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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED APRIL 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-15077
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-2742734
(State or other jurisdiction (IRS employer
of incorporation or organization) identification No.)
55 ENGINEERS LANE, FARMINGDALE, NEW YORK
(Address of principal executive offices)
11735
(Zip Code)
(516) 694-2900
Registrant's telephone number, including area code
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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None Not Applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
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 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.
As of July 18, 1994, the aggregate market value of the Registrant's
common stock held by non-affiliates of the Registrant was approximately
$157,054,000. (This figure was computed on the basis of the average of the high
and low selling prices for the Registrant's common stock on July 18, 1994).
Non-affiliates include all shareholders of Registrant other than officers,
directors and 5% shareholders. As of July 18, 1994 there were 18,023,365 shares
of the Registrant's common stock, $.01 par value per share, issued and
outstanding.
The Exhibit Index is Located on Page 67. Total Pages: 84
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PART I
ITEM 1. BUSINESS
Introduction
Shorewood Packaging Corporation ("Shorewood" or the "Company") prints
and manufactures high quality paperboard packaging for the cosmetics, home
video, music, software, tobacco and toiletries and general consumer markets in
the United States and Canada. Effective January 1, 1994, the Company, through
wholly-owned subsidiaries, acquired certain assets which comprised the
"Somerville Premium Packaging Business" of Cascades Paperboard International,
Inc. (the "Premium Group"). The Premium Group converts virgin boxboard into high
value-added folding cartons primarily for the tobacco and cosmetic industries.
It is an industry leader for flip-top cigarette packaging both in Canada and the
United States. Additionally, on January 17, 1994, the Company, through a
wholly-owned subsidiary, acquired certain assets from Heminway Packaging
Corporation ("Heminway") which comprised substantially all of the assets used in
its rigid set-up box and thermoforming business (the "Heminway Business"). (The
Premium Group and the Heminway Business are referred to together as the
"Acquired Companies"). See "Acquisitions." The Company expects that its future
sales growth will be derived from the continued penetration of its existing
markets and from the exploitation of new, emerging markets, such as the
expanding market for CD-Rom packaging.
Shorewood has developed and currently utilizes a printing and
manufacturing web system which it refers to as the "JOSH System." The Company
believes that the JOSH system gives designers of packaging the flexibility to
translate certain graphic concepts into high quality, cost-efficient and
precisely manufactured packaging.
Business Strategy
Shorewood's strategic objectives are (i) the maintenance of its
position as a leading paperboard packager to the tobacco industry and the home
entertainment market, which includes the music and video industries; (ii) the
further expansion of the Company's markets in the cosmetics and toiletries,
software, food, consumer electronics, film and hosiery industries; and (iii) to
identify other areas in the general consumer packaging industry that can most
benefit from the Company's ability to produce graphically enhanced high quality
packaging.
To achieve these objectives, the Company intends to continue expanding
its printing, packaging and graphic arts capabilities, including the development
and application of advanced manufacturing technologies. See "Production."
Packaging Products
The Company produces high quality specialized packaging, principally
folding cartons and set up boxes, for its customers in the United States and
Canada that require sophisticated precision graphic packaging for their
products, including customers in the home entertainment industry, the tobacco
industry, the software industry, the personal care, cosmetic and toiletries
industries and in such general consumer industries as the food, film, hosiery,
consumer electronics, and pharmaceutical industries. (See Note 14 of Notes to
Consolidated Financial Statements).
As a result of its acquisition of the Premium Group, the Company has
become a principal supplier of printed packaging products for the tobacco
industry. For its tobacco industry customers, the Company
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produces the hard flip-top cigarette packages as well as the traditional slide
and shell packages. These products are used to package many of the leading
tobacco brands. The Company believes that through its acquisition of the Premium
Group it has become the primary carton supplier to the Canadian tobacco industry
and a leading manufacturer of paperboard packaging for the tobacco industry in
the United States.
For its home entertainment industry customers, the Company manufactures
compact disc packaging (including folders, booklets and liners), prerecorded
cassette packaging (including folders and sleeves), and other printed material
for the music industry and paperboard packaging for all video cassette formats
(including VHS and 8 millimeter). The Company's music industry customers include
most of the major music production and distribution companies in the United
States. The Company has long-standing relationships with many of these companies
and in certain cases also has agreements, typically for three to five years, to
supply their packaging products.
In March 1993, the manufacturers of prerecorded music discontinued the
use of the long-box as a packaging medium for compact discs. During fiscal 1993,
the Company realized revenues of approximately $20.0 million from the sales of
the long-box. Revenues derived from the long-box were negligible during fiscal
1994. This revenue loss was mitigated as the Company's revenues increased in
fiscal year 1994, primarily as a result of its acquisition of the Acquired
Companies. Additionally, the Company continues its efforts to market to music
industry manufacturers and other users of compact discs different forms of
compact disc packaging.
The Company is a supplier of paperboard packaging for the cosmetics and
toiletries industry and also produces a wide range of consumer packaging
products. Additionally, as a result of the Company's acquisition of the Heminway
Business, the Company manufactures and provides rigid set-up boxes principally
to the cosmetics industry. An emerging new market for the Company's products is
the software industry. In particular, the Company expects to derive future sales
growth through the continued expansion of its role as a supplier of paperboard
packaging for CD-Rom products.
The Company has supplied a significant portion of the music packaging
products required by Sony Music Entertainment, Inc., a wholly-owned subsidiary
of Sony Corporation ("Sony") and, from time to time, has entered into supply
agreements with Sony. Sony and its affiliates (including its Canadian
operations) accounted for approximately 18% and 25% of the Company's net sales
for fiscal 1993 and 1992, respectively. The Company cannot predict the packaging
product requirements of Sony in the future. Neither Sony nor any other customer
of the Company accounted for more than 10% of the Company's consolidated
revenues during fiscal 1994.
Production
The Company generally produces packaging from specifications, art work
or film supplied by its customers. However, the Company from time to time
designs and develops new packaging concepts and structures when required by its
customers.
The Company's manufacturing facilities are equipped with Josh Systems
and multi-color sheet fed printing presses as well as other equipment necessary
to produce packaging including platemaking equipment, leaf stamping machines,
diecutters/embossers, folders and gluers. Further, the Company has machine shops
which enable it to service and maintain substantially all of its machinery and
equipment. The Company also maintains a full-time design and engineering staff.
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The Company's productive capacity has substantially increased as a
result of capital expenditures for machinery and equipment and the acquisition
of new facilities, including the acquisition of the Acquired Companies. At April
30, 1994, the Company estimates that its current combined productive capacity
(exclusive of idle assets) based on its current product mix approximates
$380-400 million per year in revenues based upon three work shifts per day, five
days a week, at 80% of total equipment capacities. The Company's policy is to
continue to enhance its technological capacities to meet competitive challenges,
although there can be no assurance that it will be able to do so.
Marketing and Sales
The Company's sales result primarily from direct solicitation by the
Company's executive officers and 56 salespeople, 36 of whom are in the United
States and 20 of whom are in Canada.
The Company's marketing and sales efforts emphasize the Company's
ability to print high quality specialized packaging in a timely manner by
utilizing the Company's state-of-the-art manufacturing systems. The Company and
its design and packaging development staff are frequently consulted by consumer
product companies for assistance in developing new and alternative packaging
concepts. Shorewood has also assisted its customers in the development and
acquisition of automated packaging equipment which can use the Company's new
packaging products. The Company's ability to meet the rapid delivery
requirements of its customers has enhanced its competitive position with
consumer product companies.
In addition to sales activities conducted from its manufacturing
plants, the Company has sales offices in New York, New York; Los Angeles and San
Mateo, California; Chicago, Illinois; Charlotte, North Carolina and Montreal,
Canada.
Part of the Company's business is seasonal. Sales generally increase in
the five months preceding the Christmas holiday season because many of the
products for which it supplies packaging - cosmetics, home video, music,
toiletries and toys - have higher holiday sales. However, in the past several
years, as the Company's range of products for which it supplies packaging has
expanded, through acquisitions, the development of new markets and otherwise,
the seasonality factor of the Company's business has diminished.
Customers are billed upon completion of a shipment. For customers in
the music and home video industry, and the tobacco industry, jobs are generally
completed and shipped to customers shortly after an order is received. For
general consumer customers, jobs are usually completed and shipped within six to
eight weeks. As of April 30, 1994, the Company had approximately $45.9 million
in backlog orders, all of which will be filled within the 1995 fiscal year. As
of May 1, 1993, the Company had approximately $17.8 million in backlog orders,
all of which were filled within the 1994 fiscal year.
Competition
The principal elements of competition in the paperboard packaging
industry are quality, service and price. The Company believes that it competes
effectively in each of these categories. The Company competes generally with
different companies in its different industry areas, some of which are
subsidiaries or divisions of companies with much greater financial resources
than those of the Company.
While the Company believes its present competitive position is strong,
there can be no assurance that this will not change. Other packaging companies
may develop technologies which equal or improve upon those of the Company or may
have strong relationships with potential customers which could inhibit
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the expansion of the Company's business. Furthermore, because the Company
supplies packaging to consumer industries, it is also subject to the competitive
forces affecting its customers.
Employees
At April 30, 1994, the Company employed approximately 2,200 full-time
employees, of which approximately 1,300 individuals were located in the United
States and approximately 900 individuals were located in Canada.
Approximately 22% of the Company's employees are represented by unions
covering manufacturing personnel in Andalusia, Alabama; Waterbury, Connecticut;
Pittsford, New York; Smiths Falls and Toronto, Canada (Toronto Carton facility
only). Collective bargaining contracts are negotiated on an individual plant or
union local basis. The Company's collective bargaining agreements expire at
various times from 1994 to 1995. The Company considers its labor relations to be
satisfactory and it has not experienced any significant work stoppages in its
operating history.
Materials
Although the Company buys a number of different materials, such as
paperboard, paper, ink, coatings, film and plates, only the costs associated
with the purchase of paperboard and paper are significant. The Company purchases
paperboard and paper from various mills and suppliers and many alternate sources
are available. While the Company does not anticipate any significant difficulty
in obtaining supplies of paperboard, paper or other materials in the future,
there can be no assurance that, as the Company's business continues to expand,
it will not encounter difficulty in obtaining its increasing material
requirements.
Acquisitions
Effective January 1, 1994, the Company, through wholly-owned
subsidiaries, acquired certain of the United States and Canadian assets of
Cascade Paperboard International Inc. which comprised the "Somerville Premium
Packaging Business" (the "Premium Group") for a cash payment of approximately
$96.9 million and the assumption of approximately $9.9 million of liabilities.
In addition, the Company is contingently liable for the payment of $5 million if
certain combined earnings levels during the four year period following the
consummation of the transaction are achieved. The Company has issued a warrant
to the seller to purchase 35,000 shares of the Company's common stock which is
exercisable at $13.50 per share, subject to the same contingency. At the time of
the closing of the transaction, the Company prepaid a total of $31.9 million of
senior notes. The transaction and prepayment of the Company's senior notes were
paid for from the proceeds of senior credit facilities provided to the Company
and its subsidiaries by a syndicate of lenders.
The Premium Group is a leading supplier of high value-added folding
cartons primarily for the tobacco and cosmetic industries in the United States
and Canada. The Premium Group manufactures a wide variety of high quality
gravure and lithographed printed packaging products, including hard flip-top
cigarette packages as well as the traditional slide and shell packages. Those
products are used to package many of the leading tobacco brands in the United
States and Canada. The Premium Group also produces a wide range of consumer
packaging products, including packaging for perfumes, confectionery and a large
variety of health and beauty products.
The acquisition of the Premium Group added to the Company's
manufacturing facilities two plants in Canada, located in Brockville and Smiths
Falls, Ontario, and three plants in the United States, located
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in Danville, Virginia, Williamsburg, Virginia and Pittsford, New York. The
Canadian plants exclusively provide gravure manufacturing capacity and are
highly focused on the domestic and international tobacco markets. The U.S.
plants provide a wider variety of products, including the flip-top cigarette
package as well as a range of folding cartons for the cosmetic and health and
beauty aid sectors.
On January 17, 1994, the Company, through a wholly-owned subsidiary,
acquired the Heminway Business for a cash purchase price of $3.7 million. This
transaction was financed with funds from the Company's revolving credit
facility. The operating assets acquired by the Company include substantially all
of the assets used by Heminway in the manufacture and production of rigid set-up
boxes primarily for the cosmetics industry, including packaging for perfumes and
beauty products.
Tobacco Industry
As a result of its acquisition of the Premium Group, the Company has
become a principal supplier of printed packaging products for the tobacco
industry in North America. A number of factors have recently weakened the North
American tobacco market, which could adversely affect the Company's performance.
These factors include a gradual decrease in consumption, the shift from premium
to discount cigarette brands, cigarette taxes in effect or under consideration,
including the proposed tobacco tax increase currently under consideration by the
Clinton administration to fund its health care proposal, and a generally hostile
legislative and regulatory climate in the United States and Canada.
In contrast, the Company believes that the potential for export markets
provide favorable prospects for the tobacco business. There are three principal
factors driving the favorable outlook for export markets: (i) Growth in overseas
markets; (ii) the opening of international markets to free trade in tobacco
(especially in Eastern Europe, the former Soviet Union and China), and (iii)
increased world demand for American blend cigarettes. The Company's policy is to
continue to aggressively pursue the export tobacco market which provides the
best potential for future sales growth.
ITEM 2. PROPERTIES
The Company owns offices and manufacturing facilities in LaGrange,
Georgia; Roanoke, Virginia; Danville, Virginia; Williamsburg, Virginia; Smiths
Falls, Ontario; Brockville, Ontario and Andalusia, Alabama and leases offices
and manufacturing facilities at various locations in New York, Connecticut,
California, Illinois, North Carolina and Canada which leases expire at various
times ending in the year 2002. The aggregate annual net rental cost, exclusive
of real estate taxes, for a total of approximately 790,000 square feet of rental
space is approximately $2.8 million.
ITEM 3. LEGAL PROCEEDINGS
In January 1990, the Company commenced a civil action, Shorewood
Packaging Corporation v. Newman Construction Company, et.al. in the United
States District Court for the Northern District of Georgia, Atlanta Division,
seeking money damages arising out of construction work performed for Shorewood
by the defendant relating to an addition to Shorewood's manufacturing and
warehouse facility in LaGrange, Georgia. The suit contends the defendant
breached its construction contract with the Company and was negligent in its
performance. The Company is seeking damages in excess of $5.0 million for the
remediation work, lost profits from the delay in the installation of a printing
machine and for additional production costs incurred while the remediation work
was being performed. The defendant has counterclaimed for approximately $330,000
representing retention and final payment held by the Company. Discovery has been
concluded and the Court has issued rulings on various pretrial motions.
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Management intends to vigorously pursue its claims against the defendant and to
vigorously defend the counterclaim.
The Company is not presently a party to any other material litigation.
On a continuing basis, the Company monitors its compliance with applicable
environmental laws and regulations. As part of this process, the Company
cooperates with appropriate governmental authorities to perform any necessary
testing and compliance procedures. The Company believes that any environmental
compliance proceeding it is currently aware of will not have a material effect
on its consolidated financial statements. During fiscal 1994, the Company has
been involved, at various locations, in the correction of certain violations of
applicable environmental laws, rules or regulations. Amounts paid during fiscal
1994 to all governmental agencies aggregated less than $100,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no vote of security holders during the fourth quarter of the
fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information. The Company's Common Stock is traded in the
over-the-counter market under the NASDAQ symbol SHOR. The following table sets
forth, for the fiscal periods indicated, the high and low sales prices for the
Common Stock on the NASDAQ National Market System, as reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Fiscal 1994
First Quarter . . . . . . . . . . . . . . $ 10.00 $ 7.00
Second Quarter . . . . . . . . . . . . . 11.00 8.25
Third Quarter . . . . . . . . . . . . . . 16.75 10.50
Fourth Quarter . . . . . . . . . . . . . 17.25 13.75
Fiscal 1993
First Quarter . . . . . . . . . . . . . . $ 8.75 $ 6.75
Second Quarter . . . . . . . . . . . . 11.75 7.38
Third Quarter . . . . . . . . . . . . . 12.75 10.25
Fourth Quarter . . . . . . . . . . . . 14.00 9.25
</TABLE>
The last sale price of the Company's Common Stock on July 18, 1994 was
$17.625.
In January, 1993 the Company's Board of Directors authorized the
purchase of up to 2.0 million shares of the Company's Common Stock from time to
time in the open market. Pursuant to this authorization, through the end of
fiscal 1994, the Company utilizing internally generated funds purchased 1.1
million shares of its Common Stock for approximately $11.4 million.
In addition, in July, 1990 the Company's Board of Directors authorized
the purchase of 1.5 million shares of the Company's Common Stock. Pursuant to
this authorization which expired in July, 1991, the Company purchased 1,222,000
shares of its Common Stock for approximately $9.5 million.
(b) Holders. There were 312 record holders of the Company's Common
Stock as of July 18, 1994. The Company believes that, as of such date, there
were in excess of 1,000 beneficial holders of the Company's Common Stock,
including those stockholders whose shares were held of record by certain
depository companies.
(c) Cash Dividends. On June 7, 1991, the Company's Board of Directors,
in order to enhance stockholder value, declared a special dividend in the amount
of $3.25 per common share which was paid on July 2, 1991 to stockholders of
record on June 18, 1991 (the "Special Dividend"). To finance the payment of the
Special Dividend the Company issued an aggregate of $39.5 million in new Senior
Notes and an aggregate of $17.5 million in Subordinated Convertible Debentures
to two insurance companies.
Prior to the declaration and payment of the Special Dividend, the
Company had never paid cash dividends on its Common Stock. The Company now
anticipates that its earnings for the foreseeable future will be utilized to
reduce the debt incurred as a result of that transaction, to reduce acquisition
debt incurred by the Company or to purchase shares of its Common Stock, or will
be retained for use in its
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business. Accordingly, the Company believes that it is now unlikely that any
further cash dividends will be paid on its Common Stock in the near future.
The Company's Senior Term Notes and long-term revolver agreements
restrict the amount of retained earnings available for the payment of dividends
(other than dividends payable in the Company's Common Stock). The amount of
retained earnings free from such restrictions as of April 30, 1994 approximated
$3.8 million.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information set forth below
for and as of the fiscal year ended April 30, 1994 and for and as of the end of
each of the four preceding fiscal years is derived from, and qualified by
reference to, the consolidated financial statements of Shorewood Packaging
Corporation and subsidiaries which have been audited by Deloitte & Touche LLP,
independent auditors. Except for the Special Dividend of $3.25 per Common Share
paid on July 2, 1991, cash dividends were not paid on the Company's Common Stock
in any of the periods indicated below.
SUMMARY FINANCIAL DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
52 weeks ended
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April 30, May 1, May 2, April 27, April 28,
1994 1993 1992(1) 1991 1990
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<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 216,469 $184,122 $160,140 $142,012 $139,330
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . 49,254 48,082 43,063 40,189 41,182
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 24,230 20,161 21,621 18,442 16,142
Restructuring Charge . . . . . . . . . . . . . . . . . . . . . 3,400 - - - -
Earnings from operations . . . . . . . . . . . . . . . . . . . 21,624 27,921 21,442 21,747 25,040
Investment and other income, net . . . . . . . . . . . . . . . 903 903 167 795 783
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 6,727 5,385 5,375 2,052 1,648
Earnings before provision for income
taxes, extraordinary item and cumulative
effect . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,800 23,439 16,234 20,490 24,175
Provision for income taxes . . . . . . . . . . . . . . . . . . 6,409 8,810 6,425 7,658 8,024
Earnings before extraordinary item
and cumulative effect . . . . . . . . . . . . . . . . . . . . 9,391 14,629 9,809 12,832 16,151
Extraordinary item . . . . . . . . . . . . . . . . . . . . . . (3,098) - - - -
Cumulative effect . . . . . . . . . . . . . . . . . . . . . . . - 1,150 - - -
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . 6,293 15,779 9,809 12,832 16,151
Earnings before extraordinary item and
cumulative effect per common share . . . . . . . . . . . . . .52 .78 .52 .67 .82
Net earnings per common share . . . . . . . . . . . . . . . . . .35 .84 .52 .67 .82
Weighted Average Common Shares
Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 18,089 18,866 18,717 19,048 19,693
</TABLE>
<TABLE>
<CAPTION>
April 30, May 1, May 2, April 27, April 28,
1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C> <C>
Working capital . . . . . . . . . . . . . . . . . . . . . . . . $ 31,408 $ 21,857 $ 20,400 $ 25,942 $ 26,152
Property, plant and equipment, net . . . . . . . . . . . . . . 135,376 59,872 55,452 60,538 57,588
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . 220,350 112,760 100,816 110,934 104,338
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . 10,419 9,669 3,711 5,780 3,068
Long-term debt excluding current
maturities . . . . . . . . . . . . . . . . . . . . . . . . . 120,493 31,900 35,000 13,213 15,238
Convertible Subordinated Debentures . . . . . . . . . . . . . . 17,500 17,500 17,500 - -
Stockholders' equity . . . . . . . . . . . . . . . . . . . . . 27,111 26,085 17,273 67,974 63,831
</TABLE>
- ------------
(1) 53 week period.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Effective January 1, 1994, the Company acquired certain operating assets of the
Premium Packaging Group of Cascades Paperboard International, Inc. (the "Premium
Group"), and on January 17, 1994, the Company purchased the operating assets of
Heminway Packaging Corporation ("Heminway") (collectively "the Acquired
Companies") (see Note 2. of Notes to Consolidated Financial Statements). The
Premium Group manufactures and provides folding cartons to the tobacco,
cosmetics and toiletries and general consumer industries while Heminway
manufactures and provides rigid set-up boxes principally to the cosmetics
industry. These acquisitions were recorded using the purchase method of
accounting. Accordingly, the operating results related to the Acquired Companies
were included in the Company's results of operations for the periods subsequent
to each respective acquisition date. The historical results of operations of
Heminway were not significant to the consolidated financial statements of the
Company.
The fourth quarter of fiscal 1994 is the first quarter in which the operations
of the Acquired Companies were included in the consolidated operating results of
the Company for a full quarter. Accordingly, the operating results of the
Company for the fourth quarter of fiscal 1994 may be more indicative of the
operating levels in the near future. The following table sets forth comparative
unaudited data for the fourth quarter of fiscal 1994 and the prior comparable
period:
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------------
April 30, 1994 May 1, 1993
-------------- -----------
(in thousands except share data)
(Unaudited)
<S> <C> <C>
Net Sales $ 77,593 $ 43,340
====== ======
Earnings from Operations $ 10,074 $ 4,476
====== ======
Earnings before Provision
for Taxes $ 7,389 $ 3,389
====== ======
Net Earnings $ 4,371 $ 2,188
====== ======
Net Earnings Per Share $ .24 $ .12
====== ======
</TABLE>
The increase in net sales and earnings from operations during the fourth quarter
of fiscal 1994 was primarily related to the inclusion of the operating results
of the Acquired Companies.
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Fiscal Year Comparisons
Net Sales
Net sales for fiscal 1994 were $216.5 million compared to net sales of $184.1
million for the corresponding prior period, an increase of 17.6%. Included in
the current fiscal period are sales of approximately $47.7 million related to
the operations of the Acquired Companies. Net sales for the current fiscal year
were adversely affected by the decision by the music industry to discontinue the
use of the long-box as a packaging medium for compact discs. Revenues derived
from the long-box were negligible during fiscal 1994 as compared with $20.0
million in fiscal 1993.
Net sales in fiscal 1993 increased to $184.1 million as compared to $160.1
million in fiscal 1992, an increase of 15.0%. The increase was primarily derived
from continued growth in the tobacco and general consumer packaging areas, as
sales for the home entertainment and cosmetics and toiletries packaging areas
were consistent with the prior fiscal year. Sales growth was primarily focused
in the domestic markets as domestic sales increased 18.6%, while foreign sales
grew 5.6%, compared to fiscal 1992 levels. The Company's sales growth resulted
primarily from an increase in unit volume.
The Company believes that its future sales growth will be generated through
continued penetration of its existing markets and the expanding markets of CD
Rom products.
Cost of Sales
Cost of sales as a percentage of sales was 77.2% in fiscal 1994 as compared with
73.9% in fiscal 1993. The increase in the cost of sales percentage in the
current period was primarily attributed to the discontinued use of the long-box
for compact discs resulting in the related lower level of sales at the Company's
Farmingdale, New York, facility. In addition, the Company's cost of sales
percentage increased due to the inclusion of the operations of the Acquired
Companies whose margins have been historically lower than that of the Company.
Cost of sales as a percentage of net sales was 73.9% in fiscal 1993 as compared
to 73.1% in fiscal 1992. The increase is primarily attributable to the
discontinued use of the long box for compact discs in the fourth quarter of
fiscal 1993. As a result, the decrease in production levels at the Company's
Farmingdale, New York facility had an unfavorable impact on the Company's cost
of sales during that period. This decrease in profitability offset other
improvements in the first three quarters of fiscal 1993 relating to absorption
of fixed overheads and economies of scale associated with the Company's expanded
sales base.
The Company remains sensitive to the price competitiveness in the markets that
it currently serves and in areas of its targeted growth. It believes that the
labor and production efficiencies associated with the installation of additional
state-of-the-art printing and manufacturing equipment will enable the Company to
compete effectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were 11.2%, 10.9% and 13.5% of net
sales for fiscal years 1994, 1993 and 1992, respectively. Selling, general and
administrative expenses for fiscal 1994 increased compared to fiscal 1993 due to
the inclusion of such expenses of the Acquired Companies.
12
<PAGE> 13
The higher level of expense in fiscal 1992 as compared to fiscal 1993 was partly
attributable to the inclusion of expenses related to the Company's subsidiary in
the United Kingdom which was sold in January 1992 and to approximately $0.35
million of expenses associated with the ongoing litigation relating to improper
construction at the Company's LaGrange, Georgia facility.
Restructuring Charge
As a result of the discontinued use of the long-box as a packaging medium for
compact discs and the related diminished level of sales, the Company decided at
the end of the third quarter of fiscal 1994 to close its Farmingdale, New York,
facility effective as of April 30, 1994. In connection with the closing of this
facility and the restructuring of the Company's operations relating thereto, the
Company recorded a restructuring charge before provision for income taxes
amounting to $3.4 million during its current fiscal year. Included in this
charge are amounts provided for the termination of leases, disposal of
equipment, severance payments and other related restructuring items. The impact
on net earnings related to the restructuring charge was a loss of approximately
$2.1 million or ($.12) per share. The Company believes that future operating
results will be enhanced as a result of the restructuring of operations.
Investment and Other Income
Investment and other income was relatively consistent during the last three
fiscal years after giving consideration in fiscal 1992 to approximately $0.5
million of expenses incurred relating to the prepayment of long-term debt which
was incurred in connection with the special dividend paid in July 1991.
Interest Expense
Interest expense for fiscal 1994 increased compared to fiscal 1993 and is
expected to increase further in fiscal 1995 when compared with prior comparable
periods as a result of the additional borrowings required to finance the
purchase of the Acquired Companies.
Income Taxes
The effective income tax rate was 40.6% in fiscal 1994 as compared with 37.6% in
fiscal 1993 and 39.6% in fiscal 1992. These rates reflect a blend of domestic
and foreign taxes.
During the first quarter of fiscal 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 changed the method of accounting for income taxes from the
deferred method to the liability method. Under the deferred method, deferred
income taxes were recognized using the tax rates in effect when the tax was
first recorded and not adjusted for subsequent changes in the tax rates until
paid or recovered. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
accounting and tax bases of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the currently enacted
tax rate. Net earnings in fiscal 1993 increased by $1.15 million as a result of
the cumulative effect of this change in accounting principle.
The increase in the effective tax rate in fiscal 1994 reflects the effect of the
income tax rate change enacted into law in August 1993.
13
<PAGE> 14
The effective tax rate in fiscal 1992 included the impact of the sale of the
Company's pharmaceutical packaging subsidiary in the United Kingdom.
Extraordinary Item
In connection with the purchase of the Acquired Companies, the Company prepaid
$31.9 million of Senior Notes. As a result of the prepayment, the Company
recorded, in the third quarter of fiscal 1994, an extraordinary charge of $3.1
million (after related income tax benefit of $1.9 million) consisting of
prepayment penalties and the write-off of deferred finance costs.
Impact of Inflation
The Company from time to time experiences increases in the costs of materials
and labor, as well as in other manufacturing and operating expenses. The
Company's ability, consistent with that of its competitors, to pass on such
increased costs through increased prices has been affected differently at
various times.
Liquidity and Capital Resources
Cash and cash equivalents at April 30, 1994 totalled approximately $2.7 million
and working capital at this date was $31.4 million as compared to $21.9 million
at the end of fiscal 1993. The current ratio was 1.7 to 1 at April 30, 1994
compared with 1.8 to 1 at the end of fiscal 1993, while the quick ratio was 0.9
to 1 at April 30, 1994 as compared to 1.1 to 1 at the end of fiscal year 1993.
Net capital expenditures primarily for manufacturing equipment, for the 52 week
period ended April 30, 1994 were approximately $9.1 million which included costs
associated with the completion of previously approved projects from fiscal 1993.
The Senior Term Note and long-term revolver agreements limit capital
expenditures by the Company to $10.0 million during fiscal 1995. The Company's
long-term debt (excluding the Convertible Subordinated Debentures) to
stockholders' equity ratio at April 30, 1994 was 4.4 to 1.
At April 30, 1994, the Company had machinery and equipment with a net carrying
value of approximately $1.9 million which is not currently in use.
The purchase agreements relating to the acquisition of the Acquired Companies
indemnify the Company from all costs and expenses relating to environmental
matters which existed at the acquired facilities on or prior to the respective
closing dates. Accordingly, the Company has not accrued any liability relating
to any environmental matter with respect to the Acquired Companies.
The Company has a $50 million five-year revolving credit facility for its
working capital requirements. Borrowings under this facility are limited to the
sum of 80% of accounts receivable and 50% of inventories (the "Borrowing Base").
At April 30, 1994, the Company had borrowings under this facility of $12 million
and was limited to $47 million based upon its Borrowing Base.
At April 30, 1994, the Company had outstanding intermediate-term interest rate
swap agreements relating to approximately $42 million of its Senior Term Notes.
Under the agreements, the Company pays a fixed rate of 4.88% and receives a
floating rate based on LIBOR, as determined in 1-month intervals. The
transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis.
14
<PAGE> 15
The Company's loan agreements have covenants covering, among other things,
minimum levels of net worth, total liabilities to net worth, and cash flow. In
addition, the Company's loan agreements restrict the amount of retained earnings
available for investments and the payment of dividends (other than in the
Company's own stock) and purchase and redemption of its own stock. At April 30,
1994 retained earnings free from restrictions under the existing loan agreements
were $3.8 million.
The Company expects that cash flow from operations together with the borrowing
capacity under the revolving credit facility will be sufficient to meet the
needs of the business in the foreseeable future.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 17
Consolidated Financial Statements:
Balance Sheets at April 30, 1994 and May 1, 1993 18
Statements of Earnings, 52 weeks ended April 30, 1994,
52 weeks ended May 1, 1993 and 53 weeks ended May 2, 1992 19
Statements of Cash Flows, 52 weeks ended April 30, 1994,
52 weeks ended May 1, 1993 and 53 weeks ended May 2, 1992 20
Statements of Stockholders' Equity, 52 weeks ended
April 30, 1994, 52 weeks ended May 1, 1993 and
53 weeks ended May 2, 1992 21
Notes to Consolidated Financial Statements 22
</TABLE>
16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Shorewood Packaging Corporation
Farmingdale, New York
We have audited the accompanying consolidated balance sheets of Shorewood
Packaging Corporation and subsidiaries as of April 30, 1994 and May 1, 1993, and
the related consolidated statements of earnings, stockholders' equity and cash
flows for the 52 weeks ended April 30, 1994 and May 1, 1993 and the 53 weeks
ended May 2, 1992. Our audits also included the financial statement schedules
listed in the Index at Item 14(a)2. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Shorewood Packaging Corporation and
subsidiaries as of April 30, 1994 and May 1, 1993 and the results of their
operations and their cash flows for the 52 weeks ended April 30, 1994 and May 1,
1993 and the 53 weeks ended May 2, 1992 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information required to
be set forth therein.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
July 1, 1994
17
<PAGE> 18
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
April 30, May 1,
1994 1993
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash, including cash equivalents of $2,048 in 1994
and $12,191 in 1993 . . . . . . . . . . . . . . . . . . . . $ 2,735 $ 12,474
Accounts receivable, less allowance for doubtful
accounts of $231 in 1994 and $307 in 1993 . . . . . . . . . 38,937 20,269
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,790 15,481
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . 2,079 1,165
Prepaid expenses and other current assets . . . . . . . . . . . . . 2,699 1,372
--------- ---------
Total Current Assets . . . . . . . . . . . . . . . . . . . . 78,240 50,761
Property, Plant and Equipment, at cost - net . . . . . . . . . . . . . . 135,376 59,872
Other Assets, including intangible assets . . . . . . . . . . . . . . . . 6,734 2,127
--------- ---------
$ 220,350 $ 112,760
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans payable . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 6,569
Accounts payable and accrued expenses . . . . . . . . . . . . . . . 34,318 18,692
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 2,095 543
Current maturities of long-term debt . . . . . . . . . . . . . . . . 10,419 3,100
--------- ---------
Total Current Liabilities . . . . . . . . . . . . . . . . . 46,832 28,904
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,493 31,900
Convertible Subordinated Debentures . . . . . . . . . . . . . . . . . . . 17,500 17,500
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8,414 8,371
--------- ---------
193,239 86,675
--------- ---------
Commitments and contingencies
Fair value of warrants, net of deferred fair value of
warrants ($1,357) . . . . . . . . . . . . . . . . . . . . . . . . . - -
Stockholders' Equity:
Series A preferred stock, $10 par value; 50,000
shares authorized, none issued . . . . . . . . . . . . . . . . . . . - -
Preferred stock, $10 par value; 5,000,000 shares
authorized; none issued . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value; 40,000,000 shares authorized; 20,163,923
issued and 17,845,923 outstanding in 1994 and 20,085,806 issued and
18,238,806 outstanding in 1993 . . . . . . . . . . . . . . . . . . . 202 201
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 20,244 19,505
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 29,566 23,273
Cumulative foreign currency translation adjustments . . . . . . . . . . . (2,013) (187)
Less: Treasury stock (2,318,000 shares at cost in 1994 and
1,847,000 shares at cost in 1993) . . . . . . . . . . . . . . . . . (20,888) (16,707)
--------- ---------
27,111 26,085
--------- ---------
$ 220,350 $ 112,760
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
April 30, May 1, May 2,
1994 1993 1992
--------------------------------------------------
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . $ 216,469 $ 184,122 $ 160,140
--------- --------- ---------
Costs and Expenses:
Cost of sales . . . . . . . . . . . . . . . . . . 167,215 136,040 117,077
Selling, general and administrative . . . . . . . 24,230 20,161 21,621
Restructuring Charge . . . . . . . . . . . . . . . 3,400 - -
--------- --------- ---------
194,845 156,201 138,698
--------- --------- ---------
Earnings from Operations . . . . . . . . . . . . . . . 21,624 27,921 21,442
--------- --------- ---------
Investment and other income, net . . . . . . . . . . . 903 903 167
Interest expense . . . . . . . . . . . . . . . . . . . (6,727) (5,385) (5,375)
--------- --------- ---------
Earnings Before Provision for
Income Taxes, Extraordinary Item
and Cumulative Effect of Change
in Accounting Principle . . . . . . . . . . . . . 15,800 23,439 16,234
Provision for Income Taxes . . . . . . . . . . . . . . 6,409 8,810 6,425
--------- --------- ---------
Earnings Before Extraordinary Item
and Cumulative Effect of Change
in Accounting Principle . . . . . . . . . . . . . 9,391 14,629 9,809
Extraordinary Item . . . . . . . . . . . . . . . . . . (3,098) - -
Cumulative Effect on Prior Years
(to May 2, 1992) Related to
the Adoption of FASB 109-
Accounting for Income Taxes . . . . . . . . . . . - 1,150 -
--------- --------- ---------
Net Earnings . . . . . . . . . . . . . . . . . . . . . $ 6,293 $ 15,779 $ 9,809
========= ========= =========
Per Common and Common Equivalent Share Amounts:
Earnings Before Extraordinary Item and
Cumulative Effect . . . . . . . . . . . . . . . . $ .52 $ .78 $ .52
Extraordinary Item . . . . . . . . . . . . . . . . . . (.17) - -
Cumulative Effect of Change in
Accounting Principle . . . . . . . . . . . . . . . - .06 -
--------- --------- ---------
Net Earnings per Common and Common
Equivalent Share . . . . . . . . . . . . . . . . . $ .35 $ .84 $ .52
========= ========= =========
Weighted Average Common
Shares Outstanding . . . . . . . . . . . . . . . . 18,089 18,866 18,717
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE> 20
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
April 30, May 1, May 2,
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
Cash Flows Provided from Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,293 $ 15,779 $ 9,809
Adjustments to reconcile net earnings to net cash
flows provided from operating activities:
Cumulative effect of change in accounting . . . . . . . . . . . . - (1,150) -
Depreciation and amortization . . . . . . . . . . . . . . . . . . 10,245 8,086 7,957
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . (645) (202) (83)
Other non-cash items . . . . . . . . . . . . . . . . . . . . . . . 729 - 138
Changes in operating assets and liabilities, net of effects of
businesses acquired:
Accounts receivable . . . . . . . . . . . . . . . . . . . (4,712) (1,372) (434)
Inventories . . . . . . . . . . . . . . . . . . . . . . . 542 (183) (1,031)
Prepaid expenses and other current assets . . . . . . . . (332) 642 (391)
Other assets . . . . . . . . . . . . . . . . . . . . . . . (3,385) - (1,150)
Accounts payable and accrued expenses . . . . . . . . . . 6,399 444 3,416
Income taxes payable . . . . . . . . . . . . . . . . . . . 638 (306) 98
--------- --------- --------
Net cash flows provided from operating activities . . . . . . . . . . . 15,772 21,738 18,329
--------- --------- --------
Cash Flows Used by Investing Activities:
Business acquisitions . . . . . . . . . . . . . . . . . . . . . . (103,710) - -
Capital expenditures, net . . . . . . . . . . . . . . . . . . . . (9,080) (11,770) (3,553)
Proceeds from sale of subsidiary . . . . . . . . . . . . . . . . . - - 1,358
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 (102) (19)
--------- --------- --------
Net cash flows used by investing activities . . . . . . . . . . . . . . (112,782) (11,872) (2,214)
--------- --------- --------
Cash Flows Provided from (Used by) Financing Activities:
Net increase (decrease) in short-term debt . . . . . . . . . . . . (6,361) 3,193 (40)
Additions to long-term debt . . . . . . . . . . . . . . . . . . . 144,000 - 57,000
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . (47,000) (63) (19,645)
Dividend paid . . . . . . . . . . . . . . . . . . . . . . . . . . - - (60,839)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . (4,181) (7,240) -
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . 740 945 994
--------- --------- --------
Net cash flows Provided from (Used by) Financing
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,198 (3,165) (22,530)
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 47 (42)
--------- --------- --------
(Decrease) Increase in cash and cash equivalents . . . . . . . . . . . (9,739) 6,748 (6,457)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . 12,474 5,726 12,183
--------- --------- --------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . $ 2,735 $ 12,474 $ 5,726
========= ========= ========
Supplemental Disclosures of Cash Flow Information:
Interest Paid, net of capitalized amounts . . . . . . . . . . . . $ 6,886 $ 5,365 $ 4,016
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . $ 4,420 $ 9,320 $ 5,900
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Common Stock Cumulative
$.01 Par Value Foreign
--------------------- Additional Currency
Shares Paid-in Retained Translation Treasury
Issued Amount Capital Earnings Adjustments Stock Total
------ ------- ---------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance April 27, 1991 . . . . . . . 19,826,200 $ 198 $ 24,975 $ 51,118 $ 1,150 $ (9,467) $ 67,974
Issuance of Common Stock . . . . . . 139,194 2 992 - - - 994
Dividend Paid . . . . . . . . . . . . - - (7,406) (53,433) - - (60,839)
Net Earnings, 53 Weeks ended
May 2, 1992 . . . . . . . . . . . - - - 9,809 - - 9,809
Foreign Currency
Translation Adjustments . . . . . - - - - (665) - (665)
---------- ------- -------- -------- -------- --------- ---------
Balance May 2, 1992 . . . . . . . . . 19,965,394 200 18,561 7,494 485 (9,467) 17,273
Issuance of Common Stock . . . . . . 120,412 1 944 - - - 945
Purchase of Treasury Stock . . . . . - - - - - (7,240) (7,240)
Net Earnings, 52 Weeks ended
May 1, 1993 . . . . . . . . . . . - - - 15,779 - - 15,779
Foreign Currency
Translation Adjustments . . . . . - - - - (672) - (672)
---------- ------- -------- -------- -------- --------- ---------
Balance May 1, 1993 . . . . . . . . . 20,085,806 201 19,505 23,273 (187) (16,707) 26,085
Issuance of Common Stock . . . . . . 78,117 1 739 - - - 740
Purchase of Treasury Stock . . . . . - - - - - (4,181) (4,181)
Net Earnings, 52 Weeks ended
April 30, 1994 . . . . . . . . . . - - - 6,293 - - 6,293
Foreign Currency
Translation Adjustments . . . . . - - - - (1,826) - (1,826)
---------- ------- -------- -------- -------- --------- ---------
Balance April 30, 1994 . . . . . . . 20,163,923 $ 202 $ 20,244 $ 29,566 ($ 2,013) ($ 20,888) $ 27,111
========== ======= ======== ======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
b. Recognition of revenue
The Company reports revenue, with the related costs, in the accounting
period in which goods are shipped to the customer.
c. Statement of cash flows
The Company considers all highly liquid temporary investments with
original maturities of three months or less to be cash equivalents.
d. Inventories
Inventories are valued at the lower of cost or market. Cost is determined
principally on the first-in, first-out (FIFO) method. Components of inventory
include materials, labor and overhead costs.
e. Depreciation and amortization
The Company computes depreciation and amortization of property, plant and
equipment substantially by the straight-line method over the shorter of the
estimated useful lives or lease periods of the respective assets. The excess of
purchase price over the fair value of net assets of businesses acquired is
amortized over periods ranging from 10 to 40 years on a straight-line basis.
f. Income taxes
The Company and its domestic subsidiaries file a consolidated Federal
income tax return. Deferred taxes are provided for the income tax effects of
temporary differences in reporting transactions for financial reporting and tax
purposes.
The Company adopted Statement of Financial Accounting Standards No.109
"Accounting for Income Taxes" ("SFAS 109") during the fiscal quarter ended
August 1, 1992. SFAS 109 changes the method of accounting for income taxes from
the deferred method to the liability method. Under the deferred method, deferred
income taxes were recognized using the tax rates in effect when the tax
liability
22
<PAGE> 23
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
was first recorded and not adjusted for subsequent changes in the tax rates
until paid or recovered. Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
accounting and tax basis of assets and liabilities. Deferred tax assets or
liabilities at the end of each period are determined using the currently enacted
tax rate. The impact on the provision for income taxes for fiscal 1993 was not
significant.
The cumulative effect of this accounting change increased net earnings in
1993 by $1,150. For pro forma comparative purposes, the cumulative effect
adjustment would not have been significantly different had the change in
accounting principle been adopted at the beginning of fiscal 1992.
United States ("U.S.") income taxes with respect to the undistributed
earnings of the Company's foreign subsidiaries have not been provided since it
is the intention of management that the undistributed earnings will be
reinvested or transferred to the Company without giving rise to U.S. tax
liabilities. The total amount of unremitted earnings of non-U.S. subsidiaries
was approximately $16.0 million at April 30, 1994.
g. Foreign currency translation
Assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at fiscal period-end exchange rates and revenues and expenses are
translated at weighted average exchange rates for the period. Gains and losses
arising from translation are recorded as currency translation adjustments, a
component of stockholders' equity. Certain foreign subsidiaries have a fiscal
year ending on March 31.
h. Share information
The effect of outstanding options on net earnings per common share is not
significant.
i. Business segment
The Company and its subsidiaries operate in one business segment,
providing printed packaging products to the entertainment, cosmetic, tobacco and
other consumer product industries.
j. Fiscal periods
Reference to 1994, 1993, and 1992 in the accompanying notes to the
consolidated financial statements refer to the fiscal periods ending in such
years.
23
<PAGE> 24
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
k. Reclassifications
Certain prior years' balances have been reclassified to conform with
current year classifications.
2. ACQUISITIONS AND DIVESTITURE
Effective January 1, 1994, the Company purchased certain of the United States
and Canadian assets of the Premium Packaging Group of Cascades Paperboard
International, Inc. (the "Premium Group") for a cash purchase price of
approximately $96.9 million plus the assumption of approximately $9.9 million of
liabilities (primarily accounts payable) and transaction expenses. In addition,
the Company is contingently liable for an additional $5.0 million of
consideration if certain earnings levels related to the combined operations
during the four-year period following the consummation of the transaction are
attained. The Company has issued a warrant to the seller exercisable, subject to
the above-described contingency, for 35,000 shares of Company Common Stock at an
exercise price of $13.50 per share. At the time of the closing of the
transaction, the Company prepaid a total of $31.9 million of Senior Notes. The
transaction and prepayment of the Company's Senior Notes were financed with
senior credit facilities including $120 million in five-year term loans and $24
million of borrowing under a $50 million five-year revolving credit facility. In
connection with the prepayment of the Senior Notes, the Company recorded, in the
third quarter of fiscal 1994, an extraordinary charge of $3.1 million (after
related income tax benefit of $1.9 million)consisting of prepayment penalties
and the write-off of deferred finance costs.
On January 17, 1994 the Company purchased the operating assets of Heminway
Packaging Corporation for a cash purchase price of $3.7 million plus transaction
expenses. This transaction was financed with funds from the Company's revolving
credit facility referred to above. The historical results of operations of
Heminway were not material to the operations of the Company.
These acquisitions were recorded using the purchase method of accounting and
accordingly, the results of their operations are included in the consolidated
results of operations of the Company since the dates of their respective
acquisitions. The excess of cost over the fair value of the net assets acquired
approximates $2.2 million.
The following pro forma information includes the operations of the Company
inclusive of the operations of the Premium Group as if the acquisition had
occurred at the beginning of each respective period presented, including the
impact of the Company's new financing agreement described above, the
amortization expense associated with intangible assets acquired, adjustments
related to the fair market value of the assets and liabilities of the Premium
Group (including, among other things adjustment of depreciation expense) and
related income tax effects.
24
<PAGE> 25
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
<TABLE>
<CAPTION>
Pro Forma 52 Weeks Ended
-----------------------------------------------
April 30, 1994 May 1, 1993
-----------------------------------------------
(unaudited)
<S> <C> <C>
Net Sales (a) $ 300,791 $ 323,261
=============== =============
Earnings Before Extraordinary Item
and Cumulative Effect of Change in
Accounting Principle $ 11,838 $ 18,229
Extraordinary Item (3,098) -
Cumulative Effect of Change in
Accounting Principle - 1,150
--------------- -------------
Net Income $ 8,740 $ 19,379
=============== =============
Common and Common Equivalent Share Information:
Earnings Before Extraordinary Item
and Cumulative Effect of Change in
Accounting Principle $ .65 $ .97
Extraordinary Item (.17) -
Cumulative Effect of Change in
Accounting Principle - .06
--------------- -------------
Net Income $ .48 $ 1.03
=============== =============
Weighted Average Shares Outstanding
(in Thousands) 18,089 18,866
=============== =============
</TABLE>
- -------------
(a) Net sales for the current fiscal year were adversely affected by the
decision by the music industry to discontinue the use of the long-box as
a packaging medium for compact discs. Revenues derived from the long-box
were negligible during fiscal 1994 as compared with $20.0 million in
fiscal 1993.
In January 1992, the Company sold its equity ownership in Selective
Design Services, Ltd., a pharmaceutical packaging company located in the United
Kingdom, for net cash proceeds of approximately $1.4 million. As a result of
this transaction, the Company reported a pre-tax gain of approximately $200.
3. INVENTORIES
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Raw materials and supplies $ 11,714 $ 6,359
Work-in-process 7,091 3,613
Finished goods 12,985 5,509
---------- ----------
$ 31,790 $ 15,481
========== ==========
</TABLE>
25
<PAGE> 26
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
4. PROPERTY, PLANT AND EQUIPMENT, AT COST-NET
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Land $ 2,330 $ 424
Building and improvements 30,218 11,657
Machinery and equipment 144,042 77,720
Leasehold improvements 2,371 2,407
Construction in progress 5,081 7,874
---------- ----------
184,042 100,082
Less accumulated depreciation and
amortization 48,666 40,210
---------- ----------
$ 135,376 $ 59,872
========== ==========
</TABLE>
Depreciation and amortization of property, plant and equipment amounted to
$9,834 in 1994, $7,888 in 1993 and $7,666 in 1992.
At April 30, 1994, the Company had machinery and equipment with a net
carrying value of approximately $1.9 million which is not currently in use.
Interest costs capitalized were $131 in 1994 and 1993 and $82 in 1992.
5. BANK LOANS PAYABLE/LINES OF CREDIT
The Company was party to unsecured and secured revolving domestic and
foreign credit agreements. All borrowings pursuant to the lines of credit were
repaid with proceeds from the Senior Term Notes and Long-Term Revolver described
in Note 7 at which time the lines of credit were cancelled.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accounts payable $ 24,163 $ 13,642
Accrued salaries, employee benefits
and payroll taxes 5,523 2,590
Accrued interest 1,616 1,767
Other accrued expenses 3,016 693
---------- ----------
$ 34,318 $ 18,692
========== ==========
</TABLE>
26
<PAGE> 27
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
7. LONG-TERM DEBT/CONVERTIBLE SUBORDINATED DEBENTURES
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Senior Term Notes (a) $118,912 $ -
Long-term Revolver (b) 12,000 -
10.6% Senior Notes (c) - 8,000
9.15% Senior Notes (c) - 12,000
9.71% Senior Notes (c) - 15,000
-------- -------
130,912 35,000
Less current maturities 10,419 3,100
-------- -------
$120,493 $31,900
======== =======
Convertible Subordinated Debentures(d) $ 17,500 $17,500
======== =======
</TABLE>
- ---------------------
(a) In connection with the acquisition of the Premium Group and the prepayment
of certain obligations, the Company entered into Term Note Agreements
(totalling $96 million in the U. S. and the Canadian equivalent of $24
million in Canada) with a syndicate of banks. The notes are payable in
quarterly installments beginning in August, 1994, through May, 1999. The
notes bear interest, at the discretion of the Company, at either the bank's
prime rate or at the LIBOR rate (maximum six-month term) plus 75 to 125
basis points determined based upon financial ratios as defined in the Term
Note Agreements. The effective interest rate on the Senior Term Notes ranged
from 5.25% to 6.75% as of April 30, 1994. The Company has pledged as
collateral 100% and 66%, respectively, of the outstanding shares of its
domestic and foreign subsidiaries.
(b) Borrowings under a $50 million five-year revolving credit facility.
Borrowings under this facility are limited to the sum of 80% of accounts
receivable and 50% of inventories (the "Borrowing Base"). At April 30, 1994,
the borrowings under this facility were limited to $47 million based upon
the Borrowing Base. The revolving credit facility has interest terms and
collateral similar to the Senior Term Notes and matures in May 1999. The
effective interest rate on these borrowings was 5.15% at April 30, 1994.
(c) Prepaid in January, 1994.
(d) The Convertible Subordinated Debentures ("Debentures") bear interest at
9.5%. The conversion price is subject to adjustment based upon certain
anti-dilution provisions and was $13.00 at April 30, 1994. The Company can
require conversion of the Debentures if the common share price remains at
150% of the conversion price for any twenty days during a thirty consecutive
trading day period. The holders of the Debentures have certain registration
rights with respect to the shares issuable on conversion of the Debentures.
Sinking fund payments in the amount of $4.375 million per year begin in
fiscal 1999.
The loans referred to in (a), (b) and (d) above have covenants as to
minimum levels of tangible net worth, total liabilities to tangible net worth,
and cash flow. The underlying loan agreements restrict the amount of retained
earnings available for payment of dividends (other than in the Company's own
stock) and purchase and redemption of its own stock. Retained earnings free from
restrictions at April 30, 1994 approximated $3.8 million.
27
<PAGE> 28
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
Based on the borrowing rates currently available to the Company for
bank loans with similar terms, the fair value of the senior long-term debt
approximates the carrying value. With regard to the Debentures, these
instruments are not traded publicly or tracked by a rating agency and,
therefore, it is not practicable to assign a value. However, based upon a
closing stock price of $14.50 per share, had the Debentures been converted at
April 30, 1994, the value would have approximated $19.5 million.
At April 30, 1994, the Company had outstanding intermediate-term
interest rate swap agreements relating to approximately $42 million of its
Senior Term Notes. Under the agreements, the Company pays a fixed rate of 4.88%
and receives a floating rate based on LIBOR, as determined in 1-month intervals.
The transaction effectively changes a portion of the Company's interest rate
exposure from a floating-rate to a fixed-rate basis. At April 30, 1994, the
mark-to-market value of the interest rate swap agreements was approximately $1
million.
Aggregate maturities of long-term debt and convertible subordinated
debentures are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending:
1995 $ 10,419
1996 21,309
1997 23,782
1998 27,492
1999 33,103
Thereafter 32,307
--------
$148,412
========
</TABLE>
8. INCOME TAXES
Earnings before provision for income taxes and extraordinary item
approximated:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
United States $ 6,586 $ 20,282 $ 13,881
Foreign 9,214 3,157 2,353
--------- ---------- ---------
$ 15,800 $ 23,439 $ 16,234
========= ========== =========
</TABLE>
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Current
Federal $ 2,858 $ 6,611 $ 4,722
State and local 773 1,100 671
Foreign 3,423 1,301 1,115
------- ------- -------
7,054 9,012 6,508
------- ------- -------
Deferred
Federal (394) (47) 64
State and local (236) (147) 92
Foreign (15) (8) (239)
------- ------- -------
(645) (202) (83)
------- ------- -------
$ 6,409 $ 8,810 $ 6,425
======= ======= =======
</TABLE>
28
<PAGE> 29
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
The Company's effective income tax rate differs from the statutory U.S.
Federal income tax rate as a result of the following:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory U.S. Federal tax rate 34.0% 34.0% 34.0%
State income taxes, net of Federal benefit 2.3 3.0 3.1
Foreign income tax rate differentials 1.7 .9 .5
Effect from disposal of foreign subsidiary - - 1.7
Other, net 2.6 (.3) .3
---- ---- ----
40.6% 37.6% 39.6%
===== ===== =====
</TABLE>
The tax effects of significant items comprising the Company's net
deferred tax liability as of April 30, 1994 and May 1, 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------- --------
S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment $ 7,934 $ 7,954
Other assets 249 247
Other 231 170
------- -------
8,414 8,371
------- -------
Deferred tax assets:
Accounts receivable 398 283
Inventories 487 314
Accrued expenses 673 70
State net operating loss and
investment tax credit
carryforwards, net of
valuation allowance of
$290 in 1994 274 274
Employee benefits 144 224
Other 103 -
------- -------
2,079 1,165
------- -------
Net deferred tax liability $ 6,335 $ 7,206
======= =======
</TABLE>
Timing differences which gave rise to the provision for deferred taxes
during 1992 related primarily to depreciation of property, plant and equipment.
29
<PAGE> 30
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
9. COMMITMENTS AND CONTINGENCIES
a. Lease Agreements
The Company is committed for annual rentals under
noncancellable operating leases for production and office facilities expiring on
various dates through 2002. The minimum future rental commitments under
noncancellable leases, exclusive of taxes and utilities, are as follows:
<TABLE>
<S> <C>
Fiscal Year Ending:
1995 $ 2,792
1996 2,741
1997 2,421
1998 1,502
1999 1,415
Thereafter 1,434
-------
Total minimum rental payments $12,305
=======
</TABLE>
Rent expense under operating leases approximated $2,403 in
1994, $2,125 in 1993 and $2,174 in 1992.
b. Pending Legal Proceedings
In January 1990, the Company commenced a legal proceeding
against a general contractor seeking in excess of $5.0 million in damages
arising out of construction work performed at the Company's facility in
LaGrange, Georgia. The contractor has counterclaimed for approximately $330
representing the final payment due from the Company. Management intends to
vigorously pursue its claims against the contractor and to vigorously defend the
counterclaim.
c. Other Matters
On a continuing basis, the Company monitors its compliance with
applicable environmental laws and regulations. As part of this process the
Company cooperates with appropriate governmental authorities to perform any
necessary testing and compliance procedures. The Company believes that any
environmental compliance proceeding it is currently aware of will not have a
material effect on the consolidated financial statements.
The purchase agreements relating to the acquisition of the
Acquired Companies indemnify the Company from all costs and expenses relating to
environmental matters which existed at the acquired facilities on or prior to
the respective closing dates. Accordingly, the Company has not accrued any
liability relating to any environmental matter with respect to the Acquired
Companies.
30
<PAGE> 31
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
d. Treasury Stock
In January, 1993, the Company's Board of Directors authorized
the repurchase of up to 2.0 million shares of the Company's Common Stock from
time to time in the open market. Pursuant to this authorization through April
30, 1994, the Company utilizing internally generated funds repurchased 1.1
million shares of its Common Stock for approximately $11.4 million.
10. STOCKHOLDERS' EQUITY
a. Special Dividend/Related Party Transactions
In July, 1991, the Company paid a special cash dividend in the
amount of $3.25 per share. This dividend was, for the most part, financed by the
issuance of $39.5 million of Senior Notes and $17.5 million of Debentures. In
connection with this financing, the Company paid a fee of approximately $650 to
a firm whose president and principal shareholder is a director of the Company.
CIGNA Corporation and its affiliates ("CIGNA"), as holder of
$15.0 million of the Company's Debentures, is the beneficial owner of 6.2% of
the outstanding stock of the Company. Interest and other expenses incurred with
CIGNA were $2,918 in 1994, $3,711 in 1993 and $3,498 in 1992. In addition, in
connection with the financing of the acquisition of the Premium Group, the
Company prepaid $16.9 million of Senior Notes due to CIGNA and incurred a
pre-tax prepayment penalty to CIGNA of $2.3 million (included as a component of
the extraordinary item, net of income tax, on the accompanying consolidated
statements of earnings).
In connection with the acquisition of the Premium Group and
related financing, the Company paid a fee of $1.5 million to a firm whose
president and principal shareholder is a director of the Company.
b. Stock Incentive Plans
In August 1986, the Company established a nonqualified stock
option plan (the "1986 Plan") and authorized the issuance of options to purchase
an aggregate 847,500 shares of common stock to key employees, officers and
directors at the market price at the date of the grant. In October 1990, the
Company made available for future grant options to acquire an additional 600,000
shares of common stock under a nonqualified 1990 Stock Option Plan (the "1990
Plan"). The 1990 Plan is in all material respects identical to the original
nonqualified stock plan. In July 1993, the Company established the 1993
Incentive Program (the "1993 Program"). The 1993 Program permits the granting of
any or all of the following types of awards: (1) stock options, including
incentive stock options ("ISO's"), (2) stock appreciation rights ("SAR's"), in
tandem with stock options or freestanding, (3) restricted stock, (4)
31
<PAGE> 32
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
directors' options to be issued pursuant to a prescribed formula and (5)
restored options. Under the 1993 Program, an additional 1 million shares were
made available for grant. All options are exercisable over five years from the
date of grant at a rate of 25% of the grant at each anniversary date subsequent
to the date of the grant. As a result of the Special Dividend, options
outstanding and the exercise prices therein and shares available for grant have
been adjusted in accordance with the anti-dilution provisions of the 1986 and
1990 Plans.
A summary of changes in stock options and awards follows:
<TABLE>
<CAPTION>
Options Outstanding Options
Available ----------------------------------------
For Future Price
Grant Number Per Share
---------- ------- ---------------------
<S> <C> <C> <C>
Balance, April 27, 1991 576,650 772,522 $ 3.00 - $ 12.20
Options granted (493,800) 493,800 $ 7.00 - $ 9.81
Options exercised (136,194) $ 3.00 - $ 7.26
Options cancelled 456,663 (456,663) $ 5.57 - $ 12.20
--------- -------- ------ -------
Balance, May 2, 1992 539,513 673,465 $ 4.81 - $ 10.69
Options granted (12,000) 12,000 $ 9.50
Options exercised (117,412) $ 4.81 - $ 10.34
Options cancelled 11,446 (11,446) $ 5.57 - $ 8.63
Options lapsed (184,973) -
--------- -------- ------ -------
Balance May 1, 1993 353,986 556,607 $ 4.98 - $ 10.69
1993 Program 1,000,000
Options granted (375,500) 375,500 $ 8.63 - $ 13.75
Options exercised (78,117) $ 4.98 - $ 10.69
Options cancelled 4,446 (4,446) $ 7.25
--------- -------- ------ -------
Balance April 30, 1994 982,932 849,544 $ 4.98 - $ 13.75
========= ======== ====== =======
</TABLE>
In July 1991, employees surrendered 440,641 of outstanding
options with an exercise price of $12.20. The Company replaced the surrendered
options with 294,300 new options with an exercise price of $8.63.
Options previously authorized under the 1986 Plan which were
not granted as of the end of fiscal 1993 were considered to have lapsed and no
longer available for future grant.
On April 30, 1994, 210,763 options were exercisable at prices
ranging from $5.57 to $10.69.
32
<PAGE> 33
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
c. Common Stock Purchase Warrants
During fiscal 1993 and the fourth quarter of fiscal 1994, the
Company issued Warrants to purchase 300,000 shares and 100,000 shares of its
Common Stock at exercise prices of $6.88 and $13.50 per share, respectively, to
a customer who concurrently entered into long-term supply agreements with the
Company. The customer has the choice of either exercising the Warrants or
receiving a cash volume discount based upon certain minimum levels of purchases
from the Company during the terms of the supply agreements. The Warrants are
exercisable immediately whereas the cash volume rebate, if any, is payable after
the expiration of the supply agreements. The Warrants expire August 22, 1997 and
August 31, 1998, respectively. At such time as the customer may choose to
exercise either of the Warrants, the related accrued cash rebate will be
transferred to additional paid in capital. The fair values of the Warrants at
their dates of issuance were determined to be $855 and $502, respectively, and
are included in the balance sheet net of a deferred contra account in like
amount. As of April 30, 1994, the Company believes that the customer will
exercise the first Warrant and continues to accrue volume discounts based upon
sales with respect to the second Warrant.
d. Reserved Shares
Common shares reserved for issuance under the stock incentive
plans, outstanding warrants and the Debentures amounted to 3,628,450 shares at
April 30, 1994.
11. RESTRUCTURING CHARGE
As a result of the discontinued use of the long-box as a packaging
medium for compact discs and the related diminished level of sales, the Company
decided at the end of the third quarter of fiscal 1994 to close its Farmingdale,
New York facility effective as of April 30, 1994. In connection with the closing
of this facility and the restructuring of the Company's operations relating
thereto, the Company recorded a restructuring charge before provision for income
taxes amounting to $3.4 million during its current fiscal year. Included in this
charge are amounts provided for the termination of leases, disposal of
equipment, severance payments and other related restructuring items.
12. EMPLOYEE BENEFIT PLANS
(a) Defined Contribution Plans
The Company has profit sharing plans as well as employee savings plans.
Based upon the provisions of each employee savings plan, the Company matches a
portion of the employees' voluntary contributions. The amounts contributed to
the profit sharing plans in the United States are at the discretion of the Board
of Directors, whereas the amounts contributed to the profit sharing plans in
33
<PAGE> 34
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
Canada are at the percentages provided for by the respective plans. Total
provisions with respect to defined contribution plans approximated $977, $824
and $828 in 1994, 1993 and 1992, respectively.
(b) Defined Benefit Plans
In connection with the acquisitions of the Premium Group and Heminway,
the Company assumed the obligations related to two defined benefit pension plans
covering union employees. In addition, the Company is establishing a frozen plan
to accept assets to be transferred from a Premium Group defined benefit pension
plan, which assets relate to non-union employees who have been transferred to
and are now employees of the Company.
The following table sets forth the funded status of the Plans as of
April 30, 1994:
<TABLE>
<S> <C>
Vested benefit obligation $ 2,616
=======
Accumulated benefit obligation $ 2,923
=======
Projected benefit obligation $ 2,923
Market value of assets (including $1,900
to be transferred from Premium Group
plan) 3,275
-------
Plan assets in excess of projected
benefits obligation 352
Unrecognized transition obligation -
Unrecognized prior service cost -
Unrecognized loss/(gain) (452)
-------
Prepaid/(accrued) pension cost $ (100)
=======
Discount Rate 8%
=======
</TABLE>
13. MAJOR CUSTOMER AND CREDIT CONCENTRATIONS
Approximately 18% and 25% of net sales during the 1993 and 1992 fiscal
years, respectively, were derived from sales to Sony Music Entertainment, Inc.
and affiliates of Sony Corporation. No other customer accounted for more than
10% in any of the three fiscal years ended April 30, 1994.
At April 30, 1994, approximately 43% and 13% of accounts receivable
relate to all customers in the tobacco and music industries, respectively.
34
<PAGE> 35
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except share data)
14. GEOGRAPHIC OPERATIONS
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Net Sales
Domestic . . . . . . . . . . . . . . . $142,028 $137,405 $115,889
Foreign . . . . . . . . . . . 74,441 46,717 44,251
-------- -------- --------
$216,469 $184,122 $160,140
======== ======== ========
Net Earnings
Domestic (a) . . . . . . . . . . . . . . . $ 487 $ 13,916 $ 8,332
Foreign . . . . . . . . . . . . . . . 5,806 1,863 1,477
-------- -------- --------
$ 6,293 $ 15,779 $ 9,809
======== ======== ========
Identifiable Assets At Year-End
Domestic . . . . . . . . . . . . . . . $152,821 $ 87,371 $ 78,723
Foreign . . . . . . . . . . . . . . . 67,529 25,389 22,093
-------- -------- --------
$220,350 $112,760 $100,816
======== ======== ========
</TABLE>
The Company's foreign operations are conducted in Canada.
(a) After an extraordinary charge of $3,098 in 1994 and a cumulative
effect credit of $1,150 in 1993.
35
<PAGE> 36
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
36
<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company are identified in the tables below. Each Class
I Director has been elected to serve for a term to expire in 1996; each Class II
Director has been elected to serve for term to expire in 1994; and each Class
III Director has been elected to serve for a term to expire in 1995.
DIRECTORS
<TABLE>
<CAPTION>
YEAR FIRST
BECAME
NAME AGE A DIRECTOR
---- --- ----------
<S> <C>
CLASS I: TERM TO EXPIRE IN 1996
Melvin L. Braun(1)(2) 72 1987
Floyd S. Glinert (4) 65 1968
CLASS II: TERM TO EXPIRE IN 1994
R. Timothy O'Donnell(2)(3) 38 1991
Kevin J. Bannon(3) 42 1992
William P. Weidner(3) 49 1993
CLASS III: TERM TO EXPIRE IN 1995
Paul B. Shore(1)(4) 73 1966
Marc P. Shore(1)(4) 40 1976
Seymour Leslie(1)(2) 71 1985
</TABLE>
- -----------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Compensation and Stock Option Committee of the Board of
Directors.
(4) Also serves as an Executive Officer of the Company. See "Executive
Officer" table below.
37
<PAGE> 38
The executive officers of the Company are identified in the table
below. Each executive officer of the Company serves at the pleasure of the Board
of Directors.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
YEAR
BECAME AN
EXECUTIVE
NAME AGE OFFICER POSITIONS
- -------------------- --- --------- ----------------------------------------------------
<S> <C> <C> <C>
Paul B. Shore 73 1966 Chairman of the Board and Chief Executive Officer
Marc P. Shore 40 1976 Vice Chairman of the Board and President
Floyd S. Glinert 65 1968 Executive Vice President-Marketing and Director
Howard M. Liebman 52 1994 Executive Vice President and Chief Financial Officer
Charles Kreussling 65 1966 Executive Vice President-Manufacturing
Kenneth M. Rosenblum 51 1988 Senior Vice President-Sales
Scott A. Welikey 35 1988 Corporate Controller
</TABLE>
Biographical Information
Paul B. Shore, the founder of the Company, has served as Chairman of
the Board and Chief Executive Officer since the Company's formation in 1966 and
was President of the Company until October, 1991. Mr. Shore's printing and
packaging career spans more than forty years. Mr. Shore has been responsible for
the design, invention, development and implementation of several products
manufactured and processes utilized by the Company.
Marc P. Shore, President of the Company since October, 1991, has been
employed by the Company in various capacities since 1976. He is primarily
responsible for the Company's daily operations. In that capacity, he also
maintains contact with major customers of the Company. In addition, Mr. Shore is
responsible for coordinating the manufacturing implementation of all of the
Company's sales activities. Marc P. Shore is Paul B. Shore's son.
Howard M. Liebman joined the Company as Executive Vice-President and
Chief Financial Officer on June 3, 1994. Mr. Liebman is a Certified Public
Accountant. Prior to joining the Company, Mr. Liebman had been an audit partner
for more than twenty years at the accounting firm of Deloitte & Touche LLP,
where he was actively involved in the Shorewood account.
38
<PAGE> 39
Floyd S. Glinert has been employed by the Company since 1968. Mr.
Glinert is responsible for the Company's overall marketing management including
advertising, sales promotion and public relations. In addition, he is
responsible for the development and planning of new packaging opportunities.
Prior to his employment by the Company, he was employed as National Sales
Manager of Columbia Record Productions, a division of CBS Records (now known as
Sony Music Entertainment).
Melvin L. Braun was a partner of Touche Ross & Co. (now known as
Deloitte & Touche LLP), New York, New York, and predecessor firms from 1950
until he retired on September 1, 1987. Mr. Braun now acts as an independent
consultant and serves as a director of Conair Corp.
R. Timothy O'Donnell is the President of Jefferson Capital Group, Ltd.,
an investment banking firm located in Richmond, Virginia. He has served in that
capacity since August 1989. From July 1988 until August, 1989, Mr. O'Donnell
served as Vice President of CCA Industries, Inc., a privately held investment
company. From April 1983 through June 1988, Mr. O'Donnell was associated with
Paine Webber Incorporated, a diversified investment company, most recently
serving as First Vice President. Mr. O'Donnell also serves on the boards of
directors of LIVE Entertainment, Inc., All American Communications and Cinergi
Productions.
Kevin J. Bannon is an Executive Vice President and Chief Investment
Officer, The Bank of New York, New York, New York. From April 1979 to the
present date, Mr. Bannon has held various management positions with The Bank of
New York. He is a Chartered Financial Analyst.
Seymour Leslie has served as Chairman of the Leslie Group, Inc., an
investment company, from March 1978 to the present date and as Co-Chairman of
Leslie/Linton Entertainment, Inc., an investment and consulting firm, from March
1990 until the present date. Both companies are located in New York, New York.
Previously, he was Chairman and Chief Executive Officer of MGM/UA Home
Entertainment Group, New York, New York, a distributor of home entertainment
products and services from April 1982 until June 1987. From February 1980
through April 1982, he was Chairman of MGM/CBS Home Video and President of CBS
Video Enterprises. Mr. Leslie is also a director of MSA Realty Corp., Gametek,
Inc., K-Tel Intl., Inc., Pacific Rim, Inc and HMG Digital Tech.
William P. Weidner is the President and Chief Operating Officer of
Pratt Hotel Corporation, which operates and develops casino and resort
properties worldwide. He has served in that capacity since 1985. He has also
served as the President of Hollywood Casino-Aurora, Inc., an operator of
riverboat casinos, since 1992. Mr. Weidner serves on the boards of directors of
Hollywood Casino Corporation and Pratt Hotel Corporation.
Charles Kreussling has been employed by the Company since its inception
in 1966 and has been an Executive Vice President of the Company since 1979. Mr.
Kreussling is responsible for the Company's overall manufacturing and plant
administration. From 1967 until 1979, he was the Plant Manager of the Company's
Farmingdale, New York facility. Prior to joining the Company, he was employed in
various capacities in the printing and paperboard packaging industry.
Kenneth M. Rosenblum joined the Company in 1969 as an account executive
for the music industry. From 1970 until 1993, Mr. Rosenblum served as Vice
President-Sales of the Company. In 1993, he was promoted to Senior Vice
President Sales-Home Entertainment. In that capacity, he is responsible for all
of the Company's sales to video, music and computer software accounts.
39
<PAGE> 40
Scott A. Welikey is the Company's corporate controller and chief
accounting officer. He has served in those capacities since 1986. Prior to
joining the Company, Mr. Welikey was employed as an independent financial
consultant and as senior auditor at Touche Ross & Co. Mr. Welikey is a certified
public accountant.
Section 16(a) Reporting Under The Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than ten percent of the Common
Stock of the Company to file reports of ownership and change in ownership with
the Securities and Exchange Commission and the exchange on which the Common
Stock is listed for trading. Executive officers, directors and more than ten
percent stockholders are required by regulations promulgated under the Exchange
Act to furnish the Company with copies of all Section 16(a) reports filed. Based
solely on the Company's review of copies of the Section 16(a) reports filed for
the fiscal year ended April 30, 1994, the Company believes that all reporting
requirements applicable to its executive officers, directors, and more than ten
percent stockholders were complied with for the fiscal year ended April 30, 1994
and for prior fiscal years, except that (i) R. Timothy O'Donnell, Melvin L.
Braun and Seymour Leslie, all of whom are non-employee directors of the Company,
filed untimely reports of the grant to each of them during fiscal year 1993 of
an option to purchase 4,000 shares of common stock pursuant to the 1990 Employee
Stock Option Plan, (ii) the non-employee directors of the Company filed untimely
reports of the grant to each of them during fiscal year 1994 of an option to
purchase 4,000 shares of common stock pursuant to the Company's 1993 Incentive
Program and (iii) Kenneth M. Rosenblum, the Company's Senior Vice President --
Sales, filed an untimely report of the grant to him during fiscal 1994 of an
option to purchase 20,000 shares of common stock pursuant to the 1990 Employee
Stock Option Plan.
40
<PAGE> 41
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
concerning the compensation of the Company's "Named Executive Officers" (the
"Named Executive Officers") within the meaning of Item 402(a)(3) of Regulation
S-K of the Securities Act of 1933 as amended (the "Act"), for each of the three
fiscal years during the period ending April 30, 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM ALL
ANNUAL COMPENSATION OTHER
COMPENSATION (1) AWARDS COMPENSATION(3)
Options to Purchase
Salary Bonus Shares(2)
Name and Principal Position Year ($) ($) (#) ($)
- --------------------------- ----------- ------- ------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Paul B. Shore Fiscal 1994 574,600 -- -- 2,358
Chairman of the Board and Fiscal 1993 574,600 -- -- 4,577
Chief Executive Officer Fiscal 1992 641,535 -- 60,000 4,444
------------------------------------------------------------------------------
Marc. P. Shore Fiscal 1994 399,816 200,000 75,000 5,088
Vice Chairman of the Fiscal 1993 339,664 -- -- 8,633
Board and President Fiscal 1992 335,659 -- 60,000 6,109
------------------------------------------------------------------------------
Floyd S. Glinert Fiscal 1994 299,988 -- -- 15,932
Executive Vice President - Fiscal 1993 290,179 -- -- 18,114
Marketing and Director Fiscal 1992 285,819 -- 30,000 17,708
------------------------------------------------------------------------------
Murray B. Frischer Fiscal 1994 200,000 -- -- 9,387
Former Executive Vice Fiscal 1993 193,469 -- -- 10,992
President Fiscal 1992 187,087 -- 30,000 9,568
and Chief Financial Officer
------------------------------------------------------------------------------
Charles Kreussling Fiscal 1994 200,000 50,000 -- 15,318
Executive Vice President - Fiscal 1993 193,469 -- -- 17,021
Manufacturing Fiscal 1992 182,729 -- 25,000 16,491
------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) The aggregate amount of perquisites and other personal benefits for
each of the Named Executive Officers did not equal or exceed the lesser
of either $50,000 or 10% of the total of such individual's base salary
and bonus, as reported herein for the last fiscal year, and is not
reflected in the table.
(2) Stock options are granted under the terms and provisions of the
Company's Option Plans. For a description of the stock options, see
"Aggregated Option Exercises and Fiscal Year-End Option Values".
41
<PAGE> 42
(3) Amounts reported under such column include the dollar value of the
following:
<TABLE>
<CAPTION>
Value of Life- Contributions to 401(K)
Insurance Employee Savings Contributions to Profit-
Premiums(1) Plan(2) Sharing Plan(3)
Name Year ($) ($) ($)
-------- ----------- -------------- ----------------------- ------------------------
<S> <C> <C> <C> <C>
Paul B. Shore Fiscal 1994 -- -- 2,358
Fiscal 1993 -- -- 4,577
Fiscal 1992 -- -- 4,444
---------------------------------------------------------------------------------
Marc. P. Shore Fiscal 1994 645 2,085 2,358
Fiscal 1993 595 3,461 4,577
Fiscal 1992 595 1,070 4,444
---------------------------------------------------------------------------------
Floyd S. Glinert Fiscal 1994 10,538 3,036 2,358
Fiscal 1993 10,538 2,999 4,577
Fiscal 1992 10,538 2,726 4,444
---------------------------------------------------------------------------------
Murray B. Frischer Fiscal 1994 5,008 2,260 2,119
Fiscal 1993 5,008 1,969 4,015
Fiscal 1992 5,008 607 3,953
---------------------------------------------------------------------------------
Charles Kreussling Fiscal 1994 11,013 2,136 2,169
Fiscal 1993 10,937 1,969 4,115
Fiscal 1992 10,937 1,542 4,012
---------------------------------------------------------------------------------
</TABLE>
- ---------------------
(1) Reflects life-insurance premiums paid by the Company on behalf of the
Named Executive Officer
(2) Reflects contributions to the Company's tax-qualified 401(k) Employee
Savings Plan that covers all employees who have completed 1,000 hours
of service and one year of employments.
(3) Reflects contributions to the Company's profit-sharing plan, which is
maintained as a qualified plan under the Internal Revenue Code of 1986,
as amended.
42
<PAGE> 43
Option Grants In Last Fiscal Year
The following table provides certain summary information concerning
individual grants of stock options made to named Executive Officers during the
fiscal year ended April 30, 1994 under the Company's 1986 and 1990 Employee
Stock Option Plans and 1993 Incentive Plan (collectively, "Option Plans").
Except as set forth in the table below, during fiscal year 1994, the Company did
not grant any stock options under the Company's Option Plans to any of the Named
Executive Officers.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Rates of
Stock Price Appreciation
INDIVIDUAL GRANTS for Option Term
- --------------------------------------------------------------------------------------------------------------------
Number of
shares Percent of Total Options
underlying Granted to Employees in Exercise
Grant(1) Fiscal Year Price Expiration 5% 10%
Name (#) (%) ($) Date ($) ($)
-------- ---------- ------------------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Marc P. Shore 75,000 20.8% 8.625 7/8/98 178,720 394,924
</TABLE>
- --------------
(1) For a description of the stock options, see "Aggregated Option
Exercises and Fiscal Year-End Option Values".
43
<PAGE> 44
Aggregated Option Exercises and Fiscal Year-End Option Values
The following table provides certain summary information concerning
stock option exercises during the fiscal year ended April 30, 1994, by the Named
Executive Officers and the value of unexercised stock options held by the Named
Executive Officers as of April 30, 1994.
<TABLE>
<CAPTION>
Number of
Shares Number of Unexercised Value of Unexercised
Acquired Options at Fiscal "In the Money"
on Value Annualized Year End(2) Options at Fiscal Year End(3)
Name Exercise Realized(1) Gain(1) (#) ($)
------------- --------- ----------- ---------- ---------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Exercisable Unexercisable Exercisable Unexercisable
Paul B. Shore -- -- -- 30,000 30,000 176,250 176,250
Marc. P. Shore -- -- -- 30,000 105,000 177,188 617,063
Floyd S. Glinert -- -- -- 15,000 15,000 89,063 89,063
Murray B. Frischer -- -- -- 15,000 15,000 89,063 89,063
Charles Kreussling -- -- -- 12,500 12,500 74,063 74,063
</TABLE>
- -----------------
(1) None of the Named Executive Officers exercised any stock options during
the fiscal year ended April 30, 1994. Under the Company's Option Plans,
non-qualified stock options are granted at exercise prices equal to the
fair market value of the Common Stock on the date of grant. The stock
options granted under the Company's Option Plans are exercisable over
five years from the date of grant with installments of 25% of the total
number of underlying shares becoming exercisable on each of the four
anniversaries of the date of grant. Payment for options exercised may
be in cash or shares of Common Stock, the fair market value of which is
determined in accordance with the terms of the Company's Option Plans.
The stock options automatically terminate upon termination of the
grantee's employment for any reason other than death or retirement,
except, if the grantee remained continuously employed by the Company or
by a subsidiary of the Company for at least one year after the grant of
the option, the grantee shall have 30 days immediately following such
cessation of employment to exercise the option unless the option has
otherwise expired. Persons succeeding to the grantee's rights upon
death may exercise the grantee's options up to the earlier of the date
of such option's expiration or the first anniversary of the grantee's
death. Upon retirement at normal retirement age or with the consent of
the Company, the grantee shall have the right to exercise the option
until the earlier of three years from the date of retirement or the
date of expiration of the option.
(2) Represents the aggregate number of stock options held as of April 30,
1994 which can and cannot be exercised pursuant to the terms and
provisions of the stock options.
(3) Values were calculated by multiplying the closing market price of the
Common Stock as reported on NASDAQ on April 29, 1994, by the respective
number of shares and subtracting the exercise price per share, without
any adjustment for any termination or vesting contingencies.
44
<PAGE> 45
Resignation of Named Executive Officer
Mr. Murray B. Frischer, formerly an Executive Vice President and Chief
Financial Officer of the Company, resigned from the employ of the Company
effective the close of business May 6, 1994. The Company and Mr. Frischer have
entered into a Consultation and Termination Agreement. In exchange for certain
consulting services which may be provided by Mr. Frischer, the Company has
agreed to pay Mr. Frischer $200,000 in installments over a one year period.
The Company has also agreed to provide Mr. Frischer with certain fringe
benefits and has granted him an option to purchase 15,000 shares of Common
Stock under the Company's 1993 Incentive Program. Mr. Frischer is bound by
certain provisions restricting his ability to disclose confidential information
relating to the Company's business and from competing against the Company.
Compensation of Directors
During the year ended April 30, 1994, each director who was not an
officer or an employee of the Company received a director's fee of $8,000
(pro-rated to the extent that a director did not serve on the Board of
Directors for the entire year), plus $2,000 for attendance at each meeting of
the Board of Directors and $1,000 for attendance at each meeting of a committee
of the Board of Directors. All directors of the Company are also reimbursed
for expenses. Under the Company's 1993 Incentive Program (the "1993 Program"),
each director who is not an officer or employee of the Company (a "Qualified
Director") automatically receives, as of January 2 (or if January 2 is not a
business day, as of the next succeeding business day) of each year, an annual
grant of options to purchase at an option price equal to the fair market value
of the Company's common stock on the date of grant a number of shares
determined by the Board of Directors of the Company pursuant to a prescribed
formula. The 1993 Program permits awards of options of up to 100,000 shares in
the aggregate for all Qualified Directors (subject to certain anti-dilution
provisions). During fiscal year 1994, each Qualified Director received an
option to purchase 4,000 shares of common stock pursuant to the 1993 Program.
See Note 10 of "Notes to Consolidated Financial Statements".
Compensation Committee
The Company has a Compensation and Stock Option Committee (the
"Compensation Committee") which is composed of Messrs. William P. Weidner,
Kevin J. Bannon and R. Timothy O'Donnell. Messrs. Seymour Leslie and Melvin L.
Braun also served on the Compensation Committee during portions of fiscal year
1994. Each of the aforementioned persons is not and never was an officer or
employee of the Company or its subsidiaries. None of them is eligible to
participate in any of the plans or programs which the Compensation Committee
administers. The Compensation Committee approves the salaries and bonuses, if
any, of all executive officers, and authorizes the grant of stock options to
eligible employees under the Company's Option Plans. The portion of the
Company's Option Plans governing non-employee directors is administered by the
Board of Directors (other than eligible directors) rather than the Compensation
Committee and grants thereunder are made automatically to eligible directors
pursuant to the terms of the applicable plan. See "Compensation of Directors."
During the fiscal year ended April 30, 1994, Jefferson Capital Group,
Ltd., an investment banking firm of which R. Timothy O'Donnell is the President
and a principal shareholder, advised the Company in connection with its
acquisition of the "Somerville Premium Packaging Business" previously conducted
by Cascades Paperboard International, Inc. and the related refinancing of the
Company's senior
45
<PAGE> 46
debt. For these services, the Company paid Jefferson Capital Group, Ltd an
investment advisory fee of $1,500,000.
The Bank of New York, of which Kevin J. Bannon is an Executive Vice
President, is a participant in the Company's lending syndicate which provided
financing to the Company in connection with the acquisition of the "Somerville
Premium Packaging Business" and the related refinancing of senior debt. The
extent of the Bank of New York's participation in the Company's credit
facilities is $2,835,820. The Bank of New York also acts as the Company's
transfer agent.
Compensation Committee Interlocks and Insider Participation
No member of the Company's Compensation Committee is a current or
former officer or employee of the Company. In addition, there are no other
compensation committee interlocks between the Company and any other entities
involving any of the executive officers or directors of such other entities.
46
<PAGE> 47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFIT OWNERS AND MANAGEMENT
Principal Stockholders
The outstanding voting stock of the Company as of July 18, 1994
consisted of 18,023,365 shares of Common Stock, with each share entitled to one
vote. Beneficial ownership has been determined for purposes herein in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), under which a person is deemed to be the beneficial owner
of securities if such person has or shares voting power or investment power in
respect of such securities or has the right to acquire beneficial ownership
within 60 days. So far as is known to the Company, the following were the only
beneficial owners of more than 5% of the outstanding Common Stock of the
Company on such date:
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount of Shares Percent
Owner Beneficially Owned of Class
------------------------------ ------------------ --------
<S> <C> <C>
Paul B. Shore (1)(2)(3) . . . . . . . . 2,730,615 15.11%
c/o Shorewood Packaging
Corporation
10 East 53rd Street
New York, NY 10022
Marc P. Shore(1)(4) . . . . . . . . . . 1,211,081 6.71%
c/o Shorewood Packaging
Corporation
10 East 53rd Street
New York, NY 10022
Ariel Capital Management, Inc. . . . . 3,633,505 19.85%
307 North Michigan Avenue
Chicago, Illinois 60601
CIGNA Corporation(5) . . . . . . . . . 1,153,846 6.02%
900 Cottage Grove Road
Bloomfield, Connecticut 06002
</TABLE>
- ---------------
(1) Includes 264,600 shares owned by Ellin Shore and either Marc. P. Shore
or Andrew Shore, as Trustees, under three Trust Agreements, each dated
as of January 15, 1972, for the benefit of Marc P. Shore and two other
children of Paul B. Shore, as to all of which shares Paul B. Shore and
Marc P. Shore (except with respect to 88,200 shares held by the trust of
which Marc P. Shore is the beneficiary) disclaim beneficial ownership.
(2) Includes options to purchase 45,000 shares granted under the Company's
1986 Employees' Stock Option Plan, which were exercisable on or within
60 days after July 18, 1994. (See "Item 11 - Aggregated Option
Exercises and Fiscal Year-End Option Values.")
47
<PAGE> 48
(3) Also includes 5,000 shares owned by Ellin Shore directly and 15 shares
owned by Ellin Shore as custodian for a minor grandchild. Ellin Shore
is the wife of Paul B. Shore.
(4) Includes options to purchase 30,000 shares granted under the Company's
Option Plans which were exercisable on or within 60 days from July 18,
1994. (See "Item 11 - Aggregated Option Exercises and Fiscal Year-End
Option Values"). Includes 34,201 shares of restricted stock awarded
pursuant to the Company's long term incentive program (the "Restricted
Stock"). The long term incentive program is authorized under the 1993
Program. The Restricted Stock is subject to a three year performance
vesting restriction or, alternatively, an eight year employment vesting
restriction. During the vesting period, the recipient may not dispose
of but may vote the shares of Restricted Stock and is entitled to
receive any dividends paid on the shares. If the grantee's employment
terminates prior to vesting, the Restricted Stock awarded to him or her
is forfeited.
(5) Assumes that the shares issuable to affiliates of CIGNA Corporation upon
conversion of $15 million of the Company's 9.5% Convertible Subordinated
Debentures issued on June 27, 1991 were converted as of July 18, 1994.
48
<PAGE> 49
Equity Securities Beneficially Owned by the Directors and Named Executive
Officers
According to information furnished to the Company, as of July 18, 1994,
the directors of the Company, the Company's "Named Executive Officers", and all
directors and executive officers as a group, beneficially owned shares of
Common Stock of the Company as set forth below. Beneficial ownership has been
determined for purposes herein in accordance with Rule 13d-3 of the Exchange
Act under which a person is deemed to be the beneficial owner of securities if
such person has or shares voting power or investment power in respect of such
securities or has the right to acquire beneficial ownership within 60 days.
<TABLE>
<CAPTION>
Amount of Shares Percent
Name and Address of Beneficial Owner Beneficially Owned of Class
------------------------------------ ------------------ --------
<S> <C> <C>
Paul B. Shore (1)(2) . . . . . . . . . . . . 2,730,615 15.11%
c/o Shorewood Packaging Corporation
10 East 53rd Street
New York, NY 10022
Marc P. Shore(1)(3) . . . . . . . . . . . . . 1,211,081 6.71%
c/o Shorewood Packaging Corporation
10 East 53rd Street
New York, NY 10022
Floyd S. Glinert(4) . . . . . . . . . . . . . 201,950 1.12%
c/o Shorewood Packaging Corporation
10 East 53rd Street
New York, New York 10022
Seymour Leslie(5) . . . . . . . . . . . . . . 187,710 1.04%
c/o Leslie Group, Inc.
1370 Avenue of the Americas
New York, New York 10019
R. Timothy O'Donnell(7) . . . . . . . . . . . 108,746 (6)
13 West Glenbrooke Circle
Richmond, Virginia 23229
Melvin L. Braun(8) . . . . . . . . . . . . . 8,046 (6)
20230 Back Nine Drive
Boca Raton, Florida 33434
Kevin J. Bannon . . . . . . . . . . . . . . . 4,500 (6)
c/o The Bank of New York
One Wall Street
New York, New York 10286
</TABLE>
49
<PAGE> 50
<TABLE>
<S> <C> <C>
William Weidner . . . . . . . . . . . . . . . 10,000 (6)
c/o Hollywood Casino, Aurora Inc.
136 South Kentucky Avenue
Atlantic City, New Jersey 08401
Named Executive Officers (in addition to the
Chief Executive Officer, President, and
Executive Vice President - Marketing, who are
directors and are included under the heading
"Directors")(9)
Charles Kreussling(10) . . . . . . . . . . . 242,300 1.34%
c/o Shorewood Packaging Corporation
10 East 53rd Street
New York, New York 10022
All directors and executive officers as a
group (12 persons)(11)(12)(13) . . . . . . . 4,543,276 24.99%
</TABLE>
- ---------------
(1) Includes 264,600 shares owned by Ellin Shore and either Marc P. Shore or
Andrew Shore, as Trustees, under three Trust Agreements, each dated as
of January 15, 1972, for the benefit of Marc P. Shore and two other
children of Paul B. Shore, as to all of which shares Paul B. Shore and
Marc P. Shore (except with respect to 88,200 shares held by the trust of
which Marc P. Shore is the beneficiary) disclaim beneficial ownership.
(2) Includes 5,000 shares owned by Ellin Shore directly and 15 shares owned
by Ellin Shore as custodian for a minor grandchild. Ellin Shore is the
wife of Paul B. Shore. Includes 45,000 shares subject to stock options
issued to Paul B. Shore under the Company's 1986 Employees' Stock Option
Plan, which were exercisable on or within 60 days after July 18, 1994.
(See "Item 11 - Aggregated Option Exercises and Fiscal Year-end Option
Values").
(3) Includes 30,000 shares subject to stock options issued under the
Company's Option Plans which were exercisable on or within 60 days after
July 18, 1994. (See "Item 11 - Aggregated Option Exercises and Fiscal
year - End Option Values"). Includes 34,201 shares of Restricted Stock
awarded pursuant to the Company's long term incentive program. (See
"Item 12 - "Principal Stockholders").
(4) Includes 18,750 shares subject to stock options issued under the
Company's Option Plans which were exercisable on or within 60 days after
July 18, 1994. (See "Item 11 - Aggregated Option Exercises and Fiscal
Year-End Option Values"). Includes 3,000 shares owned by Phyllis
Glinert, Floyd S. Glinert's wife, as to all of which shares Floyd S.
Glinert disclaims beneficial ownership.
50
<PAGE> 51
(5) Includes 175,818 shares held by Leslie Group, Inc., of which Seymour
Leslie is Chairman of the Board and a principal stockholder. Includes
11,892 shares subject to stock options issued under the Company's Option
Plans which were exercisable on or within 60 days after July 18, 1994.
(6) Less than 1%.
(7) Includes 300 shares owned by Mr. O'Donnell's wife as custodian for their
two minor children. Includes 14,821 shares subject to stock options
issued to Jefferson Capital Group, Ltd. (of which Mr. O'Donnell is the
President and a principal shareholder), which were exercisable at $5.02
per share on or within 60 days after July 18, 1994, and 3,000 shares
subject to stock options issued under the Company's Options Plans which
were exercisable on or within 60 days after July 18, 1994.
(8) Includes 7,446 shares subject to stock options issued under the
Company's Option Plans which were exercisable on or within 60 days after
July 18, 1994.
(9) Murray B. Frischer, formerly the Chief Financial Officer and an
Executive Vice President of the Company (and a "Named Executive Officer"
for fiscal 1994 within the meaning of the Act), resigned from the employ
of the Company effective the close of business May 6, 1994. See
"Resignation of Named Executive Officer". Accordingly, Mr. Frischer's
beneficial ownership interest in the Company is not reflected herein.
(10) Includes 16,250 shares subject to stock options issued under the
Company's Option Plans which were exercisable on or within 60 days after
July 18, 1994. (See "Item 11 - Aggregated Option Exercises and Fiscal
Year-End Option Values").
(11) The total number of directors and executive officers of the Company
includes three executive officers who were not included as Named
Executive Officers for the fiscal year ended April 30, 1994.
(12) While the shares described in footnote (1) are attributed to each of Mr.
Paul B. Shore and Mr. Marc P. Shore for purposes of calculating the
amount of shares beneficially owned by them individually, such shares
are included only once in calculating the total amount of shares
beneficially owned by all directors and executive officers as a group.
(13) Includes 155,409 shares subject to stock options issued under the
Company's Option Plans and the options referred to in note 7 above,
which were exercisable on or within 60 days after July 18, 1994. (See
"Item 11 - Aggregated Option Exercises and Fiscal Year-End Option
Values"). Includes 62,909 shares of Restricted Stock issued to
executive officers pursuant to Company's long term incentive program.
(See "Item 12 - Principal Stockholders").
51
<PAGE> 52
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
During the fiscal year ended April 30, 1994, Jefferson Capital Group,
Ltd, an investment banking firm of which R. Timothy O'Donnell is the President
and a principal shareholder, advised the Company in connection with its
acquisition of the "Somerville Premium Packaging Business" previously conducted
by Cascades Paperboard International, Inc. and the related refinancing of the
Company's senior notes. For these services, the Company paid Jefferson Capital
Group, Ltd an investment advisory fee of $1,500,000.
The Bank of New York, of which Kevin J. Bannon is an Executive Vice
President, is a participant in the Company's lending syndicate which provided
financing in connection with the acquisition of the "Somerville Premium
Packaging Business" and the related refinancing of senior debt. The extent of
the Bank of New York's participation in the Company's credit facilities is
$2,835,820. The Bank of New York also acts as the Company's transfer agent.
Prior to joining the Company on June 3, 1994, Howard M. Liebman was an
audit partner at Deloitte & Touche LLP, the Company's independent auditors for
fiscal year 1994.
52
<PAGE> 53
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. See "Index to Financial Statements and
Supplementary Data" in Item 8.
(a)(2) Financial Statements Schedules. See "Index to Financial
Statement Schedules" below.
(a)(3) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company, as amended, incorporated by reference to the corresponding Exhibit item
to Registration Statement on Form S-1, as amended, as filed with the Commission on September 4, 1986, Commission File
No. 33-8490.
3.2 -- Amended and Restated By-laws of the Company, incorporated by reference to the corresponding Exhibit item to Amendment
No. 1 to Registration Statement on Form S-1, as filed with the Commission on October 20, 1986, Commission File No. 33-
8490.
9.1 -- Intentionally Omitted.
10.1 -- through 10.4 Intentionally Omitted.
10.5 -- Agreement of Lease dated May 20, 1977 between Frank X. Mascioli and Shorewood Packaging Corporation, a New York
corporation, relating to premises located at 55 Engineers Lane, Farmingdale, New York, incorporated by reference to
the corresponding Exhibit item to Registration Statement on Form S-1, as amended, as filed with the Commission on
September 4, 1986, Commission File No. 33-8490.
10.6 -- and 10.7 Intentionally Omitted.
10.8 -- Lease dated June 13, 1979 between Ravin Investments Limited and Shorewood Packaging Corp. of Canada Limited, as
amended as of March 14, 1983, between Pension Fund Realty Limited and Shorewood Packaging Corp. of Canada Limited,
relating to premises located at 2220 Midland Avenue, Scarborough, Ontario, Canada, incorporated by reference to the
corresponding Exhibit item to Registration Statement on Form S-1, as amended, as filed with the Commission on
September 4, 1986, Commission File No. 33-8490.
10.9 -- Lease Agreement dated November 1, 1984 between The Beneficiary Of Land Trust Established With American National Bank
and Trust Company of Chicago and Shorewood Packaging Company of Illinois, Inc., relating to the Countryside Executive
Center in Palatine, Illinois, incorporated by reference to the corresponding Exhibit item to Registration Statement on
Form S-1, as amended, as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.10 -- through 10.39 Intentionally Omitted.
10.40 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Paul B.
Shore, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as amended,
as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.41 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Marc P.
Shore, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as amended,
as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C> <C>
10.42 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Floyd
Glinert, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as
amended, as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.43 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Murray B.
Frischer, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as
amended, as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.44 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Charles
Kreussling, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as
amended, as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.45 -- Non-Competition Agreement dated as of June 20, 1985 between Shorewood Packaging Corporation of New York and Kenneth
Rosenblum, incorporated by reference to the corresponding Exhibit item to Registration Statement on Form S-1, as
amended, as filed with the Commission on September 4, 1986, Commission File No. 33-8490.
10.46 -- through 10.50 Intentionally Omitted.
10.51 -- Lease dated as of April 30, 1987 between Shorewood Packaging Corporation and Blamore Real Estate Company relating to
the premises located at 10 East 53rd Street, New York, New York, incorporated by reference to the corresponding
Exhibit item to Registration Statement on Form S-1, as amended, as filed with the Commission on June 5, 1987,
Commission File No. 33-14395.
10.52 -- through 10.56 Intentionally Omitted.
10.57 -- Asset Purchase Agreement, dated as of August 1, 1988, by and among Goody Products, Inc., Southeastern Box Co., Inc.,
Shorewood Packaging Corporation and Shorewood Box Co., Inc., incorporated by reference to the corresponding Exhibit
item to Quarterly Report on Form 10-Q for the quarter ended July 30, 1988 filed with the Commission on August 30,
1988, Commission file No. 0-15077.
10.58 -- Agreement, dated August 1, 1988, by and between Goody Products, Inc. and Shorewood Packaging Corporation, incorporated
by reference to the corresponding Exhibit item to Quarterly Report on Form 10-Q for the quarter ended July 30, 1988
filed with the Commission on August 30, 1988. Commission file No. 0-15077.
10.59 -- through 10.64 Intentionally Omitted.
10.65 -- Amendment to Note Purchase Agreement dated December 5, 1989 between Shorewood Packaging Corporation and each of
Connecticut General Life Insurance Company, CIGNA Property and Casualty Insurance Company, Connecticut General Life
Insurance Company, on behalf of one or more separate accounts, CONGEN TWENTY-EIGHT & CO. and CONGEN THIRTY & CO.,
incorporated by reference to the corresponding Exhibit item to quarterly Report on Form 10-Q for the quarter ended
January 27, 1990 filed with the Commission on February 28, 1990, Commission file No. 0-15077.
10.66 -- Shorewood Packaging Corporation Profit Sharing Plan as Amended, Renamed and Restated effective January 1, 1989 among
Shorewood Packaging Corporation, Shorewood Packaging of California, Inc., Shorewood Packaging Company of Illinois,
Inc., Shorewood Transport, Inc., Southeastern Box Corporation and Shorewood Packaging of Virginia, Inc., incorporated
by reference to the corresponding Exhibit item to the Company's annual report on Form 10-K for the fiscal year ended
April 28, 1990, as filed with the Commission on July 20, 1990, Commission File No. 0-15077.
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C> <C>
10.67 -- Amendment, as of June 27, 1991, to the Note Purchase Agreement dated December 14, 1988 (as heretofore amended) between
Shorewood Packaging Corporation and each of Connecticut General Life Insurance Company, CIGNA Property and Casualty
Insurance Company, Connecticut General Life Insurance Company on behalf of one or more separate accounts, CONGEN
TWENTY-EIGHT & CO. and CONGEN THIRTY & CO. incorporated by reference to the corresponding Exhibit item to the
Company's annual report on Form 10-K for the fiscal year ended April 27, 1991, as filed with the Commission on July
23, 1991, Commission File No. 0-15077.
10.68 -- Credit Agreement dated as of June 27, 1991 between Shorewood Packaging Corporation and The Citizens and Southern
National Bank with Credit Agreement incorporated by reference to the corresponding exhibit item to the Company's
annual report on Form 10-K for the fiscal year ended April 27, 1991, as filed with the Commission on July 23, 1991,
Commission File No. 0-15077.
10.69 -- Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging Corporation and each of Connecticut
General Life Insurance Company and Connecticut General Life Insurance Company, on behalf of one or more separate
accounts, pertaining to the issuance of $12,000,000 in aggregate principal amount of 9.15% Senior Notes due June 30,
1997, incorporated by reference to the corresponding Exhibit item to the Company's annual report on Form 10-K for the
fiscal year ended April 27, 1991, as filed with the Commission on July 23, 1991, Commission File No. 015077.
10.70 -- Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging Corporation and each of Connecticut
General Life Insurance Company, CIGNA Mezzanine Partners II, L.P., Life Insurance Company of North American and The
Prudential Insurance Company of America pertaining to the issuance of $17,500,000 in aggregate principal amount of
9.50% Convertible Subordinated Notes due June 30, 2001, incorporated by reference to the corresponding Exhibit item to
the Company's annual report on Form 10-K for the fiscal year ended April 27, 1991, as filed with the Commission on
July 23, 1991, Commission File No. 015077.
10.71 -- Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging Corporation and The Prudential Insurance
Company of America pertaining to the issuance of $15,000,000 in aggregate principal amount of 9.71% Senior Fixed Rate
Notes due 1998 and of $12,500,000 in aggregate principal amount of Senior Floating Rate Notes due 1996, incorporated
by reference to the corresponding Exhibit item to the Company's annual report on Form 10-K for the fiscal year ended
April 27, 1991, as filed with the Commission on July 23, 1991, Commission File No. 015077.
10.72 -- Blanket Subordination Agreement dated as of June 27, 1991 by Shorewood Packaging Corporation and each of its
subsidiaries in favor of each of The Prudential Insurance Company of America, The Citizens and Southern National Bank,
The Royal Bank of Canada, Connecticut General Life Insurance Company, Connecticut General Life Insurance Company, in
behalf of one or more separate accounts, Life Insurance Company of North America, CIGNA Mezzanine Partners, II. L.P.,
CIGNA Property and Casualty Insurance Company CONGEN TWENTYEIGHT & CO. and CONGEN THIRTY & CO., incorporated by
reference to the corresponding Exhibit item to the Company's annual report on Form 10-K for the fiscal year ended
April 27, 1991, as filed with the Commission on July 23, 1991, Commission File No. 015077.
10.73 -- Amendment, as of December 2, 1991, to Note Purchase Agreement dated June 27, 1991 between Shorewood Packaging
Corporation and each of Connecticut General Life Insurance Company, CIGNA Mezzanine Partners II, L.P., Life Insurance
Company of North America
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C> <C>
and The Prudential Insurance Company of America incorporated by
reference to the corresponding Exhibit item to Quarterly Report on
Form 10-Q for the quarter ended November 2, 1991 as filed with the
Commission on December 12, 1991, Commission File No. 0-15077.
10.74 -- Amendment, as of December 2, 1991 to Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging
Corporation and each of Connecticut General Life Insurance Company and ConnGen Life Insurance Company, on behalf of
one or more separate accounts incorporated by reference to the corresponding Exhibit item to Quarterly Report on Form
10-Q for the quarter ended November 2, 1991 as filed with the Commission on December 12, 1991, Commission File No. 0-
15077.
10.75 -- Amendment, as of December 2, 1991, to Note Purchase Agreement dated as of December 14, 1988 between Shorewood
Packaging Corporation and each of ConnGen Life Insurance Company, CIGNA Property and Casualty Insurance Company,
CONGEN Twenty-Eight & Co., CONGEN Thirty & Co., CIG & Co., and Connecticut General Life Insurance Company on behalf of
one or more separate accounts incorporated by reference to the corresponding Exhibit item to Quarterly Report on Form
10-Q for the quarter ended November 2, 1991 as filed with the Commission on December 12, 1991, Commission File No. 0-
15077.
10.76 -- Amendment, as of December 2, 1991, to Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging
Corporation and The Prudential Insurance Company of America incorporated by reference to the corresponding Exhibit
item to Quarterly Report on Form 10-Q for the quarter ended November 2, 1991 as filed with the Commission on December
12, 1991, Commission File No. 0-15077.
10.77 -- Intentionally Omitted.
10.78 -- Asset Purchase Agreement dated December 23, 1993 by and among Shorewood Paperboard Corporation Limited, Shorewood
Acquisition Corporation of Delaware, Paperboard Industries Corporation and Paperboard Industries Inc. incorporated by
reference to the corresponding exhibit item to Form 8-K Current Report of Shorewood Packaging Corporation filed with
the Commission on January 28, 1994, Commission File No. 0-15077.
10.79 -- Sheeter Purchase Agreement dated December 23, 1993 by and among Shorewood Acquisition Corporation of Delaware and
Paperboard Industries Inc. incorporated by reference to the corresponding exhibit item to Form 8-K Current Report of
Shorewood Packaging Corporation filed with the Commission on January 28, 1994, Commission File No. 0-15077.
10.80 -- Restated and Amended Credit Agreement dated February 25, 1994 between Shorewood Packaging Corporation, Shorewood
Corporation of Canada Limited and NationsBank of North Carolina, N.A. and The Bank of Nova Scotia incorporated by
reference to the corresponding exhibit item to Shorewood Packaging Corporation's quarterly report on Form 10-Q for the
fiscal quarter ended January 29, 1994, as filed with the Commission on March 15, 1994, Commission File No. 0-15077.
10.81 -- Trademark License Agreement dated January 14, 1994 between Paperboard Industries Inc. and Shorewood Acquisition
Corporation of Delaware incorporated by reference to the corresponding exhibit item to the Company's annual report on
Form 10-K for the fiscal year ended April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No.
O-15077.
10.82 -- Non-Competition Agreement dated January 14, 1994 between Cascades Inc., Cascades Paperboard International Inc.,
Paperboard Industries Corporation, Paperboard Industries
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C> <C>
Inc., Shorewood Packaging Corporation, Shorewood Paperboard
Corporation Limited and Shorewood Acquisition Corporation of
Delaware incorporated by reference to the corresponding exhibit
item to the Company's annual report on Form 10-K for the fiscal
year ended April 30, 1994, as filed with the Commission on July
29, 1994, Commission File No. O-15077.
10.83 -- First Amendment to Restated and Amended Credit Agreement dated July 18, 1994 between Shorewood Packaging Corporation,
Shorewood Corporation of Canada Limited and NationsBank of North Carolina, N.A. and The Bank of Nova Scotia
incorporated by reference to the corresponding exhibit item to the Company's annual report on Form 10-K for the fiscal
year ended April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No. O-15077.
10.84 -- Amendment, as of January 14, 1994, to Note Purchase Agreement dated as of June 27, 1991 between Shorewood Packaging
Corporation and each of Connecticut General Life Insurance Company, Inc., Mezzanine Partners II, L.P., Life Insurance
Company of North America and The Prudential Insurance Company of America incorporated by reference to the
corresponding exhibit item to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, as
filed with the Commission on July 29, 1994, Commission File No. O-15077.
10.85 -- Asset Purchase Agreement dated January 17, 1994 between Shorewood/Heminway Acquisition Corporation and Heminway
Packaging Corporation (omitting schedules and exhibits) incorporated by reference to the corresponding exhibit item to
the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, as filed with the Commission on
July 29, 1994, Commission File No. O-15077.
10.86 -- Lease dated as of January 17, 1994 between Shorewood/Heminway Acquisition Corporation and Heminway Packaging
Corporation in respect of premises located at 155 South Leonard Street, Waterbury, Connecticut incorporated by
reference to the corresponding exhibit item to the Company's annual report on Form 10-K for the fiscal year ended
April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No. O-15077.
10.87 -- Letter Agreement dated April 21, 1994 by and among SPC Corporation Limited, (formerly known as Shorewood Paperboard
Corporation Limited), Shorewood Acquisition Corporation of Delaware, Paperboard Industries Corporation and Paperboard
Industries Inc. in respect of working capital adjustment incorporated by reference to the corresponding exhibit item
to the Company's annual report on Form 10-K for the fiscal year ended April 30, 1994, as filed with the Commission on
July 29, 1994, Commission File No. O-15077.
10.88 -- Employment Agreement dated as of May 16, 1994 between Shorewood Packaging Corporation and Howard M. Liebman
incorporated by reference to the corresponding exhibit item to the Company's annual report on Form 10-K for the fiscal
year ended April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No. O-15077.
10.89 -- Consultation and Termination Agreement dated May 6, 1994 between Shorewood Packaging Corporation and Murray B.
Frischer incorporated by reference to the corresponding exhibit item to the Company's annual report on Form 10-K for
the fiscal year ended April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No. O-15077.
10.90 -- Shorewood Packaging Corporation Retirement and Savings Plan, and Adoption Agreement, dated March 19, 1994 between
Shorewood Packaging Corporation and its subsidiaries, as employer, and NationsBank of Georgia, N.A., as trustee
incorporated by reference to the corresponding exhibit item to the Company's annual report on Form 10-K for the fiscal
year ended April 30, 1994, as filed with the Commission on July 29, 1994, Commission File No. O-15077.
</TABLE>
57
<PAGE> 58
<TABLE>
<S> <C> <C>
10.91 (a) Stock Warrant Agreement to purchase 100,000 shares of Common Stock, dated as of January 13, 1994.
10.91 (b) Stock Warrant Agreement dated as of July 23, 1992 to purchase 300,000 shares of Common Stock.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K
The Company filed a Form 8-K/A with the Commission on March 18, 1994 which amends the Company's current form 8-K filed
on January 27, 1994 in connection with the acquisition of the Premium Packaging Business. The Form 8-K/A contains
interim financial statements relating to the Premium Packaging Business and the required pro-forma financial
information.
</TABLE>
58
<PAGE> 59
Index to Financial Statement Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
IV Indebtedness to Related Parties 60
V Property, Plant and Equipment 61
VI Accumulated Depreciation and Amortization
of Property Plant and Equipment 62
VIII Valuation and Qualifying Accounts 63
IX Short-Term Borrowings 64
X Supplementary Income Statement Information 65
</TABLE>
Other schedules are omitted because they are not required, are not
applicable, or because the required information is included in the Consolidated
Financial Statements or notes thereto.
59
<PAGE> 60
SCHEDULE IV
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS TO RELATED PARTIES
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Balance at Balance at
beginning end
Name of Person of period Additions Deductions of period
-------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
53 WEEKS ENDED MAY 2, 1992
CIGNA CORPORATION and
its affiliates $10,000 $ 27,000(1) $ (2,000) $35,000
------- -------- -------- -------
52 WEEKS ENDED MAY 1, 1993
CIGNA CORPORATION and
its affiliates $35,000 $ - $ - $35,000
------- -------- -------- -------
52 WEEKS ENDED APRIL 30, 1994
CIGNA CORPORATION and
its affiliates $35,000 $ - $(20,000) $15,000
------- -------- -------- -------
</TABLE>
(1) Debt incurred related to the special cash dividend paid in July 1992.
60
<PAGE> 61
SCHEDULE V
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Other
Balance at changes- Balance at
beginning Additions add (deduct) end of
Classification of period at cost Retirements -describe period
-------------- --------- ------- ----------- --------- ------
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED MAY 2, 1992
LAND . . . . . . . . . . . . . . . . $ 424 $ - $ - $ - $ 424
BUILDING AND IMPROVEMENTS . . . . . . 11,590 25 - - 11,615
MACHINERY AND EQUIPMENT . . . . . . . 68,727 3,251 (1,306) 3,348 (1) 72,360
(360) (3)
(1,300) (4)
LEASEHOLD IMPROVEMENTS . . . . . . . 2,361 110 - 23 (1) 2,349
3 (3)
(148) (4)
CONSTRUCTION IN PROGRESS . . . . . . 7,472 526 - (3,371) (1) 4,618
(9) (3)
------ ------ ------ ------ ------
TOTALS . . . . . . . . . . . . . $ 90,574 $ 3,912 $ (1,306) $ (1,814) $ 91,366
========= ======== ========= ======== =========
52 WEEKS ENDED MAY 1, 1993
LAND . . . . . . . . . . . . . . . . $ 424 $ - $ - $ - $ 424
BUILDING AND IMPROVEMENTS . . . . . . 11,615 41 - 1 (1) 11,657
MACHINERY AND EQUIPMENT . . . . . . . 72,360 8,131 (2,001) 848 (1) 77,720
(910) (3)
1,092 (5)
(1,800) (6)
LEASEHOLD IMPROVEMENTS . . . . . . . 2,349 74 - 7 (1) 2,407
(23) (3)
CONSTRUCTION IN PROGRESS . . . . . . 4,618 4,126 - (856) (1) 7,874
(14) (3)
------ ------ ------ ------ -------
TOTALS $ 91,366 $ 12,372 $ (2,001) $ (1,655) $ 100,082
========= ======== ========= ======== =========
52 WEEKS ENDED APRIL 30, 1994
LAND . . . . . . . . . . . . . . . . $ 424 $ - $ - $ 1,932 (2) $ 2,330
(26)(3)
BUILDING AND IMPROVEMENTS . . . . . . 11,657 144 - 28 (1) 30,218
18,661 (2)
(272)(3)
MACHINERY AND EQUIPMENT . . . . . . . 77,720 6,440 (949) 5,425 (1) 144,042
58,037 (2)
(2,631)(3)
LEASEHOLD IMPROVEMENTS . . . . . . . 2,407 - (36)(3) 2,371
CONSTRUCTION IN PROGRESS . . . . . . 7,874 2,575 - (5,453)(1) 5,081
108 (2)
(23)(3)
------- ------ ------ ------ -------
TOTALS . . . . . . . . . . . . . $ 100,082 $ 9,159 $ (949) $ 75,750 $ 184,042
========= ======== ========= ======== =========
</TABLE>
- ---------------
(1) Transfers from construction in progress to the appropriate asset group.
(2) Net assets acquired through purchase acquisitions.
(3) Effect of exchange rate changes.
(4) Assets sold through divestiture of operations.
(5) Adjustment in connection with the implementation of FASB 109 - Accounting
for Income Taxes.
(6) Write-off of fully depreciated assets.
61
<PAGE> 62
SCHEDULE VI
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions Other
Balance at charged to changes - Balance at
beginning costs and add (deduct) end of
Description of period expenses Retirements - describe period
----------- --------- -------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED MAY 2, 1992
BUILDING AND IMPROVEMENTS . . . . . . . $ 2,414 $ 615 $ - $ - $ 3,029
MACHINERY AND EQUIPMENT . . . . . . . . 26,510 6,808 (947) (177) (1) 31,595
(599) (2)
LEASEHOLD IMPROVEMENTS . . . . . . . . 1,112 243 - 29 (1) 1,290
(94) (2)
------ ------ ------ ------ ------
TOTALS . . . . . . . . . . . . $ 30,036 $ 7,666 $ (947) $ (841) $ 35,914
======== ======== ======== ======== =========
52 WEEKS ENDED MAY 1, 1993
BUILDING AND IMPROVEMENTS . . . . . . . $ 3,029 $ 609 $ - $ - $ 3,638
MACHINERY AND EQUIPMENT . . . . . . . . 31,595 7,050 (1,399) (388) (1) 35,058
(1,800) (3)
LEASEHOLD IMPROVEMENTS . . . . . . . . 1,290 229 - (5) (1) 1,514
------ ------ ------ ------ ------
TOTALS . . . . . . . . . . . . $ 35,914 $ 7,888 $ (1,399) $ (2,193) $ 40,210
======== ======== ======== ======== =========
52 WEEKS ENDED APRIL 30, 1994
BUILDING AND IMPROVEMENTS . . . . . . . $ 3,638 $ 766 $ - $ (1) (1) $ 4,403
MACHINERY AND EQUIPMENT . . . . . . . . 35,058 8,873 (870) (767) (1) 42,564
270 (4)
LEASEHOLD IMPROVEMENTS . . . . . . . . 1,514 195 - (10) (1) 1,699
------ ------ ------ ------ ------
TOTALS . . . . . . . . . . . . $ 40,210 $ 9,834 $ (870) $ (508) $ 48,666
======== ======== ======== ======== =========
</TABLE>
- ---------------
(1) Effect of exchange rate changes.
(2) Assets sold through divestiture of operations.
(3) Write-off of fully depreciated assets.
(4) Adjustment to net realizable value for certain assets
The Company computes depreciation and amortization of property, plant and
equipment substantially by the straight-line method over the shorter of the
estimated useful lives or lease periods of the respective assets as follows:
<TABLE>
<CAPTION>
Useful Life
-----------
<S> <C>
Building and improvements 20 - 40 years
Machinery and equipment 3 - 13 years
Leasehold improvements Various
</TABLE>
62
<PAGE> 63
SCHEDULE VIII
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
-----------------------
Charged
Balance at Charged to to other Balance at
beginning costs and accounts Deductions end of
Description of period expenses - describe - describe period
----------- --------- -------- ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED MAY 2, 1992:
(386) (1)
Accounts Receivable $ 329 $ 310 $ - $ (1) (2) $ 252
------- ------- ------- ------- -------
52 WEEKS ENDED MAY 1, 1993:
(61) (1)
Accounts Receivable $ 252 $ 121 $ - $ (5) (2) $ 307
------- ------- ------- ------- -------
52 WEEKS ENDED APRIL 30, 1994:
(459) (1)
Accounts Receivable $ 307 $ 392 $ - $ (9) (2) $ 231
------- ------- ------- ------- -------
</TABLE>
- ---------------
(1) Write-off of uncollectible balances.
(2) Effect of exchange rate changes.
63
<PAGE> 64
SCHEDULE IX
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE IX- SHORT-TERM BORROWINGS
(Dollars in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Maximum Average Weighted
Weighted amount amount average
Balance at average outstanding outstanding interest
Category of aggregate end interest during during during
short-term borrowings of period rate the period the period the period
--------------------- --------- ---- ---------- ---------- ----------
(A) (B)
<S> <C> <C> <C> <C> <C>
53 WEEKS ENDED MAY 2, 1992:
Bank Loans Payable $ 3,616 8.80% $ 6,696 $ 4,348 8.94%
------- ----- ------- ------- -----
52 WEEKS ENDED MAY 1, 1993:
Bank Loans Payable $ 6,569 6.86% $ 7,612 $ 4,682 7.03%
------- ----- ------- ------- -----
52 WEEKS ENDED APRIL 30, 1994:
Bank Loans Payable $ - N/A $ 9,161 $ 3,911 6.04%
------- ----- ------- ------- -----
</TABLE>
- ---------------
(A) Average amount outstanding during the period is computed by dividing
the total of monthly outstanding principal balances by the number of
months in the period.
(B) Weighted average interest rate for the period is computed by dividing
the actual short-term interest expense by the average short-term debt
outstanding.
64
<PAGE> 65
SCHEDULE X
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Column A Column B
-------- --------
Charged to Cost and Expenses
-----------------------------------------------------
52 Weeks 52 Weeks 53 Weeks
Ended Ended Ended
April 30, May 1, May 2,
1994 1991 1992
--------- -------- --------
<S> <C> <C> <C>
Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . . $ 4,181 $ 3,861 $ 3,246
Depreciation and Amortization of Intangible Assets . . . . . . . . . . * * *
Taxes other than Payroll and Income taxes . . . . . . . . . . . . . . . * * *
Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * * *
Advertising Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . * * *
</TABLE>
- ---------------
* Not applicable since amount is less than 1% of net sales.
65
<PAGE> 66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SHOREWOOD PACKAGING CORPORATION
By: /s/ Paul B. Shore
----------------------------------------
Paul B. Shore
Chairman of the Board and Chief
Executive Officer
Date: April 19, 1995
66
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item Description Page
- ---- ----------- ----
<S> <C> <C> <C>
10.91 (a) Stock Warrant Agreement dated
as of January 13, 1994 to purchase
100,000 shares of Common Stock. 68
10.91 (b) Stock Warrant Agreement dated as
of July 23, 1992 to purchase
300,000 shares of Common Stock. 75
21.1 Subsidiaries of Registrant 82
23.1 Consent of Deloitte & Touche LLP 83
</TABLE>
67
<PAGE> 1
EXHIBIT 10.91(a)
68
<PAGE> 2
THIS WARRANT (AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED UNLESS A REGISTRATION STATEMENT WITH RESPECT TO THIS WARRANT (AND
SUCH SHARES) HAS BECOME EFFECTIVE UNDER SUCH ACT OR IN THE OPINION OF COUNSEL
TO THE COMPANY SUCH REGISTRATION IS NOT REQUIRED.
STOCK WARRANT AGREEMENT dated as of January 13, 1994 between
Shorewood Packaging Corporation, a Delaware corporation, with its principal
office at 55 Engineers Lane, Farmingdale, New York 11735 (the "Company") and
BMG Music, a New York partnership, with its principal office at 1540 Broadway,
New York, New York 10036 ("BMG").
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and its stockholders to grant
to BMG an option to purchase 100,000 shares of the common stock, par value $.01
per share (the "Common Stock") of the Company in connection with the execution
and delivery by BMG of a Requirements Agreement dated even date herewith (the
"Requirement Agreement") with the Company; and
WHEREAS, pursuant to Paragraph 4(a) of the Requirements
Agreement, BMG has agreed to purchase not less than $12.5 million and forty
percent (40%) of Materials (as defined in the Requirements Agreement)
requirements from Shorewood during the Term and specified portions of the Term
thereof; and
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option
1.1 The Company grants to BMG, on the
terms and conditions hereinafter set forth, an option (the "Option") to
purchase 100,000 (subject to adjustment as hereinafter provided) shares of
Common Stock of the Company (the "Option Shares").
1.2 The Option does not qualify for
"ISO" treatment as defined in Section 422A of the Internal Revenue Code of
1986, as amended.
1.3 This Option and Option Shares when
issued, are not, will not, and are not required to be, registered under the
Securities Act of 1933, as amended, (the "Securities Act") but, the Option
Shares, may, subject to applicable rules and regulations, be listed upon any
securities exchange upon which the Company's Common Stock is listed at the time
of such issuance and sale.
2. Price for Shares
2.1 The purchase price for the Option
Shares shall be $13.50 per share (subject to adjustment as hereinafter
provided) which is the mean between the high bid-low asked prices of the Common
Stock as of 4 p.m. on the date hereof.
3. Period of Option
3.1 This Option will be exercisable, in
whole and not in part, beginning on the date hereof and expiring on August 30,
1998 (the "Period").
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<PAGE> 3
4. Exercise of Option
4.1 The option herein granted shall be
exercisable within the Period by notice in writing from BMG to the Company
which notice shall be signed by a duly authorized officer of BMG. Such notice
shall be accompanied, pursuant to Section 2 hereof, by payment in full made in
cash or certified or bank check payable to the Company for the full amount of
the Option Price.
4.2 Upon the exercise of the Option, the
Company shall promptly issue stock certificates for the shares of Common Stock
purchased and the Optionee shall be deemed to be the holder of the shares of
Common Stock purchased as of the date of issuance of certificates for such
shares to it. The Company may delay issuing certificates representing Option
Shares for a reasonable period of time pending listing on any stock exchange.
BMG will not be nor deemed to be, a holder of any shares subject to the Option
unless and until certificates for such shares are issued to it or them under
the terms of this Agreement.
4.3 If and when the option is exercised,
the certificates to be issued evidencing shares of the Company's Common Stock
shall bear a legend substantially as follows:
"The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made except pursuant to Rule 144 under the Securities Act of
1933, as amended, or unless a registration statement with
respect to these shares has become effective under said Act,
or the Company is furnished with an opinion of counsel
satisfactory in form and substance to the Company that such
registration in not required."
4.4 The Company hereby agrees that at
all times there shall be reserved for issuance and delivery upon exercise of
this Option, free from preemptive rights, such number of authorized but
unissued or treasury shares of its common stock as shall be required for
issuance or delivery upon exercise of this Option.
4.5 The Company further agrees that: (i)
it will not, by amendment of its Certificate of incorporation or through
reorganization, consolidation, merger, dissolution or sale of its assets, or by
any other voluntary act, avoid or seek to avoid the observance or performance
of any of the covenants, stipulations or conditions to be observed or performed
hereunder by the Company; (ii) it will fully cooperate with BMG in preparing
any filings or applications and provide such information to BMG or any
regulatory authority as may be necessary to obtain any approvals or fulfill any
filing requirements in connection with BMG's exercise of this option or in
connection with this Agreement; and (iii) promptly take all action provided for
herein to protect BMG against any dilution of the Common Stock.
5. Transferability of Option
This option shall not be assignable or
transferable except in its entirety to an Affiliate of BMG (as defined in the
Securities Exchange Act of 1934, as amended and in the rules and regulations
issued thereunder).
6. Piggy-Back Registration
Subject to Sections 8 and 12 hereof, if at
any time after exercise of the Option, the Company and one or more of the
holders of the Common Stock other than BMG propose to file a registration
statement to register any security of the Company (other than Common Stock
issued with respect to any acquisition or any employee stock option, stock
purchase or similar plan) under the
70
<PAGE> 4
Securities Act for sale to the public in an underwritten offering upon which
may be registered securities similar to the Option Shares, it will at each such
time give written notice to BMG of its intention to do so ("Notice of Intent")
and, upon the written request of BMG made within 30 calendar days after the
receipt of any such notice (which request must specify that BMG intends to
dispose of all of the Option Shares held by BMG on the date the Notice of
Intent is received by BMG and state the intended method of disposition
thereof), the Company will use its best efforts to effect the registration
under the Securities Act of the Option Shares which the Company has been so
requested to register, to the extent requisite to permit the intended
disposition; provided, however, that if the managing underwriter shall certify
in writing that inclusion of all of the Option Shares would, in such managing
underwriter's opinion, materially interfere with the proposed distribution of
the securities in respect of which registration was originally to be effected
(x) at a price reasonably related to fair value, and (y) under circumstances
which will not materially and adversely affect the market of the Company's
securities (such writing to state the basis of such opinion and the maximum
number of shares which may be distributed without such interference), then the
Company may, upon written notice to BMG, have the right to exclude from such
registration such number of Option Shares which it would otherwise be required
to register hereunder as is necessary to reduce the total amount of securities
to be so registered to the maximum amount which can be so marketed.
7. Registration Expenses
The costs and expenses (other than
underwriting discounts and commissions) of all registrations and qualifications
under the Securities Act, and of all registrations and qualifications under the
Securities Act, and of all other actions the Company is required to take or
effect pursuant to this Agreement shall be paid by the Company (including,
without limitation, all registration and filing fees, printing expenses, fees
and expenses of complying with Blue Sky laws, and fees and disbursements of
counsel for the Company and of the Company's independent public accountants);
provided, however, that fees and expenses of complying with Blue Sky laws in
those states where Option Shares and no other securities of the Company covered
by the registration statement will be offered for sale, shall be paid by BMG).
8. Registration Procedures
If and whenever the Company is required to
effect the registration of any Option Shares under the Securities Act as
provided in this Agreement, the Company will promptly:
(i) prepare and file with the Securities
and Exchange Commission ("Commission") a registration statement with respect to
such Option Shares and use its beat efforts to cause such registration
statement to become effective;
(ii) prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all such Option Shares until
such time as all of such Option Shares have been disposed of in accordance with
the intended methods of disposition by BMG set forth in such registration
statement, but in no event for a period of more than nine months after such
registration statement becomes effective;
(iii) furnish to BMG such number of copies
of such registration statement and of each such amendment and supplement
thereto, such number of copies of the prospectus included in such registration
statement, in conformity with the requirements of the Securities Act;
(iv) use its best efforts to register or
qualify the Option Shares covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions within the United
States of America (including territories and commonwealths thereof) as
71
<PAGE> 5
the seller shall reasonably request, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general service of
process in any jurisdiction;
(v) notify BMG when a prospectus
relating to the Option Shares is required to be delivered under the Securities
Act within the period mentioned in subdivision (ii) of this paragraph, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing (and upon receipt of such notice and until a
supplemented or amended prospectus as set forth below is available, BMG shall
not offer or sell any securities covered by such registration statement and
shall return all copies of such prospectus to the Company if requested to do so
by it); and
(vi) furnish to BMG, at the time of the
disposition of any Option Shares by them, a signed copy of an opinion of
counsel to the effect that: (a) a registration statement covering such Option
Shares has been filed with the Commission under the Securities Act and has been
made effective by order of the Commission, (b) said registration statement and
the prospectus contained therein comply as to form in all material respects
with the requirements of the Securities Act, (c) no stop order has been issued
by the Commission suspending the effectiveness of such registration statement
and (d) the applicable provisions of the securities or Blue Sky laws of each
state in which the Company shall be required, pursuant to clause (iv) of this
paragraph, to register or qualify such Option Shares, have been complied with,
assuming the accuracy and completeness of the information furnished to such
counsel with respect to each filing relating to such laws; it being understood
that such opinion may contain such qualifications and assumptions as are
customary in the rendering of similar opinions, and that such counsel may rely,
as to all factual matters treated therein, on certificates of the Company.
The Company may require BMG to furnish the
Company such information regarding BMG's identity and its intended distribution
of such Option Shares as the Company may from time to time reasonably require
in writing and as shall be required by law to effect such registration.
9. Termination of Obligations
The obligations of the Company imposed by
Section 6 through 8 above shall cease and terminate, as to any particular
Option Shares, upon the earlier of (a) when such shares shall have been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering such securities, or (b) when in the
opinion of counsel for the Company such restrictions are no longer required in
order to insure compliance with the registration requirements of the Securities
Act or (c) seven years and thirty one days after the date hereof. Whenever
such restrictions shall terminate as to any Option Shares, BMG shall be
entitled to receive from the Company without expense a new certificate or
certificates representing such securities not bearing the legend set forth in
Section 4.3 hereto.
10. Availability of Information
The Company will use its best efforts to
comply with the reporting requirements of Sections 13 and 15(d) of the
Securities Exchange Act of 1934 to the extent it shall be required to do so
pursuant to such Sections, and at all times while so required shall use its
best efforts to comply with all other public information reporting requirements
of the Commission (including reporting requirements which serve as a condition
to utilization of Rule 144 promulgated in effect and relating to the
availability of an exemption from the Securities Act for the sale of any Option
Shares). The Company will also cooperate with BMG in supplying such
information and documentation as may be necessary for it to complete and file
any information reporting forms presently or hereafter required
72
<PAGE> 6
by the Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Option Shares.
11. Dilution or Other Adjustments
In any event of any change in the Common
Stock subject to the Option granted by this Agreement through merger,
consolidation, reorganization, recapitalization, stock split, stock dividend,
or the issuance to stockholders of rights to subscribe to stock of the same
class, or in the event of any change in the capital structure, the Board of
Directors of the Company shall on an equitable basis make such adjustments with
respect to the number and price of shares of Common Stock of the Company
subject to the Option.
12. Representation
The Company represents and warrants that all
Option Shares deliverable upon exercise hereof will by duly authorized and upon
issuance in accordance with the terms hereof will be validly issued, fully paid
and non-assessable and duly listed, or listed upon official notice of issuance
on any stock exchange where other securities of the Company of the same class
are listed.
13. Indemnity
The Company shall indemnify and hold harmless
the holder of the Option Shares from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or any
post-effective amendment thereto or any registration statement under the
securities laws, or any prospectus included therein required to be filed or
furnished by reason of this Agreement or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to the Company by
such holder expressly for use therein, which indemnification shall include such
person, if any, who controls any such holder within the meaning of such
securities laws; provided, however, that the Company shall not be obliged so to
indemnify any such holder or controlling person unless such holder shall at the
same time indemnify the Company, its directors, each officer signing the
related registration statement and each person, if any, who controls the
Company within the meaning of such law, from and against any and all losses,
claims, damages and liabilities caused by any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
any prospectus required to be filed or furnished by reason of this Section or
caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or alleged untrue statement or omission based upon information furnished in
writing to the Company by any such holder expressly for use therein.
14. Miscellaneous
14.1 This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
14.2 Any and all notices referred to
herein shall be sufficient if furnished in writing and delivered in person or
mailed by certified mail (return receipt requested) to the respective parties
at their addresses set forth above or to such other address as either party may
from time to time designate in writing.
73
<PAGE> 7
14.3 As used herein, the masculine gender
shall include the feminine gender.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above mentioned.
SHOREWOOD PACKAGING CORPORATION
By: /s/Howard M. Liebman
------------------------------------
Authorized Signatory
BMG MUSIC
By: /s/Thomas W. McIntyre
------------------------------------
Authorized Signatory
74
<PAGE> 1
EXHIBIT 10.91(B)
75
<PAGE> 2
NON-TRANSFERABLE STOCK WARRANT AGREEMENT dated as of July 23, 1992
between Shorewood Packaging Corporation, a Delaware corporation, with its
principal office at 55 Engineers Lane, Farmingdale, Now York 11735 (the
"Company") and BMG Music, a New York partnership, with its principal office at
1133 Avenue of the Americas, New York, New York 10036 ("BMG").
WHEREAS the Board of Directors of the Company has determined that it
is in the best interests of the Company and its stockholders to grant to BMG an
option to purchase 300,000 shares of the common stock, par value $.01 per share
(the "Common Stock") of the Company in connection with the execution and
delivery by BMG of a Requirements Agreement dated even date herewith (the
"Requirements Agreement") with the Company; and
WHEREAS, pursuant to Paragraph 4(a) of the Requirements Agreement, BMG
has agreed to purchase not less than $37.5 million of its Packaging Material
requirements (as defined in the Requirements Agreement) from Shorewood during
the Term thereof; and
NOW, THEREFORE, the parties agree as follows:
1. Grant of Option
1.1 The Company grants to BMG, on the terms and
conditions hereinafter set forth, an option (the "Option") to purchase 300,000
shares of Common Stock of the Company (the "Option Shares").
1.2 The Option does not qualify for "ISO" treatment to
the extent permitted by Section 422A of the Internal Revenue Code of 1986, as
amended.
1.3 This Option and Option Shares when issued, are not,
will not, and are not required to be, registered under the Securities Act of
1933, as amended, (the "Securities Act") but, the Option Shares, may, subject
to applicable rules and regulations, be listed upon any securities exchange
upon which the Company's Common Stock is listed at the time of such issuance
and sale.
2. Price for Shares
2.1 The purchase price for the Option Shares shall be
$6.875 per share which is the mean between the high bid-low asked prices of
the Common Stock as of 4 p.m. on the date hereof.
3. Period of Option
3.1 This Option will be exercisable, in whole and not in
part, beginning on the date hereof and expiring five (5) years and thirty (30)
days from the date hereof (the "Period").
4. Exercise of Option
4.1 The Option herein granted shall be exercisable within
the Period by notice in writing from BMG to the Company which notice shall be
signed by a duly authorized officer of BMG. Such notice shall be accompanied,
pursuant to Section 2 hereof, by payment in full made in cash or certified or
bank check payable to the Company for the full amount of the Option Price.
4.2 Upon the exercise of the Option, the Company shall
promptly issue stock certificates for the shares of Common Stock purchased and
the Optionee shall be deemed to be the holder of the shares of Common Stock
purchased as of the date of issuance of certificates for such shares to it.
The Company may delay issuing certificates representing Option Shares for a
reasonable period of time pending listing on any stock exchange. BMG will not
be nor deemed to be, a holder of any shares
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<PAGE> 3
subject to the Option unless and until certificates for such shares are issued
to it or them under the terms of this Agreement.
4.3 If and when the option is exercised, the certificates
to be issued evidencing shares of the Company's Common Stock shall bear a
legend substantially as follows:
"The shares evidenced by this certificate have not
been registered under the Securities Act of 1933, as
amended. No transfer, sale or other disposition of
these shares may be made except pursuant to Rule 144
under the Securities Act of 1933, as amended, or
unless a registration statement with respect to these
shares has become effective under said Act, or the
Company is furnished with an opinion of counsel
satisfactory in form and substance to the Company
that such registration in not required."
4.4 The Company hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise of this Option, free
from preemptive rights, such number of authorized but unissued or treasury
shares of its common stock an shall be required for issuance or delivery upon
exercise of this Option.
4.5 The Company further agrees that: (i) it will not, by
amendment of its Certificate of Incorporation or through reorganization,
consolidation, merger, dissolution or sale of its assets, or by any other
voluntary act, avoid or seek to avoid the observance or performance of any of
the covenants, stipulations or conditions to be observed or performed hereunder
by the Company; and (ii) it will fully cooperate with BMG in preparing any
filings or applications and provide such information to BMG or any regulatory
authority an may be necessary to obtain any approvals or fulfill any filing
requirements in connection with BMG's exercise of this Option or in connection
with this Agreement.
5. Transferability of Option
This Option shall not be assignable or transferable except in its
entirety to an entity controlled by or under common control of BMG.
6. Piggy-Back Registration
Subject to Sections 8 and 12 hereof, if at any time after
exercise of the Option, the Company and one or more of the holders of the
Common Stock other than BMG propose to file a registration statement to
register any security of the Company (other than Common Stock issued with
respect to any acquisition or any employee stock option, stock purchase or
similar plan) under the Securities Act for sale to the public in an
underwritten offering upon which may be registered securities similar to the
Option Shares, it will at each such time give written notice to BMG of its
intention to do so ("Notice of Intent") and, upon the written request of BMG
made within 30 calendar days after the receipt of any such notice (which
request must specify that BMG intends to dispose of all of the Option Shares
held by BMG on the date the Notice of Intent is received by BMG and state the
intended method of disposition thereof), the Company will use its best efforts
to effect the registration under the Securities Act of the Option Shares which
the Company has been so requested to register, to the extent requisite to
permit the intended disposition; provided, however, that if the managing
underwriter shall certify in writing that inclusion of all of the Option Shares
would, in such managing underwriter's opinion, materially interfere with the
proposed distribution of the securities in respect of which registration was
originally to be effected (x) at a price reasonably related to fair value, and
(y) under circumstances which will not materially and adversely affect the
market of the Company's securities (such writing to state the basis of such
opinion and the maximum number of shares which may be distributed without such
interference), then the
77
<PAGE> 4
Company may, upon written notice to BMG, have the right to exclude from such
registration such number of Option Shares which it would otherwise be required
to register hereunder as is necessary to reduce the total amount of securities
to be so registered to the maximum amount which can be so marketed.
7. Registration Expenses
The costs and expenses (other than underwriting discounts and
commissions) of all registrations and qualifications under the Securities Act,
and of all registrations and qualifications under the Securities Act, and of
all other actions the Company is required to take or affect pursuant to this
Agreement shall be paid by the Company (including, without limitation, all
registration and filing fees, printing expenses, fees and expenses of complying
with Blue Sky laws, and fees and disbursements of counsel for the Company and
of the Company's independent public accountants); provided, however, that fees
and expenses of complying with Blue Sky laws in those states where Option
Shares and no other securities of the Company covered by the registration
statement will be offered for sale, shall be paid by BMG).
8. Registration Procedures
If and whenever the Company is required to effect the
registration of any Option shares under the Securities Act as provided in this
Agreement, the Company will promptly:
(i) prepare and file with the Securities and Exchange
Commission ("Commission") a registration statement with respect to such Option
shares and use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such Amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of all such Option Shares until such time as all of such
Option Shares have been disposed of in accordance with the intended methods of
disposition by BMG set forth in such registration statement, but in no event
for a period of more than nine months after such registration statement becomes
effective;
(iii) furnish to BMG such number of copies of such
registration statement and of each such amendment and supplement thereto, such
number of copies of the prospectus included in such registration statement, in
conformity with the requirements of the Securities Act;
(iv) use its best efforts to register or qualify the
Option Shares covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions within the United States of
America (including territories and commonwealths thereof) as the seller shall
reasonably request, except that the Company shall not for any such purpose be
required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, to subject itself to taxation in
any such jurisdiction or to consent to general service of process in any
jurisdiction;
(v) notify BMG when a prospectus relating to the Option
shares is required to be delivered under the Securities Act within the period
mentioned in subdivision (ii) of this paragraph, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing
(and upon receipt of such notice and until a supplemented or amended prospectus
as set forth below is available, BMG shall not offer or sell any securities
covered by such registration statement and shall return all copies of such
prospectus to the Company if requested to do so by it); and
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<PAGE> 5
(vi) furnish to BMG, at the time of the disposition of any
Option Shares by them, a signed copy of an opinion of counsel to the effect
that: (a) a registration statement covering such Option shares has been filed
with the Commission under the Securities Act and has been made effective by
order of the Commission, (b) said registration statement and the prospectus
contained therein comply as to form in all material respects with the
requirements of the Securities Act, (c) no stop order has been issued by the
Commission suspending the effectiveness of such registration statement and (d)
the applicable provisions of the securities or Blue Sky laws of each state in
which the Company shall be required, pursuant to Clause (iv) of this paragraph,
to register or qualify such Option Shares, have been complied with, assuming
the accuracy and completeness of the information furnished to such counsel with
respect to each filing relating to such laws; it being understood that such
opinion may contain such qualifications and assumptions as are customary in the
rendering of similar opinions, and that such counsel may rely, as to all
factual matters treated therein, on certificates of the Company.
The Company may require BMG to furnish the Company such
information regarding BMG's identity and its intended distribution of such
Option Shares as the Company may from time to time reasonably require in
writing and as shall be required by law to effect such registration.
9. Termination of Obligations
The obligations of the Company imposed by Section 6 through 8
above shall cease and terminate, an to any particular Option Shares, upon the
earlier of (a) when such shares shall have been effectively registered under
the Securities Act and disposed of in accordance with the registration
statement covering such securities, or (b) when in the opinion of counsel for
the Company such restrictions are no longer required in order to insure
compliance with the registration guidelines of the Securities Act or (c) seven
years and thirty one days after the date hereof. Whenever such restrictions
shall terminate as to any Option shares, BMG shall be entitled to receive from
the Company without expense a new certificate or certificates representing such
securities not bearing the legend set forth in Section 4.3 hereto.
10. Availability of Information
The Company will use its best efforts to comply with the
reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act
of 1934 to the extent it shall be required to do so pursuant to such Sections,
and at all times while so required shall use its best efforts to comply with
all other public information reporting requirements of the Commission
(including reporting requirements which serve as a condition to utilization of
Rule 144 promulgated in effect and relating to the availability of an exemption
from the Securities Act for the sale of any Option Shares). The Company will
also cooperate with BMG in supplying such information and documentation as may
be necessary for it to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any Option
Shares.
11. Dilution or Other Adjustments
In any event of any change in the Common Stock subject to the
Option granted by this Agreement through merger, consolidation, reorganization,
recapitalization, stock split, stock dividend, or the issuance to stockholders
of rights to subscribe to stock of the same class, or in the event of any
change in the capital structure, the Board of Directors of the Company shall on
an equitable basis make such adjustments with respect to the number and price
of shares of Common Stock of the Company subject to the Option.
12. Representation
The Company represents and warrants that all Option Shares deliverable
upon exercise hereof will by duly authorized and upon issuance in accordance
with the terms hereof will be validly issued, fully
79
<PAGE> 6
paid and non-assessable and duly listed, or listed upon official notice of
issuance on any stock exchange where other securities of the Company of the
same class are listed.
13. Indemnity
The Company shall indemnify and hold harmless the holder of the
Option Shares from and against any and all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or any post-effective
amendment thereto or any registration statement under the securities laws, or
any prospectus included therein required to be filed or furnished by reason of
this Agreement or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or alleged untrue statement
or omission or alleged omission based upon information furnished or required to
be furnished in writing to the Company by such holder expressly for use
therein, which indemnification shall include such person, if any, who controls
any such holder within the meaning of such securities laws; provided, however,
that the Company shall not be obliged so to indemnify any such holder or
controlling person unless such holder shall at the same time indemnify the
Company, its directors, each officer signing the related registration statement
and each person, if any, who controls the Company within the meaning of such
law, from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or any prospectus required to be filed
or furnished by reason of this Section or caused by any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue statement or
omission based upon information furnished in writing to the Company by any such
holder expressly for use therein.
14. Miscellaneous
14.1 This Agreement shall be governed by the laws of the
State of New York.
14.2 Any and all notices referred to herein shall be
sufficient if furnished in writing and delivered in person or mailed by
certified mail (return receipt requested) to the respective parties at their
addresses set forth above or to such other address an either party may from
time to time designate in writing.
14.3 As used herein, the masculine gender shall include
the feminine gender.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement an of
the date first above mentioned.
SHOREWOOD CORPORATION
By: /s/Marc Shore
------------------------------------
Authorized Signatory
BMG MUSIC
By: /s/Thomas W. McIntyre
------------------------------------
Authorized Signatory
81
<PAGE> 1
EXHIBIT 21.1
SHOREWOOD PACKAGING CORPORATION SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Incorporation/country
<S> <C>
Shorewood Packaging of California, Inc. California
Shorewood Packaging Company of Illinois, Inc. Illinois
SPC Company of Virginia, Inc. Virginia
Shorewood Packaging Corporation of Alabama Alabama
Shorewood Packaging Corporation of Canada, Ltd. Canada
Shorewood Transport, Inc. New York
Shorewood Packaging of Delaware, Inc. Delaware
Shor-Wrap, Inc. Delaware
Shorewood Technologies, Inc. Delaware
Shorewood Packaging Corporation of Georgia Georgia
Toronto Carton Corporation Limited Canada
Shor-Wrap Packages of Canada, Ltd. Canada
Shorewood Acquisition Corporation of Delaware Delaware
Shorewood Packaging Corporation of Virginia Virginia
SPC Company of New York, Inc. New York
Shorewood Packaging Corporation of Connecticut Connecticut
Shorewood Corporation of Canada Limited Canada
SPC Corporation Limited Canada
</TABLE>
82
<PAGE> 1
EXHIBIT 23.1
83
<PAGE> 2
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.'s
33-16409, 33-38259 and 33-78614 of Shorewood Packaging Corporation each on Form
S-8 of our report dated July 1, 1994, appearing in this Annual Report on Form
10-K/A of Shorewood Packaging Corporation for the 52 weeks ended April 30,
1994.
/s/ DELOITTE & TOUCHE LLP
Jericho, New York
April 13, 1995
