<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
For the Quarter Ended September 30, 1999 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
Lincolnshire, Illinois 60069
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone number, including area code: (847) 945-9100
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
At November 12, 1999, there were 20,947,269 shares of common stock, par
value $0.01 per share, outstanding.
===============================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IVEX PACKAGING CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 4,057 $ 7,363
Accounts receivable trade, net of allowance....................... 98,486 76,699
Inventories....................................................... 90,589 77,509
Prepaid expenses and other........................................ 6,840 4,646
------------- -------------
Total current assets............................................ 199,972 166,217
------------- -------------
Property, Plant and Equipment:
Buildings and improvements........................................ 63,821 62,779
Machinery and equipment........................................... 349,258 308,549
Construction in progress.......................................... 30,681 22,705
------------- ------------
443,760 394,033
Less - accumulated depreciation................................... (191,442) (165,207)
------------- ------------
252,318 228,826
Land.............................................................. 12,610 12,538
------------- ------------
Total property, plant and equipment............................. 264,928 241,364
------------- ------------
Other Assets:
Goodwill, net of accumulated amortization......................... 104,053 85,823
Deferred income taxes............................................. 8,096 16,955
Management receivable............................................. 9,828 11,919
Miscellaneous..................................................... 46,518 33,867
------------- ------------
Total other assets.............................................. 168,495 148,564
------------- ------------
Total Assets......................................................... $ 633,395 $ 556,145
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of long-term debt............................ $ 27,624 $ 23,312
Accounts payable and accrued invoices............................. 54,595 36,744
Accrued salary and wages.......................................... 9,971 11,789
Self insurance reserves........................................... 7,821 7,523
Accrued rebates and discounts..................................... 7,362 7,534
Accrued interest.................................................. 4,563 3,279
Other accrued expenses............................................ 15,091 13,959
------------- ------------
Total current liabilities....................................... 127,027 104,140
------------- ------------
Long-Term Debt....................................................... 436,286 409,071
------------- ------------
Other Long-Term Liabilities.......................................... 21,097 17,570
------------- ------------
Deferred Income Taxes................................................ 4,774 3,173
------------- ------------
Stockholders' Equity:
Common stock, $.01 par value - 45,000,000 shares authorized;
20,947,269 and 20,931,268 shares issued and outstanding at
September 30, 1999 and December 31, 1998, respectively ......... 209 209
Paid in capital in excess of par value............................ 339,354 339,098
Accumulated deficit............................................... (289,649) (311,642)
Accumulated other comprehensive income (loss)..................... (5,703) (5,474)
------------- ------------
Total stockholders' equity ..................................... 44,211 22,191
------------- ------------
Total Liabilities and Stockholders' Equity .......................... $ 633,395 $ 556,145
============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................. $ 166,838 $ 159,953 $ 470,377 $ 452,740
Cost of goods sold.................................... 128,986 121,963 354,978 345,278
----------- ------------ ------------ ------------
Gross profit.......................................... 37,852 37,990 115,399 107,462
----------- ------------ ------------ ------------
Operating expenses:
Selling............................................ 9,453 8,342 28,560 24,024
Administrative..................................... 9,794 8,830 30,650 24,515
Amortization of intangibles........................ 961 644 2,357 1,497
----------- ------------ ------------ ------------
Total operating expenses.............................. 20,208 17,816 61,567 50,036
----------- ------------ ------------ ------------
Income from operations................................ 17,644 20,174 53,832 57,426
Other income (expense):
Interest expense................................... (7,945) (7,782) (22,473) (21,952)
Income from equity investments..................... 587 2,298
----------- ------------ ------------- ------------
Income before income taxes............................ 10,286 12,392 33,657 35,474
Income tax provision ................................. 2,612 4,853 11,664 14,190
----------- ------------ ------------ ------------
Net income ........................................... $ 7,674 $ 7,539 $ 21,993 $ 21,284
=========== ============ ============ ============
Earnings per share:
Basic:
Net income ..................................... $ 0.37 $ 0.36 $ 1.05 $ 1.03
=========== ============ ============ ============
Weighted average shares outstanding............. 20,947,227 20,931,268 20,939,123 20,658,318
=========== =========== ============ ============
Diluted:
Net income ..................................... $ 0.37 $ 0.36 $ 1.05 $ 1.02
=========== ============ ============ ============
Weighted average shares outstanding............. 20,976,421 21,094,865 21,023,112 20,875,961
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Ivex Packaging
Corporation Paid in Accumulated
Common Stock Capital Other Stockholders'
------------------- In Excess of Accumulated Comprehensive Equity Comprehensive
Shares Amount Par Value Deficit Income (Loss) (Deficit) Income (Loss)
------ ------ ------------ ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 loss
(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
Exercise of common stock options.... 16,001 256 256
Net income.......................... 21,993 21,993 $ 21,993
Other comprehensive loss ........... (229) (229) (229)
----------
Comprehensive income (loss)......... $ 21,764
---------- ----- -------- ---------- ------- -------- ----------
Balance at September 30, 1999.......... 20,947,269 $ 209 $339,354 $ (289,649) $(5,703) $ 44,211
========== ===== ======== ========== ======= =========
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
IVEX PACKAGING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................................... $ 21,993 $ 21,284
Adjustments to reconcile net income to net cash from operating activities:
Depreciation of properties................................................. 26,838 24,139
Amortization of intangibles and debt issue costs........................... 3,008 2,063
Non-cash income from equity investments.................................... (2,298)
Non-cash interest income................................................... (1,125)
Deferred income taxes...................................................... 8,858 10,433
---------- ----------
57,274 57,919
Change in operating assets and liabilities:
Accounts receivable......................................................... (16,409) (11,797)
Inventories................................................................. (8,305) (8,256)
Prepaid expenses and other assets........................................... (1,576) (1,059)
Accounts payable............................................................ 10,443 (3,296)
Accrued expenses and other liabilities...................................... (5,819) (2,936)
---------- ----------
Net cash from operating activities............................................ 35,608 30,575
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock................................................. 10,707
Payment of debt................................................................. (18,556) (30,742)
Proceeds from revolving credit facility......................................... 47,600 91,000
Repayment of management loans................................................... 2,091 2,726
Issuance of management loans.................................................... (3,682)
Other, net...................................................................... (785) (1,594)
---------- ----------
Net cash from financing activities............................................ 30,350 68,415
---------- ----------
Cash flows from investing activities:
Purchase of property, plant and equipment....................................... (36,667) (28,996)
Acquisitions.................................................................... (27,997) (67,625)
Other, net...................................................................... (4,600) 385
---------- ----------
Net cash used by investing activities......................................... (69,264) (96,236)
---------- ----------
Net increase (decrease) in cash and cash equivalents............................... (3,306) 2,754
Cash and cash equivalents at beginning of period................................... 7,363 5,989
---------- ----------
Cash and cash equivalents at end of period......................................... $ 4,057 $ 8,743
========== ==========
Supplemental cash flow disclosures: Cash paid during the period for:
Interest...................................................................... $ 21,663 $ 22,912
Income taxes.................................................................. 5,344 3,241
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 6
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 -- ACCOUNTING AND REPORTING POLICIES
In the opinion of management, the information in the accompanying
unaudited consolidated financial statements reflects all adjustments necessary
for a fair statement of results for the interim periods. These interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the Annual
Report on Form 10-K for the year ended December 31, 1998 (the "Form 10-K") of
Ivex Packaging Corporation ("Ivex" or the "Company"). IPC, Inc. ("IPC") is the
only direct subsidiary of Ivex and is wholly owned.
The Company's accounting and reporting policies are summarized in Note 2
to the consolidated financial statements of the Ivex Form 10-K.
Accounts Receivable
Accounts receivable at September 30, 1999 and December 31, 1998 consisted
of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Accounts receivable.......................... $ 102,145 $ 79,566
Less - Allowance for doubtful accounts....... (3,659) (2,867)
--------- ----------
$ 98,486 $ 76,699
========= ==========
</TABLE>
Inventories
Inventories at September 30, 1999 and December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Raw materials................................ $ 42,816 $ 34,136
Finished goods............................... 47,773 43,373
--------- ----------
$ 90,589 $ 77,509
========= ==========
</TABLE>
NOTE 2 - LONG TERM DEBT
At September 30, 1999 and December 31, 1998, the long-term debt of the
Company was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Senior credit facility....................... $ 422,400 $ 390,925
Industrial revenue bonds..................... 39,610 39,667
Other ....................................... 1,900 1,791
---------- ----------
Total debt outstanding................. 463,910 432,383
Less - Current installments of
long-term debt............................. (27,624) (23,312)
---------- ---------
Long-term debt......................... $ 436,286 $ 409,071
========== =========
</TABLE>
On October 26, 1999, the Company's Senior Credit Facility (the "Senior
Credit Facility") was amended to revise certain covenants. The Company paid fees
of $600 and increased the interest rate on all borrowings under the Senior
Credit Facility by a range of 0.25% to 0.375% as a result of the amendment.
6
<PAGE> 7
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3 - REPORTING SEGMENTS
During 1999, Ivex realigned its operating segments in connection with
the formation of the Technical Packaging Group which is comprised of the
industrial packaging and medical & electronics product groups. The Company is
divided into the Consumer Packaging and Technical Packaging operating segments
based on the end use of the packaging product. All historical information has
been restated to reflect the realignment.
The reconciliation of the operating segment information to the
Company's consolidated financial statements is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net Sales:
Consumer Packaging............... $ 101,496 $ 92,681 $ 288,191 $ 249,541
Technical Packaging.............. 65,342 67,272 182,186 203,199
------------- ------------- ------------ -------------
Total.................... $ 166,838 $ 159,953 $ 470,377 $ 452,740
============= ============= ============ =============
Income Before Income Taxes:
EBITDA:
Consumer Packaging....... $ 20,122 $ 20,574 $ 61,793 $ 54,912
Technical Packaging...... 9,394 10,798 27,172 31,268
Corporate Expense........ (1,715) (1,961) (5,938) (5,884)
------------- ------------- ------------ -------------
Total......... 27,801 29,411 83,027 80,296
Depreciation expense............. (9,196) (8,593) (26,838) (24,139)
Amortization expense............. (961) (644) (2,357) (1,497)
Special (charge) benefit......... 2,766
Income from equity investments... 587 2,298
Interest expense................. (7,945) (7,782) (22,473) (21,952)
------------- ------------- ------------ -------------
Income before income taxes $ 10,286 $ 12,392 $ 33,657 $ 35,474
============= ============= ============ =============
Purchase of Property, Plant and Equipment:
Consumer Packaging............... $ 7,093 $ 9,406 $ 22,794 $ 18,195
Technical Packaging.............. 3,729 3,076 11,656 9,582
Corporate........................ 1,416 577 2,217 1,219
------------- ------------- ------------ -------------
Total ................... $ 12,238 $ 13,059 $ 36,667 $ 28,996
============= ============= ============ =============
<CAPTION>
SEPTEMBER 30,
-------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Total Assets:
Consumer Packaging .............. $ 387,630 $ 322,478
Technical Packaging ............. 211,187 164,021
Corporate 34,578 56,760
------------- -------------
Total ................... $ 633,395 $ 543,259
============= =============
</TABLE>
7
<PAGE> 8
IVEX PACKAGING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 4 - ACQUISITIONS
On April 20, 1999, Ivex acquired the electronics packaging business of
Pactuco, Inc. ("Pactuco"), headquartered in Lompoc, California for a $21,000
initial payment and payments of $1,000 per year for the next five years. Based
on the operating results of the business, the purchase price could be increased
by as much as $3,000 per year over the next three years. With manufacturing
operations in California, Malaysia and Hong Kong, this business provides
technical packaging solutions for the computer and electronics industries and
has annual sales of $35,000. The acquisition was financed through revolving
credit borrowings under the Senior Credit Facility and was recorded using the
purchase method of accounting.
On July 30, 1999, Ivex acquired all of the outstanding stock of F.T.S.
Holdings B.V. ("Folietechniek") headquartered in Raamsdonksveer, Netherlands for
$4,792 and assumed debt of approximately $1,900. Folietechniek is a manufacturer
of extruded plastic products and has annual sales of approximately $13,000. The
acquisition was financed through revolving credit borrowings under the Senior
Credit Facility and was recorded using the purchase method of accounting.
NOTE 5 - SECONDARY OFFERING AND SPECIAL BENEFIT
On May 27, 1998, Ivex completed a secondary offering (the "Secondary
Offering") of 4,000,000 shares of common stock of the Company. In the Secondary
Offering, 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 Ivex
management (the "Management Stockholders"), sold 3,500,000 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 such selling
stockholders. The proceeds of the Secondary Offering were used to pay down
borrowings under the Company's revolving credit facility.
In conjunction with the sale of their stock in the Secondary Offering, the
Management Stockholders repaid a portion of their loans from the Company (the
"Management Loans") aggregating $2,726. The Management 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 conversion 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 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 the 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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion addresses the consolidated financial statements of the
Company. The Company owns 100% of the common stock of 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. References to the Company or
Ivex herein reflect the consolidated results of Ivex Packaging Corporation.
RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales
The Company's net sales increased by 4.3% during the third quarter of 1999
over the Company's net sales during the corresponding period in 1998. The
increase primarily resulted from the fourth quarter 1998 acquisition of the
paper packaging business of Bleyer Industries, Inc. ("Bleyer Paper"), the second
quarter 1999 acquisition of Pactuco and the third quarter 1999 acquisition of
Folietechniek, as substantially offset by the fourth quarter 1998 disposition of
the Company's Detroit paper mill ("Detroit"). Additionally, the increased sales
resulted from increased sales of converted plastic and paper products for food,
medical and electronics applications. The strongest growth in net sales resulted
from the Company's facilities outside of the United States and Canada. The
increase was partially offset by reduced sales volume of extruded OPS sheet due
to reduced demand from certain integrated customers. Increased sales of surface
protection and protective packaging products were partially offset by continued
declining demand for the Company's coated and laminated products. See additional
discussion in "Operating Segments".
Gross Profit
The Company's gross profit for the third quarter of 1999 was relatively
consistent with the corresponding period in the prior year. The slight decrease
in gross profit is primarily the result of poor operating performance at the
facilities acquired in the Company's second quarter 1998 acquisition of Ultra
Pac, Inc. ("Ultra Pac"), raw material cost increases in most businesses
(including plastic resin and paper) and the fourth quarter disposition of
Detroit. The poor operating performance at Ultra Pac primarily resulted from
production inefficiencies at the Rogers, Minnesota facility, lower sales revenue
and start-up costs at the Hollister, California facility (for which
manufacturing capacity is currently in the process of being relocated). The
decrease was offset by incremental gross profit from the Bleyer Paper and
Pactuco acquisitions. Gross profit margin decreased to 22.7% during the third
quarter of 1999 compared to 23.8% during the third quarter of 1998. The decrease
in gross profit margin primarily resulted from the poor operating performance at
Ultra Pac and increasing raw material costs. The decrease was also partially
offset by a shift in product mix due to the addition of higher gross profit
margin Bleyer Paper and Pactuco products and the elimination of lower gross
profit margin Detroit products.
The increase in the Company's raw material costs and the operating issues
at Ultra Pac are expected to continue to negatively impact the Company's gross
profit, income from operations and earnings through the fourth quarter of 1999
and early into the year 2000.
Operating Expenses
Selling and administrative expenses increased 12.1% during the third
quarter of 1999 primarily as a result of the Bleyer Paper, Pactuco and
Folietechniek acquisitions and increased sales and management resources for most
businesses. The increase was partially offset by decreased incentive
compensation expense. As a percentage of net sales, selling and administrative
expenses increased to 11.5% during the third quarter of 1999 compared to 10.7%
during the same period in the prior year. This increase was primarily due to the
divestiture of Detroit with lower operating expenses as a percentage of net
sales and the increased sales and management resources added for most
businesses.
9
<PAGE> 10
Amortization of intangibles increased 49.2% during the third quarter of
1999 compared to the same period in 1998 primarily as a result of increased
goodwill and non-compete agreement amortization associated with the Bleyer
Paper, Pactuco and Folietechniek acquisitions.
Income from Operations
Income from operations and operating margin were $17.6 million and 10.6%,
respectively, during the third quarter of 1999 compared to income from
operations of $20.2 million and 12.6%, respectively, during the third quarter of
1998. The decrease in operating income was primarily the result of the
operational issues at Ultra Pac, rising raw material costs and increased selling
and administrative costs. The decrease was partially offset by incremental
income from operations from the recent acquisitions. The decrease in operating
margin resulted from the decrease in gross profit margin and the additional
selling and administrative expenses committed to the business.
Interest Expense
Interest expense during the third quarter of 1999 was $7.9 million
compared to $7.8 million during the same period in 1998. The increase in
interest expense primarily resulted from greater aggregate indebtedness,
partially offset by decreased interest rates on borrowings and increased
interest income.
Income from Equity Investments
Income from equity investments primarily results from the Company's equity
interest in the net income of Packaging Holdings, LLC. The Company acquired its
equity interest in Packaging Holdings, LLC during the fourth quarter of 1998 in
exchange for the assets of Detroit.
Income Taxes
During the third quarter of 1999, the Company reversed a valuation
allowance associated with its United Kingdom operations resulting in a one-time
tax benefit of $1.4 million. This benefit represents the value of the previously
unrecognized net operating tax loss carry forwards of the Company's United
Kingdom operations. Aside from the one-time tax benefit, the Company's effective
tax rate for the third quarter of 1999 approximated 39% which is consistent with
the third quarter of 1998.
Net Income
Net income increased to $7.7 million during the third quarter of 1999
compared to net income of $7.5 million in the prior year. The increase primarily
resulted from the one-time tax benefit discussed above.
Earnings Per Share
Diluted earnings per share increased to $0.37 during the third quarter of
1999 compared to earnings per share of $0.36 during the third of 1998. The
increase in diluted earnings per share primarily resulted from the one-time tax
benefit discussed above.
10
<PAGE> 11
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>
Three Months Ended September 30,
-----------------------------------------
(dollars in thousands)
% of % of
1999 Net Sales 1998 Net Sales
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ............................ $ 101,496 60.8 $ 92,681 57.9
Technical Packaging ........................... 65,342 39.2 67,272 42.1
--------- ------ --------- ------
Total ................................... $ 166,838 100.0 $ 159,953 100.0
========= ====== ========= ======
</TABLE>
Consumer Packaging net sales increased by 9.5% during the third quarter of
1999 from the corresponding period in 1998. The increase primarily results from
incremental sales associated with the Bleyer Paper and Folietechniek
acquisitions and increased sales of converted plastic and paper products for
food applications. During the third quarter of 1999, sales of converted plastic
and paper products in the U.S. (excluding the sales relating to Bleyer Paper)
increased approximately 5.7% while such sales outside of the U.S. (Europe,
Canada and Mexico) increased approximately 18.7% compared to the third quarter
of 1998. The largest increases in sales outside of the U.S. occurred for
converted products in the United Kingdom and Continental Europe. The net sales
increase was partially offset by reduced extruded OPS sheet sales due to
decreased demand from certain integrated customers that are in the process of
expanding their extrusion capacity.
Technical Packaging net sales decreased by 2.9% during the third quarter
of 1999 from the corresponding period in 1998, primarily due to the disposition
of Detroit partially offset by increased sales of plastic products for medical
and electronics applications (including sales from Pactuco). Additionally, the
Company continues to experience significant unit volume decreases in its coated
and laminated products as a result of the declining markets for these products.
During the third quarter, the decrease in coated and laminated products was
partially offset by increased sales for the Company's surface protection and
protective packaging products compared to the third quarter of 1998.
EBITDA
EBITDA includes income from operations adjusted to exclude depreciation
and amortization expenses, and special charges (benefit). The Company believes
that EBITDA provides additional information for determining its ability to meet
future debt service requirements. However, EBITDA 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.
11
<PAGE> 12
The following table sets forth information with respect to EBITDA of the
Company's operating segments for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------
(dollars in thousands)
% of % of
1999 Net Sales 1998 Net Sales
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ............................ $ 20,122 19.8 $ 20,574 22.2
Technical Packaging ........................... 9,394 14.4 10,798 16.1
Corporate Expense.............................. (1,715) (1,961)
--------- ---------
Total .................................... $ 27,801 16.7 $ 29,411 18.4
========= =========
</TABLE>
The Company's EBITDA decreased 5.5% from $29.4 million to $27.8 million
and EBITDA margin decreased from 18.4% to 16.7% during the third quarter of 1999
compared to the same period in 1998. The 2.2%, or $0.5 million, decrease in
Consumer Packaging's EBITDA in the current quarter was primarily attributable to
the poor operating performance at Ultra Pac and the raw material cost increases.
This decrease was offset by incremental EBITDA from Bleyer Paper and
Folietechniek. The decrease in Technical Packaging's EBITDA of 13.0%, or $1.4
million was primarily due to the disposition of Detroit. The decrease in
Corporate expense was primarily the result of reduced incentive compensation
expense offset by an increase in human resources required as a result of the
Company's growth.
RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Net Sales
The Company's net sales increased by 3.9% during the first nine months of
1999 over the Company's net sales during the corresponding period in 1998. The
increase primarily resulted from increased unit sales volume of extruded sheet
and film and increased sales of converted plastic and paper products for food,
medical and electronics applications. The increase in sales also was due to the
Ultra Pac, Bleyer Paper, Pactuco and Folietechniek acquisitions as substantially
offset by the fourth quarter 1998 disposition of Detroit. See additional
discussion in "Operating Segments".
Gross Profit
The Company's gross profit increased 7.4% during the first nine months of
1999 compared to the corresponding period in the prior year primarily as a
result of the incremental effects from the Ultra Pac, Bleyer Paper, Pactuco and
Folietechniek acquisitions partially offset by the disposition of Detroit. Gross
profit margin increased to 24.5% during the first nine months of 1999 compared
to 23.7% during the first nine months of 1998. The increase in gross profit
margin primarily resulted from a shift in product mix due to the addition of
higher gross profit margin Ultra Pac, Bleyer Paper, Pactuco and Folietechniek
products and the elimination of lower gross profit margin Detroit products. The
increase in gross profit margin also resulted from lower raw material costs in
most businesses during the first and second quarter of 1999 as compared to the
prior year as partially offset by increased raw material costs and the poor
operating performance at Ultra Pac during the third quarter of 1999 compared to
the prior year.
Operating Expenses
Selling and administrative expenses (excluding the special (charge)
benefit discussed below) increased 15.4% during the first nine months of 1999
primarily as a result of the higher selling and administrative expenses
associated with the recent acquisitions and the increased sales and management
resources for most businesses. The increase in selling and administrative
expenses were partially offset by reduced incentive compensation. As a
percentage of net sales, selling and administrative expenses (excluding the
special (charge) benefit in 1998 discussed below) increased to 12.6% during the
first nine months of 1999 compared to 11.3% during the same period in the prior
year. This increase was primarily because of the addition of Ultra Pac and
Pactuco with higher selling expenses as a percentage of net sales and the
elimination of Detroit
12
<PAGE> 13
with lower operating expenses as a percentage of net sales. The increase in
percentage of net sales was also attributable to the increased sales and
management resources for most businesses as offset by the reduction in incentive
compensation.
Amortization of intangibles increased 57.4% during the first nine months
of 1999 compared to the same period in 1998 as a result of increased goodwill
and non-compete agreement amortization associated with the recent acquisitions.
Administrative expense for the nine months ended September 30, 1998
included a special (charge) benefit of $2.8 million. In conjunction with the
sale of their stock, the Management Stockholders repaid loans from the Company
aggregating $2.7 million. Such loans were made to senior management during the
fourth quarter of 1997 and the first quarter of 1998 pursuant to the IPC Option
Plan to enable them to pay their individual income taxes in connection with the
conversion of options granted under the IPC Option Plan. During the fourth
quarter of 1997, the Company also recorded an accrual for future Company
payments to senior management of an amount which (after taxes) enabled such
management to pay interest on the loans. As a result of the loan repayment 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.
Income from Operations
Income from operations and operating margin were $53.8 million and 11.4%,
respectively, during the first nine months of 1999 compared to income from
operations and operating margin of $57.4 million and 12.7%, respectively, during
the first nine months of 1998. Excluding special (charge) benefit, income from
operations and operating margin were $54.7 million and 12.1%, respectively,
during the nine months ended September 30, 1998. The decrease in operating
income and margin was primarily the result of the operating issues and rising
raw material costs during the Company's third quarter of 1999.
Interest Expense
Interest expense during the first nine months of 1999 was $22.5 million
compared to $22.0 million during the same period in 1998. The increase is
primarily due to greater indebtedness partially offset by decreased interest
rates on borrowings and increased interest income. The greater indebtedness
primarily resulted from the recent acquisitions and increased working capital.
Income from Equity Investments
Income from equity investments primarily resulted from the Company's
equity interest in the net income of Packaging Holdings, LLC. The Company
acquired its equity interest in Packaging Holdings, LLC during the fourth
quarter of 1998 in exchange for the assets of Detroit.
Income Taxes
During the third quarter of 1999, the Company reversed a valuation
allowance associated with its United Kingdom operations resulting in a one-time
tax benefit of $1.4 million. This benefit represented the value of the
previously unrecognized net operating tax loss carry forwards of the Company's
United Kingdom operations. Aside from the one-time tax benefit, the Company's
effective tax rate for the year approximated 39% compared with 40% for the same
period in 1998. The decrease in effective tax rate reflected a lower aggregate
effective rate for foreign operations.
13
<PAGE> 14
Net Income
Net income increased to $22.0 million during the first nine months of 1999
compared to net income of $21.3 million in the prior year. The increase in net
income was primarily the result of the reduced income tax provision and the
income from equity investments.
Earnings Per Share
Diluted earnings per share increased to $1.05 during the first nine months
of 1999 compared to earnings per share of $1.02 during the first nine months of
1998. The increase is the result of the increased net income.
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>
Nine Months Ended September 30,
-----------------------------------------
(dollars in thousands)
% of % of
1999 Net Sales 1998 Net Sales
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ............................ $ 288,191 61.3 $ 249,541 55.1
Technical Packaging ........................... 182,186 38.7 203,199 44.9
--------- ------ --------- ------
Total .................................... $ 470,377 100.0 $ 452,740 100.0
========= ====== ========= ======
</TABLE>
Consumer Packaging net sales increased by 15.5% during the first nine
months of 1999 from the corresponding period in 1998. The increase primarily
resulted from incremental sales associated with the Ultra Pac, Bleyer Paper and
Folietechniek acquisitions and increased sales of converted plastic and paper
products for food applications. During the first nine months of 1999, sales of
converted plastic and paper products in the U.S. (excluding the sales relating
to Ultra Pac and Bleyer Paper) increased approximately 6.5% while such sales
outside of the U.S. (Europe, Canada and Mexico) increased 20.4% compared to the
first nine months of 1998. The largest increase in sales outside of the U.S.
occurred in the United Kingdom and Continental Europe.
Technical Packaging net sales decreased by 10.3% during the first nine
months of 1999 from the corresponding period in 1998, primarily due to the
disposition of Detroit, partially offset by incremental sales from the Pactuco
acquisition. Additionally, the Company continued to experience significant unit
volume decreases in its coated and laminated products as a result of the
declining markets for these products. Increased sales unit volume was mostly
offset by decreased selling prices for the Company's surface protection,
protective packaging and manufactured paper products during the first nine
months of 1999 compared to 1998. Sales price increases effected near the end of
the third quarter (associated with raw material cost increases) did not offset
overall lower sales price during the first portion of 1999 compared to the prior
year.
EBITDA
EBITDA includes income from operations adjusted to exclude depreciation
and amortization expenses, and special charges (benefit). The Company believes
that EBITDA provides additional information for determining its ability to meet
future debt service requirements. However, EBITDA is not a defined term under
GAAP and is not indicative of operating income or cash flow from operations as
determined under GAAP.
The following table sets forth information with respect to EBITDA of the
Company's product groups for the periods presented:
14
<PAGE> 15
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------
(dollars in thousands)
% of % of
1999 Net Sales 1998 Net Sales
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer Packaging ........................... $ 61,793 21.4 $ 54,912 22.0
Technical Packaging .......................... 27,172 14.9 31,268 15.4
Corporate Expense............................. (5,938) (5,884)
--------- --------- ------
Total .................................. $ 83,027 17.7 $ 80,296 17.7
========= =========
</TABLE>
The Company's EBITDA increased 3.4% from $80.3 million to $83.0 million
and EBITDA margin was unchanged at 17.7% during the first nine months of 1999
compared to the same period in 1998. The 12.5%, or $6.9 million, increase in
Consumer Packaging's EBITDA was primarily attributable to the incremental EBITDA
from Ultra Pac, Bleyer Paper, and Folietechniek, the increased sales volume and
reduced incentive compensation. The decrease in Technical Packaging's EBITDA of
13.1%, or $4.1 million was primarily due to the disposition of Detroit and
decreased sales in the first quarter of 1999 for the Company's protective
packaging and surface protection product lines. The increase in Corporate
expenses was primarily the result of an increase in human resources required as
a result of the Company's growth partially offset by reduced incentive
compensation expense.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash and cash equivalents of $4.1
million and availability under the revolving credit portion of its Senior Credit
Facility was $60.2 million. The Company's working capital at September 30, 1999
was $72.9 million.
On October 26, 1999, the Company's Senior Credit Facility was amended to
revise certain covenants. The Company paid fees of $0.6 million and increased
the interest rate on all borrowings under the Senior Credit Facility by a range
of 0.25% to 0.375% as a result of the amendment.
The Company's primary short-term and long-term operating cash requirements
are for debt service, working capital, acquisitions 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, a
$150.0 million Term B Loan and a $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 September
30, 1999, such rate was LIBOR plus 1.125%. The Term B Loan bears interest at
rates up to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of September
30, 1999, such rate for the Term B Loan was LIBOR plus 1.75%. Beginning in the
fourth quarter of 1999, interest rates under the Senior Credit Facility are
expected to increase in a range of 0.25% to 0.375% associated with the October
26, 1999 amendment. 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.
15
<PAGE> 16
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 into interest rate derivative instruments
discussed in "Quantitative and Qualitative Disclosures About Market Risk".
The Company made capital expenditures of $36.7 million and $29.0 million
in the nine months ended September 30, 1999 and 1998, respectively. At September
30, 1999, the Company has a significant number of capital projects ongoing in
all major business groups, with the majority of the spending going to capacity
additions in extrusion and converting for the Consumer Packaging operating
segment and in surface protection for the Technical Packaging operating segment.
Capital spending for 1999 is expected to range from $45.0 million to $50.0
million.
On April 20, 1999, Ivex acquired the electronics packaging business of
Pactuco, headquartered in Lompoc, California for a $21.0 million initial payment
and payments of $1.0 million per year for the next five years. Based on the
operating results of the business, the purchase price could be increased by as
much as $3.0 million per year over the next three years. With manufacturing
operations in California, Malaysia and Hong Kong, this business provides
technical packaging for the computer and electronics industries and has annual
sales of $35.0 million. On July 30, 1999, Ivex acquired all of the outstanding
stock of Folietechniek headquartered in Raamsdonksveer, Netherlands for $4.8
million and assumed debt of approximately $1.9 million. Folietechniek is a
manufacturer of extruded plastic products and has annual sales of approximately
$13.0 million. The acquisitions were financed through revolving credit
borrowings under the Senior Credit Facility and were recorded using the purchase
method of accounting.
On October 21, 1999, Ivex announced its plans to purchase up to $5.0
million of its outstanding shares of common stock, from time to time, in the
open market and in individually negotiated transactions, subject to price,
availability and general market conditions.
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. FAS 133 is effective for fiscal years beginning
after June 15, 2000. The Company is currently evaluating the impact of the
adoption of FAS 133 on the Company's 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. 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-
16
<PAGE> 17
house testing. The Company believes it is currently Year 2000 compliant with all
mission critical activities and systems, although there can be no assurances
that this will be the case. It will continue further testing, verification and
the final completion of less important systems during the fourth quarter of
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, 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
remedy their own Year 2000 compliance issues. The Company is currently
completing its evaluation. The Company cannot guarantee that the failure of
another company to be converted will not have an effect on the Company. However,
the Company believes that any noncompliance by its vendors will not result in 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
remedy of the Year 2000 issue. Testing and remedy efforts are expected to cost
approximately $180,000, of which $155,000 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 September 30, 1999, the Company had $320.0
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
17
<PAGE> 18
Company has also entered into no cost interest rate collar agreements with a
group of banks having notional amounts totaling $60.0 million of the Company's
indebtedness through November 5, 2001 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 gain of $1.4 million as of September 30, 1999 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - For the Three
Months Ended September 30, 1999 and 1998, -- Results of Operations - For the
Nine Months Ended September 30, 1999 and 1998, - Liquidity and Capital
Resources, - Year 2000 and - Quantitative and Qualitative Disclosures About
Market Risk" 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. Among the
factors that could cause results to differ materially from current expectations
are: (i) changes in consumer demand and prices resulting in a negative impact on
revenues and margins; (ii) raw material substitutions and increases in the costs
of raw materials, utilities, labor and other supplies; (iii) increased
competition in the Company's product lines; (iv) changes in capital availability
or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the
ability of the Company and its subsidiaries to develop new products, identify
and execute capital programs and efficiently integrate acquired businesses;
(vii) the cost of compliance with applicable governmental regulations and
changes in such regulations, including environmental regulations; (viii) the
general political, economic and competitive conditions in markets and countries
where the Company and its subsidiaries operate, including currency fluctuations
and other risks associated with operating in foreign countries; (ix) the ability
of the Company, its subsidiaries and those with whom they conduct business to
timely resolve Year 2000 issues; and (x) the timing and occurrence (or
non-occurrence) of transactions and events which may be subject to circumstances
beyond the control of the Company and its subsidiaries.
18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time Ivex and its subsidiaries are involved in various
litigation matters arising in the ordinary course of business. Ivex believes
that none of the matters in which Ivex or its subsidiaries are currently
involved, either individually or in the aggregate, is material to Ivex or IPC.
ITEM 5. OTHER INFORMATION.
On October 1, 1999, Ivex commenced, subject to stockholder approval, the
Ivex Packaging Corporation 1999 Employee Stock Purchase Plan which provides
employees with the opportunity to buy shares of Ivex common stock at a discount.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description
----------- -----------
4.10 Form of Fourth Amendment to Amended and
Restated Credit Agreement
10.16 Form of Ivex Packaging Corporation Employee
Stock Purchase Plan
(b) Reports on Form 8-K.
None.
SIGNATURE
Pursuant to the requirements 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.
IVEX PACKAGING CORPORATION
By: /s/ Frank V. Tannura
------------------------------
Frank V. Tannura
Executive Vice President and
Principal Financial Officer
November 12, 1999
19
<PAGE> 1
EXHIBIT 4.10
FOURTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
AND FIRST AMENDMENT TO
AMENDED AND RESTATED SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND
FIRST AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT (this "Amendment") is
entered into as of October 26, 1999 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"), BANK OF AMERICA, N.A. (formerly 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 Agents 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, by
that certain Third Amendment to Amended and Restated Credit Agreement, Consent
and Waiver dated as of August 19, 1998 and as may be further amended, modified,
supplemented, extended or restated from time to time, the "Credit Agreement");
WHEREAS, the Borrower, the Guarantors, the Documentation Agent and Bank
of America, N.A. (formerly NationsBank, N.A.), as Collateral Agent (in such
capacity, the "Collateral Agent") are parties to that certain Amended and
Restated Security Agreement, dated as of October 2, 1997 (as may be amended,
modified, supplemented or restated from time to time, the "Security Agreement");
WHEREAS, the Borrower wishes to amend and modify certain terms of the
Credit Agreement and the Security Agreement as more fully set forth below and is
requesting that the Required Lenders consent to such amendments and
modifications; and
WHEREAS, the Agents and the Required Lenders have agreed to amend
certain terms of the Credit Agreement and the Security Agreement on the terms,
and subject to the conditions, more fully set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
<PAGE> 2
Part I
Amendments to Credit Agreement.
1.1. Definitions.
(a) Applicable Percentage.
(i) The pricing table set forth in the definition of
"Applicable Percentage" set forth in Section 1.1 of the Credit
Agreement is amended and restated in its entirety to read as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Applicable Applicable
Percentage For Percentage For Applicable Applicable
Pricing Eurodollar Base Rate Loans Applicable Applicable Percentage for Percentage for
Level Leverage Loans that are that are Percentage for Percentage For Eurodollar Base Rate Loans
Ratio Revolving Loans Revolving Loans Letter of Commitment Fees Loans that are that are
or Tranche A or Tranche A Credit Fees Tranche B Term Tranche B Term
Term Loans Term Loans Loans Loans
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
I <=3.0 to 1.0 1.250% 0.250% 1.250% 0.1875% 1.75% 0.750%
- -----------------------------------------------------------------------------------------------------------------------------------
II <=3.50 to 1.0 1.375% 0.375% 1.375% 0.2500% 1.75% 0.750%
but > 3.0
to 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
III <=4.0 to 1.0 1.500% 0.500% 1.500% 0.3125% 2.00% 1.00%
but > 3.50
to 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
IV > 4.0 to 1.0 1.625% 0.625% 1.625% 0.3750% 2.00% 1.00%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(ii) The first sentence following the pricing table
set forth in the definition of "Applicable Percentage" set
forth in Section 1.1 of the Credit Agreement is amended and
restated in its entirety to read as follows:
The Applicable Percentage for Base Rate
Loans, Eurodollar Loans, the Letter of Credit Fees
and the Commitment Fees shall, in each case, be
determined and adjusted quarterly on the date (each a
"Calculation Date") five Business Days after the date
by which the Borrower is required to provide the
officer's certificate in accordance with the
provisions of Section 7.1(d); provided that the
Applicable Percentage for Base Rate Loans, Eurodollar
Loans, the Letter of Credit Fees and the Commitment
Fees from October 26, 1999 until the Calculation Date
occurring immediately after September 30, 1999 shall
be based on Pricing Level IV and, thereafter, the
Pricing Level shall be determined by the then current
Leverage Ratio; and provided further that if the
Borrower fails to
2
<PAGE> 3
provide the officer's certificate required by
Section 7.1(d) on or before the most recent
Calculation Date, the Applicable Percentage for Base
Rate Loans, Eurodollar Loans, the Letter of Credit
Fees and the Commitment Fees from such Calculation
Date shall be based on Pricing Level IV until such
time that an appropriate officer's certificate is
provided whereupon the Pricing Level shall be
determined by the then current Leverage Ratio.
(b) EBITDA. The definition of "EBITDA" is amended and restated
in its entirety to read as follows:
"EBITDA" means, for any period, with respect to
Holdings and its Subsidiaries on a consolidated basis, the sum
of (a) Net Income for such period plus (b) an amount which, in
the determination of Net Income for such period has been
deducted for (i) Interest Expense for such period, (ii) total
Federal, state, foreign or other income taxes for such period,
(iii) all depreciation, amortization and other non-cash
charges for such period, all as determined in accordance with
GAAP, (iv) the net loss on the sale or disposition of any real
property, and (v) all extraordinary losses, all as determined
in accordance with GAAP, less (c) an amount which, in the
determination of Net Income for such period has been added for
(i) the net gain on the sale or disposition of any real
property and (ii) all extraordinary gains, all as determined
in accordance with GAAP, plus (d) the charges equal to the
amount of all transaction costs incurred by Holdings and its
Subsidiaries in connection with (A) the initial public
offering of the common stock of Holdings, (B) this Credit
Agreement, (C) the redemption by Holdings of the Holdings
Debentures and (D) the payment by the Borrower of the
Subordinated Notes, plus (e) up to $5,000,0000 of
restructuring charges incurred between October 26, 1999 and
December 31, 2000 and associated with plant closures,
severance expenses incurred in connection with such plant
closures and other corporate restructuring expenses.
1.2. Leverage Ratio. Clauses (iv) and (v) of Section 7.2(a) of the
Credit Agreement are amended and restated in their entirety and new clauses (vi)
and (vii) are added to such Section 7.2(a), each to read as follows:
(iv) From October 1, 1999 to and including
September 30, 2000, 4.25 to 1.0;
(v) From October 1, 2000 to and including
September 30, 2001, 4.00 to 1.0;
(vi) From October 1, 2001 to and including
September 30, 2002, 3.75 to 1.0; and
(vii) From October 1, 2002 and thereafter,
3.25 to 1.0.
3
<PAGE> 4
1.3. Indebtedness. Section 8.1 of the Credit Agreement is amended to
delete the word "and" at the end of clause (j) thereof, to add the word "; and"
to the end of clause (k) thereof and to add a new clause (l) thereto to read as
follows:
(l) Indebtedness incurred by one or more Credit Parties, in the
form of a Guaranty Obligation, with respect to Indebtedness permitted
by Section 8.1(j).
Part II
Amendments to Security Agreement
2.1. Grant of Security Interest in Collateral. Section 2 of the
Security Agreement is amended as follows:
(a) Clause (f) thereof is amended to delete the word
"securities," set forth therein; and
(b) clause (i) of the final paragraph of such Section 2
is amended and restated in its entirety to read as follows:
(i) the Collateral shall exclude (A) the Newton
Property until such time as any Obligor shall obtain a fee
interest in the Newton Property, (B) any shares of capital
stock or equity interests which constitute Margin Stock owned
by any Obligor and (C) any of the Pledged Collateral (as
defined in the Pledge Agreement) and
Part III
Consent
3.1 Consent to Delivery of Stock Certificates. The Lenders party hereto
agree to accept the delivery of the certificates representing the shares of
stock identified on the updated Schedule 6.15 to the Credit Agreement and
Schedule 2(a) to the Pledge Agreement within sixty (60) days after the date
hereof and hereby waive the Credit Parties' obligation to have delivered such
certificates on or prior to the date hereof.
Part IV
Conditions Precedent
4.1. Conditions Precedent. The effectiveness of this Amendment is
subject to the satisfaction of each of the following conditions:
(a) The Administrative Agent shall have received copies of
this Amendment duly executed by the Credit Parties and the Required
Lenders.
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<PAGE> 5
(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 effect as of the date hereof.
(c) The Administrative Agent shall have received a certificate
of good standing, existence or their equivalent with respect to each
Credit Party certified as of a recent date by the appropriate
Governmental Authority of the state or other jurisdiction of such
Credit Party's formation.
(d) 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.
(e) Each Lender who executes and delivers this Amendment on or
before 12:00 p.m. Central Standard Time on October 26, 1999 (provided
that this Amendment is approved by the Required Lenders and by the
Credit Parties) shall have received an amendment fee in an amount equal
to .15% of its total Commitment under the Credit Agreement.
(f) Pursuant to Section 7.17 of the Credit Agreement, the
Administrative Agent shall have received an updated Schedule 6.15 and
Schedule 6.22 to the Credit Agreement and an updated Schedule 2(a) to
the Pledge Agreement current to the date hereof.
(g) The Administrative Agent shall have received such other
documents and information as it deems reasonably necessary.
Part V
Miscellaneous
5.1. 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 and the term "Security Agreement" as used in each of the
Credit Documents shall hereafter mean the Security Agreement as amended
by this Amendment. Except as herein specifically agreed, the Credit
Agreement and the Security 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.
(b) Each of the Borrower, the Guarantors, the Agents and the
Lenders party
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<PAGE> 6
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.
(c) Each Credit Party represents and warrants to the Lenders
that (i) the representations and warranties of the Credit Parties set
forth in each of Section 6 of the Credit Agreement and Section 5 of the
Security Agreement are true and correct as of the date hereof, except
those representations and warranties that expressly relate to a
specific prior date (ii) no Default or an Event of Default has occurred
or is continuing 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 in consideration of the
Required Lenders entering into this Amendment.
(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]
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<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
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
<PAGE> 8
ULTRA PAC, INC.
a Minnesota corporation
BLEYER ACQUISITION, INC.
a Delaware corporation
PACTUCO ACQUISITION, INC.,
a Delaware corporation
By:
Name: Richard R. Cote
Title: Vice President and Treasurer
of each of the above named Guarantors
<PAGE> 9
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
LENDERS:
BANK OF AMERICA, N.A.
(FORMERLY 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> 10
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
SOCIETE GENERALE, SOUTHWEST AGENCY
By:
Name:
Title:
<PAGE> 11
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
ABN AMRO BANK N.V.
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 12
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
U.S. BANK NATIONAL ASSOCIATION
D/B/A AND F/K/A FIRST BANK NATIONAL
ASSOCIATION
By:
Name:
Title:
<PAGE> 13
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
GENERAL ELECTRIC
CAPITAL CORPORATION
By:
Name:
Title:
<PAGE> 14
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
BANK OF MONTREAL
By:
Name:
Title:
<PAGE> 15
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
BHF (USA) CAPITAL CORPORATION
By:
Name:
Title:
<PAGE> 16
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
FIRST UNION NATIONAL BANK
By:
Name:
Title:
<PAGE> 17
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
CIBC, INC.
By:
Name:
Title:
<PAGE> 18
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
CREDIT LYONNAIS CHICAGO BRANCH
By:
Name:
Title:
<PAGE> 19
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
BANQUE PARIBAS
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 20
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
IMPERIAL BANK, A CALIFORNIA BANKING
CORPORATION
By:
Name:
Title:
<PAGE> 21
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
THE BANK OF NEW YORK
By:
Name:
Title:
<PAGE> 22
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
DLJ CAPITAL FUNDING, INC.
By:
Name:
Title:
<PAGE> 23
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
DRESDNER BANK AG NEW YORK AND
GRAND CAYMAN BRANCHES
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 24
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
BANK ONE, NA (MAIN OFFICE CHICAGO)
By:
Name:
Title:
<PAGE> 25
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
THE FUJI BANK, LIMITED
By:
Name:
Title:
<PAGE> 26
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
MERITA BANK LTD
By:
Name:
Title:
By:
Name:
Title:
<PAGE> 27
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
THE MITSUBISHI TRUST & BANKING
CORPORATION CHICAGO BRANCH
By:
Name:
Title:
<PAGE> 28
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
VAN KAMPEN CLO I, LIMITED
By: Van Kampen American Capital Management Inc.,
as Collateral Manager
By:
Name:
Title:
<PAGE> 29
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
THE SUMITOMO BANK, LTD.
By:
Name:
Title:
<PAGE> 30
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
BALANCED HIGH-YIELD FUND I, LTD.
By: BHF-Bank Aktiensgesellschaft acting through
its New York Branch, as attorney in fact
By:
Name:
Title:
<PAGE> 31
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
ALLSTATE INSURANCE COMPANY
By:
Name:
By: _________________________________
Name: _______________________________
Its Authorized Signatories
<PAGE> 32
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
KZH-SOLEIL CORPORATION
By:
Name:
Title:
<PAGE> 33
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By:
Name:
Title:
<PAGE> 34
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By:
Name:
Title:
<PAGE> 35
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
SENIOR DEBT PORTFOLIO
By: Boston Management and Research,
as Investment Advisor
By:
Name:
Title:
<PAGE> 36
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management, L.P.,
as Investment Advisor
By:
Name:
Title:
<PAGE> 37
Signature Page to Fourth Amendment to Amended and Restated Credit Agreement
PARIBAS CAPITAL FUNDING, LLC
By:
Name:
Title:
<PAGE> 1
EXHIBIT 10.16
IVEX PACKAGING CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Ivex Packaging Corporation 1999
Employee Stock Purchase Plan (the "Plan"). The Plan was adopted by the Board
(defined below) on August 10, 1999, subject to the approval of the stockholders
of the Company (defined below), which approval is expected to be obtained at the
Company's annual meeting of stockholders in 2000. The purpose of the Plan is to
provide Employees (defined below) of the Company (defined below), its Parent
(defined below) and any Designated Subsidiary (defined below) with the
opportunity to purchase Common Stock (defined below) through accumulated payroll
deductions. It is the intention of the Company that the Plan qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Code
(defined below), and that the provisions of the Plan be construed in a manner
consistent with the requirements of such Section of the Code.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(1) "Administrator" means the Board, or if and to the
extent the Board does not administer the Plan, the Committee in accordance
with Section 12 below.
(2) "Board" shall mean the Board of Directors of the
Company.
(3) "Change in Capitalization" shall mean any increase,
reduction, change or exchange of Shares for a different number of shares and/or
kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
issuance of warrants or rights, stock dividend, stock split or reverse stock
split, combination or exchange of Shares, repurchase of Shares, change in
corporate structure or otherwise.
(4) "Code" shall mean the United States Internal Revenue
Code of 1986, as amended from time to time, or any successor thereto.
(5) "Committee" shall mean a committee appointed by the
Board to administer the Plan and to perform the functions set forth herein.
(6) "Common Stock" shall mean the common stock, $0.01
par value, of the Company.
<PAGE> 2
(7) "Company" shall mean Ivex Packaging Corporation, a
Delaware corporation.
(8) "Compensation" shall mean the sum of a Participant's
taxable income as reported on his or her Form W-2 by the Company (or on any
equivalent tax forms by the Participant's employer in a jurisdiction other than
the United States) and salary reductions and salary reductions, if any, pursuant
to Code sections 125, 402(e)(3), 402(h), 403(b), 414(h)(2) or 457 (or any
analogous provision in any jurisdiction to which the Plan may be extended), but
excluding the following: (i) reimbursements or other expense allowances, cash
and non-cash fringe benefits, moving expenses, welfare benefits; (ii) Company
contributions, other than salary reduction contributions referred to above, to a
plan of deferred compensation to the extent contributions are not included in
gross income of the Participant for the taxable year in which contributed, or on
behalf of a Participant to a Simplified Employee Pension plan to the extent such
contribution are deductible under Code section 219, and any distributions from a
plan of deferred compensation whether or not includible in the gross income of a
Participant when distributed; (iii) amounts realized from the exercise of a
non-qualified stock option, or when restricted stock (or property) held by a
Participant becomes freely transferable or is no longer subject to a substantial
risk of forfeiture; (iv) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and (v) any
incentive bonus or other compensation paid to a key Employee in connection with
the sale of the Company of its assets.
(9) "Continuous Status as an Employee" shall mean the
absence of any interruption or termination of service as an Employee.
Continuous Status as an Employee shall not be considered interrupted in the case
of a leave of absence agreed to in writing by the Company, its Parent or a
Designated Subsidiary, as appropriate, provided that (x) such leave is for a
period of not more than 90 days or (y) reemployment with the Company, its Parent
or a Designated Subsidiary, as appropriate, is guaranteed by contract or statute
upon expiration of such leave.
(10) "Designated Subsidiary" shall mean a Subsidiary that
has been designated by the Administrator from time to time in its sole
discretion as eligible to participate in the Plan.
(11) "Employee" shall mean any person who is customarily
employed for at least twenty (20) hours per week and more than five (5) months
in a calendar year by the Company, its Parent or a Designated Subsidiary.
(12) "Enrollment Date" shall mean the first Trading Day of
each Offering Period.
(13) "Fair Market Value" as of a particular date shall
mean the fair market value of the Shares as determined by the Administrator in
its sole discretion;
<PAGE> 3
provided, however, that (i) if the Shares are admitted to trading on a national
securities exchange, fair market value of the Shares on any date shall be the
closing sale price reported for the Shares on such exchange on such date or, if
no sale was reported on such date, on the last date preceding such date on which
a sale was reported, (ii) if the Shares are admitted to quotation on the
National Association of Securities Dealers Automated Quotation ("Nasdaq") System
or other comparable quotation system and have been designated as a National
Market System ("NMS") security, fair market value of the Shares on any date
shall be the closing sale price reported for the Shares on such system on such
date or, if no sale was reported on such date, on the last date preceding such
date on which a sale was reported, or (iii) if the Shares are admitted to
quotation on the Nasdaq System and have not been designated as an NMS security,
fair market value of the Shares on any date shall be the average of the highest
bid and lowest asked prices of the Shares on such system on such date or, if no
bid and ask prices were reported on such date, on the last date preceding such
date on which both bid and ask prices were reported.
(14) "Hardship" shall mean any of the following that the
Administrator determines is sufficient reason to approve a hardship withdrawal
or sale of Shares pursuant to Section 8(c) hereof: (i) expenses directly
relating to the purchase of a Participant's principal residence (excluding
mortgage payments); (ii) prevention of eviction or foreclosure on a
Participant's principal residence; (iii) tuition and related educational
expenses for the next twelve months for post-secondary education for a
Participant or a Participant's spouse or dependents; or (iv) expenses incurred
(prior to a Participant's requesting approval for the relevant hardship
withdrawal or sale of Shares) by the Participant, the Participant's spouse or
the Participant's dependents for medical care for the Participant, the
Participant's spouse or the Participant's dependents.
(15) "Investment Account" shall mean a Plan account at a
brokerage firm or transfer agent, selected by the Company, that is established
for each Participant and in which all Shares purchased by the Participant
pursuant to the Plan and any dividends or Share splits credited to such
Participant=s Investment Account are held until withdrawn, sold or delivered
pursuant to Section 7 hereof.
(16) "Offering Period" shall mean a period as described in
Section 3 hereof.
(17) "Parent" shall mean any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the granting of an option and at the time of purchase of Shares pursuant
to an option granted hereunder, each of the corporations other than the Company
owns Shares possessing fifty percent (50%) or more of the total combined voting
power of all
3
<PAGE> 4
classes of stock in one of the other corporations in such chain, whether or not
such corporation now exists or hereafter acquires the Company.
(18) "Participant" shall mean an Employee who elects to
participate in the Plan pursuant to Section 4 hereof.
(19) "Purchase Date" shall mean the last Trading Day of
each Offering Period.
(20) "Purchase Price" shall mean an amount equal to the
lesser of (i) 85% of the Fair Market Value of a Share on the Enrollment Date or
(ii) 85% of the Fair Market Value of Share on the Purchase Date.
(21) "Restricted Period" shall have the meaning given in
Section 8 hereof.
(22) "Share" shall mean a share of Common Stock.
(23) "Subsidiary" shall mean any corporation (other than
the Company) in an unbroken chain of corporations, beginning with the Company,
if, at the time of the granting of an option and at the time of purchase of
Shares pursuant to an option granted hereunder, each of the corporations other
than the last corporation in the unbroken chain owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain, whether or not such corporation now exists or
is hereafter organized or acquired by the Company or a Subsidiary.
(24) "Trading Day" shall mean a day on which national
stock exchanges and the Nasdaq System are open for trading.
SECTION 2. ELIGIBILITY.
(1) Subject to the limitations set forth in Section 2(b)
hereof, any person who is an Employee as of an Enrollment Date shall be eligible
to participate in the Plan in accordance with Section 4 hereof and shall be
granted an option for the Offering Period commencing on such Enrollment Date.
(2) Notwithstanding any provision of the Plan to the
contrary, no Employee shall be granted an option under the Plan (i) if such
Employee (or any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding
options to purchase stock possessing five percent (5%) or more of the total
combined voting power or
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<PAGE> 5
value of all classes of stock of the Company, its Parent or of any Subsidiary or
(ii) if such grant would permit such Employee's right to purchase stock under
all employee stock purchase plans (described in Section 423 of the Code) of the
Company, its Parent and of any Subsidiary to accrue at a rate that exceeds
twenty-five thousand dollars ($25,000) of Fair Market Value of such stock
(determined at the time such option is granted) for any calendar year in which
such option would be outstanding. Any amounts received from an Employee that
cannot be used to purchase Shares as a result of this limitation shall be
returned as soon as reasonably practicable to the Employee without interest.
SECTION 3. OFFERING PERIODS.
The Plan shall be implemented by a series of consecutive
three-month Offering Periods, with a new Offering Period commencing on the first
Trading Day on or after January 1 (beginning in 2001), April 1 (beginning in
2001), July 1 (beginning in 2000), and October 1 (beginning in 2000) of each
year, or at such other time or times as may be determined by the Administrator,
and ending on the last Trading Day on or before March 31, June 30, September 30
and December 31, respectively, or at such other time or times as may be
determined by the Administrator; provided, however, that the first Offering
Period under the Plan shall be for a period of approximately nine (9) months
commencing on the first Trading Day on or after October 1, 1999 and ending on
the last Trading Day on or before June 30, 2000. The Plan shall continue until
terminated in accordance with Section 18 hereof. Subject to Section 18 hereof,
the Administrator shall have the power to change the duration and/or the
frequency of Offering Periods with respect to future offerings and shall use its
best efforts to notify Employees of any such change at least fifteen (15) days
prior to the scheduled beginning of the first Offering Period to be affected.
In no event shall any option granted hereunder be exercisable more than
twenty-seven (27) months from its date of grant.
SECTION 4. ENROLLMENT; PARTICIPATION.
(1) On each Enrollment Date, the Company shall commence
an offering by granting each eligible Employee who has elected to participate in
such Offering Period pursuant to Section 4(b) hereof an option to purchase on
the Purchase Date of such Offering Period up to a number of Shares determined by
dividing each Employee's payroll deductions accumulated prior to such Purchase
Date and retained in the Participant's account as of such Purchase Date by the
applicable Purchase Price; provided that in no event shall a Participant be
permitted to purchase during each Offering Period more than 2,500 Shares
(subject to any adjustment pursuant to Section 17 hereof), provided, further,
that such purchase shall be subject to the limitations set forth in Sections
2(b) and 11 hereof. Exercise of the
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<PAGE> 6
option shall occur as provided in Section 6 hereof, unless the Participant has
withdrawn pursuant to Section 9 hereof. The option with respect to an Offering
Period shall expire on the Purchase Date with respect to such Offering Period or
the withdrawal date, if earlier.
(2) Subject to the limitations set forth in Section 2(b)
hereof, an Employee may elect to become a Participant in the Plan by completing
and filing a subscription agreement authorizing the Company to make payroll
deductions (as set forth in Section 5 hereof) at least ten (10) business days
prior to the applicable Enrollment Date unless a later time for filing the
subscription agreement is set by the Administrator for all Employees. Unless a
Participant, by giving written notice (or such other notice as may from time to
time be prescribed by the Administrator), elects not to participate with respect
to any subsequent Offering Period, the Participant shall be deemed to have
accepted each new offer and to have authorized payroll deductions in respect
thereof during each subsequent Offering Period.
SECTION 5. PAYROLL DEDUCTIONS.
(1) An Employee may, in accordance with rules and
procedures adopted by the Administrator and subject to the limitation set forth
in Section 2(b) hereof, authorize payroll deductions in amounts which are not
less than one percent (1%) and not more than ten percent (10%) of such
Employee's Compensation on each payday during the Offering Period. Payroll
deductions shall commence on the first payroll paid following the Enrollment
Date, and shall end on the last payroll paid prior to the Purchase Date of the
Offering Period to which the subscription agreement is applicable, unless sooner
terminated by the Participant's withdrawal from the Plan or termination of the
Participant's Continuous Status as an Employee as provided in Section 9 hereof.
A Participant may increase or decrease his or her rate of payroll deductions at
any time during an Offering Period, but not more frequently than once during
each Offering Period, or as may be determined by the Administrator prior to the
commencement of an Offering Period, by giving written notice (or such other
notice as may from time to time be prescribed by the Administrator). The change
in rate shall be effective the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in rate of payroll
deductions more quickly.
(2) All payroll deductions made by a Participant shall be
credited to such Participant's account under the Plan and shall be withheld in
whole percentages only. A Participant may not make any additional payments into
such account.
(3) Notwithstanding the foregoing, to the extent necessary
to
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<PAGE> 7
comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a
Participant's rate of payroll deductions may be decreased by the Company to zero
percent (0%) at any time during an Offering Period. Payroll deductions shall
recommence at the rate provided for in such Participant's subscription agreement
at the beginning of the first Offering Period which is scheduled to end the
following calendar year, unless a Participant increases or decreases the rate of
his or her payroll deductions as provided in Section 5(a) hereof, or terminates
his or her participation in the Plan as provided in Section 9 hereof.
SECTION 6. PURCHASE OF SHARES.
Subject to the limitations set forth hereunder, unless a
Participant withdraws from the Plan as provided in Section 9 hereof, such
Participant's election to purchase Shares shall be exercised automatically on
each Purchase Date, and the maximum number of whole and partial Shares subject
to option shall be purchased for each Participant at the applicable Purchase
Price with the accumulated payroll deductions in each Participant's account as
of the Purchase Date. Any payroll deductions remaining in a Participant's
account following the purchase of Shares on any Purchase Date shall be returned
to the Participant as soon as reasonably practicable following the Purchase
Date. During a Participant's lifetime, a Participant's option to purchase
Shares hereunder is exercisable only by the Participant.
SECTION 7. DELIVERY OF SHARES; WITHDRAWAL OR SALE OF SHARES.
(1) As promptly as reasonably practicable after each Purchase
Date, the Company shall arrange the delivery of the Shares purchased on such
date by each Participant to each Participant's Investment Account.
(2) At any time after the Restricted Period with respect to
any or all of a Participant's Shares held in his or her Investment Account has
ended, the Participant (or, in the event of the Participant's death, the
designated beneficiary, if any, or other appropriate person as set forth in
accordance with Section 13 hereof) may submit a written request to the Company
for withdrawal of such Shares from the Investment Account, or, in the
alternative (with the consent of the brokerage firm or transfer agent at which
the Participant's Investment Account is located), the Participant (or another
person in accordance with Section 13 hereof) may direct the sale of such Shares
by such brokerage firm or transfer agent. As promptly as practicable after
receipt by the Company (or the brokerage firm or transfer agent) of such written
request for withdrawal of such shares, the Company or the brokerage firm or
transfer agent shall arrange the delivery to the Participant of a share
certificate representing such Shares.
7
<PAGE> 8
SECTION 8. RESTRICTIONS ON SALE OF STOCK.
(1) Shares purchased pursuant to a Participant's
exercise of an option under the Plan may not be sold by the Participant or
withdrawn from the Participant's Investment Account during the Restricted Period
with respect to such Shares. Subject to Sections 8(b) and 8(c) hereof, the
Restricted Period with respect to any option Shares so purchased shall be the
one year period immediately following the Purchase Date on which such Shares
were purchased. For purposes of determining their Restricted Period, Shares
received in Share dividends or Share splits on such option Shares shall be
deemed to have been purchased on the same Purchase Date as such option Shares.
(2) Notwithstanding the above, the Restricted Period with
respect to all Shares held in a Participant's Investment Account shall end upon
the termination of the Participant's Continuous Status as an Employee.
(3) If the Administrator approves a written request by a
Participant for a Hardship withdrawal or sale of Shares, the Restricted Period
shall end upon a date determined by the Administrator with respect to such
number of Shares held in a Participant's Investment Account as the Administrator
shall determine. Any such determination or approval shall be made by and in the
sole discretion of the Administrator. A Participant may request approval for a
Hardship withdrawal or sale of Shares by filing a form with the Company which
certifies that (i) the Hardship is of a type recognized by the Plan, and (ii)
that the Hardship sale of such Shares will not generate proceeds in excess of
the amount of the Participant's immediate and heavy financial need. Upon
approval of a Hardship withdrawal or sale of Shares, the Participant must also
withdraw from the Plan for the current Offering Period. A Participant who is
then an Employee may rejoin the Plan for any subsequent Offering Period by
complying with enrollment the procedures set forth in Section 4 hereof.
SECTION 9. WITHDRAWAL; TERMINATION OF EMPLOYMENT.
(1) A Participant may withdraw all, but not less than
all, of the payroll deductions credited to such Participant's account (that have
not been used to purchase Shares) under the Plan by giving written notice to the
Company at least five (5) business days prior to the Purchase Date of the
Offering Period in which the withdrawal occurs. Withdrawal of payroll
deductions shall be deemed to be a withdrawal from the Plan. All of the payroll
deductions credited to such Participant's account (that have not been used to
purchase Shares) shall be paid to such Participant promptly after receipt of
such Participant's notice of withdrawal, and such Participant's eligibility to
participate in the Plan for the Offering Period in which the
8
<PAGE> 9
withdrawal occurs shall be automatically terminated. No further payroll
deductions for the purchase of Shares shall be made for such Participant during
such Offering Period. If a Participant withdraws from an Offering Period,
payroll deductions for such Participant shall not resume at the beginning of the
succeeding Offering Period unless the Participant timely delivers to the Company
a new subscription agreement in accordance with the provisions of Section 4
hereof. A Participant's withdrawal from an Offering Period shall not have any
effect upon a Participant's eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after termination of the Offering Period from which the Participant
withdraws.
(2) Upon termination of a Participant's Continuous Status
as an Employee during the Offering Period for any reason, including
Participant's voluntary termination, retirement or death, all the payroll
deductions credited to such Participant's account (that have not been used to
purchase Shares) shall be returned to such Participant or, in the case of such
Participant's death, to the person or persons entitled thereto under Section 13
hereof, and such Participant's option shall be automatically terminated. Such
termination shall be deemed a withdrawal from the Plan.
SECTION 10. DIVIDENDS; SHARE SPLITS; INTEREST.
Cash dividends paid on Shares held in a Participant's
Investment Account shall be paid to the Participant as soon as practicable.
Share splits of, or dividends paid in Shares on, the Shares held in the
Participant's Investment Account shall be held in the Participant's Investment
Account until withdrawn or sold in accordance with Section 9 hereof. Dividends
paid in property other than cash or Shares shall be distributed to the
Participant as soon as practicable. No interest shall accrue on or be payable
by the Company with respect to the payroll deductions of a Participant in the
Plan.
SECTION 11. STOCK SUBJECT TO PLAN.
(a) Subject to adjustment upon Changes in Capitalization
of the Company as provided in Section 17 hereof, the maximum aggregate number of
Shares which shall be reserved for sale under the Plan for all Offering Periods
that commence during each fiscal year of the Company occurring during the term
of the Plan shall be 300,000 Shares. Such Shares shall be available as of the
first day of the first Offering Period that commences in each such fiscal year.
The Shares may consist, in whole or in part, of authorized and unissued Shares
or treasury Shares. If the total number of Shares which would otherwise be
subject to options granted pursuant to Section 2(a) hereof on an Enrollment Date
exceeds the number of Shares
9
<PAGE> 10
then available under the Plan (after deduction of all Shares for which options
have been exercised or are then outstanding), the Administrator shall make a pro
rata allocation of the Shares remaining available for option grant in as uniform
a manner as shall be practicable and as it shall determine to be equitable. In
such event, the Administrator shall give written notice to each Participant of
such reduction of the number of option Shares affected thereby and shall
similarly reduce the rate of payroll deductions, if necessary.
(b) No Participant shall have rights as a stockholder
with respect to any option granted hereunder until the date on which such Shares
shall be deemed to have been purchased by the Participant in accordance with
Section 6 hereof.
(c) Shares purchased on behalf of a Participant under
the Plan shall be registered in the name of the Participant or, if requested in
writing by the Participant, in the names of the Participant and the
Participant's spouse.
SECTION 12. ADMINISTRATION.
The Plan shall be administered by the Board or a Committee.
The Board or the Committee shall have full power and authority, subject to the
provisions of the Plan, to promulgate such rules and regulations as it deems
necessary for the proper administration of the Plan, to interpret the provisions
and supervise the administration of the Plan, and to take all action in
connection therewith or in relation thereto as it deems necessary or advisable.
Any decision reduced to writing and signed by a majority of the members of the
Committee shall be fully effective as if it had been made at a meeting duly
held. The Company shall pay all expenses incurred in the administration of the
Plan. No member of the Board or Committee shall be personally liable for any
action, determination, or interpretation made in good faith with respect to the
Plan, and all members of the Board or Committee shall be fully indemnified by
the Company with respect to any such action, determination or interpretation.
All decisions, determinations and interpretations of the Board
or Committee shall be final and binding on all persons, including the Company,
its Parent, any Subsidiary, the Employee (or any person claiming any rights
under the Plan through any Employee) and any stockholder of the Company, its
Parent or any Subsidiary.
SECTION 13. DESIGNATION OF BENEFICIARY.
(1) A Participant may file, on forms supplied by and
delivered to the Company, a written designation of a beneficiary who is to
receive Shares and/or cash, if any, remaining in such Participant's cash account
or Investment Account
10
<PAGE> 11
under the Plan in the event of the Participant's death.
(2) Subject to applicable law, such designation of
beneficiary may be changed by the Participant at any time by written notice. In
the event of the death of a Participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
Participant's death, the Company shall deliver the balance of the Shares and/or
cash credited to Participant's account to the executor or administrator of the
estate of the Participant or, if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Shares and/or cash to the spouse or to any one or more dependents
or relatives of the Participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
SECTION 14. TRANSFERABILITY.
Neither payroll deductions credited to a Participant's account
nor any rights with regard to the exercise of an option or any rights to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by the laws of descent and distribution or as
provided in Section 13 hereof) by the Participant. Any such attempt at
assignment, transfer, pledge or other disposition shall be without effect,
except that the Company may treat such act as an election to withdraw funds in
accordance with Section 9 hereof.
SECTION 15. USE OF FUNDS.
All payroll deductions received or held by the Company under
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
SECTION 16. REPORTS.
Individual accounts shall be maintained by the Company for
each Participant in the Plan which account shall be separate from the Investment
Accounts. Statements of account shall be given to each Participant at least
annually which statements shall set forth the amounts of payroll deductions, the
Purchase Price, the number of Shares purchased and the remaining cash balance,
if any.
SECTION 17. EFFECT OF CERTAIN CHANGES.
In the event of a Change in Capitalization or the distribution
of an extraordinary dividend, the Administrator shall conclusively determine the
appropriate equitable adjustments, if any, to be made under the Plan, including
11
<PAGE> 12
without limitation adjustments to the number of Shares which have been
authorized for issuance under the Plan, but have not yet been placed under
option, as well as the Purchase Price of each option under the Plan which has
not yet been exercised. In the event of a change in control of the Company, the
Offering Period shall terminate unless otherwise provided by the Administrator.
SECTION 18. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. Except
as provided in Section 17 hereof, no such termination may adversely affect
options previously granted and no amendment may make any change in any option
theretofore granted which adversely affects the rights of any Participant. To
the extent necessary to comply with Section 423 of the Code (or any successor
rule or provision or any other applicable law, regulation or stock exchange
rule), the Company shall obtain stockholder approval in such a manner and to
such a degree as required.
SECTION 19. NOTICES.
All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when they are received in a timely manner in the form specified by the
Company at the location, or by the person, designated by the Company for the
receipt thereof.
SECTION 20. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of Illinois without giving effect to the choice of law principles thereof,
except to the extent that such law is preempted by Federal law.
(b) The obligation of the Company to sell or deliver
Shares with respect to options granted under the Plan shall be subject to all
applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Administrator.
SECTION 21. WITHHOLDING OF TAXES.
If the Participant makes a disposition, within the meaning of
Section 424(c) of the Code of any Share or Shares issued to Participant pursuant
to Participant's exercise of an option, and such disposition occurs within the
two-year period commencing on the day after the Enrollment Date or within the
one-year
12
<PAGE> 13
period commencing on the day after the Purchase Date, Participant shall, within
ten (10) days of such disposition, notify the Company thereof and thereafter
immediately deliver to the Company any amount of Federal, state or local income
taxes and other amounts which the Company informs the Participant the Company
may be required to withhold.
SECTION 22. EFFECTIVE DATE.
The Plan shall be effective as of October 1, 1999 (the
"Effective Date"), subject to the approval of the Plan by the stockholders of
the Company within twelve (12) months before or after the date the Plan is
adopted.
SECTION 23. TERM OF PLAN.
No option shall be granted pursuant to the Plan and no
Offering Period shall commence on or after the tenth anniversary of the
Effective Date, but options theretofore granted may extend beyond that date.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,057
<SECURITIES> 0
<RECEIVABLES> 102,145
<ALLOWANCES> 3,659
<INVENTORY> 90,589
<CURRENT-ASSETS> 199,972
<PP&E> 456,370
<DEPRECIATION> 191,442
<TOTAL-ASSETS> 633,395
<CURRENT-LIABILITIES> 127,027
<BONDS> 436,286
0
0
<COMMON> 209
<OTHER-SE> 44,002
<TOTAL-LIABILITY-AND-EQUITY> 633,395
<SALES> 470,377
<TOTAL-REVENUES> 470,377
<CGS> 354,978
<TOTAL-COSTS> 354,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,473
<INCOME-PRETAX> 33,657
<INCOME-TAX> 11,664
<INCOME-CONTINUING> 21,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,993
<EPS-BASIC> 1.05
<EPS-DILUTED> 1.05
</TABLE>
