<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------------
For the fiscal year ended Commission file
February 29, 2000 number 333-05885
PACKAGING RESOURCES INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 36-3321568
(State of Incorporation or organization) (IRS Employer Identification No.)
One Conway Park
100 Field Drive, Suite 300
Lake Forest, Illinois 60045
(847) 295-6100
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
----------------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
----------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of May 26, 2000, 1,000 shares of the registrant's common stock, $0.01
par value per share, were outstanding. None of the outstanding shares were held
by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits set forth in Item 14 of Part IV are incorporated by
reference to the registrant's Registration Statement on Form S-1 (Commission
File No. 333-05885) filed on June 13, 1996, Annual Report on Form 10-K
(Commission File No. 333-05885) filed on May 28, 1998, Quarterly Report on Form
10-Q (Commission File No. 333-05885) filed on October 7, 1998, Annual Report on
Form 10-K (Commission File No. 333-05885) filed on May 28, 1999, and Quarterly
Report on Form 10-Q (Commission File No. 333-05885) filed on January 13, 2000.
<PAGE>
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
No.
----
<S> <C> <C>
Item 1. Business................................................................................2
Item 2. Properties..............................................................................8
Item 3. Legal Proceedings.......................................................................8
Item 4. Submission of Matters to a Vote of Security Holders.....................................8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...................9
Item 6. Selected Financial Data.................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................................10
Item 7a. Quantitative and Qualitative Disclosures About Market Risk..............................15
Item 8. Financial Statements and Supplementary Data.............................................16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................................16
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................16
Item 11. Executive Compensation.................................................................18
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................20
Item 13. Certain Relationships and Related Transactions.........................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................24
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of 1995. PRI has
based these forward-looking statements on its current expectations and
projections about future events. These forward-looking statements are subject to
risks and uncertainties, including, among other things:
- - PRI's reliance on key customers and supply agreements
- - Trends and conditions in the rigid plastic packaging and plastic beverage
cup industries, including fluctuations in resin costs
- - PRI's substantial debt and existing defaults thereunder
- - PRI's future capital needs and
- - PRI's ability to compete
PRI undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, actual results
may differ materially from those reflected in any forward-looking statements.
GENERAL
Packaging Resources Incorporated (the "Company" or "PRI") is a leading
developer, manufacturer and marketer of rigid plastic food packaging, serving
primarily as a supplier of customized containers for national branded
consumer products. The Company is the largest domestic manufacturer of shelf
stable, multi-layer (impermeable to air and moisture) containers for
nutritional supplements, frosting containers and reusable/disposable food
storage containers. The Company also is the largest domestic designer and
manufacturer of promotional beverage cups in the United States, marketing
these products primarily to the fast-food and beverage industries. For the
fiscal year ended February 29, 2000, the Company generated net sales of
$146.3 million. Approximately 70% of the Company's net sales in such period
were attributable to rigid plastic food packaging and 30% to promotional
beverage cups.
The Company's food packaging products are sold to over 80 customers,
including manufacturers of national branded food, dairy and pharmaceutical
products such as General Mills, Inc. ("General Mills"), including its Yoplait
U.S.A. division ("Yoplait"), Ross Laboratories ("Ross Labs"), a division of
Abbott Laboratories, Inc. ("Abbott Labs"), The Haagen Dazs Company, Inc.
("Haagen Dazs"), Pillsbury Company ("Pillsbury") and S.C. Johnson & Son, Inc.
("S.C. Johnson"). The Company is a major supplier of promotional beverage
cups to over 250 companies in the fast-food, sports stadium and beverage
industries, including McDonald's, Coca-Cola, Pepsi-Cola Company ("Pepsi"),
Tricon Restaurant Services Group, Inc. ("Tricon"), Aramark and Burger King.
PRI was formed as a Delaware corporation in 1984. In 1993, PRI became a
wholly-owned subsidiary of Packaging Resources Group, Inc. ("Group"), a
Delaware corporation.
2
<PAGE>
PRODUCTS AND CUSTOMERS
The Company's products are divided into two categories: rigid plastic
food packaging and promotional beverage cups.
RIGID PLASTIC FOOD PACKAGING
The Company serves a number of niche markets within the rigid plastic
food packaging industry with products that include refrigerated yogurt
containers, multi-layer containers for nutritional supplements and infant
formula, frosting cans and lids and reusable/disposable food storage
containers. The Company also produces containers and lids for manufacturers
of cream and ricotta cheeses, concentrated soup bases, ice cream, coffee and
snack products.
The Company sells its food packaging products to over 80 customers
throughout the United States, including the following manufacturers of
nationally branded products:
General Mills Ross Labs (a division of Abbott Labs)
Pillsbury Yoplait (a division of General Mills)
S.C. Johnson & Son, Inc. Haagen Dazs (a division of Pillsbury)
The Company supplies substantially all of the four ounce yogurt
containers used by Yoplait. The Company is the sole source supplier of the
multi-layer plastic container used by Ross Labs for its ENSURE-Registered
Trademark- nutritional supplement and SIMILAC-Registered Trademark- infant
formula product lines. The Company is also the sole supplier of plastic
frosting cans and lids for Pillsbury and General Mills. PRI is also the sole
supplier to S.C. Johnson of reusable/disposable food storage containers which
are sold under the ZIPLOC-Registered Trademark- brand name. General Mills
(including Yoplait), Ross Labs, and S.C. Johnson represented approximately
19.4%, 12.5% and 11.5%, respectively, of the Company's total net sales in the
fiscal year ended February 29, 2000.
PROMOTIONAL BEVERAGE CUPS
The Company is the majority supplier to Tricon of a 32 ounce thermoform
CRUISER CUP-Registered Trademark- that has been introduced nationally in the
Taco Bell chain of restaurants. This new disposable plastic cup is available
for soft drinks and replaces all 32 ounce paper cups in the Taco Bell system.
Tricon represented approximately 21.3% of the Company's total net sales in
the fiscal year ended February 29, 2000.
In addition, the Company has a five year agreement with Pepsi for PRI to
be the sole supplier of a new 32 oz. TWIST N' GO-Registered Trademark-
beverage container that is sold as a cup designed specifically to capture the
fountain beverage take-out market. Shipments of this new container commenced
in the summer of 1999.
The Company is also engaged in the design, manufacture and marketing of
a wide assortment of injection molded promotional beverage cups ranging in
size from 12 ounces to 64 ounces. Promotional beverage cups are marketed
directly to fast-food and beverage companies, such as McDonald's, Burger
King, Jack-in-the Box, Coca-Cola, Pepsi and Tricon, as well as to specialty
distributors for resale to fast-food and beverage companies, sports stadiums,
movie theaters and food service companies.
3
<PAGE>
MARKETING AND SALES
The Company directs its sales effort by utilizing its technical
expertise, diverse production capabilities (injection molding and linear melt
phase thermoforming ("thermoforming")), graphics capabilities and marketing
expertise to serve the needs of its new and existing customers. The Company's
comprehensive, multiple-channel sales and marketing approach includes both
the personnel in its technical centers (production/graphic) as well as its
direct sales force. Sales representatives marketing rigid plastic food
packaging solutions focus on companies that supply national branded consumer
products, while representatives selling promotional beverage cups focus on
soft drink manufacturers/distributors, fast food chains and stadium promoters.
A substantial portion of PRI's sales are made pursuant to multi-year
supply agreements. The following table summarizes key aspects of certain
major supply agreements.
<TABLE>
<CAPTION>
CUSTOMER PRODUCT EXPIRATION DATE
<S> <C> <C>
Ross Products Division of Abbott Ensure, Isomil and Similac February, 2001
Laboratories plastic cans
S.C. Johnson & Son, Inc. Ziploc-Registered Trademark- June, 2003
containers and lids
General Mills Operations, Inc. Four-ounce multi-pack cups February, 2003
(Yoplait)
Tricon Restaurant Services Group, 32 oz. polystyrene June, 2002
Inc. (1) CRUISER CUPS-Registered Trademark-
and lids
Pepsi-Cola Company TWIST N' GO-Registered December, 2004 (2)
Trademark- containers
</TABLE>
(1) Tricon Restaurant Services Group, Inc. is made up of the Pizza Hut,
Taco Bell and Kentucky Fried Chicken restaurant chains.
(2) PRI commenced full-scale production under this agreement in August,
1999.
The prices provided for in these supply agreements generally are based on
specified volume levels and are subject to (i) adjustments for increases or
decreases in resin prices and (ii) annual negotiated adjustments relating to
cost elements other than resin price. Certain of these agreements also
contain minimum volume purchase requirements by customers. The products
manufactured under these agreements generally require the use of proprietary
tooling and molds, some of which PRI owns. In certain cases, the tooling and
molds PRI owns are subject to purchase options which may be exercised by the
customer upon termination of the applicable supply agreement. Certain of
these supply agreements prohibit PRI from selling similar containers to the
customer's competitors during the respective terms of such agreements. All of
PRI's supply agreements require it to satisfy certain product quality
standards. While PRI anticipates that it will be able to extend or renew its
existing supply agreements upon their expiration, no assurance can be given
that PRI will be able to do so or that the terms of any such extension or
renewal will be as favorable to PRI.
4
<PAGE>
MANUFACTURING
The Company has production capabilities in injection molding and
thermoforming. Because each of these processes offers different advantages in
achieving certain performance features such as structural strength, rigidity
and graphics retention, the Company is able to be highly responsive to
customer requirements and preferences by offering a broader range of
packaging alternatives than many of its competitors.
Injection molding involves the injection of molten plastic into
multi-cavity male and female molds at extremely high temperatures and the
application of pressure to force the plastic to take the desired form. The
Company operates high speed injection molding machines utilizing modern
multi-cavity hot and cold runner molds. The Company's four 660 ton clamp
capacity injection molding machines are designed specifically to produce
lightweight, thin-walled parts and are among the most technologically
advanced machines of their kind. They are controlled by micro-processors that
provide statistical process control and state-of-the-art diagnostic
capabilities. Recently, the Company also purchased eight new 750 ton
injection molding machines designed specifically to produce the components
for the new TWIST N' GO-Registered Trademark- beverage container for Pepsi.
The Company has the in-house capability to design, test and produce
production molds for its injection molding machines.
Injection molding generally provides more flexibility in part design
than other forming processes. The use of male and female molds allows both
interior and exterior surfaces to incorporate special design features. In
addition, injection molding results in highly uniform parts with surfaces
that can be more easily textured, pigmented and decorated. Further, injection
molding requires relatively little floor space, thus reducing associated
overhead costs.
In the thermoforming process, an extruded sheet formed from plastic
resins is rolled over a multi-cavity female steel mold and heated to its
precise melting point. Parts are then formed and cut with a vacuum mold in a
single operation. As with injection molding, the process concludes with the
molded product being ejected for automated handling and processing.
Thermoforming employs molds with higher cavitations than are presently
feasible in other manufacturing processes and, therefore, is a low-cost means
of manufacturing customized packaging products for high volume markets.
Moreover, thermoforming equipment can be retooled relatively quickly and
inexpensively, making the process well-suited for production runs requiring
fast changeover times. The Company has developed thermoforming technologies
that enable substantially all unused portions of the extruded sheet to be
immediately recycled into the manufacturing process, resulting in reduced
product cost and waste.
When employed in conjunction with co-extrusion, thermoforming permits
the manufacture of shelf stable plastic containers with excellent rigidity
and heat resistance properties. Under this process, materials that combine to
incorporate the precise properties required by the customer are co-extruded
into a multi-layer sheet and then thermoformed into a container. In the
manufacture of shelf stable plastic packaging, the co-extruded sheet contains
co-polymer materials such as vinyl alcohol which effectively prevents gas and
moisture from permeating a container. The Company's thermoforming lines are
used principally in the manufacture of yogurt containers, packaging for
nutritional supplements and infant formula, reusable/disposable food storage
containers, and promotional drink cups. The Company believes that its
thermoforming and co-extrusion abilities are among the most advanced in the
rigid plastic food packaging industry.
The Company has the ability to produce state-of-the-art graphics on its
packaging and promotional cups. The Company uses advanced computer technology
and color processing to create photograph-like images on pre-formed plastic
containers and cups. Also, the Company has the technology and high-speed
equipment to attach labels, including lenticular labels which provide live
action video or animation on a cup, or souvenir cards to plastic cups.
The Company, like its competitors, is subject to rigorous quality control
standards imposed by its customers. The Company has implemented a comprehensive
quality assurance program, which includes computer-aided testing of parts for
size, color, strength and, where appropriate, barrier properties. Using advanced
laser measuring technology as well as state-of-the-art high speed vision
systems, the Company is
5
<PAGE>
able to satisfy and exceed the most demanding customer requirements. Statistical
quality control methods are also used to promote total customer satisfaction.
The Company's manufacturing operations are conducted in four facilities.
The Company's geographic coverage and the proximity of its facilities to major
customers reduce transportation costs and enable the Company to more effectively
serve its customers, many of which maintain "just-in-time" inventory systems.
TECHNICAL CENTERS
The Company's two technical centers feature extensive in-house design,
engineering, tooling, prototype production and processing capabilities utilizing
CAD/CAM technology. In addition to overseeing the ongoing maintenance and
performance of the Company's manufacturing operations, these technical centers
provide key support for the Company's marketing efforts. In this regard, the
Company's in-house design and production engineers work closely with existing
and potential customers in the preliminary stages of product design and
development, in many instances using single cavity thermoforming and injection
molding machines which are dedicated to product research and development to test
prototype molds and packaging parts. Substantially all of the production molds
used by the Company's injection molding and thermoforming operations are
designed and manufactured/assembled at the Company's technical centers in New
Vienna, Ohio and Coleman, Michigan. In the fiscal year ended February 29, 2000,
the Company spent approximately $2.0 million on research and development
activities. Management believes that the Company's in-house design, engineering
and graphics capabilities are among the most extensive and sophisticated in the
industry and significantly reduce the Company's tooling and equipment costs as
well as product development time.
COMPETITION
The Company's business is highly competitive, with the degree of
competition varying by product. Major competitive factors in the Company's
business are product quality and differentiation, graphics design and print
quality, innovation, service and price. As more companies adopt "just-in-time"
inventory systems, delivery lead time has also taken on increased importance.
Since the Company's products are shipped by customers' trucks or common carrier,
the proximity of the manufacturing facility to the customer's plant can
significantly affect the price of products. The locations of the Company's
facilities make it well-positioned to serve national markets. Because the
Company's products are bulky and shipping costs are relatively high, foreign
competition has not been an important factor.
The Company's main competitors in the rigid plastic food packaging business
are Landis Plastics, Inc., PolyTainer Inc. and Fabri-Kal Corp. In the
promotional beverage cup business, the Company's principal competitors are Berry
Plastics, Pescor, Sweetheart Cup Company Inc. and Whirley Industries, Inc.
6
<PAGE>
RAW MATERIALS
The raw materials used by the Company for the manufacture of plastic
containers and beverage cups are primarily resins in pellet form such as
polyethylene, polypropylene and polystyrene. The Company's resin supplies are
purchased under agreements with several suppliers for unspecified quantities.
The price the Company pays for resin is determined at the time of purchase. The
Company believes that its resin volume requirements are among the largest in the
industry, and that its ability to purchase such materials in large quantity
shipments enables it to obtain favorable pricing.
Most of the plastic resins used by the Company are available from a variety
of sources. The Company's current supply agreement with Ross Labs requires that
it purchase one of several of the resins required for the shelf stable,
multi-layer containers that the Company manufactures for Ross Labs exclusively
from Exxon Corporation ("Exxon"). During the fiscal year ended February 29,
2000, this resin accounted for approximately 4.5% of the resins purchased by the
Company. The Company has relied on Exxon as the sole source supplier of this
particular resin since it began manufacturing products for Ross Labs in 1991 and
has no reason to believe that Exxon will not continue to supply the Company with
this resin. However, there can be no assurance that Exxon will be able to
continue to supply the Company with adequate amounts of this resin on a timely
basis in the future to allow the Company to meet its production requirements for
Ross Labs' containers. The unanticipated loss of Exxon as a supplier or a delay
in its shipments could have a material adverse effect on the Company's business,
financial condition and results of operations. PRI maintains a renewable
one-year supply contract with Exxon which is scheduled to expire on December 31,
2000. With the exception of its relationship with Exxon, the Company does not
believe that it is materially dependent upon any single source for any of its
raw materials. The Company anticipates that it will be able to purchase
sufficient quantities of resin for the foreseeable future. However, should any
of its suppliers fail to deliver under their arrangements, the Company would be
forced to purchase raw materials on the open market, and no assurances can be
given that it would be able to make such purchases at prices which would allow
it to remain competitive.
Over 76% of the Company's sales in the fiscal year ended February 29, 2000
were made pursuant to multi-year customer supply agreements that generally allow
the Company to pass through increases in resin prices (and obligate the Company
to pass on resin price decreases) to customers. The risk associated with resin
price fluctuations in beverage cup sales not under long-term contracts is
mitigated in many instances by the relatively short time period between product
order and delivery (approximately 3 to 6 weeks).
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present operations of the Company and the past and present
ownership and operations of real property by the Company are subject to
extensive and changing federal, state and local environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes or otherwise relating to the protection of
the environment.
The Food and Drug Administration regulates the material content of
direct-contact food containers and packages, including certain containers
manufactured by the Company. The Company uses approved resins and pigments in
its direct-contact food products.
The Company, like all companies in the plastics industry, is also subject
to federal, state, local and foreign legislation designed to reduce solid wastes
by requiring, among other things, plastics to be degradable in landfills,
minimum levels of recycled content, various recycling requirements, disposal
fees and limits on the use of plastic products. In addition, various consumer
and special interest groups have lobbied from time to time for the
implementation of additional environmental protection measures.
7
<PAGE>
PATENTS AND TRADEMARKS
The Company owns a number of patents and trademarks. However, the Company
believes that the design, innovation and quality of its products and its
relationships with its customers are substantially more important to the
maintenance and growth of its business than its patents and trademarks.
Accordingly, the Company does not believe that its business is dependent to any
material extent upon any single patent or group of patents.
EMPLOYEES
As of February 29, 2000, the Company had approximately 971 employees, of
which 877 were engaged in production or production support, 49 in research,
development and engineering, 18 in marketing and sales and 27 in corporate
management and administration. None of the Company's employees are covered by a
collective bargaining agreement.
ITEM 2. PROPERTIES.
The Company's operations are conducted through four facilities in four
states within the United States. The Company's principal executive offices are
located in Lake Forest, Illinois and are leased by the Company. The Company's
facilities are designed to provide for efficient manufacturing, material
handling and storage of its products. Management believes that substantially all
of the Company's property and equipment is in good condition and that it has
sufficient capacity to meet its current manufacturing and distribution
requirements.
The following table provides certain information regarding the Company's
operating facilities.
<TABLE>
<CAPTION>
BUILDING
FACILITY OWNERSHIP SQ. FEET FUNCTION LEASE EXPIRATION
-------- --------- -------- -------- ----------------
<S> <C> <C> <C> <C>
Coleman, MI Owned 148,000 Manufacturing/Technical Center -
Mt. Carmel, PA Owned 142,000 Manufacturing -
New Vienna, OH Owned 292,000 Manufacturing/Technical Center -
Phoenix, AZ Leased 178,000 Manufacturing August 31, 2008
</TABLE>
The Company leases a 280,000 square foot building in Kansas City, Missouri
that is used in the distribution of the Company's products. This lease expires
on October 31, 2000. In addition, the Company is a lessee under a lease for a
133,000 square foot manufacturing facility that PRI formerly occupied in Cedar
Grove, New Jersey. PRI has entered into a sub-lease with respect to the Cedar
Grove facility that is scheduled to expire concurrently with the Company's
underlying lease in June 2000.
The owned facilities in Coleman, Michigan, Mt. Carmel, Pennsylvania, and
New Vienna, Ohio are subject to a mortgage, and the leased facilities in Kansas
City, Missouri and Phoenix, Arizona are subject to a leasehold mortgage, in
favor of the trustee under the Indenture governing the Senior Secured Notes (as
defined below) to secure the obligations under such Senior Secured Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation-Liquidity and Capital Resources."
ITEM 3. LEGAL PROCEEDINGS.
Management does not believe that any of the litigation in which the Company
is currently engaged will have a material adverse effect on the Company's
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
All of the outstanding common stock of the Company is held by Group. All of
the outstanding common stock of Group is held by HPH Industries, Ltd. ("HPH"),
which is wholly-owned by Howard P. Hoeper, the Chairman of the Board of
Directors, Chief Executive Officer and President of Group and PRI. As of
February 29, 2000, assuming the exercise of all outstanding warrants to acquire
the common stock of Group ("Warrants"), HPH, Apollo Packaging Partners, L.P., a
Delaware limited partnership and an affiliate of Apollo Advisors, L.P.
("Apollo"), and TCW/Crescent Mezzanine Partners, L.P. ("TCW Partners"), together
with TCW/Crescent Mezzanine Trust ("TCW Trust"), would beneficially own 60%,
29.3% and 10.7% of such stock, respectively. TCW Partners and TCW Trust (and
together with TCW/Crescent Mezzanine Investment Partners, L.P., the "TCW
Entities") are affiliates of Trust Company of the West. The holders of at least
25% of the Warrants (or shares of capital stock of Group obtainable upon
exercise of the Warrants) on up to three separate occasions may require Group,
subject to certain conditions, to effect the registration of such securities
under the Securities Act of 1933, as amended (the "Securities Act"). In addition
to such demand registration rights, such holders also may, subject to certain
limitations, require Group to register such securities if Group registers any of
its equity securities under the Securities Act. See "Certain Relationships and
Related Transactions - Equity Registration Rights Agreement."
The Indenture governing the Senior Secured Notes and the Credit Agreement
(as defined below) restrict the Company's ability to pay dividends in respect of
the Company's common stock based on, among other things, the Company's fixed
charge coverage ratio and consolidated net income. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -Liquidity and
Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data are derived from the financial
statements of the Company which have been audited by KPMG LLP, independent
auditors. The data should be read in conjunction with the financial statements,
related notes and other financial information included herein and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------------------------------------------
Feb. 29 Feb. 28 Feb. 28 Feb. 28 Feb. 29
1996 1997 1998 1999 2000
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 132,852 $ 120,086 $ 121,303 $ 136,558 $ 146,326
Cost of goods sold 110,544 98,942 99,998 111,338 123,285
--------- --------- --------- --------- ---------
Gross profit 22,308 21,144 21,305 25,220 23,041
Selling, general and administrative expenses 6,864 6,983 5,897 6,244 8,005
Amortization of intangibles and other assets 2,434 712 712 712 713
Other expense (a) -- -- 800 -- 6,721
--------- --------- --------- --------- ---------
Operating income 13,010 13,449 13,896 18,264 7,602
Interest expense 10,671 12,711 13,580 13,891 15,703
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item 2,339 738 316 4,373 (8,101)
Income tax expense (benefit) 1,006 491 346 1,880 (3,240)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 1,333 247 (30) 2,493 (4,861)
Extraordinary item, net (b) -- (1,139) -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 1,333 $ (892) $ (30) $ 2,493 $ (4,861)
--------- --------- --------- --------- ---------
Total assets $ 110,639 $ 118,207 $ 121,079 $ 154,816 $ 156,134
========= ========= ========= ========= =========
Long-term debt $ 67,174 $ 110,000 $ 110,000 $ 130,668 $ 141,500
========= ========= ========= ========= =========
OTHER OPERATING DATA:
EBITDA (c) $ 22,731 $ 21,488 $ 22,616 $ 27,028 $ 23,926
Depreciation and amortization (d) 9,721 8,039 7,920 8,764 9,603
Capital expenditures 3,449 7,629 9,130 32,805 30,548
Ratio of earnings to fixed charges (e) 1.21x 1.06x 1.02x 1.30x (f)
</TABLE>
9
<PAGE>
(a) The other expense in the fiscal year ended February 28, 1998 represents the
loss on the sale of the Louisiana, Missouri property and in the fiscal year
ended February 29, 2000 represents the write-off of leasehold improvements
and machinery and equipment no longer used in the business. See note 8 to
the company's financial statements contained herein.
(b) The extraordinary item in the fiscal year ended February 28, 1997
represents the write-off of unamortized financing fees and costs and the
payment of certain premiums in connection with the refinancing that
occurred in May 1996.
(c) EBITDA represents earnings (loss) before interest expense, provision
(benefit) for income taxes, depreciation and amortization (excluding
amortization of deferred financing costs), adjusted to exclude the other
nonrecurring charges and extraordinary items. EBITDA is presented because
such data is used by certain investors to measure a company's ability to
service debt. EBITDA should not be considered as an alternative to cash
flow from operations as determined under generally accepted accounting
principles, and does not necessarily indicate whether cash flow will be
sufficient for cash requirements.
(d) Depreciation and amortization as presented excludes amortization of
deferred financing costs.
(e) For purposes of this computation, earnings are defined as income before
income taxes plus fixed charges. Fixed charges consist of interest
(including amortization of deferred financing costs and debt discount or
premium) and that portion of rental expense that is representative of
interest (deemed to be one-third of operating lease rental expense).
(f) The Company's earnings were inadequate to cover fixed charges for the
fiscal year ended February 29, 2000 by $8.1 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company's fiscal year ends on the last day of February in each year.
All references in this report to fiscal years refer to the fiscal year of the
Company ended in the year indicated. For example, "fiscal 2000" refers to the
fiscal year of the Company ended February 29, 2000.
The Company is a leading developer, manufacturer and marketer of rigid
plastic food packaging, serving primarily as a supplier of customized containers
for national branded consumer products. The Company is the largest domestic
manufacturer of shelf stable, multi-layer (impermeable to air and moisture)
containers for nutritional supplements and infant formula, reusable/disposable
food storage containers and promotional beverage cups. The promotional beverage
cups are marketed primarily to the fast-food and beverage industries. During
fiscal 2000, approximately 70% of the Company's net sales were attributable to
packaging products and the balance related to sales of beverage cups. The
Company expects that over the next year, its net sales will be divided more
evenly between food packaging and promotional beverage cups. This shift away
from packaging reflects, in part, the termination of certain business with
Dannon and Yoplait and the replacement of this business with sales of
promotional beverage cups to customers such as Tricon, Coca-Cola and Pepsi.
10
<PAGE>
The following table sets forth, for the fiscal years indicated, the income
statement of the Company expressed as a percentage of net sales:
<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net sales by product category:
Packaging products...................................................... 87.3% 78.3% 70.3%
Promotional beverage cups............................................... 12.7% 21.7% 29.7%
----- ----- -----
Net sales.................................................................. 100.0 100.0 100.0
Cost of goods sold......................................................... 82.4 81.5 84.3
----- ----- -----
Gross profit............................................................... 17.6 18.5 15.7
Selling, general and administrative expenses............................... 4.9 4.6 5.5
Amortization of intangibles................................................ 0.6 0.5 0.5
Other expense.............................................................. 0.6 - 4.6
----- ----- -----
Operating income........................................................... 11.5 13.4 5.1
Interest expense........................................................... 11.2 10.2 10.7
---- ---- ----
Income (loss) before income taxes ......................................... 0.3 3.2 (5.6)
Income tax expense (benefit) .............................................. 0.3 1.4 (2.2)
----- ----- -----
Net income (loss) ...................................................... - 1.8 (3.4)
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
The following discussion represents the analysis by the Company's
management of the results of operations for fiscal 1998, 1999 and 2000. This
discussion should be read in conjunction with the financial statements of the
Company and the notes thereto included elsewhere herein.
FISCAL 2000 COMPARED TO FISCAL 1999
NET SALES. Net sales increased $9.7 million, or 7.1%, from $136.6 million in
fiscal 1999 to $146.3 million in fiscal 2000. Rigid plastic packaging sales
decreased $4.0 million, or 3.7%, from $106.9 million in fiscal 1999 to $102.9
million in fiscal 2000 primarily due to lower sales to Yoplait and Dannon
that were partially offset by higher sales to S.C. Johnson. Take-out beverage
container sales increased $13.7 million, or 46.1%, from $29.7 million in
fiscal 1999 to $43.4 million in fiscal 2000. This increase was due to higher
volume sales of the Company's 32 oz. polystyrene CRUISER CUP-Registered
Trademark- to Tricon and sales of the new TWIST N'Go-Registered Trademark-
beverage container to Pepsi.
GROSS PROFIT. Gross profit decreased $2.2 million, from $25.2 million in fiscal
1999 to $23.0 million in fiscal 2000. Gross margins decreased from 18.5% in
fiscal 1999 to 15.7% in fiscal 2000. Gross profit decreased primarily due to the
combination of unfavorable product mix from lower sales of higher margin Yoplait
and Dannon products, inefficiencies associated with the start-up of certain new
products, costs related to the transfer of production activities from the
Company's Kansas City facility to other plants, and additional costs related to
equipment leases entered into in fiscal 2000. This decrease was partially offset
by higher net sales in fiscal 2000 versus fiscal 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.8 million, from $6.2 million in fiscal 1999
to $8.0 million in fiscal 2000, and increased as a percentage of net sales from
4.6% to 5.5% due to higher salary and travel expenses.
11
<PAGE>
OTHER EXPENSE. A one-time charge of $6.7 million was recorded during the fourth
quarter of fiscal 2000. This charge represents the write-down of certain items
of equipment that will be disposed of at the Company's Kansas City facility in
connection with the Company's decision to cease manufacturing activities at that
facility. In addition, the Company identified certain other equipment items that
were specifically related to products produced for a customer whose contract
with the Company terminated and, therefore, were also written down.
OPERATING INCOME. Operating income decreased $10.7 million, from $18.3 million,
or 13.4% of net sales, in fiscal 1999 to $7.6 million, or 5.1% of net sales, in
fiscal 2000 due to the reasons noted above.
INTEREST EXPENSE. Interest expense increased $1.8 million, from $13.9 million in
fiscal 1999 to $15.7 million in fiscal 2000, primarily due to higher borrowings
under the Company's Credit Agreement.
INCOME TAXES. Income tax expense was $1.9 million in fiscal 1999. Income tax
benefit amounted to $3.2 million in fiscal 2000. The Company's effective state
and Federal tax rate was 43% and 40% in fiscal 1999 and 2000, respectively.
NET INCOME (LOSS). For the reasons noted above, net income decreased from $2.5
million in fiscal 1999 to a net loss of $4.9 million in fiscal 2000.
FISCAL 1999 COMPARED TO FISCAL 1998
NET SALES. Net sales increased $15.3 million, or 12.6%, from $121.3 million
for fiscal 1998 to $136.6 million for fiscal 1999. Rigid plastic packaging
sales increased $1.0 million, or 1.0%, from $105.9 million for fiscal 1998 to
$106.9 million for fiscal 1999 primarily due to new sales of food storage
containers to S.C. Johnson that were partially offset by lower selling prices
related to declining resin prices. Net sales to Yoplait increased $1.7
million in fiscal 1999 compared to fiscal 1998, to an aggregate of $30.2
million due to higher unit volume. This increase was offset by a decrease in
net sales to Ross Labs of $3.6 million, to an aggregate of $17.4 million, and
a decrease in net sales to Dannon of $2.2 million, to an aggregate of $20.8
million, due to lower unit volumes and lower selling prices related to
declining resin prices. Promotional sales increased $14.3 million, or 92.9%,
from $15.4 million in fiscal 1998 to $29.7 million in fiscal 1999. This
increase was due to higher volume including sales of the Company's new 32
ounce polystyrene CRUISER CUP-Registered Trademark- to Tricon.
GROSS PROFIT. Gross profit increased $3.9 million, from $21.3 million for fiscal
1998 to $25.2 million for fiscal 1999 due to higher sales. Gross margin
increased from 17.6% in fiscal 1998 to 18.5% in fiscal 1999 primarily due to
higher plant utilization resulting from increased sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $5.9 million during fiscal 1998 to $6.2
million for fiscal 1999, but decreased as a percentage of net sales from 4.9% to
4.6% due to the higher level of sales.
OTHER EXPENSE. In fiscal 1998, the Company recorded a $0.8 million loss related
to the sale of the Louisiana, Missouri property.
OPERATING INCOME. Operating income increased $4.4 million, from $13.9 million
for fiscal 1998 to $18.3 million for fiscal 1999, and increased as a percentage
of net sales from 11.5% to 13.4% due to the reasons noted above.
INTEREST EXPENSE. Interest expense increased $0.3 million, from $13.6 million in
fiscal 1998 to $13.9 million in fiscal 1999. The increase was due to borrowings
in fiscal 1999 under the Company's Credit Agreement.
INCOME TAXES. Income taxes increased from $0.3 million for fiscal 1998 to $1.9
million for fiscal 1999 due to higher earnings. The relationship of income tax
expense to income before income taxes was higher in fiscal 1998 due to the
provision for state income taxes.
NET INCOME (LOSS). For the reasons stated above, net loss was $30 in fiscal
1998 compared to net income of $2,493 in fiscal 1999.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise primarily from capital investments, working
capital requirements and interest payments on its indebtedness. The Company has
met these liquidity requirements in past fiscal years primarily with funds
provided by long-term borrowings, borrowings under the Credit Agreement and cash
generated by operating activities.
PRI issued $110.0 million in Senior Secured Notes due 2003 (the "Senior Secured
Notes") in May 1996. In conjunction with this transaction, the Company also
entered into a credit agreement (the "Credit Agreement") that, subject to
certain borrowing conditions and limitations, provided for revolving credit
borrowings of up to $20.0 million. During fiscal 1999, the Credit Agreement was
amended to permit the Company to borrow an additional $10.0 million through
equipment acquisition term loans. In April 1999, the Company further amended the
Credit Agreement to increase the revolving credit capacity to a maximum of $22.5
million, and to reduce the amount of available equipment acquisition term loans
to $7.5 million. During fiscal 2000, the Credit Agreement was amended to
increase the revolving credit facility to a maximum of $25.5 million. In May
2000, the Company amended the Credit Agreement to reduce the revolving credit
facility to a maximum of $24.0 million and to increase the amount of available
equipment acquisition term loans to $9.0 million. As of February 29, 2000, there
was $33.0 million of outstanding borrowings under the Credit Agreement.
Cash provided by operating activities increased to $12.3 million for fiscal 2000
from $5.7 million for fiscal 1999. The increase resulted primarily from deposits
made in fiscal 1999 on equipment which was delivered to PRI in fiscal 2000, and
spending on equipment which was purchased by a third party and leased to PRI in
fiscal 2000. These deposits and spending more than offset the decreased cash
provided by lower net income and advanced payments received from customers for
certain tooling projects.
During fiscal 2000, cash provided by financing activities was $16.0 million
which included $8.5 million borrowed under the revolving credit facility, $3.7
million borrowed through equipment acquisition term loans, and $5.6 million of
proceeds from the sale/leaseback of equipment. During fiscal 2000, a dividend of
$1.8 million was paid to Packaging Resources Group, Inc. for the purpose of
paying interest on its debt.
Instruments governing the Company's indebtedness, including the Credit Agreement
and the Indenture governing the Senior Secured Notes, contain financial and
other covenants that restrict, among other things, the Company's ability to
incur additional indebtedness, incur liens, pay dividends or make certain other
restricted payments, consummate certain asset sales, enter into certain
transactions with affiliates, merge or consolidate with any other person or
sell, assign, transfer, lease, convey or otherwise dispose of substantially all
of the assets of the Company. Such limitations, together with the highly
leveraged nature of the Company, could limit corporate and operating activities,
including the Company's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities.
The Company continued to spend heavily in fiscal 2000 to expand its production
capacity for both promotional and packaging products. Capital expenditures for
fiscal 2000 were $30.5 million compared to $32.8 million in fiscal 1999.
Management believes that these expenditures have positioned the Company to
pursue additional business opportunities with new and existing customers.
However, the failure to obtain certain anticipated new business on a timely
basis has restricted the Company's available liquidity. As a result, the Company
did not make the interest payment of $6.4 million due May 1, 2000 on its 11 5/8%
Senior Secured Notes and does not expect to pay a dividend to its parent,
Packaging Resources Group, Inc., in order to fund the interest payment of $1.8
million due May 31, 2000 on Packaging Resources Group's 13% Senior Notes due
June 30, 2003.
The failure to make the interest payments discussed above will constitute
defaults under both of the Indentures governing such Notes. In addition, the
defaults under the Indentures will trigger certain cross-default provisions with
respect to the Company's Credit Agreement. PRI has entered into discussions with
the holders of the Notes and the lenders under its Credit Agreement to obtain
waivers or amendments to resolve the defaults. However, there can be no
assurance as to whether and when the Company will obtain any such waiver or
amendment . The Company announced on April 20, 2000 that it has retained the
investment banking firm Deutsche Bank, Inc. to explore the potential sale of the
Company. There can be no assurance whatsoever that any transaction with any
third party will take place or, even if one does occur, about the nature and
extent of any terms and conditions of any such potential transaction. The
Company's financial condition raises substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustment to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
13
<PAGE>
SEASONALITY
The Company's business is somewhat seasonal in nature with its fourth fiscal
quarter historically the weakest due to lower consumer demand for refrigerated
yogurt and soft drink products. The Company's working capital requirements
historically have been relatively constant throughout the year but are subject
to periodic fluctuations due to, among other things, large volume orders of
promotional beverage cups that require increased inventories.
INCOME TAX MATTERS
At February 29, 2000, the Company had net operating loss carryforwards ("NOL's")
of approximately $15.2 million which will expire at various dates from 2004
through 2020. Such NOL's are available to reduce future taxable income for
Federal income tax purposes under a tax sharing agreement with HPH. See "Certain
Relationships and Related Transactions - Tax Sharing Agreement."
INFLATION
The principal component of the Company's products is resin. In recent years,
resin prices have fluctuated, in part, due to industry capacity, consumption
levels of resins and changes in the cost of feed stocks. In the event of
significant inflationary pressures, the cost of the Company's raw materials,
including resins, may increase. Under supply agreements with customers that
accounted for more than 76% of the Company's sales in fiscal 2000, the Company
has the ability to pass through resin price increases (as well as the obligation
to credit any resin price decreases). In the case of sales which are not made
pursuant to supply agreements containing such pass-through provisions, the
Company historically has passed on increases in resin prices (as well as
decreases in resin prices) to its customers through price adjustments. Sales
prices for promotional beverage cups are generally determined in advance of a
promotion and, accordingly, the Company bears the risk of resin price increases
while producing such products. Because plastic resin is the principal component
in the Company's products, the Company's financial performance is materially
dependent on its ability to pass resin price increases on to its customers
through contractual arrangements or otherwise. There can be no assurance that a
significant increase in resin prices would not negatively impact the Company.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting For Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and hedging activities. In June 1999, the
FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of SFAS No. 133 - An Amendment of
FASB Statement 133." This statement delays the effective date for this standard
until fiscal years beginning after June 15, 2000. The Company is required to
comply with SFAS No. 133 and SFAS No. 137 in fiscal year 2002. The Company
estimates that the adoption of these standards will not have a material effect
on its financial statements.
14
<PAGE>
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks from changes in interest rates which
may adversely affect its results of operations and financial condition. The
Company seeks to minimize these risks through its regular operating and
financing activities.
The Company engages in neither speculative nor derivative financial or
trading activities and is not exposed to market risks from changes in foreign
currency exchange rates.
The Company has exposure to interest rate risk related to certain
instruments entered into for other than trading purposes. Specifically,
borrowings under the Credit Agreement (both the equipment acquisition term loans
and revolving credit facility) bear interest based on the Lenders' Reference
Rate (as defined in the Credit Agreement) or LIBOR Rate plus an applicable
margin. See Note 7 to the Company's financial statements. Changes in the
Reference Rate or the LIBOR Rate could affect the cost of funds borrowed in the
future. Based on borrowings outstanding under the Credit Agreement as of
February 29, 2000, the Company estimates that a 1% increase in interest rates
would result in an approximate $330,000 increase in annual interest expense.
The Company's Senior Secured Notes due 2003 are at a fixed interest rate of
11 5/8%. As a result, a change in the fixed interest rate market could change
the estimated fair market value of such notes.
The Company is exposed to credit risk on certain assets, primarily accounts
receivable. The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. Concentrations of credit risk
with respect to trade receivables are significant due to the Company's
dependence on a limited number of large customers. The Company believes its
allowance for doubtful accounts is sufficient to cover customer credit risk.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements are included in this report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Set forth below is certain information concerning the individuals who are
directors and executive officers of the Company as of May 26, 2000.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Howard P. Hoeper 60 Chairman of the Board of Directors, Chief
Executive Officer and President
Jerry J. Corirossi 56 Executive Vice President - Finance &
Administration, Chief Financial Officer,
Secretary and Director
Walter C. Riesen 69 Executive Vice President - Research &
Development and Director
Bimal A. Kalvani 37 Vice President - Manufacturing
John D. Hoeper 32 Director
Carol Hoeper 43 Director
</TABLE>
Set forth below is a description of the business experience of each
director and executive officer of the Company.
HOWARD P. HOEPER. Mr. Hoeper has been Chairman of the Board, Chief Executive
Officer and President of Group since its formation in 1993, and has served as
Chairman of the Board and Chief Executive Officer of PRI since 1984. He was also
elected President of PRI in 1989. Mr. Hoeper has been elected to serve as
Chairman of the Board of each of Group and PRI until the next annual meeting of
the stockholders or until his successor is elected and qualified. Mr. Hoeper is
the sole shareholder of HPH, which owns all of the outstanding capital stock of
Group. Mr. Hoeper is married to Carol Hoeper and the father of John D. Hoeper.
JERRY J. CORIROSSI. Mr. Corirossi was promoted to Executive Vice President -
Finance & Administration, Chief Financial Officer on October 1, 1998 and has
been Secretary of the Company since 1989, and has been a Director of Group since
its formation in 1993 and a Director of PRI since February 1990. Prior to then
he had been Vice President - Finance & Administration, Chief Financial Officer
and Secretary of the Company since 1989. Mr. Corirossi shall serve as a director
of such companies until the next annual meeting of stockholders or until his
successor is elected and qualified. Mr. Corirossi is a Certified Public
Accountant and has over twenty-five years of financial managerial experience.
WALTER C. RIESEN. Mr. Riesen was promoted to Executive Vice President - Research
& Development on October 1, 1998 and has been a Director of PRI since March
1999. Prior to then he had been Vice President - Manufacturing (Eastern
Operations) since 1989. Mr. Riesen has more than twenty years of experience in
the rigid plastics packaging industry with a concentration in the injection
molding and pressure forming processes.
BIMAL A. KALVANI. Mr. Kalvani was promoted to Vice President - Manufacturing in
January 2000. Prior to that, he had been Vice President, Regional Manufacturing
since October 1999. Mr. Kalvani joined PRI as the Vice President, Planning and
Analysis in March of 1999 after more than 6 years of technical engineering and
general manufacturing management positions with Tetra Pak, as well as Tenneco
Packaging. Mr. Kalvani has a total of 15 years experience in the plastics
industry.
JOHN D. HOEPER. Mr. Hoeper has been Vice President - Operations, Sales &
Marketing of PRI since August 1998 and has been a Director of PRI since March
1999. From 1995 to August 1998 Mr. Hoeper was Director of Marketing. Prior to
then he had been Marketing Analyst since 1990. John D. Hoeper is the son of
Howard P. Hoeper.
16
<PAGE>
CAROL HOEPER. Ms. Hoeper has been the Vice President, Development of HPH
Industries, Ltd. since July 1996 and has been a Director of PRI since March
1999. Carol Hoeper is married to Howard P. Hoeper.
Effective April 24, 1998, Mr. Antony P. Ressler and Mr. David B. Kaplan
resigned as Directors of PRI. Each of Messrs. Ressler and Kaplan had been
designated by Apollo to serve as a Director of PRI in June 1993 pursuant to the
Stockholders Agreement (as defined below). See "Certain Relationships and
Related Transactions - Stock and Warrant Holders Agreement and Option." Each of
Carol Hoeper and John D. Hoeper were elected to replace Messrs. Ressler and
Kaplan in accordance with the terms of the Stockholders Agreement.
Until April 1998, Messrs. Kaplan and Ressler had served as directors of
Group and PRI pursuant to the Stock and Warrant Holders Agreement dated as of
June 30, 1993 and amended as of September 24, 1996 (the "Stockholders
Agreement"), which provides that two individuals designated by Apollo be elected
as directors of Group and PRI so long as Apollo owns or has the right to acquire
15% or more of Group's voting securities (or one individual in the event Apollo
owns or has the right to acquire between 10% and 14.99% of Group's voting
securities). Apollo has not designated replacements for Messrs. Ressler and
Kaplan to serve as Directors of Group and PRI. In addition, pursuant to the
Stockholders Agreement, certain fundamental corporate actions proposed to be
taken by Group or PRI require the approval of any Apollo designees serving as
directors. See "Certain Relationships and Related Transactions - Stock and
Warrant Holders Agreement and Option." Apollo has given an undertaking to Group
that, if Group objects, no such designee will serve as a director of a direct
competitor of the Company. Mr. Hoeper has agreed with Apollo and the TCW
Entities that he will not compete directly or indirectly with the business
carried on by the Company or any of its subsidiaries until the later of (i) two
years following cessation of his employment with the Company or its subsidiaries
and (ii) the date on which he and the members of his family do not own, directly
and indirectly, at least 50% of Group's capital stock.
17
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table summarizes information concerning annual and long-term
cash and non-cash compensation paid to or accrued for the benefit of the Chief
Executive Officer and each of the three other most highly compensated executive
officers of the Company (collectively, the "named executive officers") for all
services rendered in all capacities to the Company for fiscal 1998, 1999 and
2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OTHER ANNUAL ALL OTHER COMPENSATION
--------------------------- ------ ------ --------- COMPENSATION(2),(3) ----------------------
------------------- (4)
---
<S> <C> <C> <C> <C>
Howard P. Hoeper 2000 $789,000 - $600,000 $5,600
Chairman of the Board, Chief 1999 397,800 100,000 600,000 5,600
Executive Officer and 1998 337,700 379,000 600,000 5,600
President
Jerry J. Corirossi 2000 225,000 - - 5,600
Executive Vice President - 1999 209,300 70,000 - 5,600
Finance & Administration 1998 197,000 50,000 - 5,600
and Chief Financial Officer
Walter C. Riesen 2000 225,000 - - 5,600
Executive Vice President - 1999 209,300 70,000 - 5,600
Research & Development 1998 197,000 50,000 - 5,600
Bimal A. Kalvani (5) 2000 112,750 - - 2,246
Vice President - 1999 - - - -
Manufacturing 1998 - - - -
</TABLE>
- -----------
Notes:
(1) No bonus awards were accrued in fiscal 2000 and/or paid in fiscal 2001
pursuant to PRI's Bonus Plan. See "Bonus Plan".
(2) The Company does not have restricted stock award plans or long-term
incentive plans and has not granted stock appreciation rights.
(3) "Other Annual Compensation" for Mr. Hoeper consists of fees paid by PRI to
HPH pursuant to a management agreement. See "Certain Relationships and Related
Transactions - Management Agreement." None of the other named executive officers
received reportable "Other Annual Compensation" in fiscal 1998, 1999 or 2000.
(4) Consists of contributions made by PRI on behalf of the named executive
officers pursuant to the Pension Plan (as defined below).
(5) Mr. Kalvani was promoted to Vice President - Manufacturing in January 2000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation policies are determined and executive officer
compensation decisions are made by Mr. Hoeper, subject to the right of the
directors designated by Apollo to approve the adoption of any employee stock
option plan, stock bonus plan or any similar plan. Mr. Hoeper is the Chairman of
the Board, Chief Executive Officer and President of the Company and indirectly
owns, through his ownership of HPH, all of the outstanding capital stock of
Group. See "Security Ownership of Certain Beneficial Owners and Management."
18
<PAGE>
BONUS PLAN
The Company maintains a cash bonus plan (the "Bonus Plan") for all of its
executive officers and for certain other key management personnel. The bonus
amount and the extent of participation in the Bonus Plan are discretionary. In
the past, bonus awards to employees have been based on various qualitative and
quantitative indicators of corporate and individual performance. There were no
discretionary bonus awards accrued during fiscal 2000.
PENSION PLAN
On September 30, 1985, the Company established a qualified defined
contribution pension plan (the "Pension Plan") for the purpose of providing
funds to its employees upon their retirement. Participation in the Pension Plan
is open to substantially all of the Company's employees. The Pension Plan
requires the Company to contribute a specified percentage of an employee's total
compensation for each plan year, and such amounts are credited to each
employee's individual account on an annual basis. If any employee retires at age
65, or at such later date as permitted under the Pension Plan, then the entire
amount of his account becomes 100% vested as of that date. The amount in an
employee's account will also be fully vested at the time of his death or total
permanent disability. Distributions under the Pension Plan may be made in one
lump sum payment, in designated installments, in installments based upon an
employee's life expectancy at retirement, or in the form of an annuity, at the
employee's election. If employment is terminated for any reason other than
retirement, death or total and permanent disability, then the employee's account
will be deemed to have been 20% vested for each year of service. The amounts
accrued for the benefit of the named executive officers pursuant to the Pension
Plan during fiscal 2000 are reflected in the Summary Compensation Table above.
401(K) SAVINGS PLAN
PRI has adopted a plan pursuant to Section 401(k) of the Internal Revenue
Code (the "401(k) Plan") for employees that are age 18 or older and have been
employed by PRI for at least three (3) months. Under the 401(k) Plan, each
eligible employee is able to defer a portion of his or her salary each year on a
before-tax basis. The portion deferred is paid by PRI to the trustee under the
401(k) Plan for the account of the participant. The Company does not match
employee contributions or otherwise contribute to the 401(k) Plan on behalf of
employee-participants. All employee-participant contributions are fully vested
upon contribution.
CHANGE OF CONTROL PLAN
The Board of Directors adopted a Change of Control Plan in May 1999.
Approximately 30 officers and managers participate in the plan, including all
the individuals listed in the Summary Compensation Table.
If a change in control (as described below) occurs, the participant is
entitled to benefits from PRI. In general, those benefits include: (i) a lump
sum payment of three (3) or two (2) (depending on the participant's position)
times annual salary and average annual bonus over the previous three years; (ii)
a lump sum payment equal to (a) employer contributions the participant would
have received under the Company pension plan if employment had continued for two
(2) or three (3) (depending on the participant's position) years at current
compensation levels and (b) the difference between the participant's total
account balance under the Company pension plan and the participant's vested
account balance under the Company pension plan; and (iii) continuation of
medical and other benefits for up to two (2) or three (3) (depending on the
participant's position) years. In addition, PRI will compensate the participant
for any excise tax liability as a result of payments under the plan. Each of
the individuals listed in the Summary Compensation Table qualify for benefits
based upon the higher multiple or greater number of years outlined above.
In general, the plan defines a change in control to include (a) the
required sale by shareholders of either PRI or Group of their equity interests
pursuant to Section 3.5(c) of the Stock and Warrant Holders Agreement and (b) a
change in the majority of the Board of Directors of either PRI or Group.
19
<PAGE>
SEVERANCE PLAN
On April 20, 2000, the Company established a Severance Plan to provide
severance pay to certain employees who terminate employment with the Company or
an affiliate of the Company under certain circumstances. Approximately 46
employees participate in the plan, including all the individuals listed in the
Summary Compensation Table.
Certain employees, including Howard P. Hoeper, Jerry J. Corirossi and
Walter Riesen, are eligible to receive a lump sum payment upon a change of
control. Certain other employees, including Bimal A. Kalvani, whose employment
with an employer is terminated within six months of a change of control by
such employer are eligible to receive a lump sum payment under certain
conditions. In no event shall a covered employee who receives, or is eligible
to receive, benefits under the Packaging Resources Change of Control Plan be
eligible to receive severance pay under the severance plan. Severance pay
shall be in addition to accrued but unpaid vacation benefits payable in
connection with the termination of employment. Pursuant to the Severance Plan
Mr. Hoeper, Mr. Corirossi, Mr. Riesen and Mr. Kalvani are eligible to receive
$800,000, $450,000, $450,000 and $132,000, respectively.
In general, a change of control shall be deemed to occur upon the
consummation by the Company of a reorganization, merger or consolidation or a
sale or other disposition of all or substantially all of the assets of the
Company or of a majority of the voting stock of the Company, which has been
approved or recommended by the Board of Directors of the Company.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
PRI's Certificate of Incorporation contains a provision permitted under the
Delaware General Corporation Law (the "DGCL") eliminating (with limited
exceptions) each director's personal liability for monetary damages for breach
of any duty as a director. PRI's Certificate of Incorporation and Bylaws
authorize PRI to indemnify its present and former directors and officers and to
pay or reimburse expenses for such individuals in advance of the final
disposition of a proceeding to the maximum extent permitted from time to time
under the DGCL. The DGCL provides that indemnification of a person who is a
party, or threatened to be made a party, to legal proceedings by reason of the
fact that such a person is or was a director, officer, employee or agent of a
corporation, or is or was serving as a director, officer, employee or agent of a
corporation or other firm at the request of a corporation, against expenses,
judgments, fines and amounts paid in settlement, is mandatory in certain
circumstances and permissive in others, subject to authorization by the
corporation's board of directors.
PRI has entered into indemnification agreements with each of its directors
and executive officers. The indemnification agreements require, among other
things, that PRI indemnify such officers and directors to the fullest extent
permitted by law, and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The indemnification agreements also require
PRI to indemnify and advance all expenses incurred by officers and directors
seeking to enforce their rights thereunder and cover officers and directors
under the Company's directors' and officers' liability insurance. Although the
indemnification agreements offer substantially the same scope of coverage
afforded by provisions in PRI's Certificate of Incorporation and Bylaws, they
provide greater assurance to directors and officers that indemnification will be
available, because, as a contract, it cannot be unilaterally modified by the
Board of Directors or by the stockholders to eliminate the rights it provides.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Group owns all of the outstanding capital stock of the Company. The
following table sets forth certain information, as of February 29, 2000,
regarding beneficial ownership of the capital stock of Group by each stockholder
who is known by the Company to own beneficially more than 5% of the outstanding
capital stock of Group. Except as identified below with respect to Mr. Hoeper,
none of the executive officers or directors of Group beneficially own any shares
of the capital stock of Group.
20
<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Amount Owned Voting Securities Voting Securities
Name and Complete Mail Address (Shares) Owned Owned (1)
------------------------------ ------------ ----------------- -----------------
<S> <C> <C> <C>
HPH Industries, Ltd. (2) 56,250 100% 60.0%
One Conway Park
100 Field Drive
Suite 300
Lake Forest, Illinois 60045
Apollo Packaging Partners, L.P. (3), (4) 27,500 _ 29.3%
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
TCW/Crescent Mezzanine Partners, L.P. (3), (5) 7,613 _ 8.1%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
TCW/Crescent Mezzanine Trust (3), (5) 2,387 _ 2.6%
11100 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
</TABLE>
- -----------
Notes:
(1) On a fully diluted basis, assuming the exercise of all of the Warrants (as
discussed in note 3 below).
(2) Through his ownership of HPH, Mr. Hoeper beneficially owns and exercises
sole investment and voting rights with respect to 56,250 shares of capital stock
of Group representing 100% of Group's outstanding capital stock.
(3) Apollo and the TCW Entities own Warrants to purchase 27,500 and 10,000
shares of Group's capital stock, respectively (or 29.3% and 10.7% of such
capital stock of Group, respectively, assuming full exercise of the Warrants).
The Warrants are exercisable for an exercise price of $213.33 per share of
capital stock of Group. The Warrants expire on June 30, 2003. Apollo and the TCW
Entities also own an option to purchase additional shares of capital stock of
Group under certain circumstances. See "Certain Relationships and Related
Transactions - Stock and Warrant Holders Agreement and Option."
(4) The general partner of Apollo is AIF II, L.P., the general partner of which
is Apollo Advisors, L.P. The general partner of Apollo Advisors, L.P. is Apollo
Capital Management, Inc., the directors and stockholders of which are Messrs.
Leon D. Black and John J. Hannan. See "Directors and Executive Officers of the
Registrant." Messrs. Black and Hannan disclaim any beneficial ownership of the
capital stock of Group.
(5) The general partner of TCW Partners and the managing owner of TCW Trust is
TCW/Crescent Mezzanine, L.L.C. ("TCW/Crescent LLC"). Messrs. Robert D. Beyer and
Jean-Marc Chapus are portfolio managers of TCW/Crescent LLC and exercise voting
and dispositive powers on its behalf. Messrs. Beyer and Chapus disclaim any
beneficial ownership of the capital stock of Group.
21
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT AGREEMENT
Since its inception, PRI has paid certain fees to HPH in exchange for
financial and management consulting services and has reimbursed HPH for expenses
incurred in connection with the performance of such services. HPH owns all of
the outstanding capital stock of Group and is itself wholly-owned by Mr. Hoeper,
the Chairman, Chief Executive Officer and President of Group and PRI. The
aggregate amount of payments received by HPH during fiscal 1998, 1999 and 2000
in respect of such fees and reimbursements were $600,000, $600,000 and $600,000,
respectively. PRI and HPH entered into a management agreement pursuant to which
HPH will receive a fixed payment for financial and management consulting
services in the amount of $600,000 per fiscal year, subject to increase at the
discretion of the Company and to the extent permitted by instruments governing
indebtedness of PRI, including the Indenture governing the Senior Secured Notes,
or decrease to the extent required by the terms of such indebtedness. Because of
the personal nature of the services provided by HPH and Mr. Hoeper, the Company
cannot determine whether it could obtain the same services on more favorable
terms from a third party.
TAX SHARING AGREEMENT
The operations of Group and PRI are included in the Federal income tax
returns filed by HPH. The three companies have entered into a tax sharing
agreement (the "Tax Sharing Agreement") which apportions the consolidated income
tax liability of the affiliated group. Under the Tax Sharing Agreement, the
Federal income tax liability of PRI is calculated on a separate return basis and
the amount so calculated, which in no event may exceed the group's consolidated
tax liability for such year, is paid to HPH which then pays the group's taxes
for such year. None of HPH, Group or PRI is liable for (or is due) any amount to
(or from) the others even though the tax liability of the group may have been
reduced by reason of the inclusion of Group or PRI as a member of the group.
STOCK AND WARRANT HOLDERS AGREEMENT AND OPTION
HPH, Apollo, the TCW Entities, Mr. Hoeper and Group are parties to the
Stockholders Agreement which, among other things, gives Apollo and the TCW
Entities the pre-emptive right to acquire a portion of additional shares of
capital stock of Group issued by Group, a right of first refusal on shares of
capital stock of Group owned by HPH, the right to require Group to purchase
their equity interests if Group has not had a public offering of voting stock
prior to June 30, 1999 (to the extent permitted under the Credit Agreement and
the Indenture governing the Senior Secured Notes) and, subject to certain
exceptions, the right to participate in any sale of capital stock of Group by
HPH. In addition, if at any time after June 30, 1999, the holders of a majority
of the shares of capital stock of Group propose to sell their shares, they may
require the other parties to the Stockholders Agreement to participate in such
sale. The Stockholders Agreement also provides that Mr. Hoeper will not, as long
as HPH owns at least 10% of Group, transfer any shares of capital stock of HPH,
except pursuant to the laws of descent. If any shares of HPH capital stock are
transferred pursuant to laws of descent, Apollo and the TCW Entities will have
the right to require the descendants to purchase their equity interests in Group
at the fair market value thereof. Group has granted Apollo and the TCW Entities
an option to purchase at fair market value that number of shares of capital
stock of Group which, when aggregated with the other shares owned by them or
which they have the right to acquire, equal 51% of the outstanding shares on a
fully diluted basis. The option is exercisable during the period of 180 days
following the date on which Mr. Hoeper and his heirs do not own and have the
right to vote all of the shares of HPH. The exercise of the option is
conditioned upon a simultaneous offer by the holders to purchase at fair market
value all shares of Group owned by HPH.
The Stockholders Agreement also provides, among other things, that Apollo
has the right to designate (i) two members of the Board of Directors of Group
and PRI so long as it owns or has the right to acquire 15% or more of the voting
securities of Group outstanding as of the date of consummation of the
Stockholders Agreement (the "Initial Voting Securities") and (ii) one member of
the Board of Directors of Group and PRI so long as it owns or has the right to
acquire between 10% and 14.99% of the Initial Voting Securities. In addition, a
majority of the Apollo designees serving as members of the Board of Directors of
Group or PRI must approve certain fundamental corporate actions proposed to be
taken by each such company, including (i) the sale of all or substantially all
of its assets, (ii) a merger, consolidation or dissolution, (iii) an acquisition
22
<PAGE>
involving consideration of more than $10.0 million, (iv) certain transactions
with affiliates, (v) an amendment to its Certificate of Incorporation or
By-laws, (vi) the adoption of certain employee benefit plans and (vii) any
material change in its line of business. The Stockholders Agreement terminates
on June 30, 2003.
EQUITY REGISTRATION RIGHTS AGREEMENT
Group, Apollo and the TCW Entities are parties to the Equity Registration
Rights Agreement dated as of June 30, 1993 (the "Equity Registration Rights
Agreement"). Under the Equity Registration Rights Agreement, the holders of at
least 25% of the Warrants (or shares of capital stock of Group obtainable upon
exercise of the Warrants (collectively, the "Registrable Equity Securities")) on
up to three separate occasions may require Group, subject to certain conditions,
to effect the registration of the Registrable Equity Securities under the
Securities Act. In addition to such demand registration rights, such holders
also may, subject to certain limitations, require Group to register their
Registrable Equity Securities if Group registers any of its equity securities
under the Securities Act. Group has agreed to bear all expenses incident to the
registration rights provided under the Equity Registration Rights Agreement,
except that expenses incurred in connection with any second or third demand
registration are to be allocated equally between Group and the selling
securityholders. Group has also agreed to indemnify selling securityholders
against certain liabilities, including liabilities under the Securities Act.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1 Financial Statements
<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED Page
----
<S> <C>
Independent Auditors' Report....................................................................................F-1
Balance Sheets as of February 28, 1999 and February 29, 2000....................................................F-2
Statements of Operations for the years ended February 28, 1998, 1999, and February 29, 2000.....................F-3
Statements of Stockholder's Deficit for the years ended February 28, 1998, 1999, and February 29, 2000..........F-4
Statements of Cash Flows for the years ended February 28, 1998, 1999, and February 29, 2000 ....................F-5
Notes to Financial Statements...................................................................................F-6
(a)2 Financial Statement Schedule
Independent Auditors' Report....................................................................................S-1
Schedule II -- Packaging Resources Incorporated's Valuation and Qualifying Accounts Information.................S-2
</TABLE>
All other Financial Statement Schedules are omitted as they are inapplicable,
immaterial or the required information is included in the financial statements
or notes hereto.
(a)3 Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<S> <C>
3.1 ** Amended and Restated Certificate of Incorporation of PRI
3.2(a)** Amended and Restated By-Laws of PRI
3.2(b)**** Amendment to Amended and Restated By-Laws of PRI
4.1** Indenture dated as of May 17, 1996 between PRI and LaSalle
National Bank, as Trustee, relating to the Senior Secured Notes
(including form of certificate to be delivered in connection with
transfers to institutional accredited investors)
4.2** Registration Rights Agreement dated as of May 17, 1996 between
PRI and BT Securities Corporation and Donaldson, Lufkin &
Jenrette Securities Corporation
4.3** Credit Agreement dated as of May 17, 1996 among PRI, the lenders
Signatory thereto and LaSalle National Bank, as administrative
agent
4.3(a)# Fifth Amendment dated as of August 5, 1998 to the Credit
Agreement dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent.
4.3(b)**** Seventh Amendment dated as of April 27, 1999 to the Credit
Agreement dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.3(c)## Tenth Amendment dated as of October 7, 1999 to the Credit
Amendment dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent
4.3(d) Twelfth Amendment dated as of February 17, 2000 to the Credit
Agreement dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent.
4.3(e) Thirteenth Amendment dated as of March 10, 2000 to the Credit
Agreement dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent.
4.3(f) Fourteenth Amendment dated as of May 10, 2000 to the Credit
Agreement dated as of May 17, 1996 among PRI, the lenders
signatory thereto and LaSalle National Bank, as administrative
agent
10.5** Management Agreement dated as of May 17, 1996 between HPH
Industries, Ltd. and PRI(1)
10.6** Agreement Apportioning the Consolidated Income Tax Liability
of HPH Industries, Ltd. Affiliated Group effective as of May
17, 1996 among HPH, Group and PRI
10.7** The Dannon Company, Inc. 4 oz. Sprinkl'ins Dannon Cup Mold and
Cup Manufacture Agreement between The Dannon Company, Inc. and
PRI dated July 10, 1992, as amended April 4, 1994 and February
6, 1995*
10.8** The Dannon Company, Inc. 6 oz. Blended Cup Mold and Cup
Manufacture Agreement between The Dannon Company, Inc. and PRI
dated April 18, 1991, as amended July 10, 1992, April 4, 1994 and
June 26, 1995*
10.9** The Dannon Company, Inc. 8 oz. Mold Manufacture and Cup
Production Agreement between The Dannon Company, Inc. and PRI
dated December 9, 1991, as amended October 27, 1992, April 4,
1994 and February 15, 1996*
10.9(a)** Extension Letter dated June 20, 1996 with respect to The Dannon
Company, Inc. 8 oz. Mold Manufacture and Cup Production Agreement
between The Dannon Company, Inc. and PRI*
10.10** The Dannon Company 8 oz. Mold Manufacture and Cup Production
Agreement between The Dannon Company, Inc. and PRI (as successor
to Miner Container of Texas, Inc.) dated January 15, 1992, as
amended November 16, 1992*
10.11*** The Parts Supply Agreement dated January 1, 1998 between General
Mills Operations, "Yoplait", and PRI++
10.11(a)*** The Multi-Pack Supply Agreement dated March 1, 1998 between
General Mills Operations, "Yoplait", and PRI++
10.12**** The Cans Supply Agreement dated as of March 1, 1998 between Ross
Products Division, a Division of Abbott Laboratories, and PRI++
10.13** Form of Indemnification Agreement dated as of May 17, 1996
between PRI and each of its directors and officers
10.14** Description of Annual Bonus Plan (1)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.15**** Packaging Resources Change of Control Plan (1)
10.16**** The Sales and Purchase Agreement dated as of June 1, 1998
between Tricon Restaurant Services Group, Inc. and PRI++
10.16(a) Amendment No. 1 dated as of April 17, 2000, between Unified
Foodservice Purchasing Co-op, LLC ("UFPC") and PRI to that
certain Sales and Purchase Agreement dated as of June 1, 1998
between Tricon Restaurant Services Group, Inc. and PRI+
10.17 Twist N' Go Supply Agreement dated September 9, 1999 between
Pepsi-Cola Company, a division of PepsiCo, Inc., and PRI+
10.18 Packaging Resources Incorporated Severance Plan +(1)
12.1 Statement re Computation of Ratios
27.1 Financial Data Schedule
</TABLE>
- ----------------
+ The Registrant is filing contemporaneously herewith a request that certain
portions of this agreement be given confidential treatment pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended; an unredacted
copy is being filed with the Securities and Exchange Commission.
++ The Registrant has omitted certain portions of this agreement for which
the Registrant has obtained confidential treatment pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended; unredacted
copies have been filed with the Securities and Exchange Commission.
* The Registrant has omitted certain portions of this agreement for which the
Registrant has obtained confidential treatment pursuant to Rule 406 of the
Securities Act of 1933, as amended; unredacted copies have been filed with
the Securities and Exchange Commission.
** Incorporated by reference to the similarly numbered exhibits to the
Registration Statement on Form S-1 (Commission File No. 333-05885) filed on
June 13, 1996.
*** Incorporated by reference to the similarly numbered exhibits to the Annual
Report on Form 10-K (Commission File No. 333-05885) filed on May 28, 1998.
**** Incorporated by reference to the similarly numbered exhibits to the Annual
Report on Form 10-K (Commission File No. 333-05885) filed on May 28, 1999.
# Incorporated by reference to the similarly numbered exhibit to the
Quarterly Report on Form 10-Q (Commission File No. 333-05885) filed on
October 7, 1998.
## Incorporated by reference to the similarly numbered exhibit to the
Quarterly Report on Form 10-Q (Commission File No. 333-05885) filed on
January 13, 2000.
(1) A management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
A report on Form 8-K, dated April 20, 2000, was filed by PRI
which reported under Items 5 and 7 financial results for the
fiscal year ended February 29, 2000 and the retention of
investment banking firm Deutsche Bank Securities, Inc.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
and Stockholder of
Packaging Resources Incorporated:
We have audited the accompanying balance sheets of Packaging Resources
Incorporated as of February 28, 1999 and February 29, 2000, and the related
statements of operations, stockholder's deficit, and cash flows for the years
ended February 28, 1998 and 1999 and February 29, 2000. These financial
statements are the responsibility of the management of Packaging Resources
Incorporated. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Packaging Resources
Incorporated as of February 28, 1999 and February 29, 2000, and the results of
its operations and its cash flows for the years ended February 28, 1998 and 1999
and February 29, 2000, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that Packaging
Resources Incorporated will continue as a going concern. As discussed in note 14
to the financial statements, the Company's continued high level of capital
spending in fiscal 2000 coupled with the failure to obtain certain anticipated
new business on a timely basis has restricted its available liquidity. As a
result, the Company did not make the interest payment due May 1, 2000 on its 11
5/8% Senior Notes and does not expect to pay a dividend to its parent, Packaging
Resources Group, Inc., in order to fund the interest payment due May 31, 2000 on
Packaging Resources Group, Inc.'s 13% Senior Notes. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 14. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG LLP
March 20, 2000, except for notes 7 and 14, as to which
the date is May 25, 2000
Chicago, Illinois
F-1
<PAGE>
PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS
FEBRUARY 28, 1999 AND FEBRUARY 29, 2000
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ASSETS 1999 2000
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents......................................... $ 1,672 $ 304
Accounts receivable, net of allowance for doubtful accounts of $135
in 1999 and 2000, respectively ................................. 13,915 15,541
Inventories ....................................................... 24,922 30,353
Other current assets .............................................. 431 1,210
Deferred income taxes ............................................. 776 868
--------- ---------
Total current assets ................................................. 41,716 48,276
Property, plant, and equipment, net .................................. 75,988 86,946
Intangibles, net ..................................................... 19,081 18,368
Other assets ......................................................... 18,031 2,544
--------- ---------
$ 154,816 $ 156,134
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current maturities of long-term debt .............................. $ 126 $ 1,500
Accounts payable .................................................. 12,114 15,121
Accrued expenses .................................................. 10,195 9,491
Deferred revenue .................................................. 4,454 1,173
--------- ---------
Total current liabilities ............................................ 26,889 27,285
Long-term debt ....................................................... 130,668 141,500
Deferred income taxes ................................................ 9,184 5,942
--------- ---------
Total liabilities .................................................... 166,741 174,727
--------- ---------
Stockholder's deficit:
Common stock, $.01 par value; 1,000 shares authorized,
issued, and outstanding in 1999 and 2000 ......................... -- --
Additional paid-in capital ........................................ -- --
Accumulated deficit ............................................... (11,925) (18,593)
--------- ---------
Total stockholder's deficit .......................................... (11,925) (18,593)
--------- ---------
$ 154,816 $ 156,134
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 28, 1998 AND 1999 AND FEBRUARY 29, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000
-------- --------- ----------
<S> <C> <C> <C>
Net sales .............................................. $ 121,303 $ 136,558 $ 146,326
Cost of goods sold ..................................... 99,998 111,338 123,285
--------- --------- ----------
Gross profit ........................................... 21,305 25,220 23,041
Selling, general, and administrative expenses .......... 5,897 6,244 8,005
Amortization of intangibles and other assets ........... 712 712 713
Other expense (note 8) ................................. 800 -- 6,721
--------- --------- ----------
Operating income ....................................... 13,896 18,264 7,602
Interest expense ....................................... 13,580 13,891 15,703
--------- --------- ----------
Income (loss) before income taxes ...................... 316 4,373 (8,101)
Income tax expense (benefit) ........................... 346 1,880 (3,240)
--------- --------- ----------
Net income (loss) ...................................... $ (30) $ 2,493 $ (4,861)
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF STOCKHOLDER'S DEFICIT
YEARS ENDED FEBRUARY 28, 1998 AND 1999 AND FEBRUARY 29, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
COMMON ADDITIONAL STOCK-
COMMON STOCK PAID-IN ACCUMULATED HOLDER'S
STOCK WARRANTS CAPITAL DEFICIT DEFICIT
<S> <C> <C> <C> <C> <C>
------ -------- --------- ----------- ----------
Balances at February 28, 1997 ........... $ - $ - $ - $(14,388) $(14,388)
Net loss ................................ - - - (30) (30)
------ -------- -------- -------- --------
Balances at February 28, 1998 ........... - - - (14,418) (14,418)
Net income .............................. - - - 2,493 2,493
------ -------- -------- -------- --------
Balances at February 28, 1999 ........... - - - (11,925) (11,925)
Net loss ................................ - - - (4,861) (4,861)
Dividends paid .......................... - - - (1,807) (1,807)
------ -------- -------- -------- --------
Balances at February 29, 2000 ........... $ - $ - $ - $(18,593) $(18,593)
====== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1998 AND 1999 AND FEBRUARY 29, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .............................................. $ (30) $ 2,493 $ (4,861)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization .............................. 8,584 9,428 10,267
Write-down of assets ....................................... - - 6,721
Deferred income taxes ...................................... 162 1,478 (3,334)
(Gain) loss on sale of property, plant, and equipment ...... 800 162 (533)
Change in assets and liabilities:
Accounts receivable ....................................... (2,571) (366) (1,626)
Inventories ............................................... 867 (4,393) (6,622)
Other current assets ...................................... (215) (147) (779)
Other assets .............................................. (1,658) (12,057) 14,078
Accounts payable .......................................... 1,817 5,070 3,007
Accrued expenses .......................................... 1,405 390 (704)
Deferred revenue .......................................... 471 3,610 (3,281)
------- -------- --------
Net cash provided by operating activities ......................... 9,632 5,668 12,333
------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant, and equipment ........... 1,473 86 857
Proceeds from sale of leased equipment ......................... 750 - -
Capital expenditures ........................................... (9,130) (32,805) (30,548)
------- -------- --------
Net cash used in investing activities ............................. (6,907) (32,719) (29,691)
------- -------- --------
Cash flows from financing activities:
Net borrowings under credit agreement .......................... - 17,000 8,500
Net borrowings under equipment acquisition loans ............... - 3,794 3,706
Dividends paid ................................................. - - (1,807)
Payment of promissory notes .................................... (950) - -
Proceeds from sale/leaseback of equipment ...................... - - 5,591
------- -------- --------
Net cash provided by (used in) financing activities ............... (950) 20,794 15,990
------- -------- --------
Net increase (decrease) in cash and cash equivalents .............. 1,775 (6,257) (1,368)
Cash and cash equivalents at beginning of year .................... 6,154 7,929 1,672
------- -------- --------
Cash and cash equivalents at end of year .......................... $ 7,929 $ 1,672 $ 304
======= ======== ========
Supplemental disclosure of cash flow information - cash paid for:
Interest ....................................................... $12,924 $ 13,152 $ 14,989
Income taxes ................................................... $ 251 $ 512 $ 599
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1999 AND FEBRUARY 29, 2000
(DOLLAR AMOUNTS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Packaging Resources Incorporated (PRI or the Company) was organized in 1984
as a wholly owned subsidiary of HPH Industries, Ltd. (HPH). During fiscal 1994
PRI Holdings, Inc. (Holdings) acquired all of the common stock of PRI from HPH.
During fiscal 1995 Holdings changed its name to Packaging Resources Group, Inc.
(Group). Packaging Resources Group, Inc. is a wholly owned subsidiary of HPH.
The primary business of PRI is the manufacture and sale of promotional
beverage cups and plastic packaging for the food, dairy, and pharmaceutical
industries. PRI has manufacturing facilities in Coleman, Michigan; Mt. Carmel,
Pennsylvania; Phoenix, Arizona; and New Vienna, Ohio.
(b) CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of deposits with banks and short-term
investments with original maturities of three months or less.
(c) INVENTORIES
Inventories are stated at the lower of first-in, first-out cost or net
realizable value.
(d) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation on plant
and equipment is calculated on the straight-line method over the following
estimated useful lives of the assets:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures.............................. 5 years
Molds............................................... 3-5 years
Machinery and equipment............................. 13 years
Buildings and improvements.......................... 35 years
Land improvements................................... 35 years
</TABLE>
Leasehold improvements are amortized ratably over the shorter of the lease
term or estimated useful life of the assets.
(e) INTANGIBLES
Intangibles consist of patent costs, amortized over 14 years, and the
excess of the cost over the fair value of net assets purchased, amortized over
40 years. The intangibles are amortized on a straight-line basis over their
respective useful lives. Accumulated amortization was $6,002 and $6,715 at
February 28, 1999 and February 29, 2000, respectively.
At each balance sheet date, PRI evaluates the realizable value of intangibles
on the basis of whether the intangibles are fully recoverable from projected,
undiscounted net cash flows. Based on its most recent analysis, PRI believes
no impairment of the carrying values of intangibles exists.
F-6
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(f) REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the
customer.
(g) OTHER ASSETS
The costs of debt issuance are included in other assets and are amortized
over the term of the related debt on the straight-line method.
(h) INCOME TAXES
PRI is included in the consolidated Federal income tax return of HPH.
Federal income taxes are calculated on a separate company basis and remitted to
HPH.
Deferred income taxes are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect in the years in which the differences are expected to reverse.
Deferred tax assets are recorded when it is more likely than not that such tax
benefits will be realized.
(i) RETIREMENT PLANS
PRI has two defined contribution retirement plans covering substantially
all of its employees. PRI's Money Purchase Retirement Plan is funded entirely by
employer contributions based upon a defined percentage of participating
employees' compensation. PRI also has a 401(k) plan where participants elect to
have a designated percentage of their salary withheld and contributed to the
plan.
(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 certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(k) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSET TO BE DISPOSED OF. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-7
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(2) INVENTORIES
Inventories consist of the following at February 28, 1999 and February 29,
2000:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Finished goods ............................................................. $ 13,216 $ 19,012
Raw materials .............................................................. 5,404 6,072
Supplies and mold materials ................................................ 6,302 5,269
--------- ---------
Total ....................................................................... $ 24,922 $ 30,353
========= =========
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following at February 28,
1999 and February 29, 2000:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Land ....................................................................... $ 309 $ 309
Buildings .................................................................. 12,248 13,949
Machinery, equipment, and fixtures ......................................... 104,319 121,606
Leasehold improvements ..................................................... 1,946 3,609
Construction in-progress ................................................... 15,879 7,768
--------- ---------
134,701 147,241
Less allowance for depreciation and amortization ........................... (58,713) (60,295)
--------- ---------
Total ...................................................................... $ 75,988 $ 86,946
========= =========
</TABLE>
Construction in-progress includes building improvements and machinery and
equipment which have not yet been placed in service, and molds which are in the
process of being manufactured. Depreciation expense for the years ended February
28, 1998, 1999, and February 29, 2000 was $7,208, $8,051, and $8,890,
respectively.
F-8
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(4) OTHER ASSETS
Other assets consist of the following at February 28, 1999 and February 29,
2000:
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Debt issuance cost, net.................................... $ 2,795 $ 2,131
Leased equipment, net...................................... 745 ---
Equipment deposits......................................... 14,491 413
------- -------
$18,031 $ 2,544
======== =======
</TABLE>
The debt issuance costs were incurred in connection with the 11-5/8% Senior
Secured Notes described in note 7. The cost is being amortized over the
remaining life of the notes. Amortization of these costs was $664 for each of
the years ended February 28, 1999 and February 29, 2000. Leased equipment
represents equipment leased and available for lease to PRI's customers.
Equipment deposits represent deposits made on equipment to be delivered to PRI
in the following fiscal year and equipment which will be purchased by a third
party and leased to PRI.
(5) LEASES
PRI has several noncancelable operating leases for substantial portions of
the Company's plant and office facilities and machinery and equipment. Leased
plant and office facilities generally contain renewal options. Rental expense
for operating leases for the years ended February 28, 1998, 1999, and February
29, 2000, aggregated $1,554, $1,672, and $5,203, respectively. Additionally, PRI
has one facility which is being subleased.
Future minimum lease payments and related sublease income under
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) as of February 29, 2000 are:
<TABLE>
<CAPTION>
OPERATING OPERATING
LEASE SUBLEASE
FISCAL YEAR PAYMENTS INCOME
----------- -------- ----------
<S> <C> <C>
2001......................................... $ 5,565 $ (162)
2002......................................... 5,251 -
2003......................................... 4,900 -
2004......................................... 4,488 -
2005......................................... 3,744 -
Thereafter................................... 6,362 -
------- ------
Total minimum lease payments (income)........ $30,310 $ (162)
======= =======
</TABLE>
F-9
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following at February 28, 1999 and February
29, 2000:
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Interest............................................. $ 4,358 $ 4,408
Pension.............................................. 1,161 1,372
Other................................................ 4,676 3,711
------- -------
$10,195 $ 9,491
======= =======
</TABLE>
(7) LONG-TERM DEBT
On May 17, 1996, PRI issued $110,000 of 11-5/8% Senior Secured Notes due
2003. At that time, the Company also entered into a Senior Credit Facility which
consists of a revolving credit facility and a letter of credit facility which
permit borrowing at either LIBOR plus 2.00% or the prime rate plus 0.50% up to a
maximum of $20,000 and $2,000, respectively. The Senior Credit Facility matures
on July 31, 2001. During fiscal 1999, the Senior Credit Facility was amended to
permit the Company to borrow an additional $10,000 through equipment acquisition
term loans. In April 1999, the Company further amended the Senior Credit
Facility to increase the revolving credit facility to a maximum of $22,500, and
to reduce the amount of available equipment acquisition term loans to $7,500.
During fiscal 2000, the Senior Credit Facility was amended to increase the
revolving credit facility to a maximum of $25,500. In May 2000, the Company
amended the Senior Credit Facility to reduce the revolving credit facility to a
maximum of $24,000 and to increase the amount of available equipment acquisition
term loans to $9,000. The Company pays a commitment fee of 0.50% per annum on
the average daily unused amount of the revolving credit facility. The Senior
Secured Notes are secured by certain equipment, fixtures, and general
intangibles, and mortgages on substantially all of the owned and certain of the
leased real property of the Company, and proceeds therefrom. Obligations under
the revolving credit facility are secured by all of PRI's accounts receivable
and raw materials and finished goods inventory, including any proceeds
therefrom. The equipment acquisition term loans are secured by specific eligible
equipment.
F-10
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Long term debt consists of the following at February 28, 1999 and February 29,
2000:
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Senior Secured Notes, interest at 11-5/8%, paid semi-
annually on May 1 and November 1, payable in full in
May of 2003...................................................... $110,000 $110,000
Revolving Credit Facility, interest at LIBOR plus 2%, maturing
on July 31, 2001................................................. 17,000 25,500
Equipment Acquisition Term Loans, interest at LIBOR plus
2.25%, due in 60 monthly installments commencing March 1,
2000............................................................. 3,794 7,500
-------- --------
130,794 143,000
Less current maturities of long-term debt 126 1,500
-------- --------
$130,668 $141,500
======== ========
</TABLE>
As of May 15, 2000, $24,000 was outstanding under the revolving credit
facility and $8,442 was outstanding under equipment acquisition term loans.
PRI's credit agreements and other outstanding debt contain restrictions on
incurring additional debt or liens, making investments, or making payments such
as dividends, stock repurchases, or debt prepayments, and payments to
affiliates.
Aggregate maturities of long-term debt after February 29, 2000 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- -------
<S> <C>
2001.......................................................... $ 1,500
2002.......................................................... 27,000
2003.......................................................... 1,500
2004.......................................................... 111,500
2005.......................................................... 1,500
Thereafter.................................................... 0
--------
$143,000
========
</TABLE>
F-11
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(8) OTHER EXPENSE
During fiscal 2000, the Company decided to cease manufacturing activities
at its Kansas City, Missouri facility. The facility ceased manufacturing
operations in December 1999, at which time the Company identified certain items
of equipment that would be disposed of. In addition, the Company identified
certain other equipment items that were specifically related to products
produced for a customer whose contract with the Company terminated as of
December 31, 1999, and, therefore would also be held for disposal. The carrying
value of these assets was written-down to the Company's estimates of fair value
less costs to sell in accordance with SFAS No. 121. The resulting adjustment of
$6,721 to reduce the book value of these assets was recorded during the fourth
quarter of fiscal 2000.
During fiscal 1998 an $800 loss was incurred related to the sale of the
Louisiana, Missouri property. This property had previously been leased to a
third party.
(9) INCOME TAXES
Income tax expense (benefit) attributable to income (loss) before income
taxes for the years ended February 28, 1998, 1999, and February 29, 2000
consists of:
<TABLE>
<CAPTION>
1998
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal.............................. $ - $ 131 $ 131
State................................ 184 31 215
----- ----- -----
$ 184 $ 162 $ 346
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1999
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal.............................. $ 127 $1,190 $1,317
State................................ 275 288 563
----- ------ ------
$ 402 $1,478 $1,880
===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
2000
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Federal.............................. $ - $(2,907) $(2,907)
State................................ 95 (428) (333)
----- ------- -------
$ 95 $(3,335) $(3,240)
===== ======= =======
</TABLE>
F-12
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to income (loss) before income
taxes as a result of the following:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) ......... $ 107 $ 1,487 $(2,754)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal
income tax benefit ......................... 143 372 (160)
Other, net .................................. 96 21 (326)
------- ------- -------
$ 346 $ 1,880 $(3,240)
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at February 28,
1999 and February 29, 2000 are presented below:
<TABLE>
<CAPTION>
1999 2000
-------- --------
Deferred tax assets:
<S> <C> <C>
Compensated absences ........................... $ 317 $ 420
Net operating loss carryforwards ............... 3,172 6,092
Alternative minimum tax credit carryforwards ... 126 108
Other .......................................... 526 519
-------- --------
Total gross deferred tax assets ...................... 4,141 7,139
-------- --------
Deferred tax liabilities:
Plant and equipment ............................ (10,518) (10,078)
Intangible assets .............................. (2,031) (2,135)
-------- --------
Total gross deferred tax liabilities ................. (12,549) (12,213)
-------- --------
Net deferred liability ............................... $ (8,408) $ (5,074)
======== ========
</TABLE>
PRI has not recorded a valuation allowance related to the deferred tax
assets, as management believes that it is more likely than not that the results
of future operations will generate sufficient taxable income to realize the
deferred tax assets.
At February 29, 2000 PRI has net operating loss carryforwards of
approximately $15,200 which are available to reduce future taxable income for
Federal income tax purposes under a tax sharing agreement with HPH. The
operating loss carryforwards expire at various dates from 2004 through 2020.
PRI also has alternative minimum tax credit carryforwards of approximately
$108 which are available to reduce future Federal income taxes over an
indefinite period under a tax sharing agreement with HPH.
F-13
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(10) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, receivables, accounts payable, and accrued
expenses: The carrying amounts approximate fair value due to the short maturity
of these instruments.
Long-term debt: The carrying amounts approximate fair value as all of the
obligations incur interest at a market rate. In addition, the significant terms
of fixed rate obligations do not differ materially from those currently
available to PRI.
(11) RETIREMENT PLAN
PRI has a defined contribution retirement plan covering substantially all
employees. Contributions are based upon a defined percentage of compensation.
Provisions for the plan's contributions amounted to $630, $757, and $914 for the
years ended February 28, 1998, 1999, and February 29, 2000, respectively.
Provisions of the plan include 20% vesting per year.
(12) RELATED-PARTY TRANSACTIONS
PRI paid management fees to HPH of $600 for each of fiscal years 1998,
1999, and 2000, respectively.
In fiscal year 2000, PRI paid Group a dividend in the amount of $1,807.
This dividend payment was necessary in order for Group to make the interest
payment on its outstanding debt.
(13) BUSINESS AND CREDIT CONCENTRATIONS
PRI operates solely in the United States and in one operating segment - the
manufacture and sale of plastic food and beverage containers.
PRI's business is substantially dependent on a limited number of large
customers. In fiscal years 1998, 1999, and 2000, PRI's ten largest customers
accounted for approximately 83%, 80%, and 86%, respectively, of its net sales.
In fiscal year 2000, PRI's largest customers are Tricon, General Mills
(including Yoplait), Ross Labs, and S.C. Johnson, which represented
approximately 21.3%, 19.4%, 12.5%, and 11.5%, respectively, of PRI's net sales.
Accounts receivable for Tricon, General Mills, Ross Labs, and S.C. Johnson
totaled $10,914 at February 29, 2000. In fiscal year 1999, PRI's largest
customers were General Mills (including Yoplait), Dannon, Ross Labs, and Tricon,
which represented approximately 26.1%, 15.2%, 12.7%, and 11.0%, respectively, of
PRI's net sales. Accounts receivable for General Mills, Dannon, Ross Labs, and
Tricon totaled $7,209 at February 28, 1999.
F-14
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(14) LIQUIDITY
The Company's financial statements for the year ended February 29, 2000
have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course
of business. The Company continued to spend heavily in fiscal 2000 to expand its
production capacity for both promotional and packaging products. Capital
expenditures for fiscal 2000 were $30.5 million compared to $32.8 million in
fiscal 1999. Although management believes that these expenditures have
positioned the Company to pursue additional business opportunities with new and
existing customers, the Company's high level of capital investment along with
the failure to obtain certain anticipated new business on a timely basis has
restricted its available liquidity. As a result, the Company did not make the
interest payment of $6.4 million due May 1, 2000 on its 11 5/8% Senior Secured
Notes due May 1, 2003, and does not expect to pay a dividend to Group in order
to fund the interest payment of $1.8 million due May 31, 2000 on Group's 13%
Senior Notes due June 30, 2003.
The failure to make the interest payments discussed above will constitute
defaults under both of the Indentures governing such Notes. In addition, the
defaults under the Indentures will trigger certain cross-default provisions with
respect to the Company's Credit Agreement. PRI has entered into discussions with
the holders of the Notes and the lenders under its Credit Agreement to obtain
waivers or amendments to resolve the defaults. However, there can be no
assurance as to whether and when the Company will obtain any such waiver or
amendment.
Management recognizes that the Company must generate additional resources
or consider modifications to its existing operating structure in order to enable
the Company to meet its obligations as they mature. To that end, the Company has
announced that it has retained the investment banking firm Deutsche Bank
Securities, Inc. to assist in the sale of the Company. Management expects that
these efforts will result in the introduction of other parties with interests
and resources that are compatible with the Company's objectives. However, there
can be no assurance whatsoever that any transaction with any third party will
take place or, even if one does occur, about the nature and extent of any terms
and conditions of any such potential transaction. Further, there can be no
assurance that the Company will have sufficient resources to make the interest
payments due on its outstanding debt.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Lake Forest, State of Illinois, on May 26, 2000.
PACKAGING RESOURCES INCORPORATED
By: /s/ Howard P. Hoeper
---------------------------------------
Howard P. Hoeper
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
------ ------- -----
<S> <C> <C>
/s/ Howard P. Hoeper Chairman of the Board, Chief Executive May 26, 2000
- ------------------------------------- Officer and President (Principal Executive
Howard P. Hoeper Officer)
/s/ Jerry J. Corirossi Executive Vice President, Finance and May 26, 2000
- ------------------------------------- Administration
Jerry J. Corirossi (Principal Financial Officer and Principal
Accounting Officer)
/s/ Walter C. Riesen Director
- -------------------------------------
Walter C. Riesen May 26, 2000
/s/ John D. Hoeper Director
- -------------------------------------
John D. Hoeper May 26, 2000
/s/ Carol Hoeper Director
- -------------------------------------
Carol Hoeper May 26, 2000
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
Packaging Resources Incorporated:
Under date of March 20, 2000, we reported on the balance sheets of Packaging
Resources Incorporated as of February 28, 1999 and February 29, 2000, and the
related statements of operations, stockholder's deficit, and cash flows for
the years ended February 28, 1998 and 1999 and February 29, 2000, included in
the February 29, 2000 annual report on Form 10-K of Packaging Resources
Incorporated. In connection with our audits of the aforementioned financial
statements, we also audited the related financial statement schedule in the
annual report on Form 10-K. This financial statement schedule is the
responsibility of Packaging Resources Incorporated's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The audit report on the financial statements of Packaging Resources
Incorporated referred to above contains an explanatory paragraph that states
that Packaging Resources Incorporated's continued high level of capital
spending in fiscal 2000 coupled with the failure to obtain certain
anticipated new business on a timely basis has restricted its available
liquidity. As a result, Packaging Resources Incorporated did not make the
interest payment due May 1, 2000 on its 11 5/8% Senior Secured Notes and does
not expect to pay a dividend to its parent, Packaging Resources Group, Inc.
in order to fund the interest payment due May 31, 2000 on Packaging Resources
Group Inc.'s 13% Senior Notes. These matters raise substantial doubt about
Packaging Resources Incorporated's ability to continue as a going concern.
The financial statement schedule included in the annual report on Form 10-K
does not include any adjustments that might result from the outcome of this
uncertainty.
KPMG LLP
Chicago, Illinois
March 20, 2000
S-1
<PAGE>
SCHEDULE II
PACKAGING RESOURCES INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 28, 1998 AND 1999 AND FEBRUARY 29, 2000
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED
BEGINNING OF COSTS AND TO OTHER BALANCE AT
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ----------- ------------ ----------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
1998
Allowance for Doubtful Accounts $135,000 $ -- $ 56,000 $ (56,000) $135,000
1999
Allowance for Doubtful Accounts $135,000 $ -- $ 10,000 $ (10,000) $135,000
2000
Allowance for Doubtful Accounts $135,000 $ -- $ 6,000 $ (6,000) $135,000
</TABLE>
S-2
<PAGE>
TWELFTH AMENDMENT TO CREDIT AGREEMENT
TWELFTH AMENDMENT TO CREDIT AGREEMENT ("Twelfth Amendment"), dated as
of February 17, 2000 to the Credit Agreement, dated as of May 17, 1996, among
Packaging Resources Incorporated, a Delaware corporation (the "Borrower"), the
lender signatories thereto ("Lenders") and LaSalle Bank, National Association, a
national banking association, f/k/a LaSalle National Bank ("LaSalle"), as agent
for such Lenders (LaSalle, in such capacity "Agent").
WHEREAS, the Borrower, the Lenders and the Agent have entered into that
certain Credit Agreement dated as of May 17, 1996 as amended by that certain
First Amendment to Credit Agreement, dated December 12, 1996, by and among the
Borrower, the Lenders and the Agent ("First Amendment"), by that certain Second
Amendment to Credit Agreement dated as of April 24, 1997, by and among the
Borrower, the Lenders and the Agent ("Second Amendment"), by that certain Third
Amendment to Credit Agreement dated August 27, 1997, by and among the Borrower,
the Lenders and the Agent ("Third Amendment"), by that certain Fourth Amendment
to Credit Agreement dated as of April 30, 1998, by and among the Borrower, the
Lenders and the Agent ("Fourth Amendment"), by that certain Fifth Amendment to
Credit Agreement and First Amendment to Security Agreement dated August 5, 1998
by and among the Borrower, the Lenders and the Agent, by that certain Sixth
Amended to Credit Agreement dated as of February 25, 1999 by and among the
Borrower, the Lenders and the Agent, by that certain Seventh Amendment to Credit
Agreement dated April 27, 1999 by and among the Borrower, the Lenders and the
Agent, by that certain Eighth Amendment to Credit Agreement dated May 18, 1999
by and among the Borrower, the Lenders and the Agent, by that certain Ninth
Amendment to Credit Agreement dated August 25, 1999 by and among the Borrower,
the Lenders and the Agent, by that certain Tenth Amendment to Credit Agreement
dated October 7, 1999 by and among the Borrower, the Lenders and the Agent and
by that certain Eleventh Amendment to Credit Agreement dated as of November 15,
1999 by and among, the Borrower, the Lenders and the Agent, (said Credit
Agreement, as amended, is hereinafter referred to as the "Credit Agreement");
WHEREAS, the Borrower, the Lenders and the Agent wish to amend and
modify certain of the provisions of the Credit Agreement pursuant to the terms
hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and contained in the Credit Agreement, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Except as otherwise provided herein, capitalized terms used
herein without definition shall have the meanings set forth in the Credit
Agreement.
1. ADDITIONAL DEFINITION. The following definition of "Two New
Printers" is hereby
<PAGE>
inserted into Section 1.1 of the Credit Agreement:
* * *
"Two New Printers" shall mean the two AEI printers purchased by
the Borrower on or prior to ____________, 2000.
* * *
1. REVOLVING CREDIT FACILITY COMMITMENT AND BORROWING LIMIT. Section
2.2 of the Credit Agreement is deleted and the following is inserted in its
stead:
* * *
"Section 2.2 REVOLVING CREDIT FACILITY COMMITMENT AND BORROWING
LIMIT. (a) The Revolving Loan shall not at any time, when taken
together with the Letter of Credit Usage at such time (after giving
effect to any concurrent reimbursement of a Letter of Credit with the
proceeds of a Revolving Advance pursuant to Section 4A.1(c) hereof)
exceed the least of (i) the remainder of (x) Twenty-Five Million Five
Hundred Thousand Dollars ($25,500,000) MINUS (y) the amount of the
Equipment Advance advanced to the Borrower to finance a portion of the
purchase price for the Two New Printers ("Revolving Credit Facility
Commitment"), (ii) the Borrowing Base as of such time and (iii) the
maximum amount permitted by the Senior Note Documents (the least of
(i), (ii) and (iii) being the "Borrowing Limit").
(b) Subject to the limitations of Sections 2 and 3 hereof, the
Borrower may borrow, repay (without premium or penalty) and reborrow
the Revolving Loan. The portion of the Revolving Loan to be funded by
each Lender shall not exceed in aggregate principal amount at one time
outstanding, and no Lender shall have any obligation to make its pro
rata share of any Revolving Advance which shall result in such Lender's
share of the Revolving Loan at such time plus such Lender's share of
the Letter of Credit Usage at such time being in the aggregate in
excess of, the revolving commitment amount set forth opposite such
Lender's name on Schedule 1.1 to the Seventh Amendment (as such amount
may be reduced from time to time in accordance with the terms hereof,
for each Lender its "Revolving Commitment").
(c) The Revolving Commitment of each Lender shall be reduced upon
each reduction of the Revolving Credit Facility Commitment. The amount
of the reduction for each Lender shall be equal to such Lender's pro
rata share (based on its percentage interest in the Revolving Credit
Facility Commitment) of the
<PAGE>
reduction in the Revolving Credit Facility Commitment."
* * *
1. EQUIPMENT ACQUISITION LOANS. Section 2.3.1 of the Credit Agreement
is hereby deleted and the following is inserted in its stead:
* * *
"Section 2.3.1 EQUIPMENT ACQUISITION LOANS. During the period
between the Fifth Amendment Effective Date and the date which is the
earlier of (i) the Maturity Date and (ii) eighteen months after the
Fifth Amendment Effective Date, each Lender agrees, for so long as
no Default or Event of Default exists, to make such Lender's pro
rata share of equipment acquisition loans (each such loan an
"Equipment Advance" and the outstanding principal balance of all
Equipment Advances from time to time, the "Equipment Loan") to the
Borrower to finance, in part, the purchase by the Borrower of
Eligible Equipment. The aggregate principal amount of the Equipment
Commitments is Seven Million Five Hundred Thousand Dollars
($7,500,000) PLUS the amount of the Equipment Advance advanced to
the Borrower to finance a portion of the purchase price of the Two
New Printers. In no event, however, shall the outstanding principal
balance of the Equipment Loan exceed Ten Million Dollars
($10,000,000). Subject to all of the terms and conditions of this
Agreement, each Lender agrees, for so long as no Default or Event of
Default exists, to make Equipment Advances to the Borrower from time
to time, as requested by the Borrower in accordance with the terms
of Section 2.4 hereof, up to a maximum principal amount at any time
outstanding equal to the product of (A) Seven Million Five Hundred
Thousand Dollars ($7,500,000) PLUS the amount of the Equipment
Advance advanced to the Borrower to finance a portion of the
purchase price of the Two New Printers, multiplied by (B) such
Lender's pro rata share of the Equipment Commitments. In no event
(x) shall any one request by the Borrower for Equipment Advances be
in the amount of less than One Million Dollars ($1,000,000) or, (y)
shall the amount of any one request by Borrower for Equipment
Advances exceed sixty-seven percent (67%), the hard cost (invoice
price less taxes and delivery) of the Eligible Equipment, the
purchase of which is to be financed, in part, with the proceeds of
the applicable Equipment Advance. Prior to the funding of any
Equipment Advance, the Borrower shall provide the Agent with (i)
copies of the invoices or other comparable documentation for the
Eligible Equipment, the purchase of which is to be financed, in
part, with the proceeds of such proposed Equipment Advance together
with such other supporting details as reasonably requested by Agent,
and (ii) properly executed UCC-1 Financing Statements describing, in
sufficient detail to meet the requirements of the Uniform Commercial
Code for perfection of purchase money security interests, such
<PAGE>
Eligible Equipment. All such Equipment Advances shall be secured by
all of the Eligible Equipment, the purchase of which was financed, in
part, by the proceeds of Equipment Advances. The principal amount of
all Equipment Advances shall be due on the Maturity Date or as
otherwise provided in the Equipment Note or as otherwise provided
herein, provided that Borrower may prepay, without penalty or premium,
the outstanding principal balance of any Equipment Advance. The
Equipment Advances shall be evidenced by promissory notes to be
executed and delivered by the Borrower to the Lenders on or prior to
the Fifth Amendment Effective Date, the form of which is attached
hereto and made a part hereof as Exhibit 2.3.1 (the "Equipment
Note(s)"), shall bear interest as specified in Section 2.6 and shall be
repayable in accordance with the terms hereof and of the Equipment
Notes. On the date which is eighteen months after the Fifth Amendment
Effective Date, the outstanding Equipment Advances shall be converted
into term loans. The principal amount of such Equipment Advances so
converted to a term obligation shall be amortized on the basis of
sixty (60) equal monthly payments, commencing on the first day of the
calendar month after the calendar month in which the conversion
occurs. The foregoing notwithstanding, the entire principal balance of
all Equipment Advances shall be due and payable on the Equipment
Maturity Date."
* * *
1. AMENDED AND RESTATED REVOLVING NOTE AND EQUIPMENT ACQUISITION NOTE.
It shall be a condition precedent to the effectiveness of this Twelfth
Amendment that Borrower shall have executed and delivered to LaSalle Bank,
National Association, as the sole Lender, an amended and restated Revolving
Note in the form of Exhibit 2.3 to the Credit Agreement in the aggregate
principal amount of the Revolving Loan Commitment and an amended and restated
Equipment Acquisition Note in the form of Exhibit 2.3.1 to in Credit
Agreement in the aggregate principal amount of the Equipment Commitments.
Upon receipt of such amended and restated Revolving Note and Equipment Note,
LaSalle Bank, National Association shall return the amended and restated
Revolving Note and amended and restated Equipment Acquisition Note previously
delivered by Borrower to LaSalle Bank, National Association marked "amended
and superseded."
1. SCHEDULE 1.1. Schedule 1.1 attached to the Credit Agreement is
hereby deleted and Schedule 1.1 attached to this Seventh Amendment is hereby
inserted in its stead.
1. UNUSED EQUIPMENT ACQUISITION LOAN FACILITY FEE. Section 3.8 of the
Credit Agreement is hereby deleted and the following is inserted in its stead:
"Section 3.8 UNUSED FACILITY FEE. The Borrower shall pay to the
Agent for the PRO RATA account of the Lenders a commitment fee, which
shall accrue from and after the Closing Date until the date of the
expiration, termination or cancellation
<PAGE>
of the Borrower's ability to request Equipment Advances payable
quarterly in arrears on each March 31, June 30, September 30 and
December 31, commencing September 30, 1998 (and on the date which is
the earlier of eighteen months from the Fifth Amendment Effective Date
or earlier expiration, termination or cancellation of Borrower's
ability to request Equipment Advances), of one-half of one percent
(0.5%) per annum on the average amount, calculated on a daily basis
based on a 360-day year, by which Seven Million Five Hundred Thousand
Dollars ($7,500,000) PLUS the amount of the Equipment Advance advanced
to the Borrower to finance a portion of the purchase price of the Two
New Printers exceeds the aggregate amount of Equipment Advances made
by Lenders pursuant to the terms hereof.
1. FINANCIAL COVENANTS. Section 8.16 (a) and Section 8.16(b) of the
Credit Agreement are deleted and the following are inserted in their stead:
2.
* * *
"Section 8.16 FINANCIAL COVENANTS. The Borrower covenants and
agrees that:
(a) Fixed Charge Coverage Ratio: The Fixed Charge Coverage
Ratio, as of the end of (i) the one fiscal quarter then ended in
respect to the fiscal quarter ending on August 31, 1996, (ii) the
two consecutive fiscal quarters then ended in respect to the fiscal
quarter ending on November 30, 1996, (iii) the three consecutive
fiscal quarters then ended in respect to the fiscal quarter ending
on February 28, 1997, and (iv) the four consecutive fiscal quarters
then ended in respect to the fiscal quarter ending on May 31, 1997
and the last day of each August, November, February and May
thereafter, shall not be less than the ratio set forth opposite such
date:
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
ENDING ON THE LAST DAY OF -----
-------------------------
<S> <C>
AUGUST AND NOVEMBER, 1998 1.00 TO 1
------------------------- ---------
FEBRUARY, 1999 1.05 TO 1
-------------- ---------
MAY, AUGUST AND NOVEMBER, 1999 1.10 TO 1
------------------------------ ---------
FEBRUARY, 2000 0.80 TO 1
-------------- ---------
MAY, AUGUST AND NOVEMBER, 2000 AND 1.20 TO 1
---------------------------------- ---------
FEBRUARY, 2001 AND EACH FISCAL QUARTER THEREAFTER
-------------------------------------------------
</TABLE>
(b) FUNDED DEBT TO EBITDA RATIO: THE RATIO OF FUNDED DEBT AS OF
THE LAST DAY OF EACH OF THE FISCAL QUARTERS LISTED BELOW TO EBITDA FOR
THE FOUR CONSECUTIVE FISCAL QUARTERS THEN ENDED SHALL NOT BE MORE THAN
THE AMOUNT SET FORTH BELOW OPPOSITE SUCH PERIOD:
<PAGE>
<TABLE>
<CAPTION>
FISCAL QUARTER RATIO
ENDING ON THE LAST DAY OF -----
-------------------------
<S> <C>
AUGUST AND NOVEMBER, 1998 AND FEBRUARY, 1999 5.00 TO 1
-------------------------------------------- ---------
MAY, 1999 5.40 TO 1
--------- ---------
AUGUST, 1999 5.00 TO 1
------------ ---------
NOVEMBER, 1999 5.00 TO 1
-------------- ---------
FEBRUARY, 2000 6.00 TO 1
-------------- ---------
MAY, AUGUST AND NOVEMBER, 2000 4.50 TO 1
------------------------------ ---------
FEBRUARY, 2001 AND EACH FISCAL QUARTER THEREAFTER 4.25 TO 1"
------------------------------------------------- ----------
</TABLE>
* * *
1. CONTINUING EFFECT. Except as otherwise specifically set out herein,
the provisions of the Loan Agreement shall remain in full force and effect.
1. COUNTERPARTS. This Twelfth Amendment may be executed in any number
of separate counterparts, each of which shall, collectively and separately,
constitute one agreement.
IN WITNESS WHEREOF, this Twelfth Amendment has been duly executed
as of the date first written above.
PACKAGING RESOURCES LASALLE BANK, NATIONAL
INCORPORATED, ASSOCIATION,
as Borrower as Agent and Lender
By: /s/ Jerry J. Corirossi By: /s/ Meghan Blake
Name: Jerry J. Corirossi Name: Meghan Blake
Title: Executive Vice President Title: Assistant Vice
President --
Commercial Lending
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1
REVOLVING MAXIMUM EQUIPMENT MAXIMUM
LENDER COMMITMENT REVOLVING LOAN EQUIPMENT
------ PERCENTAGE COMMITMENT PERCENTAGE COMMITMENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
LASALLE BANK, 100% $25,500,000 100% $7,500,000
NATIONAL ASSOCIATION
$25,500,000 MINUS, the amount PLUS the amount of the
of the Equipment Advance Equipment Advance advanced to
advanced to the Borrower to the Borrower to finance a
finance a portion of the portion of the purchase price
purchase price for the Two for the Two New Printers
New Printers
</TABLE>
<PAGE>
THIRTEENTH AMENDMENT TO CREDIT AGREEMENT
THIRTEENTH AMENDMENT TO CREDIT AGREEMENT ("Thirteenth Amendment"),
dated as of March 10, 2000 to the Credit Agreement, dated as of May 17, 1996,
among Packaging Resources Incorporated, a Delaware corporation (the "Borrower"),
the lender signatories thereto ("Lenders") and LaSalle Bank, National
Association, a national banking association, f/k/a LaSalle National Bank
("LaSalle"), as agent for such Lenders (LaSalle, in such capacity "Agent").
WHEREAS, the Borrower, the Lenders and the Agent have entered into that
certain Credit Agreement dated as of May 17, 1996 as amended by that certain
First Amendment to Credit Agreement, dated December 12, 1996, by and among the
Borrower, the Lenders and the Agent ("First Amendment"), by that certain Second
Amendment to Credit Agreement dated as of April 24, 1997, by and among the
Borrower, the Lenders and the Agent ("Second Amendment"), by that certain Third
Amendment to Credit Agreement dated August 27, 1997, by and among the Borrower,
the Lenders and the Agent ("Third Amendment"), by that certain Fourth Amendment
to Credit Agreement dated as of April 30, 1998, by and among the Borrower, the
Lenders and the Agent ("Fourth Amendment"), by that certain Fifth Amendment to
Credit Agreement and First Amendment to Security Agreement dated August 5, 1998
by and among the Borrower, the Lenders and the Agent, by that certain Sixth
Amended to Credit Agreement dated as of February 25, 1999 by and among the
Borrower, the Lenders and the Agent, by that certain Seventh Amendment to Credit
Agreement dated April 27, 1999 by and among the Borrower, the Lenders and the
Agent, by that certain Eighth Amendment to Credit Agreement dated May 18, 1999
by and among the Borrower, the Lenders and the Agent, by that certain Ninth
Amendment to Credit Agreement dated August 25, 1999 by and among the Borrower,
the Lenders and the Agent, by that certain Tenth Amendment to Credit Agreement
dated October 7, 1999 by and among the Borrower, the Lenders and the Agent, by
that certain Eleventh Amendment to Credit Agreement dated as of November 15,
1999 by and among, the Borrower, the Lenders and the Agent and by that certain
Twelfth Amendment to Credit Agreement dated as of February 17, 2000 by and
among, the Borrower, the Lenders and the Agent, (said Credit Agreement, as
amended, is hereinafter referred to as the "Credit Agreement");
WHEREAS, the Borrower, the Lenders and the Agent wish to amend and
modify certain of the provisions of the Credit Agreement pursuant to the terms
hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and contained in the Credit Agreement, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Except as otherwise provided herein, capitalized terms used
herein without definition shall have the meanings set forth in the Credit
Agreement.
<PAGE>
1. REVOLVING CREDIT FACILITY COMMITMENT AND BORROWING LIMIT. Section
2.2 of the Credit Agreement is deleted and the following is inserted in its
stead:
* * *
"Section 2.2 REVOLVING CREDIT FACILITY COMMITMENT AND BORROWING
LIMIT. (a) The Revolving Loan shall not at any time, when taken
together with the Letter of Credit Usage at such time (after giving
effect to any concurrent reimbursement of a Letter of Credit with the
proceeds of a Revolving Advance pursuant to Section 4A.1(c) hereof)
exceed the least of (i) the "Revolving Credit Facility Commitment" (as
defined below), (ii) the Borrowing Base as of such time and (iii) the
maximum amount permitted by the Senior Note Documents (the least of
(i), (ii) and (iii) being the "Borrowing Limit"). The Revolving Credit
Facility Commitment shall equal Twenty-Seven Million Dollars
($27,000,000) from March 15, 2000 until April 17, 2000 and Twenty-Four
Million Dollars ($24,000,000) at all times on and after April 17, 2000
(b) Subject to the limitations of Sections 2 and 3 hereof, the
Borrower may borrow, repay (without premium or penalty) and reborrow
the Revolving Loan. The portion of the Revolving Loan to be funded by
each Lender shall not exceed in aggregate principal amount at one time
outstanding, and no Lender shall have any obligation to make its pro
rata share of any Revolving Advance which shall result in such Lender's
share of the Revolving Loan at such time plus such Lender's share of
the Letter of Credit Usage at such time being in the aggregate in
excess of, the revolving commitment amount set forth opposite such
Lender's name on Schedule 1.1 to the Thirteenth Amendment (as such
amount may be reduced from time to time in accordance with the terms
hereof, for each Lender its "Revolving Commitment").
(c) The Revolving Commitment of each Lender shall be reduced upon
each reduction of the Revolving Credit Facility Commitment. The amount
of the reduction for each Lender shall be equal to such Lender's pro
rata share (based on its percentage interest in the Revolving Credit
Facility Commitment) of the reduction in the Revolving Credit Facility
Commitment."
* * *
1. AMENDED AND RESTATED REVOLVING NOTE AND EQUIPMENT ACQUISITION NOTE.
It shall be a condition precedent to the effectiveness of this Thirteenth
Amendment that Borrower shall have executed and delivered to LaSalle Bank,
National Association, as the sole Lender, an amended and restated Revolving
Note in the form of Exhibit 2.3 to the Credit Agreement in the aggregate
principal amount of the Revolving Loan Commitment. Upon receipt of such
amended and
<PAGE>
restated Revolving Note, LaSalle Bank, National Association shall return the
amended and restated Revolving Note previously delivered by Borrower to LaSalle
Bank, National Association marked "amended and superseded."
1. SCHEDULE 1.1. Schedule 1.1 attached to the Credit Agreement is
hereby deleted and Schedule 1.1 attached to this Seventh Amendment is hereby
inserted in its stead.
1. CONTINUING EFFECT. Except as otherwise specifically set out herein,
the provisions of the Loan Agreement shall remain in full force and effect.
1. COUNTERPARTS. This Thirteenth Amendment may be executed in any
number of separate counterparts, each of which shall, collectively and
separately, constitute one agreement.
IN WITNESS WHEREOF, this Thirteenth Amendment has been duly
executed as of the date first written above.
PACKAGING RESOURCES LASALLE BANK, NATIONAL
INCORPORATED, ASSOCIATION,
as Borrower as Agent and Lender
By: /s/ Jerry J. Corirossi By: /s/ Meghan Blake
Name: Jerry J. Corirossi Name: Meghan Blake
Title: Executive Vice President Title: Assistant Vice
President --
Commercial Lending
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1.1
REVOLVING MAXIMUM EQUIPMENT MAXIMUM
LENDER COMMITMENT REVOLVING LOAN EQUIPMENT
------ PERCENTAGE COMMITMENT PERCENTAGE COMMITMENT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
LASALLE BANK, 100% $27,000,000 100% $7,500,000*
NATIONAL ASSOCIATION
$27,000,000 FROM MARCH 15, *PLUS the amount of the
2000 TO APRIL 17, 2000 AND Equipment Advance advanced
$24,000,000 AT ALL TIMES ON AND to the Borrower to finance a
AFTER APRIL 17, 2000 portion of the purchase price
for the Two New Printers
</TABLE>
<PAGE>
FOURTEENTH AMENDMENT TO CREDIT AGREEMENT
FOURTEENTH AMENDMENT TO CREDIT AGREEMENT ("Fourteenth Amendment"),
dated as of May 10, 2000 to the Credit Agreement, dated as of May 17, 1996,
among Packaging Resources Incorporated, a Delaware corporation (the "Borrower"),
the lender signatories thereto ("Lenders") and LaSalle Bank, National
Association, a national banking association, f/k/a LaSalle National Bank
("LaSalle"), as agent for such Lenders (LaSalle, in such capacity "Agent").
WHEREAS, the Borrower, the Lenders and the Agent have entered into that
certain Credit Agreement dated as of May 17, 1996 as amended by that certain
First Amendment to Credit Agreement, dated December 12, 1996, by and among the
Borrower, the Lenders and the Agent ("First Amendment"), by that certain Second
Amendment to Credit Agreement dated as of April 24, 1997, by and among the
Borrower, the Lenders and the Agent ("Second Amendment"), by that certain Third
Amendment to Credit Agreement dated August 27, 1997, by and among the Borrower,
the Lenders and the Agent ("Third Amendment"), by that certain Fourth Amendment
to Credit Agreement dated as of April 30, 1998, by and among the Borrower, the
Lenders and the Agent ("Fourth Amendment"), by that certain Fifth Amendment to
Credit Agreement and First Amendment to Security Agreement dated August 5, 1998
by and among the Borrower, the Lenders and the Agent, by that certain Sixth
Amendment to Credit Agreement dated as of February 25, 1999 by and among the
Borrower, the Lenders and the Agent, by that certain Seventh Amendment to Credit
Agreement dated April 27, 1999 by and among the Borrower, the Lenders and the
Agent, by that certain Eighth Amendment to Credit Agreement dated May 18, 1999
by and among the Borrower, the Lenders and the Agent, by that certain Ninth
Amendment to Credit Agreement dated August 25, 1999 by and among the Borrower,
the Lenders and the Agent, by that certain Tenth Amendment to Credit Agreement
dated October 7, 1999 by and among the Borrower, the Lenders and the Agent, by
that certain Eleventh Amendment to Credit Agreement dated as of November 15,
1999 by and among the Borrower, the Lenders and the Agent, by that certain
Twelfth Amendment to Credit Agreement dated as of February 17, 2000 and among
the Borrower, the Lenders and the Agent, by that certain Thirteenth Amendment to
Credit Agreement dated as of March 10, 2000 by and among, the Borrower, the
Lenders and the Agent (said Credit Agreement, as amended, is hereinafter
referred to as the "Credit Agreement");
WHEREAS, Borrower has requested that Agent make an Equipment Advance in
an amount not to exceed $516,600, and as a condition to making such Equipment
Advance Agent and Lenders require that Borrower execute this Fourteenth
Amendment;
WHEREAS, solely in order to make such Equipment Advance the Borrower,
the Lenders and the Agent wish to amend and modify certain of the provisions of
the Credit Agreement pursuant to the terms hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and contained in the Credit Agreement, the
parties hereto hereby agree as follows:
<PAGE>
1. DEFINITIONS. Except as otherwise provided herein, capitalized terms
used herein without definition shall have the meanings set forth in the Credit
Agreement.
2. ADDITIONAL DEFINITIONS. Section 1.1 of the Credit Agreement is
amended to add the following definitions:
"Fourteenth Amendment" shall have the meaning set forth in the first
paragraph of the Fourteenth Amendment."
"Fourteenth Amendment Effective Date" shall have the meaning set forth
in Section 4 of the Fourteenth Amendment."
3. EQUIPMENT ACQUISITION LOANS. Section 2.3.1 of the Credit Agreement
is deleted and the following inserted in its sted:
"Section 2.3.1 EQUIPMENT ACQUISITION LOANS. During the period
between the Fifth Amendment Effective Date and the date which is the
earlier of (i) the Maturity Date and (ii) the Fourteenth Amendment
Effective Date, each Lender agrees, for so long as no Default or
Event of Default exists, to make such Lender's pro rata share of
equipment acquisition loans (each such loan an "Equipment Advance"
and the outstanding principal balance of all Equipment Advances from
time to time, the "Equipment Loan") to the Borrower to finance, in
part, the purchase by the Borrower of Eligible Equipment. The
aggregate principal amount of the Equipment Commitments is Seven
Million Five Hundred Thousand Dollars ($7,500,000) PLUS the amount
of the Equipment Advance advanced to the Borrower to finance a
portion of the purchase price of the Two New Printers. In no event,
however, shall the outstanding principal balance of the Equipment
Loan exceed Ten Million Dollars ($10,000,000). Subject to all of the
terms and conditions of this Agreement, each Lender agrees, for so
long as no Default or Event of Default exists, to make Equipment
Advances to the Borrower from time to time, as requested by the
Borrower in accordance with the terms of Section 2.4 hereof, up to a
maximum principal amount at any time outstanding equal to the
product of (A) Seven Million Five Hundred Thousand Dollars
($7,500,000) PLUS the amount of the Equipment Advance advanced to
the Borrower to finance a portion of the purchase price of the Two
New Printers, multiplied by (B) such Lender's pro rata share of the
Equipment Commitments. Except for Equipment Advances made to
Borrower on the Fourteenth Amendment Effective Date, in no event (x)
shall any one request by the Borrower for Equipment Advances be in
the amount of less than One Million Dollars ($1,000,000) or, (y)
shall the amount of any one request by
<PAGE>
Borrower for Equipment Advances exceed sixty-seven percent (67%), the
hard cost (invoice price less taxes and delivery) of the Eligible
Equipment, the purchase of which is to be financed, in part, with the
proceeds of the applicable Equipment Advances. Prior to the funding of
any Equipment Advance, the Borrower shall provide the Agent with (i)
copies of the invoices or other comparable documentation for the
Eligible Equipment, the purchase of which is to be financed, in part,
with the proceeds of such proposed Equipment Advance together with
such other supporting details as reasonably requested by Agent, and
(ii) properly executed UCC-1 Financing Statements describing, in
sufficient detail to meet the requirements of the Uniform Commercial
Code for perfection of purchase money security interests, such
Eligible Equipment. All such Equipment Advances shall be secured by
all of the Eligible Equipment, the purchase of which was financed, in
part, by the proceeds of Equipment Advances. The principal amount of
all Equipment Advances shall be due on the Maturity Date or as
otherwise provided in the Equipment Note or as otherwise provided
herein, provided that Borrower may prepay, without penalty or premium,
the outstanding principal balance of any Equipment Advance. The
Equipment Advances shall be evidenced by promissory notes to be
executed and delivered by the Borrower to the Lenders on or prior to
the Fourteenth Amendment Effective Date, the form of which is attached
hereto and made a part hereof as Exhibit 2.3.1 (the "Equipment
Note(s)"), shall bear interest as specified in Section 2.6 and shall be
repayable in accordance with the terms hereof and of the Equipment
Notes. Except for Equipment Advances made to Borrower on the
Fourteenth Amendment Effective Date, on the date which is eighteen
months after the Fifth Amendment Effective Date, the outstanding
Equipment Advances shall be converted into term loans. The principal
amount of such Equipment Advances so converted to a term obligation
shall be amortized on the basis of sixty (60) equal monthly payments,
commencing on the first day of the calendar month after the calendar
month in which the conversion occurs. Equipment Advances made to
Borrower on the Fourteenth Amendment Effective Date shall be converted
into term loans on the Fourteenth Amendment Effective Date. The
principal amount of such Equipment Advances so converted to a term
obligation shall be amortized on the basis of fifty-seven (57) equal
monthly payments commencing on June 1, 2000. The foregoing
notwithstanding, the entire principal balance of all Equipment
Advances shall be due and payable on the Equipment Maturity Date."
<PAGE>
4. CONDITIONS PRECEDENT. This Fourteenth Amendment shall become
effective upon receipt by Lender of each of the following documents, each in
form and substance acceptable to Lender:
(A) UCC-1 Financing Statements properly executed by the Borrower to the
extent necessary to perfect the Liens of Agent, for its benefit and the ratable
benefit of the Lenders, in the Eligible Equipment, the purchase of which is to
be financed, in part, with the proceeds of Equipment Advances, and evidence in a
form reasonably acceptable to Agent that such Liens constitute valid and
perfected security interests and Liens, having the Lien priority specified
herein;
(B) This Fourteenth Amendment fully executed by Borrower and Agent;
(C) Such other documents, instruments and agreements as Agent shall
reasonably request in connection with the foregoing matters.
The date on which all of the foregoing conditions precedent to the
effectiveness of this Fourteenth Amendment have been satisfied or waived by
Agent is hereafter referred to as the "Fourteenth Amendment Effective Date."
5. CONTINUING EFFECT. Except as otherwise specifically set out herein,
the provisions of the Loan Agreement shall remain in full force and effect.
6. COUNTERPARTS. This Fourteenth Amendment may be executed in any
number of separate counterparts, each of which shall, collectively and
separately, constitute one agreement.
(Signature Page Follows)
<PAGE>
IN WITNESS WHEREOF, this Fourteenth Amendment has been duly executed as
of the date first written above.
PACKAGING RESOURCES LASALLE BANK, NATIONAL
INCORPORATED, ASSOCIATION,
as Borrower as Agent and Lender
By: /s/ Jerry J. Corirossi By: /s/ Mitch Raskey
Name: Jerry J. Corirossi Name: Mitch Raskey
Title: Executive Vice President Title: Vice President --
Asset-based
Lending
<PAGE>
AMENDMENT NO. 1 TO SALES AND PURCHASE AGREEMENT
This is an Amendment No. 1 dated as of April 17, 2000, between Unified
FoodService Purchasing Co-op, LLC ("UFPC") and Packaging Resources
Incorporated ("PRI") to that certain Sales and Purchase Agreement (the
"Agreement") dated as of June 1, 1998, by and between Tricon Restaurant
Services Group, Inc. ("TRSG"), a subsidiary of Tricon Global Restaurants,
Inc., and certain Affiliates (as defined therein) and PRI, TRSG joins in this
Agreement for the purposes set forth in Section 8 below.
RECITALS
A. TRSG assigned to UFPC, and UFPC assumed from TRSG, certain
rights, duties and obligations under the Agreement (including, but not
limited to TRSG's obligation to the purchase and pay for Products) as of
March 1, 1999. UFPC assumed all of TRSG's obligations under the Agreement
other than those providing for the exercise of franchisor brand management
functions, which TRSG and its Affiliates exclusively remain responsible for
under the Agreement.
B. PRI has acknowledged the assignment and assumption of the
Agreement as described in Recital A above.
C. On January 31, 2000, AmeriServe Food Distribution, Inc,
("AmeriServe") filed a petition (the "Bankruptcy Petition") under Chapter 11
of the United States Bankruptcy Code in the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court").
D. PRI is owed [*] in prepetition accounts receivable by
AmeriServe ("Prepetition AmeriServe Receivables"), which are described in
detail on SCHEDULE A attached hereto. Pursuant to Section 3(E) of the
Agreement, TRSG, or its designee, is required to pay for any Products
purchased under the Agreement.
E. UFPC, as a limited assignee under the Agreement, and PRI desire
to settle any dispute which may exist regarding the payment of the
Prepetition AmeriServe Receivables and otherwise to amend the Agreement as
provided below.
NOW, THEREFORE, in consideration of the mutual promises of performance
by the parties hereto and for other good and valid consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. CONSENT TO ASSIGNMENT AND ASSUMPTION OF AGREEMENT. PRI hereby
acknowledges and confirms its consent to UFPC's limited assumption, and
TRSG's limited assignment to UFPC, of the Agreement as described in Recital A
above.
2. SETTLEMENT OF UFPC'S OBLIGATIONS WITH RESPECT TO PREPETITION
AMERISERVE RECEIVABLES. Concurrently with the execution and delivery of this
Agreement, UFPC shall pay [*] in immediately available funds to PRI. In
consideration thereof, and the other covenants and agreements contained in
this Agreement, PRI hereby:
<PAGE>
(a) Releases UFPC, TRSG, and the Affiliates from any and all
liability under the Agreement to pay the Prepetition AmeriServe Receivables;
(b) Agrees that it shall (i) prepare a proof of claim (the
"Proof at Claim") with respect to the Prepetition AmeriServe Receivables;
(ii) provide an advance copy of the Proof of Claim to UFPC for its review and
comment at least two (2) business days prior to filing; (iii) timely file the
Proof of Claim with the Bankruptcy Court; (iv) use commercially reasonable
efforts to diligently prosecute collection of the Proof of Claim; and (v)
consult with UFPC regarding collection of the Proof of Claim; and
(c) Agrees to pay to UFPC any and all amounts recovered by
PRI from AmeriServe or any other person with respect to the Prepetition
AmeriServe Receivables in excess of the sum of (i) [*] plus (ii) PRI's
out-of-pocket cost of funds for carrying the non-current Prepetition
AmeriServe Receivables and PRI's reasonable cost of collecting such
Prepetition AmeriServe Receivables.
PRI represents and warrants to UFPC that (i) AmeriServe does not owe PRI any
amounts with respect to Products purchased by AmeriServe from PRI prior to
the filing of the Bankruptcy Petition, other than the Prepetition AmeriServe
Receivables listed on Schedule A hereto, and (ii) PRI has good and marketable
title to the Prepetition AmeriServe Receivables free and clear of all liens,
claims, or encumbrances ("Liens") other than Liens securing PRI's debt to
PRI's financial institution lenders. PRI further covenants not to transfer
or place any Liens on any of its rights under the Proof of Claim or to the
Prepetition AmeriServe Receivables other than Liens granted to PRI's
financial institution lenders in the ordinary course of business.
3. EXTENSION OF TERM. The first sentence of Section 1 of the
Agreement is hereby amended to read in its entirety as follows:
This Agreement shall commence on the day and year stated above,
and shall continue for a term of four (4) years thereafter
(through May 31, 2002), unless earlier terminated as set forth
herein. The twelve (12) month period beginning June 1, 2001,
is herein referred to as the "Extension Period".
4. AMENDMENT TO SECTION 2 AND EXHIBIT A.
(a) The first sentence of Section 2(A) is hereby amended and
restated to read in its entirety as follows:
Subject to Section 3(D), TRSG agrees to purchase from PRI and
PRI agrees to supply, annually until May 31, 2002 (i) [*] of
TRSG's actual requirements of 32 oz. cruiser cups and lids
described on Exhibit A for the Taco Bell system, (ii) [*] of
TRSG's actual requirements of 44 oz. cruiser cups and lids
described on Exhibit A for the Taco Bell system, and (iii)
[*] of TRSG's actual requirements of 32 oz. cruiser cups and
lids described on Exhibit A for the KFC system.
-2-
<PAGE>
(b) Exhibit A of the Agreement is hereby amended to read in its
entirety as attached hereto.
(c) Section 2(B) of the Agreement is hereby deleted in its
entirety.
5. AMENDMENT TO SECTION 3(D). Section 3(D) of the Agreement is
hereby amended and restated to read in its entirety as follows:
PRI will have the opportunity to match distribution center
delivered prices offered by PRI's competitors in good faith
with respect to products comparable to the Products
("Comparable Products") that have been accepted by TRSG's or
its Affiliates' technology personnel. Upon receipt of written
notice from TRSG or its Affiliates or assigns that TRSG's or
its Affiliates' technology personnel have accepted a Comparable
Product and that the offered price of such Comparable Product
is less than the price of the Products hereunder accompanied by
reasonable documentation of the foregoing, PRI shall have the
opportunity immediately to offer the lower price, in writing,
to TRSG and its Affiliates and assigns for Products sold
hereunder; provided, however, if PRI does not immediately offer
the lower price to TRSG and its Affiliates, TRSG and its
Affiliates may (notwithstanding any other provision of this
Agreement) purchase the Comparable Products at the lower price.
The parties acknowledge and agree that this Section 3(D) shall
apply only during the Extension Period.
6. TERMINATION OF DISTRIBUTOR PAYMENT GUARANTEE. A new sentence
shall be added to Section 3(E) of the Agreement to read in its entirety as
follows:
Notwithstanding any other provision of this Agreement, neither
TRSG nor any of its Affiliates or assignees (including Unified
FoodService Purchasing Co-op, LLC) shall have any obligation to
pay, or guarantee the payment to PRI of, any amounts owed to
PRI as a result of PRI's sale of Products during the Extension
Period to distributors who serve TRSG or its Affiliates. PRI
acknowledges that its sole recourse for amounts owed by such
distributors during the Extension Period shall be to receive
direct payment from such distributors and that TRSG and its
Affiliates and assigns (including the UFPC) shall have no
financial liability whatsoever for any purchases made by
authorized distributors.
7. EFFECT OF AMENDMENT. The parties acknowledge that the Agreement
which was executed as of June 1, 1998, has, except as amended herein, not been
amended in writing or otherwise and remains in full force and effect. All
covenants and agreements made herein shall have the same effect as if made in
the Agreement.
-3-
<PAGE>
8. TRSG. TRSG joins in this Amendment for the purpose of
acknowledging and confirming its terms as the initial obligor under the
Agreement.
IN WITNESS WHEREOF, the parties have caused this amendment to be executed
by duly authorized officers as of the date set forth above, but actually on the
date set forth below.
PACKAGING RESOURCES INCORPORATED
By: /s/ Howard P. Hoeper
--------------------------------------
Title: Chairman of the Board, President
and Chief Executive Officer
-----------------------------------
Date: April 17, 2000
-----------------------------------
UNIFIED FOODSERVICE PURCHASING CO-OP, LLC
By: /s/ Daniel E. Woodside
--------------------------------------
Title: President and Chief Executive
Officer
-----------------------------------
Date: April 18, 2000
-----------------------------------
-4-
<PAGE>
TRICON RESTAURANT SERVICES GROUP, INC.
By: /s/ [ILLEGIBLE]
--------------------------------------
Title: Vice President
-----------------------------------
Date: April 18, 2000
-----------------------------------
-5-
<PAGE>
Schedule A
[*]
<PAGE>
EXHIBIT "A"
"PRODUCTS" PRICING
<TABLE>
<CAPTION>
CATEGORY CUP DESCRIPTION VOLUME CUP DISPOSABLE
SIZE LID
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BASE BUSINESS/ 32 oz. 1-6 colors [*] [*] [*]
PROMOTIONAL Cruiser Per Design
CUPS/LIDS (Thermoformed)
BASE BUSINESS/ 32 oz. Game Label [*] [*] [*]
PROMOTIONAL Cruiser Application Per Design
CUPS/LIDS (Thermoformed) (See attached
Exhibit A-1)
BASE BUSINESS/ 44 oz. 1-6 colors [*] [*] [*]
PROMOTIONAL Cruiser Per Design
CUPS/LIDS (Thermoformed)
BASE BUSINESS/ 44 oz. 1-6 colors [*] [*] [*]
PROMOTIONAL Cruiser
CUPS/LIDS (Thermoformed)
BASE BUSINESS/ 44 oz. 1-6 colors [*] [*] [*]
PROMOTIONAL Cruiser
CUPS/LIDS (Thermoformed)
BASE BUSINESS/ 44 oz. 1-6 colors [*] [*] [*]
PROMOTIONAL Cruiser
CUPS/LIDS (Thermoformed)
</TABLE>
PRICING NOTES - PRINTED CUP
- ---------------------------
1) Cup prices are based on minimum order of [*] (one design).
2) Prices are quoted per thousand cups and include the following:
32 oz. Cruiser (Thermoformed)
---------------------------------
A) Case pack of [*] for 32 oz cups.
B) Case pack of [*] for lids.
C) Line art charges and/or Process art charges.
D) Prices are F.O.B. Plant of Manufacture (i.e., freight is not included in
prices.)
E) Floor loading only.
44 oz. Cruiser (Thermoformed)
----------------------------
A) Case pack of [*] for 44 oz. cups.
B) Case pack of [*] for lids.
C) Line art charges and/or Process art charges.
D) Prices are F.O.B. Plant of Manufacture (i.e., freight is not included in
prices).
E) Floor loading only.
<PAGE>
EXHIBIT A-1
[*]
<PAGE>
EXHIBIT "A"
"PRODUCTS"
[LOGO]
TACO BELL PACKAGING SPECIFICATIONS
Date Written: 6/1/98
Specification Number: 0134
Author: A. Marvel
PCN# TBD
- -------------------------------------------------------------------------------
TITLE: Cup Lid for 32 oz Cruiser Cup (Packaging Resources Incorporated)
DESCRIPTION: Thermoformed Plastic Snap On Cup Lid for Disposable Cruiser Cup
MATERIAL: High Impact Polystyrene
Blue Color Concentrate (Ferro CS682261 - FDA)
DIMENSIONS: Outside Diameter [*]
Lid Weight Target [*]
Lid Weight Minimum [*]
Lid Wall Thickness Minimum [*]
DRAWING NUMBER/SUPPLIER: Reference Packaging Resources Lid Drawing #766C,
revision B dated 5-28-98
PRINTING: Embossed per approved drawing
PACKING INSTRUCTIONS: [*] Lids/Case
[*] Lids/Sleeve
[*] Sleeves/Case
ADDITIONAL INFORMATION: Supplier must comply with FDA GMP practices in
manufacturing, processing, packaging and storage of
Taco Bell products.
This lid specification is to be used only with the
[*] lip diameter 32 oz. Cruiser Cup.
- -------------------------------------------------------------------------------
APPROVAL: /s/ Alex J. Marvel 6/1/98 Alex Marvel National Packaging Manager
--------------------------
<PAGE>
EXHIBIT "A"
"PRODUCTS"
[LOGO]
TACO BELL PACKAGING SPECIFICATION
Date Written: 6/3/98
Specification Number: 0138
Author: A. Marvel
PCN# TBD
- -------------------------------------------------------------------------------
TITLE: Cup Lid for 32 oz Cruiser Cup (Packaging Resources Incorporated)
DESCRIPTION: Thermoformed Plastic Snap On Cup Lid for Disposable Cruiser Cup
MATERIAL: High Impact Polystyrene
Blue Color Concentrate (Ferro CS682261 - FDA)
DIMENSIONS: Outside Diameter [*]
Lid Weight Target [*]
Lid Weight Minimum [*]
Lid Wall Thickness Minimum [*]
DRAWING NUMBER/SUPPLIER: Reference Packaging Resources Lid Drawing #TBD
PRINTING: Embossed per approved drawing
PACKING INSTRUCTIONS: [*] Lids/Case
[*] Lids/Sleeve
[*] Sleeves/Case
ADDITIONAL INFORMATION: Supplier must comply with FDA GMP practices in
manufacturing, processing, packaging and storage of
Taco Bell products.
This lid specification is to be used only with the
[*] lip diameter 32 oz. PRI Cruiser Cup.
- -------------------------------------------------------------------------------
APPROVAL: /s/ Alex J. Marvel 6/3/98 Alex Marvel National Packaging Manager
--------------------------
<PAGE>
EXHIBIT "A"
"PRODUCTS"
[LOGO]
TACO BELL PACKAGING SPECIFICATION
Date Written: 2/15/98; 5/20/98 (updated)
Specification Number: 0132
Author: A. Marvel
PCN# TBD
- -------------------------------------------------------------------------------
TITLE: Plastic Cruiser Cup, 32 oz (Packaging Resources Company)
DESCRIPTION: A printed disposable 32 oz. white plastic cup
MATERIAL: High impact polystyrene
White concentrate
DIMENSIONS: Height [*]
Rim Diameter [*]
Base Diameter [*]
Diameter under stack shoulder [*]
Rim thickness [*] Maximum
Cup weight [*]
Fill Volume (to brim) [*]
Side wall caliper [*] Minimum
DRAWING NUMBER/SUPPLIER: Reference Packaging Resources Drawing #106758,
Revision B, dated 5/21/98
PRINTING: 6 color maximum printing per approved artwork
Dry offset lithographic printing
PACKING INSTRUCTIONS: Polybagged @ [*] cups per case
[*] cups/stack
[*] stacks/case
ADDITIONAL COMMENTS: The supplier must comply with FDA GMP practices in the
manufacturing, processing, packaging and storage of
Taco Bell products.
- -------------------------------------------------------------------------------
APPROVAL: /s/ Alex J. Marvel 5/21/98 Alex Marvel National Packaging Manager
--------------------------
<PAGE>
TWIST 'N GO SUPPLY AGREEMENT
THIS AGREEMENT, entered as of the 9th day of September, 1999, by and
between Pepsi-Cola Company, a division of PepsiCo, Inc., a corporation of
North Carolina, with offices at 700 Anderson Hill Road, Purchase, New York
("Pepsi") and Packaging Resources Incorporated ("PRI"), a corporation of
Delaware with offices at One Conway Park 100 Field Drive, Suite 300 Lake
Forest, Illinois 60045.
WITNESSETH
WHEREAS, Pepsi has developed a proprietary lidded fountain cup and is
the owner of the Product, Patents, Know-How and Trademarks as hereinafter
defined;
WHEREAS, Pepsi desires the manufacture of the Product for purchase by
its authorized soft drink bottlers and fountain customers, and PRI is willing
to engage in such manufacture and sale.
NOW THEREFORE, in consideration of the premises and mutual covenants
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "Product" shall mean a three-part, lidded plastic fountain cup meeting
the specifications provided in SCHEDULES A, B and C hereto, as the same
may be modified from time to time in Pepsi's sole discretion (also
referred to as "Cups"), or covered by any valid claim of the Patents, as
defined below.
1.2 "Patents" shall mean U.S. Patent Serial No. 09/038,689, filed on March 9,
1998; Design Patent Serial No. 29/085,393, filed on March 23, 1998; and
Design Patent Serial No. 29/091,992, filed on August 10, 1998, plus any
and all Letters Patent issuing therefrom, including any and all
divisionals, reissues, renewals, continuations and continuations-in-part
thereof, as well as any and all foreign counterparts thereof.
1.3 "Know-How" shall mean any and all technical information, data, drawings,
designs, processes, programs, formulas and related material, irrespective
of form, pertaining to the design, testing and manufacture of the
Product, whether now existing or hereafter developed in relation thereto.
1.4 "Trademarks" shall mean the trademarks listed in SCHEDULE D hereto, as
the same may be modified from time to time in Pepsi's sole discretion,
together with the various symbols, designs, devices, logos, labels, trade
dress, slogans and other distinctive material used in connection
therewith, including associated goodwill.
1.5 "Initial Production Date" shall mean the earlier of (a) the first date on
which Cups are manufactured by PRI using the Molds or (b) August 6, 1999,
in accordance with the commercialization timetable attached hereto as
SCHEDULE E.
<PAGE>
1.6 "Full Production Date" shall mean the earlier of (a) the first date on
which production volumes of the Product by PRI reach or exceed [*] cups
per week, or (b) September 24, 1999, in accordance with the
commercialization timetable attached hereto as SCHEDULE E.
1.7 "Contract Year" shall mean that period commencing upon the Initial
Production Date (which, if not falling on the first day of the month,
shall be adjusted upward or downward by no more than fourteen days to the
first day of the nearer of the current or next-succeeding month, for ease
of calculation) and ending twelve months from such date, or any
subsequent twelve-month period commencing on the anniversary of the such
date during the Term of the Agreement.
1.8 "Initial Production Period shall mean that period during the Term of the
Agreement commencing on the Initial Production Date, as described above,
and running through December 31, 1999.
1.9 "Book Value" shall mean original cost less depreciation from the date the
equipment is placed in service through the time notice is received under
Section 5.3. The equipment shall be depreciated on a straight-line basis
over thirteen (13) years in accordance with SCHEDULE F attached hereto.
ARTICLE 2
DEVELOPMENT
2.1 TOOLING. PRI agrees to direct and manage, consistent with good
industry practice and in cooperation with Pepsi, the design, development
and manufacture of all molds and related tooling which are appropriate
and sufficient for the production of the Product in the quantities
specified herein ("Molds"). PRI represents that it is currently
proceeding with the sourcing of the Molds as authorized by Pepsi on
October 9, 1998. The design of the Molds shall accommodate such design
changes to the Product as Pepsi may specify from time to time, and Pepsi
shall have the right to approve the final design of the Molds prior to
their manufacture.
2.2 COST: Pepsi shall pay the documented purchase price of the Molds in an
amount not to exceed [*].
2.3 OWNERSHIP. Title to the Molds shall vest in Pepsi upon payment of the
documented purchase price described above, and PRI agrees to affix
permanent labels to the Molds evidencing such ownership, as Pepsi may
specify, and to execute such documents, including without limitation
financing statements, and perform such other lawful acts as Pepsi may
direct to protect its ownership interest in the Molds. During the Term
of this Agreement the Molds will remain with PRI at its manufacturing
premises and may not be removed without Pepsi's prior written consent;
provided, however, that Pepsi may direct the removal of the Molds at any
time upon thirty (30) days' written notice, at Pepsi's expense, without
prejudice to either party's rights under this Agreement. PRI will, at
its own expense, maintain the Molds in good working condition, excluding
major rebuilds, and maintain replacement cost/all risks property
insurance with respect to the Molds,
2
<PAGE>
naming Pepsi as a loss payee, in the total amount of at least [*] and
liability insurance in the amount of at least [*]. PRI will furnish to
Pepsi certificates of insurance evidencing such coverage upon request.
PRI agrees not to modify the Molds without Pepsi's prior written
permission. Schedule G outlines anticipated mold maintenance
expenses. All preventative and minor maintenance as outlined in this
schedule are PRI's responsibility. Pepsi is responsible for major
rebuild expenses, not to exceed the expenses outlined in Schedule G.
Upon Pepsi's request PRI will provide evidence that mold maintenance
per Schedule G was completed by PRI. Pepsi must approve all rebuild
expenses prior to the work commencing.
2.4 DEVELOPMENT PERIOD. The parties will use best efforts to conclude the
design, acquisition, installation and final testing of the Molds, and in
the case of PRI, to achieve full production of [*] Cups per week
(subject to customer demand), in accordance with the commercialization
timetable attached hereto as SCHEDULE E. PRI acknowledges the importance
to Pepsi's business, of meeting this target date.
ARTICLE 3
PURCHASE AND SALE
3.1 Commencing on the Initial Production Date, PRI agrees to manufacture and
sell to Pepsi or its designees, and Pepsi agrees to purchase, the Product
on the terms and conditions set forth below.
3.2 PRICE. The delivered price of the Product shall be [*] per thousand Cups,
including delivery in full truckload quantities to Pepsi or its designees
anywhere in the United States. Any incremental cost related to
less-than-full truckload quantities shall be passed along to the
purchaser. The price of the Product shall be [*] per thousand Cups
F.O.B. PRI's manufacturing plant(s). The above pricing is based upon the
plastic resin prices in Schedule C and includes a base packaging cost of
[*] per thousand Cups. In the event that Pepsi elects to change the
packaging configuration, the above price will increase or decrease by the
amount of the incremental difference in cost to PRI of such changes.
Resin prices in this Schedule C reflect the net cost of resin to PRI
(including all discounts, rebates, incentives, etc.) and upon request,
PRI will provide to Pepsi copies of invoices validating same. Any
increases or decreases in the amount of plastic used to manufacture the
Product - whether resulting from design changes, efficiencies or other
cause - and/or changes in the market price of the polypropylene and other
plastic resins required to manufacture the Product will be reflected in
the Cup price in direct proportion to the weight of the plastic in the
Product. Pepsi and PRI agree to use best cooperative efforts to decrease
the applicable plastic resin material costs and to negotiate stable
plastic resin material prices annually, or for longer periods if
possible. Changes in PRI's resin costs will result in a concomitant
change to the container prices 30 days after the price change is
implemented by PRI's suppliers.
3
<PAGE>
3.3 MARKETING PREMIUM. Notwithstanding the provisions of Section 3.2 above,
Pepsi may from time to time, in its sole discretion, direct PRI to
increase the price of Cups sold to any customer(s) hereunder by a
specified amount ("Marketing Premium"), which may differ from one
customer to another. PRI agrees to collect such Marketing Premium on
Pepsi's behalf from the relevant customer(s) as part of the purchase
price of the Product, and to pay to Pepsi the aggregate amount of all
such Marketing Premiums collected on a quarterly basis, within thirty
(30) days of the close of the calendar quarter in which such Marketing
Premiums were collected. Payments to be sent to:
Ms. Jeany Mui
Marketing Manager
Fountain Beverage Division
Pepsi-Cola Company
700 Anderson Hill Road
Purchase, NY 10577
3.4 QUANTITY. Subject to the terms hereof, PRI agrees to manufacture and
sell up to [*] Cups to Pepsi or its designees in each Contract Year
during the Term of the Agreement, and the minimum quantity to be
purchased by Pepsi or its designees here-under shall be [*] Cups per
Contract Year, or such lower quantity as provided under Section 4.2
below.
3.5 GRAPHICS. At Pepsi's or its designee's request, the Product shall be
imprinted with customized graphics in up to eight (8) colors using line
art. Production runs for line art shall be a minimum of [*] Cups. If
process art is used an additional cost of [*], for each design, will
be charged by PRI and the minimum production run is [*] Cups. PRI
agrees that all printing of the Trademarks for the Product shall conform
to the standards specified by Pepsi, including the use of appropriate
legends, markings or notices of trademark ownership or registration.
3.6 CUSTOMER ORDERS. PRI shall assume full responsibility for the sale of
Product to Pepsi's designees, including timely processing of orders,
customer service, invoicing, order consolidation, quality control,
returns and receivables management, in keeping with good industry
practice. PRI acknowledges that except as expressly provided in Article
4 below, Pepsi is not responsible for, nor does it guarantee, any orders
(including payment therefor) by its designees.
3.7 TIMELY SHIPMENT. PRI agrees to ship the Product within seven (7) days
of the promised shipment date.
3.8 GRANT OF LICENSE. Pepsi hereby grants to PRI, and PRI accepts, a
non-exclusive, royalty-free license under the Patents and the Know-How
to manufacture and sell the Product in the United States and Canada as
provided herein, and the further nonexclusive right to apply the
Trademarks to the Product sold hereunder. PRI agrees to provide
samples of the Product upon request and to give Pepsi or its
representatives reasonable access to PRI's manufacturing premises in
order to permit the reasonable monitoring of Product quality and usage
of the Trademarks consistent with Pepsi's high standards.
4
<PAGE>
3.9 COST SAVINGS. Following the Full Production Date and for the Term of this
Agreement, PRI agrees to notify Pepsi of any and all manufacturing cost
savings effected for the Product (excluding plastic raw material price
fluctuations and use reduction), which will be shared equally between PRI
and Pepsi. For purposes of measuring changes in manufacturing efficiency
hereunder, the parties agree to refer to the target cycle times for the
Molds, which will be updated as of the Full Production Date, attached
hereto as SCHEDULE H.
ARTICLE 4
VOLUME PROJECTIONS, PRODUCTION TARGETS AND INVENTORY
4.1 VOLUME PROJECTIONS. For each full calendar year during the Term of the
Agreement, Pepsi will provide to PRI at a minimum semi-annual purchase
volume projections for the Product, at least 90 days in advance, for the
periods consisting of January 1 through June 30, and July 1 through
December 31, respectively. The volume projection for the Initial
Production Period shall be provided by Pepsi to PRI no later than ninety
(90) days prior to the Initial Production Date. Each volume projection
provided by Pepsi hereunder will specify monthly purchase targets for the
Product, and PRI will use such volume projections to determine staffing
and capacity allocation for the Product for the corresponding half of the
applicable calendar year or, as applicable, for the Initial Production
Period. For purposes of calculating the under-utilization fee in Section
4.3 below, only those monthly purchase targets falling within the
applicable Contract Year will be considered.
4.2 MINIMUM PURCHASE REQUIREMENT. Notwithstanding anything to the
contrary herein, Pepsi's minimum purchase requirement of [*] Cups per
Contract Year, as provided in Section 3.4 above, shall be subject to
adjustment as follows:
(a) Pepsi may purchase Cups for its own account to maintain actual
sales of the Product at or above [*] Cups in any Contract Year,
or such other minimum purchase requirement quantity as may then
be applicable;
(b) To the extent that PRI's actual production of the Product falls
below any monthly purchase target(s) specified by Pepsi in its
volume projection(s) provided under Section 4.1 above, up to a
maximum of [*] Cups per week, Pepsi's minimum purchase
requirement from the date of such shortfall shall be reduced by a
quantity of Product equal to the total shortfall in production,
which shall be cumulative for repeated occurrences;
(c) To the extent that Pepsi or its designees are required to cancel,
in whole or in part, any order(s) for the Product because of
breach of this Agreement by PRI, Pepsi's minimum purchase
requirement from the date of such cancellation shall be reduced by
a quantity of Product equal to the total quantity of Product
canceled, which shall be cumulative for repeated occurrences; and
(d) In the event of a reduction in PRI's manufacturing capacity for
the Product under Section 5.3 below, Pepsi's minimum purchase
requirement from the date of such
5
<PAGE>
reduction shall be reduced to [*] of the remaining installed
manufacturing capacity for the Product, subject to any other
adjustments provided herein.
4.3 UNDER-UTILIZATION FEE. Subject to the terms hereof, in the event
that PRI's sales of the Product in any Contract Year fall below the
amount of Pepsi's minimum purchase requirement under Section 4.2 above
for that Contract Year, for reasons not resulting from a breach of this
Agreement by PRI, the following shall apply:
(a) If actual sales of the Product for such Contract Year equal or
exceed the volume projections provided by Pepsi under Section 4.1
above, which are applicable to that Contract Year, Pepsi shall pay
to PRI an under-utilization fee of [*] per thousand Cups, for any
shortfall in volume of actual sales below Pepsi's minimum purchase
requirement for such Contract Year.
(b) If actual sales of the Product for such Contract Year are less
than the aggregate volume projections provided by Pepsi under
Section 4.1 above, which are applicable to that Contract Year,
Pepsi shall pay to PRI an under-utilization fee of the combined
total of:
(i) [*] per thousand Cups, for any shortfall of Pepsi's
aggregate volume projections applicable to that Contract
Year below Pepsi's minimum purchase requirement for such
Contract Year; and
(ii) [*] per thousand Cups, for the shortfall in the volume of
actual sales below Pepsi's volume projections applicable to
that Contract Year.
(c) The under-utilization fee as described herein shall be due and
payable by Pepsi to PRI within thirty (30) days of Pepsi's receipt
of PRI's invoice.
4.4 PRODUCTION TARGETS. PRI agrees to use best efforts to comply with the
production targets for the Product specified in the production timetable
attached hereto as SCHEDULE I, subject to customer demand.
4.5 INVENTORY. For the first Contract Year under this Agreement, PRI
agrees to carry an inventory of up to [*] Cups, as Pepsi may
direct, to support the initial market launch of the Product. In each
subsequent Contract Year, PRI shall carry an inventory of up to [*]
Cups as required to fill existing orders, as Pepsi may direct.
Such inventory requirements will be subject to the rated installed
production capacity of the Molds and related equipment used to
manufacture the Product, and the length of the notice of market launch or
subsequent requirements of the Product provided by Pepsi.
4.6 INCREMENTAL VOLUME. In the event that Pepsi or its designees desire to
purchase more than [*] Cups in any calendar year during the Term of the
Agreement, PRI shall have the right of first refusal, subject to the
terms hereof, to provide such incremental volumes on terms at least as
advantageous to Pepsi or its designees as those provided herein,
provided that such terms are competitive with respect to price, quality
and service; and provided further that in no case may the price charged
by PRI for such
6
<PAGE>
incremental volumes exceed the prices quoted to Pepsi in PRI's memo of
October 2, 1998, attached as SCHEDULE J and incorporated herein by
reference. Notwithstanding the foregoing, Pepsi may in its sole
discretion elect to source a portion of the overall volume of the
Product from an alternate supplier if Pepsi determines that such a
change is necessary for competitive reasons.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM. The Term of this Agreement shall commence as of the date first
written above and shall expire, unless terminated earlier as provided
below, on the earlier of:
(a) December 31, 2004; or
(b) Upon, the sale and delivery of a total of [*] Cups by PRI to
Pepsi or its designees, or such lower quantity as provided under
the terms of Section 4.2 above.
5.2 TERMINATION. Pepsi shall have the right to terminate this Agreement
without prejudice to any other rights it may have if:
(a) PRI defaults in the performance of any of its material
obligations, representations or warranties provided in this
Agreement, and such default is not substantially cured within
thirty (30) days of PRI's receipt of Pepsi's written notice of
such default;
(b) PRI is unable to pay its debts when due, or makes any assignment
for the benefit of creditors, or files any petition under
bankruptcy or insolvency laws of any jurisdiction, or has a
receiver or trustee appointed for its business, or is adjudicated
bankrupt or insolvent; or
(c) PRI, or any portion of its capital stock, is acquired by a
competitor of Pepsi in the beverage industry; or
(d) As provided in Section 5.3 (b) below.
5.3 ADVERSE BUSINESS CONDITIONS. Notwithstanding anything to the
contrary herein, if business conditions indicate that Pepsi will not be
able to achieve the minimum volume targets provided in this Agreement,
upon notice to PRI Pepsi may, in its sole discretion:
(a) Direct PRI to reduce manufacturing capacity for the Product by
a specified percentage within ninety (90) days, which PRI
agrees to do, in which case PRI will use best efforts to
re-deploy the manufacturing equipment for the Product taken
off-line to other uses to the extent possible. If PRI is able
to effect such re-deployment within ninety (90) days of
receiving the above notice from Pepsi, Pepsi shall have no
liability to PRI for the reduction in manufacturing capacity.
To the extent, if any, that PRI is unable to effect such
re-deployment of the manufacturing equipment taken off-line at
Pepsi's direction, PRI will use best
7
<PAGE>
efforts to sell such manufacturing equipment on reasonable
commercial terms. In the event of such a sale, Pepsi agrees to
pay to PRI the amount, if any, by which the proceeds of the
sale fall below the book value of the manufacturing equipment
at the time Pepsi's notice of a reduction in manufacturing
capacity was received. If, despite best efforts, PRI is not
able to sell the equipment taken off-line at Pepsi's direction
by one hundred eighty (180) days from its receipt of Pepsi's
original notice of a reduction in capacity, Pepsi will pay to
PRI the book value of such equipment as of the date such notice
was received by PRI, whereupon Pepsi shall take title to such
equipment and shall have the right to take immediate possession.
(b) Terminate this Agreement, in which case the following shall apply:
(i) PRI will use best efforts to re-deploy all manufacturing
equipment for the Product within ninety (90) days of
receipt of Pepsi's notice of termination. To the
extent, if any, that PRI is unable to effect such
re-deployment, PRI will use best efforts to sell such
manufacturing equipment on reasonable commercial terms.
In the event of such a sale, Pepsi agrees to pay to PRI
the amount, if any, by which the proceeds of the sale
fall below the book value of the manufacturing equipment
sold. Pepsi shall be entitled to receive a credit or
payment, at its sole election, from PRI for the amount,
if any, by which the proceeds of such sale exceed the
book value of the manufacturing equipment sold. If,
despite best efforts, PRI is not able to sell the
manufacturing equipment for the Product by one-hundred
eighty (180) days from its receipt of Pepsi's notice of
termination, Pepsi will pay to PRI the book value of
such equipment as of the date such notice was received
by PRI, whereupon Pepsi shall take title to such
equipment and shall have the right to take immediate
possession.
(ii) Notwithstanding anything to the contrary herein, Pepsi
shall have a right of first refusal, exercisable within
ninety (90) days of PRI's receipt of Pepsi's notice of
termination, to purchase any or all manufacturing
equipment for the Product at its book value as of the
date such notice was received by PRI. Pepsi's exercise
of this right shall relieve the parties of their
obligations under Section 5.3(b)(i) above.
5.4 RIGHTS AND OBLIGATIONS. Upon termination of this Agreement:
(a) PRI shall promptly cease all further use of the Patents, Know-How
and Trademarks, and all rights granted to PRI in such property
shall revert to Pepsi;
(b) Pepsi agrees to pay to PRI the full amount, if any, of under-
utilization fees then due under Section 4.2, with payment to be
made within sixty (60) days of such termination.
8
<PAGE>
ARTICLE 6
INTELLECTUAL PROPERTY
6.1 OWNERSHIP. PRI agrees to use the Patents, the Know-How and the
Trademarks only in connection with the Product and agrees that all of
PRI's use of such property under this Agreement inures to the benefit of
Pepsi. The parties acknowledge that Pepsi is the sole owner of all
rights in and to the Product, the Patents, the Know-How and the
Trademarks, including the goodwill associated therewith, and PRI agrees
not to contest Pepsi's ownership or the validity of the Patents, the
Know-How or the Trademarks during or after the Term of this Agreement.
Apart from the rights of PRI granted under Section 3.8 above, PRI shall
acquire no right, title or interest of any kind in or to the Patents, the
Know-How or the Trademarks.
6.2 ASSIGNMENT. PRI agrees to promptly identify, and to assign solely to
Pepsi during the Term of this Agreement the ownership rights to, any and
all inventions, improvements, enhancements, processes, artwork, designs
and other intellectual property which it creates, develops, has developed
or created for it, acquires or otherwise obtains in relation to the
Product in the course of performing this Agreement, and further agrees to
execute any and all appropriate documents to perfect such assignment. All
such assigned intellectual property shall be included within the defined
terms Patents, Know-How and Trademarks hereunder, as appropriate, and
shall be subject to the terms of this Agreement.
6.3 QUALITY STANDARDS. PRI shall insure at all times that the Product meets
the standards of quality provided in SCHEDULES A, B AND C hereto, as
amended from time to time by agreement of the parties. In the event that
the use of production molds by PRI results in Products that do not meet
the specifications contained in Schedule B hereto, then PRI and Pepsi
will use best efforts to achieve compliance with such specifications
and/or jointly agree to amend such specifications.
6.4 CONFIDENTIALITY.
(a) All confidential information ("Information") provided by either
party to the other in the performance of this Agreement or
pursuant to the Memorandum of Understanding, between the parties,
dated October 6, 1998, shall be held in strict confidence by the
receiving party for the sole and exclusive benefit of the
disclosing party, and shall not be disclosed or used for any
purpose other than for the performance of this Agreement without
the prior written consent of the disclosing party.
(b) As used herein, Information shall not include any information
which: is already in the possession of the receiving party at the
time of disclosure; is or becomes known to the public generally
through no fault or other action of the receiving party; or is
obtained lawfully from a third party who is not known to have
obtained such information directly or indirectly pursuant to an
obligation to keep such information confidential.
9
<PAGE>
(c) Each receiving party agrees to restrict distribution of
Information to its employees solely on a need-to-know basis, to
make no more than one copy of any Information, and to return all
written or tangible Information, including all copies and extracts
thereof, upon the request of the disclosing party.
(d) The parties acknowledge that no remedy at law for damages is
adequate to compensate for a breach of the provisions set forth in
this Section 6.4 and that the party injured by such breach shall
be entitled to temporary or permanent injunctive relief against
any such breach, without the necessity of proving actual damages.
The award of permanent or temporary injunctive relief shall in no
way limit any other remedies to which the injured party may be
entitled as a result of any such breach.
(e) The provisions of this Section 6.4 shall, as of the date hereof,
supersede the provisions of the previous confidentiality agreement
between the parties, dated October 8, 1997.
6.5 PROTECTION AND DEFENSE. Pepsi agrees to protect and defend the
Patents and Trademarks at its sole expense. PRI shall cooperate fully with
Pepsi in the protection and defense of the Patents and Trademarks and shall
promptly advise Pepsi of any potentially infringing uses by others, as well as
any claims or suits raised against PRI involving the Patents or Trademarks. All
decisions involving the protection or defense of the Patents or Trademarks shall
be solely in the discretion of Pepsi. PRI shall take no action in this regard
without the express written permission of Pepsi.
6.5 REMEDY FOR BREACH. PRI acknowledges and agrees that a breach of any of
the covenants, agreements or undertakings of this Article 6 or Article 8
below will cause Pepsi irreparable injury which cannot be readily
remedied in damages or solely by termination of this Agreement and that
Pepsi, in addition to all other legal and equitable remedies, including
costs and attorneys' fees, shall be entitled to injunctive relief without
any requirement to post bond, for any such breach by PRI.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNITY BY PRI. PRI shall defend, indemnify and hold Pepsi, its
subsidiaries and affiliates harmless from and against any and all
liabilities, losses, damages and expenses, including without limitation
reasonable attorney's fees and court costs, arising by reason of:
(a) Any breach of warranty or representation made by PRI under Article
9 hereof;
(b) Any personal injury or property damage resulting from a defect in
the materials or workmanship of the Product; or
(c) Any recall of the Product initiated by PRI.
10
<PAGE>
7.2 INDEMNITY BY PEPSI. Pepsi shall defend, indemnify and hold PRI, its
subsidiaries and affiliates harmless from and against any and all
liabilities, losses, damages and expenses, including without limitation
reasonable attorney's fees and court costs, arising by reason of:
(a) Any breach of warranty or representation made by Pepsi under
Article 9 hereof; or
(b) The bringing of any suit for infringement of U.S. patent or other
U.S. intellectual property rights of third parties relating solely
to the practice by PRI of the Patents or the application of the
Trademarks to the Product as authorized hereunder.
ARTICLE 8
EXCLUSIVITY
8.1 THE PRODUCT. PRI shall not sell or offer to sell the Product to any
purchaser other than Pepsi or its designees.
8.2 Competing Products. For the Term of this Agreement, PRI agrees not to
manufacture or sell to any competitor of Pepsi in the beverage industry,
any container similar to the Product, as determined by function and use
as outlined in the Patents, whether or not they eventually issue;
provided that this exclusion shall not prevent the manufacture or sale of
any similar container(s) that may be in commercial production by PRI as
of the effective date of this Agreement. For clarity, any such
containers currently in commercial production by PRI are described in
detail on SCHEDULE K hereto.
ARTICLE 9
REPRESENTATIONS AND WARRANTIES
9.1 WARRANTIES BY PRI. PRI represents and warrants that:
(a) It has all requisite corporate power, without the consent or
approval of any other person or entity, to execute, deliver and
perform under this Agreement,
(b) Its performance of this Agreement, and the Product manufactured
and sold hereunder, will comply with all applicable laws,
regulations, ordinances and governmental standards; and
(c) The Product manufactured and sold hereunder shall conform to
applicable design and performance specifications, shall be free
from defects in material and workmanship, and shall be delivered
to the customer in a timely manner.
(d) It has sufficiently addressed any issues that may arise in its
business in connection with either (a) date sensitive software or
(b) date sensitive integrated electronic circuitry so that any
such issues shall not materially interfere with PRI's performance
obligations under this agreement.
11
<PAGE>
9.2 WARRANTIES BY PEPSI. Pepsi represents and warrants that:
(a) It has all requisite corporate power, without the consent or
approval of any other person or entity, to execute, deliver and
perform under this Agreement, and to grant PRI the rights
hereunder;
(b) Its performance of this Agreement will comply with all applicable
laws, regulations, ordinances and governmental standards; and
(c) It is the owner of the Patents, the Know-How and the Trademarks.
ARTICLE 10
MISCELLANEOUS
10.1 NOTICES. All notices, consents, requests and other communications
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been duly given when sent addressed
to the other party as provided below, by certified, registered or Express
Mail, postage prepaid, or by hand delivery, with proof of receipt.
If to Pepsi: If to PRI:
Mr. Arthur Schick Mr. Howard Hoeper
Group Manager, Merchandising Equip. Chairman of the Board, President
Pepsi-Cola Company Packaging Resources Incorporated
MD 777 One Conway Park
1 Pepsi Way 100 Field Drive, Suite 300
Somers, NY 10589 Lake Forest, IL 60045
10.2 ASSIGNMENT AND BINDING EFFECT. This Agreement, or any of the rights
therein, may not be transferred or assigned in whole or in part by Pepsi,
except in connection with an assignment to successors of substantially
all of Pepsi's beverage business or in the case of an assignment to a
company controlled by or under common control with Pepsi, without the
consent of PRI, not to be unreasonably withheld. This Agreement, or any
of the rights therein, may not be transferred or assigned in whole or in
part by PRI without the consent of Pepsi. If assigned, this Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10.3 NO WAIVER. No failure or delay by either party to exercise its rights
under this Agreement, or to insist upon strict performance thereof, shall
be deemed to be a waiver by such party of its rights under this Agreement
or of any subsequent breach by the other party.
10.4 RELATIONSHIP OF PARTIES. The relationship of the parties hereto shall
be that of independent contractors. Nothing herein shall be deemed to
create any partnership, joint venture or agency relationship between the
parties or shall be deemed to render either party liable for the debts or
obligations of the other.
12
<PAGE>
10.5 DELAYS. Neither party to this Agreement shall be considered in
default in the performance of its obligations hereunder to the extent
that such performance is prevented or delayed by any cause which is
beyond the reasonable control of such party and which cannot be
overcome by due diligence; provided that the affected party gives
prompt notice to the other party and uses diligent efforts in good
faith to overcome the cause of the delay.
10.6 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the
laws of the State of New York without regard to conflicts of laws
principles thereof.
10.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto relating to the subject matter hereof, and no oral or
written statements or representations not embodied herein shall be of any
force or effect. This Agreement cannot be amended except by a written
instrument executed by both parties hereto.
10.8 SURVIVAL OF PROVISIONS. The expiration or termination of this
Agreement shall not affect those provisions, and the rights and
obligations therein, of this Agreement which either:
(a) by their terms state, or evidence the intent of the parties, that
the provisions survive such expiration or termination; or
(b) must survive to give effect to the provisions of this Agreement.
10.9 SEVERABILITY. If any provision of this Agreement shall be declared by
any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall be
unaffected and shall remain in full force and effect.
10.10 MINORITY BUSINESS. The parties agree to explore all reasonable
opportunities to utilize Minority Business enterprises in support of this
business.
10.11 HEADINGS. The article and section headings appearing in this
Agreement are inserted only for purposes of convenience and are not to
be construed as part of this Agreement or as a modification of the
scope of any terms or provisions thereof.
10.12 YEAR 2000. Supplier represents and warrants that it has sufficiently
addressed any issues that may arise in its business in connection with
either (a) date sensitive software or (b) date sensitive integrated
electronic circuitry so that any such issues shall not materially
interfere with Supplier's performance obligations under this agreement.
13
<PAGE>
IN, WITNESS WHEREOF, the parties hereto by their duly authorized
representatives have executed this Agreement as of the date first above
written.
PEPSI-COLA COMPANY PACKAGING RESOURCES INCORPORATED
a division of PEPSICO, INC.
By: /s/ John Swanhaus By: /s/ Howard P. Hoeper
------------------------ --------------------------
Date: September 9, 1999 Date: September 9, 1999
----------------------- ------------------------
Name: John Swanhaus Name: Howard Hoeper
Title: Vice President, Title: Chairman of the Board
Customer Marketing
14
<PAGE>
SCHEDULE A
Cup drawing #7005-100-001 revised on 3/17/99
Lid drawing #7001-100-001 revised on 3/19/99
Spout drawing #7000-044-001 dated 11/23/98
15
<PAGE>
Schedule B - Twist 'n Go Product Specification and Test Methods
(7 pages)
<PAGE>
PEPSI TWIST 'N GO SPECIFICATION - 32 OZ. CONTAINER SIZE
1. APPEARANCE/CONSTRUCTION
1.1. The TNG32 product consists of 3 component parts. The manufactured
geometry is controlled by the following drawings:
1.1.1. Cup: drawing #: 7005-100-001
1.1.2. Lid: drawing #: 7001-100-001
1.1.3. Spout drawing #: 7000-044-001
1.1.4. Straw: Length to be [*], diameter to be less
than or equal to [*].
1.2. APPEARANCE
1.2.1. Appearance to be consistent with containers used for soft
drinks. The container will be free of cosmetic defects,
sharp points and edges (as defined by ACTS sharp point test
method) and shall conform to the specifications below.
1.3. COLORS
1.3.1. Cup to be natural color Polypropylene, to be printed using
offset printing in up to 8 color flat line art or
equivalent.
1.3.2. Spout to be Pepsi blue Pantone color #: 287, as determined
by the use of Hannah concentrate #10023241.
1.3.3. Lid to be clarified Polypropylene.
1.4. GRAPHICS
1.4.1. Product graphics are to be controlled per Pepsi approved
sample.
1.4.2. Graphic artwork to be supplied by Pepsi.
2. CONFIGURATION/SIZE
2.1. CAPACITY
2.1.1. Capacity of the Cup to be 33.8 fl. oz. or 1000.4 cc. when
the Cup is filled to the top rim of the cup, as outlined by
the Volume Measurement Procedure in TNG TEST METHOD 2.1.
2.2. NESTING
2.2.1. Cups will nest to a pitch height of [*].
2.2.2. Lid assembly will nest to a pitch height of [*].
2.2.3. Cup and Lid assembly sleeved and co-packed, to fit a custom
box and not to exceed a total weight of 35 lb. Box to
contain [*] Cups and [*] Lid assemblies.
2.2.4. Straws are to be shipped separately or included in the
32TNG case at an optional cost.
2.3. COMPATIBILITY
2.3.1. Height of Cup to be less than or equal to [*] to fit
under [*] high fountain.
<PAGE>
2.3.2. Diameter of the Cup, at a height of 1.98" from the bottom
of the cup, to be less than 2.75". To fit into car cup
holder.
2.4. DRINK PRODUCTS
2.4.1. Compatible with the full range of Pepsi's carbonated and
non-carbonated products.
2.4.2. Ice will likely be part of the drink product.
2.5. STABILITY
2.5.1. Assembled product filled with Pepsi and in any orientation
to tilt to an angle of at least [*] DEG. from vertical as
specified in Stability Test in TNG TEST METHOD 2.2.
3. MANUFACTURE
3.1. PARTS
3.1.1. Damaged product should be eliminated from the production
flow and considered scrap.
3.2. TOOLS
3.2.1. Each cavity in every tool to be uniquely numbered. The
number is to appear on the molded part.
3.3. MATERIALS
3.3.1. Cup: PP grade to be Montell SC916 or Pepsi approved
equivalent.
3.3.2. Lid: PP grade to be a blend of 70% Exxon PD9505 and 30%
Montell PD701N or Pepsi approved equivalents.
3.3.3. Spout: PE grade to be a blend 60% Union Carbide HDPE DMDA
8940 and 40% Dow Plastics LDPE 9551 or Pepsi approved
equivalents.
3.3.4. Bottom of cup to be marked with a recycling symbol for
polypropylene.
4. ASSEMBLY
4.1. COMPONENTS
4.1.1. Assembly consists of a Cup, Lid, Spout and a straw. A bag
containing 160 straws is supplied separately and included
in the finished case.
4.1.2. The Spout and Lid are assembled by the manufacturer and
shipped as the Lid assembly.
4.2. SPOUT/LID ASSEMBLY
4.2.1. Spout is to be "snapped" onto the lid.
4.2.2. Spout to be assembled in the fully closed position.
4.2.3. Assembly process will not permanently deform or damage in
any way Lid or Spout components.
<PAGE>
5. USABILITY
5.1. SPOUT OPERATION
5.1.1. The torque required to initially turn the Spout should be
less than 6 in-lb. when applied uniformly to the Spout as
per the Spout Torque Test in TNG TEST METHOD 2.3.
6. SEALING
6.1. VENTING
6.1.1. The assembled product will vent mainly through the Spout
seals.
6.2. DRIP RATE THROUGH SPOUT
6.2.1. Drip rate of the secondary seal to be less than 1.4 fl oz
per minute (45 cc/minute) as defined in Spout Seal Test
specified in TNG TEST METHOD 2.4.
6.2.2. Drip rate to apply throughout the life of the product as
defined in section 7.2.1.
6.3. CUP/LID SEAL
6.3.1. The average leak rate for the Cup/Lid interface shall be
less than or equal to 0 fl. oz (0 cc) when observed over a
24 hour periods, as specified in the Cup Seal Test as
specified in TNG TEST METHOD 2.5.
6.3.2. Cups with nicks in their rim are considered damaged and
ought to be eliminated from production and considered
scrap.
6.3.3. The minimum tightening torque used to seal the Lid onto the
Cup to be determined after evaluation of the prototype
tools.
6.3.4. The seal should not leak when the Cup is subject to
diametrical compression up to 10 lb. as specified in Cup
Compression Test in TNG TEST METHOD 2.6.
6.3.5. The Cup/Lid seal should remain intact after a 12" Drop Test
as specified in TNG TEST METHOD 2.7.
7. PRODUCT LIFE
7.1. STORAGE
7.1.1. Product should meet this specification for a period of 9
months from the date of manufacture so long as containers
are stored between 50F and 100F.
7.2. PRODUCT WILL MEET THIS SPECIFICATION FOR THE FOLLOWING NUMBER OF
CYCLES:
7.2.1. 40 spout opening/closing cycles
7.2.2. Cup/Lid cycles to be determined.
7.3. ENVIRONMENTAL
7.3.1. Warehouse storage temperature range to be 50 DEG F to 100
DEG F.
7.3.2. Product to be stored protected from direct sunlight.
<PAGE>
8. AGENCY APPROVALS
8.1. MATERIALS TO HAVE FDA APPROVAL FOR DIRECT CONTACT WITH FOOD, TO
MEET FDA FOOD SIMULATING SOLVENT EXTRACTIVES 21 CFR 177.1520.
8.2. MATERIALS TO BE APPROVED BY PEPSI'S TASTE TEST PANEL EXPERTS NOT
TO TAINT DRINK PRODUCTS.
8.3. INKS/DYES NOT TO CONTAIN HEAVY METALS, TO MEET ACTS 16 CFR 1303
CPSA & ASTM F963-96a, OR EQUIVALENT.
8.4. ASSEMBLED PRODUCT (LESS STRAW) WILL MEET ACTS MECHANICAL DROP
TEST, 16 CFR PART 1500, OR EQUIVALENT.
8.5. ASSEMBLED PRODUCT (LESS STRAW) WILL MEET ACTS SMALL PARTS SAFETY
TEST, OR EQUIVALENT.
8.6. ASSEMBLED PRODUCT (LESS STRAW) WILL MEET ACTS FLAMMABILITY SAFETY
TEST, 16 CFR 1500.44, OR EQUIVALENT.
8.7. PRODUCT AS SHIPPED WILL MEET ASTM F963-92-PRECONDITIONING TEST
(TEMPERATURE EVALUATION), OR EQUIVALENT.
8.8. PRODUCT AS SHIPPED WILL MEET NATIONAL SAFE TRANSIT ASSOCIATION
(NSTA) SHAKE AND DROP TEST, OR EQUIVALENT.
9. DOCUMENTATION STANDARDS
9.1. DRAWING STANDARDS
9.1.1. Drawings to meet ASME Y14.5M-1994 standard or equivalent
standard agreed to be Pepsi.
9.1.2. Drawing units to be in inches.
9.1.3. All drawings to show Pepsi logo except those issued to
toolmakers.
9.1.4. Electronic database to be ProEngineer version 18, 19 or 20
or Unigraphics.
<PAGE>
PEPSI TEST METHODS
2.3. SPOUT TORQUE TEST
2.3.1. The Spout should be closed and must not have been
previously opened (as shipped condition).
2.3.2. The Spout is gripped in a fixture that is close fitting and
does not deform the Spout. A soft rubber imprint molding
is recommended. The Spout fixture is attached to a torque
gauge.
2.3.3. The Lid is gripped by a fixture around the flange.
Alternatively, the bottom of the cup may be rotated, while
it is attached to the lid. This will minimize lid
deformation.
2.3.4. The maximum torque required to rotate the Spout to an open
position (immediately prior the hard stop) is noted.
2.4. SPOUT SEAL TEST
2.4.1. The cup is filled with cool tap water and the lid is
applied to a torque of 25 in-lb. The filled product is
placed up side down in a fixture, which supports the rim of
the Lid evenly.
2.4.2. Leaked water is collected for a duration of 5 minutes, then
weighed and converted to volume. (Conversion factors listed
in 1.6.2.)
2.5. CUP SEAL TEST
2.5.1. The cup is filled with 700 mls of cool tap water and the
lid is applied to a torque of 25 in-lb. This filled product
is placed on its side, and orientated so that the spout is
in the 12 o'clock position, when looking at the product
head-on. This will establish the water level below the
spout, thus isolating any potential leakage to the Cup/Lid
interface.
2.5.2. Leaked water is collected for a duration of 24 hours
directly below the Cup/Lid interface, then weighed and
converted to volume. (Conversion factors listed in 1.6.2.)
2.6. CUP COMPRESSION TEST
2.6.1. The cup is filled with 700 mls of cool tap water and the
lid is applied to a torque of 25 in-lb. The filled
product's weight is measured.
\
2.6.2. This filled product is placed on its side, and orientated
so that the spout is in the 12 o'clock position, when
looking at the product head-on. This will establish the
water level below the spout, thus isolating any potential
leakage to the Cup/Lid interface.
2.6.3. A compressive load of 10 lb. is applied in a vertical
(radial direction to the long axis of the product)
direction to the Cup, 0.5" below the Cup flange. The load
is applied for a duration of 30 seconds.
2.6.4. The product is weighed again. The difference in weight is
converted into leak volume. (Conversion factors listed in
1.6.2.)
<PAGE>
2.7. 12" DROP TEST
2.7.1. A filled product is dropped in a horizontal orientation
onto a flat hard surface from a height of 12".
2.7.2. The condition of the assembly is inspected and any leakage
noted.
<PAGE>
SCHEDULE C - 32 OZ. TWIST 'N GO RESIN FORMULA AND PRICING
<TABLE>
<CAPTION>
PART RESIN
PERCENT GRAM GRAM MARKET PRICE ($/LB.) PART COST
PRODUCT PART RESIN TYPE COMPOSITION WEIGHT WEIGHT (AS OF 4/9/99) ($/THOU.CONTAINERS)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cup Montel SC916 [*] [*] [*] [*] [*]
Lid Exxon PD9505 [*] [*] [*] [*] [*]
Montel PD 701N [*] [*] [*] [*] [*]
Spout Union Carbide 8940 [*] [*] [*] [*] [*]
Dow 9551 [*] [*] [*] [*] [*]
-------------------------- -------------------
TOTALS [*] [*] [*]
AVERAGE RESIN COST [*]
OPTIONAL LID RESIN
Lid Montel SR832M [*] [*] [*] [*] [*]
</TABLE>
<PAGE>
SCHEDULE E - TWIST 'N GO COMMERCIALIZATION TIMETABLE
<PAGE>
PACKAGING RESOURCES, INC.
NEW VIENNA TECH CENTER
PEPSI 32 OZ TWIST 'N GO COMMERCIALIZATION SCHEDULE, VERSION 5
APRIL 12, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
TENTATIVE DATES
7/30/99 8/6/99 8/13/99 8/20/99 8/27/99 9/3/99 9/10/99 9/17/99 9/24/98 10/1/99 10/8/99
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE ASSEMBLIES/WEEK N/A N/A 630 950 1,010 1,200 1,200 1,200 1,600 1,600 1,923
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
INVENTORY 0 0 630 1,580 2,590 3,790 4,990 6,190 7,790 9,390 11,313
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
cc: Walt Riesen - NV Data shown above is in 1,000's.
Dan Curliss - EOTC
Howard Hoeper - LF
Joanna Hoeper - LF
Art Schick - Pepsi
<PAGE>
SCHEDULE F - EQUIPMENT DEPRECIATION SCHEDULE
<TABLE>
INITIAL
CAPITAL DEPRECIATION
ASSET DESCRIPTION MODEL TYPE COST YEAR
- ------------------------- ----------------- ---------- --------------
<S> <C> <C> <C>
HUSKY INJECTION MACHINE-CUP GL750RSJ 40/120 [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT) T-193
HUSKY INJECTION MACHINE-CUP GL750RSJ 40/120 [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT) T-193
HUSKY INJECTION MACHINE-CUP GL750RSJ 40/120 [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT) T-193
HUSKY INJECTION MACHINE-CUP GL750RSJ 40/120 [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT) T-193
HUSKY INJECTION MACHINE-LID GL750RSJ 40/120 [*] [*]
HUSKY INJECTION MACHINE-LID GL750RSJ 40/120 [*] [*]
HUSKY INJECTION MACHINE-LID GL750RSJ 40/120 [*] [*]
HUSKY INJECTION MACHINE-LID GL750RSJ 40/120 [*] [*]
XL 500P INJECTION MACHINE XL 500P [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT)
VAN DAM 8 COLOR PRINTER 568 SERIES [*] [*]
VAN DAM 8 COLOR PRINTER 568 SERIES [*] [*]
LID AND SPOUT ASSEMBLY MACHINE [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT)
LID AND SPOUT ASSEMBLY MACHINE [*] [*]
(INCLUDES PARTS HANDLING EQUIPMENT)
</TABLE>
NOTE: THE COST ABOVE REPRESENTS THE ORIGINAL COSTS OF THE EQUIPMENT EXCEPT FOR
THE XL 500P INJECTION MACHINE WHICH IS A USED MACHINE. THE COST OF THIS MACHINE
REPRESENTS THE NET BOOK VALUE AT 2/28/99 PLUS THE COST TO MODIFY IT.
<PAGE>
---------- PACKAGING RESOURCES, INC.
PACKAGING EASTERN OPERATIONS TECHNICAL CENTER
---------- 5566 NEW VIENNA ROAD
RESOURCES NEW VIENNA, OHIO 45159
---------- TELEPHONE, 937-987-3047
Schedule G FAX, 937-987-3077
----------
FACSIMILE COVER SHEET DATE: December 16, 1998
TO: Art Schick FROM: Mike Liming
COMPANY: Pepsi-Cola Company
FAX # 1-914-767-1828 CC: Walt Riesen
Dan Curliss
PAGES: 2 Joanna Hoeper
Howard Hoeper
- -------------------------------------------------------------------------------
REGARDING : Tool Maintenance for the 32 oz Twist'n Go Project
Attached is the Recommended Tool Maintenance Program you requested. All costs
are estimates at this time. Actual cost to Pepsi for any of the repairs listed
below should be discussed with Howard Hoeper.
PREVENTATIVE MAINTENANCE
Preventative maintenance will be performed in the injection molding machine
on a weekly basis. This type of program is currently performed on many of our
other high output tools. Our major objective is to clean the parting line
faces of contamination which results in excessive hobbing of the faces and
shortening the tool life. Most of the contamination comes from gas build up
on the mold parting line surfaces. Gas build up results when the resin is
under high pressure during injection and must escape through predetermined
vent areas along the parting line face. This high velocity of gas leaves
behind a black residue which if not cleaned properly can cause wear on the
parting line face.
MINOR MAINTENANCE
Minor maintenance will allow us to maintain the visual quality and dimensional
stability of the product. Surface finishes will be maintained to keep the visual
quality correct. The venting of the inserts will be maintained so the tool can
fill properly and hold the dimensional stability.
Estimated cost for each cup tool is [*] per tool, which results in [*] annually
per tool.
Estimated cost for each lid tool is [*] per tool, which results in [*]
annually per tool.
Estimated cost for the spout tool is [*], which results in [*] annually.
MAJOR REBUILD
Major rebuild will be required as minor maintenance fails to maintain the
visual quality and dimensional stability of the product. The parting lines
will be re-established with the molding surfaces specifications. This may
require repairing and/or replacing certain key items within the tool.
Estimated cost for each cup tool is [*] per tool every two years, [*]
annually per tool.
Estimated cost for each lid tool is [*] per tool annually.
Estimated cost for the spout tool is [*] every year and a half, [*] annually.
Please call if you have questions or concerns. Thanks!
<PAGE>
PACKAGING RESOURCES, INC.
EASTERN OPERATIONS TECHNICAL CENTER
RECOMMENDED INJECTION TOOL MAINTENANCE
For 32 oz Twist'n Go Tooling
December 16, 1998
<TABLE>
<S> <C>
I PREVENTATIVE MAINTENANCE
(Performed in the machine)
FREQUENCY
A Cup tool, sides, air eject. Weekly (estimated 47,000 cycles)
1. clean cavity tapers and molding surface
2. clean cavity plate
3. clean core taper and molding surface
4. clean core slide tapers and molding surface
5. clean core slide plate and re-lubricate
B. Lid tool, rotating ratchet ring, mechanical ejection. Weekly (estimated 40,000 cycles)
1. clean cavity faces and molding surface
2. clean cavity plate
3. clean core molding surfaces
4. clean core plate
C. Spout tool, expandable cavity, mechanical ejection. Weekly (estimated 54,000 cycles)
1. clean cavity faces and molding surface
2. clean cavity plate
3. clean core molding surfaces
4. clean expandable cavity taper and molding surfaces
II. MINOR MAINTENANCE
(Performed at the Tech Center)
FREQUENCY
A. Cup, lid, and spout tools cup tool - every six months (timing one week)
1. dis-assemble inserts from mold frame lid tool - every four months (timing one week)
2. dis-assemble hot runner from mold frame spout tool - every four months (timing one week)
3. clean all inserts
4. re-finish molding surfaces of inserts to original
specification as needed
5. vent inserts where necessary
6. clean all plates
7. replace pins and bushings as needed
8. clean hot runner exterior
9. inspect and log tip heights on hot runner
10. replace tips and tip heaters on hot runner as needed
11. assemble inserts and hot runner to mold frame
12. water check
13. air check
III. MAJOR REBUILD
(Performed at the Tech Center)
FREQUENCY
A. Cup, lid, and spout tools cup tool - every 24 months (timing four weeks)
1. dis-assemble inserts from mold frame lid tool - every 12 months (timing four to five weeks)
2. dis-assemble hot runner from mold frame spout tool - every 18 months (timing five weeks)
3. clean all inserts
4. inspect all inserts
5. plate, grind, and/or machine all parting line surfaces to
re-establish proper molding surface specifications
6. re-finish molding surfaces of inserts to original
specification as needed
7. replace and/or repair sprues
8. replace and/or repair taper lock items
9. vent inserts where necessary
10. clean all plates
11. inspect all plates, grind if necessary
12. replace pins and bushings as needed
13. replace and/or rebuild air or hydraulic cylinders
14. clean hot runner exterior
15. inspect and log tip heights on hot runner
16. replace tips and tip heaters on hot runner as needed
17. assemble inserts and hot runner to mold frame
18. water check
19. air check
</TABLE>
<PAGE>
SCHEDULE H - TARGET MOLDING CYCLE TIMES
<TABLE>
<CAPTION>
Target
Mold Cycle
Part Cavitation Time (sec.) Actual at Full Production
- ------- ----------- ----------- ------------------------------
<S> <C> <C> <C>
Spout [*] [*]
Lid [*] [*]
Cup [*] [*]
</TABLE>
<PAGE>
SCHEDULE I - FINISHED PRODUCT PRODUCTION TARGETS
(6 pages)
[*]
<PAGE>
[LOGO] SCHEDULE J
Howard P. Hoeper
Chairman of the Board
President
02 October 1998
Mr. Arthur J. Schick
Director - Supplier Development
THE PEPSI COLA COMPANY
1 Pepsi Way
Somers, New York 10589-2201
RE: TWIST N' GO
Dear Arthur:
Set forth below are the volume discounts for the Twist N' Go to be included in
our Memo of Understanding as Schedule D.
Volume Per Cup Price
------ -------------
1. [*] [*]
2. [*] [*]
3. [*] [*]
4. [*] [*]
Sincerely,
/s/ Howard
Howard P. Hoeper
President & CEO
CC: Cie Nicholson
Packaging Resources Incorporated
One Conway Park - 100 Field Drive - Suite 300 - Lake Forest, Illinois 60045 -
847/615-5301 - Fax 847/295-3707
<PAGE>
SCHEDULE K - COMPETING PRODUCTS
(2 pages)
<PAGE>
YOUR RESOURCE
FOR PROMOTIONAL CUPS | IDEAS | GRAPHICS
[GRAPHIC]
<PAGE>
PACKAGING RESOURCES INCORPORATED
SEVERANCE PLAN
ARTICLE I
INTRODUCTION
1.1 PURPOSE. Packaging Resources Incorporated Severance Plan (the
"Plan") has been established by Packaging Resources Incorporated (the "Company")
to provide severance pay to certain employees who "terminate" employment with
the Company or an affiliate of the Company under certain circumstances.
1.2 EFFECTIVE DATE. The effective date of the Plan (the "Effective
Date") is April 20, 2000.
ARTICLE II
DEFINITIONS
2.1 "CAUSE" means personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties or willful violation of any law, rule or
regulation or final cease-and-desist order which results in a material loss to
an Employer.
2.2 "CHANGE OF CONTROL" shall be deemed to occur upon the consummation
by the Company of a reorganization, merger or consolidation or a sale or other
disposition of all or substantially all of the assets of the Company or of a
majority of the voting stock of the Company which has been approved or
recommended by individuals who, as of the date hereof, constitute the Board of
Directors of the Company.
2.3 "COVERED EMPLOYEES" means the Tier I Employees and the Tier II
Employees.
2.4 "EMPLOYER" means the Company and any successors or assigns of any
of the foregoing.
2.5 "GOOD REASON" shall exist if, without the Covered Employee's
express written consent:
(a) an Employer reduces the nature, scope, level or extent of the
Covered Employee's responsibilities from the nature, scope, level or
extent of such responsibilities prior to the Change of Control, or an
Employer fails to provide the Covered Employee with adequate office
facilities and support services to perform the nature, scope, level or
extent of the Covered Employee's responsibilities;
(b) an Employer reduces the Covered Employee's salary below his or
her salary in effect as of the date of the Change of Control;
(c) an Employer requires the Covered Employee to relocate the
Covered Employee's principal business office or principal place of
residence from its location on the Effective Date, or assigns to the
Eligible Employee duties that would reasonably require such relocation;
or
(d) an Employer fails to continue in effect any cash or stock-based
incentive or bonus plan, pension plan, welfare benefit plan, or other
benefit plan, program or arrangement,
<PAGE>
unless the aggregate value (as computed by an independent employee
benefits consultant selected by an Employer) of all such compensation,
pension and welfare benefit plans, programs and arrangements provided
to the Covered Employee is not materially less than their aggregate
value as of the date of the Change of Control.
2.6 "SEVERANCE PAY" means the amount of a Covered Employee's severance
pay as identified on SCHEDULES A and B to the Plan.
2.7 "TIER I EMPLOYEE" means the employees identified on SCHEDULE A
to the Plan.
2.8 "TIER II EMPLOYEES" means the employees identified on SCHEDULE B to
the Plan.
ARTICLE III
BENEFITS
3.1 COVERED TERMINATIONS. A Tier I Employee is eligible to receive
Severance Pay upon a Change of Control. A Tier II Employee whose employment with
an Employer is terminated within six months of a Change of Control by such
Employer for any reason except as listed in SECTION 3.2 or by such Tier II
Employee for Good Reason is eligible to receive Severance Pay under the Plan.
3.2 TERMINATIONS NOT COVERED. In no event shall a Tier II Employee who
is terminated because of a voluntary resignation (other than for Good Reason) or
discharge for Cause be eligible to receive Severance Pay under the Plan.
Notwithstanding anything to the contrary herein, in no event shall a Covered
Employee who receives, or is eligible to receive, benefits under the Packaging
Resources Change of Control Plan be eligible to receive Severance Pay under the
Plan.
3.3 AMOUNT OF SEVERANCE PAY. A Covered Employee who is eligible to
receive Severance Pay under the Plan shall receive the amount of Severance Pay
identified opposite such Covered Employees name on SCHEDULE A or SCHEDULE B to
the Plan, as applicable. Severance pay under the Plan shall be in addition to
accrued but unpaid vacation benefits payable in connection with the Covered
Employee's termination of employment.
3.4 PAYMENT OF SEVERANCE PAY. A Tier I Employee's Severance Pay under
the Plan shall be paid to him in a single sum immediately upon the occurrence of
a Change of Control, subject to the provisions of SECTION 3.2. A Tier II
Employee's Severance Pay under the Plan shall be paid to him or her in a single
sum immediately upon his or her termination of employment with an Employer,
subject to the provisions of SECTION 3.2.
ARTICLE IV
ADMINISTRATION
4.1 ADMINISTRATOR; POWERS AND DUTIES. The Company shall administer the
Plan. The Company shall have the following powers, duties and discretion, in
addition to all other powers and discretion otherwise provided by the Plan and
applicable law:
(a) to make, amend and enforce such rules and regulations as it
deems necessary or proper for the administration of the Plan;
<PAGE>
(b) to construe and interpret the provisions of the Plan;
(c) to decide all questions concerning the Plan and the eligibility
of any person to receive benefits under the Plan, and to determine the
amount, manner and time of any benefits under the Plan;
(d) to prepare, file with appropriate governmental agencies and
distribute to Covered Employees in such manner as it considers
appropriate information, disclosures, descriptions and reporting
documents regarding the Plan; and
(e) to allocate and delegate its responsibilities under the Plan
and to designate other persons to carry out any of its responsibilities
under the Plan, any such allocation, delegation or designation to be in
writing.
4.2 CLAIMS PROCEDURE. All disputes shall be filed in writing with the
Company. The Company shall decide all disputes under the Plan within 30 days. If
special circumstances require, the Company shall notify the claimant in writing
within 30 days and decide the claimant's claim within 90 days. Any denial by the
Company of a claim for benefits shall be stated in writing and shall set forth
the specific reasons for the denial. In addition, the Company shall afford a
reasonable opportunity to any claimant whose claim for benefits has been denied
a review of the decision denying the claim.
ARTICLE V
AMENDMENT AND TERMINATION
The Board of Directors of the Company may amend, abandon or terminate
the Plan in whole or in part from time to time; PROVIDED, HOWEVER, that no
amendment, abandonment or termination may reduce the amount of benefits payable
to any Covered Employee under ARTICLE III or the circumstances under which such
benefits are payable, unless each affected Covered Employee agrees in writing to
the modification, waiver or discharge.
ARTICLE VI
MISCELLANEOUS
6.1 NO CONTRACT OF EMPLOYMENT. The Plan shall not constitute an
employment contract and shall not expand a person's employment rights with an
Employer. All Employees are "at will" employees of an Employer unless otherwise
specified in a written agreement signed on behalf of such Employer.
6.2 GOVERNING LAW. THE PLAN SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS TO THE EXTENT NOT INCONSISTENT
WITH FEDERAL LAW.
6.3 CONSTRUCTION. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender.
<PAGE>
IN WITNESS WHEREOF, the Company has caused the Plan to be executed as
of the Effective Date.
PACKAGING RESOURCES INCORPORATED
By: /s/ Howard P. Hoeper
Name: Howard P. Hoeper
Title: President and Chief Executive Officer
Schedule A
[*]
Schedule B
[*]
<PAGE>
EXHIBIT 12.1
PACKAGING RESOURCES INCORPORATED
STATEMENT RE COMPUTATION OF FINANCIAL RATIOS
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------
Feb. 29 Feb. 28 Feb. 28 Feb. 28 Feb. 29
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
EBITDA:
Net income (loss) before
extraordinary item...................... 1,333 247 (30) 2,493 (4,861)
Income tax expense (benefit).............. 1,006 491 346 1,880 (3,240)
Interest expense.......................... 10,671 12,711 13,580 13,891 15,703
Depreciation and amortization............. 9,721 8,039 7,920 8,764 9,603
Other expense............................. -- -- 800 -- 6,721
------ ------- ------ ------ ------
EBITDA.................................... 22,731 21,488 22,616 27,028 23,926
====== ======= ====== ====== =======
Earnings to fixed charge ratio:
Fixed charges:
Interest expense before deferred
financing costs................... 9,011 11,839 12,916 13,227 15,039
Interest element of rentals(1)....... 687 586 518 557 1,734
Amortization of deferred financing
cost................................ 1,660 872 664 664 664
------ ------- ------ ------ ------
Total fixed charges...................... 11,358 13,297 14,098 14,448 17,437
Earnings:
Net Income (loss) before
extraordinary item.................... 1,333 247 (30) 2,493 (4,861)
Income tax expense (benefit)............ 1,006 491 346 1,880 (3,240)
Fixed charges........................... 11,358 13,297 14,098 14,448 17,437
------ ------- ------ ------ ------
Total earnings.......................... 13,697 14,035 14,414 18,821 9,336
====== ======= ====== ====== ======
Ratio of earnings to fixed charges.. 1.21 1.06 1.02 1.30 --(2)
====== ======= ====== ====== =======
</TABLE>
(1) Deemed to be approximately one-third of rental expenses.
(2) In fiscal 2000, earnings were insufficient to cover fixed charges by
$8,101.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS FROM THE COMPANY'S FORM 10-K FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 304
<SECURITIES> 0
<RECEIVABLES> 15,676
<ALLOWANCES> (135)
<INVENTORY> 30,353
<CURRENT-ASSETS> 48,276
<PP&E> 147,241
<DEPRECIATION> (60,295)
<TOTAL-ASSETS> 156,134
<CURRENT-LIABILITIES> 27,285
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (18,593)
<TOTAL-LIABILITY-AND-EQUITY> 156,134
<SALES> 146,326
<TOTAL-REVENUES> 146,326
<CGS> 123,285
<TOTAL-COSTS> 123,285
<OTHER-EXPENSES> 15,439
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,703
<INCOME-PRETAX> (8,101)
<INCOME-TAX> (3,240)
<INCOME-CONTINUING> (4,861)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,861)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
