severance Period, provided that such Additional Severance
Period shall in no event extend beyond the second anniversary of the Employee's
Termination of Employment. Upon payment in full of the Employee's Base
Severance Compensation, and, if and when applicable, his Variable Severance
Compensation as described in this Section 5(b), the Company's obligations to pay
and provide the Employee with any of the compensation payable to him pursuant to
Section 3 hereof, and all other rights of the Employee under Sections 2, 3 and 5
hereof, shall cease as of the date of such payment in full."
2.4. The first sentence of Section 7.1(a)(y) shall be amended by deleting
such sentence in its entirety, and substituting therefor the following:
"if the Company is prohibited by the terms of the Company's Charter, as in
effect from time to time, or any of the Company's or any of its
Subsidiaries' agreements with its or their lenders (including, without
limitation, the Company's senior credit agreement with Bank of America
National Trust & Savings Association, as Agent, and the Indenture with
respect to the Company's Senior Subordinated Notes) (with the Charter and
any such agreement each being referred to herein as a "Subordinating
-------------
Agreement") from making any payments of any portion of the repurchase price
---------
for any of the Shares in cash, the Company shall be entitled to complete
the repurchase of such Shares as to which payment of the repurchase
<PAGE>
-4-
price in cash is not so prohibited by delivering to the Employee a check
for the repurchase price thereof."
2.5. Section 8(b) (Non-Competition) shall be amended by inserting the
words "or the Initial Post-Term Severance Period, as applicable" between the
words "Severance Period" and the words ", the Additional Severance Period" on
the eleventh line of such Section.
3. Miscellaneous.
(a) No Other Amendment. Except as otherwise expressly provided by this
Amendment Agreement, all of the terms, conditions and provisions of the
Employment Agreement shall continue in full force and effect. This Amendment
Agreement and the Employment Agreement shall be read and construed as one
instrument.
(b) Counterparts. This Amendment Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all of which together shall constitute one and the same
agreement. In pleading or proving this Amendment Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
(c) Captions. The captions of sections or subsections of this Amendment
Agreement are for reference only and shall not affect the interpretation or
construction of this Amendment Agreement.
(d) Construction. The language used in this Amendment Agreement is the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against either party.
(e) Governing Law. This Amendment Agreement shall to the maximum lawful
extent be governed by and interpreted and construed in accordance with the
internal laws of the State of Illinois, as applied to contracts under seal made,
and entirely to be performed, within Illinois, and without reference to
principles of conflicts or choice of law.
<PAGE>
-5-
IN WITNESS WHEREOF, each of the Company and the Employee has executed and
delivered this First Amendment to Employment, Non-Competition and Stock
Repurchase Agreement as an agreement under seal as of the date first above
written.
COMPANY: IMPAC GROUP, INC.
By /s/ David C. Underwood
---------------------------
Name: David C. Underwood
Title: Chief Financial Officer
EMPLOYEE: /s/ James Oppenheimer
---------------------------
Name: James Oppenheimer
<PAGE>
EXHIBIT 10.110
FIRST AMENDMENT TO
EMPLOYMENT, NON-COMPETITION
AND STOCK REPURCHASE AGREEMENT
This First Amendment to Employment, Non-Competition and Stock Repurchase
Agreement (this "Amendment Agreement") is dated as of January 13, 1999, is made
--------- ---------
by and between IMPAC Group, Inc., a Delaware corporation, with its principal
executive offices at 1950 North Ruby Street, Melrose Park, Illinois 60160-1178
(the "Company"), and Dennis McGuin (the "Employee"), and amends that certain
------- --------
Employment, Non-Competition and Stock Repurchase Agreement, dated as of March
12, 1998, by and between the Company and the Employee (the "Employment
----------
Agreement").
- ---------
WHEREAS, this Amendment Agreement is being entered into in connection with
(a) the letter agreement dated as of January 7, 1999 between the Company, the
Employee and the other current or former officers and employees named therein
(the "January Letter Agreement"), and (b) the Company's Fourth Amended and
------- ------ ---------
Restated Certificate of Incorporation filed with the Secretary of State of the
State of Delaware (the "Charter Amendment"); and
------- ---------
WHEREAS, pursuant to the Charter Amendment, certain additional restrictions
are being placed on the Company's ability to make payments in cash of the
repurchase price for Shares (as defined in the Employment Agreement) being
repurchased by the Company under the terms of the Employment Agreement;
WHEREAS, in the January Letter Agreement the Employee and the Company
agreed to enter in this Amendment Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Employee agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to them in the Employment Agreement.
2. Amendments. Effective as of January 13, 1999, the Employment Agreement
shall be amended as follows:
2.1. Section 1 (Definitions) shall be amended by adding the following new
definitions in the appropriate alphabetical order:
"Subordinating Agreement" has the meaning specified in Section 7.1(a)(y)
------------- ---------
hereof."
<PAGE>
-2-
2.2. Section 7.1(a)(y) shall be amended by deleting it in its entirety,
and substituting therefor the following:
"if the Company is prohibited by the terms of the Company's Charter, as in
effect from time to time, or any of the Company's or any of its
Subsidiaries' agreements with its or their lenders (including, without
limitation, the Company's senior credit agreement with Bank of America
National Trust & Savings Association, as Agent, and the Indenture with
respect to the Company's Senior Subordinated Notes) (with the Charter and
any such agreement each being referred to herein as a "Subordinating
-------------
Agreement") from making any payments of any portion of the repurchase price
---------
for any of the Shares in cash, the Company shall be entitled to complete
the repurchase of such Shares as to which payment of the repurchase price
in cash is not so prohibited by delivering to the Employee a check for the
repurchase price thereof. The Company further shall be entitled to
complete the repurchase of the other Shares to be repurchased by it, or any
portion thereof, on the first date on which such payment is not so
prohibited by any applicable Subordinating Agreement, provided that if the
closing date of such repurchase is more than six (6) months after the
Employee's Termination of Employment, then, if the repurchase price for the
Shares is based on the Market Value Per Share, the repurchase price shall
be calculated based on the Market Value Per Share as of the date of such
closing instead of as of the date of the Employee's Termination of
Employment."
3. Miscellaneous.
(a) No Other Amendment. Except as otherwise expressly provided by this
Amendment Agreement, all of the terms, conditions and provisions of the
Employment Agreement shall continue in full force and effect. This Amendment
Agreement and the Employment Agreement shall be read and construed as one
instrument.
(b) Counterparts. This Amendment Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all of which together shall constitute one and the same
agreement. In pleading or proving this Amendment Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
(c) Captions. The captions of sections or subsections of this Amendment
Agreement are for reference only and shall not affect the interpretation or
construction of this Amendment Agreement.
(d) Construction. The language used in this Amendment Agreement is the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against either party.
<PAGE>
-3-
(e) Governing Law. This Amendment Agreement shall to the maximum lawful
extent be governed by and interpreted and construed in accordance with the
internal laws of the State of Illinois, as applied to contracts under seal made,
and entirely to be performed, within Illinois, and without reference to
principles of conflicts or choice of law.
<PAGE>
-4-
IN WITNESS WHEREOF, each of the Company and the Employee has executed and
delivered this First Amendment to Employment, Non-Competition and Stock
Repurchase Agreement as an agreement under seal as of the date first above
written.
COMPANY: IMPAC GROUP, INC.
By /s/ David C. Underwood
-------------------------
Name: David C. Underwood
Title: Chief Financial Officer
EMPLOYEE: /s/ Dennis McGuin
--------------------------
Name: Dennis McGuin
<PAGE>
EXHIBIT 10.111
FIRST AMENDMENT TO
AGREEMENT RELATING TO EMPLOYMENT
AND STOCK OWNERSHIP
This First Amendment to Agreement Relating to Employment and Stock
Ownership (this "Amendment Agreement") is dated as of January 13, 1999, is made
--------- ---------
by and between IMPAC Group, Inc., a Delaware corporation, with its principal
executive offices at 1950 North Ruby Street, Melrose Park, Illinois 60160-1178
(the "Company"), and Robert Eliason (the "Employee"), and amends that certain
------- --------
Agreement Relating to Employment and Stock Ownership dated as of March 12, 1998,
by and between the Company and the Employee (the "Employment Agreement").
---------- ---------
WHEREAS, this Amendment Agreement is being entered into in connection with
(a) the letter agreement dated as of January 7, 1999 between the Company, the
Employee and the other current or former officers and employees named therein
(the "January Letter Agreement"), and (b) the Company's Fourth Amended and
------- ------ ---------
Restated Certificate of Incorporation filed with the Secretary of State of the
State of Delaware (the "Charter Amendment"); and
------- ---------
WHEREAS, pursuant to the Charter Amendment, certain additional restrictions
are being placed on the Company's ability to make payments in cash of the
repurchase price for Shares (as defined in the Employment Agreement) being
repurchased by the Company under the terms of the Employment Agreement;
WHEREAS, in the January Letter Agreement the Employee and the Company
agreed to enter in this Amendment Agreement.
NOW, THEREFORE, in consideration of the foregoing premises, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and the Employee agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
have the respective meanings ascribed to them in the Employment Agreement.
2. Amendments. Effective as of January 13, 1999, the Employment Agreement
shall be amended as follows:
2.1. Section 1 (Definitions) shall be amended by adding the following new
definitions in the appropriate alphabetical order:
"Subordinating Agreement" has the meaning specified in Section 5.1(a)
------------- ---------
hereof."
<PAGE>
-2-
2.2. Section 5.1(a) shall be amended by deleting it in its entirety, and
substituting therefor the following:
"(a) Repurchase Terms. Notwithstanding any provision to the contrary in
Section 4 above, the Co-Managers and the Company shall be entitled to
complete the repurchase of such Shares by delivering to the Employee the
purchase price as follows in the event of a Termination of Employment by
the Company for Cause or voluntarily by the Employee without Good Reason:
(x) in cash, in an amount equal to the number of shares being purchased
multiplied by the lesser of (i) the Original Price Per Share and (ii) the
Market Price Per Share; and (y) a promissory note in the original principal
amount of the balance, if any, of the repurchase price. Unless otherwise
required by any of the Company's or any of its Subsidiaries' agreements
with its or their lenders, any promissory note delivered pursuant to this
Section 5.1 shall (i) bear interest at the Prime Rate as published from
time to time in the "Wall Street Journal", (ii) provide for the payment of
the principal evidenced thereby in not more than twelve (12) equal
quarterly installments commencing three (3) months after such repurchase,
(iii) be subordinated to the Company's indebtedness to its lenders on terms
satisfactory to such lenders, and (iv) provide for the payment in full of
the principal evidenced thereby upon any Disposition Event or Public
Offering. Notwithstanding any provision to the contrary in Section 4
above, if the Company is prohibited by the terms of the Company's Charter,
as in effect from time to time, or any of the Company's or any of its
Subsidiaries' agreements with its or their lenders (including, without
limitation, the Company's senior credit agreement with Bank of America
National Trust & Savings Association, as Agent, and the Indenture with
respect to the Company's Senior Subordinated Notes) (with the Charter and
any such agreement each being referred to herein as a "Subordinating
-------------
Agreement") from making any payments of any portion of the repurchase price
---------
for any of the Shares in cash, the Company shall be entitled to complete
the repurchase of such Shares as to which payment of the repurchase price
in cash is not so prohibited by delivering to the Employee a check for the
repurchase price thereof. The Company further shall be entitled to
complete the repurchase of the other Shares to be repurchased by it, or any
portion thereof, on the first date on which such payment is not so
prohibited by any applicable Subordinating Agreement, provided that if the
closing date of such repurchase is more than six (6) months after the
Employee's Termination of Employment, then, if the repurchase price for the
Shares is based on the Market Value Per Share, the repurchase price shall
be calculated based on the Market Value Per Share as of the date of such
closing instead of as of the date of the Employee's Termination of
Employment. The Company agrees that in the event that it is permitted by
the terms of any Subordinating Agreement to repurchase shares of its Common
Stock in cash, it shall promptly exercise its rights to complete any such
repurchase delayed pursuant to this Section 5.1(a), provided that any such
repurchase shall be pro rata with all other such delayed repurchases (but
not including any
<PAGE>
-3-
repurchases required to be completed in installments pursuant to the first
sentence of this Section 5.1(a))."
3. Miscellaneous.
(a) No Other Amendment. Except as otherwise expressly provided by this
Amendment Agreement, all of the terms, conditions and provisions of the
Employment Agreement shall continue in full force and effect. This Amendment
Agreement and the Employment Agreement shall be read and construed as one
instrument.
(b) Counterparts. This Amendment Agreement may be executed by the parties
in separate counterparts, each of which when so executed and delivered shall be
an original, but all of which together shall constitute one and the same
agreement. In pleading or proving this Amendment Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
(c) Captions. The captions of sections or subsections of this Amendment
Agreement are for reference only and shall not affect the interpretation or
construction of this Amendment Agreement.
(d) Construction. The language used in this Amendment Agreement is the
language chosen by the parties to express their mutual intent, and no rule of
strict construction shall be applied against either party.
(e) Governing Law. This Amendment Agreement shall to the maximum lawful
extent be governed by and interpreted and construed in accordance with the
internal laws of the Commonwealth of Pennsylvania, as applied to contracts under
seal made, and entirely to be performed, within Pennsylvania, and without
reference to principles of conflicts or choice of law.
<PAGE>
-4-
IN WITNESS WHEREOF, each of the Company and the Employee has executed and
delivered this First Amendment to Agreement Relating to Employment and Stock
Ownership as an agreement under seal as of the date first above written.
COMPANY: IMPAC GROUP, INC.
By /s/ David C. Underwood
----------------------------
Name: David C. Underwood
Title: Chief Financial Officer
Employee: By /s/ Robert Eliason
----------------------------
Name: Robert Eliason
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,137
<SECURITIES> 0
<RECEIVABLES> 50,190
<ALLOWANCES> 1,880
<INVENTORY> 25,284
<CURRENT-ASSETS> 83,610
<PP&E> 207,172
<DEPRECIATION> 96,460
<TOTAL-ASSETS> 363,753
<CURRENT-LIABILITIES> 58,829
<BONDS> 247,293
15,929
0
<COMMON> 0
<OTHER-SE> 37,339
<TOTAL-LIABILITY-AND-EQUITY> 363,753
<SALES> 130,273
<TOTAL-REVENUES> 130,273
<CGS> 93,461
<TOTAL-COSTS> 93,461
<OTHER-EXPENSES> 28,551
<LOSS-PROVISION> 363
<INTEREST-EXPENSE> 11,339
<INCOME-PRETAX> (3,160)
<INCOME-TAX> (749)
<INCOME-CONTINUING> (2,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,411)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
