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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED,
EFFECTIVE OCTOBER 7, 1996)
FOR THE FISCAL YEAR ENDED JUNE 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
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COMMISSION FILE NUMBER 333-13727
PRINTPACK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 58-0673779
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
4335 WENDELL DRIVE, S.W.
ATLANTA, GEORGIA 30336
(Address of principal executive offices)
(404) 691-5830
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
There is no established trading market for the Common Stock of the
Registrant. All shares of Common Stock are held by affiliates of the registrant
at June 27, 1998.
The number of shares of the registrant's Common Stock outstanding at
September 18, 1998 was 4,218,560.
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"SAFE HARBOR" STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Certain of the statements contained in the body of this Report are
forward-looking statements (rather than historical facts) that are subject to
risks and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. In the preparation of
this Report, where such forward-looking statements appear, the Company has
sought to accompany such statements with meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those described in the forward-looking statements. An additional
statement made pursuant to the Private Securities Litigation Reform Act of 1995
and summarizing the principal risks and uncertainties inherent in the Company's
business is included herein under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Safe Harbor
Statement." Readers of this Report are encouraged to read these cautionary
statements carefully.
All written or oral forward-looking statements attributable to the Company
are expressly qualified in their entirety by the foregoing cautionary statement.
PART I
ITEM 1. BUSINESS
GENERAL
Printpack, Inc., a Georgia corporation ("Printpack" or the "Company"), is
one of the largest domestic manufacturers and converters of flexible packaging
products for use by leading bakery, salted snacks, confectionery,
cookies/crackers, cereal, beverage, tissue/towel and other food and consumer
product companies, as well as a major supplier of high performance films to
other flexible packaging converters. 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 management. In
August 1996, the Company acquired (the "Acquisition") the Flexible Packaging
Group of James River Corporation of Virginia ("JR Flexible"). 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). Printpack
maintains a strong position in the flexible packaging industry with total annual
sales in fiscal 1998 of $831.7 million.
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. The Company's customer base includes
nationally recognized, brand name food companies, many of which have been
customers of the Company for over 20 years.
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 strong 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
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with large food and consumer product companies and has benefited from the
expanding market shares of such customers.
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 product lines also meet a wide spectrum of flexible packaging
end uses, each of which has its own manufacturing and technical complexities.
The Company is able 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.
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 users 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.
Printpack is one of the largest domestic purchasers of certain key
materials used for flexible packaging manufacturing (such as extrusion grade
resin, oriented polypropylene ("OPP") and other types of packaging film, paper
and foil) and leverages its purchasing power to achieve cost savings and to
promote 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 on 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.
In maintaining its position 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 acquired additional strength in flexible packaging process
technology, including technology related to the co-extrusion of films.
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,
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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. The Company's flexographic and rotogravure
processes allow it to produce high definition graphics with photographic quality
images on flexible substrates. From Printpack's laser-etched printing plates and
cylinders that produce high 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 strong 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 time and cost advantages.
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, diapers, tissue/towel, rice,
meats and bakery end users. Frito-Lay, the largest U.S. salted snack food
company, is Printpack's largest customer and accounted for approximately 14% of
the Company's 1998 annual revenues. Frito-Lay is the Company's only customer
that accounted for more than 10% of Printpack's fiscal 1998 sales. 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. There
can be no assurance, however, that the Company will be able to maintain such
relationships, and 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 flow and on its ability to
service its indebtedness.
MARKETS
In fiscal 1998, the primary end use markets for Printpack's products were
salted snacks, cookies/crackers and confectionery, bakery, cereal, meats,
tissue/towel, copy paper, diapers and beverage industries.
SALES, MARKETING AND DISTRIBUTION
Sales associates primarily work out of various sales offices located
primarily 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.
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
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 uses a range of raw materials. These raw materials consist primarily
of plastic resin, film, paper, foil
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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.
EMPLOYEES
At June 27, 1998, the Company had approximately 3,500 employees.
Approximately 1,000 of these employees at five of the Company's facilities are
covered by eight collective bargaining agreements. The Company considers
relations with its employees to be generally good, and labor contracts were
recently renegotiated in all of its covered facilities, including the
Greensburg, Indiana plant. A strike by employees at the Greensburg facility
began in the last week of June 1997 and lasted until September 12, 1997. During
the quarter ended December 27, 1997, the Company completed the negotiation of a
collective bargaining agreement with the union representing the Greensburg
employees.
PATENTS AND TRADEMARKS
Printpack has a number of trademarks registered in the U.S. and several
foreign countries, including the Company's principal mark, Printpack. Printpack
also has 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 to Printpack Illinois, Inc. ("Printpack Illinois"), a subsidiary of
Printpack, Inc. Printpack Illinois licensed 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.
COMPETITION
The flexible packaging industry includes several hundred competitors.
Currently, Flexible Packaging Association (FPA) statistics and available trade
and industry information indicate that the ten largest flexible packaging
companies accounted for greater than 50% of total value-added flexible packaging
sales in 1997, compared to approximately 35% in 1981. Printpack is one of the
largest of these manufacturers in the flexible packaging industry with an
estimated 10% of the industry's estimated 1997 sales. Other sales leaders in
this industry include American National Can (a division of Pechiney), American
Packaging, Bemis, Bryce, Cryovac (a division of Sealed Air Corporation),
Huntsman Packaging, Lawson Mardon Packaging (a division of A/L Group) and
Reynolds Packaging (a division of Reynolds Metals), 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.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present operations of the Company, including its 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 Printpack generally is in material compliance with applicable environmental
laws and regulations.
The Company cannot assure, however, 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. The Company has been
designated by the U.S. Environmental Protection Agency ("EPA") and/or other
responsible state agencies as a potentially responsible party ("PRP") at various
waste disposal or waste recycling sites that are the subject of separate
investigations or proceedings concerning alleged soil and/or groundwater
contamination and for which no settlement of the Company's
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liability has been agreed upon. The Company is participating with other PRPs at
all such sites, and anticipates that its share of cleanup costs will be
determined pursuant to remedial agreements entered into in the normal course of
negotiations with the EPA or other governmental authorities.
The Company, like all flexible packaging manufacturers which use plastic,
is 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.
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. The Company uses approved resins
and other raw materials in the direct-contact aspect of food product packaging.
Company management believes that the Company is in material compliance with all
such applicable FDA regulations.
ITEM 2. PROPERTIES
Printpack operates in a number of locations in the U.S. and one location in
Mexico. In fiscal 1998, the Company entered into the following property
transactions:
During the fourth quarter of fiscal 1998, the Company amended and extended
the term of a lease for land and buildings at the Williamsburg, VA manufacturing
facility. The lease includes the existing land and building space at the
facility as well as an expansion building to be constructed adjacent to the
existing building. The lease expires in February 2017. The Company has the
option to purchase the land and buildings on March 1 of every fifth year
following the effective date of the lease. Construction of the building
expansion began in May 1998, and the Company anticipates that it will occupy the
expansion and begin lease payments on the expansion in the second quarter of
fiscal 1999.
During the third quarter of fiscal 1998, the Company completed the
construction of and began operations at its manufacturing facility in Queretaro,
Mexico.
At the end of fiscal 1998, the Company's primary locations, all of which
are in modern condition and are owned by the Company, except for leased plants
located in Orange, Texas and Williamsburg, Virginia, were as follows: Atlanta,
Georgia (2); Elgin Illinois; Fredericksburg, Virginia; Grand Prairie, Texas (2);
Hendersonville, North Carolina; Prescott, Arizona; Rhinelander, Wisconsin; Villa
Rica, Georgia (2); Greensburg, Indiana; Jackson, Tennessee; New Castle,
Delaware; Orange, Texas; Shreveport, Louisiana; St. Louis, Missouri;
Williamsburg, Virginia and Queretaro, Mexico. The Elgin, Illinois plant is owned
and operated by a subsidiary, Printpack Illinois, for the benefit of the
Company.
Printpack also operates sales and marketing offices in various locations
throughout the U.S., one sales office in Canada and one sales office in Mexico.
The majority of these sales offices are leased while some are located at certain
manufacturing facilities.
ITEM 3. LEGAL PROCEEDINGS
Except for routine litigation incidental to the business of the Company,
there are no pending legal proceedings to which the Company or any of its
subsidiaries is a party or to which any of their property is subject. The
Company has been designated by the EPA and/or other responsible state agencies
as a PRP (as previously defined) at various waste disposal or waste recycling
sites that are the subject of separate investigations or proceedings concerning
alleged soil and/or groundwater contamination and for which no settlement of the
Company's liability has been agreed upon. The Company is participating with
other PRPs at all such sites, and anticipates that its share of cleanup costs
will be determined pursuant to remedial
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agreements entered into in the normal course of negotiations with the EPA or
other governmental authorities. The Company believes that the outcome of the
proceedings to which it is currently a party will not have a material adverse
effect upon Printpack's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
No matters were submitted to a vote of the Company's shareholders during
the fourth quarter of the 1998 fiscal year ended June 27, 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Common Stock of the
Company, all of the shares of which were held of record by three holders as of
September 18, 1998. Except as described below, the Company has not sold any
securities in the last three fiscal years.
To facilitate the Acquisition and its financing, the Company was
reorganized into a holding company structure at the beginning of fiscal 1997.
Holders of shares of the Company's common stock ("Shares") exchanged their
Shares together with shares of common stock in the Company's affiliate,
Printpack Enterprises, Inc. ("Enterprises") for an aggregate of 4,098,915 shares
of Printpack Holdings, Inc. ("Holdings") in transactions exempt from
registration under various exemptions, including Section 4(2).
The Company is currently restricted from paying dividends by the Indenture,
dated August 22, 1996, between the Company and State Street Bank (successor to
Fleet National Bank), as Trustee relating to the 9 7/8% Senior Notes due 2004,
the Indenture, dated August 22, 1996, between the Company and State Street Bank
(successor to Fleet National Bank), as Trustee relating to the 10 5/8% Senior
Subordinated Notes due 2006 and the Credit Agreement, dated as of August 22,
1996, by and among the Company, the lenders thereto and First National Bank of
Chicago, as Contractual Representative. The Company paid no dividends during the
fiscal years ended June 27, 1998 and June 28, 1997.
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ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data of Printpack set forth below have
been derived from the Company's audited financial statements as of and for the
fiscal years ended June 27, 1998, June 28, 1997, June 29, 1996, June 24, 1995,
and June 25, 1994. The following selected financial data should be read in
conjunction with the Company's Financial Statements and related notes thereto
included elsewhere in this Report and in Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in Item 7 below.
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<CAPTION>
FISCAL YEAR ENDED JUNE(1)
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1998 1997 1996 1995 1994
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(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................................... $831,689 $782,443 $442,931 $454,645 $407,272
Income from operations...................... 44,959 30,833 27,020 28,751 28,411
Income (loss) before cumulative effect of a
change in accounting principle and
extraordinary item........................ (9,491) (14,561) 13,236 17,165 17,110
Cumulative effect of change in accounting
principle(2).............................. -- -- -- (341) --
Extraordinary item-loss on early
extinguishment of debt.................... -- (1,631) -- -- --
Net income (loss)........................... (9,491) (16,192) 13,236 16,824 17,110
BALANCE SHEET DATA:
Total assets................................ 608,436 650,510 231,269 230,385 229,168
Short-term debt............................. 3,445 3,831 5,504 -- --
Long-term debt.............................. 498,305 538,384 151,634 122,609 118,075
Shareholders' equity (deficit).............. (5,949) 3,542 13,460 32,305 41,987
OTHER FINANCIAL DATA:
Dividends paid to parent.................... -- -- 32,081 26,506 24,342
Ratio of earnings to fixed charges(3)....... 0.8x 0.6x 2.2x 2.6x 3.0x
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(1) The Company's fiscal year ends on the last Saturday of June.
(2) 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.
(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. In fiscal 1998 and 1997, earnings were insufficient to
cover fixed charges by $11,251 and $17,860, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
General
As a result of the additional assets obtained in the Acquisition on August
22, 1996, the Company recorded expenses that are in excess of its historical
levels, as well as reserves for cost reduction measures and other adjustments to
the Acquisition balance sheet. In addition, the results of operations of the
Company in fiscal 1998 and 1997, as compared with historical results, were
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 Company's indebtedness. The Company's credit agreements
include various affirma-
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tive, negative and financial covenants with which it 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.
Fiscal Year 1998 Compared to Fiscal Year 1997
Net Sales
Net sales increased $49.2 million (6.3%) to $831.7 million in fiscal 1998
from $782.4 million in fiscal 1997. The primary reason for the increase is the
additional revenue from the acquired operations of JR Flexible for fifty-two
weeks in fiscal 1998 as compared to forty-four weeks of the fiscal year since
the date of the Acquisition in fiscal 1997. Sales volume growth, other than from
the Acquisition, was customary. Price changes to customers during the period
were insignificant.
Gross Margin
Gross margin in fiscal 1998 increased $18.8 million (18.3%) to $121.3
million from $102.5 million in fiscal 1997. Gross margin as a percentage of net
sales in fiscal 1998 increased to 14.6% compared to 13.1% in fiscal 1997. The
increase in gross margin percentage is primarily attributable to the continued
integration of the operations acquired from JR Flexible into the existing
operations of the Company. The acquired operations historically generated lower
gross margins than did the existing Printpack business due to higher
manufacturing costs. Additionally, the fiscal 1997 margins were negatively
impacted by the effect of allocating part of the Acquisition purchase price to
profit on finished goods inventory. The Company has not historically purchased a
material amount of finished goods for resale and does not expect to do so to any
material extent in the future and, therefore, considers this negative effect a
non-recurring charge.
Gross margin in fiscal 1997 was also negatively impacted by the move of
equipment and manufacturing operations from the Villa Rica, Georgia films plant
to Grand Prairie, Texas. Inefficiencies resulting from the difficulties
encountered in the move were approximately $10.0 million, and the gross margin
percentage would have been approximately 1.3% higher without these costs.
Gross margins in fiscal 1998 were negatively impacted by the effects of a
strike at the Greensburg, Indiana facility. The strike by the employees at the
Greensburg facility began in the last week of June 1997 and lasted until
September 12, 1997.
Operating Expenses
Operating expenses in fiscal 1998 increased $4.7 million (6.6%) to $76.3
million from $71.6 million in fiscal 1997. The change in operating expenses as a
percentage of sales from 1997 to 1998 was negligible. The increase in operating
expense dollars is attributable to additional selling, administrative and
research and development expenses resulting from the Acquisition and to
increased amortization of goodwill, also resulting from the Acquisition. These
additional expenses were incurred for fifty-two weeks in fiscal 1998 as compared
to only forty-four weeks in fiscal 1997.
Operating Income
Income from operations in fiscal 1998 increased $14.2 million (46.1%) from
$30.8 million in fiscal 1997 to $45.0 million in fiscal 1998, primarily as a
result of the increase in net sales and the other changes described above.
Other Income and Expense
Interest expense in fiscal 1998 increased by $5.6 million (12.0%) from
$46.6 million in fiscal 1997 to $52.2 million in fiscal 1998. The increase is
primarily due to borrowings incurred in connection with the Acquisition on
August 22, 1996 (borrowings were in place for only forty-four of the fifty-two
weeks ended June 28, 1997).
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During fiscal 1998, the Company recorded a pre-tax charge of $2,032,000 to
adjust the carrying value of net assets held for sale to their estimated fair
market value.
As a result of the foregoing, loss before benefit for income taxes
decreased from $16.7 million in fiscal 1997 to $10.1 million in fiscal 1998. The
net benefit for income taxes decreased from $2.1 million in fiscal 1997 to $0.6
million in fiscal 1998 primarily as a result of the establishment of a valuation
allowance for a portion of the deferred tax assets related to taxable loss
carryforwards in various state and foreign jurisdictions.
Loss before extraordinary item declined from $14.6 million in fiscal 1997
to $9.5 million in fiscal 1998 primarily as a result of the increase in net
sales and the other changes described above.
The extraordinary item in fiscal 1997 of $1.6 million is due to the
prepayment of the Company's then existing debt at the closing of the
Acquisition. The extraordinary loss is comprised of a $2.6 million prepayment
penalty less a $1.0 million income tax benefit. No such extraordinary items
occurred during fiscal 1998.
Fiscal Year 1997 Compared to Fiscal Year 1996
Net Sales
Net sales increased $339.5 million (76.7%) to $782.4 million in fiscal 1997
from $442.9 million in fiscal 1996. The primary reason for the increase is the
additional revenue from the acquired operations of JR Flexible for forty-four
weeks of the fiscal year since the Acquisition date. Because the acquired
operations were immediately merged into Printpack's existing business, it is
impossible to attribute the magnitude of the changes compared to 1996 to either
the existing or the acquired business.
Gross Margin
Gross margin in fiscal 1997 increased $22.6 million (28.4%) to $102.5
million from $79.8 million in fiscal 1996. Gross margin as a percentage of net
sales in fiscal 1997 decreased to 13.1% compared to 18.0% in fiscal 1996. The
decrease in gross margin percentage is primarily attributable to operations
acquired from JR Flexible, which historically generated lower gross margins than
did the existing Printpack business due to higher manufacturing costs.
Additionally, the margins were negatively impacted by the effect of allocating
part of the acquisition purchase price to profit on finished goods inventory.
The Company has not historically purchased finished goods for resale and does
not expect to do so in the future and, therefore, considers this negative effect
a non-recurring charge.
Gross margin was also negatively impacted by the move of equipment and
manufacturing operations from the Villa Rica, Georgia films plant to Grand
Prairie, Texas. Inefficiencies resulting from the difficulties encountered in
the move were approximately $10.0 million, and the gross margin percentage would
have been approximately 1.3% higher without these costs.
Operating Expenses
Operating expenses in fiscal 1997 increased $18.8 million (35.6%) to $71.6
million from $52.8 million in fiscal 1996. Operating expenses as a percentage of
sales decreased to 9.2% in fiscal 1997 from 11.9% in fiscal 1996. The increase
in operating expense dollars is attributable to additional selling,
administrative and research and development expenses resulting from the
Acquisition and to increased amortization of goodwill, also resulting from the
Acquisition. Severance expense in 1996 of $7.9 million resulting from
Printpack's headcount reduction program did not occur in 1997.
Operating Income
Income from operations in fiscal 1997 increased $3.8 million (14.1%) from
$27.0 million in fiscal 1996 to $30.8 million in fiscal 1997, primarily as a
result of the increase in net sales and the other changes described above.
10
<PAGE> 12
Other Income and Expense
Interest expense in fiscal 1997 increased by $35.8 million (330.9%) from
$10.8 million in fiscal 1996 to $46.6 million in fiscal 1997. This increase is
directly attributable to the increased borrowings necessary to finance the
Acquisition.
As a result of the foregoing, income before provision for income taxes
decreased from $16.3 million in fiscal 1996 to a loss of $16.7 million in fiscal
1997. The net provision for income taxes decreased from $3.1 million in fiscal
1996 to a tax benefit of $2.1 million in fiscal 1997 as a result of the loss
position discussed above.
Income before extraordinary item declined from $13.2 million in fiscal 1996
to a loss of $14.6 million in fiscal 1997. If part of the Company had not
elected Subchapter S status for federal income taxes in fiscal 1996, income
before extraordinary item and net income would have been $9.8 million,
approximately $3.5 million (26.3%) less than the reported amounts.
The extraordinary item in fiscal 1997 of $1.6 million is due to the
prepayment of the Company's then existing debt at the closing of the
Acquisition. The extraordinary loss is comprised of a $2.6 million prepayment
penalty less a $1.0 million income tax benefit.
RESEARCH AND DEVELOPMENT
The Company expenses its research and development ("R&D") costs as
incurred. Such expenditures were $9.0 million, $8.1 million and $5.2 million in
fiscal 1998, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The transactions consummated in the first quarter of fiscal 1997 changed
the Company's financial condition adding substantial indebtedness. During fiscal
1998, management continued to integrate the acquired operations into the
Company's existing business. As a result, shareholders' equity declined from
$3.5 million as of June 28, 1997 to a deficit of $5.9 million as of June 27,
1998.
Cash and cash equivalents decreased $0.7 million to $0.4 million at June
27, 1998 as compared to approximately $1.1 million at June 28, 1997. The
decrease was primarily due to the Company using all available funds to reduce
its borrowings under the credit facilities. Cash flows from operations were
$73.5 million in fiscal 1998, $36.3 million (97.6%) more than in the previous
fiscal year. This reflected a number of items, including decreases in accounts
receivable and inventories, and a $17.2 million increase in accounts payable and
accrued expenses. Capital expenditures of $48.0 million in fiscal 1998 and $25.0
million in fiscal 1997 continued to be principally for new property, plant and
equipment.
In fiscal 1998, cash flows used in investing activities, principally
capital expenditures for new property, plant and equipment, increased 29.0% to
$33.8 million, excluding the payment for the purchase of JR Flexible during
fiscal 1997, which was $369.8 million. The increase was primarily due to the
construction of the new plant in Queretaro, Mexico, partially offset by the
$12.0 million payment received from Fort James Corporation (formerly James River
Corporation of Virginia) in settlement of claims made by Printpack related to
the Acquisition. These proceeds were used to reduce the amount of goodwill
recorded by the Company in the Acquisition. At the same time, proceeds from the
disposition of property and equipment decreased from $3.6 million to $2.2
million.
Cash used in financing activities in fiscal 1998 was $40.5 million,
compared to cash provided by financing activities of $359.7 million in fiscal
1997. The fiscal 1997 amounts reflect the proceeds of borrowings to finance the
Acquisition and prepay the then existing debt. During fiscal 1998, the Company
began to repay the amounts borrowed to finance the Acquisition. The indentures
and credit agreement entered into in fiscal 1997 restrict future contributions
to Printpack's parents' European operations.
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 lock with
Bank of America,
11
<PAGE> 13
Chicago, Illinois ("BAI"), which 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 declines in interest rates
between the agreement date and August 19, 1996, in settlement of this contract,
the Company made a cash payment to BAI on August 21, 1996 of approximately $7.4
million. The Company had no such agreements during fiscal 1998.
The Company's primary sources of liquidity have been cash flows from
operations and borrowings under bank credit facilities. The Company has used
borrowings under the bank credit facilities to meet seasonal fluctuations in
working capital requirements, which generally peak during January through March
when sales volumes generally are lowest.
The Company's current ratio deteriorated from 2.13 in fiscal 1997 to 1.52
in fiscal 1998. The lower ratio in 1998 was primarily a result of decreases in
accounts receivable and inventory ($5.3 million and $9.1 million, respectively)
and increases in accounts payable and current maturities of long-term debt
($16.3 million and $8.0 million, respectively). On June 27, 1998, Printpack had
approximately $110.0 million available under its revolving credit facility and
its line of credit.
The Company believes that its primary liquidity needs will consist of
capital expenditures, debt service and working capital. Estimated annual capital
expenditures for the Company are expected to be approximately $45.0 - $50.0
million. Approximately $15 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 the
Company's customers.
Based upon current levels of operations, continued improvements in the
acquired operations and continued cost saving measures, the Company believes
that cash flow from operations, borrowings under the credit agreement, sales of
accounts receivable under its 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 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.
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.
ACCOUNTS RECEIVABLE
Accounts receivable are generally collected within approximately 30 days.
Printpack has historically experienced minimal chargeoffs (less than $1 million
per year or less than 0.1% of sales), reflective of the high quality of the
Company's respective customer base.
YEAR 2000
Many computer programs use only two digits to identify a year in a date
field within the program (e.g., "98" or "02"). If not corrected, computer
applications making calculations and comparisons in different centuries may
cause inaccurate results, or fail by or at the Year 2000. These Year 2000
related issues are of particular importance to the Company. The Company depends
upon its information technology ("IT") and non-IT systems (collectively the
"Internal Systems") to conduct and manage the Company's business. The Company
depends on its IT systems for administrative functions such as accounting,
e-mail and telephone systems as well as in the day to day management of business
functions such as production scheduling and order handling. Non-IT systems would
include systems used to run manufacturing equipment. Year 2000 related issues
may also adversely affect the operations and financial performance of one or
more of the Company's customers or suppliers. The failure of the Company's
Internal Systems, or of the Company's
12
<PAGE> 14
customers or suppliers, to be Year 2000 ready could have a material adverse
effect on the Company's results of operations, financial position and cash
flows. Other than utilities, the third parties on which the Company relies most
heavily are its suppliers of raw materials, equipment and services and its
customers. While the Company obtains its resources from a number of vendors and
sells it products to a number of customers for a wide variety of applications,
if a sufficient number of these vendors or customers experience Year 2000
problems that prevent or substantially impair their ability to continue to
transact business with the Company as they currently do, the Company would be
required to find alternative sources of these resources or customers for its
products. The inability to find or a delay in finding such alternatives could
have a material adverse effect on the Company's business, results of operations
or financial condition.
The Company recognizes the significance of the Year 2000 problem and is
executing a program to achieve Year 2000 readiness. The Company's Year 2000
program is supported by a Year 2000 Oversight Committee. The Oversight Committee
was established to lead the readiness efforts for the Company and manage the
overall progress of the project and is comprised of management and executive
level employees representing all departments and disciplines of the Company.
The Year 2000 program's purpose is to identify, evaluate and resolve
potential Year 2000 issues related to the Company's Internal Systems and
external relationships. The program includes the following key phases:
1. Identification of systems and applications that must be modified;
2. Evaluation of alternatives (modification, replacement or
discontinuance); and
3. System conversion and implementation which include timely
milestones and appropriate testing to ensure that the systems and
applications are ready for the Year 2000.
The program also includes:
1. Projects to ensure that external customers, vendors and services
are also ready;
2. The development of alternatives where necessary;
3. Interoperability testing with key organizations in the financial
services industry; and
4. Contingency planning in case the Company or any of its customers or
suppliers are not Year 2000 ready on a timely basis.
The Company's goal is to have its Internal Systems ready for the Year 2000
by July 1, 1999. This goal allows for six months of internal testing prior to
the Year 2000. The Company's Year 2000 program is under way, and the Company
expects to achieve its goal. IT systems are in the system conversion and
implementation phase, which is expected to be completed during the fourth
quarter of fiscal 1999. Non-IT systems are in the phase of identifying the
systems that must be modified or replaced. This phase is expected to be
completed during the first quarter of fiscal 1999. Evaluation of alternatives
for the non-IT systems is expected to be completed during the second quarter of
fiscal 1999 and the implementation phase for non-IT systems is expected to be
completed by the end of the fourth quarter of fiscal 1999. The Company also is
currently in the process of developing a contingency plan related to both its
Internal Systems and external relationships and expects to have the plan in
place by December 31, 1998.
The Company is currently using internal resources to address its Year 2000
issues. The majority of the Company's IT systems use packaged applications and
have been updated or are in the process of being updated through support
agreements with the manufacturers of such software. The additional systems not
supported by vendors have been or will be modified internally or replaced in
order to be Year 2000 compliant. Costs associated with the Year 2000 program are
being expensed as incurred. Funding for the program is being provided through
the Company's normal budget with no additional funding allocated to the
Company's Information Systems department due to the Year 2000 issues. Although
the Company is unable at this time to estimate the future costs associated with
its Year 2000 program, the Company does not believe that the amount to be spent
will be material to the Company's results of operations, liquidity or capital
resources. However, if the Company is required to hire and retain further
computer programmers and other systems
13
<PAGE> 15
professionals to address its Year 2000 issues, or find it necessary to replace
certain of its Internal Systems, it could experience increased overall costs at
least through the year 2000 at rates above general inflation.
The Company has identified its key suppliers of proprietary materials and
services, equipment, utilities and transportation services, has contacted each
of these suppliers regarding their plans for dealing with Year 2000 issues and
received initial responses from substantially all of them. The Company is in the
process of following up with suppliers who have not yet responded and discussing
the plans of those that have responded. The Company intends to begin verifying
the state of readiness of these suppliers in early 1999. The Company has also
begun inquiring of its major customers as to their preparations for the Year
2000 and any anticipated changes in their purchases from the Company related to
this issue.
Although the Company is not aware of any material operational or financial
Year 2000 related issues, the Company cannot make any assurances that its
Internal Systems will be Year 2000 ready on schedule, that the costs of its Year
2000 program will not become material or that the Company's contingency plans,
when established, will be adequate. Further, the Company is currently unable to
anticipate accurately the magnitude, if any, of the Year 2000 related effect
which may arise from the Company's customers and suppliers. If any such risks
(either with respect to the Company or its customers or suppliers) materialize,
the Company could experience material adverse consequences to its business which
would likely have material adverse effects on the Company's results of
operations, financial position and cash flows.
"SAFE HARBOR" STATEMENT
The following "Safe Harbor Statement" is made pursuant to the Private
Securities Litigation Reform Act of 1995. Certain of the statements contained in
the body of this Report are forward-looking statements (rather than historical
facts) that are subject to risks and uncertainties that could cause actual
results to differ materially from those described in the forward-looking
statements. With respect to such forward-looking statements, the Company seeks
the protections afforded by the Private Securities Litigation Reform Act of
1995. Such forward-looking statements are based on management's current plans
and expectations and are subject to a number of uncertainties and risks that
could cause actual results to differ materially from those described in such
statements. Such uncertainties and risks include, but are not limited to: the
level of consumer spending for consumer nondurable goods that use packaging made
by the Company, especially in the salted snacks and soft drink markets,
fluctuations in raw material prices, possible environmental matters,
competition, realization of synergies and cost savings from the Acquisition, the
Company's success in completing the integration of the JR Flexible operations,
and changes in economic conditions generally, both domestic and international.
The preceding list of uncertainties, however, is not intended to be exhaustive,
and should be read in conjunction with other cautionary statements made herein
and in the Company's publicly-filed reports and its Form S-1 Registration
Statement (File No. 333-13727), and all amendments thereto (the "Registration
Statement"), including, but not limited to, the "Risk Factors" set forth in the
Registration Statement.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and financial statement schedule in Part IV, Item
14(a)1 and 2 of this report are incorporated by reference into this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
14
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 27, 1998) POSITION
---- --------------------- --------
<S> <C> <C>
Dennis M. Love....................... 42 President, Chief Executive Officer
and Director(1)
James J. Greco....................... 55 Vice President and General Manager
James E. Love, III................... 41 Vice President, Corporate Development
and Director(1)
Nicklas D. Stucky.................... 52 Vice President, Human Resources
R. Michael Hembree................... 49 Vice President, Finance and
Administration
August Franchini, Jr. ............... 55 Vice President, Engineering
Leonard A. Segall.................... 50 Vice President, Operations Support
Kenneth H. Burke..................... 53 Vice President, Purchasing
Sidney A. Harris..................... 47 Vice President, Quality Management
Neil Williams........................ 62 Secretary and Director
David M. Donovan..................... 37 Treasurer and Assistant Secretary
Gay M. Love.......................... 69 Director(1)
Hugh M. Chapman...................... 64 Director
Daniel K. Frierson................... 56 Director
Roy Richards, Jr. ................... 39 Director
Timothy C. Tuff...................... 51 Director
C. Keith Love........................ 37 Plant Manager, Hendersonville, N.C.
Plant, and Director(1)
William J. Love...................... 36 Senior Accounts Manager and
Director(1)
William E. Lewis..................... 54 Vice President and General Manager
John N. Stigler...................... 50 Vice President and General Manager
Terrence P. Harper................... 40 Vice President and General Manager
Michael A. Fisher.................... 52 Vice President and General Manager
Frederick J. Crowe................... 49 Vice President and General Manager
Thomas P. Murphree................... 52 Vice President and General Manager
</TABLE>
- ---------------
(1) Dennis M. Love, James E. Love, III, William J. Love and C. Keith Love are
all the children of Gay M. Love, who is the controlling shareholder of the
Company.
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. Mr. Greco has been
Vice President and General Manager since April 1991 and in such capacity has
been responsible for serving the Company's largest customer. 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
also served as a director of the Company from July 1996 until January 1998.
James E. Love, III -- Vice President, Corporate Development and
Director. Mr. Love became Director of Strategic Planning at Printpack in July
1992, Vice President, Corporate Development in May 1996 and has
15
<PAGE> 17
been a member of its Board of Directors since February 1987. 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. Mr. Hembree also served as a director of the Company from
July 1996 until January 1998.
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 LLP, counsel to the
Company, and serves as a director of National Data Corporation, whose common
stock is registered under the Exchange Act.
David M. Donovan -- Treasurer and Assistant Secretary. In January 1994,
Mr. Donovan became Treasurer after previously serving as one of the Company's
Controllers from April 1992 to January 1994 and its Financial Analysis Manager
from July 1990 to April 1992.
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.
Hugh M. Chapman -- Director. Mr. Chapman retired from NationsBank South of
Atlanta, Georgia, a division of NationsBank Corporation of Charlotte, North
Carolina, on June 30, 1997. Previously, he served as Chairman of NationsBank
South for more than 5 years. Mr. Chapman was first elected as a director of the
Company during fiscal 1998. He also serves as a director of Scana Corporation
and West Point-Stevens.
Daniel K. Frierson -- Director. Mr. Frierson has served as Chief Executive
Officer of The Dixie Group, Inc., a public company in the textile manufacturing
business, since 1979 and has served as Chairman of the Board of such company
since 1987. Mr. Frierson was first elected as a director of the Company during
fiscal 1998. He also serves as a director of the Dixie Group, Inc. and SunTrust
Bank of Chattanooga, N.A.
Roy Richards, Jr. -- Director. Mr. Richards has served as Chairman of the
Board of Directors and Chief Executive Officer of Southwire Company since
October 1988. Southwire is a privately owned company and is the largest producer
of electrical wire and cable in North America.
Timothy C. Tuff -- Director. Mr. Tuff has served as President and CEO of
Boral Industries, Inc. which produces building and construction materials. Mr.
Tuff assumed his present position in September 1993.
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
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<PAGE> 18
Coordinator from September 1991 to February 1996 and as a Systems Coordinator
from May 1987 to September 1991.
William J. Love -- Senior 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 for
the Company 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 -- Vice President and General Manager. Mr. Lewis was
appointed to this position in May 1996. Previously, he served as a General
Manager from April 1991 to May 1996 and Director of Sales, Marketing and
Technical Support from September 1993 to May 1996. 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 -- Vice President and General Manager. Mr. Stigler was
appointed to this position 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.
Terrence P. Harper -- Vice President and General Manager. Mr. Harper
became General Manager in April 1997. From 1995 to 1997, Mr. Harper was
Operations Planning Manager and held various other positions with the Company
since joining it in 1989 in connection with the Company's acquisition of Daniels
Packaging.
Michael A. Fisher -- Vice President and General Manager. Mr. Fisher was
promoted to this position 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 -- Vice President and General Manager. Mr. Crowe has
been with the Company in various capacities since 1977 and has served in his
current position since August 1996. He previously served as a Sales Manager from
January 1994 to August 1996, as Plant Manager, Grand Prairie, Texas from
November 1992 to January 1994 and as a Director of Sales from August 1989 to
November 1992.
Thomas P. Murphree -- Vice President and General Manager. Mr. Murphree
joined the Company with the Acquisition of JR Flexible in August 1996, where he
had held various positions, most recently Vice President/General Manager, during
his twenty-four year career there.
17
<PAGE> 19
ITEM 11. EXECUTIVE 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 years 1998, 1997, and 1996, for the Company's Chief
Executive Officer and the Company's four most highly compensated executive
officers other than the Chief Executive Officer whose total salary and bonus for
the fiscal year ended June 27, 1998, exceeded $100,000 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
------------------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS(1) LTIP PAYOUTS(2) COMPENSATION(3)
- ------------------------------ -------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Mr. Dennis M. Love................................ 1998 $317,950 $165,736 $202,372 $4,794
President and Chief Executive Officer 1997 299,850 157,153 -- 5,481
1996 283,300 72,487 -- 4,669
Mr. John N. Stigler............................... 1998 136,250 80,555 -- 5,004
Vice President and General Manager 1997 132,555 39,988 118,359 5,045
1996 131,525 83,250 -- 4,177
Mr. Michael A. Fisher............................. 1998 139,010 94,451 51,314 5,028
Vice President and General Manager 1997 130,350 43,442 221,924 4,630
1996 125,950 18,311 -- 3,870
Mr. James J. Greco................................ 1998 199,955 117,391 60,693 5,155
Vice President and General Manager 1997 185,530 132,797 24,208 5,283
1996 176,900 88,186 22,154 4,685
Mr. R. Michael Hembree............................ 1998 156,590 65,301 9,599 5,471
Vice President, Finance and 1997 147,690 61,924 -- 3,106
Administration 1996 139,700 30,268 20,385 3,635
</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.
(2) Consists of cash payments paid to the named executive officers pursuant to
the Company's Performance Share Plan as more fully described below.
(3) Consists of Company contributions to the officer's account under the
Company's Savings and Profit Sharing Plan. 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 50% of the contributions up to the 6% contribution
level, made by each qualified participant and may contribute other fixed
amounts for the benefit of each qualified participant based upon a formula
derived from years of service and base compensation.
18
<PAGE> 20
LONG-TERM INCENTIVE PLAN AWARDS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
PERFORMANCE OR
NUMBER OF SHARES, OTHER PERIOD
UNITS OR UNTIL MATURATION
NAME OTHER RIGHTS(1) OR PAYOUT
- ---- ----------------- ----------------
<S> <C> <C>
Mr. Dennis M. Love.......................................... $55,245 March 2003
Mr. John N. Stigler......................................... 26,852 March 2003
Mr. Michael A. Fisher....................................... 31,484 March 2003
Mr. James J. Greco.......................................... 39,130 March 2003
Mr. R. Michael Hembree...................................... 21,767 March 2003
</TABLE>
- ---------------
(1) Dollar value of units of phantom stock (performance shares) granted in
fiscal year 1998 pursuant to the Performance Share Plan portion of the
Incentive Plan. Actual unit calculations had not been made as of the date of
this Report. 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.
Director Compensation
Members of the Board who are not employees of the Company received a
quarterly retainer of $4,000 each and $2,500 each per meeting attended during
the fiscal year ended June 27, 1998.
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. Targets are established on a
Company-wide basis.
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 target EVA and the individual participant's base salary. The improvement award
is based on the improvement of the 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. Twenty-five percent 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.
19
<PAGE> 21
Deferred Compensation Agreements
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, who
has served as the Company's Secretary and as a director since 1977, was the
Company's only outside director who was not a salaried employee or a principal
shareholder until fiscal 1998.
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
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
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. The agreements
also provide certain other benefits to children of the employees who are under
the age of 23. 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company was reorganized effective June 29, 1996 to facilitate the
Acquisition and its financing. Previously, the Company was owned and operated
together with Enterprises, a Georgia corporation that had elected to be taxed as
a Subchapter S corporation under the Internal Revenue Code of 1986, as amended.
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"). Holdings, a
new Delaware corporation, was formed, and Enterprises contributed substantially
all its assets and liabilities to Printpack.
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
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 $480,395 in 1998 and are adjusted each year based upon the Consumer
Price Index. See "Item 11 --
20
<PAGE> 22
Incentive and Deferred Compensation" for a description of other deferred
compensation arrangements with Mr. Williams.
Dennis M. Love currently serves as a director of SunTrust Bank, Atlanta and
SunTrust Banks of Georgia (collectively, "SunTrust"). SunTrust is a participant
in the Company's term loan secured bank facility and in its revolving credit
facility. SunTrust is the lender on the Company's $10 million swing line
facility used to fund daily cash flow fluctuations and cash management needs.
These facilities were negotiated at arms-length with SunTrust prior to Mr. Love
becoming a SunTrust director, and it is believed that such loans were made in
the ordinary course, on substantially the same terms, including interest rates
and collateral as comparable transactions with other persons and did not involve
more than the normal risk of collectibility or present other unfavorable
features. See Note 6 to Financial Statements.
21
<PAGE> 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of Printpack, Inc., incorporated by
reference into Item 8, are attached hereto beginning on page F-1:
Report of Independent Accountants
Balance Sheets as of June 27, 1998 and June 28, 1997
Statements of Operations for the Three Years Ended June 27, 1998
Statements of Cash Flows for the Three Years Ended June 27, 1998
Statements of Changes in Shareholders' Equity (Deficit) for the Three
Years Ended June 27, 1998
Notes to Financial Statements
2. Financial Statement Schedules. The following financial statement
schedule of Printpack, Inc. is attached hereto:
Schedule VIII -- Valuation and Qualifying Accounts
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
----------- ---------- ---------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 29, 1996
Allowance for Doubtful Accounts.............. $228 $ 560 $(502) $ 286
==== ====== ===== ======
Allowance for Deferred Tax Assets............ $ -- $ -- $ -- $ --
==== ====== ===== ======
Year ended June 28, 1997
Allowance for Doubtful Accounts.............. $286 $ 566 $ -- $ 852
==== ====== ===== ======
Allowance for Deferred Tax Assets............ $ -- $ -- $ -- $ --
==== ====== ===== ======
Year ended June 27, 1998
Allowance for Doubtful Accounts.............. $852 $ 38 $(331) $ 559
==== ====== ===== ======
Allowance for Deferred Tax Assets............ $ -- $2,950 $ -- $2,950
==== ====== ===== ======
</TABLE>
The notes to the financial statements are an integral part of this schedule.
22
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Shareholders of Printpack, Inc.
Our audits of the consolidated financial statements referred to in our
report dated September 11, 1998 of this Annual Report on Form 10-K also included
an audit of the Financial Statement Schedule listed in Item 14(a) of this Form
10-K. In our opinion, this Financial Statement Schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
September 11, 1998
23
<PAGE> 25
All other schedules have been omitted, as they are not required under the
related instructions or are inapplicable, or because the information required is
included in the consolidated financial statements.
3. Exhibits
Unless indicated below, the exhibits are incorporated by reference herein
from the Company's Registration Statement on Form S-1 (File No. 333-13727) filed
with the Securities and Exchange Commission. Copies of such exhibits will be
furnished to any requesting stockholder of the Company upon request to
Secretary, Printpack Inc., 4335 Wendell Drive, S.W., Atlanta, Georgia 30336.
There is a charge of $.50 per page to cover expenses for copying and mailing.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
2.1 -- Asset Purchase Agreement, dated as of April 10, 1996, by and
between James River Corporation of Virginia and Printpack,
Inc., as amended.
2.2 -- Reorganization Agreement dated as of July 1, 1996 by and
among Printpack Holdings, Inc., Printpack, Inc., Printpack
Enterprises, Inc. and Printpack Illinois, Inc.
3.1 -- Restated Articles of Incorporation of Printpack, Inc.
3.2 -- Bylaws of Printpack, Inc.
4.1 -- Indenture, dated August 22, 1996, between Printpack, Inc.
and State Street Bank (successor to Fleet National Bank), as
Trustee relating to the 9 7/8% Senior Notes due 2004.
4.2 -- Indenture, dated August 22, 1996, between Printpack, Inc.
and State Street Bank (successor to Fleet National Bank), as
Trustee relating to the 10 5/8% Senior Subordinated Notes
due 2006.
10.1 -- Credit Agreement, dated as of August 22, 1996, by and among
Printpack, Inc., the lenders a party thereto and First
National Bank of Chicago, as Contractual Representative.
10.2 -- Note Purchase Agreement, dated as of March 13, 1995 by and
among Printpack, Inc. and certain shareholders of Printpack,
Inc., as amended.
10.3 -- Printpack, Inc. Savings and Profit Sharing Plan, as amended.
10.4 -- Printpack, Inc. Incentive Compensation Plan.
10.5 -- Guarantee dated as of January 5, 1995 made by Printpack,
Inc. in favor of PNC Bank, Ohio, National Association, as
amended.
10.6 -- Registration Rights Agreement dated as of August 22, 1996 by
and between Printpack, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.
10.7 -- Receivables Sale Agreement dated as of August 22, 1996 by
and between Printpack, Inc. and Flexible Funding Corp.
10.8 -- Receivables Purchase Agreement dated as of August 22, 1996
by and among Flexible Funding Corp. as Seller, Falcon Asset
Securitization Corporation and the financial institutions
party hereto as Investors and The First National Bank of
Chicago, as Agent.
10.9 -- Intercreditor Agreement, dated August 22, 1996, by and
between The First National Bank of Chicago, as Contractual
Representative and The First National Bank of Chicago, as
Agent.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- List of Subsidiaries.
*27 -- Financial Data Schedule. (For SEC purposes only.)
99.1 -- Contribution Agreement dated as of January 5, 1995 by and
between Printpack, Inc. and Orflex Ltd.
99.2 -- Lease dated September 11, 1980 by and between Gulf Oil
Corporation and Crown Zellerbach Corporation relating to the
Orange, Texas Plant (the rights and obligations of the
lessee under the foregoing Lease has been assigned
ultimately to Printpack, Inc.).
99.3 -- Ground Lease dated September 11, 1980 by and between Gulf
Oil Corporation and Crown Zellerbach Corporation relating to
the Orange, Texas Plant (the rights and obligations of the
lessee under the foregoing Lease have been assigned
ultimately to Printpack, Inc.).
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <C> <S>
99.4 -- Ground Lease Agreement dated January 1, 1981 by and between
Gulf Oil Corporation and Crown Zellerbach Corporation
relating to the Orange, Texas Plant (the rights and
obligations of the lessee under the foregoing Lease have
been assigned ultimately to Printpack, Inc.).
99.5 -- Ground Lease dated September 9, 1985 by and between Chevron
Chemical Company and Crown Zellerbach Corporation relating
to the Orange, Texas Plant (the rights and obligations of
the lessee under the foregoing Lease have been assigned
ultimately to Printpack, Inc.).
99.6 -- Lease dated July 25, 1990 by and between The Lawson Group,
LTD. And Shell Oil Company relating to the Williamsburg,
Virginia plant (the rights and obligations of the lessee
under the foregoing Lease have been assigned ultimately to
Printpack, Inc.).
99.7 -- Note Purchase Agreement dated, August 15, 1996, by and
between Printpack, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation relating to the 9 7/8% Senior Notes
due 2004 and the 10 5/8% Senior Subordinated Notes due 2006.
99.8 -- Deferred Income Agreement dated December 17, 1984 with
Edward Hilbert, Jr.
99.9 -- Deferred Income Agreement dated December 17, 1984 with
Robert B. Paxton.
99.10 -- Deferred Income Agreement dated July 10, 1996 with Neil
Williams.
99.11 -- Family Security Agreement dated April 4, 1986 with Dennis M.
Love.
99.12 -- Family Security Agreement dated February 24, 1986 with R.
Michael Hembree.
99.13 -- Family Security Agreement dated February 24, 1986 with
Thomas J. Dunn, Jr.
99.14 -- Family Security Agreement dated February 24, 1986 with
Nicklas D. Stucky.
99.15 -- Amended and Restated Employment Agreement dated June 23,
1983 with J. Erskine Love, Jr.
*99.16 -- Lease Amendment dated May 20, 1998 by and between GF
Associates and Printpack, Inc. relating to the Williamsburg,
Virginia plant (Amendment to the lease by and between The
Lawson Group, LTD. and Shell Oil Company noted as exhibit
99.6 above originally filed on the Company's Registration
Statement on Form S-1 (File No. 333-13727) filed with the
Securities and Exchange Commission).
</TABLE>
- ---------------
* Items filed herewith.
(b) Reports on Form 8-K
The Registrant filed no Current Reports on Form 8-K during the last quarter
of the fiscal year ended June 27, 1998.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on September 23, 1998.
PRINTPACK, INC.
By: /s/ DENNIS M. LOVE
------------------------------------
Dennis M. Love
President and Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange of 1934, this report has been signed by the following persons in the
capacities indicated on September 23, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DENNIS M. LOVE President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Dennis M. Love
/s/ R. MICHAEL HEMBREE Vice President, Finance and Administration
- ----------------------------------------------------- (Principal Financial and Accounting Officer)
R. Michael Hembree
/s/ C. KEITH LOVE Director
- -----------------------------------------------------
C. Keith Love
Director
- -----------------------------------------------------
Gay M. Love
/s/ JAMES E. LOVE, III Director
- -----------------------------------------------------
James E. Love, III
/s/ WILLIAM J. LOVE Director
- -----------------------------------------------------
William J. Love
Director
- -----------------------------------------------------
Hugh M. Chapman
/s/ DANIEL K. FRIERSON Director
- -----------------------------------------------------
Daniel K. Frierson
/s/ ROY RICHARDS, JR. Director
- -----------------------------------------------------
Roy Richards, Jr.
Director
- -----------------------------------------------------
Timothy C. Tuff
Director
- -----------------------------------------------------
Neil Williams
</TABLE>
26
<PAGE> 28
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 operations, of changes in shareholders' equity (deficit) 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 27, 1998 and June 28, 1997, and the results of its operations and its cash
flows for each of the three years in the period ended June 27, 1998, 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.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
September 11, 1998
F-1
<PAGE> 29
PRINTPACK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 27, JUNE 28,
1998 1997
-------- --------
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 415 $ 1,140
Trade accounts receivable, less allowance for doubtful
accounts of $559 and $852.............................. 70,759 76,075
Inventories............................................... 80,992 90,074
Prepaid expenses and other current assets................. 19,349 23,251
Net assets held for sale.................................. 4,944 8,673
Deferred income taxes..................................... 816 2,260
-------- --------
Total current assets.............................. 177,275 201,473
Property, plant and equipment, net.......................... 353,888 353,094
Goodwill, less accumulated amortization of $17,727 and
$13,065................................................... 50,342 67,004
Other assets................................................ 26,819 28,939
Deferred income taxes....................................... 112 --
-------- --------
$608,436 $650,510
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued expenses..................... $ 72,275 $ 55,999
Accrued severance and restructuring costs................. 685 3,574
Accrued salaries, wages, benefits and bonuses............. 16,227 15,333
Current maturities of long-term debt...................... 24,000 16,000
Short-term borrowings under lines of credit............... 3,445 3,831
-------- --------
Total current liabilities......................... 116,632 94,737
Long-term debt.............................................. 264,000 312,000
Subordinated long-term debt................................. 210,305 210,384
Other long-term liabilities................................. 23,448 27,413
Deferred income taxes....................................... -- 2,434
-------- --------
Total liabilities................................. 614,385 646,968
-------- --------
Shareholders' equity (deficit)
Common stock, no par value, 5,000,000 shares authorized,
4,218,560 shares issued and outstanding................ 1,011 1,011
Additional paid-in capital................................ 6,687 6,687
Accumulated deficit....................................... (13,647) (4,156)
-------- --------
Total shareholders' equity (deficit).............. (5,949) 3,542
-------- --------
Commitments and contingencies............................... -- --
-------- --------
$608,436 $650,510
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 30
PRINTPACK, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $831,689 $782,443 $442,931
Cost of goods sold.......................................... 710,416 672,669 363,091
Write-off of margin on acquired inventory................... -- 7,296 --
-------- -------- --------
Gross margin................................................ 121,273 102,478 79,840
Selling, administrative and research and development
expenses.................................................. 71,652 67,680 44,581
Severance expense........................................... -- -- 7,870
Write-off of equity investment.............................. -- -- 200
Amortization of goodwill.................................... 4,662 3,965 169
-------- -------- --------
Income from operations...................................... 44,959 30,833 27,020
Other (income) expense
Interest expense.......................................... 52,221 46,600 10,814
Undistributed loss from equity investment................. 377 741 1,111
Other, net................................................ 2,453 149 (1,221)
-------- -------- --------
Income (loss) before provision (benefit) for income taxes... (10,092) (16,657) 16,316
-------- -------- --------
Provision (benefit) for income taxes
Current................................................... 501 (4,861) 2,963
Deferred.................................................. (1,102) 2,765 117
-------- -------- --------
(601) (2,096) 3,080
-------- -------- --------
Income (loss) before extraordinary item..................... (9,491) (14,561) 13,236
Extraordinary item -- loss on early extinguishment of debt
(net of income tax benefit of $999)....................... -- (1,631) --
-------- -------- --------
Net income (loss)........................................... $ (9,491) $(16,192) $ 13,236
======== ======== ========
Unaudited pro forma data (Note 15)
Income before income taxes................................ $ 16,316
Pro forma provision for income taxes...................... 6,555
--------
Pro forma net income.............................. $ 9,761
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 31
PRINTPACK, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 28, JUNE 29,
1998 1997 1996
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities
Net income (loss)......................................... $ (9,491) $ (16,192) $ 13,236
-------- --------- --------
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation............................................ 48,557 47,605 24,734
Amortization of goodwill................................ 4,662 3,965 169
Amortization of prepaid loan costs...................... 2,421 1,831 --
Amortization of cost of interest rate lock agreement.... 798 665 --
Write-off of margin on acquired inventory............... -- 7,296 --
Loss on sale of property, plant and equipment........... 179 711 --
Amortization of deferred gain........................... (646) (646) (323)
Undistributed loss from equity investment............... 377 741 1,111
Deferred income taxes................................... (1,102) 2,765 117
Postretirement and postemployment benefits.............. (500) 401 (250)
Incentive compensation.................................. (1,921) (744) (2,044)
Gain on life insurance benefits......................... -- -- (1,143)
Other................................................... 507 (133) 588
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable............ 5,316 (7,280) 94
(Increase) decrease in inventories.................... 9,082 1,579 (2,839)
(Increase) decrease in prepaid expenses and other
assets............................................. 1,927 142 (3,734)
Increase (decrease) in accounts payable, accrued
expenses, and dividends payable.................... 17,169 8,345 (17,956)
Increase (decrease) in accrued severance costs........ (1,139) (10,309) 5,986
Decrease in accrued restructuring costs............... (1,750) (5,564) --
Increase (decrease) in other long-term liabilities.... (905) 1,993 --
-------- --------- --------
Total adjustments.................................. 83,032 53,363 4,510
-------- --------- --------
Net cash provided by operating activities.......... 73,541 37,171 17,746
-------- --------- --------
Investing activities
Purchases of property, plant and equipment................ (48,013) (25,042) (25,786)
Proceeds from sale of property, plant and equipment....... 2,212 3,595 750
Payment for purchase of JR Flexible, net of cash
received................................................ -- (369,775) --
Proceeds received from Fort James......................... 12,000 -- --
Insurance proceeds received............................... -- -- 1,336
Other..................................................... -- (4,771) --
-------- --------- --------
Net cash used in investing activities.............. (33,801) (395,993) (23,700)
-------- --------- --------
Financing activities
Principal payments on long-term debt...................... (16,079) (149,250) (5,975)
Proceeds from issuance of long-term debt.................. -- 270,000 --
Proceeds from issuance of subordinated debt............... -- 200,000 --
Net proceeds (repayments) from borrowings on lines of
credit, revolving credit and receivable securitization
facilities.............................................. (24,386) 64,327 40,504
Cost of interest rate lock agreement...................... -- (7,380) --
Debt prepayment premiums and debt issuance costs.......... -- (17,977) --
Dividends paid............................................ -- -- (32,081)
-------- --------- --------
Net cash provided by (used in) financing
activities....................................... (40,465) 359,720 2,448
-------- --------- --------
Increase (decrease) in cash and cash equivalents............ (725) 898 (3,506)
Cash and cash equivalents, beginning of year................ 1,140 242 3,748
-------- --------- --------
Cash and cash equivalents, end of year...................... $ 415 $ 1,140 $ 242
======== ========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 32
PRINTPACK, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS TOTAL
COMMON PAID-IN (ACCUMULATED EQUITY
STOCK CAPITAL DEFICIT) (DEFICIT)
------ ---------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance as of June 24, 1995......................... $1,011 $ 413 $ 30,881 $ 32,305
Net income........................................ -- -- 13,236 13,236
Dividends to parent............................... -- -- (32,081) (32,081)
------ ------ -------- --------
Balance as of June 29, 1996......................... 1,011 413 12,036 13,460
Net loss.......................................... -- -- (16,192) (16,192)
Shareholder contributions......................... -- 6,274 -- 6,274
------ ------ -------- --------
Balance as of June 28, 1997......................... 1,011 6,687 (4,156) 3,542
Net loss.......................................... -- -- (9,491) (9,491)
------ ------ -------- --------
Balance as of June 27, 1998......................... $1,011 $6,687 $(13,647) $ (5,949)
====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 33
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 27, 1998 AND JUNE 28, 1997
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Printpack, Inc. ("Printpack" or "the Company") manufactures flexible
packaging material primarily for the food and beverage industries throughout
North America. Printpack acquired (the "Acquisition") the Flexible Packaging
Group of James River Corporation of Virginia ("JR Flexible") (See Note 2) on
August 22, 1996, and the accompanying financial statements include the results
of operations of the former JR Flexible since that date. The transaction was
accounted for using the purchase method in accordance with generally accepted
accounting principles.
Printpack's parent company, Printpack Enterprises, Inc. ("Enterprises"),
until June 29, 1996, conducted a portion of Printpack's operations. In July
1996, as part of and to facilitate the financing of the Acquisition, Printpack
and Enterprises were reorganized (the "Reorganization"). In the Reorganization,
Printpack Holdings, Inc. ("Holdings") was formed and acquired approximately 97%
of the outstanding common stock of Enterprises, which in turn acquired
approximately 100% of the outstanding common stock of Printpack. Holdings and
Enterprises are non-operating holding companies that also control flexible
packaging operations conducted through separately chartered United Kingdom
affiliates.
The accompanying 1996 statement of income and cash flows was derived from
the accounting records of Printpack and Enterprises and includes the revenue,
expenses and cash flows attributable to both of the Companies' historical North
American operations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements present the operating results and
financial position of Printpack and its majority owned subsidiaries. Significant
intercompany balances and transactions have been eliminated. Investments in
unconsolidated affiliates which are at least 20% owned are accounted for using
the equity method and are stated at cost plus the Company's share of
undistributed earnings or losses.
FISCAL YEAR
The Company's fiscal year ends on the last Saturday in June. The Company's
fiscal years ended June 27, 1998 and June 28, 1997 included 52 weeks, and the
fiscal year ended June 29, 1996 included 53 weeks.
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 the straight-line method
over the estimated useful lives of the assets ranging from five to thirty 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-6
<PAGE> 34
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company has historically been included in the consolidated Federal
income tax return and a combined/unitary state income tax return of Holdings.
Income taxes reflected in the accompanying statements of operations represent
the Company's share of the consolidated tax provision which approximates the tax
effect that would have been recognized had a separate income tax return been
filed. Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured by applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse.
Enterprises in 1996 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 in the results of operations for fiscal 1996 has not been recorded for
Enterprises. State income taxes have been provided for certain states which do
not recognize S corporation status. Enterprises terminated its S corporation
election in connection with the Reorganization. See Note 15 for unaudited pro
forma income tax information.
INTANGIBLE ASSETS
Intangible assets resulting from business acquisitions consist of the
excess of the acquisition cost over the fair value of the net identifiable
assets of businesses acquired (goodwill). Goodwill is amortized on a straight-
line basis over 15 to 20 years. Other intangible assets are amortized on a
straight-line basis over their estimated useful lives. The recoverability of
goodwill is periodically evaluated to determine whether current events or
circumstances warrant adjustment to the carrying value. As of June 27, 1998 and
June 28, 1997, management believes that goodwill has not been impaired.
REVENUE
Revenue is recognized at the time of shipment. Sales to one customer
approximated 14%, 15% and 25% of total sales during fiscal 1998, 1997 and 1996,
respectively.
CONCENTRATION OF CREDIT RISK
Financial instruments that 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 primarily dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for such losses.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's subsidiary operating in Mexico
are measured using the dollar as the functional currency due to Mexico's economy
being considered highly inflationary. Gains and losses arising from remeasuring
these financial statements from the local currency to the functional currency
are included in net income.
RESEARCH AND DEVELOPMENT COSTS
The Company expenses all research and development costs when incurred.
Research and development costs expensed during the years ended June 27, 1998,
June 28, 1997 and June 29, 1996 were approximately $8,994,000, $8,133,000 and
$5,200,000, respectively.
F-7
<PAGE> 35
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 liabilities and the
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.
EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income."
This Statement establishes standards for the reporting and display of
comprehensive income and its components. SFAS 130 will be effective for fiscal
1999 and requires restatement of all previously reported information for
comparative purposes. This Statement will require additional disclosure but will
not have a material impact on the Company's consolidated financial position,
results of operations or cash flows.
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." This Statement requires that financial
information be reported on the basis used internally for evaluating segment
performance and deciding how to allocate resources to segments. SFAS 131 will be
effective for fiscal 1999 and requires restatement of all previously reported
information for comparative purposes. Management is in the process of evaluating
the effects of this statement but does not believe it will have a significant
effect on the presentation of the Company's financial statements.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This Statement, which will become
effective in fiscal 1999, modifies disclosures and will have no effect on the
Company's consolidated financial position, results of operations or cash flows.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement requires companies to record
derivatives as assets or liabilities and measure those instruments at fair
value. Gains or losses resulting from changes in the values of those derivatives
will be recorded either in current earnings or as a component of comprehensive
income. SFAS 133 will be effective in fiscal 2001. Management believes that this
Statement will not have a significant impact on the Company's consolidated
financial position, results of operations or cash flows.
2. ACQUISITION
In fiscal 1996, the Company entered into an agreement with James River
Corporation of Virginia to purchase certain assets and assume certain
liabilities of JR Flexible, which also manufactured flexible packaging material
primarily for food industries in North America. The agreement was consummated on
August 22, 1996 for a purchase price of approximately $370 million. This
Acquisition and the repayment of the majority of the Company's outstanding debt
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. Proceeds of $23,000,000 from the
initial borrowings under this Facility collateralized by receivables were
received by the Company on August 22, 1996.
F-8
<PAGE> 36
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Working capital, other than cash............................ $ 58,737
Property, plant and equipment............................... 250,810
Goodwill.................................................... 43,851
Other intangibles........................................... 26,500
Other liabilities assumed................................... (10,123)
--------
Total purchase price.............................. $369,775
========
</TABLE>
In connection with the Acquisition, the Company closed two of the acquired
plants in San Leandro, California and Dayton, Ohio. Costs connected with the
closures of approximately $10,123,000 and $1,000,000 of other acquisition
related costs were accrued and represent management's best estimate of the
anticipated costs to be incurred. The net assets of these facilities are
recorded as Net Assets Held for Sale in the accompanying Balance Sheet. During
the fourth quarter of fiscal 1998, the Company recorded a pre-tax charge
amounting to $2,032,000 to adjust the carrying value of net assets held for sale
to their estimated fair market value. The Company expects that these assets will
be sold within the next twelve months and has therefore classified these items
as current assets. The operating results of these facilities are included in the
statement of operations and statement of cash flows presented and were not
material to the Company's financial results for the period.
Pro forma results, as if the Acquisition occurred on June 29, 1996, are as
follows:
<TABLE>
<CAPTION>
52 WEEKS
ENDED
JUNE 28, 1997
(UNAUDITED)
---------------
(IN THOUSANDS)
<S> <C>
Net sales................................................... $845,384
Loss before extraordinary item.............................. (10,624)
Net loss.................................................... (12,255)
</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.
Concurrent with the Acquisition and new financing, the Company prepaid its
then existing debt and, consequently, recorded an extraordinary loss of
$1,631,000 related to the early retirement of debt. The extraordinary loss was
comprised of a $2,630,000 prepayment penalty, net of a $999,000 income tax
benefit. 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.
This amended agreement, which terminated on 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 was deferred and is being
amortized to interest expense over the life of the Senior Notes and the Senior
Subordinated Notes. Such cost is included in other assets on the accompanying
Balance Sheets.
On May 21, 1998, the Company entered into an agreement with Fort James
Corporation (formerly named James River Corporation of Virginia) whereby Fort
James remitted $12,000,000 to the Company in settlement of claims made by
Printpack related to the Acquisition. These proceeds were used to reduce the
amount of goodwill recorded by the Company in the Acquisition.
F-9
<PAGE> 37
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $31,755 $35,733
Work-in-process............................................. 10,972 9,070
Finished goods.............................................. 54,755 62,004
------- -------
97,482 106,807
Reduction to state inventories at last-in, first-out cost
(LIFO).................................................... 16,490 16,733
------- -------
$80,992 $90,074
======= =======
</TABLE>
During fiscal 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 1996
purchases, the effect of which decreased cost of goods sold and increased income
from operations by approximately $500,000.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 8,691 $ 8,691
Buildings................................................... 99,419 90,371
Machinery and equipment..................................... 444,226 416,272
Leasehold improvements...................................... 5,824 5,784
Construction in progress.................................... 39,004 31,383
--------- ---------
597,164 552,501
Less accumulated depreciation and amortization.............. (243,276) (199,407)
--------- ---------
$ 353,888 $ 353,094
========= =========
</TABLE>
5. INVESTMENT IN JOINT VENTURE
During fiscal 1995, the Company entered into an agreement with the OR
Group, 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. The Orflex transaction was accounted for
as a sale of assets to the extent of third-party ownership in the joint venture
during fiscal 1995. As a result, the Company recorded a deferred gain of
approximately $3,885,000, which is being recognized under the installment method
as Orflex makes principal payments on the debt. The Company recognized
approximately $646,000 of this deferred gain during fiscal 1998 and 1997 and
approximately $323,000 in fiscal 1996 as a result of principal payments made by
Orflex.
As part of the joint venture agreement, the Company has guaranteed the debt
of the joint venture, which totaled approximately $3,800,000 at June 27, 1998
and $4,700,000 at June 28, 1997. 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.
F-10
<PAGE> 38
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company purchases for resale to its customers certain finished goods
inventories from Orflex. During 1998, 1997 and 1996, purchases from Orflex
totaled approximately $1,423,000, $1,672,000 and $2,482,000, respectively.
Pursuant to a note arrangement which became effective during fiscal 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. Advances related to such loans, including accrued interest, totaled
approximately $5,000,000 at June 27, 1998 and $3,800,000 at June 28, 1997.
6. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
10.625% unsecured senior subordinated notes payable in
August 2006; interest payable semi-annually; proceeds used
to refinance existing debt and to finance the
Acquisition............................................... $200,000 $200,000
9.875% unsecured senior notes payable in August 2004;
interest payable semi-annually; proceeds used to refinance
existing debt and to finance the Acquisition.............. 100,000 100,000
Variable rate secured senior notes to banks payable in
quarterly installments of $6,000,000 each in fiscal 1999,
$8,000,000 each in fiscal 2000, $10,000,000 each in fiscal
2001 and $12,500,000 each in fiscal 2002 (final
installment due June 30, 2002); interest payable
quarterly; secured by substantially all of the Company's
assets; proceeds used to refinance existing debt and to
finance the Acquisition................................... 146,000 162,000
Revolving credit facility with banks due in August 2002;
interest payable quarterly at variable rates; secured by
substantially all of the Company's assets; proceeds used
to refinance existing debt, finance the Acquisition, and
provide working capital................................... -- 20,000
Accounts receivable securitization facility with a bank due
in August 2002; interest payable quarterly at variable
rates; proceeds used to refinance existing debt, finance
the Acquisition and provide working capital............... 42,000 46,000
11% unsecured subordinated notes payable to the Printpack
Holdings, Inc.'s shareholders payable in an installment of
$3,422,000 in May 2005 and the remaining principal payable
in May 2014; interest payable annually; proceeds used to
provide working capital................................... 10,305 10,384
-------- --------
498,305 538,384
Less current portion........................................ (24,000) (16,000)
-------- --------
$474,305 $522,384
======== ========
</TABLE>
F-11
<PAGE> 39
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate principal maturities of long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
1999........................................................ $ 24,000
2000........................................................ 32,000
2001........................................................ 40,000
2002........................................................ 50,000
2003........................................................ 42,000
2004 and thereafter......................................... 310,305
--------
$498,305
========
</TABLE>
Certain agreements related to debt outstanding to banks as of June 27, 1998
and June 28, 1997 require that the Company, among other things, restrict the
payment of dividends, the redemption of stock and the incurrence of additional
debt; restrict investments; and limit the amount of pledged assets and advances
and loans to employees. As of June 27, 1998, the Company was in compliance with
all such covenants. The Company obtained amendments of all financial covenants
due to noncompliance for the year ended June 28, 1997.
At June 27, 1998 and June 28, 1997, the Company had a line of credit with a
bank providing for borrowings of up to $10,000,000 bearing interest at the lower
of the bank's prime rate or a negotiated rate. Current borrowings under this
line were $3,445,000 and $3,831,000 at June 27, 1998 and June 28, 1997,
respectively.
The Company's available borrowings under its revolving credit facility were
$105,000,000 and $85,000,000 at June 27, 1998 and June 28, 1997, respectively.
On August 22, 1996, the Company created a wholly owned, bankruptcy remote,
special purpose subsidiary, Flexible Funding Corp. ("Flexible Funding"), for the
sole purpose of facilitating financing transactions for the Company. The Company
contributed approximately $100,000 of trade receivables in exchange for the
equity in Flexible Funding. Subsequently, Flexible Funding entered into a
revolving line of credit facility with a bank (the "Facility"). The Facility
allows Flexible Funding to draw a maximum of $50 million on the established line
of credit through August 20, 2001, on a revolving basis, through note agreements
bearing interest at a negotiated rate. The line of credit is collateralized by
100% of the trade receivables of Flexible Funding. To complete the financing of
the James River acquisition noted above, the Company received approximately $23
million of proceeds from the initial borrowing under the arrangement. At June
27, 1998 and June 28, 1997, the Company had $42,000,000 and $46,000,000,
respectively, of notes outstanding under the facility, collateralized by
approximately $71 million and $77 million, respectively, in trade receivables.
Total cash paid during the year for interest, net of amounts capitalized,
was $46,903,000, $31,511,000 and $10,172,000 during fiscal 1998, 1997 and 1996,
respectively.
7. 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 27, 1998 and June
28, 1997, approximately $3,767,000 and $3,918,000, respectively, has been
accrued under this agreement. Interest expense on this obligation approximated
$381,000, $395,000 and $412,000 during fiscal 1998, 1997 and 1996, respectively.
The Company is obligated under deferred compensation agreements to make
monthly payments in varying amounts to certain former officers and directors
through June 2013. At June 27, 1998 and June 28, 1997, the Company had accrued
approximately $897,000 and $654,000, respectively, relating to these
F-12
<PAGE> 40
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
agreements. For fiscal 1998, 1997, and 1996, interest expense related to these
agreements approximated $81,000, $63,000 and $66,000, respectively.
Future minimum annual payments required by deferred compensation agreements
are as follows (in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 679
2000........................................................ 682
2001........................................................ 628
2002........................................................ 645
2003........................................................ 662
2004 and thereafter......................................... 4,928
-------
Total minimum payments............................ 8,224
Less amounts representing interest at 8% to 12%............. (3,559)
-------
$ 4,665
=======
</TABLE>
8. SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued expenses:
Trade accounts payable...................................... $43,306 $28,436
Accrued interest............................................ 13,272 12,372
Other items................................................. 15,697 15,191
------- -------
$72,275 $55,999
======= =======
</TABLE>
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial 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 AND SUBORDINATED DEBT
The carrying amounts of floating rate long-term debt approximate their fair
values. The fair value of fixed rate long-term debt is estimated using quoted
market prices where applicable and using a discounted cash-flow analysis based
upon the incremental borrowing rates currently available to the Company for
loans not sold in the public market.
F-13
<PAGE> 41
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 415 $ 415 $ 1,140 $ 1,140
Note receivable........................... 4,500 4,500 3,800 3,800
Long-term debt............................ (288,000) (295,750) (328,000) (332,650)
Subordinated debt......................... (210,305) (231,840) (210,384) (230,362)
</TABLE>
The Company does not use financial instruments for trading purposes.
10. EMPLOYEE BENEFITS
The Company maintains a qualified savings and profit sharing plan for
participating eligible employees ("associates") that provides for annual
contributions based upon associates' savings and the Company's net income. Plan
expense approximated $2,781,000, $2,326,000 and $1,673,000 in fiscal 1998, 1997
and 1996, respectively.
Under the terms of the Company's EVA Incentive Compensation Plan (the "EVA
Plan"), approximately $7,939,000, $8,314,000 and $2,415,000 has been recorded as
expense during fiscal 1998, 1997 and 1996, respectively. Under the terms of the
EVA Plan, incentive compensation is computed and allocated to individuals based
upon economic value added, as defined within the plan agreement. Approximately
$8,450,000 and $8,012,000 has been reflected as a liability at June 27, 1998 and
June 28, 1997 for bonuses payable to all Company associates.
Under the terms of the Company's Performance Share Incentive Compensation
Plan (the "Performance Share Plan") for key associates, approximately $6,667,000
and $8,527,000 has been reflected as a liability at June 27, 1998 and June 28,
1997, respectively. Approximately $552,000, $260,000 and $476,000 has been
recorded as expense relative to the Performance Share Plan during fiscal 1998,
1997 and 1996, respectively. Under the Performance Share 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
The Company provides 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.
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> 42
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 sheets:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retiree benefit obligation................................ $(2,314) $(1,907)
Fully eligible active associates' benefit obligation...... (504) (404)
Other active associates' benefit obligation............... (34) (27)
------- -------
Total............................................. $(2,852) $(2,338)
======= =======
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned............................ $ -- $ -- $ 503
Interest cost on projected benefit obligation............... 514 180 695
Amortization of transition obligation....................... -- -- 400
Amortization of unrecognized net gain....................... -- -- (33)
---- ---- -------
Net cost.......................................... $514 $180 $ 1,565
==== ==== =======
Curtailment event
Immediate recognition of transition obligation............ $ -- $ -- $ 6,362
Curtailment gain.......................................... -- -- (9,006)
Immediate recognition of experience loss.................. -- -- 437
---- ---- -------
Net curtailment................................... $ -- $ -- $(2,207)
==== ==== =======
Effect of 1% increase in the trend rates
Accumulated postretirement benefit obligation increase.... $309 $215 $ 216
==== ==== =======
Service cost plus interest cost increase.................. $ 25 $ 17 $ 17
==== ==== =======
</TABLE>
The assumed health care cost trend rate and the ultimate rate, achieved
July 1, 1998, used in measuring the accumulated postretirement benefit
obligation was 5.00%. The discount rate used to measure the accumulated
postretirement benefit obligation was 7.00% for fiscal 1998 and 8.00% for fiscal
1997 and 1996.
12. INCOME TAXES
The Company paid no income taxes during the years ended June 27, 1998 and
June 28, 1997 and paid approximately $2,403,000 during the year ended June 29,
1996.
The provision (benefit)for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax provision (benefit)
Federal.................................................. $ -- $(4,756) $2,426
State.................................................... 240 (105) 537
Foreign.................................................. 261 -- --
Deferred tax provision (benefit)
Federal.................................................. (1,519) 3,195 104
State.................................................... 417 (430) 13
------- ------- ------
$ (601) $(2,096) $3,080
======= ======= ======
</TABLE>
F-15
<PAGE> 43
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Tax expense (benefit) at federal statutory rate............. (35.0)% (35.0)% 35.0%
S corporation income not subject to corporate level
taxation.................................................. -- -- (17.9)
Impact of termination of S corporation election............. -- 20.6 --
State income taxes, net of federal income tax benefit....... (3.1) (2.7) 3.1
Foreign taxes............................................... 1.9 -- --
Valuation allowance......................................... 29.2 -- --
Other....................................................... 1.0 1.0 (1.3)
----- ----- -----
(6.0)% (16.1)% 18.9%
===== ===== =====
</TABLE>
The increase in the effective tax rate for the previous 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 $4.0
million and was reflected in the results of operations for the year ended June
28, 1997.
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>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 218 $ 99
Accrued incentive compensation............................ 3,540 3,799
Deferred income........................................... 750 1,148
Accrued postretirement and postemployment benefits........ 1,112 905
Accrued separation expenses............................... -- 356
Deferred compensation..................................... 1,899 1,813
Other accrued liabilities................................. 3,963 2,704
Carryforward of net operating loss and tax credits........ 19,263 7,309
Other..................................................... 325 53
------- -------
Total deferred tax assets......................... 31,070 18,186
Valuation allowance............................... (2,950) --
------- -------
Net deferred tax assets........................... 28,120 18,186
Deferred tax liabilities:
Excess of book over tax basis of property, plant and
equipment.............................................. 19,453 11,386
Excess of book over tax basis of intangible assets........ 5,603 5,954
Fees and taxes............................................ -- 220
Voluntary Employee Benefit Association contribution....... 1,083 499
Other..................................................... 1,053 301
------- -------
Total deferred tax liabilities.................... 27,192 18,360
------- -------
Net deferred tax asset (liability)................ $ 928 $ (174)
======= =======
</TABLE>
F-16
<PAGE> 44
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets at June 27, 1998 was
approximately $2,950,000. The net change in the total valuation allowance for
the year ended June 27, 1998 was an increase of $2,950,000. The Company's net
operating loss carryforwards expire in years 2012 and 2013.
13. COMMITMENTS AND CONTINGENCIES
The Company leases certain office facilities and transportation equipment
under non-cancelable operating leases expiring on various dates through fiscal
2017. Future minimum annual rentals required by these operating leases are as
follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL RENTALS
--------------
(IN THOUSANDS)
<S> <C>
1999........................................................ $ 1,305
2000........................................................ 1,112
2001........................................................ 989
2002........................................................ 727
2003........................................................ 510
2004 and thereafter......................................... 7,116
-------
$11,759
=======
</TABLE>
Rental expense under operating leases approximated $3,788,000, $3,707,000
and $1,719,000 during fiscal 1998, 1997 and 1996, respectively.
At June 27, 1998 and June 28, 1997, commitments relating to future
acquisitions of property, plant and equipment approximated $20,947,000 and
$20,707,000, respectively.
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.
The Company has been designated by the U.S. Environmental Protection Agency
("EPA") and/or other responsible state agencies as a potentially responsible
party ("PRP") at various waste disposal or waste recycling sites that are the
subject of separate investigations or proceedings concerning alleged soil and/or
groundwater contamination and for which no settlement of the Company's liability
has been agreed upon. The Company is participating with other PRPs at all such
sites, and anticipates that its share of cleanup costs will be determined
pursuant to remedial agreements entered into in the normal course of
negotiations with the EPA or other governmental authorities.
The Company has accrued liabilities for all sites, including sites in which
governmental agencies have designated the Company as a PRP, where it is probable
that a loss will be incurred and the minimum cost or amount of loss can be
reasonably estimated. However, because of the uncertainties associated with
environmental assessment and remediation activities, future expense to remediate
the currently identified sites, and sites that could be identified in the future
for cleanup, could be higher than the liability currently accrued.
14. RESTRUCTURING CHARGES
During fiscal 1997, the Company recorded severance charges of approximately
$8,810,000 for announced reductions in work force of approximately 300 employees
resulting from the acquisition of JR Flexible. During fiscal 1996, the Company
recorded severance charges of approximately $7,870,000 for announced reductions
in work force, primarily related to the termination of approximately 160
employees located at manufacturing
F-17
<PAGE> 45
PRINTPACK, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and corporate facilities. The Company made severance payments of approximately
$925,000 and $13,571,000 during fiscal 1998 and 1997, respectively.
15. 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 for fiscal 1996.
The pro forma provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996
---------------
(IN THOUSANDS)
<S> <C>
Current tax provision
Federal.............................................. $5,247
State................................................ 764
Deferred tax provision
Federal.............................................. 481
State................................................ 63
------
Total pro forma provision.................... $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>
1996
----
<S> <C>
Taxes at federal statutory rate............................. 35.0%
State income taxes, net of federal income tax benefit....... 4.5
Other....................................................... .7
----
40.2%
====
</TABLE>
F-18
<PAGE> 46
EXHIBIT INDEX
Unless indicated below, the exhibits are incorporated by reference herein
from the Company's Registration Statement on Form S-1 (File No. 333-13727) filed
with the Securities and Exchange Commission. Copies of such exhibits will be
furnished to any requesting stockholder of the Company upon request to
Secretary, Printpack Inc., 4335 Wendell Drive, S.W., Atlanta, Georgia 30336.
There is a charge of $.50 per page to cover expenses for copying and mailing.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
2.1 -- Asset Purchase Agreement, dated as of April 10, 1996, by and
between James River Corporation of Virginia and Printpack,
Inc., as amended.
2.2 -- Reorganization Agreement dated as of July 1, 1996 by and
among Printpack Holdings, Inc., Printpack, Inc., Printpack
Enterprises, Inc. and Printpack Illinois, Inc.
3.1 -- Restated Articles of Incorporation of Printpack, Inc.
3.2 -- Bylaws of Printpack, Inc.
4.1 -- Indenture, dated August 22, 1996, between Printpack, Inc.
and State Street Bank (successor to Fleet National Bank), as
Trustee relating to the 9 7/8% Senior Notes due 2004.
4.2 -- Indenture, dated August 22, 1996, between Printpack, Inc.
and State Street Bank (successor to Fleet National Bank), as
Trustee relating to the 10 5/8% Senior Subordinated Notes
due 2006.
10.1 -- Credit Agreement, dated as of August 22, 1996, by and among
Printpack, Inc., the lenders a party thereto and First
National Bank of Chicago, as Contractual Representative.
10.2 -- Note Purchase Agreement, dated as of March 13, 1995 by and
among Printpack, Inc. and certain shareholders of Printpack,
Inc., as amended.
10.3 -- Printpack, Inc. Savings and Profit Sharing Plan, as amended.
10.4 -- Printpack, Inc. Incentive Compensation Plan.
10.5 -- Guarantee dated as of January 5, 1995 made by Printpack,
Inc. in favor of PNC Bank, Ohio, National Association, as
amended.
10.6 -- Registration Rights Agreement dated as of August 22, 1996 by
and between Printpack, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation.
10.7 -- Receivables Sale Agreement dated as of August 22, 1996 by
and between Printpack, Inc. and Flexible Funding Corp.
10.8 -- Receivables Purchase Agreement dated as of August 22, 1996
by and among Flexible Funding Corp. as Seller, Falcon Asset
Securitization Corporation and the financial institutions
party hereto as Investors and The First National Bank of
Chicago, as Agent.
10.9 -- Intercreditor Agreement, dated August 22, 1996, by and
between The First National Bank of Chicago, as Contractual
Representative and The First National Bank of Chicago, as
Agent.
*12 -- Computation of Ratio of Earnings to Fixed Charges.
*21 -- List of Subsidiaries.
*27 -- Financial Data Schedule. (For SEC purposes only.)
99.1 -- Contribution Agreement dated as of January 5, 1995 by and
between Printpack, Inc. and Orflex Ltd.
99.2 -- Lease dated September 11, 1980 by and between Gulf Oil
Corporation and Crown Zellerbach Corporation relating to the
Orange, Texas Plant (the rights and obligations of the
lessee under the foregoing Lease has been assigned
ultimately to Printpack, Inc.).
99.3 -- Ground Lease dated September 11, 1980 by and between Gulf
Oil Corporation and Crown Zellerbach Corporation relating to
the Orange, Texas Plant (the rights and obligations of the
lessee under the foregoing Lease have been assigned
ultimately to Printpack, Inc.).
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
99.4 -- Ground Lease Agreement dated January 1, 1981 by and between
Gulf Oil Corporation and Crown Zellerbach Corporation
relating to the Orange, Texas Plant (the rights and
obligations of the lessee under the foregoing Lease have
been assigned ultimately to Printpack, Inc.).
99.5 -- Ground Lease dated September 9, 1985 by and between Chevron
Chemical Company and Crown Zellerbach Corporation relating
to the Orange, Texas Plant (the rights and obligations of
the lessee under the foregoing Lease have been assigned
ultimately to Printpack, Inc.).
99.6 -- Lease dated July 25, 1990 by and between The Lawson Group,
LTD and Shell Oil Company relating to the Williamsburg,
Virginia plant (the rights and obligations of the lessee
under the foregoing Lease have been assigned ultimately to
Printpack, Inc.).
99.7 -- Note Purchase Agreement dated, August 15, 1996, by and
between Printpack, Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation relating to the 9 7/8% Senior Notes
due 2004 and the 10 5/8% Senior Subordinated Notes due 2006.
99.8 -- Deferred Income Agreement dated December 17, 1984 with
Edward Hilbert, Jr.
99.9 -- Deferred Income Agreement dated December 17, 1984 with
Robert B. Paxton.
99.10 -- Deferred Income Agreement dated July 10, 1996 with Neil
Williams.
99.11 -- Family Security Agreement dated April 4, 1986 with Dennis M.
Love.
99.12 -- Family Security Agreement dated February 24, 1986 with R.
Michael Hembree.
99.13 -- Family Security Agreement dated February 24, 1986 with
Thomas J. Dunn, Jr.
99.14 -- Family Security Agreement dated February 24, 1986 with
Nicklas D. Stucky.
99.15 -- Amended and Restated Employment Agreement dated June 23,
1983 with J. Erskine Love, Jr.
*99.16 -- Lease Amendment dated May 20, 1998 by and between GF
Associates and Printpack, Inc. relating to the Williamsburg,
Virginia plant (Amendment to the lease by and between The
Lawson Group, LTD and Shell Oil Company noted as exhibit
99.6 above originally filed on the Company's Registration
Statement on Form S-1 (File No. 333-13727) filed with the
Securities and Exchange Commission).
</TABLE>
- ---------------
* Items filed herewith.
<PAGE> 1
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE(2)
--------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Pre-tax income from continuing
operations............................. $(10,092) $(16,657) $ 17,427 $18,345 $21,649
Minority interest in the income of
subsidiary with fixed charges.......... (377) (741) (1,111) (316) --
Plus: Capitalized interest amortized
during the period...................... 1,168 889 584 546 546
Less: Capitalized interest............... (1,950) (1,351) (887) (579) (414)
-------- -------- -------- ------- -------
(11,251) (17,860) 16,013 17,996 21,781
-------- -------- -------- ------- -------
Fixed charges:
Interest expense and amortization of debt
discount and premium on all
indebtedness........................... 52,221 46,600 12,411 10,975 10,016
Rentals -- 33%........................... 1,250 1,223 573 581 655
-------- -------- -------- ------- -------
Total fixed charges............ 53,471 47,823 12,984 11,556 10,671
-------- -------- -------- ------- -------
Earnings before income taxes, minority
interest and fixed charges............. $ 42,220 $ 29,963 $ 28,997 $29,552 $32,452
======== ======== ======== ======= =======
Ratio of earnings to fixed charges....... .8 .6 2.2 2.6 3.0
======== ======== ======== ======= =======
Earnings >(<) Fixed Charges.............. $(11,251) $(17,860) $ 16,013 $17,996 $21,781
</TABLE>
- ---------------------
(1) 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. In fiscal 1998 and 1997, earnings were insufficient to
cover fixed charges by $11,251 and $17,860, respectively.
(2) The Company's fiscal year ends on the last Saturday of June.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
Printpack Illinois, Inc.
Flexible Funding Corp.
Empaques Printpack de Mexico, S.A. de C.V.
Printpack de Mexico, S.A. de C.V.
Printpack Packaging de Mexico, S.A. de C.V.
Servicios Printpack de Mexico, S.A. de C.V.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS OF PRINTPACK, INC. FOR THE YEAR ENDED JUNE 27, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-27-1998
<PERIOD-START> JUN-29-1997
<PERIOD-END> JUN-27-1998
<CASH> 415
<SECURITIES> 0
<RECEIVABLES> 71,318
<ALLOWANCES> 559
<INVENTORY> 80,992
<CURRENT-ASSETS> 177,275
<PP&E> 597,164
<DEPRECIATION> 243,276
<TOTAL-ASSETS> 608,436
<CURRENT-LIABILITIES> 116,632
<BONDS> 456,305
0
0
<COMMON> 1,011
<OTHER-SE> (6,960)
<TOTAL-LIABILITY-AND-EQUITY> 608,436
<SALES> 831,689
<TOTAL-REVENUES> 831,689
<CGS> 710,416
<TOTAL-COSTS> 710,416
<OTHER-EXPENSES> 79,106
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 52,221
<INCOME-PRETAX> (10,092)
<INCOME-TAX> (601)
<INCOME-CONTINUING> (9,491)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,491)
<EPS-PRIMARY> (2.25)
<EPS-DILUTED> (2.25)
</TABLE>
<PAGE> 1
EXHIBIT 99.16
FIRST LEASE MODIFICATION AGREEMENT
THIS FIRST LEASE MODIFICATION AGREEMENT (the "Modification"), made this
20th day of May, 1998, by and between GF ASSOCIATES (herein called "Lessor") and
PRINTPACK, INC., (herein called "Lessee").
WHEREAS, The Lawson Group, Ltd. and Shell Oil Company entered into a
Lease dated July 25, 1990 (the "Lease") for the land and certain buildings
located thereon in the Busch Corporate Center, James City County, Virginia, as
more particularly described in the Lease (the "Premises"); and
WHEREAS, The Lawson Group, Ltd. assigned its interest in the Lease to
Lessor by assignment dated March 29, 1991; and
WHEREAS, Shell Oil Company assigned its interest in the Lease to
Rampart Packaging, Inc. by assignment dated July 25, 1990; and
WHEREAS, James River II, Inc. acquired all of the stock of Rampart
Packaging, Inc. on August 12, 1991; and
WHEREAS, James River II, Inc. was merged with and into James River
Paper Company, Inc., the surviving corporation, on December 27, 1992; and
WHEREAS, James River Paper Company, Inc. assigned its interest in the
Lease to Lessee by virtue of that certain Lease Assignment dated August 15,
1996, recorded in James City Deed Book 804, Page 114; and
WHEREAS, Lessee desires to expand its operation and said expansion
requires the Lessor to acquire additional land and increase the size of the
buildings occupied by Lessee; and
WHEREAS, Lessor is willing to acquire the additional land and increase
the size of the buildings occupied by Lessee subject to Lessee's agreement with
the terms hereof; and
WHEREAS, Lessor and Lessee desire to modify the terms of the Lease to
reflect their agreements with regard to the expansion of the Premises.
NOW, THEREFORE, WITNESSETH:
That for and in consideration of the premises and the mutual benefits
to ensue herefrom, Lessor and Lessee hereby agree as follows:
<PAGE> 2
1. Paragraph 2 of the Lease entitled "Premises" is hereby amended
by adding the following paragraph to the indented portion of Paragraph 2:
"Together with a parcel of land containing approximately 2.186
acres along the rear lines of Sites 18-A and 18-B more
particularly described on Exhibit A attached hereto and made a
part hereof (the "Additional Land"), and the expansion by
Lessor of the two primary existing buildings, as described in
the preceding paragraph hereof, by the addition of
approximately 12,000 square feet of additional building space
(the "Expansion Building")."
2. Paragraph 3 of the Lease entitled "Term" is hereby amended to
read as follows:
"3. Term. The term of this Lease shall be for a period of
twenty-seven (27) years commencing on March 1, 1990, and
ending on February 28, 2017, unless sooner terminated pursuant
to any provision hereof."
3. Paragraphs 4(d) and (e) of the Lease are hereby deleted. The
following is added as new paragraphs 4(d) and 4(e):
"(d) From and after March 1, 1997 rent for the Site A
Building and the Site B Building shall be as follows:
(i) From March 1, 1997 through March 31, 1998,
$494,906.25 annually, $41,242.19 monthly;
(ii) April 1, 1998 through February 28, 2002,
$457,953.25 annually, $38,162.77 monthly;
(iii) March 1, 2002, through February 28, 2007,
$483,028.50 annually, $40,252.38 monthly;
(iv) March 1, 2007, through February 28, 2012,
$508,103.75 annually, $42,341.98 monthly;
(v) March 1, 2012 through February 28, 2017,
$533,179.00 annually, $44,431.58 monthly.
(e) Rent for the Premises shall be the sum of the rent
for the Site A Building and the Site B Building and rent for the
Expansion Building determined as follows. The rent for the Expansion
Building shall be the amount necessary to amortize (i) the purchase
price paid by Lessor
- 2 -
<PAGE> 3
for the acquisition of the Additional Land, (ii) the construction costs
paid by Lessor to the general contractor for the construction of the
Expansion Improvements , (iii) the amount paid by Lessor to The
Greenwood Partnership pursuant to the "A&E Contract" (as defined in
paragraph 12(c) below), (iv) the soft costs identified on Exhibit B
attached hereto incurred by Lessor in connection with the construction
of the Expansion Improvements provided that each of such soft costs
shall not exceed the amount indicated on Exhibit B without Lessee's
prior written approval which shall not be unreasonably withheld: and
(v) any amounts reimbursed to Lessee by Lessor for amounts expended by
Lessee in connection with the planned development of the Expansion
Improvements (the aggregate amount of the amounts set forth in the
foregoing items (i) through (v) is referred to herein as the "Expansion
Improvements Costs" and the Expansion Improvements Costs shall not
exceed $1,100,000 unless the Expansion Improvements Costs exceed
$1,100,000 because of an increase in soft costs above the amount
indicated on Exhibit B which has been approved in writing by Lessee as
provided above) amortized over a term of thirty (30) years at an
interest rate of 8.5% per annum. Based on the assumption that the
Expansion Improvements Costs incurred by Lessor will be $1,000,000.00,
the annual rent for the Expansion Building will be $92,292.96 payable
in equal monthly installments of $7,691.08 beginning on April 1, 1998.
Once the actual Expansion Improvements Costs are known the actual rent
for the Expansion Building will be calculated retroactive to April 1,
1998 and appropriate adjustments shall be made between Lessor and
Lessee to reflect any differences between the rent paid by Lessee at
the assumed annual rent of $92,292.96 and the actual rent."
4. The address set forth in Paragraph 4(g) is hereby amended to
read "373 Edwin Drive, Virginia Beach, Virginia 23462" until changed by notice
from Lessor to Lessee.
5. The second sentence of Paragraph 7.1(a) of the Lease shall be
amended to read as follows:
"Such insurance shall be combined single limit policy in an
amount of not less than One Million and 00/100 Dollars
($1,000,000.00)."
6. The first sentence of Paragraph 7.2(b) of the Lease shall be
amended to read as follows:
"During the term hereof, in addition to the rent, Lessee shall
reimburse Lessor for the amount of any premiums paid by Lessor
for the insurance required under Paragraph 7.2(a)."
- 3 -
<PAGE> 4
The first sentence of Paragraph 7.2(c) of the Lease shall be
amended to read as follows:
"Lessee shall reimburse Lessor for any such premium paid by
Lessor within thirty (30) days after receipt by Lessee of a
copy of the premium statement or other satisfactory evidence
of the amount paid by Lessor."
The insurance that is currently in place covers the period of June 1, 1997
through May 31, 1998. Therefore it is agreed that Lessee's obligations under
Paragraphs 7.2(b)and 7.2(c) as modified hereby shall commence with the insurance
premiums for the policy or policies that go into effect as of June 1, 1998 and
are not retroactive to previous years.
7. Paragraph 9.1 of the Lease is hereby amended to read as
follows:
"9.1 Payment of Real Property Taxes. Lessee shall pay all real
property taxes applicable to the Premises provided that if any
real property taxes may be paid in installments, Lessee shall
be obligated to pay only those installments which become due
during the term of this Lease. Lessor agrees to cooperate with
Lessee if Lessee determines to contest, at Lessee's sole cost
and expense, the amount of any real property taxes levied or
assessed against the Premises. If the term of this Lease shall
not expire concurrently with the expiration of the tax fiscal
year, Lessee's liability for real property taxes for the last
lease year shall be pro rated on an annual basis and shall
survive the expiration of this Lease."
Notwithstanding the foregoing, for 1998 Lessor shall be responsible for, and
shall pay, 25% of the amount of the real property taxes for which Lessor was
responsible under Paragraph 9.1 of the Lease before this modification and for
1998 Lessee shall be responsible for and shall pay all other real property taxes
applicable to the Premises. The Lessee's obligations under Paragraph 9.1 as
hereby modified apply to calendar year 1998 and subsequent years during the
lease term and are not retroactive to previous years.
- 4 -
<PAGE> 5
8. Paragraph 9.2 of the Lease is hereby amended to read as
follows:
"9.2 Definition of "Real Property Tax." As used herein, the
term "Real Property Tax" means (i) general assessments levied
against the Premises by the Busch Corporate Park Association
(special assessments levied pursuant to Section 7 of Article
Twelve of that certain Declaration of Covenants and
Restrictions dated June 14, 1976 and recorded in Deed Book
169, page 135 of the public records of James City County,
Virginia, as heretofore or hereafter amended, are specifically
excluded) and (ii) real property taxes that may be levied or
assessed against the Premises based upon the value of the
Premises by any authority having the direct or indirect power
to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or
other improvement district thereof or any tax that may
subsequently be imposed in substitution, partially or totally,
thereof."
9. The Lessor's address for notices as set forth in Section 14.8
is hereby amended to read as follows:
"Lessor:c/o John Dale Terry
373 Edwin Drive
Virginia Beach, Virginia 23462"
The Lessee's address for notices as set forth in Section 14.8 is hereby amended
to read as follows:
"Lessee: c/o Dave Donovan
4335 Wendell Drive, S.W.
Atlanta, Georgia 30378"
10. Paragraph 14.25 of the Lease entitled "Purchase Option" is
hereby amended to read as follows:
"14.25 Purchase Option. Lessor hereby grants to Lessee the
right and option to purchase the Premises at the times, for
amounts and on the terms set forth herein. For the purpose of
this purchase option, the Premises shall include both Site
18-A, Site 18-B and the additional land and the buildings and
improvements located thereon; Lessee not having an option to
purchase either Site 18-A, Site 18-B or the additional land
without purchasing the entire Premises.
- 5 -
<PAGE> 6
Lessee shall have the option to purchase the Premises on the
following dates (subject, however, to paragraph 14.26): March
1, 2002 (or five (5) years after the date Lessor closes its
intended financing with Wachovia Bank, N.A., whichever is
later), March 1, 2007, March 1, 2012, and March 1, 2017.
Lessee shall give Lessor notice of Lessee's option to purchase
the Premises no less than six (6) months and no more than nine
(9) months prior to the applicable date of purchase. The
purchase price for the entire Premises shall be the sum of the
following two (2) numbers:
(a) Lessor and Lessee have agreed that the value of the Site A
Building and the Site B Building as of March 1, 1997 was
$5,000,000. The purchase price for the Site A Building and the
Site B Building and the land associated therewith will be
calculated by increasing said $5,000,000 value by 2%
compounded annually (i.e. from March 1 of each year through
February 28 of each year (or February 29 in the case of a leap
year) through the closing date.
(b) The purchase price for the Expansion Building and the
Additional Land will equal the Expansion Improvements Costs
increased at the rate of 2% per annum from the Expansion
Improvements Completion Date (as defined in Paragraph 12(f) of
this First Lease Modification Agreement).
(c) If the closing takes place on a day other than March 1 of
any particular calendar year, the 2% increase referenced in
the foregoing parts (a) and (b) will be prorated based upon
the actual number of days that have transpired in the
particular annual period in which the closing takes place."
(d) In the event Lessee exercises the purchase option, Lessee
will either assume the existing financing encumbering the
Premises or pay any prepayment fee or penalties, if any, if
the existing financing is paid off in connection with Lessee's
acquisition of the Premises; provided, however, that Lessee's
obligation with respect to any prepayment fees or penalties
shall be limited to the amounts described in Exhibit D
attached hereto and Lessor shall be responsible for and shall
pay any prepayment fees or penalties in excess of the amounts
described in Exhibit D. If Lessee assumes the existing
financing encumbering the Premises Lessor shall pay any
assumption fees or other
- 6 -
<PAGE> 7
charges imposed by Lessor's lender in connection with such
assumption. Lessee and Lessor have entered into this
Modification on the assumption that the provisions which will
be included in the loan documents to be executed by Lessor in
connection with its intended financing to be secured by the
Premises permitting Lessee's assumption of such financing will
be as set forth on Exhibit E attached hereto. If in the final
loan documents the assumption provisions differ from those
attached as Exhibit E, Lessor shall take whatever steps
necessary so that Lessee may assume the existing financing on
the same terms and conditions as set forth on Exhibit E;
provided, however, that Lessor shall not be required to take
any action to address matters that are within the control of
Lessee. Lessor and Lessee acknowledge that notwithstanding the
language in part (c) of Exhibit E requiring Lessee to pay all
costs and expenses incurred by the Lender in connection with
the Loan assumption, Lessor and Lessee have agreed that Lessor
shall be responsible for paying such costs as set forth above
in this paragraph (d).
(e) If in connection with its exercise of the purchase option
Lessee is assuming the existing financing, Lessee and Lessor
agree to cooperate to cause Lessor's lender to permit Lessee
to assume and be bound by the terms of the loan documents on a
prospective basis only. If Lessor's lender will not allow such
assumption on a prospective basis only, then Lessor shall
indemnify and hold Lessee harmless from and against any and
all loss, damage, costs or expense (including without
limitation, reasonable attorneys' fees and expenses incurred)
that Lessee may suffer or incur arising as a result of any
alleged breach of the terms and conditions of the loan
documents occurring prior to the date of the transfer of fee
simple title to the Premises to Lessee.
11. The reference in the second sentence of paragraph 14.26 to
"thirty (30) days" is hereby amended to read "ninety (90) days" and the
reference in the fifth sentence of paragraph 14.26 to "ninety (90) days" is
hereby amended to read "on or before March 1 following Lessor's receipt." The
seventh sentence of paragraph 14.26 is deleted in its entirety. The following is
added at the end of paragraph 14.26: "Notwithstanding anything in Paragraph
14.25 or this Paragraph 14.26 to the contrary, at Lessee's option, the closing
of the purchase of the Premises may take place at any time during the period
which is either ten (10) days prior to the March 1 closing date provided in
Paragraph 14.25 and this Paragraph 14.26 or ten (10) days after such March 1
date."
- 7 -
<PAGE> 8
12. (a) Landlord, at its own expense, will proceed diligently
to acquire the Additional Land by no later than May 26, 1998. Thereafter,
Landlord, at its own expense, and in accordance with the Plans and
Specifications (hereinafter described) agrees to commence and use good faith
efforts to complete the construction of the Expansion Building and the other
improvements to be constructed in accordance with the Plans and Specifications
(the Expansion Building and such other improvements are hereafter collectively
referred to as the "Expansion Improvements"). Lessor acknowledges that Lessee
has delivered to Lessor plans and specifications for the Expansion Improvements
and that such plans and specifications have been approved (said plans and
specifications are herein referred to as the "Plans and Specifications"). Lessee
may, from time to time, modify, amend or change the Plans and Specifications
provided, however, to the extent such modifications, amendments or changes
result in any delay of the time periods and construction schedule set forth
herein, such dates and time periods shall be extended by a number of days equal
to the length of such delay, and provided further that if any such
modifications, amendments or changes result in an increase in the construction
costs, Lessee will be solely responsible for any such increase.
(b) Lessor has agreed to contract with W.M. Jordan
Company, Inc. (herein the "General Contractor") for the construction of the
Expansion Improvements. Lessor shall enter into a cost plus contract with a
guaranteed maximum price (herein the "Construction Contract") with General
Contractor for the construction of the Expansion Improvements in accordance with
the Plans and Specifications; provided, however, that Lessee shall have the
right to review and approve the final form of the Construction Contract before
the same is fully executed, which approval will not be unreasonably withheld.
Lessee shall be responsible for any Expansion Improvements Costs in excess of
$1,100,000 unless such additional costs result from the Lessor's acts or
omissions or as a result of Lessor failing to fulfill its obligations under this
paragraph 12 in which case Lessor shall be responsible for such additional
Expansion Improvements Costs and provided also that Lessor shall be responsible
for any soft costs in excess of the amounts shown on Exhibit B unless Lessee
approves in writing an increase in the soft costs. If Lessee approves an
increase in the soft costs, Lessor shall fund such increased costs, but such
increased costs shall be included in calculating the rent for the Expansion
Building as set forth in Paragraph 3(e) of this Modification. Without limiting
Lessee's right to review and approve the final form of the Construction
Contract, the Construction Contract shall include the following provisions:
(i) There shall be no change orders or
modifications to the Construction Contract without the written consent
of Lessee or Lessee's Project Manager. Lessee hereby designates Todd
Kelso as its Project Manager.
(ii) The General Contractor shall coordinate with
the Project Manager and Lessee's on-site plant manager to coordinate
the work
- 8 -
<PAGE> 9
being performed under the Construction Contract so as to minimize
interference with Lessee's ongoing operations on the Premises.
(iii) The General Contractor will schedule weekly
progress meetings to be held on-site and will notify Lessor and Lessee
and the Project Manager or his representative of the day and time when
such meetings will be held. Lessee's Project Manager or his
representative shall be entitled to be present at all such meetings and
to participate therein. Any notice to Lessee's Project Manager shall be
given to:
Todd Kelso
Printpack, Inc.
4335 Wendell Drive, S.W.
Atlanta, Georgia 30336
Telephone No: (404) 691-2538 (ext. 7551)
(iv) Whenever the General Contractor submits to
Lessor a request for payment, a copy of such request, and all
supporting information, shall also be delivered to Lessee's Project
Manager.
(v) See also paragraphs 12(g) and 12(h) below
for additional provisions to be included in the General Contract.
(vi) The General Contractor will, as a first
order of construction, grade and install base gravel in all proposed
drives and parking areas to provide for off-street and on-site parking
for all vehicles, equipment, and material used by Landlord, Lessee,
General Contractor and their respective employees and agents and shall
maintain the same throughout the construction period.
(vii) The General Contractor will keep the streets
of the Busch Corporate Center-Williamsburg free of mud, dirt, and
debris from construction at all times.
(viii) Materials storage areas shall be screened
from view.
(c) Lessor has agreed to contract with The Greenwood
Partnership (herein the "Architect and Engineer") for the architectural and
engineering services in connection with the construction of the Expansion
Improvements; provided, however, that Lessee shall have the right to review and
approve the final form of the contract (herein the "A&E Contract") with the
Architect and Engineer before the same is fully executed, which approval will
not be unreasonably upheld. Without limiting, Lessee's right to review and
approve the final form of the A&E Contract, the A&E Contract shall include the
following provisions:
- 9 -
<PAGE> 10
(i) There shall be no change orders or
modifications to the A&E Contract without the written
consent of Lessee or Lessee's Project Manager.
(ii) If requested to do so, the Architect and
Engineer will attend weekly progress meetings
on-site.
(iii) Whenever the Architect and Engineer submits
to Lessor a request for payment, a copy of such
request, and all supporting information, shall also
be delivered to Lessee's Project Manager.
(d) Lessor will use all reasonable efforts (i) to acquire
fee simple title to the Additional Land by May 26, 1998 and (ii) to close by
June 15, 1998 Lessor's construction loan in an amount sufficient to pay the
Expansion Improvements Costs. Lessee has previously received a leasehold title
insurance policy ("Lessee's Title Policy") from Lawyers Title Insurance
Corporation (Policy No. 7115-00-003604), a copy of which is attached hereto as
Exhibit C and made a part hereof. By June 15, 1998, Lessor, at its expense,
shall cause an endorsement to be issued to Lessee's Title Policy which (i)
brings forward the date of the policy to the date Lessor acquires fee simple
title to the Additional Land, (ii) modifies the legal description of the
property currently attached to the Lessee's Title Policy to include the
Additional Land (with a contiguity endorsement if an all-inclusive legal
description is not used), (iii) revising Item 1 of Schedule B to read "Taxes for
the year 1998, a lien, but not yet due, payable or delinquent and taxes for
subsequent years", and (iv) is otherwise in the form attached hereto as Exhibit
F and made a part hereof. Lessor shall also provide to Lessee a survey of the
Additional Land prepared by a registered land surveyor in the State of Virginia
and showing (i) all visible improvements, if any, located on the Additional
Land, and (ii) the location of all locatable easements and other matters
affecting the Additional Land as revealed in the endorsement to Lessee's Title
Policy.
(e) Lessor and Lessee agree to cooperate to have a
building permit for the Expansion Improvements so that construction of the
Expansion Improvements can begin no later than June 15, 1998. Lessor and Lessee
agree to cooperate to obtain all consents, approvals and permits for the
construction of the Expansion Improvements required from any governmental
authority or under any private covenants or restrictions as affecting the
Additional Land.
(f) Lessor shall complete construction of the Expansion
Improvements in accordance with the Plans and Specifications. Lessor shall use
its good faith efforts to have the construction of the Expansion Improvements
completed no later than one-hundred eighty (180) days after a building permit
has been issued for the Expansion Improvements. For purposes of this First Lease
Modification Agreement, the terms "complete construction," "completion of the
Expansion Improvements," and similar terms shall be deemed to mean: (i) the
Architect and Engineer shall have certified to Lessor and
- 10 -
<PAGE> 11
Lessee that, except for typical "punchlist" construction items, construction of
the Expansion Improvements, including the connection of all utilities to the
Expansion Building, has been substantially completed in accordance with the
Plans and Specifications, and (ii) a permanent Certificate of Occupancy for the
Expansion Improvements has been issued by the appropriate governmental authority
(provided, however, that if a permanent Certificate of Occupancy cannot be
issued because of punchlist type items that remain to be completed, this item
(ii) shall be deemed satisfied so long as a temporary Certificate of Occupancy
(or reasonable equivalent) has been issued by the appropriate governmental
authority and Lessee is otherwise able to use the Expansion Improvements for
their intended use). When the foregoing items (i) and (ii) have been satisfied,
Lessor and Lessee shall enter into an agreement confirming the date (herein
referred to as the "Expansion Improvements Completion Date") on which such items
were satisfied. Acceptance of possession, or use and occupancy of the Expansion
Improvements, or any portion thereof by Lessee shall not be deemed to constitute
a waiver by Lessee of Lessor's duties and obligations in respect to completion
of construction of the Expansion Improvements.
(g) During the course of construction of the Expansion
Improvements, Lessor shall allow, and the Construction Contract shall permit,
Lessee, its employees, agents, or contractors (including, without limitation,
Lessee's Project Manager) to have access to the Expansion Improvements for
purposes of inspecting the construction of the Expansion Improvements pursuant
to the Plans and Specifications and for purposes of inspecting, measuring,
installing, or arranging for the placement or installation of fixtures,
equipment, materials, supplies, and inventory of Lessee at Lessee's risk and
sole cost and expense; provided, however, such activity shall not unreasonably
interfere with construction of the Expansion Improvements by the General
Contractor.
(h) Possession of the Expansion Improvements shall be
given to Lessee in tenantable condition, broom clean and free of debris, and
free of liens and encumbrances except as set forth in Lessee's Title Policy (and
subject to any additional title exceptions which may be approved by Lessee as
set forth in paragraph 12(d) above). Lessor shall require the General Contractor
(i) to warrant in the Construction Contract that all materials and workmanship
utilized or employed by the General Contractor in the construction of the
Expansion Improvements shall be free of defects for a period of one (1) year
from the date of completion of construction thereof in accordance with the Plans
and Specifications; and (ii) to acknowledge and agree in the Construction
Contract that Lessee constitutes a third party beneficiary of such contract and
that Lessee has the right, but not the obligation, to enforce the terms thereof
to no lesser extent than Lessor. In addition to repairs or replacements covered
by such manufacturers' or contractors' warranties, Lessor shall make all
necessary repairs or replacements to the Expansion Improvements, structures,
systems, and fixtures constructed or installed by or at the request of Lessor
for a period of one (1) year after the completion of the
- 11 -
<PAGE> 12
Expansion Improvements to the extent such repairs or replacements are rendered
necessary as a result of defective materials or workmanship. The agreements of
Lessor as contained in this subparagraph 12(h) shall survive for one (1) year
after the completion of the Expansion Improvements. To the extent of any
inconsistencies between this subparagraph 12(h) and any provisions of the Lease
regarding Lessor's maintenance, repair and or restoration obligations, the
Lessor's obligations as set forth in this subparagraph 12(h) shall be in
addition to such maintenance and/or repair obligations as set forth in the
Lease. Nothing in this subparagraph 12(h) shall be deemed to constitute a waiver
by Lessee of, or otherwise limit, Lessor's obligations to perform any obligation
to maintain, repair, or restore the Premises as provided in the Lease.
(i) Lessor agrees that if at any time governmental
authority having jurisdiction over the Expansion Improvements shall determine
that the Expansion Improvements shall not have been constructed in compliance
with any applicable building code, law ordinance, rule, or regulation of such
governmental authority, and such governmental authority shall request compliance
therewith, and if failure to comply shall in any way affect the right of Lessee
to use or occupy the Premises or any portion thereof, or affect any other right
of Lessee under the Lease, or impose any obligation upon Lessee, then Lessor
shall, upon receipt of notice of such determination, cause such repairs,
alterations, or other work to be done so as to bring about the compliance
requested; provided, however, if such noncompliance shall be the result of the
Plans and Specifications or improvements constructed or installed by Lessee or
the result of Lessee's operations, then Lessee shall be responsible for bringing
about such compliance. Except to the extent such noncompliance is caused by
Lessee as aforesaid, if Lessee shall be deprived of the use and enjoyment of the
whole or any part of the Premises as a result of such noncompliance, all rent
and other amounts which shall otherwise be due and payable under the Lease shall
abate on a per diem basis in proportion to such deprivation.
(j) In addition to any other remedies that Lessee may
have upon a default by Lessor under the Lease as amended hereby, Lessee may, at
its option, without waiving any claim for damages incurred by Lessee by virtue
of the occurrence of an event of default hereunder, at any time thereafter cure
such default for the account of Lessor, and any amount paid or incurred by
Lessee in so doing shall be deemed paid or incurred for the account of Lessor,
and Lessor agrees to reimburse Lessee therefor on demand and save Lessee
harmless therefrom. Lessee may remedy any such event of default prior to the
expiration of the period within which Lessor may cure such event of default if
the cure of such event of default prior to the expiration of such period is
reasonably necessary to protect the Premises or any portion thereof (including,
without limitation, the Expansion Improvements) or to prevent injury to persons
or damage to property, or to permit Lessee to conduct its usual business
operations within the Premises or any portion thereof (including, without
limitation, the Expansion Improvements); provided, however, Lessee shall first
give Lessor reasonable notice of its intention to so cure such event of default
except in the case of an emergency when actual notice shall not be required so
long as Lessee has exercised reasonable diligence to provide Lessor with such
notice. In the event Lessor fails to reimburse Lessee for any reasonable amount
paid for the account of Lessor hereunder within fifteen (15) days after receipt
from Lessee of bills or written notice of claim for reimbursement, said amount,
together with interest at the rate of ten percent (10%) per annum, may be
deducted by Lessee from the next or any succeeding installment
- 12 -
<PAGE> 13
payments of rent or any other amounts due and payable by Lessee to Lessor under
the Lease.
(k) Lessor will not approve payment of any costs to be
included in the Expansion Improvements Costs unless the same is first approved
in writing by Lessee's Project Manager which approval will not be unreasonably
withheld. Within five (5) business days after Lessee's Project Manager has
received a written request for payment of any costs to be included in the
Expansion Improvements Costs Lessee's Project Manager will notify Lessor in
writing if Lessee's Project Manager has any objection to the payment of the
requested costs and in such notice shall specify the basis for Lessee's Project
Manager's objection. If by the expiration of such five (5) business day period
Lessor has not received any such written notice of objection from Lessee's
Project Manager, the requested payment shall be deemed approved by Lessee's
Project Manager.
(l) It is anticipated that Section 4.1 of the
Construction Contract will provide for a per diem sum by which the amount due
under the Construction Contract will be reduced for each day beyond which the
Expansion Improvements have not been substantially completed. Any amount by
which the amount due under the Construction Contract is reduced by operation of
Section 4.1 of the Construction Contract is hereafter referred to as the
"Contract Reduction Sum." If Lessor receives the Contract Reduction Sum, or any
portion thereof, in the form of payment from the General Contractor (as opposed
to an offset against the amount due under the Construction Contract), Lessor
will promptly pay such amount to Lessee. If Lessor receives the Contract
Reduction Sum, or any portion thereof, in the form of an offset against or
reduction of the amount due under the Construction Contract, then nevertheless
Lessor shall request that Lessor's construction lender fund such amount of the
Contract Reduction Sum and if Lessor's construction lender funds such amount,
Lessor will promptly pay such amount to Lessee. If Lessor receives any portion
of the Contract Reduction Sum as an offset against or reduction of the amount
due under the Construction Contract, and if Lessor's construction lender will
not fund such amount, Lessee shall be entitled to offset such amount of the
Contract Reduction Sum against the rent that would otherwise be due under the
terms of the Lease provided that the maximum amount of any offset in any one
month shall not exceed $10,000.
13. [Intentionally deleted.]
14. Lessor agrees that to the extent Lessor's consent is required
under Paragraph 5.1 of the Lease, such consent will not be unreasonably
withheld.
15. Paragraphs 8.1, 8.2 and 8.3 of the Lease are deleted in their
entirety and replaced with the following:
"Subject to the remaining provisions of this Paragraph 15, if
the Premises are damaged by fire or other casualty, Lessor
shall at Lessor's expense repair such damage as soon as
- 13 -
<PAGE> 14
reasonably possible (provided, however, that if Lessee has the
option of terminating the Lease within sixty (60) days after a
casualty as provided below, Lessor shall have no obligation to
commence repair or restoration until either such sixty (60)
day period has expired or Lessee notifies Lessor in writing
that Lessee has elected not to terminate this Lease,
whichever, first occurs) and this Lease shall continue in full
force and effect but Lessor shall not repair or replace
Lessee's fixtures, equipment or tenant improvements.
Notwithstanding the foregoing, if at any time during the term
of the Lease, the Premises are totally destroyed from any
cause (including any total destruction required by any
authorized public authority), Lessee may elect to terminate
the Lease as of the date of such total destruction. Also, if
at any time during the term of the Lease, the Premises are
less than totally destroyed and in Lessee's reasonable
judgment Lessor will not be able to restore the Premises
within one-hundred eighty (180) days after the casualty,
Lessee may terminate the Lease by giving written notice
thereof to Lessor. If within sixty (60) days after the
casualty Lessor has not received any such notice of
termination from Lessee, Lessee shall be deemed to have
elected not to terminate the Lease. If Lessee is so deemed to
have elected not to terminate the Lease, or if within the
sixty (60) day period Lessee notifies Lessor in writing that
Lessee has elected not to terminate the Lease, Lessor shall
promptly commence to repair and restore the Premises and shall
thereafter diligently pursue such repair and restoration to
completion. If the Premises are damaged or destroyed during
the last six months of the term of the Lease, either Lessor or
Lessee may cancel and terminate the Lease as of the date of
occurrence of such damage by given written notice to the other
within thirty (30) days after the date of occurrence of such
damage."
16. Paragraph 8.5(a) of the Lease is revised to read as follows:
"If the Premises are destroyed or damaged, then unless this
Lease is terminated as a result of such fire or other casualty
as herein provided, the rent payable hereunder for the period
during which such damage, repair or restoration continues
shall be abated in proportion to the degree to which Lessee's
use of the Premises is impaired. Except for abatement of rent,
if any, Lessee shall have no claim against Lessor for any
damage suffered by reason of any such
- 14 -
<PAGE> 15
damage, destruction, repair or restoration unless Lessor has
failed to maintain the insurance required by Paragraph 7.2(a)
of this Lease or if the Lessor fails to fulfill its
restoration obligations under this Paragraph 8."
17. The words "mortgage," "encumber" and "encumbrance" are deleted
from Paragraph 11.1 of the Lease. Lessee shall be entitled to mortgage or
otherwise pledge its interest under the Lease as collateral to any lender
providing financing to Lessee and Lessor acknowledges and agrees that any such
lender may foreclose on its interests and succeed to the Lessee's interests
under the Lease. Lessor also agrees that any landlord's lien that Lessor may
have on any of Lessee's fixtures, equipment, machinery, inventory, or other
personal property shall be subordinate to any lien or security interest in such
item granted to any lender providing financing to Lessee. Lessor also agrees to
provide any such lender with a copy of any notice of default sent by Lessor to
Lessee and Lessor will provide any such lender a reasonable opportunity after
receipt of such notice in which to cure such default.
18. Notwithstanding anything in Paragraph 11.2 or 11.3 of the
Lease, if Lessor enters into any amendments or modifications of the Lease which
increase the monetary obligations of the Lessee thereunder or which otherwise
impose material additional obligations on the lessee under the Lease, Lessee
shall be relieved from any liabilities or obligations arising under the Lease
subsequent to the date of any such amendment or modification.
19. In addition to the transfers and assignments permitted by
Paragraph 11.2 of the Lease, Lessor agrees that, without Lessor's prior written
consent, Lessee may assign its interests and rights under the Lease to an entity
whose net worth equals or exceeds Lessee's net worth as of the date hereof (in
1998 equivalent dollars). Notwithstanding the foregoing, any such assignment
shall be subject to approval by the holder of any first priority mortgage
encumbering the Premises (which approval shall not be unreasonably withheld).
Upon any such assignment, Lessee shall be relieved from any further liabilities
or obligations arising under the Lease after the date of such transfer.
20. The first sentence of Paragraph 13 of the Lease is revised to
read as follows:
"If more than twenty-five percent (25%) of the Premises shall
be taken or appropriated by any public or quasi-public
authority under the power of eminent domain, or if any portion
of any of the buildings comprising a portion of the Premises
shall be taken or appropriated by any public or quasi-public
authority under the power of eminent domain and in Lessee's
reasonable opinion the remaining portion of the buildings are
insufficient for Lessee to continue to operate its business
therein in a manner satisfactory to
- 15 -
<PAGE> 16
Lessee, either party hereto shall have the right, at it's
option, to terminate this Lease, and Lessee shall have no
claim against Lessor for the value of any unexpired term of
this Lease."
21. Lessor shall at any time upon not less than ten (10) days
prior written notice from Lessee execute, acknowledge and deliver to Lessee a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessor's knowledge, any uncured defaults on
the part of Lessee hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of Lessee's interests in the Premises under the Lease. Lessor's
failure to deliver such statement within such time shall be conclusive upon
Lessor (i) that this Lease is in full force and effect, without modification
except as may be represented by Lessee, (ii) that there are no uncured defaults
in Lessee's performance, and (iii) that not more than one month's rent has been
paid in advance, or such failure may be considered by Lessee as a default by
Lessor under the Lease.
22. The first sentence of Paragraph 14.23 of the Lease is deleted.
The last sentence of Paragraph 14.23 is deleted and replaced with the following:
"No option may be exercised at a time when Lessee is in
default under its obligations under this Lease provided that
Lessee has been given written notice of such default and has
not cured the same or does not cure the same within any
applicable cure period. If a default exists at the time that
Lessee wishes to exercise its option to purchase the Premises
and Lessee has been given written notice thereof but the time
period within which Lessee may cure such default has not yet
expired, Lessee may nevertheless exercise its purchase option
but such purchase option shall not be effective unless Lessee
cures the default before the expiration of the applicable cure
period."
23. All of the terms, covenants and conditions of the Lease not
expressly amended herein are hereby ratified and confirmed and shall be and
remain in full force and effect.
- 16 -
<PAGE> 17
WITNESS the following signatures as of the day and year first above
written.
GF ASSOCIATES
By: /s/ R. A. Lawson, Jr.
---------------------
Title: R. A. Lawson, Jr., General Partner
----------------------------------
By: /s/ Vincent J. Mastracco, Jr.
----------------------------
Title: Vincent J. Mastracco, Jr., General Partner
------------------------------------------
PRINTPACK, INC.
By: /s/ R. Michael Hembree
----------------------
Title: V.P.- Finance
-------------
EXHIBITS
A -- Legal Description of the Additional Land
B -- List of Soft Costs
C -- Lessee's Title Insurance Policy
D -- Prepayment Provisions
E -- Assumption Provisions
F -- Form of Endorsement to Lessee's Title Insurance Policy
- 17 -
<PAGE> 18
LEGAL DESCRIPTION
All that certain piece or parcel of land located in Busch Corporate
Center-Williamsburg, James City County, Virginia, and designated as "2.1858
Acres Being a Portion of Tax Map 50-2 Parcel 1-77 Hereby Conveyed by Busch
Properties, Inc. to GF Associates" on that certain plat entitled, "Plat of
Parcel 18 Being a Re-Subdivision of Busch Corporate Center-Williamsburg, James
City County, Virginia," dated January 8, 1998, which Plat is to be recorded in
the Clerk's Office of the Circuit Court of Williamsburg and James City County,
Virginia.
<PAGE> 19
EXHIBIT B
<TABLE>
<S> <C> <C>
1. The costs for the examination of title to the Additional (1 and 2 combined:
Land; $ 3,000)
2. The Premiums for the Owner's and Lessee's title insurance (see 1 above)
policies.
3. The fees and costs related to a survey of the property and $ 2,500
the preparation of the amended subdivision plat;
4. Any fees payable to either Colonial Pipeline Company or the $ 1,000
Hampton Roads Sanitation District for the use of their
easement areas;
5. Any fees and costs incurred by the Lessor to obtain $11,000
construction financing to the Expansion Improvements and
the acquisition of the Additional Land;
6. Recording fees associated with both the Deed to the $ 2,500
Additional Land and the Deed of Trust securing the Lessor's
financing;
7. The cost of any Phase I or similar environmental $ 3,000
assessments;
8. The Lessor's attorney's fees incurred in connection with $10,000
the acquisition of the Additional Land and the closing of
the Lessor's financing (but not to exceed $10,000);
9. Interest on the Lessor's financing during construction; and $25,000
10. Real Estate taxes on the Additional Land during $ 200
construction and until they are part of the formula in the
Lease.
11. Structural Examination $ 2,000
-------
$60,200
</TABLE>
<PAGE> 20
EXHIBIT C
Lawyers Title
Insurance Corporation
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
LEASEHOLD OWNER'S POLICY NUMBER
115 - 00 - 003604
SUBJECT TO THE EXCLUSIONS FROM COVERAGE, THE EXCEPTIONS FROM COVERAGE CONTAINED
IN SCHEDULE B AND THE CONDITIONS AND STIPULATIONS, LAWYERS TITLE INSURANCE
CORPORATION, a Virginia corporation, herein called the Company, insures, as of
Date of Policy shown in Schedule A, against loss or damage, not exceeding the
Amount of Insurance stated in Schedule A, sustained or incurred by the insured
by reason of:
1. Title to the estate or interest described in Schedule A being
vested other than as stated therein;
2 Any defect in or lien or encumbrance on the title;
3. Unmarketability of the title;
4. Lack of a right of access to and from the land.
The Company will also pay the costs, attorneys' fees and expenses incurred in
defense of the title or the lien of the insured mortgage, as insured, but only
to the extent provided in the Conditions and Stipulations.
IN WITNESS WHEREOF the Company has caused this policy to be signed and sealed,
to be valid when Schedule A is countersigned by an authorized officer or agent
of the Company, an in accordance with its By-Laws.
Lawyers Title Insurance Corporation
Attest: /s/ R.W. Jordan, III By: /s/ Robert C. Dawson
Secretary President
<PAGE> 21
EXCLUSIONS FROM COVERAGE
The following matters are expressly excluded from the coverage of this
policy and the Company will not pay loss or damage, costs, attorneys' fees or
expenses which arise by reason of:
1.(a) Any law, ordinance or governmental regulation (including but not
limited to building and zoning laws. ordinances, or regulations)
restricting, regulating, prohibiting or relating to (i) the occupancy,
use, or enjoyment of the land; (ii) the character, dimensions or
location of any improvement now or hereafter erected on the land; (iii)
a separation in ownership or a change in the dimensions or area of the
land or any parcel of which the land is or was a part; or (iv)
environmental protection, or the effect of any violation of these laws,
ordinances or governmental regulations, except to the extent that a
notice of the enforcement thereof or a notice of a defect, lien or
encumbrance resulting from a violation or alleged violation affecting
the land has been recorded in the public records at Date of Policy.
(b) Any governmental police power not excluded by (a) above, except to the
extent that a notice of the exercise thereof or a notice of a defect,
lien or encumbrance resulting from a violation or alleged violation
affecting the land has been recorded in the public records at Date of
Policy.
2. Rights of eminent domain unless notice of the exercise thereof has been
recorded in the public records at Date of Policy, but not excluding
from coverage any taking which has occurred prior to Date of Policy
which would be binding on the rights of a purchaser for value without
knowledge.
3. Defects. liens, encumbrances, adverse claims or other matters:
(a) created, suffered, assumed or agreed to by the insured
claimant;
(b) not known to the Company, not recorded in the public records
at Date of Policy, but known to the insured claimant and not
disclosed in writing to the Company by the insured claimant
prior to the date the insured claimant became an insured under
this policy;
(c) resulting in no loss or damage to the insured claimant;
(d) attaching or created subsequent to Date of Policy (except to
the extent that this policy insures the priority of the lien
of the insured mortgage over any statutory lien for services,
labor or material); or
(e) resulting in loss or damage which would not have been
sustained if the insured claimant had paid value for the
estate or interest insured by this policy.
<PAGE> 22
LAWYERS TITLE
INSURANCE CORPORATION
NATIONAL HEADQUARTERS
RICHMOND. VIRGINIA
SCHEDULE A OWNER'S POLICY
Case Number: Date Of Policy Amount of Insurance Endorsements Policy No.
96-548 8-23-96 $1,379,860.00 115-00-003604
Name of Insured:
PRINTPACK, INC., A GEORGIA CORPORATION
LEASEHOLD TERM INSURED IS: See Attached Schedule A-2
The estate or interest in the land which is covered by this policy is:
Leasehold, together with an option to purchase
Title to the estate or interest in the land is vested in:
Printpack, Inc., a Georgia Corporation
The land referred to in this policy is described as follows:
SEE ATTACHED
WTIA, INC. (757) 220-2535
WILLIAMSBURG, VIRGINIA
/s/ Bonnie S. Huff
- ------------------------------------------- -----------------------
Countersignature Authorized Officer or Agent Issued at (Location)
<TABLE>
<S> <C> <C>
Policy 136 This Policy is invalid unless the cover 035-0-136-0000
ALTA Owner's Policy (10-17-92) sheet and Schedule B area attached
</TABLE>
================================================================================
This Policy is invalid unless the cover
sheet and Schedule B area attached
<PAGE> 23
SCHEDULE A-2
The Lawson Group, Ltd., as Lessor ("Lawson") and Shell Oil Company, as
Lessee ("Shell Oil") entered into a lease dated as of July 25, 1990, demising
certain property in James City County, Virginia more particularly described on
Exhibit A attached hereto and made a part hereof (the "Lease").
Lawson's interest in the Lease was assigned to GF Associates by
assignment dated March 29, 1991.
Shell Oil's interest in the Lease was assigned to Rampart Packaging,
Inc. by assignment dated July 25, 1990.
James River II, Inc. acquired all of the stock of Rampart Packaging,
Inc. on August 12, 1991.
James River II, Inc. was merged with and into James River Paper
Company, Inc., the surviving corporation, on December 27, 1992.
A memorandum of such lease between GF Associates, a Virginia general
partnership (Lessor) and James River Paper Company, Inc., a Virginia corporation
(Lessee) dated June 20, 1996, was recorded August 23, 1996 in Deed Book 804,
page 108.
An assignment of the foregoing lease from James River Paper Company,
Inc. (Assignor) to Printpack, Inc. (Assignee) dated August 15, 1996 was recorded
August 23, 1996, in James City Deed Book 804, page 114.
<PAGE> 24
LEGAL DESCRIPTION
(WILLIAMSBURG)
ALL OF THAT LAND SITUATED IN THE BUSCH CORPORATE CENTER, JAMES CITY COUNTY,
VIRGINIA, PREVIOUSLY REFERRED TO AS "SITES 18A AND 18B" ON PLAT RECORDED IN PLAT
BOOK 37, PAGE 63, JAMES CITY COUNTY CLERK'S OFFICE RECORDS, AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS ACCORDING TO PLAT OF SURVEY PREPARED BY
LANGLEY AND MCDONALD, P.C., (BEARING THE CERTIFICATION OF STEPHEN A. ROMEO, REG.
LAND SURVEYOR NO. 1448-B), DATED MAY 17, 1996 AND REVISED AUGUST 16, 1996:
BEGINNING AT A POINT ON THE SOUTH RIGHT-OF-WAY LINE OF PACKETS COURT, SAID POINT
ALSO BEING THE NORTHWEST PROPERTY CORNER OF PROPERTY NOW OR FORMERLY OWNED BY
JEFFERSON SHOALS ASSOCIATES; THENCE LEAVING SAID RIGHT-OF-WAY LINE AND RUNNING
S11(Degree)10'13"E, 35.28 FEET TO A POINT; THENCE S57(Degree)04'40"W, 65.80 FEET
TO A POINT; THENCE S32(Degree)55'20"E, 236.64 FEET TO A POINT; THENCE
S15(Degree)30'00"W, 66.23 FEET TO A POINT; THENCE S15(Degree)30'00"W 60.00 FEET
TO A POINT ON THE NORTH LINE OF A 30' HAMPTON ROADS SANITATION DISTRICT
EASEMENT; THENCE ALONG THE NORTH LINE OF SAID SANITATION DISTRICT EASEMENT
N74(Degree)30'00"W, 70.00 FEET TO A POINT; THENCE ALONG THE NORTHERLY LINE OF
SAID SANITATION DISTRICT EASEMENT, N74(Degree)30'00"W, 319.86 FEET TO A POINT;
THENCE CONTINUING ALONG THE NORTHERLY, NORTHEASTERLY AND EASTERLY LINE OF SAID
SANITATION DISTRICT EASEMENT, ON A CURVE TO THE RIGHT WHOSE RADIUS = 525.42
FEET, CENTRAL ANGLE = 84(Degree)00'00", ARC LENGTH = 770.31 FEET, CHORD LENGTH =
703.15 FEET, CHORD BEARING = N32(Degree)30'00" W TO A POINT; THENCE, CONTINUING
ALONG THE EASTERLY LINE OF SAID SANITATION DISTRICT EASEMENT ON A CURVE TO THE
RIGHT WHOSE RADIUS = 1680.00 FEET, CENTRAL ANGLE = 01(Degree)42'19", ARC LENGTH
= 50.00 FEET, CHORD LENGTH = 50.00 FEET, CHORD BEARING = N08(Degree)38'51"E TO A
POINT; THENCE ALONG THE SOUTH PROPERTY LINE OF LANDS NOW OR FORMERLY OWNED BY
LOUIS C. GOODFARB, N87(Degree)13'38"E, 401.26 FEET TO A POINT; THENCE ALONG THE
WEST PROPERTY LINE OF LANDS NOW OR FORMERLY OWNED BY MELLMAWR TRUST,
S05(Degree)44'19"W, 100.00 FEET TO A POINT; THENCE CONTINUING ALONG THE WEST
PROPERTY LINE OF LANDS NOW OR FORMERLY OWNED BY MELLMAWR TRUST,
S19(Degree)31'59"E, 117.69 FEET TO A POINT; THENCE ALONG THE NORTHWESTERLY
RIGHT-OF-WAY LINE OF PACKETS COURT AND ON A CURVE TO THE LEFT WHOSE RADIUS =
64.00 FEET, CENTRAL ANGLE = 142(Degree)02'45", ARC LENGTH = 158.67 FEET, CHORD
LENGTH = 121.04 FEET, CHORD BEARING = S00(Degree)33'21"E TO A POINT; THENCE
ALONG THE SOUTH RIGHT-OF-WAY OF PACKETS COURT, S71(Degree)34'44"E, 105.36 FEET
TO A POINT; THENCE CONTINUING ALONG THE SOUTH RIGHT-OF-WAY OF PACKETS COURT AND
ON A CURVE TO THE LEFT WHOSE RADIUS =
<PAGE> 25
330.00 FEET, CENTRAL ANGLE = 29(Degree)35'29", ARC LENGTH = 170.43 FEET, CHORD
LENGTH = 168.55 FEET, CHORD BEARING = S86(Degree)22'29"E AND RETURNING TO THE
POINT OF BEGINNING.
TOGETHER WITH THAT CERTAIN NON-EXCLUSIVE PERPETUAL EASEMENT FOR THE INSTALLATION
AND MAINTENANCE OF UNDERGROUND STORMWATER DRAIN PIPES AND RELATED DRAINAGE
FACILITIES FOR THE BENEFIT OF SITES 18A AND 18B DESCRIBED ABOVE, IN, UNDER,
UPON, THROUGH AND BENEATH THE AREA DESIGNATED "2.38 AC. STORMWATER BASIN' ON
THAT CERTAIN PLAT ENTITLED, "BUSCH CORPORATE CENTER - WILLIAMSBURG, PLAT OF
PHASE IV TO BE CONVEYED TO LOUIS C. GOODFARB TRADING AS VIRBY REALTY COMPANY
FROM BUSCH PROPERTIES, INC.," DATED AUGUST 4, 1982, AND RECORDED IN THE CLERK'S
OFFICE AFORESAID IN PLAT BOOK 37, AT PAGE 63, AS MORE PARTICULARLY DESCRIBED IN
THAT CERTAIN DEED OF EASEMENT BETWEEN BUSCH PROPERTIES, INC., AND THE LAWSON
GROUP, LTD., DATED JUNE 10, 1987, WHICH DEED WAS RECORDED IN THE CLERK'S OFFICE
AFORESAID ON JUNE 25, 1987, IN DEED BOOK 350, PAGE 396.
<PAGE> 26
LAWYERS TITLE INSURANCE CORPORATION OWNER'S POLICY
SCHEDULE B
Case Number: Policy Number
96-548 115-00-003604
EXCEPTIONS FROM COVERAGE
This policy does not insure against loss or damage (and the Company will not pay
costs, attorneys' fees or expenses) which arise by reason of:
1. Taxes for the year 1996, a lien, but not yet due, payable or delinquent
and taxes for subsequent years.
2. Terms and conditions of lease between GF Associates and James River
Paper Company, Inc.
3. Quantity of acreage is not insured.
4. Easement granted Virginia Electric & Power Company by instrument dated
November 23, 1983, and recorded in Deed Book 242, page 586 on January
13, 1984.
5. Terms and conditions of Deed of easement from Busch Properties granting
a non-exclusive perpetual easement for the benefit of 18A and 18B for a
drainage easement by instrument dated June 10, 1987, and recorded in
Deed Book 350, page 396 on June 25, 1987.
6. Declaration of covenants dated June 14, 1976 and recorded in Deed Book
169, page 135 and amended by amendment to the Declaration of Covenants
and restrictions dated November 27, 1978 recorded in Deed Book 191,
pages 28-30.
7. Easements for utility purposes and ingress/egress as created on Plat
Book 46, Page 95, and as shown on plat of survey by Stephen A. Romeo
dated May 17, 1996, last revised June 11, 1996.
8. Survey by Stephen A. Romeo dated May 17, 1996, last revised June 11,
1996 shows a portion of concrete curbing and a light pole encroaches
into Packets Court.
9. Survey by Stephen A. Romeo dated May 17, 1996, last revised August 16
1996 discloses a James City Service Authority sewage pumping site at
the southeast corner of the insured premises. We find no record notice
of the rights of the City of James City to occupy said site. The
description of the insured lease includes this pumping station area,
but this policy does not insure the insured that it has any right,
title or interest under lease insured herein to the area marked on the
survey as the James City Service Authority Sewage P.S. Site.
<PAGE> 27
10. Financing statement securing NationsBank of Virginia, N.A. recorded
June 4, 1993 as Instrument Number 17764.
11. Deed of Trust from GF Associates, a Virginia general partnership, to
David L Norton and Wilson R. Trice, Trustees for the benefit of
NationsBank of Virginia, N.A., dated June 4, 1993 and recorded June 4,
1993 in Deed Book 622, page 603.
CONTINUED ...
BSH
<PAGE> 28
LAWYERS TITLE
INSURANCE CORPORATION
NATIONAL HEADQUARTERS
RICHMOND. VIRGINIA
SCHEDULE B cont'd.
12. Assignment of Leases, Rents and Profits from GF associates, a Virginia
general partnership to NationsBank of Virginia, N.A., dated June 4,
1993 and recorded in Deed Book 622, page 614 and June 30, 1993 in Deed
Book 626, page 783.
13. Subordination, Nondisturbance and Attornment Agreement from GF
Associates, a Virginia general partnership, James River Paper Company,
Inc., a Virginia corporation the 'tenant', David L. Norton, sole acting
trustee recorded November 2, 1993, in Deed Book 650, page 460.
14. Leasehold Deed of Trust, Security Agreement, Financing Statement and
Assignment and Rents and Leases from Printpack, Inc., a Georgia
corporation, to Charles Swartz, Trustee, The First National Bank of
Chicago, Beneficiary dated August 20, 1996 and recorded August 23, 1996
in James City County Deed Book 804, Page 116.
15. UCC Financing Statement in favor of The First National Bank of Chicago,
as agent, dated August 20, 1996 and recorded August 22, 1996 as
Instrument Number 960019512.
16. Terms and conditions of a certain option to purchase contained in a
certain Lease dated July 25, 1990 by and between The Lawson Group, LTD,
as Lessor, and Shell Oil Company, as Lessee.
Lawson's interest in the Lease was assigned to GF Associates by
assignment dated March 29, 1991.
Shell oil's interest in the Lease was assigned to Rampart Packaging,
Inc. by assignment dated July 25, 1990.
James River II, Inc. acquired all of the stock of Rampart Packaging,
Inc. on August 12, 1991.
James River II, Inc. was merged with and into James River Paper
Company, Inc., the surviving corporation, on December 27, 1992.
<PAGE> 29
A memorandum of such lease between GF Associates, a Virginia general
partnership (Lessor) and James River Paper Company, Inc., a Virginia corporation
(Lessee) dated June 20, 1996, was recorded August 23, 1996 in James City Deed
Book 804, page 108.
An assignment of the foregoing lease from James River Paper Company, Inc.
(Assignor) to Printpack, Inc. (Assignee) dated August 15, 1996, was
recorded August 23, 1996, in James City Deed Book 804, page 114.
Schedule B Continued
<PAGE> 30
CONTINUED ...
NOTE: By insuring the interest of the insured as optionee under the option
contained in said lease, the company insures that by virtue of the option, the
insured has the prior right to a conveyance of the fee simple title, subject to
the exceptions herein contained, the Exclusions from Coverage and the Conditions
and Stipulations of this policy, upon legally exercising the option and
fulfilling its terms and conditions; and that such right may be successfully
maintained against any other parties claiming through or under the lessor. At
the time of exercising the option and taking title pursuant thereto, the
optionee must determine in whom title is then vested through or under the lessor
and the liens and encumbrances on said title attaching subsequent to the
recording of said option and the company assumes no liability hereunder for cost
or expense incurred by the insured in making such determinations or, there being
no question of the validity or priority of the option involved, in prosecuting
such suit or suits as may be necessary to procure the necessary deed from the
party or parties in whom title is then vested or the necessary discharge of the
liens and encumbrances then on the property.
This policy does not insure against any liens, encumbrances or defects which may
be created, suffered, or agreed to by the owner which may attach and may be
filed of record subsequent to the date of this Policy.
Loss or damage resulting from the rejection of the option referred to in
Schedule A hereof in any proceedings in or related to the Bankruptcy Act of the
United States subsequent to the date hereof or resulting from loss of title by
the option or by sale for taxes and/or assessments therein excepted hereafter
accruing.
Said option to purchase is subject to the operation of the Virginia statute
against perpetuities.
<PAGE> 31
LAWYERS TITLE INSURANCE CORPORATION
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
OWNER'S COMPREHENSIVE ENDORSEMENT
CODE NAME
Williamsburg, VA
Printpack. Inc.
Attached to and made a part of Lawyers Title Insurance Corporation Policy No.
115-00-003604
1. Any inaccuracies in the following assurances:
a. There are no covenants, conditions or restrictions under which
the estate of the insured referred to in Schedule A can be divested.
b. That, unless otherwise expressly set forth or indicated to the
contrary in Schedule B:
(1.) There are no present violations on said land of any
enforceable covenants, conditions or restrictions or plat building lines;
(2.) Any instrument referred to in Schedule B as specifically
containing "covenants and restrictions" affecting said land does not, in
addition, establish as easement thereon or provide for either a lien for
liquidated damages, a levy of private charge of assessment, and option to
purchase, or the prior approval of a future purchaser or occupant;
(3.) There are no encroachments of existing improvements located on
said land onto adjoining land, nor any encroachments onto said land of existing
improvements located on adjoining land;
(4.) There are no encroachments or existing improvements located on
said land onto that portion of said land subject to any easement shown in
Schedule B.
2. The entry of any court order of judgment which constitutes a final
determination and denies the right to maintain any existing improvements on said
land because of any violations of any covenants, conditions or restrictions or
plat building lines or because of any encroachment thereof over onto adjoining
land.
3. Any future violations on said land of any covenants, conditions or
restrictions provided such violations result in loss of title to said estate.
<PAGE> 32
The total liability of the Company under said policy, binder or commitment and
under this and any prior endorsements thereto shall not exceed, in the
aggregate, the amount of liability stated on the face of said policy, binder or
commitment, as the same may be specifically amended in dollar amount by this or
any prior endorsements, and the costs which the Company is obligated to pay
under the Conditions and Stipulations of the policy.
This endorsement is made a part of said policy, binder or commitment and is
subject to all the terms and provisions thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of the aforesaid policy, binder or commitment unless otherwise
expressly stated.
IN WITNESS WHEREOF, the Company has caused this Endorsement to be signed and
sealed as of the 24th Day of September, 1996, to be valid when counter signed by
an authorized officer or agent of the Company, all in accordance with its
By-Laws.
Lawyers Title Insurance Corporation
BY: Janet A. Alpert, President
Issued at: Westerville. Ohio
------------------
COUNTERSIGNED:
/s/ Mark W. Sinkhorn Attest: Russell W. Jordan, III Secretary
- -----------------------------
Authorized Officer or Agent
<PAGE> 33
Lawyers Title
Insurance Corporation
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
ACCESS
ENDORSEMENT
CODE NAME NUMBER
Printpack, Inc. 115-00-003604
SITE: Williamsburg, Virginia
Attached to and made a part of Lawyers Title
Insurance Corporation No. 115-00-003604
The provisions of said policy are hereby modified and amended as of the date
hereof as to the following matters and none other:
This policy insures the insured against loss or damage sustained by reason of
any inaccuracy in the following statement:
That the premises described in Item 5 of Schedule A has access to a duly
dedicated street known as:
Packets Court
The total liability of the Company under said policy, binder or commitment and
under this and any prior endorsements thereto shall not exceed, in the
aggregate, the amount of liability stated on the face of said policy, binder or
commitment, as the same may be specifically amended in dollar amount by this or
any prior endorsements, and the costs which the Company is obligated to pay
under the Conditions and Stipulations of the policy.
This endorsement is made a part of said policy, binder or commitment and is
subject to all the terms and provisions thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of the aforesaid policy, binder or commitment unless otherwise
expressly stated.
<PAGE> 34
IN WITNESS WHEREOF the Company has caused this Endorsement to be signed and
sealed as of the 24th day of September 1996 to be valid when countersigned by an
authorized officer or agent of the Company, all in accordance with its By-Laws.
Lawyers Title Insurance Corporation
By: /s/ Janet A. Alpert
President
Issued at Williamsburg, Attest: /s/ John M. Carter
Secretary
LAWYERS TITLE
INSURANCE CORPORATION
SEAL
1925
RICHMOND, VA
COUNTERSIGNED:
WTIA INC.
/s/ Bonnie S. Huff
- --------------------------
Authorized Officer or Agent
<PAGE> 35
Lawyers Title
Insurance Corporation
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
SURVEY
ENDORSEMENT
CODE NAME NUMBER
Printpack, Inc. 115-00-003604
SITE: Williamsburg, Virginia
Attached to and made a part of Lawyers Title Insurance
Corporation No. 115-00-003604
The provisions of said policy are hereby modified and amended as of the date
hereof as to the following matters and none other:
This policy insures the Insured that the lands described in Schedule A are the
same lands described in the survey prepared by Langley & McDonald, P.C. dated
May 17, 1996, revised June 11, 1996, further revised August 16, 1996 (Job No.
96621/97); however, the Company does not insure the acreage of the lands.
The Company hereby insures the Insured against losses which said Insured shall
sustain in the event that the assurances hereinabove shall prove to be
incorrect.
The total liability of the Company under said policy, binder or commitment and
under this and any prior endorsements thereto shall not exceed, in the
aggregate, the amount of liability stated on the face of said policy, binder or
commitment, as the same may be specifically amended in dollar amount by this or
any prior endorsements, and the costs which the Company is obligated to pay
under the Conditions and Stipulations of the policy.
This endorsement is made a part of said policy, binder or commitment and is
subject to all the terms and provisions thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of the aforesaid policy, binder or commitment unless otherwise
expressly stated.
<PAGE> 36
IN WITNESS WHEREOF the Company has caused this Endorsement to be signed and
sealed as of the 24th day of September 1996 to be valid when countersigned by an
authorized officer or agent of the Company, all in accordance with its By-Laws.
Lawyers Title Insurance Corporation
By: /s/ Janet A. Alpert
President
Issued at Williamsburg, Attest: /s/ John M. Carter
Secretary
LAWYERS TITLE
INSURANCE CORPORATION
SEAL
1925
RICHMOND, VA
COUNTERSIGNED:
WTIA INC.
/s/ Bonnie S. Huff
- ---------------------------
Authorized Officer or Agent
<PAGE> 37
Lawyers Title
Insurance Corporation
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
TAX LOT
ENDORSEMENT
CODE NAME NUMBER
Printpack, Inc. 115-00-003604
SITE: Williamsburg, Virginia
Attached to and made a part of Lawyers Title
Insurance Corporation No. 115-00-003604
The provisions of said policy are hereby modified and amended as of the date
hereof as to the following matters and none other:
This policy hereby assures the Insured that the Premises described in Schedule A
is assessed and taxed in such a way that no other realty is assessed and taxed
along with said Premises or any portion thereof.
The company hereby insures the Insured against losses which said Insured shall
sustain in the event that the assurances hereinabove shall prove to be
incorrect.
The total liability of the Company under said policy, binder or commitment and
under this and any prior endorsements thereto shall not exceed, in the
aggregate, the amount of liability stated on the face of said policy, binder or
commitment, as the same may be specifically amended in dollar amount by this or
any prior endorsements, and the costs which the Company is obligated to pay
under the Conditions and Stipulations of the policy.
This endorsement is made a part of said policy, binder or commitment and is
subject to all the terms and provisions thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of the aforesaid policy, binder or commitment unless otherwise
expressly stated.
<PAGE> 38
IN WITNESS WHEREOF the Company has caused this Endorsement to be signed and
sealed as of the 24th day of September 1996 to be valid when countersigned by an
authorized officer or agent of the Company, all in accordance with its By-Laws.
Lawyers Title Insurance Corporation
By: /s/ Janet A. Alpert
President
Issued at Williamsburg, Attest: /s/ John M. Carter
Secretary
LAWYERS TITLE
INSURANCE CORPORATION
SEAL
1925
RICHMOND, VA
COUNTERSIGNED:
WTIA INC.
/s/ Bonnie S. Huff
- ------------------------------
Authorized Officer or Agent
<PAGE> 39
IMPORTANT INFORMATION TO POLICY HOLDERS
In the event your need to contact, someone about this policy for any
reason, please contact your agent. If you have additional questions you may
contact the Insurance Company issuing this policy at the following address and
telephone number: LAWYERS TITLE INSURANCE CORPORATION, 6630 WEST BROAD STREET,
RICHMOND, VIRGINIA 23230, TELEPHONE 1-804-281-6817.
If you have been unable to contact or obtain satisfaction from the
Company or the Agent, you may contact the Virginia Bureau of Insurance at:
Property and Casualty Division, Bureau of Insurance, P.O. Box 1157, Richmond,
Virginia 23209, Instate toll free calls 1-800-55207945; out state calls
1-804-786-3741.
Written correspondence is preferable so that a record of you inquiry is
maintained. When contacting your Agent, Company of Bureau of Insurance have your
policy number available.
Form 45-20
<PAGE> 40
with any costs, attorneys' fees and expenses incurred by the insured claimant
which were authorized by the Company up to the time of payment and which the
Company is obligated to pay; or
(ii) to pay or otherwise settle with the insured claimant the
loss or damage provided for under this policy, together with any costs,
attorneys' fees and expenses incurred by the insured claimant which were
authorized by the Company up to the time of payment and which the Company is
obligated to pay.
Upon the exercise by the Company of either of the options provided for
in paragraphs (b)(i) or (ii), the Company's obligations to the insured under
this policy for the claimed loss or damage, other than the payments required to
be made, shall terminate, including any liability or obligation to defend,
prosecute or continue any litigation.
7. DETERMINATION, EXTENT OF LIABILITY AND COINSURANCE.
This policy is a contract of indemnity against actual monetary loss or
damage sustained or incurred by the insured claimant who has suffered loss or
damage by reason of matters insured against by this policy and only to the
extent herein described.
(a) The liability of the Company under this policy shall not
exceed the least of:
(i) the Amount of Insurance stated in Schedule A; or,
(ii) the difference between the value of the insured
estate or interest as insured and the value of the insured estate or interest
subject to the defect, lien or encumbrance insured against by this policy.
(b) In the event the Amount of Insurance stated in Schedule A at
the Date of Policy is less than 80 percent of the value of the insured estate or
interest or if subsequent to the Date of Policy an improvement is erected on the
land which increases the value of the insured estate or interest by at least 20
percent over the Amount of Insurance stated in Schedule A, then this Policy is
subject to the following:
(i) where no subsequent improvement has been made, as to
any partial loss, the Company shall only pay the loss pro rata in the proportion
that the amount of insurance at Date of Policy bears to the total value of the
insured estate or interest at Date of Policy; or
(ii) where a subsequent improvement has been made, as to
any partial loss, the Company shall only pay the loss pro rata in the proportion
that 120 percent of the Amount of Insurance stated in Schedule A bears to the
sum of the Amount of Insurance stated in Schedule A and the amount expended for
the improvement.
<PAGE> 41
The provisions of this paragraph shall not apply to costs; attorneys'
fees and expenses for which the Company is liable under this policy, and shall
only apply to that portion of any loss which exceeds, in the aggregate, 10
percent of the Amount of Insurance stated in Schedule A.
(c) The Company will pay only those costs, attorneys' fees and
expenses incurred in accordance with Section 4 of these Conditions and
Stipulations.
8. APPORTIONMENT.
If the land described in Schedule A consists of two or more parcels
which are not used as a single site, and a loss is established affecting one or
more of the parcels but not all, the loss shall be computed and settled on a pro
rata basis as if the amount of insurance under this policy was divided pro rata
as to the value on Date of Policy of each separate parcel to the whole,
exclusive of any improvements made subsequent to Date of Policy, unless a
liability or value has otherwise been agreed upon as to each parcel by the
Company and the insured at the time of the issuance of this policy and shown by
an express statement or by an endorsement attached to this policy.
9. LIMITATION OF LIABILITY.
(a) If the Company establishes the title, or removes the alleged
defect, lien or encumbrance, or cures the lack of a right of access to or from
the land, or cures the claim of unmarketability of title, all as insured, in a
reasonably diligent manner by any method, including litigation and the
completion of any appeals therefrom, it shall have fully performed its
obligations with respect to that matter and shall not be liable for any loss or
damage caused thereby.
(b) In the event of any litigation, including litigation by the
Company or with the Company's consent, the Company shall have no liability for
loss or damage until there has been a final determination by a court of
competent jurisdiction, and disposition of all appeals therefrom, adverse to the
title as insured.
(c) The Company shall not be liable for loss or damage to any
insured for liability voluntarily assumed by the insured in setting any claim or
suit without the prior written consent of the Company.
10. REDUCTION OF INSURANCE; REDUCTION OR TERMINATION OF LIABILITY.
All payments under this policy, except payments made for costs,
attorneys' fees and expenses, shall reduce the amount of the insurance pro
tanto.
<PAGE> 42
11. LIABILITY NONCUMULATIVE.
It is expressly understood that the amount of insurance under this
policy shall be reduced by any amount the Company may pay under any policy
insuring a mortgage to which exception is taken in Schedule B or to which the
insured has agreed, assumed, or taken subject, or which is hereafter executed by
an insured and which is a charge or lien on the estate or interest described or
referred to in Schedule A, and the amount so paid shall be deemed a payment
under this policy to the insured owner.
12. PAYMENT OF LOSS.
(a) No payment shall be made without producing this policy for
endorsement of the payment unless the policy has been lost or destroyed, in
which case proof of loss or destruction shall be furnished to the satisfaction
of the Company.
(b) When liability and the extent of loss or damage has been
definitely fixed in accordance with these Conditions and Stipulations, the loss
or damage shall be payable within 30 days thereafter.
13. SUBROGATION UPON PAYMENT OR SETTLEMENT.
(a) The Company's Right of Subrogation.
Whenever the Company shall have settled and paid a claim under this
policy, all right of subrogation shall vest in the Company unaffected by any act
of the insured claimant.
The Company shall be subrogated to and be entitled to all rights and
remedies which the insured claimant would have had against any person or
property in respect to the claim had this policy not been issued. If requested
by the Company, the insured claimant shall transfer to the Company all rights
and remedies against any person or property necessary in order to perfect this
right of subrogation. The insured claimant shall permit the Company to sue,
compromise or settle in the name of the insured claimant and to use the name of
the insured claimant in any transaction or litigation involving these rights or
remedies.
If a payment on account of a claim does not fully cover the loss of the
insured claimant, the Company shall be subrogated to these rights and remedies
in the proportion which the Company's payment bears to the whole amount of the
loss.
If loss should result from any act of the insured claimant, as stated
above, that act shall not void this policy, but the Company, in that event,
shall be required to pay only that part of any losses insured against by this
policy which shall exceed the amount, if any, lost to the Company by reason of
the impairment by the insured claimant of the Company's right of subrogation.
<PAGE> 43
(b) The Company's Rights Against Non-Insured Obligors.
The Company's right of subrogation against non-insured obligors shall
exist and shall include, without limitation, the rights of the insured to
indemnities, guaranties, other polices of insurance or bonds, notwithstanding
any terms or conditions contained in those instruments which provide for
subrogation rights by reason of this policy.
14. VALUATION OF ESTATE OR INTEREST INSURED.
If, in computing loss or damage incurred by the insured, it becomes
necessary to determine the value of the estate or interest insured by this
policy, the value shall consist of the then present worth of the excess, if any,
of the fair market rental value of the estate or interest, undiminished by any
matters for which claim is made, for that part of the term stated in Schedule A
then remaining plus any renewal or extended term for which a valid option to
renew or extend is contained in the Lease, over the value of the rent and other
consideration required to be paid under the lease for the same period.
15. MISCELLANEOUS ITEMS OF LOSS.
In the event the insured is evicted from possession of all or a a part
of the land by reason of any matters insured against by this policy, the
following, if applicable, shall be included in computing loss or damage incurred
by the insured, but not to the extent that the same are included in the
valuation of the estate or interest insured by this policy.
(a) The reasonable cost of removing and relocating any personal
property which the insured has the right to remove and relocate, situated on the
land at the time of eviction, the cost of transportation of that personal
property for the initial twenty-five miles incurred in connection with the
relocation, and the reasonable cost of repairing the personal property damaged
by reason of the removal and relocation. The costs referred to above shall not
exceed in the aggregate the value of the personal property prior to its removal
and relocation.
"Personal Property," above referred to, shall mean chattels and
property which because of its character and manner of affixation to the land,
can be severed therefrom without causing appreciable damage to the property
severed or to the land to which the property is affixed.
(b) Rent or damages for use and occupancy of the land prior to the
eviction which the insured as owner of the leasehold estate may be obligated to
pay to any person having paramount title to that of the lessor in the Lease.
(c) The amount of rent which, by the terms of the Lease, the
insured
<PAGE> 44
EXHIBIT D
WACHOVIA REAL ESTATE CAPITAL MARKETS
CONDUIT TERM SHEET
This term sheet is for discussion purposes only. This is not a
commitment to lend, but rather an indication as of May 1, 1998 of the terms and
conditions of a conduit loan that Wachovia would consider providing to the
Borrower for the financing at the Project noted below. Without the prior written
consent of Wachovia, N.A., the contents of this term sheet may not be disclosed
to any third party.
Borrower: A to be determined single asset, bankruptcy remote entity.
Loan Amount: $4,300,000
Collateral: Printpack, Inc.
Spread: 1.80%
Fee: 1.00%
Minimum DSC: 1.25
Maximum LTV: 75%
Term: 15
Amc: 25
Prepayment: Lockout for years 1-5; greater of 1% or yield maintenance
thereafter; prepay at par last three months.
Other: Subject to Wachovia's standard underwriting and documentation
requirements for a real estate conduit loan.
05/01/1998
<PAGE> 45
EXHIBIT E
Section 8.1 No Sale/Encumbrance. Borrower agrees that Borrower shall
not, without the prior written consent of Lender, sell, convey, mortgage, grant,
bargain, encumber, pledge, assign, or otherwise transfer the Property or any
part thereof or permit the Property or any part thereof to be sold, conveyed,
mortgaged, granted, bargained, encumbered, pledged, assigned, or otherwise
transferred, other than pursuant to Leases of space in the Improvements to
tenants in accordance with the provisions of Section 3.8. Notwithstanding the
foregoing or anything to the contrary contained in this Article 8, sale of the
Property and assumption of the Loan shall be permitted to Print Pack, Inc., so
long as Print Pack, Inc. (a) has maintained its credit-worthiness to at least
the same extent as of the date of this Security Instrument, as evidenced by
financial statements and other information reasonably requested by lender, (b)
has executed an assumption agreement in form and substance acceptable to Lender,
evidencing Print Pack Inc.'s agreement to be bound by the terms of the Note,
this Security Agreement and Other Security Documents (including, but not limited
to, all single purpose entity covenants), and (c) has paid all costs and
expenses incurred by lender in accordance with the provisions of Section 8.3.
Sale of the Property and assumption of the Loan shall be permitted to an entity
not related to Print Pack, Inc., subject to Lender's approval of the transferee,
such approval not to be unreasonably withheld, conditioned or delayed.
<PAGE> 46
EXHIBIT F
Lawyers Title
Insurance Corporation
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
- --------------------------------------------------------------------------------
ENDORSEMENT
Case Number 001068
Code Name
GF ASSOCIATES
Attached to and made a part of Lawyers Title Insurance Corporation Policy
No. 115-00-003604
NOTE: THIS SPECIMEN (PRO FORMA) ENDORSEMENT IS FURNISHED AT THE REQUEST OF THE
PROPOSED INSURED AND IT IS UNDERSTOOD AND AGREED THAT IT DOES NOT REFLECT THE
PRESENT STATE OF TITLE. THE FURNISHING OF THE COVERAGE SET FORTH HEREIN IS
CONTINGENT UPON ALL OF THE COMPANY'S REQUIREMENTS BEING SATISFIED AT OR PRIOR TO
CLOSING.
1. DATE OF POLICY is changed from August 31, 1996 to _________, 1998 at
___:___ __.m.
2. AMOUNT OF INSURANCE is changed from 1,379,860.00 to $__________.
Continued
The total liability of the Company under said policy, binder or commitment and
under this and any prior endorsements thereto shall not exceed, in the
aggregate, the amount of liability stated on the face of said policy, binder or
commitment, as the same may be specifically amended in dollar amount by this or
any prior endorsements, and this costs which the Company is obligated to pay
under the Conditions and Stipulations of the policy.
This endorsement is made a part of said policy, binder or commitment and is
subject to all the terms and provisions thereof, except as modified by the
provisions hereof.
Nothing herein contained shall be construed as extending or changing the
effective date of the aforesaid policy, binder or commitment unless otherwise
expressly stated.
<PAGE> 47
IN WITNESS WHEREOF, the Company has caused this Endorsement to be signed and
sealed as of the ___ day of ______, 1998, to be valid when countersigned by an
authorized officer or agent of the Company, all in accordance with its By-Laws.
Issued at Norfolk, Virginia 33510 Lawyers Title Insurance Corporation
Tel (757) 622-8105/Fax 623-4058
COUNTERSIGNED: Southeastern Virginia Branch Office Janet A. Alpert
President
- ----------------------------------
Authorized Officer or Agent John M. Carter
Secretary
<PAGE> 48
LAWYERS TITLE
INSURANCE CORPORATION
POLICY ENDORSEMENT
CONTINUED
Case No. 0001068 Policy No.: 115-00-003604
3. Schedule A, Item 4 is hereby AMENDED to read as follows:
All that certain lot, piece or parcel of land, with the buildings and
improvements thereon, situate, lying and being in James City County, Virginia,
and known, numbered and designated as Site 18-A, as shown on that certain plat
entitled "PLAT OF PARCEL 18 BEING A RE-SUBDIVISION OF BUSCH CORPORATE
CENTER-WILLIAMSBURG", dated January 8, 1998, prepared by Langley and McDonald,
which said plat is duly recorded in the Clerk's Office of the Circuit Court of
James City County, Virginia, in Map Book , Page .
TOGETHER WITH that certain non-exclusive perpetual easement for the installation
and maintenance of underground stormwater drain pipes and related drainage
facilities for the benefit of Sites 18A and 18B, in, under, upon, through and
beneath the area designated "2.38Ac. Stormwater Basin" on that certain plat
entitled, "Busch Corporate Center - Williamsburg, Plat of Phase IV to be
conveyed to Louis C. Goldfarb Trading as Virby Realty Company from Busch
Properties, Inc.," dated August 4, 1982, and recorded in the Clerk's Office
aforesaid in Plat Book 37, at page 63, and more particularly described in that
certain Deed of Easement between Busch Properties, Inc., and The Lawson Group,
Ltd., dated June 10, 1987, which Deed of Easement was recorded in the Clerk's
Office aforesaid on June 25, 1987, in Deed Book 350, at page 396.
IT BEING the same property conveyed to GF ASSOCIATES, a Virginia general
partnership, by deed from The Lawson Group, Ltd., a Virginia corporation, dated
March 29, 1991, recorded in Deed Book 514, page 759; and also being a portion of
the same property conveyed to Busch Properties, Inc. by deed from
Anheuser-Busch, Incorporated, recorded December 27, 1972 in Deed Book 141, page
313. Correcting deed recorded in Deed Book 151, page 142.
IT BEING the same property leased to PRINTPACK, INC. as evidenced by Amendment
to Memorandum of Lease from GF ASSOCIATES, a Virginia general partnership, dated
___________, 1998, recorded in Deed Book _________, page _______.
4. Schedule B, Item 1 is hereby AMENDED to read as follows:
1. Taxes for the year 1998, and subsequent years.
Continued
<PAGE> 49
LAWYERS TITLE
INSURANCE CORPORATION
NATIONAL HEADQUARTERS
RICHMOND, VIRGINIA
POLICY ENDORSEMENT
CONTINUED
Case No. 0001068 Policy No.: 115-00-003604
5. Schedule B is hereby AMENDED by adding thereto the following:
16. Such state of facts occurring subsequent to August 16, 1996, date of
survey made by Stephen A. Romeo, as would be disclosed by a current accurate
survey and inspection of the premises.
17. Financing Statement No. 930017764, showing GF ASSOCIATES, as debtor,
and Nationsbank of Virginia N.A., as secured party, filed June 4, 1993.
Continuation filed March 16, 1998 as Number 98 20456.
18. Financing Statement No. 960019547, showing Printpak, Inc. as debtor,
and The First National Bank of Chicago, as secured party, filed September 11,
1996.
19. Financing Statement No. 960019512, showing Printpak, Inc., as debtor,
and The First National Bank of Chicago, as secured party, filed August 22, 1996.
22. Easement granted Virginia Electric and Power Company by instrument
recorded in Deed Book 242, Page 586.
Continued
<PAGE> 50
LAWYERS TITLE
INSURANCE CORPORATION
POLICY ENDORSEMENT
CONTINUED
Case No. 0001068 Policy No.: 115-00-003604
23. Restrictions, conditions, covenants and easements appearing of record
in Deed Book 161, Page 31, Deed Book 169, page 135, Deed Book 191, page 28, Deed
Book 263, page 219, Deed Book 385, page 661 and Deed Book 385, page 665. NOTE:
This exception omits any covenant, condition or restriction based on race,
color, religion, sex, handicap, familial status or national origin as provided
in 42 U.S.C. Section 1604, unless and only to the extent that the covenant (a)
is not in violation of state or federal law, (b) is exempt under 42 U.S.C.
Section 3607, or (c) relates to a handicap, but does not discriminate against
handicapped people.
24. Sewer easement granted James City Service Authority by instrument dated
August 14, 1974, recorded in Deed Book 156, Page 645.
25. Sewer easement granted HRSD by instrument recorded in Deed Book 250,
Page 358 and shown on plat recorded in Plat Book 28, page 58 and in Plat Book
46, page 95.
26. Scenic easements set forth in instrument creating Carters Grove County
Road recorded in Deed Book 158, Page 465 and in Deed Book 431, page 701.
27. Utility and drainage easements set forth in instruments recorded in
Deed Book 533, page 4 and in Deed Book 169, page 153.
28. Easement granted Colonial Pipeline easement as shown on plat recorded
in Plat Book 28, pages 19 and 20.
29. 30 foot sanitary sewer right-of-way reserved by Busch Properties as
shown on plat recorded in Plat Book 35, page 36.
