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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission File Number 33-60714
IVEX PACKAGING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 76-0171625
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
100 TRI-STATE DRIVE 60069
LINCOLNSHIRE, ILLINOIS (Zip Code)
(Address of Principal Executive Office)
Registrant's Telephone Number, including area code: (847) 945-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each Exchange on which registered:
Common Stock, $0.01 par value New York Stock Exchange
Common Stock, $0.01 par value Chicago Stock Exchange
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]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was $302 million based upon the closing price of $15 3/4 on
March 2, 1999.
At March 2, 1999, 20,934,602 shares of Common Stock, par value of
$0.01, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II incorporate by reference portions of the Registrant's
Annual Report to Security Holders for the fiscal year ended December 31, 1998
and Part III incorporates by reference portions of the Registrant's Proxy
Statement for the fiscal year ended December 31, 1998 relating to the Annual
Meeting of Stockholders to be held on May 11, 1999.
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TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 13
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosures 15
PART III
Item 10. Directors and Executive Officers of the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain Beneficial Owners and Management 15
Item 13. Certain Relationships and Related Transactions 15
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16
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PART I
ITEM 1. BUSINESS
GENERAL
Ivex Packaging Corporation, a Delaware corporation (the "Company" or
"Ivex"), is a vertically integrated specialty packaging company that designs and
manufactures value-added plastic and paper-based flexible packaging products for
consumer and industrial packaging markets. Ivex focuses on niche markets which
management believes provide attractive margins and growth and where the
Company's integrated manufacturing capabilities can enhance its competitive
position. Ivex serves a variety of markets, providing packaging for food,
medical devices and electronic goods and protective packaging for industrial
products.
MARKETS
Consumer Packaging. The Consumer Packaging product group designs and
manufactures plastic and paper-based products for food packaging applications
and for applications in the medical and electronics industries. The Company
produces a broad array of items, including plastic containers for prepared
foods, produce and baked goods; specialty paper products such as fluted baking
cups and liners for cookies and other baked goods; microwaveable packaging
materials; and protective packaging for medical devices and electronics
products. The Consumer Packaging product group markets its products to a variety
of end users, including national wholesale bakeries, supermarket chains,
foodservice distributors, fast-food chains, major agricultural growers, medical
equipment suppliers and electronics manufacturers. The Company also manufactures
a variety of plastic sheet and film products from several different resins for
internal use and sales to third party converters. Ivex is the leading producer
of oriented polystyrene ("OPS") sheet in North America. The Consumer Packaging
product group represented approximately 63% of the Company's net sales and 67%
of the Company's Adjusted EBITDA during the year ended December 31, 1998. The
Company's Consumer Packaging product group is hereinafter sometimes referred to
as "Consumer Packaging".
Industrial Packaging. The Industrial Packaging product group
manufactures and coats film, paper and foil products for protective packaging
and specialty papers. The Company produces products for some of the fastest
growing applications in the protective packaging industry, including film and
paper maskings and self-sealing coated packaging applications. These products
are marketed primarily to consumer durable goods manufacturers, automotive
companies, other industrial manufacturers and integrated paper producers. The
Company also manufactures a variety of recycled kraft paper made from
post-consumer and post-industrial fibers. The Industrial Packaging product group
represented approximately 37% of the Company's net sales and 33% of the
Company's Adjusted EBITDA during the year ended December 31, 1998. The Company's
Industrial Packaging product group is hereinafter sometimes referred to as
"Industrial Packaging".
The Company's principal operating subsidiary is IPC, Inc. ("IPC") and
IPC's principal domestic operating subsidiaries are Kama of Illinois
Corporation, Ivex Paper Mill Corporation, Plastofilm Industries, Inc. and Ultra
Pac, Inc. and principal foreign operating subsidiaries are Ivex Corporation and
Ivex Holdings, Ltd. The following trademarks used herein are owned by the
Company or one of its affiliates: Ivex(R), Kama(R), Plastofilm(R), Ultra Pac(R)
M&R(TM), Jet-Pak(R), Jet-Lite(R) and Jet-Cor(TM). IPC was formed in December
1992 to hold the businesses of the Company. As a condition to and concurrently
with IPC's December 1992 offering of $158.0 million of 12 1/2% Senior
Subordinated Notes due 2002 (the "12 1/2% IPC Notes"), the Company transferred
all of the Company's then existing operating subsidiaries to IPC in exchange for
all of the shares of IPC's common stock and the assumption by IPC of certain
debt obligations of the Company. As a result, the Company's operating
subsidiaries became wholly-owned subsidiaries of IPC. In March 1993, the Company
issued $160.0 million of 13 1/4% Senior Discount Debentures due 2005 (the "13
1/4% Debentures") for an aggregate consideration of approximately $65.0 million.
The Company used a portion
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of the $65.0 million of proceeds from the 13 1/4% Debentures to redeem
securities of the Company held by certain investors and the Company contributed
the remaining portion of the proceeds from the 13 1/4% Debentures to IPC. On
October 6, 1997, the Company completed its initial public offering of 9,660,000
shares of its common stock (the "1997 Common Stock Offering") pursuant to which
the Company received net proceeds of $117.3 million which it used, together with
the proceeds of a $475.0 million amended and restated credit facility, to redeem
all of the 12 1/2% IPC Notes and all of the 13 1/4% Debentures. On May 27, 1998,
the Company completed a secondary offering of 4,000,000 shares of common stock
(the "Secondary Offering") pursuant to which the Company sold 500,000 shares of
common stock and received net proceeds of $10,702,000 which it used to pay down
borrowings under the Company's revolving credit facility. In the Secondary
Offering, other selling stockholders sold 3,500,000 shares and the Company did
not receive any of the proceeds from the sale of such shares.
The Company's principal executive offices are located at 100 Tri-State
Drive, Suite 200, Lincolnshire, Illinois 60069, and its telephone number is
(847) 945-9100.
GENERAL DESCRIPTION
The following table illustrates the products that Ivex manufactures:
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER 31, 1998
-----------------
NET ADJUSTED
PRODUCT GROUP SALES EBITDA PRODUCT CUSTOMERS END PRODUCT USES
------------- ----- -------- ------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Consumer Packaging $383,277 $77,425 Plastic containers, Supermarkets, Plastic hinged and
corrugated paper foodservice two-piece containers,
liners and distributors, trays for deli foods,
speciality paper fast food chains, salads, cookies,
products, OPS sheet bakery and berries and cakes,
and film, HIPS sheet, confectionary companies, film for envelopes
PET sheet, PP sheet, food processors, and box windows,
PVC sheet and HDPE plastic converters, protective plastic
sheet envelope and folding packaging for medical
carton manufacturers, and electronics
medical device and applications, paper
supply companies and liners for cookies,
electronics microwaveable packaging
manufacturers materials, fluted
bakery cups and
specialty paper
products
Industrial Packaging 223,174 37,948 Protective packaging, Automotive companies, Paper and film
including coated paper consumer durables protective masking
and plastic, single manufacturers, other materials, cohesive
face corrugated paper, industrial manufacturers, self-sealing
shippers and mailers paper distributors and packaging papers,
and manufactured paper, manufacturers of postage coated papers for
including kraft papers stamps, business forms stamps, labels and
and specialty and paper converters business forms,
recycled papers single face corrugated
paper for packaging,
shippers and mailers,
grocery and food bags
Corporate Expenses (7,622)
-------- --------
Total $606,451 $107,751
======== ========
</TABLE>
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CONSUMER PACKAGING
General. The Consumer Packaging product group is an integrated
manufacturer of plastic and paper products for use in a wide array of food
applications and medical and electronics packaging applications. The food
packaging products are typically used for items sold in supermarkets, wholesale
and retail bakeries, fast-food restaurants and institutional foodservice
outlets. The Company's medical packaging products typically are used by the
major medical supply companies for sterility packaging and its electronics
packaging products generally are used as cushioning materials.
Products. Consumer Packaging's products consist primarily of
thermoformed plastic containers used in food, medical and electronics markets
and paper products used in food packaging applications. Thermoformed plastic
packaging includes hinged and two-piece containers, trays for delicatessen
foods, salads, cookies, cakes and other items, sterility packaging for medical
applications and cushioning products for the electronics industry. Paper
products consist of single face corrugated paper liners for cookies and other
baked goods, microwaveable materials, fluted cups for baking and other specialty
paper products.
As part of its integrated operations, Ivex manufactures OPS sheet and
also produces OPS film, high impact polystyrene ("HIPS") sheet, polyethylene
terephthelate ("PET") sheet, polypropylene ("PP") sheet, high density
polyethylene ("HDPE") sheet and polyvinyl chloride ("PVC") sheet. OPS sheet is
widely used in packaging applications where clarity, rigidity and material yield
are significant considerations. HIPS sheet is used in similar applications where
clarity is not as important, but where additional stress or crack resistance is
required. PET, PP, HDPE and PVC sheet are also typically used in applications
that require stress or crack resistance. OPS film is a thinner gauge version of
OPS sheet with applications primarily in windows for envelopes and folding
cartons as well as labels. The Company's OPS sheet and film, HIPS sheet, PET
sheet, PP sheet, HDPE sheet and PVC sheet are marketed under the Company's
Kama(R) brand name.
Markets. The principal markets for Ivex's food packaging products
include supermarkets, particularly in-store bakery, delicatessen and prepared
food sections; national wholesale bakeries; and food service outlets,
particularly fast-food restaurants and institutions such as schools, hospitals
and corporate cafeterias. The principal markets for the Company's medical and
electronics packaging include medical device and supply manufacturers and
electronics manufacturers.
Ivex employs a national sales force to service each of the specific
market segments that it targets. Approximately half of the packaging customers
are serviced through distributors, with the balance serviced directly by the
Company's national account sales representatives. The Company also markets to
end-users served by its distributors, such as small and regional supermarkets
and convenience food outlets. Brokers are also used to further penetrate
specific geographic markets and access prospective customers.
Manufacturing. The Company's plastic packaging products are
manufactured internally at the Company's two polystyrene polymerization, eight
extrusion and fifteen thermoforming facilities. Polystyrene polymerization is
the process of converting liquid styrene monomer into polystyrene through heat
and agitation under high pressure. The Company produces high quality polystyrene
as measured by the polystyrene's low residual monomer levels.
Extrusion is the process of converting plastic resin into plastic sheet
and film used in the thermoforming process. The Company is one of only two OPS
producers that have polystyrene polymerization manufacturing facilities.
Ivex's plastic thermoforming and paper converting operations are
principally conducted in seventeen facilities located throughout North America
and Europe.
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INDUSTRIAL PACKAGING
General. The Industrial Packaging product group is an integrated
manufacturer and coater of a variety of film, paper and foil products for
protective packaging and a manufacturer and coater of various grades of papers.
Products. Protective packaging products include protective paper and
film maskings; self-sealing coated packaging papers, films and corrugated paper;
and heavy-duty mailing envelopes marketed under the brand names Jet-Lite(R),
Jet-Cor(TM) and Jet-Pak(R). The Company's manufactured papers include
post-consumer and post-industrial recycled paper products (including lightweight
kraft paper for grocery and food bags and heavyweight crepe kraft paper for bag
closures). The Company's coated papers include water-activated gummed papers
used for postage stamps, labels, and envelopes, release papers used for
high-pressure decorative laminates, and laminations used for lottery ticket
stock and decorative labels.
Markets. The Company's industrial packaging products are used in a wide
variety of commercial and industrial applications.
Ivex believes that it is one of the largest producers of industrial
protective masking materials in North America. The Company's products in this
market range from adhesive coated paper and films to coextruded films with
adhesive properties. These paper and film maskings are used to protect surfaces
during manufacturing, handling, storage and shipping. The Company's products
must meet specifications for a broad array of surfaces requiring protection,
including glass, plastic, wood, polished and painted metals, automotive trim,
plastic laminates, furniture and marble.
Ivex applies adhesive and cohesive coatings to paper, films and single
face corrugated paper products for high-speed, high-volume, self-sealing
packaging applications. A cohesive package is designed to stick to itself and
not to the contents. The Company uses proprietary formulations of adhesive and
cohesive materials to meet specialized customer requirements. Typical end-users
of self-sealing packaging systems are the major U.S. automotive parts
manufacturers and book publishers. The Company also produces water-activated
gummed printing papers used for labels, commercial and postage stamps and
business forms and release papers that are used in the manufacture of high
pressure decorative laminates.
All of Ivex's low density polyethylene film is used internally in the
production of its film masking and self-sealing packaging products and
approximately 23% of the Company's recycled kraft paper is used internally in
the production of single face corrugated paper, cohesive coated paper and
mailing envelopes. Principal third-party markets for the Company's manufactured
paper products are food packaging, industrial packaging, bag converting and
industrial converting, including grocery and food bags; envelopes; and bag
closures in pet food, seed, and fertilizer packaging. These markets require high
service levels, including fast delivery and the ability to produce a variety of
colors, weights and formulations. Customers for the Company's manufactured paper
products include large, integrated paper producers as well as packaging
companies.
Manufacturing. Ivex's primary raw materials for protective packaging
products, principally low density polyethylene, specialty chemicals and paper,
are obtained from external sources as well as from the Company's low density
polyethylene extrusion facility and recycled paper mill operations.
Ivex's coating and paper converting operations are conducted at eleven
facilities throughout the U.S. and Canada.
All of the paper produced at the Company's three paper mills is made
entirely from post-consumer and post-industrial fibers, including old corrugated
containers ("OCC") and double-lined kraft ("DLK"). The Company was among the
first to use 100% recycled post-industrial fibers at one of its mills. On
November 20, 1998, the Company sold its mill located in Detroit, Michigan to
Packaging Holdings, L.L.C., a joint venture in which the Company owns a 49.5%
equity interest.
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COMPETITION
The Company operates in markets that are highly competitive and faces
substantial competition throughout all of its product lines from numerous
national and regional companies. Many of these competitors are considerably
larger than the Company and have substantially greater financial and other
resources than the Company, while others are significantly smaller with lower
fixed costs and greater operating flexibility. In addition to price, competition
with respect to many of the Company's products is based on quality, supplier
response time, service and timely and complete order fulfillment.
The Company's main competitor in the supermarket and foodservice
segments is Tenneco Packaging. In the bakery area, the Company competes
primarily with Detroit Forming Inc. in plastic products and Fort James
Corporation in paper products. The Company competes with several manufacturers
of OPS sheet, including Detroit Forming and Plastic Suppliers, Inc. In the
medical and electronics markets, the Company competes with many regional
thermoformers, including Prent Corporation and Placon Corp. The Company competes
primarily with the Dow Chemical Company in the OPS film market. Ivex's major
competitors in protective masking include a joint venture between Minnesota
Mining and Manufacturing Company and Sealed Air Corporation, American Biltrite,
Inc. and Main Tape Company, Inc. The Company competes primarily with Sealed Air
Corporation and AVI Products, Inc. in the mailing envelope market.
EMPLOYEES
As of December 31, 1998, the Company had 23 employees at its
Lincolnshire, Illinois corporate headquarters and had 3,559 employees at plant
locations, of which 751 were salaried and 2,808 were hourly. Of the hourly
workers, approximately 996 were members of unions. The Company has collective
bargaining agreements with nine unions in effect with respect to certain hourly
employees at the Company's Joliet, Peoria, Chagrin Falls, Troy, Newton, Avenel,
Grove City, Elyria, Newcastle, Wakefield and Laval facilities. There have been
no significant interruptions or curtailments of operations due to labor disputes
in the last five years, and the Company believes that relations with its
employees are good. The collective bargaining agreements at the Company's Troy
facility will expire in 1999; the collective bargaining agreements at the
Company's facilities in Elyria, Joliet, Peoria and Laval will expire in 2000;
the collective bargaining agreement at the Company's facilities in Grove City,
Newcastle and Wakefield will expire in 2001; and the collective bargaining
agreement at the Company's facilities in Avenel, Newton and Chagrin Falls will
expire in 2002.
RAW MATERIALS
Styrene monomer, polystyrene, polyethylene, polypropylene, polyvinyl
chloride and various paper-based commodities (primarily recycled fiber)
constitute the principal raw materials used in the manufacture of the Company's
products. Generally, these raw materials are readily available from a wide
variety of suppliers. Costs for all of the significant raw materials used by the
Company tend to fluctuate with various economic factors which generally affect
the Company and its competitors. The availability of raw materials was adequate
during 1998 although prices for certain items such as styrene monomer,
polystyrene, OCC and DLK have been volatile and may continue to fluctuate, in
some instances adversely to the Company.
TRADEMARKS, PATENTS AND LICENSES
While the Company has registered and unregistered trademarks for many
of its product lines, these trademarks, other than the Company's rights to the
trademarks "Ivex(R)", "Ultra Pac(R)", "Plastofilm(R)" and "Kama(R)", are not
considered material to the conduct of the Company's business. The Company owns
or licenses a number of patents but such patents and licenses are not considered
material to the conduct of the Company's business and the Company does not
believe that any of its businesses are substantially dependent on patent
protection. The Company's material proprietary
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technologies are considered by the Company to be trade secrets and know-how and
are not protected by patents or licenses.
CUSTOMERS, SALES AND BACKLOG
No material portion of the Company's business is dependent upon a
single or very few customers, except that the Company's extruded OPS film is
sold principally to one customer with which the Company believes that it has a
good relationship. No one customer accounted for more than 10% of the Company's
aggregate net sales for the fiscal year ended December 31, 1998. In general, the
backlog of orders is not significant or material to an understanding of the
Company's businesses.
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present business 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, local and foreign environmental laws
and regulations pertaining to the discharge of materials into the environment,
the handling and disposition of wastes (including solid and hazardous wastes) or
otherwise relating to the protection of the environment. As is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties or any associated offsite disposal location, or if
contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable. From time to time, the Company is
involved in regulatory proceedings and inquiries relating to compliance with
environmental laws, permits and other environmental matters.
The Company is currently involved with environmental remediation and
on-going maintenance at certain of its facilities. The Company believes that the
costs of such remediation have been adequately reserved for and that such costs
are unlikely to have a material adverse effect on the Company. No assurance can
be given, however, that additional environmental issues relating to the
presently known remediation matters or identified sites or to other sites or
matters will not require additional investigation, assessment or expenditures.
The Company has a reserve of approximately $1.6 million as of December 31, 1998
for its known future environmental remediation costs. Because an environmental
reserve is not established until a liability is determined to be probable and
reasonably estimable, all potential future remedial costs may not be covered by
this reserve. The Company has made and will continue to make capital
expenditures to maintain compliance with environmental requirements. The Company
does not expect its 1999 and 2000 spending on environmental capital projects to
be material.
During 1991, the Company responded to an information request regarding
the Global Landfill, New Jersey site and since such time has not received any
further notifications regarding such site. During 1993, the Company was named a
PRP at the Delta Chemicals, Pennsylvania Superfund site, and in 1995 the Company
paid a de minimis settlement of less than $20,000 at that site. During 1995, the
Company paid $500 in connection with a de minimis consent order relating to the
American Chemical Service site. In addition, over the past few years, the
Company has received notices of potential liability relating to three Superfund
sites for which the Company believes a former owner of the facilities subject to
such notices will be responsible, and the Company has forwarded such notices to
such former owner and has had no further involvement at those sites. In
addition, during 1996 the Company answered a complaint regarding the Huth Oil,
Ohio Superfund site, and during 1997 this claim was voluntarily dismissed by the
plaintiffs in the action. In addition, during 1998, the Company received a
notice for potential liability relating to the Pfohl Brothers Cheektowaga, New
York landfill site but to date has not received any further notifications
regarding such site. Although the Company endeavors to carefully manage its
waste, because Superfund liability is strict and retroactive, it is possible
that in the future the Company may be identified as a PRP with respect to other
waste disposal sites.
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The plastics industry, in general, and the Company also are subject to
existing and potential 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 these and other such similar measures. Although
the Company believes that the legislation promulgated to date and such
initiatives to date have not had a material adverse effect on the Company, there
can be no assurance that any such future legislative or regulatory efforts or
future initiatives would not have a material adverse effect on the Company.
The United States Food and Drug Administration (the "FDA") regulates
the content of direct-contact food containers and packages, including containers
and packages made from recycled OPS and paper products. The FDA currently limits
the amount of recycled materials that can be used in such containers and
packages. To comply with these regulations, the Company has instituted various
compliance programs.
FINANCIAL INFORMATION ABOUT SEGMENTS
The Company's financial information about industry segments will be set
forth in the Company's Annual Report to Securityholders relating to the Annual
Meeting of Stockholders to be held on May 11, 1999.
FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company's financial information about geographic areas will be set
forth in the Company's Annual Report to Securityholders relating to the Annual
Meeting of Stockholders to be held on May 11, 1999.
ITEM 2. PROPERTIES
The Company and its subsidiaries use various owned and leased plants,
warehouses and other facilities in their operations. The facilities are
considered to be suitable and adequate for the conduct of the businesses
involved although the machinery, plant and equipment at such facilities are,
from time to time, subject to scheduled and unscheduled maintenance. As of March
2, 1999, the Company had thirty non-warehouse facilities, twenty-one of which
are located in the U.S., five in Canada, one in Mexico, two in the United
Kingdom and one in France and, except as noted below, all are owned by IPC or a
subsidiary of IPC. With certain limited exceptions, all of the owned real estate
is subject to mortgages securing IPC's indebtedness under the Company's existing
credit facility.
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LOCATION FUNCTION SQUARE FOOTAGE
-------- -------- --------------
DOMESTIC
- --------
Avenel, NJ(1) Extrusion 55,000
Bellwood, IL Paper Converting and Film Coating 71,000
Bellwood, IL(2) Paper Converting 71,000
Bridgeview, IL Paper Converting 115,000
Chagrin Falls, OH Paper Mill 120,000
Cumberland, RI Thermoforming 60,000
Elyria, OH(3) Extrusion 80,000
Grant Park, IL Thermoforming/Engineering 184,000
Grove City, PA(4) Thermoforming/Paper Converting 236,000
Hazleton, PA(5) Polymerization/Extrusion 166,000
Joliet, IL Paper Mill/Paper Converting 410,000
Madison, GA Thermoforming/Paper Converting 141,000
Manteno, IL Extrusion 105,000
Newton, MA(6) Paper and Film Converting/Coating 225,000
Peoria, IL Paper Mill 234,000
Rogers, MN(7) Thermoforming/Extrusion 240,000
Sparks, NV(8) Thermoforming 40,000
Troy, OH Paper Converting/Coating 320,000
Visalia, CA Thermoforming/Paper Converting 144,000
Wakefield, MA Paper Converting 98,000
Wheaton, IL Thermoforming/Engineering 120,000
INTERNATIONAL
- -------------
Albon, France(9) Thermoforming 17,000
Enniskillen, Northern
Ireland(10) Thermoforming/Engineering 16,000
Laval, Quebec Thermoforming/Extrusion/Engineering 60,000
Longueuil, Quebec Thermoforming/Paper Converting 32,000
Monterrey, Mexico(11) Thermoforming 24,000
Newcastle, Ontario Extrusion 45,000
Sedgefield, England Thermoforming/Extrusion 48,000
Summerstown, Ontario Thermoforming 55,000
Toronto, Ontario Paper Converting 54,000
(1) Leased facility, with its lease expiring on December 31, 2003, subject
to IPC's right to extend the lease for two successive five-year periods
upon IPC's written notice to the lessor thereof not more than 12 nor
less than 6 months prior to the end of the then current lease term.
(2) Leased facility, with its lease expiring on January 8, 2003.
(3) Leased facility, with its lease expiring on September 30, 2001, subject
to IPC's right to extend the lease for an additional five-year period
and, upon specified terms and conditions, to purchase the property.
(4) This facility is held subject to an installment sales contract with
Grove City Industrial Development Corporation that holds title to the
facility.
(5) Leased facility, with its lease expiring on October 4, 2003, subject to
IPC's right to extend the lease for one successive five-year period
upon IPC's written notice to lessor not more than 24 nor less than 6
months prior to the end of the lease term.
(6) Leased facility, with its lease expiring on December 5, 2001, with
three one-year options to extend.
(7) A portion of this facility is leased with the three leases expiring on
January 1, 2002, February 1, 2010 and February 1, 2010. Each of these
three leases contains a three-year extension option and an option, upon
specified terms and conditions, to purchase the portion of the facility
subject to such lease.
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(8) Leased facility, with its lease expiring on December 31, 1999.
(9) Leased facility, with its lease expiring on March 31, 1999 and, at
the Company's option, subject to a six month extension.
(10) Leased facility, with its lease expiring on May 10, 2016.
(11) Leased facility, with its lease expiring on December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are involved in
various litigation matters arising in the ordinary course of business. The
Company believes that none of the matters in which the Company or its
subsidiaries are currently involved, either individually or in the aggregate, is
material to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name, age, positions and offices held (as of
the date hereof) and a brief account of the business experience for each
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
George V. Bayly 56 Director, Chairman of the Board, President and Chief
Executive Officer of the Company since January 1991.
Frank V. Tannura 42 Director of the Company since August 1995. Executive Vice
President and Chief Financial Officer of the Company since
February 1999 and Vice President and Chief Financial Officer
since October 1989.
Richard R. Cote 47 Vice President and Treasurer of the Company since August
1994. Mr. Cote was Assistant Vice President and Treasurer
of the Company from March 1992 to August 1994.
Thomas S. Ellsworth 53 Vice President and General Manager of the Company since
1994. Mr. Ellsworth was Vice President of the Company's
paper mill operations from 1992 to 1994.
Gene J. Gentili 50 Vice President and General Manager of the Company since
1994. Vice President of Sales of the Company from 1993 to
1994. Mr. Gentili was director of national accounts for the
Company from 1991 to 1993.
Roger A. Kurinsky 48 Vice President and General Manager of the Company since
1994. Vice President of Marketing of the Company from 1991
to 1994.
Jeremy S. Lawrence 47 Vice President of Human Resources of the Company since May
1991.
G. Douglas Patterson 41 Vice President and General Counsel of the Company since June
1991.
David E. Wartner 31 Vice President and Corporate Controller of the Company since
October 1998. From 1994 to 1998, Mr. Wartner was Corporate
Controller of the Company. Prior to 1994, Mr. Wartner was
associated with Price Waterhouse LLP.
Eugene M. Whitacre 42 Vice President and General Manager of the Company since
February 1991.
</TABLE>
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Prior to the 1997 Common Stock Offering, the Company's common stock,
par value $0.01 per share, was owned entirely by certain financial investors and
certain executive officers of the Company. Subsequent to the 1997 Common Stock
Offering, the Company's common stock trades on the New York Stock Exchange and
the Chicago Stock Exchange, under the ticker symbol IXX. The high and low sales
prices for the common stock by quarter since the 1997 Common Stock Offering as
reported by the New York Stock Exchange are shown below.
Prices
Quarter ----------------------------
Ended High Low
------- ------ -----
12/31/98 23 1/4 13 5/8
9/30/98 24 1/8 13 13/16
6/30/98 28 5/16 22 1/4
3/31/98 25 1/4 19 11/16
12/31/97 24 19 9/16
The approximate number of shareholders of record of the Company's
common stock as of March 2, 1999 was 238 holders. The Company has never paid
cash dividends on its common stock. Any payment of cash dividends in the future
will be at the discretion of the Company's Board of Directors and will depend
upon the financial condition, capital requirements and earnings of the Company
as well as other factors that the Company's Board of Directors may deem
relevant. In addition, the Company's senior credit facility prohibits the
payment of dividends on the Company's common stock.
On October 6, 1997, the Company completed the 1997 Common Stock
Offering of 9,660,000 shares of common stock of the Company pursuant to a
Registration Statement on Form S-1 (File No. 33-95436), which was declared
effective on September 30, 1997. In the 1997 Common Stock Offering, the Company
sold to the underwriters, including Merrill Lynch & Co., Lehman Brothers and
Salomon Inc., the managing underwriters, 7,960,000 previously unissued shares of
common stock for an aggregate price of $118,763,200 and certain selling
stockholders sold 1,700,000 outstanding shares to such underwriters for an
aggregate price of $25,364,000. The Company has estimated that it incurred
$1,449,200 of expenses in connection with the 1997 Common Stock Offering
yielding net proceeds to the Company of $117,314,000. The Company applied all of
the net proceeds of the 1997 Common Stock Offering to refinance its existing
indebtedness.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding the Company's selected financial data will be set
forth in the Company's Annual Report to Securityholders relating to the Annual
Meeting of Stockholders to be held on May 11, 1999 and, to the extent required,
is incorporated herein by reference.
13
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding management's discussion and analysis of financial
condition and results of operation will be set forth in the Company's Annual
Report to Securityholders relating to the Annual Meeting of Stockholders to be
held on May 11, 1999 and, to the extent required, is incorporated herein by
reference.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
raw material costs and availability (see "Business -- Raw Materials");
competition (see "Business -- Competition"); environmental matters and
government regulation (see "Business -- Environmental Matters and Government
Regulation"); the Company's actual performance and highly leveraged financial
condition (see "-- Liquidity and Capital Resources"); the Company's
computer system preparation for the year 2000 (see "--Year 2000"); and the
Company's exposure to market risk (See "Quantitative and Qualitative Disclosures
about Market Risk").
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE
The Company uses primarily foreign exchange forward contracts to hedge its
exposure from adverse changes in foreign exchange rates. A 10% unfavorable
movement in the foreign exchange rates would not expose the Company to
material losses in earnings or cash flows.
INTEREST RATES
The Company uses interest rate swaps and collars to modify its exposure to
interest rate movements and to reduce borrowing costs. The Company's net
exposure to interest rate risk consists of floating rate debt instruments that
are benchmarked to LIBOR. As of December 31, 1998 the Company had $320 million
notional value of interest rate derivatives outstanding (described below). A
10% unfavorable movement in LIBOR rates would not expose the Company to
material losses of earnings or cash flows.
The Company has entered into interest rate swap agreements with a group of
banks having notional amounts totaling $160.0 million and various maturity
dates through November 5, 2002. These agreements effectively fix the Company's
LIBOR base rate for $160.0 million of the Company's indebtedness at rates from
5.33% to 6.12% during this period. The Company has entered into no cost
interest rate collar agreements with a group of banks having notional amounts
totaling $100.0 million through November 5, 2002. These collar agreements
effectively fix the LIBOR base rate for $100.0 million of the Company's
indebtedness at a maximum of 7.00% and allow for the Company to pay the market
LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below 5.55%,
the Company is required to pay the floor rate of 5.55%. The Company has also
entered into no cost interest rate collar agreements with a group of banks
having notional amounts totaling $60.0 million through November 5, 2001. These
collar agreements effectively fix the LIBOR base rate for $60.0 million of the
Company's indebtedness at a maximum of 5.31% and allow for the Company to pay
the market LIBOR from a floor of 4.47% to the maximum rate. If LIBOR falls
below 4.47%, the Company is required to pay the floor rate of 4.47%. Income or
expense related to settlements under these agreements is recorded as
adjustments to interest expense in the Company's financial statements. The
fair market value of the Company's derivative instruments outlined above
approximates a loss of $5.8 million as of December 31, 1998 and is based upon
the amount at which it could be settled with a third party, although the
Company has no current intention to trade any of these instruments and plans
to hold them as hedges for the Senior Credit Facility.
14
<PAGE> 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, supplementary data, financial
information about segments and financial information about geographic areas will
be set forth in the Company's Annual Report to Securityholders relating to the
Annual Meeting of Stockholders to be held on May 11, 1999 and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
With respect to Items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14-A under the
Securities Exchange Act of 1934 (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 11, 1999 and, to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is set forth
under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's Proxy Statement relating to the Annual Meeting of Stockholders to be
held on May 11, 1999 and, to the extent required, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth in the Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held on May 11, 1999 and, to the extent
required, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth in the Company's Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 11, 1999 and, to the extent required,
is incorporated herein by reference.
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company will be set
forth in the Company's Annual Report to Securityholders relating to the Annual
Meeting of Stockholders to be held on May 11, 1999 and, to the extent required,
are incorporated herein by reference:
<TABLE>
<CAPTION>
Annual Report to
Securityholders
----------------
<S> <C> <C>
Report of Independent Accountants Page 47
Consolidated Balance Sheets Page 28
Consolidated Statements of Operations Page 29
Consolidated Statements of Changes in Stockholders' Equity (Deficit) Page 30
Consolidated Statements of Cash Flows Page 31
Notes to Consolidated Financial Statements Page 32
</TABLE>
(a)(2) The following Financial Statement Schedules of the Company are
filed as part of this report:
<TABLE>
<S> <C>
Schedule I -- Condensed Financial Information Page 24
Schedule II -- Valuation and Qualifying Accounts and Reserves Page 28
</TABLE>
All other schedules of the Company for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required, are inapplicable or have been disclosed in the notes to the
consolidated financial statements and therefore have been omitted.
16
<PAGE> 17
(a)(3) EXHIBITS.
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
----------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
- ------ ----------------------- ------ ---------
<S> <C> <C> <C>
3.1 Amended and Restated Certificate of
Incorporation of Ivex Packaging Corporation
("Holdings" or "Ivex") 3.3 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
3.2 Amended By-Laws of Ivex 3.4 Ivex Amendment No. 8 to
Form S-1 (Registration
No. 33-95436)
3.3 Form of Certificate of Elimination of
Senior Cumulative Exchangeable
Preferred Stock of Ivex 3.5 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
3.4 Form of Certificate of Designation,
Preferences and Rights of Series A
Junior Participating Preferred Stock 4.1 Ivex 3/3/99 Form 8-K
(File No. 33-60714)
4.1 Form of Registration Rights Agreement,
dated as of September 30, 1997, among
Ivex, Acadia Partners, L.P., and the other
stockholders party thereto 4.3 Ivex Amendment No. 8 to
Form S-1
(Registration No.
33-95436)
4.2 Amended and Restated Credit Agreement, dated
as of October 2, 1997, by and among IPC,
Ivex, NationsBank, N.A. and Bankers Trust,
as agents, and the guarantors and lenders
identified on the signature pages thereto 4.2 Ivex 1997 Fom 10-K
(File No. 33-60714)
4.3 Amended and Restated Pledge Agreement,
dated as of October 2, 1997, among IPC,
Ivex certain of IPC's subsidiaries and
NationsBank, N.A. and Bankers Trust Company,
as agents 4.3 Ivex 1997 Form 10-K
(File No. 33-60714)
4.4 Form of Amended and Restated Security Agreement,
dated as of October 2, 1997, among IPC,
Ivex and certain of IPC's domestic subsidiaries
and NationsBank, N.A. and Bankers Trust Company,
as agents 4.4 Ivex 1997 Form 10-K
(File No. 33-60714)
4.5 Form of Amended and Restated Mortgage and
Security Agreement 4.5 Ivex 1997 Form 10-K
(File No. 33-60714)
*4.6 Form of First Amendment to Amended and
Restated Credit Agreement
*4.7 Form of Second Amendment to Amended and
Restated Credit Agreement
*4.8 Form of Third Amendment to Amended and
Restated Credit Agreement
4.9 Rights Agreement, dated as of February 10,
1999, between Ivex and First Chicago
Trust Company of New York 4.1 Ivex 3/3/99 Form 8-K
(File No. 33-60714)
10.1 Form of Ivex Senior Management Annual
Incentive Plan(1) 10.1 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
----------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
- ------ ----------------------- ------ ---------
<S> <C> <C> <C>
*10.2 Form of Nonqualified Deferred Compensation
Plan (1)
*10.3 Form of Nonqualified Deferred Compensation
Trust Agreement (1)
10.4 Form of IPC Stock Purchase and Option
Agreement, dated as of January 1, 1993,
among IPC, Ivex, Acadia Partners, L.P.
and each of certain senior managers of
IPC with the Ivex Stock Purchase and
Option Agreement attached thereto (1) 10.2 IPC 1993 Form 10-K
(Registration No.
33-52150)
10.5 Form of Amended and Restated IPC, Inc.
Stock Option and Purchase Agreement and
Amended and Restated Ivex Packaging
Corporation Stock Option and Purchase
Agreement, each dated as of
January 1, 1996 (1) 10.16 Ivex 6/30/96 Form 10-Q
(File No. 33-60714)
10.6 IPC Retirement Plan and Trust, as
amended and Restated May 1, 1992 (1) 10.3 IPC Form S-1
(Registration No.
33-52150)
10.7 Amended and Restated Employment Agreement,
dated as of May 30, 1996, between
George V. Bayly and IPC (1) 10.14 Ivex 6/30/96 Form 10-Q
(File No. 33-60714)
*10.8 Form of Amendment No. 1 to Amended and
Restated Employment Agreement between
George V. Bayly and IPC (1)
10.9 Employment Agreement, dated as of
December 31, 1992, between IPC and
Frank V. Tannura (1) 10.30 IPC 6/30/93 Form 10-Q
(File No. 33-52150)
10.10 Amendment No. 1, dated as of
September 11, 1995, to the Employment
Agreement, dated as of December 31, 1992,
between IPC and Frank V. Tannura (1) 10.59 IPC 6/30/95 Form 10-Q
(File No. 33-52150)
10.11 Amendment No. 2 to Employment Agreement,
dated May 30, 1996, between IPC and
Frank V. Tannura 10.15 Ivex 6/30/96 Form 10-Q
(File No. 33-60714)
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
----------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
- ------ ----------------------- ------ ---------
<S> <C> <C> <C>
10.12 Form of Severance Agreement between the
Company and certain named executive
officers (1) 1.1 IPC 1994 Form 10-K
(File No. 33-52150)
10.13 Form of Ivex Packaging Corporation 1997
Long-Term Stock Incentive Plan (1) 10.45 Ivex Amendment No. 8
to Form S-1 (Registration
No. 33-95436)
10.14 Form of Senior Management's Promissory
Note to IPC (1) 10.13 Ivex 1997 Form 10-K
(File No. 33-60714)
10.40 Loan Agreement, dated as of December 1, 1987,
between the County of Kankakee, Illinois and
Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.11 IPC Form S-1
(Registration No.
33-52150)
10.41 Loan Agreement, dated as of June 1, 1988,
between the Development Authority of Morgan
County and Ivex of Delaware, Inc.
(n/k/a IPC, Inc.) 10.13 IPC Form S-1
(Registration No.
33-52150)
10.42 Loan Agreement, dated as of October 1, 1987,
between the County of Will, Illinois and
LPX, Inc (n/k/a IPC, Inc.) 10.15 IPC Form S-1
(Registration No.
33-52150)
10.43 Loan Agreement, dated as of April 1, 1988,
between the Illinois Development Finance
Authority and Ivex of Delaware, Inc.
(n/k/a IPC, Inc.) 10.17 IPC Form S-1
(Registration No.
33-52150)
10.44 Indenture of Trust, dated as of March 1, 1989,
between Marine Midland Bank, N.A. and Ivex of
Delaware, Inc. (n/k/a IPC, Inc.) 10.19 IPC Form S-1
(Registration No.
33-52150)
10.45 Loan Agreement, dated November 1, 1985,
between the Village of Bridgeview, Illinois
and L&CP Corporation (n/k/a IPC, Inc.) 10.21 IPC Form S-1
(Registration No.
33-52150)
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
----------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
- ------ ----------------------- ------ ---------
<S> <C> <C> <C>
10.46 Loan Agreement, dated as of June 1, 1988,
between City of Troy, Ohio and L&CP
Corporation (n/k/a IPC, Inc.) 10.23 IPC Form S-1
(Registration No.
33-52150)
10.47 Lease Agreement, dated as of December 5, 1996,
between State Street Bank and Trust
Company and IPC 10.46 Ivex 1996 Form 10-K
(File No. 33-60714)
10.48 Lease, dated as of October 4, 1988, between
Seymour C. Graham and Kama Corporation
(n/k/a IPC, Inc.) 10.33 IPC Form S-1
(Registration No.
33-52150)
10.49 Amendment to Lease, dated as of
December 20, 1988, between Seymour C. Graham
and Kama Corporation (n/k/a IPC, Inc.) 10.34 IPC Form S-1
(Registration No.
33-52150)
10.50 Lease, dated June 20, 1995, between
Howard H. Gelb and Eunice Gelb and
Kama Corporation (n/k/a IPC, Inc.) 10.44 Ivex 1995 Form 10-K
(File No. 33-60714)
10.51 Industrial Building Lease, dated
January 8, 1998, between Arapahoe Properties,
L.L.C. and Packaging Products, Inc. 10.25 Ivex 1997 Form 10-K
(File No. 33-60714)
10.52 Lease, dated as of September 11, 1996, by
and between Joseph P. Bennett and Trio
Products, Inc 10.54 Ivex 1996 Form 10-K
(File No. 33-60714)
10.53 Installment Sales Agreement, dated as of
December 12, 1990, between Grove City
Industrial Development Corporation and
Ivex Converted Products Corporation
(n/k/a IPC, Inc.) 10.39 IPC Form S-1
(Registration No.
33-52150)
*10.54 Form of Lease Agreements, dated
May 1, 1993, November 20, 1994 and
November 20, 1994, between Ultra Pac, Inc.
and the landlord thereof
10.70 Tax Sharing Agreement, dated as of
December 17, 1992, between Ivex and IPC
and certain of IPC's subsidiaries 10.40 Ivex Form S-4
(Registration No.
33-60714)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
----------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
- ------ ----------------------- ------ ---------
<S> <C> <C> <C>
10.71 Form of Agreement and Plan of Merger,
dated as of March 23, 1998, among Ivex
Package Acquisition, Inc. and Ultra Pac,
Inc. C-1 Ivex Schedule 14D-1,
dated 3/26/98
*13 Annual Report to Securityholders for
the year ended December 31, 1998.
*21.1 Subsidiaries of Ivex
*23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule, which is
submitted electronically to the
Securities and Exchange Commission for
information only and not filed.
</TABLE>
* Filed herewith.
(1) Management contact or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
(b) REPORTS ON FORM 8-K.
Form 8-K filed on March 3, 1999.
21
<PAGE> 22
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH 30, 1999.
IVEX PACKAGING CORPORATION
By: /s/ George V. Bayly
------------------------
Name: George V. Bayly
Title: President and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to
this Report appears below hereby constitutes and appoints G. Douglas Patterson
as such person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for such person and in such person's name, place
and stead, in any and all capacities, to sign and to file with the Securities
and Exchange Commission any and all amendments to this Report, with exhibits
thereto and other documents in connection therewith, hereby ratifying and
confirming all that said attorney-in-fact and agent, or any substitute
therefore, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED
ON MARCH 30, 1999.
SIGNATURE TITLE
--------- -----
/s/ George V. Bayly Director, Chairman of the Board,
- ---------------------- President and Chief Executive Officer
George V. Bayly (Principal Executive Officer)
/s/ Frank V. Tannura Director, Executive Vice President and Chief
- ---------------------- Financial Officer (Principal Financial
Frank V. Tannura Officer)
/s/ David E. Wartner Vice President and Corporate Controller
- ---------------------- (Principal Accounting Officer)
David E. Wartner
/s/ Glenn R. August Director
- ----------------------
Glenn R. August
/s/ Anthony P. Scotto Director
- ----------------------
Anthony P. Scotto
/s/ William J. White Director
- ----------------------
William J. White
/s/ R. James Comeaux Director
- ----------------------
R. James Comeaux
22
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Ivex Packaging Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1999, except Note 16 which is as of February 10, 1999,
appearing on page 47 of the 1998 Annual Report to Stockholders of Ivex
Packaging Corporation (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed in Item 14 (a) of this Form
10-K. In our opinion, these Financial Statement Schedules present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
January 25, 1999, except Note 16 which is as of February 10, 1999
23
<PAGE> 24
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
1998 1997
---- ----
ASSETS
Current Assets:
Cash and cash equivalents $ 9 $ 9
--------- ---------
Total current assets 9 9
Investment in subsidiary 73,418 73,418
Due from IPC, Inc. 24,475 13,694
--------- ---------
Total assets $ 97,902 $ 87,121
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, $.01 par value -- 45,000,000 shares
authorized; 20,931,268 and 20,426,666 shares issued
and outstanding 209 204
Paid in capital in excess of par value 339,098 328,322
Accumulated deficit (241,405) (241,405)
--------- ---------
Total stockholders' equity 97,902 87,121
--------- ---------
Total liabilities and stockholders' equity $ 97,902 $ 87,121
========= =========
See Notes to Consolidated Financial Statements in Item 8.
24
<PAGE> 25
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
DECEMBER 31,
----------------
1998 1997 1996
---- ---- ----
Interest expense $ $ 11,447 $ 13,075
------- -------- --------
Loss before extraordinary loss (11,447) (13,075)
Extraordinary loss (22,297)
------- -------- --------
Net loss $ $(33,744) $(13,075)
======= ======== ========
See Notes to Consolidated Financial Statements in Item 8.
25
<PAGE> 26
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PAID IN STOCK-
COMMON STOCK CAPITAL IN HOLDERS'
------------ EXCESS OF ACCUMULATED EQUITY
SHARES AMOUNT PAR VALUE DEFICIT (DEFICIT)
------ ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,072,246 $ 11 $177,375 $(194,586) $(17,200)
Net loss (13,075) (13,075)
---------- ---- -------- --------- --------
Balance at December 31, 1996 1,072,246 11 177,375 (207,661) (30,275)
Issuance of management shares 218,968 2 33,824 33,826
Common stock split 11,175,452 112 (112)
Issuance of common stock 7,960,000 79 117,235 117,314
Net loss (33,744) (33,744)
---------- ---- -------- --------- --------
Balance at December 31, 1997 20,426,666 $204 $328,322 $(241,405) $ 87,121
Issuance of common stock 500,000 5 10,702 10,707
Exercise of common stock options 4,602 74 74
---------- ---- -------- --------- --------
Balance at December 31, 1998 20,931,268 $209 $339,098 $(241,405) $ 97,902
========== ==== ======== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements in Item 8.
26
<PAGE> 27
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows used by operating activities:
Net loss $ $(33,744) $(13,075)
Adjustments to reconcile net loss to net cash
used by operating activities:
Amortization of debt issue costs 207 264
Non-cash interest 11,223 12,801
Extraordinary loss 22,297
-------- -------- --------
(17) (10)
Cash flows from financing activities:
Proceeds from issuance of stock 10,707 117,314
Redemption of 13 1/4% discount debentures (117,363)
Debt redemption costs (20,084)
Transfer from (to) IPC, Inc. (10,781) 20,132
Exercise of common stock options 74
-------- -------- ---------
Net cash used by financing activities (1)
-------- -------- --------
Net decrease in cash and cash equivalents (18) (10)
Cash and cash equivalents at beginning of
period 9 27 37
-------- -------- --------
Cash and cash equivalents at end of period $ 9 $ 9 $ 27
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements in Item 8.
27
<PAGE> 28
IVEX PACKAGING CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ENDING
DESCRIPTION BALANCE ADDITIONS DEDUCTIONS BALANCE
----------- ------- --------- ---------- -------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance
for doubtful accounts:
1996 $ 2,012 281 (1) $(213)(2) 2,080
1997 2,080 1,050 (1) (586)(2) 2,544
1998 2,544 1,169 (1) (846)(2)(3) 2,867
Income Taxes -- valuation allowance:
1996 23,900 -- (5,710) 18,190
1997 18,190 -- (15,890)(4) 2,300
1998 2,300 276 2,576
</TABLE>
(1) Reflects additions of $388, $107 and $73 associated with acquisitions
for the years ended December 31, 1998, 1997 and 1996, respectively.
(2) Accounts charged off, less recoveries.
(3) Includes $261 as a result of the disposition of the Company's Detroit
paper mill.
(4) Reflects the utilization of net operating loss carryovers for a
portion of 1997 and the reversal of $13,200 of valuation allowance
during the third quarter of 1997.
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------- ----
<S> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Ivex Packaging
Corporation ("Holdings" or "Ivex")
3.2 -- Amended By-Laws of Ivex
3.3 -- Form of Certificate of Elimination of Senior Cumulative Exchangeable
Preferred Stock of Ivex
3.4 -- Form of Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock
4.1 -- Form of Registration Rights Agreement, dated as of September 30, 1997,
among Ivex, Acadia Partners, L.P., and the other stockholders party thereto
4.2 -- Amended and Restated Credit Agreement, dated as of October 2, 1997, by and
among IPC, Ivex, NationsBank, N.A. and Bankers Trust, as agents, and the
guarantees and lenders identified on the signature pages thereto
4.3 -- Form of Amended and Restated Pledge Agreement, dated as of October 2, 1997,
among Ivex, IPC, certain of IPC's subsidiaries and NationsBank, N.A., and
Bankers Trust Company, as agents
4.4 -- Form of Amended and Restated Security Agreement, dated as of October 2,
1997, among Ivex, IPC, and certain of IPC's subsidiaries and NationsBank,
N.A., and Bankers Trust Company, as agents
4.5 -- Form of Amended and Restated Mortgage and Security Agreement
*4.6 -- Form of First Amendment to Amended and Restated Credit Agreement
*4.7 -- Form of Second Amendment to Amended and Restated Credit Agreement
*4.8 -- Form of Third Amendment to Amended and Restated Credit Agreement
4.9 -- Rights Agreement, dated as of February 10, 1999, between
Ivex and First Chicago Trust Company of New York
10.1 -- Form of Ivex Senior Management Annual Incentive Plan(1)
*10.2 -- Form of Nonqualified Deferred Compensation Plan(1)
*10.3 -- Form of Nonqualified Deferred Compensation Trust Agreement(1)
10.4 -- Form of IPC Stock Purchase and Option Agreement, dated as of January 1,
1993, among IPC, Ivex, Acadia Partners, L.P. and each of certain senior
managers of IPC with the Ivex Stock Purchase and Option Agreement attached
thereto(1)
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------- ----
<S> <C>
10.5 -- Form of Amended and Restated IPC Stock Option and Purchase Agreement and
Amended and Restated Ivex Stock Option and Purchase Agreement, each dated as
of January 1, 1996(1)
10.6 -- IPC Retirement Plan and Trust, as amended and Restated May 1, 1992(1)
10.7 -- Amended and Restated Employment Agreement, dated as of May 30, 1996,
between George V. Bayly and IPC(1)
*10.8 -- Form of Amendment No. 1 to Amended and Restated Employment Agreement
between George V. Bayly and IPC(1)
10.9 -- Employment Agreement, dated as of December 31, 1992, between IPC and Frank
V. Tannura(1)
10.10 -- Amendment No. 1, dated as of September 11, 1995, to the Employment
Agreement, dated as of December 31, 1992, between IPC and Frank V.
Tannura(1)
10.11 -- Amendment No. 2 to Employment Agreement, dated May 30, 1996, between IPC
and Frank V. Tannura
10.12 -- Form of Severance Agreement between the Company and certain named executive
officers (1)
10.13 -- Form of Ivex Packaging Corporation 1997 Long-Term Stock Incentive Plan(1)
10.14 -- Form of Senior Management's Promissory Note to IPC(1)
10.40 -- Loan Agreement, dated as of December 1, 1987, between the County of
Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a IPC, Inc.)
10.41 -- Loan Agreement, dated as of June 1, 1988, between the Development
Authority of Morgan County and Ivex of Delaware, Inc. (n/k/a IPC, Inc.)
10.42 -- Loan Agreement, dated as of October 1, 1987, between the County of Will,
Illinois and LPX, Inc. (n/k/a IPC, Inc.)
10.43 -- Loan Agreement, dated as of April 1, 1988, between the Illinois
Development Finance Authority and Ivex of Delaware, Inc. (n/k/a
IPC, Inc.)
10.44 -- Indenture of Trust, dated as of March 1, 1989, between Marine Midland
Bank, N.A. and Ivex of Delaware, Inc. (n/k/a IPC, Inc.)
10.45 -- Loan Agreement, dated November 1, 1985, between the Village of
Bridgeview, Illinois and L&CP Corporation (n/k/a IPC, Inc.)
10.46 -- Loan Agreement, dated as of June 1, 1988, between City of Troy, Ohio and
L&CP Corporation (n/k/a IPC, Inc.)
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------ ----------------------- ----
<S> <C>
10.47 -- Lease Agreement, dated as of December 5, 1996, between State Street Bank
and Trust Company and IPC
10.48 -- Lease, dated as of October 4, 1988, between Seymour C. Graham and Kama
Corporation (n/k/a IPC, Inc)
10.49 -- Amendment to Lease, dated as of December 20, 1988, between Seymour
C. Graham and Kama Corporation (n/k/a IPC, Inc.)
10.50 -- Lease, dated June 20, 1995, between Howard H. Gelb and Eunice Gelb and
Kama Corporation (n/k/a IPC, Inc.)
10.51 -- Industrial Building Lease, dated January 8, 1998, between Arapahoe
Properties, L.L.C. and Packaging Products, Inc.
10.52 -- Lease, dated as of September 11, 1996, by and between Joseph P. Bennett
and Trio Products, Inc.
10.53 -- Installment Sales Agreement, dated as of December 12, 1990, between
Grove City Industrial Development Corporation and Ivex Converted
Products Corporation (n/k/a IPC, Inc.)
*10.54 -- Form of Lease Agreements, dated May 1, 1993, November 20, 1994 and
November 20, 1994, between Ultra Pac, Inc. and the landlord thereof
10.70 -- Tax Sharing Agreement, dated as of December 17, 1992, between Ivex and
IPC and certain of IPC's subsidiaries
10.71 -- Form of Agreement and Plan of Merger, dated as of March 23, 1998, among
Ivex Package Acquisition, Inc. and Ultra Pac, Inc.
*13 -- Annual Report to Securityholders for the year ended December 31, 1998
*21.1 -- Subsidiaries of Ivex
*23.1 -- Consent of PricewaterhouseCoopers LLP
*27 -- Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
</TABLE>
(1) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
* Filed herewith.
31
<PAGE> 1
EXHIBIT 4.6
FIRST AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"First Amendment") is entered into as of October 10, 1997 among IPC, INC., a
Delaware corporation (the "Borrower"), IVEX PACKAGING CORPORATION, a Delaware
corporation ("Holdings"), each of the Borrower's Domestic Subsidiaries (the
Borrower's Domestic Subsidiaries, together with Holdings, individually a
"Guarantor" and collectively the "Guarantors"), the Lenders party to the Credit
Agreement defined below (the "Lenders"), NATIONSBANK, N.A., as Administrative
Agent (the "Administrative Agent") for the Lenders and BANKERS TRUST COMPANY, as
Documentation Agent (the "Documentation Agent") for the Lenders (the
Documentation Agent, together with the Administrative Agent, collectively the
"Agents"). Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent, the
Documentation Agent and the Lenders are parties to an Amended and Restated
Credit Agreement dated as of October 2, 1997 (as amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower has requested that the Agents and the Lenders
consent to an amendment of the Credit Agreement; and
WHEREAS, the Agents and the Lenders have agreed to such amendment of
the Credit Agreement on the terms and subject to the conditions contained in
this First Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
I. AMENDMENTS AND RESTATEMENTS
1.1 Subclause (g) of the definition of "Excess Cash Flow" in Section
1.1 of the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
(g) dividends paid to Holdings to redeem Holdings Debentures or as
otherwise permitted by this Credit Agreement in accordance with the
terms of this Credit Agreement minus
<PAGE> 2
1.2 The definition of "Tranche B Term Loan Committed Amount" in Section
1.1 of the Credit Agreement is hereby amended and restated in its entirety to
read as follows:
"Tranche B Term Loan Committed Amount" means ONE HUNDRED FIFTY
MILLION DOLLARS ($150,000,000).
1.3 The first paragraph of Section 2.4(b) of the Credit Agreement is
hereby amended and restated in its entirety to read as follows:
(b) Funding of Tranche B Term Loans. Each applicable Lender
will make its Tranche B Term Loan Commitment Percentage of each Tranche
B Term Loan advance available to the Administrative Agent by deposit,
in Dollars and in immediately available funds, at the offices of the
Administrative Agent at its principal office in Charlotte, North
Carolina or at such other address as the Administrative Agent may
designate in writing. The amount of the Tranche B Term Loans will then
be made available to the Borrower by the Administrative Agent by
crediting the account of the Borrower on the books of such office of
the Administrative Agent or otherwise in accordance with the Borrower's
disbursement instructions, to the extent the amount of such Tranche B
Term Loans are made available to the Administrative Agent. All Tranche
B Term Loans made on the Tranche B Term Loan Funding Dates shall be
Base Rate Loans on the date made. Thereafter, all or any portion of the
Tranche B Term Loans may be converted into Eurodollar Loans in
accordance with the terms of Section 2.5.
1.4 The second sentence of the second paragraph of Section 2.4(b) of
the Credit Agreement is hereby amended and restated in its entirety to read as
follows:
If the Administrative Agent shall have received an executed signature
page to this Credit Agreement (whether an original or via telecopy)
from a Lender, the Administrative Agent may assume that such Lender has
or will make the amount of its Tranche B Term Loans available to the
Administrative Agent on the Effective Date and the Administrative Agent
in reliance upon such assumption, may (in its sole discretion but
without any obligation to do so) make available to the Borrower a
corresponding amount.
1.5 Section 2.4(c) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(a) Repayment of Tranche B Term Loans. The principal amount of
the Tranche B Term Loans shall be repaid in quarterly installments as
follows, unless accelerated sooner pursuant to Section 9.2:
2
<PAGE> 3
TRANCHE B TERM LOAN PRINCIPAL
PRINCIPAL AMORTIZATION AMORTIZATION PAYMENT (SHOWN AS A
PAYMENT DATES PERCENTAGE OF THE THEN TRANCHE B
TERM LOAN COMMITTED AMOUNT)
December 31, 1997 $375,000
March 31, 1998 $375,000
June 30, 1998 $375,000
September 30, 1998 $375,000
December 31, 1998 $375,000
March 31, 1999 $375,000
June 30, 1999 $375,000
September 30, 1999 $375,000
December 31, 1999 $375,000
March 31, 2000 $375,000
June 30, 2000 $375,000
September 30, 2000 $375,000
December 31, 2000 $375,000
March 31, 2001 $375,000
June 30, 2001 $375,000
September 30, 2001 $375,000
December 31, 2001 $375,000
March 31, 2002 $375,000
June 30, 2002 $375,000
September 30, 2002 $375,000
December 31, 2002 $375,000
March 31, 2003 $375,000
June 30, 2003 $375,000
September 30, 2003 $375,000
December 31, 2003 $35,250,000
March 31, 2004 $35,250,000
June 30, 2004 $35,250,000
September 30, 2004 $35,250,000
1.6 Section 2.4(d) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(d) [Intentionally omitted]
1.7 Exhibit 2.4(d) to the Credit Agreement and all references to
Exhibit 2.4(d) are hereby deleted.
1.8 The first clause of Section 5.2 and Section 5.2(a) of the Credit
Agreement are hereby amended and restated in their entirety to read as follows:
In addition to the conditions precedent stated elsewhere
herein, the Lenders shall not be obligated to make Loans (including the
obligations of the Lenders to make the second advance with respect to
the Tranche A Term Loans as set forth in Section 2.3(a)), nor shall an
Issuing Lender be required to issue or extend a Letter of Credit
unless:
3
<PAGE> 4
(a) Notice. The Borrower shall have delivered (i) in
the case of any new Revolving Loan, a Notice of Borrowing,
duly executed and completed, by the time specified in Section
2.1, (ii) in the case of any Letter of Credit, the applicable
Issuing Lender shall have received an appropriate request for
issuance in accordance with the provisions of Section 2.2 or
(iii) in the case of the second advance with respect to the
Tranche A Term Loans, the Borrower shall have delivered notice
of its desire to receive such advance at least one Business
Day prior to such advance;
1.9 Section 11.6(d) of the Credit Agreement is hereby amended and
restated in its entirety to read as follows:
(d) increase or extend the Commitment of a Lender over the
amount thereof in effect (it being understood and agreed that a waiver
of any Default or Event of Default or a waiver of any mandatory
reduction in the Commitments shall not constitute a change in the terms
of any Commitment of any Lender);
II. CONDITIONS PRECEDENT
2.1 The effectiveness of this First Amendment is subject to the
satisfaction of each of the following conditions:
(a) The Administrative Agent shall have received copies of
this First Amendment duly executed by the Credit Parties and the
Lenders.
(b) The Administrative Agent shall have received copies of
resolutions of the Board of Directors of each Credit Party approving
and adopting this First Amendment and authorizing execution and
delivery of this First Amendment, certified by a secretary or assistant
secretary of such Credit Party to be true and correct and in full force
and effect as of the date hereof.
(c) The Administrative Agent shall have received an opinion
from counsel to the Credit Parties, in form and substance satisfactory
to the Administrative Agent, addressed to the Agents and the Lenders
and dated as of the date hereof.
(d) The Administrative Agent shall have received such other
documents it deems reasonably necessary.
III. MISCELLANEOUS
3.1 The term "Credit Agreement" as used in each of the Credit Documents
shall hereafter mean the Credit Agreement as amended by this First Amendment.
Except as herein specifically agreed, the Credit Agreement is hereby ratified
and confirmed and shall remain in full force and effect according to its terms.
4
<PAGE> 5
3.2 Each of the Borrower, the Guarantors, the Agents and the Lenders
party hereto represents and warrants as follows:
(a) It has taken all necessary action to authorize the
execution, delivery and performance of this First Amendment.
(b) This First Amendment has been duly executed and delivered
by such party and constitutes such party's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(c) No consent, approval, authorization or order of, or
filing, registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such party of this First Amendment.
3.3 Each Credit Party represents and warrants to the Lenders that (a)
the representations and warranties of the Credit Parties set forth in Section 6
of the Credit Agreement are true and correct as of the date hereof and (b) no
unwaived event has occurred and is continuing which constitutes a Default or an
Event of Default.
3.4 This First Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument.
3.5 THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
5
<PAGE> 6
Each of the parties hereto has caused a counterpart of this First
Amendment to be duly executed and delivered as of the date first above written.
BORROWER: IPC, INC.
a Delaware corporation
By:
-----------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
GUARANTORS: IVEX PACKAGING CORPORATION
a Delaware corporation
IVEX PAPER MILL CORPORATION
a Delaware corporation
IPMC HOLDING CORPORATION
a Delaware corporation
IPMC, INC.
a Delaware corporation
VALLEY EXPRESS LINES, INC.
a Delaware corporation
KAMA OF ILLINOIS CORPORATION
a Delaware corporation
PACKAGING PRODUCTS, INC.
a Delaware corporation
CFI INDUSTRIES, INC.
a Delaware corporation
CFI RECYCLING, INC.
a Delaware corporation
PLASTOFILM INDUSTRIES, INC.
a Delaware corporation
TRIO PRODUCTS, INC.
a Delaware corporation
By:
-----------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
of each of the above named Guarantors
<PAGE> 7
Signature Page to First Amendment to Amended and Restated Credit Agreement,
dated as of October 10, 1997, among IPC, Inc., as Borrower, Ivex Packaging
Corporation and the Domestic Subsidiaries of IPC, Inc., as Guarantors, the
Lenders party thereto, NationsBank, N.A., as Administrative Agent and Bankers
Trust Company, as Documentation Agent.
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative Agent and
Collateral Agent
By:
---------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
BANKERS TRUST COMPANY,
individually in its capacity as a Lender and in its capacity
as Documentation Agent
By:
---------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
<PAGE> 1
EXHIBIT 4.7
SECOND AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Second Amendment") is entered into as of April 3, 1998 among IPC, INC., a
Delaware corporation (the "Borrower"), IVEX PACKAGING CORPORATION, a Delaware
corporation ("Holdings"), each of the Borrower's Domestic Subsidiaries (the
Borrower's Domestic Subsidiaries, together with Holdings, individually a
"Guarantor" and collectively the "Guarantors"), the Lenders party to the Credit
Agreement defined below (the "Lenders"), NATIONSBANK, N.A., as Administrative
Agent (the "Administrative Agent") for the Lenders and BANKERS TRUST COMPANY, as
Documentation Agent (the "Documentation Agent") for the Lenders (the
Documentation Agent, together with the Administrative Agent, collectively the
"Agents"). Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent, the
Documentation Agent and the Lenders are parties to that certain Amended and
Restated Credit Agreement dated as of October 2, 1997 (as amended by that
certain First Amendment to Amended and Restated Credit Agreement dated as of
October 10, 1997 and as may be further amended, modified, supplemented, extended
or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower has entered into an agreement to purchase the
shares of Ultra Pac, Inc.;
WHEREAS, the Borrower has requested an amendment of the terms of the
Credit Agreement to accommodate its purchase of the shares of Ultra Pac, Inc.;
and
WHEREAS, the Agents and the Required Lenders have agreed to amend
certain terms of the Credit Agreement, as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Amendments To Credit Agreement.
(a) A new paragraph is added at the end of the definition of
"Interim Adjustments" in Section 1.1 of the Credit Agreement to read as follows:
<PAGE> 2
Notwithstanding anything above to the contrary, with respect
to the calculation of the Interest Coverage Ratio, the Fixed Charge
Coverage Ratio and the Leverage Ratio for the fiscal quarter ending
June 30, 1998, EBITDA and Capital Expenditures with respect to Ultra
Pac, Inc. shall be the actual EBITDA and Capital Expenditures of Ultra
Pac, Inc. for the four quarter period ending on June 30, 1998.
Thereafter, EBITDA and Capital Expenditures of Ultra Pac, Inc. shall be
calculated using the adjustment and assumptions set forth above.
(b) The definition of "Permitted Acquisitions" in Section 1.1
of the Credit Agreement is amended and restated in its entirety to
read as follows:
"Permitted Acquisition" means (a) the acquisition of all of
the shares of Ultra Pac, Inc. for an amount not to exceed $90 million
(including any assumed debt and any fees and expenses in connection
therewith) and (b) an acquisition of all or part of the assets or stock
of any another Person by a Credit Party or any Subsidiary of a Credit
Party; provided that after giving effect to an acquisition permitted by
this clause (b) (i) there is at least $25,000,000 of availability under
the Revolving Committed Amount, (ii) the Credit Parties and their
Subsidiaries are in compliance, on a Pro Forma Basis, with all of the
covenants set forth in Section 7.2, (iii) in the case of an acquisition
of the stock of another Person, the board of directors (or other
comparable governing body) or stockholders, as appropriate, of such
Person shall have approved such acquisition, (iv) no Change of Control
shall have occurred, (v) not including any acquisition or a portion
thereof made with the issuance of capital stock, the total cost of any
one acquisition shall not exceed $40,000,000, and together with other
acquisitions made by the Credit Parties or any of their Subsidiaries
during such calendar year, the aggregate acquisition costs of the
Credit Parties and their Subsidiaries taken as a whole shall not exceed
$75,000,000 and (vi) no Default or Event of Default exists and is
continuing.
2. Conditions Precedent.
The effectiveness of this Second Amendment is subject to the
satisfaction of each of the following conditions:
(a) The Administrative Agent shall have received copies of
this Second Amendment duly executed by the Credit Parties and the
Required Lenders.
(b) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Second Amendment. Except as herein specifically agreed, the Credit
Agreement, and the obligations of the
2
<PAGE> 3
Credit Parties thereunder and under the other Credit Documents, are
hereby ratified and confirmed and shall remain in full force and effect
according to their terms.
(b) Each of the Borrower, the Guarantors, the Agents and the
Lenders party hereto represents and warrants as follows:
(i) It has taken all necessary action to authorize
the execution, delivery and performance of this Second Amendment.
(ii) This Second Amendment has been duly executed and
delivered by such party and constitutes such party's legal, valid and
binding obligations, enforceable in accordance with its terms, except
as such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by such party of this Second
Amendment.
(c) Each Credit Party represents and warrants to the Lenders
that (i) the representations and warranties of the Credit Parties set
forth in Section 6 of the Credit Agreement are true and correct as of
the date hereof and (ii) no unwaived event has occurred and is
continuing which constitutes a Default or an Event of Default.
(d) This Second Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument.
(e) THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
3
<PAGE> 4
Each of the parties hereto has caused a counterpart of this Second
Amendment to be duly executed and delivered as of the date first above written.
BORROWER: IPC, INC.
a Delaware corporation
By:
----------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
<PAGE> 5
GUARANTORS: IVEX PACKAGING CORPORATION
a Delaware corporation
IVEX PAPER MILL CORPORATION
a Delaware corporation
IPMC HOLDING CORPORATION
a Delaware corporation
IPMC, INC.
a Delaware corporation
VALLEY EXPRESS LINES, INC.
a Delaware corporation
KAMA OF ILLINOIS CORPORATION
a Delaware corporation
PACKAGING PRODUCTS, INC.
a Delaware corporation
CFI INDUSTRIES, INC.
a Delaware corporation
CFI RECYCLING, INC.
a Delaware corporation
PLASTOFILM INDUSTRIES, INC.
a Delaware corporation
TRIO PRODUCTS, INC.
a Delaware corporation
CRYSTAL THERMOPLASTICS, INC.
a Rhode Island corporation
By:
-------------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
of each of the above named Guarantors
<PAGE> 6
Signature Page to Second Amendment to Amended and Restated Credit Agreement,
dated as of April 3, 1998, among IPC, Inc., as Borrower, Ivex Packaging
Corporation and the Domestic Subsidiaries of IPC, Inc., as Guarantors, the
Lenders party thereto, NationsBank, N.A., as Administrative Agent and Bankers
Trust Company, as Documentation Agent.
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative Agent and
Collateral Agent
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
BANKERS TRUST COMPANY,
individually in its capacity as a Lender and in its capacity
as Documentation Agent
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE> 1
EXHIBIT 4.8
THIRD AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT,
CONSENT AND WAIVER
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT, CONSENT
AND WAIVER (this "Amendment") is entered into as of August 19, 1998 among IPC,
INC., a Delaware corporation (the "Borrower"), IVEX PACKAGING CORPORATION, a
Delaware corporation ("Holdings"), each of the Borrower's Domestic Subsidiaries
(the Borrower's Domestic Subsidiaries, together with Holdings, individually a
"Guarantor" and collectively the "Guarantors"), the Lenders party to the Credit
Agreement defined below (the "Lenders"), NATIONSBANK, N.A., as Administrative
Agent (the "Administrative Agent") for the Lenders and BANKERS TRUST COMPANY, as
Documentation Agent (the "Documentation Agent") for the Lenders (the
Documentation Agent, together with the Administrative Agent, collectively the
"Agents"). Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings given to them in the Credit Agreement.
RECITALS
WHEREAS, the Borrower, the Guarantors, the Administrative Agent, the
Documentation Agent and the Lenders are parties to that certain Amended and
Restated Credit Agreement dated as of October 2, 1997 (as amended by that
certain First Amendment to Amended and Restated Credit Agreement dated as of
October 10, 1997, by that certain Second Amendment to Amended and Restated
Credit Agreement dated as of April 3, 1998 and as may be further amended,
modified, supplemented, extended or restated from time to time, the "Credit
Agreement");
WHEREAS, the Borrower wishes to increase the Revolving Committed Amount
from $175 million to $265 million;
WHEREAS, the Borrower wishes to either (a) contribute or sell certain
assets owned by IPMC, Inc., commonly known as the Detroit Paper Mill, or (b)
contribute or sell the stock of IPMC, Inc. to a joint venture to be formed;
WHEREAS, the Borrower wishes to increase its ability to consummate
additional acquisitions beginning in 1999; and
WHEREAS, the Agents, the Required Lenders, the Lenders holding at least
51% of the Tranche A Term Loans and the Lenders holding at least 51% of the
Tranche B Term Loans, have agreed to amend certain terms of the Credit
Agreement, as more fully set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
<PAGE> 2
1. Definitions.
(a) Clause (b)(v) of the definition of "Permitted Acquisition"
set forth in Section 1.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
(v) not including any acquisition or portion thereof made with
the issuance of capital stock, (A) during calendar year 1998, the total
cost of any one acquisition shall not exceed $40,000,000, and together
with other acquisitions made by the Credit Parties and their
Subsidiaries during such calendar year, the aggregate acquisition costs
of the Credit Parties and their Subsidiaries taken as a whole shall not
exceed $75,000,000 and (B) during calendar year 1999 and during each
calendar year thereafter, the total cost of any one acquisition shall
not exceed $50,000,000 and together with other acquisitions made by the
Credit Parties and their Subsidiaries during such calendar year, the
aggregate acquisition costs of the Credit Parties and their
Subsidiaries taken as a whole shall not exceed $100,000,000.
(b) The definition of "Revolving Committed Amount" set forth
in Section 1.1 of the Credit Agreement is amended and restated in its
entirety to read as follows:
"Revolving Committed Amount" means TWO HUNDRED SIXTY FIVE
MILLION DOLLARS ($265,000,000) or such lesser amount as the Revolving
Committed Amount may be reduced pursuant to Section 2.1(d) or Section
3.3(c).
(c) A new definition is added to Section 1.1 of the Credit
Agreement to read as follows:
"Year 2000 Problem" means any risk that any computer hardware,
software or other equipment used by a Credit Party or any of its
Subsidiaries will not function as effectively and reliably with respect
to recognition of dates and times on and after January 1, 2000 as it
does prior to January 1, 2000, to the extent such risk would cause or
be reasonably expected to cause a Material Adverse Effect.
2. Year 2000 Compliance.
(a) A new Section 6.28 is added to the Credit Agreement to
read as follows:
Each Credit Party has (a) reviewed and assessed all areas
within its and each of its Subsidiaries' businesses and operation that
reasonably would be expected to be materially adversely affected by the
Year 2000 Problem, (b) developed a plan and timeline, as necessary, to
address the Year 2000 Problem and (c) implemented or is in the process
of implementing such plan in accordance with its timetable. Each Credit
Party reasonably believes that the Year 2000 Problem has been
appropriately addressed or is in the process of being appropriately
addressed by it and the Year 2000 Problem will not exist with respect
to it or any of its Subsidiaries on or after January 1, 2000.
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<PAGE> 3
(b) Section 7.1 of the Credit Agreement is amended by adding
a new subsection (n) to read as follows:
(n) Year 2000 Information. Upon the written request
of the Administrative Agent, such information, assurances and
documentation (including, but not limited to, the results of
internal and external audit reports prepared in connection
therewith) reasonably acceptable to the Administrative Agent
that the Credit Parties and their Subsidiaries will not have a
Year 2000 Problem on or after January 1, 2000.
3. Leverage Ratio. Section 7.2(a) of the Credit Agreement is amended and
restated in its entirety to read as follows:
(a) Leverage Ratio. The Leverage Ratio, as of the end of each
fiscal quarter, for the twelve month period ending on such date, shall
be less than or equal to:
(i) From April 1, 1998 to and including September
30, 1998, 4.75 to 1.0;
(ii) From October 1, 1998 to and including March
31, 1999, 4.50 to 1.0;
(iii) From April 1, 1999 to and including
September 30, 1999, 4.25 to 1.0;
(iv) From October 1, 1999 to and including
September 30, 2000, 3.75 to 1.0; and
(v) From October 1, 2000 and thereafter, 3.50 to
1.0.
4. Schedule 1.1(a).
Schedule 1.1(a) to the Credit Agreement is amended and restated in its
entirety in the form attached hereto as Exhibit A.
5. Consent and Waiver.
(a) Notwithstanding any term or provision contained in the
Credit Documents to the contrary, subject to the conditions set forth
in clause (c) below, the Lenders irrevocably consent to the following
actions (collectively, the "Investment"):
(i) either (A) the contribution or sale of all of the
assets of IPMC, Inc., commonly known as the Detroit Paper
Mill, or (B) the contribution or sale of all of the shares of
IPMC, Inc. to a new joint venture (the "Joint Venture") in
3
<PAGE> 4
consideration for no less than $20 million in the form of
cash, subordinated notes and/or equity or a combination
thereof.
(ii) the Credit Parties will not be required to use
any proceeds received in consideration from the Investment to
prepay the Credit Party Obligations.
(iii) with respect to all assets being transferred
pursuant to the Investment, the Lenders shall release all of
their Liens on such assets, and the Lenders hereby authorize
the Collateral Agent to take such actions as are consistent
with such agreement to release the Liens.
(iv) if the stock of IPMC, Inc. is contributed or
sold to the Joint Venture, the guaranty obligations of IPMC,
Inc. shall be fully released, and the Lenders hereby authorize
the Collateral Agent to execute such release.
(b) The Lenders agree that any Default or Event of Default
that may be caused by the Investment is hereby irrevocably waived,
including, without limitation, any violation that may occur with
respect to Section 3.3, Section 8.5 or Section 8.7 of the Credit
Agreement. This is a one time waiver and does not constitute a waiver
of any other Default or Event of Default that may exist or an agreement
to waive any Default or Event of Default that may occur in the future.
(c) The consent and waiver by the Lenders set forth in this
Section 5 is subject to satisfaction of the following conditions:
(i) the Investment occurs on or before November 30,
1998 on terms reasonably satisfactory to the Administrative
Agent;
(ii) no Default or Event of Default shall have
occurred and be continuing on the date of the Investment
unless such Default or Event of Default shall have been waived
in accordance with the Credit Agreement; and
(iii) the Collateral Agent receives, on behalf of the
Lenders, a first priority perfected security interest in all
rights of the Credit Parties in (A) any debt instrument
received in consideration for the Investment and (B) any
equity interest in the Joint Venture received in consideration
for the Investment, together with such documents, instruments,
certificates and opinions as reasonably requested.
6. Conditions Precedent.
The effectiveness of this Amendment is subject to the satisfaction of
each of the following conditions:
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<PAGE> 5
(a) The Administrative Agent shall have received copies of
this Amendment duly executed by the Credit Parties, the Required
Lenders, Lenders holding at least 51% of the Tranche A Term Loans and
Lenders holding at least 51% of the Tranche B Term Loans.
(b) The Administrative Agent shall have received copies of
resolutions of the Board of Directors of each Credit Party approving
and adopting this Amendment, the transactions contemplated herein and
authorizing execution and delivery hereof, certified by a secretary or
assistant secretary of such Credit Party to be true and correct and in
full force and effects as of the date hereof.
(c) The Administrative Agent shall have received duly executed
copies of modifications to Mortgage Documents, together with such real
estate opinions and title update information as requested by the
Administrative Agent.
(d) Each Lender, as appropriate, shall have received a duly
executed replacement Revolving Note from the Borrower in the face
amount of such Lender's Revolving Loan Commitment Percentage of the
Revolving Committed Amount (as amended hereby) in substantially the
form of Exhibit 2.1(e) to the Credit Agreement.
(e) Each Lender that is increasing its Revolving Commitment
Amount shall have received a fee equal to .125% of such increase.
(f) Each Lender who executes and delivers this Amendment shall
have received an amendment fee in an amount equal to .05% of its total
Commitment under the Credit Agreement.
(g) The Administrative Agent shall have received an opinion
from counsel to the Credit Parties, in form and substance satisfactory
to the Administrative Agent, addressed to the Administrative Agent on
behalf of the Lenders and dated as of the date hereof.
(h) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
7. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement,
and the obligations of the Credit Parties thereunder and under the
other Credit Documents, are hereby ratified and confirmed and shall
remain in full force and effect according to their terms.
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<PAGE> 6
(b) Each of the Borrower, the Guarantors, the Agents and the
Lenders party hereto represents and warrants as follows:
(i) It has taken all necessary action to authorize
the execution, delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and
delivered by such party and constitutes such party's legal, valid and
binding obligations, enforceable in accordance with its terms, except
as such enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order
of, or filing, registration or qualification with, any court or
governmental authority or third party is required in connection with
the execution, delivery or performance by such party of this Amendment
other than any filing required in connection with the amendments or
modifications to the Mortgage Documents contemplated by Section 6(c) of
this Amendment.
(c) Each Credit Party represents and warrants to the Lenders
that (i) the representations and warranties of the Credit Parties set
forth in Section 6 of the Credit Agreement are true and correct as of
the date hereof, (ii) no unwaived event has occurred and is continuing
which constitutes a Default or an Event of Default and (iii) it has no
claims, counterclaims, offsets, credits or defenses to its obligations
under the Credit Documents or to the extent it has any they are hereby
released.
(d) This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall constitute one and the same
instrument. Delivery of an executed counterpart of this Amendment by
telecopy shall be effective as an original and shall constitute a
representation that an executed original shall be delivered.
(e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Rest of page intentionally left blank]
6
<PAGE> 7
Each of the parties hereto has caused a counterpart of this Amendment
to be duly executed and delivered as of the date first above written.
BORROWER: IPC, INC.
a Delaware corporation
By:
-----------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
<PAGE> 8
GUARANTORS: IVEX PACKAGING CORPORATION
a Delaware corporation
IVEX PAPER MILL CORPORATION
a Delaware corporation
IPMC HOLDING CORPORATION
a Delaware corporation
IPMC, INC.
a Delaware corporation
VALLEY EXPRESS LINES, INC.
a Delaware corporation
KAMA OF ILLINOIS CORPORATION
a Delaware corporation
PACKAGING PRODUCTS, INC.
a Delaware corporation
CFI INDUSTRIES, INC.
a Delaware corporation
CFI RECYCLING, INC.
a Delaware corporation
PLASTOFILM INDUSTRIES, INC.
a Delaware corporation
TRIO PRODUCTS, INC.
a Delaware corporation
CRYSTAL THERMOPLASTICS, INC.
a Rhode Island corporation
ULTRA PAC, INC.
a Minnesota corporation
By:
------------------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
of each of the above named Guarantors
<PAGE> 9
Signature Page to Third Amendment to Amended and Restated Credit Agreement,
Consent and Waiver among IPC, Inc., as Borrower, Ivex Packaging Corporation and
the Domestic Subsidiaries of IPC, Inc., as Guarantors, the Lenders party
thereto, NationsBank, N.A., as Administrative Agent and Bankers Trust Company,
as Documentation Agent.
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative Agent and
Collateral Agent
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
BANKERS TRUST COMPANY,
individually in its capacity as a Lender and in its capacity
as Documentation Agent
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
<PAGE> 1
EXHIBIT 10.2
THE MERRILL LYNCH SPECIAL NONQUALIFIED DEFERRED COMPENSATION PLAN
ARTICLE 1 -- INTRODUCTION
1.1 PURPOSE OF PLAN
The Employer has adopted the Plan set forth herein to provide
a means by which certain employees may elect to defer receipt of designated
percent ages or amounts of their Compensation and to provide a means for certain
other deferrals of Compensation.
1.2 STATUS OF PLAN
The Plan is intended to be "a plan that is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2) and 301(a)(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA"), and shall be interpreted and administered
to the extent possible in a manner consistent with that intent.
ARTICLE 2 -- DEFINITIONS
Wherever used herein, the following terms have the meanings
set forth below, unless a different meaning is clearly required by the context:
2.1 ACCOUNT means, for each Participant, the account
established for his or her benefit under Section 5.1.
2.2 ADOPTION AGREEMENT means the Merrill Lynch Special
Nonqualified Deferred Compensation Plan for Select Employees Adoption Agreement
signed by the Employer to establish the Plan and containing all the options
selected by the Employer, as the same may be amended from time to time.
2.3 CHANGE OF CONTROL means (a) the purchase or other
acquisition in one or more transactions other than from the Employer, by any
individual, entity or group of persons, within the meaning of section 13(d)(3)
or 14(d) of the Securities Exchange Act of 1934 or any comparable successor
<PAGE> 2
provisions, of beneficial ownership (within the meaning of Rule 13d-3 of
Securities Exchange Act of 1934) of 30% or more of either the outstanding shares
of common stock or the combined voting power of the Employer's then outstanding
voting securities entitled to vote generally, or (b) the approval by the
stockholders of the Employer of a reorganization, merger, or consolidation, in
each case, with respect to which persons who were stockholders of the Employer
immediately prior to such reorganization, merger or consolidation do not
immediately thereafter own more than 50% of the combined voting power of the
reorganized, merged or consolidated Employer's then outstanding securities that
are entitled to vote generally in the election of directors or (c) the sale of
substantially all of the Employer's assets.
2.4 CODE means the Internal Revenue Code of 1986, as
amended from time to time. Reference to any section or subsection of the Code
includes reference to any comparable or succeeding provisions of any legislation
that amends, supplements or replaces such section or subsection.
2.5 COMPENSATION has the meaning elected by the
Employer in the Adoption Agreement.
2.6 EFFECTIVE DATE means the date chosen in the
Adoption Agreement as of which the Plan first becomes effective.
2.7 ELECTION FORM means the participation election form
as approved and prescribed by the Plan Administrator.
2.8 ELECTIVE DEFERRAL means the portion of Compensation
that is deferred by a Participant under Section 4.1.
2.9 ELIGIBLE EMPLOYEE means, on the Effective Date or
on any Entry Date thereafter, each employee of the Employer who satisfies the
criteria established in the Adoption Agreement.
2.10 EMPLOYER means the corporation referred to in the
Adoption Agreement, any successor to all or a major portion of the Employer's
assets or business that assumes the obligations of the Employer, and each other
entity that is affiliated with the Employer, which adopts the Plan with the
consent of the Employer, provided that the Employer that signs the Adoption
Agreement shall have the sole power to amend this Plan and shall be the Plan
Administrator if no other person or entity is so serving at any time.
2
<PAGE> 3
2.11 ERISA means the Employee Retirement Income Security
Act of 1974, as amended from time to time. Reference to any section or
subsection of ERISA includes reference to any comparable or succeeding
provisions of any legislation that amends, supplements or replaces such section
or subsection.
2.12 INCENTIVE CONTRIBUTION means a discretionary
additional contribution made by the Employer as described in Section 4.3.
2.13 INSOLVENT means either (i) the Employer is unable
to pay its debts as they become due, or (ii) the Employer is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
2.14 MATCHING DEFERRAL means a deferral for the benefit
of a Participant as described in Section 4.2.
2.15 PARTICIPANT means any individual who participates
in the Plan in accordance with Article 3.
2.16 PLAN means the Employer's plan in the form of the
Merrill Lynch Special Nonqualified Deferred Compensation Plan for Select
Employees and the Adoption Agreement and all amendments thereto.
2.17 PLAN ADMINISTRATOR means the person, persons or
entity designated by the Employer in the Adoption Agreement to administer the
Plan and to serve as the agent for "Company" with respect to the Trust as
contemplated by the agreement establishing the Trust. If no such person or
entity is so serving at any time, the Employer shall be the Plan Administrator.
2.18 PLAN YEAR means the 12-month period chosen in the
Adoption Agreement.
2.19 TOTAL AND PERMANENT DISABILITY means the inability
of a Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment that can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months, and the permanence and degree of which shall
be supported by medical evidence satisfactory to the Plan Administrator.
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<PAGE> 4
2.20 TRUST means the trust established by the Employer
that identifies the Plan as a plan with respect to which assets are to be held
by the Trustee.
2.21 TRUSTEE means the trustee or trustees under the
Trust.
2.22 YEAR OF SERVICE means the computation period and
service requirement elected in the Adoption Agreement.
ARTICLE 3 -- PARTICIPATION
3.1 COMMENCEMENT OF PARTICIPATION
Any individual who elects to defer part of his or her
Compensation in accordance with Section 4.1 shall become a Participant in the
Plan as of the date such deferrals commence in accordance with Section 4.1. Any
individual who is not already a Participant and whose Account is credited with
an Incentive Contribution shall become a Participant as of the date such amount
is credited.
3.2 CONTINUED PARTICIPATION
A Participant in the Plan shall continue to be a Participant
so long as any amount remains credited to his or her Account.
ARTICLE 4 -- ELECTIVE AND MATCHING DEFERRALS
4.1 ELECTIVE DEFERRALS
An individual who is an Eligible Employee on the Effective
Date may, by completing an Election Form and filing it with the Plan
Administrator within 30 days following the Effective Date, elect to defer a
percentage or dollar amount of one or more payments of Compensation, on such
terms as the Plan Administrator may permit, which are payable to the Participant
after the date on which the individual files the Election Form. Any individual
who becomes an Eligible Employee after the Effective Date may, by completing an
Election FORM and filing it with the Plan Administrator within 30 days following
the date on which the Plan Administrator gives such individual written notice
that the individual is an Eligible Employee, elect to defer a percentage or
dollar amount of one or more payments of Compensation, on such terms as the Plan
Administrator may permit, which are payable to the Participant
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<PAGE> 5
after the date on which the individual files the Election Form. Any Eligible
Employee who has not otherwise initially elected to defer Compensation in
accordance with this Section 4.1 may elect to defer a percent age or dollar
amount of one or more payments of Compensation, on such terms as the Plan
Administrator may permit, commencing with Compensation paid in the next
succeeding Plan Year, by completing an Election Form prior to the first day of
such succeeding Plan Year. In addition, a Participant may defer all or part of
the amount of any elective deferral or matching contribution made on his or her
behalf to the Employer's 401(k) plan for the prior Plan Year but treated as an
excess deferral, an excess contribution or otherwise limited by the application
of the limitations of section 401(k), 401(m), 415 or 402(q) of the Code, so long
as the Participant so indicates on an Election Form. A Participant's
Compensation shall be reduced in accordance with the Participant's election
hereunder and amounts deferred hereunder shall be paid by the Employer to the
Trust as soon as administratively feasible and credited to the Participant's
Account as of the date the amounts are received by the Trustee.
An election to defer a percentage or dollar amount of
Compensation for any Plan Year shall apply for subsequent Plan Years unless
changed or revoked. A Participant may change or revoke his or her deferral
election as of the first day of any Plan Year by giving written notice to the
Plan Administrator before such first day (or such earlier date as the Plan
Administrator may prescribe).
4.2 MATCHING DEFERRALS
After each payroll period, monthly, quarterly, or annually,
at the Employer's discretion, the Employer shall contribute to the Trust
Matching Deferrals equal to the rate of Matching Contribution selected by the
Employer and multiplied by the amount of the Elective Deferrals credited to the
Participants' Accounts for such period under Section 4.1. Each Matching Deferral
will be credited, as of the later of the date it is received by the Trustee or
the date the Trustee receives from the Plan Administrator such instructions as
the Trustee may reasonably require to allocate the amount received among the
asset accounts maintained by the Trustee, to the Participants' Accounts pro rata
in accordance with the amount of Elective Deferrals of each Participant, which
are taken into account in calculating the Matching Deferral.
4.3 INCENTIVE CONTRIBUTIONS
In addition to other contributions provided for under the
Plan, the Employer may, in its sole discretion, select one or more Eligible
Employees to
5
<PAGE> 6
receive an Incentive Contribution to his or her Account on such terms as the
Employer shall specify at the time it makes the contribution. For example, the
Employer may contribute an amount to a Participant's Account and condition the
payment of that amount and accrued earnings thereon upon the Participant
remaining employed by the Employer for an additional specified period of time.
The terms specified by the Employer shall supersede any other provision of this
Plan as regards Incentive Contributions and earnings with respect thereto,
provided that if the Employer does not specify a method of distribution, the
Incentive Contribution shall be distributed in a manner consistent with the
election last made by the particular Participant prior to the year in which the
Incentive Contribution is made. The Employer, in its discretion, may permit the
Participant to designate a distribution schedule for a particular Incentive
Contribution provided that such designation is made prior to the time that the
Employer finally determines that the Participant will receive the Incentive
Contribution.
ARTICLE 5 -- ACCOUNTS
5.1 ACCOUNTS
The Plan Administrator shall establish an Account for each
Participant reflecting Elective Deferrals, Matching Deferrals and Incentive
Contributions made for the Participant's benefit together with any adjustments
for income, gain or loss and any payment from the Account. The Plan
Administrator may cause the Trustee to maintain and invest separate asset
accounts corresponding to each Participant's Account. The Plan Administrator
shall establish sub-accounts for each Participant that has more than one
election in effect under Section 7.1 and such other sub-accounts as are
necessary for the proper administration of the Plan. As of the last business day
of each calendar quarter, the Plan Administrator shall provide the Participant
with a statement of his or her Account reflecting the income, gains and losses
(realized and unrealized), amounts of deferrals, and distributions of such
Account since the prior statement.
5.2 INVESTMENTS
The assets of the Trust shall be invested in such investments
as the Trustee shall determine. The Trustee may (but is not required to)
consider the Employer's or a Participant's investment preferences when investing
the assets attributable to a Participant's Account.
6
<PAGE> 7
ARTICLE 6 -- VESTING
6.1 GENERAL
A Participant shall be immediately vested in, i.e., shall
have a nonforfeitable right to, all Elective Deferrals, and all income and gain
attributable thereto, credited to his or her Account. A Participant shall become
vested in the portion of his or her Account attributable to Matching Deferrals
and income and gain attributable thereto in accordance with the schedule
selected by the Employer in the Adoption Agreement, subject to earlier vesting
in accordance with Sections 6.3, 6.4, and 6.5.
6.2 VESTING SERVICE
For purposes of applying the vesting schedule in the Adoption
Agreement, a Participant shall be considered to have completed a Year of Service
for each complete year of full-time service with the Employer or an Affiliate,
measured from the Participant's first date of such employment, unless the
Employer also maintains a 401(k) plan that is qualified under section 401(a) of
the Internal Revenue code in which the Participant participates, in which case
the rules governing vesting service under that plan shall also be controlling
under this Plan.
6.3 CHANGE OF CONTROL
A Participant shall become fully vested in his or her Account
immediately prior to a Change of Control of the Employer.
6.4 DEATH OR DISABILITY
A Participant shall become fully vested in his or her Account
immediately prior to termination of the Participant's employment by reason of
the Participant's death or Total and Permanent Disability. Whether a
Participant's termination of employment is by reason of the Participant's Total
and Permanent Disability shall be determined by the Plan Administrator in its
sole discretion.
6.5 INSOLVENCY
A Participant shall become fully vested in his or her Account
immediately prior to the Employer become insolvent, in which case the
Participant will have
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<PAGE> 8
the same rights as a general creditor of the Employer with respect to his or her
Account balance.
ARTICLE 7 -- PAYMENTS
7.1 ELECTION AS TO TIME AND FORM OF PAYMENT
A Participant shall elect (on the Election Form used to elect
to defer Compensation under Section 4.1) the date at which the Elective
Deferrals and vested Matching Deferrals (including any earnings attributable
thereto) will commence to be paid to the Participant. The Participant shall also
elect thereto for payments to be paid in either:
(a) a single lump-sum payment;
(b) a series of substantially equal periodic
payments (not less frequently than annually) over a period elected by the
Participant not to exceed the life expectancy of the Participant (or the joint
life expectancies of the Participant and the designated beneficiary of the
Participant);
(c) payments equal to the amounts paid under an
annuity chosen by the Participant that is acceptable to the Trustee;
(d) annual installments over a period elected by the
Participant, the amount of each installment to equal the balance of his or her
Account immediately prior to the installment divided by the number of
installments remaining to be paid.
Each such election will be effective for the Plan Year for
which it is made and succeeding Plan Years, unless changed by the Participant.
Any change will be effective only for Elective Deferrals and Matching Deferrals
made for the first Plan Year beginning after the date on which the Election Form
containing the change is filed with the Plan Administrator. Except as provided
in Section 7.2, 7.3, 7.4 or 7.5, payments of a Participant's Account shall be
made in accordance with the Participant's elections under this Section 7.1.
8
<PAGE> 9
7.2 CHANGE OF CONTROL
As soon as possible following a Change of Control of the
Employer, each Participant shall be paid his or her entire Account balance
(including any amount vested pursuant to Section 6.3) in a single lump sum.
7.3 TERMINATION OF EMPLOYMENT
Upon termination of a Participant's employment for any reason
other than death and prior to the attainment of the Retirement Age specified in
the Adoption Agreement, the vested portion of the Participant's Account
(including any portion vested pursuant to Section 6.4 as a consequence of the
Participant's Total and Permanent Disability) shall be paid to the Participant
in a single lump sum as soon as practicable following the date of such
termination: provided, however, that the Plan Administrator, in its sole
discretion, may pay out a Participant's Account balance in annual installments
if the Participant's employment terminates by reason of the Participant's Total
and Permanent Disability.
7.4 DEATH
If a Participant dies prior to the complete distribution of
his or her Account, the balance of the Account shall be paid as soon as
practicable to the Participant's designed beneficiary or beneficiaries, in
accordance with the payment election in effect under Section 7.1 on the date of
the Participant's death. Alternatively, Participant may elect that the balance
of the Account be paid to the Participant's beneficiary or beneficiaries.
Any designation of beneficiary and form of payment to such
beneficiary shall be made by the Participant on an Election Form filed with the
Plan Administrator and may be changed by the Participant at any time by filing
another Election Form containing the revised instructions. If no beneficiary is
designated or no designated beneficiary survives the Participant, payment shall
be made to the Participant's surviving spouse, or, if none, to his or her issue
per stirpes, in a single payment. If no spouse or issue survives the
Participant, payment shall be made in a single lump sum to the Participant's
estate.
7.5 UNFORESEEN EMERGENCY
If a Participant suffers an unforeseen emergency, as defined
herein, the Plan Administrator, in its sole discretion, may pay to the
Participant only that
9
<PAGE> 10
portion, if any, of the vested portion of his or her Account that the Plan
Administrator determines is necessary to satisfy the emergency need, including
any amounts necessary to pay any federal, state or local income taxes reasonably
anticipated to result from the distribution. A Participant requesting an
emergency payment shall apply for the payment in writing in a form approved by
the Plan Administrator and shall provide such additional information as the Plan
Administrator may require. For purpose of this paragraph, "unforeseen emergency"
means an immediate and heavy financial need resulting from any of the following:
(a) expenses that are not covered by insurance and
which the Participant or his or her spouse or dependent has incurred as a result
of, or is required to incur in order to receive, medical care;
(b) the need to prevent eviction of a Participant
from his or her principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
(c) any other circumstances that is determined by
the Plan Administrator in its sole discretion to constitute an unforeseen
emergency that is not covered by insurance and which cannot reasonably be
relieved by the liquidation of the Participant's assets.
7.6 FORFEITURE OF NON-VESTED AMOUNTS
To the extent that any amounts credited to a Participant's
Account are not vested at the time such amounts are otherwise payable under
Section 7.1 or 7.3, such amounts shall be forfeited and shall be used to satisfy
the Employer's obligation to make contributions to the Trust under the Plan.
7.7 TAXES
All federal, state or local taxes that the Plan Administrator
determines are required to be withheld from any payments made pursuant to this
Article 7 shall be withheld.
10
<PAGE> 11
ARTICLE 8 -- PLAN ADMINISTRATOR
8.1 PLAN ADMINISTRATION AND INTERPRETATION
The Plan Administrator shall oversee the administration of
the Plan. The Plan Administrator shall have complete control and authority to
determine the rights and benefits and all claims, demands and actions arising
out of the provisions of the Plan of any Participant, beneficiary, deceased
Participant, or other person having or claiming to have any interest under the
Plan. The Plan Administrator shall have complete discretion to interpret the
Plan and to decide all matters under the Plan. Such interpretation and decision
shall be final, conclusive and binding on all Participants and any person
claiming under or through any Participant, in the absence of clear and
convincing evidence that the Plan Administrator acted arbitrarily and
capriciously. Any individual(s) serving as Plan Administrator who is a
Participant will not vote or act on any matter relating solely to himself or
herself. When making a determination or calculation, the Plan Administrator
shall be entitled to rely on information furnished by a Participant, a
beneficiary, the Employer or the Trustee. The Plan Administrator shall have the
responsibility for complying with any reporting and disclosure requirements of
ERISA.
8.2 POWERS, DUTIES, PROCEDURES, ETC.
The Plan Administrator shall have such powers and duties, may
adopt such rules and tables, may act in accordance with such procedures, may act
in accordance with such procedures, may appoint such officers or agents, may
delegate such powers and duties, may receive such reimbursements and
compensation, and shall follow such claims and appeal procedures with respect to
the Plan as it may establish.
8.3 INFORMATION
To enable the Plan Administrator to perform its functions,
the Employer shall supply full and timely information to the Plan Administrator
on all matters relating to the compensation of Participants, their employment,
retirement, death, termination of employment, and such other pertinent facts as
the Plan Administrator may require.
11
<PAGE> 12
8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR
The Employer agrees to indemnify and to defend to the fullest
extent permitted by law any officer(s) or employee(s) who serve as Plan
Administrator (including any such individual who formerly served as Plan
Administrator) against all liabilities, damages, costs and expenses (including
attorneys' fees and amounts paid in settlement of any claims approved by the
Employer) occasioned by any act or omission to act in connection with the Plan,
if such act or omission is in good faith.
ARTICLE 9 -- AMENDMENT AND TERMINATION
9.1 AMENDMENTS
The Employer shall have the right to amend the Plan from time
to time, subject to Section 9.3, by an instrument in writing that has been
executed on the Employer's behalf by its duly authorized officer.
9.2 TERMINATION OF PLAN
This Plan is strictly a voluntary undertaking on the part of
the Employer and shall not be deemed to constitute a contract between the
Employer and any Eligible Employee (or any other employee) or a consideration
for, or an inducement or condition of employment for, the performance of the
services by any Eligible Employee (or other employee). The Employer reserves the
right to terminate the Plan at any time, subject to Section 9.3, by an
instrument in writing that has been executed on the Employer's behalf by its
duly authorized officer. Upon termination, the Employer may (a) elect to
continue to maintain the Trust to pay benefits hereunder as they become due as
if the Plan had not terminated or (b) direct the Trustee to pay promptly to
Participants (or their beneficiaries) the vested balance of their Accounts. For
purposes of the preceding sentence, in the event the Employer chooses to
implement clause (b), the Account balances of all Participants who are in the
employ of the Employer at the time the Trustee is directed to pay such balances
shall become fully vested and nonforfeitable. After Participants and their
beneficiaries are paid all Plan benefits to which they are entitled, all
remaining assets of the Trust attributable to Participants who terminated
employment with the Employer prior to termination of the Plan and who were not
fully vested in their Accounts under Article 6 at that time shall be returned to
the Employer.
12
<PAGE> 13
9.3 EXISTING RIGHTS
No amendment or termination of the Plan shall adversely
affect the rights of any Participant with respect to amounts that have been
credited to his or her Account prior to the date of such amendment or
termination.
ARTICLE 10 -- MISCELLANEOUS
10.1 NO FUNDING
The Plan constitutes a mere promise by the Employer to make
payments in accordance with the terms of the Plan and Participants and
beneficiaries shall have the status of general unsecured creditors of the
Employer. Nothing in the Plan will be construed to give any employee or any
other person rights to any specific assets of the Employer or of any other
person. In all events. it is the intent of the Employer that the Plan be treated
as unfunded for tax purposes and for purposes of Title I of ERISA.
10.2 NON-ASSIGNABILITY
None of the benefits, payments. proceeds or claims of any
Participant or beneficiary shall be subject to any claim of any creditor of any
Participant or beneficiary and, in particular, the same shall not be subject to
attachment or garnishment or other legal process by any creditor of such
Participant or beneficiary, nor shall any Participant or beneficiary have any
right to alienate, anticipate, commute, pledge, encumber or assign any of the
benefits or payments or proceeds that he or she may expect to receive,
contingently or otherwise, under the Plan.
10.3 LIMITATION OF PARTICIPANTS' RIGHTS
Nothing contained in the Plan shall confer upon any person a
right to be employed or to continue in the employ of the Employer, or interfere
in any way with the right of the Employer to terminate the employment of a
Participant in the Plan at any time, with or without cause.
10.4 PARTICIPANTS BOUND
Any action with respect to the Plan taken by the Plan
Administrator or the Employer or the Trustee or any action authorized by or
taken at the direction of
13
<PAGE> 14
the Plan Administrator, the Employer or the Trustee shall be conclusive upon all
Participants and beneficiaries entitled to benefits under the Plan.
10.5 RECEIPT AND RELEASE
Any payment to any Participant or beneficiary in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Employer, the Plan Administrator and the
Trustee under the Plan, and the Plan Administrator may require such Participant
or beneficiary, as a condition precedent to such payment, to execute a receipt
and release to such effect. If any Participant or beneficiary is determined by
the Plan Administrator to be incompetent by reason of physical or mental
disability (including minority) to give a valid receipt and release, the Plan
Administrator may cause the payment or payments becoming due to such person to
be made to another person for his or her benefit without responsibility on the
part of the Plan Administrator, the Employer or the Trustee to follow the
application of such funds.
10.6 GOVERNING LAW
The Plan shall be construed, administered, and governed in
all respects under and by the laws of the state in which the Employer maintains
its primary place of business. If any provision shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
10.7 HEADINGS AND SUBHEADINGS
Headings and subheadings in this Plan are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.
14
<PAGE> 15
THE MERRILL LYNCH SPECIAL NONQUALIFIED DEFERRED
COMPENSATION PLAN ADOPTION AGREEMENT
Please complete the information requested in the Adoption Agreement to establish
the specific provisions of your plan. You do not have to provide a copy to your
Financial Consultant. (Only the Merrill Lynch account opening agreements and an
original executed copy of the associated Trust Agreement need to be returned to
Merrill Lynch at the address printed on those forms.) This document and the
Merrill Lynch Special Nonqualified Deterred Compensation Plan for Select
Employees govern the rights of plan participants and should, therefore, be
disclosed to participants and retained as part of your permanent records.
1. EMPLOYER INFORMATION
A. Name of Plan.
Ivex Packaging Corporation Deferred Compensation Plan
B. Name and Address of employer sponsoring the Plan. Please provide employer's
business name.
Ivex Packaging Corporation
100 Tri-State Drive, #200
Lincolnshire, Illinois 60069
C. Provide employer's primary contact for the Plan and telephone and FAX
numbers. Also include the employer's Tax Identification Number.
Richard R. Cote
Vice President & Treasurer
(847) 374-4324
(847) 945-9247
76-0171625
D. Give the first day of the 12-month period for which the employer pays taxes:
January 1
1
<PAGE> 16
2. PLAN INFORMATION
A. What is the effective date of the Plan?
- -----------------------------------------
B. Plan Year Ends. Your "Plan Year" is the 12-consecutive-month period for which
you credit elective and matching deferrals and keep Plan records. Enter the last
day of your Plan Year. For example, if you use the calendar year as your plan
year, enter "December 31." If you use a different 12- month period - for
instance if your business is on a fiscal year - enter the last day of your
fiscal year, e.g., "July 31."
December 31
3. ELIGIBLE EMPLOYEES
The following persons or classes of persons shall be Participants (enter the
names or positions of individuals eligible to participate or the criteria used
to identify Participants, e.g., "Those key employees of the Company selected by
the Compensation Committee of the Board of Directors").
Those key employees of the Company selected by the Compensation Committee of the
Board of Directors.
4. COMPENSATION
Compensation is used to determine the amount of Elective Deferrals a Participant
can elect. Compensation under the Plan is defined as (select one):
[ ] the Participant's wages, salaries, fees for professional services and
other amounts received (without regard to whether or not an amount is
paid in cash) for personal services actually rendered in the course of
employment with the Employer or an Affiliate to the extent that the
amounts are includable in gross income, including but not limited to
commissions paid to salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips, bonuses,
fringe benefits, reimbursements, and expense allowances, but not
including those items excludable from the definition of compensation
under Treas. Reg. section 1.415-2(d)(3).
[ ] the regular or base salary payable to the individual by the Employer or
an Affiliate, excluding commissions and bonuses.
2
<PAGE> 17
[X] the cash compensation payable to the individual by the Employer or an
Affiliate, including any commissions and bonuses.
[ ] the cash bonuses payable to the individual by the Employer or an
Affiliate.
For purposes of the Plan, Compensation will be determined before giving effect
to Elective Deferrals and other salary reduction amounts that are not included
in the Participant's gross income under Code section 125, 401(k), 402(h) or
403(b).
5. CONTRIBUTIONS
A. Elective Deferrals. Participants may elect to reduce their Compensation and
to have Elective Deferrals credited to their Accounts by making an election
under the Plan (which may be changed each year for later Plan Years as described
in the plan), but no Participant may defer more than 100% (1%-100%) of his or
her Compensation for a Plan Year.
B. Matching Deferrals. If the Employer elects to match Elective Deferrals,
specify the matching rate and indicate the amount of the Participant's Elective
Deferrals that will be matched. You may also elect to decide each year whether
Matching Deferrals will be made and, if so, what that year's matching rate will
be.
For example, the Employer may decide to credit a Matching Deferral of, for
example, 50 cents for each dollar of a Participant's Elective Deferrals, but
limit the match to the first 5% of Compensation deferred by the Participant. If
you want to set a maximum dollar amount on the amount of Elective Deferrals that
will be matched, insert the dollar amount and interval over which that amount is
to be measured. For example, you could say that you will not match Elective
Deferrals in excess of $1,000 per month. Matching Deferrals can be made after
each payroll period, monthly, quarterly, or annually, at the Employer's
discretion. Matching Deferrals will be subject to the vesting schedule selected
in Item 6A (select one):
[ ] No Matching Deferrals will be credited.
[ ] The Employer will credit Matching Deferrals for each Participant equal to
_% of the first _% of the Participant's Compensation which is elected as
an Elective Deferral, but no Matching Deferral will be made on Elective
Deferrals in excess of $__________ per (specify time period if
applicable).
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<PAGE> 18
[X] The Employer will decide from year to year whether Matching Deferrals
will be made and will notify Participants annually of the manner in which
Matching Deferrals will be calculated for the subsequent year.
C. Discretionary Incentive Contributions. The Employer may make Discretionary
Incentive Contributions in any amounts the Employer selects. These contributions
will be subject to the vesting schedule selected in Item 6C.
The Employer will make Discretionary Incentive Contributions under the Plan.
[ ] yes [X] no
6. VESTING OF MATCHING DEFERRALS AND DISCRETIONARY INCENTIVE CONTRIBUTIONS
A. Vesting Schedule for Matching Deferrals.
Indicate how the portion of a Participant's Account attributable to Matching
Deferrals is to vest.
Matching Deferrals vest in accordance with the following schedule (select one):
[ ] 100% immediate.
[ ] 100% after ____ years of service.
[X] 20% after 1 year(s) of service and an additional 20% for each year
thereafter.
[ ] Other vesting schedule (specify):
--------------------------------------
--------------------------------------
B. Vesting Service.
Indicate whether you will give credit for vesting service for time spent with a
predecessor employer and, if so, specify the maximum number of years and the
type of predecessor service for which credit will be given. For vesting purposes
(select one):
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<PAGE> 19
[X] Service with a predecessor employer will not be considered.
[ ] Service (up to a maximum of ____ years) with the following employer(s)
will be considered:
--------------------------------------
--------------------------------------
C. Vesting Schedule for Discretionary Incentive Contributions.
Indicate how the portion of a Participant's Account attributable to
Discretionary Incentive Contributions is to vest.
Unless otherwise specified by the Employer at the time a Discretionary Incentive
Contribution is made. Discretionary Incentive Contributions vest in accordance
with the following schedule (select one):
[ ] 100% immediate.
[ ] 100% after ___ years of service.
[X] 20% after 1 year(s) of service and an additional 20% for each year
thereafter.
[ ] Other vesting schedule (specify):
--------------------------------------
--------------------------------------
7. ACCOUNTS
The Trustee can either invest each Participant's Account balance as a separate
account (in which case the Trustee could, but would not be required to, take
into consideration the investment preferences of the Participants) or invest the
Account balances of all Participants as a single fund (in which case the Trustee
could, but would not be required to, take into consideration the investment
preference of the Employer) (select one):
[X] Account balances are to be invested separately.
5
<PAGE> 20
[ ] Account balances are to be invested as a single fund.
8. RETIREMENT AGE
The Retirement Age under the Plan is age 65. A Participant terminating
employment before Retirement Age for reasons other than death or Total and
Permanent Disability will not be entitled to receive any installment payments
elected on the Election Form.
9. WITHDRAWALS WHILE WORKING
Withdrawals for Unforeseen Emergency. If you check the first box. Participants
may make withdrawals while working in the event they encounter an unforeseen
emergency. They generally can withdraw the vested portion of their Accounts.
NOTE: Withdrawals are strictly limited as described in Plan Section 7.5. It is
the Plan Administrator's responsibility to ensure that the limits are being
followed. Excess withdrawals may result in loss of the tax deferral on all
amounts credited under the Plan for the benefit of all Participants.
Withdrawals of the vested portion of a Participant's Account for unforeseen
emergencies (select one):
[X] Are permitted to the full extent allowable under the plan.
[ ] Are not permitted.
10. ADMINISTRATION
Plan Administrator. The Plan Administrator is legally responsible for the
operation of the Plan, including:
- - Keeping track of which employees are eligible to participate in the Plan
and the date each employee becomes eligible to participate.
- - Maintaining Participants' Accounts. including all sub-accounts required
for different contribution types and payment elections, and keeping track
of all elections made by Participants under the Plan and any other
relevant information.
6
<PAGE> 21
- - Transmitting important communications to the Participants, and obtaining
relevant information from Participants such as changes in investment
selections.
- - Filing important reports required to be submitted to governmental
agencies.
The Plan Administrator will be the person or persons identified below:
Richard R. Cote
Vice President & Treasurer
Frank V. Tannura
Vice President & Chief Financial Officer
11. SIGNATURES
After reviewing the Adoption Agreement, enter the current date and the name of
the Employer. The signature of the Employer or the person signing for the
Employer must be witnessed. Note that the person signing for the Employer must
be authorized to do so, such as by a resolution of the Employer's board of
directors or governing by-laws.
While the Merrill Lynch Special Nonqualified Deferred Compensation Plan for
Select Employees, including this Adoption Agreement, has been designed in a
manner to permit Participants to defer federal income tax on amounts credited to
their accounts until the amounts are actually paid, neither Merrill Lynch,
Pierce, Fenner & Smith Incorporated, the sponsor of this document, nor any of
its affiliates ("Merrill Lynch") provide any assurances of that result in the
Employer's particular situation or assume any responsibility in this regard.
Please consult your tax advisor regarding the tax consequences of this Plan to
you and your employees and the advisability of submitting this document to the
Internal Revenue Service to obtain a ruling concerning those consequences. In
addition, please consult your independent legal counsel with respect to
securities law issues. By signing this Adoption Agreement the Employer
acknowledges that no representations or warranties as to the tax consequences to
the Employer and Participants of the operation of this Plan have been made by
Merrill Lynch.
Ivex Packaging Corporation
By /s/ Frank V. Tannura
--------------------------------------------------------
F.V. Tannura, Vice President & Chief Financial Officer
G. D. Patterson
7
<PAGE> 22
Date:
----------------------------------
WITNESS:
-------------------------------
The CMA Fund Prospectuses mentioned on page 3 of the FutureComp(SM) service
brochure will be mailed to you when your account has been opened. They will be
sent along with the Welcome Package, from Merrill Lynch Trust. Please contact
your Financial Consultant if you would like to review the CMA Fund Prospectuses
as you make your CMA Money Fund designation (pages 7-F and 8-F of the Forms
Booklet). After you receive and review the CMA Fund Prospectuses, you may change
your CMA Money Fund designation at any time by notifying Merrill Lynch Trust in
writing.
(C) 1996 Merrill Lynch, Pierce, Fenner & Smith Incorporated. Printed in the
U.S.A. Member. Securities Investor Protection Corporation (SIPC). CMA is a
registered service mark of Merrill Lynch & Co., Inc. FutureComp is a service
mark of Merrill Lynch & Co., Inc.
8
<PAGE> 23
Amendment No. 1
to the
Ivex Packaging Corporation
Merrill Lynch Special Non-qualified
Deferred Compensation Plan Adoption Agreement
Ivex Packaging Corporation's Merrill Lynch Special Non-qualified
Deferred Compensation Plan Adoption Agreement is hereby amended, effective the
date set forth below, in the following respects:
1. To permit the Employer to make Discretionary Incentive
Contributions under Section 5C of the Adoption Agreement based
upon a percentage (as determined from time to time by the
Employer) of the Participants' Compensation (as defined in
Section 4 of the Adoption Agreement).
2. To amend the vesting schedule for Discretionary Incentive
Contributions under Section 6C of the Adoption Agreement so that
a Participant will vest in his Discretionary Incentive
Contributions 20% after each year of service (with credit being
given for years of service occurring prior to the time a
Discretionary Incentive Contribution is made).
Executed by the parties hereto on the date indicated below.
Dated: As of February __, 1998
IVEX PACKAGING CORPORATION
By: ________________________
Title:
<PAGE> 1
EXHIBIT 10.3
THE MERRILL LYNCH NONQUALIFIED DEFERRED
COMPENSATION PLAN TRUST AGREEMENT*
(Areas highlighted in grey will be completed by
Merrill Lynch Trust.)
TRUST UNDER:
IVEX PACKAGING CORPORATION
DEFERRED COMPENSATION PLAN
This Agreement made this day of February 19, 1998 by and
between Ivex Packaging Corporation (Company) and Merrill Lynch Trust of
_________________ a ___________________________ corporation (Trustee);
WHEREAS, Company has adopted the Nonqualified Deferred
Compensation Plan identified above and such other Plan(s) as are listed in
Appendix A;
WHEREAS, Company has incurred or expects to incur liability
under the terms of such Plan(s) with respect to the individuals participating in
such Plan(s);
WHEREAS, Company wishes to establish a trust (the "Trust") and
to contribute to the Trust assets that shall be held therein, subject to the
claims of Company's creditors in the event of the Company's insolvency, as
herein defined, until paid to Plan participants and their beneficiaries in such
manner and at such times as specified in the Plan(s);
- -----------------------------
* This trust is intended to comply with the model grantor trust requirement
of Revenue Procedure 92-64. While Merrill Lynch believes that this Trust
Agreement complies with the Revenue Procedure, it provides no assurance
that modifications to the additional terms contained herein would not be
required by the Internal Revenue Service during the review process in the
event the Company were to apply for a ruling as to the tax consequences of
its plan and this trust. If the Company desires to obtain such a ruling
from the Internal Revenue Service, a copy of this Trust Agreement with all
substituted or additional language underlined as required by the Revenue
Procedure is available through your Merrill Lynch Financial Consultant.
<PAGE> 2
WHEREAS, it is the intention of the parties that this Trust
shall constitute an unfunded arrangement and shall not affect the status of the
Plan(s) as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purpose of Title I of the Employee Retirement Income Security Act of 1974;
and
WHEREAS, it is the intention of Company to make contributions
to the Trust to provide itself with a source of funds to assist it in the
meeting of its liabilities under the Plan(s);
NOW, THEREFORE, the parties do hereby establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
Section 1. Establishment of Trust.
(1) Company hereby deposits with Trustee in trust such cash
and/or marketable securities, if any, listed in Appendix B, which shall become
the principal of the Trust to be held, administered and disposed of by Trustee
as provided in this Trust Agreement.
(2) The Trust hereby established shall be irrevocable.
(3) The Trust is intended to be a grantor trust, of which
Company is the grantor, within the meaning of subpart E, part 1, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.
(4) The principal of the Trust, and any earnings thereon,
shall be held separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general creditors
as herein set forth. Plan participants and their beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan(s) and this Trust Agreement shall be
mere unsecured contractual rights of Plan participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims of
Company's general creditors under federal and state law in the event of
insolvency, as defined in Section 3(a) herein.
(5) Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other property in trust with
Trustee to
2
<PAGE> 3
augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
(6) Trustee shall not be obligated to receive such cash and/or
property unless prior thereto Trustee has agreed that such cash and/or property
is acceptable to Trustee and Trustee has received such reconciliation,
allocation, investment or other information concerning, or representation with
respect to, the cash and/or property as Trustee may require. Trustee shall have
no duty or authority to (1) require any deposits to be made under the Plan or to
Trustee; (2) compute any amount to be deposited under the Plan to Trustee; or
(3) determine whether amounts received by Trustee comply with the Plan. Assets
of the Trust may, in Trustee's direction, be held in an account with an
affiliate of Trustee.
Section 2. Payments to Plan Participants and Their
Beneficiaries.
(1) With respect to each Plan participant, Company shall
deliver to Trustee a schedule (the "Payment Schedule") that indicates the
amounts payable in respect of the participant (and his or her beneficiaries),
that provides a formula or other instructions acceptable to Trustee for
determining the amounts so payable, the form in which such amount is to be paid
(as provided for or available under the Plan(s)), and the time of commencement
for payment of such amounts. The Payment Schedule shall be delivered to Trustee
not more than 30 business days nor fewer than 15 business days prior to the
first date on which a payment is to be made to the Plan participant. Any change
to a Payment Schedule shall be delivered to Trustee not more than 30 days nor
fewer than 15 days prior to the date on which the first payment is to be made in
accordance with the changed Payment Schedule. Except as otherwise provided
herein, Trustee shall make payments to Plan participants and their beneficiaries
in accordance with such Payment Schedule. The Trustee shall make provisions for
the reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan(s) and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company, it being understood among the parties hereto that (1) Company shall
on a timely basis provide Trustee specific information as to the amount of taxes
to be withheld and (2) Company shall be obligated to receive such withheld taxes
from Trustee and properly pay and report such amounts to the appropriate taxing
authorities.
3
<PAGE> 4
(2) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan(s) shall be determined by Company or
such party as it shall designate under the Plan(s), and any claim for such
benefits shall be considered and reviewed under the procedures set out in the
Plan(s).
(3) Company may make payment of benefits directly to Plan
participants or their beneficiaries as they become due under the terms of the
Plan(s). Company shall notify Trustee of its decision to make payment of
benefits directly prior to the time amounts are payable to participants or their
beneficiaries. In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in accordance with the
terms of the Plan(s), Company shall make the balance of each payment as it falls
due. Trustee shall notify Company where principal and earnings are not
sufficient.
(4) Trustee shall have no responsibility to determine whether
the Trust is sufficient to meet the liabilities under the Plan(s), and shall not
be liable for payments or Plan(s) liabilities in excess of the value of the
Trust's assets.
Section 3. Trustee Responsibility Regarding Payments to
Trust Beneficiary when Company is Insolvent.
(1) Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Company is insolvent. Company shall
be considered "insolvent" for purposes of this Trust Agreement if (i) Company is
unable to pay its debts as they become due, or (ii) Company is subject to a
pending proceeding as a debtor under the United States Bankruptcy Code.
(2) At all times during the continuance of this Trust, as
provided in Section 1(d) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.
(1) The Board of Directors and the Chief Executive Officer of
Company (or, if there is no Chief Executive Officer, the highest
ranking officer) shall have the duty to inform Trustee in writing of
Company's insolvency. If a person claiming to be a creditor of
Company alleges in writing to Trustee that Company has become
insolvent, Trustee shall determine whether Company is insolvent and,
pending such determination,
4
<PAGE> 5
Trustee shall discontinue payment of benefits to Plan participants
or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's
insolvency, or has received notice from Company or a person claiming
to be a creditor alleging that Company is insolvent, Trustee shall
have no duty to inquire whether Company is insolvent. Trustee may in
all events rely on such evidence concerning Company's solvency as
may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Company's
solvency.
(3) It at any time Trustee has determined that Company is
insolvent, Trustee shall discontinue payments to Plan participants
or their beneficiaries and shall hold the assets of the Trust for
the benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants
or their beneficiaries to pursue their rights as general creditors
of Company with respect to benefits due under the Plan(s) or
otherwise.
(4) Trustee shall resume the payment of benefits to Plan
participants or their beneficiaries in accordance with Section 2 of
this Trust Agreement only after Trustee has determined that Company
is not insolvent (or is no longer insolvent).
(3) Provided that there are sufficient assets, if Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan(s) for the
period of such discontinuance, less the aggregate amount of any payments made to
Plan participants provided for hereunder during any such period of
discontinuance; provided that Company has given Trustee the information with
respect to such payments made during the period of discontinuance prior to
resumption of payments by Trustee.
Section 4. Payments to Company.
Except as provided in Section 3 hereof, since the Trust is
irrevocable in accordance with Section 1(b) hereof. Company shall have no right
or power to direct Trustee to return to Company or to divert to others any of
the Trust assets
5
<PAGE> 6
before all payment of benefits have been made to Plan participants and their
beneficiaries pursuant to tile terms of the Plan(s).
Section 5. Investment Authority.
(1) Trustee may invest in securities (including stock or
rights to acquire stock) or obligations issued by Company. All rights associated
with assets of the Trust shall be exercised by Trustee or the person designated
by Trustee, and shall in no event be exercised by or rest with Plan
participants, except that voting rights with respect to Trust assets will be
exercised by Company unless an investment adviser has been appointed pursuant to
Section 5(c) and voting authority has been delegated to such investment adviser.
(2) Company shall have the right at any time, and from time to
time in its sole discretion, to substitute assets of equal fair market value for
any asset held by the Trust. This right is exercised by Company in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
(3) Trustee may appoint one or more investment advisers who
are registered as investment advisers under the Investment Advisers Act of 1940,
who may be affiliates of Trustee, to provide investment advice on a
discretionary or nondiscretionary basis with respect to all or a specified
portion of the assets of the Trust.
(4) Trustee, or Trustee's designee, is authorized and
empowered:
(1) To invest and reinvest Trust assets, together with the
income therefrom, in common stock, preferred stock, convertible
preferred stock, bonds, debentures, convertible debentures and
bonds, mortgages, notes, commercial paper and other evidences of
indebtedness (including those issued by Trustee), shares of mutual
funds (which funds may be sponsored, managed or offered by an
affiliate of Trustee), guaranteed investment contracts, bank
investment contracts, other securities, policies of life insurance,
annuity contracts, options, options to buy or sell securities or
other assets, and all other property of any type (personal, real or
mixed, and tangible or intangible);
(2) To deposit or invest all or any part of the assets of the
Trust in savings accounts or certificates of deposit or other
deposits in a bank or
6
<PAGE> 7
savings and loan association or other depository institution,
including Trustee or any of its affiliates, provided with respect to
such deposits with Trustee or an affiliate the deposits bear a
reasonable interest rate;
(3) To hold, manage, improve, repair and control all property,
real or personal, forming part of the Trust; to sell, convey,
transfer, exchange, partition, lease for any term, even extending
beyond the duration of this Trust, and otherwise dispose of the same
from time to time;
(4) To hold in cash, without liability for interest, such
portion of the Trust as is pending investments, or payment of
expenses, or the distribution of benefits;
(5) To take such actions as may be necessary or desirable to
protect the Trust from loss due to the default on mortgages held in
the Trust including the appointment of agents or trustees in such
other jurisdictions as may seem desirable, to transfer property to
such agents or trustees, to grant to such agents such powers as are
necessary or desirable to protect the Trust, to direct such agent or
trustee, or to delegate such power to direct, and to remove such
agent or trustee;
(6) To settle, compromise or abandon all claims and demands in
favor of or against the Trust;
(7) To exercise all of the further rights, powers, options and
privileges granted, provided for, or vested in trustees generally
under the laws of the state in which Trustee is incorporated as set
forth above, so that the powers conferred upon Trustee herein shall
not be in limitation of any authority conferred by law, but shall be
in addition thereto;
(8) To borrow money from any source and to execute promissory
notes, mortgages or other obligations and to pledge or mortgage any
trust assets as security; and
(9) To maintain accounts at, execute transactions through, and
lend on an adequately secured basis stocks, bonds or other
securities to, any brokerage or other firm, including any firm that
is an affiliate of Trustee.
Section 6. Additional Powers of Trustee.
7
<PAGE> 8
To the extent necessary or which it deems appropriate to
implement its powers under Section 5 or otherwise to fulfill any of its duties
and responsibilities as Trustee of the Trust, Trustee shall have the following
additional powers and authority:
(1) To register securities, or any other property, in its name
or in the name of any nominee, including the name of any affiliate or the
nominee name designated by any affiliate, with or without indication of the
capacity in which property shall be held, or to hold securities in bearer form
and to deposit any securities or other property in a depository or clearing
corporation;
(2) To designate and engage the services of, and to delegate
powers and responsibilities to, such agents. representatives, advisers, counsel
and accountants as Trustee considers necessary or appropriate. any of whom may
be an affiliate of Trustee or a person who renders services to such an
affiliate, and, as a part of its expenses under this Trust Agreement, to pay
their reasonable expenses and compensation;
(3) To make, execute and deliver, as Trustee, any and all
deeds, leases, mortgages, conveyances, waivers, releases or other instruments in
writing necessary or appropriate for the accomplishment of any of the powers
listed in this Trust Agreement; and
(4) Generally to do all other acts that Trustee deems
necessary or appropriate for the protection of the Trust.
Section 7. Disposition of Income.
(1) During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
Section 8. Accounting by Trustee.
(1) Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 90 days following the close of each calendar year
and within 90 days after removal or resignation of Trustee, Trustee shall
deliver to Company a
8
<PAGE> 9
written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
Trustee may satisfy its obligation under this Section 8 by rendering to Company
monthly statements setting forth the information required by this Section
separately for the month covered by the statement.
Section 9. Responsibility and Indemnity of Trustee.
(1) Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims, provided, however, that
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by Company which is contemplated by, and
in conformity with, the terms of the Plan(s) and this Trust and is given in
writing by Company. Trustee shall also incur no liability to any person for any
failure to act in the absence of direction, request or approval from Company
that is contemplated by, and in conformity with, the terms of this Trust. In the
event of a dispute between Company and a party, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(2) Company hereby indemnifies Trustee and each of its
affiliates (collectively, the "Indemnified Parties") against, and shall hold
them harmless from, any and all loss, claims, liability, and expense, including
reasonable attorneys' fees, imposed upon or incurred by any Indemnified Party as
a result of any acts taken, or any failure to act, in accordance with the
directions from Company or any designee of Company, or by reason of the
Indemnified Party's good faith execution of its duties with respect to the
Trust, including, but not limited to, its holding of assets of the Trust.
Company's obligations in the foregoing regard to be satisfied promptly by
Company, provided that in the event the loss, claim, liability or expense
involved is determined by a no longer appealable final judgment entered in a
lawsuit or proceeding to have resulted from the gross negligence or willful
misconduct of Trustee, Trustee shall promptly on request thereafter return to
Company any amount previously received by Trustee under this Section with
respect to such loss, claim, liability or expense. If Company does not pay such
costs, expenses and liabilities in a
9
<PAGE> 10
reasonably timely manner, Trustee may obtain payment from the Trust without
direction from Company.
(3) Trustee may consult with legal counsel (who may also be
counsel for Company generally) with respect to any of its duties or obligations
hereunder.
(4) Trustee may hire agents, accountants. actuaries,
investment advisers, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder.
(5) Trustee shall have, without exclusion, all powers
conferred on Trustee by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an asset of
the Trust, Trustee shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(6) However, notwithstanding the provisions of Section 9(e)
above, Trustee may loan to Company the proceeds of any borrowing against an
insurance policy held as an asset of the Trust.
(7) Notwithstanding any powers to Trustee pursuant to this
Trust Agreement or to applicable law. Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of Trustee.
Trustee is authorized, unless otherwise agreed by Trustee, to
withdraw from the Trust without direction from Company the amount of its fees in
accordance with the fee schedule agreed to by Company and Trustee. Company shall
pay all administrative expenses, but if not so paid, the expenses shall be paid
from the Trust.
Section 11. Resignation and Removal.
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<PAGE> 11
(1) Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise.
(2) Trustee may be removed by Company on 30 days notice or
upon shorter notice accepted by Trustee.
(3) Upon resignation or removal of Trustee and appointment of
a successor Trustee, all assets shall subsequently be transferred to the
successor Trustee. The transfer shall be completed within 60 days after receipt
of notice of resignation, removal or transfer, unless Company extends the time
limit, provided that Trustee is provided assurance by Company satisfactory to
Trustee that all fees and expenses reasonably anticipated will be paid.
(4) If Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 12 hereof, by the effective date of
resignation or removal under paragraph (a) or (b) of this section. If no such
appointment has been made, Trustee may apply to a court of competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection with the Proceeding shall be allowed as administrative
expenses of the Trust.
(5) Upon settlement of the account and transfer of the Trust
assets to the successor Trustee, all rights and privileges under this Trust
Agreement shall vest in the successor Trustee and all responsibility and
liability of Trustee with respect to the Trust and assets thereof shall
terminate subject only to the requirement that Trustee execute all necessary
documents to transfer the Trust assets to the successor Trustee.
Section 12. Appointment of Successor.
(1) If Trustee resigns or is removed in accordance with
Section 11(a) or (b) hereof, Company may appoint any third party, such as a bank
trust department or other party that may be granted corporate trustee powers
under state law, as a successor to replace Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably required by Company or the successor Trustee
to evidence the transfer.
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<PAGE> 12
(2) The successor Trustee need not examine the records and
acts of any prior Trustee and may retain or dispose of existing Trust assets,
subject to Sections 7 and 8 hereof. The successor Trustee shall not be
responsible for and Company shall indemnify and defend the successor Trustee
from any claim or liability resulting from any action or inaction of any prior
Trustee or from any other past event, or any condition existing at the time it
becomes successor Trustee.
Section 13. Amendment or Termination.
(1) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the foregoing, no
such amendment shall conflict with the terms of the Plan(s), or shall make the
Trust revocable since the Trust is irrevocable in accordance with Section 1(b)
hereof.
(2) The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s). Upon termination of the Trust any assets remaining
in the Trust shall be returned to Company.
(3) Upon written approval of participants or beneficiaries
entitled to payment of benefits pursuant to the terms of the Plan(s). Company
may terminate this Trust prior to the time all benefit payments under the
Plan(s) have been made. All assets in the Trust at termination shall be returned
to Company.
Section 14. Miscellaneous.
(1) Any provision of this Trust Agreement prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(2) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated, assigned
(either at law or in equity), alienated, pledged, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable process.
(3) This Trust Agreement shall be governed by and construed in
accordance with the laws of the state in which Trustee is incorporated as set
forth above.
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<PAGE> 13
(4) The provisions of Sections 2(d), 3(b)(3), 9(b) and 15 of
this Agreement shall survive termination of this Agreement.
(5) The rights, duties, responsibilities, obligations and
liabilities of Trustee are as set forth in this Trust Agreement, and no
provision of the Plan(s) or any other documents shall affect such rights,
responsibilities, obligations and liabilities. If there is a conflict between
provisions of the Plan(s) and this Trust Agreement with respect to any subject
involving Trustee, including but not limited to the responsibility, authority or
powers of Trustee, the provisions or this Trust Agreement shall be controlling.
(6) For purposes of this Trust, Change of Control shall mean:
The purchase or other acquisition by any person, entity or group of persons,
within the meaning of section 13(d) or 14(d) of the Securities Exchange Act of
1934 ("Act"), or any comparable successor provisions, of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Act) of 30 percent or
more of either the outstanding shares of common stock or the combined voting
power of Company's then outstanding voting securities entitled to vote
generally, or the approval by the stockholders of Company of a reorganization,
merger, or consolidation, in each case, with respect to which persons who were
stockholders of Company immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than 50 percent of the
combined voting power entitled to vote generally in the election of directors of
the reorganized, merged or consolidated Company's then outstanding securities,
or a liquidation or dissolution of Company or of the sale of all or
substantially all of Company's assets.
Section 15. Arbitration.
- - Arbitration is final and binding on the parties.
- - The parties waive their right to seek remedies in court, including the
right to jury trial.
- - Pre-arbitration discovery is generally more limited than and different from
court proceedings.
- - The arbitrators' award is not required to include factual findings or level
reasoning and any party's right to appeal or seek modification of rulings
by the arbitrators is strictly limited.
13
<PAGE> 14
- - The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
Company agrees that all controversies that may arise between Company and
either or both the Trustee and its affiliate Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S") in connection with the Trust, including, but not
limited to, those involving any transactions, or the construction, performance,
or breach of this or any other agreement between Company and either or both the
Trustee And MLPF&S, whether entered into prior, on or subsequent to the date
hereof, shall be determined by arbitration. Any arbitration under this agreement
shall be conducted only before the New York Stock Exchange, Inc., the American
Stock Exchange, Inc., or arbitration facility provided by any other exchange of
which MLPF&S is a member, the National Association of Securities Dealers, Inc.,
or the Municipal Securities Rulemaking Board, and in accordance with its
arbitration rules then in force. Company may elect in the first instance whether
arbitration shall be conducted before the New York Stock Exchange, Inc., the
American Stock Exchange, Inc., other exchange of which MLPF&S is a member, the
National Association Of Securities Dealers, Inc., or the Municipal Securities
Rulemaking Board, but if Company fails to make such election, by registered
letter or telegram addressed to Merrill Lynch Trust, Employee Benefit Trust
Operations, P.O. Box 30532, New Brunswick, New Jersey 08989-0532, before the
expiration of five days after receipt of a written request from MLPF&S and/or
the trustee to make such election, then MLPF&S and/or the Trustee may make such
election. Judgment upon the award of arbitrators may be entered in any court,
state or federal, having jurisdiction. No person shall bring a putative or
certified class action to arbitration, nor seek to enforce any pre-dispute
arbitration agreement against any person who has initiated in court a putative
class action; who is a member of putative class who has not opted out of the
class with respect to any claims encompassed by the putative class action until:
(i) the class certification is denied;
(II) the class is decertified; or
(iii) the customer is excluded from the class by the court. Such forbearance to
enforce an agreement to arbitrate shall not constitute a waiver of any rights
under this agreement except to the extent stated herein.
Section 16. Effective Date.
14
<PAGE> 15
The effective date of this Trust Agreement shall be _______, 1998.
15
<PAGE> 16
IN WITNESS WHEREOF, Company and the Trustee have executed this
Trust Agreement each by action of a duly authorized person.
By signing this Agreement, the undersigned Company
acknowledges (1) that, in accordance with Section 15 of this Agreement, Company
is agreeing in advance to arbitrate any controversies that may arise with either
or both the Trustee or MLPF&S and (2) receipt of a copy of this Agreement.
Ivex Packaging Corporation
(Company)
By: /s/ Frank V. Tannura
----------------------------------------
(Signature)
Name/Title: Frank V. Tannura
--------------------------------
Vice President and Chief Financial Officer
--------------------------------------------
By: /s/ G. Douglas Patterson
----------------------------------------
(Signature)
Name/Title: G. Douglas Patterson
--------------------------------
Vice President and General Counsel
--------------------------------------------
--------------------------------------------
(Trustee)
By:
-----------------------------------------
(Signature)
Name/Title:
---------------------------------
--------------------------------------------
16
<PAGE> 17
APPENDIX A
NAME OF NONQUALIFIED DEFERRED COMPENSATION PLAN(S):
Ivex Packaging Corp. Plan
- -------------------------------------
Plan
- -------------------------------------
17
<PAGE> 18
APPENDIX B
Deposit of cash and/or marketable securities to the Trust:
Cash: $1,300,000
--------------------------------------------------------------------------
Marketable Securities: 0
-------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
18
<PAGE> 1
Exhibit No. 10.8
AMENDMENT NO. 1 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Amendment No. 1 to the Amended and Restated Employment Agreement dated
as of May 30, 1996 between IPC, Inc. (formerly named Ivex Packaging Corporation)
("Ivex" or the "Company") and George V. Bayly (the "Executive").
The Executive and the Company are parties to an Amended and Restated
Employment Agreement, dated as of May 30, 1996 (the "Employment Agreement"). The
Executive and the Company wish to amend the Employment Agreement.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto hereby agree to amend the Employment Agreement as
follows:
Section 1. Definitions.
Except as otherwise defined in this Amendment No. 1, capitalized terms
defined in the Employment Agreement are used herein as defined therein.
Section 2. Amendments.
2.1 Section 2.1 of the Employment Agreement is hereby amended by
deleting the first sentence of Section 2.1 thereof and by inserting the
following language in lieu thereof:
"The Company shall pay to the Executive an annual salary (the
"Annual Salary") in accordance with the following schedule:
$420,000 during the year ending December 31, 1996; $491,000 during
the year ending December 31, 1997; $515,000 during the year ending
December 31, 1998; $541,327 during the year ending December 31,
1999; and $568,393 during the year ending December 31, 2000."
Section 3. Miscellaneous.
Except as herein provided, the Employment Agreement shall remain
unchanged and in full force and effect. This Amendment No. 1 may be executed in
any number of counterparts, all of which taken together shall constitute one and
the same agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1
to be duly executed and delivered as of the date above written.
IPC, INC. (formerly named
IVEX PACKAGING CORPORATION)
By:
------------------------------
---------------------------------
George V. Bayly
<PAGE> 1
EXHIBIT 10.54
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 20th day of November, 1994,
by and between Charles J. Van Heel (hereinafter referred to as "Lessor") and
Ultra Pac, Inc. (hereinafter referred to as the "Lessee"). In consideration of
the rents and covenants herein contained, Lessor hereby leases and lets to
Lessee, and Lessee hereby rents and takes from Lessor, the following premises
hereinafter described, upon the terms and conditions hereinafter set forth.
1. THE LEASE PROPERTY. Lessor hereby leases to Lessee for the
term hereinafter specified 64,900 square feet of space (hereinafter referred to
as the "Premises"), in an office and warehouse building located at 22101
Industrial Blvd., Rogers, Minnesota (hereinafter referred to as the "Property"),
more particularly described as follows:
(a) 3,800 square feet of office area;
(b) 61,100 square feet of warehouse space, said
space being measured from outside of the outside walls, to the center of the
partition walls, and governed by the floor plan and allowances attached hereto
as Exhibit A and made a part hereof.
2. TERM OF THE LEASE. The term of this Lease shall be for 15
years commencing on the 1st day of February, 1995.
3. RENT. Lessee shall pay to the Lessor as rent for the
Premises during the first (1) year of the term of this Lease the sum of Three
Hundred One Thousand One Hundred Thirty Six and No/100-Dollars ($301,136.00) per
(hereinafter referred to as the "Initial Annual Rent"), payable in twelve (12)
monthly installments of Twenty Five Thousand Ninety Four and 67/100-Dollars
($25,094.67) on the first day of each and every month, in advance, with
proration of the first and last month's rent in the event of commencement other
than the first day of the month. There shall be paid by the Lessee to the Lessor
upon signing of this Lease two (2) months rent, which sum shall represent the
first month's rent and a security deposit equal to one month's rent.
* Included in rental amount is $3.59 base rent, $.99 tax allowance, and
$.06 insurance allowance.
<PAGE> 2
4. OPTION TO RENEW. Lessee shall have the option to renew
this Lease for an additional three (3) years by giving Lessor at least ninety
(90) days written notice prior to the expiration of the original term of this
lease, Lessee shall notify Lessor of Lessee intention not to renew this lease,
provided, however, that if at the date of expiration of the original term of
this lease, Lessee is in default in the performance of any of the terms and
covenants of this lease, the Lessor may, at its option, terminate this lease.
5. COST OF LIVING INCREASE. Subject to Section 32 hereof,
beginning on February 1, 1996, the rent (not including the portion attribut able
to taxes and insurance) shall be adjusted annually on February 1st of each year
in proportion to the changes in the Consumer Price Index (CPI) published by the
Bureau of Labor Statistics, based upon changes in the CPI for over the past
calendar year (twelve months) between the date of initial occupancy (2-1-95) and
the years of the Lease as set forth above. At the end of the 1995 year of
occupancy thereafter, based upon the renewal options, if any contained herein, a
similar adjustment in the then current rent shall be made by comparing the CPI
at the beginning of each renewal year with the CPI at the beginning of the first
year of occupancy. Such adjusted rentals shall be payable in twelve (12) equal
monthly installments during the year hereof, and each renewal year thereafter.
The adjustment, if any, shall be calculated upon the basis of the U.S. Consumer
Price Index for urban consumers, St. Paul - Minneapolis area ("Index") issued by
the Bureau of Labor Statistics of the U.S. Department of Labor ("Bureau"), (1967
= 100). The Index for said subgroup published as of the month prior to the
commencement date shall be considered the "Base". The monthly Base Rental for
each year shall be adjusted by the percentage increase, if any, in the index, as
of the month prior to the month of commencement over the Base; provided,
however, that in no event shall the monthly Base Rental be less than the amount
specified in this Lease not withstanding the fact that the Index may, as of some
adjustment date, be less than the Base. When the monthly Base Rental for the
year is determined, Lessor shall give Lessee written notice to the effect
indicating how the new monthly Base Rental figure was computed. If at any rental
adjustment date, there shall not exist the Index in the same format as recited
in this Section, the parties shall substitute any official index published by
the Bureau of Labor Statistics, or successor or similar governmental agency, as
may then be in existence and shall be most nearly equivalent thereto. If the
parties shall be unable to agree upon a successor index, the parties shall refer
the choice of a successor index to arbitration in accordance with the rules of
the American Arbitration Association. The CPI increase shall commence on
February 1, 1996, and shall not exceed six (6) percent in any one year.
2
<PAGE> 3
6. USE. It is agreed that Lessee shall have the right to
occupy and use the Premises for plastic product manufacturing and warehousing
and related operations and other lawful purposes, subject to all Federal, State
or local regulations governing the use of said Premises. Any change or
alteration of the Premises caused by the Lessee's desired use (code compliance,
etc.) shall be made by Lessor at Lessee's expense.
7. REAL ESTATE TAXES AND INSURANCE PREMIUMS. As a part of the
Rent due under the Lease, Lessee shall pay, in addition to the base rental due
under Paragraph 3, its proportionate share of any increase in the real estate
taxes and insurance premiums (in excess of $.99 per foot for taxes and $.06 per
foot for insurance) on the property on the first day of each month. For the
purpose of this Paragraph, Lessee shall be deemed to occupy 100% of the
property. Lessee shall pay in monthly installments that 100% of the real estate
taxes and insurance premiums on the property. Lessor shall notify Lessee of the
amounts of said monthly real estate tax and insurance payments and shall make
any necessary adjustments to reflect the increase or decrease in the amount of
said real estate taxes or insurance premiums or any estimates thereof.
8. SECURITY DEPOSIT. On October 1, 1994, Lessee shall pay to
Lessor, the sum equivalent to one (1) monthly installment of the Initial Annual
Rent, as a security deposit. Upon the occurrence of any default by Lessee,
Lessor may, from time to time, without notice or prejudice to any other remedy,
use the said security deposit to the extent necessary to make good any arrears
of rent or any other damage, injury, expense or liability caused to Lessor by
such default or misuse. Any remaining balance of such security deposit shall be
returned to Lessee upon satisfactory compliance with the terms herein,
inspection and acceptance by Lessor for the vacated premises.
9. STRUCTURAL MAINTENANCE. The Lessor shall, at its own
expense, keep in good order, safe condition and repair, the structural parts of
the building in which the Premises are located, including the outer walls, roof,
floor, foundation, and interior support columns except that the Lessor shall not
be responsible for repairs that are caused by the fault or negligence of the
Lessee, its employees or invitees.
10. INTERIOR MAINTENANCE. Lessee shall be wholly responsible
for the interior maintenance and repair of the Premises, including
3
<PAGE> 4
entrance doors, overhead garage doors, heating, plumbing, electrical and
mechanical fixtures and equipment (except as such items may be covered by
manufacturer warranties), and to keep the Premises in as good of a condition as
when turned over to it, reasonable wear and tear and damage by fire and the
elements excepted; and will keep the premises in an orderly, clean and sanitary
condition; will neither do nor permit to be done therein anything which is in
violation of the terms of insurance policies on the Building or in violation of
the laws or ordinances applicable thereto; will neither commit nor suffer waste
on said Premises; and will pay for the replace ment of all glass broken and
expendables; and is responsible for snow removal from sidewalks and stairways
directly adjoining the leased Premises.
11. EXTERIOR MAINTENANCE AND SERVICES. The Lessor shall
contract for, and Lessee shall pay his prorata share of all electricity
(security lighting), city water, sewer, landscape care, snow removal, window
washing, parking lot maintenance, and all other exterior maintenance required
during the term of this lease or any extension thereof. Said amounts shall be
calculated as set forth in Paragraph 7 hereof and shall be considered additional
rent due hereunder payable on the first day of each month.
All services which are the responsibility of the Lessor shall
be provided as shall be reasonably necessary to the comfortable use and
occupancy of the Premises during business hours except Sundays and holidays,
upon the condition that Lessor shall not be liable for damages for failure to
provide services due to causes reasonably beyond its control.
12. UTILITIES. The Lessee shall pay for all utilities,
including gas, electricity, city water, telephone and any other utility service
used therein during the term of this lease.
13. PARKING. Parking areas shall be available to Lessee, its
employees and business invitees, as well as to other tenants and customers of
the Buildings. The use of such facilities shall be subject to the reasonable
rules and regulations as the Lessor may promulgate uniformly for all Lessor's
tenants in the Buildings. Lessee agrees that it will not cause more than one
hundred eighteen (118) parking spaces to be occupied at any one time, and will
not use or permit the use by its employees of the parking areas for the
overnight storage of automobiles or other vehicles.
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The Lessee agrees not to leave or store any materials or
trash on the grounds or parking areas, and not to litter the grounds and parking
areas.
14. INSURANCE. Lessor shall maintain fire, windstorm and
extended coverage insurance on the Buildings (Lessees' obligations to pay Lessor
for said insurance costs are contained in paragraph 7 above). Lessee, its agents
or employees shall not be liable to Lessor or any other person by right of
subrogation or otherwise for any damage to all or any part of the demised
Premises or all or any part of the Buildings of which the demised Premises are a
part, or any property therein, arising out of fire, windstorm or extended
coverage perils, unless such damage is due to the act of neglect of Lessee, its
agents or employees.
Lessor will require each of its other tenants in the
Buildings to carry adequate public liability insurance and insurance against
casualty loss to its own contents and property. Neither the Lessor nor the
Lessee shall be liable to the other for damages arising out of the damage to or
destruction of the other's contents, from causes covered by fire and extended
coverage insurance, whether or not such damage or destruction be the result of
their agents, servants or employees.
Lessee will maintain in full force and effect during the term
of this lease and any extension hereof, a policy of public liability insurance,
under which Lessor and Lessee are named as insureds, against claims for personal
injury, death or property damages arising on or about the Premises and arising
out of ownership, maintenance, use of occupancy thereof; said insurance is to
afford protection to the limit of not less than One Million Dollars
($1,000,000.00) for injury or death to any one person, Three Million Dollars
($3,000,000.00) for any one accident and One Million Dollars ($1,000,000.00) for
property damage. All policies of insurance shall provide that the proceeds
thereof be payable to Lessee and Lessor as their respective interests may
appear. Lessee agrees to deliver to Lessor, prior to occupancy, a Certificate of
Insurance, naming Lessor as additional insured; such policy shall require ten
(10) day's written notice to the Lessor before cancellation can be effected.
In the event Lessee's use of Premises or contents kept on the
Premises or refusal to follow directions from the Fire Inspection Bureau, or
general house keeping, cause the fire and extended coverage insurance premiums
for the Building to increase, then Lessee agrees to pay such additional premium
to the Lessor when same is due.
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15. IMPAIRMENT OF USE. In the event the Premises shall be
untenantable or unfit for occupancy in whole or in part by the total or partial
destruc tion of the Building by fire or other casualty, and the Lessor shall
fail or refuse within thirty (30) days thereafter to agree in writing to restore
the same within ninety (90) days, this Lease may be terminated by either Lessor
or Lessee by notice in writing; in the event this Lease shall be terminated by
either party hereto for said reason, Lessee's obligations to pay rent shall be
deemed to have ceased as of the date the Premises were rendered untenantable or
unfit for occupancy; and in the event the Lessor shall agree in writing to
restore the Premises within said time, or Lessee continues to occupy the
Premises in whole or in part, the rent to be paid hereunder shall be reduced
pending such restoration, and shall be abated in an amount equal to the
percentage of space loss suffered by Lessee by virtue of the impairment of said
Premises. The extent of abatement of rent due or percentage thereof shall be
determined by the actual space used, or local building occupancy officials.
16. ASSIGNMENT. The Lessee shall not assign this Lease, and
will not sublet any part of said Premises without the consent in writing of the
Lessor, which consent will not be unreasonably withheld, provided, however, that
such consent to assignment by Lessor shall not operate to release the assigning
party of any obligation or liability arising under the terms of this Lease,
unless Lessor shall specifically agree in writing that such proposed assignment
shall so release the Lessee. This Lease and the deposits hereunder shall be
assignable by Lessor, provided, however, that in such event the assignment shall
be disclosed to Lessee and the assignee shall assume all of Lessor's obligations
hereunder.
17. CLAIMS BY LESSEE. The Lessee shall make no claim against
Lessor for any loss of or damage to Lessee's Premises caused by theft, burglary,
water, gas or other means, provided that the Lessor has taken reasonable
precautions against such loss or damage.
18. FIXTURES AND EQUIENT. Whether owned by Lessor at the
commencement of the term of this Lease subsequently purchased by Lessor, or
purchased by Lessee, all fixtures and equipment considered necessary to the
general operation and maintenance of the Property shall be the property of the
Lessor, except that any leasehold improvements provided by Lessee at its own
expense shall remain the property of the Lessee and be removed by the Lessee
prior to the termination of this Lease. The Lessee does agree that no such
property shall be removed from said Premises without the consent in writing of
the Lessor while any installments of rent are past due, and during any other
default in the conditions hereof.
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19. DEFAULT AND REMEDIES. If at any time during the term of
this Lease: (a) Lessee shall vacate said Premises or shall default in the
payment of rent or in the observance or performance of any other covenants or
provisions of this Lease, and such default continues for ten (10) days after
notice of such default from Lessor (excepting, however, any such default which
cannot be cured within said ten (10) days in which lessee shall in good faith
and with due diligence be proceeding to cure); or (b) Lessee shall make an
assignment for the benefit of creditors; or (c) a voluntary or involuntary
petition is filed by or against Lessee for the purpose of adjudication of Lessee
in bankruptcy or for the extension of time payment, composi tion, arrangement,
adjustment, modification, settlement or satisfaction of the liabili ties of
Lessee, or for the reorganization of Lessee under the Bankruptcy Act or any
future law having the same general purpose; or a receiver is appointed for
Lessee, the occurrence of such events shall be a breach of this Lease.
Lessor, at its option, in addition to any of the other
remedies available to it, is authorized to re-enter said Premises to eject the
Lessee and to take full possession of said Premises, to terminate this Lease at
its option, and to lease said Premises as it shall deem best in an effort to
mitigate damages and costs to Lessor hereunder, to remove from said Premises all
personal property of the Lessee, and to store the same to the account and at the
expense and risk of the Lessee, and to sell said property or any part thereof,
and out of the proceeds, to pay all expenses of so removing, storing and selling
the same, and all sums which shall then be in arrears or past due for rent; and
that no such act or acts of the Lessor shall be construed as cancellation of
this lease or waiver of the right of the Lessor to collect rent hereunder (less
any rental received from any other party) for the remainder of said term except
said exercise of their option to terminate the same, and that in case the Lessor
shall determine that any action or proceeding at law or otherwise is necessary
to enforce the terms and conditions hereof, the Lessee agrees that a reasonable
attorney's fee and the necessary costs and disbursements thereof may be allowed
and taxed against it.
20. ALTERATIONS. The Lessee will not make any alterations to
the leased Premises without the written consent of the Lessor, such consent not
to be unreasonably withheld. If the Lessee shall desire to make any alterations,
an accurate description shall first be submitted to and approved by Lessor, and
shall be done by the Lessee, at its own expense. Lessee agrees that all such
work shall be done in good, workmanlike manner and in conformance with
applicable building codes, that the structural integrity of the Building shall
not be impaired, and that no
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liens shall attach to the Premises by reason thereof. Unless the Lessor shall
elect that all or any part of such alterations shall remain, the Premises shall
be restored to its original condition by the Lessee before the expiration of the
Lease at its own expense. Failure to remove fixtures and equipment owned by the
Lessee upon expiration of this Lease and surrender of the Premises shall
constitute abandonment to the Lessor who may remove said fixtures and equipment,
and restore the Premises at Lessee's expense.
Any such alterations shall become the property of the Lessor
as soon as they are affixed to the Premises and all right, title and interest
therein of the Lessee shall immediately cease unless otherwise agreed in
writing.
21. ATTACHMENTS. Lessee agrees that no spikes, hooks, nails,
screws or tacks will be driven into the walls or woodwork of the leased
Premises, and nothing will be attached to such walls or woodwork of the leased
Premises except by consent of the Lessee, provided, however, that the Lessee may
hang mirrors, pictures and decorations with discretion.
22. CONDEMNATION. In the event that the whole of the Premises
shall be condemned or taken in any manner, this Lease shall cease and terminate
as of the date of vesting of title. In the event that only a part of the
Premises shall be so condemned or taken, then effective as of the date of
vesting of title, the rent hereunder for such part shall be equitably abated to
the extent the Premises are affected by said taking and this Lease shall
continue as to the part not taken. If substantial structural alteration or
reconstruction of the Building, shall, in the opinion of the Lessor, be
necessary as a result of such condemnation or taking (whether or not the
Premises be affected), the Lessor may, at its option, terminate this Lease at
the time of such vesting of title by notifying the Lessee in writing of such
termination. If Lessor does not elect to terminate this Lease as aforesaid, this
Lease shall be and remain unaffected by such condemnation or taking, except that
the rent shall be abated to the extent, if any, as hereinbefore provided. Lessor
may, at its expense, restore with reasonable diligence the remaining structural
portions of the Premises as nearly as practicable to the same condition as they
were prior to such condemnation or taking.
23. SIGNS. The Lessee shall have the right, at its own risk
and expense, to place identifying signs on the exterior walls of the Building
next to any doors leading directly into the Premises, in a manner to conform
with the Lessor's building standards and all applicable zoning laws. Lessee
agrees to maintain its
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signs in good repair, to remove it at the end of the term or any extended term,
repairing any damages caused by such removal, and to hold Lessor harmless from
any loss, cost or damages resulting from the erection, existence, maintenance or
removal of Lessee's signs. The Lessor reserves the right to approve all signs
and to remove all unapproved signs at the expense of the Lessee.
24. ACCESS. No additional locks will be placed on any of the
doors in said Building unless Lessor receives an access key to such locks, and
that Lessor shall have the right to enter the Premises for purposes of repair or
emergency inspection.
25. DISPLAY. Lessor shall have the right to enter the
Premises during the three (3) months prior to the termination of this Lease to
display the space to prospective tenants, and to place on doors and windows
appropriate notice that the Premises are for rent.
26. MORTGAGES. It is mutually agreed that this Lease shall be
subordinate to any and all mortgages now and hereinafter placed on the Property
by the Lessor and Lessee hereby agrees to comply with all terms and conditions
of said Mortgage with respect to the use and occupancy of the Premises. Further,
Lessee agrees to attorn to and recognize Lessor's mortgagee or any purchaser or
transferee who acquires title to the property pursuant to foreclosure of a
mortgage or any proceeding in lieu thereof and the successors and assigns of
such purchaser as its Lessor for the unexpired balance of (any extensions, if
exercised) of the term of the Lease upon the same terms and conditions set forth
in the Lease.
27. NOTICES. All notices, consents, demands and requests
which may be or are required to be given by either party to the other shall be
in writing, and shall be sent by Registered or Certified Mail with return
receipt re quested, addressed as follows:
If to Lessor: Charles J. Van Heel
20600 County Road 81
Rogers, MN 55374
If to Lessee: Ultra Pac, Inc.
21925 Industrial Blvd.
Rogers, MN 55374
Telephone: (612) 428-8340
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<PAGE> 10
The date shown on the return receipt is the date of which
said Registered or Certified Mail is received by the addressee shall be
conclusively deemed to be the date on which a notice, consent, demand or other
request is given or made. The above address of a party may be changed from time
to time by notice given by said party to the other party in the manner provided.
28. SEVERABILITY CLAUSE. Any provision of this Agreement
which may be determined by competent authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
29. LATE PAYMENT. In the event of late payment of any rental
installment, the Lessee shall pay a late charge in an amount equal to four
percent (4%) of any installment received more than five (5) days after its due
date.
30. ACKNOWLEDGMENT OF NOTICE. Lessee has been notified and
hereby acknowledges receipt of one (1) copy of this Lease and has been given
proper notice as to the name and address of the owner and/or agent empowered "to
accept service of process and receive and give receipt for notices and demands".
31. ENTIRE AGREEMENT. This Agreement, together with the
exhibits attached hereto, constitute the entire Agreement between Lessor and
Lessee with respect to the subject matter hereof and there are no collateral
agreements, either oral or written. It is further agreed that no change or
modification of the terms of this Agreement shall be binding upon either party
hereto unless such change or modification be in writing and signed by the party
to be charged.
32. MISCELLANEOUS.
32.1 See Exhibit "A" - Building plan
32.2 See Exhibit "A-1" attached - To be identified as
Rogers Plastic Center, Lot 2
32.3 See Exhibit "A-2" -- Easements -- Ingress and Egress
(Subject to change after construction)
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32.4 See Exhibit "A" -- Specifications and Allowances
32.5 See Addendum to Lease dated October 1, 1994, Item 32 -
Rent review; Item 33 - Completion of Premises; Item
34 Right - of First Refusal
32.6 Purchase Option
WITNESS: LESSOR:
Charles J. Van Heel
/s/ Buffie White By: /s/ Charles J. VanHeel
- --------------------------------- -------------------------------
Buffie White Charles J. Van Heel
(notary seal)
LESSEE:
Ultra Pac, Inc.
By: /s/ Brad Yopp
-------------------------------
Brad Yopp
Its: Chief Financial Officer
11
<PAGE> 12
ADDENDUM TO LEASE
DATED OCTOBER 1, 1994
22201 INDUSTRIAL BOULEVARD
ROGERS, MN 55374
33. RENT REVIEW. For the rental year commencing February 1,
2002, the rent shall be the lesser of: (i) the rent as calculated with
appropriate CPI increases as set forth in Section 5 of the Lease; or (ii) the
Fair Market Rental for the Premises as herein defined; provided, however, that
such rent shall in no case be less than Two Hundred Sixty Eight Thousand Thirty
Seven and NO/100 Dollars ($268,037.00) per year plus $.99 per square foot for
taxes and $.06 per square foot for insurance.
Fair Market Rental for the Premises means the actual rent
paid in the marketplace for similar property for a five-year lease term in the
Rogers, Minnesota vicinity as determined by experts in the real estate industry.
The Fair Market Rental shall be determined by an expert appointed by, and at the
expense of, the Lessor and given to the Lessee on or before November 1, 2001. If
Lessee does not accept the Landlord's expert's estimation of the Fair Market
Rental, it shall, within thirty (30) days of receiving the figure from Lessor,
appoint, at its expense, an expert to determine Fair Market Rental. If the Fair
Market Rental as determined by Lessee's expert is equal or greater than the Fair
Market Rental determined by the Lessor's expert, the Fair Market Rental shall be
the value as determined by the Lessor's expert. If Lessee's expert determines
the Fair Market Rental to be less than the Lessor's expert, the Lessor and
Lessee shall negotiate the Fair Market Rental. If they are unable to agree by
January 1, 2002, the Lessor's expert and the Lessee's expert shall appoint a
third expert and the matter will be settled by arbitration in Minneapo lis,
Minnesota. The costs of arbitration (other than the cost of each of their respec
tive experts, for which they shall be solely responsible) will be split equally
by the Lessor and Lessee unless the arbitrators determine that one of the
parties acted unreasonably or should otherwise pay more than one-half the cost
of arbitration.
The rental for the eighth through fifteenth years of the
Lease term shall be adjusted by a CPI change pursuant to Section 5 of the Lease
from the rent established for the eighth year as determined above.
34. COMPLETION OF PREMISES. The construction of the
Premises will be substantially completed and available for Lessee's partial
occupancy
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on or before February 1, 1995. The Premises will be constructed in accordance
with the specifications set forth in Exhibit A attached hereto. The existing
building included in the Premises shall be watertight and fully remodeled in
accordance with Tenant's specifications.
35. RIGHT OF FIRST REFUSAL. If, at any time during the term
of the Lease, Lessor desires to sell or otherwise convey all or any part of the
Pre mises and receives a bona fide offer (the "Offer") which Lessor is willing
to accept from a person or entity ready, willing and able to purchase all or any
part of the Property, Lessor shall immediately give notice of the Offer to
Lessee (the "Notifica tion"), including the name and address of the offeror and
a copy of the agreement evidencing the Offer. Lessee shall have twenty (20) days
after receipt of the Notifi cation in which to exercise its right of first
refusal to purchase the portion of the Property stated in the Offer on the terms
specified in the Offer (the "Exercise Period"). Lessor may transfer the Property
to entities controlled and majority owned by him free of this first refusal
right; provided, however, that this right will survive any such transfer.
If Lessee does not exercise this right to purchase by giving
Lessor written notice thereof within the Exercise Period, Lessor may thereafter
accept the Offer and complete the sale to the offeror in accordance with the
Offer. If the terms of the Offer are thereafter materially changed or if the
sale to the offeror is not completed as specified in the Offer, then the right
of first refusal given hereby to Lessee shall be revived, the revised Offer
shall be again submitted to Lessee for the Exercise Period, and Lessee shall
again have the right to purchase such portion of the Premises on the terms of
the revised Offer.
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AMENDMENT TO LEASE
This Amendment is made and entered into as of November 2,
1994, by and between Charles J. Van Heel ("Lessor") and Ultra Pac, Inc.,
("Lessee").
R E C I T A L S:
(R1) On November 2, 1994, Lessor and Lessee entered into a certain lease
(the "Lease") for 64,900 square feet of space in certain premises
commonly known as 22101 Industrial Boulevard, Rogers, Minnesota (the
"Premises"). The parties hereby desire to amend the terms of the
Lease.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Lessor and Lessee agree as
follows:
1. PURCHASE OPTION. Lessee shall have the option to purchase
the Premises during years three (3) through fifteen (15) of the lease term (the
"Purchase Option"). The parties hereby agree that if Lessee exercises this
Purchase Option, the purchase price for the Premises shall be One Million Seven
Hundred Forty Five Thousand and no/100 ($1,745,000.00) Dollars payable in cash
or certified funds. To exercise the option, Lessee shall notify Lessor in
writing of its intent to exercise the option to purchase. The closing date must
occur prior to the end of the fifteenth (15th) year of the lease term. Lessor
shall convey the premises at closing to Lessee free and clear of all
encumbrances except those caused by Lessee and except any unpaid special
assessments for improvements after the date of this Amendment. Subject to
Section 34 of the Lease, this option does not prevent Lessor from selling or
exchanging the Premises with a third party provided, that Lessor's successors
shall be bound by the terms of this Purchase Option.
2. RATIFICATION. Except as specifically amended hereby, the
Lease is fully ratified and affirmed by Lessor and Lessee.
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IN WITNESS WHEREOF, the parties have executed this Amendment
as of the above date.
LESSOR:
/s/ Charles J. Van Heel
----------------------------------
Charles J. Van Heel
LESSEE:
Ultra Pac, Inc.
/s/ Brad Yopp
----------------------------------
Its: Chief Financial Officer
16
<PAGE> 16
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 1st day of May, 1993, by and
between Charles J. Van Heel (herein after referred to as "Lessor") and Ultra
Pac, Inc. (hereinafter referred to as the "Lessee"). In consideration of the
rents and covenants herein contained, Lessor hereby leases and lets to Lessee,
and Lessee hereby rents and takes from Lessor, the following premises
hereinafter described, upon the terms and conditions hereinafter set forth.
1. THE LEASE PROPERTY: Lessor hereby leases to Lessee for the
term hereinafter specified 58,480 square feet of space (hereinafter referred to
as the "Premises"), in an office and warehouse building located at 21925
Industrial Blvd., Rogers, MN 55374 (hereinafter referred to as "Property"), more
particularly described as follows:
(a) 3,200 square feet of office area; and
(b) 55,280 square feet of warehouse space, said space
being measured from outside of the outside walls, to the center of the partition
walls, and governed by the floor plan and allowances attached hereto as Exhibit
A and made a part hereof.
2. TERM OF THE LEASE. The term of this Lease shall be for 8
years 7 months commencing on the 1st day of June, 1993.
3. RENT. Lessee shall pay to the Lessor as rent for the
Premises during the first 1 (one) years of the term of this Lease the sum of Two
Hundred Fifty Six Thousand One Hundred Thirty Seven and 76/100 Dollars
($256,137.76) per year (hereinafter referred to as the "Initial Annual Rent"),
payable in twelve (12) equal monthly installments of Twenty One Thousand Three
Hundred Forty Four and 81/100 Dollars ($21,344.81) on the first day of each and
every month, in advance.
4. OPTION TO RENEW. Lessee shall have the option to renew
this Lease for an additional three (3) years by giving Lessor at least ninety
(180) days' written notice prior to the expiration of the original term of this
lease, Lessee shall notify Lessor of Lessee intention not to renew this lease,
provided, however, that if at the date of expiration of the original term of
this lease, Lessee is in default
<PAGE> 17
in the performance of any of the terms and covenants of this lease, the Lessor
may, at its option, terminate this lease.
5. COST OF LIVING INCREASE. Subject to Section 32 hereof
beginning on January 1, 1994 the Rent (not including the portion attributable to
taxes and insurance) shall be adjusted annually on January 1st of each year in
proportion to the changes in the Consumer Price Index (CPI) published by the
Bureau of Labor Statistics, based upon changes in the CPI for over the past
calendar year (twelve (12) months) between the date of initial occupancy
(2-1-92) and the years of the Lease as set forth above. At the end of the 1992
year of occupancy thereafter, based upon the renewal options, if any, contained
herein, a similar adjustment in the then current rent shall be made by comparing
the CPI at the beginning of each renewal year with the CPI at the beginning of
the first year of occupancy. Such adjusted rentals shall be payable in twelve
(12) equal monthly installments during the year hereof, and each renewal year
thereafter. The adjustment, if any, shall be calculated upon the basis of the
U.S. Consumer Price Index for urban consumers, St. Paul - Minneapolis area
("Index"), issued by the Bureau of Labor Statistics of the U.S. Department of
Labor ("Bureau"), (1967 = 100). The Index for said subgroup published as of the
month prior to the commencement date shall be considered the "Base". The monthly
Base Rental for the year shall be adjusted by the percentage increase, if any,
in the index as of the month prior to the month of commencement over the Base;
provided, however, that in no event shall the monthly Base Rental be less than
the amount specified in this Lease not withstanding the fact that the Index may,
as of some adjustment date, be less than the Base. When the monthly Base Rental
for the year is determined, Lessor shall give Lessee written notice to that
effect indicating how the new monthly Base Rental figure was computed. If at any
rental adjustment date, there shall not exist the Index in the same format as
recited in this Section, the parties shall substitute any official index
published by the Bureau of Labor Statistics, or successor or similar
governmental agency, as may then be in existence and shall be most nearly
equivalent thereto. If the parties shall be unable to agree upon a successsor
index, the parties shall refer the choice of a successor index to arbitration in
accordance with the rules of the American Arbitration Association. The CPI
increased shall commence on January 1, 1994 and shall not exceed six (6) percent
in any one year.
6. USE. It is agreed that Lessee shall have the right to
occupy and use the Premises for plastic product manufacturing and warehousing
and other lawful purposes, subject to all Federal, State or local regulations
governing the use of
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<PAGE> 18
said Premises. Any change or alteration of the Premises caused by the Lessee's
desired use (code compliance, etc.) shall be made by Lessor at Lessee's expense.
7. REAL ESTATE TAXES AND INSURANCE PREMIUMS. As a part of the
Rent due under this Lease, Lessee shall pay, in addition to the rental due under
Paragraph 3, its proportionate share of any increase in the real estate taxes
and insurance premiums (in excess of $.75 per foot for taxes and $.09 per foot
for insurance) on the property on the first day of each month. For the purposes
of this Paragraph, Lessee shall be deemed to occupy 100% of the property. Lessee
shall pay in monthly installments that 100% of any increase in the real estate
taxes and insurance premiums on the property. Lessor shall notify Lessee of the
amounts of said monthly real estate tax and insurance payments and shall make
any necessary adjustments to reflect the increase or decrease in the amount of
said real estate taxes or insurance premiums or any estimates thereof.
8. SECURITY DEPOSIT. On December 1, 1991 Lessee paid to
Lessor, the sum equivalent to one (1) monthly installment of the Initial Annual
Rent, as a security deposit. Upon the occurrence of any default by Lessee,
Lessor may, from time to time, without notice or prejudice to any other remedy,
use the said security deposit to the extent necessary to make good any arrears
of rent or any other damage, injury, expense or liability caused to Lessor by
such default or misuse. Any remaining balance of such security deposit shall be
returned to Lessee upon satisfactory compliance with the terms herein,
inspection and acceptance by Lessor of the vacated Premises.
9. STRUCTURAL MAINTENANCE. The Lessor shall, at its own
expense, keep in good order, safe condition and repair, the structural parts of
the building in which the Premises are located, including the outer walls, roof,
floor, foundation, and interior support columns, except that the Lessor shall
not be responsible for repairs that are caused by the fault or negligence of
the Lessee, its employees or invitees.
10. INTERIOR MAINTENANCE. Lessee shall be wholly responsible
for the interior maintenance and repair of the Premises, including entrance
doors, overhead garage doors, heating, plumbing, electrical and mechanical
fixtures and equipment (except as such items may be covered by manufacturer
warranties), and to keep the Premises in as good of a condition as when turned
over to it, reasonable wear and tear and damage by fire and the elements
excepted; and will keep the premises in an orderly, clean and sanitary
condition; will neither do nor
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permit to be done therein anything which is in violation of the terms of
insurance policies on the building or in violation of the laws or ordinances
applicable thereto; will neither commit nor suffer waste on said Premises; and
will pay for the replacement of all glass broken and expendables; and is
responsible for snow removal from sidewalks and stairways directly adjoining the
leased Premises.
11. EXTERIOR MAINTENANCE AND SERVICES. the Lessor shall
contract for, and Lessee shall pay his pro rata share of all electricity
(security lighting), city water, sewer, landscape care, snow removal, window
washing, parking lot maintenance, and all other exterior maintenance required
during the term of this lease or any extension thereof. Said amounts shall be
calculated as set forth in Paragraph 7 hereof and shall be considered additional
rent due hereunder payable on the first day of each month.
All services which are the responsibility of the Lessor shall
be provided as shall be reasonably necessary to the comfortable use and
occupancy of the Premises during business hours except Sundays and holidays,
upon the condition that Lessor shall not be liable for damages for failure to
provide services due to causes reasonably beyond its control.
12. UTILITIES. The Lessee shall pay for all utilities,
including gas, electricity, city water, telephone and any other utility service
used therein during the term of this lease.
13. PARKING. Parking areas shall be available to Lessee, its
employees and business invitees, as well as to other tenants and customers of
the Buildings. The use of such facilities shall be subject to the reasonable
rules and regulations as the Lessor may promulgate uniformly for all Lessor's
tenants in the Buildings. Lessee agrees that it will not cause more than seventy
four (74) parking spaces to be occupied at any one time, and will not use or
permit the use by its employees of the parking spaces for the overnight storage
of automobiles or other vehicles.
The Lessee agrees not to leave or store any materials or
trash on the grounds or parking areas, and not to litter the grounds and parking
areas.
14. INSURANCE. Lessor shall maintain fire, windstorm and
extended coverage insurance on the Buildings. Lessee, its agents or employees
shall not be liable to Lessor or any other person by right of subrogation or
otherwise for
4
<PAGE> 20
any damage to all or any part of the demised Premises or all or any part of the
buildings of which the demised Premises are a part, or any property therein,
arising out of fire, windstorm or extended coverage perils, unless such damage
is due to the act of neglect of Lessee, its agents or employees.
Lessor will require each of its other tenants in the
Buildings to carry adequate public liability insurance and insurance against
casualty loss to its own contents and property. Neither the Lessor nor the
Lessee shall be liable to the other for damages arising out of the damage to or
destruction of the other's contents, from causes covered by fire and extended
coverage insurance, whether or not such damage or destruction be the result of
their agents, servants or employees.
Lessee will maintain in full force and effect during the term
of this lease and any extension hereof, a policy of public liability insurance,
under which Lessor and Lessee are named as insureds, against claims for personal
injury, death or property damages arising on or abut the Premises and arising
out of ownership, maintenance, use of occupancy thereof; said insurance is to
afford protection to the limit of not less than One Million Dollars
($1,000,000.00) for injury or death to any one person, Three Million Dollars
($3,000,000.00) for any one accident and One Million Dollars ($1,000,000.00) for
property damage. All policies of insurance shall provide that the proceeds
thereof be payable to Lessee and Lessor as their respective interests may
appear. Lessee agrees to deliver to Lessor, prior to occupancy, a Certificate of
Insurance, naming Lessor as additional insured; such policy shall require ten
(10) days' written notice to the Lessor before cancellation can be effected.
In the event Lessee's use of Premises or contents kept on the
Premises or refusal to follow directions from the Fire Inspection Bureau, or
general house keeping, cause the fire and extended coverage insurance premiums
for the Building to increase, then Lessee agrees to pay such additional premium
to the Lessor when same is due.
15. IMPAIRMENT OF USE. In the event the Premises shall be
untenantable or unfit for occupancy in whole or in part by the total or partial
destruction of the Building by fire or other casualty, and the Lessor shall
fair or refuse within thirty (30) days thereafter to agree in writing to restore
the same within ninety (90) days, this Lease may be terminated by either Lessor
or Lessee by notice in writing; in the event this Lease shall be terminated by
either party hereto for said reason, Lessee's obligation to pay rent shall be
deemed to have ceased as of the date the Premises were rendered untenantable or
unfit for occupancy; and in the event the
5
<PAGE> 21
Lessor shall agree in writing to restore the Premises within said time, or
Lessee continues to occupy the Premises in whole or in part, the rent to be paid
hereunder shall be reduced pending such restoration, and shall be abated in an
amount equal to the percentage of space loss suffered by Lessee by virtue of the
impairment of said Premises. The extent of abatement of rent due or percentage
thereof shall be determined by the actual space used, or local building
occupancy officials.
16. ASSIGNMENT. The Lessee shall not assign this Lease, and
will not sublet any part of said Premises without the consent in writing of the
Lessor, which consent will not be unreasonably withheld, provided, however, that
such consent to assignment by Lessor shall not operate to release the assigning
party of any obligation or liability arising under thee terms of this Lease,
unless Lessor shall specifically agree in writing that such proposed assignment
shall so release the Lessee. This Lease and the deposits hereunder shall be
assignable by Lessor, provided, however, that in such event the assignment shall
be disclosed to Lessee and the assignee shall assume all of Lessor's obligations
hereunder.
17. CLAIMS BY LESSEE. The Lessee shall make no claim against
Lessor for any loss of or damage to Lessee's Premises caused by theft, burglary,
water, gas or other mean.
18. FIXTURES AND EQUIPMENT. Whether owned by Lessor at the
commencement of the term of this Lease subsequently purchased by Lessor, or
purchased by Lessee, all fixtures and equipment considered necessary to the
general operation and maintenance of the Property shall be the property of the
Lessor, except that any leasehold improvements provided by Lessee at its own
expense shall remain the property of the Lessee and be removed by the Lessee
prior to the termination of this Lease.
19. DEFAULT AND REMEDIES. If at any time during the term of
this Lease: (a) Lessee shall vacate said Premises or shall default in the
payment of rent or in the observance or performance of any other covenants or
provisions of this Lease, and such default continues for ten (10) days after
notice of such default from Lessor (excepting, however, any such default which
cannot be cured within said (10) days in which Lessee shall in good faith and
with due diligence be proceeding to cure); or, (b) Lessee shall make an
assignment for the benefit of creditors; or (c) a voluntary or involuntary
petition is filed by or against Lessee for the purpose of adjudication of Lessee
in bankruptcy or for the extension of time payment, composition, arrangement,
adjustment, modification, settlement or satisfaction of the liabilities
6
<PAGE> 22
of Lessee, or for the reorganization of Lessee under the Bankruptcy Act or any
future law having the same general purpose; or a receiver is appointed for
Lessee, the occurrence of such events shall be a breach of this Lease.
Lessor, at its option, in addition to any of the other
remedies available to it, is authorized to re-enter said Premises to eject the
Lessee and to take full possession of said Premises, as it shall deem best in an
effort to mitigate damages and costs to Lessor hereunder, to remove from said
Premises all personal property of the Lessee, and to store the same to the
account and at the expenses and risk of the Lessee, and to sell said property or
any part thereof, and out of the proceeds, to pay all expenses of so removing,
storing or selling the same, and all sums which shall then be in arrears or past
due for rent; and that no such act or acts of the Lessor shall be construed as
cancellation of this Lease or waiver of the right of the Lessor to collect rent
hereunder (less any rental received from any other party) for the remainder of
said term except said exercise of their option to terminate the same, and that
in case the Lessor shall determine that any action or proceeding at law or
otherwise is necessary to enforce the terms and conditions hereof, the Lessee
agrees that a reasonable attorney's fee and the necessary costs and
disbursements thereof may be allowed and taxed against it.
20. ALTERATIONS. The Lessee will not make any alterations to
the leased Premises without the written consent of the Lessor, such consent not
to be unreasonably withheld. If the Lessee shall desire to make any alterations,
an accurate description shall first be submitted to and approved by Lessor, and
shall be done by the Lessee, at its own expense. Lessee agrees that all such
work shall be done in a good, workmanlike manner and in conformance with
applicable building codes, that the structural integrity of the building shall
not be impaired, and that no liens shall attach to the Premises by reason
thereof. Unless the Lessor shall elect that all or any part of such alterations
shall remain, the Premises shall be restored to its original condition by the
Lessee before the expiration of the Lease at its own expense. Failure to remove
fixtures and equipment owned by the Lessee upon expiration of this Lease and
surrender of the Premises shall constitute abandonment to the Lessor who may
remove said fixtures and equipment, and restore the Premises at Lessee's
expense.
Any such alterations shall become the property of the Lessor
as soon as they are affixed to the Premises and all right, title and interest
therein of the Lessee shall immediately cease unless otherwise agreed in
writing.
7
<PAGE> 23
21. ATTACHMENTS. Lessee agrees that no spikes, hooks, nails,
screws or tacks will be driven into the walls or woodwork of the leased
Premises, and nothing will be attached to such walls or woodwork of the leased
Premises except by consent of the Lessor, provided, however, that the Lessee may
hang mirrors, pictures and decorations with discretion.
22. CONDEMNATION. In the event that the whole of the Premises
shall be condemned or taken in any manner, this Lease shall cease and terminate
as of the date of vesting of title. In the event that only a part of the
Premises shall be so condemned or taken, then effective as of the date of
vesting of title, the rent hereunder for such part shall be equitably abated to
the extent the Premises are affected by said taking and this lease shall
continue as to the part not taken. If substantial structural alteration or
reconstruction of the Building, shall, in the opinion of the Lessor, be
necessary as a result of such condemnation or taking (whether or not the
Premises be affected), the Lessor may, at its option, terminate this Lease at
the time of such vesting of title by notifying the Lessee in writing of such
termination. If Lessor does not elect to terminate this Lease as aforesaid, this
Lease shall be and remain unaffected by such condemnation or taking, except that
the rent shall be abated to the extent, if any, as hereinbefore provided. Lessor
may, at its expense, restore with reasonable diligence the remaining structural
portions of the Premises as nearly as practicable to the same condition as they
were prior to such condemnation or taking.
23. SIGNS. The Lessee shall have the right, at its own risk
and expense, to place identifying signs on the exterior walls of the Building
next to any doors leading directly into the Premises, in a manner to conform
with the Lessor's building standards and all applicable zoning laws. Lessee
agrees to maintain its signs in good repair, to remove it at the end of the term
or any extended term, repairing any damages caused by such removal, and to hold
Lessor harmless from any loss, cost or damages resulting from the erection,
existence, maintenance or removal of Lessee's signs. The Lessor reserves the
right to approve all signs and to remove all unapproved signs at the expense of
the Lessee.
24. ACCESS. No additional locks will be placed on any of the
doors in said Building unless Lessor receives an access key to such locks, and
that Lessor shall have the right to enter the Premises for purposes of repair or
emergency inspection.
8
<PAGE> 24
25. DISPLAY. Lessor shall have the right to enter the
Premises during the six (6) months prior to termination of this Lease to display
the space to prospective tenants, and to place on doors and windows appropriate
notice that the Premises are for rent.
26. MORTGAGES. It is mutually agreed that this Lease shall be
subordinate to any and all mortgages now and hereinafter placed on the Property
by the Lessor and Lessee hereby agrees to comply with all terms and conditions
of said Mortgage with respect to the use and occupancy of the Premises.
27. NOTICES. All notices, consents, demands and requests
which may be or are required to be given by either party to the other shall be
in writing, and shall be sent by Registered or Certified Mail with return
receipt requested, addressed as follows:
If to Lessor:
Charles J. Van Heel
22101 Industrial Blvd.
Rogers, MN 55374
If to Lessee:
Ultra Pac, Inc.
21925 Industrial Blvd.
Rogers, MN 55374
The date shown on the return receipt as the date of which
said Registered or Certified Mail is received by the addressee shall be
conclusively deemed to be the date on which a notice, consent, demand or other
request is given or made. The above address of a party may be changed from time
to time by notice given by said party to the other party in the manner provided.
28. SEVERABILITY CLAUSE. Any provision of this Agreement
which may be determined by competent authority to be prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
9
<PAGE> 25
29. LATE PAYMENT. In the event of late payment of any rental
installment, the Lessee shall pay a late charge in an amount equal to four
percent (4%) of any installment received more than five (5) days after its due
date.
30. ACKNOWLEDGMENT OF NOTICE. Lessee has been notified and
hereby acknowledges receipt of one (1) copy of this Lease and has been given
proper notice as to the name and address of the owner and/or agent empowered "to
accept service of process and receive and give receipt for notices and demands".
31. ENTIRE AGREEMENT. This Agreement, together with the
exhibits attached hereto, constitute the entire agreement between Lessor and
Lessee with respect to the subject matter hereof and there are no collateral
agreements, either oral or written. It is further agreed that no change or
modification of the terms of this Agreement shall be binding upon either party
hereto unless such change or modification be in writing and signed by the party
to be charged.
32. MISCELLANEOUS.
32.1 See Exhibit "A" attached - Soon to be identified as
Rogers Plastic Center, Lot 4
32.2 See Exhibit "A-1" - Property Layout
32.3 See Exhibit "A-2" - Easements - Ingress and Egress
32.4 See Exhibit "A" - Specifications and Allowances
32.5 See Addendum to Lease dated July 1, 1991 Item 32 -
Rent review
See Addendum to Lease dated July 1, 1991 Item 33 -
Completion of Premises See Addendum to Lease dated
July 1, 1991 Item 34 - Right of First Refusal
32.6 See Amendment to Lease dated July 23, 1991
32.6.1 See Amendment to Lease dated July 23, 1991 Revised
Purchased Option Price
$One Million Two Hundred Thirty Nine Thousand Five
Hundred Twenty Four no/100 Dollars ($1,239,524.00).
Option Price Acceptance:
Date Date
Cal Krupa Charles I. Van Heel
Ultra Pac, Inc. Van Heel Rentals
10
<PAGE> 26
IN WITNESS WHEREOF, the parties have caused these presents to
be signed by their proper owner/officers and warrant they have the authority to
bind same and caused their property corporate seal to be hereunto affixed this
28th day of May, 1993.
WITNESS: LESSOR:
Charles J. Van Heel
By /s/ Charles J. Van Heel
- ------------------------------- --------------------------------
Charles J. Van Heel
Its Owner
- -------------------------------
LESSEE:
Ultra Pac, Inc.
By /s/ Bradley Yopp
--------------------------------
Bradley Yopp
Its Chief Financial Officer
11
<PAGE> 27
ADDENDUM TO LEASE
DATED JULY 1, 1991
21925 INDUSTRIAL BOULEVARD
ROGERS, MN 55374
32. RENT REVIEW. For the rental year commencing January 1,
1997, the rent shall be the lesser of: (i) the rent as calculated with
appropriate CPI increases as set forth in Section 5 of the Lease; or (ii) the
Fair Market Rental for the Premises as herein defined; provided, however, that
such rent shall in no case be less than Two Hundred Fifty-Six Thousand One
Hundred Thirty-Eight Dollars ($256,138.00) per year (including $.75 per square
foot for taxes and $.09 per year per square foot for insurance).
Fair Market Rental for the Premises means the actual rent
paid in the marketplace for similar property for a five-year lease term in the
Rogers, Minnesota vicinity as determined by experts in the real estate industry.
The Fair Market Rental shall be determined by an expert appointed by, and at the
expense of, the Lessor and given to the Lessee on or before November 1, 1996. If
Lessee does not accept the Landlord's expert's estimation of the Fair Market
Rental, it shall, within thirty (30) days of receiving the figure from Lessor,
appoint, at its expense, an expert to determine Fair Market Rental. If the Fair
Market Rental as determined by Lessee's expert is equal or greater than the Fair
Market Rental determined by the Lessor's expert, the Fair Market Rental shall be
the value as determined by the Lessor's expert. If Lessee's expert determines
the Fair Market Rental to be less than the Lessor's expert, the Lessor and
Lessee shall negotiate the Fair Market Rental. If they are unable to agree by
January 1, 1997, the Lessor's expert and the Lessee's expert shall appoint a
third expert and the matter will be settled by arbitration in Minneapolis,
Minnesota. The costs of arbitration (other than the cost of each of their
respective experts, for which they shall be solely responsible) will be split
equally by the Lessor and Lessee unless the arbitrators determine that one of
the parties acted unreasonably or should otherwise pay more than one-half the
cost of arbitration.
The rental for the seventh through tenth years of the Lease
term shall be adjusted by a CPI change pursuant to Section 5 of the Lease from
the rent established for the sixth year as determined above.
<PAGE> 28
33. Completion of Premises. The construction of the Premises
will be substantially completed and available for Lessee's occupancy on or
before January 1, 1992. The Premises will be constructed in accordance with the
specifications set forth in Exhibit A attached hereto. The existing building
included in the Premises shall be watertight and fully remodeled in accordance
with Tenant's specifications.
34. Right of First Refusal. If, at any time during the term
of the Lease, Lessor desires to sell or otherwise convey all or any part of the
Premises and receives a bona fide offer (the "Offer") which Lessor is willing to
accept from a person or entity ready, willing and able to purchase all or any
part of the Property, Lessor shall immediately give notice of the Offer to
Lessee (the "Notification"), including the name and address of the offeror and a
copy of the agreement evidencing the Offer. Lessee shall have twenty (20) days
after receipt of the Notification in which to exercise its right of first
refusal to purchase the portion of the Property stated in the Offer on the terms
specified in the Offer (the "Exercise Period"). Lessor may transfer the Property
to entities controlled and majority owned by him free of this first refusal
right; provided, however, that this right will survive any such transfer.
If Lessee does not exercise this right to purchase by giving
Lessor written notice thereof within the Exercise Period, Lessor may thereafter
accept the Offer and complete the sale to the offeror in accordance with the
Offer. If the terms of the Offer are thereafter materially changed or if the
sale to the offeror is not completed as specified in the Offer, then the right
of first refusal given hereby to Lessee shall be revived, the revised Offer
shall be again submitted to Lessee for the Exercise Period, and Lessee shall
again have the right to purchase such portion of the Premises on the terms of
the revised Offer.
<PAGE> 29
AMENDMENT TO LEASE
THIS AMENDMENT is made and entered into as of July 23, 1991,
by and between CHARLES J. VAN HEEL ("Lessor") and ULTRA PAC, INC. ("Lessee").
RECITALS
On July 1, 1991, Lessor and Lessee entered into a certain
Lease (the "Lease") for 62,000 square feet of space in
certain premises commonly known as 21925 Industrial
Boulevard, Rogers, Minnesota (the "Premises"). The parties
hereby desire to amend the terms of the Lease.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements contained herein, Lessor and Lessee agree as
follows:
1. Purchase Option - Lessee shall have the option to purchase
the Premises during years two through nine of the lease term (the "Purchase
Option"). The Purchase Option shall be effective only if Lessee has, no less
than three years prior to the exercise of the Purchase Option, exercised and
closed a similar purchase option between the parties hereto for property located
at 22051 Industrial Boulevard, Rogers, Minnesota. The parties hereby agree that
if Lessee exercises the Purchase Option, the purchase price for the Premises
shall be One Million Two Hundred Thirty Nine Thousand Five Hundred Twenty Four
and No/100 ($1,239,524.00) cash.
2. Ratification - Except as specifically amended hereby, the
Lease is fully ratified and affirmed by Lessor and Lessee.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the above date.
LESSOR:
/s/ Charles J. Van Heel
-----------------------------------
Charles J. Van Heel
LESSEE:
ULTRA PAC, INC.
By /s/ C. Krupa
--------------------------------
Cal Krupa
Its Chief Executive Officer
<PAGE> 30
SECOND AMENDMENT TO LEASE
This Second Amendment is made and entered into as of November
2, 1994, by and between Charles J. Van Heel ("Lessor") and Ultra Pac, Inc.
("Lessee").
R E C I T A L S :
(R1) On July 1, 1991, Lessor and Lessee entered into a
certain Lease (the "Lease") for 56,200 square feet
of space in certain premises commonly known as 21925
Industrial Boulevard, Rogers, Minnesota (the
"Premises"). The parties also executed an Amendment
to Lease dated July 23, 1991, which Amendment
contained a purchase option. The parties hereby
desire to amend the terms of the Lease and the
Amendment to Lease.
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, Lessor and Lessee agree as
follows:
1. PURCHASE OPTION. Providing Lessee is not in default and
providing that the Lease of the Premises has not terminated, Lessee shall have
the option to purchase the Premises during years three (3) through fifteen (15)
of the lease term or any extension of the lease term (the "Purchase Option").
The exercise of this Purchase Option shall be effective only if Lessee has not,
less than three (3) years prior to the exercise of this Purchase Option,
exercised and closed a similar Purchase Option between the parties hereto for
properties located at 22101 Industrial Boulevard, Rogers, Minnesota. The parties
hereby agree that if Lessee exercises the Purchase Option, the purchase price
for the Premises shall be One Million Two Hundred Thirty Nine Thousand Five
Hundred Twenty Four and no/100 ($1,239,524.00) Dollars by cash or certified
funds. To exercise the option, Lessee shall notify Lessor in writing of its
intent to exercise the option to purchase. The closing date must occur prior to
the end of the fifteenth (15th) year of the lease term. Lessor shall convey the
premises at closing to Lessee free and clear of all encumbrances except those
caused by Lessee and except any unpaid special assessments for improvements
after the date of this Amendment. Subject to Section 34 of the Lease, this
option does not prevent Lessor from selling or exchanging the Premises with a
third party provided, that Lessor's successors shall be bound by the terms of
this Purchase Option.
<PAGE> 31
2. RATIFICATION. Except as specifically amended hereby, the
Lease is fully ratified and affirmed by Lessor and Lessee.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the above date.
LESSOR: LESSEE:
Ultra Pac, Inc.
/s/ Charles J. Van Heel By: /s/ Brad Yopp
- ----------------------------------- -------------------------------
Charles J. Van Heel Its: Chief Financial Officer
-------------------------------
<PAGE> 32
LEASE AGREEMENT
THIS LEASE AGREEMENT, made this 20th day of November 1994, by
and between Charles J. Van Heel (hereinafter referred to as "Lessor") and Ultra
Pac, Inc (hereinafter referred to as the "Lessee"). In consideration of the
rents and covenants herein contained, Lessor hereby leases and lets to Lessee,
and Lessee hereby rents and takes from Lessor, the following premises
hereinafter described, upon the terms and conditions hereinafter set forth.
1. THE LEASE PROPERTY Lessor hereby leases to Lessee for the term
hereinafter specified 55,600 square feet of space (hereinafter referred to as
the "Premises"), in an office and warehouse building located at 22201 Industrial
Blvd, Rogers, Minnesota (hereinafter referred to as the "Property"), more
particularly described as follows:
(1) 1,350 square feet of office area
(2) 54,250 square feet of warehouse space, said space being
measured from outside of the outside walls, to the center of the partition
walls, and governed by the floor plan and allowances attached hereto as Exhibit
A and made a part hereof.
2. TERM OF THE LEASE The term of this Lease shall be for 15 years
commencing on the 1st day of February, 1995.
3. RENT Lessee shall pay to the Lessor as rent for the Premises during
the first (1) year of the term of this Lease the sum of Two Hundred Forty Six
Thousand Eight Hundred Sixty Four and No/100?Dollars ($246,864.00) per
(hereinafter referred to as the "Initial Annual Rent"), payable in twelve (12)
monthly installments of Twenty Thousand Five Hundred Seventy Two and
No/100?Dollars ($20,572.00) on the first day of each and every month, in
advance, with proration of the first and last month's rent in the event of
commencement other than the first day of the month. There shall be paid by the
Lessee to the Lessor upon signing of this Lease two (2) months rent, which sum
shall represent the first month's rent and a security deposit equal to one
month's rent.
*Included in rental amount is $3.39 base rent, $.99 tax allowance, and $.06
insurance allowance.
4. OPINION TO RENEW Lessee shall have the option to renew this Lease
for an additional Three (3) years by giving Lessor at least ninety (90) days
written notice prior to the expiration of the original term of this lease,
Lessee shall notify Lessor of Lessee
<PAGE> 33
intention not to renew this lease, provided, however, that if at the date of
expiration of the original term of this lease, Lessee is in default in the
performance of any of the terms and covenants of this lease, the Lessor may, at
its option, terminate this lease.
5. COST OF LIVING INCREASE Subject to Section 32 hereof, beginning on
February 1, 1996, the rent (not including the portion attributable to taxes and
insurance) shall be adjusted annually on February 1st of each year in proportion
to the changes in the Consumer Price Index (CPI) published by the Bureau of
Labor Statistics, based upon changes in the CPI for over the past calendar year
(twelve months) between the date of initial occupancy (2-1-95) and the years of
the Lease as set forth above. At the end of the 1995 year of occupancy
thereafter, based upon the renewal options, if any contained herein, a similar
adjustment in the then current rent shall be made by comparing the CP1 at the
beginning of each renewal year with the CPI at the beginning of the first year
of occupancy. Such adjusted rentals shall be payable in twelve (12) equal
monthly installments during the year hereof, and each renewal year thereafter.
The adjustment, if any, shall be calculated upon the basis of the U.S. Consumer
Price Index for urban consumers, St. Paul - Minneapolis area, ("Index") issued
by the Bureau of Labor Statistics of the U.S. Department of Labor ("Bureau"),
(1967 = 100). The Index for said subgroup published as of the month prior to the
commencement date shall be considered the "Base". The monthly Base Rental for
each year shall be adjusted by the percentage increase, if any, in the index, as
of the month prior to the month of commencement over the Base; provided,
however, that in no event shall the monthly Base Rental be less than the amount
specified in this Lease not withstanding the fact that the Index may, as of some
adjustment date, be less than the Base. When the monthly Base Rental for the
year is determined, Lessor shall give Lessee written notice to the effect
indicating how the new monthly Base Rental figure was computed. If at any rental
adjustment date, there shall not exist the Index in the same format as recited
in this Section, the parties shall substitute any official index published by
the Bureau of Labor Statistics, or successor or similar governmental agency, as
may then be in existence and shall be most nearly equivalent thereto. If the
parties shall be unable to agree upon a successor index, the parties shall refer
the choice of a successor index to arbitration in accordance with the rules of
the American Arbitration Association. The CPI increase shall commence on
February 1, 1996, and shall not exceed six (6) percent in any one year.
6. USE It is agreed that Lessee shall have the right to occupy and use
the Premises for plastic product manufacturing and warehousing and related
operations and other lawful purposes, subject to all Federal, State or local
regulations governing the use of said Premises. Any change or alteration of the
Premises caused by the Lessee's desired use (code compliance, etc.) shall be
made by Lessor at Lessee's expense.
2
<PAGE> 34
7. REAL ESTATE TAXES AND INSURANCE PREMIUMS As a part of the Rent due
under this Lease, Lessee shall pay, in addition to the base rental due under
Paragraph 3, its proportionate share of any increase in the real estate taxes
and insurance premiums (in excess of $.99 per foot for taxes and $.06 per foot
for insurance) on the property on the first day of each month. For the purpose
of this Paragraph, Lessee shall be deemed to occupy 100% of the property. Lessee
shall pay in monthly installments that 100% of the real estate taxes and
insurance premiums on the property. Lessor shall notify Lessee of the amounts of
said monthly real estate tax and insurance payments and shall make any necessary
adjustments to reflect the increase or decrease in the amount of said real
estate taxes or insurance premiums or any estimates thereof.
8. SECURITY DEPOSIT On October 1, 1994, Lessee shall pay to Lessor, the
sum equivalent to one (1) monthly installment of the Initial Annual Rent, as a
security deposit. Upon the occurrence of any default by Lessee, Lessor may, from
time to time, without notice or prejudice to any other remedy, use the said
security deposit to the extent necessary to make good any arrears of rent or any
other damage, injury, expense or liability caused to Lessor by such default or
misuse, any remaining balance of such security deposit shall be returned to
Lessee upon satisfactory compliance with the terms herein, inspection and
acceptance by Lessor of the vacated premises.
9. STRUCTURAL MAINTENANCE The Lessor shall, at its own expense, keep in
good order, safe condition and repair, the structural parts of the building in
which the Premises are located, including the outer walls, roof, floor,
foundation, and interior support columns except that the Lessor shall not be
responsible for repairs that are caused by the fault or negligence of the
Lessee, its employees or invitees.
10. INTERIOR MAINTENANCE Lessee shall be wholly responsible for the
interior maintenance and repair of the Premises, including entrance doors,
overhead garage doors, heating, plumbing, electrical and mechanical fixtures and
equipment (except as such items may be covered by manufacturer warranties), and
to keep the Premises in as good of a condition as when turned over to it,
reasonable wear and tear and damage by fire and the elements excepted; and will
keep the premises in an orderly, clean and sanitary condition; will neither do
nor permit to be done therein anything which is in violation of the terms of
insurance policies on the Building or in violation of the laws or ordinances
applicable thereto; will neither commit nor suffer waste on said Premises; and
will pay for the replacement of all glass broken and expendables; and is
responsible for snow removal from sidewalks and stairways directly adjoining the
leased Premises
3
<PAGE> 35
11. EXTERIOR MAINTENANCE AND SERVICES The Lessor shall contract for,
and Lessee shall pay his prorata share of all electricity (security lighting),
city water, sewer, landscape care, snow removal, window washing, parking lot
maintenance, and all other exterior maintenance required during the term of this
lease or any extension thereof. Said amounts shall be calculated as set forth in
Paragraph 7 hereof and shall be considered additional rent due hereunder payable
on the first day of each month.
All services WHICH are the responsibility of the Lessor shall be
provided as shall be reasonably necessary to the comfortable use and occupancy
of the Premises during business hours except Sundays and holidays, upon the
condition that Lessor shall not be liable for damages for failure to provide
services due to causes reasonably beyond its control.
12. UTILITIES The Lessee shall pay for all utilities, including gas,
electricity, city water, telephone and any other utility service used therein
during the term of this lease.
13. PARKING Parking areas shall be available to Lessee, its employees
and business invitees, as well as to other tenants and customers of the
Buildings. The use of such facilities shall be subject to the reasonable rules
and regulations as the Lessor may promulgate uniformly for all Lessor's tenants
in the Buildings. Lessee agrees that it will not cause more than thirty three
(33) parking spaces to be occupied at any one time, and will not use or permit
the use by its employees of the parking areas for the overnight storage of
automobiles or other vehicles.
The Lessee agrees not to leave or store any materials or trash on the
grounds or parking areas, and not to liner the grounds and parking areas.
14. INSURANCE Lessor shall maintain fire, windstorm and extended
coverage insurance on the Buildings (Lessees obligations to pay Lessor for said
insurance costs are contained in paragraph 7 above). Lessee, its agents or
employees shall not be liable to Lessor or any other person by right of
subrogation or otherwise for any damage to all or any part of the demised
Premises or all or any part of the Buildings of which the demised Premises are a
part, or any property therein, arising out of fire, windstorm or extended
coverage perils, unless such damage is due to the act of neglect of Lessee, its
agents or employees.
Lessor will require each of its other tenants in the Buildings to carry
adequate public liability insurance and insurance against casualty loss to its
own contents and property. Neither the Lessor nor the Lessee shall be liable to
the other for damages arising out of the damage to or destruction of the other's
contents, from causes covered by fire and extended coverage insurance, whether
or not such damage or destruction be the result of their agents, servants or
employees.
4
<PAGE> 36
Lessee will maintain in full force and effect during the term of this
lease and any extension hereof, a policy of public liability insurance, under
which Lessor and Lessee are named as insureds, against claims for personal
injury, death or property damages arising on or about the Premises and arising
out of ownership, maintenance, use of occupancy thereof; said insurance is to
afford protection to the limit of not less than One Million Dollars
($1,000,000.00) for injury or death to any one person, Three Million Dollars
($3,000,000.00) for any one accident and One Million Dollars ($1,000,000.00) for
property damage. All policies of insurance shall provide that the proceeds
thereof be payable to Lessee and Lessor as their respective interests may
appear. Lessee agrees to deliver to Lessor, prior to occupancy, a Certificate of
Insurance, naming Lessor as additional insured; such policy shall require ten
(10) day's written notice to the Lessor before cancellation can be effected.
In the event Lessee's use of Premises or contents kept on the Premises
or refusal to follow directions from the Fire Inspection Bureau, or general
housekeeping, cause the fire and extended coverage insurance premiums for the
Building to increase, then Lessee agrees to pay such additional premium to the
Lessor when same is due.
15. IMPAIRMENT OF USE In the event the Premises shall be untenantable
or unfit for occupancy in whole or in part by the total or partial destruction
of the Building by fire or other casualty, and the Lessor shall fail or refuse
within thirty (30) days thereafter to agree in writing to restore the same
within ninety (90) days, this Lease may be terminated by either Lessor or Lessee
by notice in writing; in the event this Lease shall be terminated by either
party hereto for said reason, Lessee's obligation to pay rent shall be deemed to
have ceased as of the date the Premises were tendered untenantable or unfit for
occupancy; and in the event the Lessor shall agree in writing to restore the
Premises within said time, or Lessee continues to occupy the Premises in whole
or in part, the rent to be paid hereunder shall be reduced pending such
restoration, and shall be abated in an amount equal to the percentage of space
loss suffered by Lessee by virtue of the impairment of said Premises. The extent
of abatement of rent due or percentage thereof shall be determined by the actual
space used, or local building occupancy officials.
16. ASSIGNMENT Lessee shall not assign this Lease, and will not sublet
any part of said Premises without the consent in writing of the Lessor, which
consent will not be unreasonably withheld, provided, however, that such consent
to assignment by Lessor shall not operate to release the assigning party of any
obligation or liability arising under the terms of this Lease, unless Lessor
shall specifically agree in writing that such proposed assignment
5
<PAGE> 37
shall so release the Lessee. This Lease and the deposits hereunder shall be
assignable by Lessor, provided, however, that in such event the assignment shall
be disclosed to Lessee and the assignee shall assume all of Lessor's obligations
hereunder.
17. CLAIMS BY LESSEE The Lessee shall make no claim against Lessor for
any loss of or damage to Lessee's Premises caused by theft, burglary, water, gas
or other means, provided that the Lessor has taken reasonable precautions
against such loss or damage.
18. FIXTURES AND EQUIPMENT Whether owned by Lessor at the commencement
of the term of this Lease subsequently purchased by Lessor, or purchased by
Lessee, all fixtures and equipment considered necessary to the general operation
and maintenance of the Property shall be the property of the Lessor, except that
any leasehold improvements provided by Lessee at its own expense shall remain
the property of the Lessee and be removed by the Lessee prior to the termination
of this Lease. The Lessee does agree that no such property shall be removed from
said Premises without the consent in writing of the Lessor while any
installments of rent are past due, and during any other default in the
conditions hereof.
19. DEFAULT AND REMEDIES If at any time during the term of this Lease:
(a) Lessee shall vacate said Premises or shall default in the payment of rent or
in the observance or performance of any other covenants or provisions of this
Lease, and such default continues for ten (10) days after notice of such default
from Lessor (excepting, however, any such default which cannot be cured within
said (10) days in which Lessee shall in good faith and with due diligence be
proceeding to cure); or, (b) Lessee shall make an assignment for the benefit of
creditors; or (c) a voluntary or involuntary petition is filed by or against
Lessee for the purpose of adjudication of Lessee in bankruptcy or for the
extension of time payment, composition, arrangement, adjustment, modification,
settlement or satisfaction of the liabilities of Lessee, or for the
reorganization of Lessee under the bankruptcy Act or any future law having the
same general purpose; or a receiver is appointed for Lessee, the occurrence of
such events shall be a breach of this Lease.
Lessor, at its option, in addition to any of the other remedies
available to it, is authorized to re-enter said Premises to eject the Lessee and
to take full possession of said Premises, to terminate this Lease at its option,
and to lease said Premises as it shall deem best in an effort to mitigate
damages and costs to Lessor hereunder, to remove from said Premises all personal
property of the Lessee, and to store the same to the account and at the expense
and risk of the Lessee, and to sell said property or any part thereof, and out
of the proceeds, to pay all expenses of so removing, storing and selling the
same, and all sums which shall
6
<PAGE> 38
then be in arrears or past due for rent; and that no such act or acts of the
Lessor shall be construed as cancellation of this Lease or waiver of the right
of the Lessor to collect rent hereunder (less any rental received from any other
party) for the remainder of said term except said exercise of their option to
terminate the same, and that in case the Lessor shall determine that any action
or proceeding at law or otherwise is necessary to enforce the terms and
conditions hereof, the Lessee agrees that a reasonable attorney's fee and the
necessary costs and disbursements thereof may be allowed and taxed against it.
20. ALTERATIONS The Lessee will not make any alterations to the leased
Premises without the written consent of the Lessor, such consent not to be
unreasonably withheld. If the Lessee shall desire to make any alterations, an
accurate description shall first be submitted to and approved by Lessor, and
shall be done by the Lessee, at its own expense. Lessee agrees that all such
work shall be done in a good, workmanlike manner and in conformance with
applicable building codes, that the structural integrity of the Building shall
not be impaired, and that no liens shall attach to the Premises by reason
thereof. Unless the Lessor shall elect that all or any part of such alterations
shall remain, the Premises shall be restored to its original condition by the
Lessee before the expiration of the Lease at its own expense. Failure to remove
fixtures and equipment owned by the Lessee upon expiration of this Lease and
surrender of the Premises shall constitute abandonment to the Lessor who may
remove said fixtures and equipment, and restore the Premises at Lessee's
expense.
Any such alterations shall become the property of the Lessor as soon as
they are affixed to the Premises and all right, title and interest therein of
the Lessee shall immediately cease unless otherwise agreed in writing.
21. ATTACHMENTS Lessee agrees that no spikes, hooks, nails, screws or
tacks will be driven into the walls or woodwork of the leased Premises, and
nothing will be attached to such walls or woodwork of the leased Premises except
by consent of the Lessor, provided, however, that the Lessee may hang mirrors,
pictures and decorations with discretion.
22. CONDEMNATION In the event that the whole of the Premises shall be
condemned or taken in any manner, this Lease shall cease and terminate as of the
date of vesting of title. In the event that only a part of the Premises shall be
so condemned or taken, then effective as of the date of vesting of title, the
rent hereunder for such part shall be equitably abated to the extent the
Premises are affected by said taking and this Lease shall continue as to the
part not taken. If substantial structural alteration or reconstruction of the
Building, shall, in the opinion of the Lessor, be necessary as a result of such
condemnation or taking (whether or not the Premises be affected), the Lessor
may, at its option, terminate this Lease at the time of such vesting of title by
notifying the Lessee in writing of such
7
<PAGE> 39
termination. If Lessor does not elect to terminate this Lease as aforesaid, this
Lease shall be and remain unaffected by such condemnation or taking, except that
the rent shall be abated to the extent, if any, as hereinbefore provided. Lessor
may, at its expense, restore with reasonable diligence the remaining structural
portions of the Premises as nearly as practicable to the same condition as they
were prior to such condemnation or taking.
23. SIGNS The Lessee shall have the right, at its own risk and expense,
to place identifying signs on the exterior walls of the Building next to any
doors leading directly into the Premises, in a manner to conform with the
Lessor's building standards and all applicable zoning laws. Lessee agrees to
maintain its signs in good repair, to remove it at the end of the term or any
extended term, repairing any damages caused by such removal, and to hold Lessor
harmless from any loss, cost or damages resulting from the erection, existence,
maintenance or removal of Lessee's signs. The Lessor reserves the right to
approve all signs and to remove all unapproved signs at the expense of the
Lessee.
24. ACCESS No additional locks will be placed on any of the doors in
said Building unless Lessor receives an access key to such locks, and that
Lessor shall have the right to enter the Premises for purposes of repair or
emergency inspection.
25. DISPLAY Lessor shall have the right to enter the Premises during
the three (3) months prior to termination of this Lease to display the space to
prospective tenants, and to place on doors and windows appropriate notice that
the Premises are for rent.
26. MORTGAGES It is mutually agreed that this Lease shall be
subordinate to any and all mortgages now and hereinafter placed on the Property
by the Lessor and Lessee hereby agrees to comply with all terms and conditions
of said Mortgage with respect to the use and occupancy of the Premises. Further,
Lessee agrees to attorn to and recognize Lessor's mortgagee or any purchaser or
transferee who acquires title to the property pursuant to foreclosure of a
mortgage or any proceeding in lieu thereof and the successors, and assigns of
such purchaser as its Lessor for the unexpired balance of (any extensions, if
exercised) the term of the Lease upon the same term and conditions set forth in
this Lease.
27. NOTICES All notices, consents, demands and requests which may be or
are required to be given by either party to the other shall be in writing, and
shall be sent by Registered or Certified Mail with return receipt requested,
addressed as follows:
If to Lessor Charles J. Van Heel
20600 County Road 81
Rogers MN 55374
8
<PAGE> 40
If to Lessee Ultra Pic, Inc
21925 Industrial Blvd
Rogers MN 55374
Tel: 612/428-8340
The date shown on the return receipt the date of which said Registered
or Certified Mail is received by the addressee shall be conclusively deemed to
be the date on which a notice, consent, demand or other request is given or
made. The above address of a party may be changed from time to time by notice
given by said party to the other party in the manner provided.
28. SEVERABILITY CLAUSE Any provision of this Agreement which may be
determined by competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
29. LATE PAYMENT In the event of late payment of any rental
installment, the Lessee shall pay a late charge in an amount equal to four
percent (4%) of any installment received more than five (5) days after its due
date.
30. ACKNOWLEDGMENT OF NOTICE Lessee has been notified and hereby
acknowledges receipt of one (1) copy of this Lease and has been given proper
notice as to the name and address of the owner and/or agent empowered "to accept
service of process and receive and give receipt for notices and demands".
31. ENTIRE AGREEMENT This Agreement, together with the exhibits
attached hereto, constitute the entire Agreement between Lessor and Lessee with
respect to the subject matter hereof and there are no collateral agreements,
either oral or written. It is further agreed that no change or modification of
the terms of this agreement shall be binding upon either party hereto unless
such change or modification be in writing and signed by the party to be charged.
32. MISCELLANEOUS
32.1 See EXHIBIT "A" - Building plan
32.2 See EXHIBIT "A-1" attached - To be identified as Rogers
Plastic Center, Lot 2
9
<PAGE> 41
32.3 See EXHIBIT "A-2" Easements - Ingress and Egress (Subj to
change after construction)
32.4 See Addendum to Lease Dated October 1, 1994, ITEM 32 - Rent
review;
ITEM 33 - Completion of Premises; ITEM 34 - Right of First
Refusal
32.5 Purchase Option
WITNESS:
LESSOR:
Charles J. Van Heel
/s/ Buffie White By /s/ Charles J. Van Heel
- --------------------------------- ----------------------------
Charles J. Van Heel
LESSEE:
Ultra Pac, Inc.
BY /s/ Bradd Yopp
-----------------------------
Brad Yopp
Its Chief Financial Officer
10
<PAGE> 42
ADDENDUM TO LEASE
DATED OCTOBER 1, 1994
22201 INDUSTRIAL BOULEVARD
ROGERS MN 55374
33. RENT REVIEW For the rental year commencing February 1, 2002, the
rent shall be the lesser of: (i) the rent as calculated with appropriate CPI
increases as set forth in Section 5 of the Lease; or (ii) the Fair Market Rental
for the Premises as herein defined; provided, however that such rent shall in no
case be less than Two Hundred Sixteen Thousand Eight Hundred Forty and NO/100
Dollars ($216,840.00) per year plus $.99 per square foot for taxes and $.06 per
square foot for insurance.
Fair Market Rental for the Premises means the actual rent paid in
the marketplace for similar property for a five-year lease term in the Rogers,
Minnesota vicinity as determined by experts in the real estate industry. The
Fair Market Rental shall be determined by an expert appointed by, and at the
expense of, the Lessor and given to the Lessee on or before November 1, 2001. If
Lessee does not accept the Landlord's expert's estimation of the Fair Market
Rental, it shall, within thirty (30) days of receiving the figure from Lessor,
appoint, at its expense, an expert to determine Fair Market Rental. If the Fair
Market Rental as determined by Lessee's expert is equal or greater than the Fair
Market Rental determined by the Lessor's expert, the Fair Market Rental shall be
the value as determined by the Lessor's expert. If Lessee's expert determines
the Fair Market Rental to be less than the Lessor's expert, the Lessor and
Lessee shall negotiate the Fair Market Rental. If they are unable to agree by
January 1, 2002, the Lessor's expert and the Lessee's expert shall appoint a
third expert and the matter will be settled by arbitration in Minneapolis,
Minnesota. The costs of arbitration (other than the cost of each of their
respective experts, for which they shall be solely responsible) will be split
equally by the Lessor and Lessee unless the arbitrators determine that one of
the parties acted unreasonably or should otherwise pay more than one-half the
cost of arbitration.
The rental for the eighth through fifteenth years of the Lease term
shall be adjusted by a CPI change pursuant to Section 5 of the Lease from the
rent established for the eighth year as determined above.
34. Completion of Premises. The construction of the Premises will be
substantially completed and available for Lessee's partial occupancy on or
before February 1, 1995. The Premises will be constructed in accordance with the
specifications set forth in Exhibit A attached hereto. The existing building
included in the Premises shall be watertight and fully remodeled in accordance
with Tenants's specifications.
11
<PAGE> 43
35. Right of First Refusal. If, at any time during the term of the
Lease, Lessor desires to sell or otherwise convey all or any part of the
Premises and receives a bona fide offer (the "Offer") which Lessor is willing to
accept from a person or entity ready, willing and able to purchase all or any
part of the Property, Lessor shall immediately give notice of the Offer to
Lessee (the "Notification"), including the name and address of the offeror and a
copy of the agreement evidencing the Offer. Lessee shall have twenty (20) days
after receipt of the Notification in which to exercise its right of first
refusal to purchase the portion of the Property stated in the Offer on the terms
specified in the Offer (the free of this first refusal right; provided, however,
that this right will survive any such transfer.
If Lessee does not exercise this right to purchase by giving Lessor
written notice thereof within the Exercise Period, Lessor may thereafter accept
the Offer and complete the sale to the offeror in accordance with the Offer. If
the terms of the Offer are thereafter materially changed or if the sale to the
offeror is not completed as specified in the Offer, then the right of first
refusal given hereby to Lessee shall be revived, the revised Offer shall be
again submitted to Lessee for the Exercise Period, and Lessee shall again have
the right to purchase such portion of the Premises on the terms of the revised
Offer.
12
<PAGE> 44
AMENDMENT TO LEASE
This Amendment is made and entered into as of November 2, 1994, by and
between Charles J. Van Heel ("Lessor") and Ultra Pac, Inc., ("Lessee").
R E C I T A L S :
(R1) On the 20th day of November, 1994, Lessor and Lessee entered into a
certain lease (the "Lease") for 55,600 square feet of space in certain
premises commonly known as 22201 Industrial Boulevard, Rogers,
Minnesota (the "Premises"). The parties hereby desire to amend the
terms of the Lease.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, Lessor and Lessee agree as follows:
36. PURCHASE OPTION. Providing Lessee is not in default and providing
that the Lease of the Premises has not terminated, Lessee shall have the option
to purchase the Premises during years three (3) through fifteen (15) of the
lease term or any extended lease term (the "Purchase Option"). The exercise of
this Purchase Option shall be effective only if Lessee has no less than three
(3) years prior to the exercise of this Purchase Option, exercised and closed a
similar Purchase Option between the parties hereto for property located at 22101
Industrial Boulevard, Rogers, Minnesota. The parties hereby agree that if Lessee
exercises the Purchase Option, the purchase price for the Premises shall be One
Million Four Hundred Ninety Five Thousand and no/100 ($1,495,000.00) Dollars by
cash or certified funds. To exercise the option, Lessee shall notify Lessor in
writing of its intent to exercise the option to purchase. The closing date must
occur prior to the end of the fifteenth (15th) year of the lease term. Lessor
shall convey the premises at closing to Lessee free and clear of all
encumbrances except those caused by Lessee and except any unpaid special
assessments for improvements after the date of this Amendment. Subject to
Section 34 of the Lease, this option does not prevent Lessor from selling or
exchanging the Premises with a third party provided, that Lessor's successors
shall be bound by the terms of this Purchase Option.
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<PAGE> 45
37. RATIFICATION. Except as specifically amended hereby, the Lease is
fully ratified and affirmed by Lessor and Lessee.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
above date.
LESSOR: LESSEE:
Ultra Pac, Inc.
/s/ Charles J. Van Heel By: /s/ Brad Yopp
- ----------------------------- ----------------------------------
Charles J. Van Heel Its Chief Financial Officer
---------------------------------
14
<PAGE> 1
EXHIBIT 13
ABOVE AND BEYOND
<PAGE> 2
[PHOTO]
Ivex Packaging Corporation 1998 Annual Report
<PAGE> 3
IVEX PACKAGING CORPORATION 1998 ANNUAL REPORT
IN THE SPIRIT OF INNOVATION, WE HAVE ASKED PHOTOGRAPHER JEFF STEPHENS
TO INTERPRET OUR MOST TREASURED VALUES USING IVEX PACKAGING MATERIAL
IVEX PACKAGING CORPORATION, A DELAWARE
CORPORATION (the "Company" or "Ivex"), is a
vertically integrated specialty packaging
company that designs and manufactures
value-added plastic and paper-based flexible
packaging products for consumer and
industrial packaging markets. Ivex focuses
on niche markets which management believes
provide attractive margins and growth and
where the Company's integrated manufacturing
capabilities can enhance its competitive
position. Ivex serves a variety of markets,
providing packaging for food, medical
devices and electronic goods and protective
packaging for industrial products.
Front and Back Cover* Ivex manufactures a
vast array of products for food packaging
applications. Ultra Pac, Inc., acquired by
Ivex in 1998, provides the world with the
most complete collection of innovative food
packaging solutions.
<PAGE> 4
<TABLE>
<CAPTION>
December 31 (dollars in thousands,
except per share data) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA(1)
<S> <C> <C> <C> <C> <C>
Net sales $ 606,451 $ 538,475 $ 451,807 $ 451,569 $ 390,975
Net income (loss) before
extraordinary loss 28,194 (9,540) 8,668 (22,125) (9,293)
Net income (loss) before
extraordinary loss per
share--basic 1.36 (0.75) 0.84 (2.14) (0.90)
Net income (loss) before
extraordinary loss per
share--diluted 1.35 (0.75) 0.84 (2.14) (0.90)
EBITDA(2) 107,751 86,804 75,024 63,089 53,658
Operating Income(2) 73,727 59,625 52,300 41,828 31,469
December 31 (dollars in thousands) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $ 556,145 $ 427,465 $ 315,901 $ 294,911 $ 304,246
Long-term debt 409,071 319,055 352,893 353,717 330,768
Stockholders' equity (deficit) 22,191 (12,169) (127,344) (136,332) (111,266)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The selected financial data presented above for, and as of, each of the
years in the five-year period ended December 31, 1998, are derived from the
consolidated audited financial statements of the Company. See discussion of
the Company's acquisitions in Supplemental Financial Data. The selected
financial data should be read in conjunction with the consolidated
financial statements and notes thereto.
(2) Excludes special charge (benefit).
<PAGE> 5
[performance graph]
NET SALES in millions of dollars
[performance graph]
EBITDA* in millions of dollars
HIGHLIGHTS
[performance graph]
OPERATING INCOME* in millions of dollars
* Excludes special charge (benefit).
<PAGE> 6
CHAIRMAN'S LETTER
To Our Shareholders
Our second year as a public company was, by any measure of performance, another
outstanding year for Ivex Packaging Corporation, as demonstrated by 13% revenue
growth, several acquisitions, further development of international markets and
24% growth in operating income.
Please take a closer look at this annual report. It portrays our commitment to
going above and beyond the norm, as well as our appreciation for creative
thinking and bold expression. This original perspective using Ivex materials and
products emphasizes the versatility and innovative nature that we consistently
offer our growing list of customers.
I firmly believe that our strategic selection of end use markets will continue
to enhance our growth opportunities and strong competitive position. Examples of
such markets include medical packaging of diagnostic kits used in hospitals and
nursing homes, customized protective packaging for electronic products in world
wide distribution, convenience food packaging for food service and supermarkets
and innovative private mailing packaging for mail-order and internet commerce.
Ivex has continued to extend its plastic extrusion capabilities, currently
manufacturing OPS sheet and film, PET, PVC, polypropylene, polyethylene and
co-extruded specialties. In addition, our specialties in paper, film, foil and
custom laminations combined with unique printing capabilities give us the most
extensive specialty converting options for alternative customer applications in
the industry.
Growth has been, and will continue to be, the hallmark of Ivex Packaging. We
have increased revenue at double-digit rates for the past six quarters. Our
gross profit has doubled in five years, and operating income has grown at an
average rate of over 20%. We are well balanced between internal and external
growth.
<PAGE> 7
/S/ George B. Bayly
Internally, we continue to develop new and sophisticated products, such as an
innovative new adhesiveless polyethylene film used in surface protection
applications. We are constantly expanding our plastic sheet product offerings by
adding customized features to attract a wider array of customers. Similarly, our
creative design team has been continually recognized with awards for packaging
innovation.
Externally, Ivex has successfully continued our disciplined acquisition program,
which enables us to extend capacity, product range and geographic reach. In
1998, we made several important acquisitions including Ultra Pac and the Bleyer
fluted cup business. Outside the United States, we continue to strengthen our
position. In 1998, we acquired several small international
businesses--Gammaplast in Lyon, France; MaxPack in Monterrey, Mexico; and Geco
Packaging in Barcelona, Spain. These companies strengthen Ivex's strategic
position in both established and emerging markets.
In our first report I outlined a vision for aggressive, strategic growth. Our
strategy remains unchanged and we are very focused on the consistent
implementation of that strategy. You can expect no let up in the devotion to our
core business and the pursuit of future opportunities.
Another fundamental uniqueness forms the character of Ivex Packaging
Corporation--our people; responding to higher standards, regularly demonstrating
extreme levels of commitment and energy. I am highly grateful for their
individual effort as well as the combined talent of our 4,000 employees. We are
all dedicated to creating increased value for our customers and shareholders
alike. In closing, let me also express my appreciation for your continued
support and interest in our company.
Kind regards, George V. Bayly
Chairman, President, Chief Executive Officer
<PAGE> 8
[PHOTO]
<PAGE> 9
Innovation is not our challenge.
It's our duty.
We measure our performance in terms of
intuition,
independence,
courage,
discipline,
ingenuity. IVEX
Departure from the ordinary yields the extraordinary.
The leader in specialty packaging.
Medical Trays are an example of the wide
range of packaging products Ivex
manufactures for the medical industry.
<PAGE> 10
[PHOTO]
<PAGE> 11
[PHOTO]
<PAGE> 12
Trust.
Instincts grounded in practical method and experience.
The ability to see
through and beyond outward evidence
in harnessing proprietary technology,
focusing on niche markets,
INTUITION
measuring strategic acquisitions.
Impossible to quantify.
Even harder to explain.
Fragility packaging protects electronic
products, such as disk drives and
circuit boards, during manufacture and
transport. This high-density,
polyethylene packaging has greater
shock-resistance than traditional foam
packaging.
<PAGE> 13
Freedom.
To exercise authority, responsibility, accountability.
To respond with growth, performance, results. To create.
INDEPENDENCE To energize.
The fuel of management.
Specialty coated paper is one of several
packaging materials manufactured by Ivex
for unique customized products.
<PAGE> 14
[PHOTO]
<PAGE> 15
[PHOTO]
<PAGE> 16
One bold step encourages another.
Innovation treads among the unknown.
Untested.
COURAGE Dominant capability applied to
unexpected solutions,
precise customization, high growth
markets.
Uncontested.
Ivex Protective Masking Films, part of
our Industrial Group, are adhesive
coated polyethylene films. These films
are specialty coated for safe guarding
surfaces such as metal, plastic, wood
and glass.
<PAGE> 17
Constancy in regimen.
Compliance in duty.
Obedience and self control.
Upholding the highest standards of accuracy, precision
DISCIPLINE and quality
delivers the pinnacle of success
and the food products intact.
Bleyer's fluted cup business, acquired
by Ivex in 1998, focuses on the
conversion of specialty food grade
papers into baking cups and liners for
food packaging applications.
<PAGE> 18
[PHOTO]
<PAGE> 19
[PHOTO]
<PAGE> 20
Clever solutions
born out of practical demands.
Wealth of resources, intellectual, material,
allows solutions to be inspired by needs, not inventory.
Creativity.
INGENUITY
A process of expansion
pursued by subtraction.
Essential reduction.
Oriented Polystyrene Sheet (OPS) is
manufactured by our Polymerization and
Extrusion Group. Ivex is the world's
largest producer of OPS.
<PAGE> 21
<TABLE>
<S> <C>
Management's Discussion and Analysis 20
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29
Consolidated Statements of Changes in 30
Stockholder's Equity (Deficit)
Consolidated Statements of Cash Flows 31 CONTENTS
Notes to Consolidated Financial Statements 32
Report of Independent Accountants 47
Directors and Officers 48
Market Prices of Common Stock 49
</TABLE>
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SUPPLEMENTAL FINANCIAL DATA
The unaudited supplemental financial data below are presented to illustrate the
historical results of operations and selected financial data of the Company for
each of the years in the three-year period ended December 31, 1998 for the
purposes of the statement of operations and other operating data, and as of the
dates presented below for the purposes of the balance sheet data.
<TABLE>
<CAPTION>
Year Ended December 31 (dollars in thousands, except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Net sales $ 606,451 $ 538,475 $ 451,807
Gross profit 145,316 119,660 100,383
Selling and administrative 69,393 58,924 47,462
Amortization of intangibles 2,196 1,111 621
Special charge (benefit)(2) (2,766) 53,329 --
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 76,493 6,296 52,300
Interest expense 29,561 41,889 42,732
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss 46,932 (35,593) 9,568
Income tax provision (benefit) 18,738 (26,053) 900
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss 28,194 (9,540) 8,668
Extraordinary loss(3) -- (26,730) --
- -----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 28,194 $ (36,270) $ 8,668
=======================================================================================================================
Earnings (loss) per share--diluted(4)
Income (loss) before extraordinary loss $ 1.35 $ (0.75) $ 0.84
Net income (loss) 1.35 (2.85) 0.84
OTHER OPERATING DATA
Adjusted EBIT(5) $ 73,727 $ 59,625 $ 52,300
Percent margin 12.2% 11.1% 11.6%
Depreciation and amortization $ 34,024 $ 27,179 $ 22,724
Adjusted EBITDA(6) 107,751 86,804 75,024
Percent margin 17.8% 16.1% 16.6%
Capital expenditures $ 40,137 $ 25,364 $ 17,633
December 31 (dollars in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Working capital(7) $ 62,077 $ 41,741 $ 32,539
Total assets 556,145 427,465 315,901
Long-term debt 409,071 319,055 352,893
Stockholders' equity (deficit) 22,191 (12,169) (127,344)
</TABLE>
(1) The financial data of Ivex reflect the following acquisitions as of the
respective acquisition dates: Packaging Products, Inc. as of September 11,
1995; Plastofilm Industries, Inc. ("Plastofilm") as of August 16, 1996; Trio
Products, Inc. ("Trio") as of September 11, 1996; the European OPS business
of Envirodyne Industries, Inc. (the "European OPS Business") as of January
17, 1997; M&R Plastics Inc. ("M&R") as of February 21, 1997; AVPEX
International Corporation ("AVP") as of August 8, 1997; Crystal
Thermoplastics Inc. ("Crystal") as of November 3, 1997; Ultra Pac, Inc.
("Ultra Pac") as of April 23, 1998; and the paper packaging business of
Bleyer Industries, Inc. ("Bleyer Paper") as of October 2, 1998. The selected
financial data presented includes results of the Company's Detroit, Michigan
facility through November 19, 1998, the date of its sale to Packaging
Holdings L.L.C. The supplemental financial data should be read in
conjunction with the consolidated financial statements and notes thereto.
(2) See special charge (benefit) section of Results of Operations.
(3) During 1997, the Company recorded an extraordinary loss of $26,730 (net of
tax of $15,035) associated with the refinancing of substantially all of its
debt.
(4) The earnings (loss) per share amounts give effect to the Company's
9.65-for-1 stock split effective October 6, 1997.
(5) Adjusted EBIT includes income from operations adjusted to exclude special
charge (benefit). The Company believes that Adjusted EBIT provides
additional information for determining its ability to meet future debt
service requirements. However, Adjusted EBIT is not a defined term under
generally accepted accounting principles ("GAAP") and is not indicative of
operating income or cash flow from operations as determined under GAAP.
(6) Adjusted EBITDA includes income from operations adjusted to exclude
depreciation and amortization expenses and special charge (benefit). The
Company believes that Adjusted EBITDA provides additional information for
determining its ability to meet future debt service requirements. However,
Adjusted EBITDA is not a defined term under GAAP and is not indicative of
operating income or cash flow from operations as determined under GAAP.
(7) Working capital is determined to be the excess of current assets over
current liabilities (including the current portion of long-term debt).
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion addresses the information and financial data
contained in "Supplemental Financial Data." Ivex Packaging Corporation owns
100% of the common stock of IPC, Inc. ("IPC"). References to the Company or
Ivex herein reflect the consolidated results of Ivex Packaging Corporation.
The Company is divided into two operating segments, Consumer Packaging and
Industrial Packaging.
RESULTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
NET SALES
The Company's net sales increased by 12.6% during the year ended December 31,
1998 over the Company's net sales during the corresponding period in 1997. The
Company's net sales increased by 19.2% during the year ended December 31, 1997
over the Company's net sales during the corresponding period in 1996. The
overall increase in both years is due to the strong increase in Consumer
Packaging's sales and the incremental sales attributable to newly acquired
companies. See additional discussion in the Operating Segments section.
GROSS PROFIT
The Company's gross profit increased 21.4% during 1998 compared to 1997
primarily as a result of the incremental profit associated with the newly
acquired companies, increased sales volume and improved operating efficiencies
in the Consumer Packaging segment, as well as reduced raw material costs in
many of the Company's businesses. The increased gross profit during 1998 was
partially offset by the lower sales in the Industrial Packaging segment. Gross
profit margin increased to 24.0% in 1998 compared with 22.2% in 1997. This
improvement in gross margin is primarily the result of reduced raw material
costs in many of the Company's businesses and the improved operating
efficiencies, resulting from the increased sales in the Consumer Packaging
segment.
The Company's gross profit increased 19.2% during 1997 compared to 1996
primarily as a result of the incremental profit associated with the recently
completed acquisitions and the increase in the Company's overall unit sales
volume. The increased gross profit during 1997 was partially offset by lower
margins in the Company's recycled and specialty paper operations and in the
Company's polymerization operations due primarily to higher raw material
costs. Gross profit margin was 22.2% in both 1997 and 1996.
OPERATING EXPENSES
Selling and administrative expenses increased 17.8% during 1998 compared to
1997 primarily as a result of the selling and administrative expenses
associated with the newly acquired companies. As a percentage of net sales,
selling and administrative expenses increased to 11.4% in 1998 compared to
10.9% in 1997 primarily due to the higher selling and administrative expenses
associated with the recent acquisitions, lower net sales in the Industrial
Packaging segment and higher incentive compensation.
Selling and administrative expenses increased 24.1% during 1997 compared to
1996 primarily as a result of the larger selling and administrative expenses
associated with the newly acquired companies. As a percentage of net sales,
selling and administrative expenses increased to 10.9% in 1997 compared to
10.5% in 1996 primarily due to the higher selling and administrative expenses
associated with the medical and electronics packaging products group which the
Company acquired in 1996 and the additional management committed to the
Company's surface protection business. This increase was partially offset by a
reduction in incentive compensation.
Amortization of intangibles increased during 1998 compared to 1997 and 1997
compared to 1996 as a result of the incremental goodwill amortization
associated with the Company's acquisitions.
SPECIAL CHARGE (BENEFIT)
In conjunction with the sale of their stock during 1998, certain members of
senior management (the "Management Stockholders") repaid $2.7 million of their
loans from the Company (the "Management Loans"). Such loans were made to
senior management during the fourth quarter of 1997 and the first quarter of
1998 pursuant to a stock option plan (the "IPC Option Plan") to enable them to
pay their individual income taxes in connection with the exchange of options
granted under the IPC Option Plan (the "IPC Options"). In addition, during the
fourth quarter of 1997, the Company recorded an accrual for the anticipated
future Company payments to senior management of an amount which (after taxes)
enabled such management to pay interest on the Management Loans. As a result
of these 1998 loan repayments by the Management Stockholders, the Company's
accrual for such future Company payments was reduced by $2.8 million during
the second quarter of 1998.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
During the third quarter of 1997, the Company recorded a nonrecurring non-cash
compensation charge of $53.3 million in connection with the Company's
exchange, pursuant to the IPC Option Plan, of the IPC Options into 2,114,133
newly issued shares of the Company's common stock and newly issued stock
options exercisable for 817,067 shares of the Company's common stock. The
nonrecurring compensation charge consisted of (i) a non-cash compensation
charge of $33.8 million associated with the exchange of the IPC Options into
shares of the Company's common stock and (ii) a non-cash compensation charge
of $19.5 million associated with the accrual of future Company payments to
senior management of an amount which (after taxes) would enable such
management to pay interest on the Management Loans.
INCOME FROM OPERATIONS
Income from operations and operating margin were $76.5 million and 12.6%,
respectively, during 1998, compared to $6.3 million and 1.2%, respectively,
during 1997 and $52.3 million and 11.6%, respectively, during 1996. The
increase in income from operations in 1998 compared with 1997 is the result of
the special benefit recorded in 1998 and the special charge recorded in 1997.
Excluding this special benefit and charge, operating income and margin would
have been $73.7 million and 12.2%, respectively, in 1998 and $59.6 million and
11.1%, respectively, in 1997. The increase in 1998 operating income (excluding
special charge and benefit) is primarily the result of the incremental income
from the recently completed acquisitions and the improved gross profit. The
increase in the 1998 operating margin (excluding special charge and benefit)
is the result of the improved gross profit margin. The decrease in income from
operations and operating margin in 1997 compared with 1996 primarily results
from the special charge recorded in 1997. Excluding this special charge, the
increase in 1997 income from operations is primarily the result of the
incremental income from the acquisitions completed during 1996 and 1997 and
the decrease in operating margin primarily results from the increased
operating expenses as a percentage of net sales.
INTEREST EXPENSE
Interest expense during 1998 was $29.6 million compared to $41.9 million and
$42.7 million during 1997 and 1996, respectively. The decrease in both 1998
and 1997 interest expense compared to the prior year is primarily the result
of the Company's successful initial public offering of common stock and debt
refinancing completed during the fourth quarter of 1997.
INCOME TAXES
The Company's 1998 income tax provision approximates 40% reflecting current
and deferred U.S. federal and state tax provisions that were slightly less
than the consolidated effective rate offset by current and deferred foreign
tax provisions (primarily Canada) that were slightly more than the
consolidated effective rate. During 1998, the Company paid cash taxes only for
U.S. alternative minimum tax, state tax and foreign tax (primarily Canada). As
a result of the Company's net operating loss carryovers for U.S. federal tax,
the Company did not pay regular U.S. federal tax during 1998. At December 31,
1998, the Company had U.S. net operating loss carryovers of $144.0 million of
which approximately $85.1 million are limited in their annual usage to
approximately $10.5 million per year.
The Company's tax benefit for 1997 reflects the deferred benefit of the loss
before income taxes recorded in 1997 and a $13.2 million deferred benefit
associated with the reversal of a portion of the Company's valuation allowance
for deferred tax assets. During the third quarter of 1997, the Company
determined that it was more likely than not that a portion of its deferred tax
assets (comprised primarily of net operating loss carryforwards) would be
realizable given the Company's initial public offering and debt refinancing.
EXTRAORDINARY LOSS
The extraordinary loss in 1997 of $26.7 million (net of tax of $15.0 million)
consists of $32.3 million of premiums paid to retire its 131/4% Senior
Discount Debentures and its 121/2% Subordinated Notes, the write-off of $8.2
million of deferred financing costs related to the retired debt and the
refinancing of the Company's senior credit facility, and $1.2 million of
expenses incurred to retire the debt and the existing credit facility.
NET INCOME/LOSS
Net income was $28.2 million in 1998 compared to a net loss of $36.3 million
in 1997. The increase in net income in 1998 is primarily the result of the
special charge and extraordinary loss recorded in 1997, as well as the
Company's improved operating income and reduced interest expense.
Net loss was $36.3 million in 1997 compared to net income of $8.7 million in
1996. The net loss during 1997 is primarily the result of the special charge
and extraordinary loss recorded during 1997 as discussed above.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATING SEGMENTS
NET SALES
The following table sets forth information with respect to net sales of the
Company's operating segments for the periods presented.
<TABLE>
<CAPTION>
% of % of % of
Year Ended December 31 (dollars in thousands) 1998 Net Sales 1997 Net Sales 1996 Net Sales
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Packaging $383,277 63.2 $298,449 55.4 $215,074 47.6
Industrial Packaging 223,174 36.8 240,026 44.6 236,733 52.4
- -----------------------------------------------------------------------------------------------------------------------------
Total $606,451 100.0 $538,475 100.0 $451,807 100.0
=============================================================================================================================
</TABLE>
Consumer Packaging's net sales increased by 28.4% in 1998 from 1997 levels and
38.8% in 1997 from 1996 levels. The 1998 increase in Consumer Packaging sales
primarily resulted from the second quarter 1998 acquisition of Ultra Pac, the
fourth quarter 1998 acquisition of Bleyer Paper and the Company's 1997
acquisitions (including M&R, AVP and Crystal). Additionally, the 1998 increase
was the result of increased unit sales volume of extruded sheet and film and
converted plastic and paper products partially offset by lower average selling
prices. The increase in 1997 net sales compared to 1996 was primarily the result
of incremental sales volume associated with the 1997 acquisitions and a full
year effect of the Company's 1996 acquisitions (Plastofilm and Trio).
Additionally, the 1997 increase was the result of increased unit sales volume of
extruded sheet and film and converted plastic and paper products partially
offset by lower average selling prices.
Industrial Packaging's net sales decreased by 7.0% in 1998 from 1997 and
increased by 1.4% in 1997 from 1996. The decrease in 1998 from 1997 was
attributable to the disposition of the Company's Detroit paper mill in November
1998 and lower unit sales volume in most of Industrial Packaging's product
categories. As expected, the Company experienced significant unit volume
decreases in its coated and laminated products as a result of the declining
markets for these products. In addition, the Company experienced unit volume
decreases in its protective packaging products as a result of, among other
things, increased competition for certain of these products. The Company also
experienced unit volume decreases in its surface protection business primarily
as a result of reduced demand from its customers and slower market growth
resulting from end use customer market dislocations in Asia. The 1998 decrease
was partially offset by increased volume in certain adhesiveless surface
protection product groups as well as increased volume in the segment's Canadian
paper packaging business. The increase in net sales in 1997 from 1996 was
primarily attributable to an increase in the unit sales volume of the Company's
recycled and specialty lightweight paper and surface protection masking
products. The 1997 increase was partially offset by a decline in the unit sales
volume of coated and laminated products and decreased average selling prices for
the Company's recycled and specialty lightweight paper.
ADJUSTED EBITDA
Adjusted EBITDA includes income from operations adjusted to exclude depreciation
and amortization expenses and special charge (benefit). The Company believes
that Adjusted EBITDA provides additional information for determining its ability
to meet future debt service requirements. However, Adjusted EBITDA is not a
defined term under GAAP and is not indicative of operating income or cash flow
from operations as determined under GAAP. Operating performance and decisions
are based on Adjusted EBITDA of each segment. The following table sets forth
information with respect to Adjusted EBITDA of the Company's operating segments
for the periods presented.
<TABLE>
<CAPTION>
% of % of % of
Year Ended December 31 (dollars in thousands) 1998 Net Sales 1997 Net Sales 1996 Net Sales
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Packaging $ 77,425 20.2 $ 55,044 18.4 $ 41,727 19.4
Industrial Packaging 37,948 17.0 37,778 15.7 39,743 16.8
Corporate expenses (7,622) -- (6,018) -- (6,446) --
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 107,751 17.8 $ 86,804 16.1 $ 75,024 16.6
===============================================================================================================================
</TABLE>
23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's Adjusted EBITDA increased by $20.9 million to $107.8 million in
1998, an Adjusted EBITDA margin of 17.8%, compared to 1997 Adjusted EBITDA of
$86.8 million and an Adjusted EBITDA margin of 16.1%. The increase in Consumer
Packaging's Adjusted EBITDA during 1998 was primarily attributable to the
incremental Adjusted EBITDA from the recently completed acquisitions and the
incremental profitability associated with the increased sales volume and
improved gross profit margin. The slight increase in Industrial Packaging's
Adjusted EBITDA was the result of improved gross profit margins resulting from
lower raw material costs partially offset by lower sales volume. The increase
in corporate expense was primarily due to higher compensation and incentive
compensation expense and public company expenses.
The Company's Adjusted EBITDA increased by $11.8 million to $86.8 million in
1997, an Adjusted EBITDA margin of 16.1%, compared to 1996 Adjusted EBITDA of
$75.0 million and an Adjusted EBITDA margin of 16.6%. The increase in Consumer
Packaging's Adjusted EBITDA during 1997 was primarily attributable to the
incremental Adjusted EBITDA from the acquisitions completed during 1997 and
1996 and the improved profitability associated with the increased sales volume
of extruded sheet and film and converted plastic and paper products. The 1997
increase was partially offset by decreased profitability of the Company's
polymerization operations and poor European thermoforming operating
performance. The decrease in Industrial Packaging's Adjusted EBITDA during
1997 was the result of weaker margins in the Company's recycled and specialty
paper operations and increased operating expenses in the Company's surface
protection business. Corporate expense decreased 6.6% from $6.4 million to
$6.0 million primarily as a result of reduced incentive compensation.
LIQUIDITY AND CAPITAL RESOURCES
On August 19, 1998, the Company amended its Senior Credit Facility (the
"Senior Credit Facility") to increase the Revolving Credit Facility to $265.0
million from $175.0 million, among other things. At December 31, 1998, the
Company had cash and cash equivalents of $7.4 million. At December 31, 1998,
borrowings of $112.8 million were outstanding and $106.4 million was available
under the Revolving Credit Facility of the Senior Credit Facility. IPC's
working capital at December 31, 1998 was $62.1 million.
The primary short-term and long-term operating cash requirements for the
Company are for debt service, working capital and capital expenditures. The
Company expects to rely on cash generated from operations supplemented by
Revolving Credit Facility borrowings under the Senior Credit Facility to fund
the Company's principal short-term and long-term cash requirements.
The Senior Credit Facility is comprised of a $150.0 million Term A Loan,
$150.0 million Term B Loan and $265.0 million Revolving Credit Facility (up to
$65.0 million of which may be in the form of letters of credit). The Term A
Loan is required to be repaid in quarterly payments totaling $21.25 million in
1999, $25.0 million in 2000, $26.25 million in 2001, $31.25 million in 2002
and $26.25 million in 2003 and the Term B Loan is required to be repaid in
quarterly payments totaling $1.5 million per annum through September 30, 2003
and four installments of $35.25 million on December 31, 2003, March 31, 2004,
June 30, 2004 and September 30, 2004. The interest rate of the Senior Credit
Facility can be, at the election of IPC, based upon LIBOR or the Adjusted Base
Rate, as defined therein, and is subject to certain performance pricing
adjustments. The Term A Loan and loans under the Revolving Credit Facility
bear interest at rates up to LIBOR plus 1.625% or the Adjusted Base Rate plus
0.625%. As of December 31, 1998, such rates were 1.125% plus LIBOR. The Term B
Loan bears interest at rates up to LIBOR plus 2.00% or the Adjusted Base Rate
plus 1.0%. As of December 31, 1998, such rates were 1.75% plus LIBOR.
Borrowings are secured by substantially all the assets of the Company and its
subsidiaries. The Revolving Credit Facility and Term A Loan will terminate on
September 30, 2003 and the Term B Loan will terminate on September 30, 2004.
Under the Senior Credit Facility, IPC is required to maintain certain
financial ratios and levels of net worth and future indebtedness and dividends
are restricted, among other things. The Company believes it is currently in
compliance with the terms and conditions of the Senior Credit Facility in all
material respects.
IPC's industrial revenue bonds require monthly interest payments and are due
in varying amounts and dates through 2009. Certain letters of credit under the
Senior Credit Facility provide credit enhancement for IPC's industrial revenue
bonds.
In order to reduce the impact of changes in interest rates on its variable
rate debt, the Company entered
24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
into interest rate derivative instruments discussed in Quantitative and
Qualitative Disclosures About Market Risk.
The Company made capital expenditures of $40.1 million, $25.4 million and
$17.6 million in 1998, 1997 and 1996, respectively. At December 31, 1998, the
Company has a significant number of capital projects ongoing in all operating
segments. In future periods, the capital spending is expected to approximate
or slightly exceed depreciation expense.
On April 23, 1998, the Company acquired all of the common stock of Ultra Pac
for $67.6 million. In addition, the Company assumed approximately $18.7
million of Ultra Pac indebtedness and paid fees associated with the
transaction of approximately $2.5 million. On October 2, 1998, the Company
acquired Bleyer Paper for $17.3 million. These acquisitions were financed with
Revolving Credit Facility borrowings under the Senior Credit Facility. Ivex
currently intends to pursue additional acquisitions through a disciplined
acquisition program.
On November 19, 1998, Packaging Holdings LLC, a newly organized Delaware
limited liability company ("Packaging") acquired (i) the business of Bagcraft
Corporation of America ("Bagcraft") for a cash purchase price of $89.0 million
and (ii) the business of the Company's Detroit paper mill facility for 12%
Subordinated Notes with an original face value of $12.5 million (the
"Packaging Notes") and an equity interest equal to 49.5% of the equity of
Packaging. The Company has accounted for its investment in Packaging through
the equity method of accounting. Interest on the Packaging Notes is currently
paid-in-kind at a rate of 12% on a semi-annual basis. The Packaging Notes are
unsecured and mature on November 21, 2005.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued FAS 133, "Accounting for Derivatives and Similar
Financial Instruments and Hedging Activities," which requires all derivatives
to be measured at fair value and recognized in the statement of financial
position as assets or liabilities. In addition, all hedges fall into one of
two categories--fair value and cash flow hedges--which determines whether
changes in fair value of the hedge are recorded in net income or in other
comprehensive income. The statement is effective for fiscal years beginning
after June 15, 1999. The Company is currently evaluating the impact of the
adoption of FAS 133 on its financial position and results of operations.
YEAR 2000
The Year 2000 issue refers to computer equipment which uses two digits rather
than four to define a given year and which therefore might read a date using
"00" as the year 1900 rather than the year 2000. As the Year 2000 approaches,
such systems may be unable to process certain date based information. This
could result in system failure or miscalculations causing disruptions of
operations and the inability to engage in normal business activities.
The Company initiated a company-wide program to prepare its computer systems
and applications for the Year 2000. The initial focus of the Company's
compliance contained the following steps: assessment of the issue; planning
the conversion; plan implementation; and testing. Those systems determined to
be at risk were prioritized and plans were put in place to upgrade systems by
remediation, replacements or outsourcing. Through December 1998, the
assessment and planning phases have been completed for all systems. A majority
of the Company's facilities has already implemented or is in the process of
implementing one information technology system (the "IT system"). The
implementation of the IT system began in the mid-1990's as a strategic effort
to upgrade the Company's computer systems. Based on vendor representation and
in-house testing, the Company believes the IT system is Year 2000 compliant.
All facilities that are not implementing the IT system have information
technology systems that are believed to be Year 2000 compliant, based on
vendor representation and in-house testing. The Company's objective is to
become Year 2000 compliant with all mission critical activities and systems by
June 1999, allowing substantial time for further testing, verification and the
final completion of less important systems by fourth quarter 1999. Contingency
plans will be developed in 1999.
In addition to the information technology system review noted above, the
Company has initiated processes to review and to modify where appropriate,
other areas impacted by Year 2000. These areas include, but are not limited
to, personal computer hardware and software, remote location access to
information technology systems, facility management and certain
non-information technology issues,
25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
such as the extent to which embedded chips are used in machinery and equipment
used in operations. In relation to the Company's vendors, the Company is in
the process of communicating with its significant vendors to determine the
extent to which the Company is vulnerable to those third parties' failure to
remediate their own Year 2000 compliance issues. The Company expects to
complete its evaluation by the first quarter of 1999. The Company cannot give
any assurances that another company's failure to become compliant will not
have an effect on the Company. However, the Company believes that any
noncompliance by its vendors should not have a material adverse effect on the
Company, although there can be no assurances that this will be the case.
The Company has determined that it has no exposure to contingencies related to
the Year 2000 issue for products it has sold.
The Company expects to incur internal and external expenses related to its
remediation of the Year 2000 issue. Testing and remediation efforts are
expected to cost approximately $180,000, of which $80,000 has already been
incurred. These costs will be treated as period costs and expensed as
incurred.
Although no assurances can be given as to the Company's compliance,
particularly as it relates to third parties, based upon the progress to date,
the Company does not expect that either future costs of modifications or the
consequences of any unsuccessful modifications will have a material adverse
effect on the Company's financial position or results of operations.
Accordingly, the Company feels that the most reasonably likely worst case Year
2000 scenario would not have a material adverse effect on the Company's
financial position or results of operations, although there can be no
assurances that this will be the case.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE
The Company uses primarily foreign exchange forward contracts to hedge its
exposure from adverse changes in foreign exchange rates. A 10% unfavorable
movement in the foreign exchange rates would not expose the Company to
material losses in earnings or cash flows.
INTEREST RATES
The Company uses interest rate swaps and collars to modify its exposure to
interest rate movements and to reduce borrowing costs. The Company's net
exposure to interest rate risk consists of floating rate debt instruments that
are benchmarked to LIBOR. As of December 31, 1998 the Company had $320 million
notional value of interest rate derivatives outstanding (described below). A
10% unfavorable movement in LIBOR rates would not expose the Company to
material losses of earnings or cash flows.
The Company has entered into interest rate swap agreements with a group of
banks having notional amounts totaling $160.0 million and various maturity
dates through November 5, 2002. These agreements effectively fix the Company's
LIBOR base rate for $160.0 million of the Company's indebtedness at rates from
5.33% to 6.12% during this period. The Company has entered into no cost
interest rate collar agreements with a group of banks having notional amounts
totaling $100.0 million through November 5, 2002. These collar agreements
effectively fix the LIBOR base rate for $100.0 million of the Company's
indebtedness at a maximum of 7.00% and allow for the Company to pay the market
LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below 5.55%,
the Company is required to pay the floor rate of 5.55%. The Company has also
entered into no cost interest rate collar agreements with a group of banks
having notional amounts totaling $60.0 million through November 5, 2001. These
collar agreements effectively fix the LIBOR base rate for $60.0 million of the
Company's indebtedness at a maximum of 5.31% and allow for the Company to pay
the market LIBOR from a floor of 4.47% to the maximum rate. If LIBOR falls
below 4.47%, the Company is required to pay the floor rate of 4.47%. Income or
expense related to settlements under these agreements is recorded as
adjustments to interest expense in the Company's financial statements. The
fair market value of the Company's derivative instruments outlined above
approximates a loss of $5.8 million as of December 31, 1998 and is based upon
the amount at which it could be settled with a third party, although the
Company has no current intention to trade any of these instruments and plans
to hold them as hedges for the Senior Credit Facility.
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
The Company and its subsidiaries are subject to various claims arising in the
ordinary course of business, and are parties to various legal proceedings
which constitute ordinary routine litigation incidental to the business of the
Company and its subsidiaries. In the opinion of the Company's management, none
of these proceedings or claims is material to the business or financial
condition of the Company.
The Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the discharge of
materials into the environment, the handling and disposition of wastes and the
protection of the environment. As is the case with manufacturers in general,
if a release of hazardous substances occurs on or from the Company's
properties or any associated offsite disposal location, or if contamination
from prior activities is discovered at any of the Company's properties, the
Company may be held liable. From time to time, the Company is involved in
regulatory proceedings and inquiries relating to compliance with environmental
laws, permits and other environmental matters. The Company is currently
involved with environmental remediation and on-going maintenance at certain of
its facilities. The Company believes that the costs of such remediation have
been adequately reserved for and that such costs are unlikely to have a
material adverse effect on the Company. No assurance can be given, however,
that additional environmental issues relating to the presently known
remediation matters or identified sites or to other sites or matters will not
require additional investigation, assessment or expenditures.
From time to time, the Company is involved in cases arising under the
environmental Superfund law. These cases generally involve sites which
allegedly have received wastes from current or former Company locations. Based
on information available to the Company, a reasonable estimate is calculated
for the Company's share, if any, of the probable costs associated with such
cases and is provided for in the Company's financial statements. The Company
reviews its accruals on a regular basis and believes that the potential costs
for the cleanup of such sites will not have a material adverse effect on the
Company. Although, no assurance can be given that additional issues relating
to presently known sites or to other sites will not require additional
investigation or expenditures.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, without limitation, raw
material costs and availability (see Results of Operations above); competition
(see Results of Operations above); environmental matters and government
regulation (see Legal Proceedings and Environmental Matters above); the
Company's actual performance and highly leveraged financial condition (see
Liquidity and Capital Resources above); the Company's computer system
preparation for the Year 2000 (see Year 2000 above); and the Company's
exposure to market risk (see Quantitative and Qualitative Disclosures about
Market Risk).
27
<PAGE> 30
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31 (dollars in thousands, except per share data) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,363 $ 5,989
Accounts receivable trade, net of allowance 76,699 64,952
Inventories 77,509 59,706
Prepaid expenses 4,646 5,501
- ----------------------------------------------------------------------------------------------
Total current assets 166,217 136,148
- ----------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 62,779 56,336
Machinery and equipment 308,549 272,602
Construction in progress 22,705 9,225
- ----------------------------------------------------------------------------------------------
394,033 338,163
Less--Accumulated depreciation (165,207) (149,207)
- ----------------------------------------------------------------------------------------------
228,826 188,956
Land 12,538 9,077
- ----------------------------------------------------------------------------------------------
Total property, plant and equipment 241,364 198,033
- ----------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net of accumulated amortization 85,823 35,278
Deferred income taxes 16,955 36,647
Management receivable 11,919 11,135
Miscellaneous 33,867 10,224
- ----------------------------------------------------------------------------------------------
Total other assets 148,564 93,284
- ----------------------------------------------------------------------------------------------
Total Assets $ 556,145 $ 427,465
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current installments of long-term debt $ 23,312 $ 19,744
Accounts payable and accrued invoices 36,744 38,675
Accrued salary and wages 11,789 9,114
Self insurance reserves 7,523 7,893
Accrued rebates and discounts 7,534 4,596
Accrued interest 3,279 4,191
Other accrued expenses 13,959 10,194
- ----------------------------------------------------------------------------------------------
Total current liabilities 104,140 94,407
- ----------------------------------------------------------------------------------------------
Long-Term Debt 409,071 319,055
- ----------------------------------------------------------------------------------------------
Other Long-Term Liabilities 17,570 21,868
- ----------------------------------------------------------------------------------------------
Deferred Income Taxes 3,173 4,304
- ----------------------------------------------------------------------------------------------
Commitments -- --
- ----------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.01 par value--45,000,000 shares authorized;
20,931,268 and 20,426,666 shares issued and outstanding 209 204
Paid in capital in excess of par value 339,098 328,322
Accumulated deficit (311,642) (339,836)
Accumulated other comprehensive loss (5,474) (859)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity (deficit) 22,191 (12,169)
- ----------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 556,145 $ 427,465
==============================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
28
<PAGE> 31
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>t
Year Ended December 31 (dollars in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 606,451 $ 538,475 $ 451,807
Cost of goods sold 461,135 418,815 351,424
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 145,316 119,660 100,383
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling 32,517 27,625 20,306
Administrative 36,876 31,299 27,156
Amortization of intangibles 2,196 1,111 621
Special charge (benefit) (2,766) 53,329 --
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 68,823 113,364 48,083
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 76,493 6,296 52,300
Interest expense 29,561 41,889 42,732
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss 46,932 (35,593) 9,568
Income tax (benefit) provision 18,738 (26,053) 900
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary loss 28,194 (9,540) 8,668
Extraordinary loss -- (26,730) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 28,194 $ (36,270) $ 8,668
==============================================================================================================================
EARNINGS (LOSS) PER SHARE
Basic:
Income (loss) before extraordinary loss $ 1.36 $ (0.75) $ 0.84
Extraordinary loss -- (2.10) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.36 $ (2.85) $ 0.84
==============================================================================================================================
Weighted average shares outstanding 20,726,556 12,747,029 10,352,533
==============================================================================================================================
Diluted:
Income (loss) before extraordinary loss $ 1.35 $ (0.75) $ 0.84
Extraordinary loss -- (2.10) --
- ------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1.35 $ (2.85) $ 0.84
==============================================================================================================================
Weighted average shares outstanding 20,909,317 12,747,029 10,352,533
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
29
<PAGE> 32
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Accumulated
Paid in Capital Other
Common Stock In Excess of Accumulated Comprehensive Stockholders' Comprehensive
(dollars in thousands) Shares Amount Par Value Deficit Income(Loss) Equity(Deficit) Income(Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 1,072,246 $ 11 $ 177,375 $(312,234) $ (1,484) $(136,332)
Net income -- -- -- 8,668 -- 8,668 $ 8,668
Other comprehensive
income (foreign
currency translation
adjustment) -- -- -- -- 320 320 320
---------
Comprehensive
income (loss) -- -- -- -- -- -- $ 8,988
- ------------------------------------------------------------------------------------------------------ =========
Balance at
December 31, 1996 1,072,246 11 177,375 (303,566) (1,164) (127,344)
Issuance of
management shares 218,968 2 33,824 -- -- 33,826
Common stock split 11,175,452 112 (112) -- -- --
Issuance of
common stock 7,960,000 79 117,235 -- -- 117,314
Net loss -- -- -- (36,270) -- (36,270) $(36,270)
Other comprehensive
income (foreign
currency translation
adjustment) -- -- -- -- 305 305 305
---------
Comprehensive
income (loss) -- -- -- -- -- -- $(35,965)
- ------------------------------------------------------------------------------------------------------ =========
Balance at
December 31, 1997 20,426,666 204 328,322 (339,836) (859) (12,169)
Issuance of
common stock 500,000 5 10,702 -- -- 10,707
Exercise of common
stock options 4,602 -- 74 -- -- 74
Net income -- -- -- 28,194 -- 28,194 $ 28,194
Other comprehensive
income (foreign
currency translation
adjustment) -- -- -- -- (4,615) (4,615) (4,615)
---------
Comprehensive
income (loss) -- -- -- -- -- -- $ 23,579
- ---------------------------------------------------------------------------------------------------- =========
Balance at
December 31, 1998 20,931,268 $209 $ 339,098 $(311,642) $ (5,474) $ 22,191
====================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
30
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31 (dollars in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 28,194 $ (36,270) $ 8,668
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation of properties 31,828 26,068 22,103
Amortization of intangibles and debt issue costs 2,978 2,404 2,028
Non-cash interest (income) expense (1,072) 11,223 12,801
Non-cash special (benefit) charge (2,766) 53,329 ----
Extraordinary loss ---- 26,730 ----
Deferred income taxes 12,749 (28,433) ----
- ---------------------------------------------------------------------------------------------------
71,911 55,051 45,600
Change in Operating Assets and Liabilities
Accounts receivable (10,372) (7,342) 528
Inventories (11,244) (4,946) (743)
Prepaid expenses (232) (212) 621
Accounts payable (5,557) (3,907) 1,516
Accrued expenses and other liabilities (480) (2,169) 1,680
- ---------------------------------------------------------------------------------------------------
Net cash from operating activities 44,026 36,475 49,202
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock 10,707 117,314 ----
Proceeds from senior credit facility ---- 300,000 ----
Payment of debt (36,117) (59,125) (5,000)
Proceeds from revolving credit facility 111,800 1,000 ----
Payment of revolving credit facility ---- ---- (8,500)
Redemption of 131/4% Discount Debentures ---- (117,363) ----
Redemption of 121/2% Subordinated Notes ---- (157,423) ----
Management receivable (784) (11,625) ----
Debt redemption costs ---- (33,339) ----
Payment of debt issue costs (855) (4,303) (296)
Other, net (1,889) (253) 722
- ---------------------------------------------------------------------------------------------------
Net cash from (used by) financing activities 82,862 34,883 (13,074)
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (40,137) (25,364) (17,633)
Acquisitions (85,005) (42,728) (20,786)
Other, net (372) (99) 283
- ---------------------------------------------------------------------------------------------------
Net cash used by investing activities (125,514) (68,191) (38,136)
- ---------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,374 3,167 (2,008)
Cash and cash equivalents at beginning of period 5,989 2,822 4,830
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,363 $ 5,989 $ 2,822
===================================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
Interest $ 30,757 $ 28,761 $ 28,592
Income taxes 3,412 1,561 1,199
</TABLE>
The accompanying notes are an integral part of this statement.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1--ORGANIZATION
Ivex Packaging Corporation (the "Company") owns 100% of the common stock of
IPC, Inc. ("IPC"). The Company is a holding company with no operations of its
own and IPC has no contractual obligations to distribute funds to the Company.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
All the accounts of the wholly-owned subsidiaries of the Company have been
consolidated. All significant intercompany transactions and accounts have been
eliminated.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products.
CASH AND CASH EQUIVALENTS
The Company considers all short-term deposits with initial maturities of three
months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------
<S> <C> <C>
Accounts receivable $79,566 $67,496
Less--Allowance for
doubtful accounts (2,867) (2,544)
- -------------------------------------------------
$76,699 $64,952
=================================================
</TABLE>
Accounts receivable from sales to customers are unsecured.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out (FIFO) method to determine the cost of raw materials and finished
goods.
Inventories at December 31, 1998 and 1997 consist of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------
<S> <C> <C>
Raw materials $34,136 $32,200
Finished goods 43,373 27,506
- --------------------------------------------------
$77,509 $59,706
==================================================
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment is computed using the
straight-line method over the estimated useful lives of the assets (generally
thirty years for buildings and three to fifteen years for equipment).
Expenditures for maintenance and repairs are charged to operations as
incurred; major improvements are capitalized.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. In estimating future tax consequences,
the Company generally considers all expected future events other than
enactments of changes in the tax law or rates.
EMPLOYEE BENEFIT PLANS
IPC and its subsidiaries have defined contribution and defined benefit plans
covering substantially all employees. IPC's contributions to the defined
contribution plans are determined by matching employee contributions and by
discretionary contributions. Defined benefit plan contributions are determined
by independent actuaries and are generally funded in the minimum annual amount
required by the Employee Retirement Income Security Act of 1974.
IPC provides limited post retirement benefits to a select group of employees.
The current period cost and reserves related to these benefits are not
material.
GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill represents the excess purchase price over fair value of net assets
acquired and is being amortized using the straight-line method over forty-year
periods. Accumulated amortization was $21,304 and $19,593 as of December 31,
1998 and 1997, respectively.
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. If the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. No such impairment has
occurred in 1998, 1997 or 1996.
EARNINGS PER SHARE
Basic earnings (loss) per share excludes dilution and is computed by dividing
income (loss) by the weighted average number of common shares outstanding
during each period. Diluted earnings (loss) per share reflects the potential
dilution that could occur if common stock options are exercised and is
computed by dividing income (loss) by the weighted average number of common
shares outstanding, including common stock equivalent shares issuable upon
exercise of outstanding stock options, to the extent that they would have a
dilutive effect on the per share amounts. Dilution of the Company's weighted
average shares outstanding results from common stock issuable upon exercise of
outstanding stock options (182,761 for the year ended December 31, 1998).
OTHER COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" which requires the Company to disclose, in financial statement format,
all non-owner changes in equity. As of December 31, 1998, all such changes in
equity resulted from foreign currency translation adjustments.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries are maintained
in local currency which is the functional currency. The balance sheets of
these subsidiaries are translated at exchange rates in effect at the balance
sheet date and the related statements of operations are translated at weighted
average rates of exchange for the year. Translation adjustments resulting from
this process are reflected as comprehensive income (loss). Gains and losses
resulting from foreign exchange transactions are recorded in the results from
operations. Such amounts were not significant in 1998, 1997 and 1996.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which establishes standards for
reporting information about operating segments in annual financial statements
and interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company engages in the business of manufacturing plastic and paper
packaging products for different end-use packaging applications principally
with customers in North America and Europe. The Company is divided into two
operating segments, Consumer Packaging and Industrial Packaging, based on
management decisions as to resource allocation. Consumer Packaging
applications include the integrated production and conversion of oriented
polystyrene sheet, other plastic sheet and paper into thermoformed and
converted packaging products and the sale of plastic sheet to other packaging
thermoformers. Industrial Packaging applications include the manufacture and
sale of converted, coated and laminated paper and plastic materials as well as
the manufacture and sale of recycled kraft paper. Operating performance and
decisions are based on Adjusted EBITDA of each segment, which includes income
from operations adjusted to exclude depreciation and amortization expenses and
special charge (benefit).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of financial instruments, other than the Company's
interest rate derivative instruments (see Note 5--Long-Term Debt),
approximates their estimated fair value based on market prices for the same or
similar type of financial instruments.
RECLASSIFICATIONS
Certain amounts in the consolidated balance sheets for 1997 have been
reclassified to conform to the 1998 presentation.
NOTE 3--PUBLIC OFFERINGS AND REFINANCING
On May 27, 1998, the Company completed a secondary offering (the "Secondary")
of 4,000,000 shares of common stock of the Company. In the Secondary, the
Company sold to the underwriters 500,000 previously unissued shares of common
stock at an offering price of $24.00 per share yielding net proceeds of
$10,707. Other selling stockholders, including members of the Company's
management (the "Management Stockholders"), sold 3,500,000 previously issued
and outstanding
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
shares of common stock owned by them. The Company did not receive any of the
proceeds from the sale of shares of common stock by such selling stockholders.
The proceeds of the Secondary were used to pay down borrowings under the
Company's Revolving Credit Facility.
On October 6, 1997, the Company completed an initial public offering (the
"Offering") of 9,660,000 shares of common stock of the Company. In connection
with the Offering, the Company increased its authorized capital stock to
45,000,000 shares of common stock and effected a 9.65-for-1 stock split of its
outstanding common stock. All share and per share data have been adjusted to
give effect to the increased authorized capital stock and stock split. In the
Offering, the Company sold to the underwriters 7,960,000 previously unissued
shares of common stock at an initial public offering price of $16.00 per share
yielding net proceeds of $117,314. Acadia Partners, L.P. and certain related
investors ("Acadia") sold to the underwriters 1,700,000 previously issued and
outstanding shares of common stock owned by them. The Company did not receive
any of the proceeds from the sale of shares of common stock by Acadia.
The Offering was a component of a comprehensive refinancing strategy of the
Company to significantly lower its interest expense, strengthen its balance
sheet and provide financial flexibility to enable the Company to continue to
pursue investment opportunities. As part of this refinancing, simultaneously
with the consummation of the Offering, the Company entered into a new credit
facility (the "Senior Credit Facility") that refinanced its existing credit
facility. The Company used the proceeds of the Offering together with
borrowings under the Senior Credit Facility to refinance substantially all of
its existing indebtedness. During the fourth quarter of 1997, the Company
repurchased all of its 12 1/2% Subordinated Notes due 2002 (the "12 1/2%
Subordinated Notes") and repurchased all of its 13 1/4% Discount Debentures
due 2005 (the "13 1/4% Discount Debentures").
In connection with the above repurchase of the 12 1/2% Subordinated Notes and
the 13 1/4% Discount Debentures, the Company paid premiums aggregating
$32,374. In connection with the refinancing, the Company incurred expense of
approximately $8,177 related to the write-off of previously capitalized debt
issuance costs and paid costs of $1,214 associated with the repurchase of
existing debt. See Note 12--Extraordinary Loss from Extinguishment of Debt.
NOTE 4--MISCELLANEOUS OTHER ASSETS
Miscellaneous other assets at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------
<S> <C> <C>
Deferred financing costs$ 5,897 $ 5,065
Less--Accumulated
amortization (1,275) (516)
- -------------------------------------------------
4,622 4,549
Equity investment
in Packaging
Holdings L.L.C. 6,263 ----
12% Subordinated
Notes of Packaging
Holdings L.L.C. 12,666 ----
Other 10,316 5,675
- -------------------------------------------------
$33,867 $10,224
=================================================
</TABLE>
On November 19, 1998, Packaging Holdings L.L.C., a newly organized Delaware
limited liability company ("Packaging") acquired (i) the business of Bagcraft
Corporation of America ("Bagcraft") for a cash purchase price of $89,000 and
(ii) the business of the Company's Detroit paper mill facility ("Detroit") for
12% Subordinated Notes with an original face value of $12,500 (the "Packaging
Notes") and an equity interest equal to 49.5% of the equity of Packaging. The
remaining equity investors in Packaging include, among others, certain members
of the Company and Bagcraft management. Additionally, the Company received a
$1,000 fee in connection with the formation and acquisitions of Packaging.
Packaging consists of the integrated business of Bagcraft and Detroit.
Bagcraft is a flexible packaging converter supplying products to the food
service, bakery, microwave popcorn and supermarket industries. Detroit
manufactures specialty lightweight papers with waxing and foil lamination
capabilities for the flexible packaging industry and food packaging
converters, masking tape base stock and natural kraft paper.
The Company has accounted for its investment in Packaging through the equity
method of accounting. The Company's equity investment asset of $6,263 differs
from the underlying equity in net assets of Packaging by $8,461 due to the
deferred gain on the sale of Detroit. The consolidated statement of operations
for the year ended December 31, 1998 includes a loss on the equity investment
in Packaging of $140 (excluding the $1,000 fee).
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
Interest on the Packaging Notes is currently paid-in-kind at a rate of 12% on
a semi-annual basis. The Packaging Notes are unsecured and mature on November
21, 2005.
Deferred financing costs are being amortized over the term of the related
debt.
NOTE 5--LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------
<S> <C> <C>
Senior Credit Facility $390,925 $296,875
Industrial revenue bonds 39,667 39,736
Other 1,791 2,188
- --------------------------------------------------------
Total debt outstanding 432,383 338,799
Less--Current
installments of
long-term debt (23,312) (19,744)
- --------------------------------------------------------
Long-term debt $409,071 $319,055
========================================================
</TABLE>
SENIOR CREDIT FACILITY
On August 19, 1998, the Company amended the Senior Credit Facility to increase
the Revolving Credit Facility to $265,000 from $175,000. The Senior Credit
Facility is comprised of a $150,000 Term A Loan, a $150,000 Term B Loan and a
$265,000 Revolving Credit Facility (up to $65,000 of which may be in the form
of letters of credit). At December 31, 1998, borrowings of $112,800 were
outstanding and $106,400 was available under the Revolving Credit Facility.
The Term A Loan is required to be repaid in quarterly payments totaling
$21,250 in 1999, $25,000 in 2000, $26,250 in 2001, $31,250 in 2002 and $26,250
in 2003 and the Term B Loan is required to be repaid in quarterly payments
totaling $1,500 per annum through September 30, 2003 and installments of
$35,250 on December 31, 2003, March 31, 2004, June 30, 2004 and September 30,
2004. The interest rate of the Senior Credit Facility can be, at the election
of the Company, based upon LIBOR or the Adjusted Base Rate, as defined, and is
subject to certain performance pricing adjustments. The Term A Loan and loans
under the Revolving Credit Facility bear interest at rates up to LIBOR plus
1.625% or the Adjusted Base Rate plus 0.625%. At December 31, 1998, such rates
were 1.125% plus LIBOR. The Term B Loan bears interest at rates up to LIBOR
plus 2.00% or the Adjusted Base Rate plus 1.0%. As of December 31, 1998, such
rates were 1.75% plus LIBOR. Substantially all the assets of the Company and
its subsidiaries are pledged as collateral for the Senior Credit Facility. The
Revolving Credit Facility and Term A Loan will terminate on September 30, 2003
and the Term B Loan will terminate on September 30, 2004. Under the Senior
Credit Facility, the Company is required to maintain certain financial ratios
and levels of net worth, and future indebtedness and dividends are restricted,
among other things. Limitations on dividends, advances and loans between IPC
and the Company, as defined in the Senior Credit Facility, restrict
substantially all of IPC's net assets.
In order to reduce the impact of changes in interest rates on its variable
rate debt, the Company entered into the following interest rate derivative
instruments. The Company has entered into interest rate swap agreements with a
group of banks having notional amounts totaling $160,000 and various maturity
dates through November 5, 2002. These agreements effectively fix the Company's
LIBOR base rate for $160,000 of the Company's indebtedness at rates from 5.33%
to 6.12% during this period. The Company has entered into no cost interest
rate collar agreements with a group of banks having notional amounts totaling
$100,000 through November 5, 2002. These collar agreements effectively fix the
LIBOR base rate for $100,000 of the Company's indebtedness at a maximum of
7.00% and allow for the Company to pay the market LIBOR from a floor of 5.55%
to the maximum rate. If LIBOR falls below 5.55%, the Company is required to
pay the floor rate of 5.55%. The Company has also entered into no cost
interest rate collar agreements with a group of banks having notional amounts
totaling $60,000 through November 5, 2001. These collar agreements effectively
fix the LIBOR base rate for $60,000 of the Company's indebtedness at a maximum
of 5.31% and allow for the Company to pay the market LIBOR from a floor of
4.47% to the maximum rate. If LIBOR falls below 4.47%, the Company is required
to pay the floor rate of 4.47%. Income or expense related to settlements under
these agreements are recorded as adjustments to interest expense in the
Company's financial statements. The fair market value of the Company's
derivative instruments outlined above approximates a loss of $5,800 as of
December 31, 1998 and is based upon the amount at which such instruments could
be settled with a third party.
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
INDUSTRIAL REVENUE BONDS
Industrial Revenue Bonds requiring monthly interest payments with average
effective rates during 1998 and 1997 of 5.9% and 6.0%, respectively, are due in
varying amounts and dates through 2009 and are secured by certain assets of IPC.
Letters of credit under the Senior Credit Facility provide credit enhancement
for the Industrial Revenue Bonds.
Long-term debt principal maturities are as follows:
<TABLE>
- --------------------------------------------------
<S> <C>
1999 $ 23,312
2000 26,841
2001 28,108
2002 33,125
2003 62,903
Thereafter 258,094
- --------------------------------------------------
$432,383
==================================================
</TABLE>
NOTE 6--INCOME TAXES
The components of the income tax provision shown in the statements of operations
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------
Current provision:
<S> <C> <C> <C>
Federal $ 979 -- $ 415
State 1,163 $ 454 485
Foreign 3,847 1,926 --
Deferred provision (benefit) 12,749 (26,059) 9,029
Benefit of net operating loss carryovers -- (2,374) (9,029)
- -------------------------------------------------------------------------------------------
$ 18,738 $ (26,053) $ 900
===========================================================================================
</TABLE>
The provision recognized for income taxes differs from the amount determined by
applying the U.S. federal income tax rate of 35% due to the following:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes and extraordinary loss $ 46,932 $ (35,593) $ 9,568
====================================================================================================
Computed expected provision (benefit) at the statutory rate $ 16,426 $ (12,458) $ 3,349
Adjustments to the computed expected provision
(benefit) resulting from:
Reduction of valuation allowance -- (13,200) --
Amortization of goodwill 536 151 77
Net operating loss carryover adjustments -- (2,374) (3,077)
State income taxes, net 756 713 417
Other, net 1,020 1,115 134
- ----------------------------------------------------------------------------------------------------
$ 18,738 $ (26,053) $ 900
====================================================================================================
</TABLE>
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
U.S. federal deferred tax liabilities (assets) are comprised of the following at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 41,498 $ 34,323
Basis differences of acquired assets 2,923 3,176
- ----------------------------------------------------------------------------------------
Total deferred tax liabilities 44,421 37,499
- ----------------------------------------------------------------------------------------
Non-compete agreements (216) (263)
Self insurance reserves (1,248) (1,767)
Management compensation accrual (4,665) (6,524)
Other (7,416) (5,204)
Net operating loss carryovers (50,407) (62,688)
- ----------------------------------------------------------------------------------------
Total deferred tax assets (63,952) (76,446)
Valuation allowance on deferred tax assets 2,576 2,300
- ----------------------------------------------------------------------------------------
Net deferred tax assets (61,376) (74,146)
- ----------------------------------------------------------------------------------------
Deferred tax asset $(16,955) $(36,647)
========================================================================================
</TABLE>
The Company's foreign and state deferred tax liabilities at December 31, 1998
and 1997 of $3,173 and $4,304, respectively, arise primarily due to
differences between book and tax depreciation.
At December 31, 1998, the Company has U.S. federal net operating loss
carryovers, including the net operating loss carryovers of IPC, for income tax
reporting purposes of approximately $144,000. Approximately $85,000 of these
losses will be limited in their annual usage to approximately $10,500 per year
under Section 382 of the Internal Revenue Code. These carryovers expire
between 2005 and 2012. In the event of a change in ownership of the Company
these net operating loss carryovers may be limited.
During 1997, the Company determined that it was more likely than not that a
portion of its net operating loss carryovers would be realized primarily as
the result of the Offering and refinancing (see Note 3). Accordingly, the
valuation allowance recorded against certain of the net operating loss
carryovers was reduced by $13,200 during 1997.
NOTE 7--EMPLOYEE BENEFIT PLANS
Plan assets of the Company's defined benefit plans are invested in money
market, equity and bond funds. The following table sets forth the funded
status of these plans as of the date of the latest available actuarial
valuation.
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997
- ----------------------------------------------------------------------------------------------------
Change in Benefit Obligation
<S> <C> <C>
Benefit obligation at beginning of year $16,990 $15,265
Service cost 320 279
Interest cost 1,282 1,248
Actuarial gain 435 1,437
Change in actuarial assumption 294 ----
Benefits paid (1,446) (1,239)
- ----------------------------------------------------------------------------------------------------
Benefit obligation at end of year $17,875 $16,990
====================================================================================================
</TABLE>
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Plan Assets
Fair value of plan assets at beginning of year $15,576 $14,203
Actual return on plan assets 1,345 1,675
Company contributions 1,714 937
Benefits paid (1,446) (1,239)
- ----------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $17,189 $15,576
====================================================================================================
<CAPTION>
December 31 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Reconciliation of Prepaid (Accrued) and Total Amount Recognized
Funded status $ (686) $ (1,414)
Unrecognized net actuarial (gain) loss 258 330
Unrecognized prior service costs 1,211 834
Unrecognized net transition (asset) obligation 269 333
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ 1,052 $ 83
====================================================================================================
Amount Recognized in the Consolidated Balance Sheets
Prepaid benefit cost $ 2,634 $ 1,362
Accrued benefit liability (3,061) (2,401)
Intangible asset 1,479 1,122
- ----------------------------------------------------------------------------------------------------
Net amount recognized $ 1,052 $ 83
====================================================================================================
</TABLE>
Net periodic pension expense related to the defined benefit plans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
Weighted Average Assumptions
<S> <C> <C> <C>
Discount rate 7.5% 8.0% 8.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Expected rate of compensation increase 0%-5% 0%-5% 0%-5%
Components of Net Periodic Pension Expense:
Service cost $ 320 $ 279 $ 290
Interest cost 1,282 1,248 1,208
Expected return on plan assets (1,422) (1,645) (1,317)
Amortization of transition liability 234 568 372
- -----------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 414 $ 450 $ 553
===========================================================================================================
</TABLE>
The charge to operations under the Company's defined contribution plans was
approximately $3,077, $3,364 and $1,798 for the years ended December 31, 1998,
1997 and 1996, respectively.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 8--STOCK OPTION
AND INCENTIVE PLANS
THE 1997 STOCK INCENTIVE PLAN
In connection with the Offering, the Company adopted the Ivex Packaging
Corporation 1997 Long-Term Stock Incentive Plan (the "1997 Stock Incentive
Plan") which authorizes the grant of stock awards, as defined, to participants
with respect to a maximum of 2,000,000 shares of the Company's common stock.
The following nonqualified options were granted under the 1997 Stock Incentive
Plan:
<TABLE>
<CAPTION>
Year ended December 31 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C>
Options outstanding at the beginning of the year 467,500 ----
Granted 451,000 468,000
Exercised ---- ----
Cancelled (37,499) (500)
- -------------------------------------------------------------------------------------------------------
Options outstanding at the end of the year 881,001 467,500
=======================================================================================================
</TABLE>
At December 31, 1998, the exercise prices of outstanding options range from
$13.81 to $23.38, with a weighted average of $19.36. At December 31, 1998,
145,746 of such options were exercisable. The outstanding options expire on
dates in a range from September 30, 2007 to December 31, 2008.
THE IPC OPTION PLAN
IPC and the Company established a stock option plan (the "IPC Option Plan")
for certain key executives, effective January 1, 1993. Pursuant to the IPC
Option Plan, IPC irrevocably granted options to purchase 17,270 shares of its
common stock at an exercise price of $619.56 per share approximating fair
market value (the "IPC Options"). The IPC Option Plan also provided IPC and
the participants with certain rights to exchange options to purchase IPC's
common stock for options to purchase the Company's common stock.
On January 1, 1996, the IPC Option Plan was amended and extended to grant an
additional 6,908 options subject to vesting over three years from January 1,
1996, and such options were available to be earned based on operating income,
as defined. The provisions of the options were substantially the same as the
previously issued options.
On September 30, 1997, earned and vested IPC Options exercisable for 16,321
shares of IPC's common stock (comprising all of the IPC Options outstanding on
such date) were exchanged for 2,114,133 newly issued shares of the Company's
common stock and newly issued nonqualified stock options exercisable for
817,067 shares of the Company's common stock at an option price of $16.00
(fair market value at the date of grant). Such options expire in 2007 and are
fully vested and exercisable. During 1998, 4,602 were exercised and, as such,
at December 31, 1998, 812,465 options were outstanding and exercisable. During
1997, the Company recorded a nonrecurring compensation charge in connection
with the above exchange. See Note 9--Special Charge (Benefit).
SFAS 123 DISCLOSURES
The Company adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Under the provisions of such
statement, the Company is required to at least disclose the pro forma impact
of recognizing compensation expense for the fair value of those options
granted since January 1, 1996. Under the provisions of SFAS No. 123, the
Company has not recognized any compensation cost for stock option plans.
On a pro forma basis, had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards
during 1998, 1997 and 1996 consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and diluted earnings (loss) per share would have
been as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) $27,865 $(17,224) $8,548
=======================================================================================================
Diluted earnings (loss) per share $ 1.33 $ (1.35) $ 0.83
=======================================================================================================
</TABLE>
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
During 1998, the Company's pro forma net income was determined under the
assumption that options granted under the 1997 Stock Incentive Plan were fully
earned with equal vesting over the three years from date of grant. The
weighted average fair value of options granted in 1998 was $3.61 per share.
The fair value of the options granted was estimated on the date earned using
the Black-Scholes option-pricing model and utilized the following weighted
average assumptions for options earned in 1998: dividend yield of 0.00%;
expected volatility of 25%; risk-free interest rate of 5.50%; and expected
lives of three years.
During 1997, the Company's pro forma net income was determined under the
assumption that options granted in exchange for the IPC Options were fully
earned and vested and the options granted under the 1997 Stock Incentive Plan
were fully earned with equal vesting over the three years from September 30,
1997. The weighted average fair value of options granted in 1997 was $3.69 per
share. The fair value of the options granted was estimated on the date earned
using the Black-Scholes option-pricing model and utilized the following
weighted average assumptions for options earned in 1997: dividend yield of
0.00%; expected volatility of 21.25%; risk-free interest rate of 5.91%; and
expected lives of three years.
During 1996, the Company's pro forma net income was determined under the
assumption that all applicable options were earned when available with equal
vesting over the three years from January 1, 1996. The fair value of the
options granted was estimated on the date earned using the Black-Scholes
option-pricing model and utilized the following weighted average assumptions
for options earned in 1996: dividend yield of 0.00%; expected volatility of
22.63%; risk-free interest rate of 5.28%; and expected lives of three years.
NOTE 9--SPECIAL CHARGE (BENEFIT)
In conjunction with the sale of their stock during 1998, the Management
Stockholders repaid a portion of their loans from the Company (the "Management
Receivable") aggregating $2,726. The Management Receivable was made to senior
management during the third quarter of 1997 and the first quarter of 1998
pursuant to the IPC Option Plan to enable such senior management to pay their
individual income taxes in connection with the exchange of the IPC Options. In
addition, during the third quarter of 1997, the Company recorded an accrual
for future Company payments to senior management of an amount which (after
taxes) enabled such management to pay interest on the Management Receivable.
As a result of the early loan repayment by the Management Stockholders, the
Company's accrual for such future Company payments was reduced by $2,766
during the second quarter of 1998.
During the third quarter of 1997, the Company recorded a nonrecurring non-cash
compensation charge of $53,329 in connection with the Company's exchange,
pursuant to the IPC Option Plan, of the IPC Options into 2,114,133 newly
issued shares of the Company's common stock and newly issued stock options
exercisable for 817,067 shares of the Company's common stock. The nonrecurring
compensation charge consists of (i) a non-cash compensation charge of $33,826
associated with the exchange of the IPC Options into shares of the Company's
common stock and (ii) a non-cash compensation charge of $19,503 associated
with the accrual of future Company payments to senior management of an amount
which (after taxes) will enable such management to pay interest on the
Management Receivable. As of December 31, 1998, the balance of this management
compensation accrual is $13,327 (including the current portion of
approximately $2,000). The Management Receivable bears interest at the minimum
applicable federal rate at the date of funding (averaging approximately 6.5%)
and is secured only by the newly issued shares of stock exchanged for the IPC
options and are nonrecourse to any other personal assets. As of December 31,
1998, the Company had funded all of the Management Receivable.
NOTE 10--RELATED PARTY TRANSACTIONs
Pursuant to a consulting agreement, Packaging pays IPC a fixed annual
consulting fee of $500 for certain services rendered to Packaging by IPC.
During 1998, the Company recorded consulting fee income of $60 related to this
agreement. See discussion of the sale of Detroit to Packaging included in Note
4--Miscellaneous Other Assets.
Pursuant to a consulting agreement, Nicolaus Paper Inc. ("Nicolaus") pays IPC
a performance-based consulting fee in an annual amount between $250 and $500
for certain services rendered to Nicolaus
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
by IPC. During 1998 and 1997, the Company recorded consulting fee income of
$300 and $350, respectively, related to this agreement. Additionally, during
1998 and 1997 the Company purchased $1,846 and $1,867, respectively, of paper
at market prices from Nicolaus. Certain executive officers and directors of
the Company together with certain members of management of Oak Hill Partners,
Inc. (Acadia's investment advisor) own substantially all of the outstanding
common stock of Nicolaus.
The Company paid a management fee to Acadia of $400 in 1997 and 1996. In
addition, in connection with the Company's initial public offering and the
termination of the management agreement, the Company paid a one-time $500 fee
to Acadia and certain related investors.
NOTE 11--COMMITMENTS
IPC leases certain of its facilities and equipment under non-cancelable
operating leases, some of which contain renewal options, escalation clauses
and requirements that IPC pay taxes, insurance and maintenance costs.
Approximate future minimum annual rental payments under non-cancelable
operating lease agreements are as follows:
<TABLE>
<S> <C>
1999 $ 7,065
2000 5,909
2001 5,350
2002 4,108
2003 3,217
Thereafter 12,293
</TABLE>
Rent expense under operating leases included in the accompanying statements of
operations aggregated approximately $8,073, $6,832 and $4,954 during 1998,
1997 and 1996, respectively.
NOTE 12--EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBt
An extraordinary loss of $26,730 (net of tax benefit of $15,035) was recorded
in the consolidated statement of operations for the year ended December 31,
1997. This loss consists of $32,374 of premiums paid to retire the 131/4%
Discount Debentures and the 121/2% Subordinated Notes, the write-off of $8,177
of deferred financing costs related to the retired debt and the refinancing of
the Company's then existing credit facility, and $1,214 of expenses incurred
to retire the debt.
NOTE 13--ACQUISITIONS
On April 23, 1998, the Company acquired all of the common stock of Ultra Pac,
Inc. ("Ultra Pac"), a Rogers, Minnesota based specialty packaging company, for
$67,625. In addition, the Company assumed approximately $33,000 of Ultra Pac
liabilities (including $18,000 of indebtedness) and paid fees associated with
the transaction of approximately $2,500. Ultra Pac is a leading North American
producer of PET food packaging that designs and manufactures plastic
containers and packaging for the food industry. On October 2, 1998, the
Company acquired the paper packaging business of Bleyer Industries, Inc.,
headquartered in Valley Stream, New York for $17,380. The acquired business
manufactures fluted cups and pads for the baking and candy industries.
On January 17, 1997, the Company purchased substantially all of the assets,
excluding accounts receivable, of the oriented polystyrene ("OPS") business of
Viskase Limited located in Sedgefield, England for $11,907. On February 21,
1997, the Company purchased all of the outstanding common stock of M&R
Plastics, Inc. ("M&R") located in Laval, Quebec for $18,651, including the
repayment of certain indebtedness of M&R and related acquisition fees and
expenses. The OPS business of Viskase and M&R are integrated producers and
converters of OPS sheet with primary Applications in food packaging markets.
On August 8, 1997, the Company purchased all of the outstanding common stock
of AVPEX International Corporation ("AVP") located in Newcastle, Canada for
$8,103, including the repayment of certain indebtedness of AVP and related
fees and expenses. AVP extrudes and converts OPS film with applications
primarily in windows for envelopes and folding cartons. On November 3, 1997,
the Company purchased all of the outstanding common stock of Crystal
Thermoplastics, Inc. ("Crystal") of Cumberland, Rhode Island for $4,067 (plus
assumed debt of $1,468). Crystal manufactures thermoformed plastic packaging
for the medical and electronics markets. Under earn out agreements, the
purchase price of M&R and AVP may be increased if certain performance targets
are met over the next one to three years. During 1998, the Company paid
additional purchase price aggregating $1,500 under the terms of earn out
agreements.
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
On August 16, 1996, IPC acquired CFI Industries, Inc. ("CFI" or "Plastofilm")
for an aggregate purchase price of $18,423, including the repayment of certain
indebtedness of CFI and related acquisition fees and expenses. In conjunction
with the acquisition, liabilities of approximately $12,000 were assumed.
Through its subsidiary, Plastofilm Industries, CFI is a fully integrated
custom thermoformer of plastic packaging products for the medical, electronics
and personal care industries.
The acquired businesses were financed through revolving credit borrowings
under the Senior Credit Facility. All of these acquisitions were accounted for
as a purchase; accordingly, the purchase price was allocated to the specific
assets acquired and liabilities assumed based upon their fair value at date of
acquisition. The Company's consolidated financial statements include the
results of operations and cash flows of these acquisitions from the purchase
date. Adjusting for the full year effect of the acquisitions, unaudited pro
forma net sales would have been approximately $29,000 and $87,000 higher than
the Company's reported net sales in 1998 and 1997, respectively. Unaudited pro
forma net income (loss) before extraordinary loss and net income (loss) are
not materially different than the Company's reported results. The unaudited
pro forma results of operations were prepared as if these acquisitions had
occurred as of the beginning of 1998 and 1997, after giving effect for certain
adjustments. These unaudited pro forma results were prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made as of the beginning of the year, or of results
which may occur in the future.
NOTE 14--REPORTING SEGMENTS
The Company is divided into the Consumer Packaging and Industrial Packaging
operating segments based on the end use of the packaging product. Operating
segment information based on Adjusted EBITDA is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONSUMER PACKAGING
Net Sales $383,277 $298,449 $215,074
Adjusted EBITDA 77,425 55,044 41,727
Total Assets 381,554 236,638 170,017
Purchase of property, plant and equipment 25,419 16,548 10,952
INDUSTRIAL PACKAGING
Net Sales 223,174 240,026 236,733
Adjusted EBITDA 37,948 37,778 39,743
Total Assets 126,944 130,331 131,035
Purchase of property, plant and equipment 13,213 7,418 6,076
</TABLE>
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
The reconciliation of the operating segment information to the Company's
consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Consumer Packaging $383,277 $298,449 $215,074
Industrial Packaging 223,174 240,026 236,733
- -------------------------------------------------------------------------------------------------
Total $606,451 $538,475 $451,807
=================================================================================================
Income (Loss) Before Income Taxes and Extraordinary Loss
Adjusted EBITDA:
Consumer Packaging $ 77,425 $ 55,044 $ 41,727
Industrial Packaging 37,948 37,778 39,743
Corporate expenses (7,622) (6,018) (6,446)
- -------------------------------------------------------------------------------------------------
Total 107,751 86,804 75,024
Depreciation expense (31,828) (26,068) (22,103)
Amortization expense (2,196) (1,111) (621)
Special (charge) benefit 2,766 (53,329) --
Interest expense (29,561) (41,889) (42,732)
- -------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary loss $ 46,932 $(35,593) $ 9,568
=================================================================================================
Purchase of Property, Plant and Equipment
Consumer Packaging $ 25,419 $ 16,548 $ 10,952
Industrial Packaging 13,213 7,418 6,076
Corporate spending 1,505 1,398 605
- -------------------------------------------------------------------------------------------------
Total $ 40,137 $ 25,364 $ 17,633
=================================================================================================
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
Total Assets
Consumer Packaging $381,554 $236,638 $ 170,017
Industrial Packaging 126,944 130,331 131,035
Corporate 47,647 60,496 14,849
- -------------------------------------------------------------------------------------------------
Total $556,145 $427,465 $ 315,901
=================================================================================================
</TABLE>
43
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
FOREIGN OPERATIONS:
The Company has operations in the United States, Canada and Europe. The
following table allocates net sales and identifiable assets between U.S.
operations and non-U.S. operations based on manufacturing locations.
<TABLE>
<CAPTION>
Year Ended December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
NET SALES
<S> <C> <C> <C>
United States(a) $511,214 $469,323 $432,242
Foreign subsidiaries 95,237 69,152 19,565
- -------------------------------------------------------------------------------------------------
$606,451 $538,475 $451,807
=================================================================================================
OPERATING INCOME
United States $ 64,143(b) $ 54,618(c) $ 51,264
Foreign subsidiaries 9,584 5,007 1,036
- -------------------------------------------------------------------------------------------------
$ 73,727 $ 59,625 $ 52,300
=================================================================================================
December 31 1998 1997 1996
- -------------------------------------------------------------------------------------------------
IDENTIFIABLE ASSETS
United States $479,129 $356,487 $302,755
Foreign subsidiaries 77,016 70,978 13,146
- -------------------------------------------------------------------------------------------------
$556,145 $427,465 $315,901
=================================================================================================
</TABLE>
(a) In the United States, foreign export sales were $37,110, $38,280 and $32,268
for the years ended December 31, 1998, 1997 and 1996, respectively.
(b) Before special benefit of $2,766.
(c) Before special charge of $53,329.
44
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 15--UNAUDITED QUARTERLY RESULTS
Summarized unaudited quarterly data for the years ended December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31,
Quarter Ended 1998 1998 1998 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $136,168 $156,619 $ 159,953 $ 153,711
Gross profit 31,497 37,975 37,990 37,854
Income from operations 15,357 21,895 20,174 19,067
Net income 5,315 8,430 7,539 6,910
Diluted earnings per share:
Net income $ 0.26 $ 0.40 $ 0.36 $ 0.33
Market price range--common stock
High 25 1/4 28 5/16 24 1/8 23 1/4
Low 19 11/16 22 1/4 13 13/16 13 5/8
March 31, June 30, September 30, December 31,
Quarter Ended 1997 1997 1997 1997(a)
- ------------------------------------------------------------------------------------------------
Net sales $127,864 $136,170 $ 137,448 $ 136,993
Gross profit 26,370 29,991 32,202 31,097
Income (loss) from operations 11,780 14,602 (36,710) 16,624
Income (loss) before extraordinary loss 324 2,363 (17,890) 5,663
Net income (loss) 324 2,363 (17,890) (21,067)
Diluted earnings (loss) per share:(b)
Income (loss) before extraordinary loss $ 0.03 $ 0.23 $ (1.72) $ 0.28
Net income (loss) $ 0.03 $ 0.23 $ (1.72) $ (1.06)
Market price range--common stock(c)
High -- -- -- 24
Low -- -- -- 19 9/16
</TABLE>
(a)Reflects the extraordinary loss on extinguishment of debt in the quarter
ended December 31, 1997 (see Note 12).
(b)As a result of the initial public offering in the quarter ended December 31,
1997, the sum of the earnings per share for the four quarters of 1997, which
is based on weighted average shares outstanding during each quarter, does not
equal earnings per share for the year.
(c)Prior to September 30, 1997 the Company's common stock was not publicly
traded.
45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 16--SUBSEQUENT EVENT
On February 10, 1999, the Board of Directors adopted a Stockholder Rights Plan
in which rights will be distributed as a dividend at the rate of one Right for
each share of common stock, par value $0.01 per share, of the Company held by
stockholders of record as of the close of business on March 16, 1999. The
Rights Plan is designed to deter coercive takeover tactics including the
accumulation of shares in the open market or through private transactions and
to prevent an acquiror from gaining control of the Company without offering a
fair price to all of the Company's stockholders. The Rights will expire on
February 10, 2009.
Each Right initially will entitle stockholders to buy one unit of a share of
preferred stock for $80.00. The Rights will be exercisable only if a person or
group acquires beneficial ownership of 15% or more of the Company's common
stock, if a person or group commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more
of the Company's common stock or if the Board of Directors determines that a
person or group, having obtained beneficial ownership of at least 10% of the
Company's common stock, is seeking short-term financial gain which would not
serve the long-term interests of the Company or whose ownership is causing or
is likely to cause a material adverse impact on the Company (an "Adverse
Person").
If any person becomes the beneficial owner of 15% or more of the Company's
common stock, other than pursuant to a tender or exchange offer for all
outstanding shares of the Company approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, or the Board of
Directors determines that any person or group is an Adverse Person, then each
Right not owned by a 15%-or-more stockholder or related parties will entitle
its holder to purchase, at the Right's then current exercise price, shares of
the Company's common stock (or, in certain circumstances as determined by the
Board, cash, other property, or other securities) having a value of twice the
Right's then current exercise price. In addition, if after any person has
become a 15%-or-more stockholder, Ivex Packaging Corporation is involved in a
merger or other business combination transaction with another person in which
the Company does not survive or in which its common stock is changed or
exchanged, or sells 50% or more of its assets or earning power to another
person, each Right will entitle its holder to purchase, at the Right's then
current exercise price, shares of common stock of such other person having a
value of twice the Right's then current exercise price.
The Company will generally be entitled to redeem the Rights at $0.01 per Right
at any time prior to 10 days (subject to extension) following a public
announcement that a 15% position has been acquired or the date a person is
declared by the Board to be an Adverse Person.
46
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Ivex Packaging Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders'
equity (deficit) present fairly, in all material respects, the financial
position of Ivex Packaging Corporation ("the Company") and its subsidiaries at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
January 25, 1999, except Note 16 which is as of February 10, 1999
47
<PAGE> 50
<TABLE>
<CAPTION>
BOARD OF DIRECTORS
<S> <C>
GEORGE V. BAYLY
Chairman, President and Chief Executive Officer
Ivex Packaging Corporation
FRANK V. TANNURA
Executive Vice President and Chief Financial Officer
Ivex Packaging Corporation
GLENN R. AUGUST
Managing Director, Oak Hill Partners
R. JAMES COMEAUX (1) STOCKHOLDER INFORMATION
President, Management Associates
CORPORATE OFFICES
ANTHONY P. SCOTTO (2) 100 Tri-State Drive, Suite 200
Managing Director, Oak Hill Partners Lincolnshire, Illinois 60069
(847) 945-9100
WILLIAM J. WHITE (1, 2)
Retired, Chairman, Bell and Howell Company INVESTOR CONTACTS
Richard R. Cote
Vice President and Treasurer
(1) member of audit committee (847) 374-4324
(2) member of compensation committee
Tricia A. Kelly
Manager Investor Relations
OFFICERS (847) 374-4313
GEORGE V. BAYLY NEWS RELEASES
Chairman, President and Chief Executive Officer Copies of recent news releases are available at no
charge through PR Newswire (IVEX code #123480)
FRANK V. TANNURA
Executive Vice President and Chief Financial Officer Facsimile (800) 758-5804
internet htttp://www.prnewswire.com
RICHARD R. COTE
Vice President and Treasurer ANNUAL MEETING
The Annual Meeting of shareholders is scheduled to
THOMAS S. ELLSWORTH be held on Tuesday, May 11, 1999 at 9:00 A.M. at the
Vice President and General Manager Deerpath Inn, Lake Forest, Illinois.
Paper Mills
TRANSFER AGENT U
GENE J. GENTILI First Chicago Trust Company, a division of EquiServe
Vice President and General Manager P.O. Box 2506
Consumer Packaging Jersey City, New Jersey 07303-2506
ROGER A. KURINSKY LEGAL COUNSEL
Vice President and General Manager Mr. William Kunkel
Industrial, Medical and Electronic Packaging Skadden, Arps, Slate, Meagher and Flom
Chicago, Illinois
JEREMY S. LAWRENCE
Vice President, Human Resources AUDITOR
PricewaterhouseCoopers LLP
G. DOUGLAS PATTERSON
Vice President and General Counsel
DAVID E. WARTNER
Vice President and Corporate Controller
EUGENE M. WHITACRE
Vice President and General Manager
Polymerization and Extrusion
</TABLE>
<PAGE> 51
The Company's Common Stock is listed on the New
York and Chicago Stock Exchanges.
(trading symbol: IXX.
The Company is currently subject to certain covenants
in loan documents that limit the payment of cash dividends.
No dividends were paid in 1998.
<TABLE>
<CAPTION>
for the year ending December 31, 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
High $28 5/16 $ 24
Low $ 13 3/4 $19 9/10 COMMON STOCK
Close $ 23 1/4 $ 24
- -------------------------------------------------------------------
</TABLE>
Design: Patrick Design Printing: Lithographix, Inc.
<PAGE> 52
EXTRAORDINARY
<PAGE> 53
[PHOTO]
Ivex Packaging Corporation 100 Tri-State Drive Suite 200 Lincolnshire,
Illinois 60069
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY *
Ivex Packaging Corporation, a Delaware corporation, owns all of the
outstanding capital stock of IPC, Inc., a Delaware corporation, which owns all
of the outstanding capital stock of the following:
1. Packaging Products, Inc., a Delaware corporation
2. Ivex Corporation, an Ontario corporation, which owns all of the
outstanding capital stock of:
(i) M & R Plastics Inc., a Quebec corporation, which owns all
of the outstanding capital stock of:
(a) M&R Plastics Canada, Inc., an Ontario corporation
(b) 2528-5347 Quebec Inc., a Quebec corporation
3. Kama of Illinois Corporation, a Delaware corporation
4. Valley Express Lines, Inc., a Delaware corporation
5. Ivex Paper Mill Corporation, a Delaware corporation
6. IPMC Holding Corporation, a Delaware corporation, which owns all of the
outstanding capital stock of:
(i) IPMC, Inc., a Delaware corporation
7. Trio Products, Inc., a Delaware corporation
8. Ivex Holdings, Ltd., a corporation organized under the laws of England
and Wales, which owns all of the outstanding capital stock of:
(i) Kama Europe Limited, a corporation organized under the laws
of England and Wales
(ii) Ivex Packaging Continental, S.A., a societe anonyme
organized under the laws of France
9. CFI Industries, Inc., a Delaware corporation, which owns all of the
outstanding capital stock of:
(i) Plastofilm Industries, Inc., a Delaware corporation, which
owns all of the outstanding stock of
(a) Crystal Thermoplastics, Inc., a Rhode Island corporation
(b) Plastofilm P.R., Inc., a Puerto Rico corporation
(ii) CFI Recycling, Inc., a Delaware corporation
(iii) Plastofilm Limited, a Northern Ireland corporation
10. Ultra Pac, Inc., a Minnesota corporation
11. Bleyer Acquisition, Inc., a Delaware corporation
12. Ivex de Mexico, S.A. de C.V., a corporation organized under the laws of
Mexico
-------------
* Certain of these legal entities also do business under the names of
Ivex and Kama
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-47397) of our report dated January 25, 1999,
except Note 16 which is as of February 10, 1999, appearing on page 47 of the
Annual Report to Stockholders which is incorporated in this Annual Report on
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedules, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,363
<SECURITIES> 0
<RECEIVABLES> 79,566
<ALLOWANCES> 2,867
<INVENTORY> 77,509
<CURRENT-ASSETS> 166,217
<PP&E> 406,571
<DEPRECIATION> 165,207
<TOTAL-ASSETS> 556,145
<CURRENT-LIABILITIES> 104,140
<BONDS> 409,071
0
0
<COMMON> 209
<OTHER-SE> 21,982
<TOTAL-LIABILITY-AND-EQUITY> 556,145
<SALES> 606,451
<TOTAL-REVENUES> 606,451
<CGS> 461,135
<TOTAL-COSTS> 461,135
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,561
<INCOME-PRETAX> 46,932
<INCOME-TAX> 18,738
<INCOME-CONTINUING> 28,194
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,194
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.35
</TABLE>
