<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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 27, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________________ to _______________________.
COMMISSION FILE NUMBER: 0-15077
SHOREWOOD PACKAGING CORPORATION
(Exact name of registrant as specified in its Charter)
DELAWARE 11-2742734
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
277 PARK AVENUE
NEW YORK, NEW YORK 10172
(Address of principal executive offices)
(212) 371-1500
(Registrants telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class: Name of Each Exchange on which Registered
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 Sections 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 1, 1996, the aggregate market value of the Registrant's common stock
held by non-affiliates of the Registrant was approximately $215,940,507. (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 1, 1996). Non- affiliates
include all shareholders of Registrant other than executive officers, directors
and 5% shareholders who are employees of the Registrant. As of July 1, 1996,
there were 18,446,065 shares of the Registrants common stock, $.01 par value per
share, issued and outstanding.
The information required in Part III of this Form 10-K is incorporated by
reference from the Registrant's definitive proxy statement for the October 30,
1996 annual meeting of stockholders.
The Exhibit Index is located on Page 41. Total Pages: 43
<PAGE> 2
PART I
ITEM 1. BUSINESS
Shorewood Packaging Corporation and its subsidiaries (collectively, "Shorewood"
or the "Company") print and manufacture high quality paperboard packaging for
the cosmetics, home video, music, software, tobacco and toiletries and general
consumer markets in the United States and Canada. Shorewood was incorporated in
November 1967. The Company's principal executive offices are located at 277 Park
Avenue, New York, New York 10172 and its telephone number is (212)371-1500.
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 CD-ROM computer software and games
industry and in the cosmetics and toiletries, food, liquor, consumer
electronics, film and hosiery industries; and (iii) the identification of 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.
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
consumer industries as the food, liquor, film, hosiery, consumer electronics and
pharmaceutical industries.
The Company is a principal supplier of printed packaging products for the
tobacco industry, producing 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 it is the primary carton
supplier to the Canadian tobacco industry and a leading manufacturer of
paperboard packaging for the tobacco industry in the United States. See "Tobacco
Industry". In the 52 week period ended April 27, 1996 ("fiscal 1996"), Philip
Morris, one of Shorewood's tobacco industry customers, accounted for
approximately 20% of the Company's consolidated net sales. In addition, two
other customers, who may be deemed to be affiliated with each other, accounted
in the aggregate for approximately 16% of the Company's fiscal 1996 consolidated
net sales, albeit neither alone accounted for more than 10% of the Company's
consolidated net sales in such fiscal year. Although Shorewood believes that its
relationships with these customers are excellent, the Company does not have
long-term supply agreements with them and there can be no assurance that their
packaging requirement in the future will continue at the same levels as in
fiscal 1996.
For its music and 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 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.
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, the Company manufactures and provides rigid set-up
boxes, principally for customers in the cosmetics industry.
Page 2 of 43
<PAGE> 3
The Company has started to expand into the CD-ROM computer software and games
industry. The Company has constructed a manufacturing facility in the Pacific
Northwest (the "Oregon Facility"), home of many leading software manufacturers,
to better serve this market. See "Item 2. Properties". The Oregon Facility
became operational in the fall of 1995, and is expected to contribute revenue
growth during fiscal 1997. This facility has been certified by several of the
software companies to produce CD-ROM packaging. In addition, this facility
produces products for the Company's home entertainment industry customers.
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 requested by its customers.
The Company has a secure research and development center located on the grounds
of its Williamsburg plant which is available to its customers to test run and
develop innovative packaging designs and production graphics. Several of the
Company's customers have developed packaging concepts at this facility for
production in Williamsburg and other Company facilities.
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 Premium Group. 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.
The Company's manufacturing facilities are equipped with multi-color sheet and
web fed printing presses which provide both gravure and lithographic printing.
In addition, the Company developed and currently utilizes a printing and
manufacturing web system, referred to as the "JOSH System", which combines
gravure and lithographic printing in one in-line 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. The Company's manufacturing facilities are equipped with
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, and maintains a full time design and
engineering staff.
MARKETING AND SALES
The Company's sales result primarily from direct solicitation by the Company's
senior management and 69 sales people, 32 of whom are in the United States and
37 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 products
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 products
companies.
In addition to sales activities conducted from its manufacturing plants, the
Company has sales offices in New York, New York; Los Angeles and Redwood City,
California; Palatine, Illinois; Charlotte, North Carolina; Greenwich,
Connecticut; and Montreal, Canada.
Page 3 of 43
<PAGE> 4
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 acquisition, 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 27, 1996, the Company had approximately $56.7 million in
backlog orders, all of which will be filled within the fiscal year ending May 3,
1997. As of April 29, 1995, the Company had backlog orders of approximately
$62.0 million, all of which were filled within the immediately succeeding 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. Although the Company believes that it is the largest
non-integrated folding carton company in North America, it faces substantial
competition from 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 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 27, 1996, the Company employed approximately 2,700 employees, of which
approximately 1,600 individuals were located in the United States and
approximately 1,100 individuals were located in Canada.
Approximately 19% of the Companies employees are represented by unions covering
manufacturing personnel in Andulusia, Alabama; Waterbury, Connecticut; Smiths
Falls, Ontario Canada; and Toronto (the Toronto Carton facility only), Ontario
Canada. Collective bargaining contracts are negotiated on an individual plant or
union local basis. The Company's collective bargaining agreements expire at
various times from 1997 to 1999. 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, the costs associated with the purchase of
paperboard and paper are the most 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.
Page 4 of 43
<PAGE> 5
ACQUISITIONS AND INVESTMENTS
Effective January 1, 1994, the Company, through its wholly-owned subsidiaries,
acquired the assets comprising the "Somerville Premium Packaging Business" of
Cascades Paperboard International, Inc. (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 was contingently liable for the payment
of $5.0 million if certain combined earning levels during the four year period
following consummation of the transaction were achieved. The earnings levels
were achieved during fiscal 1996, and the Company has recorded a liability to
the former owner of the Premium Group of $5.0 million which is included in
accrued expenses as of April 27, 1996. This payment was made in May, 1996. The
Company also issued a warrant to the seller to purchase 35,000 shares of the
Company's common stock which is exerciseable at $13.50 per share, which was
subject to the same contingency. The warrant is now exerciseable as the earnings
levels were achieved during fiscal 1996.
At the time of the closing of the transaction to acquire the Premium Group, 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 the 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 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 United States 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. In an
effort to streamline operations and increase productivity, the Company closed
the Pittsford, New York plant in fiscal 1996, and transferred the equipment
located in Pittsford to other Shorewood facilities.
On January 17, 1994, the Company acquired certain assets from Heminway Packaging
Corporation ("Heminway") which comprised substantially all of its assets used in
its rigid set-up box and thermoforming business (the "Heminway Business") for a
cash purchase price of $3.7 million. The Heminway Business produces rigid set-up
boxes primarily for the cosmetics industry, including packaging for perfumes and
beauty products. This transaction was financed with funds from the Company's
revolving credit facility. After its acquisition by the Company, the Heminway
business experienced certain production inefficiencies. In April 1995 the
Company commenced a lawsuit against Heminway and certain of its affiliates
seeking damages and other relief in respect of the acquisition of the Heminway
Business. In April 1996, the Company settled the suit (as well as counterclaims
made against the Company) for receipt of a cash payment of $100 thousand and a
reduction in future rents to be paid to the former owners of the Heminway
Business. See "Item 3. Legal Proceedings".
During 1996, the Company acquired, for $1.1 million, a 25% interest in a company
that develops and manufactures holographic images on film. The Company has an
option to acquire up to 51% of the Company under certain conditions, and
provides the Company with the right of first refusal to acquire the remaining
49%. This investment was funded through the Company's revolving line of credit.
The operations of the investee are not material to the operations of the
Company.
Page 5 of 43
<PAGE> 6
TOBACCO INDUSTRY
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 and a generally hostile legislative and regulatory
climate in the Unites States and Canada. These factors have a much greater
impact on the North American market than in the export market, where the
majority of the Company's tobacco related products are sold.
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 as follows, representing
an aggregate of 1.2 million square feet of office and manufacturing space:
LaGrange, Georgia Andulusia, Alabama
Roanoke, Virginia Springfield, Oregon
Danville, Virginia Williamsburg, Virginia
Smiths Falls, Ontario Brockville, Ontario
Scarborough, Ontario
The Company also leases office, manufacturing and warehousing facilities at the
following locations with leases that expire at various times ending in the year
2006, at an annual aggregate net rental cost of approximately $4.2 million for a
total of 621 thousand square feet:
Pittsford, New York Farmingdale, New York
New York, New York Waterbury, Connecticut
Greenwich, Connecticut Redwood City, California
Los Angeles, California Brockville, Ontario
Montreal, Canada Toronto, Ontario
LaGrange , Georgia Palatine , Illinois
Charlotte, North Carolina
The Company has vacated the manufacturing facility in Pittsford, New York whose
lease expires in 1996, and utilizes a portion of the Farmingdale, New York
facility as its corporate administrative offices and sublets the remaining
portion of the building. The Farmingdale lease expires in 1999.
ITEM 3. LEGAL PROCEEDINGS
1. Shorewood Packaging Corporation of Connecticut and Shorewood Packaging
Corporation v. Heminway Packaging Corporation, et al.
In April 1995, the Company and its wholly-owned subsidiary, Shorewood Packaging
Corporation of Connecticut ("SPCC") commenced a civil action in the Supreme
Court of the State of New York, New York County, against Heminway and certain of
its affiliates seeking compensatory and punitive damages and other relief with
regard to the acquisition of the Heminway Business. See "Acquisitions". The suit
contended that Heminway and the other defendants misrepresented the financial
condition and operational
Page 6 of 43
<PAGE> 7
capabilities of the Heminway Business. In June 1995, Heminway filed an answer,
affirmative defenses and counterclaim against the Company and SPCC's complaint.
In April 1996 the Company settled all actions related to these suits for the
receipt of a cash payment of $100 thousand and the reduction in future rent
payments payable to the former owners of the Heminway Business.
2. Bradley Jacobs v. Shorewood Packaging Corporation [sic], 95 Civ. 9414 (DC)
In November 1995, an action against the Company was filed in the United States
District Court of the Southern District of New York. The amended complaint
alleges that the Company's 1995 proxy statement violates Section 14A of the 1934
Act and Section 14A-9 of the regulations promulgated thereunder because, inter
alia, the "1995 Performance Bonus Plan was vaguely and inadequately described"
in the proxy and because the proxy omitted material information concerning the
bonus plan. The amended complaint also alleges that the Proxy "failed to
disclose the material terms" or " performance goals" of the Bonus Plan which
Plaintiff alleges was required by Section 162(m) of the Internal Revenue Code.
Plaintiff seeks a declaration that the proxy violated Section 14A and
regulations promulgated thereunder and an injunction preventing the Company from
making awards under the Bonus Plan until additional disclosures are made and the
shareholders approve the Plan. No awards were earned under the Plan for the 1996
fiscal year. Plaintiff also seeks his costs and attorneys' fees incurred in
bringing the action.
The Company answered the amended complaint in December 1995 and denied the
material allegations. In February 1996, the Company moved for summary judgment
dismissing the action. All discovery in the action was stayed by the district
judge pending determination of that motion, which was submitted in March 1996
and is still sub judice.
3. Other
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 is not aware of any environmental
compliance proceeding that will have a material effect on its consolidated
financial statements. During 1996 and 1995, 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 1996 and
fiscal 1995 to all governmental agencies aggregated less than $100 thousand.
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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<PAGE> 8
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 on the NASDAQ National Market System under the symbol
SHOR. The following table sets forth, for the fiscal periods indicated, the high
and low sales prices for the Common Stock on the National Market System, as
reported by NASDAQ.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal 1996
First Quarter $18.75 $14.38
Second Quarter 19.50 16.00
Third Quarter 16.50 13.25
Fourth Quarter 17.50 13.00
Fiscal 1995
First Quarter $19.25 $14.25
Second Quarter 22.75 18.00
Third Quarter 20.56 16.25
Fourth Quarter 19.75 14.50
</TABLE>
The last sale price of the Company's Common Stock on July 1, 1996 was $15.25.
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 and in December 1995, the
Board of Directors authorized the purchase of up to an additional 2.0 million
shares from time to time in the open market, subject to the terms of the
Company's new credit agreement. As of April 27, 1996, approximately 1.7 million
shares are authorized for purchase under existing Board of Directors
resolutions. Under the terms of its senior term notes and long-term revolver
agreements, the Company is limited with respect to the number of shares of its
Common Stock it can repurchase.
(b) Holders. There were 262 record holders of the Company's Common Stock as of
July 1, 1996. 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. The Company has not paid any cash dividend on its Common
Stock during either of its two most recent fiscal years. The Company anticipates
that its earnings for the foreseeable future will be utilized to reduce debt, to
fund acquisitions or to purchase shares of its Common Stock, or will be retained
for use in its business. Accordingly, the Company believes that it is now
unlikely that any 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). At April 27, 1996, there were
no retained earnings available for dividends.
Page 8 of 43
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial information set forth below for and as of
the fiscal year ended April 27, 1996 and for and as of the end of each of the
four preceding fiscal years is derived from, and qualified by reference to, the
audited consolidated financial statements of Shorewood Packaging Corporation and
Subsidiaries. The report of Deloitte & Touche LLP, independent auditors, on the
consolidated financial statements as of April 27, 1996 and April 29, 1995 and
for the 52 week periods ended April 27, 1996, April 29, 1995 and April 30, 1994
is included elsewhere herein. 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 WEEK PERIOD ENDED
------------------------------------------------------------------------
APRIL 27, APRIL 29, APRIL 30, MAY 1, MAY 2,
1996 1995 1994 1993 1992(1)
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $394,374 $357,033 $216,469 $184,122 $160,140
Gross profit 82,523 80,971 49,254 48,082 43,063
Selling, general and administrative
expenses 40,492 35,801 24,230 20,161 21,621
Restructuring charge -- -- 3,400 -- --
Earnings from operations 42,031 45,170 21,624 27,921 21,442
Investment and other income, net 673 10 903 903 167
Interest expense 8,293 8,979 6,727 5,385 5,375
Earnings before provision for income
taxes, extraordinary item and
cumulative effect 34,411 36,201 15,800 23,439 16,234
Provision for income taxes 13,042 13,692 6,409 8,810 6,425
Earnings before extraordinary item and
cumulative effect 21,369 22,509 9,391 14,629 9,809
Extraordinary item (1,365) -- (3,098) -- --
Cumulative effect -- -- -- 1,150 --
Net earnings 20,004 22,509 6,293 15,779 9,809
Earnings before extraordinary item and
cumulative effect per common share 1.10 1.17 .52 .78 .52
Net earnings per common share 1.03 1.17 .35 .84 .52
Weighted average common and common
equivalent shares outstanding 19,440 19,314 18,089 18,866 18,717
<CAPTION>
-------------------------------------------------------------------------
APRIL 27, APRIL 29, APRIL 30, MAY 1, MAY 2,
1996 1995 1994 1993 1992
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 30,789 $ 31,948 $ 31,408 $ 21,857 $ 20,400
Property, plant and equipment 153,079 129,153 135,376 59,872 55,452
Total assets 276,225 245,264 220,350 112,760 100,816
Short-term debt 24,000 21,394 10,419 9,669 3,711
Long-term debt excluding current
maturities 122,588 99,793 120,493 31,900 35,000
Convertible subordinated debentures -- -- 17,500 17,500 17,500
Stockholders' equity 71,436 67,409 27,111 26,085 17,273
</TABLE>
- ------------------------------
(1) 53 week period
Page 9 of 43
<PAGE> 10
ITEM 7. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In January 1994, the Company acquired certain operating assets of the Premium
Packaging Group of Cascades Paperboard International, Inc. (the "Premium Group")
and the Heminway Business (collectively referred to as the "Acquired
Companies"). The Premium Group's and the Heminway Business's operations are
reflected in the results of operations for the entire periods ended April 27,
1996 and April 29, 1995. The Acquired Companies' operations are included in the
consolidated results of operations of the Company for the period ended April 30,
1994 since the date of the respective acquisitions.
RESULTS OF OPERATIONS
Net Sales
Net sales for the 13 and 52 weeks ended April 27, 1996 were $105.4 million and
$394.4 million compared to net sales of $89.6 million and $357.0 million for the
corresponding prior periods, respectively, an increase of 17.7% and 10.5%,
respectively. The Company's new facility in Oregon effectively began production
during the third quarter of fiscal 1996. Sales for the Company's Oregon facility
were approximately $1.8 million for the fourth quarter, and approximately $3.0
million for the 52 weeks ended April 27, 1996.
In addition to accelerating sales growth in Oregon, the Company continues to
penetrate its existing markets by expanding product lines within existing
customer bases, and adding new customers. In fiscal 1996 the Company entered
into certain contracts with existing customers whereby the customer has agreed
to provide the Company with minimum levels of sales, normally for a five year
period. In addition to these agreements, the Company's tobacco business
continues to expand. A large portion of the packaging produced by the Company
for the tobacco industry is sold to North American tobacco companies for
ultimate sale in the export market. That market continues to expand and provides
the Company with a source of revenue growth.
The Company believes that future sales growth will be generated through
continued penetration of its existing markets, and the expanding market of CD
ROM products. The Company believes that its Oregon facility will provide
additional sales growth in 1997.
Net sales for the 52 week period ended April 29, 1995 were $357.0 million
compared to net sales of $216.5 million for the corresponding prior period, an
increase of 64.9%. Included in fiscal 1995 and 1994 are sales of approximately
$177.6 million and $47.7 million, respectively, produced by facilities of the
Acquired Companies.
Cost of Sales
Cost of sales as a percentage of sales for the 13 and 52 weeks ended April 27,
1996 were 79.6% and 79.1% as compared to 78.3% and 77.3% for the corresponding
prior periods, respectively. The Company's Oregon facility was not operating at
anticipated capacity, and as such, had a negative impact on the Company's
overall margin in both the 13 and 52 week periods ended April 27, 1996. Further,
the 52 week period ended April 27, 1996 was negatively impacted by increasing
raw material costs, manufacturing inefficiencies experienced at one of the
Company's major facilities, softness in the music industry and poor weather
conditions. The third quarter was adversely impacted due to the significant
snowfalls and icing conditions which occurred on the East Coast of the United
States, causing shut downs at four plants and reduced activity for the Company's
trucking operations. The second quarter was adversely impacted by Hurricane Opal
which caused downtime at two of the Company's facilities due to power
interruptions and other consequences of local weather conditions.
Page 10 of 43
<PAGE> 11
The Company's margins have been affected by increases in certain raw material
costs in fiscal 1996 as compared to the prior year, some of which could not be
reflected in the selling price to the customer. Recently the Company has
experienced a decline in certain raw material costs which had a favorable impact
during the fourth quarter of fiscal 1996, and is expected to favorably impact
fiscal 1997 operations. The Company remains sensitive to price competitiveness
in the markets that it serves, and in the areas that are targeted for growth. It
believes that the installation of state-of- the-art printing and manufacturing
equipment (and related labor and production efficiencies) enables it to compete
effectively.
Cost of sales as a percentage of sales was 77.3% in the 52 week period ended
April 29, 1995 as compared with 77.2% for the corresponding prior period. Cost
of sales in fiscal 1995 was adversely affected by increased raw material costs
which were unable to be immediately reflected in the selling price of the
Company's products. In addition, the Company experienced some inefficiencies
related to the installation of new production capacity in certain of its
facilities.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales for the 13
and 52 week periods ended April 27, 1996 were 10.1% and 10.3% as compared to
10.1% and 10.0%, respectively, for the corresponding prior periods. The increase
in selling, general and administrative expenses as a percentage of sales is
largely due to additional costs associated with the integration of the Premium
Group's operations, including additional professional fees, and increased
occupancy and operating costs associated with the Company's corporate offices.
In addition, selling, general and administrative expenses as a percentage of
sales are higher at the Company's Oregon facility as a result of its early
operations, but are expected to decline as a percentage of sales as production
at that facility increases.
Selling, general and administrative expenses for the 52 week period ended April
29, 1995 increased as compared to the corresponding prior period due to the
inclusion of these expenses for the Acquired Companies.
Investment and Other Income
Investment and other income, net, for the 52 week period ended April 27, 1996
was primarily related to gains on the disposal of certain fixed assets recorded
in 1996 approximating $364 thousand. In addition, approximately $339 thousand of
investment income was recorded in fiscal 1996. Foreign exchange gains/losses
were not significant in 1996.
Investment and other income, net for the 52 week period ended April 29, 1995 was
comprised primarily of investment income of $320 thousand, offset by foreign
exchange losses of approximately $270 thousand and losses on the disposal of
certain fixed assets.
Investment and other income, net, for the 52 week period ended April 30, 1994
was comprised primarily of investment income of $320 thousand, foreign exchange
gains of approximately $234 thousand and approximately $354 thousand of gains on
the disposal of certain fixed assets
The Company's exposure to foreign exchange transaction gains or losses relate to
the Company's Canadian facilities which have U.S. dollar denominated net current
assets. The Company believes that fluctuations in foreign exchange rates will
not have a material impact on the operations or liquidity of the Company, based
upon current and historical levels of working capital at the Canadian
facilities.
Page 11 of 43
<PAGE> 12
Interest Expense
Interest expense for the 13 and 52 week periods ended April 27, 1996 was $2.1
million and $8.3 million as compared to $2.2 million and $9.0 million,
respectively, for the corresponding prior periods. The reduction in interest
expense for the 52 week period resulted from the conversion into common stock of
$17.5 million of convertible subordinated debentures in September 1994,
partially offset by an increase in interest rates. Interest costs capitalized
for the 13 and 52 week periods ended April 27, 1996 relating to the construction
of plant and equipment (including the Company's Oregon facility) amounted to
$178 thousand and $1.1 million, respectively. Interest costs capitalized for the
13 and 52 week periods ending April 29, 1995 were $342 thousand and $377
thousand, respectively. As a result of its Oregon facility becoming operational
in 1996, the Company anticipates that the amount of interest to be capitalized
in fiscal 1997 will be significantly less than the amounts previously
capitalized.
In October 1994, the Company assigned to a bank an interest rate swap agreement
relating to $42.0 million of its debt for cash proceeds of approximately $1.3
million. The proceeds have been recorded as a deferred credit which is being
amortized as a reduction of interest expense (amounting to $109 thousand and
$510 thousand for the 13 and 52 week periods ended April 27, 1996, respectively,
and $154 thousand and $371 thousand for the corresponding prior periods). At
April 27, 1996, $403 thousand of deferred gain remains which will be amortized:
$289 thousand in fiscal 1997; and $114 thousand in fiscal 1998.
The Company has used, and may continue to use, interest rate swaps and caps to
manage its exposure to fluctuating interest rates under its debt agreements.
Income Taxes
The effective income tax rate for the 13 and 52 week periods ended April 27,
1996 was 37.6% and 37.9% compared to 37.9% and 37.8% for the corresponding prior
periods, respectively. These rates reflect a blend of domestic and foreign
taxes.
Restructuring Charges/Plant Closings/Extraordinary Items
In order to streamline the Company's operations and increase productivity, the
Company closed the Pittsford, New York plant during fiscal 1996, and transferred
the equipment located there to other Company facilities. The costs associated
with closing this redundant facility had previously been included in the final
allocation of the purchase price of the Premium Group. As of April 27, 1996
substantially all of the costs associated with this plant closing had been paid.
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 the third quarter of fiscal 1994. Included in
this charge were 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. As of April 29, 1995, substantially all of the
costs associated with this restructuring were paid.
In connection with the establishment of the new credit facility (as discussed
below), the Company recorded an extraordinary charge representing the write-off
of previously deferred finance costs incurred in connection with the prior
facility of approximately $1.4 million (net of tax benefit of $.8 million). In
connection with the purchase of the Premium Group in 1994, the Company prepaid
$31.9 million of Senior Notes. As a result of the prepayment, the Company
recorded an extraordinary charge in the 52 week period ended April 30, 1994 of
approximately $3.1 million (after the related income tax benefit of $1.9
million) consisting of prepayment penalties and the write-off of deferred
finance costs.
Page 12 of 43
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at April 27, 1996 were $4.5 million as compared to
$4.1 million at April 29, 1995, and working capital was $30.8 million as
compared to $31.9 million as of the same dates respectively. The current ratio
at April 27, 1996 and April 29, 1995 was approximately 1.5 to one. The Company's
cash balances remain relatively constant as a result of the Company's cash
management program whereby collection of accounts receivable are used to retire
revolver obligations, and payments of accounts payable and accrued expenses are
funded through the revolver obligations.
Cash flow from operating activities for the 52 weeks ended April 27, 1996 was
$38.0 million before changes in operating assets and liabilities. Cash flows
from operations as well as borrowings under the Company's credit facilities were
used to support $37.4 million in capital expenditures and $17.3 million in
purchases of treasury stock. In connection with a planned expansion of the
Company's facilities, the Company anticipates investing approximately $22.0
million in a new plant and equipment in Oregon, of which $21.0 million has been
disbursed as of April 27, 1996. Funds for the expansion are to be provided from
the Company's credit facility.
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 and in December 1995, the
Board of Directors authorized the purchase of up to an additional 2.0 million
shares from time to time in the open market, subject to the terms of the
Company's new credit agreement. As of April 27, 1996, approximately 1.7 million
shares are authorized for purchase under existing Board of Directors
resolutions.
To effectuate its Board authorization, the Company entered into a new credit
facility with its lending banks increasing its line of credit by approximately
$41.0 million to $185 million. The new facility consists of $120.0 million of
senior term notes and $65.0 million of a long-term revolver which bear interest,
at the discretion of the Company, at either the Bank's prime rate or LIBOR plus
between 75 to 125 basis points depending upon certain financial ratios. The
senior term notes will be repaid in various quarterly installments through May
7, 2000 at which time the revolver will mature.
The loan agreement contains covenants related to levels of debt to cash flow,
current assets to current liabilities, fixed charge coverage, net worth and
investments (including investments in the Company's own common stock), and
restricts the amount of retained earnings available for payment of dividends.
The Loan Agreement requires the Company to prepay the term notes to the extent
of 50% of excess cash flow as defined. To date, no prepayments have been
required.
The Board and management of the Company believe the long-term outlook for the
Company to be promising and that the Company's common stock represents an
attractive investment opportunity. The treasury stock purchases will be made
from time to time as market conditions permit.
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. The Company has, as described above, a $65.0 million
long-term 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. At April 27, 1996, the Company had borrowings
under this facility of $32.6 million and additional credit availability under
this facility of $22.3 million.
In the second quarter of 1996, the Company recorded approximately $5.0 million
of contingent consideration for the acquisition of the Premium Group, since the
criteria for payment of this consideration had been met based upon the
attainment of previously established thresholds. This payment was made to the
former owners of the Premium Group in May, 1996.
Page 13 of 43
<PAGE> 14
In February 1996, the Company invested $1.1 million in exchange for a 25%
interest in a company that develops and manufactures holographic images on film.
The agreement provides the Company with an option to acquire up to 51% of the
investee under certain conditions, and provides the Company with the right of
first refusal to acquire the remaining 49%. The financial condition and results
of operations of the company are not material to the financial statements of the
Company.
Page 14 of 43
<PAGE> 15
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 16
Consolidated Financial Statements
Balance Sheets at April 27, 1996 and April 29, 1995 17
Statements of Earnings, 52 week periods ended April 27, 1996,
April 29, 1995, and April 30, 1994 18
Statements of Cash Flows, 52 week periods ended April 27, 1996,
April 29, 1995, and April 30, 1994 19
Statements of Stockholders' Equity, 52 week periods ended April 27, 1996,
April 29, 1995, and April 30, 1994 20
Notes to Financial Statements 21 - 33
</TABLE>
Page 15 of 43
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Shorewood Packaging Corporation
We have audited the accompanying consolidated balance sheets of Shorewood
Packaging Corporation and subsidiaries as of April 27, 1996 and April 29, 1995
and the related consolidated statements of earnings, stockholders' equity and
cash flows for the 52 weeks ended April 27, 1996, April 29, 1995 and April 30,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 27, 1996 and April 29, 1995 and the results of their
operations and their cash flows for the 52 weeks ended April 27, 1996, April 29,
1995 and April 30, 1994 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
New York, New York
June 7, 1996
Page 16 of 43
<PAGE> 17
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
ASSETS 1996 1995
<S> <C> <C>
Current Assets:
Cash, including cash equivalents of $1,238 and $2,158
in 1996 and 1995 $ 4,479 $ 4,100
Accounts receivable, net of allowance for doubtful accounts
of $836 and $452 in 1996 and 1995 44,306 40,801
Inventories 41,397 46,641
Deferred tax assets 854 1,424
Prepaid expenses and other current assets 5,193 3,986
-------- --------
Total Current Assets 96,229 96,952
Property, Plant and Equipment, net 153,079 129,153
Excess of Cost Over the Fair Value of Net Assets Acquired, net 20,208 14,906
Other Assets 6,709 4,253
-------- --------
$276,225 $245,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 24,071 $ 28,122
Accrued expenses 17,369 15,488
Current maturities of long-term debt 24,000 21,394
-------- --------
Total Current Liabilities 65,440 65,004
Long-Term Debt 122,588 99,793
Deferred Credit and Other Long-Term Liabilities 1,641 1,314
Deferred Income Taxes 15,120 11,744
-------- --------
Total Liabilities 204,789 177,855
-------- --------
Commitments and Contingencies
Fair Value of Warrants, net of deferred fair value of warrants ($855
and $1,357 in 1996 and 1995) -- --
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;
21,862,937 issued and 18,292,251 outstanding in 1996 and
21,622,726 issued and 19,227,040 outstanding in 1995 219 216
Additional paid-in capital 40,589 38,670
Retained earnings 72,259 52,255
Cumulative foreign currency translation adjustment (2,119) (1,497)
Treasury stock (3,570,686 and 2,395,686 shares at
cost in 1996 and 1995) (39,512) (22,235)
-------- --------
Total Stockholders' Equity 71,436 67,409
-------- --------
$276,225 $245,264
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 17 of 43
<PAGE> 18
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands except per share data)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
<S> <C> <C> <C>
Net Sales $ 394,374 $ 357,033 $ 216,469
--------- --------- ---------
Costs and Expenses:
Cost of Sales 311,851 276,062 167,215
Selling, General and Administrative 40,492 35,801 24,230
Restructuring Charge -- -- 3,400
--------- --------- ---------
352,343 311,863 194,845
--------- --------- ---------
Earnings from Operations 42,031 45,170 21,624
Investment and Other Income, net 673 10 903
Interest Expense (8,293) (8,979) (6,727)
--------- --------- ---------
Earnings Before Provision for Income Taxes and
Extraordinary Item 34,411 36,201 15,800
Provision for Income Taxes 13,042 13,692 6,409
--------- --------- ---------
Earnings Before Extraordinary Item 21,369 22,509 9,391
Extraordinary Item, net of Income Tax Benefit of $837 in 1996
and $1,900 in 1994 (1,365) -- (3,098)
--------- --------- ---------
Net Earnings $ 20,004 $ 22,509 $ 6,293
========= ========= =========
Earnings Per Common and Common
Equivalent Share Before Extraordinary Item $ 1.10 $ 1.17 $ .52
Extraordinary Item, net of Income Tax Benefit (.07) -- (.17)
--------- --------- ---------
Net Earnings Per Common and Common
Equivalent Share $ 1.03 $ 1.17 $ .35
========= ========= =========
Weighted Average Common and Common Equivalent
Shares Outstanding 19,440 19,314 18,089
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 18 of 43
<PAGE> 19
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from Operating Activities:
Net earnings $ 20,004 $ 22,509 $ 6,293
Adjustments to reconcile net earnings to net cash flows
provided from operations:
Depreciation and amortization 14,231 13,335 10,245
Deferred income taxes 3,758 4,030 (645)
Other non-cash items -- 106 729
Changes in operating assets and liabilities (net of effects of
businesses acquired):
Accounts receivable (3,589) (1,450) (4,712)
Inventories 5,175 (14,508) 542
Prepaid expenses and other current assets (1,216) (1,147) (332)
Other assets (2,651) (520) (3,385)
Accounts payable, accrued expenses and other
long term liabilities (6,447) 2,888 6,399
Income taxes payable (188) 1,525 638
-------- -------- ---------
Net cash flows provided from operating activities 29,077 26,768 15,772
-------- -------- ---------
Cash Flows from Investing Activities:
Business acquisitions (1,146) (259) (103,710)
Capital expenditures, net (37,429) (15,585) (9,072)
-------- -------- ---------
Net cash flows used in investing activities (38,575) (15,844) (112,782)
-------- -------- ---------
Cash Flows from Financing Activities:
Net proceeds from (repayments of) revolver borrowings 21,006 247 (6,361)
Additions to long-term borrowings 26,000 -- 144,000
Repayments of long-term borrowings (21,500) (10,413) (47,000)
Purchase of treasury stock (17,277) (1,219) (4,181)
Issuance of common stock 1,465 812 740
Proceeds from assignment of interest rate swap -- 1,283 --
-------- -------- ---------
Net cash flows provided from (used in) financing activities 9,694 (9,290) 87,198
-------- -------- ---------
Effect of exchange rate changes on cash and cash equivalents 183 (269) 73
-------- -------- ---------
Increase (decrease) in cash and cash equivalents 379 1,365 (9,739)
Cash and cash equivalents at beginning of period 4,100 2,735 12,474
-------- -------- ---------
Cash and cash equivalents at end of period $ 4,479 $ 4,100 $ 2,735
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts $ 8,321 $ 9,083 $ 6,886
======== ======== =========
Income taxes paid $ 8,872 $ 11,312 $ 4,420
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 19 of 43
<PAGE> 20
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except share data)
<TABLE>
<CAPTION>
Cumulative
Common Stock Foreign
-------------------- Additional Currency
Shares Paid-In Retained Translation Treasury
Issued Amount Capital Earnings Adjustment Stock Total
------ ------ ------- -------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock 112,649 1 939 -- -- (128) 812
Conversion of subordinated
debentures 1,346,154 13 17,487 -- -- -- 17,500
Purchase of treasury stock -- -- -- -- -- (1,219) (1,219)
Net earnings, 52 weeks ended
April 29, 1995 -- -- -- 22,509 -- -- 22,509
Foreign currency translation
adjustments -- -- -- -- 516 -- 516
Other -- -- -- 180 -- -- 180
-----------------------------------------------------------------------------------------------
Balance, April 29, 1995 21,622,726 216 38,670 52,255 (1,497) (22,235) 67,409
Issuance of common stock 240,211 3 1,919 -- -- -- 1,922
Purchase of treasury stock -- -- -- -- -- (17,277) (17,277)
Net earnings, 52 weeks ended
April 27, 1996 -- -- -- 20,004 -- -- 20,004
Foreign currency translation
adjustments -- -- -- -- (622) -- (622)
-----------------------------------------------------------------------------------------------
Balance, April 27, 1996 21,862,937 $219 $40,589 $ 72,259 $(2,119) $(39,512) $ 71,436
===============================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 20 of 43
<PAGE> 21
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 subsidiaries, all of which are wholly-owned. 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.
The Company periodically evaluates the possible impairment of the excess of cost
over the fair value of net assets acquired and recorded amounts of property,
plant and equipment by comparing the estimated future undiscounted cash flows
from the acquired operations or the related assets, respectively, to the net
carrying value of the related asset.
(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 reporting
purposes.
The Company records income taxes under the liability method as required by
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes". Under the liability method, deferred tax assets and liabilities are
determined based on the differences 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.
Page 21 of 43
<PAGE> 22
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
$35.8 million at April 27, 1996.
(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 on
a monthly basis at weighted average exchange rates for the respective month.
Gains and losses arising from translation are recorded as foreign currency
translation adjustments, a component of stockholders' equity. Foreign currency
transaction gains and losses are included in determining net earnings.
(h) Share information
Weighted average common and common equivalent shares outstanding include the
dilutive effect of outstanding stock options and warrants for all periods
presented. Fully diluted earnings per share has not been presented as it is not
materially different from primary earnings per share. Weighted average common
and common equivalent shares for the 1996 and 1995 periods include the effect of
the shares issued upon conversion of the Company's Convertible Subordinated
Debentures since the date of conversion.
(i) Financial Instruments
Derivative financial instruments are used by the Company in the management of
its interest rate exposures and are accounted for on the accrual basis. Income
and expense are recorded as a component of interest expense. Gains realized on
the termination of interest rate swaps contracts (accounted for as hedges) are
deferred and amortized over the remaining terms of the original swap agreements.
Costs of interest rate cap contracts are amortized over the lives of the
contracts.
(j) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(k) 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.
(l) Fiscal periods
Reference to 1996, 1995 and 1994 in the accompanying notes to the consolidated
financial statements refer to the fiscal periods ending April 27, 1996, April
29, 1995 and April 30, 1994, respectively.
(m) Reclassifications
Certain reclassifications have been made to the prior years balances to conform
with the current year's presentation.
Page 22 of 43
<PAGE> 23
2. BUSINESS ACQUISITIONS AND INVESTMENTS
Premium Group Acquisition
Effective January 1, 1994, the Company purchased certain of the United States
and Canadian assets of the Premium Packaging Group of Cascade 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 was 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 were
attained. The Company issued to the seller a warrant, subject to the same
contingency, for 35,000 shares of the Company's common stock at an exercise
price of $13.50 per share. During 1996 the earnings levels related to this
contingency were reached. Accordingly, the warrant is now exerciseable and the
Company has recorded the $5.0 million liability to the seller (included in
accrued expenses at April 27, 1996 and paid in May 1996 using funds from the
Company's revolving line of credit).
At the time of the closing of the Premium Group acquisition 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 $24.0 million of
borrowings under a $50.0 million five year revolving credit facility. In
connection with the prepayment of the Senior Notes, the Company recorded, in the
third quarter of 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. In December 1995, the Company entered into
a new credit agreement with its banks (Note 6).
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.
Heminway Acquisition
On January 17, 1994 the Company purchased the operating assets of Heminway
Packaging Corporation ("Heminway") for a cash purchase price of $3.7 million
plus transaction expenses. Heminway produces rigid set-up boxes primarily for
the cosmetics industry, including packaging for perfumes and beauty products.
This transaction was financed with funds from the Company's revolving credit
facility referred to above.
The Premium Group and Heminway 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 estimated
fair value of the net assets acquired approximated $2.2 million at April 30,
1994. During 1995, the Company completed its determination of the allocation of
the purchase price with respect to the acquisitions. The result was to increase
the excess of cost over the fair value of net assets acquired by $12.5 million,
increase accrued expenses by $3.4 million and reduce property, plant and
equipment by $9.1 million. Included in the final allocation of the purchase
price was an estimate of the cost associated with closing one of the Premium
Group's facilities.
Other Investment
In 1996, the Company acquired, for approximately $1.1 million, a 25% interest in
a company that develops and manufactures holographic images on film. The
agreement provides the Company with an option to acquire up to 51% of the
investee under certain conditions, and provides the Company with the right of
first refusal to acquire the remaining 49%. This investment was funded through
the Company's revolving line of credit. The operations of this investee are not
material to the operations of the Company.
Page 23 of 43
<PAGE> 24
The investment was recorded using the equity method of accounting and
accordingly, the Company has recorded its proportionate share of the net results
of the investee since the date of the investment. In connection with the
investment, the Company recorded approximately $830 thousand representing the
excess of cost over the Company's portion of the fair value of the net assets of
the investee at the date of the investment.
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
--------------------
<S> <C> <C>
Excess of cost over the fair value of businesses acquired $21,373 $15,449
Accumulated amortization (1,165) (543)
--------------------
$20,208 $14,906
====================
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
--------------------
<S> <C> <C>
Raw material and supplies $18,111 $20,767
Work in process 8,248 10,498
Finished Goods 15,038 15,376
------------------
$41,397 $46,641
==================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost. Depreciation and
amortization of property, plant and equipment was $13.4 million, $12.8 million
and $9.8 million in 1996, 1995 and 1994, respectively. Capitalized interest
costs related to the construction of plant and equipment were $1.1 million, $377
thousand and $131 thousand in 1996, 1995, and 1994, respectively.
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
-----------------------
<S> <C> <C>
Land $ 4,062 $ 3,121
Building and improvements 40,766 31,385
Machinery and equipment 168,640 148,176
Leasehold improvements 5,198 2,735
Construction in Progress 4,492 4,868
----------------------
223,158 190,285
Accumulated depreciation and amortization (70,079) (61,132)
----------------------
$153,079 $129,153
======================
</TABLE>
5. ACCRUED EXPENSES
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
-------------------
<C> <C>
Accrued salaries, employee benefits and payroll taxes $ 6,774 $ 6,026
Accrued contingency payment to Premium Group sellers 5,000 -
Other accrued expenses 5,595 9,462
-------------------
$17,369 $15,488
===================
</TABLE>
Page 24 of 43
<PAGE> 25
6. LONG-TERM DEBT/FINANCE AGREEMENTS
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
------------------------
<S> <C> <C>
Senior term notes (a) $114,000 $108,940
Long-term revolver (a and b) 32,588 12,247
------------------------
146,588 121,187
Current maturities (24,000) (21,394)
------------------------
$122,588 $ 99,793
========================
</TABLE>
(a) In connection with the acquisition of the Premium Group and the repayment of
certain obligations, the Company entered into term note agreements (totaling
$96.0 million in the U.S. and the Canadian equivalent of $24.0 million in
Canada) with a syndicate of Banks.
In December 1995, the Company entered into a new senior credit facility. The new
facility increased the amount available under the Company's previous credit
facility by $41.0 million to $185.0 million. The new facility consists of $120.0
million of senior term notes and $65.0 million of a long-term revolver which
bear interest, at the discretion of the Company, at either the Bank's prime rate
(8.25% at April 27, 1996) or at the LIBOR rate (one, three, or six-month terms
ranging from 5.44% to 5.56% at April 27, 1996) plus between 75 to 125 basis
points depending upon certain financial ratios. The effective interest rate on
the senior term notes was 6.44% and 6.40% in 1996 and 1995, respectively. The
senior term notes will be repaid in quarterly installments through May 7, 2000.
The Company has pledged as collateral for the entire facility 100% and 66%
respectively, of the outstanding shares of its domestic and foreign
subsidiaries. The increased credit facility was made available to facilitate the
Company's programs to purchase shares of its common stock as more fully
described in Note 8.
In connection with the establishment of the new credit facility, the Company
recorded, in the third quarter, an extraordinary charge representing the
write-off of previously deferred finance costs incurred in connection with the
prior facility of approximately $1.4 million (net of tax benefit of $.8
million).
(b) Borrowings under this $65.0 million revolving credit facility are limited to
the sum of 80% of accounts receivable and 50% of inventories (the "Borrowing
Base"). The Company has outstanding letters of credit against the revolving line
of credit of approximately $1.3 million. At April 27, 1996, the Company has
approximately $22.3 million available under the revolving line of credit. The
interest rate on these borrowings ranged from 5.94% to 8.25% at April 27, 1996.
The underlying loan agreement for the borrowings referred to in (a) and (b)
above includes covenants related to levels of debt to cash flow, current assets
to current liabilities, fixed charge coverage, net worth and investments
(including investments in the Company's own common stock), and restricts the
amount of retained earnings available for payment of dividends. At April 27,
1996, there were no retained earnings available for dividends. The agreement
requires the Company to prepay the term notes to the extent of 50% of excess
cash flow as defined. Through April 27, 1996, no repayment was required under
this provision of the agreement.
Based upon 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.
In September 1994, 100% of the Company's $17.5 million of convertible
subordinated notes were converted at $13.00 per share into approximately 1.35
million shares of common stock.
Page 25 of 43
<PAGE> 26
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal year ending:
<S> <C>
1997 $ 24,000
1998 27,750
1999 29,000
2000 26,750
2001 39,088
--------
$146,588
========
</TABLE>
Interest Rate Swap/Cap Agreements
At April 27, 1996, the Company had an outstanding intermediate-term interest
rate swap agreement relating to approximately $33.0 million of its senior term
notes. Under the agreement, the Company pays a fixed rate of 6.45% and receives
a floating rate based on LIBOR, as determined in one-month intervals (ranging
from 5.34% to 6.06% for 1996). The transaction effectively changes a portion of
the Company's interest rate exposure from a floating-rate to a fixed-rate basis.
The fair value of the interest rate swap agreement at April 27, 1996 was
immaterial to the Company. The agreement terminates in February, 1997.
At April 27, 1996, the Company had an outstanding interest rate cap agreement
relating to approximately $17.0 million of its senior term notes. Under the
agreement, the maximum LIBOR rate is 8.5%. The Company paid $71 thousand for
this agreement, which is being amortized over the life of the agreement. The
fair value of the interest rate cap agreement at April 27, 1996 was immaterial
to the Company. The agreement terminates in February, 1997.
In October 1994, the Company assigned to a bank an interest rate swap agreement
relating to $42.0 million of its senior term notes for cash proceeds of
approximately $1.3 million. The proceeds have been recorded as a deferred credit
on the accompanying balance sheet which is being amortized as a reduction of
interest expense over the remaining life of the related swap agreement. At April
27, 1996, $403 thousand of deferred gain remains which will be amortized: $289
thousand in fiscal 1997; and $114 thousand in fiscal 1998.
7. INCOME TAXES
Earnings before provision for income taxes and extraordinary item is comprised
of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
United States $16,613 $21,919 $ 6,586
Foreign 17,798 14,282 9,214
-------------------------------------------
$34,411 $36,201 $15,800
===========================================
</TABLE>
Page 26 of 43
<PAGE> 27
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
Current
Federal $ 2,910 $ 4,982 $2,858
State 630 852 773
Foreign 5,744 3,828 3,423
-----------------------------------------
9,284 9,662 7,054
-----------------------------------------
Deferred
Federal 2,730 2,339 (394)
State 266 174 (236)
Foreign 762 1,517 (15)
-----------------------------------------
3,758 4,030 (645)
-----------------------------------------
$13,042 $13,692 $6,409
=========================================
</TABLE>
The Company's effective tax rate differs from the statutory U. S. Federal income
tax rate as a result of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Statutory U.S. Federal tax rate 35.0% 35.0% 34.0%
State income taxes, net of Federal benefit 1.7 1.8 2.3
Foreign income tax rate differentials .8 1.0 1.7
Other .4 -- 2.6
--------------------------------
37.9% 37.8% 40.6%
================================
</TABLE>
The tax effects of significant items comprising the Company's net deferred tax
liability are as follows:
<TABLE>
<CAPTION>
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Deferred tax asset (liability):
Property, plant and equipment $(15,603) $(12,360) $(7,934)
Other assets (422) (359) (249)
Accounts receivable 163 509 398
Inventories 607 666 487
Accrued expenses 140 138 673
State net operating loss and investment tax
credit carryforwards 1,375 1,285 564
Employee benefits 209 297 144
Other 30 195 (128)
---------------------------------------
(13,501) (9,629) (6,045)
Valuation Allowance (765) (691) (290)
---------------------------------------
$(14,266) $(10,320) $(6,335)
=======================================
</TABLE>
The valuation allowance has been provided against state net operating loss and
investment tax credit carryforwards to reduce them to an amount that will more
likely than not be realized.
Page 27 of 43
<PAGE> 28
8. 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
2010. Several leases include one year renewal options. The minimum future rental
commitments under noncancellable leases, exclusive of taxes and utilities, are
as follows:
<TABLE>
<CAPTION>
Fiscal year ending:
<S> <C> <C>
1997 $ 4,205
1998 3,384
1999 3,104
2000 2,296
2001 1,590
Thereafter 10,381
-------
$24,960
=======
</TABLE>
Rent expense under operating leases approximated $3.2 million, $3.5 million and
$2.4 million in 1996, 1995 and 1994, respectively.
(b) Treasury Stock
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 and in December 1995, the
Board of Directors authorized the purchase of up to an additional 2.0 million
shares from time to time in the open market, subject to the terms of the
Company's new credit agreement. As of April 27, 1996, approximately 1.7 million
shares are authorized for purchase under existing Board of Directors
resolutions.
(c) New Facility
In connection with a planned expansion of the Company's facilities, the Company
anticipates investing approximately $22.0 million in a new plant and equipment,
of which approximately $21.0 million has been disbursed as of April 27, 1996.
Funds for this expansion are to be provided from the Company's credit facility.
(d) Legal Matters
In January 1995, the Company commenced a civil action in the Supreme Court of
the State of New York against Heminway and certain of its affiliates seeking
compensatory and punitive damages and other relief in connection with the
January 1994 acquisition by the Company of certain of Heminway's assets. In June
1995, the defendants filed an answer and a counterclaim against the Company's
complaint, seeking compensatory damages and sought a declaratory judgment and
damages with respect to certain escrowed rents. In April 1996 the Company
settled all actions related to these suits for the receipt of a cash payment of
$100 thousand and the reduction in future rent payments payable to the former
owners of Heminway.
Page 28 of 43
<PAGE> 29
(e) 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 is not currently aware of any
environmental compliance matters that it believes will have a material effect on
the consolidated financial statements.
9. STOCKHOLDERS' EQUITY
(a) Stock Incentive Plans
In August 1986, the Company established a non-qualified 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 stock option 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: (i) stock
options, including incentive stock options ("ISO's"), (ii) stock appreciation
rights ("SAR's"), in tandem with stock options or freestanding, (iii) restricted
stock, (iv) director's options to be issued pursuant to a prescribed formula,
and (v) restored options. Under the 1993 Program, an additional 1.0 million
shares were made available for grant. Options granted prior to fiscal 1996
become exerciseable over four years from the date of grant at a rate of 25% each
year, and expire five years from the date of grant. Grants made subsequent to
April 29, 1995 are exerciseable over five years from the date of grant at the
rate of 20% of the grant each year, and will expire 10 years from the date of
grant.
A summary of changes in stock options and awards follows:
<TABLE>
<CAPTION>
Options Outstanding Options
Available for -------------------
Future Grant Number Price Per Share
------------ ------ ---------------
<S> <C> <C> <C>
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 canceled 4,446 (4,446) $ 7.25
---------------------------------------------------
Balance April 30, 1994 982,932 849,544 $ 4.98 - $13.75
Restricted Stock Award (114,497) -- --
Options granted (271,320) 271,320 $14.75 - $20.25
Options exercised -- (94,651) $ 4.98 - $ 9.81
Options canceled 43,586 (43,586) $ 8.50 - $19.00
---------------------------------------------------
Balance April 29, 1995 640,701 982,627 $ 5.57 - $20.25
Restricted Stock Award (6,759) -- --
Options granted (221,015) 221,015 $14.25 - $16.00
Options exercised -- (104,134) $ 5.57 - $13.75
Options canceled 31,875 (31,875) $ 7.00 - $13.75
---------------------------------------------------
Balance April 29, 1996 444,802 1,067,633 $ 7.00 - $20.25
===================================================
</TABLE>
At April 27, 1996, options to purchase 506,058 shares were exerciseable at
prices ranging from $7.00 to $20.25 per share. During 1996 and 1995 the Company
issued a net 6,759 and 114,497 shares of restricted stock, respectively, to
certain key employees. A portion or all of the shares may vest at the end of
fiscal 1997 based upon the market performance of the Company's common stock. Any
shares that do not vest at
Page 29 of 43
<PAGE> 30
such time will otherwise vest at the end of fiscal 2002 if the employee
continues to be employed by the Company.
(b) Common Stock Purchase Warrants
During the second quarter of 1996, the Company issued warrants to purchase
400,000 shares of its common stock to a customer who concurrently entered into a
long-term supply agreement with the Company. The warrant is exerciseable
immediately at $17.13 per share and expires September 1, 2000. At such time as
the customer may exercise the warrant, any cash volume discount previously paid
to the customer based upon minimum levels of purchases will be refunded to the
Company and included in additional paid-in-capital.
During 1993 and the fourth quarter of 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 "
Agreements"). 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 Agreements. The warrants are
exerciseable immediately whereas the cash volume rebate, if any, is payable
after the expiration of the 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 thousand and $502 thousand,
respectively, and are included in the balance sheet net of a deferred contra
account in like amount. As of April 27, 1996, the Company continues to believe
that the customer will exercise the 300,000 share warrant.
Effective February 1, 1996, the Agreements and the 100,000 share warrant were
cancelled and replaced by a new five year supply agreement pursuant to which the
customer will receive a cash volume discount based upon certain minimum levels
of purchases from the Company during the term of the agreement. In connection
with the new agreement, the Company will issue to the customer warrants to
purchase 200,000 shares of its common stock at an exercise price equal to the
market value on the date of grant. The warrants will be exerciseable immediately
upon issuance and expire concurrently with the supply agreement. Upon issuance,
the fair value of the warrant will be amortized on a straight line basis over
the term of the supply agreement.
(c) Reserved Shares
At April 27, 1996, there were 2,472,435 common shares reserved for issuance
under the stock incentive plans and outstanding warrants.
(d) Preferred Stock Purchase Rights
On May 4, 1995, the Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of common stock.
Each Right entitles the holder to purchase from the Company one one-hundredth of
a share of Series B Junior Participating Preferred Stock at a price of $17.00
per one one-hundredth of a preferred share. The Rights are exerciseable only if
an acquiring person acquires, or announces the intention to acquire, 25% or more
beneficial ownership of the outstanding common shares. The effect of the Rights
plan is to provide to the Company's stockholders the right, upon the occurrence
of an acquisition, tender offer or business combination transaction, to exchange
the preferred shares for common stock at a fraction of the then-current market
price of the common stock. The Rights expire on June 14, 2005 unless extended.
The Rights are subject to other restrictions and terms as described in the
Rights Agreement.
Page 30 of 43
<PAGE> 31
(e) Related Party Transactions
CIGNA Corporation and its affiliates ("CIGNA"), was the holder of $15.0 million
of the Company's debentures, which upon conversion represented 1.15 million
shares of common stock. Accordingly, CIGNA has been considered a beneficial
owner of more than 5% of the outstanding stock of the Company for the 1995 and
1994 periods presented. Amounts paid to CIGNA for interest and insurance costs
for 1995 and 1994 were $685 thousand and $2.9 million, respectively. In
addition, in connection with the financing of the acquisition of the Premium
Group in January, 1994, 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. This
penalty is included in the 1994 financial statements as a part of the total
extraordinary item of approximately $3.1 million (after income tax benefit of
$1.9 million).
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. In addition, the firm exercised
options to purchase 14,821 common shares of the Company at an exercise price of
$5.02 per share. In connection with the payment of the contingent consideration
discussed in Note 2, this firm received an additional $75 thousand fee. In
connection with the other investment described in Note 2, this firm received an
option to purchase 25,000 shares of the Company's common stock at an exercise
price of $13.50.
In May 1995, the Company loaned $2.0 million (included in other assets) to its
then Vice Chairman of the Board and President (the "Executive"). The loan is due
on May 4, 2000, and bears interest payable quarterly equal to the Applicable
Federal Rate as defined (5.23% at April 27, 1996), adjusted monthly. Mandatory
prepayments of this loan are required if the Executive's compensation exceeds
certain thresholds. In March, 1996 the Company loaned an additional $800
thousand to the Executive, pursuant to a promissory note bearing interest at
6.5% which is due on September 11, 1996.
10. 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 1994. Included in this charge are amounts
provided for the termination of leases ($530 thousand), disposal of equipment
($1.0 million), severance payments ($750 thousand), and other related
restructuring items ($1.1 million). With the exception of the lease commitments,
all of the respective cash outlays related to the closing of the facility were
made by the end of 1995.
11. 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 plan in the United States were at the discretion of the Board of
Directors, whereas the amounts contributed to the profit sharing plans in Canada
are at the percentages provided for by the respective plans. Total provisions
with respect to defined contribution plans approximated $2.2 million, $1.6
million and $977 thousand in 1996, 1995 and 1994, respectively.
Page 31 of 43
<PAGE> 32
(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 established 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 27,
1996 and April 29, 1995:
<TABLE>
<CAPTION>
APRIL 27, APRIL 29,
1996 1995
--------------------
<S> <C> <C>
Vested benefit obligation $2,938 $2,782
===================
Accumulated benefit obligation $3,124 $3,029
===================
Projected benefit obligation $3,124 $3,029
Market value of plan assets 2,978 3,059
-------------------
Plan assets in excess of projected benefit obligation (146) 30
Unrecognized transition obligation - -
Unrecognized prior service cost 67 22
Unrecognized loss (gain) (129) (203)
-------------------
Prepaid (accrued) pension cost $ (208) $ (151)
===================
Discount rate and expected rate of return on plan assets 8% 8%
===================
</TABLE>
(c) 1995 Performance Bonus Plan
In July 1995, the Board of Directors approved the 1995 Performance Bonus Plan
(the "Plan"), applicable to its then Vice Chairman of the Board and President
only. Under the Plan, for each of the five fiscal years of the Company
commencing with fiscal year 1996, the Executive will be entitled to a graduated
bonus (the "Performance Bonus") based upon a comparison of the Company's
earnings from operations plus depreciation and amortization (the "Performance
Measure") in that award year with the immediately preceding fiscal year. The
size of the Performance Bonus is tied to the level of the Company's performance,
as measured by the Performance Measure, with the larger bonuses available only
in the case of truly superior results. The maximum Performance Bonus payable in
respect of any award year under the Plan is $2.0 million. No bonus was paid
under the terms of this plan for 1996.
A shareholder of the Company has brought a suit in the United States District
court, Southern District of New York, seeking to enjoin payment of Performance
Bonuses under the 1995 Performance Bonus Plan described above. The Company
believes that the suit is without merit and expects to pay Performance Bonuses
under the Plan when and if earned. A motion for summary judgment has been filed
on behalf of the Company, which is currently pending.
12. MAJOR CUSTOMER AND CREDIT CONCENTRATIONS
Approximately 20% and 16% of net sales during 1996 were derived from sales to
two customers and their affiliates. Approximately 17% and 13% of net sales
during 1995 were derived from sales to two customers and their affiliates. No
one customer accounted for more than 10% of net sales during 1994.
The Company's customers are primarily large entertainment, tobacco and other
consumer products companies who produce products in the United States and
Canada. At April 27, 1996, approximately 39% and 13% of accounts receivable
related to customers in the tobacco and music industries, respectively.
Approximately 22% of accounts receivable are due from Canadian companies.
Page 32 of 43
<PAGE> 33
13. GEOGRAPHIC OPERATIONS
<TABLE>
<CAPTION>
APRIL 27, APRIL 29, APRIL 30,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Net Sales
Domestic $234,095 $219,218 $142,028
Foreign 160,279 137,815 74,441
--------------------------------------
$394,374 $357,033 $216,469
======================================
Net Earnings
Domestic $ 9,181 $ 13,572 $ 487
Foreign 10,823 8,937 5,806
--------------------------------------
$ 20,004 $ 22,509 $ 6,293
======================================
Identifiable Assets at Year-End
Domestic $190,790 $165,388 $152,821
Foreign 85,435 79,876 67,529
--------------------------------------
$276,225 $245,264 $220,350
======================================
</TABLE>
The Company's foreign operations are conducted in Canada.
Page 33 of 43
<PAGE> 34
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
Page 34 of 43
<PAGE> 35
PART III
Pursuant to instruction G(3) to Form 10-K, the information required in Items
10-13 is incorporated by reference from the Company's definitive proxy statement
for the October 30, 1996 annual meeting of stockholders.
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. The financial statement
schedules have not been included because they are not
applicable or the information is included in financial
statements or notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <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 10.40 Intentionally Omitted.
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.
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
</TABLE>
Page 35 of 43
<PAGE> 36
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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 10.77 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 Inc.,
Shorewood Packaging Corporation, Shorewood Paperboard
Corporation Limited and
</TABLE>
Page 36 of 43
<PAGE> 37
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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.
10.91(a) Stock Warrant Agreement to purchase 100,000 shares of Common
Stock, dated as of January 13, 1994 incorporated by reference to
the corresponding exhibit item on Company's annual report on
Form 10-K/A for the fiscal year ended April 30, 1994, as filed
with the Commission on April 20, 1995, Commission File No.
0-15077.
10.91(b) Stock Warrant Agreement dated as of July 23, 1992 to purchase
300,000 shares of Common Stock incorporated by reference to the
corresponding exhibit item on Company's annual
</TABLE>
Page 37 of 43
<PAGE> 38
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
report on Form 10-K/A for the fiscal year ended April 30, 1994,
as filed with the Commission on April 20, 1995, Commission File
No. 0-15077.
10.92 -- Second Amendment to Amended and Restated Credit Agreement dated
as of November 22, 1994, among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, NationsBank
of North Carolina, N.A. and The Bank of Nova Scotia incorporated
by reference to the corresponding exhibit item on Company's
annual report on Form 10-K/A for the fiscal year ended April 29,
1995, as filed with the Commission on August 11, 1995,
Commission File No. 0-15077.
10.93 -- Lease dated as of February 6, 1995, between Stanley Stahl, d/b/a
Stahl Park Avenue Co., and Shorewood Packaging Corporation
(omitting schedules and exhibits), incorporated by reference to
the corresponding exhibit item on the Company's annual report on
Form 10-K/A for the fiscal year ended April 29, 1995, as filed
with the Commission on August 11, 1995, Commission File No.
0-15077.
10.94 -- The 1995 Performance Bonus Plan incorporated by reference to the
corresponding exhibit item to Quarterly Report on Form 10-Q/A
for the quarterly period ended July 29, 1995, as filed with the
Commission on September 20, 1995, Commission File No. 0-15077.
10.95 -- Stock Warrant Agreement dated as of August 11, 1995 to purchase
shares of common Stock incorporated by reference to the
corresponding exhibit item to Quarterly Report on Form 10-Q for
the quarterly period ended October 28, 1995, as filed with the
Commission on December 12, 1995, Commission File No. 0-15077.
10.96 -- 1993 Incentive Program as amended May 4, 1995 incorporated by
reference to the corresponding exhibit item to Quarterly Report
on Form 10-Q/A for the quarterly period ended October 28, 1995,
as filed with the Commission on February 20, 1996, Commission
File No. 0-15077.
10.97 -- Non-Negotiable Promissory Note of Marc P. Shore dated May 4,
1995 incorporated by reference to the corresponding exhibit item
to Quarterly Report on Form 10-Q/A for the quarterly period
ended October 28, 1995, as filed with the Commission on February
20, 1996, Commission File No. 0-15077.
10.98(a) Employment Agreement dated January 25, 1996 and made effective
as of May 1, 1995 between Shorewood Packaging Corporation and
Marc P. Shore incorporated by reference to the corresponding
exhibit item to Quarterly Report on Form 10-Q/A for the
quarterly period ended October 28, 1995, as filed with the
Commission on February 20, 1996, Commission File No. 0-15077.
10.98(b) Stock Option Agreement dated as of February 1, 1996 between
Shorewood Packaging Corporation and Jefferson Capital Group, LTD
incorporated by reference to the corresponding exhibit item to
Quarterly Report on Form 10-Q for the quarterly period ended
January 27, 1996, as filed with the Commission on March 12,
1996, Commission File No. 0-15077.
10.99 -- Third Amendment to Amended and Restated Credit Agreement dated
as of July 28, 1995, among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
10.100-- Fourth Amendment to Amended and Restated Credit Agreement dated
as of December 12, 1995, among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
10.101-- Fifth Amendment to Amended and Restated Credit Agreement dated
as of January, 26, 1996 among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
</TABLE>
Page 38 of 43
<PAGE> 39
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.102-- Promissory Note of Marc P. Shore dated March 15, 1996.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during
the last quarter of the period covered by this report.
</TABLE>
Page 39 of 43
<PAGE> 40
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/ Marc P. Shore
---------------------------------------------
Marc P. Shore
Chairman of the Board and President and
Chief Executive Officer
Date: July 18, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Marc P. Shore Chairman of the Board, President July 18, 1996
- ----------------------- and Chief Executive Officer and
Marc P. Shore Director
/s/ Howard M. Liebman Executive Vice President and July 18, 1996
- ----------------------- Chief Financial Officer and
Howard M. Liebman Director
(Principal Financial Officer)
/s/ Floyd S. Glinert Executive Vice President - July 15, 1996
- ----------------------- Marketing and Director
Floyd S. Glinert
/s/ William H. Hogan Corporate Controller July 17, 1996
- ----------------------- (Principal Accounting Officer)
William H. Hogan
/s/ William Weidner Director July 24, 1996
- -----------------------
William Weidner
/s/ Timothy O'Donnell Director July 22, 1996
- -----------------------
R. Timothy O'Donnell
/s/ Melvin Braun Director July 23, 1996
- -----------------------
Melvin Braun
/s/ Seymour Leslie Director July 22, 1996
- -----------------------
Seymour Leslie
/s/ Kevin J. Bannon Director July 24, 1996
- -----------------------
Kevin J. Bannon
</TABLE>
Page 40 of 43
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
Item Description Page
- ---- ----------- ----
<S> <C> <C>
10.99 -- Third Amendment to Amended and Restated Credit Agreement dated
as of July 28, 1995, among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
10.100-- Fourth Amendment to Amended and Restated Credit Agreement dated
as of December 12, 1995, among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
10.101-- Fifth Amendment to Amended and Restated Credit Agreement dated
as of January, 26, 1996 among Shorewood Packaging Corporation,
Shorewood Packaging Corporation of Canada Limited, Nationsbank,
N.A. (formerly known as NationsBank of North Carolina, N.A.) and
The Bank of Nova Scotia.
10.102-- Promissory Note of Marc P. Shore dated March 15, 1996.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Deloitte & Touche LLP.
27 -- Financial Data Schedule.
</TABLE>
Page 41 of 43
<PAGE> 1
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Third Amendment to Amended and Restated Credit Agreement (this
"Amendment") is entered into as of July 28, 1995 among SHOREWOOD PACKAGING
CORPORATION (the "U.S. Borrower") and SHOREWOOD PACKAGING CORPORATION OF CANADA
LIMITED (the "Canadian Borrower") (collectively, the U.S. Borrower and the
Canadian Borrower are referred to as the "Borrowers"), NATIONSBANK, N.A.
(CAROLINAS) f/k/a NATIONSBANK OF NORTH CAROLINA, N.A., as Administrative Agent,
THE BANK OF NOVA SCOTIA, as Canadian Administrative Agent and the Lenders party
to the Credit Agreement (as defined below). All capitalized terms used herein
and not otherwise defined shall have the meanings ascribed to such terms in the
Credit Agreement.
RECITALS
A. The Borrowers, the Administrative Agent, the Canadian Administrative
Agent and the Lenders entered into that certain Amended and Restated Credit
Agreement dated as of February 25, 1994 (as amended by that certain First
Amendment to Amended and Restated Credit Agreement dated as of July 18, 1994 and
that certain Second Amendment to Amended and Restated Credit Agreement dated as
of November 22, 1994, the "Credit Agreement").
B. The Borrowers have requested, and the Lenders have
agreed, to amend the terms of the Credit Agreement as set forth
below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Amendment. The Borrowers and the Lenders agree to amend
Section 8.08 of the Credit Agreement in its entirety to read
as follows:
8.08 Investments. No member of the Consolidated Shorewood Group will
make any Investments (including, without limitation, any purchase of its own
shares), except for Permitted Investments; provided, however, that the
Consolidated Shorewood Group may (a) make additional Investments, during the
term of this Agreement, in an aggregate amount up to $12,000,000 plus 50% of the
Excess Cash Flow earned by the Consolidated Shorewood Group subsequent to the
fiscal year ending in 1995 less any amounts from such Excess Cash Flow used to
pay dividends or make Capital Expenditures as set forth in Section 8.09 and 8.10
and (b) make Investments in exchange for stock; provided that (i) a Change in
Control shall not occur and (ii) debt may not be
<PAGE> 2
assumed, in connection with all such Investments made during the term of this
Agreement, in excess of $12,000,000.
2. Representations and Warranties. Borrowers hereby represent
and warrant to the Agents and the Lenders that (a)
subsequent to the execution of this Amendment, no Default or
Event of Default exists and is continuing under the Credit
Agreement or any of the other Loan Documents; (b) all of the
provisions of the Loan Documents, except as amended hereby,
are in full force and effect; (c) the liens created and
evidenced by the Loan Documents (including, without
limitation, the Stock Pledge Agreements) are valid and
existing liens of the recited priority; and (d) since the
date of the last financial statements of Borrowers delivered
to Lenders, no material adverse change has occurred in the
business, financial or other conditions of Borrowers.
3. Effect of Amendment. Except as expressly modified and
amended in this Amendment, all of the terms, provisions and
conditions of the Credit Agreement are and shall remain in
full force and effect and are incorporated herein by
reference. The Credit Agreement and any and all other
documents heretofore, now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement are
hereby amended so that any reference to the Credit Agreement
shall mean a reference to the Credit Agreement as amended
hereby.
4. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall
constitute one and the same instrument.
5. ENTIRETY. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS EMBODY
THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDE ALL
PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY, RELATING TO
THE SUBJECT MATTER HEREOF. THESE LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
ORAL AGREEMENTS BETWEEN THE PARTIES.
- 2 -
<PAGE> 3
This Amendment shall be deemed to be effective as of the day and year
first above written.
BORROWERS:
SHOREWOOD PACKAGING CORPORATION
By:____________________________
Name:__________________________
Title:_________________________
SHOREWOOD CORPORATION OF CANADA,
LIMITED
By:____________________________
Name:__________________________
Title:_________________________
LENDERS:
NATIONSBANK, N.A. (CAROLINAS) f/k/a
NATIONSBANK OF NORTH CAROLINA,
N.A., in its capacity as
Administrative Agent and as a
Lender
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NOVA SCOTIA, in its
capacity as Canadian Administrative
Agent and as a Lender
By:____________________________
Name:__________________________
Title:_________________________
CREDITANSTALT-BANKVEREIN
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
- 3 -
<PAGE> 4
CRESTAR BANK
By:____________________________
Name:__________________________
Title:_________________________
NATIONAL CITY BANK
By:____________________________
Name:__________________________
Title:_________________________
THE CHASE MANHATTAN BANK, N.A.
By:____________________________
Name:__________________________
Title:_________________________
BANQUE PARIBAS
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
- 4 -
<PAGE> 5
THE DAIWA BANK, LIMITED
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
NATIONAL WESTMINSTER BANK, U.S.A.
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NEW YORK
By:____________________________
Name:__________________________
Title:_________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:____________________________
Name:__________________________
Title:_________________________
- 5 -
<PAGE> 6
The Subsidiary Guarantors acknowledge and consent to all of the terms and
conditions of this Amendment and agree that this Amendment and any documents
executed in connection herewith do not operate to reduce or discharge the
Subsidiary Guarantors' obligations under their respective Guaranty Agreements.
SHOREWOOD TECHNOLOGIES, INC.
By:____________________________
Name:__________________________
Title:_________________________
SHOREWOOD PACKAGING CORPORATION OF
GEORGIA
By:______________________________
Name:____________________________
Title:___________________________
SHOREWOOD PACKAGING OF NORTH
CAROLINA, INC.
By:_______________________________
Name:_____________________________
Title:____________________________
SPC COMPANY OF VIRGINIA, INC.
(f/k/a SHOREWOOD PACKAGING OF
VIRGINIA, INC.)
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING OF CALIFORNIA,
INC.
By:_______________________________
Name:_____________________________
Title:____________________________
[signatures continued]
- 6 -
<PAGE> 7
SHOREWOOD PACKAGING COMPANY
OF ILLINOIS, INC.
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD TRANSPORT, INC.
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING OF DELAWARE,
INC.
By:________________________________
Name:______________________________
Title:_____________________________
SHOR-WRAP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING CORPORATION OF
ALABAMA
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING CORPORATION OF
NEW YORK
By:________________________________
Name:______________________________
Title:_____________________________
[signatures continued]
- 7 -
<PAGE> 8
SHOREWOOD ACQUISITION CORP. OF
DELAWARE
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING CORPORATION OF
VIRGINIA (f/k/a SHOREWOOD
PAPERBOARD CORPORATION OF VIRGINIA)
By:________________________________
Name:______________________________
Title:_____________________________
SPC COMPANY OF NEW YORK, INC.
(f/k/a SHOREWOOD PAPERBOARD
CORPORATION OF NEW YORK)
By:________________________________
Name:______________________________
Title:_____________________________
SHOREWOOD PACKAGING CORPORATION OF
CONNECTICUT, (f/k/a
SHOREWOOD/HEMINWAY
SET-UP BOX CORPORATION)
By:________________________________
Name:______________________________
Title:_____________________________
TORONTO CARTON CORPORATION LIMITED
By:________________________________
Name:______________________________
Title:_____________________________
[signatures continued]
- 8 -
<PAGE> 9
SPC CORPORATION LIMITED (f/k/a
SHOREWOOD PAPERBOARD CORPORATION
LIMITED)
By:________________________________
Name:______________________________
Title: ____________________________
SHOREWOOD PACKAGING CORP. OF CANADA
LIMITED
By:________________________________
Name:______________________________
Title: ____________________________
- 9 -
<PAGE> 1
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Fourth Amendment to Amended and Restated Credit Agreement (this
"Amendment") is entered into as of December 12, 1995 among SHOREWOOD PACKAGING
CORPORATION (the "U.S. Borrower") and SHOREWOOD CORPORATION OF CANADA LIMITED
(the "Canadian Borrower") (collectively, the U.S. Borrower and the Canadian
Borrower are referred to as the "Borrowers"), NATIONSBANK, N.A. (formerly known
as NationsBank, N.A. (Carolinas) and NationsBank of North Carolina, N.A.), as
Administrative Agent, THE BANK OF NOVA SCOTIA, as Canadian Administrative Agent
and the Lenders party to the Credit Agreement (as defined below). All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Credit Agreement.
RECITALS
A. The Borrowers, the Administrative Agent, the Canadian Administrative
Agent and the Lenders entered into that certain Amended and Restated Credit
Agreement dated as of February 25, 1994 (as amended by that certain First
Amendment to Amended and Restated Credit Agreement dated as of July 18, 1994,
that certain Second Amendment to Amended and Restated Credit Agreement dated as
of November 22, 1994 and that certain Third Amendment to Amended and Restated
Credit Agreement dated as of July 28, 1995, the "Credit Agreement").
B. The Borrowers have requested, and the Lenders have agreed, to
amend the terms of the Credit Agreement as set forth below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Definitions.
a. The following definitions in Section 1.01 of the Credit
Agreement are amended to read as follows:
"Administrative Agent" means NationsBank, N.A., a
national banking association.
"NationsBank" means NationsBank, N.A.
"Capital Expenditures" means any current expenditure by the
Consolidated Shorewood Group for fixed or capital assets as
reflected on the financial statement of the Consolidated
Shorewood Group, as prepared in accordance with GAAP;
provided, however, that the expenditures
<PAGE> 2
incurred in (i) the Toronto Facility Transaction and (ii) the
acquiring, constructing and equipping of a manufacturing
facility in Springfield, Oregon (the "Pacific Northwest
Facility") in an amount not to exceed $22,000,000, shall not,
for the purposes of this Agreement, be considered a Capital
Expenditure.
"Excess Cash Flow" means EBITDA minus (a) Interest Expense
actually paid by the Consolidated Shorewood Group minus (b)
tax expenses actually paid by the Consolidated Shorewood Group
minus (c) Capital Expenditures minus (d) any principal
payments made by the Consolidated Shorewood Group on their
term indebtedness minus (e) net positive changes in: Accounts
Receivable and Inventory of the Consolidated Shorewood Group
less changes in accounts payable and accrued expenses of the
Consolidated Shorewood Group (as calculated in accordance with
GAAP) minus (f) the capital expenditures incurred in the
construction of the Pacific Northwest Facility (as defined in
the definition of Capital Expenditures) up to an aggregate
amount of $22,000,000, all as calculated at the end of each
fiscal year.
"Required Term Loan Principal Payments" means for any U.S.
Term Loan Installment Payment and any Canadian Term Loan
Installment Payment, the amount corresponding to such date as
set forth below:
<TABLE>
<CAPTION>
U.S. Canadian
Term Loan Required Term Required Term
Installment Loan Principal Loan Principal
Payment Dates Payment Payment
------------- -------------- --------------
<S> <C> <C>
August 7, 1994 $2,900,000 $600,000
November 7, 1994 $2,900,000 $600,000
February 7, 1995 $2,900,000 $600,000
May 7, 1995 $2,900,000 $600,000
August 7, 1995 $4,800,000 $1,200,000
November 7, 1995 $4,800,000 $1,200,000
February 7, 1996 $4,800,000 $1,200,000
</TABLE>
- 2 -
<PAGE> 3
<TABLE>
<S> <C> <C>
May 7, 1996 $4,800,000 $1,200,000
August 7, 1996 $4,800,000 $1,200,000
November 7, 1996 $4,800,000 $1,200,000
February 7, 1997 $4,800,000 $1,200,000
May 7, 1997 $4,800,000 $1,200,000
August 7, 1997 $5,750,000 $1,500,000
November 7, 1997 $5,750,000 $1,500,000
February 7, 1998 $5,750,000 $1,500,000
May 7, 1998 $5,750,000 $1,500,000
August 7, 1998 $5,750,000 $1,500,000
November 7, 1998 $5,750,000 $1,500,000
February 7, 1999 $5,750,000 $1,500,000
May 7, 1999 $5,750,000 $1,500,000
August 7, 1999 $6,500,000
November 7, 1999 $6,500,000
February 7, 2000 $6,500,000
May 7, 2000 $6,500,000
</TABLE>
With respect to Canadian Required Term Loan Principal Payments, such
payments shall be payable in Canadian dollars at an exchange rate equal
to $1.3217 (Canadian) to $1.00 (U.S.).
"Revolving Loans Maturity Date" means May 7, 2000.
"Term Loans Maturity Date" means May 7, 2000 with respect to
the U.S. Term Loan and May 7, 1999 with respect to the
Canadian Term Loan.
"U.S. Revolving Loan Commitment" means $53,000,000
(U.S.) as such amount may be reduced in accordance with
Section 2.09 of this Agreement.
"U.S. Term Loan Commitment" means $122,000,000 (U.S.).
2. The U.S. Revolving Loans. Subsection (ii) of Section 2.01
of the Credit Agreement is amended in its entirety to read
as follows:
(ii) the aggregate amount of U.S. Revolving Loans outstanding
plus Canadian Revolving Loans outstanding plus Letter of
Credit Obligations outstanding plus BA Revolving Obligations
outstanding plus Swing Line Loans outstanding may not exceed
the lesser of (A) the Borrowing Base and (B) $65,000,000
(U.S.);
- 3 -
<PAGE> 4
3. Letter of Credit Subfacility. Subsection (a)(ii) of
Section 2.01A of the Credit Agreement is amended in its
entirety to read as follows:
(ii) the sum of U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus Letter of Credit Obligations
outstanding plus BA Revolving Obligations outstanding plus
Swing Line Loans outstanding shall not at any time exceed the
lesser of (A) $65,000,000 (U.S.) or (B) the Borrowing Base,
4. The Canadian Revolving Loans. Subsection (ii) of
Section 2.02 of the Credit Agreement is amended in its
entirety to read as follows:
(ii) the aggregate amount of U.S. Revolving Loans outstanding
plus Canadian Revolving Loans outstanding plus Letter of
Credit Obligations outstanding plus BA Revolving Obligations
outstanding plus Swing Line Loans outstanding may not exceed
the lesser of (A) the Borrowing Base and (B) $65,000,000
(U.S.);
5. Funding of Advances to Borrowers. A new Section 2.05(c) is
added to the Credit Agreement and shall read as follows:
(c) The proceeds of Revolving Loans may not be used to
repurchase shares of the U.S. Borrower pursuant to the terms
of Section 8.08(c) hereof unless, after giving effect to any
Revolving Loan requested for such purpose, the sum of the
aggregate outstanding amount of U.S. Revolving Loans, Canadian
Revolving Loans, Letter of Credit Obligations, BA Revolving
Obligations and the Swing Line Loans is at least $10,000,000
less than the lesser of the Borrowing Base or the Revolving
Loan Commitments.
6. U.S. Term Commitment. Section 3.01 of the Credit Agreement
is amended to read as follows:
The Borrowers acknowledge and agree that the initial
$96,000,000 of the U.S. Term Loan Commitment was provided to
the U.S. Borrower on January 14, 1994, and the additional
$26,000,000 with respect to the U.S. Term Loan Commitment was
provided to the U.S. Borrower on December 12, 1995. The
Lenders and the Borrowers agree that as of December 12, 1995,
after giving effect to the advancement of the additional
$26,000,000, the principal amount outstanding under the U.S.
Term Loan is $100,800,000 as a result of principal payments
made by the U.S. Borrower on the outstanding balance of the
U.S. Term Loan between January 14, 1994 and December 12, 1995.
7. Scheduled Repayments. The first sentence of Section 3.04 of
the Credit Agreement is amended to read as follows:
- 4 -
<PAGE> 5
The principal amount of the Term Loans shall be due and
payable in quarterly installments on each Term Loan
Installment Payment Date, beginning with the installment date
due August 7, 1994 and ending with the installment date due
May 7, 1999 with respect to the Canadian Term Loan and May 7,
2000 with respect to the U.S. Term Loan.
8. Issuance of Bankers' Acceptances. Subsection (a)(ii) of
Section 3A.01 of the Credit Agreement is hereby amended to
read as follows:
(ii) the sum of U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus Letter of Credit Obligations
outstanding plus BA Revolving Obligations outstanding plus
Swing Line Loans outstanding shall not at any time exceed the
lesser of (A) $65,000,000 (U.S.) or (B) the Borrowing Base.
9. Mandatory Prepayments.
(a) Subsection (A) of Section 4.06(b)(i) of the Credit
Agreement is hereby amended in its entirety to read as
follows:
(A) the sum of U.S. Revolving Loans outstanding plus Canadian
Revolving Loans outstanding plus Letter of Credit Obligations
outstanding plus BA Revolving Obligations outstanding plus
Swing Line Loans outstanding exceeds the lesser of (1)
$65,000,000 (U.S.) or (2) the Borrowing Base (as last reported
by the Borrowers);
(b) The proviso at the end of Section 4.06(b)(iv) of the Credit
Agreement is hereby amended in its entirety to read as follows:
provided, however, that no prepayment under this Section
4.06(b)(iv) shall be required subsequent to the date that the
U.S. Borrower raises a net amount in an equity offering of (A)
$35,000,000 plus (B) fifty percent of the purchase price paid
for any shares repurchased by the U.S. Borrower pursuant to
Section 8.08(c) hereof.
10. Financial Covenants.
a. Subsection (c) of Section 7.13 of the Credit Agreement
is hereby amended in its entirety to read as follows:
(c) Net Worth. The consolidated Net Worth of the
Consolidated Shorewood Group shall not be less than:
(i) $20,000,000, plus
- 5 -
<PAGE> 6
(ii) an amount, determined at the end of each fiscal
quarter, commencing with the quarterly fiscal period ending
closest to January 31, 1996, equal to 50% of Net Income earned
by the Consolidated Shorewood Group (with no deductions for
any losses incurred during any fiscal quarter), plus
(iii) 50% of all Net Proceeds from the issuance of
equity securities (or the conversion of debt into
equity), plus
(iv) $40,000,000 less the dollar amount used to
repurchase shares pursuant to Section 8.08(c) hereof.
b. Subsection (d) of Section 7.13 of the Credit Agreement
is hereby amended in its entirety to read as follows:
(d) Debt to Cash Flow. The Debt to Cash Flow
Ratio at the end of each fiscal quarter shall not
be greater than:
(i) For each fiscal quarter ending during the
period beginning with the fiscal quarter ending
closest to January 31, 1996 and ending with the
fiscal quarter ending closest to April 30, 1997,
3.0 to 1.0; and
(ii) For the fiscal quarter ending closest to
July 31, 1997 and for each fiscal quarter
thereafter, 2.5 to 1.0.
11. Investments. Section 8.08 of the Credit Agreement is
amended in its entirety to read as follows:
8.08 Investments. No member of the Consolidated Shorewood
Group will make any Investments (including, without
limitation, any purchase of its own shares), except for
Permitted Investments and Investments made prior to December
12, 1995; provided, however, that the Consolidated Shorewood
Group may (a) make additional Investments (other than the
repurchase of shares of its own stock), subsequent to December
12, 1995, in an aggregate amount up to $3,000,000 plus 50% of
the Excess Cash Flow earned by the Consolidated Shorewood
Group subsequent to the fiscal year ending in 1995 less any
amounts from such Excess Cash Flow used to pay dividends as
set forth in Section 8.10, (b) make Investments in exchange
for stock; provided that, with respect to this subclause (b),
(i) a Change in Control shall not occur and (ii) debt may not
be assumed, in connection with all such Investments made
subsequent to December 12, 1995, in excess of $3,000,000 and
(c) in addition to the Investments described in the preceding
subclause (a) and (b), the U.S. Borrower may repurchase shares
of its stock from any Person that is not an
- 6 -
<PAGE> 7
officer or director of the Consolidated Shorewood Group or any
Affiliate; provided that with respect to this Section 8.08,
subsequent to December 12, 1995, the purchase price paid for
all shares repurchased pursuant to this Section 8.08 shall not
exceed (A) $40,000,000 plus (B) 50% of the Excess Cash Flow
earned by the Consolidated Shorewood Group subsequent to the
fiscal year ending in 1995 less (1) any amounts from such
Excess Cash Flow used to pay dividends as set forth in Section
8.10 and (2) any amounts of Excess Cash Flow allocated to
subclause (a) above.
12. Capital Expenditures. Section 8.09 of the Credit Agreement
is hereby deleted in its entirety.
13. Dividends. Section 8.10 of the Credit Agreement is amended
in its entirety to read as follows:
8.10 Dividends. No member of the Consolidated Shorewood Group
shall pay any dividends (cash or stock) except for dividends
from a Subsidiary of a Borrower to such Borrower; provided,
however, that the U.S. Borrower may pay dividends in an
aggregate amount up to 25% of the Excess Cash Flow earned by
the Consolidated Shorewood Group subsequent to the fiscal year
ending in 1995 less any amounts from such Excess Cash Flow
used to make Investments as set forth in Section 8.08.
14. Exhibits. Exhibit 2.03 to the Credit Agreement is amended
for the purpose of adding paragraph 9 to such Exhibit 2.03,
and shall read as attached hereto as Exhibit A.
15. Schedules. Schedule 1.01(a) to the Credit Agreement is
amended in its entirety to read as attached hereto as
Schedule A.
16. Conditions Precedent. The Agents and the Lenders shall not
be required to enter into this Fourth Amendment and this
Fourth Amendment shall not be effective until the following
conditions have been satisfied:
a. Receipt by U.S. Lenders of (i) new Term Notes
evidencing the new U.S. Term Loan Commitment of each
such U.S. Lender and (ii) new Revolving Credit Notes
evidencing the new U.S. Revolving Loan Commitment of
each such U.S. Lender;
b. Receipt by Administrative Agent and Lenders of all fees
required by Administrative Agent and Lenders in connection
with this Fourth Amendment, including, without limitation, a
nonrefundable one time amendment fee to each Lender as agreed
to among the Borrower and the Lenders;
- 7 -
<PAGE> 8
c. Receipt by the Administrative Agent of an opinion
letter from U.S. Borrower's counsel as to authority,
enforceability, and other matters relating to this
Fourth Amendment; and
d. Other. Receipt by Administrative Agent of such other
documents it deems reasonably necessary.
17. Representations and Warranties. Borrowers hereby represent
and warrant to the Agents and the Lenders that (a) no
Default or Event of Default exists under the Credit
Agreement or any of the other Loan Documents; (b) all of the
provisions of the Loan Documents, except as amended hereby,
are in full force and effect; (c) the liens created and
evidenced by the Loan Documents (including, without
limitation, the Stock Pledge Agreements) are valid and
existing liens of the recited priority; and (d) since the
date of the last financial statements of Borrowers delivered
to Lenders, no material adverse change has occurred in the
business, financial or other conditions of Borrowers.
18. Increase in U.S. Revolving Loan Commitment and Advance of
Additional U.S. Term Loan Amounts. Each Lender hereby
acknowledges that (i) the U.S. Revolving Loan Commitment has
been increased by $15,000,000 and that each Lender has
agreed to provide a portion of such increase as set forth
below and (ii) the U.S. Term Loan Commitment has been
increased pursuant to the terms of this Fourth Amendment
such that an additional term loan of $26,000,000 will be
made to the U.S. Borrower on the date hereof (the
"Additional U.S. Term Loan"), and the Additional U.S. Term
Loan Amount is being provided by the U.S. Lenders named
below in the amounts set forth beside the name of each such
U.S. Lender. Each of the U.S. Lenders named below agrees,
severally and not jointly, to make available to the
Administrative Agent on the date of execution of this Fourth
Amendment that portion of the Additional U.S. Term Loan
Amount set forth below beside the name of such U.S. Lender.
- 8 -
<PAGE> 9
<TABLE>
<CAPTION>
Additional U.S.
Revolving Loan
Name of Additional U.S. Commitment
U.S. Lender Term Loan Amount Amount
- ----------- ---------------- ------
<S> <C> <C>
NationsBank, $6,571,148.85 $3,737,806.46
N.A.
The Bank of $ 935,741.33 $ 620,975.09
Nova Scotia
Creditanstalt $ 971,876.63 $ 610,212.91
- - Bankverein
Crestar Bank $ 971,876.63 $ 610,212.91
U.S. Bank $ 0.00 $ 0.00
The Chase $6,067,184.49 $3,315,217.08
Manhattan Bank
Banque Paribas $2,282,669.87 $1,299,419.67
The Daiwa $ 971,876.63 $ 610,212.91
Bank, Limited
NatWest Bank $2,938,066.49 $1,644,023.05
N.A.
The Bank of $2,006,889.24 $1,252,500.24
New York
First Union $2,282,669.87 $1,299,419.67
National Bank
of North
Carolina
$26,000,000.03 $14,999,999.99
</TABLE>
19. Effect of Amendment. Except as expressly modified and
amended in this Fourth Amendment, all of the terms,
provisions and conditions of the Credit Agreement are and
shall remain in full force and effect and are incorporated
herein by reference. The Credit Agreement and any and all
other documents heretofore, now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement are
hereby amended so that any reference to the Credit Agreement
shall mean a reference to the Credit Agreement as amended
hereby.
- 9 -
<PAGE> 10
20. Counterparts. This Fourth Amendment may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same instrument.
21. ENTIRETY. THIS FOURTH AMENDMENT AND THE OTHER LOAN DOCUMENTS
EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY,
RELATING TO THE SUBJECT MATTER HEREOF. THESE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
ORAL AGREEMENTS BETWEEN THE PARTIES.
- 10 -
<PAGE> 11
This Fourth Amendment shall be deemed to be effective as of the day and
year first above written.
BORROWERS:
SHOREWOOD PACKAGING CORPORATION
By:____________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD CORPORATION OF CANADA,
LIMITED
By:____________________________
Name: Howard M. Liebman
Title: Vice President
LENDERS:
NATIONSBANK, N.A. (formerly known
as NationsBank, N.A. (Carolinas)
and NationsBank of North Carolina),
N.A., in its capacity as
Administrative Agent and as a
Lender
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NOVA SCOTIA, in its
capacity as Canadian Administrative
Agent and as a Lender
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
<PAGE> 12
CREDITANSTALT-BANKVEREIN
By:____________________________
Name:__________________________
Title:_________________________
CRESTAR BANK
By:____________________________
Name:__________________________
Title:_________________________
UNITED STATES NATIONAL BANK OF
OREGON
By:____________________________
Name:__________________________
Title:_________________________
THE CHASE MANHATTAN BANK, N.A.
By:____________________________
Name:__________________________
Title:_________________________
BANQUE PARIBAS
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
<PAGE> 13
THE DAIWA BANK, LIMITED
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
NATWEST BANK N.A.
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NEW YORK
By:____________________________
Name:__________________________
Title:_________________________
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 14
The Subsidiary Guarantors acknowledge and consent to all of the terms and
conditions of this Fourth Amendment, including without limitation, the increase
in the U.S. Term Loan Commitment and the U.S. Revolving Loan Commitment and
agree that this Fourth Amendment and any documents executed in connection
herewith do not operate to reduce or discharge the Subsidiary Guarantors'
obligations under their respective Guaranty Agreements.
SHOREWOOD TECHNOLOGIES, INC.
By:____________________________
Name: Howard M. Liebman
Title: Vice President & Treasurer
SHOREWOOD PACKAGING CORPORATION OF
GEORGIA
By:______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING OF NORTH
CAROLINA, INC.
By:_______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SPC COMPANY OF VIRGINIA, INC.
(f/k/a SHOREWOOD PACKAGING OF
VIRGINIA, INC.)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 15
SHOREWOOD PACKAGING OF CALIFORNIA,
INC.
By:_______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING COMPANY OF
ILLINOIS, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD TRANSPORT, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING OF DELAWARE,
INC.
By:________________________________
Name: Howard M. Liebman
Title: Vice President & Treasurer
SHOR-WRAP, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 16
SHOREWOOD PACKAGING CORPORATION OF
ALABAMA
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING CORPORATION OF
NEW YORK
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD ACQUISITION CORP. OF
DELAWARE
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING CORPORATION OF
VIRGINIA (f/k/a SHOREWOOD
PAPERBOARD CORPORATION OF VIRGINIA
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SPC COMPANY OF NEW YORK, INC.
(f/k/a SHOREWOOD PAPERBOARD
CORPORATION OF NEW YORK)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 17
SHOREWOOD PACKAGING CORPORATION OF
CONNECTICUT, (f/k/a
SHOREWOOD/HEMINWAY SET-UP BOX
CORPORATION)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
TORONTO CARTON CORPORATION LIMITED
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SPC CORPORATION LIMITED (f/k/a
SHOREWOOD PAPERBOARD CORPORATION
LIMITED)
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SHOREWOOD PACKAGING CORP. OF CANADA
LIMITED
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SHOREWOOD PACKAGING CORPORATION OF
OREGON
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President
<PAGE> 18
Exhibit A to
Fourth Amendment to
Credit Agreement
EXHIBIT 2.03
ADVANCE REQUEST
TO: _____ NationsBank, N.A.; or
_____ NationsBank, N.A.,
as Administrative Agent; or
_____ The Bank of Nova Scotia, as Canadian
Administrative Agent
RE: Amended and Restated Credit Agreement dated
as of February 25, 1994 among Shorewood
Packaging Corporation, Shorewood Corporation
of Canada Limited, the Lenders party thereto,
NationsBank, N.A. f/k/a NationsBank, N.A.
(Carolinas) and NationsBank of North
Carolina, N.A., as Administrative Agent and
The Bank of Nova Scotia as Canadian
Administrative Agent (as amended by that
certain First Amendment to Amended and
Restated Credit Agreement dated as of
July 18, 1994, as amended by that certain
Second Amendment to Amended and Restated
Credit Agreement dated as of November 22,
1994, as amended by that certain Third
Amendment to Amended and Restated Agreement
dated as of July 28, 1995, as amended by that
certain Fourth Amendment to Amended and
Restated Credit Agreement dated as of
December 12, 1995, and as further amended or
modified from time to time, the "Agreement").
DATE: _____________, 199__
- -----------------------------------------------------------------
1. This Advance Request is made pursuant to the terms of the Agreement.
All capitalized terms used herein unless otherwise defined shall have
the meanings set forth in the Agreement.
2. ______ Please be advised that:
(a) _____ the U.S. Borrower is requesting a U.S. Revolving
Loan in the amount of $__________ be funded on ____________,
199__ to accrue interest at the interest rate set forth
below in paragraph 4. Subsequent to the funding of the
<PAGE> 19
requested U.S. Revolving Loan, the aggregate amount of
outstanding U.S. Revolving Loans will be $________; or
(b) _____ the U.S. Borrower is requesting that on ________, 199__ a
portion of the current outstanding U.S. Revolving Loans in the amount
of $__________ that is currently accruing interest at the
___________________ be extended or converted to the interest rate
option set forth below in paragraph 4.
(c) _____ Please be advised that the U.S. Borrower is requesting a
Swing Line Loan in the amount of $_________ be funded on __________,
199__ to accrue interest at the U.S. Base Rate. Subsequent to the
funding of the requested Swing Line Loan, the aggregate amount of
outstanding Swing Line Loans will be $_________.
3. _______ Please be advised that:
(a) ______ the U.S. Borrower is requesting a Canadian Revolving Loan in
the amount of $___________ be funded on __________ 199__ to accrue
interest at the interest rate set forth below in paragraph 5.
Subsequent to the funding of the requested Canadian Revolving Loan, the
aggregate amount of outstanding Canadian Revolving Loans will be
$__________; or
(b) ____________ the U.S. Borrower is requesting that on ________,
199__ a portion of the current outstanding Canadian Revolving Loans in
the amount of $_____________ that is currently accruing interest at the
____________ be extended or converted to the interest rate option set
forth below in paragraph 5; or
(c) _____ the Canadian Borrower is requesting a Canadian Revolving Loan
in the amount of $__________ be funded on ____________ 199__ to accrue
interest at the Canadian Prime Rate. Subsequent to the funding of the
requested Canadian Revolving Loan, the aggregate amount of outstanding
Canadian Revolving Loans will be $__________; or
(d) _____ the Canadian Borrower is requesting the Canadian Lenders to
create Bankers' Acceptances in the amount of $____________ on
_____________, 199___ for the period set forth below in paragraph 6; or
(e) _____ the Canadian Borrower is requesting that Bankers' Acceptances
in the amount of $___________ maturing on ____________, 199__ be
converted into a Canadian Base Rate Revolving Loans accruing interest
at the Canadian Prime Rate on the maturity date; or
- 2 -
<PAGE> 20
(f) _____ the Canadian Borrower is requesting that a portion of the
current outstanding Canadian Base Rate Revolving Loan in the amount of
$__________ be converted into a Bankers' Acceptance for the period set
forth below in paragraph 6.
4. The interest rate option applicable to the requested U.S.
Revolving Loan (or the extension or conversion of all or
part of the existing U.S. Revolving Loans) set forth in
paragraph 2 above shall be:
a. ________ the U.S. Base Rate; or
b. ________ the Adjusted Eurodollar Rate for an
Interest Period of:
________ one month;
________ two months;
________ three months; or
________ six months.
5. The interest rate option applicable to the requested Canadian Revolving
Loan by the U.S. Borrower (or the extension or conversion of all or
part of the existing Canadian Revolving Loans to the U.S. Borrower) as
set forth in paragraph 3(a) and (b) above shall be:
a. ________ BNS U.S. Prime Rate; or
b. ________ the Adjusted Eurodollar Rate for an
Interest Period of:
________ one month;
________ two months;
________ three months; or
________ six months.
6. The period of the Bankers' Acceptance requested by the Canadian
Borrower pursuant to paragraph 3(d) and (f) above under the Canadian
Revolving Loan Commitment shall be:
a. ________ 30 days;
b. ________ 60 days;
c. ________ 90 days; or
d. ________ 180 days.
7. The representations and warranties made in the Agreement are
true and correct in all material respects as if made on the
date hereof.
8. As of the date hereof, no Default or Event of Default has
occurred and is continuing or would be caused by the
requested Revolving Loan or Bankers' Acceptance.
- 3 -
<PAGE> 21
9. _______ Please be advised that the U.S. Borrower is
requesting a U.S. Revolving Loan for the purpose of
repurchasing shares of the U.S. Borrower pursuant to the
terms of Section 8.08(c) and, after giving effect to such
U.S. Revolving Loan, the Borrowers are in compliance with
the terms of Section 2.05(c) of the Agreement.
_______________________________
By:____________________________
Name:__________________________
Title:_________________________
- 4 -
<PAGE> 22
Schedule A to Fourth Amendment
to Credit Agreement
Schedule 1.01(a)
Lender Addresses, Commitments For U.S. Revolving Loans and
U.S. Revolving Loan Commitment Percentages, Commitments For
Canadian Revolving Loans and Canadian Revolving Loan Commitment Percentages,
Commitments for U.S. Term Loans and U.S. Term Loan Commitment Percentages,
Commitments for Canadian Term Loans and
Canadian Term Loan Commitment Percentages
<TABLE>
<CAPTION>
Principal
Amount of
Principal Amount of U.S. Revolving Loan Commitment for Canadian Revolving
Commitment for U.S. Commitment Canadian Loan Commitment
Name and Address of Lender Revolving Loans Percentage Revolving Loans Percentage
- -------------------------- -------------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
U.S. Lenders
NationsBank, N.A. 11,819,895.97 22.3016905071521%
767 Fifth Avenue
New York, NY 10153
Attn: James T. Gilland
Facsimile No.: (212)
The Bank of New York 6,892,067.62 13.0039011703511%
530 Fifth Avenue
New York, New York 10036
Attn: Allison J. White
Facsimile No.: (212) 852-4252
Banque Paribas 4,135,240.57 7.80234070221066%
787 7th Avenue, 32nd Floor
New York, New York 10019
Attn: Duane Helkowski
Facsimile No.: (212) 841-2333
The Chase Manhattan Bank, N.A. 6,892,067.62 13.0039011703511%
135 Pinelaws Road
Melville, New York 11747
Attn: Emelia Teise
Facsimile No: (516) 753-9737
<CAPTION>
Principal
Principal Amount Amount of Canadian Term
of U.S. Term Loan Commitment Loan
Commitment for Commitment for Canadian Commitment
Name and Address of Lender U.S. Term Loan Percentage Term Loans Percentage
- -------------------------- ---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
U.S. Lenders
NationsBank, N.A. 22,480,104.04 22.3016905071521%
767 Fifth Avenue
New York, NY 10153
Attn: James T. Gilland
Facsimile No.: (212)
The Bank of New York 13,107,932.38 13.0039011703511%
530 Fifth Avenue
New York, New York 10036
Attn: Allison J. White
Facsimile No.: (212) 852-4252
Banque Paribas 7,864,759.43 7.80234070221066%
787 7th Avenue, 32nd Floor
New York, New York 10019
Attn: Duane Helkowski
Facsimile No.: (212) 841-2333
The Chase Manhattan Bank, N.A. 13,107,932.38 13.0039011703511%
135 Pinelaws Road
Melville, New York 11747
Attn: Emelia Teise
Facsimile No: (516) 753-9737
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
Principal
Amount of
Principal Amount of U.S. Revolving Loan Commitment for Canadian Revolving
Commitment for U.S. Commitment Canadian Loan Commitment
Name and Address of Lender Revolving Loans Percentage Revolving Loans Percentage
- -------------------------- -------------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
CREDITANSTALT-BANKVEREIN 3,446,033.81 6.50195058517555%
2 Greenwich Plaza
Greenwich, CT 06830
Attn: Stacy Harmon
Facsimile No.: (203) 861-6594
First Union National Bank of North 4,135,240.57 7.80234010221066%
Carolina
301 S. College, 19th Floor
Charlotte, North Carolina
28288-0745
Attn: Tom Bohrer
Facsimile No.: (704) 374-2802
NatWest Bank N.A. 4,479,843.95 8.45253576072822%
1133 Avenue of the Americas
New York, New York 10036
Attn: Sue Failla
Facsimile No.: (212) 703-1744
United States National Bank of 3,446,033.81 6.50195058517555%
Oregon
555 S.W. Oak Street
Suite 400
Portland, OR 97204
Attn: Chris Karlin
Facsimile No.: (503) 275-4267
Crestar Bank 3,446,033.81 6.50195058517555%
919 East Main Street
Credit Administration - 22nd Floor
Richmond, Virginia 23219
Attn: Julian Holland
Facsimile No.: (804) 782-5413
The Daiwa Bank Limited 3,446,033.81 6.50195058517555%
450 Lexington, 17th Floor
New York, New York 10017
Attn: Ron Gale
Facsimile No.: (212) 818-0865
<CAPTION>
Principal
Principal Amount Amount of Canadian Term
of U.S. Term Loan Commitment Loan
Commitment for Commitment for Canadian Commitment
Name and Address of Lender U.S. Term Loan Percentage Term Loans Percentage
- -------------------------- ---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
CREDITANSTALT-BANKVEREIN 6,553,966.19 6.50195058517555%
2 Greenwich Plaza
Greenwich, CT 06830
Attn: Stacy Harmon
Facsimile No.: (203) 861-6594
First Union National Bank of North 7,864,759.43 7.80234010221066%
Carolina
301 S. College, 19th Floor
Charlotte, North Carolina
28288-0745
Attn: Tom Bohrer
Facsimile No.: (704) 374-2802
NatWest Bank N.A. 8,520,156.05 8.45253576072822%
1133 Avenue of the Americas
New York, New York 10036
Attn: Sue Failla
Facsimile No.: (212) 703-1744
United States National Bank of 6,553,966.19 6.50195058517555%
Oregon
555 S.W. Oak Street
Suite 400
Portland, OR 97204
Attn: Chris Karlin
Facsimile No.: (503) 275-4267
Crestar Bank 6,553,966.19 6.50195058517555%
919 East Main Street
Credit Administration - 22nd Floor
Richmond, Virginia 23219
Attn: Julian Holland
Facsimile No.: (804) 782-5413
The Daiwa Bank Limited 6,553,966.19 6.50195058517555%
450 Lexington, 17th Floor
New York, New York 10017
Attn: Ron Gale
Facsimile No.: (212) 818-0865
</TABLE>
- 2 -
<PAGE> 24
<TABLE>
<CAPTION>
Principal
Amount of
Principal Amount of U.S. Revolving Loan Commitment for Canadian Revolving
Commitment for U.S. Commitment Canadian Loan Commitment
Name and Address of Lender Revolving Loans Percentage Revolving Loans Percentage
- -------------------------- -------------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C>
The Bank of Nova Scotia 861,508.45 1.62548764629389%
1 Liberty Plaza
New York, NY 10006
Attn: Daniel R. Foote
Facsimile No.: (212) 225-5090
Canadian Lenders
The Bank of Nova Scotia $12,000,000.00 100%
44 King Street West
Toronto, Ontario
Canada M5H 1H1
Attn: Eric Read
Facsimile No.: (416) 866-2009
------------- ---------------- -------------- ---
TOTAL 52,999,999.99 100% $12,000,000.00 100%
<CAPTION>
Principal
Principal Amount Amount of Canadian Term
of U.S. Term Loan Commitment Loan
Commitment for Commitment for Canadian Commitment
Name and Address of Lender U.S. Term Loan Percentage Term Loans Percentage
- -------------------------- ---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
The Bank of Nova Scotia 1,638,491.56 1.62548764629389%
1 Liberty Plaza
New York, NY 10006
Attn: Daniel R. Foote
Facsimile No.: (212) 225-5090
Canadian Lenders
The Bank of Nova Scotia 19,200,000 100%
44 King Street West
Toronto, Ontario
Canada M5H 1H1
Attn: Eric Read
Facsimile No.: (416) 866-2009
--------------- ----------------- -------------- ---
TOTAL $100,800,000.03 100% $19,200,000.00 100%
</TABLE>
- 3 -
<PAGE> 1
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
This Fifth Amendment to Amended and Restated Credit Agreement (this
"Amendment") is entered into as of January 26, 1996 among SHOREWOOD PACKAGING
CORPORATION (the "U.S. Borrower") and SHOREWOOD CORPORATION OF CANADA LIMITED
(the "Canadian Borrower") (collectively, the U.S. Borrower and the Canadian
Borrower are referred to as the "Borrowers"), NATIONSBANK, N.A. (formerly known
as NationsBank, N.A. (Carolinas) and NationsBank of North Carolina, N.A.), as
Administrative Agent, THE BANK OF NOVA SCOTIA, as Canadian Administrative Agent
and the Lenders party to the Credit Agreement (as defined below). All
capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Credit Agreement.
RECITALS
A. The Borrowers, the Administrative Agent, the Canadian Administrative
Agent and the Lenders entered into that certain Amended and Restated Credit
Agreement dated as of February 25, 1994 (as amended by that certain First
Amendment to Amended and Restated Credit Agreement dated as of July 18, 1994,
that certain Second Amendment to Amended and Restated Credit Agreement dated as
of November 22, 1994, that certain Third Amendment to Amended and Restated
Credit Agreement dated as of July 28, 1995, and that certain Fourth Amendment to
Amended and Restated Credit Agreement dated as of December 12, 1995, the "Credit
Agreement").
B. The Borrowers have requested, and the Lenders have agreed, to amend
the terms of the Credit Agreement as set forth below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Fixed Charge Coverage.
a. Subsection (b) of Section 7.13 of the Credit Agreement
is hereby amended in its entirety to read as follows:
(b) Fixed Charge Coverage.
(i) At the end of the fiscal quarters ending closest
to January 31, 1996 and April 30, 1996, for the four fiscal
quarter period ending on each of such dates, the Fixed Charge
Ratio shall not be less than 1.25 to 1.0; and
<PAGE> 2
(ii) At the end of each fiscal quarter thereafter,
for the four fiscal quarter period ending on that date, the
Fixed Charge Ratio shall not be less than 1.50 to 1.0.
2. Representations and Warranties. Borrowers hereby represent
and warrant to the Agents and the Lenders that (a)
subsequent to the execution and delivery of this Fifth
Amendment, no Default or Event of Default exists under the
Credit Agreement or any of the other Loan Documents; (b) all
of the provisions of the Loan Documents, except as amended
hereby, are in full force and effect; (c) the liens created
and evidenced by the Loan Documents (including, without
limitation, the Stock Pledge Agreements) are valid and
existing liens of the recited priority; and (d) since the
date of the last financial statements of Borrowers delivered
to Lenders, no material adverse change has occurred in the
business, financial or other conditions of Borrowers.
3. Effect of Amendment. Except as expressly modified and
amended in this Fifth Amendment, all of the terms,
provisions and conditions of the Credit Agreement are and
shall remain in full force and effect and are incorporated
herein by reference. The Credit Agreement and any and all
other documents heretofore, now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement are
hereby amended so that any reference to the Credit Agreement
shall mean a reference to the Credit Agreement as amended
hereby.
4. Counterparts. This Fifth Amendment may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same instrument.
5. ENTIRETY. THIS FIFTH AMENDMENT AND THE OTHER LOAN DOCUMENTS
EMBODY THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND
SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY,
RELATING TO THE SUBJECT MATTER HEREOF. THESE LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
ORAL AGREEMENTS BETWEEN THE PARTIES.
- 2 -
<PAGE> 3
This Fifth Amendment shall be deemed to be effective as of January 26,
1996.
BORROWERS:
SHOREWOOD PACKAGING CORPORATION
By:____________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD CORPORATION OF CANADA,
LIMITED
By:____________________________
Name: Howard M. Liebman
Title: Vice President
LENDERS:
NATIONSBANK, N.A. (formerly known
as NationsBank, N.A. (Carolinas)
and NationsBank of North Carolina),
N.A., in its capacity as
Administrative Agent and as a
Lender
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NOVA SCOTIA, in its
capacity as Canadian Administrative
Agent and as a Lender
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
<PAGE> 4
CREDITANSTALT-BANKVEREIN
By:____________________________
Name:__________________________
Title:_________________________
CRESTAR BANK
By:____________________________
Name:__________________________
Title:_________________________
UNITED STATES NATIONAL BANK OF
OREGON
By:____________________________
Name:__________________________
Title:_________________________
THE CHASE MANHATTAN BANK, N.A.
By:____________________________
Name:__________________________
Title:_________________________
BANQUE PARIBAS
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
[signatures continued]
<PAGE> 5
SUMITOMO BANK, LIMITED, CHICAGO
BRANCH
By:____________________________
Name:__________________________
Title:_________________________
By:____________________________
Name:__________________________
Title:_________________________
NATWEST BANK N.A.
By:____________________________
Name:__________________________
Title:_________________________
THE BANK OF NEW YORK
By:____________________________
Name:__________________________
Title:_________________________
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 6
The Subsidiary Guarantors acknowledge and consent to all of the terms and
conditions of this Fifth Amendment and agree that this Fifth Amendment and any
documents executed in connection herewith do not operate to reduce or discharge
the Subsidiary Guarantors' obligations under their respective Guaranty
Agreements.
SHOREWOOD TECHNOLOGIES, INC.
By:____________________________
Name: Howard M. Liebman
Title: Vice President & Treasurer
SHOREWOOD PACKAGING CORPORATION OF
GEORGIA
By:______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING OF NORTH
CAROLINA, INC.
By:_______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SPC COMPANY OF VIRGINIA, INC.
(f/k/a SHOREWOOD PACKAGING OF
VIRGINIA, INC.)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 7
SHOREWOOD PACKAGING OF CALIFORNIA,
INC.
By:_______________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING COMPANY OF
ILLINOIS, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD TRANSPORT, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING OF DELAWARE,
INC.
By:________________________________
Name: Howard M. Liebman
Title: Vice President & Treasurer
SHOR-WRAP, INC.
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 8
SHOREWOOD PACKAGING CORPORATION OF
ALABAMA
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING CORPORATION OF
NEW YORK
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD ACQUISITION CORP. OF
DELAWARE
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SHOREWOOD PACKAGING CORPORATION OF
VIRGINIA (f/k/a SHOREWOOD
PAPERBOARD CORPORATION OF VIRGINIA
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
SPC COMPANY OF NEW YORK, INC.
(f/k/a SHOREWOOD PAPERBOARD
CORPORATION OF NEW YORK)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
[signatures continued]
<PAGE> 9
SHOREWOOD PACKAGING CORPORATION OF
CONNECTICUT, (f/k/a
SHOREWOOD/HEMINWAY SET-UP BOX
CORPORATION)
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President &
Chief Financial Officer
TORONTO CARTON CORPORATION LIMITED
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SPC CORPORATION LIMITED (f/k/a
SHOREWOOD PAPERBOARD CORPORATION
LIMITED)
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SHOREWOOD PACKAGING CORP. OF CANADA
LIMITED
By:________________________________
Name: Howard M. Liebman
Title: Vice President
SHOREWOOD PACKAGING CORPORATION OF
OREGON
By:________________________________
Name: Howard M. Liebman
Title: Executive Vice President
<PAGE> 1
$800,000 March 15, 1996
Sixty (60) days after date I promise to pay to the order of Shorewood Packaging
Corporation Eight Hundred Thousand and 00/100 dollars payable at 277 Park
Avenue, New York, New York 10172.
Value received with interest at 6.5 percent per annum.
Due May 14, 1996 /s/ Marc P. Shore
------------------
Marc P. Shore
<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 Corp. of Canada, Ltd. Ontario, Canada
Shorewood Transport, Inc. New York
Shorewood Packaging of Delaware, Inc. Deleware
Shor-Wrap, Inc. Delaware
Shorewood Technologies, Inc. Delaware
Shorewood Packaging Corporation of Georgia Georgia
Toronto Carton Corporation Limited Ontario, Canada
Shor-Wrap Packages of Canada, Ltd. Ontario, Canada
Shorewood Acquisition Corp. of Delaware Delaware
Shorewood Packaging Corporation of Virginia Delaware
SPC Company of New York, Inc. New York
Shorewood Packaging Corporation of Connecticut Connecticut
Shorewood Corporation of Canada Limited Ontario, Canada
SPC Corporation Limited Ontario, Canada
Shorewood Packaging Corporation of Oregon Oregon
Shorewood Packaging of North Carolina, Inc. Delaware
Shorewood Packaging Corporation of New York New York
</TABLE>
Page 42 of 43
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.'s
33-16409, 33-38259 and 33-78614 of Shorewood Packaging Corporation each on Form
S-8 and to the incorporation by reference in Registration Statement No. 333-3671
of Shorewood Packaging Corporation on Form S-3 of our report dated June 7, 1996,
appearing in this Annual Report on Form 10-K of Shorewood Packaging Corporation
for the 52 weeks ended April 27, 1996.
DELOITTE & TOUCHE LLP
/s/ DELOITTE & TOUCHE LLP
New York, New York
July 22, 1996
Page 43 of 43
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-27-1996
<PERIOD-START> APR-30-1995
<PERIOD-END> APR-27-1996
<CASH> 4,479
<SECURITIES> 0
<RECEIVABLES> 44,306
<ALLOWANCES> 836
<INVENTORY> 41,397
<CURRENT-ASSETS> 96,229
<PP&E> 223,158
<DEPRECIATION> 70,079
<TOTAL-ASSETS> 276,225
<CURRENT-LIABILITIES> 65,440
<BONDS> 122,588
0
0
<COMMON> 219
<OTHER-SE> 71,217
<TOTAL-LIABILITY-AND-EQUITY> 276,225
<SALES> 394,374
<TOTAL-REVENUES> 394,374
<CGS> 311,851
<TOTAL-COSTS> 311,851
<OTHER-EXPENSES> 40,492
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,293
<INCOME-PRETAX> 34,411
<INCOME-TAX> 13,042
<INCOME-CONTINUING> 21,369
<DISCONTINUED> 0
<EXTRAORDINARY> 1,365
<CHANGES> 0
<NET-INCOME> 20,004
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.03
</TABLE>
