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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-13727
PROSPECTUS
(LOGO) PRINTPACK INC.
OFFER TO EXCHANGE ITS
9 7/8% SENIOR NOTES DUE 2004, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
9 7/8% SENIOR NOTES DUE 2004, SERIES A
AND
10 5/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
10 5/8% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
---------------------
EACH EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON JANUARY 31, 1997,
UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE").
Printpack, Inc., a Georgia corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus (the "Prospectus") and the accompanying Letters of Transmittal
(the "Letters of Transmittal"), to exchange up to $100,000,000 aggregate
principal amount of its 9 7/8% Series B Senior Notes due 2004 (the "Exchange
Senior Notes") and $200,000,000 aggregate principal amount of its 10 5/8% Series
B Senior Subordinated Notes due 2006 (the "Exchange Senior Subordinated Notes"
and, collectively with the Exchange Senior Notes, the "Exchange Notes") for
equal principal amounts of its outstanding 9 7/8% Series A Senior Notes due 2004
(the "Senior Notes") and 10 5/8% Series A Senior Subordinated Notes due 2006
(the "Senior Subordinated Notes" and, collectively with the Senior Notes, the
"Notes"), respectively. The Exchange Notes are substantially identical
(including principal amount, interest rate, maturity and redemption rights) to
the Notes for which they may be exchanged pursuant to this offer, except that
(i) the offering and sale of the Exchange Notes will have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders
of Exchange Notes will not be entitled to certain rights of holders under a
Registration Rights Agreement of the Company dated as of August 22, 1996 (the
"Registration Rights Agreement"). The Senior Notes have been, and the Exchange
Senior Notes will be, issued under an Indenture dated as of August 22, 1996 (the
"Senior Note Indenture"), between the Company and Fleet National Bank, as
trustee (the "Senior Note Trustee"). The Senior Subordinated Notes have been,
and the Exchange Senior Subordinated Notes will be, issued under an Indenture
dated as of August 22, 1996 (the "Senior Subordinated Note Indenture" and,
collectively with the Senior Note Indenture, the "Indentures"), between the
Company and Fleet National Bank, as trustee (the "Senior Subordinated Note
Trustee" and, collectively with its capacity as the Senior Note Trustee, the
"Trustee"). The Company will not receive any proceeds from this Exchange Offer;
however, pursuant to the Registration Rights Agreement, the Company will bear
certain offering expenses. See "Description of Exchange Notes -- Registration
Rights; Liquidated Damages."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Notes. Consequently, interest on the Exchange Notes will be payable
semi-annually in arrears on February 15 and August 15 of each year, commencing
February 15, 1997. The Exchange Senior Notes will mature on August 15, 2004, and
may be redeemed at the option of the Company, in whole or in part, at any time
on or after August 15, 2000. The Exchange Senior Subordinated Notes will mature
on August 15, 2006, and may be redeemed at the option of the Company, in whole
or in part, at any time on or after August 15, 2001. See "Description of
Exchange Notes."
The Exchange Senior Notes will be general unsecured obligations of the
Company ranking senior to all subordinated Indebtedness (as defined herein) of
the Company, including the Exchange Senior Subordinated Notes, and pari passu
with all existing and future senior Indebtedness of the Company, including
borrowings under the New Credit Agreement. However, borrowings under the New
Credit Agreement are secured by Liens (as defined herein) on substantially all
of the assets of the Company and will, therefore, effectively rank senior to the
Exchange Senior Notes. As of September 28, 1996, as a result of the Transactions
(as defined herein) approximately $210.4 million principal amount of outstanding
Indebtedness of the Company will be, by its terms, subordinated to the Exchange
Senior Notes. The Exchange Senior Subordinated Notes will be general unsecured
obligations of the Company and will be subordinated in right of payment to
Senior Debt (as defined herein). As of September 28, 1996, as a result of the
Transactions (as defined herein), and excluding receivables sold pursuant to the
Receivables Securitization Facility (as defined herein) $318.0 million of Senior
Debt was outstanding, $218.0 million of which was secured Indebtedness under the
New Credit Agreement. The Indentures (as defined herein) will permit the Company
and its subsidiaries to incur additional Indebtedness subject to certain
limitations. See "Risk Factors -- Effective Subordination of Exchange Senior
Notes" and "Description of Exchange Notes -- Certain Covenants." (Continued on
inside front cover)
The Company will accept for exchange any and all Notes validly tendered by
eligible holders and not withdrawn prior to 5:00 P.M. Eastern time on January
31, 1997, unless extended by the Company in its sole discretion (the "Expiration
Date"). Tenders of Notes may be withdrawn at any time prior to the Expiration
Date. The Exchange Offer is subject to certain customary conditions. The Notes
may be tendered only in integral multiples of $1,000. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY INVESTORS WITH RESPECT TO THE NOTES AND THE
EXCHANGE NOTES. ON A PRO FORMA COMBINED BASIS FOR ITS LATEST FISCAL YEAR ENDED
JUNE 30, 1996, THE COMPANY'S EARNINGS WERE INADEQUATE TO COVER ITS FIXED CHARGES
BY APPROXIMATELY $10.3 MILLION. FOR THE COMPANY'S FIRST FISCAL QUARTER ENDED
SEPTEMBER 28, 1996, EARNINGS WERE APPROXIMATELY $5.1 MILLION LESS THAN FIXED
CHARGES FOR THAT THREE-MONTH PERIOD.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is December 19, 1996.
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(Cover page continued)
Any broker-dealer that holds Notes acquired for its own account as a result
of market-making or other trading activities and who receives Exchange Notes
pursuant to the Exchange Offer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the Exchange
Notes. The Company has agreed to allow such broker-dealer to use this
Prospectus, as supplemented or amended, for the purpose of effecting any resales
of the Exchange Notes for a period of 180 days from the effective date of the
Registration Statement. See "Explanatory Note" and "The Exchange Offer -- Resale
of Exchange Notes."
The Notes are not listed on any securities exchange and are not traded on
the National Association of Securities Dealers Automated Quotation System, Inc.
("Nasdaq"). The Notes are traded through the National Association of Securities
Dealers, Inc.'s ("NASD") PORTAL trading system under the symbol "PRTKNP04" for
the Senior Notes and "PRTKNP06" for the Senior Subordinated Notes. The Company
does not intend to list the Exchange Notes on any national securities exchange
or to seek admission thereof to trading on Nasdaq. Donaldson, Lufkin & Jenrette
Securities Corporation has advised the Company that it has made a market in the
Notes, and that it may make a market in the Notes and in the Exchange Notes;
however, it is not obligated to do so and any market-making activity may be
discontinued at any time. As a result, there is no assurance that an active
public market will develop or continue for the Exchange Notes, and that the
market, if any, that develops for its Exchange Notes will be similar to the
limited market that currently exists for the Notes. See "Risk Factors -- Absence
of Public Market for the Exchange Notes."
---------------------
EXPLANATORY NOTE
This Registration Statement covers $100,000,000 aggregate principal amount
of 9 7/8% Series B Senior Notes due 2004 (the "Exchange Senior Notes") and
$200,000,000 aggregate principal amount of 10 5/8% Series B Senior Subordinated
Notes due 2006 (the "Exchange Senior Subordinated Notes" and, collectively with
the Exchange Senior Notes, the "Exchange Notes") of Printpack, Inc. (the
"Company") to be offered in exchange for equal principal amounts of the
Company's outstanding 9 7/8% Series A Senior Notes due 2004 (the "Senior Notes")
and the Company's outstanding 10 5/8% Series A Senior Subordinated Notes due
2006 (the "Senior Subordinated Notes" and, collectively with the Senior Notes,
the "Notes"), respectively (the "Exchange Offer"). This Registration Statement
is being filed to satisfy certain requirements of a Registration Rights
Agreement dated as of August 22, 1996 between the Company and Donaldson, Lufkin
& Jenrette Securities Corporation, as the initial purchaser (the "Initial
Purchaser") of the Notes (the "Registration Rights Agreement").
Based on interpretations by the staff of the Securities and Exchange
Commission (the "SEC" or the "Commission") set forth in no-action letters issued
to unrelated third parties, the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for Notes may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder which is a broker-dealer that holds Notes acquired for its own account as
a result of market-making or other trading activities or any holder which is an
"affiliate" of the Company within the meaning of rule 405 under the Securities
Act of 1933, as amended (the "Securities Act")) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder has no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes.
The Company hereby notifies each holder of Notes that any broker-dealer
that holds Notes acquired for its own account as a result of market-making
activities or other trading activities and who receives Exchange Notes pursuant
to the Exchange Offer may be a statutory underwriter, and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of the Exchange Notes. Any broker-dealer that holds Notes acquired for
its own account as a result of market-making or other trading activities,
acknowledges and agrees as a term of the Exchange Offer, that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of Exchange Notes received pursuant to the Exchange Offer. However, by so
doing, the broker-dealer will not be deemed to admit that it is an
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"underwriter" within the meaning of the Securities Act. Such broker-dealer will
also be deemed to represent and warrant to the Company that it is not
participating in, and has no intent to participate in, any distribution of
Exchange Notes, and has not entered into any arrangement or understanding with
any person to distribute the Exchange Notes.
In the event that any holder of Notes is prohibited by law or any policy of
the Commission from participating in the Exchange Offer or any holder may not
resell the Exchange Notes without delivering a prospectus and the Prospectus
contained in this Registration Statement is inappropriate or unavailable for
such resales by such holder or if such holder is a broker-dealer and holds Notes
acquired directly from the Company or one of its affiliates, and such holder
satisfies certain other requirements, the Company has agreed, pursuant to the
Registration Rights Agreement, to file a registration statement in respect of
such Exchange Notes and Notes pursuant to Rule 415 under the Securities Act. See
"Prospectus Summary -- The Exchange Offer;" "The Exchange Offer;" and "Plan of
Distribution."
Any Notes not tendered and accepted in the Exchange Offer will remain
outstanding. To the extent any Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered and unregistered Notes could be
adversely affected. Following consummation of the Exchange Offer, the holders of
Notes will continue to be subject to the existing restrictions upon transfer
thereof and the Company will have fulfilled one of its obligations under the
Registration Rights Agreement. Holders of Notes who do not tender their Notes
generally will not have any further registration rights under the Registration
Rights Agreement or otherwise. See "The Exchange Offer -- Consequences Of
Failure To Exchange."
The Company expects that similar to the Notes, and except as specifically
requested by a holder on the Letter of Transmittal, the Exchange Notes will be
issued only in the form of a Global Note (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depository")
and registered in its name or in the name of the Depository's nominee, Cede &
Co. Beneficial interests in the Global Note representing the Exchange Notes will
be shown on, and transfers thereof will be effected through, records maintained
by the Depository and its participants. After the initial issuance of the Global
Note, Exchange Notes in certificated form may be issued in exchange for the
Global Note on the terms and conditions set forth in the Indentures. See
"Description of Exchange Notes -- Book-Entry, Delivery and Form."
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a
result of the offering of the Exchange Notes, the Company will become subject to
the informational requirements of the Exchange Act. So long as the Company is
subject to the periodic reporting requirements of the Exchange Act, it is
required to furnish the information required to be filed with the Commission to
the Trustee and the holders of the Notes and the Exchange Notes. The Company has
agreed that, even if it is not required under the Exchange Act to furnish such
information to the Commission, it will nonetheless continue to furnish
information that would be required to be furnished by the Company by Section 13
of the Exchange Act to the Trustee and the holders of the Notes or Exchange
Notes as if it were subject to such periodic reporting requirements. "See
"Available Information."
In addition, the Company has agreed that, for so long as any of the Notes
remain outstanding, it will make available to any prospective purchaser of the
Notes or beneficial owner of the Notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act, until such
time as the Company has either exchanged the Notes for the Exchange Notes or
until such time as the holders thereof have disposed of such Notes pursuant to
an effective registration statement filed by the Company.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
registration statement on Form S-1 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, as permitted by the rules and regulations of the Commission.
For further information with respect to the Company, the Notes and
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the Exchange Notes reference is hereby made to the Registration Statement,
including the exhibits and schedules filed or incorporated as a part thereof.
Statements contained herein concerning the provisions of any document are not
necessarily complete and in each instance reference is made to the copy of the
document filed as an exhibit or schedule to the Registration Statement. Each
such statement is qualified in its entirety by reference to the copy of the
applicable documents filed with the Commission. In addition, after effectiveness
of the Registration Statement, the Company will file periodic reports and other
information with the Commission under the Exchange Act, relating to the
Company's business, financial statements and other matters. The Registration
Statement, including the exhibits and schedules thereto, and the periodic
reports and other information filed in connection therewith, may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional
Offices of the Commission: Seven World Trade Center, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. In addition, the Commission maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, information statements and
other information regarding Printpack, Inc. and other registrants that file
electronically with the Commission.
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Prospectus Summary;"
"Risk Factors;" "Summary Unaudited Pro Forma Condensed Combined Financial Data"
(including EBITDA and EBITDA before certain charges); "Unaudited Pro Forma
Condensed Combined Statement of Operations" (including EBITDA and EBITDA before
certain charges); "Printpack Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations;" "Business" and elsewhere in this
Prospectus may constitute forward-looking statements, and as such may involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from the Company's expectations are disclosed in this Prospectus ("Cautionary
Statements"), including, without limitation, those statements made in
conjunction with the forward-looking statements included under "Risk Factors"
and otherwise herein. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with the more detailed information and Financial
Statements, and the notes thereto contained elsewhere in this Prospectus. As
used herein, "Printpack" or the "Company" refers to the Company and its
subsidiaries unless the context otherwise requires. The Company's fiscal year
ends on the last Saturday in June, and references to particular fiscal years of
the Company refer to the 12 months ended on the last Saturday of June of the
year indicated. See the Financial Statements and Notes thereto.
THE COMPANY
Printpack is one of the largest domestic manufacturers and converters of
flexible packaging products used by leading salted snacks, confectionery,
cookies/crackers, cereal, beverage and other food and consumer product
companies. Management estimates, based in part upon trade and Flexible Packaging
Association ("FPA") data as of 1995, that, prior to the Acquisition (as defined
herein), the Company had the leading market share in several major end use
categories of flexible packaging, including salted snack foods (approximately
30% market share), which includes packaging for such products as Lays(R) and
Ruffles(R) potato chips; confectionery products (approximately 30% market
share), which includes packaging for such products as Reese's(R) and
Hershey's(R) candy bars; and cookies/crackers (approximately 17% market share),
which includes packaging for such products as Fig Newtons(R) and Famous Amos(R)
cookies. The Company's customer base, prior to the Acquisition included
nationally recognized, brand-name food companies such as Frito-Lay, General
Mills, Hershey, Mars, Nabisco, Nestle, Quaker Oats and Ralston.
Printpack, founded in 1956, is headquartered in Atlanta, Georgia and is
owned and managed by the founding family together with several long-term members
of management. The Company manufactures a wide variety of high value-added
flexible packaging products, including laminates made of various layers of
plastic film, aluminum foil, metallized films, paper and specialized coatings,
as well as cast and blown monolayer and co-extruded films. Printpack's sales and
EBITDA (as defined herein and before certain charges) for fiscal year 1996 were
$442.9 million and $60.0 million, respectively. Over the last five fiscal years
ending June 1996, the Company has experienced compound annual growth of sales
and EBITDA before certain charges of 5.2% and 8.9%, respectively, exclusively
through internal growth.
Printpack management estimates, based in part upon data prepared by the FPA
and other trade and industry information, that the U.S. end use markets for the
types of flexible packaging products produced by the Company (the "flexible
packaging industry") had annual sales of approximately $7.5 billion in 1995 and
has one of the highest historical growth rates in the packaging industry,
generally. According to this data, the eight largest flexible packaging
companies accounted for approximately 50% of total 1995 sales in the flexible
packaging industry, with the balance shared by several hundred other
competitors. Management believes recent industry growth has been and will
continue to be driven principally by (i) the shift from rigid containers
(paperboard, glass and plastic) to lower cost and lighter weight flexible
packaging, (ii) changing demographic trends which have increased the demand for
more convenient forms of packaging, including single servings and packaging that
extends product shelf life, (iii) the growth in several major end use market
segments (such as snack foods), (iv) the growth of low-fat and non-fat foods
which require more complex packaging barriers, (v) concerns over waste and
resource reduction, and (vi) increasing demands for specialized packaging with
enhanced barrier properties and distinctive graphics.
On August 22, 1996, Printpack closed (the "Closing") the transactions
contemplated in an asset purchase agreement dated as of April 10, 1996, as
amended (the "Acquisition Agreement"), with James River and acquired
substantially all of the assets of JR Flexible. JR Flexible was also one of the
largest domestic manufacturers and converters of flexible packaging products to
leading food and consumer products companies, as well as a major supplier of
high performance films to other converters. The Acquisition has further
increased Printpack's leading position in the flexible packaging industry, and
as a result, the Company has total annual combined sales of approximately $900
million, which is approximately 12% of total 1995 industry sales.
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JR Flexible, headquartered in Milford, Ohio, had leading market shares in
various flexible packaging end use markets, including bakery, cookies/crackers,
cereal, ream wrap (wrapping for reams of office paper), tissue/towel overwrap,
coffee serving packs and dentifrice (plastic laminate materials for tooth paste
tubes and other personal care products). JR Flexible manufactured many of the
same product lines and materials as those manufactured by Printpack. JR
Flexible's customer base also included many of the same brand name food
companies as Printpack (General Mills, Nabisco, Nestle and Quaker Oats), as well
as other major consumer products companies, such as Flowers, Kellogg, Kraft and
James River. The Acquisition is expected to broaden Printpack's sales to certain
existing customers, as well as provide new customer relationships and products.
In recent years, JR Flexible has been an underperforming business; however, in
late 1995, James River and JR Flexible management began various profitability
improvement measures, including shedding certain lower margin businesses,
reducing waste and related costs, improving product mixes and production
processes and negotiating more favorable long-term raw materials contracts,
especially for resins. As a result of these initiatives, JR Flexible's unaudited
EBITDA for the 26 weeks ended June 30, 1996 was $15.9 million, compared to $3.8
million for the same period in 1995. JR Flexible's unaudited sales and EBITDA
before certain charges for the latest 12 months ended June 30, 1996 were $467.0
million and $21.8 million, respectively.
The Company's principal executive offices are located at 4335 Wendell
Drive, S.W., Atlanta, Georgia 30336, and its telephone number is (404) 691-5830.
BUSINESS STRATEGY
Printpack focuses its sales and marketing efforts, technical development
initiatives, and manufacturing capabilities on targeted end use markets for
flexible packaging, with the goals of achieving critical mass and leading market
shares. Printpack has achieved leadership positions in these markets by (i)
making customer service its first priority, (ii) achieving economies of scale
and manufacturing efficiencies to remain a low cost producer, (iii) investing in
state-of-the-art equipment, and technological and production innovation, and
(iv) providing high value-added flexible packaging structures and enhanced
graphics. By focusing its equipment and facilities on specific market segments
and product structures, the Company has been able to provide high quality
products and service and realize production efficiencies. The Company leverages
its strong customer relationships, market leadership and economies of scale to
earn additional business from existing customers and to attract new customers.
Printpack has developed mutually beneficial relationships with large food and
consumer product companies and has benefited from the expanding market shares of
such customers. The Company expects to continue this strategy.
REASONS FOR THE ACQUISITION
Printpack's management believes that the JR Flexible Acquisition is a
significant strategic opportunity, consistent with the Company's long-term
business strategy. The combination of Printpack (approximately 6% market share)
and JR Flexible (approximately 6% market share) has created one of the largest
U.S. companies focused on film-based flexible packaging products, with combined
sales of approximately 12% of the industry's $7.5 billion of total 1995 sales.
The Acquisition increased Printpack's leadership in several end use categories,
extends its product lines with existing and new customers, helped diversify its
customer base and created significant opportunities for cost savings and
economies of scale.
INDUSTRY LEADERSHIP
Printpack management believes that as a result of the Acquisition, it has
increased its leading share of the estimated $1.2 billion market for flexible
packaging sales to the snack food industry to approximately 30%. Printpack also
expects to increase its already leading shares of flexible packaging sales for
each of the salted snack, confectionery and cookies/crackers products. Printpack
also believes it obtained JR Flexible's leading market shares in several other
products that use flexible packaging, including ream wrap, dentifrice,
tissue/towel overwrap and bread bags.
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EXTENSION OF PRODUCT LINES AND CUSTOMERS
Management believes that the Acquisition provides Printpack with a wider
range of flexible packaging capabilities and further diversification of its
product offerings, enabling Printpack to better serve customers. The Acquisition
is expected to increase Printpack's business with various existing major
customers, including General Mills, Mars, Nabisco, Nestle, Quaker Oats and
Ralston. In addition, Printpack's new customers include Flowers, Kellogg, Kraft
and James River.
COST SAVINGS AND ECONOMIES OF SCALE
The Acquisition is expected to produce significant cost savings through the
elimination of redundant corporate overhead and the reduction of personnel at JR
Flexible's headquarters and plants. Printpack management expects to realize
significant cost savings through the consolidation and rationalization of JR
Flexible's manufacturing operations with Printpack's manufacturing facilities,
including the conversion of JR Flexible's plants to Printpack's production
strategy. Printpack has announced the closing of two former JR Flexible plants,
one in San Leandro, California and one in Dayton, Ohio, which closures presently
are expected to be completed by the end of the Company's fiscal year 1997. In
addition, after the Acquisition, Printpack is now one of the largest domestic
purchasers of certain key materials used for flexible packaging manufacturing
such as extrusion grade resin, oriented polypropylene ("OPP") film and other
types of plastic film, paper and foil, and its enhanced purchasing power is
expected to result in greater cost savings and technical development support
from its key raw materials suppliers. See "Printpack, Inc. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
THE ACQUISITION, FINANCING AND RELATED TRANSACTIONS
THE ACQUISITION AND RELATED FINANCING
The Company acquired JR Flexible for approximately $380 million (including
the repayment of approximately $2.4 million of JR Flexible indebtedness on
revenue bonds), subject to certain adjustments based upon, among other things,
an audited closing date balance sheet that has not yet been completed. The
initial offering of the Notes (the "Offering"), the refinancing pursuant to the
New Credit Agreement and the transactions contemplated in the Acquisition
Agreement were completed contemporaneously on August 22, 1996. The Acquisition,
the Offering and the New Credit Agreement are referred to collectively herein as
the "Transactions."
The First National Bank of Chicago ("First Chicago"), together with a
syndicate of lenders, has provided the Company with the New Credit Facilities,
including a revolving credit facility (the "Revolving Credit Facility") of $155
million reduced pro rata by sales of accounts receivable pursuant to the
Receivables Securitization Facility (as defined below) and a term loan (the
"Term Loan") of $170 million. At Closing, the entire amount of the Term Loan and
approximately $53.7 million of the Revolving Credit Facility was funded. A
portion of the borrowings under the New Credit Facilities, together with the net
proceeds to the Company from the Offering of the Notes, were applied against the
purchase price of JR Flexible. Approximately $171.2 million of the New Credit
Facilities were used at Closing to repay existing credit facilities and to pay
prepayment penalties, fees and expenses associated with the Transactions.
Approximately $51.3 million remained available under the New Credit Facilities
for general corporate purposes, including working capital. See "Description of
Certain Indebtedness" and "Receivables Securitization Facility."
In addition, the Company entered into an asset-backed accounts receivable
financing arrangement through a new special purpose, bankruptcy remote
subsidiary of the Company, "Flexible Funding Corp." ("Receivables Funding"), a
Delaware corporation. A special purpose bankruptcy remote subsidiary is a
corporation which has been formed for a single purpose of (e.g. in the case of
Receivables Funding, buying and selling receivables originated by the Company),
which operates separately from its parent and other affiliated companies, and
which has special charter provisions to assure its corporate separateness from
its affiliates in an effort to avoid substantive consolidation in a bankruptcy
proceeding involving its parent corporation or other affiliates. Receivables
Funding has acquired and will continue to acquire accounts
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receivable generated by the Company, and sell them to Falcon Asset
Securitization Corporation ("Falcon"), an asset-backed commercial paper conduit
issuer sponsored by First Chicago, and to First Chicago and other investors. The
receivables securitization facility (the "Receivables Securitization Facility")
was established in an amount of up to approximately $50 million and, at the
Closing, Printpack received approximately $23 million of proceeds from the
initial sale of receivables under the Receivables Securitization Facility. See
"Receivables Securitization Facility."
SOURCES AND USES OF PROCEEDS
Presented below are the sources and uses of funds in connection with the
Acquisition and the other Transactions:
<TABLE>
<CAPTION>
SOURCES OF FUNDS AMOUNT
------------------------------------------------------------------- ----------------------
(DOLLARS IN MILLIONS)
<S> <C>
New Credit Agreement:
Revolving Credit Facility........................................ $ 53.7
Term Loan........................................................ 170.0
Receivables Securitization Facility................................ 23.0
9 7/8% Senior Notes due 2004....................................... 100.0
10 5/8% Senior Subordinated Notes due 2006......................... 200.0
------
Total Sources of Funds................................... $546.7
======
USES OF FUNDS
JR Flexible purchase price......................................... $372.5
Repay existing Printpack debt...................................... 146.8
Estimated prepayment penalties, fees and transaction expenses...... 24.4
Working Capital.................................................... 3.0
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Total Uses of Funds...................................... $546.7
======
</TABLE>
THE REORGANIZATION
The Company was reorganized to facilitate the Acquisition and its
financing. Previously, the Company was owned and operated together with
Printpack Enterprises, Inc. ("Enterprises"), a Georgia corporation that had
elected to be taxed as a Subchapter S corporation under the Internal Revenue
Code of 1986, as amended (the "Code"). Printpack and Enterprises were affiliated
by common ownership and management. Following the Company's 1996 fiscal year,
Printpack and Enterprises were reorganized into a holding company structure (the
"Reorganization"). Printpack Holdings, Inc. ("Holdings"), a new Delaware
corporation, was formed, and Enterprises contributed substantially all its
assets and liabilities to Printpack. Following the Reorganization, Enterprises
owns approximately 100% of the Company and Holdings owns approximately 97% of
Enterprises. The remaining minority interests are held by members of the Love
family and certain members of the Company's senior management who were not
eligible to participate in the Reorganization.
Prior to the Reorganization, Printpack and Enterprises had acquired and
jointly owned approximately 95% of certain separately chartered flexible
packaging operations ("Printpack Europe") located in the United Kingdom
("U.K."). Following the Reorganization, Holdings and Enterprises became holding
companies that jointly own Printpack Europe, which is operated separately from
the Company, except as permitted under the Indentures. See "-- United Kingdom
Affiliates" and "Description of Exchange Notes."
The Company has acquired all of JR Flexible's business and will conduct all
North American operations previously carried on by the Company, Enterprises and
JR Flexible, including the operations of various wholly-owned Mexican
subsidiaries of the Company and JR Flexible. The Company also owns 100% of
Printpack Illinois, Inc. ("Printpack Illinois"), which has been formed to own
and operate Printpack's Elgin, Illinois plant, and the Company's patents,
trademarks, trade secrets, knowhow and other intellectual property. See
"Business -- Patents and Trademarks."
4
<PAGE> 9
UNITED KINGDOM AFFILIATES
Printpack Europe began with the purchase of a separate U.K. company from a
management and investor group in 1993, which previously had acquired such
operations in a management buyout. In 1994, Printpack Europe acquired another
U.K. flexible packaging company to become a larger competitor in the U.K. and
Continental Europe. The U.K. operations were combined in an effort to assimilate
and expand Printpack's European operations, which created one of the three
largest flexible packaging companies in the U.K.
After Printpack's purchases, Printpack Europe continued to be operated
independently by its management, which was responsible for Printpack Europe's
policies, operations and day-to-day management, including financial controls. In
1996, it became apparent to the Company that Printpack Europe management was not
timely and appropriately recognizing expenses and rebates, and was capitalizing
certain expenses, leading to the recognition of approximately $32.5 million of
special charges in May 1996, of which approximately $10 million related to
fiscal year 1995. As a result of these special charges and increased raw
material costs and competition, Printpack Europe had net losses in fiscal years
1995 and 1996. In May 1996, certain former senior managers of Printpack Europe
were terminated, and Mr. James J. Greco, a long-time senior Company manager, was
sent to the U.K. to manage this unit. Improvements in financial controls and
reports also have been made at Printpack Europe. Former credit agreements in
existence prior to the effective time of the Acquisition pertaining to
approximately $146.7 million of Company debt outstanding at June 29, 1996
contained various covenants related to the Company and Printpack Europe that
were not amended to reflect the Reorganization, but these credit agreements were
terminated as a result of the Transactions consummated on August 22, 1996. The
Company has agreed not to merge, consolidate or otherwise acquire Printpack
Europe's operations as a subsidiary of the Company, except as permitted under
the Indentures. See "Risk Factors -- Foreign Operations; Losses incurred by
Printpack Europe;" "Printpack, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations;" "Description of Exchange
Notes -- Certain Covenants -- Transaction with Affiliates;" and "Management;"
and Note 5 to the Printpack Financial Statements.
5
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered......... $100,000,000 aggregate principal amount of 9 7/8%
Exchange Senior Notes due August 15, 2004.
$200,000,000 aggregate principal amount of 10 5/8%
Exchange Senior Subordinated Notes due August 15,
2006.
The Exchange Offer......... $1,000 principal amount of the Exchange Senior
Notes in exchange for each $1,000 principal
amount of Senior Notes and $1,000 principal
amount of the Exchange Senior Subordinated Notes
in exchange for each $1,000 principal amount of
Senior Subordinated Notes. As of the date hereof,
all of the aggregate principal amount of Senior
Notes and Senior Subordinated Notes are
outstanding. The Company will issue the Exchange
Notes to eligible holders on or promptly after
the Expiration Date of the Exchange Offer.
Based on interpretations by the staff of the SEC
set forth in no-action letters issued to third
parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Notes may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than any holder which is a broker-dealer
that holds Notes acquired for its own account as
a result of market-making or other trading
activities, or any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in
the ordinary course of such holder's business and
that such holder does not intend to participate
and has no arrangement or understanding with any
person to participate in a distribution of such
Exchange Notes.
Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer
may be a statutory underwriter and must
acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange
Notes. The Letters of Transmittal state that by
so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used for 180 days after the Expiration Date by a
broker-dealer in connection with resales of
Exchange Notes received in exchange for Notes
where such Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities. The
Company has agreed that for a period of 180 days
after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use
in connection with any such resale. See "Plan of
Distribution."
Any holder who is an affiliate of the Company, and
any person who intends to, or is participating in
a distribution of the Exchange Notes, will not be
able to rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988), Morgan
Stanley & Co., Inc. (available June 5, 1991), and
Shearman & Sterling (available July 2, 1993) or
similar no-action letters and, in the absence of
an exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the
6
<PAGE> 11
Securities Act in connection with the resale of
the Exchange Notes. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities
Act for which the holder will not be indemnified
by the Company.
Expiration Date............ 5:00 p.m., Eastern Time, on January 31, 1997,
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case the
term "Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Interest on the Exchange
Notes and the Notes...... The Exchange Notes will bear interest from August
15, 1996, the date of issuance of the Notes that
are tendered in exchange for the Exchange Notes
(or the most recent Interest Payment Date (as
defined herein) to which interest on such Notes
has been paid). Accordingly, holders of Notes
that are accepted for exchange will not receive
interest on the Notes that is accrued but unpaid
at the time of tender, but such interest will be
payable on the Exchange Notes issued therefor on
the first Interest Payment Date after the
Expiration Date.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived, to the extent
permitted by law, by the Company. See "The
Exchange Offer -- Conditions" and "-- Procedures
for Tendering."
Procedures for Tendering
Notes.................... Each eligible holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Notes and any other required documentation to the
Exchange Agent (as defined herein) at the address
set forth in the Letter of Transmittal. The blue
Letter of Transmittal should be used to tender
Senior Notes and the yellow Letter of Transmittal
should be used to tender Senior Subordinated
Notes. By executing the Letter of Transmittal,
each holder will represent to the Company that,
among other things, the holder or the person
receiving such Exchange Notes, whether or not
such person is the holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes, that neither the holder nor
any such person is an "affiliate" (as defined
under Rule 405 of the Securities Act) of the
Company, and if such holder is a broker-dealer
that holds the Notes as a result of market-making
or other trading activities, it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales of
the Exchange Notes. In lieu of physical delivery
of the certificates representing Notes, tendering
holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
7
<PAGE> 12
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Notes are held in
book-entry form or are registered in the name of
a broker, dealer, commercial bank, trust company
or other nominee and who wishes to exchange such
Notes for the Exchange Notes should contact such
registered holder promptly and instruct such
registered holder to tender the Notes for
exchange on such beneficial owner's behalf. See
"The Exchange Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
(or comply with the procedures for book-entry
transfer) prior to the Expiration Date must
tender their Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
P.M., Eastern Time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawals of Tenders."
Acceptance of Notes and
Delivery of Exchange
Notes.................... The Company will accept for exchange any and all
Notes that are properly tendered in the Exchange
Offer, and not withdrawn, prior to 5:00 P.M.,
Eastern Time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest
practicable date following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer."
Federal Income Tax
Consequences............. The issuance of the Exchange Notes to holders of
the Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss will be recognized by holders of the
Notes upon receipt of the Exchange Notes. See
"The Exchange Offer -- Certain Federal Income Tax
Consequences of the Exchange Offer."
Effect on holders of the
Notes.................... As a result of the making of this Exchange Offer,
the Company will have fulfilled certain of its
obligations under the Registration Rights
Agreement, and holders of Notes who do not tender
their Notes will generally not have any further
registration rights under the Registration Rights
Agreement or otherwise. Such holders will
continue to hold the untendered Notes and will be
entitled to all the rights and subject to all the
limitations, including, without limitation,
transfer restrictions, applicable thereto under
the Indentures, except to the extent such rights
or limitations, by their terms, terminate or
cease to have further effectiveness as a result
of the Exchange Offer. Accordingly, if any Notes
are tendered and accepted in the Exchange Offer,
the trading market, if any, for the untendered
Notes could be adversely affected.
Exchange Agent............. Fleet National Bank is serving as exchange agent
(the "Exchange Agent") with respect to the Senior
Notes and the Senior Subordinated Notes.
8
<PAGE> 13
SUMMARY OF TERMS OF EXCHANGE NOTES
The form and terms of the Exchange Notes are substantially identical to the
form and terms of the Notes which they replace except that (i) the Exchange
Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof and (ii) the holders of Exchange
Notes generally will not be entitled to further registration rights under the
Registration Rights Agreement, which rights generally will have been satisfied
when the Exchange Offer is consummated. The Exchange Notes will evidence the
same indebtedness as the Notes which they replace and will be issued under, and
be entitled to the benefits of the Indentures. See "Description of Exchange
Notes."
Maturity........................ The Exchange Senior Notes will mature on
August 15, 2004 and the Exchange Senior
Subordinated Notes will mature on August
15, 2006.
Interest........................ Interest on the Exchange Senior Notes will
accrue at the rate of 9 7/8% per annum,
payable semi-annually in arrears on
February 15 and August 15 of each year,
commencing on February 15, 1997. Interest
on the Exchange Senior Subordinated Notes
will accrue at the rate of 10 5/8% per
annum, payable semiannually in arrears on
February 15 and August 15 of each year,
commencing on February 15, 1997.
Optional Redemption............. The Exchange Senior Notes may be redeemed at
the option of the Company, in whole or in
part, at any time on or after August 15,
2000, at the redemption prices set forth
herein, plus accrued and unpaid interest
and Liquidated Damages (as defined herein),
if any, thereon to the applicable
redemption date.
In addition, in the event of an Initial
Public Offering (as defined herein) by the
Company on or before August 15, 1999, the
Company may use the proceeds from such
Initial Public Offering to redeem up to 25%
of the aggregate principal amount of
Exchange Senior Notes originally issued at
a redemption price equal to 108 7/8% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any, thereon to the date of redemption;
provided, however, that at least $75.0
million in aggregate principal amount of
Exchange Senior Notes remains outstanding
following such redemption and, provided
further, that such redemption occurs within
60 days of the closing of such Initial
Public Offering.
The Exchange Senior Subordinated Notes may be
redeemed at the option of the Company, in
whole or in part, at any time on or after
August 15, 2001, at the redemption prices
set forth herein, plus accrued and unpaid
interest and Liquidated Damages, if any,
thereon to the applicable redemption date.
In addition, in the event of an Initial
Public Offering of the Company on or before
August 15, 1999, the Company may use the
proceeds from such Initial Public Offering
to redeem up to 35% of the aggregate
principal amount of Exchange Senior
Subordinated Notes originally issued at a
redemption price equal to 109 5/8% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if
any,
9
<PAGE> 14
thereon to the date of redemption;
provided, however, that at least $100.0
million in aggregate principal amount of
Exchange Senior Subordinated Notes remains
outstanding following such redemption and,
provided further, that such redemption
occurs within 60 days of the closing of
such Initial Public Offering.
Mandatory Redemption............ The Company will not be required to make any
mandatory redemption or sinking fund
payments with respect to the Exchange
Notes.
Change of Control............... Upon the occurrence of a Change of Control
(as defined herein), each holder of
Exchange Notes will have the right to
require the Company to purchase all or any
part (equal to $1,000 or an integral
multiple thereof) of such holder's Notes at
a price in cash equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
purchase. See, however, "Risk
Factors -- Possible Inability to Repurchase
Exchange Notes upon a Change of Control."
Ranking......................... The Exchange Senior Notes will be general
unsecured obligations of the Company,
ranking senior to all subordinated
Indebtedness of the Company, including the
Exchange Senior Subordinated Notes, and
pari passu with all existing and future
senior Indebtedness of the Company,
including borrowings under the New Credit
Agreement. However, borrowings under the
New Credit Agreement will be secured by
Liens on substantially all of the assets of
the Company and will, therefore,
effectively rank senior to the Exchange
Senior Notes.
The Exchange Senior Subordinated Notes will
be general unsecured obligations of the
Company and will be subordinated in right
of payment to Senior Debt. As of September
28, 1996, as a result of the Transactions
and excluding receivables sold pursuant to
the Receivables Securitization Facility,
there was approximately $318.0 million of
Senior Debt outstanding, $218.0 million of
which was secured Indebtedness under the
New Credit Agreement. See "Risk
Factors -- Subordination of Exchange Senior
Subordinated Notes" and "-- Effective
Subordination of Exchange Senior Notes."
Certain Covenants............... The Indentures contain certain covenants
that, among other things, limit the ability
of the Company and its subsidiaries to
incur additional Indebtedness, to issue
preferred stock, pay dividends or make
other distributions, repurchase Equity
Interests (as defined herein) or
subordinated Indebtedness, engage in sale
and leaseback transactions, create certain
liens, enter into certain transactions with
affiliates, sell assets of the Company or
its subsidiaries, issue or sell Equity
Interests of the Company's subsidiaries or
enter into certain mergers and
consolidations. In addition, under certain
circumstances, the Company will be required
to offer to purchase Notes at a price equal
to 100% of the principal amount thereof,
plus
10
<PAGE> 15
accrued and unpaid interest and Liquidated
Damages, if any, thereon to the date of
purchase, with the proceeds of certain
Asset Sales (as defined herein). See
"Description of Exchange Notes."
Exchange Offer; Registration
Rights........................ If (i) the Exchange Offer is not permitted by
applicable law or (ii) any holder of
Transfer Restricted Securities (as defined
herein) notifies the Company that (A) it is
prohibited by law or Commission policy from
participating in the Exchange Offer, (B)
that it may not resell the Exchange Notes
acquired by it in the Exchange Offer to the
public without delivering a prospectus and
the Prospectus is not appropriate or
available for such resales or (C) that it
is a broker-dealer and holds Notes acquired
directly from the Company or an affiliate
of the Company, and such holders timely
notify the Company of such facts, the
Company will be required to provide a shelf
registration statement (the "Shelf
Registration Statement") to cover resales
of the Notes by the holders thereof. If the
Company fails to satisfy these registration
obligations, it will be required to pay
liquidated damages ("Liquidated Damages")
to such holders of Notes under certain
circumstances. See "The Exchange
Offer -- Registration Rights and Effect of
Exchange Offer."
11
<PAGE> 16
PRINTPACK, INC. AND SUBSIDIARIES
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following table presents summary unaudited pro forma condensed combined
financial information derived from the Unaudited Pro Forma Condensed Combined
Financial Statements included elsewhere in this Prospectus. The summary pro
forma condensed combined financial information gives effect to the Transactions
as if they had occurred as of July 1, 1995 for purposes of the pro forma
condensed combined statements of operations data and other financial data.
The Unaudited Pro Forma Condensed Combined Financial Statements do not
purport to present the actual financial position or results of operations of the
Company or JR Flexible had the Transactions and events assumed therein in fact
occurred on the dates specified, nor are they necessarily indicative of the
results of the operations that may be achieved in the future. The Unaudited Pro
Forma Condensed Combined Financial Statements are based on certain assumptions
and adjustments described in the notes to the Unaudited Pro Forma Condensed
Combined Financial Statements and should be read in conjunction therewith and
with the historical financial statements of the Company, the historical combined
financial statements of The Flexible Packaging Group of James River Corporation
("JR Flexible Combined Financial Statements"), and the related notes thereto;
and the "Printpack, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------- COMBINED
PRINTPACK JR FLEXIBLE LATEST 12
LATEST 12 LATEST 12 MONTHS ENDED
MONTHS ENDED MONTHS ENDED JUNE 30,
JUNE 29, 1996(1) JUNE 30, 1996(2) 1996
---------------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................... $442,931 $467,023 $909,954
Gross margin........................................ 79,840 34,197 113,327
Selling, administrative and research and development
expenses.......................................... 44,581 37,799 57,965
Restructuring charges............................... -- 894 894
Amortization of intangible assets................... 169 732 5,993
Severance expense................................... 7,870 1,200 9,070
Write-off of equity investment...................... 200 -- 200
Income (loss) from operations....................... 27,189 (6,428) 39,205
Interest expense(3)(4).............................. 10,814 244 49,867
Income (loss) before provision for income taxes..... 16,316 (6,112) (9,992)
(Provision) benefit for income taxes................ (3,080) 2,219 --
Net income (loss)................................... 13,236 (3,893) (9,992)
BALANCE SHEET DATA:
Working capital..................................... $ 9,086 $ 57,021 $ 86,477
Total assets........................................ 231,269 346,119 650,037
Total debt.......................................... 157,138 2,392 534,038
Shareholders' equity................................ 13,460 247,249 12,160
OTHER FINANCIAL DATA:
EBITDA(3)(5)........................................ $ 52,033 $ 20,310(6) $ 96,758
EBITDA before certain charges(3)(7)................. 59,993 21,844 106,922
Capital expenditures................................ 25,786 29,454 55,240
Depreciation and amortization....................... 24,903 26,178 56,883
</TABLE>
12
<PAGE> 17
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------- COMBINED
PRINTPACK JR FLEXIBLE LATEST 12
LATEST 12 LATEST 12 MONTHS ENDED
MONTHS ENDED MONTHS ENDED JUNE 30,
JUNE 29, 1996(1) JUNE 30, 1996(2) 1996
---------------- ---------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
RATIOS:
Ratio of EBITDA to interest expense(3)(5)........... 1.9x
Ratio of EBITDA before certain charges to interest
expense(3)(7)..................................... 2.1x
Ratio of total debt to EBITDA before certain
charges(3)(7)..................................... 5.0x
Net income (loss)................................... $ 13,236 $ (3,893) $ (9,992)
Ratio of earnings to fixed charges(3)(8)............ 2.2x -- 0.8x
Earnings greater (less) than fixed charges.......... 16,013 (6,112) (10,295)
</TABLE>
- ---------------
(1) Results of operations are for the 53 weeks ended June 29, 1996.
(2) Results of operations are for the 53 weeks ended June 30, 1996. The results
of operations for this 53 week period were calculated by adding the six
months ended June 30, 1996 to the year ended December 31, 1995 and
deducting the results for the six months ended June 30, 1995.
(3) Interest expense, EBITDA and the ratio of earnings to fixed charges for JR
Flexible are not necessarily indicative of JR Flexible on a stand-alone
basis. See Note 2 to the JR Flexible Combined Financial Statements.
(4) Pro forma interest expense has been calculated based upon various assumed
interest rates on the Notes and under the New Credit Agreement.
(5) EBITDA represents net income (loss) before interest expense, taxes,
depreciation and amortization, but after deduction for restructuring
charges, severance expense and write-off of equity investments. While
EBITDA should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because management believes that it will be
useful in measuring the Company's ability to service its debt consistent
with the terms of such debt.
(6) This includes resin price decreases beginning March 1, 1996, the shedding
by JR Flexible of certain low margin business, reduction in waste and cost
reduction efforts.
(7) Pro forma combined EBITDA before certain charges, which adds back
restructuring charges, severance expense and write-off of equity
investment, would have been $106.9 million, and is provided, in part,
because similar measures are included in the terms of the Indentures and
the New Credit Agreement. Printpack management estimates that additional
savings (not reflected in the pro forma combined statements of operations
or other pro forma data) aggregating approximately $22.8 million can be
achieved as a result of the following:
(A) $7.8 million in anticipated additional savings as a result of the
voluntary retirement program completed by Printpack in fiscal 1996 in
which approximately 160 employees participated and which savings are
not reflected in the Printpack Financial Statements. Total annual
savings are expected to be $9.0 million.
(B) $5.8 million in anticipated additional savings as a result of below
market raw material contracts acquired by Printpack in conjunction
with the Acquisition based on current 1996 volumes, and which savings
are not reflected in the JR Flexible Combined Financial Statements or
in the Printpack Financial Statements. Total annual savings are
expected to be $7.6 million. See "Risk Factors -- Exposure to
Fluctuations in Raw Material Prices."
(C) $9.2 million in anticipated annual savings estimated as a result of the
reduction of approximately 150 JR Flexible salaried plant personnel
expected to occur shortly after the Closing of the Acquisition.
13
<PAGE> 18
If the above items had occurred at the beginning of Printpack's fiscal
1996, Printpack management estimates that the Company's pro forma combined
EBITDA before certain charges would have been approximately $129.7.
Accordingly, the pro forma ratio of EBITDA before certain charges to
interest expense would have been approximately 2.5x and the ratio of total
debt to EBITDA before certain charges would have been approximately 4.1x.
See "Printpack, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Effects of the Acquisition,"
for a discussion of certain of these costs savings and certain charges
related to the Acquisition.
(8) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary items and cumulative effect of
accounting change plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized
and the portion of rental expense that is representative of the interest
factor in these rentals.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------- PRO FORMA
PRINTPACK(1) JR FLEXIBLE(2) COMBINED
3 MONTHS 53 DAYS 3 MONTHS
ENDED ENDED ENDED
SEPTEMBER AUGUST 22, SEPTEMBER
28, 1996 1996 28, 1996
------------ -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales................................................. $ 150,787 $ 62,942 $ 213,729
Gross margin.............................................. 16,958 1,052 21,573
Selling, administrative and research and development
expenses................................................ (15,202) (4,817) (16,474)
Amortization of intangible assets......................... (307) (76) (1,101)
--------- -------- ---------
Income (loss) from operations............................. 1,449 (3,841) 3,998
Interest expense(3)(4).................................... (6,279) (31) (12,317)
Loss before provision for income taxes.................... (4,837) (3,754) (8,208)
(Provision) benefit for income taxes...................... (1,906) 1,404 (1,925)
Income (loss) before extraordinary item................... (6,743) (2,350) (10,133)
Extraordinary item -- loss on early extinguishment of debt
(net of tax benefit of $999)............................ (1,631) -- (1,631)
Net (loss)(7)............................................. $ (8,374) $ (2,350) $ (11,763)
--------- -------- ---------
OTHER FINANCIAL DATA:
EBITDA(3)(5).............................................. 9,115 57 16,366
EBITDA before certain charges(3)(6)....................... 10,746 57 17,997
Capital expenditures...................................... 375,724 2,668 378,392
Depreciation and amortization............................. 9,304 3,780 13,887
RATIOS:
Ratio of EBITDA to interest expense(3)(5)................. 1.3x
Ratio of EBITDA before certain charges to interest
expense(6).............................................. 1.5x
Ratio of total debt to EBITDA before certain charges(6)... 30.6x
Net income (loss)(7)...................................... $ (8,374) $ (2,350) $ (11,763)
Ratio of earnings to fixed charges(3)(7).................. 0.3x 0.4x
Earnings less than fixed charges.......................... (5,112) (3,754) (8,251)
</TABLE>
- ---------------
(1) Results of operations are for the 13 weeks ended September 28, 1996.
(2) Results of operations are for the 53 days ended August 22, 1996, the
Closing Date of the Acquisition.
(3) Interest expense, EBITDA and the ratio of earnings to fixed charges for JR
Flexible are not necessarily indicative of JR Flexible on a stand-alone
basis. See Note 2 to the JR Flexible Combined Financial Statements.
14
<PAGE> 19
(4) Pro forma interest expense has been calculated based upon various assumed
interest rates on the Notes and under the New Credit Agreement.
(5) EBITDA represents net income (loss) before interest expense, taxes,
depreciation and amortization, but after deduction for restructuring
charges and severance expense. While EBITDA should not be construed as a
substitute for operating income or a better indicator of liquidity than
cash flows from operating activities, which are determined in accordance
with generally accepted accounting principles, it is included herein to
provide additional information with respect to the ability of the Company
to meet its future debt service, capital expenditures and working capital
requirements. EBITDA is not necessarily a measure of the Company's ability
to fund its cash needs. EBITDA is included herein because management
believes that it will be useful in measuring the Company's ability to
service its debt consistent with the terms of such debt.
(6) Pro forma combined EBITDA before certain charges, which adds back
restructuring charges, severance expense and write-off of equity
investment, as well as extraordinary items such as the $1.6 million loss on
early extinguishment of debt, would have been $18.0 million, and is
provided primarily because similar earnings measures are included in the
terms of the Indentures and the New Credit Agreement. Printpack management
estimates that additional savings (not reflected in the pro forma combined
statements of operations or other pro forma data) aggregating approximately
$3.4 million for similar periods can be achieved as a result of the
following:
(A) Approximately $2.2 million in savings related to the voluntary
retirement program completed by Printpack in fiscal 1996 in which
approximately 160 employees participated have been reflected in the
Printpack Financial Statements. Total annual savings are expected to be
$9.0 million.
(B) Approximately $1.1 million in anticipated additional savings as a
result of below market raw material contracts acquired by Printpack in
conjunction with the Acquisition based on 1996 volumes, and which
savings are not reflected in the JR Flexible Combined Financial
Statements. Total annual savings are expected to be $7.6 million. See
"Risk Factors -- Exposure to Fluctuations in Raw Material Prices."
(C) Approximately $2.3 million in anticipated additional savings estimated
as a result of the reduction of approximately 150 JR Flexible salaried
plant personnel which occurred after the Closing of the Acquisition.
If the above items had occurred at the beginning of Printpack's fiscal 1997
on June 30, 1996, Printpack management estimates that the Company's pro
forma combined EBITDA before certain charges would have been approximately
$21.4. Accordingly, the pro forma ratio of EBITDA before certain charges to
interest expense would have been approximately 1.7 and the ratio of total
debt to EBITDA before certain charges would have been approximately 25.8.
See "Printpack, Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Certain Effects of the Acquisition,"
for a discussion of certain of these costs savings and certain charges
related to the Acquisition.
(7) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary items and cumulative effect of
accounting change plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized
and the portion of rental expense that is representative of the interest
factor in these rentals.
15
<PAGE> 20
PRINTPACK, INC. AND SUBSIDIARIES
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data presented in the table below have
been derived from the Printpack Financial Statements and the related notes
thereto and the JR Flexible Combined Financial Statements and the related notes
thereto included elsewhere in this Prospectus and should be read in conjunction
therewith. Printpack's historical financial data for the three months ended
September 23, 1995 and September 28, 1996 are unaudited, but have been prepared
on the same basis as the audited financial statements and, in the opinion of
Printpack management, include all adjustments, consisting only of normal
recurring entries (except as resulted from the Transactions), necessary for the
fair presentation of such statements. JR Flexible's historical financial data
for the six months ended June 25, 1995 and June 30, 1996 are unaudited, but have
been prepared on the same basis as the audited financial statements and, in the
opinion of James River management, include all adjustments, consisting only of
normal recurring entries, necessary for the fair presentation of such
statements. See "Unaudited Pro Forma Condensed Combined Financial Statements;"
and "Printpack, Inc. Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE(1) SEPTEMBER(2)
---------------------------------------------------- -------------------
PRINTPACK 1992 1993 1994 1995 1996 1995(3) 1996(4)
- ------------------------------------------------ -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales....................................... $361,106 $378,207 $407,272 $454,645 $442,931 $107,118 $150,787
Gross margin.................................... 62,777 65,294 76,927 84,015 79,840 17,663 16,958
Selling, administrative and research and
development expenses.......................... 38,952 41,319 43,467 49,796 44,581 11,497 15,202
Restructuring charges........................... -- -- 4,000 626 -- 48 --
Severance expense............................... 880 -- 7,870 -- --
Write-off of equity investment.................. -- -- -- 4,673 200 -- --
Amortization of intangible assets............... 2,544 169 169 169 169 42 307
Income (loss) from operations................... 21,281 23,806 28,411 28,751 27,020 6,076 1,449
Interest expense................................ 8,291 8,795 9,505 9,943 10,814 2,575 6,279
Income (loss) before provision for income
taxes......................................... 12,521 16,788 21,649 18,029 16,316 2,884 (4,837)
(Provision) for income taxes.................... -- -- (4,539) (864) (3,080) (545) (1,906)
Net income (loss)............................... 12,521 16,788 17,110 16,824 13,236 2,339 (8,374)
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER
BALANCE SHEET DATA: 28, 1996
------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital................................ 37,727 9,424 34,110 22,982 9,086 102,595
Total assets................................... 226,367 202,828 229,168 230,385 231,269 690,522
Total debt..................................... 96,753 97,436 118,075 122,609 157,138 551,383
Shareholders' equity........................... 81,313 53,905 41,987 32,305 13,460 5,086
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE(1) SEPTEMBER(2)
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995(3) 1996(4)
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash (used in) provided by operating
activities.................................... 22,455 41,697 45,429 39,732 17,746 (1,538) 15,800
Net cash used in investing activities........... (23,447) (11,593) (23,522) (29,459) (23,700) (6,461) (374,906)
Net cash (used in) provided by financing
activities.................................... 8,268 (36,431) (8,303) (20,303) 2,448 4,486 370,374
EBITDA(9)....................................... 42,255 45,688 51,735 50,186 52,033 11,159 9,115
Capital expenditures............................ 24,214 35,363 23,870 34,800 25,786 6,484 375,724
Depreciation and amortization................... 21,443 20,105 20,581 22,555 24,903 5,700 9,304
Net income (loss)............................... 12,521 16,788 17,110 16,824 13,236 2,339 (8,374)
Ratio of earnings to fixed charges(7)(8)........ 2.2x 2.7x 3.0x 2.6x 2.2x 1.8x 0.3x
Earnings greater (less) than fixed charges...... 12,493 17,192 21,781 17,996 16,013 2,483 (5,112)
</TABLE>
16
<PAGE> 21
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER(5) JUNE(6)
------------------------------ -------------------
JR FLEXIBLE 1993 1994 1995 1995 1996
- -------------------------------------------------------------------- -------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................................... $475,052 $464,517 $486,694 $243,103 $223,432
Gross margin........................................................ 53,632 44,874 26,030 12,108 19,543
Selling, administrative and research and development expenses....... 37,280 37,181 40,304 19,919 17,414
Restructuring charges............................................... -- -- 894 -- --
Severance expense................................................... -- -- 1,200 -- --
Income (loss) from operations....................................... 16,352 7,693 (16,368) (7,811) 2,129
Interest expense(7)................................................. 228 229 245 120 119
Income (loss) before provision for income taxes..................... 16,866 8,067 (16,110) (7,683) 2,315
Provision (benefit) for incomes taxes............................... 6,745 3,380 (6,029) (2,750) 1,060
Net income (loss)................................................... 10,121 4,687 (10,081) (4,933) 1,255
</TABLE>
<TABLE>
<CAPTION>
AS OF
BALANCE SHEET DATA: JUNE 30, 1996
------------------
<S> <C> <C> <C> <C>
Working capital.................................................... 69,276 55,937 57,021
Total assets....................................................... 347,971 350,566 346,119
Total debt......................................................... 2,392 2,392 2,392
Shareholders' equity............................................... 241,141 249,484 247,249
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER(5) JUNE(6)
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash provided by operating activities........................... 32,593 22,266 30,407 5,202 13,042
Net cash used in investing activities............................... (14,267) (32,273) (48,947) (29,622) (9,552)
Net cash (used in) provided by financing activities................. (18,326) 10,007 18,540 24,420 (3,490)
EBITDA(7)(9)........................................................ 37,573 30,203 8,260 3,837 15,887
Capital expenditures................................................ 14,307 32,634 49,430 29,800 9,824
Depreciation and amortization....................................... 20,479 21,907 24,125 11,400 13,453
Net income (loss)................................................... 10,121 4,687 (10,081) (4,933) 1,255
Ratio of earnings to fixed charges(7)(8)............................ 15.6x 8.4x -- -- 5.0x
Earnings greater (less) than fixed charges.......................... 16,866 8,067 (16,110) (7,683) 2,315
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Saturday of June.
(2) Results of operations are for the 13 weeks ended September 28, 1996 and
September 23, 1995.
(3) These results of operations, balance sheet data, and other financial data
do not reflect the Acquisition of JR Flexible.
(4) These results of operations, balance sheet data, and other financial data
reflect the Acquisition of JR Flexible as of August 22, 1996.
(5) Results of operations are for the 52 weeks ended December 26, 1993 and
December 25, 1994 and the 53 weeks ended December 31, 1995.
(6) Results of operations are for the 26 weeks ended June 25, 1995 and June 30,
1996.
(7) Interest expense, EBITDA and the ratio of earnings to fixed charges for JR
Flexible are not necessarily indicative of JR Flexible on a stand-alone
operating basis. See Note 2 to the JR Flexible Combined Financial
Statements.
(8) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary items and cumulative effect of
accounting change plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized
and the portion of rental expense that is representative of the interest
factor in these rentals.
(9) EBITDA represents net income (loss) before interest expense, taxes,
depreciation and amortization, but after deduction for restructuring
charges, severance expense and write-off of equity investments. While
EBITDA should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flows from operating activities,
which are determined in accordance with generally accepted accounting
principles, it is included herein to provide additional information with
respect to the ability of the Company to meet its future debt service,
capital expenditures and working capital requirements. EBITDA is not
necessarily a measure of the Company's ability to fund its cash needs.
EBITDA is included herein because management believes that it will be
useful in measuring the Company's ability to service its debt consistent
with the terms of such debt.
17
<PAGE> 22
RISK FACTORS
The following risk factors in addition to the other information included or
incorporated by reference in this Prospectus should be carefully considered in
connection with the Exchange Offer and an investment in the Exchange Notes.
CERTAIN FINANCING CONSIDERATIONS; SIGNIFICANT LEVERAGE
In addition to the initial sale of the Notes, the Company entered into the
New Credit Agreement with First Chicago, as agent, and certain other lenders
selected by First Chicago Capital Markets, Inc. ("FCCM"), which provides the
Company senior secured borrowings of up to $325 million. These New Credit
Facilities include a Term Loan of approximately $170 million and a Revolving
Credit Facility of approximately $155 million, subject to reductions by sales of
accounts receivable pursuant to the Receivables Securitization Facility. The
proceeds of the Notes and a portion of the New Credit Facilities were used to
pay for the Acquisition of JR Flexible. Approximately $146.8 million of the
credit available under the New Credit Facilities was used to repay certain
existing Indebtedness of the Company, and the remaining available balance after
permanent reduction of $50.0 million for the Receivable Securitization Facility
of approximately $51.3 will continue to be used for general corporate purposes,
including working capital. See "Description of Certain Indebtedness -- New
Credit Agreement" and "Receivables Securitization Facility".
Upon the Closing of the Transactions on August 22, 1996, the Company became
highly leveraged. At September 28, 1996, as a result of the Transactions and
subsequent operations, the Company's total debt was $551.4 million and its
shareholders' equity was $5.1 million. On a pro forma basis, after giving effect
to the Transactions, for fiscal 1996, the Company's earnings were inadequate to
cover its fixed charges by approximately $10.3 million, and the ratio of
earnings to fixed charges was 0.8x. For the Company's first quarter of fiscal
1997 ending September 28, 1996, the Company's earnings were inadequate to cover
its fixed charges by approximately $5.1 million, and the ratio of earnings to
fixed charges was negative. Printpack's leverage could have important
consequences to holders of the Exchange Notes, including, without limitation,
the following: (i) the Company's future ability to obtain additional financing
or attractive terms for working capital, capital expenditures and general
corporate purposes may be reduced; (ii) a substantial portion of the Company's
consolidated cash flow from operations must be dedicated to servicing Company
Indebtedness; (iii) the covenants and other restrictions contained in the
Indentures, the New Credit Agreement and otherwise limit the Company's ability
to borrow additional funds or dispose of assets; (iv) because of debt service
requirements, funds available for capital expenditures will be limited; (v)
Indebtedness under the New Credit Agreement will bear variable interest rates,
which, except to the extent these are hereafter hedged through interest rate
protection instruments, will increase the Company's interest expense if interest
rates rise; and (vi) the Company's leverage may make it more vulnerable to
future economic downturns and may limit its ability to withstand competitive
pressures. See "Capitalization;" "Unaudited Pro Forma Condensed Combined
Financial Statements;" "Printpack, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations;" and "Business -- Industry."
Based upon current levels of operations, anticipated improvements in the
former JR Flexible operations and certain cost savings measures, the Company
believes that its cash flows from operations, borrowings under the New Credit
Agreement, sales of accounts receivable under the Receivables Securitization
Facility and other sources of liquidity, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments for the foreseeable future, which for
purposes of this discussion, under current conditions, is at least the next 12
months. There can be no assurance, however, that the Company's business will
continue to generate cash flows from operations at or above current levels or
that anticipated improvements in operations and cost savings will be realized.
If the Company is unable to generate sufficient cash flows from operations in
the future, it may be required to refinance all or a portion of its existing
debt or to obtain additional financing. There can be no assurance that any such
refinancing would be possible or that any additional financing could be obtained
on terms that are favorable or acceptable to the Company. See "Printpack, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Industry."
18
<PAGE> 23
RESTRICTIVE COVENANTS
The Indentures contain covenants that, among other things, limit the
ability of the Company and its Subsidiaries (as defined herein) to incur
additional Indebtedness, sell assets, or enter into certain mergers and
consolidations. The New Credit Agreement also contains restrictive covenants
that are generally more restrictive than those contained in the Indentures. The
New Credit Agreement and the Senior Note Indenture prohibit the Company from
prepaying its subordinated Indebtedness (including the Senior Subordinated
Notes). The New Credit Agreement further requires the Company to maintain
specified financial ratios and satisfy certain financial tests. The Company's
ability to meet those financial ratios and financial tests can be affected by
events beyond its control, and there can be no assurance that the Company will
meet those ratios and tests. A breach of any of the covenants under the New
Credit Agreement or the Indentures could result in a default under the New
Credit Agreement and/or the Indentures. If an event of default occurs under the
New Credit Agreement, the lenders could elect to declare all amounts outstanding
thereunder, together with accrued interest, to be immediately due and payable.
If the Company is unable to repay those amounts, the lenders could proceed
against the collateral granted to them to secure that Indebtedness.
Substantially all the assets of the Company are pledged as collateral security
under the New Credit Agreement. See "Description of Exchange Notes" and
"Description of Certain Indebtedness -- The New Credit Agreement."
SUBORDINATION OF EXCHANGE SENIOR SUBORDINATED NOTES
The Exchange Senior Subordinated Notes will be general unsecured
obligations of the Company, subordinated in right of payment to all Senior Debt,
which, as a result of the Transactions and excluding receivables sold pursuant
to the Receivables Securitization Facility, was $318.0 million on September 28,
1996. Upon payment or distribution of the Company's assets in a total or partial
liquidation, dissolution, reorganization or similar proceeding of the Company,
the holders of the Senior Debt will be entitled to receive payment in full
before the holders of the Exchange Senior Subordinated Notes are entitled to
receive payment thereon. In addition, if any non-payment default occurs that
would permit acceleration of any Designated Senior Debt (as defined herein), the
holders of such Designated Senior Debt may issue a payment blockage notice
prohibiting the Company from making any such payment in respect of the Exchange
Senior Subordinated Notes for up to 179 days commencing not less than 360 days
after a prior payment blockage notice, if any. The Senior Subordinated Note
Indenture provides that the Company may not incur any additional Indebtedness
that is both subordinate in right of payment to any Senior Debt and senior in
right of payment to the Exchange Senior Subordinated Notes. Additional Senior
Debt may be incurred by the Company from time to time subject to certain
restrictions. See "Description of Exchange Notes -- Subordination of Senior
Subordinated Notes."
EFFECTIVE SUBORDINATION OF EXCHANGE SENIOR NOTES
The Exchange Senior Notes will be general unsecured obligations of the
Company ranking senior to all subordinated Indebtedness of the Company,
including the Exchange Senior Subordinated Notes. However, since Indebtedness
under the New Credit Agreement is secured by Liens on substantially all Company
assets, the Company's borrowings under the New Credit Agreement will effectively
rank senior to the Exchange Senior Notes.
FOREIGN OPERATIONS; LOSSES INCURRED BY PRINTPACK EUROPE
Prior to the Reorganization, Printpack's operations were conducted
principally in North America and its foreign operations were conducted primarily
through separately chartered affiliates in the U.K. and Mexico. Following the
Reorganization, ownership of Printpack Europe is held by Holdings and
Enterprises, and the Company has no interest therein. As a result of the
Acquisition, Printpack has acquired three Mexican subsidiaries of JR Flexible,
which it plans to combine with its existing Mexican subsidiaries. See
"Prospectus Summary -- The Acquisition, Financing and Related Transactions" and
"Description of Exchange Notes -- Certain Covenants -- Transactions with
Affiliates."
19
<PAGE> 24
Printpack management currently believes that Printpack Europe, which was
separately managed by its U.K. managers, certain of whom have since been
terminated, lost approximately $37.1 million on an unaudited pretax basis for
its 1996 fiscal year. These losses resulted from increased raw material costs
and intense price competition in the U.K., as well as special charges of $32.5
million attributable to prior Printpack Europe management's failure to properly
recognize expenses as incurred. In December 1994, the Mexican peso was devalued
with severe adverse effects on the Mexican economy and the operations of various
multinational businesses conducted in that country. Sales to the Company's
principal Mexican customer, Sabritas, a Frito-Lay affiliate, declined from $16
million in the Company's fiscal year ended June 24, 1995 to negligible amounts
in the first half of fiscal 1996. Mexican sales by Printpack rebounded along
with the Mexican economy in the second half of fiscal 1996 to approximately $5
million (approximately 1% of total Company's sales for fiscal 1996). Sales to
Sabritas are expected to increase, but the timing and amount of such increase,
if any, cannot be predicted, and no assurance can be given as to whether future
economic changes in Mexico will adversely affect the Company. See "Prospectus
Summary -- United Kingdom Affiliates;" and "Printpack, Inc. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
POSSIBLE INABILITY TO REPURCHASE EXCHANGE NOTES UPON A CHANGE OF CONTROL
The terms of the New Credit Agreement prohibit the Company from
repurchasing the Exchange Notes upon the occurrence of a Change of Control (as
defined in the Indentures). In addition, since the Company's obligations to
repurchase the Exchange Senior Subordinated Notes upon a Change of Control will
be subordinated to the Company's obligations to repurchase the Exchange Senior
Notes and to repay or repurchase other Senior Debt, in the event of a Change of
Control, no payments may be made with respect to the Exchange Senior
Subordinated Notes until all of the Company's obligations with respect to the
Exchange Senior Notes and such other Senior Debt have been satisfied in full.
Accordingly, the Company may not be able to satisfy its obligations to
repurchase the Exchange Notes unless the Company is able to refinance or obtain
waivers with respect to the New Credit Agreement and certain other Indebtedness,
including, in the case of Exchange Senior Subordinated Notes, the Exchange
Senior Notes. There can be no assurance that the Company will have the financial
resources to repurchase the Exchange Notes in the event of a Change of Control,
particularly if such Change of Control requires the Company to refinance, or
results in the acceleration of, other Indebtedness. See "Description of Exchange
Notes -- Repurchase at the Option of Holders."
The Change of Control provisions of the Indentures may not, in all
instances, obligate the Company to repurchase Exchange Notes at the option of
the holder thereof in the event the Company incurs additional leverage through
certain types of recapitalizations, leveraged buy-outs or similar transactions
that could increase the Indebtedness of the Company and/or decrease the value of
the Exchange Notes.
POSSIBLE DIFFICULTIES WITH THE INTEGRATION OF JR FLEXIBLE
The Acquisition substantially increased the Company's assets and
operations. Assets increased approximately 180%, and Printpack estimates that
its sales will approximately double, and the number of employees rose
approximately 125% upon the Closing of the Acquisition. JR Flexible had 10
manufacturing facilities, six of which will continue to have collective
bargaining agreements with their employees after the Acquisition. James River
did not begin initiatives to reduce JR Flexible's costs until late 1995. There
can be no assurance that sales attributable to JR Flexible's business will not
decline or that the Company will be able to successfully integrate JR Flexible's
business or realize expected cost savings from the combination.
In addition, the Acquisition of JR Flexible and its assimilation into
Printpack will require significant management time and effort to eliminate
redundancies, excess overhead and staff. Certain of these measures include
reorganizing the JR Flexible sales and technical staffs, consolidating certain
JR Flexible plants over the next six to 12 months into existing Printpack
facilities, and reorganizing JR Flexible's manufacturing facilities to operate
more like the Company's plants. Additional staff related to management
information systems and accounting controls will be needed to manage the
expanded operations. Both the timing and realization of cost savings and
business synergies could be affected by numerous factors beyond the
20
<PAGE> 25
Company's control, including, without limitation, changes in product structures,
changes in customers as a result of acquisitions and divestitures, demographic
changes, changes in customer products and packaging demands, new technology, and
raw materials price changes, and no assurance is given that the Company will
achieve by any particular time, the cost savings and synergies it seeks in the
Acquisition. The Company may lose some sales, at least temporarily, from the
closing of certain JR Flexible plants and the reorganization and consolidation
of JR Flexible's operations. Printpack has announced the closing of two former
JR Flexible plants, one in San Leandro, California, and one in Dayton, Ohio,
which closures presently are expected to be completed by the end of the
Company's fiscal year 1997.
CERTAIN DEPENDENCIES ON CUSTOMER RELATIONSHIPS
The Company is dependent upon a limited number of large customers with
substantial purchasing power for a majority of its sales, and many of such
customers are reducing their number of suppliers. The top 10 customers accounted
for approximately 62% of the Company's total sales in fiscal 1996. Frito-Lay
accounted for approximately 25% of the Company's total sales in fiscal year
1996, and an estimated 13% after giving pro forma effect to the Acquisition. The
end user market for flexible packaging has been consolidating with the larger
end users gaining market share and realizing the highest growth rates. Other end
users have exited the market. For example, in early 1996, Anheuser-Busch
discontinued its Eagle salted snack products. Eagle was the Company's third
largest customer in 1995, and accounted for $25 million and $21 million,
respectively, of Printpack's total sales in fiscal years 1995 and 1996. United
Biscuit recently sold its Keebler brand salted snack and cookie/cracker
operations to different groups, and the Company believes it has lost some
revenue as a result of these changes at this customer. The loss of one or more
major customers, or a material reduction in the sales to such customers would
have a material adverse effect on the Company's results of operations, EBITDA
and cash flows and on its ability to service its Indebtedness. As is customary
in the industry, the Company annually establishes volume estimates with most of
its customers, but generally has no long-term contracts with its customers, and
substantially all such relationships can be terminated on short notice by such
customers. See "Printpack Inc. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" and
"Business -- Customers."
EXPOSURE TO FLUCTUATIONS IN RAW MATERIAL PRICES
Printpack and JR Flexible use large quantities of various raw materials,
including resins and films in the manufacture of their products. While the
Company historically has been able to pass through increases in the costs of
resins and other raw materials to end users, large, abrupt increases in the
price of raw materials could adversely affect the Company's operating margins,
although such adverse effects historically have been only temporary. The Company
has acquired from James River five two-year resin supply contracts which provide
for substantial discounts on resin prices and should result in estimated cost
savings of approximately $7.6 million annually based on current 1996 volumes.
These contracts, which are terminable upon 30 days' notice by either party, may
reduce risks related to resin prices. There is no assurance that a significant
increase in resin or other raw material prices, or a cancellation of one or more
favorable resin supply contracts, would not have an adverse effect on the
Company's business, results of operations and debt service capabilities. See
"Printpack, Inc. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Manufacturing Process."
ENVIRONMENTAL MATTERS
The Company and JR Flexible's operations are subject to federal, state and
local environmental laws and regulations that impose limitations on the
discharge of pollutants into the air and water and establish standards for the
treatment, storage and disposal of solid and hazardous wastes. The Company has
made and expects to continue to make additional capital expenditures in response
to changing compliance standards and environmental technology. Furthermore,
unknown contamination of sites currently or formerly owned or operated by the
Company or JR Flexible (including contamination caused by prior owners and
operators of such sites) and off-site disposal of hazardous substances and
wastes may give rise to additional compliance costs. The Company does not
generally incur significant environmental risks in the conduct of its business.
21
<PAGE> 26
Accordingly, the Company does not have insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future,
although James River has agreed to indemnify the Company with respect to certain
off-site environmental liabilities related to JR Flexible's operations. Although
the Company does not expect to incur environmental liabilities which are
material to its financial condition, there can be no assurance that the Company
will not incur liabilities for environmental matters in the future, including
those resulting from changes in environmental regulations, that may be material
to the Company's results of operations or financial condition. See
"Business -- Environmental Matters and Regulation."
SEASONALITY
Certain of the end uses for certain of Printpack's products, and, to a
lesser extent, JR Flexible's products, are seasonal. Demand in many snack food
and soft drink markets is generally higher in the spring and summer. As a
result, Company sales and profits are generally higher in the Company's fourth
quarter (ending the last Saturday in June) than in any other quarter during its
fiscal year. See "Printpack, Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
COMPETITION
The markets in which the Company operates are highly competitive on the
basis of price, service, quality and innovation in product structures and
graphics. In addition to several hundred smaller competitors, the Company faces
strong competition from various large flexible packaging companies, including
Bemis, American National Can (a division of Pechiney), Reynolds Metals, Cryovac
(a subsidiary of W.R. Grace), Sonoco Products and Huntsman Packaging (a division
of Huntsman Chemical), which have significantly greater financial, personnel and
other resources than the Company. Although both the Company and JR Flexible have
broad product lines and are continually developing their product structures,
from time to time customers may determine to use alternative product structures
not offered by the Company, with a corresponding reduction in existing and
potential revenues from these customers. See "Business."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Securities Act and will
continue to be subject to restrictions on transferability to the extent that
they are not exchanged for the Exchange Notes. The Exchange Notes will
constitute a new issue of securities with no established trading market.
Although the Exchange Notes will generally be permitted to be resold or
otherwise transferred by holders who are not affiliates of the Company without
compliance with the registration requirements under the Securities Act, the
Company does not intend to list the Exchange Notes on any national securities
exchange or for trading on Nasdaq. The Notes are traded through NASD's PORTAL
trading system under the symbol "PRTKNP04" for the Senior Notes and "PRTKNP06"
for the Senior Subordinated Notes. Donaldson, Lufkin & Jenrette Securities
Corporation has advised the Company that it has made a market in the Notes, and
that it may make a market in the Exchange Notes; however, it is not obligated to
do so and any market-making activity with respect to the Notes and the Exchange
Notes may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. Accordingly, there is no assurance that an active
public or other market will develop or continue for the Exchange Notes, and it
is expected that the market, if any, that develops for the Exchange Notes will
be similar to the limited market that currently exists for the Notes.
EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
properly completed and duly executed Letters of Transmittal and all other
required documents from holders eligible to participate in the Exchange Offer.
Therefore, holders of the Notes desiring to tender such Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of Notes for exchange. Notes that are not tendered or are
tendered
22
<PAGE> 27
but not accepted will, following the consummation of the Exchange Offer,
continue to be subject to the existing restrictions upon transfer thereof and,
upon consummation of the Exchange Offer, the registration rights under the
Registration Rights Agreement generally will terminate. In addition, any holder
of Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale. Each broker-dealer that receives Exchange Notes for its own account in
exchange for Notes, where such Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. To the extent that Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Notes could be
adversely affected. See "Explanatory Note;" "Prospectus Summary -- The Exchange
Offer;" and "The Exchange Offer."
RESTRICTIONS ON TRANSFER OF NOTES
Except for persons that are ineligible to participate in the Exchange Offer
under positions taken by the Commission Staff, holders of Notes who do not
tender their Notes in the Exchange Offer generally will not have any further
registration rights under the Registration Rights Agreement or otherwise.
Accordingly, any holder of Notes that does not exchange that holder's Notes for
Exchange Notes will continue to hold unregistered Notes and will be entitled to
all the rights and limitations applicable thereto under the Indentures and the
Securities Act, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer. The failure to participate in the Exchange Offer may adversely
affect the ability of eligible holders to resell unregistered Notes in the
future.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the Exchange
Notes pursuant to the Exchange Offer. The net proceeds to Printpack from the
sale of the Notes on August 22, 1996 were approximately $289.0 million (after
deducting estimated expenses and commissions), all of which was applied to the
purchase price for JR Flexible. See "Prospectus Summary -- The Acquisition,
Financing and Related Transactions;" "Capitalization;" "Printpack, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations;" and Note 5 to the Company's Financial Statements.
23
<PAGE> 28
CAPITALIZATION
(UNAUDITED)
The following table sets forth the capitalization of Printpack as of
September 28, 1996. The information in the table below is qualified in its
entirety by, and should be read in conjunction with, the Printpack Financial
Statements and the related notes included elsewhere herein. The Company will
receive no proceeds from the Exchange Offer, and its debt, shareholders' equity
and total capitalization will remain unchanged as a result of the Exchange
Offer.
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 28,
1996
-------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Current portion of long-term debt and notes payable............................. $ 12,000
Long-term debt, excluding current maturities
Receivable Securitization Facility............................................ 23,000
New Credit Agreement.......................................................... 206,000
9 7/8% Senior Notes due 2004.................................................. 100,000
10 5/8% Senior Subordinated Notes due 2006.................................... 200,000
Existing subordinated notes(1)................................................ 10,383
--------
Total long-term debt.................................................. 551,383
Total shareholders' equity............................................ 5,086
--------
Total capitalization.................................................. $ 556,469
========
</TABLE>
- ---------------
(1) For a description of the existing subordinated notes, see "Description of
Certain Indebtedness -- Shareholder Notes."
24
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
12 months ended June 30, 1996 and the three months ended September 28, 1996
present the pro forma combined results of operations of the Company and JR
Flexible as if the Transactions had occurred on July 1, 1995. The Unaudited Pro
Forma Condensed Combined Financial Statements do not purport to present the
actual financial position or results of operations of the Company had the
Transactions and events assumed therein in fact occurred on the dates specified,
nor are they necessarily indicative of the results of operations that may be
achieved in the future. Pro forma adjustments are applied to the historical
consolidated financial statements of the Company to account for the
Transactions. The Acquisition has been accounted for under the purchase method
of accounting. Under the purchase method of accounting, the total purchase cost
has been allocated to the assets acquired and the liabilities assumed based on
their relative fair values, with any remaining unallocated purchase price
applied to identifiable intangibles and goodwill. Printpack management is
obtaining final appraisals of JR Flexible's assets and liabilities. The
allocation noted above is subject to change based upon receipt of such final
appraisals. See "Prospectus Summary -- The Company" and "Printpack, Inc.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Effects of the Acquisition."
The data for JR Flexible for the 26 weeks ended June 30, 1995 and 1996 are
derived from the unaudited JR Flexible Combined Financial Statements included
elsewhere herein, which in the opinion of James River management, include all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the results of operations for such interim periods. The results
of operations of JR Flexible for the 26 weeks ended June 30, 1996 are not
necessarily indicative of results that may be expected for 1996, nor are the pro
forma amounts and ratios necessarily indicative of results of operations or
combined financial position that would have resulted had the Transactions been
consummated at the beginning of the period indicated.
The Unaudited Pro Forma Condensed Combined Financial Statements also are
based on certain assumptions and adjustments described in the notes to the
Unaudited Pro Forma Condensed Combined Financial Statements, contain certain
forward-looking statements and should be read in conjunction therewith and with
"Prospectus Summary -- The Acquisition, Financing and Related Transactions;"
"Special Cautionary Notice Regarding Forward-Looking Statements;" "Summary
Unaudited Pro Forma Condensed Combined Financial Data;" "Summary Historical
Financial Data;" "Capitalization;" "Risk Factors;" "Printpack, Inc. Management's
Discussion and Analysis of Financial Condition and Results of Operations;" and
the Printpack Financial Statements and the JR Flexible Combined Financial
Statements and the related notes thereto included elsewhere in this Prospectus.
25
<PAGE> 30
PRINTPACK, INC. AND SUBSIDIARIES
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE 12 MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
HISTORICAL
HISTORICAL JR PRO FORMA PRO FORMA
PRINTPACK(1) FLEXIBLE(2) ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.................................. $ 442,931 $ 467,023 $ $ 909,954
Cost of goods sold......................... 363,091 432,826 710(3) 796,627
-------- -------- ------- --------
Gross margin............................... 79,840 34,197 (710) 113,327
Selling, administrative and research and
development expenses..................... 44,581 37,799 (24,415)(4) 57,965
Restructuring charges...................... -- 894 894
Severance expense.......................... 7,870 1,200 9,070
Amortization of intangible assets.......... 169 732 2,939(3) 3,840
Write-off of equity investment............. 200 -- 200
Income (loss) from operations.............. 27,189 (6,428) 41,358
Interest expense........................... 10,814 244 (9,916)(5) 52,020
50,878(6)
Income (loss) before provision for income
taxes.................................... 16,316 (6,112) (20,196) (9,992)
(Provision) benefit for income taxes....... (3,080) 2,219 861(8) --
Net income (loss)(7)....................... $ 13,236 $ (3,893) $ (19,335) $ (9,992)
OTHER FINANCIAL DATA:
Capital expenditures....................... 25,786 29,454 55,240
Depreciation and amortization.............. 24,903 26,178 3,649(3) 54,730
</TABLE>
- ---------------
(1) Results of operations are for the 53 weeks ended June 29, 1996.
(2) Results of operations are for the 53 weeks ended June 30, 1996. The results
of operations for this 53 week period were calculated by adding the six
months ended June 30, 1996 to the year ended December 31, 1995 and
deducting the results for the six months ended June 30, 1995.
(3) Depreciation of new fair value basis in property and equipment using an
estimated useful life of 31 years for buildings and site improvements; a
useful life of 8 years for machinery and equipment; and amortization of
intangibles acquired using a 15 year life.
The depreciation and amortization adjustments and amortization periods
are as follows:
<TABLE>
<CAPTION>
ANNUAL
FAIR USEFUL DEPRECIATION
VALUE LIFE AMORTIZATION
-------- ------ ------------
<S> <C> <C> <C>
Depreciable property, plant & equipment:
Land improvements.............................. $ 702 31 $ 23
Buildings...................................... 33,422 31 1,078
Machinery & equipment.......................... 199,954 8 24,994
--------
26,095
JR Flexible depreciation expense for 53 weeks ended June 30, 1996... (25,385)
--------
Pro Forma depreciation adjustment................................... $ 710
--------
</TABLE>
26
<PAGE> 31
<TABLE>
<CAPTION>
ANNUAL
FAIR USEFUL DEPRECIATION
VALUE LIFE AMORTIZATION
-------- --- --------
<S> <C> <C> <C>
Amortization of intangible assets:
Goodwill....................................... $ 28,573
Other intangibles.............................. $ 26,500
55,073 15 3,671
--------
JR Flexible amortization expense for 53 weeks ended June 30, 1996... (732)
--------
Pro Forma amortization adjustment................................... $ 2,939
--------
</TABLE>
See Note 2 to the Printpack September 28, 1996 Financial Statements.
(4) This pro forma adjustment reduces certain historical selling,
administrative and research and development expenses incurred by JR
Flexible. The nature of the reductions relate predominantly to two items.
The first item relates to the corporate direct and indirect charges
allocated to JR Flexible by James River. Company management has thoroughly
analyzed all components of these costs and considers $7.3 million to be
excessive costs that will not be incurred prospectively and which were
allocated to JR Flexible on a basis other than one deemed reasonable by
Printpack management. The second item totaling $17.1 million relates to the
JR Flexible Milford headquarters facility and Milford pilot plant which the
Company did not acquire. In addition, this item includes personnel
reductions related to redundant JR Flexible personnel, initiated by James
River pursuant to the Acquisition Agreement.
<TABLE>
<S> <C>
JAMES RIVER CORPORATE CHARGES
James River corporate direct charges........................ $ 2,300,000(A)
James River corporate indirect charges...................... 5,900,000(B)
-----------
8,200,000
Incremental costs........................................... (900,000)(J)
-----------
Net James River corporate charges......................... 7,300,000
JR FLEXIBLE GROUP COSTS
Administrative.............................................. 5,640,000(C)
Technical center/pilot plant................................ 3,200,000(D)
Selling expenses............................................ 2,800,000(E)
Facility management......................................... 2,500,000(F)
Management information systems.............................. 2,025,000(G)
Product development......................................... 900,000(H)
Engineers................................................... 700,000(I)
-----------
17,765,000
Incremental costs........................................... (650,000)(J)
-----------
Net JR Flexible Group Costs............................... 17,115,000
-----------
Total Net Pro Forma Adjustment.............................. $24,415,000
===========
</TABLE>
(A) Direct charges include cost allocations from James River corporate
headquarters for management information systems costs, consulting fees,
transportation costs, etc.
(B) Indirect charges include general overhead cost allocations (i.e. taxes,
audit fees, etc.) from James River corporate headquarters.
(C) Administrative costs include administrative costs of JR Flexible in
Milford, Ohio. Such costs include human resources personnel, corporate
controllers, corporate accounting personnel, corporate executives, and
corporate marketing personnel. Since Printpack did not retain the human
resources personnel, corporate controllers, accounting personnel, corporate
executives and corporate marketing personnel, these costs are eliminated on
a pro forma basis. These personnel reductions were initiated by James River
pursuant to the Acquisition Agreement. Any headcount additions to the
corporate accounting department are reflected in the incremental costs. See
Note (J) below.
27
<PAGE> 32
(D) Technical center/pilot plant costs include costs associated with the
Milford, Ohio technical center/pilot plant which was not acquired by
Printpack.
(E) Selling expenses include salaries and related expenses of JR Flexible sales
personnel that were not retained by Printpack. These personnel reductions
were initiated by James River pursuant to the Acquisition Agreement.
(F) Facility management costs include costs to lease and maintain the Milford,
Ohio building. The Milford, Ohio building was not acquired by Printpack.
(G) Management information system costs include salaries and related expenses
of JR Flexible MIS personnel and computer consulting services incurred by
JR Flexible. As Printpack has an MIS department, the JR Flexible MIS
personnel and related expenses are eliminated on a pro forma basis. Any
headcount additions to the MIS department are reflected in the incremental
costs. See Note (J) below. These personnel reductions were initiated by
James River pursuant to the Acquisition Agreement.
(H) Product development includes costs to develop new flexible packaging
products and processes. As Printpack has a flexible product development
department with all of the capabilities of the JR product development
department, the JR Flexible product development costs are considered
redundant and thus are eliminated on a pro forma basis.
(I) Engineers includes salaries of product engineers and certain research and
development engineer costs not included in product development costs. The
engineers were not retained by Printpack. These personnel reductions have
been initiated by James River pursuant to the Acquisition Agreement.
(J) Incremental costs include headcount additions and related costs to offset
headcount reductions in JR corporate accounting and management information
services departments at Milford, Ohio and to provide certain services
performed by James River Corporate in Richmond, Virginia.
(5) Eliminates interest expense on existing indebtedness which was repaid as
part of the Transactions.
(6) Reflects changes to interest expense and amortization of debt issuance
costs as a result of the Acquisition:
<TABLE>
<S> <C>
Interest on $23 million of borrowings under the Receivables
Securization Facility assuming an interest rate of 5.9%....... $ 1,357,000
Interest on borrowings of $53.7 million under Revolving Credit
Facility assuming an interest rate of 6.9%.................... 3,705,300
Interest on borrowings of $170 million under the Term Loan
assuming an interest rate of 7.38%............................ 12,538,000
Interest on borrowings under the $100 million of Senior Notes
assuming an interest rate of 9 7/8%........................... 9,875,000
Interest on borrowings under the $200 million of Senior
Subordinated Notes assuming an interest rate of 10 5/8%....... 21,250,000
Amortization of debt issuance costs (8 year amortization
period)....................................................... 2,153,000
-----------
Total................................................. $50,878,300
===========
</TABLE>
Interest expense would change by approximately $20,000 based upon a 1/8th
of 1.00% change in interest rates on the New Credit Facility.
(7) Note that the pro forma results do not reflect a nonrecurring charge of
approximately $1.6 million, net of tax, for early extinguishment of the
existing indebtedness.
(8) Eliminate historical tax provision. Due to pro forma net loss, no pro forma
income tax provision will be presumed.
28
<PAGE> 33
PRINTPACK, INC. AND SUBSIDIARIES
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
PRINTPACK(1) JR FLEXIBLE(2) ADJUSTMENTS COMBINED
------------ -------------- ---------------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales............................. $ 150,787 $ 62,942 $ $ 213,729
Cost of goods sold.................... (133,829) (61,890) 3,563(3) (192,156)
--------- -------- ------- ---------
Gross margin.......................... 16,958 1,052 3,563 21,573
Selling, administrative and research
and development expenses............ (15,202) (4,817) 3,545(4) (16,474)
Amortization of intangible assets..... (307) (76) (463)(3) (846)
--------- -------- ------- ---------
Income (loss) from operations......... 1,449 (3,841) 6,645 4,253
Interest expense...................... (6,279) (31) 6,025(5) (12,571)
(12,286)(6)
Loss before provision for income
taxes............................... (4,837) (3,754) 384 (8,208)
(Provision) benefit for income
taxes............................... (1,906) 1,404 (1,423) (1,925)
Net income (loss)(7).................. $ (8,374) $ (2,350) $ (1,039) $ (11,763)
--------- -------- ---------
OTHER FINANCIAL DATA:
Capital expenditures.................. 375,724 2,668 378,392
Depreciation and amortization......... 9,304 3,780 548(3) 13,887
</TABLE>
- ---------------
(1) Results of operations are for the 13 weeks ended September 28, 1996.
(2) Results of operations are for the 53 days ended August 22, 1996.
(3) Increase in depreciation of $85 based on new fair value basis in property
and equipment purchased in the Acquisition using an estimated useful life
of 31 years for buildings and site improvements; a useful life of eight
years for machinery and equipment; and amortization of intangibles acquired
using a 15 year life. This expense is offset by $3,648 which represents a
decrease in cost of goods sold due to the step up in value of inventory
which is nonrecurring and directly attributable to the Acquisition. See
Note 2 to the Printpack September 28, 1996 Financial Statements.
(4) Reflects estimated cost savings of $2.5 million as a result of the
elimination of duplicative Milford headquarters, pilot plant, as well as
redundant salesforce and technical personnel, which sales and technical
personnel reductions have been initiated by James River pursuant to the
Acquisition Agreement. Also reflects estimated cost savings of $1.0 million
as a result of the elimination of JR Flexible corporate overhead.
(5) Eliminates interest expense on existing indebtedness which will be repaid
as part of the Transactions.
(6) Reflects changes to interest expense and amortization of debt issuance
costs as a result of the Acquisition:
<TABLE>
<S> <C>
Interest on $53.7 million of borrowings under Revolving Credit
Facility assuming an interest rate of 6.9%.................... $ 918,500
Interest on $170 million of borrowings under the Term Loan
assuming an interest rate of 7.38%............................ 3,134,500
Interest on borrowings under the $100 million of Senior Notes
assuming an interest rate of 9 7/8%........................... 2,468,750
Interest on borrowings under the $200 million of Senior
Subordinated Notes assuming an interest rate of 10 5/8%....... 5,312,500
Interest on $23 million of borrowings under the Receivables
Securization Facility assuming an interest rate of 5.9%....... 197,250
Amortization of debt issuance costs (8 year amortization
period)....................................................... 255,000
-----------
Total................................................. $12,286,500
==========
</TABLE>
Interest expense would change by approximately $20,000 based upon a 1/8th
of 1.00% change in interest rates on the New Credit Facility.
(7) Note that the pro forma results do not reflect a nonrecurring charge of
approximately $1.6 million, net of tax, for early extinguishment of the
existing indebtedness.
29
<PAGE> 34
PRINTPACK, INC. AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of Printpack set forth below have
been derived from (i) the Company's audited combined financial statements as of
and for the year ended June 27, 1992 and (ii) the Company's audited financial
statements as of and for the years ended June 26, 1993, June 25, 1994, June 24,
1995 and June 29, 1996 and (iii) the Company's financial statements as of and
for the three months ended September 28, 1996 and September 23, 1995, which are
unaudited, but which have been prepared on the same basis as the audited
financial statements and, in the opinion of management, contain all adjustments,
consisting only of normal recurring adjustments (except as resulted from the
Transactions), necessary for the fair presentation of such statements. The
following selected financial data should be read in conjunction with the
Printpack Financial Statements and related notes thereto included elsewhere in
this Prospectus and "Printpack Inc. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE(1) SEPTEMBER(2)
--------------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1995(3) 1996(4)
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................ $361,106 $378,207 $407,272 $454,645 $442,931 $107,118 $150,787
Cost of goods sold................... 298,329 312,913 330,345 370,630 363,091 89,455 133,829
Gross margin......................... 62,777 65,294 76,927 84,015 79,840 17,663 16,958
Selling, administrative and research
and development expenses........... 38,952 41,319 43,467 49,796 44,581 11,497 15,202
Restructuring charges................ -- -- 4,000 626 -- 48 --
Severance expense.................... -- -- 880 -- 7,870 -- --
Write-off of equity investment....... -- -- -- 4,673 200 -- --
Amortization of intangible assets.... 2,544 169 169 169 169 42 307
Income (loss) from operations........ 21,281 23,806 28,411 28,751 27,020 6,076 1,449
Interest expense..................... 8,291 8,795 9,505 9,943 10,814 2,575 6,279
Other income (expense)............... (469) 1,777 2,743 (779) 110 (324) 225
Income (loss) before provision for
income taxes....................... 12,521 16,788 21,649 18,029 16,316 2,884 (4,837)
(Provision) for income taxes......... -- -- (4,539) (864) (3,080) (545) (1,906)
Income (loss) before cumulative
effect of a change in accounting
principle.......................... 12,521 16,788 17,110 17,165 13,236 2,339 (8,374)
Income (loss) before extraordinary
item............................... 12,521 16,788 17,110 17,165 13,236 2,339 (8,374)
Extraordinary item -- loss on early
extinguishment of debt............. -- -- -- -- -- -- (1,631)
Net income (loss).................... 12,521 16,788 17,110 16,824 13,236 2,339 (8,374)
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 28, 1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................... 37,727 9,424 34,110 22,982 9,086 102,595
Total assets......................... 226,367 202,828 229,168 230,385 231,269 690,522
Total debt........................... 96,753 97,436 118,075 122,609 157,138 551,383
Shareholders' equity................. 81,313 53,905 41,987 32,305 13,460 5,086
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JUNE(1) SEPTEMBER(2)
---------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995(3) 1996(4)
-------- -------- -------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash (used in) provided by operating
activities................................... 22,455 41,697 45,429 39,732 17,746 (1,538) 15,800
Net cash used in investing activities.......... (23,447) (11,593) (23,522) (29,459) (23,700) (6,461) (374,906)
Net cash (used in) provided by financing
activities................................... 8,268 (36,431) (8,303) (20,303) 2,448 4,486 370,374
EBITDA......................................... 42,255 45,688 51,735 50,186 52,033 11,159 9,115
Capital expenditures........................... 24,214 35,363 23,870 34,800 25,786 6,484 375,724
Depreciation and amortization.................. 21,443 20,105 20,581 22,555 24,903 5,700 9,304
Net income (loss).............................. 12,521 16,788 17,110 16,824 13,236 2,339 (8,374)
Ratio of earnings to fixed charges(5).......... 2.2x 2.7x 3.0x 2.6x 2.2x 1.8x 0.3x
Earnings greater (less) than fixed charges..... 12,493 17,192 21,781 17,996 16,013 2,483 (5,112)
</TABLE>
- ---------------
(1) The Company's fiscal year ends on the last Saturday of June.
(2) Results of operations are for the 13 weeks ended September 28, 1996 and
September 23, 1995.
(3) These results of operations, balance sheet data, and other financial data do
not reflect the Acquisition of JR Flexible.
30
<PAGE> 35
(4) These results of operations, balance sheet data, and other financial data
reflect the Acquisition of JR Flexible as of August 22, 1996.
(5) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary items and cumulative effect of an
accounting change plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized
and the portion of rental expense that is representative of the interest
factor in these rentals.
31
<PAGE> 36
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
The selected historical financial data of JR Flexible set forth below have
been derived from The Flexible Packaging Group of James River Corporation's (i)
audited combined financial statements as of and for the year ended December 26,
1993, (ii) audited combined financial statements as of and for the years ended
December 31, 1994 and 1995 and (iii) combined financial statements as of and for
the periods ended June 25, 1995 and June 30, 1996, which are unaudited, but
which have been prepared on the same basis as the audited financial statements
and, in the opinion of James River management, contain all adjustments,
consisting only of normal recurring adjustments, which in the opinion of James
River management are necessary for the fair presentation of such statements. The
following selected financial data should be read in conjunction with the JR
Flexible Combined Financial Statements and related notes thereto included
elsewhere in this Prospectus.
JR FLEXIBLE
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER(1) JUNE(2)
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................... $475,052 $464,517 $486,694 243,103 223,432
Cost of goods sold.......................... 421,420 419,643 460,664 230,995 203,889
Gross margin................................ 53,632 44,874 26,030 12,108 19,543
Selling, administrative and research and
development expenses...................... 37,280 37,181 40,304 19,919 17,414
Restructuring charges....................... -- -- 894 -- --
Severance expense........................... -- -- 1,200 -- --
Income (loss) from operations............... 16,352 7,693 (16,368) (7,811) 2,129
Interest expense(4)......................... 228 229 245 120 119
Other income (expense)...................... 742 603 503 248 305
Income (loss) before provision for income
taxes..................................... 16,866 8,067 (16,110) (7,683) 2,315
Provision (benefit) for income taxes........ 6,745 3,380 (6,029) (2,750) 1,060
Income (loss) before cumulative effect of a
change in accounting principle............ 10,121 4,687 (10,081) (4,933) 1,255
Net income (loss)........................... 10,121 4,687 (10,081) (4,933) 1,255
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
1996
---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ 69,276 55,937 57,021
Total assets........................................... 347,971 350,566 346,119
Total debt............................................. 2,392 2,392 2,392
Shareholders' equity................................... 241,141 249,484 247,249
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
DECEMBER(1) JUNE(2)
------------------------------ -------------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Net cash provided by operating activities... 32,593 22,266 30,407 5,202 13,042
Net cash used in investing activities....... (14,267) (32,273) (48,947) (29,622) (9,552)
Net cash (used in) provided by financing
activities................................ (18,326) 10,007 18,540 24,420 (3,490)
EBITDA(4)................................... 37,573 30,203 8,260 3,837 15,887
Capital expenditures........................ 14,307 32,634 49,430 29,800 9,824
Depreciation and amortization............... 20,479 21,907 24,125 11,400 13,453
Net income (loss)........................... 10,121 4,687 (10,081) (4,933) 1,255
Ratio of earnings to fixed charges(3)(4).... 15.6x 8.4x -- -- 5.0x
Earnings greater (less) than fixed
charges................................... 16,866 8,067 (16,110) (7,683) 2,315
</TABLE>
- ---------------
(1) Results of operations are for the 52 weeks ended December 26, 1993 and
December 25, 1994, and for the 53 weeks ended December 31, 1995.
32
<PAGE> 37
(2) Results of operations are for the 26 weeks ended June 25, 1995 and June 30,
1996.
(3) The ratio of earnings to fixed charges is computed by dividing earnings by
fixed charges. For this purpose, "earnings" include operating income (loss)
before income taxes, extraordinary items and cumulative effect of an
accounting change plus fixed charges. Fixed charges include interest,
whether expensed or capitalized, amortization of debt expense and discount
or premium relating to any indebtedness, whether expensed or capitalized
and the portion of rental expense that is representative of the interest
factor in these rentals.
(4) Interest expense, EBITDA and ratio of earnings to fixed charges for JR
Flexible are not necessarily indicative of JR Flexible on a stand-alone
operating basis. See Note 2 to the JR Flexible Combined Financial
Statements.
33
<PAGE> 38
PRINTPACK, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is a discussion and analysis of the results of operations and
financial condition of Printpack for the first quarter of fiscal 1997 ended
September 28, 1996 compared to the first quarter of fiscal 1996 ended September
23, 1995 and for the three fiscal years prior to the completion of the
Transactions. The periods prior to the Transactions do not reflect the
significant effects of such Transactions on the Company. This discussion should
be read in conjunction with the audited financial statements of Printpack and
with the unaudited interim financial statements and the notes thereto included
elsewhere herein. The following also contains certain forward-looking statements
that involve risks and uncertainties, and the Company's results following the
Closing of the Transactions could differ materially from those discussed herein.
See "Prospectus Summary -- The Acquisition, Financing and Related Transactions"
and "Special Cautionary Notice Regarding Forward-Looking Statements;" "Risk
Factors;" "Business;" and the Printpack Financial Statements and related notes.
RESULTS OF OPERATIONS
First Quarter ended September 28, 1996 compared to First Quarter ended
September 23, 1995
Net Sales. Net sales increased $43.7 million or 40.8% to $150.8 million in
first quarter of fiscal 1997, ended September 28, 1996, from $107.1 million in
first quarter of fiscal 1996 due primarily to sales to new and existing
customers resulting from the Acquisition completed on August 22, 1996. Price
changes to customers during the most recent fiscal quarter were insignificant.
Gross Margin. Cost of goods sold increased $44.4 million or 49.6% to
$133.8 million in first quarter of fiscal 1997 from $89.5 million in first
quarter of fiscal 1996, which reduced gross margins to $17.0 million in first
quarter of fiscal 1997 from $17.7 million in the same period one year earlier.
Cost of goods sold increased to 88.8% of net sales in first quarter of fiscal
1997 from 83.5% in first quarter of fiscal 1996, primarily because of higher
manufacturing costs in the plants obtained from James River as part of the
Acquisition. In future quarters, Company management intends to reduce these
costs compared to the prior year.
Operating Expenses. Selling, administrative and research and development
expenses increased $3.7 million dollars or 3.2% to $15.2 million in first
quarter of fiscal 1997 from $11.5 million in first quarter 1996. The increase
was primarily attributable to cost increases resulting from the Acquisition,
including certain related expenses that management believes are not likely to be
continuing. Selling, administrative and research and development expense as a
percentage of net sales declined to 10.1% in first quarter of fiscal 1997 from
10.7% in first quarter 1996 as a result of additional sales from the
Acquisition.
Certain Charges. The interim financial results include certain assets and
liabilities and five weeks of operating results of JR Flexible which was
acquired on August 22, 1996. The Acquisition was accounted for using the
purchase method of accounting. Accordingly, the purchase price of approximately
$380 million includes approximately $7.0 million of severance and other exit
costs primarily associated with the announced closing of the San Leandro and
Dayton plants, and approximately $1.0 million in other acquisition costs, has
been preliminary allocated on the basis of the estimated fair value of the
assets acquired and liabilities assumed. This allocation has resulted in
goodwill of approximately $28.6 million and other intangibles of approximately
$26.5 million which are being amortized on a straight-line basis over 15 years.
The final purchase price for the Acquisition is subject to adjustment based upon
an audit of the James River closing statement of assets acquired and liabilities
assumed, and resolution of certain items, as contemplated in the Acquisition
Agreement.
Accruals related to the announced closure of the two plants represent
management's best estimate of the anticipated costs to be incurred. Additional
costs associated with the closure of these plants will be allocated to the
purchase price for JR Flexible. The current exit plans are expected to be
completed by March 31, 1997.
34
<PAGE> 39
The operating results of the JR Flexible facilities being closed are
included in the statement of operations and statement of cash flows presented
for the 13 weeks ended September 28, 1996 and were not material to the Company's
financial results for the period.
Operating Income. Income from operations of $1.5 million was realized for
the three months ended September 28, 1996 compared to income from operations of
$6.1 million in the corresponding period of fiscal 1996. The decrease was
predominantly due to lower gross margins, higher selling, administrative and
research and development expenses which were adversely affected by the
Acquisition, as described above.
Other Income and Expense. Interest expense increased $3.7 million (143.8%)
to $6.3 million in the first quarter of fiscal 1997 compared to $2.6 million in
first quarter of fiscal 1996 due to increased borrowings incurred in connection
with the Transactions on August 22, 1996.
An income tax expense of $1.9 million was incurred in the first quarter of
fiscal 1997 compared to an income tax expense of $0.5 million in first quarter
of fiscal 1996. The increase in the effective tax rate from 18.9% in first
quarter 1996 to 39.0% in first quarter 1997 is primarily attributable to the
Reorganization and the termination of elections to be taxed under Subchapter S
applicable to certain Company operations previously conducted by Enterprises.
The effective income tax rate is exclusive of a one time charge of $3.8 million
for this change in tax election.
In the first quarter of fiscal 1997, the Company incurred debt prepayment
fees of $1.6 million, net of the applicable tax benefit on its indebtedness
refinanced as part of the Transactions.
The Company's net loss after extraordinary item was $8.4 million in first
quarter of fiscal 1997 compared to net income of $2.3 million in first quarter
1996. The loss is primarily attributable to the absorption of the new
Acquisition into the operations of the Company, and the extraordinary charge of
$1.6 million for debt repayment fees.
Fiscal Year 1996 Compared to Fiscal Year 1995
The following discussion with respect to prior fiscal years of the Company
is based on the historical financial capital structure of the Company without
regard to the effects of the Acquisition. The Acquisition has been accounted for
using the purchase method of accounting. As a result of the additional assets
obtained in the Acquisition, the Company expects to record expenses for
depreciation and amortization that are in excess of historical levels for the
Company, as well as reserves for cost reduction measures that will be
adjustments to the Acquisition balance sheet. In addition, the results of
operations of the Company, as compared with historical results, will be
significantly affected by the substantial increase in the Company's outstanding
Indebtedness in connection with the financing of the Acquisition, including
interest charges on the Indebtedness incurred under the New Credit Agreement and
the Notes and the costs associated with the Receivables Securitization Facility.
The Notes and the New Credit Agreement include various affirmative, negative and
financial covenants with which the Company must comply, including but not
limited to, the maintenance of certain financial ratios, and limitations on the
incurrence of additional Indebtedness and the payment of dividends. See
"Description of Exchange Notes;" "Description of Certain Indebtedness" and
"Receivables Securitization Facility."
Net Sales
Net sales decreased $11.7 million (2.6%) to $442.9 million in fiscal 1996
from $454.6 million in fiscal 1995, despite sales to most customers increasing.
Part of this decrease is attributable to strong sales in fiscal 1995, and to
reduced sales in fiscal 1996 to three leading customers resulting from
circumstances unrelated to the Company. In February 1996, Anheuser-Busch
announced the closing of its Eagle Snacks division and the sale of most of its
fixed assets to Frito-Lay. Printpack had been the exclusive flexible packaging
supplier to Eagle Snacks, which was one of the Company's largest customers and
accounted for $21 million of sales in fiscal 1996, down from $25 million in
fiscal 1995. Although Eagle Snacks no longer exists, Printpack management
believes that Eagle Snacks' sales ultimately will be absorbed by the salted
snack industry's other participants, including Frito-Lay, one of Printpack's
largest customers. Keebler's salted snack foods were sold
35
<PAGE> 40
by United Biscuit, plc in November 1995 to an investor group with a regional
focus compared to Keebler's national sales program. Although Printpack has
continued to supply packaging to Keebler's cookie/cracker business, the reduced
scope of Printpack's role as a provider of flexible packaging for Keebler's
salted snack business negatively affected Printpack's fiscal 1996 sales.
Finally, Printpack experienced a decline of approximately 70% in its business
with Mexican customers, especially Sabritas, a Frito-Lay subsidiary, in fiscal
1996 versus fiscal 1995 due to the effects of the devaluation of the Mexican
peso in December 1994. Such effects were the Mexican peso's loss of more than
half of its value over the course of the next year and a half and the subsequent
Mexican recession. In addition, declines of up to approximately 10% in average
raw materials prices in fiscal 1996 reduced the selling prices of the Company's
products, which contributed to this decline in dollar sales. See "Risk
Factors -- Foreign Operations; Losses incurred by Printpack Europe;" "-- Certain
Dependencies on Customer Relationships" and "-- Exposure to Fluctuation in Raw
Materials Prices."
Gross Margin
Gross margin in fiscal 1996 decreased $4.2 million (5.0%) to $79.8 million
from $84.0 million in fiscal 1995. Gross margin as a percentage of net sales in
fiscal 1996 decreased slightly to 18.0% compared to 18.5% in fiscal 1995. During
fiscal 1995 and 1996, certain inventory quantities were reduced. These
reductions resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the costs of 1995 and
1996 purchases, the effect of which decreased cost of goods sold and increased
income from operations by approximately $1,800,000 and $500,000, respectively.
The decreases in gross margin and gross margin as a percentage of net sales also
resulted from the underabsorption of manufacturing fixed costs and overhead
caused by the loss of business from Eagle Snacks, Keebler and Sabritas and the
underutilization of new capacity added in fiscal 1995 at the Rhinelander and
Grand Prairie plants, offset by approximately $6.0 million of reduced EVA Plan
(as defined herein) expense. See "-- Liquidity and Capital Resources" and
"Management -- Incentive and Deferred Compensation."
Operating Expenses
Operating Expenses in fiscal 1996 decreased $5.2 million (10.5%) to $44.6
million from $49.8 million in fiscal 1995. Operating Expenses as a percentage of
net sales decreased from 10.1% of net sales in fiscal 1996 compared to 11.0% in
fiscal 1995. These decreases were due primarily to $6.0 million of reductions in
EVA Plan expense, $1.2 million due to the partial year benefit resulting from
Printpack's headcount reduction program begun in March 1996 and $0.7 million of
reduced profit sharing expense, offset by normal pay increases.
Certain Charges
In fiscal 1996, the Company took a non-recurring charge of approximately
$7.9 million related to the severance of approximately 160 employees located at
its manufacturing and corporate headquarters facilities. This program included
approximately 160 employees, and resulted in a $7.9 million one-time severance
charge. Management estimates that payroll and associated expenses related to
such employees will be reduced by approximately $9.0 million annually,
approximately $1.2 million of which was realized in the last four months of
fiscal 1996. The Company made severance payments of $1.9 million in fiscal 1996
and anticipates making additional severance payments of approximately $5.4
million and $0.6 million in fiscal year 1997 and 1998, respectively. The Company
also wrote-off in fiscal 1996 approximately $0.2 million of investments in an
unaffiliated company. In fiscal 1995, the Company realized a non-recurring
charge of approximately $4.7 million related to the Company's debt guarantee on
behalf of an unaffiliated company attempting to develop and market new packaging
technology, which guarantee subsequently was paid and terminated. There are no
other guarantees related to this defunct unaffiliated company. In fiscal 1995,
an additional charge of $0.6 million was recognized on the 1994 sale of the
Company's Cincinnati, Ohio plant to Orflex, Ltd. a limited liability partnership
("Orflex").
36
<PAGE> 41
Operating Income
Income from operations decreased $1.7 million (6.0%) to $27.2 million in
fiscal 1996 from $28.9 million in fiscal 1995, primarily as a result of the
decrease in net sales, and the charges taken in fiscal 1996 and the other
changes described above.
Other Income and Expense
Interest expense in fiscal 1996 increased by $0.9 million to $10.8 million
compared to $9.9 million in fiscal 1995 due to a larger average amount of
indebtedness outstanding in fiscal 1996. The Company's undistributed loss in
Orflex increased from $(0.3) million in 1995 to $(1.1) million in 1996,
reflecting additional losses at that unit. Other expense of $0.5 million in
fiscal 1995 became income of $1.2 million in fiscal 1996, primarily as a result
of the Company receiving the proceeds of insurance when a former shareholder
died.
As a result of the foregoing, income before provision for income taxes
declined 9.5% from $18.0 million in fiscal 1995 to $16.3 million in fiscal 1996.
The provisions for income taxes increased 256.5% from $0.9 million in fiscal
1995 to $3.0 million in fiscal 1996 owing to a deferred credit in fiscal 1995
that related primarily to the fact that incentive compensation expenses are
recognized at different times for financial reporting and tax purposes. The
current portion of income tax expense decreased 49.2% from $5.9 million in
fiscal 1995 to $3.0 million in fiscal 1996 because of reduced income. Deferred
income taxes declined from $5.1 million in fiscal 1995 to $.1 million in fiscal
1996, primarily because of the deferred tax credit described above. See
"Management -- Executive Officer and Director Compensation" and Note 13 to the
Printpack Financial Statements.
Net income declined 21.3% between fiscal 1995 and 1996 from $16.8 million
to $13.2 million. If the Company had not elected Subchapter S status for federal
income taxes during fiscal 1995 and 1996, net income on a pro forma basis would
have been $9.8 million for fiscal 1996, approximately $1.4 million (12.6%) less
than the $11.2 million for fiscal 1995.
Fiscal Year 1995 Compared to Fiscal Year 1994
Net Sales
Net sales in fiscal 1995 increased $47.4 million (11.6%) to $454.6 million
from $407.3 million in fiscal 1994, reflecting continued growth from existing
and new customers as well as increases in raw material prices that were
reflected in higher selling prices of between 10 and 60%. The Company's sales to
Sabritas, a new customer to Printpack in fiscal 1995, were $16 million, most of
which was realized prior to January 1995 and the devaluation of the Mexican
peso. See "Risk Factors -- Foreign Operations; Losses incurred by Printpack
Europe."
Gross Margin
Gross margin in fiscal 1995 increased $7.1 million (9.2%) to $84.0 million
from $76.9 million in fiscal 1994. Gross margin as a percentage of net sales in
fiscal 1995 decreased slightly to 18.5% compared to 18.9% in fiscal 1994.
Despite the positive effects of increased sales absorption of manufacturing
costs, the modest decline in gross margin as a percentage of net sales resulted
primarily from rapid raw material (primarily resin and film) price increases
that were not fully recovered by price increases. Raw material prices began
moving upward midway through fiscal 1994 and remained higher through fiscal 1995
due to increased demand for, and shortages in raw material supplies. According
to the FPA, unanticipated shortages in substrates (film, paper or foil) placed
pressure on industry margins generally, and to an extent experienced only once
before in the last 20 years. See "Risk Factors -- Exposure to Fluctuations in
Raw Material Prices" and "Business -- Manufacturing Process."
37
<PAGE> 42
Operating Expenses
Operating Expenses in fiscal 1995 increased $6.3 million (14.6%) to $49.8
from $43.5 million in fiscal 1994. This increase was due largely to
approximately $4.8 million of increases in incentive compensation, especially as
a result of expenses for the long-term portion of the EVA Plan being first
recognized in fiscal 1995. Operating Expenses as a percentage of sales remained
relatively steady at 11.0% of sales in fiscal 1995 compared to 10.7% in fiscal
1994, as a result of higher volumes and continued cost cutting efforts. See
"Management -- Executive Officer and Director Compensation."
Certain Charges
In fiscal 1994, the Company incurred restructuring and severance expenses
of approximately $0.9 million to reduce the work force at the Company's
Cincinnati, Ohio plant and $4.0 million in other plant closing costs related to
that plant. Subsequently, this plant was sold to Orflex, which is 49% owned by
Printpack. This sale resulted in $3.3 million of deferred gain, and in fiscal
1995 an additional charge of $0.6 million was recognized on this transaction.
Operating Income
Income from operations in fiscal 1995 increased $0.3 million to $28.9
million compared to $28.6 million in fiscal 1994. This was attributable to the
incremental profit on larger net sales offset by higher raw material costs and
other Operating Expenses.
Other Income and Expense
Interest expense in fiscal 1995 increased by $0.4 million to $9.9 million
compared to $9.5 million in fiscal 1994 due to higher average outstanding
indebtedness in fiscal 1995, offset in part by lower interest rates on variable
rate debt in fiscal 1995. Other income of $2.7 million in fiscal 1994 declined
$3.5 million to a loss of $0.8 million in fiscal 1995 because of the gain in
fiscal 1994 on the sale of an interest in Deluxe Engravings. See Note 4 to the
Printpack Financial Statements.
As a result of the foregoing, income before provision for income taxes
declined 16.7% from $21.6 million in fiscal 1994 to $18.0 million in fiscal
1995. The provisions for income taxes declined 80.1% from $4.5 million in fiscal
1994 to $0.9 million in fiscal 1995. Approximately $2.9 million of this decline
is attributable to the one-time effect of the Company dropping its election to
be taxed under Subchapter S of the Code.
In fiscal 1995, Printpack incurred a one-time, after-tax charge of $0.3
million resulting from the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits."
See Note 12 to the Printpack Financial Statements.
Net income declined 1.7% between 1994 and 1995 from $17.1 million to $16.8
million. If the Company had not elected Subchapter S status for federal income
taxes during fiscal 1994 and 1995, net income on a pro forma basis would have
been $13.8 million for fiscal 1994, and would have declined approximately 18.8%
to $11.2 million in fiscal 1995.
RESEARCH AND DEVELOPMENT
The Company expenses its research and development ("R&D") costs as
incurred. Such expenditures were $5.2 million, $5.8 million and $5.5 million, in
fiscal 1996, 1995 and 1994, respectively. JR Flexible also expenses its R&D as
incurred and such expenses were $6.0 million in 1995 and $6.5 million in 1994.
See "Risk Factors -- Competition" and "Business -- Business
Strategy -- Technological Innovation."
LIQUIDITY AND CAPITAL RESOURCES
The Transactions consummated in the first quarter of fiscal 1997 ended
September 28, 1996 changed the Company's financial condition, adding substantial
indebtedness and were the principal cause of the reduction of the parent's
equity investment from $13.5 million to $5.1 million in shareholders' equity.
Capital
38
<PAGE> 43
expenditures of $3.5 million in fiscal 1996 and $6.5 million in fiscal 1995
continued to be principally for new property, plant and equipment. Cash and cash
equivalents increased $11.3 million to $11.5 million at September 28, 1996 as
compared to approximately $0.2 million one year earlier and at June 29, 1996.
The increase was primarily due to the Transactions, especially the New Credit
Facility and borrowings thereunder.
Cash flows from operations were $17.7 million in fiscal 1996, $22.0 million
(55.4%) less than in the previous fiscal year. This reflected a number of items,
including decreases in inventories, increases in prepaid expenses and other
assets, $7.5 million reduction in dividends and income taxes payable, reduction
in bonuses payable and accounts payable. Cash flows from operations were $39.7
million in fiscal 1995, $5.7 million (12.6%) less than in fiscal 1994. This
reflected a number of items, especially a $7.4 million decrease in deferred
taxes, a $5.8 million increase in incentive compensation paid, the change in
SFAS No. 112, and changes in working capital components related to higher sales
volumes.
In fiscal 1996, cash flows used in investing activities, principally
capital expenditures for new property, plant and equipment, decreased 19.5% to
$23.7 million. At the same time, proceeds from the disposition of property and
equipment decreased from $5.3 million to $0.8. Cash flows used in investing
activities, principally capital expenditures for new property, plant and
equipment, increased in fiscal 1995 25.2% to $29.5 million from $23.5 million in
fiscal 1994. These expenditures included significant investments in production
facilities. Significant projects included a new converting plant in Grand
Prairie ($19.9 million) and building renovations and a new press in Rhinelander
($11.0 million). At the same time, proceeds from the disposition of property and
equipment increased from $0.3 million to $5.3 million, primarily because of the
sale of the Cincinnati plant to Orflex.
Cash provided by financing activities in fiscal 1996 was $2.4 million,
compared to cash used in financing activities of $20.3 million one year earlier.
In fiscal 1995, cash used in financing activities increased 144.6% from $8.3
million to $20.3 million. These amounts reflect dividends paid of $32.1 million,
$26.5 million and $29.0 million, respectively, in fiscal 1996, 1995 and 1994,
primarily to fund Printpack Europe's acquisitions and operations and to
compensate Company shareholders for the personal taxes resulting from the
Company's Subchapter S election. In fiscal 1994, the Company borrowed an
additional $20.7 million, net of repayments of principal, but in fiscal 1995,
the Company's net borrowings after principal repayments were only $4.5 million,
which reflects the issuance of $10.4 million in subordinated notes to Company
shareholders to facilitate intergenerational transfers of Company stock among
the members of the Company's controlling family. In fiscal 1996, net borrowings
were $34.5 million, which additional borrowings were used to pay dividends
primarily to fund the operations of Printpack Europe. The Indentures and the New
Credit Agreement will restrict future contributions to Printpack Europe.
In light of the indebtedness to be incurred in connection with the
Acquisition, the Company determined to reduce its exposure to changes in
interest rates, which had fluctuated during early Summer 1996. The Company
entered into a $300 million notional principal amount interest rate swap with
Bank of America, Chicago, Illinois ("BAI"), which was settled based upon the
difference between the present value of 10 years of interest payments at the
10-year Treasury note yield on August 19, 1996 and 6.895%. As a result of
subsequent declines in interest rates, the Company settled this interest rate
swap with a cash payment to BAI on August 21, 1996 of $7.4 million. Such funds
were obtained from existing credit lines, and repaid with proceeds from the
Revolving Credit Facility.
Printpack management believed that Orflex needed additional cash to fund
its operations, and Printpack made an additional subordinated, demand loan to
Orflex of approximately $700,000 prior to the Closing of the Transactions.
Printpack management believes Orflex may have to seek additional funding from
other sources, which may or may not be obtainable. The Indentures and the New
Credit Agreement restrict further investments in, or loans to, Orflex by
Printpack following the Closing. See "-- Results of Operations -- Other Income
and Expenses;" "Description of Exchange Notes;" "Description of Certain
Indebtedness;" and Note 4 to the Printpack Financial Statements.
The Company's primary sources of liquidity have been cash flows from
operations and borrowings under existing bank credit facilities and private
placements of fixed rate, unsecured notes to insurance companies. The Company
has used borrowings under the bank credit facilities to meet seasonal
fluctuations in working
39
<PAGE> 44
capital requirements. These working capital requirements generally peak during
January through March when sales volumes generally are lowest. See "Description
of Certain Indebtedness -- New Credit Agreement" and Note 5 to the Company's
Financial Statements.
The Indentures contain certain covenants that, among other things, could
limit the ability of the Company and its Subsidiaries to incur additional
Indebtedness outside the New Credit Facilities, and the Company's former
reliance on privately placed debt may be shifted to borrowings under the New
Credit Facility, and to the use of proceeds from the sale of Receivables
pursuant to the Receivables Securitization Facility. See "Prospectus
Summary -- The Acquisition, Financing and Related Transactions;" "Risk
Factors -- Restrictive Covenants;" "Description of Exchange Notes -- Certain
Covenants;" and "Receivables Securitization Facility."
Cash and cash equivalents have declined over the last three years from
$13.8 million at the end of fiscal 1994 to $0.2 million at the end of fiscal
1996. During this same period, the Company's current ratio has decreased 1.57 to
1.12, as a result of a long-term loan in the principal amount of $25 million due
December 31, 1996 being included for the first time in current liabilities in
fiscal 1996. At the same time, Printpack was using cash to pay dividends to fund
Printpack Europe's acquisitions and operations. On June 29, 1996, Printpack had
approximately $8.8 million available under bank lines of credit. The Company's
cash position has decreased since June 25, 1994 principally as a result of
investments by the Company prior to the Reorganization in Printpack Europe and
distributions to the shareholders of the Company to pay taxes payable by such
shareholders as a result of elections by the Company and its predecessors to be
taxed under Subchapter S of the Code. See "Prospectus Summary -- United Kingdom
Affiliates;" "-- The Acquisition, Financing and Related Transactions" "Risk
Factors -- Foreign Operations; Losses incurred by Printpack Europe;" and
Printpack Financial Statements -- Statements of Cash Flows and the accompanying
notes thereto.
JR Flexible participated in James River's centralized cash management
system and, as such, its cash funding requirements were historically met by
James River, and its cash and liquidity are not representative of its operation
on a stand-alone basis. See Note 2 to the JR Flexible Combined Financial
Statements.
Immediately following the Acquisition, the Company had approximately $51.3
million available under the New Credit Agreement for liquidity and working
capital.
Printpack's capital expenditures in fiscal 1996, 1995 and 1994 were $25.8
million, $34.8 million, and $23.9 million, respectively, aggregating $84.5
million. Printpack management estimates maintenance capital expenditures of $10
million per year have been necessary, which are expected to increase to $17
million annually following the Acquisition.
During its last two fiscal years ended December 31, 1995, JR Flexible's
capital expenditures aggregated approximately $82.0 million ($49.4 million in
fiscal 1995 and $32.6 million in fiscal 1994). In the first six months of 1996,
JR Flexible's capital expenditures were approximately $9.8 million. Printpack's
management estimates JR Flexible's maintenance capital expenditures to be
approximately $7 million per year.
The Company believes that its primary liquidity needs will consist of
capital expenditures, debt service and working capital. Estimated capital
expenditures for the combined entity are expected to be approximately $45.0
million per year for each of the next three fiscal years. Approximately $17
million per year is expected to be used for replacements and other capital
expenditures, with the balance expected to be used for productivity improvements
and to meet the specific needs of Company customers.
Based upon current levels of operations, anticipated improvements in the JR
Flexible operations acquired in the Acquisition and certain cost saving
measures, the Company believes that cash flow from operations, borrowings under
the New Credit Agreement, sales of accounts receivable under Receivables
Securitization Facility and other sources of liquidity, will be adequate to meet
the Company's anticipated requirements for working capital, capital
expenditures, interest payments and scheduled principal payments for the
foreseeable future, which for purposes of this discussion and, under current
conditions, is at least the next 12 months. There can be no assurance, however,
that the Company's business will continue to generate cash flows from operations
at or above current levels or that anticipated improvements in operations and
cost savings will be
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realized. See "Risk Factors," including, without limitation, "-- Certain
Financing Considerations; Significant Leverage" and "-- Possible Difficulties
with the Integration of JR Flexible."
CERTAIN EFFECTS OF THE ACQUISITION
Following the Acquisition, Printpack plans substantial reductions in
operating expenses, which may result in charges in addition to those described
herein. In particular, Printpack management estimates that a significant portion
of savings will be derived from the following:
Resin Contracts
On March 1, 1996, JR Flexible began to benefit from five favorable resin
supply contracts which provide substantial discounts on resin purchases. These
contracts, which are terminable upon 30 days' notice by either party, are
expected, following the Acquisition, to save the combined Company an estimated
$7.6 million annually through their scheduled expiration in March 1998.
Headcount Reduction Program
As part of the Acquisition, Printpack expects to realize cost savings of
approximately $24.4 million from the elimination of certain expenses related to
JR Flexible's headquarters, which Printpack is not purchasing, the elimination
of redundant sales force and technical personnel and the elimination of certain
corporate overhead. The headcount reduction will result in a one-time
reimbursement of approximately $1.6 million to James River at the Closing of the
Acquisition. In addition, Printpack management plans to reduce the salaried
headcount at certain of JR Flexible's plants by approximately 150 employees
shortly after the Closing of the Transactions. This will reduce the excess
salaried staff at such plants, and eliminate duplicative staffing. However, a
few additional staff personnel will be added to implement Printpack's financial
systems and operating procedures. Management estimates that such headcount
reductions will reduce salary and employee benefit expenses by approximately
$9.2 million annually. Such reduction will result in a one-time severance
payment of approximately $2.7 million. See "Risk Factors -- Possible
Difficulties with the Integration of JR Flexible;" "-- Exposure to Fluctuation
in Raw Material Prices" and "Unaudited Pro Forma Condensed Combined Statements
of Operations."
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations.
Increases in raw material costs to Printpack typically lag movements in the
markets for such materials. Thus, in a period of rising prices, the effects of
such increases are delayed several months and Printpack's ability to pass these
price increases to its customers also is subject to similar lags. See "Results
of Operations -- Fiscal Year 1995 Compared to Fiscal Year 1994;" "Risk
Factors -- Exposure to Fluctuations in Raw Material Prices;" and
"Business -- Manufacturing Process."
ACCOUNTS RECEIVABLE
Accounts receivable are generally collected within approximately 20 days.
Printpack and JR Flexible have historically experienced minimal chargeoffs (less
than $1 million per year on a combined basis or less than 0.1% of net sales),
reflective of the high quality of each company's respective customer base.
BUSINESS
GENERAL
Printpack is one of the largest domestic manufacturers and converters of
flexible packaging products for use by leading salted snacks, confectionery,
cookies/crackers, cereal, beverage and other food and consumer product
companies. The Company was founded in 1956 in Atlanta, Georgia and remains a
privately held corporation owned and managed by the founding family, together
with several long-term members of
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management. On April 10, 1996, Printpack entered into the Acquisition Agreement
with James River to acquire JR Flexible. JR Flexible was also one of the largest
domestic manufacturers and converters of flexible packaging products to leading
food and consumer products companies, as well as a major supplier of high
performance films to other flexible packaging converters. The Acquisition has
further increased Printpack's leading position in the flexible packaging
industry with total annual combined pro forma sales of approximately $900
million and an estimated market share of approximately 12% of total 1995
industry sales.
Management estimates, based in part upon trade and FPA data, that the
Company, prior to the Acquisition, had the leading market share in several major
end use categories, including salted snack foods (approximately 30% market
share), which includes packaging for such products as Lays and Ruffles potato
chips; confectionery products (approximately 30% market share), which includes
packaging for such products as Reese's and Hershey's candy bars; and
cookies/crackers (approximately 17% market share), which includes packaging for
such products as Fig Newtons and Famous Amos cookies. The Company's customer
base prior to the Acquisition included nationally recognized, brand name food
companies, such as Frito-Lay, General Mills, Hershey, Mars, Nabisco, Nestle,
Quaker Oats and Ralston, many of which have been customers of the Company for
over 20 years.
The Company manufactures a wide variety of high value-added flexible
packaging products, including laminates made of various layers of plastic film,
aluminum foil, metallized films, paper and specialized coatings, as well as cast
and blown monolayer and co-extruded films. Printpack's sales and EBITDA before
certain charges for fiscal year 1996 were $442.9 million and $60.0 million,
respectively. Over the last five fiscal years ending June 1996, the Company has
experienced compound annual sales growth and growth of EBITDA before certain
charges of 5.2% and 8.9%, respectively, exclusively through internal growth.
James River entered the flexible packaging business in 1986 in connection
with its acquisition of certain assets of Crown Zellerbach. Since then, James
River and JR Flexible acquired several flexible packaging plants from other
companies. JR Flexible was a leading supplier of flexible packaging for various
end uses, including bakery, cookies/crackers, cereal, ream wrap (wrapping for
reams of office paper), tissue/towel overwrap, coffee serving packs and
dentifrice (plastic laminate materials for toothpaste tubes and other personal
care products). JR Flexible manufactured many of the same product lines and
materials as those manufactured by Printpack. In addition, JR Flexible was
recognized as a leading film manufacturer with a good reputation for product
innovation. JR Flexible's customer base included many of the same brand name
food companies as Printpack's including General Mills, Nabisco, Nestle and
Quaker Oats, as well as other major consumer product companies such as Flowers,
Kellogg, Kraft and James River. The Acquisition therefore has broadened
Printpack's sales to certain existing customers, as well as provided new
customer relationships and products.
In recent years, JR Flexible was an underperforming business, and its sales
and earnings have declined. However, in late 1995, James River and JR Flexible
management began various profitability improvement measures, including shedding
certain lower margin businesses, reducing waste and related costs, improving
product and production mixes and negotiating favorable long-term raw materials
contracts, especially for resins. As a result of these initiatives, JR
Flexible's unaudited EBITDA for the 26 weeks ended June 30, 1996 was $15.9
million compared to $3.8 million for the same period in 1995. JR Flexible's
unaudited sales and EBITDA before certain charges for the 12 months ended June
30, 1996 were $467.0 million and $21.8 million, respectively. See Note 2 to the
JR Flexible Combined Financial Statements.
INDUSTRY
Flexible packaging products are thin, pliable bags, pouches, labels or
wraps for food and other non-food consumer goods and related containers, which
are generally produced from single web and multi-web laminates of various types
of plastic, paper, film and foil. Flexible packaging products are manufactured
to provide a broad range of protection for packaged goods while also providing
packaging that is cost-effective, space-saving, lightweight, tamper evident,
convenient and disposable. Over the last several years, end users of flexible
packaging have increasingly sought better and cheaper packaging alternatives to
meet changing demographics and customer needs. Growing food categories such as
low-fat and non-fat foods require more
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sophisticated packaging structures to improve freshness, shelf life and
resealability. Packaging must have specific barrier characteristics against
light, moisture, gas (primarily oxygen) and aroma consistent with the type of
food packaged. In addition, packaging and changes in packaging graphics, often
for short-term promotions, increasingly are used to attract customers and
differentiate products at the point of sale. Major end users in the food and
other consumer product industries are generally reducing the number of suppliers
which places an emphasis on cultivating strong customer relationships.
Management estimates, based upon FPA data and other industry and trade
information, that the flexible packaging industry had annual sales of
approximately $7.5 billion in 1995 and has grown faster than the packaging
industry generally over recent years. The eight largest flexible packaging
companies account for approximately 50% of total 1995 industry sales, with the
balance shared by several hundred other competitors. Printpack management
believes recent industry growth has been and will continue to be driven by (i)
the shift from rigid containers (paperboard, glass and plastic) to lower cost
and lighter weight flexible packaging, (ii) changing demographic trends which
have increased the demand for more convenient forms of packaging, including
single servings and packaging that extends product shelf life, (iii) the growth
in several major end use market segments (such as snack foods), (iv) the growth
of low-fat and non-fat foods which require more complex packaging barriers, (v)
concerns over waste and resource reduction, and (vi) increasing demands for
specialized packaging with enhanced barrier properties and distinctive graphics.
BUSINESS STRATEGY
Printpack focuses its sales and marketing efforts, technical development
initiatives, and manufacturing capabilities on targeted end use markets for
flexible packaging, with the goals of achieving critical mass and leading market
shares. Printpack has achieved leadership positions in these markets by (i)
making customer service its first priority, (ii) achieving economies of scale
and manufacturing efficiencies to remain a low cost producer, (iii) investing in
state-of-the-art equipment, and technological and production innovation, and
(iv) providing high value-added flexible packaging structures and enhanced
graphics. By focusing its equipment and facilities on specific market segments
and product structures, the Company has been able to provide high quality
products and service and realize production efficiencies. The Company leverages
its strong customer relationships, market leadership and economies of scale to
earn additional business from existing customers and to attract new customers.
Printpack has developed mutually beneficial relationships with large food and
consumer product companies and has benefited from the expanding market shares of
such customers. The Company expects to continue this strategy.
Customer Service
Over the last several years, flexible packaging customers have been
reducing the number of their flexible packaging suppliers. Customers have sought
to focus their relationships with suppliers that provide high quality products,
superior service and the ability to offer a broad range of flexible packaging
products at competitive costs. The Company is dedicated to working with
customers to provide products that meet their particular needs, and that can be
manufactured efficiently and cost effectively. Management believes that these
efforts have enabled the Company to build and maintain long-term customer
relationships, many of which have existed for over 20 years. Printpack's
dedication to superior customer service has been recognized by awards from its
customers, including Supplier of the Year awards from Kroger (1994), Frito-Lay
(1993 and 1994), Hershey (1992) and Keebler (1994 and 1995) and a Quality
Through Excellence for Customer Service award from Hershey (1992), and the
Spirit of Excellence award from Hormel (1993, 1994 and 1995).
Printpack's product lines also meet a wide spectrum of flexible packaging
end uses, each of which has its own manufacturing and technical complexities. To
serve the wide range of end uses and users, Printpack is organized internally to
provide in-depth knowledge and customized services to each customer. This allows
the Company to offer individual market expertise and product focus, as well as a
broad range of flexible packaging alternatives for each end user. Field service
representatives, who are knowledgeable in both the Company's products and its
customers' equipment and processes, are often at customer sites to assist in the
use of Company products. Customer service is enhanced in various other ways as
well. For example, Printpack uses electronic data interchange techniques favored
by many of its larger customers to produce shorter order and
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product change cycles for customers, and to reduce Company costs. The
Acquisition provides Printpack with a wider range of flexible packaging
capabilities and further diversification of its products offerings.
Economies of Scale and Low Cost Structure
The Company has focused its sales, marketing and technical efforts as well
as its operating assets on specific end user and product markets where it
believes it can achieve economies of scale and be a low cost producer. By
dedicating manufacturing plants to a limited number of products, Printpack is
able to effectively allocate the production of various product structures within
its manufacturing network to realize longer runs, improved quality, greater
product structure expertise and lower costs. This allows Printpack to better
plan production runs, shorten cycle times, reduce set-up costs and realize lower
labor costs. The Acquisition is expected to enhance these efficiencies and to
also produce significant cost savings through the elimination of redundant
corporate overhead and the reduction of personnel at JR Flexible's headquarters
and plants. Printpack management also expects to achieve significant cost
savings through the consolidation and rationalization of JR Flexible's
manufacturing operations with Printpack's manufacturing facilities and the
implementation of Printpack's production strategy at the JR Flexible facilities.
As a result of the Acquisition, Printpack has become one of the largest
domestic purchasers of certain key materials used for flexible packaging
manufacturing (such as extrusion grade resin, OPP and other types of packaging
film, paper and foil) and its enhanced purchasing power is expected to result in
greater cost savings and technical development support from its suppliers.
Technological Innovation
Throughout the development of the flexible packaging industry from simple
surface printed cellophane wrappers to high quality, multi-layer, printed,
laminated and co-extruded plastic packaging, Printpack has been focused
exclusively in flexible packaging and has anticipated end user demands through
continuing product and process innovation. New and more complex product
structures demand manufacturing processes that can produce high quality
packaging which can be changed to meet end user marketing programs, yet are
cost-effective. Printpack's manufacturing and technical resources give it
significant advantages in this area. The Company also works with equipment
manufacturers to design and build specific new processing capabilities. For
example, the Company installed the world's first eight color flexographic
process printing press and now is among the world's leaders in eight-color
process flexographic printing capabilities and experience. Printpack has
received a number of awards from industry groups and suppliers for technical
achievements, including among others the Association of Industrial Metallizers,
Coaters and Laminators ("AIMCAL") Package of the Year award (1996) -- Ritz Snack
Mix; AIMCAL Snack Foods Technical award (1995) -- Brock Mighty Morphin Power
Rangers; DuPont Award (1995) -- Ritz Snack Mix; FPA 1st Place Technical
Achievement/Wide Web Category (1994) -- Sabritos Dinos' Aros; FPA Top Packaging
Award (1994) -- Ben & Jerry's Peace Pop; FPA Top Packaging Award
(1993) -- Snyder's of Berlin Potato Chips Hologram Bag; Gold APEX Award
(Packaging Magazine) (1993) -- Pepperidge Farm Garlic Bread/ Ovenable Bag; Mobil
Gold Mummy Award (1992) -- Hershey's Reese One Cup; and FPA Top Packaging Award
(1992) -- Micro Mexicana Microwave Bacon Cracklins.
In maintaining its position as an industry leader in technology, Printpack
has invested in new techniques such as laser engraving, photo polymer and other
pre-press processes, and innovative and improved processes for coating,
laminating and metallizing. These new techniques have significantly reduced the
length of the product change cycle as well as the amount of waste produced.
With the addition of JR Flexible, the Company has acquired additional
strength in flexible packaging process technology, including technology related
to the co-extrusion of films. JR Flexible's outstanding reputation for product
innovation complements and enhances Printpack's expertise in manufacturing and
product development.
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High Value-Added Products
Printpack believes that demand and innovation in the flexible packaging
industry are driven primarily by the larger packaged foods and consumer products
companies. Such users continually seek higher quality, lighter weight packaging
with more complex barrier properties (especially to accommodate low-fat and non-
fat products) and distinctive graphics. Flexible packaging must be compatible
with such customers' packaging machinery and production lines, and also must
maintain product integrity during shipment, extend a product's freshness and
shelf life and improve resealability consistent with each packaged product's
needs. To accomplish these objectives, flexible packaging must have specific
barrier characteristics against light, moisture, gas (primarily oxygen) and
aroma consistent with the type of food packaged. In addition, marketing and
promotional displays increasingly require high quality, multicolor printing and
packaging. Management believes that the Company's flexographic and rotogravure
processes are among the best in the industry producing high definition graphics
with photographic quality images on flexible substrates. From Printpack's
laser-etched printing plates and cylinders that produce higher quality products
to a new process that makes it economically attractive to add holographic images
to customers' packages, the Company is able to accommodate its customers'
desires for advanced graphics capabilities. The Company has sought to utilize
its technological, manufacturing and cost advantages to achieve leading
positions in high value-added packaging product structures. Printpack is also
one of the few flexible packaging manufacturers that produce high value-added
metallized films in-house, thereby capturing significant time and cost
advantages over competitors. JR Flexible strengthens the Company's flexible
packaging process technology and innovation, as well as adds a strong customer
base that demands high value added products. See "-- Business
Strategy -- Technological Innovation;" "-- Customers;" and "-- Industry."
CUSTOMERS
Printpack provides its customers with a variety of flexible packaging
materials with a primary focus on packaging products for salted snack foods,
cookies/crackers, confectionery, cereal, beverages, rice, meats and bakery end
users. Printpack's top 10 customers prior to the Acquisition were Brach & Brock,
Constar, Frito-Lay, General Mills, Hershey, Keebler, Leaf, Mars, Nestle and
Quaker Oats, which accounted for approximately 62% of Printpack's total sales
for its latest fiscal year ended June 29, 1996. Frito-Lay is the largest U.S.
salted snack food company and is Printpack's largest customer and the only
customer accounting for more than 10% of Printpack's fiscal 1996 sales.
Printpack is one of Frito-Lay's two primary suppliers of flexible packaging
materials. Printpack has historically enjoyed close relationships with its
customers, cultivated over many years by emphasizing value-added services in
packaging design and engineering, consistency of service, reliability, and
competitive costs. See "Risk Factors -- Certain Dependencies on Customer
Relationships."
JR Flexible had strong market shares in sales of flexible packaging for
bakery, cookies/crackers, cereal, ream wrap and tissue/towel overwrap. JR
Flexible's top 10 customers prior to the Acquisition were Flowers, General
Mills, Georgia Pacific, James River, Kellogg, Kraft, Nabisco, Nestle, Quaker
Oats and Thatcher Tubes (a major supplier to Colgate Palmolive). General Mills
is one of the largest U.S. suppliers of cereal and bakery mixes and JR
Flexible's single largest customer. Likewise, JR Flexible was one of General
Mill's two largest suppliers of flexible packaging, principally for cereal and
bakery mixes.
MARKETS
The primary end use markets for Printpack's products are salted snacks,
cookies/crackers, and confectionery, bakery, and cereal products, which
collectively accounted for approximately 75% of the Company's fiscal 1996 sales.
Such products are expected to account for approximately 37% of pro forma
combined sales following the Acquisition. In addition to these markets, since
the Acquisition, Printpack has been providing flexible packaging for the meat
packaging, tissue/towel overwrap, ream wrap, dentifrice and beverage industries.
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SALES, MARKETING AND DISTRIBUTION
Prior to the Acquisition, Printpack had 71 sales, technical support and
marketing associates in the U.S., and approximately 65 additional persons in
this area have been added as a result of the Acquisition. These associates
primarily work out of the seven sales offices located throughout the U.S. All
Printpack sales force personnel and customer service representatives undergo
extensive training programs before assuming account responsibilities.
Printpack's management believes that it is critical to the Company's success for
its sales and marketing associates to have in-depth knowledge of the various
characteristics and properties of a wide-range of the Company's packaging
structures. JR Flexible's sales force was, prior to the Acquisition, divided
among geographic territories and customer service representatives are generally
located near the Company's plant locations. The JR Flexible sales force is being
combined with Printpack's and will be organized along end user customers and
products.
The Company's technical service representatives visit customer locations
routinely to ensure that Printpack's packaging materials are running efficiently
on each customer's equipment. These customer service representatives are on call
24 hours a day. In order to accommodate a variety of customer preferences, the
Company distributes its products principally through customers' transportation
networks and third party carriers, although the Company does operate a small
fleet of trucks and trailers.
MANUFACTURING PROCESS
General
Printpack manufactures a wide variety of high value-added flexible
packaging products, including laminates made of various layers of plastic film,
aluminum foil, metallized films, paper and specialized coatings, as well as cast
and blown monolayer and co-extruded films. The flexible packaging produced by
Printpack and JR Flexible uses a range of raw materials. These raw materials
consist primarily of plastic resin, film, paper, foil and ink which typically
represent 50-60% of the sales price of the final products. Flexible packaging
manufacturers typically are able to pass increases in raw material costs on to
their customers, although the pass-through generally lags several months.
Significant and abrupt increases in raw material prices, particularly those on
low-density and linear low-density polyethylene and polypropylene, could have
adverse short-term effects on the Company's margins. Although raw materials
prices have fluctuated in the past, the Company has not experienced any material
shortages in the supply of any of these raw materials. In addition, the Company
currently contracts with multiple sources for its supplies of film, paper, foil
and ink, which constitute the bulk of the Company's raw materials. These are
generally considered fungible goods and generally are readily available from
various other sources. As a result of the Acquisition, the Company has obtained
five favorable resin supply contracts that, based upon recent volumes, are
expected to save approximately $7.6 million annually through February 28, 1998.
These contracts are cancellable by either party upon 30 days' prior notice. See
"Risk Factors -- Exposure to Fluctuations in Raw Material Prices."
Film Manufacturing
Both Printpack and JR Flexible use resin in their production of blown and
cast co-extruded films. These two basic processes yield films with differing
characteristics. Blown film -- produced by extruding resin through a circular
die and stretching the "bubble" with air pressure -- has advantages such as
higher barriers and toughness. The cast process -- which extrudes resin through
a horizontal die onto a chill roll -- yields a high quality film that usually
has better clarity and gauge (thickness) control. Both Printpack and JR Flexible
focus on and specialize in co-extrusion processes -- both blown and cast -- that
produce higher value-added, multi-layer film structures for specific customer
applications. Through this co-extrusion process, films can be manufactured with
a wide range of properties depending on the number of layers and combinations of
resins used.
Printing
Two major printing processes are used: flexography and rotogravure.
Historically, rotogravure printing, which uses engraved metal cylinders to print
precise images, has been capable of producing higher quality
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photographic-like graphics on flexible substrates, but generally at higher costs
than flexographic printing. Over the last 10 years, however, the quality of
flexographic process printing, which uses printing plates made of rubber or
photopolymer, has improved to where, on many demanding applications, such print
quality is almost indistinguishable from those achieved with rotogravure
printing. The flexographic process has lower initial costs to prepare the
printing plates which speeds production and facilitates lower initial cost
changes in the packaging for short-term marketing promotions. Printpack has been
a leader in promoting these technological advancements in flexographic printing,
but still utilizes both flexography and rotogravure printing processes.
Metallizing
Metallizing is a high value-added process by which substrates, such as OPP,
are vacuum coated with aluminum to increase barrier properties. Metallizing
flexible substrates has grown as end-use products, especially non-fat and lowfat
food products, require greater barriers against oxygen and water vapor.
Printpack management believes that Printpack is a leader in metallizing and is
one of the few domestic flexible packaging manufacturers to produce its own
metallized films in-house, thereby capturing significant time and cost
advantages over competitors.
Laminating and Coating
Extrusion (or co-extrusion) and adhesive processes are the principal
methods of laminating or coating flexible substrates. Extrusion lamination
combines substrates using molten resins as adhesives. Co-extrusion -- using more
than one resin simultaneously -- allows additional resin properties to be
cost-effectively added to the structure. Adhesive lamination uses various
chemical mixtures to combine layers. Generally speaking, extrusion lamination
creates a stiffer and less pliable structure than adhesive lamination.
Finishing
Finishing or "slitting" is the process of converting master rolls of
printed and/or laminated film into separate rolls that are generally one
impression wide and that have roll diameters specified by customers for use on
their machines. These converted rolls of film are loaded by the end users into
high-speed machinery that forms the package, inserts the contents and cuts and
seals the package in an automatic process. For certain end-use markets (such as
bread bags), JR Flexible performs bag making operations.
PROPERTIES
Printpack
Prior to the Acquisition, Printpack operated 11 manufacturing facilities in
the U.S., all of which are in modern condition and owned by the Company.
Printpack's facilities are located as follows: Atlanta, Georgia (2); Elgin
Illinois; Fredericksburg, Virginia; Grand Prairie, Texas (2); Hendersonville,
North Carolina; Prescott, Arizona; Rhinelander, Wisconsin and Villa Rica,
Georgia (2). Following the Closing, the Elgin, Illinois plant will be owned and
operated by a subsidiary, Printpack Illinois, for the benefit of the Company.
See "Prospectus Summary -- The Acquisition, Financing and Related Transactions"
and "-- Patents and Trademarks."
Printpack also operates seven sales and marketing offices, four of which
are leased and the balance of which are located at certain manufacturing
facilities. The locations include Atlanta, Georgia; Davis, California; Elgin,
Illinois; Grand Prairie, Texas; Oakdale, Minnesota; Springdale, Ohio; and
Wilmington, Delaware.
JR Flexible
JR Flexible operated 10 manufacturing facilities, all of which were
acquired by Printpack. JR Flexible's manufacturing facilities, all of which are
in modern condition, are located in Aguascalientes, Mexico; Dayton, Ohio;
Greensburg, Indiana; Jackson, Tennessee; New Castle, Delaware; Orange, Texas;
San Leandro, California; Shreveport, Louisiana; St. Louis, Missouri and
Williamsburg, Virginia. Except for the leased
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manufacturing facilities at Orange, Texas; Williamsburg, Virginia, and
Aguascalientes, Mexico, all of these properties are now owned by the Company.
The Company has announced the closing of the San Leandro, California and Dayton,
Ohio, plants, which employ 355 persons and which are expected to be closed by
the end of the Company's fiscal year 1997.
Printpack did not buy JR Flexible's headquarters, and while it purchased JR
Flexible's pilot plant and analytical lab equipment at Milford, Ohio, it will
not continue to operate the plant or the office there. The pilot plant's
equipment and functions will be distributed among the other manufacturing
facilities.
EMPLOYEES
After the plants in San Leandro, California and Dayton, Ohio, are closed,
the Company will employ approximately 3,745 people. Printpack is currently a
party to a collective bargaining agreement with the Graphics Communications
International Union (the "GCIU"), which covers its employees at the Rhinelander,
Wisconsin plant. This union represents 132 employees and the current labor
agreement expires March 31, 1997. Under the terms of the Acquisition Agreement,
Printpack has assumed James River's collective bargaining agreements with the
GCIU at its Greensburg, Indiana plant and with the International Union of
Operating Engineers at its Orange, Texas plant. These unions represent
approximately 578 employees, and the current labor agreements expire on October
1, 1996 and September 15, 1997, respectively. The Company is currently
negotiating with the GCIU at its recently acquired Greensburg, Indiana plant
with respect to a new collective bargaining agreement for its employees at that
plant. Both of these labor contracts are automatically renewed for one year
periods, unless earlier terminated. Although Printpack did not assume any other
collective bargaining agreements, it has agreed to negotiate in good faith with
the nine union locals that currently represent other JR Flexible employees under
various collective bargaining agreements at four JR Flexible plants. The Company
believes that its employee relationships with its employees prior to the
Acquisition were generally excellent and that JR Flexible's employee
relationships were generally good.
PATENTS AND TRADEMARKS
Printpack and JR Flexible have a number of trademarks registered in the
U.S. and several foreign countries, including the Company's principal mark,
Printpack(R). Printpack and JR Flexible also have a number of patents and
pending patent applications in the U.S. and in several other countries. The
Company has transferred all its intellectual property, including that property
acquired from James River, to Printpack Illinois. Printpack Illinois licenses
such properties to the Company and its affiliates. Although Printpack's
management considers all such intellectual property to be valuable assets,
management believes that the loss or expiration of any patents or trademarks,
other than the Printpack trademark, would not have a material adverse effect on
the Company's operations. See "Prospectus Summary -- The Acquisition, Financing
and Related Transactions."
COMPETITION
The flexible packaging industry includes several hundred competitors.
Currently, FPA statistics and available trade and industry information indicate
that the eight largest flexible packaging companies account for almost 50% of
total industry sales in 1995, compared to approximately 35% in 1981. Printpack
is one of the largest manufacturers in the flexible packaging industry with an
estimated 6% of industry sales prior to the Acquisition, and, with the
consummation of the Acquisition of JR Flexible, Printpack expects that its share
has increased to approximately 12% of the industry's 1995 sales. Other sales
leaders in this industry include American National Can, Bemis, Bryce, Cryovac,
Huntsman Packaging, Reynolds Metals, and Sonoco Products, many of which are well
capitalized and maintain a strong market presence in the various markets in
which Printpack competes. Various of these competitors are substantially larger,
more diversified and have greater financial, personnel and marketing resources
than the Company, and therefore may have certain competitive advantages
vis-a-vis Printpack. See "Risk Factors -- Competition."
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<PAGE> 53
ENVIRONMENTAL MATTERS AND REGULATION
The past and present operations of the Company and JR Flexible, including
their ownership and operation of real properties, are subject to extensive and
changing federal, state and local laws and regulations pertaining to the
discharge of materials into the environment, the handling and disposition of
wastes or otherwise relating to the protection of the environment. Printpack
management believes that, except as set forth below, Printpack, including the
former JR Flexible operations, generally is in material compliance with
applicable environmental laws and regulations.
In connection with the Transactions, the Company conducted Phase I
environmental surveys on its and JR Flexible's principal properties located in
the United States. The following is based in part upon these surveys.
Printpack, including the former JR Flexible operations, utilize solvents,
including acetates, in their manufacturing processes, and such substances may be
stored in underground storage tanks ("USTs"). Printpack is voluntarily
remediating at an estimated cost of $76,000 over three years, releases of
alcohols and acetates at its Grand Prairie, Texas and Hendersonville, North
Carolina plants. The Company's testing indicates that no off-site contamination
exists. The Company also has been identified as a potentially responsible party
("PRP") at eight Superfund sites, and estimates that it will have to expend
approximately $90,000 for planned environmental activities at two of these
sites. At six of these Superfund sites, Printpack is a de minimis contributor.
It has entered into agreements to resolve its potential liabilities at three
sites, and Printpack does not expect to incur any further liability with respect
to such sites. The remaining three sites are the subject of Remedial
Investigation and Feasibility Studies ("RIFS"), which are expected to be
completed over the next three years, with any clean-up projected to take another
five years after completion of the RIFS.
JR Flexible has identified and is currently remediating soil and
groundwater contamination, principally from releases of alcohols and acetates at
various of its facilities, and is also engaged in asbestos removal, UST system
upgrades, the removal of contaminated soil, air emission assessment and noise
reduction at various sites. JR Flexible had accrued $1.5 million for these costs
as of December 31, 1995. It is estimated that it will take approximately five
years and approximately $1.5 million to complete these efforts, although no
assurance can be given that these measures will not take longer or cost more.
See Note 5 to the JR Flexible Combined Financial Statements.
The Acquisition Agreement provided that, with respect to environmental
conditions existing at Closing, Printpack would assume all on-site environmental
liability with respect to the sites being acquired from James River (including
migration, if any, from a JR Flexible site to other properties), but James River
would retain all off-site environmental liability (except such off-site
migration). In addition, to the extent that a claim is first made (or it first
becomes clear that a claim reasonably will be made) with respect to on-site
conditions within five years following Closing, James River will indemnify
Printpack for 50% or more of the cost thereof in excess of the amount accrued
for such liability on the Closing Date balance sheet, subject to adjustment
based upon the aggregate environmental liability and the proximity of the claim
date to Closing.
The Company cannot assure that it will not in the future incur liability
under environmental statutes and regulations with respect to contamination of
sites formerly or currently owned or operated by the Company (including
contamination caused by prior owners and operators of such sites), and/or the
off-site disposal of hazardous substances, except to the extent indemnified by
James River.
The Company, including the former JR Flexible operations, like all flexible
packaging manufacturers which use plastic, are subject, in certain
jurisdictions, to laws and regulations designed to reduce solid wastes by
requiring, among other things, plastics to be degradable in landfills, minimum
levels of recycled content, various recycling requirements, disposal fees and
limits on the use of plastic products. In addition, various consumer and special
interest groups have lobbied from time to time for the implementation of
additional environmental protection measures. The Company does not believe that
the legislation promulgated to date and currently pending initiatives will have
a material adverse effect on its business. There can be no assurance that any
future legislation or regulatory efforts will not have a material adverse effect
on the Company or its financial condition and results of operations.
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<PAGE> 54
The United States Food and Drug Administration ("FDA") regulates the
material content of direct-contact food containers and packages, including
certain containers manufactured by the Company and JR Flexible. Both the Company
and JR Flexible use approved resins and other raw materials in the
direct-contact aspect of food product packaging. Company management believes
that both the Company and JR Flexible are in material compliance with all such
applicable FDA regulations.
LEGAL PROCEEDINGS
The Company is subject to environmental proceedings and routine litigation
incidental to its business, including the former JR Flexible operations. Based
upon information presently available to Company management, and in light of
legal and other defenses that may be available, except as disclosed herein,
Company management does not believe that any such litigation or environmental
proceedings will have a material adverse effect upon the Company's financial
statements.
50
<PAGE> 55
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names, ages, positions and offices held (as the
date hereof) and a brief account of the business experience for each executive
officer and director of Printpack.
<TABLE>
<CAPTION>
AGE
NAME (AS OF JUNE 29, 1996) POSITION
- --------------------------------- --------------------- ----------------------------------------------
<S> <C> <C>
Dennis M. Love................... 40 President, Chief Executive Officer and
Director(1)
James J. Greco................... 53 Vice President and General Manager, National
Accounts Division; Managing Director,
Printpack Europe, and Director
Robert B. Paxton................. 63 Director, and retired as Executive Vice
President and General Manager, Performance
Packaging Division effective July 1, 1996
G. David Peake................... 57 Executive Vice President and Director
James E. Love, III............... 39 Vice President, Business Development and
Director(1)
Nicklas D. Stucky................ 50 Vice President, Human Resources
R. Michael Hembree............... 47 Vice President, Finance and Administration and
Director
August Franchini, Jr............. 53 Vice President, Engineering
Leonard A. Segall................ 48 Vice President, Operations Support
Kenneth H. Burke................. 51 Vice President, Purchasing
Sidney A. Harris................. 45 Vice President, Quality Management
Neil Williams.................... 60 Secretary and Director
David M. Donovan................. 35 Treasurer and Assistant Secretary
Gay M. Love...................... 67 Director(1)
Carol Anne Love Jennison......... 37 Director(1)
C. Keith Love.................... 35 Plant Manager, Hendersonville, N.C. Plant, and
Director(1)
William J. Love.................. 34 Accounts Manager and Director(1)
William E. Lewis................. 52 General Manager, Performance Packaging
Division
John N. Stigler.................. 48 General Manager, Snack Foods Division
Edward F. Ploszaj................ 55 General Manager, Confectionery Division
Michael A. Fisher................ 50 General Manager, Labels Division
Frederick J. Crowe............... 47 Sales Manager, Performance Packaging Division,
and the designated General Manager of the
Diversified Packaging Division upon
completion of the Acquisition
</TABLE>
- ---------------
(1) Dennis M. Love, James E. Love, III, Carol Anne Love Jennison, William J.
Love and C. Keith Love are all the children of Gay M. Love, who is the
controlling shareholder of the Company. See "Principal Shareholders."
Dennis M. Love -- President, Chief Executive Officer and Director. Mr.
Love became President and Chief Executive Officer of Printpack and a member of
its Board of Directors in February 1987. Mr. Love has been involved with the
Company since 1978, holding various positions in sales and marketing.
James J. Greco -- Vice President and General Manager, National Accounts
Division and Managing Director, Printpack Europe. Mr. Greco has been Vice
President and General Manager, National Accounts Division since April 1991 and
in such capacity has been responsible for serving the Frito-Lay account. He has
51
<PAGE> 56
also served as Managing Director, Printpack Europe since May 1996. Prior to
holding these positions, Mr. Greco served as Director of Sales for 10 years and
has held various other sales positions since he joined the Company in 1971. Mr.
Greco was first elected a director in July 1996. See "Prospectus Summary -- The
Acquisition, Financing and Related Transactions -- United Kingdom Affiliates."
Robert B. Paxton -- Executive Vice President and General Manager,
Performance Packaging Division and Director. Mr. Paxton became Executive Vice
President and General Manager, Performance Packaging Division in December 1993
and a member of the Board of Directors in May 1989. From February 1978 to April
1991, he served the Company in various capacities, including Vice President,
Operations, Vice President, Manufacturing and as Plant Manager of the Company's
Atlanta plant. Mr. Paxton has retired effective July 1, 1996 as a Company
officer, but remains a director.
G. David Peake -- Executive Vice President and Director. Mr. Peake became
Executive Vice President of the Company in April 1991 and a member of its Board
of Directors in March 1987. Mr. Peake has been with the Company since 1967 and
has held various positions, including Vice President, Sales and Marketing, Vice
President, Southwest Operations and Regional Manager of the Southwest region.
Mr. Peake is expected to retire later in 1996, but has agreed to assist with the
Acquisition and the integration of JR Flexible.
James E. Love, III -- Vice President, Business Development and
Director. Mr. Love became Director of Strategic Planning at Printpack in July
1992, Vice President, Business Development in May 1996 and has been a member of
its Board of Directors since February 1987. He also currently serves as
President of Virtual Image Group, a Printpack development division, a position
which he has held since February 1994. Prior to joining Printpack, Mr. Love
worked in the Corporate Finance Department of The Robinson-Humphrey Company,
Inc., an investment banking firm, from 1983 to 1992.
Nicklas D. Stucky -- Vice President, Human Resources. Mr. Stucky became
Vice President of Human Resources in 1982. Prior to that, he served as Director
of Personnel from 1978 to 1982 and has held various other human resources
positions since he joined Printpack in 1973.
R. Michael Hembree -- Vice President, Finance and Administration. Mr.
Hembree joined the Company as Controller in 1980 and has served in this present
position since 1982. He was first elected a director in July 1996.
August Franchini, Jr. -- Vice President, Engineering. Mr. Franchini became
Vice President, Engineering in July 1989. Prior to becoming Vice President,
Engineering, Mr. Franchini served as the Company's Manager of Industrial
Engineering, as well as Plant Manager of the Company's Grand Prairie, Texas
plant.
Leonard A. Segall -- Vice President, Operations Support. Mr. Segall
assumed his present position in April 1991. He has been with the Company since
1971 and has held various positions, including Director of Manufacturing, East
Region and Plant Manager of the Company's Atlanta plant.
Sidney A. Harris -- Vice President, Quality Management. Mr. Harris has
held this position since April 1996. From July 1990 to April 1996, Mr. Harris
served the Company in various positions, including Training and Organizational
Development Manager, Human Resources Development Manager and Director of Human
Resources Development.
Kenneth H. Burke -- Vice President, Purchasing. Mr. Burke has served in
this position since April 1991, and previously was Director of Purchasing since
he joined the Company in June 1980.
Neil Williams -- Secretary and Director. Mr. Williams has served as a
Secretary of the Company and a member of its Board of Directors since 1977. Mr.
Williams is also a partner at the law firm of Alston & Bird, counsel to the
Company, and serves as a director of National Data Corporation, whose common
stock is registered under the Exchange Act. See "-- Related Party Transactions"
and "Certain Legal Matters."
David M. Donovan -- Treasurer and Assistant Secretary. In January 1994,
Mr. Donovan became Treasurer after previously serving as the Company's Snack
Foods Division Controller from April 1992 to January 1994 and its Financial
Analysis Manager from July 1990 to April 1992.
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<PAGE> 57
Gay M. Love -- Director. Ms. Love is the widow of the Company's founder,
and her primary occupation is Chairman of the Board of Enterprises. She was
first elected a director of the Company in July 1996, but has been a director
and Chairman of Enterprises since 1989.
Carol Anne Love Jennison -- Director. Ms. Jennison has served as a member
of the Board of Directors of the Company since March 1987. Mrs. Jennison is
currently a homemaker and has been such for more than the past five years.
C. Keith Love -- Plant Manager, Hendersonville, N.C. Plant, and
Director. Mr. Love has been a director since March 1987, and assumed his
current position in February 1996. He formerly served as a Shift Coordinator
from September 1991 to February 1996 and as a Systems Coordinator from May 1987
to September 1991.
William J. Love -- Accounts Manager and Director. Mr. Love has been a
director of Printpack since March 1987, and since July 1994 an Accounts Manager.
From July 1992 to July 1994, he served as a Sales Representative of the
Company's Snack Foods Division and for the two years prior to becoming a Sales
Representative, Mr. Love attended The Fuqua School of Business at Duke
University, where he received his M.B.A. in 1992.
William E. Lewis -- General Manager, Performance Packaging Division. Mr.
Lewis was appointed to this position in May 1996. Previously, he served as the
Company's General Manager, Snack Foods Division and Director of Sales, Marketing
and Technical Support for the Performance Packaging Division from September 1993
to May 1996 and as the Company's General Manager, Labels Division from April
1991 to September 1993. Prior to joining Printpack in connection with the
Company's acquisition of Daniels Packaging in 1989, Mr. Lewis served as Daniels'
National Sales Manager.
John N. Stigler -- General Manager, Snack Foods. Mr. Stigler became the
Company's General Manager, Snack Foods Division in January 1994. He joined
Printpack in 1976 as a Sales Representative and has held various positions,
including Sales Manager, Director of Midwest Sales and General Manager, Meats
and Processed Foods Division.
Edward F. Ploszaj -- General Manager, Confectionery Division. Mr. Ploszaj
became General Manager, Confectionery Division in April 1991. From 1989 to 1991,
Mr. Ploszaj was Director of Sales for the Confectionery Division. Prior to
joining Printpack in 1989 with the Company's acquisition of Daniels Packaging,
Mr. Ploszaj served as Daniels' Vice President of Sales and Marketing.
Michael A. Fisher -- General Manager, Labels Division. Mr. Fisher was
promoted to General Manager, Labels Division in October 1993. Previously, Mr.
Fisher served as the Company's Director of Development from March 1993 to
October 1993, its Director of Business Support from August 1992 to March 1993
and Managing Director, European Operations from August 1989 to August 1992.
Frederick J. Crowe -- Sales Manager, Performance Packaging Division. Mr.
Crowe has been with the Company in various capacities since 1989 and has served
in his current position since January 1994. He previously served as Plant
Manager, Grand Prairie, Texas from November 1992 to January 1994 and as Director
of Sales, National Accounts Division from August 1989 to November 1992. Upon the
Closing of the Transactions, Mr. Crowe will become General Manager, Diversified
Packaging Division.
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<PAGE> 58
EXECUTIVE OFFICER AND DIRECTOR COMPENSATION
Executive Officer Compensation
The following table presents certain summary information concerning
compensation paid or accrued by the Company for services rendered in all
capacities during fiscal year 1996, for the Company's Chief Executive Officer
and the Company's four most highly compensated executive officers other than the
Chief Executive Officer (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS(1) COMPENSATION(2)
- ----------------------------------------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Mr. Dennis M. Love......................................... $292,200 $72,487 $ 4,699
President and Chief Executive Officer
Mr. Robert Paxton.......................................... 223,046 88,416 4,767
Executive Vice President and General Manager,
Performance Packaging Division
Mr. G. David Peake......................................... 214,297 24,895 4,783
Executive Vice President
Mr. James J. Greco......................................... 185,782 $88,186 4,685
Vice President and General Manager, National Accounts
Division and Managing Director, Printpack Europe
Mr. R. Michael Hembree..................................... 146,639 30,268 3,635
Vice President, Finance and Administration
</TABLE>
- ---------------
(1) Consists of cash bonuses paid under the Economic Value Added Plan portion of
the Company's Incentive Compensation Plan (the "Incentive Plan"). Under the
Incentive Plan, the Company establishes annual targets for improvement over
the prior year's results. These targets are calculated and measured with
respect to economic value added ("EVA") standards, and participants earn
bonuses based on realization of EVA targets. Annually, participants'
bonuses are paid 75% in cash and 25% in performance shares. Bonuses for the
Named Executive Officers shown above, which were accrued in fiscal 1995 and
actually paid in fiscal 1996, were as follows: Mr. Love, $206,300; Mr.
Paxton, $123,335; Mr. Peake, $126,241; Mr. Greco, $177,538; and Mr.
Hembree, $82,364. See "-- Long-Term Incentive Plan Awards in Fiscal Year
1996" and "-- Incentive and Deferred Compensation."
(2) Consists of Company contributions to the officer's account under the
Company's Savings and Profit Sharing Plan and to a life insurance policy
owned by each officer. The Company's Savings and Profit Sharing Plan is a
defined contribution employee benefit plan qualified under section 401(k)
of the Internal Revenue Code of 1986, as amended. Under this plan, the
Company matches up to 50% of the contributions made by each qualified
participant and contributes other fixed amounts for the benefit of each
qualified participant based upon a formula derived from years of service
and base compensation.
54
<PAGE> 59
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1996(1)
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD
UNITS OR UNTIL MATURATION
NAME OTHER RIGHTS OR PAYOUT
- --------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Mr. Dennis M. Love............................................. 798 June 30, 2000
Mr. Robert Paxton.............................................. -- --
Mr. G. David Peake............................................. 274 June 30, 2000
Mr. James J. Greco............................................. 971 June 30, 2000
Mr. R. Michael Hembree......................................... 498 June 30, 2000
</TABLE>
- ---------------
(1) Units of phantom stock (performance shares) granted in fiscal year 1996
pursuant to the Performance Share Plan portion of the Incentive Plan. Each
year, 25% of the bonus, if any, is required to be reinvested in phantom
stock (performance shares), which shares rise or fall in value as the
overall equity value of the Company rises or falls. These performance
shares vest after four years and may be exercised and cash paid to the
participant at any time thereafter. There is no guarantee that these
performance shares will have any value at their vesting or redemption. No
shares of Company stock are actually issued pursuant to the Performance
Share Plan. Historically, bonuses including performance shares have been
accrued during each fiscal year, but not awarded until the subsequent
fiscal year. For fiscal years 1996 and 1995, the Company issued performance
shares worth: $28,999 and $53,422, respectively, to Mr. Love; $0 and
$35,174, respectively, to Mr. Paxton; $9,957 and $34,454, respectively, to
Mr. Peake; $35,286 and $45,735, respectively, to Mr. Greco; and $18,097 and
$21,386, respectively, to Mr. Hembree. See "-- Incentive and Deferred
Compensation."
Director Compensation
The Company does not currently compensate its directors for their service
as such.
RELATED PARTY TRANSACTIONS
On December 29, 1986, the Company made a loan to Mr. Robert B. Paxton, a
long-time employee of the Company, for personal purposes. The loan is evidenced
by a demand note in the principal amount of $320,000 and bears interest at 6.1%
simple interest per year, and is expected to be cancelled in consideration of
deferred compensation and certain retirement benefits owed to Mr. Paxton by the
Company. In connection with the Company's decision to discontinue its election
under Subchapter S in February 1994, the Company distributed to its shareholders
the balance of its aggregate accumulated adjustments accounts, which represented
amounts previously taxed to the Company's shareholders. Subsequent to this
distribution, these shareholders restored this cash to the Company in 1995 by
purchasing approximately $10.4 million aggregate principal amount of
subordinated notes from the Company (the "Shareholder Notes"). All of the
shareholders of Holdings who are also directors and officers of the Company are
holders of the Shareholder Notes. See Note 5 and Note 8 to the Company's
Financial Statements and "Description of Certain Indebtedness -- Shareholder
Notes."
Pursuant to an employment agreement between the Company and its founder, J.
Erskine Love, Jr. dated June 23, 1983, the Company agreed to make certain death
benefit payments to Mr. Love's wife, Gay M. Love. These payments, which began at
Mr. Love's death in 1987 and will continue for the rest of Ms. Love's life,
equaled $454,333 in 1996 and are adjusted each year based upon the Consumer
Price Index. See Note 6 to the Company's Financial Statements. For other
deferred compensation arrangements, see "-- Incentive and Deferred
Compensation."
Former credit agreements in existence prior to the effective time of the
Acquisition pertaining to approximately $146.7 million of Company debt
outstanding at June 29, 1996 contained various covenants related to the Company
and Printpack Europe that were not amended to reflect the Reorganization. The
Company and Printpack Europe obtained waivers for noncompliance of certain
provisions of such former credit agreements through August 31, 1996. These
credit agreements were terminated as a result of the Transactions consummated on
August 22, 1996. See Note 5 to the Printpack Financial Statements.
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<PAGE> 60
INCENTIVE AND DEFERRED COMPENSATION
Economic Value-Added and Performance Share Plans
The Company maintains a non-qualified, long-term incentive compensation
plan for its employees (the "Incentive Plan") which is designed to align the
short and long-term interests of its employees with its shareholders' interests.
Under the Incentive Plan, the Company establishes annual targets for improvement
over the prior year's results. These targets are calculated and measured with
respect to economic value added ("EVA") standards. EVA is the performance
measure of value created, which has been developed by independent compensation
consultants using a complex calculation of the costs of capital employed by the
Company and the rates of return earned by the Company. Targets are established
on a Company-wide and a per-division basis for each of the Company's five U.S.
divisions.
The Incentive Plan includes two tiers of incentive-based compensation
linked to the Company's EVA. Although participation in the Incentive Plan is
generally limited to managers within the Company, the final determination of an
employee's eligibility to participate in the plan is made in the sole discretion
of a committee which consists of the Company's President and the Vice-Presidents
of Finance and Administration, and of Human Resources. Each year a participant's
bonus, if any, ("EVA Bonus") is allocated from a bonus pool composed of two
parts, a base award and an improvement award. The base award is calculated using
a business unit's target EVA and the individual participant's base salary. The
improvement award is based on the improvement of the unit's EVA from the
previous year. The first tier consists of 75% of the EVA Bonus which is paid in
cash to the participants as a short-term incentive.
The second tier of the plan (the "Performance Share Plan") is a phantom
stock plan, which acts as a long-term incentive. 25% of each participant's EVA
Bonus, if any, is reserved by the Company and invested in phantom stock called
"performance shares", the value of which rise or fall with the overall equity
value of the Company. There is no guarantee that these performance shares will
have any value when they vest or become payable. These performance shares vest
after four years and may be exercised by a participant at any time thereafter.
The maximum number of performance shares available under the Performance Share
Plan is equivalent to 15% of the Company's outstanding common stock. The percent
of the EVA Bonus that must be reinvested in performance shares may be reduced
pro rata if the 15% limit would be exceeded because of the full reinvestment.
The Company may call outstanding performance shares from participants as it
deems advisable.
Deferred Compensation Agreements
The Company maintains deferred compensation agreements (the "Deferred
Income Agreements") with certain of its retired key employees. These agreements
provide that Printpack will defer certain compensation and, upon such employee's
retirement, death or disability, will make certain payments to, or on behalf of,
the employee. In the case of retirement at age 60, or death or disability before
age 60, Printpack will pay the employee or his designated beneficiary $40,000
annually over a 15 year period. In the case of death or disability after age 60,
the payments will continue for the remainder of the 15 year period that began at
age 60. If an employee's employment is terminated, the employee engages in an
activity which the Company's board of directors deems harmful to the Company, or
the employee ceases to provide advice to the Company when reasonably requested,
Printpack is only obligated to pay, without interest, the total amount of the
compensation previously deferred by the employee. The only retired employees
currently a party to a Deferred Income Agreement are Robert B. Paxton and Edward
J. Hilbert, Jr.
The Company's founder agreed to pay Neil Williams or his beneficiary
$40,000 per year in deferred compensation beginning at age 65. Mr. Williams, the
Company's only director that is not a salaried employee of the Company or a
principal shareholder, has served as the Company's Secretary and as a director
since 1977.
The Company also maintains Family Security Agreements with certain of its
key employees (the "Family Security Agreements"). These agreements provide that
certain disability and death benefits will be paid to such employees or their
family members. In the case of the employee's death, his or her spouse will
56
<PAGE> 61
receive annually for the rest of such spouse's life, 50% of the employee's total
cash compensation, including bonuses, for the last full year of employment. In
addition, Printpack will pay 10% of such total cash compensation to such spouse
for the oldest child of the employee under the age of 23 and 5% of such total
cash compensation for every other child under the age of 23, such payments to
continue until the respective children reach 23 years of age. In the event of
the employee's disability while an employee of Printpack, Printpack shall pay
the employee $40,000 annually for the employee's life. In addition to the other
death and disability payments, Printpack will pay $10,000 to each of the
employee's children under the age of 23 for each year they pursue a course of
higher education. If the employee voluntarily terminates his employment (except
upon retirement), engages in an activity which the Company's board of directors
deems harmful to the Company or the employee ceases to provide advice to the
Company when reasonably requested, all benefits under the Family Security
Agreement will be forfeited. If Printpack terminates the employee's employment,
there is a vesting schedule ranging from 50% at five years of employment to 100%
at more than 10 years. All payments to be made under a Family Security Agreement
are indexed to the All Urban Consumer's Cost of Living Index published by the
U.S. Government. The Company currently has Family Security Agreements with
Dennis M. Love, R. Michael Hembree, Nicklas D. Stucky and Thomas J. Dunn, Jr.,
all of whom are fully vested.
The Company believes that it has substantially funded these benefits
through insurance policies previously purchased. See "-- Executive Officers and
Directors" and "Certain Legal Matters."
PRINCIPAL SHAREHOLDERS
Enterprises owns approximately 100% of the Company and Holdings owns
approximately 97% of Enterprises. The principal shareholders of Holdings as of
this date included several members of the family of J. Erskine Love, Jr., the
Company's founder, and a limited partnership which is controlled by the Love
family. Certain of the principal shareholders of Holdings serve on the boards of
directors of the Company, Enterprises and Holdings and are involved in the
management of the Company. See "Prospectus Summary -- The Acquisition, Financing
and Related Transactions" and "Management."
THE EXCHANGE OFFER
REGISTRATION RIGHTS AND EFFECT OF EXCHANGE OFFER
The Notes were sold by the Company at the Closing to the Initial Purchaser
pursuant to the Purchase Agreement. Subsequently, the Initial Purchaser sold the
Notes to various qualified institutional buyers and accredited investors in
reliance upon Rule 144A and other available exemptions under the Securities Act.
As a condition to the Purchase Agreement, the Company and the Initial Purchaser
entered into the Registration Rights Agreement. Pursuant to the Registration
Rights Agreement, the Company agreed to file with the Commission a registration
statement under the Securities Act with respect to the Exchange Notes no later
than 60 days following the Closing Date, to use all reasonable commercial
efforts to cause such registration statement to become effective under the
Securities Act at the earliest possible time, but in no event later than 120
days after the Closing Date and, upon effectiveness of such registration
statement, to commence the Exchange Offer and offer to eligible holders of Notes
the opportunity to exchange their Notes for a like principal amount of Exchange
Notes.
Holders of Notes acquired directly from the Company, affiliates of the
Company and persons participating in, or having any arrangement or understanding
with any person to participate in a distribution of the Exchange Notes will be
ineligible, under Commission policy, to participate in the Exchange Offer, and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transaction of the Notes.
The Company agreed, pursuant to the Registration Rights Agreement, that if
notified by a holder of Transfer Restricted Securities (as defined below) within
20 business days of the Exchange Offer that such holder is prohibited by
applicable law or Commission policy from participating in the Exchange Offer, or
that
57
<PAGE> 62
such holder may not resell the Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus or that such holder is a
broker-dealer and holds Notes acquired directly from the Company or one of its
affiliates, it would file a shelf registration statement, pursuant to Rule 415
under the Securities Act, registering for resale any "Transfer Restricted
Securities," subject to the satisfaction by such holder of certain other
conditions. "Transfer Restricted Securities" means each of the Notes until the
earliest to occur of (a) the date on which such Note is exchanged in the
Exchange Offer and entitled to be resold to the public by the holder thereof
without complying with the prospectus delivery requirements of the Securities
Act, (b) the date on which the Note has been effectively registered under the
Securities Act and disposed of in accordance with a Shelf Registration Statement
or a Registration Statement (as herein defined) and (c) the date on which such
Note is sold pursuant to Rule 144 under the Securities Act or by a broker-dealer
pursuant to the "Plan of Distribution" section set forth herein. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
This Registration Statement covers the offer of the Exchange Notes pursuant
to the Exchange Offer made hereby and resales by broker-dealers that acquired
Notes for their own accounts as a result of market-making and other trading
activities. Such resales of Transfer Restricted Securities made in reliance upon
the registration thereof under the Securities Act may be made only pursuant to
the "Plan of Distribution" set forth in this Prospectus or other prospectus, if
any, filed as an amendment to the Registration Statement. To be eligible to
effect resales of Transfer Restricted Securities pursuant to registration of the
Notes for resale by holders ineligible to participate in the Exchange Offer, a
holder of Transfer Restricted Securities must (i) notify the Company within 20
business days of the Expiration Date of the Exchange Offer that it has
determined that it is not permitted by law or any policy of the Commission to
participate in the Exchange Offer made hereby or that such holder may not resell
the Exchange Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus and that this Prospectus is inappropriate or unavailable
for such resales by such holder or that such holder is a broker-dealer and holds
Notes acquired directly from the Company or one of its affiliates and (ii)
provide to the Company, within 20 business days following the Company's request
therefor, such information as the Company may reasonably request for use in
connection with the Registration Statement. In the event that any holders of
Transfer Restricted Securities comply with the foregoing requirements, and
supply any additional information reasonably requested by the Company within 20
business days following such request, the Company will file, as promptly as is
practicable, an amendment to the Registration Statement containing an
appropriate resale prospectus and will use its reasonable efforts to cause such
amendment to become effective under the Securities Act and to remain
continuously effective thereunder for a period of three years following the
Closing Date.
As a result of the filing of the Registration Statement within 60 days
following the Closing Date and the effectiveness thereof within 120 days
following the Closing Date, and assuming the effectiveness of an amendment (if
required) to provide a resale prospectus with respect to certain of the Transfer
Restricted Securities, as provided in the Registration Rights Agreement, the
Company shall have no obligation to pay any liquidated damages provided for in
the Registration Rights Agreement.
EXCEPT AS OTHERWISE PROVIDED HEREIN, FOLLOWING THE CONSUMMATION OF THE
EXCHANGE OFFER, ANY HOLDER OF NOTES NOT TENDERED AND EFFECTIVELY DELIVERED TO
THE EXCHANGE AGENT IN ACCORDANCE WITH THE EXCHANGE OFFER, AND WHO ARE NOT
ENTITLED TO RESELL THE SAME PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO
BE FILED AS AN AMENDMENT TO THE REGISTRATION STATEMENT WILL HAVE NO FURTHER
EXCHANGE OR REGISTRATION RIGHTS AND SUCH NOTES WILL CONTINUE TO BE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER. See "-- Termination of Certain Rights,"
"-- Consequences of Failure to Exchange," and "-- Resale of Exchange Notes."
Accordingly, the ability of any such holder of Notes to resell its Notes could
be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Notes
validly tendered by eligible holders, and not withdrawn prior to 5:00 P.M.
Eastern Time on the Expiration Date. The Company will issue $1,000 principal
amount of
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Exchange Senior Notes in exchange for each $1,000 principal amount of
outstanding Senior Notes accepted in the Exchange Offer, and $1,000 principal
amount of Exchange Senior Subordinated Notes in exchange for each $1,000
principal amount of outstanding Senior Subordinated Notes accepted in the
Exchange Offer. Holders may tender some or all of their Notes pursuant to the
Exchange Offer. However, Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes are substantially identical to the
form and terms of the Notes except that (i) the Exchange Notes have been
registered under the Securities Act and hence will not bear legends restricting
the transfer thereof and (ii) the holders of the Exchange Notes generally will
not be entitled to certain rights under the Registration Rights Agreement, which
rights generally will terminate upon consummation of the Exchange Offer. The
Exchange Notes will evidence the same indebtedness as the Notes and will be
entitled to the benefits of the Indentures.
Holders of Notes do not have any appraisal or dissenters' rights under the
Georgia Business Corporation Code or the Indentures in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the Indentures, the Registration Rights Agreement, and the applicable
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Notes when,
as and if the Company has given telephonic, facsimile or written notice thereof
to the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving the Exchange Notes from the Company.
If any tendered Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Notes in the Exchange Offer will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Notes pursuant to
the Exchange Offer. The Company will pay all charges and expenses, other than
transfer taxes in certain circumstances, in connection with the Exchange Offer.
See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 P.M., Eastern Time, on January
31, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 A.M., Eastern Time, on the next business day after
the previously scheduled Expiration Date.
The Company reserves the right, in its reasonable judgment, (i) to delay
accepting any Notes, to extend the Exchange Offer or to terminate the Exchange
Offer if any of the conditions set forth below under "-- Conditions" shall not
have been satisfied, by giving telephonic, facsimile or written notice of such
delay, extension or termination to the Exchange Agent or (ii) to amend the terms
of the Exchange Offer in any manner. Any such delay in acceptance, extension or
termination, and any amendment will be followed as promptly as practicable by a
public announcement thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders.
If the Company does not consummate the Exchange Offer, or, in lieu thereof,
the Company does not file and cause to become effective a resale shelf
registration for the Notes within the time periods set forth herein, liquidated
damages will accrue and be payable on the Notes either temporarily or
permanently. See "Description of Exchange Notes -- Registration Rights;
Liquidated Damages."
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Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, amendment or termination of the Exchange
Offer, the Company shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The Exchange Senior Notes and the Exchange Senior Subordinated Notes will
bear interest from August 15, 1996, the date of issuance of the Notes that are
tendered in exchange for the Exchange Notes (or the most recent Interest Payment
Date to which interest on such Notes has been paid). Accordingly, holders of
Senior Notes or Senior Subordinated Notes that are accepted for exchange will
not receive interest that is accrued but unpaid on those Notes at the time of
tender, but such interest will be payable solely with respect to the Exchange
Senior Notes and Exchange Senior Subordinated Notes, respectively, received in
the Exchange Offer on the first Interest Payment Date after the Expiration Date.
Interest on the Exchange Notes will be payable semiannually on each February 15
and August 15, commencing on February 15, 1997.
PROCEDURES FOR TENDERING
Only an eligible holder of Notes may tender such Notes in the Exchange
Offer. To tender in the Exchange Offer, a holder must complete, sign and date
the relevant Letter of Transmittal, or a facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal and mail or
otherwise deliver such Letter of Transmittal or such facsimile, together with
the Notes and any other required documents, to the Exchange Agent so as to be
received by the Exchange Agent at the address set forth below prior to 5:00
P.M., Eastern Time, on the Expiration Date. The blue Letter of Transmittal must
be used to tender Senior Notes and the yellow Letter of Transmittal must be used
to tender Senior Subordinated Notes. Delivery of the Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date. In addition, either (i) certificates for such
Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Notes, if such procedure is available, into
the Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer described
below, must be received by the Exchange Agent prior to the Expiration Date, or
(iii) the holder must comply with the guaranteed delivery procedures described
below. To be tendered effectively, the Letter of Transmittal and all other
required documents must be received by the Exchange Agent and the address set
forth below under "-- Exchange Agent" prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of Exchange Notes."
The tender by a holder and the acceptance thereof by the Company will
constitute an agreement between such holder and the Company upon the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE SOLE ELECTION AND RISK OF THE
HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee, including Notes held in
book-entry form and who wishes to tender should contact the registered holder
promptly, or in the case of book-entry Notes, DTC participant who holds such
Notes at
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DTC on behalf of the beneficial owner, and instruct such registered holder to
tender on such beneficial owner's behalf. See "Prospectus Summary -- The
Exchange Offer."
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Notes tendered pursuant thereto are tendered (i) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Notes listed therein, such Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered holder
as such registered holder's name appears on such Notes with the signature
thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Notes and withdrawal of tendered Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Notes not properly tendered or any Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive, to the extent permitted by applicable law, any
defects, irregularities or conditions of tender as to particular Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Company
shall determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Notes, none of the Company, the
Exchange Agents nor any other person shall incur any liability for failure to
give such notification. Tenders of Notes will not be deemed to have been made
until such defects or irregularities have been cured or waived. Any Notes
received by the Exchange Agents that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned by
the Exchange Agents to the tendering holders as soon as practicable following
the Expiration Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Notes at the Depository for
the purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Depository's
system may make book-entry delivery of the Notes by causing the Depository to
transfer such Notes into the relevant Exchange Agent's account with respect to
the Notes in accordance with the Depository's procedures for such transfer.
Although delivery of the Notes may be effected through book-entry transfer into
the Exchange Agent's account at the Depository, an appropriate Letter of
Transmittal properly completed and duly executed with any required signature
guarantee and all other required documents must in each case be transmitted to
and received or confirmed by the Exchange Agent at its address set forth below
on or prior to the Expiration Date, or, if the guaranteed delivery procedures
described below are complied with, within the time period provided under such
procedures. Delivery of documents to the Depository does not constitute delivery
to the Exchange Agent.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Notes and (i) whose Notes are not
immediately available, (ii) who cannot deliver their Notes, the Letter of
Transmittal or any other required documents to the relevant Exchange Agent or
(iii) who cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the relevant Exchange Agent receives
from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder, the certificate
number(s) of such Notes and the principal amount of Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within three
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof), together with the certificates(s)
representing the Notes (or a confirmation of book-entry transfer of such
Notes into the Exchange Agent's account at the Depositary) and any other
documents required by the Letter of Transmittal, will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Notes in proper form for transfer (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Depository) and all
other documents required by the Letter of Transmittal, are received by the
relevant Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Notes may be withdrawn at
any time prior to 5:00 P.M., Eastern Time, on the Expiration Date.
To withdraw a tender of Notes in the Exchange Offer, a written or facsimile
transmission notice of withdrawal must be received by the Exchange Agent at its
address set forth herein prior to 5:00 P.M., Eastern Time, on the Expiration
Date. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Notes to be withdrawn (the "Depositor"), (ii) identify the
Notes to be withdrawn (including the certificate number(s) and principal amount
of such Notes, or, in the case of Notes transferred by book-entry transfer, the
name and number of the account at the Depository to be credited and the
Depository participant through which such Notes are held), (iii) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
transfer agent and registrar with respect to the Notes register the transfer of
such Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Notes are to be registered, if different from that of
the Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Notes so withdrawn
will be deemed not to have been validly tendered for purposes of the Exchange
Offer and no Exchange Notes will be issued with respect thereto unless the Notes
so withdrawn are validly and timely retendered. Any Notes which have been
tendered but which are not accepted for exchange will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
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CONDITIONS
Notwithstanding any other term of the Exchange Offer including, without
limitation, the terms and conditions contained herein and in the Letter of
Transmittal, the Company shall not be required to accept for exchange, or to
exchange Exchange Notes for, any Notes, and may terminate or amend the Exchange
Offer as provided herein before the acceptance of such Notes, if:
(a) any law, statute, rule, regulation or interpretation by the staff
of the SEC is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(b) any governmental approval has not been obtained, which approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Notes and
return all tendered Notes to the tendering holders, (ii) extend the Exchange
Offer and retain all Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Notes (see
"-- Withdrawals of Tenders") or (iii) waive such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Notes which have
not been withdrawn. If such waiver constitutes a material change to the Exchange
Offer, the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered holders.
TERMINATION OF CERTAIN RIGHTS
Holders of the Notes to whom this Exchange Offer is made have special
rights under the Registration Rights Agreement, certain of which will terminate
upon the consummation of the Exchange Offer. The Registration Rights Agreement
states that the Exchange Offer shall be deemed "consummated" upon the occurrence
of (i) the filing and effectiveness under the Securities Act of a registration
statement relating to the Exchange Notes to be issued in the Exchange Offer,
(ii) the maintenance of such registration statement continuously effective for a
period of not less than the minimum period required under applicable federal and
state securities laws (provided that shall such Exchange Offer remain open and
the registration statement relating thereto remain continuously effective, in
each case, for at least 20 business days), and (iii) the delivery by the Company
to the transfer agent and registrar under the Indenture of the Exchange Notes in
the same aggregate principal amount as the aggregate principal amount of the
Notes tendered by holders thereof pursuant to the Exchange Offer. Such special
rights which will terminate include (a) the right to require the Company to
comply with the following: (x) to file with the Commission a registration
statement under the Securities Act with respect to the Exchange Notes no later
than 60 days following the Closing Date, (y) to use its reasonable efforts to
cause such registration statement to become effective under the Securities Act
at the earliest possible time, but in no event later than 120 days after the
Closing Date, and (z) upon effectiveness of the registration statement, to
commence the Exchange Offer and offer to the holders of the Notes the
opportunity to exchange their Notes for a like principal amount of the Exchange
Notes and to consummate the Exchange Offer within 60 days thereafter; (b) the
right to payment of liquidated damages in the event of a breach by the Company
of any of their obligations set forth in the foregoing clauses (x), (y) or (z),
in an amount, during the first 90-day period immediately following the
occurrence, and during the continuance, of such a breach, equal to $0.05 per
week per $1,000 principal amount of Notes held by a holder to which transfer
restrictions are applicable, such amount to increase by an additional $0.05 per
week per $1,000 principal amount of such Notes for each subsequent 90-day period
until the breach is cured up to a maximum amount of liquidated damages of $0.50
per week per $1,000 principal amount of Transfer Restricted Securities.
The Registration Statement also registers for resale, pursuant to Rule 415
under the Securities Act, the Transfer Restricted Securities. Such resale of
Transfer Restricted Securities made in reliance upon the registration thereof
under the Securities Act may be made only pursuant to the "Plan of Distribution"
set
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forth in this Prospectus or a separate resale prospectus, if any, filed as an
amendment to the Registration Statement. To be eligible to effect resales of
Transfer Restricted Securities pursuant to such shelf registration, a holder of
Transfer Restricted Securities must (i) notify the Company in writing within 20
days of the Expiration Date that it has determined that it is not permitted by
law or any policy of the Commission to participate in the Exchange Offer made
hereby or that such holder may not resell the Exchange Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and that this
Prospectus is inappropriate or unavailable for such resales by such holder or
that such holder is a broker-dealer and holds Notes acquired directly from the
Company or one of its affiliates and (ii) provide to the Company, within 20
business days following the Company's request therefor, such information as the
Company may reasonably request for use in connection with the Registration
Statement. In the event that any holders of Transfer Restricted Securities
comply with the foregoing requirements, and supply any additional information
reasonably requested by the Company within 20 business days following such
request, the Company will file, as promptly as practicable, an amendment to this
Registration Statement containing an appropriate resale prospectus and will use
its best efforts to cause such amendment to become effective under the
Securities Act and to remain continuously effective thereunder for a period of
three years following the Closing Date. In the event that the Company fails to
comply with its obligations in connection with resales of Transfer Restricted
Securities, it may be required to pay liquidated damages. See "Description of
Exchange Notes -- Registration Rights; Liquidated Damages."
EXCEPT AS OTHERWISE PROVIDED HEREIN, FOLLOWING THE CONSUMMATION OF THE
EXCHANGE OFFER, ANY HOLDERS OF NOTES NOT TENDERED THEREIN WHO ARE NOT ENTITLED
TO RESELL THE SAME PURSUANT TO A RESALE PROSPECTUS, IF ANY, REQUIRED TO BE FILED
AS A POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT WILL HAVE NO FURTHER
EXCHANGE OR REGISTRATION RIGHTS AND SUCH NOTES WILL CONTINUE TO BE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER. See "-- Registration Rights and Effect of
Exchange Offer."
EXCHANGE AGENT
Fleet National Bank will act as Exchange Agent for the Exchange Offer with
respect to the Senior Notes and the Senior Subordinated Notes (the "Exchange
Agent").
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Notes and requests for
copies of Notice of Guaranteed Delivery should be directed to the Exchange
Agent, addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Courier Service or in Person by Hand:
Fleet National Bank Fleet National Bank
Corporate Trust Operations Corporate Trust Operations
CT OP T06D Customer Service Window, 5th Floor
P.O. Box 5080 1 Talcott Plaza
Hartford, Connecticut 06143 Hartford, Connecticut 06106
Attention: Patricia Williams Attention: Patricia Williams
By Overnight Mail: By Facsimile Transmission:
Fleet National Bank Fleet National Bank
Corporate Trust Operations Attention: Patricia Williams
CT OP T06D Facsimile No.: 860-986-7908, with a
1 Talcott Plaza confirmation by telephone
Hartford, Connecticut 06103 Telephone No.: 860-986-1271
Attention: Patricia Williams
</TABLE>
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone, facsimile or in person by officers and
regular employees of the Company and its affiliates, who may be reimbursed their
reasonable expenses incurred in connection with such solicitation, but who will
not otherwise receive special compensation for such efforts.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith
and pay other registration expenses, including reasonable fees and expenses of
the Trustee, filing fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Notes pursuant to the Exchange Offer. If, however, certificates
representing the Exchange Notes or the Notes for principal amounts not tendered
or accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Notes tendered, or if
tendered Notes are registered in the name of any person other than the person
signing the Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the exchange of the Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered holder
or any other person) will be payable by the tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded by the Company at the same carrying
value as the Notes, which is the aggregate principal amount in the case of the
Senior Notes and the Senior Subordinated Notes. Accordingly, no gain or loss for
accounting purposes will be recognized in connection with the Exchange Offer.
The expenses of the Exchange Offer will be amortized over the remaining term of
the Exchange Notes.
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to unaffiliated third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in exchange for Notes may be offered
for resale, resold and otherwise transferred by any holder of such Exchange
Notes (other than any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act, or as set forth below, is a
broker-dealer that holds Notes acquired for its own account as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's
business and such holder does not intend to participate, and has no arrangement
or understanding with any person to participate, in the distribution of such
Exchange Notes. Any holder who tenders in the Exchange Offer with the intention
to participate, or for the purpose of participating, in a distribution of the
Exchange Notes may not rely on the position of the staff of the SEC enunciated
in no-action letters to Exxon Capital Holdings Corporation (available May 13,
1988); Morgan Stanley & Co., Incorporated (available June 5, 1991) and Shearman
& Sterling (available July 2, 1993), or similar no-action letters, but rather
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. In addition, any such
resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K of the Securities Act. Each broker-dealer that receives Exchange
Notes for its own account in exchange for Notes, where such Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, may be a statutory underwriter and must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes.
By tendering Notes in the Exchange Offer, each holder will represent to the
Company that, among other things, (i) the Exchange Notes to be acquired pursuant
to the Exchange Offer are being obtained in the ordinary course of business of
the person receiving such Exchange Notes, whether or not such person is a
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holder, (ii) neither the holder nor any such other person has an arrangement or
understanding with any person to participate in a distribution of such Exchange
Notes and (iii) the holder and such other person acknowledge that if they
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (a) they must, in the absence of an exemption therefrom, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the Exchange Notes and cannot rely on the
no-action letters referenced above and (b) failure to comply with such
requirements in such instance could result in such holder incurring liability
under the Securities Act for which such holder is not indemnified or otherwise
protected by the Company. Further, by tendering in the Exchange Offer, each
holder that may be deemed an "affiliate" (as defined under Rule 405 under the
Securities Act) of the Company will represent to the Company that such holder
understands and acknowledges that the Exchange Notes may not be offered for
resale, resold or otherwise transferred by that holder without registration
under the Securities Act or an exemption therefrom.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the SEC with respect to resales of
the Exchange Notes without compliance with the registration and prospectus
delivery requirements of the Securities Act. In connection with the Offering,
the Company entered into the Registration Rights Agreement pursuant to which the
Company agreed to file and maintain, subject to certain limitations, a
registration statement that would allow Donaldson, Lufkin & Jenrette Securities
Corporation to engage in market-making transactions with respect to the Notes or
the Exchange Notes. The Company has agreed to bear all registration expenses
incurred under such agreement, including printing and distribution expenses,
reasonable fees of counsel, blue sky fees and expenses, reasonable fees of
independent accountants in connection with the preparation of comfort letters,
and SEC and the NASD filing fees and expenses.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled one of its obligations under the Registration Rights Agreement, and
holders of Notes who do not tender their Notes generally will not have any
further registration rights under the Registration Rights Agreement or
otherwise. Accordingly, any holder of Notes that does not exchange that holder's
Notes for Exchange Notes will continue to hold unregistered Notes and will be
entitled to all the rights and limitations applicable thereto under the
Indentures, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer. The failure to participate in the Exchange Offer may adversely
affect the ability of eligible holders to resell unregistered Notes in the
future.
The Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii)
pursuant to an effective registration statement under the Securities Act, (iii)
so long as the Notes are eligible for resale pursuant to Rule 144A, to a
qualified institutional buyer within the meaning of Rule 144A under the
Securities Act in a transaction meeting the requirements of Rule 144A, (iv)
outside the United States to a foreign person pursuant to the exemption from the
registration requirements of the Securities Act provided by Regulation S
thereunder, (v) pursuant to an exemption from registration under the Securities
Act provided by Rule 144 thereunder (if available) or (vi) to an institutional
accredited investor in a transaction exempt from the registration requirements
of the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. See "Risk Factors -- Restrictions on
Transfer of Notes."
NO RECOMMENDATION; OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. holders of the Notes are urged to consult
their financial and tax advisors in making their own decision on what action to
take. The Company's Board of Directors makes no recommendation as to whether
holders should tender Notes pursuant to the Exchange Offer.
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The Company may in the future seek to acquire unregistered Notes that are
not tendered in the Exchange Offer in open market, privately negotiated or other
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Notes that are not tendered in the Exchange
Offer or to file a registration statement to permit resales of any untendered
Notes, except as and to the extent required by the Registration Rights
Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code") applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "IRS") will not take a contrary
view, and no ruling from the IRS has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders of the Notes (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below.
The issuance of the Exchange Notes to holders of the Notes pursuant to the
terms set forth in this Prospectus will not constitute an exchange for federal
income tax purposes. Consequently, no gain or loss would be recognized by
holders of the Notes upon receipt of the Exchange Notes, and ownership of the
Exchange Notes will be considered a continuation of ownership of the Notes. For
purposes of determining gain or loss upon the subsequent sale or exchange of the
Exchange Notes, a holder's basis in the Exchange Notes should be the same as
such holder's basis in the Notes exchanged therefor. A holder's holding period
for the Exchange Notes should include the holder's holding period for the Notes
exchanged therefor. The issue price, original issue discount inclusion and other
tax characteristics of the Exchange Notes should be identical to the issue
price, original issue discount inclusion and other tax characteristics of the
Notes exchanged therefor.
Holders of Notes should consult their own tax advisors as to the particular
tax consequences of exchanging such holder's Notes for Exchange Notes, including
the applicability and effect of any state, local or foreign tax laws.
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Senior Notes will be issued by the Company pursuant to the
same Senior Note Indenture between the Company and the Senior Note Trustee,
under which the Senior Notes were issued. The Exchange Senior Subordinated Notes
will be issued by the Company pursuant to the same Senior Subordinated Note
Indenture between the Company and the Senior Subordinated Note Trustee under
which the Senior Subordinated Notes were issued.
The terms of the Notes include those stated in the Indentures, and in
addition, with respect to the Exchange Notes, those made part of the Indentures
by reference to the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). The Notes are subject to all such terms, and holders of Notes
are referred to the Indentures and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indentures and the
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the actual agreements, which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. For
purposes of this "Description of Exchange Notes," references to "Notes," "Senior
Notes," and "Senior Subordinated Notes" also include and mean the Exchange
Notes, the Exchange Senior Notes and the Exchange Senior Subordinated Notes,
respectively, offered by this Exchange Offer. The definitions of certain terms
used in the following summary are set forth below under "-- Certain
Definitions."
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RANKING
The Senior Notes are general unsecured obligations of the Company ranking
senior to all subordinated Indebtedness of the Company, including the Senior
Subordinated Notes, and pari passu with all existing and future senior
Indebtedness of the Company, including borrowings under the New Credit
Agreement. However, borrowings under the New Credit Agreement are secured by
Liens on substantially all of the assets of the Company and will, therefore,
effectively rank senior to the Senior Notes. See "Risk Factors -- Effective
Subordination of Exchange Senior Notes."
The Senior Subordinated Notes are general unsecured obligations of the
Company and are subordinated in right of payment to Senior Debt. As of September
28, 1996, as a result of the Acquisition and the related financing and excluding
receivables sold pursuant to the Receivables Securitization Facility,
approximately $318.0 million of Senior Debt was outstanding, $218.0 million of
which was secured Indebtedness under the New Credit Agreement.
Certain of the Company's operations are conducted through Subsidiaries,
none of which will guarantee the Company's obligations with respect to the
Notes. As a result, the Notes will effectively be subordinated to the creditors,
including trade creditors, of such Subsidiaries.
SUBORDINATION OF SENIOR SUBORDINATED NOTES
The payment of principal of, premium, if any, and interest on the Senior
Subordinated Notes, all Obligations of the Company under the Senior Subordinated
Note Indenture, the Purchase Agreement and the Registration Rights Agreement
(including, without limitation, Liquidated Damages, if any) and the payment of
any Claims are subordinated in right of payment, as set forth in the Senior
Subordinated Note Indenture, to the prior payment in full of all Senior Debt,
including, without limitation, the Senior Notes and borrowings under the New
Credit Agreement, whether outstanding on the date of the Senior Subordinated
Note Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, or
in an assignment for the benefit of creditors or any marshaling of Company's
assets and liabilities, the holders of Senior Debt are entitled to receive
payment in full of all Obligations due or to become due in respect of such
Senior Debt (including interest after the commencement of any such proceeding at
the rates specified in the applicable Senior Debt, whether or not an allowable
claim) and to have all Obligations due in respect of letters of credit issued
pursuant to the New Credit Agreement fully collateralized before the holders of
Senior Subordinated Notes are entitled to receive any payment or distribution
with respect to the Senior Subordinated Notes or on account of any Claim; and
until all Obligations with respect to Senior Debt are paid in full, any payment
or distribution (including, without limitation, any payment or distribution that
may be payable or deliverable by reason of the payment of any other Indebtedness
of the Company being subordinated to the payment of the Senior Subordinated
Notes) to which the holders of Senior Subordinated Notes would be entitled are
made to the holders of Senior Debt, including the Senior Notes, (except that, in
either case, holders of Senior Subordinated Notes may receive (i) Permitted
Junior Securities and (ii) payments made from the trust described below under
"-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment or distribution (including,
without limitation, any payment or distribution that may be payable or
deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Senior Subordinated Notes) upon or in
respect of the Senior Subordinated Notes (except as described above) if (i) a
default in the payment when due of the principal of, premium, if any, or
interest on Designated Senior Debt or any commitment or letter of credit fee,
letter of credit reimbursement obligation or Hedging Obligation, in each case,
constituting Designated Senior Debt occurs and is continuing or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits, or would permit, with the passage of time or the giving of notice or
both, holders of Designated Senior Debt as to which such default relates to
accelerate its maturity and the trustee receives a notice of such default (a
"Payment Blockage Notice") from the Company or the holders of any Designated
Senior Debt. Payments on the Senior Subordinated Notes may and shall be
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resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived in accordance with the terms of such Designated
Senior Debt and (b) in the case of a nonpayment default, the earlier of the date
on which such nonpayment default is cured or waived in accordance with the terms
of such Designated Senior Debt or 179 days after the date on which the
applicable Payment Blockage Notice is received, unless the maturity of any
Designated Senior Debt has been accelerated. No new period of payment blockage
may be commenced unless and until (1) 360 days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (2) all
scheduled payments of principal, premium, if any, and interest on the Senior
Subordinated Notes that have come due have been paid in full. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Senior Subordinated Note Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice.
The Senior Subordinated Note Indenture further requires that the Company
promptly notify the holders of Senior Debt, including the holders of Senior
Notes and the Representative under the New Credit Agreement, if payment of the
Senior Subordinated Notes is accelerated because of an Event of Default;
provided, however, that so long as any Designated Senior Debt is outstanding,
any such acceleration shall not become effective until the earlier of (i) the
day which is five Business Days after the receipt by Representatives of
Designated Senior Debt of written notice of acceleration or (ii) the date of
acceleration of any Designated Senior Debt.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency of the Company, holders of Senior Subordinated
Notes may recover less ratably than creditors of the Company who are holders of
Senior Debt or other creditors of the Company who are not subordinated to
holders of Senior Debt.
"Claim" means any claim arising from rescission of the purchase or sale of
the Senior Subordinated Notes, for damages arising from the purchase or sale of
the Senior Subordinated Notes or for reimbursement or contribution on account of
such a claim.
"Designated Senior Debt" means (i) so long as any Senior Bank Debt is
outstanding, the Senior Bank Debt, (ii) thereafter, any other Senior Debt
permitted under the Senior Subordinated Note Indenture, the principal amount of
which is $25.0 million or more and that has been designated by the Company as
"Designated Senior Debt" and (iii) holders of at least 25% of the then
outstanding Senior Notes.
"Permitted Junior Securities" means equity securities or any subordinated
debt securities of the Company, or of any successor obligor (with respect to the
Senior Debt) that are subordinate to the Senior Debt that, in the case of any
such subordinated securities, (i) are subordinated in right of payment to all
Senior Debt and all securities issued in for Senior Debt that may at the time be
outstanding to at least the same extent as the Senior Subordinated Notes are
subordinated as provided in the Senior Subordinated Note Indenture and (ii) have
a Weighted Average Life to Maturity not less than the Senior Subordinated Notes.
"Senior Bank Debt" means the Indebtedness outstanding under the New Credit
Agreement (including, without limitation, Hedging Obligations owing to lenders
that are parties to the New Credit Agreement or to Affiliates of such lenders),
as such agreement may be restated, further amended, supplemented or otherwise
modified or replaced from time to time hereafter, together with any refunding or
replacement, in whole or in part, of such Indebtedness, to the extent that any
such Indebtedness was permitted by the Indentures to be incurred.
"Senior Debt" means (a) the Senior Notes, (b) the Senior Bank Debt, (c) all
additional Indebtedness and Attributable Debt that is permitted under the Senior
Subordinated Note Indenture that is not by its terms pari passu with or
subordinated to the Senior Subordinated Notes, (d) all Obligations of the
Company and its Subsidiaries with respect to the foregoing clauses (a), (b) and
(c), including post-petition interest and (e) all (including all subsequent)
renewals, extensions, amendments, refinancings, repurchases or redemptions,
modifications, replacements or refundings thereto (whether or not coincident
therewith), in whole or in part, that are permitted by the Indentures.
Notwithstanding anything to the contrary in the foregoing, Senior Debt shall not
include (i) any Indebtedness of the Company to any of its Subsidiaries, (ii) any
trade payables or (iii) any Indebtedness incurred in violation of the Senior
Subordinated Note Indenture.
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PRINCIPAL, MATURITY AND INTEREST
Senior Notes
The Senior Notes are general unsecured obligations of the Company, limited
in aggregate principal amount to $100.0 million, and will mature on August 15,
2004. Interest on the Senior Notes will accrue at the rate per annum set forth
on the cover page of this Prospectus and are payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on February 15, 1997, to
holders of record on the immediately preceding February 1 and August 1,
respectively. Interest on the Senior Notes will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance.
Senior Subordinated Notes
The Senior Subordinated Notes are general unsecured obligations of the
Company, limited in aggregate principal amount to $200.0 million, and will
mature on August 15, 2006. Interest on the Senior Subordinated Notes are payable
semiannually in arrears on February 15 and August 15 of each year, commencing on
February 15, 1997, to holders of record on the immediately preceding February 1
and August 1, respectively. Interest on the Senior Subordinated Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance.
General
Interest on the Notes are computed on the basis of a 360-day year
consisting of twelve 30-day months. Principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes are payable at the office or agency of
the Company maintained for such purpose within the City and State of New York
or, at the option of the Company, payment of interest, if any, may be made by
check mailed to the holders of the Notes at their respective addresses set forth
in the register of holders of Notes; provided that all payments with respect to
Global Notes (as defined below) and definitive notes the holders of which have
given wire transfer instructions to the Company at least 10 business days prior
to the applicable payment date are required to be made by wire transfer of
immediately available funds to the accounts specified by the holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York are the office of the applicable Trustee maintained for such purpose. The
Notes are issued in minimum denominations of $1,000 and integral multiples
thereof.
OPTIONAL REDEMPTION
Senior Notes
Except as described below, the Senior Notes will not be redeemable at the
Company's option prior to August 15, 2000. Thereafter, the Senior Notes are
subject to redemption at the option of the Company at any time, in whole or in
part, upon not less than 30 nor more than 60 days' prior written notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest and Liquidated Damages, if any, thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on August 15 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2000.............................................................. 104.938%
2001.............................................................. 103.292%
2002.............................................................. 101.646%
2003 and thereafter............................................... 100.000%
</TABLE>
In the event of an Initial Public Offering of the Company within three
years from the Issue Date, the Company may use the proceeds from such Initial
Public Offering to redeem up to 25% of the aggregate principal amount of Senior
Notes originally issued at a redemption price equal to 108 7/8% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption, provided, however, that at least $75.0 million in
aggregate principal amount of Senior Notes remains
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outstanding following such redemption and, provided further, that such
redemption occurs within 60 days of the closing of such Initial Public Offering.
Senior Subordinated Notes
The Senior Subordinated Notes are not redeemable at the Company's option
prior to August 15, 2001. Thereafter, the Senior Subordinated Notes are subject
to redemption at the Option of the Company at any time, in whole or in part,
upon not less than 30 nor more than 60 days' prior written notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, including Liquidated Damages, if any,
thereon to the applicable redemption date, if redeemed during the twelve-month
period beginning on August 15 of each of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------ ----------
<S> <C>
2001.............................................................. 105.313%
2002.............................................................. 103.542%
2003.............................................................. 101.771%
2004 and thereafter............................................... 100.000%
</TABLE>
In the event of an Initial Public Offering within three years from the
Issue Date, the Company may use the proceeds from such Initial Public Offering
to redeem up to 35% of the aggregate principal amount of Senior Subordinated
Notes originally issued at a redemption price equal to 109 5/8% of the principal
amount thereof, plus accrued and unpaid Liquidated Damages, if any, to the date
of redemption, provided, however, that at least $100.0 million in aggregate
principal amount of Senior Subordinated Notes remains outstanding following such
redemption and, provided further, that such redemption occurs within 60 days of
the closing of such Initial Public Offering.
MANDATORY REDEMPTION
The Company will not be required to make any mandatory redemption or
sinking fund payments with respect to the Notes.
SELECTION AND NOTICE
If less than all of the Senior Notes or Senior Subordinated Notes, as the
case may be, are to be redeemed at any time, selection of such Notes for
redemption are made by the appropriate Trustee in compliance with the
requirements of the principal national securities if any, on which such Notes
are listed, or, if such Notes are not so listed, on a pro rata basis, by lot or
by such method as such Trustee shall deem fair and appropriate; provided that,
no Notes of $1,000 or less shall be redeemed in part. Except as provided above
with respect to a special mandatory redemption, notices of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof are issued in the name of the holder thereof upon cancellation
of the original Note. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each holder describing the transaction or
transactions that
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constitute the Change of Control and offering to repurchase Notes pursuant to
the procedures required by the Indentures and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note are in a principal amount
of $1,000 or an integral multiple thereof. The Subordinated Note Indenture will
provide that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all agreements governing outstanding Senior Debt to permit the repurchase
of Senior Subordinated Notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act) other than the Principals or their Related Parties (as defined below), (ii)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (iii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 35%
of the voting stock of the Company or (iv) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indentures or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Principals" means Dennis M. Love, James E. Love, III, Carol Anne Love
Jennison, William J. Love, Charles Keith Love, David M. Love and Gay Love.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) any trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
The Company will not be required to make a Change of Control Offer upon the
occurrence of a Change of Control if a third party makes the Change of Control
Offer in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indentures applicable to a Change of Control Offer
made by the Company and purchases all Notes validly tendered and not withdrawn
under such Change of Control Offer.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indentures are applicable. Except as described
above with respect to a Change of Control, the Indentures
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do not contain provisions that permit the holders of the Notes to require the
Company to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The occurrence of certain of the events that would constitute a Change of
Control would constitute a default under the New Credit Agreement. Future Senior
Debt of the Company may contain prohibitions on the occurrence of certain events
that would constitute a Change of Control or require such Senior Debt to be
repurchased upon a Change of Control. Moreover, the exercise by the holders of
the Notes of their right to require the Company to repurchase the Notes could
cause a default under the terms of the agreements governing outstanding Senior
Debt, including specifically the Senior Note Indenture and the New Credit
Agreement, even if the Change of Control itself does not, due to the financial
effect of such repurchase on the Company. Finally, the Company's ability to pay
cash to the holders of Notes following the occurrence of a Change of Control may
be limited by the Company's then existing financial resources under the terms of
the agreements governing outstanding Senior Debt. There can be no assurance that
sufficient funds are available when necessary to make any required repurchases.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
LIMITATION ON ASSET SALES
Asset Sales
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (as determined by the Board of
Directors in good faith, whose determination shall be conclusive evidence
thereof and shall be evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) of the assets or
Equity Interests issued or sold or otherwise disposed of and (ii) at least 80%
of the consideration therefor received by the Company or such Subsidiary is in
the form of cash; provided that the amount of (x) any liabilities (as shown on
the Company's or such Subsidiary's most recent balance sheet), of the Company or
any Subsidiary (other than contingent liabilities and liabilities that are by
their terms subordinated to the applicable Notes or any guarantee thereof) that
are assumed by the transferee of any such assets pursuant to an agreement that
releases the Company or such Subsidiary from further liability and (y) any notes
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to permanently
reduce, repurchase, repay or redeem term Indebtedness under the New Credit
Agreement or any one or more successor or additional bank facilities, (b) to
permanently reduce or repay revolving Indebtedness (and to correspondingly
reduce commitments with respect thereto) under the New Credit Agreement or any
one or more successor or additional bank facilities, or (c) to the acquisition
of a controlling interest in another business, the making of a capital
expenditure or the acquisition of other long-term assets, in each case, in the
same or a similar line of business as the Company was engaged in on the date of
such Asset Sale or another line of business that is reasonably related thereto.
The Senior Subordinated Note Indenture also permits the Company to apply any
such Net Proceeds to the redemption or repurchase of Senior Notes pursuant to an
Asset Sale Offer as described below. Pending the final application of any such
Net Proceeds, the Company may temporarily reduce revolving Indebtedness under
the New Credit Agreement or any one or more successor or additional bank
facilities or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indentures. Any Net Proceeds from Asset Sales that are
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not applied or invested as provided in the first sentence of this paragraph are
deemed to constitute "Excess Proceeds."
Each Indenture provides that, as soon as practical, but in no event later
than 10 business days, in the case of clause (i) below, and 45 business days, in
the case of clause (ii) below, after any date (each, an "Asset Sale Offer
Trigger Date") that the aggregate amount of Excess Proceeds exceeds $10.0
million, the Company will (i) commence an offer to purchase the maximum
principal amount of Senior Notes and other Indebtedness of the Company that
ranks pari passu in right of payment with the Senior Notes (to the extent
required by the instrument governing such other Indebtedness), that may be
purchased out of the Excess Proceeds and (ii) to the extent that more than $10.0
million of Excess Proceeds remain following consummation of the offer to
purchase Senior Notes contemplated by the preceding clause (i), commence an
offer to purchase the maximum principal amount of Senior Subordinated Notes and
other Indebtedness of the Company that ranks pari passu in right of payment with
the Senior Subordinated Notes (to the extent required by the instrument
governing such other Indebtedness), that may be purchased out of the Excess
Proceeds (each, an "Asset Sale Offer"). Any Notes and other Pari Passu Debt to
be purchased pursuant to an Asset Sale Offer are purchased pro rata based on the
aggregate principal amount of Notes and such other Pari Passu Debt outstanding
and all Notes are purchased at an offer price in cash equal to 100% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase (or if such Asset Sale Offer is with
respect to any discount or zero coupon securities prior to the date of their
full accretion, 100% of the accreted value thereof on the date of purchase).
Each Indenture provides that, to the extent that any Excess Proceeds remain
after completion of an Asset Sale Offer, the Company may use the remaining
amount for general corporate purposes and the amount of Excess Proceeds shall be
reset at zero. The Company's ability to repurchase Notes in connection with an
Asset Sale Offer are subject to the covenants contained in the New Credit
Agreement or any additional or successor bank facility. In addition, any
repurchase of Senior Subordinated Notes are subject to the covenant in the
Senior Note Indenture described below under the caption "-- Certain
Covenants -- Restricted Payments."
Each Indenture provides that, in connection with each Asset Sale Offer, the
Company will mail to each holder of Notes at such holder's registered address a
notice stating: (i) that an Asset Sale Trigger Date has occurred and that the
Company is offering to purchase the maximum principal amount of Notes that may
be purchased out of the Excess Proceeds, at an offer price in cash equal to 100%
of the principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase which date of purchase (the "Asset Sale
Offer Purchase Date") are a Business Day specified in such notice that is not
earlier than 30 days nor later than 60 days from the date such notice is mailed,
(ii) the amount of accrued and unpaid interest, if any, as of the Asset Sale
Offer Purchase Date, (iii) that any Note not tendered will continue to accrue
interest (iv) that, unless the Company defaults in the payment of the purchase
price for the Notes payable pursuant to the Asset Sale Offer, any Notes accepted
for payment pursuant to the Asset Sale Offer will cease to accrue interest after
the Asset Sale Offer Purchase Date, (v) the procedures, consistent with the
Indentures, to be followed by holders of Notes in order to accept an Asset Sale
Offer or to withdraw such acceptance, and (vi) such other information as may be
required by the Indentures or applicable laws and regulations.
On the Asset Sale Offer Purchase Date, the Company will (i) accept for
payment the maximum principal amount of Notes or portions thereof tendered
pursuant to the Asset Sale Offer that can be purchased out of the Excess
Proceeds, (ii) deposit with the applicable Paying Agent the aggregate purchase
price of all Notes or portions thereof accepted for payment and any accrued and
unpaid interest and Liquidated Damages, if any, on such Notes as of the Asset
Sale Offer Purchase Date, and (iii) deliver or cause to be delivered to the
appropriate Trustee all Senior Notes or Senior Subordinated Notes, as the case
may be, tendered pursuant to the Asset Sale Offer. If less than all of the Notes
tendered pursuant to the Asset Sale Offer are accepted for payment by the
Company for any reason consistent with the Indentures, selection of the Notes to
be purchased by the Company shall be in compliance with the requirements of the
principal national securities if any, on which the Notes are listed or, if the
Notes are not so listed, among Notes of a particular series and Pari Passu Debt
on a pro rata basis; provided that Notes accepted for payment in part shall only
be purchased in integral multiples of $1,000. The appropriate Paying Agent shall
promptly mail to each holder of Notes or
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portions thereof accepted for payments an amount equal to the purchase price for
such Notes plus any accrued and unpaid interest or Liquidated Damages, if any,
thereon, and the appropriate Trustee shall promptly authenticate and mail to
such holder of Notes accepted for payment in part a new Note equal in principal
amount of any unpurchased portion of the Notes, and any Note not accepted for
payment in whole or in part shall be promptly returned to the holder of such
Note. The Company will announce the results of the Asset Sale Offer to holders
of the Notes on or as soon as practicable after the Asset Sale Purchase Date.
The Company has agreed to comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities laws
or regulations in connection with any Asset Sale Offer.
CERTAIN COVENANTS
Restricted Payments
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's Equity
Interests (including, without limitation, any payment in connection with any
merger or consolidation involving the Company) or to the direct or indirect
holders of the Company's Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than Disqualified
Stock) of the Company); (ii) purchase, redeem or otherwise acquire or retire for
value any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any principal payment on, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is subordinated
to the applicable Notes, except at final maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date
of the Indentures (excluding Restricted Payments permitted by clauses (x)
and (y) of the next succeeding paragraph), is less than the sum of (i) 50%
of the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (ii) 100% of
the aggregate net cash proceeds received by the Company from the issue or
sale since the Issue Date of Equity Interests of the Company or of debt
securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or convertible debt securities)
sold to a Subsidiary of the Company and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock), plus
(iii) to the extent that any Restricted Investment that was made after the
Issue Date is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial
amount of such Restricted Investment, plus (iv) $10.0 million.
The foregoing provisions will not prohibit (v) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indentures; (w) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the
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amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (x) the defeasance, redemption or repurchase of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Debt or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c)(ii) of the preceding paragraph;
(y) the payment of dividends to the Company's direct parent to pay
administrative expenses in an aggregate amount not to exceed $200,000 in any
12-month period; and (z) the repurchase, redemption or other acquisition or
retirement for value of any Equity Interests of the Company or any Subsidiary of
the Company held by any member of the Company's (or any of its Subsidiaries')
management pursuant to any management equity subscription agreement or stock
option agreement in effect as of the Issue Date or entered into after the Issue
Date with members of the management of any Person acquired after the Issue Date
in connection with the acquisition of such Person or the repurchase of Equity
Interests of the Company or any Subsidiary of the Company held by employees,
former employees, directors or former directors pursuant to the terms of
agreements (including employment agreements) approved by the Board of Directors;
provided that the aggregate price paid for all such repurchased, redeemed,
acquired or retired Equity Interests shall not exceed $3.0 million in any
12-month period following the date of the Indentures or $10.0 million in the
aggregate since the date of the Indentures; and no Default or Event of Default
shall have occurred and be continuing immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (as determined by the Board of Directors in good faith, whose
determination shall be conclusive evidence thereof and shall be evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Subsidiary, as the case may
be, pursuant to the Restricted Payment. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, which calculations may be based upon the Company's
latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue shares of Disqualified Stock if the Fixed Charge Coverage Ratio
for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.5 to 1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company of term Indebtedness under the New
Credit Agreement or any one or more successor or additional bank facilities
and/or Attributable Debt in respect of sale and leaseback transactions the
net proceeds of which were applied to repay any such term Indebtedness in
an aggregate principal amount at any time outstanding not to exceed an
amount equal to $170.0 million less the aggregate amount of all repayments,
optional or mandatory, of the principal of any such term Indebtedness
(other than repayments that are immediately reborrowed and other than
repayments made with the proceeds of sale and leaseback transactions
pursuant to this clause (i)) that have been made since the Issue Date;
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(ii) (a) the incurrence by the Company of revolving Indebtedness under
the New Credit Agreement (or any one or more successor or additional bank
facilities) and letters of credit (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of the
Company thereunder) and (b) the incurrence by the Receivables Subsidiary of
Non-Recourse Debt under the Receivables Facility; provided, however, that,
the aggregate principal amount at any time outstanding pursuant to
subclauses (a) and (b) of this clause (ii) (excluding intercompany
Indebtedness of the Receivables Subsidiary permitted by clause (viii)
below) shall not exceed an amount equal to $155.0 million less the
aggregate amount of all Net Proceeds of Asset Sales applied to permanently
reduce the commitments with respect to such revolving Indebtedness pursuant
to the covenant described above under the caption "-- Limitation on Asset
Sales -- Asset Sales;"
(iii) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(iv) the incurrence by the Company of Indebtedness represented by the
Senior Notes and the Senior Subordinated Notes;
(v) the incurrence by the Company of Indebtedness represented by
Capital Lease Obligations, mortgage financings or purchase money
obligations, in each case, incurred for the purpose of financing all or any
part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company, in an
aggregate principal amount not to exceed $25.0 million at any time
outstanding;
(vi) the incurrence by any of the Company's Subsidiaries of
Indebtedness in connection with the acquisition of assets or a new
Subsidiary; provided that (1) such Indebtedness was incurred by the prior
owner of such assets or such Subsidiary prior to such acquisition and was
not incurred in connection with, or in contemplation of, such acquisition
or is in the nature of an earnout payment or holdback payment incurred by
one of the Company's Subsidiaries in connection with the acquisition of
assets or a new Subsidiary, (2) the principal amount (or accreted value, as
applicable) of such Indebtedness, together with any other outstanding
Indebtedness incurred pursuant to this clause (vi), does not exceed $10.0
million and (3) the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 2.5 to 1,
determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been
incurred at the beginning of such four-quarter period;
(vii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indentures to be incurred;
(viii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries, and any intercompany Indebtedness arising in connection with
a Receivables Facility; provided, however, that (1) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all Obligations with respect to the Notes and (2)(A)
any subsequent issuance or transfer of Equity Interests that results in any
such Indebtedness being held by a Person other than the Company or a
Subsidiary and (B) any sale or other transfer of any such Indebtedness to a
Person that is not either the Company or a Subsidiary thereof shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Subsidiary, as the case may be;
(ix) the incurrence by the Company of Hedging Obligations that are
incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by the terms of
the Indentures to be outstanding or for the purpose of hedging against
currency rate fluctuations;
(x) Guarantees by the Company and its Subsidiaries of Indebtedness of
Subsidiaries, and Guarantees by Subsidiaries of Indebtedness of the
Company, that are, in each case, permitted to be incurred under this
covenant other than Indebtedness permitted to be incurred pursuant to
subclause (b) of clause (ii) above; and
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(xi) the incurrence by the Company or any of its Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other clause of
this paragraph) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding not to exceed $25.0 million.
Liens
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness on any asset now owned or hereafter
acquired, or any income or profits therefrom or assign or convey any right to
receive income therefrom, except Permitted Liens.
No Senior Subordinated Debt
The Senior Subordinated Note Indenture provides that the Company will not
incur any Indebtedness that is subordinate or junior in right of payment to any
Senior Debt and senior in any respect in right of payment to the Senior
Subordinated Notes.
Sale and Leaseback Transactions
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company or any of its Subsidiaries may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock," (ii) the gross cash proceeds of
such sale and leaseback transaction are at least equal to the fair market value
(as determined in good faith by the Board of Directors and set forth in an
Officers' Certificate delivered to the Trustee) of the property that is the
subject of such sale and leaseback transaction and (iii) the transfer of assets
in such sale and leaseback transaction is permitted by, and the Company applies
the proceeds of such transaction in compliance with, the covenant described
above under the caption "-- Limitation on Asset Sales -- Asset Sales." Payments
or arrangements pursuant to a Tax Incentive Program shall not constitute sale
and leaseback transactions.
Limitations on Issuances of Guarantees of Indebtedness
The Indentures provide that the Company will not permit any of its
Subsidiaries, directly or indirectly, to Guarantee or pledge any assets to
secure the payment of any other Indebtedness of the Company unless such
Subsidiary simultaneously executes and delivers supplemental indentures to the
Indentures providing for the Guarantee of the payment of the Notes by such
Subsidiary, which Guarantee shall be senior to or pari passu with such
Subsidiary's Guarantee of or pledge to secure such other Indebtedness except
that the Senior Subordinated Note Indenture will permit such Guarantee to be
subordinated to any Guarantee of Senior Debt to the same extent that the Senior
Subordinated Notes are subordinated to Senior Debt. Notwithstanding the
foregoing, any such Guarantee by a Subsidiary of the Notes will provide by its
terms that it are automatically and unconditionally released and discharged upon
any sale, or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Subsidiary, which sale, or transfer is made in compliance with the applicable
provisions of the Indentures. The form of such Guarantee are attached as an
exhibit to the Indentures.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or
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assets to the Company or any of its Subsidiaries, except for such encumbrances
or restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the Issue Date, (b) the New Credit Agreement as in effect as of the
Issue Date and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, taken as a whole, no more
restrictive with respect to such dividend and other payment restrictions than
those contained in the New Credit Agreement as in effect on the Issue Date, (c)
the Indentures and the Notes, (d) applicable law, (e) any instrument governing
Indebtedness of a Subsidiary of the Company that was permitted by the terms of
the Indentures to be incurred, (f) by reason of customary non-assignment
provisions in leases entered into in the ordinary course of business and
consistent with past practices, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h)
Permitted Refinancing Debt provided that the restrictions contained in the
agreements governing such Permitted Refinancing Debt are, taken as a whole, no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (i) an agreement that has been entered into for
the sale or disposition of all or substantially all of the Equity Interests or
property or assets of a Subsidiary of the Company or (j) restrictions on the
Receivables Subsidiary pursuant to the Receivables Facility.
Merger, Consolidation, or Sale of Assets
The Indentures provide that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indentures pursuant to supplemental indentures
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made will, at the time of such transaction and after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indentures provide that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Subsidiary than those that would have been obtained in a comparable
transaction by the Company or such Subsidiary with an unrelated Person and (ii)
the Company delivers to the Trustee (a) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $1.0 million, a resolution of the Board of Directors
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of Directors
and (b) with respect to any Affiliate Transaction or series of related Affiliate
Transactions involving aggregate consideration in excess of $5.0
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million, an opinion as to the fairness to the holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v) sales of
Receivables to the Receivables Subsidiary on arm's length terms, (w) any
transaction in accordance with the terms of any Existing Employment Agreement as
the same are in effect on the Issue Date and any employment agreement entered
into by the Company or any of its Subsidiaries in the ordinary course of
business and consistent with the past practice of the Company or such
Subsidiary, (x) transactions between or among the Company and/or its Controlled
Subsidiaries, (y) transactions pursuant to the Tax Allocation Agreement as in
effect on the date of the Indentures and (z) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indentures described
above under the caption "-- Restricted Payments," in each case, shall not be
deemed Affiliate Transactions. In addition, the Indentures provide that the
Company will not, and will not permit any of its Subsidiaries to, merge with or
into, or purchase all or substantially all of the assets of, any Affiliate,
unless (i) such Affiliate had positive Consolidated Cash Flow in each of its
most recently ended two full fiscal years and (ii) the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such transaction is entered into, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
transaction had been entered into at the beginning of such four-quarter period,
would have been higher than the actual Fixed Charge Coverage Ratio for such
four-quarter period.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Subsidiaries
The Indentures provide that the Company (i) will not, and will not permit
any Wholly Owned Subsidiary of the Company to, transfer, convey, sell, lease or
otherwise dispose of any Capital Stock of any Wholly Owned Subsidiary of the
Company to any Person (other than the Company or a Wholly Owned Subsidiary of
the Company), unless (a) such transfer, conveyance, sale, lease or other
disposition is of all the Capital Stock of such Wholly Owned Subsidiary and (b)
the cash Net Proceeds in excess of $1.0 million from such transfer, conveyance,
sale, lease or other disposition are applied in accordance with the covenant
described above under the caption "-- Limitation on Asset Sales -- Asset Sales,"
and (ii) will not permit any Wholly Owned Subsidiary of the Company to issue any
of its Equity Interests (other than, if necessary, shares of its Capital Stock
constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Subsidiary of the Company, unless (a) such issuance is
of all the Equity Interests of such Wholly Owned Subsidiary and (b) the cash Net
Proceeds in excess of $1.0 million from such issuance are applied in accordance
with the covenant described above under the caption "-- Limitation on Asset
Sales -- Asset Sales".
Payments for Consent
The Indentures provide that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indentures or the Notes unless such consideration is offered to be paid
or is paid to all holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Reports
The Indentures provide that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, beginning October 31, 1996, the Company will
furnish to the holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
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not required by the rules and regulations of the Commission, beginning October
31, 1996, the Company will file a copy of all such information and reports with
the Commission for public availability (unless the Commission will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, the Company has agreed that,
for so long as any Notes remain outstanding, it will furnish to the holders and
to securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indentures provide that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the applicable Notes (whether or not
prohibited by the subordination provisions of the Senior Subordinated Note
Indenture); (ii) default in payment when due of the principal of or premium, if
any, on the Notes (whether or not prohibited by the subordination provisions of
the Senior Subordinated Note Indenture); (iii) failure by the Company to comply
with the provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," or "-- Limitation on Asset Sales -- Asset Sales";
(iv) failure by the Company for 60 days after notice to comply with any of its
other agreements in the applicable Indenture or the applicable Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such Indebtedness
or guarantee now exists, or is created after the date of the Indentures, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $10.0 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments not covered by insurance
aggregating in excess of $10.0 million, which judgments are not paid,
discharged, bonded or stayed for a period of 60 days; (vii) except as permitted
by the Indentures, any Subsidiary Guarantee shall be held invalid or shall cease
to be in full force and effect, or any Person acting on behalf of any Guarantor
shall deny or disaffirm its obligations under its Subsidiary Guarantee; and
(viii) certain events of bankruptcy or insolvency with respect to the Company,
any Significant Subsidiary or any group of Subsidiaries that, taken together,
would constitute a Significant Subsidiary.
If any Event of Default under either of the Indentures occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Notes issued under such Indenture may declare all such
Notes to be due and payable immediately; provided, however, that so long as any
Designated Senior Debt is outstanding, such declaration shall not become
effective until the earlier of (i) the day which is five Business Days after the
receipt by Representatives of Designated Senior Debt of written notice of
acceleration or (ii) the date of acceleration of any Designated Senior Debt.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. Holders of the Notes may not enforce
the Indenture pursuant to which they were issued or the Notes except as provided
in such Indenture. Subject to certain limitations, holders of a majority in
principal amount of either series of Notes may direct the applicable Trustee in
its exercise of any trust or power. Each Trustee may withhold from holders of
the Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the applicable Indenture, an equivalent
premium shall also become and be
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immediately due and payable to the extent permitted by law upon the acceleration
of the Notes. If an Event of Default occurs under the Senior Note Indenture
prior to August 15, 2000 or under the Senior Subordinated Note Indenture prior
to August 15, 2001, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to such date, then the premium
specified in the applicable Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the applicable
series of Notes then outstanding by notice to the applicable Trustee may on
behalf of the holders of all of such Notes waive any existing Default or Event
of Default and its consequences under the applicable Indenture except a
continuing Default or Event of Default in the payment of interest on, or the
principal of, such Notes.
The Company is required to deliver to the Trustees annually a statement
regarding compliance with the Indentures, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustees a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS
No direct or indirect director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes or the Indentures or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes or Senior
Subordinated Notes, as the case may be, ("Legal Defeasance") except for (i) the
rights of holders of outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments are
due from the trust referred to below, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust and (iii) the
rights, powers, trusts, duties and immunities of the applicable Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Senior Note Indenture or Senior Subordinated Note Indenture
("Covenant Defeasance"), as the case may be, and thereafter any omission to
comply with such obligations shall not constitute a Default or Event of Default
with respect to the Senior Notes or Senior Subordinated Notes, as the case may
be. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership, rehabilitation and insolvency events)
described under "Events of Default" will no longer constitute an Event of
Default with respect to the Senior Notes or Senior Subordinated Notes, as the
case may be.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the applicable Trustee, in trust, for
the benefit of the holders of the Senior Notes or Senior Subordinated Notes, as
the case may be, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as are sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such outstanding Notes on the
stated maturity or on the applicable redemption date, as the case may be, and
the Company must specify whether such Notes are being defeased to maturity or to
a particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the applicable Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the applicable Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding Senior Notes or
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Senior Subordinated Notes, as the case may be, will not recognize income, gain
or loss for federal income tax purposes as a result of such Legal Defeasance and
are subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the applicable Trustee an opinion of counsel in the United States
reasonably acceptable to such Trustee confirming that the holders of such
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and are subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit (or greater period of
time in which any such deposit of trust funds may remain subject to bankruptcy
or insolvency laws insofar as those apply to the deposit by the Company); (v)
such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or instrument
(other than the Indentures) to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company must have delivered to the applicable Trustee an opinion of counsel to
the effect that, as of the date of such opinion, (A) the trust funds will not be
subject to rights of holders of Indebtedness other than the Senior Notes or
Senior Subordinated Notes, as the case may be, and (B) assuming no intervening
bankruptcy of the Company between the date of deposit and the 91st day following
the deposit and assuming no holder of Notes is an insider of the Company, after
the 91st day following the deposit, the trust funds will not be subject to the
effects of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally under any applicable United States or
state law; (vii) the Company must deliver to the applicable Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the applicable Trustee
an Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A holder may transfer or Notes in accordance with the provisions of the
applicable Indenture. The Registrar and the applicable Trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a holder to pay any taxes and fees
required by law or permitted by such Indenture. The Company is not required to
transfer or Exchange any Note selected for redemption. Also, the Company is not
required to transfer or Exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered holder of a Note are treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indentures or
the Senior Notes or Senior Subordinated Notes, as the case may be, may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of the applicable Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or offer for, Notes), and any existing default or compliance with any provision
of the Indentures or the Notes may be waived with the consent of the holders of
a majority in principal amount of the applicable Notes (including consents
obtained in connection with a purchase of, or tender offer or offer for, such
Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of such Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce
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the rate of or change the time for payment of interest on any Note, (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
interest or Liquidated Damages, if any, on the Notes (except a rescission of
acceleration of the Notes by the holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration), (v) make any Note payable in money other than that
stated in the Notes, (vi) make any change in the provisions of the Indentures
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of, premium, if any, interest or Liquidated
Damages, if any, on the Notes, (vii) waive a redemption payment with respect to
any Note (other than a payment required by one of the covenants described above
under the caption "-- Repurchase at the Option of Holders") or (viii) make any
change in the foregoing amendment and waiver provisions. In addition, (i) any
amendment to the provisions of Article 10 of the Senior Subordinated Note
Indenture (which relate to subordination) will require the consent of the
holders of at least 75% in aggregate principal amount of the Senior Subordinated
Notes then outstanding if such amendment would adversely affect the rights of
holders of any such Notes and (ii) any amendment to the covenants in either of
the Indentures described under the captions "-- Repurchase at the Option of
Holders" and "-- Limitation on Asset Sales -- Asset Sales," including, in each
case, the related definitions, will require the consent of the holders of at
least 75% in aggregate principal amount of the Notes issued under such Indenture
that are then outstanding if such amendment would adversely affect the rights of
holders of any such Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the appropriate Trustee may amend or supplement the Senior Note
Indenture or the Senior Subordinated Note Indenture or the respective Notes, as
the case may be, to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of Notes or that does not adversely
affect the legal rights under the applicable Indenture of any such holder, or to
comply with requirements of the Commission in order to effect or maintain the
qualification of each Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEES
The Indentures contain certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
Senior Notes or Senior Subordinated Notes, as the case may be, will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the applicable Trustee, subject to the
Trustee's power to refuse to follow any direction that conflicts with law or the
applicable Indenture that the Trustee determines may be unduly prejudicial to
the rights of other holders of Notes or the Exchange Notes, or that may involve
the Trustee in personal liability. The Indentures provide that in case an Event
of Default shall occur (which shall not be cured), the applicable Trustee is
required, in the exercise of its power, to use the degree of care of a prudent
man in the conduct of his own affairs. Subject to such provisions, Trustee are
under any obligation to exercise any of its rights or powers under the
applicable Indenture at the request of any holder of Notes, unless such holder
shall have offered to the applicable Trustee security and indemnity satisfactory
to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
All of the Notes to be resold as set forth herein will initially be issued
in the form of one or more Senior Global Notes and one or more Senior
Subordinated Global Notes (the "Global Notes"). Such Global Notes are deposited
on the date of the closing of the sale of the Senior Notes or Senior
Subordinated Notes, as the case may be, offered hereby (the "Closing Date")
with, or on behalf of, the Depository and registered in the name of Cede & Co.,
as nominee of the Depository (each such nominee being referred to herein as a
"Global Note Holder").
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The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes and global notes representing
the Exchange Notes, the Depository will credit the accounts of Participants
designated with portions of the principal amount of such Global Notes and global
notes representing the Exchange Notes and (ii) ownership of the Notes and
Exchange Notes evidenced by Global Note are shown on, and the transfer of
ownership thereof are effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants), the
Depository's Participants and the Depository's Indirect Participants. Holders
are advised that the laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer Notes and Exchange Notes evidenced by the Global Notes
and the global Exchange Notes ("Exchange Global Notes" and collectively with the
Global Notes, the "Global Notes") are limited to such extent. For certain other
restrictions on the transferability of the Notes, see "The Exchange Offer --
Consequences of Failure to Exchange."
So long as the Global Note holder is the registered owner of any Notes or
Exchange Notes, the Global Note holder is considered the sole holder under the
applicable Indenture of any Notes evidenced by the Global Note. Beneficial
owners of Notes and Exchange Notes evidenced by Global Notes will not be
considered the owners or holders thereof under the Indentures for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustees thereunder. Neither the Company nor the Trustee will
have any responsibility or liability for any aspect of the records of the
Depository or for maintaining, supervising or reviewing any records of the
Depository relating to the Notes and the Exchange Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes or Exchange Notes registered in the
name of the Global Note holder on the applicable record date are payable by the
Trustees to or at the direction of the Global Note holder in its capacity as the
registered holder under the Indentures. Under the terms of the Indentures, the
Company and the Trustees may treat the persons in whose names Notes and Exchange
Notes, including the Global Notes, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor either
of the Trustees has or will have any responsibility or liability for the payment
of such amounts to beneficial owners of Notes (including principal, premium, if
any, interest and Liquidated Damages, if any). The Company believes, however,
that it is currently the policy of the Depository to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of Notes and Exchange Notes are governed by standing
instructions and customary practice and are the responsibility of the
Depository's Participants or the Depository's Indirect Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in a
Global Note may, upon request to the Trustee, exchange such beneficial interest
for the appropriate Notes and Exchange Notes in the form of Certificated
Securities. Upon any such issuance, such Trustee is required to register such
Certificated Securities in the name of, and cause the same to be delivered to,
such person or persons (or the nominee of any thereof). All such certificated
Notes, other than the registered Exchange Notes, will continue to be
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subject to the restrictive legend requirements presently in effect. In addition,
if (i) the Company notifies the applicable Trustee in writing that the
Depository is no longer willing or able to act as a depositary with respect to
the Senior Notes or Senior Subordinated Notes, or the Exchange Senior Notes or
the Exchange Senior Subordinated Notes, as the case may be, and the Company is
unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the applicable Trustee in writing that it elects to cause
the issuance of Senior Notes or Senior Subordinated Notes or the Exchange Senior
Notes or the Exchange Senior Subordinated Notes, as the case may be, in the form
of Certificated Securities under the appropriate Indenture, then, upon surrender
by the Global Note holder of the applicable Global Note, Senior Notes or Senior
Subordinated Notes, or the Exchange Senior Notes or the Exchange Senior
Subordinated Notes, as the case may be, in such form are issued to each person
that such Global Note holder and the Depository identify as being the beneficial
owner of the related Notes.
Neither the Company nor either of the Trustees are liable for any delay by
a Global Note holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustees may conclusively rely on, and are
protected in relying on, instructions from the Global Note holders or the
Depository for all purposes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchaser entered into the Registration Rights
Agreement as of the Closing Date. Pursuant to the Registration Rights Agreement,
the Company agreed to file with the Commission this Registration Statement on
the appropriate form under the Securities Act with respect to the Exchange
Senior Notes and Exchange Senior Subordinated Notes, as the case may be (the
"Exchange Offer Registration Statement"). Upon the effectiveness of such
Exchange Offer Registration Statement, the Company will offer to the holders of
Transfer Restricted Securities (as defined below) pursuant to the Exchange Offer
who are able to make certain representations the opportunity to exchange their
Transfer Restricted Securities for Exchange Notes. If (i) the Company is not
required to file an Exchange Offer Registration Statement or permitted to
consummate the Exchange Offer because the Exchange Offer is not permitted by
applicable law or Commission policy or (ii) any holder of Transfer Restricted
Securities notifies the Company on or prior to the 20th Business Day following
consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) it may not
resell the Exchange Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) it is a broker-dealer and owns Notes acquired directly from the Company or
an affiliate of the Company, the Company will file with the Commission a Shelf
Registration Statement to cover resales of the Notes by the holders thereof who
satisfy certain conditions relating to the provision of information in
connection with the Shelf Registration Statement. The Company will use all
commercially reasonable efforts to cause the applicable registration statement
to be declared effective as promptly as possible by the Commission. For purposes
of the foregoing, "Transfer Restricted Securities" means each Note until (i) the
date on which such Note has been exchanged by a person other than a
broker-dealer for a Series B Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for a corresponding
Exchange Note, the date on which such Exchange Note is sold to a purchaser who
receives from such broker-dealer on or prior to the date of such sale a copy of
the prospectus contained in the Exchange Offer Registration Statement, (iii) the
date on which such Note has been effectively registered under the Act and
disposed of in accordance with the Shelf Registration Statement or (iv) the date
on which such Note is distributed to the public pursuant to Rule 144 under the
Act.
The Registration Rights Agreement provides that (i) the Company will file
an Exchange Offer Registration Statement with the Commission on or prior to 60
days after the Closing Date, (ii) the Company will use all commercially
reasonable efforts to have the Exchange Offer Registration Statement declared
effective by the Commission on or prior to 120 days after the Closing Date,
(iii) unless the Offer would not be permitted by applicable law or Commission
policy, the Company will commence the Offer and use all commercially reasonable
efforts to issue on or prior to 60 business days after the date on which the
Exchange Offer Registration Statement was declared effective by the Commission,
Exchange Notes in exchange for all
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Notes properly tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use all
commercially reasonable efforts to file the Shelf Registration Statement with
the Commission on or prior to 30 days after such filing obligation arises and to
cause the Shelf Registration to be declared effective by the Commission on or
prior to 60 days after such obligation arises. If (a) the Company fails to file
any of the Registration Statements required by the Registration Rights Agreement
on or before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to Consummate the Offer within 60 days of the Effectiveness Target
Date with respect to the Exchange Offer Registration Statement, or (d) the Shelf
Registration Statement or the Exchange Offer Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (a)
through (d) above a "Registration Default"), then the Company will pay
Liquidated Damages to each holder of Transfer Restricted Securities, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $.05 per week per $1,000 principal
amount of Notes constituting Transfer Restricted Securities held by such holder.
The amount of the additional interest will increase by an additional $.05 per
week per $1,000 principal amount constituting Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $.50 per week
per $1,000 principal amount of Notes constituting Transfer Restricted
Securities. All accrued additional interest are paid by the Company in cash on
each Damages Payment Date to the Global Note holder by wire transfer of
immediately available funds or by federal funds check and to holders of
Certificated Securities by mailing checks to their registered addresses.
Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Notes are required to make certain representations to the
Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and are required to deliver information to be
used in connection with the Shelf Registration Statement and to provide comments
on the Shelf Registration Statement within the time periods set forth in the
Registration Rights Agreement in order to have their Senior Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
ADDITIONAL INFORMATION
The Company is not currently subject to the periodic reporting and other
informational requirements of the Exchange Act, but has agreed to file certain
such reports and information with the Commission so long as any Notes are
outstanding. Anyone who receives this Prospectus may obtain a copy of the
Indentures and the Registration Rights Agreement without charge by writing to
the Company at 4335 Wendell Drive, S.W., Atlanta, Georgia 30336, Attn: Vice
President, Finance and Administration. See "Available Information."
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the Indentures for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person, as amended.
"Acquisition" means the acquisition of assets of JR Flexible by the Company
pursuant to an Asset Purchase Agreement, dated as of April 10, 1996, between the
Company and James River.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
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"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than sales of inventory or obsolete or excess equipment or equipment that is no
longer usable, in each case, in the ordinary course of business consistent with
past practices (provided that the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole are governed by the provisions of the Indentures described
above under the caption "-- Repurchase at the Option of holders -- Change of
Control" and/or the provisions described above under the caption "-- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sale
covenant), and (ii) the issue or sale by the Company or any of its Subsidiaries
of Equity Interests of any of the Company's Subsidiaries, in the case of either
clause (i) or (ii), whether in a single transaction or a series of related
transactions (a) that have a fair market value in excess of $1.0 million or (b)
for net proceeds in excess of $1.0 million. Notwithstanding the foregoing: (i) a
transfer of assets by the Company to a Controlled Subsidiary or by a Controlled
Subsidiary to the Company or to another Controlled Subsidiary, (ii) an issuance
of Equity Interests by a Wholly Owned Subsidiary to the Company or to another
Wholly Owned Subsidiary, (iii) sales of Target Assets, (iv) a sale of
Receivables to or by the Receivables Subsidiary and (v) a Permitted Investment
or Restricted Payment that is permitted by the covenant described above under
the caption "-- Restricted Payments" will not be deemed to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of twelve months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding twelve months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500.0 million and a Thompson Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above without regard to the maturities of such underlying securities
entered into with any financial institution meeting the qualifications specified
in clause (iii) above, (v) commercial paper having the highest rating obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in
each case maturing within six months after the date of acquisition and (vi)
deposit accounts with domestic commercial banks.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale of such Person or any of its Subsidiaries (to the extent such losses
were deducted in computing such Consolidated Net Income), plus (ii) provision
for taxes based on income or
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profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings or any Receivables Facility, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles and
transaction fees and expenses incurred by the Company in connection with the
Acquisition, the New Credit Agreement, any Receivables Facility and the Notes
and in connection with subsequent acquisitions and financings) and other
non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period, to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, plus (v) charges and expenses related to the
termination or modification of JR Flexible employee benefit plans in effect on
the date of the Indentures, to the extent that such charges and expenses were
deducted in computing such Consolidated Net Income, in each case, on a
consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior governmental approval (that has not been obtained), and without
direct or indirect restriction pursuant to the terms of its charter and all
agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded, (v) any extraordinary items and any gains or losses in
connection with Asset Sales or reserves related thereto shall be excluded, (vi)
any charges or reserves taken for severance, plant closings, equipment
relocations and other charges related to the consolidation and rationalization
of JR Flexible initiated within 18 months of the date of the Indentures shall be
excluded and (vii) any charge taken for severance relating to the early
retirement program implemented in fiscal year 1996 shall be excluded.
"Controlled Subsidiary" of any Person means a Subsidiary of such Person
(which may include the Receivables Subsidiary) (i) 90% or more of the total
Equity Interests or other ownership interests of which (other than directors
qualifying shares) shall at the time be owned by such Person or by one or more
Controlled Subsidiaries of such Person and (ii) of which such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies, whether through the ownership of voting securities, by
agreement or otherwise.
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"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Employment Agreements" means (a) the Deferred Income Agreements,
dated various dates prior to July 22, 1996, with each of Robert B. Paxton,
Edward J. Hilbert, Jr. and a Deferred Income Agreement dated as of July 11, 1996
with Neil Williams, (b) the Deferred Compensation Agreement, dated as of July 1,
1985, with Robert T. Meyer, (c) the Family Security Agreements with each of
Dennis M. Love, R. Michael Hembree, Thomas J. Dunn and Nicklas D. Stucky and (d)
the Amended and Restated Employment Agreement, dated June 23, 1983, by and
between the Company and J. Erskine Love, Jr.
"Existing Indebtedness" means up to $18.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the New Credit Agreement) in existence on the date of the
Indentures, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings or any
Receivables Facility, and net payments (if any) pursuant to Hedging Obligations)
and (ii) the consolidated interest expense of such Person and its Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the
product of (a) all cash dividend payments (and non-cash dividend payments in the
case of a Person that is a Subsidiary) on any series of preferred stock of such
Person, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges
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attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, but only to the extent that the obligations giving rise to such Fixed
Charges will not be obligations of the referent Person or any of its
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"Indebtedness" means, for purposes of the Indenture, with respect to any
Person, any indebtedness of such Person, whether or not contingent, in respect
of borrowed money, including without limitation certificates of participation or
other interests in Receivables or any similar instruments and certificates
(other than any interests in the Receivables held by the Receivables
Subsidiary), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof) or banker's
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, as well as all
such indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) and, to the extent
not otherwise included, the Guarantee by such Person of any such indebtedness of
any other Person; provided, however, that Indebtedness shall not include any
servicing or guarantee of servicing obligations with respect to Receivables or
any payments pursuant to a Tax Incentive Program. The amount of Indebtedness
evidenced by a certificate of participation or other interests in Receivables
and similar instruments or certificates are deemed to be the outstanding amount
of such certificate of participation or other interests.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a Subsidiary of the
Company, the Company shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Issue Date" means August 22, 1996.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to
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give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction), other than liens and setoff rights with respect
to deposit accounts.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of the direct costs relating to
such Asset Sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any other expenses incurred or to be
incurred as a result thereof (including, without limitation, severance,
relocation, lease termination and other similar expenses), taxes paid or payable
as a result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than term Indebtedness or revolving
Indebtedness under the New Credit Agreement or any one or more successor or
additional bank facilities) secured by a Lien on the asset or assets that were
the subject of such Asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets established in accordance with GAAP.
"New Credit Agreement" means that certain Credit Agreement, dated as of
August 22, 1996, by and among the Company, the Lenders named therein and The
First National Bank of Chicago, as Agent, providing for term loans, revolving
credit borrowings and other financial accommodations, including any related
notes, guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced, in whole or in part, from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Subsidiaries (other than the Receivables Subsidiary) (a) provides
any credit support that would constitute Indebtedness or (b) is directly or
indirectly liable (as a guarantor or otherwise); and (ii) as to which the
lenders have agreed or been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Subsidiaries (other
than the Receivables Subsidiary); provided that, notwithstanding the foregoing,
the Company and any of its other Subsidiaries that sell Receivables to the
Receivables Subsidiary shall be allowed to provide such representations,
warranties, covenants and indemnities as are customarily required in such
transactions so long as no such representations, warranties, covenants or
indemnities constitute a Guarantee of payment or recourse against credit losses.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Pari Passu Debt" means Indebtedness that ranks pari passu in right of
payment with the Senior Notes or Senior Subordinated Notes, as the case may be.
"Permitted Investments" means (a) any Investment in the Company or in a
Controlled Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person,
if as a result of such Investment (i) such Person becomes a Controlled
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Controlled Subsidiary of the
Company; provided, however, that if the Person in either of subclauses (i) and
(ii) of this clause (c) owns Equity Interests of the Company at the time of such
Investment by the Company or a Subsidiary, such Investment shall not be a
Permitted Investment; (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant
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described above under the caption "-- Limitation on Asset Sales -- Asset Sales;"
(e) any Investment in trade receivables or interests therein in the ordinary
course of business; (f) Investments received in settlement of trade receivables
created in the ordinary course of business and owing to the Company or any
Subsidiary or in satisfaction of any judgment with respect to any such trade
receivable; and (g) other Investments in any Person (other than a Person that is
an Affiliate of the Company on the Issue Date) having an aggregate fair market
value (measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all other
Investments made pursuant to this clause (g) that are at the time outstanding,
not to exceed $25.0 million.
"Permitted Liens" means (i), for purposes of the Senior Note Indenture,
Liens on assets of the Company and its Subsidiaries, whether owned on the date
of the Senior Note Indenture or thereafter acquired, securing all Indebtedness
and other Obligations under the New Credit Agreement or any one or more
successor or additional bank facilities that were permitted by the terms of the
Senior Note Indenture to be incurred, and, for purposes of the Senior
Subordinated Note Indenture, Liens on assets of the Company and its
Subsidiaries, whether owned on the date of the Senior Subordinated Note
Indenture or thereafter acquired, securing any Senior Debt that was permitted by
the terms of the Senior Subordinated Note Indenture to be incurred; provided,
however, that, in the case of Liens granted by Subsidiaries, such Subsidiary
executes a Guaranty in compliance with the covenant described above under the
caption "Limitations on Issuances of Guarantees of Indebtedness."; (ii) Liens in
favor of the Company or a Subsidiary; (iii) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (iv)
Liens on assets of Subsidiaries to secure Indebtedness of Subsidiaries that was
permitted by the terms of the Indentures to be incurred; (v) Liens existing on
the date of the Indentures; (vi) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (vii) Liens to
secure Indebtedness permitted to be incurred pursuant to clauses (vi) or (vii)
of the second paragraph of the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (viii) Liens to
secure Attributable Debt in respect of sale and leaseback transactions that were
permitted by the terms of the Indentures to be entered into; (ix) Liens on
assets of the Company to secure Hedging Obligations that were permitted to be
incurred pursuant to the covenant described above under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock;" (x) Liens on
Receivables to reflect sales of Receivables to and by the Receivables Subsidiary
pursuant to the Receivables Facility; (xi) Liens on assets of the Receivables
Subsidiary; and (xii) in addition to the foregoing, Liens on assets of the
Company or any Subsidiary of the Company with respect to Obligations that do not
exceed $25.0 million at any one time outstanding.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Subsidiaries issued in exchange for, or the net proceeds of which are
used to extend, refinance, renew, replace, defease or refund other Indebtedness
of the Company or any of its Subsidiaries (other than Indebtedness permitted to
be incurred pursuant to clauses (i) or (ii) of the second paragraph of the
covenant described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"); provided that: (i) the principal amount (or
accreted value, if applicable) of such Permitted Refinancing Debt does not
exceed the principal amount (or accreted value, if applicable) of the
Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of accrued interest and premium, if any, thereon and all
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Debt has a final maturity date later than the final maturity date
of, and has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing Debt
has a final maturity date later than the final maturity date of, and is
subordinated in right of payment to, the Senior Notes on terms at least as
favorable to the holders of Senior Notes as those contained in the subordination
provisions governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either by
the Company or by the Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
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"Receivables" means, collectively, (a) the Indebtedness and other
obligations owed to the Company or any of its Subsidiaries (before giving effect
to any sale or transfer thereof pursuant to a Receivables Facility), whether
constituting an account, chattel paper, an instrument, a document or general
intangible, arising in connection with the sale of goods, insurance and/or
services by the Company or such Subsidiary, including, without limitation, the
obligation to pay any late fees, interest or other finance charges with respect
thereto (each of the foregoing, collectively, an "Account Receivable"), (b) all
of the Company's or such Subsidiary's interest in the goods (including returned
goods), if any, the sale of which gave rise to any Account Receivable, and all
insurance contracts with respect thereto, (c) all other security interests or
Liens and property subject thereto from time to time, if any, purporting to
secure payment of any Account Receivable, together with all financing statements
and security agreements describing any collateral securing such Account
Receivable, (d) all Guarantees, insurance and other agreements or arrangements
of whatever character from time to time supporting or securing payment of any
Account Receivable, (e) all contracts, invoices, books and records of any kind
related to any Account Receivable, (f) all cash collections in respect of, and
cash proceeds of, any of the foregoing and any and all lockboxes, lockbox
accounts, collection accounts, concentration accounts and similar accounts in or
into which such collections and cash proceeds are now or hereafter deposited,
collected or concentrated, and (g) all proceeds of any of the foregoing.
"Receivables Facility" means, with respect to any Person, any Receivables
securitization program pursuant to which such Person receives proceeds pursuant
to a pledge, sale or other encumbrance of its Receivables.
"Receivables Subsidiary" means Flexible Funding Corp., created primarily to
purchase or finance the receivables of the Company and/or its Subsidiaries
pursuant to a Receivables Facility, so long as it: (a) has no Indebtedness other
than Non-Recourse Debt; (b) is not party to any agreement, contract, arrangement
or understanding with the Company or any other Subsidiary of the Company unless
the terms of any such agreement, contract, arrangement or understanding are no
less favorable to the Company or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of the Company; (c) is
a Person with respect to which neither the Company nor any of its other
Subsidiaries has any direct obligation to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified levels of
operating results other than to act as servicer of Receivables; (d) has not
Guaranteed or otherwise directly provided credit support for any Indebtedness of
the Company or any of its other Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its other Subsidiaries. Notwithstanding the foregoing and
without otherwise limiting Permitted Investments, the Company may make capital
contributions in the form of Receivables transferred to the Receivables
Subsidiary for non-cash consideration to the extent necessary or desirable to
prevent a disruption of purchases of Receivables or to avoid a default under the
Receivables Facility. If, at any time, such Receivables Subsidiary would fail to
meet the foregoing requirements as a Receivables Subsidiary (other than a
failure to meet the requirements set forth in clause (e) above as a result of
the death or resignation of a director, provided that such director is promptly
replaced), it shall thereafter cease to be a Receivables Subsidiary for purposes
of the Indentures and any Indebtedness of such Receivables Subsidiary shall be
deemed to be incurred by a Subsidiary of the Company as of such date (and, if
such Indebtedness is not permitted to be incurred as of such date under the
covenant described under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company shall be in default
of such covenant).
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Debt.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time
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owned or controlled, directly or indirectly, by such Person or one or more of
the other Subsidiaries of that Person (or a combination thereof) and (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).
"Target Assets" means any assets acquired from JR Flexible that are sold or
otherwise disposed of (other than pursuant to a Restricted Payment) for
aggregate consideration not to exceed $25.0 million.
"Tax Allocation Agreement" means that certain Tax Allocation Agreement,
dated as of the first day of the fiscal year of the parties thereto that began
after June 29, 1996, allocating tax liabilities and payments among the Company
and its Affiliates.
"Tax Incentive Program" means (i) the Payment in Lieu of Taxes Program
sponsored by the Industrial Revenue Board ("IDB") of the City of Jackson,
Tennessee pursuant to which JR Flexible (and after the Acquisition if approval
is granted by the IDB, the Company) (a) transfers to the IDB real property and
equipment associated with the Jackson, Tennessee operations in return for a
non-interest bearing promissory note from the IDB, which promissory note
represents the fair market value of the real property and equipment so
transferred, (b) JR Flexible or the Company, as applicable, pays a fee in lieu
of taxes to the IDB that is less than the taxes that it would otherwise pay if
it were not participating in such Payment in Lieu of Taxes Program and (c) the
IDB leases such real property and equipment back to JR Flexible or the Company,
as applicable, pursuant to a lease that has not interest component and (ii) any
other program sponsored by state or local governments, authorities or political
subdivisions that is materially similar to the Payment in Lieu of Taxes Program
and is equally beneficial from the holder's perspective.
"Total Assets" means, with respect to any Person as of any date, the total
consolidated assets of such Person and its Subsidiaries as of such date, as
reflected on the most recently available internal consolidated financial
statements of such Person prepared in accordance with GAAP.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal United States federal income
tax consequences of ownership of the Exchange Notes that has been provided to
the Company by its counsel, Alston & Bird, Atlanta, Georgia, and is not intended
to be tax advice to any person, nor is it binding upon the IRS. This summary is
based on the Code and existing and proposed Treasury Regulations, revenue
rulings and judicial decisions now in effect, all of which are subject to change
at any time by legislative, judicial or administrative action, and such changes
may be applied retroactively in a manner that could adversely affect holders of
Exchange Notes. This summary deals only with Exchange Notes held as capital
assets by a holder that is (i) a citizen or resident of the United States, (ii)
a domestic corporation or (iii) otherwise subject to United States federal
income taxation on a net income basis in respect of the Note (a "United States
Holder"), and does not purport to address all aspects of the possible federal
income tax consequences of ownership of Exchange Notes. In particular, and
without limiting the foregoing, this summary does not address tax consequences
of ownership of an Exchange Note that may be relevant to investors in special
tax situations, such as dealers in securities or currencies, tax-exempt persons,
certain financial institutions, life insurance companies, persons holding
Exchange Notes as part of a "straddle" (as defined in Section 1092 of the Code),
a "hedge" (as
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defined in Section 1256 of the Code), or a "conversion transaction" (as defined
in Section 1258 of the Code), persons whose "functional currency" as defined in
Section 985 of the Code is not United States dollars, or foreign persons. See
"Certain Legal Matters."
The Company has not obtained any opinion of counsel and has not sought and
will not seek any rulings from the IRS with respect to the positions of the
Company discussed below. There can be no assurance that the IRS will not take a
different position concerning the tax consequences of the purchase, ownership or
disposition of the Exchange Notes or that any such position would not be
sustained.
Persons considering the purchase or the exchange of Exchange Notes should
consult their own tax advisors concerning United States federal income tax laws,
as well as the tax laws of any state, local or foreign jurisdictions, applicable
to their particular situations.
INTEREST PAYMENTS
Interest on an Exchange Note, other than interest that is not a payment of
"qualified stated interest" (as defined below under "Original Issue Discount"),
is taxable to a United States Holder as ordinary income at the time it is
received or accrued, depending on the United States Holder's method of
accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
The Notes were issued with no original issue discount ("OID") because the
stated redemption price at maturity equaled the issue price of the Notes. The
"issue price" of the Notes is the first price at which a substantial number of
Notes were sold for money, excluding sales to underwriters, placement agents or
wholesalers. The "stated redemption price at maturity" is the sum of all
payments to be made on the Notes other than "qualified stated interest". The
term "qualified stated interest" means, generally, stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate or, subject to certain
conditions, based on one or more interest indices. Interest is payable at a
single fixed rate only if the rate appropriately takes into account the length
of the interval between payments.
The OID regulations provide that options relating to a debt instrument may
impact whether an instrument has been issued with OID. In the event of a Change
of Control, the Company is required to offer to redeem all of the Exchange
Notes. The original issue discount regulations provide that the right of holders
of the Exchange Notes to require redemption of the Exchange Notes upon the
occurrence of a Change of Control will not affect the yield or maturity date of
the Exchange Notes unless, based on all the facts and circumstances as of the
issue date, it is more likely than not that a Change of Control giving rise to
the redemption will occur. The Company has no present intention of treating the
redemption provisions of the Exchange Notes as affecting the computation of the
yield to maturity of any Exchange Note.
The Company may redeem the Exchange Notes in certain circumstances,
pursuant to the terms of the Exchange Notes. Under the original issue discount
regulations, the Company is deemed to exercise or not exercise an option or
combination of options in a manner that minimizes the yield on the Exchange
Note. If such option is not in fact exercised when presumed to be exercised, the
Exchange Note would be treated solely for original issue discount purposes as if
it were reissued at that time for an amount equal to its adjusted issue price.
The Company does not expect these rules to affect the determination of the yield
to maturity of any Exchange Note.
AMORTIZABLE BOND PREMIUM
In general, if a holder purchases a debt instrument for an amount in excess
of its principal amount, the holder may elect to treat such excess as
"amortizable bond premium," in which case the amount required to be included in
the holder's income each year with respect to interest on the debt instrument is
reduced by the amount of amortizable bond premium allocable to such year based
on the debt instrument's yield to maturity. Any such election applies to all
debt instruments (other than debt instruments the interest on which is
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excludable from gross income) held by the holder at the beginning of the first
taxable year to which the election applies or which are acquired thereafter by
the holder, and such election is irrevocable without the consent of the IRS.
MARKET DISCOUNT
In general, if a holder purchases a debt instrument at a market discount
(i.e., a discount other than at original issue), any gain recognized upon the
disposition of the debt instrument by the holder is taxable as ordinary interest
income, rather than as capital gain, to the extent such gain does not exceed the
accrued market discount on the debt instrument at the time of the disposition.
"Market discount" generally means the excess, if any, of a debt instrument's
stated redemption price at maturity over the price paid by the holder therefor,
subject to a de minimis exception. A holder who acquires a debt instrument at a
market discount also may be required to defer the deduction of a portion of the
amount of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry the debt instrument.
Any principal payment on a debt instrument acquired by a holder at a market
discount is included in gross income as ordinary income (generally, as interest
income) to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of the accrued market discount for purposes of
determining the tax treatment of subsequent payments on, or dispositions of, the
debt instrument is reduced by the amounts so treated as ordinary income.
A holder of a debt instrument acquired at a market discount may elect to
include market discount in gross income, for federal income tax purposes, as
such market discount accrues, either on a straight-line basis or on a constant
interest rate basis. This current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year to which the election applies, and may not be revoked without the
consent of the IRS. If a holder makes such an election, the foregoing rules
regarding the recognition of ordinary interest income on sales and other
dispositions and the receipt of principal payments with respect to such debt
instruments, and regarding the deferral of interest deductions on indebtedness
incurred or maintained to purchase or carry such debt instruments, do not apply.
PURCHASE, SALE AND RETIREMENT
A United States Holder's tax basis in an Exchange Note is its cost (or, if
applicable, the tax basis of the Note exchanged for the Exchange Note),
increased by the amount of any original issue discount included in the United
States Holder's income with respect to the Exchange Note and reduced by the
amount of any interest payments on the Exchange Note that are not payments of
qualified stated interest. A United States Holder will generally recognize gain
or loss on the sale or retirement of an Exchange Note equal to the difference
between the amount realized on the sale or retirement of the Exchange Note and
the tax basis of the Exchange Note. Except to the extent described above under
"Original Issue Discount" and "Market Discount," and except to the extent
attributable to accrued but unpaid interest, gain or loss recognized on the sale
or retirement of an Exchange Note is capital gain or loss, provided the Exchange
Note was a capital asset in the hands of the United States Holder, and is
long-term capital gain or loss if the Exchange Note was held for more than one
year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding and information reporting requirements apply to certain
persons with respect to certain payments of principal, premium and interest on
an obligation, to certain payments of proceeds from the sale or redemption of an
obligation, and to the accrual of original issue discount with respect to
non-corporate United States Holders. Either the Company, a broker, or in certain
circumstances the Company's agent or its paying agent, is required to withhold
from any payment that is subject to backup withholding a tax equal to 31% of
such payment, if the United States Holder fails to furnish an accurate taxpayer
identification number, to certify that such United States Holder is exempt from
backup withholding, or to report all interest and dividends required to be shown
on its federal income tax returns or otherwise comply with the applicable
requirements of the backup withholding rules. The amount of original issue
discount required to be reported
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by the Company may not be equal to the amount of original issue discount
required to be reported as taxable income by a United States Holder. Certain
exempt recipients are not subject to the backup withholding and information
reporting requirements. All corporations are considered exempt recipients with
respect to payments of interest of the type that are made on the Exchange Notes.
LIQUIDATED DAMAGES
The Company intends to take the position that the Liquidated Damages, if
any, described above under "Description of Exchange Notes -- Registration
Rights; Liquidated Damages" are taxable to the United States Holder as ordinary
income in accordance with the United States Holder's method of accounting for
federal income tax purposes. The IRS may take a different position, however,
which could affect the timing of both a United States Holder's income and the
Company's deduction with respect to the Liquidated Damages, if any.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH PURCHASER OF
EXCHANGE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC
TAX CONSEQUENCES TO IT OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT AGREEMENT
Concurrently with the Offering of the Notes, the Company entered into the
New Credit Agreement with a syndicate of banks and other financial institutions
which included the $155 million Revolving Credit Facility and the $170 million
Term Loan Facility. However, the credit available under the revolving portion of
the New Credit Agreement has been reduced to $105.0 million as a result of the
Company's utilization of the Receivables Securitization Facility. This
information relating to the New Credit Agreement is qualified in its entirety by
reference to the complete text of the documents entered into in connection
therewith, copies of which have been filed as exhibits to this Registration
Statement of which this Prospectus is a part, and are available from the
Commission. See "Available Information."
The proceeds of the New Credit Agreement were used, in part, to finance the
Acquisition, to pay various costs associated with the Transactions, to refinance
most of the Company's existing indebtedness and, in the case of the Revolving
Credit Facility, for general working capital purposes. In this connection, the
Revolving Credit Facility contains a sublimit of approximately $10 million for
commercial and standby letters of credit. The entire amount of the Term Loan and
approximately $53.7 million of the Revolving Credit Facility were funded
simultaneously with the consummation of the Acquisition. The Revolving Credit
Facility under the New Credit Agreement also included a $10.0 million swing line
subfacility from SunTrust Bank, Atlanta, Georgia to fund daily cash flow
fluctuations and cash management needs.
The maturity for each of the revolving and term portions of the New Credit
Agreement is six years from the Closing and all amounts outstanding thereunder
are due on such date. The Term Loan will amortize in
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equal quarterly installments beginning with the end of the third quarter of
fiscal 1997 (the first quarter of calendar 1997), as follows:
<TABLE>
<CAPTION>
PRINCIPAL AMORTIZATION IN
FISCAL YEARS ENDED JUNE EQUAL QUARTERLY INSTALLMENTS
------------------------------------------------------ ----------------------------
(MILLIONS OF DOLLARS)
<S> <C>
1997.................................................. $ 8.0
1998.................................................. 16.0
1999.................................................. 24.0
2000.................................................. 32.0
2001.................................................. 40.0
2002.................................................. 50.0
</TABLE>
The remaining outstanding balance of $50.0 million are due upon the sixth
anniversary of Closing.
The New Credit Agreement requires mandatory prepayments of the Term Loan
from the net cash proceeds received by the Company in connection with any
offering of debt or equity securities (other than in connection with certain
permitted refinancing indebtedness, acquisitions or restricted payments) or in
connection with any material sales of assets outside the ordinary course of
business or pursuant to the Receivables Facility. Further, the Company are
required to prepay the Term Loan in an amount equal to 50% of the Company's
Excess Cash Flow (as defined in the New Credit Agreement) for each fiscal year.
All such mandatory prepayments shall be applied pro rata to the reduction of the
remaining scheduled amortization payments. After the prepayment in full of the
Term Loan, all such mandatory prepayments shall be applied as permanent
reductions to the Revolving Credit Facility.
Outstanding borrowings under the New Credit Agreement bear interest at a
rate per annum equal to, at the Company's option: (i) First Chicago's variable
base rate or (ii) the London Interbank Offered Rate for one, two, three or six
months as selected by the Company, plus a margin based on a pricing matrix
ranging between 0.50% to 1.50%, based upon the Company's then current Total Debt
to EBITDA ratio. The Company are permitted to enter into interest rate swap and
other interest rate protection arrangements to hedge against interest rate
risks.
Loans outstanding under the New Credit Facilities are secured by a
first-priority security interest in, and liens upon, substantially all of the
Company's tangible and intangible assets including all inventory, equipment,
real property, capital stock of subsidiaries, contract rights and general
intangibles. Subsidiaries of the Company may be required to guaranty the New
Credit Agreement as they are incorporated or acquired and grant liens in its
assets to secure such guaranty, in which case the Indentures are amended to add
such Subsidiaries' guaranties of the Notes. The Company's accounts receivable,
to the extent not sold pursuant to the Receivables Securitization Facility, also
secure the Company's obligations under the New Credit Facilities. Further,
Holdings and Enterprises have guaranteed the obligations of the Company under
the New Credit Agreement, and Enterprises has pledged all of the capital stock
of the Company owned by it as further collateral.
The New Credit Agreement includes customary financial and other covenants
including, among other things: (i) Total Debt to EBITDA ratio; (ii) fixed charge
coverage ratio; (iii) limitations on Indebtedness and guaranties; (iv)
limitations on liens; (v) limitations on dividends and stock redemptions; (vi)
limitations on prepayments of Indebtedness other than the New Credit Agreement
(including optional or mandatory redemptions of the Notes); (vii) limitations on
asset sales; (viii) limitations on capital expenditures; (ix) limitations on
acquisitions and other investments; and (x) limitations on transactions with
affiliates.
The events of default include, among others: (i) failure of the Company to
make any payment of principal of, interest on, or any other amount owing in
respect of any obligation under the New Credit Agreement when due and payable;
(ii) breach of representations or warranties; (iii) breach of other covenants or
agreements contained in the New Credit Agreement; (iv) cross-default with
respect to other Indebtedness of the Company (except under the Receivables
Securitization Facility) or of any subsidiary in excess of $5 million or early
termination of the Receivables Securitization Facility; (v) the filing by or
against the Company or of any subsidiary of a petition for bankruptcy under the
Bankruptcy Code of 1978, as amended or
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other applicable bankruptcy law or the appointment of a receiver for the
business or assets of the Company or any guarantor or other similar bankruptcy
events; (vi) certain ERISA defaults; (vii) the occurrence of one or more
material judgments; (viii) a change in control of the Company.
For purposes of the New Credit Agreement, a "change in control" is defined
as (i) a change in the majority of the board of directors of the Company within
any 12 month period, (ii) a change in the current ownership of the Company by
the Principals or certain Related Parties (as defined below) which would result
in the Principals and the Related Parties, collectively, (a) ceasing to be the
beneficial owner of 80% of the combined voting power of the Company or (b) where
such Persons cease to have the power to elect a majority of the Company's Board
of Directors. For purposes of the New Credit Agreement, "Related Parties" means
(A) any spouse or immediate family member of such Principal or (B) any trust,
corporation, partnership or other entity whose beneficiaries, stockholders,
partners or owners consist of such Principal and/or their spouses and immediate
family members.
SHAREHOLDER NOTES
The Company currently has approximately $10.4 million of Shareholder Notes
outstanding under a Note Purchase Agreement dated as of March 13, 1995 with
certain of the Company's shareholders (the "Shareholder Note Purchase
Agreement"). All of the shareholders of Holdings who are also directors and
officers of the Company are holders of the Shareholder Notes. These notes bear
interest at 11.00% per annum and mature on May 4, 2014. The Shareholder Notes
are subordinated to the New Credit Agreement, the Senior Notes and the Senior
Subordinated Notes. The Company is required to make a prepayment, without
premium, of $3,422,000 on the Shareholder Notes on May 25, 2005. See
"Management -- Related Party Transactions" and Note 8 to the Company's Financial
Statements.
The events of default under the Shareholder Note Purchase Agreement
include, among others: (i) default in the payment of principal on any
Shareholder Note when the same becomes due and payable, whether at maturity,
upon acceleration, or otherwise; (ii) default in the payment of interest on any
Shareholder Note when the same becomes due and payable and such default
continues for a period of five business days; (iii) default in any material
respect in the due and punctual performance of or compliance with any other
covenant, condition or agreement to be performed or observed by the Company
under any provision of the Shareholder Note Purchase Agreement, and any such
default continues unremedied for 30 days; (iv) any representation, warranty,
certification or statement of the Company, made or contained in the Shareholder
Note Purchase Agreement, or in any agreement, instrument, certificate, statement
or other writing furnished in connection therewith or pursuant thereto, shall
prove to have been false or inaccurate in any material respect on the date as of
which such representation was made; (v) the holder, trustee or agent of any
Indebtedness of the Company or any of its affiliates shall, in respect of any of
its Indebtedness (excluding the Shareholder Notes) in an amount, individually or
in the aggregate, exceeding $10 million causes the maturity of such Indebtedness
to be accelerated or otherwise to become due and payable prior to its stated
maturity, or to take any action to realize upon any assets or property of the
Company or any of its affiliates under any agreement or instrument evidencing or
securing such Indebtedness; (vi) a final judgment or judgments entered by a
court or courts of competent jurisdiction for the payment of money in excess of
$3 million in the aggregate is rendered against the Company or any of its
affiliates and shall remain in force undischarged and unstayed for a period of
more than 45 days; (vii) the Company becomes insolvent or bankrupt, is generally
not paying its debts as they become due or makes an assignment for the benefit
of creditors, or the Company causes or suffers an order for relief to be entered
with respect to it under applicable federal bankruptcy law or applies for or
consents to the appointment of a custodian, trustee or receiver for the Company
or for the major part of the property of Company; and (viii) a custodian,
trustee or receiver is appointed for the Company or for the major part of the
property of the Company and is not discharged within 60 days after such
appointment.
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RECEIVABLES SECURITIZATION FACILITY
The following is a summary of certain terms and conditions of the
Receivables Securitization Facility. This summary does not purport to be a
complete description of the Receivables Securitization Facility and is qualified
in its entirety by the actual documents entered into in connection therewith and
included as exhibits to the Registration Statement. See "Available Information."
First Chicago has provided indirectly through Falcon, the Company with the
Receivables Securitization Facility for the securitization of certain trade
accounts receivable (the "Receivables") originated by the Company or its
predecessors, including JR Flexible. The Company or Receivables Funding will act
as the initial servicer for the Receivables. Further, as the Company's
receivables pool grows, the Receivables Securitization Facility may grow
concomitantly, and the Revolving Credit Facilities are reduced pro rata. See
"Description of Exchange Notes."
Pursuant to the Receivables Securitization Facility, the Company may sell
the Receivables to Receivables Funding, a new, wholly-owned, bankruptcy-remote,
special purpose finance subsidiary of the Company, in transactions intended to
be a true sale for bankruptcy law purposes. Receivables Funding, in turn, may
transfer undivided interests in the Receivables ("Receivable Interests") to
Falcon on an uncommitted basis, and in the event Falcon does not purchase such
Receivable Interests, to First Chicago and other institutional investors, if
any, pursuant to the Receivables Securitization Facility. The Receivables
Securitization Facility permits draws and repayments on a revolving basis for
five years following Closing or such earlier time as certain events occur (the
"Amortization Commencement Date"). Assets sold pursuant to this Facility will
represent the right to receive collections from (i) the Receivables, (ii) all
rights of the Company or Receivables Funding in goods, the sale of which gave
rise to the Receivables, (iii) all collateral, guarantees, insurance and other
arrangements supporting the Receivables, (iv) all rights and interest of
Receivables Funding under a receivables sales agreement with the Company, (v)
lock-boxes and bank accounts of the Company or Receivables Funding in which
proceeds of any of the foregoing are held, and (vi) all collections and other
proceeds of the assets described above. The Receivables Securitization Facility
has been treated as a financing under SFAS 77. Although SFAS 125 has been
approved for adoption effective January 1, 1997 only recently and has not been
interpreted definitively, the Company is presently unable to determine the
effects of the provisions SFAS 125 at its effective date of January 1, 1997.
Receivable Interests will be sold pursuant to the Receivables
Securitization Facility at a discount reflecting the LIBOR rate for interest
periods of one, two or three months (adjusted for required deposit reserves, if
any) plus 0.50% or First Chicago's corporate base rate. A commitment fee on the
unused portion of the facility at a rate of 0.40% per annum are payable
quarterly by the Company, accruing from the Closing. All collections
attributable to the assets transferred are set aside and applied monthly
commencing on the Amortization Commencement Date to repay Falcon's and/or First
Chicago's investments in the Receivable Interests in full.
The Receivables Securitization Facility contains covenants, representations
and warranties customary for such facilities. Financial covenants are not
included in the documentation relating to the Receivables Securitization
Facility and the Facility does not have any cross defaults or cross
collateralization with respect to any other obligations of the Company under the
New Credit Facility or the Indentures.
PLAN OF DISTRIBUTION
Each broker-dealer that is eligible to participate in the Exchange Offer,
and which receives Exchange Notes for its own account pursuant to the Exchange
Offer must acknowledge that it may be a statutory underwriter under the
Securities Act, and that it will deliver a prospectus in connection with any
resale of such Exchange Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by such a broker-dealer in
connection with the resales of Exchange Notes received in exchange for the Notes
where such Notes were acquired for the broker-dealer's own account as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the date on which the Registration Statement
is declared effective, it will make this Prospectus, as amended or supplemented,
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available to any broker-dealer that requests such documents in the Letter of
Transmittal for use in connection with any such resale.
This Prospectus may not be used for resales of Exchange Notes by any
affiliate of the Company, or any person with respect to Notes that were acquired
directly from the Company, any person that is participating or intends to
participate in a distribution of the Exchange Notes, or any person that has any
understanding or arrangement to participate in a distribution of Exchange Notes.
The Company will not receive any proceeds from any resale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of Exchange Notes and any commissions or concessions received
by any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus with respect to the Exchange Notes,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders (including any broker-dealers) and certain parties related
to the holders against certain liabilities, including liabilities under the
Securities Act.
CERTAIN LEGAL MATTERS
Certain legal matters in connection with the issuance of the Exchange Notes
have been passed upon for the Company by Alston & Bird, Atlanta, Georgia. Neil
Williams, the managing partner of Alston & Bird, is a Printpack director. See
"Management."
INDEPENDENT ACCOUNTANTS
The financial statements of Printpack, Inc. as of June 29, 1996 and June
24, 1995 and for each of the three years in the period ended June 29, 1996, and
the combined financial statements of The Flexible Packaging Group of James River
Corporation as of December 31, 1995 and December 25, 1994 and for each of the
three years in the period ended December 31, 1995 included in this Prospectus
have been so included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
102
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRINTPACK, INC.
Report of Independent Accountants................................................... F-2
Balance Sheets as of June 24, 1995 and June 29, 1996................................ F-3
Statements of Income for the Three Years Ended June 29, 1996........................ F-4
Statement of Changes in Parent's Equity Investment for the Three Years Ended
June 29, 1996.................................................................... F-5
Statements of Cash Flow for the Three Years Ended June 29, 1996..................... F-6
Notes to Financial Statements....................................................... F-7
Balance Sheet as of September 28, 1996 (unaudited).................................. F-21
Statements of Operations for the 13 Weeks Ended September 23, 1995 and September 28,
1996 (unaudited)................................................................. F-22
Statements of Cash Flow for the 13 Weeks Ended September 23, 1995 and September 28,
1996 (unaudited)................................................................. F-23
Notes to Unaudited Financial Statements............................................. F-24
THE FLEXIBLE PACKAGING GROUP OF JAMES RIVER CORPORATION
Report of Independent Accountants................................................... F-27
Combined Balance Sheets as of December 25, 1994 and December 31, 1995............... F-28
Combined Statements of Operations for the Three Years Ended December 31, 1995....... F-29
Combined Statements of Changes in James River's Investment for the Three Years Ended
December 31, 1995................................................................ F-30
Combined Statements of Cash Flows for the Three Years Ended December 31, 1995....... F-31
Notes to Combined Financial Statements.............................................. F-32
Combined Balance Sheet as of June 30, 1996 (unaudited).............................. F-42
Combined Statement of Operations for the 26 Weeks Ended June 25, 1995 and June 30,
1996 (unaudited)................................................................. F-43
Combined Statement of Changes in James River's Investment for the 26 Weeks Ended
June 25, 1995 and June 30, 1996 (unaudited)...................................... F-44
Combined Statement of Cash Flows for the 26 Weeks Ended June 25, 1995 and June 30,
1996 (unaudited)................................................................. F-45
Notes to Combined Financial Statements (unaudited).................................. F-46
</TABLE>
F-1
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Printpack, Inc.
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in Printpack Holdings, Inc. (Parent) equity investment and
of cash flows present fairly, in all material respects, the financial position
of Printpack, Inc. (the Company), as described in Note 1 to the financial
statements, at June 24, 1995 and June 29, 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
June 29, 1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 13, the Company changed its method of accounting for
income taxes effective June 27, 1993. In addition, as discussed in Note 12, the
Company changed its method of accounting for postemployment benefits effective
June 25, 1994.
Price Waterhouse LLP
Atlanta, Georgia
July 26, 1996, except as to Note 17,
which is as of August 22, 1996
F-2
<PAGE> 109
PRINTPACK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 24, JUNE 29,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ 3,748 $ 242
Trade accounts receivable, less allowance for doubtful accounts
of $228 and $286.................................................... 35,836 35,742
Inventories............................................................ 31,992 34,831
Prepaid expenses and other current assets.............................. 9,056 10,348
Note receivable from an equity investee................................ -- 1,700
Deferred income taxes.................................................. -- 1,844
-------- --------
Total current assets........................................... 80,632 84,707
Property, plant and equipment, net....................................... 137,935 137,628
Intangibles, less accumulated amortization of $1,132 and $1,301.......... 786 617
Other assets............................................................. 8,111 7,570
Deferred income taxes.................................................... 2,921 747
-------- --------
$230,385 $231,269
======== ========
LIABILITIES AND PARENT'S EQUITY INVESTMENT
Current liabilities
Accounts payable and accrued expenses.................................. $ 32,643 $ 26,539
Accrued severance costs................................................ -- 5,986
Accrued salaries, wages, benefits and bonuses.......................... 11,349 6,967
Dividends and income taxes payable..................................... 7,470 --
Current maturities of long-term debt................................... 5,975 30,625
Short-term borrowings under lines of credit............................ -- 5,504
Deferred income taxes.................................................. 213 --
-------- --------
Total current liabilities...................................... 57,650 75,621
-------- --------
Long-term debt......................................................... 106,250 110,625
Subordinated debt...................................................... 10,384 10,384
Other long-term liabilities............................................ 23,796 21,179
-------- --------
Total liabilities.............................................. 198,080 217,809
-------- --------
Parent's equity investment............................................. 32,305 13,460
-------- --------
Commitments and contingencies............................................ -- --
-------- --------
$230,385 $231,269
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 110
PRINTPACK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
---------------------------------
JUNE 25, JUNE 24, JUNE 29,
1994 1995 1996
--------- --------- ---------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales..................................................... $ 407,272 $ 454,645 $ 442,931
Cost of goods sold............................................ 330,345 370,630 363,091
--------- --------- ---------
Gross margin.................................................. 76,927 84,015 79,840
Selling, administrative and research and development
expenses.................................................... 43,467 49,796 44,581
Restructuring charges......................................... 4,000 626 --
Severance expense............................................. 880 -- 7,870
Write-off of equity investment................................ -- 4,673 200
Amortization of intangible assets............................. (169) (169) (169)
--------- --------- ---------
Income from operations...................................... 28,411 28,751 27,020
Other income (expense)
Interest expense............................................ (9,505) (9,943) (10,814)
Undistributed loss with respect to equity investment........ -- (316) (1,111)
Other, net.................................................. 2,743 (463) 1,221
--------- --------- ---------
Income before provision for income taxes...................... 21,649 18,029 16,316
--------- --------- ---------
Provision for income taxes
Effect of electing C corporation status..................... (2,865) -- --
Current..................................................... (2,173) (5,938) (2,963)
Deferred.................................................... 499 5,074 (117)
--------- --------- ---------
(4,539) (864) (3,080)
--------- --------- ---------
Income before cumulative effect of a change in accounting
principle................................................... 17,110 17,165 13,236
Cumulative effect of a change in accounting principle......... -- (341) --
--------- --------- ---------
Net income.................................................... $ 17,110 $ 16,824 $ 13,236
======== ======== ========
Unaudited pro forma data (Note 18)
Income before income taxes.................................. $ 21,649 $ 18,029 $ 16,316
Pro forma provision for income taxes........................ 7,886 6,858 6,555
--------- --------- ---------
Pro forma net income................................ $ 13,763 $ 11,171 $ 9,761
======== ======== ========
Net income per common share................................... $ 2.31
Weighted average number of shares outstanding used in
calculation of net income per common share.................. 4,218,560
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 111
PRINTPACK, INC.
STATEMENT OF CHANGES IN PARENT'S EQUITY INVESTMENT
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Balance at June 26, 1993....................................................... $ 53,905
Net income..................................................................... 17,110
Dividends to Parent............................................................ (29,028)
--------------
Balance at June 25, 1994....................................................... 41,987
Net income..................................................................... 16,824
Dividends to Parent............................................................ (26,506)
--------------
Balance at June 24, 1995....................................................... 32,305
Net income..................................................................... 13,236
Dividends to Parent............................................................ (32,081)
--------------
Balance at June 29, 1996....................................................... $ 13,460
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 112
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
------------------------------
JUNE 25, JUNE 24, JUNE 29,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income................................................... $ 17,110 $ 16,824 $ 13,236
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation.............................................. 20,412 22,386 24,734
Amortization of intangible assets......................... 169 169 169
Amortization of deferred gain............................. -- -- (323)
Undistributed loss with respect to equity investment...... -- 316 1,111
Deferred income taxes..................................... 2,367 (5,074) 117
Postretirement and postemployment benefits................ 1,593 2,390 (250)
Incentive compensation.................................... -- 5,785 (2,044)
Gain on life insurance benefits........................... -- -- (1,143)
Other..................................................... 294 (284) 588
Changes in operating assets and liabilities
Decrease in short-term investments...................... 234 -- --
(Increase) decrease in accounts receivable.............. (6,652) (900) 94
(Increase) decrease in inventories...................... (959) 3,835 (2,839)
Increase in prepaid expenses and other assets........... (2,942) (188) (3,734)
Increase (decrease) in accounts payable, accrued
expenses, and dividends payable...................... 12,617 (2,043) (17,956)
Increase in accrued severance costs..................... -- -- 5,986
Increase (decrease) in other long-term liabilities...... 1,186 (3,484) --
-------- -------- --------
Total adjustments.................................... 28,319 22,908 4,510
-------- -------- --------
Net cash provided by operating activities............ 45,429 39,732 17,746
-------- -------- --------
Investing activities
Purchases of property, plant and equipment................... (23,870) (34,800) (25,786)
Proceeds from sale of property, plant and equipment.......... 348 5,341 750
Insurance proceeds received.................................. -- -- 1,336
-------- -------- --------
Net cash used in investing activities................ (23,522) (29,459) (23,700)
-------- -------- --------
Financing activities
Principal payments on long-term debt......................... (27,725) (5,850) (5,975)
Proceeds from issuance of long-term debt..................... 60,000 -- --
Proceeds from issuance of subordinated debt.................. -- 10,384 --
Net (payments) proceeds on lines of credit and revolving
credit facility........................................... (11,635) -- 40,504
Dividends paid............................................... (29,028) (26,506) (32,081)
Other........................................................ 85 1,669 --
-------- -------- --------
Net cash (used in) provided by financing
activities......................................... (8,303) (20,303) 2,448
-------- -------- --------
Increase (decrease) in cash and cash equivalents............... 13,604 (10,030) (3,506)
Cash and cash equivalents, beginning of year................... 174 13,778 3,748
-------- -------- --------
Cash and cash equivalents, end of year......................... $ 13,778 $ 3,748 $ 242
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 113
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 24, 1995 AND JUNE 29, 1996
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Printpack, Inc. ("Printpack") and Printpack Enterprises, Inc.
("Enterprises") are affiliated by common ownership and management. The
accompanying balance sheets have been presented to include, at their historical
cost, the assets and liabilities of the North American operations of Printpack
and Enterprises. The statements of income and cash flows were derived from the
accounting records of Printpack and Enterprises (the "Company") and include the
revenue, expenses and cash flows attributable to both of the Companies'
historical North American operations.
As part of the acquisition (the "Acquisition") of The Flexible Packaging
Group of James River Corporation of Virginia ("JR Flexible") (see Note 17) and
to facilitate the financing of the Acquisition, Printpack and Enterprises plan
to reorganize into a holding company (the "Reorganization") effective July 1996.
In the Reorganization, Printpack Holdings, Inc. ("Holdings"), a Delaware
corporation, will be formed and will acquire approximately 97% of the
outstanding common stock of Enterprises, which in turn will own approximately
100% of the outstanding stock of Printpack. Printpack will acquire JR Flexible's
business and will conduct all North American operations of the enterprise.
Holdings and Enterprises will be non-operating holding companies that also will
control flexible packaging operations conducted through several separately
chartered United Kingdom affiliates.
The Company manufactures flexible packaging material primarily for the food
and beverage industries throughout North America.
INTERCOMPANY TRANSACTIONS
The accompanying financial statements include the accounts of the Company.
All significant intercompany transactions and balances have been eliminated.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in June. The Company's
fiscal year included 52, 52 and 53 weeks during the years ended June 25, 1994,
June 24, 1995 and June 29, 1996.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of highly liquid, short-term
investments with original maturities of three months or less and are recorded at
cost which approximates market value.
INVENTORIES
Inventories are stated at the lower of cost or current market value. Cost
is determined using the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated
depreciation and amortization, which is provided using accelerated and
straight-line methods over the estimated useful lives of the assets which range
from three to thirty-five years. Major renewals and improvements are
capitalized, while maintenance and repairs are expensed when incurred. The cost
and accumulated depreciation of property, plant and equipment sold or retired
are relieved from the accounts, and resulting gains or losses are reflected in
income.
F-7
<PAGE> 114
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company has historically been included in a consolidated Federal income
tax return and a combined/unitary state income tax return. Income taxes
reflected in the accompanying statements of operations represent the Company's
share of the consolidated tax provision which approximates the tax effect which
would have been recognized had a separate income tax return been filed.
In February 1994, Printpack revoked its S corporation election thereby
changing to C corporation status. With the election of C corporation status,
Printpack became subject to federal and state income taxes and was required to
adopt Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes". This approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Using the enacted tax
rates in effect for the year in which the differences are expected to reverse,
deferred tax liabilities and assets are determined based on the differences
between the financial reporting basis and the income tax basis of assets and
liabilities.
Enterprises is presented as an S corporation having elected S corporation
status in 1989. Under the provisions of the Internal Revenue Code, S
corporations are not subject to federal income tax because taxable income or
loss inures to its shareholders. Accordingly, a provision for federal income
taxes has not been recorded for Enterprises. State income taxes have been
provided for certain states which do not recognize S corporation status. See
Note 18 for unaudited pro forma income tax information.
INTANGIBLE ASSETS
Intangible assets resulting from business acquisitions principally consist
of the excess of the acquisition cost over the fair value of the net assets of
businesses acquired (goodwill). Goodwill is amortized on a straight-line basis
over 20 years. Other intangible assets are amortized on a straight-line basis
over their estimated useful lives. As of June 24, 1995 and June 29, 1996,
management believes that goodwill has not been impaired.
REVENUE
Revenue is recognized at the time of shipment. Sales to one customer
approximated 25%, 28% and 25% of total sales during 1994, 1995 and 1996,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company extends credit to its customers based on an evaluation of the
customer's financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for such losses.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses all research and development costs when incurred.
Research and development costs expensed during the years ended June 25, 1994,
June 24, 1995, and June 29, 1996, were approximately $5,500,000, $5,800,000 and
$5,200,000, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-8
<PAGE> 115
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
2. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials...................................................... $18,310 $16,883
Work-in-process.................................................... 4,715 6,769
Finished goods..................................................... 22,752 27,220
------- -------
45,777 50,872
Reduction to state inventories at last-in, first-out cost (LIFO)... 13,785 16,041
------- -------
Total inventories........................................ $31,992 $34,831
======= =======
</TABLE>
During fiscal 1995 and 1996, certain inventory quantities were reduced.
These reductions resulted in a liquidation of LIFO inventory quantities carried
at lower costs prevailing in prior years as compared with the cost of 1995 and
1996 purchases, the effect of which decreased cost of goods sold and increased
income from operations by approximately $1,800,000 and $500,000, respectively.
No significant quantity reductions occurred during fiscal 1994.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................... $ 5,037 $ 3,814
Buildings...................................................... 52,571 57,734
Machinery and equipment........................................ 201,187 226,647
Leasehold improvements......................................... 1,309 1,439
Construction in progress....................................... 14,533 8,436
--------- ---------
274,637 298,070
Less accumulated depreciation and amortization................. (136,702) (160,442)
--------- ---------
$ 137,935 $ 137,628
========= =========
</TABLE>
4. INVESTMENT IN JOINT VENTURES
Effective January 1995, the Company entered into an agreement with Orchem,
Inc., to form a joint venture, Orflex Ltd. ("Orflex"), an Ohio limited liability
partnership. Under the terms of the joint venture agreement, the Company
contributed its Cincinnati plant to the joint venture. For its contribution, the
Company received a 49% limited partnership interest in the joint venture and
$5,300,000 in cash. As part of the joint venture agreement, the Company has
guaranteed the debt of the joint venture, which debt totals approximately
$5,700,000 at June 29, 1996. This debt is subject to repayment requirements
through a final maturity date of January 2005. The Company believes the
likelihood of loss as a result of this debt guarantee is remote based upon the
present and forecasted financial condition of Orflex. The Orflex transaction was
accounted for as a sale of assets to the extent of third-party ownership in the
joint venture during 1995. As a result, the Company recorded a deferred gain of
approximately $3,300,000 which will be recognized under the
F-9
<PAGE> 116
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
instalment method as Orflex makes principal payments on the debt. During 1996,
the Company recognized approximately $323,000 of this deferred gain as a result
of principal payments made by Orflex.
The Company's investment in Orflex is accounted for using the equity method
and is stated at cost plus the Company's share of undistributed earnings from
the joint venture. The carrying amount of the investment, which approximated
$1,388,000 and $277,000 at June 24, 1995 and June 29, 1996, respectively, is
included within other long-term assets on the accompanying Balance Sheets.
The Company procures for resale to its customers certain finished goods
inventories from Orflex. During 1995 and 1996, purchases from Orflex totaled
approximately $3,235,000 and $2,482,000, respectively. Pursuant to a note
arrangement which became effective during January 1996, the Company has extended
certain working capital loans to Orflex. Such loans, which bear interest at the
rate of LIBOR plus 2%, are payable upon demand by the Company at any time after
December 31, 1996. Outstanding draws related to such loans, including accrued
interest, total approximately $1,700,000 at June 29, 1996.
During 1994, the Company sold its general partnership interest (50%) in
Deluxe Engraving to an unaffiliated company for approximately $5,100,000. As a
result of the transaction, the Company realized a gain of approximately
$3,400,000.
F-10
<PAGE> 117
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT, SUBORDINATED DEBT AND LINES OF CREDIT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
6.47% unsecured senior notes payable to insurance companies in
annual instalments of $4,727,272, beginning in December 1998
(final instalment due in December 2008), interest payable
semi-annually; proceeds used to retire debt, and finance
various capital projects....................................... $ 52,000 $ 52,000
5.30% unsecured senior note payable to insurance company, entire
principal payable on December 9, 1997, interest payable
semi-annually; proceeds used to retire debt and finance various
capital projects............................................... 8,000 8,000
7.75% unsecured note payable to bank with interest payable
quarterly, entire principal payable on December 31, 1996;
proceeds financed various capital projects..................... 25,000 25,000
9.35% unsecured senior notes payable to insurance companies in
annual instalments of $2,500,000 beginning in January 1993
(final instalment due in January 2002), interest payable
semi-annually; proceeds financed acquisition activities in
1989........................................................... 17,500 15,000
9.90% unsecured senior notes payable to insurance companies in
annual instalments of $3,125,000, plus interest, beginning in
January 1991 (final instalment due in January 1998); proceeds
financed various capital expansion projects.................... 9,375 6,250
9.25% Industrial Revenue Bonds payable in annual instalments of
$225,000, plus interest, through December 1994 (final
instalment of $350,000 due in December 1995), secured by land
and building at the Fredericksburg, Virginia facility; proceeds
financed certain equipment and the construction of the plant at
Fredericksburg................................................. 350 --
6.50% revolving credit facility with a bank due in November
1997........................................................... -- 35,000
-------- --------
112,225 141,250
Less current portion............................................. (5,975) (30,625)
-------- --------
$106,250 $110,625
======== ========
</TABLE>
Aggregate principal maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1996
--------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1997........................................................... $ 30,625
1998........................................................... 48,625
1999........................................................... 9,700
2000........................................................... 9,700
2001........................................................... 8,700
2002 and thereafter............................................ 33,900
--------
$141,250
========
</TABLE>
The agreements related to $146,754 of Company debt outstanding as of June
29, 1996 require that the Company together with its affiliates in the United
Kingdom, among other things, maintain specified levels of working capital;
restrict the payment of dividends, redemption of stock and incurrence of certain
debt; restrict
F-11
<PAGE> 118
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
investments; and limit the amount of pledged assets and advances and loans to
employees. The Company and its affiliates in the United Kingdom obtained waivers
of certain covenants due to noncompliance for the year ended June 24, 1995 and
for all financial and other relevant covenants due to noncompliance for the year
ended June 29, 1996. The waivers, effective through August 31, 1996, are
expected to enable the Company to complete the Acquisition of JR Flexible from
James River Corporation of Virginia ("James River") as described in Notes 1 and
17. Management expects to obtain replacement financing in conjunction with the
Acquisition.
The Company capitalized interest of approximately $414,000, $579,000 and
$887,000 in 1994, 1995 and 1996, respectively, relating to additions of plant
and equipment.
Total cash paid during the year for interest, net of amounts capitalized,
was $10,088,000, $9,255,000 and $10,172,000 during 1994, 1995 and 1996,
respectively.
In February 1995, the Company issued $10,384,000 of subordinated notes
payable to the Parent's shareholders bearing interest at 11%, payable annually,
and maturing in May 2014. The subordinated notes require an instalment of
$3,422,000 due in May 2005.
At June 29, 1996, the Company had lines of credit with various banks
providing for borrowings of up to $14,300,000 bearing interest at the lower of
the banks' prime rate or a negotiated rate.
At June 29, 1996, the Company had current borrowings of $5,504,000 under
these agreements. There were no amounts outstanding under the lines of credit at
June 24, 1995.
6. DEFERRED COMPENSATION
Pursuant to the terms of a deferred compensation agreement, the Company is
obligated to pay the former chief executive's beneficiary certain monthly
amounts over the remainder of the beneficiary's life. At June 24, 1995 and June
29, 1996, approximately $4,641,000 and $4,075,000, respectively, has been
accrued under this agreement. Interest expense on this obligation approximated
$483,000, $469,000 and $412,000 during 1994, 1995 and 1996, respectively.
The Company is obligated under deferred compensation agreements to make
monthly payments in varying amounts to certain former officers through June
2011. At June 24, 1995 and June 29, 1996, the Company had accrued approximately
$349,000 and $780,000, respectively, relating to these agreements. For the years
ended June 25, 1994, June 24, 1995 and June 29, 1996, interest expense related
to these agreements approximated $47,000, $41,000 and $66,000, respectively.
Future minimum annual payments required by these agreements are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1996
--------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1997........................................................... $ 594
1998........................................................... 621
1999........................................................... 592
2000........................................................... 608
2001........................................................... 554
2002 and thereafter............................................ 5,381
-------
Future minimum payments........................................ 8,350
Less amounts representing interest at 8% to 12%................ (4,243)
-------
Total obligation..................................... $ 4,107
=======
</TABLE>
F-12
<PAGE> 119
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. SUPPLEMENTAL BALANCE SHEET INFORMATION
PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Vendor rebates receivable.................................................. $ 4,105 $ 4,365
Prepaid insurance.......................................................... 2,962 3,101
Other items................................................................ 1,989 2,882
------- -------
$ 9,056 $10,348
======= =======
</TABLE>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<S> <C> <C>
Trade accounts payable..................................................... $19,271 $18,065
Accrued loss on debt guarantee............................................. 4,673 --
Other items................................................................ 8,699 8,474
------- -------
$32,643 $26,539
======= =======
</TABLE>
8. EQUITY TRANSACTIONS WITH PARENT
During 1994, 1995 and 1996 the Company declared dividends approximating
$29,028,000, $26,506,000 and $32,081,000, respectively. Approximately $5,082,000
and $6,126,000 of the dividends declared in 1994 and 1995 were for estimated S
corporation tax payments required by the shareholders of Enterprises for their
applicable liability for income attributable to Enterprise's operations.
Proceeds from special distributions of aggregate accumulated adjustments
accounts, which represented amounts previously taxed to the Company's
shareholders, were made in connection with the termination of the Company's
Subchapter S tax election in 1994 of $10,384,000 were loaned to the Company in
1995 by certain of the Parent's shareholders under subordinated notes payable
described in Note 5. As of June 24, 1995, dividends recorded as accrued
liabilities for estimated tax payments of approximately $4,932,000 were declared
but unpaid.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amounts approximate fair value because of the short maturity
of those instruments.
NOTE RECEIVABLE
The carrying amount for the note receivable approximates its fair value
based upon the approximate interest rates at which similar loans would be made.
LONG-TERM DEBT
The carrying amounts of floating rate long-term debt are assumed to
approximate their fair values. The fair value of the Company's fixed rate
long-term debt is estimated via a discounted cash-flow analysis based upon the
incremental borrowing rates currently available to the Company for loans of a
similar nature.
F-13
<PAGE> 120
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 3,748 $ 3,748 $ 242 $ 242
Note receivable........................... -- -- 1,700 1,700
Long-term debt............................ (112,225) (110,168) (141,250) (139,660)
Subordinated debt......................... (10,384) (11,515) (10,384) (12,710)
</TABLE>
10. EMPLOYEE BENEFITS
The Company maintains a qualified profit sharing plan for participating
eligible employees ("associates"). The plan provides for annual contributions
based upon net income. Profit sharing expense approximated $3,002,000,
$2,364,000 and $1,673,000 in 1994, 1995 and 1996, respectively.
Under the terms of the Company's EVA Incentive Compensation Plan (the "EVA
Plan") for key associates, approximately $6,242,000 and $2,800,000, has been
reflected as a liability at June 24, 1995 and June 29, 1996, respectively.
Approximately $5,704,000, $6,309,000 and $2,850,000 has been recorded as expense
relative to the EVA Plan during 1994, 1995 and 1996, respectively. Under the
terms of the EVA Plan, incentive compensation is derived and is allocated to
specific business units based upon economic-value-added, as defined within the
plan agreement.
Under the terms of the Company's Performance Share Incentive Compensation
Plan (the " Performance Plan") for key associates, approximately $10,992,000 and
$9,056,000 has been reflected as a liability at June 24, 1995 and June 29, 1996,
respectively. Approximately $8,982,000 and $476,000 has been recorded as expense
relative to the Performance Plan during 1995 and 1996, respectively. Under the
Performance Plan, associates defer twenty-five percent of their annual cash
bonus into a performance share, the value of which is based upon a formula as
defined in the plan agreement. Associates' performance shares must be held at
least four years before they are eligible for redemption but may be held until
the associate retires.
11. POSTRETIREMENT BENEFITS
During 1992, the Company elected to provide group health and life insurance
benefits to retired associates. Under the terms of this plan, the Company
reimburses qualified retired associates varying percentages of health care costs
and premium costs of life insurance depending upon a retired associate's length
of service, with a minimum of 10 years required for plan eligibility.
Effective June 27, 1993, the Company changed its method of accounting for
postretirement health care and life insurance benefits to the accrual method of
accounting for postretirement benefits other than pensions pursuant to SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions".
The Company elected to delay recognition of the accumulated liability, measured
as of June 27, 1993, over 20 years which requires a charge of approximately
$400,000 annually until the net transition obligation is fully recognized.
Previously, such costs were expensed as paid. The Company does not prefund
postretirement benefits.
During fiscal 1996, the Company adopted amendments to certain
postretirement group health and life insurance plans. The major amendments
included the elimination of benefits for active associates retiring after
December 31, 1996. These amendments resulted in a net curtailment gain of
$2,207,000 and immediate recognition of the related previously unrecognized
transition obligation and unrecognized net gain.
F-14
<PAGE> 121
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the postretirement
benefits (other than pension plans), reconciled to the accrued postretirement
benefit cost recognized in the Company's balance sheet:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation......................
Retiree benefit obligation....................................... $(2,557) $(1,918)
Fully eligible active associates' benefit obligation............. (696) (406)
Other active associates' benefit obligation...................... (6,247) (27)
------- -------
Total benefit obligation................................. (9,500) (2,351)
Unrecognized net gain.............................................. (300) --
Unrecognized net transition obligation............................. 6,800 --
------- -------
Accrued postretirement benefit cost................................ $(3,000) $(2,351)
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned............................ $ 550 $ 500 $ 503
Interest cost on projected benefit obligation............... 640 700 695
Amortization of transition obligation....................... 403 400 400
Amortization of unrecognized net gain....................... -- -- (33)
------ ------ -------
Net cost.................................................. $1,593 $1,600 $ 1,565
====== ====== =======
Curtailment event
Immediate recognition of transition obligation............ $ -- $ 500 $ 6,362
Curtailment gain.......................................... -- (700) (9,006)
Immediate recognition of experience loss.................. -- -- 437
------ ------ -------
Net curtailment................................... $ -- $ (200) $(2,207)
====== ====== =======
Effect of 1% increase in the trend rates
Accumulated postretirement benefit obligation increase.... $1,812 $ 216
====== =======
Service cost plus interest cost increase.................. $ 262 $ 17
====== =======
</TABLE>
The assumed health care cost trend rate and the ultimate rate, achieved
July 1, 1996, used in measuring the accumulated postretirement benefit
obligation was 5.00%. The discount rate used to measure the accumulated
postretirement benefit obligation was 8.00% for 1994, 1995, and 1996.
12. POSTEMPLOYMENT BENEFITS
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" ("SFAS 112") as of the beginning of fiscal 1995. SFAS 112 recognizes
the future cost of providing employment benefits on an accrual basis over the
active service life of the employee. A one-time charge related to the adoption
of SFAS 112 of approximately $588,000 (approximately $341,000 net of federal
income tax) was recognized as the cumulative effect of a change in accounting
principle in fiscal 1995. The Company utilizes the services of an enrolled
actuary to calculate the expense, which relates primarily to workers'
compensation benefits. Prior to 1995, postemployment costs were expensed as
paid.
F-15
<PAGE> 122
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
In February 1992, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 mandates the
liability method for computing deferred income taxes. Printpack adopted SFAS 109
during the year ended June 25, 1994. The charge to adopt SFAS 109 as a result of
the change in Printpack's federal income tax status to a C corporation was
$2,865,000, which is reflected in the 1994 Statement of Income.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax provision
Federal.................................................... $1,797 $4,600 $2,426
State...................................................... 376 1,338 537
Deferred tax provision
Federal.................................................... (448) (4,650) 104
State...................................................... (51) (424) 13
------ ------ ------
1,674 864 3,080
Cumulative effect of electing C corporation status........... 2,865 -- --
------ ------ ------
$4,539 $ 864 $3,080
====== ====== ======
</TABLE>
The differences between total tax expense and the amount determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Taxes at federal statutory rate................................. 35.0% 35.0% 35.0%
S corporation income not subject to corporate level taxation.... (27.7) (32.6) (17.9)
Tax credits..................................................... (.6) -- --
State income taxes, net of federal income tax benefit........... 2.0 4.8 3.1
Other........................................................... (1.0) (2.4) (1.3)
----- ----- -----
7.7% 4.8% 18.9%
===== ===== =====
</TABLE>
F-16
<PAGE> 123
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------
1995 1996
------- ------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts................................... $ 90 $ 113
Accrued incentive compensation.................................... 4,464 3,597
Write-off of equity investment.................................... 1,846 79
Accrued postretirement and postemployment benefits................ 1,185 929
Accrued separation expenses....................................... -- 2,202
Deferred compensation............................................. 1,994 1,925
Other accrued liabilities......................................... 916 1,072
Other............................................................. 230 77
------- ------
Total deferred tax assets................................. $10,725 $9,994
======= ======
Deferred tax liabilities:
Excess of book over tax basis of property, plant and equipment.... $ 6,565 $5,783
Fees and taxes.................................................... 447 600
Voluntary Employee Benefit Association contribution............... 615 627
Other............................................................. 390 393
------- ------
Total deferred tax liabilities............................ 8,017 7,403
------- ------
Net deferred tax asset.................................... $ 2,708 $2,591
======= ======
</TABLE>
Income taxes paid during the years ended June 25, 1994, June 24, 1995 and
June 29, 1996 totaled approximately $1,040,000, $5,994,000 and $2,403,000,
respectively.
14. COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities and transportation equipment
under non-cancelable operating leases expiring on various dates through 2000.
Future minimum annual rentals required by these operating leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL RENTALS
1996
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................ $ 656
1998........................................................ 644
1999........................................................ 358
2000........................................................ 95
-------
$1,753
===========
</TABLE>
Rental expense under operating leases approximated $1,966,000, $1,742,000
and $1,719,000 during 1994, 1995 and 1996, respectively.
At June 24, 1995 and June 29, 1996, commitments relating to future
acquisitions of property, plant and equipment approximated $22,751,000 and
$10,385,000, respectively.
F-17
<PAGE> 124
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to legal proceedings and other claims which arise in
the ordinary course of business. In the opinion of management, the outcome of
these actions will not materially affect the financial position or results of
operations of the Company.
15. WRITE-OFF OF EQUITY INVESTMENT
During fiscal 1995, the Company recorded a charge of approximately
$4,673,000 related to the Company's debt guarantee to a bank on behalf of an
unaffiliated company attempting to develop and market new packaging technology,
which guarantee has been paid and terminated subsequently. There are no other
guarantees related to this defunct unaffiliated company.
16. RESTRUCTURING CHARGES
During 1996, the Company recorded charges of approximately $7,870,000 in
severance charges for announced reductions in work force. Severance charges were
primarily related to the termination of approximately 160 employees located at
manufacturing and corporate facilities. The Company has made severance payments
of $1,884,000 during 1996 and expects to make payments of approximately
$5,411,000 and $575,000 in fiscal 1997 and 1998, respectively.
During 1994, the Company recorded charges of approximately $4,880,000 which
included severance payments for announced reductions in work force of
approximately $880,000 and related expenditures of approximately $4,000,000
associated with the closing of its Cincinnati, Ohio plant (Note 4). Severance
charges represent the costs related to the termination of approximately 50
employees in various functions located at the Cincinnati manufacturing facility.
An additional $626,000 in related plant closing expenses were incurred and
expended in 1995.
17. SUBSEQUENT EVENTS
In April 1996, the Company entered into an agreement with James River
Corporation of Virginia to purchase certain assets and assume certain
liabilities of JR Flexible (the "Acquisition"), which agreement was consummated
on August 22, 1996 for a preliminary purchase price of approximately $380
million. This Acquisition and the repayment of the majority of the Company's
debt outstanding was financed by the issuance of $100,000,000 of Senior Notes,
$200,000,000 of Senior Subordinated Notes, a new term loan of $170,000,000 and a
draw of $53,700,000 on a $155,000,000 new revolving credit facility. At the
closing of these transactions on August 22, 1996, the revolving credit facility
was reduced permanently to its present level of $105,000,000 by the Receivables
Securitization Facility of up to $50,000,000. Pursuant to the new Receivables
Securitization Facility, $23,000,000 of proceeds from the initial borrowings
under this Facility collateralized by receivables were received by the Company
on August 22, 1996. The final purchase price for the Acquisition is subject to
adjustment based upon an audit of the closing statement of assets purchased and
liabilities assumed, and the final negotiation of the values of certain items.
On June 28, 1996, the Company entered into an amended interest rate lock
agreement with a bank to manage its interest rate exposure on anticipated
borrowings to be incurred in connection with the Acquisition described above and
in Note 1. This amended agreement, whose termination became effective August 19,
1996, designated the Company and the bank as fixed and floating rate payers,
respectively, on a notional principal amount of $300 million. As a result of
subsequent declines in interest rates, the Company, on August 19, 1996 paid
approximately $7.4 million on the settlement of this agreement, which cost will
be deferred and amortized to interest expense over the life of the Senior Notes
and the Senior Subordinated Notes. The fair value of the lock agreement was
approximately $2.6 million, unfavorable, as of June 29, 1996. The Company has
only limited involvement with derivative instruments and does not use them for
trading purposes. There were no premiums paid or received in connection with
this agreement.
F-18
<PAGE> 125
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Subsequent to year end, the Company advanced an additional $700,000 to
Orflex on its working capital loan (see Note 4 where discussed).
18. UNAUDITED PRO FORMA INFORMATION
INCOME TAXES
The Company has calculated the pro forma provision for income taxes under
SFAS 109 as if Printpack and Printpack Enterprises had been subject to federal
and state income taxes throughout the periods presented.
The pro forma provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
1994 1995 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax provision
Federal................................................... $7,035 $10,236 $5,247
State..................................................... 509 1,419 764
Deferred tax provision
Federal................................................... 307 (4,405) 481
State..................................................... 35 (392) 63
------ ------- ------
Total pro forma provision......................... $7,886 $ 6,858 $6,555
====== ======= ======
</TABLE>
The differences between total pro forma tax expense and the amount
determined by applying the federal statutory tax rate to income before income
taxes result from the following:
<TABLE>
<CAPTION>
YEAR ENDED
------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes at federal statutory rate.................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit.............. 4.0 4.4 4.5
Tax credits........................................................ (.6) -- --
Other.............................................................. (2.0) (1.4) .7
---- ---- ----
36.4% 38.0% 40.2%
==== ==== ====
</TABLE>
F-19
<PAGE> 126
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's pro forma deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------
1995 1996
------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................. $ 90 $ 113
Accrued incentive compensation................................... 4,545 3,597
Write-off of equity investment................................... 1,846 79
Accrued postretirement and postemployment benefits............... 1,185 929
Accrued separation expenses...................................... -- 2,202
Deferred compensation............................................ 1,994 1,925
Other accrued liabilities........................................ 1,554 1,271
Excess of book over tax basis of intangibles..................... 35 36
Other............................................................ 150 77
------- -------
Total deferred tax assets................................ $11,399 $10,229
======= =======
Deferred tax liabilities:
Excess of book over tax basis of property, plant and equipment... $10,554 $ 9,852
Fees and taxes................................................... 556 697
Voluntary Employee Benefit Association contribution.............. 615 627
Other............................................................ 470 393
------- -------
Total deferred tax liabilities........................... 12,195 11,569
------- -------
Net deferred tax liability............................... $ 796 $ 1,340
======= =======
</TABLE>
F-20
<PAGE> 127
PRINTPACK, INC.
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28,
1996
---------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets
Cash and cash equivalents.................................................... $ 11,510
Trade accounts receivable, less allowance for doubtful accounts of $890...... 72,142
Inventories.................................................................. 101,030
Prepaid expenses and other current assets.................................... 11,809
Note receivable from an equity investee...................................... 2,400
Net assets held for sale..................................................... 15,000
Deferred income taxes........................................................ 3,922
--------
Total current assets................................................. 217,813
Property, plant and equipment, net............................................. 385,561
Intangibles, less accumulated amortization of $1,608........................... 55,388
Other assets................................................................... 31,760
--------
$ 690,522
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses........................................ $ 91,207
Accrued salaries, wages, benefits and bonuses................................ 12,011
Current maturities of long-term debt......................................... 12,000
--------
Total current liabilities............................................ 115,218
Long-term debt................................................................. 529,000
Subordinated debt.............................................................. 10,383
Other long-term liabilities.................................................... 26,212
Deferred income taxes.......................................................... 4,623
--------
Total liabilities.................................................... 685,436
--------
Shareholders' equity
Common stock, no par value, 5,000,000 shares authorized, 4,218,560 shares
issued and outstanding....................................................... 1,017
Additional paid in capital..................................................... 9,302
Accumulated deficit............................................................ (5,233)
--------
Total shareholders' equity........................................... 5,086
--------
Commitments and contingencies.................................................. --
--------
$ 690,522
========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-21
<PAGE> 128
PRINTPACK, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
SEPTEMBER 23, SEPTEMBER 28,
1995 1996
------------- -------------
(IN (IN
THOUSANDS) THOUSANDS)
<S> <C> <C>
Net sales........................................................... $ 107,118 $ 150,787
Cost of goods sold.................................................. 89,455 133,829
-------- --------
Gross margin........................................................ 17,663 16,958
Selling, administrative and research and development expenses....... 11,497 15,202
Restructuring charges............................................... 48 --
Amortization of intangible assets................................... 42 307
-------- --------
Income (loss) from operations....................................... 6,076 1,449
Other income (expense)
Interest expense.................................................. (2,575) (6,279)
Undistributed loss with respect to equity investment.............. (293) (232)
Other, net........................................................ (324) 225
-------- --------
Income (loss) before provision for income taxes..................... 2,884 (4,837)
(Provision) for income taxes........................................ (545) (1,906)
-------- --------
Income (loss) before extraordinary item............................. 2,339 (6,743)
Extraordinary item -- Loss on early extinguishment of debt (net of
income tax benefit of $999)....................................... -- (1,631)
-------- --------
Net income (loss)................................................... $ 2,339 $ (8,374)
======== ========
Net income (loss) per common share.................................. $ (1.99)
Weighted average number of shares outstanding used in calculation of
net income per common share....................................... 4,218,560
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-22
<PAGE> 129
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
SEPTEMBER 23, SEPTEMBER 28,
1995 1996
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Operating activities
Net income (loss)................................................ $ 2,339 $ (8,374)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation.................................................. 5,658 8,997
Amortization of intangible assets............................. 42 307
Undistributed loss with respect to an equity investment....... 293 232
Deferred income taxes......................................... 125 3,292
Loss on disposal of fixed assets.............................. 15 65
Change in operating assets and liabilities net of effects of
acquisition
Decrease (increase) in accounts receivable.................. 4,807 (1,683)
Decrease (increase) in inventories.......................... (4,782) 3,120
Decrease (increase) in prepaid expenses and other assets.... 3,089 (22,634)
(Decrease) increase in accounts payable, accrued expenses,
and dividends payable...................................... (19,217) 28,801
Increase in other long-term liabilities..................... 6,093 3,677
------- --------
Total adjustments............................................. (3,877) 24,174
------- --------
Net cash provided by (used in) operating activities......... (1,538) 15,800
------- --------
Investing activities
Purchases of property, plant and equipment.................... (6,484) (2,792)
Proceeds from sale of property, plant and equipment........... 23 100
Payment for purchase of JR Flexible manufacturing facilities,
net of cash received......................................... -- (372,214)
------- --------
Net cash used in investing activities....................... (6,461) (374,906)
------- --------
Financing activities
Principal payments on long-term debt............................. -- (154,013)
Proceeds from issuance of long-term debt......................... -- 470,000
Net borrowings on lines of credit................................ 4,486 --
Net borrowings on new revolving credit facility.................. -- 48,000
Debt prepayment premiums and debt issuance costs................. -- (16,613)
Proceeds from borrowing under the receivable securization
facility...................................................... -- 23,000
------- --------
Cash provided by financing activities.................... 4,486 370,374
------- --------
Increase (decrease) in cash and cash equivalents................... (3,513) 11,268
Cash and cash equivalents, beginning of period..................... 3,748 242
------- --------
Cash and cash equivalents, end of period........................... $ 235 $ 11,510
======= ========
</TABLE>
The accompanying notes are an integral part of the unaudited financial
statements.
F-23
<PAGE> 130
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 28, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Printpack, Inc.
("Printpack" or "Company") have been prepared by Company management and are
presented on a basis in accordance with the accounting policies stated in the
June 24, 1995 and June 29, 1996, financial statements and should be read in
conjunction with the Notes to Financial Statements appearing therein. As
described in the above noted financial statements, effective July 1996, a legal
reorganization was consummated which involved the Company. As such, the
Company's Shareholders' equity has been presented to reflect the reorganization.
In the opinion of Printpack management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation have been
included in the accompanying interim financial statements. The results of
operations for the three-month period ended September 28, 1996, are not
necessarily indicative of the results to be expected for the full fiscal year.
2. ACQUISITION
The accompanying unaudited interim financial statements include certain
assets and liabilities and five weeks of operating results of certain operations
acquired from James River Corporation of Virginia's ("James River") Flexible
Packaging Business ("JR Flexible") as described in Note 17 of the Notes to
Financial Statements referred to above. The Acquisition was accounted for using
the purchase method of accounting. Accordingly, the purchase price of
approximately $380 million includes approximately $7 million of severance and
other exit costs primarily associated with the announced closing of the San
Leandro and Dayton plants, and approximately $1 million in other acquisition
costs, has been preliminary allocated on the basis of the estimated fair value
of the assets acquired and liabilities assumed. The purchase price was allocated
as follows:
<TABLE>
<S> <C>
Working capital, other than cash.......................................... $ 74,129
Property, plant, and equipment............................................ 257,137
Goodwill.................................................................. 28,573
Other intangibles......................................................... 26,500
Other liabilities assumed................................................. (6,794)
--------
Purchase price net of cash received....................................... $379,545
========
</TABLE>
This allocation has resulted in goodwill of approximately $28.6 million and
other intangibles of approximately $26.5 million, which are being amortized on a
straight-line basis over 15 years. The final purchase price for the Acquisition
is subject to adjustment based upon an audit of the James River closing
statement of assets acquired and liabilities assumed, and resolution of certain
items.
Accruals related to the announced closure of the two plants represent
Company management's best estimate of the anticipated costs to be incurred.
Additional costs associated with the closure of these plants will be allocated
to the Acquisition purchase price. The current exit plans are expected to be
completed by March 31, 1997. The net assets of these facilities are recorded as
Net Assets Held for Sale in the Company's consolidated balance sheet.
The operating results of the facilities being closed are included in the
statement of operations and statement of cash flows presented for the 13 weeks
ended September 28, 1996 and were not material to the Company's financial
results for the period.
F-24
<PAGE> 131
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma results, as if the acquisition transaction occurred on July 1,
1995, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 23, SEPTEMBER 28,
1995 1996
-------------- --------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Net Sales................................................ $227,488 $213,729
Loss before extraordinary item........................... (2,159) (10,132)
Net Income (loss)........................................ (2,159) (11,763)
</TABLE>
The pro forma presentation is not necessarily indicative of either the
results of operations that would have occurred had the acquisition taken place
at the beginning of the period or of future results of the Company.
3. INCOME TAXES
Printpack's effective income tax rate exclusive of the one time charge
described below, was 39% for the 13 weeks ended September 28, 1996, compared to
18.9% for the fiscal year ended June 29, 1996. The increase in the effective tax
rate for the period was primarily due to the change in tax status for the
operations formerly conducted by Printpack Enterprises, Inc., which effective
June 30, 1996, elected to change its Subchapter S tax election to be taxed as a
Subchapter C corporation. The charge as a result of the change in tax status was
approximately $3.8 million, which is reflected in the results of operations.
The Company paid no income taxes during the quarter ended September 28,
1996 due to the expected loss, and paid approximately $1.2 million of income
taxes during the quarter ended September 23, 1995.
4. INVENTORIES
Inventories are stated at the lower of cost or current market value. Cost
is determined using the last-in, first-out (LIFO) method.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28,
1996
-------------
(IN
THOUSANDS)
<S> <C>
Raw materials........................................................ $ 42,183
Work-in-process...................................................... 12,220
Finished goods....................................................... 64,192
--------
118,595
Reduction to state inventories at last-in, first-out cost (LIFO)..... (17,565)
--------
Total inventories.................................................. $ 101,030
========
</TABLE>
5. CONTINGENCIES
Printpack is subject to legal proceedings and other claims which arise in
the ordinary course of business. In the opinion of management, the outcome of
these actions will not materially affect the financial position, results of
operations or cash flows of the Company.
6. EXTRAORDINARY ITEM
During the first quarter of fiscal 1997, the Company completed a
refinancing arrangement contemporaneously with the acquisition of certain
manufacturing facilities from James River. This refinancing provided for the
issuance of approximately $200 million senior subordinated notes bearing
interest at 10 5/8% due 2006 and
F-25
<PAGE> 132
PRINTPACK, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS -- (CONTINUED)
the issuance of approximately $100 million of senior notes bearing interest at
9 7/8% due 2004. In addition, the Company also received approximately $170
million from the proceeds of a term loan and established a revolving credit
facility of approximately $105 million with a bank. To complete the financing of
the transaction, the Company also entered into an asset-backed accounts
receivable securitization arrangement and received approximately $23 million of
proceeds from the initial borrowing under the arrangement.
As a result of this debt restructuring, the Company recognized an
extraordinary loss of approximately $1,631,000, net of applicable income tax
benefit of $999,490, in the Company's results of operations for the quarter.
Total cash paid for interest was approximately $976,000 for the quarter
ended September 28, 1996 and approximately $1.5 million for the quarter ended
September 23, 1995.
F-26
<PAGE> 133
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
James River Corporation of Virginia
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations, of changes in James River's Investment and of
cash flows present fairly, in all material respects, the financial position of
the Flexible Packaging Group of James River Corporation as described in Note 1
to the combined financial statements, at December 25, 1994 and December 31,
1995, and the results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Atlanta, Georgia
August 22, 1996
F-27
<PAGE> 134
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31,
1994 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Accounts receivable, less allowance for doubtful accounts of $639
and $426........................................................ $ 33,979 $ 31,116
Inventories........................................................ 71,515 56,054
Prepaid expenses and other current assets.......................... 2,413 1,503
Deferred income taxes.............................................. 2,877 3,938
-------- --------
Total current assets....................................... 110,784 92,611
-------- --------
Net property, plant and equipment.................................... 210,942 232,420
Other assets......................................................... 13,227 12,932
Intangible assets.................................................... 13,018 12,603
-------- --------
Total assets............................................... $347,971 $350,566
======== ========
LIABILITIES AND EQUITY
Current liabilities
Accounts payable................................................... $ 24,481 $ 16,919
Accrued liabilities................................................ 17,027 19,755
-------- --------
Total current liabilities.................................. 41,508 36,674
-------- --------
Long-term debt....................................................... 2,392 2,392
Deferred income taxes................................................ 43,194 42,326
Accrued postretirement benefits other than pensions.................. 16,493 16,567
Other long-term liabilities.......................................... 3,243 3,123
-------- --------
Total liabilities.......................................... 106,830 101,082
-------- --------
James River's investment............................................. 241,141 249,484
-------- --------
Commitments and contingencies........................................ -- --
-------- --------
Total liabilities and equity............................... $347,971 $350,566
======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-28
<PAGE> 135
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................. $475,052 $464,517 $486,694
Cost of goods sold........................................ 421,420 419,643 460,664
-------- -------- --------
Gross margin.............................................. 53,632 44,874 26,030
Selling and administrative expenses....................... 37,280 37,181 40,304
Restructuring charges..................................... -- -- 2,094
-------- -------- --------
Income (loss) from operations................... 16,352 7,693 (16,368)
Interest expense.......................................... 228 229 245
Other income, net......................................... 742 603 503
-------- -------- --------
Income (loss) before income taxes............... 16,866 8,067 (16,110)
Income tax expense (benefit).............................. 6,745 3,380 (6,029)
-------- -------- --------
Net income (loss)......................................... $ 10,121 $ 4,687 $(10,081)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-29
<PAGE> 136
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENTS OF CHANGES IN JAMES RIVER'S INVESTMENT
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
James River's investment
Balance, beginning of year.......................... $234,539 $226,850 $241,141
Net income (loss)................................... 10,121 4,687 (10,081)
Change in equity component of minimum pension
liability........................................ 516 (403) (116)
Capital infusion, net............................... (18,326) 10,007 18,540
------------ ------------ ------------
Balance, end of year................................ $226,850 $241,141 $249,484
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-30
<PAGE> 137
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
DECEMBER 26, DECEMBER 25, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income (loss)....................................... $ 10,121 $ 4,687 $(10,081)
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation expense................................. 19,939 21,318 23,393
Amortization expense................................. 540 589 732
Deferred income tax provision (benefit).............. 357 (2,314) (1,855)
Loss on sale of fixed assets......................... 295 269 3,617
Retirement benefit funding (in excess of) less than
expense............................................ (545) 2,578 (468)
Change in current assets and liabilities
(Increase) decrease in accounts receivable........... (5,824) (1,765) 2,863
Decrease (increase) in inventories................... 4,211 (6,839) 15,461
Decrease (increase) in prepaid expenses and other
current assets..................................... 588 (175) 910
Increase (decrease) in accounts payable.............. 2,183 5,215 (7,562)
Increase (decrease) in accrued liabilities........... 1,018 (1,713) 2,728
Other, net.............................................. (290) 416 669
------------ ------------ ------------
Net cash provided by operating activities....... 32,593 22,266 30,407
------------ ------------ ------------
Investing activities
Expenditures for property, plant and equipment.......... (14,307) (32,634) (49,430)
Other, net.............................................. 40 361 483
------------ ------------ ------------
Net cash used for investing activities.......... (14,267) (32,273) (48,947)
------------ ------------ ------------
Financing activities
James River's capital (withdrawal) infusion, net........ (18,326) 10,007 18,540
------------ ------------ ------------
Cash provided by financing activities........... (18,326) 10,007 18,540
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents.......... -- -- --
Cash and cash equivalents, beginning of year.............. -- -- --
------------ ------------ ------------
Cash and cash equivalents, end of year.......... $ -- $ -- $ --
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-31
<PAGE> 138
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND OPERATIONS
The accompanying combined financial statements of the Flexible Packaging
Group ("JR Flexible") include the historical assets, liabilities and operating
results of certain operations of James River Corporation of Virginia's ("James
River") Flexible Packaging Business. JR Flexible primarily consists of the
assets, liabilities and operations of four lamination and coating plants,
located in St. Louis, Missouri, Dayton, Ohio, Shreveport, Louisiana, and San
Leandro, California; five film and converting plants, located in New Castle,
Delaware, Orange, Texas, Greensburg, Indiana, Jackson, Tennessee, and
Aguascalientes, Mexico; and a rigid plastics container plant in Williamsburg,
Virginia. Certain pilot plant equipment from James River's technology center in
Milford, Ohio is also included.
The accompanying combined financial statements have been prepared on a
historical basis. The financial information in these combined financial
statements is not necessarily indicative of results that would have occurred if
JR Flexible had been a separate stand-alone entity during the periods presented
or of future results of JR Flexible.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by JR Flexible are
summarized below:
BASIS OF PRESENTATION AND PRINCIPLES OF COMBINATION
The combined financial statements have been prepared as if JR Flexible had
operated as an independent stand-alone entity for the periods presented, except
JR Flexible generally has not had significant borrowings, and there has been no
allocation of James River's consolidated borrowings, and related interest
expense, except for interest capitalized as a component of properties. JR
Flexible has engaged in various transactions with James River and its affiliates
that are characteristic of a group of companies under common control, including
the purchase and sale of product from other James River facilities. Throughout
the period covered by these combined financial statements, JR Flexible
participated in James River's centralized cash management system and, as such,
its cash funding requirements were met by James River. JR Flexible's operational
transactions result in amounts receivable from and payable to James River which
fluctuate over time and are not settled through cash transfers. Accordingly,
such receivable and payable amounts are presented net in the combined balance
sheet as James River's investment and as capital infusion, net in the combined
statements of changes in James River's investment, and the combined statements
of cash flows. Significant intercompany balances and transactions within JR
Flexible have been eliminated. Sales to James River were approximately 7.7%,
8.7% and 9.4% of combined sales in 1993, 1994 and 1995, respectively. JR
Flexible's fiscal year includes the 52 or 53 weeks ending on the last Sunday in
December. The years ended December 26, 1993, December 25, 1994, and December 31,
1995, included 52 weeks, 52 weeks and 53 weeks, respectively.
JR Flexible was charged by James River for direct costs and expenses
associated with its operations which were included in selling and administrative
expenses. These changes were $1.8 million, $1.8 million and $2.3 million for
1993, 1994 and 1995, respectively. James River's other administrative costs not
directly attributable to JR Flexible ("corporate overhead allocation"), which
historically have not been allocated by James River, have been allocated to JR
Flexible based on JR Flexible's relative contribution to consolidated James
River net sales. Management believes that such methods of allocation are
reasonable and reflect a reasonable estimate of the level of expenses that might
have been incurred had JR Flexible operated on a stand-alone basis. JR
Flexible's corporate overhead allocation, which is also included in selling and
administrative expenses in the statements of operations, consists of $4.8
million, $5.6 million and $5.9 million of such indirect costs for 1993, 1994 and
1995, respectively.
F-32
<PAGE> 139
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect amounts reported therein. Actual results could differ from those
estimates.
INVENTORIES
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. The last-in, first-out cost flow
assumption is used for valuing substantially all inventories, other than stores
and supplies, which are valued using average cost assumptions.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, less accumulated
depreciation, including related delivery and installation costs and interest
incurred on significant capital projects during their construction periods.
Expenditures for improvements which increase asset values or extend useful lives
are capitalized. Maintenance and repair costs are expensed as incurred. For
financial reporting purposes, depreciation is computed using the straight-line
method over the estimated useful lives of the respective assets, which range
from 15 to 45 years for buildings and 5 to 20 years for machinery and equipment.
For income tax purposes, depreciation is calculated using accelerated methods.
INTANGIBLE ASSETS
The excess of the purchase price over the fair value of identifiable net
assets of acquired companies is allocated to goodwill and amortized over 40
years. Goodwill is presented net of accumulated amortization of $3.9 million and
$4.3 million as of December 25, 1994, and December 31, 1995, respectively. The
recoverability of goodwill has been evaluated to determine whether goodwill is
fully recoverable from the projected undiscounted cash flows of the assets and
businesses to which the goodwill relates. Management believes that goodwill is
not significantly impaired as of December 25, 1994 and December 31, 1995.
RESEARCH AND DEVELOPMENT
Research and development expenditures are expensed as incurred. Direct and
readily identifiable indirect research and development costs totaled $6.4
million in 1993, $6.5 million in 1994 and $6.0 million in 1995.
INTEREST EXPENSE
The interest expense reflected in the combined statements of operations
primarily represents interest expense on industrial revenue bonds, which are
currently obligations of James River and which will be assumed by JR Flexible.
These obligations have been included in the accompanying combined balance sheet.
The interest expense reflected in the combined statements of operations and the
amount of debt reflected in the accompanying combined balance sheets are not
intended to reflect interest expense that JR Flexible may have incurred and the
amount of debt which would have been outstanding had JR Flexible been a
stand-alone company. As discussed below under "James River's Investment,"
transactions with James River are treated as if settled immediately through
James River's investment. As a result, there were no advances from James River
outstanding in the accompanying combined balance sheets which required the
recognition of interest expense.
F-33
<PAGE> 140
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
JR Flexible has historically been included in the consolidated federal
income tax return and the combined/unitary state income tax returns of James
River. Income taxes reflected in the accompanying combined financial statements
represent JR Flexible's share of James River's income tax provision which
approximates the tax effect which would have been recognized had JR Flexible
filed separate income tax returns.
Income taxes currently payable have been treated as if settled immediately
through James River's investment. The current deferred asset and the noncurrent
deferred liability have been determined on a stand-alone basis. Because JR
Flexible is included in the James River consolidated federal income tax return,
net operating loss carryforwards, investment and other tax credit carryforwards,
if any, were utilized by James River. Accordingly, JR Flexible has no reportable
net operating loss or tax credit carryforwards on a stand-alone basis.
EMPLOYEE BENEFIT PLANS
Certain key employees and officers who are assigned to JR Flexible are
participants in the James River stock option plan, stock appreciation rights
plan, and deferred stock plan. Under the stock option plan, options were granted
to purchase the common stock of James River ("JR Common") at exercise prices
equal to the fair market value of such stock as of the date of grant and have
terms of ten years. Under the stock appreciation rights plan, stock appreciation
rights ("SARs") were granted with terms of ten years. Upon exercise, holders of
SARs are paid cash or at the option of James River, JR Common in an amount equal
to the appreciation in market value of such stock between the grant date and the
exercise date. Under the deferred stock plan, hypothetical shares of JR Common
("Units") were awarded; the value of each Unit on the award is equal to the
current market value of a share of JR Common. Benefits are paid in cash and JR
Common as vested or, at the option of the holder, over varying periods after
retirement. Compensation expense allocated from James River for these plans was
not material for any of the years presented.
James River, and as a result JR Flexible, has a defined contribution 401(k)
stock plan which is available to substantially all domestic employees. The plan
is funded with contributions by participants and the participant's employer.
Expenses allocated from James River for this plan totaled $1.3 million in 1993,
$1.7 million in 1994 and $1.8 million in 1995.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject JR Flexible to
concentrations of credit risk consist principally of trade accounts receivable.
JR Flexible extends credit to its customers based on an evaluation of the
customer's financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. JR Flexible monitors its exposure for credit losses and maintains
allowances for such losses.
JAMES RIVER'S INVESTMENT
James River's investment reflects the historical activity between JR
Flexible and James River and JR Flexible's cumulative results of operations.
Transactions with James River are reflected as though they were settled
immediately as an addition to or reduction of James River's investment and there
are no amounts due to or from James River at the end of any period.
F-34
<PAGE> 141
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials...................................................... $24,603 $18,190
Finished goods and work in process................................. 46,251 40,634
Stores and supplies................................................ 5,839 6,184
------- -------
76,693 65,008
Reduction to state certain inventories at last-in, first-out
cost............................................................. (5,178) (8,954)
------- -------
Total inventories........................................ $71,515 $56,054
======= =======
</TABLE>
In 1995, certain inventory quantities were reduced, resulting in
liquidations of last-in, first-out inventory quantities carried at lower costs
prevailing in prior years. The effect was to decrease the net loss by $1.1
million.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements.......................................... $ 7,472 $ 7,597
Buildings...................................................... 62,234 64,744
Machinery and equipment........................................ 377,371 397,975
Construction in progress....................................... 25,389 26,140
-------- --------
472,466 496,456
Accumulated depreciation....................................... 261,524 264,036
-------- --------
Net property, plant and equipment.................... $210,942 $232,420
======== ========
</TABLE>
5. RESTRUCTURING CHARGES
During 1995, JR Flexible recorded a $2.1 million charge which included
severance charges for announced reductions in the work force of $1.2 million and
fixed asset write-offs of $.9 million. The $1.2 million charge relates to
approximately 35 employees in various functions. JR Flexible has made severance
payments of $.3 million to terminated employees for whom severance costs have
been accrued since the beginning of 1995. JR Flexible anticipates that all
remaining severance payments will be disbursed during 1996.
F-35
<PAGE> 142
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal............................................. $ 5,347 $ 4,754 $(3,478)
State............................................... 985 878 (624)
Foreign............................................. 56 62 (72)
------- ------- -------
Total current income tax expense
(benefit)................................. 6,388 5,694 (4,174)
------- ------- -------
Deferred
Federal............................................. 302 (1,957) (1,569)
State............................................... 55 (357) (286)
------- ------- -------
Total deferred income tax benefit........... 357 (2,314) (1,855)
------- ------- -------
Income tax expense (benefit)................ $ 6,745 $ 3,380 $(6,029)
======= ======= =======
</TABLE>
Because JR Flexible is included with James River in the filing of a
consolidated federal income tax return and a combined/unitary state income tax
return, cash payments for income taxes for JR Flexible on a stand-alone basis
are not determinable.
Principal reasons for the difference between the federal statutory income
tax rate on the income (loss) before income taxes and JR Flexible's effective
income tax rate are as follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME
(LOSS)
------------------------
1993 1994 1995
---- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate............................ 35.0% 35.0% (35.0)%
State income taxes, net of federal income tax effect......... 4.0 4.2 (3.7)
Nondeductible items.......................................... 0.8 1.7 1.0
Other items, net............................................. 0.2 1.0 0.3
---- ----- -----
Effective income tax rate.......................... 40.0% 41.9% (37.4)%
==== ===== =====
</TABLE>
The income tax effects of temporary differences that give rise to the net
deferred tax liability are as follows:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Excess of book over tax basis of property, plant and equipment... $ 45,800 $ 44,800
Pension benefits................................................. 4,041 4,116
Other items...................................................... 1,751 1,462
-------- --------
Total deferred tax liabilities......................... 51,592 50,378
-------- --------
Postretirement benefits other than pensions...................... (6,726) (6,695)
Accrued liabilities.............................................. (4,549) (5,295)
-------- --------
Total deferred tax assets.............................. (11,275) (11,990)
-------- --------
Net deferred tax liability............................. $ 40,317 $ 38,388
======== ========
</TABLE>
F-36
<PAGE> 143
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSION PLANS
James River sponsors contributory and noncontributory pension plans and
also participates in multi-employer retirement plans which provide defined
benefits to employees covered under collective bargaining agreements; such plans
also cover substantially all employees who are assigned to JR Flexible. Benefits
under the plans for hourly employees are primarily based on stated benefits per
year of credited service. Benefits for salaried employees are primarily related
to compensation and years of credited service. Contributions are made to the
plans sufficient to meet the minimum funding requirements of applicable laws and
regulations plus additional amounts, if any, as management, in consultation with
its actuaries, deems to be appropriate. Contributions to the multi-employer plan
are generally based on negotiated labor contracts. Plan assets consist
principally of equity securities and corporate and government obligations.
Components of pension cost information presented for salaried and hourly
plans were derived from actuarial calculations of these components of the James
River plans. All amounts applicable to hourly plans, for which operations were
included in JR Flexible, were assigned to JR Flexible. The actuarial present
value of benefit obligations for active salaried employees employed by JR
Flexible and the related components of pension cost were allocated to JR
Flexible. Plan assets were allocated to JR Flexible based upon the same
methodology used to allocate the present value of benefit obligations.
The components of JR Flexible's net pension cost allocated from the James
River pension plans are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................. $ 1,384 $ 1,722 $ 1,330
Interest accrued on projected benefit obligation......... 3,360 4,182 4,051
Net investment (income) loss on plan assets
Actual................................................. (6,296) (669) (11,234)
Deferral of difference between actual and expected
investment income................................... 1,963 (4,500) 6,299
Net amortization......................................... 514 857 365
Contributions to multi-employer pension plans............ 298 385 311
------- ------- --------
Net pension cost............................... $ 1,223 $ 1,977 $ 1,122
======= ======= ========
</TABLE>
Net amortization included amortization of the net transition assets, net
experience gains and losses, and prior service costs over 15 to 20 years.
The actuarial assumptions used in determining net pension costs are as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate...................................................... 8.0% 7.4% 8.6%
Assumed rate of increase in compensation levels.................... 5.5% 5.5% 5.0%
Expected long-term rate of return on plan assets................... 10.5% 10.0% 10.0%
</TABLE>
As of December 31, 1995, benefit obligations were determined using a
discount rate of 7.5% and an assumed rate of increase in compensation levels of
5.0%. The effect of the changes in these assumptions was an increase in the
projected benefit obligation of $6.1 million.
F-37
<PAGE> 144
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of JR Flexible's allocated
balances for the James River pension plans as of December 25, 1994, and December
31, 1995:
<TABLE>
<CAPTION>
1994 1995
------------------------- -------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of
Vested benefits....................... $42,957 $ 1,542 $51,985 $ 2,105
Nonvested benefits.................... 1,418 311 1,759 303
----------- ----------- ----------- -----------
Accumulated benefit
obligation.................. 44,375 1,853 53,744 2,408
Effect of projected future salary
increases.......................... 1,558 10 1,851 13
----------- ----------- ----------- -----------
Projected benefit
obligation.................. 45,933 1,863 55,595 2,421
Plan assets at fair value............. 54,848 1,703 65,265 2,090
----------- ----------- ----------- -----------
Plan assets in excess of (less than)
projected benefit obligation....... 8,915 (160) 9,670 (331)
Unrecognized net loss (gain).......... 741 763 (248) 887
Unrecognized prior service cost....... 1,249 238 1,849 217
Unrecognized net transition asset..... (676) -- (583) --
Minimum pension liability............. -- (917) -- (1,091)
----------- ----------- ----------- -----------
Net pension asset
(liability)................. $10,229 $ (76) $10,688 $ (318)
========= ========= ========= =========
</TABLE>
Other assets included net noncurrent pension assets of $11.1 million as of
December 25, 1994, and $11.5 million as of December 31, 1995, exclusive of the
additional minimum pension liabilities. As of December 25, 1994, and December
31, 1995, $.9 million and $1.1 million of additional minimum pension liabilities
for underfunded plans were included in other long-term liabilities, offset by an
intangible asset of $.2 million and $.2 million, and a charge of $.4 million and
$.5 million to James River's investment, net of deferred taxes of $.3 million
and $.4 million, respectively.
8. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
James River provides certain medical and life insurance benefits to
eligible retired employees, which include personnel assigned to JR Flexible.
Salaried employees hired before January 1, 1993, generally become eligible for
retiree medical benefits after reaching age 55 with 15 years of service or after
reaching age 65. Under the salaried plan, post-age 65 eligible retirees are
reimbursed for a portion of the cost of premiums of Medicare supplement
insurance policies, based upon vested years of service. Post-age 65 salaried
retirees are also reimbursed for certain prescription drug costs, less
deductibles. Pre-age 65 eligible retirees are paid a stated percentage of
covered medical expenses, less deductibles. Salaried employees hired after
January 1, 1993, are not eligible for retiree medical benefits. Benefits,
eligibility and cost-sharing provisions for hourly employees vary by location
and collective bargaining unit. All of James River's, and as a result, JR
Flexible's retiree medical plans are unfunded.
F-38
<PAGE> 145
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The components of JR Flexible's net periodic postretirement benefit cost
allocated from the James River plans for the years ended December 26, 1993,
December 25, 1994 and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............................................... $ 577 $ 506 $ 572
Interest cost on accumulated postretirement benefit
obligation............................................... 1,138 1,094 1,354
Net amortization........................................... (88) (171) (174)
------ ------ ------
Net periodic postretirement benefit cost......... $1,627 $1,429 $1,752
====== ====== ======
</TABLE>
Net amortization included amortization of prior service costs and gains and
net experience gains and losses over 15 years. The discount rate used in
determining the net periodic postretirement benefit cost was 8.5% for 1993, 7.5%
for 1994 and 8.5% for 1995. The discount rate used in determining the
accumulated postretirement benefit obligation ("APBO") was 7.4% as of December
31, 1995. The net effect of the decrease in the discount rate and health care
cost trend rate was a decrease in the accumulated benefit obligation of $1.2
million.
Unrecognized net gain or loss, APBO and postretirement benefit costs for
active employees assigned to, and the retirees associated with, JR Flexible were
allocated to JR Flexible based upon actuarially calculated values.
Summary information on James River's plans allocated to JR Flexible for the
years ended December 25, 1994, and December 31, 1995, is as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees....................................................... $ 5,764 $ 5,006
Fully eligible active participants............................. 3,602 2,326
Other active participants...................................... 6,432 7,277
------- -------
Total accumulated postretirement benefit obligation.... 15,798 14,609
Unrecognized net (loss) gain................................... (594) 691
Unrecognized prior service gain................................ 2,086 1,911
------- -------
Accrued postretirement benefit obligation...................... $17,290 $17,211
======= =======
</TABLE>
As of December 25, 1994, and December 31, 1995, JR Flexible has included
$.7 million and $.6 million, respectively, of accrued postretirement benefit
costs in accrued liabilities, representing the estimated current portion of this
liability.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9% in 1995, declining by .5% per year
through 2003 and .25% thereafter through 2005 to an ultimate rate of 5%. If the
health care cost trend rate assumptions were increased by 1%, the accumulated
postretirement benefit obligation as of December 31, 1995, would have increased
by $1.4 million. The effect of this change on the sum of the service cost and
interest cost components of net periodic postretirement benefit cost for 1995
would have been an increase of $.2 million.
F-39
<PAGE> 146
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL BALANCE SHEET INFORMATION
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued vacation and payroll............................................... $ 6,009 $ 7,112
Accrued benefits........................................................... 2,770 2,780
Accrued severance.......................................................... -- 887
Workers' compensation accrual.............................................. 3,743 4,229
Accrued taxes, other than income taxes..................................... 718 1,165
Other...................................................................... 3,787 3,582
------- -------
Total accrued liabilities........................................ $17,027 $19,755
======= =======
</TABLE>
10. INDEBTEDNESS
<TABLE>
<CAPTION>
1994 1995
------ ------
(IN THOUSANDS)
<S> <C> <C>
5.6% revenue bond, payable in 1997........................................... $ 779 $ 779
6.4% revenue bond, payable in 2001........................................... 799 799
6.7% revenue bond, payable in 2004........................................... 814 814
------ ------
Total long-term debt............................................... $2,392 $2,392
====== ======
</TABLE>
Interest paid was $187,000 in 1993, 1994 and 1995. Minimum principal
payments in the next five years include $1,000,000 in 1997.
11. COMMITMENTS AND CONTINGENCIES
LEASES
JR Flexible is a party to operating lease agreements and has participated
with James River in lease agreements for certain facilities, vehicles and
equipment over varying periods. None of the agreements contain unusual renewal
or purchase options. As of December 31, 1995, future minimum rental payments
under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
MINIMUM
RENTALS
--------------
(IN THOUSANDS)
<S> <C>
1996........................................................ $ 793
1997........................................................ 588
1998........................................................ 610
1999........................................................ 614
2000........................................................ 102
Later years................................................. --
-------
Total future minimum rentals...................... $2,707
===========
</TABLE>
Rent expense totaled $2.8 million in 1993, $2.6 million in 1994 and $2.8
million in 1995. Capital leases are not material.
F-40
<PAGE> 147
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION AND ENVIRONMENTAL MATTERS
JR Flexible is subject to legal proceedings and other claims which arise in
the ordinary course of business. In the opinion of management, the outcome of
these actions will not materially affect the financial position, results of
operations or cash flows of JR Flexible.
In addition, JR Flexible has been identified as a potentially responsible
party, along with others, at certain U.S. Environmental Protection Agency
designated superfund sites and is involved in remedial investigations and
actions under federal and state laws. It is JR Flexible's policy to accrue
remediation costs when it is probable that such costs will be incurred and when
they can be reasonably estimated. Included in JR Flexible's other long-term
liabilities were environmental liabilities, including remediation costs,
totaling $1.8 million and $1.5 million as of December 25, 1994, and December 31,
1995, respectively. JR Flexible periodically reviews the status of all
significant existing or potential environmental issues and adjusts its accruals
as necessary. The accruals do not reflect any possible future insurance
recoveries. Estimates of costs for future remediation are imprecise due to,
among other things, the identification of presently unknown remediation sites
and the allocation of costs among potentially responsible parties. JR Flexible
believes that its share of the costs of cleanup for its current remediation
sites will not have a materially adverse impact on its combined financial
position, results of operations or cash flows.
12. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, James River entered into an agreement with
Printpack, Inc. to sell certain assets and transfer certain liabilities of JR
Flexible, which agreement was consummated on August 22, 1996. The purchase price
of approximately $380.0 million is subject to adjustment based upon an audit of
the closing statement of assets purchased and liabilities assumed.
F-41
<PAGE> 148
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets
Accounts receivable, less allowance for doubtful accounts of $364............ $ 30,303
Inventories.................................................................. 56,429
Prepaid expenses and other current assets.................................... 2,152
Deferred income taxes........................................................ 3,934
--------------
Total current assets................................................. 92,818
Net property, plant and equipment.............................................. 228,681
Other assets................................................................... 12,225
Intangible assets.............................................................. 12,395
--------------
Total assets......................................................... $346,119
===========
LIABILITIES AND EQUITY
Current liabilities
Accounts payable............................................................. $ 17,877
Accrued liabilities.......................................................... 17,920
--------------
Total current liabilities............................................ 35,797
Long-term debt................................................................. 2,392
Deferred income taxes.......................................................... 40,635
Accrued postretirement benefits other than pensions............................ 16,975
Other long-term liabilities.................................................... 3,071
--------------
Total liabilities.................................................... 98,870
--------------
James River's investment....................................................... 247,249
--------------
Commitments and contingencies.................................................. --
--------------
Total liabilities and equity......................................... $346,119
===========
</TABLE>
The accompanying notes are an integral part of the unaudited combined financial
statements.
F-42
<PAGE> 149
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS
ENDED JUNE 26 WEEKS ENDED
25, 1995 JUNE 30, 1996
------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Net sales......................................................... $ 243,103 $223,432
Cost of goods sold................................................ 230,995 203,889
------------- --------------
Gross margin...................................................... 12,108 19,543
Selling, administrative and research and development expenses..... 19,919 17,414
------------- --------------
Income from operations.......................................... (7,811) 2,129
Interest expense.................................................. 120 119
Other income, net................................................. 248 305
------------- --------------
Income (loss) before income taxes............................... (7,683) 2,315
Income tax (benefit) expense...................................... (2,750) 1,060
------------- --------------
Net income (loss)................................................. $ (4,933) $ 1,255
========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited combined financial
statements.
F-43
<PAGE> 150
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENT OF CHANGES IN JAMES RIVER'S INVESTMENT
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
JUNE 25, JUNE 30,
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
James River's investment
Balance, beginning of period........................................... $241,141 $249,484
Net income (loss)...................................................... (4,933) 1,255
Capital infusion (withdrawal), net..................................... 24,420 (3,490)
-------- --------
Balance, end of period................................................. $260,628 $247,249
======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited combined financial
statements.
F-44
<PAGE> 151
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
26 WEEKS 26 WEEKS
ENDED ENDED
JUNE 25, JUNE 30,
1995 1996
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Operating activities
Net (loss) income................................................ $ (4,933) $ 1,255
Adjustments to reconcile net income (loss) to net cash provided
by operating activities
Depreciation and amortization expense......................... 11,400 13,453
Deferred income tax benefit................................... (927) (1,490)
Loss on sale of fixed assets.................................. 292 213
Retirement benefit funding (in excess of) less than expense... (149) 969
Change in current assets and liabilities
Decrease in accounts receivable............................. 1,148 813
Decrease (increase) in inventories.......................... 330 (375)
Decrease (increase) in other current assets................. 562 (649)
(Decrease) increase in accounts payable..................... (1,388) 958
Decrease in accrued liabilities............................. (1,005) (1,835)
Other, net.................................................. (128) (270)
-------------- --------------
Net cash provided by operating activities................ 5,202 13,042
-------------- --------------
Investing activities
Expenditures for property, plant and equipment................ (29,800) (9,824)
Cash received on sale of fixed assets......................... 178 272
-------------- --------------
Net cash used for investing activities................... (29,622) (9,552)
-------------- --------------
Financing activities
James River's capital infusion (withdrawal), net................. 24,420 (3,490)
-------------- --------------
Cash used for financing activities............................ 24,420 (3,490)
-------------- --------------
Increase (decrease) in cash and cash equivalents................... -- --
Cash and cash equivalents, beginning of period..................... -- --
-------------- --------------
Cash and cash equivalents, end of period...................... $ -- $ --
=========== ===========
</TABLE>
The accompanying notes are an integral part of the unaudited combined financial
statements.
F-45
<PAGE> 152
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited combined interim financial statements of The
Flexible Packaging Group of the James River Corporation ("JR Flexible") include
the historical assets, liabilities and operating results of certain operations
of James River Corporation of Virginia's ("James River") Flexible Packaging
Business. The accompanying combined interim financial statements have been
prepared by JR Flexible and are presented on a combined basis in accordance with
the accounting policies stated in the December 25, 1994, and December 31, 1995,
combined financial statements and should be read in conjunction with the Notes
to Combined Financial Statements appearing therein. In the opinion of James
River, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation have been included in the accompanying
combined interim financial statements. The accompanying combined interim
financial statements as of June 25, 1995 and June 30, 1996, are based in part on
approximations and have not been audited by independent accountants. JR
Flexible's corporate overhead allocation, which is included in selling and
administrative expenses in the statement of operations, consists of $2.7 million
and $3.4 million of indirect costs at June 25, 1995 and June 30, 1996,
respectively. These costs have been allocated to JR Flexible based on JR
Flexible's relative contribution to consolidated James River net sales. The
results of operations for the six-month period ended June 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
2. RESTRUCTURING CHARGES
During 1996, JR Flexible made severance payments of approximately $.7
million to terminated employees for whom severance costs were accrued since the
beginning of 1995.
3. INCOME TAXES
JR Flexible's effective income tax rate was 45.7% for the 26 weeks ended
June 30, 1996, compared to 37.4% for the 53 weeks ended December 31, 1995, and
35.8% for the 26 weeks ended June 25, 1995, compared to 41.9% for the 52 weeks
ended December 25, 1994. The increase in the effective tax rate for the 26 weeks
ended June 30, 1996 from the prior year was primarily due to the relative
amounts of non-tax deductible differences on a pretax loss in 1995 and pretax
income in 1996.
4. INVENTORIES
Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. The last-in, first-out cost flow
assumption is used for valuing substantially all inventories, other than stores
and supplies, which are valued using average cost assumptions.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
1996
--------------
(IN THOUSANDS)
<S> <C>
Raw materials.......................................................... $ 16,884
Finished goods and work-in-process..................................... 39,968
Stores and supplies.................................................... 6,596
--------------
63,448
Reduction to state certain inventories at last-in, first-out cost...... (7,019)
--------------
Total inventories............................................ $ 56,429
===========
</TABLE>
F-46
<PAGE> 153
THE FLEXIBLE PACKAGING GROUP OF
JAMES RIVER CORPORATION
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONTINGENCIES
JR Flexible is subject to legal proceedings and other claims which arise in
the ordinary course of business. In the opinion of management, the outcome of
these actions will not materially affect the combined financial position or
results of operations of JR Flexible.
In addition, JR Flexible has been identified as a potentially responsible
party, along with others, at various U.S. Environmental Protection Agency
designated superfund sites and is involved in remedial investigations and
actions under federal and state laws. It is JR Flexible's policy to accrue
remediation costs when it is probable that such costs will be incurred and when
they can be reasonably estimated. Included in JR Flexible's other long-term
liabilities were environmental liabilities, including remediation costs,
totaling $1.5 million as of June 30, 1996. JR Flexible periodically reviews the
status of all significant existing or potential environmental issues and adjusts
its accruals as necessary. The accruals do not reflect any possible future
insurance recoveries. Estimates of costs for future remediation are imprecise
due to, among other things, the identification of presently unknown remediation
sites and the allocation of costs among potentially responsible parties. JR
Flexible believes that its share of the costs of cleanup for its current
remediation sites will not have a materially adverse impact on its combined
financial position or results of operations.
6. SALE OF NET ASSETS
In April 1996, James River entered into an agreement with Printpack, Inc.
to sell certain assets and transfer certain liabilities of JR Flexible, which
agreement was consummated on August 22, 1996.
F-47
<PAGE> 154
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Explanatory Note...................... i
Available Information................. ii
Special Cautionary Notice Regarding
Forward-Looking Statements.......... iii
Prospectus Summary.................... 1
Risk Factors.......................... 18
Use of Proceeds....................... 23
Capitalization........................ 24
Unaudited Pro Forma Condensed Combined
Financial Statements................ 25
Selected Historical Financial Data.... 30
Printpack, Inc. -- Management's
Discussion and Analysis of Financial
Condition and Results of
Operation........................... 34
Business.............................. 41
Management............................ 51
Principal Shareholders................ 57
The Exchange Offer.................... 57
Description of Exchange Notes......... 67
Certain Federal Income Tax
Considerations...................... 95
Description of Certain Indebtedness... 98
Receivables Securitization Facility... 101
Plan of Distribution.................. 101
Certain Legal Matters................. 102
Independent Accountants............... 102
Index to Financial Statements......... F-1
</TABLE>
UNTIL MARCH 19, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS OR AS REQUIRED BY THE TERMS OF THE EXCHANGE OFFER.
======================================================
======================================================
(LOGO) PRINTPACK INC.
OFFER TO EXCHANGE
$100,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
9 7/8% SENIOR NOTES
DUE 2004, SERIES B
FOR ALL $100,000,000 IN
AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT
OF
9 7/8% SENIOR NOTES
DUE 2004, SERIES A
AND
$200,000,000 IN AGGREGATE PRINCIPAL AMOUNT OF
10 5/8% SENIOR NOTES
DUE 2006, SERIES B
FOR ALL $200,000,000 IN
AGGREGATE OUTSTANDING
PRINCIPAL AMOUNT
OF
10 5/8% SENIOR NOTES
DUE 2006, SERIES A
--------------------
PROSPECTUS
--------------------
December 19, 1996
======================================================
