<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 29, 2000
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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)
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 |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
MARCH 1, 2000 27,359,000
Date Number of Shares
Page 1 of 22
<PAGE> 2
SHOREWOOD PACKAGING CORPORATION
AND SUBSIDIARIES
INDEX PAGE
Part I: Financial Statements
Consolidated Balance Sheets
January 29, 2000 (Unaudited) and
May 1, 1999 (Audited) 3
Consolidated Condensed Statements of Earnings
13 weeks ended January 29, 2000 (Unaudited) and
13 weeks ended January 30, 1999 (Unaudited) 4
Consolidated Condensed Statements of Earnings
39 weeks ended January 29, 2000 (Unaudited) and
39 weeks ended January 30, 1999 (Unaudited) 5
Consolidated Condensed Statements of Cash Flows
39 weeks ended January 29, 2000 (Unaudited) and
39 weeks ended January 30, 1999 (Unaudited) 6
Notes to Consolidated Condensed Financial Statements 7 - 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
Part II: Other Information 16
Certain statements under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-Q,
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are typically
identified by their inclusion of phrases such as "the Company anticipates," "the
Company believes" and other phrases of similar meaning. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others: general economic and business conditions; competition; political
changes in international markets; raw material and other operating costs; costs
of capital equipment; changes in foreign currency exchange rates; changes in
business strategy or expansion plans; the results of continuing environmental
compliance testing and monitoring; quality of management; availability, terms,
and development of capital; fluctuating interest rates; and other factors
referenced in this Form 10-Q.
Page 2 of 22
<PAGE> 3
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 29, MAY 1,
2000 1999
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,843 $ 11,755
Accounts receivable, net 62,671 51,295
Inventories 51,623 52,654
Income taxes receivable 238 --
Prepaid expenses and other current assets 15,021 8,212
--------- ---------
Total Current Assets 133,396 123,916
Property, Plant and Equipment, net 253,546 243,448
Excess of Cost Over the Fair Value of Net Assets Acquired, net 121,344 123,954
Other Assets 37,896 24,145
--------- ---------
$ 546,182 $ 515,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 41,477 $ 44,130
Accrued expenses 30,471 32,064
Income taxes payable -- 4,215
Current maturities of long-term debt 20,000 20,000
--------- ---------
Total Current Liabilities 91,948 100,409
Long-Term Debt 253,800 227,712
Other Long-Term Liabilities 948 1,032
Minority Interest 14,540 14,981
Deferred Income Taxes 25,783 24,857
--------- ---------
Total Liabilities 387,019 368,991
--------- ---------
Commitments and Contingencies
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; 60,000,000 shares authorized;
35,845,395 issued and 27,374,971 outstanding in January and
35,544,464 issued and 27,457,269 outstanding in May 359 355
Additional paid-in capital 73,077 74,763
Retained earnings 172,376 153,003
Accumulated other comprehensive income (4,179) (4,997)
Treasury stock (8,470,424 and 8,087,195 shares at
cost in January and May) (82,470) (76,652)
--------- ---------
Total Stockholders' Equity 159,163 146,472
--------- ---------
$ 546,182 $ 515,463
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 3 of 22
<PAGE> 4
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
13 WEEKS 13 WEEKS
ENDED ENDED
JANUARY 29, JANUARY 30,
2000 1999
<S> <C> <C>
Net Sales $ 132,595 $ 141,397
--------- ---------
Costs and Expenses:
Cost of Sales 102,621 107,039
Selling, General and Administrative 21,816 18,586
Amortization of Excess of Cost Over the Fair Value of Net
Assets Acquired 877 797
--------- ---------
Earnings from Operations 7,281 14,975
Other Income (Expense), net (272) (277)
Expenses Incurred in Responding to an Unsolicited Acquisition
Proposal for the Company (4,766) --
Interest Expense (4,180) (4,166)
--------- ---------
Earnings (Loss) Before Provision for Income Taxes,
And Minority Interest (1,937) 10,532
Provision (Benefit) for Income Taxes (1,130) 4,108
--------- ---------
Earnings (Loss) Before Minority Interest (807) 6,424
Minority Interest 882 --
--------- ---------
Net Earnings $ 75 $ 6,424
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Net Earnings Per Common Share $ -- $ .24
========= =========
DILUTED
Net Earnings Per Common Share $ -- $ .23
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 27,024 26,995
========= =========
DILUTED 27,689 27,872
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 22
<PAGE> 5
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS
ENDED ENDED
JANUARY 29, JANUARY 30,
2000 1999
<S> <C> <C>
Net Sales $ 441,614 $ 402,134
--------- ---------
Costs and Expenses:
Cost of Sales 332,875 307,246
Selling, General and Administrative 62,712 46,855
Amortization of Excess of Cost Over the Fair Value of Net
Assets Acquired 2,601 1,431
--------- ---------
Earnings from Operations 43,426 46,602
Other Income (Expense), net 384 582
Expenses Incurred in Responding to an Unsolicited Acquisition
Proposal for the Company (4,766) --
Interest Expense (12,800) (9,257)
--------- ---------
Earnings Before Provision for Income Taxes, Minority Interest,
Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle 26,244 37,927
Provision for Income Taxes 9,579 14,793
--------- ---------
Earnings Before Minority Interest, Extraordinary Item and
Cumulative Effect of a Change in Accounting Principle 16,665 23,134
Minority Interest 2,708 --
--------- ---------
Earnings Before Extraordinary Item and
Cumulative Effect of a Change in Accounting Principle 19,373 23,134
Extraordinary Item, net of Income Tax Benefit of $177 -- (277)
Cumulative Effect on Prior Years Related to the Adoption of
SOP 98-5 Reporting on the Cost of Start-Up Activities -- (3,040)
--------- ---------
Net Earnings $ 19,373 $ 19,817
========= =========
EARNINGS PER SHARE INFORMATION:
BASIC
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .71 $ .87
Extraordinary Item -- (0.01)
Cumulative Effect of a Change in Accounting Principle -- (0.12)
--------- ---------
Net Earnings Per Common Share $ .71 $ .74
========= =========
DILUTED
Earnings Before Extraordinary Item and Cumulative Effect of a
Change in Accounting Principle $ .70 $ .85
Extraordinary Item -- (0.01)
Cumulative Effect of a Change in Accounting Principle -- (0.12)
--------- ---------
Net Earnings Per Common Share $ .70 $ .72
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC 27,099 26,647
========= =========
DILUTED 27,818 27,355
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 22
<PAGE> 6
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS
ENDED ENDED
JANUARY 29, JANUARY 30,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net earnings before minority interest $ 16,665 $ 19,817
Adjustments to reconcile earnings to net cash flows
provided from operations:
Non-cash cumulative effect of change in
accounting principle -- 3,040
Non-cash extraordinary item, net of tax -- 277
Depreciation and amortization 21,243 16,682
Deferred income taxes 869 1,977
Changes in operating assets and liabilities:
Accounts receivable (11,170) 5,268
Inventories 1,171 744
Prepaid expenses and other current assets (6,802) 2,483
Other assets (13,984) (2,304)
Accounts payable, accrued expenses and other
long term liabilities (6,557) (3,936)
--------- ---------
Net cash flows provided from operating activities 1,435 44,048
--------- ---------
Cash Flows from Investing Activities:
Capital expenditures (27,548) (32,862)
Business acquisitions, net of cash acquired -- (120,729)
--------- ---------
Net cash flows used in investing activities (27,548) (153,591)
--------- ---------
Cash Flows from Financing Activities:
Net proceeds from revolver borrowings 36,088 114,591
Additions to long-term borrowings -- 100,000
Repayments of long-term borrowings (10,000) (87,728)
Purchase of treasury stock (5,818) (15,933)
Purchase of common stock purchase warrant (4,200) --
Issuance of common stock 2,518 2,004
--------- ---------
Net cash flows provided from financing activities 18,588 112,934
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (387) 110
--------- ---------
(Decrease) Increase in cash and cash equivalents (7,912) 3,501
Cash and cash equivalents at beginning of period 11,755 7,268
--------- ---------
Cash and cash equivalents at end of period $ 3,843 $ 10,769
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid, net of capitalized amounts $ 11,838 $ 6,844
========= =========
Income taxes paid $ 12,116 $ 11,077
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 6 of 22
<PAGE> 7
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of Shorewood Packaging Corporation (the "Company"), the
accompanying unaudited consolidated condensed financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position, the results of operations, and the
changes in cash flows at January 29, 2000 and for all periods presented. The
accompanying consolidated condensed financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
7 to the consolidated condensed financial statements, on February 16, 2000, the
Company entered into an Agreement and Plan of Merger (the "Merger Agreement")
with International Paper Company ("IP"), a New York corporation, and
International Paper 37, Inc. ("Sub"), a Delaware corporation and a wholly owned
subsidiary of IP. The Merger Agreement provides for a cash tender offer by IP
and Sub for all of the issued and outstanding shares of the Company's common
stock, together with the associated preferred stock purchase rights, at a price
of $21.00 per share, net to the seller in cash without interest. Following the
consummation of the tender offer, Sub would be merged with and into the Company
and the Company would continue as a wholly owned subsidiary of IP.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's May 1, 1999 Annual Report to Stockholders on Form 10-K as filed with
the Securities and Exchange Commission.
The results of operations for the 13 week period and 39 week period ended
January 29, 2000 are not necessarily indicative of the results for the full
year.
2. BUSINESS ACQUISITION
In October 1998, the Company purchased substantially all of the assets and
assumed substantially all of the liabilities of Queens Group, Inc. ("Queens")
for a purchase price of $129.5 million consisting of approximately $113.7
million in cash including the assumption of debt, and 1.0 million shares of
Company common stock, plus transaction expenses. Simultaneously with the closing
of the transaction, the Company repaid all outstanding bank debt of Queens,
approximating $19.0 million. Queens was engaged in the manufacture of value
added printed packaging primarily for the home entertainment industry. The
transaction was financed through a new credit facility.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the results of operations of Queens are included in the
consolidated results of operations of the Company since the date of acquisition.
The purchase price of the acquisition has been allocated to the net assets
acquired based upon the related fair values. The excess of cost over the fair
value of net assets acquired approximated $108.2 million and is being amortized
over 40 years.
The following unaudited pro forma information for the thirty-nine week period
ended January 30, 1999 includes the operations of the Company, inclusive of the
operations of Queens, as if the acquisition had occurred at the beginning of the
respective period presented. The pro forma gives effect to the amortization
expense associated with the excess of cost over the fair value of net assets
acquired, adjustments related to the fair market value of the net assets
acquired, shares issued in connection with the transaction, interest expense
related to financing the acquisition, and related income tax effects.
Page 7 of 22
<PAGE> 8
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
39 WEEKS ENDED
JANUARY 30, 1999
Revenues $467,637
========
Earnings from Operations $ 49,999
========
Net Earnings Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle $ 23,327
========
Net Earnings Per Share Before Extraordinary Items and
Cumulative Effect of a Change in Accounting Principle
Basic $ .86
========
Diluted $ .84
========
3. INCOME TAXES
The effective income tax rates for the three and nine month periods ended
January 29, 2000 are 58.3% and 36.5%, respectively and was 39.0% for the
corresponding prior periods. These rates reflect a blend of domestic and foreign
taxes and are adjusted periodically based upon the estimated annual effective
tax rate. Any increase or decrease in the provision for income taxes is
reflected in the period in which the estimate is changed. The effective income
tax rate for the entire fiscal year ended May 1, 1999 was 36.2%.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 29, 2000 MAY 1, 1999
<S> <C> <C>
Raw materials and supplies $20,141 $20,286
Work in process 8,110 8,951
Finished goods 23,372 23,417
-------- --------
$51,623 $52,654
======= =======
</TABLE>
5. COMPREHENSIVE INCOME
The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
39 WEEKS ENDED 39 WEEKS ENDED
JANUARY 29, 2000 JANUARY 30, 1999
<S> <C> <C>
Net earnings $ 19,373 $ 19,817
Other comprehensive earnings (losses):
Change in equity due to foreign currency translation adjustment 818 (3,184)
-------- --------
Comprehensive earnings $ 20,191 $ 16,633
======== ========
</TABLE>
Page 8 of 22
<PAGE> 9
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
6. COMMITMENTS AND CONTINGENCIES
a. New Facility
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. In the fourth quarter of fiscal 1999 the
Company consummated a definitive agreement with Westvaco Corporation whereby it
sold to Westvaco a 45% minority interest in its China Facility.
Included in earnings from operations for the 13 and 39 week periods ended
January 29, 2000 were losses relating to the China Facility of approximately
$1.9 million and $5.7 million, respectively (of which approximately $1.1 million
and $3.0 million, respectively, is included in selling, general and
administrative expenses). Included in earnings from operations for the 13 and 39
week periods ended January 30, 1999 were losses relating to the China Facility
of approximately $1.5 million and $2.5 million, respectively (of which
approximately $1.2 million and $2.2 million, respectively, is included in
selling, general and administrative expenses).
b. Environmental 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 the 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.
c. 1995 Performance Bonus Plan
In July 1995, the Board of Directors approved the 1995 Performance Bonus Plan
(the "Plan"), applicable to its Chairman of the Board (the "Chairman"). Under
the Plan, for each of the five fiscal years of the Company commencing with
fiscal year 1996, the Chairman 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, if any, is tied to the level of the Company's performance, as
measured by the Performance Measure. The maximum Performance Bonus payable in
respect of any award year under the Plan is $2.0 million. In 1998, the Board of
Directors approved and the shareholders ratified the extension of the Plan for
an additional three years.
d. Loans to Executives
In connection with their exercise of stock options, the Company made loans of
approximately $527 thousand to its Chairman and approximately $657 thousand to
its President in the first quarter of fiscal 2000. The principle amounts and
accrued interest at an annual rate of 6.5% on the loans (included as a component
of additional paid-in capital) are due and payable October 2, 2000. The loans
are collateralized by pledges of 44,562 and 55,977 shares, respectively, of
common stock.
During fiscal 2000, the Company advanced to its Chairman approximately $2.6
million. These advances were repaid in December 1999 including interest at an
annual rate of 6.71%.
e. Common Stock Purchase Warrants
In July 1999, the Company purchased a previously issued warrant to purchase
525,000 shares of its common stock for approximately $4.2 million.
Page 9 of 22
<PAGE> 10
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
7. SUBSEQUENT EVENTS
On February 16, 2000, the Company entered into the Merger Agreement with IP and
Sub. The Merger Agreement provides for a cash tender offer by IP and Sub (the
"IP Offer") for all of the issued and outstanding shares of the Company's common
stock, together with the associated preferred stock purchase rights, at a price
of $21.00 per share, net to the seller in cash without interest. The IP Offer is
conditioned upon, among other things, there being validly tendered and not
withdrawn, that number of shares of the Company's common stock which would
constitute at least a majority of the outstanding shares of the Company's common
stock. The Merger Agreement also provides that the IP Offer will be followed by
a merger of Sub with and into the Company (the "Merger"), in which all of the
remaining shares of the Company's common stock would be converted into the right
to receive $21.00 per share, net to the seller in cash without interest.
The IP Offer and the Merger are also conditioned on the expiration of the
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and similar regulatory schemes as well as other customary
conditions.
In connection with the execution of the Merger Agreement, IP, Sub, Shore Family
Partnership, L.P., Marc P. Shore, Paul Shore Estate Marital Trust, Andrew N.
Shore, Paul Shore Marital Trust and Howard M. Liebman (the "Principal
Stockholders") entered into a Stockholders Agreement (the "Stockholders
Agreement"). Pursuant to the Stockholders Agreement, each Principal Stockholder
has agreed, among other things, to tender all of his shares of Company common
stock into the IP Offer and not to withdraw any shares so tendered and to vote
his shares in favor of the Merger.
Page 10 of 22
<PAGE> 11
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales
Net sales for the three and nine month periods ended January 29, 2000 were
$132.6 million and $441.6 million as compared to net sales of $141.4 million and
$402.1 million for the corresponding prior periods, a decrease of 6.2% for the
three month period and an increase of 9.8% for the nine month period ended
January 29, 2000. The revenue decrease for the three month period ended January
29, 2000 as compared to the corresponding prior period is due to softness in the
tobacco industry, a greater than expected slowdown in orders as a result of
customer year 2000 activities, and reduced volume due to the transition of sales
from closed facilities. The revenue growth for the nine month period ended
January 29, 2000 over the corresponding prior period represents the strength of
the home entertainment market (including the effect of the acquisition of the
Queens Group in the second quarter of fiscal 1999) partially offset by lower
sales to the Company's tobacco customers.
The Company believes that future sales growth will be generated through
continued penetration of the home entertainment and cosmetics and general
consumer markets as well as its growth in China.
Cost of Sales
Cost of sales as a percentage of sales for the three and nine month periods
ended January 29, 2000 were 77.4% and 75.4% as compared to 75.7% and 76.4% for
the corresponding prior periods. The increase in cost of sales as a percentage
of sales for the three month period ended January 29, 2000 as compared to the
corresponding prior period is primarily attributable to unfavorable absorption
of fixed overhead costs as a result of lower sales volume. The decrease in cost
of sales as a percentage of sales for the nine month period ended January 29,
2000 over the corresponding prior period is attributable to increased sales from
the acquisition of Queens, whose sales had a favorable margin when compared to
consolidated margins, favorable product mix, and favorable absorption of fixed
overhead costs as a result of higher sales volume. The decrease in cost of sales
as a percentage of sales is also attributable to savings derived from new
equipment installed over the previous fiscal year and purchasing and
manufacturing synergies resulting from the successful integration of the
acquired operations. These decreases were partially offset by losses on sales
from its facility in China.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of sales for the
three and nine month periods ended January 29, 2000 were 16.5% and 14.2% as
compared to 13.1% and 11.7% for the corresponding prior periods.
Excess of Cost Over the Fair Value of Net Assets Acquired
The increase in the amortization of excess of cost over the fair value of net
assets acquired in Fiscal 2000 as compared to fiscal 1999 is directly related to
the acquisition of Queens.
Other Income (Expense), net
Other income (expense), net, for the three and nine month periods ended January
29, 2000 was $(272) thousand and $384 thousand, respectively. The net expense
for the three month period includes net foreign exchange losses of $458
thousand, offset by approximately $186 thousand of investment income.
Page 11 of 22
<PAGE> 12
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The net gain for the nine month period includes net foreign exchange losses of
$346 thousand, approximately $630 thousand of investment income, and
approximately $100 thousand of gains on disposal of fixed assets.
Other income (expense), net, for the three and nine month periods ended January
30, 1999 was $(277) thousand and $582 thousand, respectively. The net expense
for the three month period includes net foreign exchange losses of $421 thousand
and losses on disposal of fixed assets of $200 thousand. These losses were
partially offset by approximately $344 thousand of investment income. The net
gain for the nine month period includes $567 thousand of investment income and
net foreign exchange gains of $427 thousand, offset by losses on disposal of
fixed assets of $412 thousand.
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 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.
Recently, several Asian currencies have experienced weaknesses, which had the
impact of reducing some demand for Company products produced in North America
intended for ultimate use in export markets. The investments in the China
Facility expose the Company to foreign exchange risks related to the Renminbi
("Rmb"). Should the Canadian dollar or Rmb weaken, the Company would experience
a reduction in the net worth of the Company's investments in Canada and China
(through the accumulated other comprehensive income account). In addition, net
operating results (whether losses or profits) would be reduced. Exposure to
foreign exchange transaction gains or losses in China is expected to be minimal
as the Company expects to make purchases and sales in both Rmb and the U.S.
dollar, and settlement periods on both accounts receivable and accounts payable
are expected to be short. In addition, the Rmb exchange value is centrally
controlled by the government of China. Although not anticipated, any sudden
change in the Rmb exchange rate by the Chinese government could impact the
Company's Chinese operations.
Expenses Incurred in Responding to an Unsolicited Acquisition Proposal for the
Company
Expenses incurred in responding to an unsolicited acquisition proposal for the
Company represents the amounts incurred and billed to the Company for legal and
financial advisory costs and other related items through March 1, 2000 in
connection with the Company's response to an unsolicited acquisition proposal
and related consent solicitation by Chesapeake Corporation and Sheffield, Inc.,
a wholly owned subsidiary of Chesapeake. In connection with the pending merger
transaction with IP previously described, the Company will pay total costs
which, in the aggregate, will approximate $20.0 million (including the costs
incurred through March 1, 2000) in connection with the defense against the
unsolicited acquisition proposal.
Interest Expense
Interest expense for the three and nine month periods ended January 29, 2000 was
$4.2 million and $12.8 million as compared to $4.2 million and $9.3 million for
the corresponding prior periods. The increase in interest costs is primarily
attributable to increased borrowings relating to financing the acquisition of
Queens and funding non-cash working capital. Capitalized interest decreased from
$554 thousand to $202 thousand for the three month period and from $1.6 million
to $523 thousand for the nine month period, as a result of the Company's
completion of its facility in China during the third quarter of fiscal 1999. The
Company anticipates that the amount of interest to be capitalized in fiscal 2000
will continue to be below the levels of the prior year.
Page 12 of 22
<PAGE> 13
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
The Company had used interest rate derivatives to manage its exposure to
fluctuating interest rates. These transactions effectively changed a portion of
the Company's interest rate exposure from a floating-rate to a fixed-rate basis.
In March, 2000, the Company liquidated its portfolio of interest rate
derivatives and realized a net gain of approximately $1.2 million in conjunction
therewith.
Income Taxes
The effective income tax rates for the three and nine month periods ended
January 29, 2000 are 58.3% and 36.5%, respectively and was 39.0% for the
corresponding prior periods. These rates reflect a blend of domestic and foreign
taxes and are adjusted periodically based upon the estimated annual effective
tax rate, which for the entire fiscal year ended May 1, 1999 was 36.2%.
The China Facility will enjoy a tax holiday for the first three years of
profitable operations, and thereafter be taxed at lower rates than the Company's
North American operations. Anticipated losses during the early periods of
operation will not result in related tax benefits. Such benefits will be
recognized when realized.
China Facility / Start-Up Costs / Minority Interest
The Company has completed building a state-of-the-art manufacturing facility in
the city of Guangzhou, China (the "China Facility"), which commenced operations
in the third quarter of fiscal 1999. In the fourth quarter of fiscal 1999 the
Company consummated a definitive agreement with Westvaco Corporation whereby it
sold to Westvaco a 45% minority interest in its China Facility.
Included in earnings from operations for the 13 and 39 week periods ended
January 29, 2000 were losses relating to the China Facility of approximately
$1.9 million and $5.7 million, respectively (of which approximately $1.1 million
and $3.0 million, respectively, is included in selling, general and
administrative expenses). Included in earnings from operations for the 13 and 39
week periods ended January 30, 1999 were losses relating to the China Facility
of approximately $1.5 million and $2.5 million, respectively (of which
approximately $1.2 million and $2.2 million, respectively, is included in
selling, general and administrative expenses).
Page 13 of 22
<PAGE> 14
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at January 29, 2000 was $3.8 million as compared to
$11.8 million at May 1, 1999, and working capital was $41.4 million as compared
to $23.5 million as of the same dates respectively. The current ratio at January
29, 2000 was 1.5 to one and was 1.2 to one at May 1, 1999. The Company has a
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 revolving credit facility.
Cash flow from operating activities for the nine months ended January 29, 2000
was $38.8 million before changes in operating assets and liabilities as compared
to $41.8 million for the corresponding prior period. Cash flows from operations
as well as borrowings under the Company's credit facilities were used to support
$27.5 million in capital investments. In addition, the Company purchased
approximately $5.8 million of treasury stock under the Board of Directors
authorized program described below. The Company anticipates that capital
expenditures will approximate $32.0 million for all of fiscal 2000.
In October 1998, in order to facilitate the acquisition of Queens as described
in Note 2 and other global opportunities which may arise over the next several
years, the Company entered into a new credit agreement with its lending banks to
replace its existing credit facility. The new credit facility provides for up to
$325 million of borrowings and consists of a $100 million term loan to be paid
in equal quarterly installments over five years and a $225 million revolving
credit facility maturing at the end of five years. The revolving credit is
available, in its entirety, without any borrowing base limitation. Borrowings
pursuant to the facility will bear interest at the discretion of the Company, at
either the Bank's prime rate or at the LIBOR rate plus 62.5 to 125 basis points
based upon financial ratios as defined in the underlying Agreement. Unused
commitment fees will range from 20 to 30 basis points. At January 29, 2000, the
Company had borrowings under the revolving credit facility of $193.8 million.
The underlying 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. At January 29, 2000, there was approximately $40.8 million of
retained earnings available for the payment of dividends.
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.
YEAR 2000 UPDATE
Through the first month of the year 2000, the Company's operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000 problem. The Company has not experienced any significant issues
worldwide that would affect its ability to manufacture, ship or sell its
products. The Company will continue to monitor the status of its operations and
systems.
Page 14 of 22
<PAGE> 15
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
SUBSEQUENT EVENTS
On February 16, 2000, the Company entered into the Merger Agreement with IP and
Sub. The Merger Agreement provides for a cash tender offer by IP and Sub for all
of the issued and outstanding shares of the Company's common stock, together
with the associated preferred stock purchase rights, at a price of $21.00 per
share, net to the seller in cash without interest. The IP Offer is conditioned
upon, among other things, there being validly tendered and not withdrawn, that
number of shares of the Company's common stock which would constitute at least a
majority of the outstanding shares of the Company's common stock. The Merger
Agreement also provides that the IP Offer will be followed by a merger of Sub
with and into the Company, in which all of the remaining shares of the Company's
common stock would be converted into the right to receive $21.00 per share, net
to the seller in cash without interest.
The IP Offer and the Merger are also conditioned on the expiration of the
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and similar regulatory schemes as well as other customary
conditions.
In connection with the execution of the Merger Agreement, IP, Sub, Shore Family
Partnership, L.P., Marc P. Shore, Paul Shore Estate Marital Trust, Andrew N.
Shore, Paul Shore Marital Trust and Howard M. Liebman entered into a
Stockholders Agreement. Pursuant to the Stockholders Agreement, each Principal
Stockholder has agreed, among other things, to tender all of his shares of the
Company into the IP Offer and not to withdraw any shares so tendered and to vote
his shares in favor of the Merger.
Page 15 of 22
<PAGE> 16
SHOREWOOD PACKAGING CORPORATION AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1 LEGAL PROCEEDINGS
On October 26, 1999, the Company delivered a letter to Chesapeake
Corporation, a Virginia corporation ("Chesapeake"), proposing to
acquire all of the outstanding shares of Chesapeake's common stock for
$40 per share in cash.
On November 10, 1999, Chesapeake rejected the Company's acquisition
proposal and made a counterproposal to acquire all outstanding shares
of the Company's common stock (the "Shares") for $16.50 per Share in
cash.
On November 18, 1999, the Company rejected Chesapeake's proposal to
acquire the Company and reiterated its previous proposal to acquire
Chesapeake. In addition, the Company issued a press release disclosing
that it had made a proposal to acquire Chesapeake and that it had
received a counterproposal from Chesapeake which the Company had
rejected.
On November 30, 1999, Chesapeake filed a Schedule 13D with the SEC
disclosing that, on November 26, 1999, Chesapeake entered into a stock
purchase agreement (the "Purchase Agreement") to purchase 4,106,440
Shares (the "Purchased Shares"), or approximately 14.9% of the
outstanding Shares, from clients of Ariel Capital Management, Inc.
("Ariel") for $17.25 per Share. In the Purchase Agreement, Ariel also
agreed that, if Chesapeake commenced a public tender offer for the
Shares at a price that equaled or exceeded $17.25 per Share, then Ariel
would use its best efforts as investment adviser to exercise its
discretionary authority to cause its clients to (i) tender the
Purchased Shares in such tender offer and (ii) execute proxies or
written consents in the form solicited by Chesapeake or any of its
affiliates in any proxy or written consent solicitation commenced in
connection with such tender offer.
On December 3, 1999, Chesapeake, through Sheffield, Inc., a Delaware
corporation and a wholly owned subsidiary of Chesapeake ("Sheffield"),
commenced a tender offer to acquire all of the outstanding Shares for
$17.25 per Share in cash (the "Chesapeake Offer").
In the Schedule 14D-1 filed by Chesapeake with respect to the
Chesapeake Offer (the "Chesapeake Schedule 14D-1"), Chesapeake
indicated that the purpose of the Chesapeake Offer was to facilitate
the acquisition of a majority of the outstanding Shares as a first step
in the acquisition of the Company. Chesapeake also disclosed in the
Chesapeake Schedule 14D-1 that it was seeking to enter into
negotiations with the Company with respect to a merger with Sheffield
(the "Proposed Chesapeake Merger") which it intended to consummate as
soon as practicable after consummation of the Chesapeake Offer or in
lieu of the Chesapeake Offer. According to the Chesapeake Schedule
14D-1, upon consummation of the Proposed Chesapeake Merger, each then
outstanding Share (other than Shares held (1) by Sheffield or any other
direct or indirect owned subsidiary of Chesapeake, (2) in the Company's
treasury, and (3) by stockholders who properly exercise appraisal
rights under the Delaware General Corporations Law, as amended (the
"DGCL")) would be converted into the right to receive in cash the price
per Share paid by Sheffield pursuant to the Chesapeake Offer.
Chesapeake indicated in the Chesapeake Schedule 14D-1 that it was
willing to enter into negotiations with the Company Board of Directors
(the "Shorewood Board") regarding the possibility of increasing its
offer price after appropriate due diligence and access to the Company's
business plan.
In connection with the Chesapeake Offer, Chesapeake also filed a
preliminary consent solicitation statement (the "Chesapeake Consent
Solicitation Statement") with the SEC to, among other things, remove
the current members of the Shorewood Board and replace them with
Chesapeake's nominees and to repeal each provision of the Company's
bylaws or amendments thereto adopted subsequent to November 22, 1999
(which date was later changed by Chesapeake to January 5, 2000).
In addition, on December 3, 1999, Chesapeake and Sheffield commenced a
lawsuit in the Delaware Court of Chancery (the "Court of Chancery")
against the Company and each of the
Page 16 of 22
<PAGE> 17
members of the Shorewood Board seeking, among other things, an order
(i) declaring that the Shorewood Board breached its fiduciary duties by
adopting certain amendments to the Company's By-laws (the "By-law
Amendments"), which amendments, among other things (A) required the
affirmative vote of holders of two-thirds (66 2/3%) of the outstanding
Shares for the stockholders to amend, add to, alter or repeal the
Company's bylaws or adopt new bylaws for the Company (the "Super
Majority By-law"), (B) revised the procedure by which the Shorewood
Board fixes a record date for a solicitation of written consents from
Shorewood's stockholders (the "Record Date By-law"), (C) eliminated the
ability of 20% of the stockholders to call a meeting of stockholders,
(D) provided that only the Chairman and the President of the Company
can call a meeting of the Shorewood Board, (E) provided that only the
Shorewood Board can fill vacancies on the Shorewood Board between
meetings of stockholders, and (F) provided that directors can be
removed from the Shorewood Board only pursuant to Section 141(k) of the
DGCL, (ii) declaring the Super Majority By-law and the Record Date
By-law void, and enjoining the Shorewood Board from implementing the
Super Majority By-law, the Record Date By-law and the By-law Amendments
as a whole, (iii) declaring that failure to redeem the preferred stock
purchase rights (the "Rights") issued pursuant to the Rights Agreement,
dated as of June 12, 1995 (the "Rights Agreement"), between the Company
and The Bank of New York, a New York banking corporation, as Rights
Agent, or to render the Rights inapplicable to the Chesapeake Offer and
the Proposed Chesapeake Merger, or to approve the Chesapeake Offer and
the Proposed Chesapeake Merger would constitute a breach of the
Shorewood Board's fiduciary duties under Delaware law, (iv)
invalidating the Rights or compelling the Shorewood Board to redeem the
Rights or render the Rights inapplicable to the Chesapeake Offer and
the Proposed Chesapeake Merger, (v) declaring that failure to approve
the Chesapeake Offer and the Proposed Chesapeake Merger for purposes of
Section 203 of the DGCL would constitute a breach of the Shorewood
Board's fiduciary duties under Delaware law, (vi) compelling the
Shorewood Board to approve the Chesapeake Offer and the Proposed
Chesapeake Merger for purposes of Section 203 of the DGCL, (vii)
enjoining the Shorewood Board from taking any other actions designed to
impede or which have the effect of impeding the Chesapeake Offer, the
Chesapeake Consent Solicitation or the Proposed Chesapeake Merger and
declaring that any such actions would constitute a breach of the
Shorewood Board's fiduciary duties under Delaware law, and (viii)
enjoining the Shorewood Board from taking any other actions to impede,
or refuse to recognize the validity of, the Chesapeake Consent
Solicitation Statement. Also on December 3, 1999, Chesapeake and
Sheffield commenced litigation against the Company in the United States
District Court for the District of Delaware seeking, among other
things, a declaratory judgment that Chesapeake and Sheffield have
disclosed all information required by, and are otherwise in full
compliance with, the Exchange Act, and any other federal securities
laws, rules or regulations deemed applicable to the Chesapeake Offer
and the Chesapeake Consent Solicitation Statement.
On December 16, 1999, the Company filed an answer to Chesapeake's
complaint in the Court of Chancery denying all material allegations of
Chesapeake's complaint. The Company also filed a counterclaim seeking,
among other things, an order (i) declaring that Chesapeake is an
"interested stockholder" and "associate" of the Company within the
meaning of Section 203 of the DGCL, (ii) declaring that Chesapeake will
remain an "interested stockholder" and "associate" of the Company
during the entire time period prescribed by Section 203 of the DGCL,
(iii) declaring that the refusal of the Shorewood Board (as currently
constituted or to be constituted in the future within the time period
prescribed by Section 203 of the DGCL) to take any action rendering
Section 203 of the DGCL inapplicable to the Chesapeake Offer and the
Proposed Chesapeake Merger does not constitute a breach of fiduciary
duty, (iv) declaring the Removal Proposals are invalid under Section
141 of the DGCL, and (v) temporarily and permanently enjoining the
plaintiffs, their affiliates and all others acting in concert with
them, from taking any action in furtherance of the Removal Proposals.
On December 16, 1999, the Company filed an answer and counterclaim to
Chesapeake's complaint in the United States District Court for the
District of Delaware seeking, among other things, an order (i)
declaring that the Chesapeake Schedule 14D-1 and Schedule 13D are
materially false and misleading, in violation of Section 14(e) of the
Exchange Act, and (ii) preliminarily and permanently enjoining
Chesapeake and Sheffield from proceeding with the Chesapeake Offer in
violation of Section 14(e) of the Exchange Act.
On January 5, 2000, Chesapeake and Sheffield filed an answer to the
Company's counterclaim in
Page 17 of 22
<PAGE> 18
the Court of Chancery denying all material allegations of the Company's
counterclaim. On January 7, 2000, Chesapeake and Sheffield filed an
answer to the Company's counterclaim in the United States District
Court for the District of Delaware denying all material allegations of
the Company's counterclaim.
On January 5, 2000, the Shorewood Board approved an amendment of the
Super Majority By-law to require the affirmative vote of the holders of
sixty percent (60%) of the outstanding Shares for stockholders to
amend, add to, alter or repeal the Company's bylaws (the "Amended Super
Majority By-law").
On January 11, 13 and 14, 2000, a trial was held in the Court of
Chancery on certain issues, including whether (i) the Shorewood Board
breached its fiduciary duties to the Company's stockholders under
Delaware law by adopting the Amended Super Majority By-law; (ii) the
Amended Super Majority By-law is ultra vires and void; (iii) the
Company, its directors, officers, employees and agents should be
enjoined from relying on, implementing, applying or enforcing the
Amended Super Majority By-law; (iv) Chesapeake is an interested
stockholders under Section 203 of the DGCL and (v) the Removal
Proposals violate Section 141 of the DGCL.
On February 7, 2000, the Court of Chancery issued a memorandum opinion
in the litigation between the Company and Chesapeake. The Court of
Chancery held that the Super Majority By-law, which previously had been
amended to require only the affirmative vote of the holders of sixty
percent (60%) of the outstanding Shares for stockholders to amend, add
to, alter or repeal the Company's bylaws, was an unreasonable and
disproportionate response to the Chesapeake Offer, and entered
injunctive relief against its application. The Court of Chancery also
rejected the Company's claims that Delaware law prohibits its
stockholders from voting to eliminate the Company's classified board
structure and subsequently seating a new board. In addition, the Court
of Chancery ruled that Chesapeake was not the beneficial owner of
certain shares of stock and therefore was not an "interested
stockholder" under Section 203 of the DGCL. Specifically, the Court of
Chancery found as a factual matter that Chesapeake had entered into an
agreement for the purpose of "incenting" the Company's largest
institutional stockholder to vote and tender all of its shares (over
20%), that this agreement created a "substantial economic incentive,"
but that the agreement did not constitute an agreement, arrangement or
understanding for the purpose of acquiring, voting or disposing of
shares under Section 203 of the DGCL because the incentives did not
cause the stockholder to vote or tender "in lockstep" with the bidder
"in almost all likely circumstances." The Company has appealed the
Court of Chancery's ruling to the Delaware Supreme Court.
Information concerning legal and environmental matters is incorporated
by reference from Part I, Footnotes 6 and 7 of Notes to Consolidated
Condensed Financial Statements
Item 2 CHANGES IN SECURITIES
Effective as of February 16, 2000, the Rights Agreement between the
Company and The Bank of New York was amended (the "Amendment") in order
to, among other things, (i) prevent International Paper - 37, Inc.
("Sub"), a Delaware corporation and a wholly owned subsidiary of
International Paper Company ("IP"), a New York corporation, and IP from
becoming or being deemed an Acquiring Person (as defined in the Rights
Agreement); and (ii) prevent a Stock Acquisition Date or a Distribution
Date (each as defined in the Rights Agreement) from occurring, in each
case, as a result of (a) the execution of (x) the Agreement and Plan of
Merger, dated as of February 16, 2000 (the "Merger Agreement"), by and
among IP, Sub and the Company, in connection with the tender offer by
Sub to purchase all outstanding shares of common stock, par value $0.01
per share, of the Company (the "Shares"), including the associated
rights to purchase preferred stock issued pursuant to the Rights
Agreement, at a purchase price of $21.00 per Share (the "IP Offer") and
the merger of Sub with and into the Company as provided for in the
Merger Agreement (the "Merger") or (y) the Stockholders Agreement,
dated as of February 16, 2000 (the "Stockholders Agreement"), by and
among IP, Sub, Shore Family Partnership, L.P., Marc P. Shore, Paul
Shore Estate Marital Trust, Andrew N. Shore, Paul Shore Marital Trust
and Howard M. Liebman (the "Principal Stockholders"), pursuant to which
each Principal Stockholder has agreed, among other things, to tender
all of his Shares into the IP Offer and not to withdraw any Shares so
tendered and to vote his Shares in favor of the Merger, (b) the public
or other announcement of the Merger, (c) the public or other
Page 18 of 22
<PAGE> 19
announcement of the IP Offer, (d) the commencement of the IP Offer, (e)
the consummation of the IP Offer, (f) the consummation of the Merger,
(g) the acquisition of beneficial ownership of Shares by IP or Sub
pursuant to the Merger Agreement or the Stockholders Agreement, or (h)
the consummation of any of the other transactions contemplated by the
Merger Agreement or the Stockholders Agreement.
The Amendment is filed as Exhibit F to the Company's Form 8-A/A which
was filed with the Commission on March 6, 2000 and the foregoing
description of the amendment is qualified in its entirety by reference
to Exhibit F.
Item 3 DEFAULTS UPON SENIOR SECURITIES
None
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5 OTHER INFORMATION
On February 16, 2000, the Company entered into the Merger Agreement
with IP and Sub. The Merger Agreement provides for a cash tender offer
by IP and Sub for all of the issued and outstanding shares of the
Company's common stock, together with the associated preferred stock
purchase rights, at a price of $21.00 per share, net to the seller in
cash without interest. The IP Offer is conditioned upon, among other
things, there being validly tendered and not withdrawn, that number of
shares of the Company's common stock which would constitute at least a
majority of the outstanding shares of the Company's common stock. The
Merger Agreement also provides that the IP Offer will be followed by a
merger of Sub with and into the Company, in which all of the remaining
shares of the Company's common stock would be converted into the right
to receive $21.00 per share, net to the seller in cash without
interest.
The IP Offer and the Merger are also conditioned on the expiration of
the applicable waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and similar regulatory schemes as well as
other customary conditions.
In connection with the execution of the Merger Agreement, IP, Sub and
the Principal Stockholders entered into the Stockholders Agreement,
pursuant to which each Principal Stockholder has agreed, among others,
to tender all of his shares of the company into the IP Offer and not
to withdraw any shares so tendered and to vote his shares in favor of
the Merger.
For further information, refer to the Company's Schedule 14D-9 filed
with the Commission on February 29, 2000.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 -- Agreement and Plan of Merger, dated as of February 16, 2000, by
and among International Paper Company, International Paper-37, Inc. and
Shorewood Packaging Corporation (incorporated by reference to Exhibit 3
to the Registrant's Schedule 14D-9 filed with the Commission on
February 29, 2000).
4.1 -- First Amendment to Rights Agreement, dated as of February 16,
2000, by and between Shorewood Packaging Corporation and The Bank of
New York, as Rights Agent (incorporated by reference to Exhibit F to
the Registrant's Registration
Page 19 of 22
<PAGE> 20
Statement on Form 8A/A filed with the Commission on March 6, 2000).
4.2 -- Amended and Restated By-laws of Shorewood Packaging Corporation
(incorporated by reference to Exhibit 3.2 to the Registrant's Current
Report on Form 8-K filed with the Commission on February 17, 2000).
10.1 -- Stockholders Agreement, dated as of February 16, 2000, by and
among International Paper Company, International Paper-37, Inc., Shore
Family Partnership, L.P., Marc P. Shore, Paul Shore Estate Marital
Trust, Andrew N. Shore, Paul Shore Marital Trust and Howard M. Liebman
(incorporated by reference to Exhibit 2 to the Registrant's Schedule
14D-9 filed with the Commission on February 29, 2000).
10.2 -- Letter Agreement between Marc P. Shore and International Paper
Company dated as of February 16, 2000 and Exhibit A Form of Employment
Agreement (incorporated by reference to Exhibit 17 to the Registrant's
Schedule 14D-9 filed with the Commission on February 29, 2000).
10.3 -- Letter Agreement between Howard M. Liebman and International
Paper Company dated as of February 16, 2000 and Exhibit A Form of
Employment Agreement (incorporated by reference to Exhibit 18 to the
Registrant's Schedule 14D-9 filed with the Commission on February 29,
2000).
10.4 -- Shorewood Packaging Corporation Employee Severance Plan.
(incorporated by reference to Exhibit 17 to the Registrant's Schedule
14D-9 filed with the Commission on December 16, 1999).
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on December 2, 1999 related to the approval of certain
By-law Amendments.
Form 8-K filed on December 16, 1999 related to the approval of certain
By-law Amendments.
Form 8-K filed on January 5, 2000 related to the approval of certain
By-law Amendments.
Form 8-K filed on February 17, 2000 related to the approval of certain
By-law Amendments.
Page 20 of 22
<PAGE> 21
SIGNATURE
Pursuant to the regulations of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHOREWOOD PACKAGING
CORPORATION
(Registrant)
by: /s/ Howard M. Liebman
----------------------
Howard M. Liebman
President and
Chief Financial Officer
Dated: March 17, 2000
Page 21 of 22
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