<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 60069
LINCOLNSHIRE, ILLINOIS (Zip Code)
(Address of Principal Executive Office)
Registrant's Telephone Number, including area code: (847) 945-9100
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock, $0.01 par value New York Stock Exchange
Common Stock, $0.01 par value Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was $130,827,710 million based upon the closing price of $7.00 on
March 1, 2000.
At March 1, 2000, 20,947,269 shares of Common Stock, par value of $0.01,
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I, II and III incorporate by reference portions of the Registrant's
Annual Report to Security Holders and Proxy Statement for the fiscal year ended
December 31, 1999 relating to the Annual Meeting of Stockholders to be held on
April 26, 2000.
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TABLE OF CONTENTS
<TABLE>
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PAGE
PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 12
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosures 13
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14
</TABLE>
2
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PART I
ITEM 1. BUSINESS
GENERAL
Ivex Packaging Corporation, a Delaware corporation (the "Company" or
"Ivex"), is a vertically integrated specialty packaging company that designs and
manufactures value-added plastic and paper-based flexible packaging products
for the consumer and technical packaging markets. Ivex focuses on niche markets
which management believes provide attractive margins and growth and where the
Company's integrated manufacturing capabilities can enhance its competitive
position. Ivex serves a variety of markets, providing packaging for food,
medical devices and electronic goods and protective packaging for industrial
products.
MARKETS
Consumer Packaging. The Consumer Packaging product group designs and
manufactures plastic and paper-based products for food and consumer packaging
applications. The Company produces a broad array of items, including plastic
containers for prepared foods, produce and baked goods; specialty paper products
such as fluted baking cups and liners for cookies and other baked goods; and
microwaveable packaging materials. The Consumer Packaging product group markets
its products to a variety of end users, including national wholesale bakeries,
supermarket chains, foodservice distributors, fast-food chains and major
agricultural growers. The Company also manufactures a variety of plastic sheet
and film products from several different resins for internal use and sales to
third party converters. Ivex is the leading producer of oriented polystyrene
("OPS") sheet in North America. The Consumer Packaging product group represented
approximately 61% of the Company's net sales and 69% of the Company's Adjusted
EBITDA during the year ended December 31, 1999. The Company's Consumer Packaging
product group is hereinafter sometimes referred to as "Consumer Packaging".
Technical Packaging. The Technical Packaging product group manufactures and
coats film, paper and foil products for protective packaging and manufactures
plastic-based products for applications in the medical and electronics
industries. These products are marketed primarily to consumer durable goods
manufacturers, automotive companies, other industrial manufacturers, integrated
paper producers, medical equipment suppliers and electronics manufacturers. The
Company produces products for some of the fastest growing applications in the
protective packaging industry, including film and paper maskings and
self-sealing coated packaging applications. The Company also manufactures a
variety of recycled kraft paper made from post-consumer and post-industrial
fibers. The Technical Packaging product group represented approximately 39% of
the Company's net sales and 31% of the Company's Adjusted EBITDA during the year
ended December 31, 1999. The Company's Technical Packaging product group is
hereinafter sometimes referred to as "Technical Packaging".
The Company's principal operating subsidiary is IPC, Inc. ("IPC") and IPC's
principal domestic operating subsidiaries are Kama of Illinois Corporation,
Plastofilm Industries, Inc., Ultra Pac, Inc. and Ivex Paper Mill Corporation and
principal foreign operating subsidiaries are Ivex Corporation, Ivex Holdings,
Ltd. and Ivex Plastic Packaging B.V. The following trademarks used herein are
owned by the Company or one of its affiliates: Ivex(R), Kama(R), Plastofilm(R),
Ultra Pac(R) M&R(TM), Jet-Pak(R), Jet-Lite(R) and Jet-Cor(TM).
On October 6, 1997, the Company completed its initial public offering of
9,660,000 shares of its common stock (the "1997 Common Stock Offering") pursuant
to which the Company received net proceeds of $117.3 million which it used,
together with the proceeds of a $475.0 million amended and restated credit
facility, to redeem all of its then outstanding 13 1/4% Senior Discount
Debentures and all of IPC's then outstanding 12 1/2% Senior Subordinated Notes.
On May 27, 1998, the Company completed a secondary offering of 4,000,000 shares
of its common stock pursuant to which the Company sold 500,000 shares of common
stock for net proceeds of $10,707,000. The Company used these net proceeds to
reduce borrowings under its revolving credit facility. On November 20, 1998,
the Company contributed certain paper assets to Packaging Holdings, L.L.C., in
return for a non-consolidated 48.2% joint venture interest.
The Company's principal executive offices are located at 100 Tri-State
Drive, Suite 200, Lincolnshire, Illinois 60069, and its telephone number is
(847) 945-9100.
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GENERAL DESCRIPTION
The following table illustrates the products that Ivex manufactures:
<TABLE>
<CAPTION>
12 MONTHS ENDED
DECEMBER 31, 1999
---------------------------------
NET ADJUSTED
PRODUCT GROUP SALES EBITDA PRODUCT CUSTOMERS END PRODUCT USES
- ---------------------- ---------------- --------------- --------------------- --------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Consumer Packaging $ 394,669 $ 80,931 Plastic containers, Supermarkets, Plastic hinged and
corrugated paper foodservice two-piece containers,
liners and distributors, trays for deli foods,
specialty paper fast food chains, salads, cookies,
products, OPS sheet bakery and berries and cakes,
and film, HIPS sheet, confectionery film for envelopes
PET sheet, PP sheet, companies, and box windows,
PVC sheet and HDPE food processors, paper liners for
sheet plastic converters, cookies, microwaveable
envelope and folding packaging materials,
carton manufacturers fluted bakery cups and
specialty paper products
Technical Packaging 248,357 36,071 Protective packaging, Automotive companies, Paper and film
including coated consumer durables protective masking
paper and plastic, manufacturers, other materials, cohesive
single face industrial self-sealing
corrugated manufacturers, packaging papers,
paper, plastic paper distributors, coated papers for
containers, manufacturers of stamps, labels and
shippers and mailers postage stamps, business forms,
and manufactured business forms single face corrugated
paper, including and paper converters, paper for packaging,
kraft papers and and medical device shippers and mailers,
specialty recycled and supply companies grocery and food
papers and electronics bags and protective
manufacturers plastic packaging for
medical and electronics
applications
Corporate Expenses (8,158)
--------- ---------
Total $ 643,026 $ 108,844
========= =========
</TABLE>
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CONSUMER PACKAGING
General. The Consumer Packaging product group is an integrated manufacturer
of plastic and paper products for use in a wide array of food applications. The
food packaging products are typically used for items sold in supermarkets,
wholesale and retail bakeries, fast-food restaurants and institutional
foodservice outlets.
Products. Consumer Packaging's products consist primarily of thermoformed
plastic containers and paper products used in food packaging applications.
Thermoformed plastic packaging includes hinged and two-piece containers, trays
for delicatessen foods, salads, cookies, cakes and other items. Paper products
consist of single face corrugated paper liners for cookies and other baked
goods, microwaveable materials, fluted cups for baking and other specialty paper
products.
As part of its integrated operations, Ivex manufactures OPS sheet and also
produces OPS film, high impact polystyrene ("HIPS") sheet, polyethylene
terephthelate ("PET") sheet, polypropylene ("PP") sheet, high density
polyethylene ("HDPE") sheet and polyvinyl chloride ("PVC") sheet. OPS sheet is
widely used in packaging applications where clarity, rigidity and material yield
are significant considerations. HIPS sheet is used in similar applications where
clarity is not as important, but where additional stress or crack resistance is
required. PET, PP, HDPE and PVC sheet are also typically used in applications
that require stress or crack resistance. OPS film is a thinner gauge version of
OPS sheet with applications primarily in windows for envelopes and folding
cartons as well as labels. The Company's OPS sheet and film, HIPS sheet, PET
sheet, PP sheet, HDPE sheet and PVC sheet are marketed under the Company's
Kama(R) brand name.
Markets. The principal markets for Ivex's food packaging products include
supermarkets, particularly in-store bakery, delicatessen and prepared food
sections; national wholesale bakeries; and food service outlets, particularly
fast-food restaurants and institutions such as schools, hospitals and corporate
cafeterias.
Ivex employs a national sales force to service each of the specific market
segments that it targets. Approximately half of the packaging customers are
serviced through distributors, with the balance serviced directly by the
Company's national account sales representatives. The Company also markets to
end-users served by its distributors, such as small and regional supermarkets
and convenience food outlets. Brokers are also used to further penetrate
specific geographic markets and access prospective customers.
Manufacturing. The Company's plastic packaging products are manufactured
internally at the Company's two polystyrene polymerization, nine extrusion and
eleven thermoforming facilities. Polystyrene polymerization is the process of
converting liquid styrene monomer into polystyrene through heat and agitation
under high pressure. The Company produces high quality polystyrene as measured
by the polystyrene's low residual monomer levels.
Extrusion is the process of converting plastic resin into plastic sheet and
film used in the thermoforming process. The Company is one of only two OPS
producers that have polystyrene polymerization manufacturing facilities.
Ivex's plastic thermoforming and paper converting operations are
principally conducted in thirteen facilities located throughout North America
and Europe.
TECHNICAL PACKAGING
General. The Technical Packaging product group is an integrated
manufacturer and coater of a variety of film, paper and foil products for
protective packaging, a manufacturer and coater of various grades of papers and
a manufacturer of plastic products used for medical and electronics packaging
applications.
Products. Protective packaging products include protective paper and film
maskings; self-sealing coated packaging papers, films and corrugated paper;
heavy-duty mailing envelopes marketed under the brand names Jet-Lite(R),
Jet-Cor(TM) and Jet-Pak(R); sterility packaging for medical applications; and
cushioning products for the electronics industry. The Company's manufactured
papers include post-consumer and post-industrial recycled paper products
(including lightweight kraft paper for grocery and food bags and heavyweight
crepe kraft paper for bag closures). The Company's coated papers include
water-activated gummed papers used for postage stamps, labels, and envelopes,
release papers used for high-pressure decorative laminates, and laminations used
for lottery ticket stock and decorative labels. The Company's medical packaging
products typically are used by the major medical supply companies for sterility
packaging and its electronics packaging products generally are used as
cushioning materials.
5
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Markets. The Company's technical packaging products are used in a wide
variety of commercial and industrial applications.
Ivex believes that it is one of the largest producers of industrial
protective masking materials in North America. The Company's products in this
market range from adhesive coated paper and films to coextruded films with
adhesive properties. These paper and film maskings are used to protect surfaces
during manufacturing, handling, storage and shipping. The Company's products
must meet specifications for a broad array of surfaces requiring protection,
including glass, plastic, wood, polished and painted metals, automotive trim,
plastic laminates, furniture and marble.
Ivex applies adhesive and cohesive coatings to paper, films and single face
corrugated paper products for high-speed, high-volume, self-sealing packaging
applications. A cohesive package is designed to stick to itself and not to the
contents. The Company uses proprietary formulations of adhesive and cohesive
materials to meet specialized customer requirements. Typical end-users of
self-sealing packaging systems are the major U.S. automotive parts manufacturers
and book publishers. The Company also produces water-activated gummed printing
papers used for labels, commercial and postage stamps and business forms and
release papers that are used in the manufacture of high pressure decorative
laminates.
All of Ivex's low density polyethylene film is used internally in the
production of its film masking and self-sealing packaging products and
approximately 19% of the Company's recycled kraft paper is used internally in
the production of single face corrugated paper, cohesive coated paper and
mailing envelopes. Principal third-party markets for the Company's manufactured
paper products are food packaging, industrial packaging, bag converting and
industrial converting, including grocery and food bags; envelopes; and bag
closures in pet food, seed, and fertilizer packaging. These markets require high
service levels, including fast delivery and the ability to produce a variety of
colors, weights and formulations. Customers for the Company's manufactured paper
products include large, integrated paper producers as well as packaging
companies.
The principal markets for the Company's medical and electronics packaging
include medical device and supply manufacturers and electronics manufacturers.
Manufacturing. Ivex's primary raw materials for protective packaging
products, principally low density polyethylene, specialty chemicals, paper and
extruded plastic sheet, are obtained from external sources as well as from the
Company's low density polyethylene extrusion facility, recycled paper mill
operations and other extrusion facilities.
Ivex's coating and paper converting operations are conducted at ten
facilities throughout the U.S. and Canada while medical and electronics
packaging is manufactured at six facilities in North America, Europe and
Southeast Asia.
All of the paper produced at the Company's three paper mills is made
entirely from post-consumer and post-industrial fibers, including old corrugated
containers ("OCC") and double-lined kraft ("DLK"). The Company was among the
first to use 100% recycled post-industrial fibers at one of its mills.
COMPETITION
The Company operates in markets that are highly competitive and faces
substantial competition throughout all of its product lines from numerous
national and regional companies. Many of these competitors are considerably
larger than the Company and have substantially greater financial and other
resources than the Company, while others are significantly smaller with lower
fixed costs and greater operating flexibility. In addition to price, competition
with respect to many of the Company's products is based on quality, supplier
response time, service and timely and complete order fulfillment.
The Company's main competitor in the supermarket and foodservice segments
is Pactiv Corporation. In the bakery area, the Company competes primarily with
Detroit Forming Inc. in plastic products and Fort James Corporation in paper
products. The Company competes with several manufacturers of OPS sheet,
including Detroit Forming and Plastic Suppliers, Inc. In the medical and
electronics markets, the Company competes with many regional thermoformers,
including Prent Corporation and Placon Corp. The Company competes primarily with
Dow Chemical Company in the OPS film market. Ivex's major competitors in
protective masking include a joint venture between Minnesota Mining and
Manufacturing Company and Sealed Air Corporation, American Biltrite, Inc. and
Main Tape Company, Inc. The Company competes primarily with Sealed Air
Corporation and AVI Products, Inc. in the mailing envelope market.
6
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EMPLOYEES
As of December 31, 1999, the Company had 34 employees at its Lincolnshire,
Illinois corporate headquarters and had 4,350 employees at plant locations, of
which 964 were salaried and 3,386 were hourly. Of the hourly workers,
approximately 1,205 were members of unions. The Company has collective
bargaining agreements with nine unions in effect with respect to certain hourly
employees at the Company's Joliet, Peoria, Chagrin Falls, Troy, Newton, Avenel,
Grove City, Elyria, Newcastle, Wakefield and Laval facilities. There have been
no significant interruptions or curtailments of operations due to labor disputes
in the last five years, and the Company believes that relations with its
employees are good. The collective bargaining agreements at the Company's
facilities in Elyria, Joliet, Peoria and Laval will expire in 2000; the
collective bargaining agreement at the Company's facilities in Grove City,
Newcastle and Wakefield will expire in 2001; and the collective bargaining
agreement at the Company's facilities in Avenel, Newton, Troy and Chagrin Falls
will expire in 2002.
RAW MATERIALS
Styrene monomer, polystyrene, polyethylene, polypropylene, polyvinyl
chloride and various paper-based commodities (primarily recycled fiber)
constitute the principal raw materials used in the manufacture of the Company's
products. Generally, these raw materials are readily available from a wide
variety of suppliers. Costs for all of the significant raw materials used by the
Company tend to fluctuate with various economic factors which generally affect
the Company and its competitors. The availability of raw materials was adequate
during 1999 although prices for certain items such as styrene monomer,
polystyrene, OCC and DLK have been volatile and may continue to fluctuate, in
some instances adversely to the Company.
TRADEMARKS, PATENTS AND LICENSES
While the Company has registered and unregistered trademarks for many of
its product lines, these trademarks, other than the Company's rights to the
trademarks "Ivex(R)", "Ultra Pac(R)", "Plastofilm(R)" and "Kama(R)", are not
considered material to the conduct of the Company's business. The Company owns
or licenses a number of patents but such patents and licenses are not considered
material to the conduct of the Company's business and the Company does not
believe that any of its businesses are substantially dependent on patent
protection. The Company's material proprietary technologies are considered by
the Company to be trade secrets and know-how and are not protected by patents or
licenses.
CUSTOMERS, SALES AND BACKLOG
No material portion of the Company's business is dependent upon a single or
very few customers, except that the Company's extruded OPS film is sold
principally to one customer with which the Company believes that it has a good
relationship. No one customer accounted for more than 10% of the Company's
aggregate net sales for the fiscal year ended December 31, 1999. In general, the
backlog of orders is not significant or material to an understanding of the
Company's businesses.
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ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
The past and present business operations of the Company and the past and
present ownership and operations of real property by the Company are subject to
extensive and changing federal, state, local and foreign environmental laws and
regulations pertaining to the discharge of materials into the environment, the
handling and disposition of wastes (including solid and hazardous wastes) or
otherwise relating to the protection of the environment. As is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties or any associated offsite disposal location, or if
contamination from prior activities is discovered at any of the Company's
properties, the Company may be held liable. From time to time, the Company is
involved in regulatory proceedings and inquiries relating to compliance with
environmental laws, permits and other environmental matters.
The Company is currently involved with environmental remediation and
on-going maintenance at certain of its facilities. The Company believes that the
costs of such remediation have been adequately reserved for and that such costs
are unlikely to have a material adverse effect on the Company. No assurance can
be given, however, that additional environmental issues relating to the
presently known remediation matters or identified sites or to other sites or
matters will not require additional investigation, assessment or expenditures.
The Company has a reserve of approximately $1.6 million as of December 31, 1999
for its known future environmental remediation costs. Because an environmental
reserve is not established until a liability is determined to be probable and
reasonably estimable, all potential future remedial costs may not be covered by
this reserve. The Company has made and will continue to make capital
expenditures to maintain compliance with environmental requirements. The Company
does not expect its 2000 and 2001 spending on environmental capital projects to
be material.
During 1991, the Company responded to an information request regarding the
Global Landfill, New Jersey site and since such time has not received any
further notifications regarding such site. During 1993, the Company was named a
PRP at the Delta Chemicals, Pennsylvania Superfund site and in 1995 the Company
paid a de minimis settlement of less than $20,000 at that site. During 1995, the
Company paid $500 in connection with a de minimis consent order relating to the
American Chemical Service site. In addition, over the past few years, the
Company has received notices of potential liability relating to three Superfund
sites for which the Company believes a former owner of the facilities subject to
such notices will be responsible, and the Company has forwarded such notices to
such former owner and has had no further involvement at those sites. In
addition, during 1996 the Company answered a complaint regarding the Huth Oil,
Ohio Superfund site and during 1997 this claim was voluntarily dismissed by the
plaintiffs in the action. In addition, during 1998, the Company received a
notice for potential liability relating to the Pfohl Brothers Cheektowaga, New
York landfill site but to date has not received any further notifications
regarding such site, and during 1999, the Company received a request for
information regarding wastewater discharges to the Fox River and the Green Bay,
but to date has not received any further notifications regarding such site.
Although the Company endeavors to carefully manage its waste, because Superfund
liability is strict and retroactive, it is possible that in the future the
Company may be identified as a PRP with respect to other waste disposal sites.
The plastics industry, in general, and the Company also are subject to
existing and potential federal, state, local and foreign legislation designed to
reduce solid wastes by requiring, among other things, plastics to be degradable
in landfills, minimum levels of recycled content, various recycling
requirements, disposal fees and limits on the use of plastic products. In
addition, various consumer and special interest groups have lobbied from time to
time for the implementation of these and other such similar measures. Although
the Company believes that the legislation promulgated to date and such
initiatives to date have not had a material adverse effect on the Company, there
can be no assurance that any such future legislative or regulatory efforts or
future initiatives would not have a material adverse effect on the Company.
The United States Food and Drug Administration (the "FDA") regulates the
content of direct-contact food containers and packages, including containers and
packages made from recycled OPS and paper products. The FDA currently limits the
amount of recycled materials that can be used in such containers and packages.
To comply with these regulations, the Company has instituted various compliance
programs.
FINANCIAL INFORMATION ABOUT SEGMENTS
The Company's financial information about industry segments will be set
forth in the Company's Annual Report to Stockholders relating to the Annual
Meeting of Stockholders to be held on April 26, 2000.
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FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
The Company's financial information about geographic areas will be set
forth in the Company's Annual Report to Stockholders relating to the Annual
Meeting of Stockholders to be held on April 26, 2000.
ITEM 2. PROPERTIES
The Company and its subsidiaries use various owned and leased plants,
warehouses and other facilities in their operations. The facilities are
considered to be suitable and adequate for the conduct of the businesses
involved although the machinery, plant and equipment at such facilities are,
from time to time, subject to scheduled and unscheduled maintenance. As of March
1, 2000, the Company had thirty-four non-warehouse facilities and, except as
noted below, all are owned by IPC or a subsidiary of IPC. With certain limited
exceptions, all of the owned real estate is subject to mortgages securing IPC's
indebtedness under the Company's existing credit facility.
<TABLE>
<CAPTION>
LOCATION FUNCTION/SEGMENT SQUARE FOOTAGE
- --------------------------- ----------------------------------- --------------
<S> <C> <C>
Domestic
Avenel, NJ(1) Extrusion 55,000
Bellwood, IL Paper Converting and Film Coating 71,000
Bellwood, IL(2) Paper Converting 71,000
Bridgeview, IL Paper Converting 115,000
Chagrin Falls, OH Paper Mill 120,000
Cumberland, RI Thermoforming 60,000
Elyria, OH(3) Extrusion 80,000
Grant Park, IL Thermoforming/Engineering 184,000
Grove City, PA(4) Thermoforming 236,000
Hazleton, PA(5) Polymerization/Extrusion 166,000
Joliet, IL Paper Mill/Paper Converting 410,000
Lompoc, CA(6) Thermoforming 93,000
Madison, GA Thermoforming/Paper Converting 141,000
Manteno, IL Extrusion 105,000
Newton, MA(7) Paper and Film Converting/Coating 225,000
Peoria, IL Paper Mill 234,000
Rogers, MN(8) Thermoforming/Extrusion 240,000
Sparks, NV(9) Thermoforming 40,000
Troy, OH Paper Converting/Coating 320,000
Visalia, CA Thermoforming/Paper Converting 144,000
Wakefield, MA Paper Converting 98,000
Wheaton, IL Thermoforming/Engineering 120,000
International
D'Albon, France Thermoforming 17,000
Enniskillen, Northern
Ireland(10) Thermoforming/Engineering 16,000
Hong Kong, China(11) Thermoforming 29,000
Laval, Quebec Thermoforming/Extrusion/Engineering 60,000
Longueuil, Quebec Thermoforming/Paper Converting 32,000
Monterrey, Mexico(12) Thermoforming 24,000
Newcastle, Ontario Extrusion 45,000
Raamsdonksveer,
Netherlands Extrusion 78,000
Sedgefield, England Thermoforming/Extrusion 48,000
Summerstown, Ontario Thermoforming 55,000
Sungai Petani, Malaysia (13) Thermoforming 38,000
Toronto, Ontario Paper Converting 54,000
</TABLE>
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(1) Leased facility, with its lease expiring on December 31, 2003, subject to
IPC's right to extend the lease for two successive five-year periods upon
IPC's written notice to the lessor thereof not more than 12 nor less than 6
months prior to the end of the then current lease term.
(2) Leased facility, with its lease expiring on January 8, 2003.
(3) Leased facility, with its lease expiring on September 30, 2001, subject to
IPC's right to extend the lease for an additional five-year period and,
upon specified terms and conditions, to purchase the property.
(4) This facility is held subject to an installment sales contract with Grove
City Industrial Development Corporation that holds title to the facility.
(5) Leased facility, with its lease expiring on October 4, 2003, subject to
IPC's right to extend the lease for one successive five-year period upon
IPC's written notice to lessor not more than 24 nor less than 6 months
prior to the end of the lease term.
(6) Leased facility, with its lease expiring on April 30, 2004, subject to the
Company's right to extend the lease for three additional five-year periods
upon written notice thereof at least 120 days prior to the end of the then
existing lease term.
(7) Leased facility, with its lease expiring on December 5, 2001, with three
one-year options to extend.
(8) A portion of this facility is leased with the three leases expiring on
January 1, 2002, February 1, 2010 and February 1, 2010. Each of these three
leases contains a three-year extension option and an option, upon specified
terms and conditions, to purchase the portion of the facility subject to
such lease.
(9) Leased facility, with its lease expiring on April 30, 2000.
(10) Leased facility, with its lease expiring on May 10, 2016.
(11) Leased facility, with its lease expiring on March 31, 2000.
(12) Leased facility, with its lease expiring on December 31, 2000.
(13) Leased facility, with three leases, one expiring on December 31, 2001 and
two expiring on December 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company and its subsidiaries are involved in various
litigation matters arising in the ordinary course of business. The Company
believes that none of the matters in which the Company or its subsidiaries are
currently involved, either individually or in the aggregate, is material to the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name, age, positions and offices held (as of the
date hereof) and a brief account of the business experience for each executive
officer of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- --- --------------------------------------------------------
<S> <C> <C>
George V. Bayly 57 Director, Chairman of the Board, President and Chief
Executive Officer of the Company since January 1991.
Frank V. Tannura 43 Director of the Company since August 1995. Executive Vice
President and Chief Financial Officer of the Company since
February 1999 and Executive Vice President and Chief
Financial Officer since October 1989.
Gordon B. Bonfield 48 President of the Consumer Packaging Division since June 1999.
Mr. Bonfield was President and Chief Executive Officer of
Multi-Color Corporation from January 1998 to May 1999 and an
executive officer of Fort James' Packaging business since
1988.
Richard R. Cote 48 Vice President and Treasurer of the Company since August
1994. Mr. Cote was Assistant Vice President and Treasurer
of the Company from March 1992 to August 1994.
Thomas S. Ellsworth 54 Vice President and General Manager of the Company since
1994. Mr. Ellsworth was Vice President of the Company's
paper mill operations from 1992 to 1994.
Gene J. Gentili 51 Vice President and General Manager of the Company since
1994. Vice President of Sales of the Company from 1993 to
1994. Mr. Gentili was director of national accounts for the
Company from 1991 to 1993.
Roger A. Kurinsky 49 Vice President and General Manager of the Company since
1994. Vice President of Marketing of the Company from 1991
to 1994
Jeremy S. Lawrence 48 Vice President of Human Resources of the Company since May
1991.
John D. Maxwell 44 Vice President and General Manager of the Company since June
1999. Vice President of Sales since 1992.
G. Douglas Patterson 42 Vice President and General Counsel of the Company since June
1991.
David E. Wartner 33 Vice President and Corporate Controller of the Company since
October 1998. From 1994 to 1998, Mr. Wartner was Corporate
Controller of the Company. Prior to 1994, Mr. Wartner was
associated with PriceWaterhouse LLP.
</TABLE>
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on the New York Stock Exchange and the
Chicago Stock Exchange, under the ticker symbol IXX. The high and low sales
prices for the common stock by quarter during 1998 and 1999 as reported by the
New York Stock Exchange are shown below.
PRICES PRICES
1999 ---------------------- 1998 --------------------
QUARTERS QUARTERS
ENDED HIGH LOW ENDED HIGH LOW
-------------- ---------- ---------- ------------------------- ----------
12/31/99 12 7/8 6 7/8 12/31/98 23 3/8 13 1/2
9/30/99 22 1/2 9 3/4 9/30/98 24 1/8 13 5/8
6/30/99 22 13 3/4 6/30/98 29 1/2 21
3/31/99 26 1/8 13 5/8 3/31/98 25 1/4 19 5/8
The approximate number of shareholders of record of the Company's common
stock as of March 1, 2000 was 228 holders. The Company has never paid cash
dividends on its common stock. Any payment of cash dividends in the future will
be at the discretion of the Company's Board of Directors and will depend upon
the financial condition, capital requirements and earnings of the Company as
well as other factors that the Company's Board of Directors may deem relevant.
In addition, the Company's senior credit facility prohibits the payment of
dividends on the Company's common stock.
ITEM 6. SELECTED FINANCIAL DATA
Information regarding the Company's selected financial data will be set
forth in the Company's Annual Report to Stockholders relating to the Annual
Meeting of Stockholders to be held on April 26, 2000 and, to the extent
required, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information regarding management's discussion and analysis of financial
condition and results of operation will be set forth in the Company's Annual
Report to Stockholders relating to the Annual Meeting of Stockholders to be
held on April 26, 2000 and, to the extent required, is incorporated herein by
reference.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform
Act") and are identified by the use of forward looking words and phrases, such
as "estimates," "plans," "expects," "to continue," "subject to," "target" and
such other similar phrases. These forward looking statements are based on the
current expectations of the Company. Because forward looking statements involve
risks and uncertainties, the Company's plans, actions and actual results could
differ materially. Among the factors that could cause plans, actions and 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 (see "Business-Raw Materials"); (iii)
increased competition in the Company's product lines (see
"Business-Competition"); (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 (see "Business-Environmental
Matters and Government 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 (see "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Quantitative and Qualitative
Disclosures about Market Risk"); (ix) 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; and (x) the Company's
actual performance and highly leveraged financial condition (see Management's
Discussion and Analysis of Financial Conditions and Results of
Operation-Liquidity and Capital Resources").
12
<PAGE> 13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE. The Company uses primarily foreign exchange forward
contracts to hedge its exposure from adverse changes in foreign exchange
rates. A 10% unfavorable movement in the foreign exchange rates would not
expose the Company to material losses in earnings or cash flows.
INTEREST RATES. The Company uses interest rate swaps and collars to modify
its exposure to interest rate movements and to reduce borrowing costs. The
Company's net exposure to interest rate risk consists of floating rate debt
instruments that are benchmarked to LIBOR. As of December 31, 1999 the
Company had $320 million notional value of interest rate derivatives
outstanding (described below). A 10% unfavorable movement in LIBOR rates
would not expose the Company to material losses of earnings or cash flows.
The Company has entered into interest rate swap agreements with a group of
banks having notional amounts totaling $160.0 million and various maturity
dates through November 5, 2002. These agreements effectively fix the
Company's LIBOR base rate for $160.0 million of the Company's indebtedness
at rates from 5.33% to 6.12% during this period. The Company has entered
into no cost interest rate collar agreements with a group of banks having
notional amounts totaling $100.0 million through November 5, 2002. These
collar agreements effectively fix the LIBOR base rate for $100.0 million of
the Company's indebtedness at a maximum of 7.00% and allow for the Company
to pay the market LIBOR from a floor of 5.55% to the maximum rate. If LIBOR
falls below 5.55%, the Company is required to pay the floor rate of 5.55%.
The Company has also entered into no cost interest rate collar agreements
with a group of banks having notional amounts totaling $60.0 million through
November 5, 2001. These collar agreements effectively fix the LIBOR base
rate for $60.0 million of the Company's indebtedness at a maximum of 5.31%
and allow for the Company to pay the market LIBOR from a floor of 4.47% to
the maximum rate. If LIBOR falls below 4.47%, the Company is required to pay
the floor rate of 4.47%. Income or expense related to settlements under
these agreements is recorded as adjustments to interest expense in the
Company's financial statements. The fair market value of the Company's
derivative instruments outlined above approximates a gain of $5.5 million as
of December 31, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, supplementary data, financial
information about segments and financial information about geographic areas will
be set forth in the Company's Annual Report to Stockholders relating to the
Annual Meeting of Stockholders to be held on April 26, 2000 and is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
13
<PAGE> 14
PART III
With respect to Items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14-A under the
Securities Exchange Act of 1934 (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's Proxy Statement relating to the Annual Meeting of Stockholders to be
held on April 26, 2000 and, to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is set forth
under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's Proxy Statement relating to the Annual Meeting of Stockholders to be
held on April 26, 2000 and, to the extent required, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will be set forth in the Company's Proxy Statement relating to the
Annual Meeting of Stockholders to be held on April 26, 2000 and, to the extent
required, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
be set forth in the Company's Proxy Statement relating to the Annual Meeting of
Stockholders to be held on April 26, 2000 and, to the extent required, is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) The following financial statements of the Company will be set forth
in the Company's Annual Report to Securityholders relating to the Annual Meeting
of Stockholders to be held on April 26, 2000 and, to the extent required, are
incorporated herein by reference:
<TABLE>
<CAPTION>
ANNUAL REPORT TO
SECURITYHOLDERS
<S> <C>
Report of Independent Accountants Page 55
Consolidated Balance Sheets Page 28
Consolidated Statements of Operations Page 30
Consolidated Statements of Changes in Stockholders' Equity (Deficit) Page 32
Consolidated Statements of Cash Flows Page 34
Notes to Consolidated Financial Statements Page 35
(a)(2) The following Financial Statement Schedules of the Company are filed
as part of this report:
Schedule I -- Condensed Financial Information
Schedule II -- Valuation and Qualifying Accounts and Reserves
</TABLE>
14
<PAGE> 15
All other schedules of the Company for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required, are inapplicable or have been disclosed in the notes to the
consolidated financial statements and therefore have been omitted.
15
<PAGE> 16
(A)(3) EXHIBITS.
<TABLE>
<CAPTION>
INCORPORATED BY REFERENCE
TO THE FOLLOWING
--------------------------------------------
EXHIBIT EXHIBIT REGISTRATION NUMBER
NUMBER DESCRIPTION OF DOCUMENT NUMBER OR REPORT
----------- ------------------------------------------------- -------------- --------------------------
<S> <C> <C> <C>
3.1 Amended and Restated Certificate of
Incorporation of Ivex Packaging Corporation
("Holdings" or "Ivex") 3.3 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
3.2 Amended By-Laws of Ivex 3.4 Ivex Amendment No. 8 to
Form S-1 (Registration
No. 33-95436)
3.3 Form of Certificate of Elimination of
Senior Cumulative Exchangeable
Preferred Stock of Ivex 3.5 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
3.4 Form of Certificate of Designation,
Preferences and Rights of Series A
Junior Participating Preferred Stock 4.1 Ivex 3/3/99 Form 8-K
(File No. 33-60714)
4.1 Form of Registration Rights Agreement,
dated as of September 30, 1997, among
Ivex, Acadia Partners, L.P., and the other
stockholders party thereto 4.3 Ivex Amendment No. 8 to
Form S-1
(Registration No.
33-95436)
4.2 Amended and Restated Credit Agreement, dated
as of October 2, 1997, by and among IPC,
Ivex, NationsBank, N.A. and Bankers Trust,
as agents, and the guarantors and lenders
identified on the signature pages thereto 4.2 Ivex 1997 Form 10-K
(File No. 33-60714)
4.3 Amended and Restated Pledge Agreement,
dated as of October 2, 1997, among IPC,
Ivex certain of IPC's subsidiaries and
NationsBank, N.A. and Bankers Trust Company,
as agents 4.3 Ivex 1997 Form 10-K
(File No. 33-60714)
4.4 Form of Amended and Restated Security
Agreement, dated as of October 2, 1997, among
IPC, Ivex and certain of IPC's domestic
subsidiaries and NationsBank, N.A. and Bankers
Trust Company, as agents 4.4 Ivex 1997 Form 10-K
(File No. 33-60714)
4.5 Form of Amended and Restated Mortgage and
Security Agreement 4.5 Ivex 1997 Form 10-K
(File No. 33-60714)
4.6 Form of First Amendment to Amended and 4.6 Ivex 1998 Form 10-K
Restated Credit Agreement (File No. 33-60714)
4.7 Form of Second Amendment to Amended and
Restated Credit Agreement 4.7 Ivex 1998 Form 10-K
(File No. 33-60714)
4.8 Form of Third Amendment to Amended and
Restated Credit Agreement 4.8 Ivex 1998 Form 10-K
(File No. 33-60714)
4.9 Rights Agreement, dated as of February 10,
1999, between Ivex and First Chicago
Trust Company of New York 4.1 Ivex 3/3/99 Form 8-K
(File No. 33-60714)
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
4.10 Form of Fourth Amendment to Amended
and Restated Credit Agreement 4.10 Ivex 9/30/99 Form 10-Q
(File No. 33-60714)
*4.11 Form of Fifth Amendment to Amended
and Restated Credit Agreement
4.12 1999 Stock Option Plan for Non-Employee
Directors Exhibit A Ivex 1999 Proxy
Statement
(File No. 33-60714)
10.1 Form of Ivex Senior Management Annual
Incentive Plan(1) 10.1 Ivex Amendment No. 8
to Form S-1
(Registration No.
33-95436)
10.2 Form of Nonqualified Deferred Compensation
Plan (1) 10.2 Ivex 1998 Form 10-K
(File No. 33-60714)
10.3 Form of Nonqualified Deferred Compensation
Trust Agreement (1) 10.3 Ivex 1998 Form 10-K
(File No. 33-60714)
10.4 Form of IPC Stock Purchase and Option
Agreement, dated as of January 1, 1993,
among IPC, Ivex, Acadia Partners, L.P.
and each of certain senior managers of
IPC with the Ivex Stock Purchase and
Option Agreement attached thereto (1) 10.2 IPC 1993 Form 10-K
(Registration No.
33-52150)
10.5 Form of Amended and Restated IPC, Inc.
Stock Option and Purchase Agreement and
Amended and Restated Ivex Packaging
Corporation Stock Option and Purchase
Agreement, each dated as of
January 1, 1996 (1) 10.16 Ivex 6/30/96 Form 10-Q
(File No. 33-60714)
10.6 IPC Retirement Plan and Trust, as
amended and Restated May 1, 1992 (1) 10.3 IPC Form S-1
(Registration No.
33-52150)
10.7 Amended and Restated Employment Agreement,
dated as of May 30, 1996, between
George V. Bayly and IPC (1) 10.14 Ivex 6/30/96 Form 10-Q
(File No. 33-60714)
10.8 Form of Amendment No. 1 to Amended and
Restated Employment Agreement between 10.8 Ivex 1998 Form 10-K
George V. Bayly and IPC (1) (File No. 33-60714)
*10.9 Form of Amended and Restated Employment
Agreement, dated as of October 31, 1999,
between
IPC and Frank V. Tannura (1)
10.10 Form of Ivex Packaging Corporation Employee
Stock Purchase Plan (1) 10.16 Ivex 9/30/99 Form 10-Q
(File No. 33-60714)
*10.11 Form of 1999 Long-Term Incentive Plan (1)
*10.12 Form of Severance and Change of Control
Agreement between the Company and certain
named executive officers (1)
10.13 Form of Ivex Packaging Corporation 1997 10.45 Ivex Amendment No. 8
Long-Term Stock Incentive Plan (1) to Form S-1 (Registration
No. 33-95436)
10.14 Form of Senior Management's Promissory 10.13 Ivex 1997 Form 10-K
Note to IPC (1) (File No. 33-60714)
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
10.40 Loan Agreement, dated as of December 1, 1987,
between the County of Kankakee, Illinois and
Ivex of Delaware, Inc. (n/k/a IPC, Inc.)
10.41 Loan Agreement, dated as of June 1, 1988, 10.11 IPC Form S-1
between the Development Authority of Morgan (Registration No.
County and Ivex of Delaware, Inc. 33-52150)
(n/k/a IPC, Inc.)
IPC Form S-1
10.13 (Registration No.
33-52150)
10.42 Loan Agreement, dated as of October 1, 1987, 10.15 IPC Form S-1
between the County of Will, Illinois and (Registration No.
LPX, Inc (n/k/a IPC, Inc.) 33-52150)
10.43 Loan Agreement, dated as of April 1, 1988, 10.17 IPC Form S-1
between the Illinois Development Finance (Registration No.
Authority and Ivex of Delaware, Inc. 33-52150)
(n/k/a IPC, Inc.)
10.44 Indenture of Trust, dated as of March 1, 10.19 IPC Form S-1
between Marine Midland Bank, N.A. and Ivex of (Registration No.
Delaware, Inc. (n/k/a IPC, Inc.) 33-52150)
10.45 Loan Agreement, dated November 1, 1985, 10.21 IPC Form S-1
between the Village of Bridgeview, Illinois (Registration No.
and L&CP Corporation (n/k/a IPC, Inc.) 33-52150)
10.46 Loan Agreement, dated as of June 1, 1988,
between City of Troy, Ohio and L&CP
Corporation (n/k/a IPC, Inc.) 10.23 IPC Form S-1
(Registration No.
33-52150)
10.47 Lease Agreement, dated as of December 5,
1996, between State Street Bank and Trust
Company and IPC 10.46 Ivex 1996 Form 10-K
(File No. 33-60714)
10.48 Lease, dated as of October 4, 1988, between
Seymour C. Graham and Kama Corporation
(n/k/a IPC, Inc.) 10.33 IPC Form S-1
(Registration No.
33-52150)
10.49 Amendment to Lease, dated as of
December 20, 1988, between Seymour C. Graham
and Kama Corporation (n/k/a IPC, Inc.) 10.34 IPC Form S-1
(Registration No.
33-52150)
10.50 Lease, dated June 20, 1995, between
Howard H. Gelb and Eunice Gelb and
Kama Corporation (n/k/a IPC, Inc.) Ivex 1995 Form 10-K
10.44
(File No. 33-60714)
10.51 Industrial Building Lease, dated
January 8, 1998, between Arapahoe Properties,
L.L.C. and Packaging Products, Inc. 10.25 Ivex 1997 Form 10-K
(File No. 33-60714)
10.52 Lease, dated as of September 11, 1996, by
and between Joseph P. Bennett and Trio
Products, Inc 10.54 Ivex 1996 Form 10-K
(File No. 33-60714)
10.53 Installment Sales Agreement, dated as of
December 12, 1990, between Grove City
Industrial Development Corporation and
Ivex Converted Products Corporation
(n/k/a IPC, Inc.) 10.39 IPC Form S-1
(Registration No.
33-52150)
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
10.54 Form of Lease Agreements, dated
May 1, 1993, November 20, 1994 and 10.54 Ivex 1998 Form 10-K
November 20, 1994, between Ultra Pac, Inc. (File No. 33-60714)
and the landlord thereof
10.55 Lease Agreement, dated as of April 16,
1999, between Pactuco Acquisition, Inc.
and Gowing Leasing Company 10.55 Ivex 3/31/99 Form 10-Q
(File No. 33-60714)
10.70 Tax Sharing Agreement, dated as of
December 17, 1992, between Ivex and IPC
and certain of IPC's subsidiaries 10.40 Ivex Form S-4
(Registration No.
33-60714)
10.71 Form of Agreement and Plan of Merger, C-1 Ivex Schedule 14D-1,
dated as of March 23, 1998, among Ivex dated 3/26/98
Package Acquisition, Inc. and Ultra Pac,
Inc.
*11.13 Annual Report to Securityholders for
the year ended December 31, 1999.
21.1 Subsidiaries of Ivex 21.1 Ivex 1998 Form 10-K
(Registration No. 33-60714)
*23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and not filed.
</TABLE>
* Filed herewith.
(1) Management contact or compensatory plan or arrangement required to be filed
as an Exhibit to this Form 10-K pursuant to Item 14(c) of this report.
(b) Reports on Form 8-K.
None
19
<PAGE> 20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON MARCH __, 2000.
IVEX PACKAGING CORPORATION
By: /s/ George V. Bayly
-------------------
Name: George V. Bayly
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this
Report appears below hereby constitutes and appoints G. Douglas Patterson as
such person's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution for such person and in such person's name, place
and stead, in any and all capacities, to sign and to file with the Securities
and Exchange Commission any and all amendments to this Report, with exhibits
thereto and other documents in connection therewith, hereby ratifying and
confirming all that said attorney-in-fact and agent, or any substitute
therefore, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON
MARCH __, 2000.
SIGNATURE TITLE
------------------- ----------------------------------------
/s/ George V. Bayly Director, Chairman of the Board,
------------------- President and Chief Executive Officer
George V. Bayly (Principal Executive Officer)
/s/ Frank V. Tannura Director, Executive Vice President and Chief
-------------------- Financial Officer (Principal Financial
Frank V. Tannura Officer)
/s/ David E. Wartner Vice President and Corporate Controller
-------------------- (Principal Accounting Officer)
David E. Wartner
/s/ Glenn R. August Director
-------------------
Glenn R. August
/s/ Anthony P. Scotto Director
---------------------
Anthony P. Scotto
/s/ William J. White Director
--------------------
William J. White
/s/ R. James Comeaux Director
--------------------
R. James Comeaux
20
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Ivex Packaging Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 27, 2000, appearing on page 55 of the 1999 Annual Report to
Stockholders of Ivex Packaging Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14 (a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
January 27, 2000
21
<PAGE> 22
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31,
1999 1998
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 9 $ 9
-------- ---------
Total current assets 9 9
Investment in subsidiary 73,418 73,418
Due from IPC, Inc. 23,515 24,475
-------- ---------
Total assets $ 96,942 $ 97,902
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity:
Common stock, $.01 par value -
45,000,000 shares authorized
20,793,469 and 20,931,268 shares
issued and outstanding $ 209 $ 209
Paid in capital in excess of par value 339,354 339,098
Treasury stock (1,216)
-------- ---------
Accumulated deficit (241,405) (241,405)
-------- ---------
Total stockholders' equity 96,942 97,902
-------- ---------
Total liabilities and stockholders' equity $ 96,942 $ 97,902
======== =========
See Notes to Consolidated Financial Statements in Item 8.
22
<PAGE> 23
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1999 1998 1997
------- ------- --------
Interest expense $ $ $ 11,447
------- ------- --------
Loss before extraordinary loss (11,447)
Extraordinary loss (22,297)
------- ------- --------
Net loss $ $ $(33,744)
======= ======= ========
See Notes to Consolidated Financial Statements in Item 8.
23
<PAGE> 24
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PAID IN STOCK-
COMMON STOCK CAPITAL IN HOLDERS'
--------------------------- EXCESS OF ACCUMULATED TREASURY EQUITY
SHARES AMOUNT PAR VALUE DEFICIT STOCK (DEFICIT)
------------ ---------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,072,246 $ 11 $ 177,375 $ (207,661) $ $ (30,275)
Issuance of management shares 218,968 2 33,824 33,826
Common stock split 11,175,452 112 (112)
Issuance of common stock 7,960,000 79 117,235 117,314
Net loss (33,744) (33,744)
------------ ---------- ---------- ---------- ---------- ---------
Balance at December 31, 1997 20,426,666 204 328,322 (241,405) 87,121
Issuance of common stock 500,000 5 10,702 10,707
Exercise of common stock options 4,602 74 74
------------ ---------- ---------- ---------- ---------- ---------
Balance at December 31, 1998 20,931,268 209 339,098 (241,405) 97,902
Exercise of common stock options 16,001 256 256
Purchase of treasury stock (153,800) (1,216) (1,216)
------------ ---------- ---------- ---------- ---------- ---------
Balance at December 31, 1999 20,793,469 $ 209 $ 339,354 $ (241,405) $ (1,216) $ 96,942
============ ========== ========== ========== ========== =========
</TABLE>
See Notes to Consolidated Financial Statements in Item 8.
24
<PAGE> 25
IVEX PACKAGING CORPORATION
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(PARENT COMPANY ONLY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
------------
1999 1998 1997
-------- ------------ ---------
<S> <C> <C> <C>
Cash flows used by operating activities:
Net loss $ $ $ (33,744)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization of debt issue costs 207
Non-cash interest 11,223
Extraordinary loss 22,297
-------- -------- ---------
(17)
Cash flows from financing activities:
Proceeds from issuance of stock 10,707 117,314
Redemption of 13 1/4% discount debentures (117,363)
Debt redemption costs (20,084)
Transfer from (to) IPC, Inc. 960 (10,781) 20,132
Exercise of common stock options 256 74
-------- -------- ---------
Net cash from (used by) financing activities 1,216 (1)
-------- -------- ---------
Cash flows from investing activities:
Purchase of treasury stock (1,216)
-------- -------- ---------
Net cash used by investing activities: (1,216)
-------- -------- ---------
Net decrease in cash and cash equivalents (18)
Cash and cash equivalents at beginning of
period 9 9 27
-------- -------- ---------
Cash and cash equivalents at end of period $ 9 $ 9 $ 9
======== ======== =========
</TABLE>
See Notes to Consolidated Financial Statements in Item 8.
25
<PAGE> 26
IVEX PACKAGING CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BEGINNING ENDING
DESCRIPTION BALANCE ADDITIONS DEDUCTIONS BALANCE
--------------------------------- --------- --------- ---------- -------
<S> <C> <C> <C> <C>
Accounts receivable -- allowance
for doubtful accounts:
1997 $ 2,080 $1,050 (1) $ (586)(2) $2,544
1998 2,544 1,169 (1) (846)(2)(3) 2,867
1999 2,867 2,778 (1) (652)(2) 4,993
Income Taxes --
valuation allowance:
1997 $18,190 -- $(15,890)(4) $2,300
1998 2,300 $ 276 2,576
1999 2,576 1,018 (1,400) 2,194
</TABLE>
(1) Reflects additions of $328, $388 and $107 associated with acquisitions for
the years ended December 31, 1999, 1998 and 1997, respectively.
(2) Accounts charged off, less recoveries.
(3) Includes $261 as a result of the disposition of the Company's Detroit paper
mill.
(4) Reflects the utilization of net operating loss carryovers for a portion of
1997 and the reversal of $13,200 of valuation allowance during the third
quarter of 1997.
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
------- -----------------------------------------------------------------
<S> <C> <C>
3.1 -- Amended and Restated Certificate of Incorporation of Ivex
Packaging Corporation ("Holdings" or "Ivex")
3.2 -- Amended By-Laws of Ivex
3.3 -- Form of Certificate of Elimination of Senior Cumulative
Exchangeable Preferred Stock of Ivex
3.4 -- Form of Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock
4.1 -- Form of Registration Rights Agreement, dated as of September
30, 1997, among Ivex, Acadia Partners, L.P., and the other
stockholders party thereto
4.2 -- Amended and Restated Credit Agreement, dated as of October 2,
1997, by and among IPC, Ivex, NationsBank, N.A. and Bankers
Trust, as agents, and the guarantees and lenders identified on
the signature pages thereto
4.3 -- Form of Amended and Restated Pledge Agreement, dated as of
October 2, 1997, among Ivex, IPC, certain of IPC's
subsidiaries and NationsBank, N.A., and Bankers Trust Company,
as agents
4.4 -- Form of Amended and Restated Security Agreement, dated as of
October 2, 1997, among Ivex, IPC, and certain of IPC's
subsidiaries and NationsBank, N.A., and Bankers Trust Company,
as agents
4.5 -- Form of Amended and Restated Mortgage and Security Agreement
4.6 -- Form of First Amendment to Amended and Restated Credit Agreement
4.7 -- Form of Second Amendment to Amended and Restated Credit Agreement
4.8 -- Form of Third Amendment to Amended and Restated Credit Agreement
4.9 -- Rights Agreement, dated as of February 10, 1999, between Ivex
and First Chicago Trust Company of New York
4.10 -- Form of Fourth Amendment to Amended and Restated Credit Agreement
4.11 -- Form of Fifth Amendment to Amended and Restated Credit Agreement
4.12 -- 1999 Stock Option Plan for Non-Employee Directors
10.1 -- Form of Ivex Senior Management Annual Incentive Plan(1)
10.2 -- Form of Nonqualified Deferred Compensation Plan(1)
10.3 -- Form of Nonqualified Deferred Compensation Trust Agreement(1)
10.4 -- Form of IPC Stock Purchase and Option Agreement, dated as of
January 1, 1993, among IPC, Ivex, Acadia Partners, L.P. and
each of certain senior managers of IPC with the Ivex Stock
Purchase and Option Agreement attached thereto(1)
10.5 -- Form of Amended and Restated IPC Stock Option and Purchase
Agreement and Amended and Restated Ivex Stock Option and
Purchase Agreement, each dated as of January 1, 1996(1)
10.6 -- IPC Retirement Plan and Trust, as amended and Restated May 1, 1992(1)
10.7 -- Amended and Restated Employment Agreement, dated as of May 30,
1996, between George V. Bayly and IPC(1)
10.8 -- Form of Amendment No. 1 to Amended and Restated Employment
Agreement between George V. Bayly and IPC(1)
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
<S> <C>
*10.9 -- Form of Amended and Restated Employment Agreement, dated
as of October 31, 1999, between IPC and Frank V. Tannura (1)
*10.12 -- Form of Severance Agreement between the Company and certain
named executive officers (1)
10.13 -- Form of Ivex Packaging Corporation 1997 Long-Term Stock
Incentive Plan(1)
10.14 -- Form of Senior Management's Promissory Note to IPC(1)
10.40 -- Loan Agreement, dated as of December 1, 1987, between the
County of Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a
IPC, Inc.)
10.41 -- Loan Agreement, dated as of June 1, 1988, between the
Development Authority of Morgan County and Ivex of Delaware,
Inc. (n/k/a IPC, Inc.)
10.42 -- Loan Agreement, dated as of October 1, 1987, between the
County of Will, Illinois and LPX, Inc. (n/k/a IPC, Inc.)
10.43 -- Loan Agreement, dated as of April 1, 1988, between the
Illinois Development Finance Authority and Ivex of Delaware,
Inc. (n/k/a IPC, Inc.)
10.44 -- Indenture of Trust, dated as of March 1, 1989, between
Marine Midland Bank, N.A. and Ivex of Delaware, Inc. (n/k/a
IPC, Inc.)
10.45 -- Loan Agreement, dated November 1, 1985, between the Village of
Bridgeview, Illinois and L&CP Corporation (n/k/a IPC, Inc.)
10.46 -- Loan Agreement, dated as of June 1, 1988, between City of
Troy, Ohio and L&CP Corporation (n/k/a IPC, Inc.)
10.47 -- Lease Agreement, dated as of December 5, 1996, between State
Street Bank and Trust Company and IPC
10.48 -- Lease, dated as of October 4, 1988, between Seymour C.
Graham and Kama Corporation (n/k/a IPC, Inc)
10.49 -- Amendment to Lease, dated as of December 20, 1988, between
Seymour C. Graham and Kama Corporation (n/k/a IPC, Inc.)
10.50 -- Lease, dated June 20, 1995, between Howard H. Gelb and
Eunice Gelb and Kama Corporation (n/k/a IPC, Inc.)
10.51 -- Industrial Building Lease, dated January 8, 1998, between Arapahoe
Properties, L.L.C. and Packaging Products, Inc.
10.52 -- Lease, dated as of September 11, 1996, by and between
Joseph P. Bennett and Trio Products, Inc.
10.53 -- Installment Sales Agreement, dated as of December 12, 1990,
between Grove City Industrial Development Corporation and Ivex
Converted Products Corporation (n/k/a IPC, Inc.)
10.54 -- Form of Lease Agreements, dated May 1, 1993, November 20, 1994
and November 20, 1994, between Ultra Pac, Inc. and the landlord
thereof
10.55 -- Lease Agreement, dated as of April 16, 1999, between
Pactuco Acquisition, Inc. and Gowing Leasing Company
10.70 -- Tax Sharing Agreement, dated as of December 17, 1992,
between Ivex and IPC and certain of IPC's subsidiaries
10.71 -- Form of Agreement and Plan of Merger, dated as of March 23,
1998, among Ivex Package Acquisition, Inc. and Ultra Pac, Inc.
*13 -- Annual Report to Securityholders for the year ended December 31, 1999
21.1 -- Subsidiaries of Ivex
*23.1 -- Consent of PricewaterhouseCoopers LLP
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
<S> <C>
27 -- Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
</TABLE>
(1) Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
* Filed herewith.
29
<PAGE> 1
EXHIBIT 4.11
FIFTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is entered into as of March 3, 2000 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, by that certain Fourth Amendment to
Amended and Restated Credit Agreement and First Amendment to Amended and
Restated Security Agreement dated as of October 26, 1999 and as may be further
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement");
WHEREAS, the Borrower wishes to amend and modify certain terms of the
Credit 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 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:
1. Amendment to Credit Agreement.
(a) Fixed Charge Coverage Ratio. The following sentence is hereby
added at the end of the definition of "Fixed Charge Coverage Ratio" in
Section 1.1 of the Credit Agreement and shall read as follows:
<PAGE> 2
Notwithstanding the foregoing, for purposes of calculating the Fixed
Charge Coverage Ratio as of the fiscal quarters ending on March 31, 2000,
June 30, 2000 and September 30, 2000, Capital Expenditures shall not
include those expenditures, in an amount not to exceed $11,000,000, of
Holdings and its Subsidiaries for (a) the extrusion line installed at the
Rogers, Minnesota plant, (b) the extrusion line installed at the Manteno,
Illinois plant and (c) the four thermoformers installed at the Rogers,
Minnesota plant.
2. 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.
(b) The Administrative Agent shall have received such other documents
and information as it deems reasonably necessary.
3. Miscellaneous.
(a) The term "Credit Agreement" as used in each of the Credit
Documents shall hereafter mean the Credit Agreement as amended by this
Amendment. Except as herein specifically agreed, the Credit Agreement and
the obligations of the Credit Parties thereunder and under the other Credit
Documents, are hereby ratified and confirmed and shall remain in full force
and effect according to their terms.
(b) Each of the Borrower, the Guarantors, the Agents and the Lenders
party hereto represents and warrants as follows:
(i) It has taken all necessary action to authorize the execution,
delivery and performance of this Amendment.
(ii) This Amendment has been duly executed and delivered by such
party and constitutes such party's legal, valid and binding
obligations, enforceable in accordance with its terms, except as such
enforceability may be subject to (i) bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity).
(iii) No consent, approval, authorization or order of, or filing,
registration or qualification with, any court or governmental
authority or third party is required in connection with the execution,
delivery or performance by such party of this Amendment.
(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
2
<PAGE> 3
Credit 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]
3
<PAGE> 4
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
4
<PAGE> 5
BLEYER ACQUISITION, INC.
a Delaware corporation
By:
--------------------------------
Name: Richard R. Cote
Title: Vice President and Treasurer
of each of the above named Guarantors
5
<PAGE> 6
ULTRA PAC, INC.
a Minnesota corporation
PACTUCO ACQUISITION, INC.
a Delaware corporation
By:
---------------------------------
Name: G. Douglas Patterson
Title: Secretary of each of the
above named Guarantor
6
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of this 31st day of October, 1999, between
IPC, Inc. (formerly Ivex Packaging Corporation), a Delaware coloration, (the
"Company") and Frank V. Tannura (the "Executive").
The Executive is currently employed by the Company under an Employment
Agreement dated as of December 31, 1992, as amended as of September 11, 1995 and
May 30, 1996 (as so amended, the "1992 Agreement"), and the Company and the
Executive desire to enter into this Amended and Restated Agreement with respect
to the Executive's continuing employment by the Company on the terms and
conditions set forth herein, amending and restating in its entirety the 1992
Agreement.
Accordingly, the parties agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment by the Company; Duties. The Company hereby agrees to
continue to employ the Executive for a current term expiring at the end of the
day on October 31, 2002, unless earlier terminated as herein provided. Beginning
on November 1, 1999, the term of this Agreement shall be extended automatically
for one (1) additional day for each day which has then elapsed since October 31,
1999 unless, at any time after October 31, 1999, either the Board of Directors
of the Company (the "Board"), on behalf of the Company, or the Executive gives
written notice to the other, in accordance with Section 13.2, below, that such
automatic extension of the term of this Agreement shall cease. Any such notice
shall be effective immediately upon delivery. The current term of this
Agreement, plus any extension by operation of this Section 1, shall be
hereinafter referred to as the "Term." During the Term, the Executive shall at
all times serve in the capacity of Executive Vice President and Chief Financial
Officer of the Company. During the Term, the Executive shall devote his best
efforts and substantially all his business time and services to the Company and
Ivex, subject to the direction of the Board.
1.2 Acceptance of Employment by the Executive. The
1
<PAGE> 2
Executive hereby accepts such continuing employment and shall render the
services and perform the duties described above.
2. Compensation and Other Benefits.
2.1 Annual Salary. The Company shall pay to the Executive an
annual salary (the "Annual Salary") of not less than $344,000 per year. The
Annual Salary may be increased from time to time at the sole discretion of the
Board. The Annual Salary shall be payable in accordance with the payroll
policies of the Company as from time to time in effect, but in no event less
frequently than twice each month, less such deductions as shall be required to
be withheld by applicable law and regulations.
2.2 Bonuses. The Company shall pay to the Executive an annual
performance bonus based upon the terms and provisions of the Company's Senior
Management Incentive Compensation Plan. The Executive may also receive such
additional bonuses as shall, in the discretion of the Board, be awarded to him.
2.3 Vacation Policy. The Executive shall be entitled to paid vacation
in accordance with the vacation policy of the Company; provided, however, that
the Executive shall be entitled to at least four (4) weeks paid vacation during
each year of the Term.
2.4 Benefits. The Company agrees to permit the Executive during the
Term, if and to the extent eligible, to participate in any stock, option or
other equity or long-term incentive compensation plan, group life,
hospitalization or disability insurance plan, health program, pension,
supplemental pension or retirement plan, savings plan, similar benefit plan or
other so-called "fringe benefits" of the Company (collectively "Benefits") which
may be available to other senior executives of the Company, with the Executive's
participation to be on terms no less favorable to the Executive than the terms
provided to such other executives.
2.5 General Business Expenses. The Company shall pay or reimburse the
Executive for all expenses reasonably and necessarily incurred by the Executive
during the Term in the performance of the Executive's services under this
Agreement. Such payment shall be made upon presentation of such documentation as
the Company customarily requires of its senior executive employees prior to
making such payments or reimbursements. In addition, the Company shall provide
the
2
<PAGE> 3
Executive with appropriate office space, office furniture and supplies and the
services of a secretary in the Chicago area.
2.6 Company Car and Country Club Membership. During the Term, the
Company shall provide for the Executive, at the Company's expense, a late model
automobile for the Executive's use in the performance of his services under the
Agreement. In addition, the Company shall reimburse the Executive for any annual
membership fees of a country club to be designated by the Executive during the
Term.
3. Non-Competition.
3.1 Covenants Against Competition. The Executive acknowledges that:
(a) the Company, through its subsidiaries, is currently engaged in the business
of (1) manufacturing and selling coated and laminated papers, films and foil
which are used in a wide range of industrial and commercial applications, (2)
manufacturing, thermoforming and distributing polystyrene, oriented polystyrene
sheet, oriented polystyrene film, high impact polystyrene sheet and related
polystyrene products that have been developed or produced by the Company and its
subsidiaries, (3) manufacturing and selling of thermoformed plastic containers
and parts including, without limitation, food packaging applications, (4)
manufacturing and selling of kraft and crepe papers and (5) manufacturing and
selling of converted paper products including, without limitation, single-faced
corrugated paper products, shipping and mailing envelopes and fluted paper
packaging products, and the Company may, during the Term, enter into other
related types of businesses (collectively, the "Company Business"); (b) the
Company Business is conducted throughout the United States and Canada; (c) his
work for the Company will give him access to trade secrets of and confidential
information concerning the Company and its subsidiaries; (d) the agreements and
covenants contained in this Agreement are essential to protect the business and
goodwill of the Company; and (e) he has means to support himself and his
dependents other than by engaging in the Company Business and the provisions of
this Agreement will not impair such ability. Accordingly, the Executive
covenants and agrees as follows:
3.1.1 Non-Compete. The Executive shall not during the Restricted
Period (as defined below) in the United States, Canada or any other place where
the Company and its affiliates conduct substantial manufacturing operations
related to the Company Business, directly or indirectly (except in the
Executive's capacity as an officer of the Company or any of its
3
<PAGE> 4
affiliates), (a) engage or participate in the Company Business; (b) enter the
employ of, or render any other services to, any person engaged in the Company
Business; or (c) become interested in any such person in any capacity,
including, without limitation, as an individual partner, shareholder, lender,
officer, director, principal, agent or trustee; provided, however, that the
Executive may own, directly or indirectly, solely as an investment, securities
of any entity traded on any national securities exchange or listed on the
National Association of Securities Dealers Automated Quotation System if the
Executive is not a controlling person of, or a member of a group which controls,
such entity and the Executive does not, directly or indirectly, own five percent
(5%) or more of any class of equity securities, or securities convertible into
or exercisable or exchangeable for five percent (5%) or more of any class of
equity securities, of such entity. As used herein, the "Restricted Period" shall
mean a period commencing on December 31, 1992 and terminating upon the first to
occur of (w) the date on which the Company terminates the Executive's employment
without Cause, (x) the date on which the Executive terminates his employment for
Good Reason, (y) the date of termination of this Agreement, or (z) the date on
which a Change of Control (as defined in Section 9, below) occurs; provided,
however, that if the Company shall have terminated the Executive's employment
with the Company for Cause or if the Executive shall have terminated his
employment with the Company without Good Reason, the Restricted Period shall end
on the first anniversary of such termination of employment.
3.1.2 Confidential Information; Personal Relationships. The Executive
acknowledges that the Company has a legitimate and continuing proprietary
interest in the protection of its confidential information and that it has
invested substantial sums and will continue to invest substantial sums to
develop, maintain and protect confidential information. The Executive agrees
that, during and after the Restricted Period, the Executive shall keep secret
and retain in strictest confidence, and shall not use for the benefit of himself
or others, all confidential information directly relating to the Company
Business including, without limitation, financial information, trade secrets,
customer lists, details of client or consultant contracts, pricing policies,
operational methods, marketing plans or strategies, product development
techniques or plans, business acquisition plans, new personnel acquisition
plans, methods of manufacture, technical processes, designs and design projects,
inventions and research projects of the Company, its affiliates, or any other
entity which may
4
<PAGE> 5
hereafter become an affiliate thereof, learned by the Executive heretofore or
hereafter unless otherwise in the public domain other than as a result of
disclosure by the Executive.
3.1.3 Property of the Company. All memoranda, notes, lists, records,
engineering drawings, technical specifications and related documents and other
documents or papers (and all copies thereof) relating to the Company, including
such items stored in computer memories, microfiche or by any other means, made
or compiled by or on behalf of the Executive since December 31, 1992, or made
available to the Executive after that date relating to the Company, its
affiliates or any entity which may hereafter become an affiliate thereof, shall
be the property of the Company, and shall be delivered to the Company promptly
upon the termination of the Executive's employment with the Company or at any
other time upon request.
3.1.4 Original Material. The Executive agrees that any inventions,
discoveries, improvements, ideas, concepts or original works of authorship
relating directly to the Company Business, including without limitation computer
apparatus, programs and manufacturing techniques, whether or not protectable by
patent or copyright, that have been originated, developed or reduced to practice
by the Executive alone or jointly with others during the Executive's employment
with the Company shall be the property of and belong exclusively to the Company.
The Executive shall promptly and fully disclose to the Company the origination
or development by the Executive of any such material and shall provide the
Company with any information that it may reasonably request about such material.
3.1.5 Employees of the Company and its Affiliates. During the
Restricted Period, the Executive shall not, directly or indirectly, (a) hire or
solicit, or cause others to hire or solicit, for employment by any person other
than the Company or any affiliate or successor thereof, any employee of, or
person employed within the two (2) years preceding the Executive's hiring of
such person or solicitation of such person by, the Company and its affiliates or
successors or (b) encourage any such employee to leave his or her employment.
3.1.6 Customers of the Company. During the Restricted Period, the
Executive shall not, except by reason of and in his capacity as an officer of
the Company, directly or indirectly request or advise a customer of the Company
or its subsidiaries to curtail or cancel such customer's business
5
<PAGE> 6
relationship with the Company.
3.2 Rights and Remedies Upon Breach. If the Executive breaches, or
threatens to commit a breach of, any of the provisions contained in Section 3.1
of this Agreement (the "Restrictive Covenants"), the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the others and severally enforceable, and each of which is in
addition to, and not in lieu of, any other rights and remedies available to the
Company under law or in equity:
3.2.1 Specific Performance. The right and remedy to have the
Restrictive Covenants specifically enforced by any court of competent
jurisdiction, it being agreed that any breach or threatened breach of the
Restrictive Covenants would cause irreparable injury to the Company and that
money damages would not provide an adequate remedy to the Company.
3.2.2 Accounting. The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by the Executive as
the result of any action constituting a breach of the Restrictive Covenants.
3.3 Severability of Covenants. The Executive acknowledges and agrees that
the Restrictive Covenants are reasonable and valid in duration and geographical
scope and in all other respects. If any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect without regard to the invalid portions.
3.4 Blue-Pencilling. If any court determines that any of the Restrictive
Covenants, or any part thereof, is unenforceable because of the duration or
geographical scope of such provision, such court shall have the power to reduce
the duration or scope of such provision, as the case may be, and, in its reduced
form, such provision shall then be enforceable.
3.5 Enforceability in Jurisdictions. The Company and the Executive intend
to and hereby confer jurisdiction to enforce the Restrictive Covenants upon the
courts of any jurisdiction within the geographical scope of such Restrictive
Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants unenforceable by reason of the breadth of such scope or
otherwise, it is the
6
<PAGE> 7
intention of the Company that such determination not bar or in any way affect
the right of the Company to the relief provided above in the courts of any other
jurisdiction within the geographical scope of such Restrictive Covenants, as to
breaches of such Restrictive Covenants in such other respective jurisdictions,
such Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
4. Termination.
4.1 Termination upon Death. If the Executive dies during the Term,
this Employment Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Annual Salary earned up to the
date of the Executive's death, plus (a) unpaid Benefits accrued up to the date
of Executive's death, (b) an amount equal to the Executive's target annual
performance bonus for the year in which his death occurs, multiplied by a
fraction, the numerator of which is the number of days that the Executive was
employed by the Company during that year and the denominator of which is three
hundred and sixty-five (365), and (c) the benefits described under Section 5.7
hereof. In addition, the Company shall, for the remainder of the Term, continue
to provide the Executive's dependents with Benefits at the levels that were
applicable to the Executive and his dependents on the date immediately prior to
his death, or provide equivalent benefits through separate insurance coverage.
4.2 Termination With Cause. The Company has the right, at any time
during the Term, subject to all of the provisions hereof, exercisable by serving
notice, effective on or after the date of service of such notice as specified
therein, to terminate the Executive's employment under this Agreement and
discharge the Executive for Cause. As used in this Section 4.2, the term "Cause"
shall mean and include (a) chronic alcoholism or drug addition, (b) deliberate
misappropriation of any material amount of money or other assets or properties
of the Company or any affiliate or successor thereof, (c) except where the
nonperformance is caused by the illness or other similar incapacity or
disability of the Executive, gross and continuing neglect in the substantial
performance of duties reasonably assigned to the Executive or the deliberate or
continuing performance of duties that are in contravention of the Board's
directions, that in either case, are not corrected promptly upon receipt by the
Executive of written notice delivered at the direction of the Board
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specifically identifying the manner in which it is alleged that the Executive
has not substantially performed his duties and/or continued to perform duties in
contravention of the Board's instructions, (d) any willful and material breach
of any of the terms of this Agreement except where the breach is caused by the
illness or other similar incapacity or disability of the Executive or (e)
conviction of a misdemeanor involving moral turpitude or conviction of a felony.
If the Company terminates the Executive's employment for Cause, the Company's
obligation to the Executive shall be limited solely to the payment of unpaid
Annual Salary accrued and Benefits vested up to the effective date specified in
the Company's notice of termination.
4.3 Suspension upon Disability. If during the Term the Executive
becomes physically or mentally disabled and is entitled to receive benefits
under the Executive's supplemental disability insurance program, the Company may
at any time thereafter, by written notice to the Executive, suspend the term of
the Executive's employment hereunder and discontinue payments of the Annual
Salary for the duration of the disability. No action permitted by this Section
4.3 shall be deemed to extend the Term or to constitute a breach of this
Agreement. Any other provision of this Section 4.3 notwithstanding, if the
Executive is permanently disabled to such an extent that he is eligible to
receive benefits under his supplemental disability policy, then the Company
shall, for the remainder of the Term, continue to provide the Executive and his
dependents with Benefits at the levels that were applicable to the Executive and
his dependents immediately prior to his disability, or provide equivalent
benefits through separate insurance coverage and the Executive shall be entitled
to the benefits under Section 5.7 hereof.
4.4 Termination Without Cause. The Company may, at any time during the
Term, terminate the Executive's employment without Cause by giving the Executive
notice of such termination, effective on or after the date of service of such
notice. In the event of such termination, the Executive shall be entitled to
receive the severance benefits described in Section 5, below.
4.5 Termination for Good Reason. The Executive may terminate his
employment hereunder for Good Reason at any time during the Term by giving the
Company notice of such termination, effective on or after the date of service of
such notice. For purposes of this Agreement, "Good Reason" shall mean the
continuation of any of the following (without the Executive's express prior
written consent) after written notice
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<PAGE> 9
provided by the Executive and the failure by the Company to remedy such event or
condition within thirty (30) days after receipt of such notice:
(a) A reduction in the Executive's Annual Salary, as in effect
pursuant to Section 2.1;
(b) Failure by the Company to pay to the Executive any bonus
which is payable pursuant to Section 2.2;
(c) A failure by the Company to provide, on terms no less
favorable to the Executive than the terms offered to the other comparable
executives of the Company, any benefit or compensation plan (including any
pension, profit sharing, life insurance, health, accidental death or
dismemberment or disability plan), or any substantially similar benefit or
compensation plan, which has been made available to other comparable executives
of the Company; provided, however, that nothing in this part (c) shall be
construed to mean that the Company shall be constrained from amending or
eliminating any benefit or compensation plan as such is applied to the Executive
and to other comparable executives of the Company;
(d) The assignment to the Executive of any duties materially
inconsistent with the Executive's position as Executive Vice President and Chief
Financial Officer of the Company or the substantial diminution of the
Executive's duties or authorities from those which the Executive has on the date
hereof;
(e) A change in the Executive's title or the line of authority
through which the Executive is required to report, it being understood that the
Executive shall report directly to the President and Chief Executive Officer but
shall, on occasion, be expected to perform tasks at the direction of the Board;
(f) Failure by the Company to obtain, in accordance with Section
12, below, the written agreement of any successor in interest to the business of
the Company to assume and perform the obligations of the Company under this
Agreement;
(g) The giving of notice by the Company to stop the automatic
extension of the Term which is provided for by Section 1.1 of this Agreement;
(h) Any other material breach of this
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Agreement by the Company; or
(i) Any material breach of any stock option, equity, long-term
incentive compensation or other similar plan; or
(j) Any transfer of the place of employment of the Executive to a
location more than fifty (50) miles from the Chicago "Loop".
Anything in this Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the period of three (3) months which begins six
(6) months after a Change of Control shall be deemed to be a termination for
Good Reason for all purposes of this Agreement. In the event of any termination
for Good Reason, the Executive shall be entitled to receive the severance
benefits described in Section 5 below.
4.6 Termination without Good Reason. The Executive may, at any time
during the Term, terminate his employment under this Agreement by giving the
Company at least thirty (30) days prior written notice of such termination. In
the event of such termination, the Company shall pay to the Executive all Annual
Salary, annual performance bonuses and Benefits which have accrued as of the
effective date of such termination but may discontinue payment of any
compensation or benefits accruing from and after such date.
5. Severance Benefits. In the event the Executive becomes entitled, under
Section 4.4 or Section 4.5, above, to severance benefits under this Section 5,
he shall receive the following, in addition to payment of his Annual Salary
through the date of termination of his employment:
5.1 A lump sum, payable upon termination of employment, equal to three
(3) times the sum of (a) the Executive's Annual Salary for one (1) year, at the
rate in effect at the time of the termination of his employment (or, if the
Company has reduced the Executive's Annual Salary in breach of this Agreement,
at the Executive's Annual Salary rate without regard to such reduction) and (b)
the target amount of the Executive's annual performance bonus for the year in
which the termination of his employment occurs;
5.2 Payment, upon termination of employment, of an annual performance
bonus for the year of termination, calculated by multiplying the target amount
of the Executive's annual
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performance bonus for the year by a fraction, the numerator of which is the
number of days that the Executive was employed by the Company during that year
and the denominator of which is three hundred and sixty-five (365);
5.3 Payment in due course of any Benefits accrued to the date of
termination but previously unpaid;
5.4 Continuation of Benefits for the Executive and his dependents for
three (3) years after the date of termination of the Executive's employment, at
the levels that were applicable to the Executive and such dependents immediately
prior to such termination, or provision of equivalent benefits through separate
insurance coverage; provided, however, that the medical insurance coverage
provided through such continuation of Benefits will continue until the date on
which the Executive begins to be covered by medical insurance provided by a new
employer. Execution of this Agreement by the Executive shall not be considered a
waiver of any rights or entitlements he may have under applicable law to
continuation of coverage under any group health plan maintained by the Company
or any of its affiliates;
5.5 If such termination occurs on or after (or within close proximity
of) a Change of Control, the acceleration of vesting under the Company's stock
option and restricted stock plans and under Packaging Holdings, L.L.C.'s
Long-Term Incentive Compensation Plan;
5.6 If such termination occurs on or after (or within close proximity
of) a Change of Control, outplacement services for a period of two (2) years or,
if earlier, until the first acceptance by the Executive of an offer of
employment, in an aggregate amount not to exceed $25,000; and
5.7 The extension of (until the earlier to occur of (x) the sale of
the Company common stock relating thereto, (y) the second anniversary of the
date of the Executive's termination or (z) September 30, 2007) the maturity date
of the Executive's promissory note(s) to the Company which were executed in
connection with the Executive's receipt of shares of the Company's common stock
at the time of the Company's initial public offering.
6. No Duty to Mitigate. After a termination of the Executive's employment
under this Agreement, the Executive will not be obligated to mitigate damages by
seeking other comparable
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employment.
7. Insurance. The Company may, from time to time, apply for and take
out, in its own name and at its own expense, naming itself or others as the
designated beneficiary (which it may change from time to time), policies for
life, health, accident, disability or other insurance upon the Executive in any
amount or amounts that it may deem necessary or appropriate to protect its
interest. The Executive agrees to aid the Company in procuring such insurance by
submitting to medical examinations and by filling out, executing and delivering
such applications and other instruments in writing as may reasonably be required
by an insurance company or companies to which any application or applications
for insurance may be made by or for the Company.
8. Indemnification.
8.1 The Company shall, to the extent not prohibited by law, indemnify
the Executive if he is made, or threatened to be made, a party to any
threatened, pending or completed, action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Company to procure a judgment in its favor (hereinafter a
"Proceeding"), by reason of the fact that the Executive is or was a director,
officer or employee of the Company, or is or was serving in any capacity at the
request of the Company for any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against judgments, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees and disbursements).
8.2 The Company shall, from time to time, reimburse or advance to the
Executive the funds necessary for payment of expenses, including attorneys' fees
and disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the Delaware General Corporation Law, such expenses incurred by or on behalf of
the Executive may be paid in advance of the final disposition of a Proceeding
only upon receipt by the Company of an undertaking, by or on behalf of the
Executive, to repay any such amount so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right of
appeal that the Executive is not entitled to be indemnified for such expenses.
8.3 The right to indemnification and reimbursement or
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advancement of expenses provided by, or granted pursuant to, this Section 8
shall not be deemed exclusive of any other rights which the Executive may have
or hereafter be entitled to under any law, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding office.
8.4 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall continue as
to the Executive after he has ceased to be a director, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of the
Executive.
8.5 The Company shall have power to purchase and maintain insurance on
behalf of the Executive against any liability asserted against the Executive or
incurred by the Executive in his capacity as a director, officer, employee or
agent of the Company, or arising out of the Executive's status as such, whether
or not the Company would have the power to indemnify the Executive against such
liability under the provisions of this Section 8, the by-laws of the Company or
under Section 145 of the Delaware General Corporation Law or any other provision
of law.
8.6 The right to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section 8 shall be
enforceable by the Executive in any court of competent jurisdiction. The burden
of proving that such indemnification or reimbursement or advancement of expenses
is not appropriate shall be on the Company. Neither the failure of the Company
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Company
(including its board of directors, independent legal counsel, or its
stockholders) that the Executive is not entitled to such indemnification or
reimbursement or advancement of expenses, shall constitute a defense to the
action or create a presumption that the Executive is not so entitled. The
Executive shall also be indemnified for any expenses incurred in connection with
successfully establishing his right to such indemnification or reimbursement or
advancement of expenses, in whole or in part, in any proceeding.
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8.7 If the Executive serves in any capacity (a) any affiliate of the
Company or (b) any employee benefit plan of the Company or any affiliate of the
Company, then he shall be deemed to be doing so at the request of the Company.
8.8 The Executive may elect to have his right to indemnification or
reimbursement or advancement of expenses interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the applicable Proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time such indemnification or
reimbursement or advancement of expenses is sought. Such election shall be made,
by a notice in writing to the Company, at the time indemnification or
reimbursement or advancement of expenses is sought; provided that if no such
notice is given, the right to indemnification or reimbursement or advancement of
expenses shall be determined by the law in effect at the time indemnification or
reimbursement or advancement of expenses is sought.
9. Change of Control.
(a) A "Change of Control" shall mean:
(i) The acquisition by any Person of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty
percent (20%) or more of either the Outstanding Ivex Common Stock or the
Outstanding Ivex Voting Securities; provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from Ivex, (B) any acquisition by Ivex, or
(C) any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by Ivex or any corporation controlled by Ivex; or
(ii) Individuals who, as of the date hereof, constitute the
board of directors of Ivex (the "Incumbent Ivex Board") cease for any reason to
constitute at least a majority of the board of directors of Ivex; provided,
however, that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the shareholders of Ivex, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Ivex Board shall be considered as though such individual were a member
of the Incumbent Ivex Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the
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<PAGE> 15
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Incumbent Ivex
Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Ivex Common Stock and Outstanding Ivex Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly, at
least sixty percent (60%) of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company's assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
respective ownership, immediately prior to such Business Combination, of the
Outstanding Ivex Common Stock and Outstanding Ivex Voting Securities; provided,
however, that the provisions of this Section 9(iii) shall be applied, in
connection with and after any such Business Combination, as if all references to
Ivex (except in the definition of, and references to, the Ivex Incumbent Board)
were replaced by references to the corporation resulting from such Business
Combination and shall be applied, with respect to any subsequent Business
Combination, as if the reference in this subsection (iii) to "at least sixty
percent (60%)" were replaced by a reference to "at least ninety-five percent
(95%)"; or
(iv) Approval by the shareholders of the Company or of Ivex
of a complete liquidation or dissolution of the Company or of Ivex,
respectively; provided, however, that a Change of Control shall not result from
approval by the shareholders of Ivex of a dissolution of Ivex for the purpose of
making a pro rata distribution of shares of the Company to the shareholders of
Ivex; and provided further that, after any such distribution, the provisions of
this Section 10 shall be applied as if all references to Ivex (except in the
definition of, and references to, the Ivex Incumbent Board) were replaced by
references to the Company.
10. Certain Additional Payments by the Company.
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10.1 Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 10) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, (the
"Code"), or if any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties, being hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
10.2 Subject to the provisions of Section 10.3, all determinations
required to be made under this Section 10, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by a nationally
recognized certified public accounting firm designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within fifteen (15) business days of the receipt
of notice from the Executive that there has been a Payment, or such earlier time
as is requested by the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group effecting a Change
of Control, the Executive may appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). The Accounting Firm shall
assist the Executive with the preparation and filing of any income tax return
required of the Executive which relates to the period or periods in which
Executive received a Payment or a Gross-Up Payment. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 10, shall be paid by the Company to the
Executive within five (5) days of the receipt of
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the Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 10.3 and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
10.3 The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of a Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty
(30)-day period following the date on which the Executive gives such notice to
the Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(a) Give the Company any information reasonably requested by the
Company relating to such claim,
(b) Take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) Cooperate with the Company in good faith in order effectively
to contest such claim, and
(d) Permit the Company to participate in any proceedings relating
to such claim; provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred in
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connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 10.3, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
10.4 If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 10.3, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 10.3) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 10.3, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance shall be
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forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of any Gross-Up Payment required
to be paid.
11. Payment of Attorneys' Fees. The Company shall pay promptly upon receipt
of proper invoices:
(a) All reasonable attorneys' fees and related expenses incurred
by the Executive in connection with the negotiation and preparation of this
Agreement; and
(b) To the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest by
the Company, the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment due pursuant to this Agreement), plus in each case interest (from
the date of any such disbursement by the Executive) at the applicable federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986,
as amended; provided, however, that the Company shall not be obligated to make
such payment with respect to any contest in which the Company prevails over the
Executive.
12. Successors. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. For purposes of this Section 12, the term "successor" shall
include any entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) which has ultimate beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of at least fifty percent
(50%) of any other entity or entities which succeed to all or substantially all
of the business and/or assets of the Company; provided, however, that the term
"successor" shall not include any partner or stockholder who is a natural
person. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement, by operation of
law or otherwise.
13. Other Provisions.
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13.1 Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to any person means any other
person controlling, controlled by or under common control with, or the parents,
spouse, lineal descendants or beneficiaries of, such person.
(ii) "person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other entity.
13.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid, or by reputable commercial delivery service. Any
such notice shall be deemed given when delivered as follows:
(a) If to the Company, to:
IPC, Inc.
100 Tri-State Drive Suite 200
Lincolnshire, Illinois 60069
Attention: Mr. George V. Bayly
with a copy to:
IPC, Inc.
100 Tri-State Drive
Suite 200
Lincolnshire, Illinois 60069
Attention: G. Douglas Patterson, Esq.
(b) If to the Executive, to:
Frank V. Tannura
16 Ridge Farm Road
Burr Ridge, Illinois 60521
with a copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street, Suite 2600
Chicago, Illinois 60601
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Attention: Robert J. Stucker, Esq.
Any party may change its address for notice hereunder by notice to the other
party hereto.
13.3 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and, in amending
and restating the 1992 Agreement, supersedes the 1992 Agreement and (except for
those agreements relating to the Executive's option and equity arrangements) all
other prior agreements, written or oral, with respect thereto.
13.4 Waivers and Amendments. This Agreement may be amended,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties or, in the
case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof. Nor shall any waiver on the part of any party of any such right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
13.5 Governing Law and Enforcement. This Agreement shall be governed
by and construed in accordance with the laws of the State of Illinois, where the
employment of the Executive shall be deemed, in major part, to be performed, and
enforcement of this Agreement or any other legal action taken with respect to
this Agreement shall be taken in the courts of appropriate jurisdiction in Lake
County, Illinois.
13.6 Assignment. This Agreement, and any rights and obligations
hereunder, may not be assigned by the Executive.
13.7 Counterparts. This Agreement may be executed in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
13.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
13.9 Confidentiality. The Executive hereby agrees to keep the terms
and provisions of this Agreement confidential.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
IPC, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
EXECUTIVE
-----------------------------
Frank V. Tannura
GUARANTEE
Ivex Packaging Corporation, the holding company for the Company, hereby
guarantees the payment of all compensation, payments and/or benefits due to the
Executive or his dependents or beneficiaries under this Agreement or any of the
plans, programs or arrangements referred to herein, if, as and when such
compensation, payments and/or benefits are not timely paid by the Company or are
not otherwise timely paid pursuant to any such plan, program or arrangement.
IVEX PACKAGING CORPORATION
By:
--------------------------
Name:
------------------------
Title:
-----------------------
22
<PAGE> 1
EXHIBIT 10.11
IVEX PACKAGING CORPORATION
1999 LONG-TERM INCENTIVE COMPENSATION PLAN
1 Purpose.
The purpose of the Ivex Packaging Corporation 1999 Long-Term Incentive
Compensation Plan (the "Plan") is to align the interests of employees of Ivex
Packaging Corporation, a Delaware corporation (the "Company") with those of the
equity holders of the Company, to attract, motivate and retain the best
available employees of the Company, and to reward the performance of such
individuals in the performance of their services.
2. Definitions.
The following terms, as used herein, shall have the following
meanings:
(a) "Award" shall mean the grant of a cash award to a Participant under
the Plan, which will become Vested and Earned as set forth herein.
(b) "Award Agreement" shall mean any written letter, agreement, contract
or other instrument or document signed by the Company evidencing one
or more annual Awards; each Award Agreement shall set forth, among
other things, the dollar amount of each annual Award granted pursuant
thereto and the grant date thereof.
(c) "Change in Control" shall mean
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20.0%) or more of the
common stock or other voting securities of the Company; provided,
however, for purposes of this definition the following acquisitions
shall not constitute a Change in Control (A) any acquisition directly
from the Company or (B) any acquisition by the Company; or
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<PAGE> 2
(ii) Individuals who, as of the date hereof, constitute the board
of directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the board of directors of
the Company; provided, however, that any individual becoming a
director subsequent to the date hereof whose election was approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a
member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets
of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, all or substantially all of the
individuals and entities who were the beneficial owners, respectively,
of the outstanding common stock or other voting securities of the
Company immediately prior to such Business Combination beneficially
own, directly or indirectly, at least sixty percent (60%) of the then
outstanding common stock or other voting securities of the entity
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the
same proportions as their respective ownership immediately prior to
such Business Combination; provided, however, that the provisions of
this clause (iii) shall be applied, in connection with and after any
such Business Combination, as if all references to the Company were
replaced by references to the entity resulting from such Business
Combination and shall be applied, with respect to any subsequent
Business Combination, as if the reference in this clause (iii) to "at
least sixty percent (60%)" were replaced by a reference to "at least
ninety-five percent (95%)"; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
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<PAGE> 3
(e) "Company" shall have the meaning set forth in Section 1 hereof.
(f) "Effective Date" shall mean January 1, 2000.
(g) "For Good Reason" shall have the meaning set forth in the
Participant's employment agreement (or other such similar agreement)
with the Company.
(h) "Participant" shall mean any employee of the Company who receives an
Award under the Plan.
(i) "Payment Date" shall mean the last business day of the calendar year
in which an Award (or portion thereof) becomes Vested and Earned
pursuant to the terms hereof.
(j) "Permanent Disability" shall mean any disability or incapacity of a
Participant as defined in such Participant's employment agreement (or
other such similar agreement) with the Company.
(k) "Plan" shall have the meaning set forth in Section 1 hereof.
(l) "Without Cause" shall have the meaning set forth in the Participant's
employment agreement (or other such similar agreement) with the
Company.
(m) "Stock Loan" shall mean the Participant's loan(s) payable to the
Company which were executed in connection with the Company's October
1997 initial public offering.
3. Administration.
The Plan shall be administered by the Company. The Company shall have
the authority, in its sole discretion, subject to and not inconsistent with the
express provisions of the Plan, to administer the Plan and to exercise all the
powers and authorities either specifically granted to it under the Plan or
necessary or advisable in connection with the administration of the Plan,
including, without limitation, the authority to grant Awards; to determine the
persons to whom and the time or times at which Awards shall be granted; to
determine the dollar amount of the Awards to be granted to any Participant; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
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<PAGE> 4
rules and regulations relating to the Plan; to determine the terms and
provisions of Award Agreements, consistent with the terms and provisions of the
Plan; and to make all other determinations deemed necessary or advisable for the
administration of the Plan, consistent with the terms and provisions of the
Plan.
4. Eligibility.
Awards may be granted to employees of the Company. In determining the
persons to whom Awards shall be granted and the terms and conditions of such
Awards, the Company shall take into account such factors as the Company shall
deem relevant to accomplishing the purposes of the Plan.
5. Awards.
Each Award shall be evidenced by an Award Agreement in such form and
having such terms and conditions as the Company shall from time to time approve.
(a) Right of Payment with Respect to Awards. The Company shall pay, or
provide, to the Participant, as the case may be, on each Payment Date with
respect to a Vested and Earned Award (i) a letter acknowledging the
Participant's repayment of a portion of the principal of his Stock Loan in an
amount equal to the excess of (x) the Vested and Earned portion of the
Participant's Award over (y) the sum of all deductions and withholdings for all
applicable federal, state and local taxes and all applicable social security,
medicare, FICA and other withholdings (the "Stock Loan Withholdings") applicable
to the Vested and Earned portion of such Participant's Award, and (ii) cash in
an amount (such that after payment of the Stock Loan Withholdings), the
Participant retains an amount equal to the Participant's federal, state and
local tax obligations and medicare and FICA obligations on such Stock Loan
Withholding.
(b) Vesting of Awards. Except as otherwise set forth herein, the
annual Awards shall become "Vested" one-third on December 31st in the calendar
year for which the Award is intended to provide incentive compensation to the
Participant and one-third on each of the two succeeding anniversaries thereof.
In addition, upon the occurrence of a Change in Control and/or the Participant's
termination of employment Without Cause or For Good Reason on or prior to a
Payment Date, all of the then Earned Awards shall become Vested. Also, all
Earned but Unvested Awards shall become Vested upon the death or Permanent
Disability of a Participant.
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<PAGE> 5
(c) Earning of Awards. Except as otherwise set forth herein, the
Awards shall be "Earned" as follows:
(i) Fifty percent (50%) of an annual Award shall be deemed Earned
on January 1 in the calendar year for which the Award is intended to
provide incentive compensation to the Participant (the "Base
Portion");
(ii) Fifty percent (50%) of an annual Award shall be deemed
Earned on December 31st of the calendar year for which the Award is
intended to provide incentive compensation to the Participant (the
"Performance Portion") if the Company's earnings-per-share ("EPS") for
such year equals or exceeds the 15% EPS growth target for such year.
The exact percentage of the Performance Portion actually earned in any
year (to the extent the Company's EPS growth is greater than 10% and
less than 25%) shall be interpolated for EPS falling within the range
set forth in the table below:
Target EPS % of Performance
Growth Portion Earned 2000 2001 2002
Less than 10% -- -- -- --
10% 50% $ $ $
15% 100% $ $ $
20% 150% $ $ $
25% 200% $ $ $
In addition, the Company retains the right to adjust the EPS targets
so that the year-over-year EPS targets reasonably and fairly approximate the
growth rates set forth in the left-hand column. Except as otherwise set forth in
this Plan, any Awards subject to this clause (ii) which are not Earned as set
forth above shall be automatically cancelled.
(d) Termination of Employment. Notwithstanding anything herein to the
contrary, if a Participant's employment by the Company is terminated for any
reason (other than death, Disability, Without Cause or For Good Reason) any
Awards that are not Vested and Earned as of the date of such termination shall
be forfeited as of the date of such termination.
(e) Restrictions. Awards shall not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of by any Participant other than by
will or the laws of descent and distribution.
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<PAGE> 6
6. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the granting of,
and payments with respect to, Awards, and the other obligations of the Company
under the Plan and any Award Agreement or other agreement shall be subject to
all applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental authority or agency as may be
required.
(b) No Right To Continued Employment or Service. Nothing in this Plan
or in any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employ or service of the Company or to be entitled to any remuneration or
benefits not set forth in the Plan or such Award Agreement or other agreement or
to interfere with or limit in any way the right of the Company to terminate such
Participant's employment or service.
(c) Withholding Taxes. At the time the Company makes any reduction of
a Stock Loan or payment relating to any Award, the Company may withhold from
such payment the full amount of any federal, state and local tax withholding and
any other employment taxes and any medicare or FICA required to be withheld or
otherwise deducted.
(d) Amendment and Termination of the Plan. The Company may at any time
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part. Notwithstanding the foregoing, subject to the other provisions of the
Plan and the applicable Award Agreement, no amendment shall affect adversely any
of the rights of any Participant, without such Participant's consent, under any
Award theretofore granted under the Plan. If the Plan is terminated, any
outstanding Award shall continue to be administered in accordance with its terms
and the terms of the Plan in effect immediately prior to such termination.
(e) Participant Rights. No Participant shall have any claim to be
granted any Award under the Plan, and there is no obligation for uniformity of
treatment for Participants.
(f) Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive compensation. With respect to any payments not yet
made to a Participant pursuant to an Award, nothing contained in the Plan or any
Award shall give any
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<PAGE> 7
such Participant any rights that are greater than those of a general creditor of
the Company.
(g) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of Illinois
without giving effect to the conflict of laws principles thereof.
(h) Effective Date. The Plan shall become effective upon the Effective
Date.
7
<PAGE> 1
EXHIBIT 10.12
SEVERANCE AND CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT is made as of October 25, 1999 by and between Ivex Packaging
Corporation (the "Company") and ______________ (the "Executive").
The parties hereto, intending to be legally bound hereby, agree as follows:
1. Position and Compensation. The Executive currently is serving as an
executive officer of the Company and is receiving the following compensation
(the "Compensation") for his services: (a) the base salary in effect on the date
hereof (which amount may be increased as the Company may determine and such
increased rate of base salary shall thereafter constitute the Executive's base
salary for all purposes of this Agreement), (b) deferred compensation equal to
the percentage (in effect on the date hereof) of the Executive's base salary and
annual performance bonus, (c) an annual performance bonus under the Company's
Senior Management Incentive Compensation Plan equal to the percentage (in effect
on the date hereof) of the Executive's base salary, and (d) participation in all
of the Company's employee benefits plans, including without limitation,
retirement and pension plans, life insurance plans, dental plans, medical plans
and automobile allowance plans which are, from time to time, made available by
the Company to its executive officers, subject to the terms of such plans, with
the Executive's participation to be on terms no less favorable to the Executive
than the terms provided to other similar executives.
2. Compensation Upon Termination. The Executive shall be entitled to the
following Compensation from the Company upon termination of employment:
(a) Termination for "Cause" or without "Good Reason". In the event of
a termination of the Executive's employment by the Company for "Cause" upon
delivery of written notice to the Executive or by the Executive without "Good
Reason", the Executive shall be entitled to receive (i) the Compensation
specified in Section 1 through the date of termination, (ii) unpaid benefits
accrued up to the date of the Executive's termination and (iii) any unpaid
performance bonus for any prior fiscal year.
(b) Termination upon Death or Disability. This Agreement shall
terminate automatically upon the Executive's death. If the Company determines in
good faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth herein), it may give to the Executive written
notice of its intention to terminate the Executive's employment. In such event,
the Executive's
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<PAGE> 2
employment with the Company shall terminate on the date of such notice. Upon
termination of employment because of the Executive's death or Disability, the
Executive and/or his legal representatives shall be entitled to receive (i) the
Compensation specified in Section 1 through the date of termination, (ii) unpaid
benefits accrued up to the date of termination, and (iii) any unpaid performance
bonus for any prior fiscal year. In addition, the Executive and/or his legal
representatives shall be entitled to receive (i) the benefits under Section
2(b)(iv) and (ii) the medical and dental benefits described in Section 1(d)
hereof for a period of 120 days after the date of the Executive's death or
termination due to Disability.
(c) Upon Termination "Without Cause" or for "Good Reason". In the
event that the Executive's employment is terminated by the Company "Without
Cause" or by the Executive for "Good Reason", then the Executive shall be
entitled to receive:
(i) Compensation due the Executive through the date of
termination (including, without limitation, any unpaid performance bonus for the
prior fiscal year),
(ii) a lump sum payable on the date of termination equal to (A)
one (1) times the sum of the Executive's base salary, deferred compensation and
target bonus, each as in effect immediately prior to the date of termination
(or, if higher, in effect immediately prior to the first occurrence or
circumstance constituting Good Reason) or (B) two (2) times the sum of such
amounts if such termination occurs on or after a Change Of Control (or if it is
reasonably demonstrated by the Executive that such termination was at the
request of a third party who has taken steps reasonably calculated to effect a
Change of Control or otherwise arose in connection with or in anticipation of a
Change of Control) and on or before the second anniversary date of a Change Of
Control,
(iii) the continuation for the Executive and his dependents of
the benefits described in Section 1(d) or the provision of equivalent benefits
until the earlier of (x) the first anniversary of the date of termination (or
the second anniversary of the date of termination if such termination occurs on
or after a Change Of Control (or if it is reasonably demonstrated by the
Executive that such termination was at the request of a third party who has
taken steps reasonably calculated to effect a Change Of Control or otherwise
arose in connection with or in anticipation of a Change Of Control), or (y) the
date upon which the Executive begins to be covered by medical insurance with a
new employer; provided, that the Executive's medical coverage with the Company
shall be discontinued upon subsequent employment only to the extent that any
pre-existing medical conditions are covered under the new employer's medical
plan,
(iv) the extension of (until the earlier to occur
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<PAGE> 3
of (x) the sale of the Company common stock relating thereto, (y) the second
anniversary of the date of the Executive's termination or (z) September 30,
2007) the maturity date of the Executive's promissory note(s) to the Company
which were executed in connection with the Executive's receipt of shares of the
Company's common stock at the time of the Company's initial public offering;
(v) if such termination occurs on or after a Change Of Control
(or if it is reasonably demonstrated by the Executive that such termination was
at the request of a third party who has taken steps reasonably calculated to
effect a Change Of Control or otherwise arose in connection with or in
anticipation of a Change Of Control), (A) the acceleration of vesting under the
Company's stock option, restricted stock and long-term incentive compensation
plans and (B) the acceleration of vesting under Packaging Holdings, L.L.C.'s
Long-Term Incentive Compensation Plan; and
(vi) if such termination occurs on or after a Change Of Control
(or if it is reasonably demonstrated by the Executive that such termination was
at the request of a third party who has taken steps reasonably calculated to
effect a Change Of Control or otherwise arose in connection with or in
anticipation of a Change Of Control), outplacement services for a period of two
(2) years or, if earlier, until the first acceptance by the Executive of an
offer of employment in an amount not to exceed $25,000.
3. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement in connection with or
following termination of employment by seeking other employment or otherwise,
nor shall any amounts provided herein be reduced by any compensation earned by
the Executive as the result of employment by another employer after termination
of the Executive's employment hereunder.
4. Non-Compete Covenants. (a) In consideration of the premises and the
mutual covenants contained herein, the Executive shall not during the Restricted
Period (as hereinafter defined), in the United States, Canada or any other place
where the Company and its affiliates conduct manufacturing operations relating
to the Company's businesses, directly or indirectly (except in the Executive's
capacity as an officer of the Company or any of its affiliates), (i) engage or
participate in any of the Company's principal businesses; (ii) enter the employ
of, or render any other services to, any person engaged in any of the Company's
principal businesses; or (iii) become interested in any such person in any
capacity, including, without limitation, as an individual, partner, shareholder,
lender, officer, director, principal, agent, consultant, advisor or trustee
(except, in each such case, with the prior consent of the Company which such
consent shall not be unreasonably withheld); provided, however, that the
Executive may own, directly or indirectly, solely as an
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<PAGE> 4
investment, securities of any person traded on any national securities exchange
or listed on the National Association of Securities Dealers Automated Quotation
System if the Executive is not a controlling person of, or a member of a group
which controls, such person and the Executive does not, directly or indirectly,
own five percent (5.0%) or more of any class of equity securities, or securities
convertible into or exercisable or exchangeable for five percent (5.0%) or more
of any class of equity securities, of such person. As used herein, the
"Restricted Period" shall mean a period commencing on the date hereof and
terminating upon the first to occur of (x) the date on which the Company
terminates the Executive's employment without Cause, (y) the date on which the
Executive terminates his employment for Good Reason, or (z) the date on which a
Change Of Control occurs; provided, however, that if the Company shall have
terminated the Executive's employment with the Company for Cause or if the
Executive shall have terminated his employment with the Company without Good
Reason, the Restricted Period shall end on the first anniversary date of such
termination of employment.
(b) The Executive acknowledges that the Company has a legitimate and
continuing proprietary interest in the protection of its confidential
information and that it has invested substantial sums and will continue to
invest substantial sums to develop, maintain and protect such confidential
information. The Executive agrees that during and after the Restricted Period,
the Executive shall keep secret and retain in strictest confidence and shall not
use for the benefit of himself or others all confidential information directly
relating to the Company's businesses learned by the Executive heretofore or
hereafter, unless otherwise in the public domain other than as a result of
disclosure by the Executive or previously known by the Executive or obtained by
the Executive independent of the Company's confidential information.
(c) The Executive acknowledges that all memoranda, notes, lists,
records, engineering drawings, technical specifications and related documents
and other documents or papers (and all copies thereof) relating to the Company,
including such items stored in computer memories, microfiche or by any other
means relating to the Company and its affiliates, made or compiled by or on
behalf of the Executive during his employment or made available to the Executive
relating to the Company, its affiliates or any entity which may hereafter become
an affiliate thereof, shall be the property of the Company and shall be
delivered to the Company promptly upon the termination of the Executive's
employment with the Company or at any other time upon request.
(d) The Executive agrees that any inventions, discoveries,
improvements, ideas, concepts or original works of authorship relating directly
to the Company's businesses, including without limitation, computer apparatus,
programs and manufacturing techniques, whether or not protectable by patent or
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<PAGE> 5
copyright, that have been originated, developed or reduced to practice by the
Executive alone or jointly with others during the Executive's employment with
the Company shall be the property of and belong exclusively to the Company. The
Executive shall promptly and fully disclose to the Company the origination or
development by the Executive of any such material and shall provide the Company
with any information that it may reasonably request about such material.
(e) During the Restricted Period, the Executive shall not, directly or
indirectly, (i) hire or solicit, or cause others to hire or solicit, for
employment by any person other than the Company, or retain as a consultant,
advisor, agent, representative or in any other capacity whatsoever, or cause
others to do any of the foregoing, any person employed by the Company or its
affiliates or successors within the two (2) years preceding the Executive's
hiring or retention of such person or solicitation of such person, or (ii)
encourage any such employee to leave his employment.
(f) During the Restricted Period, the Executive shall not, except by
reason of and in his capacity as an officer of the Company, directly or
indirectly request or advise a customer of the Company or its subsidiaries to
curtail or cancel such customer's business relationship with the Company.
(g) If the Executive breaches, or threatens to commit a breach of, any
of the provisions contained in this Section (the "Restrictive Covenants"), the
Company shall have the following rights and remedies, each of which rights and
remedies shall be independent of the others and severally enforceable, and each
of which is in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity:
(i) the right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company; and
(ii) the right and remedy to require the Executive to account for
and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits derived or received by the Executive as the result
of any action constituting a breach of the Restrictive Covenants.
5. Miscellaneous.
(a) Definitions. For purposes of this Agreement, the terms "Cause",
"Without Cause", "Good Reason", "Change Of Control" and "Disability" shall have
the meaning set forth in Exhibit A attached hereto.
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(b) Certain Additional Payments by the Company. The Company hereby
agrees to the terms and conditions of Exhibit B attached hereto.
(c) Successors; Binding Agreement. In the event of any merger,
consolidation or transfer of assets, the provision of this Agreement shall bind
and inure to the benefit of the surviving or resulting corporation, or the
corporation to which such assets have been transferred, as the case may be. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company, by written agreement, to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession had taken
place. The Company's failure to obtain such agreement prior to the effectiveness
of any such succession shall entitle the Executive to terminate his employment
hereunder for Good Reason.
(d) Attorney's Fees. All reasonable legal fees and costs incurred by
the Executive in connection with the resolution of any dispute or controversy
under or in connection with this Agreement shall be reimbursed by the Company
promptly upon the Executive's incurrence thereof plus interest at ten percent
(10.0%) per annum from the date of any such incurrence; provided, however, that
the Company shall not be obligated to make such payment where the dispute or
controversy is finally determined in favor of the Company. Also, until paid, all
past due amounts required to be paid by the Company hereunder shall bear
interest at a rate of ten percent (10.0%) per annum.
(e) Governing Law. This Agreement shall be governed, construed,
interpreted, and enforced in accordance with the substantive laws of the State
of Illinois.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
IVEX PACKAGING CORPORATION
By:
-------------------------------
-------------------------------
Name of Executive
7
<PAGE> 1
Exhibit 13
IVEX ON THE GO
Ivex Packaging Corporation 1999 Annual Report
<PAGE> 2
Ivex Packaging Corporation, a Delaware corporation (the "Company" or "Ivex"), is
a vertically intergrated specialty packaging company that designs and
maufactures value-added and paper-based flexible packaging products for consumer
and technical packaging markets. Ivex focuses on niche markets which management
believes provide attractive margins and growth and where the Company's
intergrated maufacturing capabilities can enhance its competitive position. Ivex
serves a variety of markets, providing packaging for food, medical devices and
electronic goods and protective packaging for industrial products.
<PAGE> 3
THE SPEED IS SUBSTANCE
THE PACE IS GETTING FASTER
AT AN ACCELERATING RATE. COMPANIES THAT
CAPITALIZE ON THIS MOMENTUM WILL SUCCEED.
AS A SPECIALTY PACKAGING EXPERT, IVEX
IS UNIQUELY POSITIONED TO BENEFIT
FROM THIS ELEMENTAL SPEED.
A COMPANY ON THE GO SERVING PEOPLE ON THE MOVE.
<PAGE> 4
Ivex Electronics-anti-static computer packaging
The computer industry is among the world's fastest growing. Rapid rate of
product innovation and change is a vital opportunity for Ivex. Electro Static
Discharge packaging provides critical protection for disk drive and other
hardware components.
[PICTURE-MAN WORKING ON A COMPUTER IN THE AIRPORT ON A MOVING WALKWAY]
<PAGE> 5
E-commerce, B-concourse.
Taking a hard drive to the sky.
<PAGE> 6
Ivex Food Service-school lunch packaging
Making a squeaky clean break from the ABCs. Breeze through the PB&J line and
it's playtime.
Food service is a booming business and multiple divisions within Ivex are
benefiting. Plastic sheet from our Extrusion division provides the cleanest
raw material in the industry to our Food Products division, responsible for
designing and producing cafeteria food trays.
[PICTURE-CHILD IN A CAFETERIA LUNCHLINE]
<PAGE> 7
Product Overview p 4/5
<PAGE> 8
Ivex Convenience-carry-out packaging
[PICTURE-MAN RUNNING FOR THE SUBWAY TRAIN]
<PAGE> 9
Taking five on the fly.
Chicken caesar on the A-train.
A deal, done on the run.
Lifestyles drive higher demand for new products in the Home Meal Replacement
category including carry-out packaging. Multiple resin options and food
packaging designs enable Ivex to provide the broadest product offering in the
industry.
<PAGE> 10
Ivex Medical-cleanroom packaging
Code blue.
Five alarm frenzy, zero room for error.
Bacteria not invited.
[PICTURE-NURSE PUSHING A MEDICAL CART DOWN A HOSPITAL HALLWAY]
<PAGE> 11
Speed and cleanliness are essential in the hospital habitat. Modern medical
environments demand precision and protection. Our Medical Packaging division's
state-of-the-art cleanroom manufacturing facilities ensure the sterility of
pre-packaged instrument trays used for in-patient and out-patient applications.
<PAGE> 12
Ivex Innovation-protective packaging
[PICTURE-MAN DRIVING IN A CAR DRINKING A CUP OF COFFEE]
<PAGE> 13
Caffeine cruising down the concrete canyon.
Chasing hot tips with a cool hand.
Ivex innovation accompanies millions of people to work every day in the form of
a comforting cardboard coffee sleeve. This product, produced by the Ivex
Protective Packaging division, uses recycled materials from our Specialty Paper
operations.
<PAGE> 14
To our stockholders,
customers and employees
Entering our fourth year as a public company, Ivex is very much on the go. In
1999, net sales increased 6% to $643.0 million. Net income, excluding
non-recurring items, was $25.7 million or $1.22 per share. We also realigned the
company into two core groups, Consumer Packaging and Technical Packaging. This
important realignment will enable Ivex to leverage its fundamental assets and
capitalize on its expertise as a creative force in the specialty packaging
industry.
Consumer Packaging had another year of significant sales growth with a 15.4%
increase over 1998. The Extrusion division posted record performances both
domestically and internationally. Product line and geographic extensions
continue to help Ivex maintain a leadership position in the OPS and PET markets.
The acquisition of Folietechniek B.V. headquartered in the Netherlands gave us
our first extrusion capabilities in Continental Europe, supplementing our
existing operations in the United Kingdom. The Food Packaging division had
significant expansion in the supermarket and food service segments. As the theme
of this year's annual report suggests, our world is moving faster at an
accelerating rate. Nowhere is this more evident than in the Home Meal
Replacement market which places us in position to benefit from this trend.
1999 Realignment of Ivex Packaging Corporation
Consumer Packaging Technical Packaging
Polymerization and Extrusion; Medical and Electronics; Surface
Food Packaging Protection; Protective Packaging
<PAGE> 15
Technical Packaging recorded sales growth of 11.6% (adjusted for divestiture)
resulting from further penetration into the high growth computer and electronics
industries, the creation of new medical applications and the development of new
protective packaging technologies. The Medical and Electronics division is on
the go, coming off another exciting year. The acquisition of Pactuco, Inc. with
operations in California, Malaysia and Hong Kong has both geographically and
technically positioned us to meet the rapidly changing demands of customers in
the computer and electronics industries. Growth in this area will continue to be
fueled by new product launches and advanced technical developments. Medical and
consumer sales remain strong with continued efforts in new manufacturing design
capabilities. The Surface and Protective Packaging divisions gained momentum
during the second half of 1999. We are very optimistic about the growth
potential from our investment in new adhesiveless film technology, the
expansion of our presence in the surface protection market, the development of
the merchandising sales group, and the continued growth of specialty paper
products. In addition, we are assertively attracting e-commerce opportunities
for our protective packaging products.
Ivex is also on the go internationally. Expansion remains a focus of the company
as we nurture our developing presence in Southeast Asia and apply our proven
strategy of vertical integration to the European market. The extrusion
acquisition in the Netherlands and the launching of a food packaging operation
in Albon, France will help us meet the market demand for plastic packaging
products. In addition, we supply the broadest product offering of OPS and PET
packaging for European customers.
Letter To Our Shareholders p 12/13
<PAGE> 16
We were faced with some challenges during 1999, most noteworthy were the rising
cost of raw material resins in our plastics businesses and the integration of
the Ultra Pac acquisition. We have responded rapidly to the resin increase with
an aggressive pricing strategy and significant changes have been made to the
Ultra Pac organization which include the closure of a west coast manufacturing
facility, separation of the extrusion and thermoforming operations, and the
realignment of management. The implementation of these changes at Ultra Pac and
the execution of diligent pricing strategies will return profit margins to an
acceptable level in 2000.
We have every reason to remain positive about the Company's future as we enter
the new century. Our growth strategy is aggressive, our opportunities timely and
fortuitous. Our focus remains on creating innovative product ideas, expanding
market position, and realizing cost savings plans and manufacturing
rationalization efforts. Ivex is many things to many people, but its long term
value to all of its stockholders lies in the fact that it is a company on the
go, servicing industries on the move.
Kind Regards-- /s/George V. Bayly, Chairman, President & Chief Executive Officer
<PAGE> 17
[BLANK PAGE]
<PAGE> 18
<TABLE>
<CAPTION>
For the Year Ended December 31 1999 1998 1997 1996 1995
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data(1,2)
Net sales $ 643,026 $ 606,451 $ 538,475 $ 451,807 $ 451,569
Net income (loss) before extraordinary loss 25,242 28,194 (9,540) 8,668 (22,125)
Net income (loss) before extraordinary loss per share-basic 1.21 1.36 (0.75) 0.84 (2.14)
Net income (loss) before extraordinary loss per share-diluted 1.20 (0.75) 0.84 (2.14)
December 31 (dollars in thousands) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data(1,2)
Total assets $ 640,587 $ 556,145 $ 427,465 $ 315,901 $ 294,911
Long-term debt 434,902 409,071 319,055 352,893 353,717
Stockholders' equity (deficit) 45,308 22,191 (12,169) (127,344) (136,332)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The selected financial data presented above for, and as of, each of the
years in the five-year period ended December 31, 1999, are derived from the
consolidated audited financial statements of the Company. The selected
financial data should be read in conjunction with the consolidated
financial statements and notes thereto.
(2) The financial data of Ivex reflect the following acquisitions as of the
respective acquisition dates: Packaging Products, Inc. as of September 11,
1995; Plastofilm Industries, Inc. as of August 16, 1996; Trio Products,
Inc. as of September 11, 1996; the European OPS business of Envirodyne
Industries, Inc. as of January 17, 1997; M&R Plastics Inc. ("M&R") as of
February 21, 1997; AVPEX International Corporation ("AVP") as of August 8,
1997; Crystal Thermoplastics Inc. ("Crystal") as of November 3, 1997; Ultra
Pac, Inc. ("Ultra Pac") as of April 23, 1998; the paper packaging business
of Bleyer Industries, Inc. ("Bleyer Paper") as of October 2, 1998; the
electronics packaging business of Pactuco, Inc. ("Pactuco") as of April 20,
1999; and F.T.S. Holdings B.V. ("Folietechniek") as of July 30, 1999. The
selected financial data presented includes results of the Company's
Detroit, Michigan facility ("Detroit") through November 19, 1998, the date
of its sale to Packaging Holdings L.L.C. The selected financial data should
be read in conjunction with the consolidated financial statements and notes
thereto.
Financial Highlights p 14/15
<PAGE> 19
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 18
CONSOLIDATED BALANCE
SHEETS 28
CONSOLIDATED STATEMENTS
OF OPERATIONS 30
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT) 32
CONSOLIDATED STATEMENTS
OF CASH FLOWS 34
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS 35
REPORT OF INDEPENDENT
ACCOUNTANTS 55
CORPORATE AND
INVESTOR INFORMATION 56
<PAGE> 20
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Ivex Packaging Corporation owns 100% of the common stock of IPC, Inc. ("IPC").
References to the Company or Ivex herein reflect the consolidated results of
Ivex Packaging Corporation. 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 & electronic product groups.
The Company is divided into the Consumer Packaging and Technical Packaging
operating segments based on management decisions as to resource allocation. All
historical information has been restated to reflect the realignment.
RESULTS OF OPERATIONS For the Years Ended December 31, 1999, 1998 and 1997
NET SALES The Company's net sales increased by 6.0% during the year ended
December 31, 1999 over the Company's net sales during the corresponding period
in 1998. The increase primarily resulted from the strong increase in Consumer
Packaging sales including increased unit sales volume of extruded sheet and film
and increased sales of converted plastic and paper products for food
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.
The Company's net sales increased by 12.6% during the year ended December 31,
1998 over the Company's net sales during the corresponding period in 1997. The
overall increase was primarily due to the strong increase in Consumer Packaging
sales and newly acquired facilities.
See additional discussion in the Operating Segments section.
GROSS PROFIT The Company's gross profit increased 5.3% during 1999 compared to
1998 primarily as a result of the incremental effects from the recent
acquisitions partially offset by the disposition of Detroit. Gross profit margin
decreased to 23.8% during 1999 compared to 24.0% during 1998. The decrease in
gross profit margin is primarily the result of increased raw material costs and
the poor operating performance at Ultra Pac during the second half of 1999. Such
decrease was partially offset by a positive shift in product mix due to the
addition of higher gross profit margin Ultra Pac and Bleyer Paper products
compared with lower gross profit margin Detroit products that were eliminated
with its disposition.
The Company's gross profit increased 21.4% during 1998 compared to 1997
primarily as a result of the incremental profit associated with the newly
acquired companies, increased sales volume and improved operating efficiencies
in the Consumer Packaging segment, as well as reduced raw material costs in many
of the Company's businesses. The increased gross profit during 1998 was
partially offset by the lower sales in the Technical Packaging segment. Gross
profit margin increased to 24.0% in 1998 compared with 22.2% in 1997. This
improvement in gross margin is primarily the result of reduced raw material
costs in many of the Company's businesses and the improved operating
efficiencies, resulting from the increased sales in the Consumer Packaging
segment.
<PAGE> 21
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
OPERATING EXPENSES Selling and administrative expenses increased 19.7% during
1999 primarily as a result of the higher selling and administrative expenses
associated with the recent acquisitions, the increased sales and management
resources for most businesses and the 1998 special benefit discussed below. The
increase in selling and administrative expenses was partially offset by reduced
incentive compensation. As a percentage of net sales, selling and
administrative expenses increased to 12.4% during 1999 compared to 11.0% 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 with lower operating expenses as a
percentage of net sales. The increase, as a percentage of net sales, was also
attributable to the 1998 special benefit and increased sales and management
resources for most businesses as offset by the reduction in incentive
compensation.
Selling and administrative expenses increased 13.1% during 1998 compared to 1997
primarily as a result of the larger selling and administrative expenses
associated with the newly acquired companies, partially offset by the 1998
special benefit discussed below. As a percentage of net sales, selling and
administrative expenses increased to 11.0% in 1998 compared to 10.9% in 1997
primarily due to the higher selling and administrative expenses associated with
the recent acquisitions, lower net sales in the Technical Packaging segment and
higher incentive compensation.
During the second quarter of 1998, the Company recorded a special benefit of
$2.8 million. In conjunction with the sale of their stock, certain members of
senior management (the "Management Stockholders") repaid $2.7 million of their
loans from the Company (the "Management Loans"). Such loans were made to senior
management during the fourth quarter of 1997 and the first quarter of 1998
pursuant to a stock option plan (the "IPC Option Plan") to enable them to pay
their individual income taxes in connection with the exchange of options granted
under the IPC Option Plan (the "IPC Options"). In addition, during the third
quarter of 1997, the Company recorded an accrual for the anticipated future
Company payments to senior management of an amount which (after taxes) enabled
such management to pay interest on the Management Loans. As a result of the
early 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.
Amortization of intangibles increased during 1999 compared to 1998 and 1998
compared to 1997 as a result of the incremental goodwill amortization associated
with the recent acquisitions.
Restructuring Charge During the fourth quarter of 1999, Ivex recorded a
restructuring charge of $5.0 million related to exit costs and certain asset
impairments associated with closing the Hollister, California manufacturing
facility, rationalizing and realigning manufacturing capacity in certain of the
Company's businesses and exiting Ultra Pac's joint venture agreement in Chile.
The Company recorded expense of $4.0 million related to exit costs for the
Hollister, California manufacturing facility. The Company is committed to an
operating lease of the facility through March 1, 2008. All manufacturing ceased
in Hollister during the fourth quarter of 1999 and was relocated to the other
manufacturing facilities in Visalia, California, Rogers, Minnesota and Grove
City, Pennsylvania. The $4.0 million expense includes an accrual for the
estimated difference between the lease commitment and expected sublease proceeds
of $2.8 million, a leasehold improvements impairment of $1.1 million and other
exit costs of $180,000.
<PAGE> 22
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The Company recorded expense of $450,000 as a result of the implementation of a
manufacturing capacity rationalization plan during the fourth quarter of 1999.
The plan resulted in exiting the Sparks, Nevada facility and removing Technical
Packaging production from the Grove City, Pennsylvania facility. The planned
consolidations are expected to be completed by the second quarter of 2000. The
$450,000 expense includes an asset impairment for certain equipment of $280,000,
an accrual for lease exit costs in Sparks of $85,000 and severance for
approximately 15 manufacturing employees of $85,000.
Ivex initiated a plan to exit Ultra Pac's joint venture business in Chile. The
Company recorded expense of $500,000 as a result of the impairment of assets
associated with this joint venture.
The cash obligation for the Hollister lease is expected to be incurred over the
lease period including 2000 through 2008. The actions associated with the
restructuring charge are expected to benefit earnings for the Company beginning
in the second half of 2000.
IPC OPTION PLAN CHARGE During the third quarter of 1997, the Company recorded a
nonrecurring non-cash compensation charge of $53.3 million in connection with
the Company's exchange, pursuant to the IPC Option Plan, of the IPC Options into
2,114,133 newly issued shares of the Company's common stock and newly issued
stock options exercisable for 817,067 shares of the Company's common stock. The
nonrecurring compensation charge consists of (i) a non-cash compensation charge
of $33.8 million associated with the exchange of the IPC Options into shares of
the Company's common stock and (ii) a non-cash compensation charge of $19.5
million associated with the accrual of future Company payments to senior
management of an amount which (after taxes) will enable such management to pay
interest on the Management Loans.
INCOME FROM OPERATIONS Income from operations and operating margin were $64.9
million and 10.1%, respectively, during 1999, compared to $76.5 million and
12.6%, respectively, during 1998 and $6.3 million and 1.2%, respectively, during
1997. The decrease in income from operations and operating margin in 1999
compared with 1998 primarily resulted from the restructuring charge recorded in
1999 and the special benefit recorded in administrative expenses in 1998.
Without the 1999 restructuring charge and 1998 special benefit, operating income
and margin would have been $69.9 million and 10.9% in 1999 compared to $73.7 and
12.2% in 1998. The decrease in 1999 income from operations is primarily the
result of the increased operating expenses. The decrease in operating margin
primarily results from the increased operating expenses as a percentage of net
sales. The increase in income from operations in 1998 compared with 1997 is the
result of the special benefit recorded in 1998 and the IPC Option Plan charge
recorded in 1997. Without this special benefit and IPC Option Plan charge,
operating income and margin would have been $73.7 million and 12.2%,
respectively, in 1998 and $59.6 million and 11.1%, respectively, in 1997. The
increase in 1998 operating income (excluding such charge and benefit) is
primarily the result of the incremental income from the recently completed
acquisitions and the improved gross profit. The increase in the 1998 operating
margin (excluding special charges and benefit) is the result of the improved
gross profit margin.
<PAGE> 23
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTEREST EXPENSE Interest expense during 1999 was $30.8 million compared to
$29.6 million and $41.9 million during 1998 and 1997, respectively. The increase
in 1999 interest expense 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. The decrease in 1998 interest expense compared to
prior year is primarily the result of the Company's initial public offering of
common stock and debt refinancing completed during the fourth quarter of 1997.
INCOME FROM EQUITY INVESTMENTS Income from equity investments in 1999 primarily
results from the Company's equity investment in Packaging Holdings, L.L.C.,
which was formed near the end of 1998. Income Taxes During 1999, the Company
determined that it was more likely than not that its net operating loss
carryovers in the United Kingdom would be realized. As such, the Company
reversed $1.4 million of its valuation reserve. Additionally during 1999, the
Company recorded a $1.2 million nonrecurring tax benefit in its income tax
provision resulting from the carryback of certain tax losses. Aside from the
nonrecurring tax benefits, the Company's effective tax rate for the year
approximated 39% compared with 40% in 1998. The decrease in effective tax rate
reflected a lower aggregate effective rate for foreign operations.
The Company's 1998 income tax provision approximates 40% reflecting current and
deferred U.S. federal and state tax provisions aggregating slightly lower than
the consolidated effective rate offset by current and deferred foreign tax
provisions (primarily Canada) that were slightly more than the consolidated
effective rate.
The Company's tax benefit for 1997 reflects the deferred benefit of the loss
before income taxes recorded in 1997 and a $13.2 million deferred benefit
associated with the reversal of a portion of the Company's valuation allowance
for deferred tax assets. During the third quarter of 1997, the Company
determined that it was more likely than not that a portion of its deferred tax
assets (comprised primarily of net operating loss carry-forwards) would be
realizable given the Company's initial public offering and debt refinancing.
During 1999 and 1998, the Company paid cash taxes only for U.S. alternative
minimum tax, state taxes and foreign tax (primarily Canada). As a result of the
Company's net operating loss carryovers for U.S. federal tax the Company did not
pay regular U.S. federal tax during 1999 or 1998. At December 31, 1999, the
Company had U.S. net operating loss carryovers of $110.7 million of which
approximately $74.4 million are limited in their annual usage to approximately
$10.5 million per year.
EXTRAORDINARY LOSS The extraordinary loss in 1997 of $26.7 million (net of tax
of $15.0 million) consists of $32.3 million of premiums paid to retire the 13
1/4% Senior Discount Debentures and the 12 1/2% Subordinated Notes, the
write-off of $8.2 million of deferred financing costs related to the retired
debt and the refinancing of the Company's senior credit facility, and $1.2
million of expenses incurred to retire the debt and the existing credit
facility.
<PAGE> 24
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
NET INCOME/LOSS Net income was $25.2 million in 1999 compared to $28.2
million in 1998. The decrease in net income in 1999 is primarily the result of
the reduced operating income and restructuring charge partially offset by the
nonrecurring tax benefits.
Net income was $28.2 million in 1998 compared to a net loss of $36.3 million in
1997. The increase in net income in 1998 is primarily the result of the 1998
special charge and extraordinary loss recorded in 1997, improved operating
income and reduced interest expense.
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>
Years Ended December 31 1999 % of Net Sales 1998 % of Net Sales 1997 % of Net Sales
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consumer Packaging $394,669 61.4 $341,920 56.4 $264,646 49.1
Technical Packaging 248,357 38.6 264,531 43.6 273,829 50.9
--------------------------------------------------------------
Total $643,026 100.0 $606,451 100.0 $538,475 100.0
==============================================================
</TABLE>
Consumer Packaging's net sales increased by 15.4% in 1999 from 1998 and 29.2% in
1998 from 1997. 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 1999, sales of converted plastic and paper products in the U.S.
(excluding the sales relating to Ultra Pac and Bleyer Paper) increased
approximately 3.9% while such sales outside of the U.S. (Europe, Canada and
Mexico) increased 23.0% compared to 1998. The largest increase in sales outside
of the U.S. occurred in the United Kingdom and Continental Europe. The largest
unit sales volume growth within the Company's extruded products occurred in the
custom extruded sheet product category in the areas of PET sheet and HIPS sheet.
The 1998 increase in Consumer Packaging sales primarily resulted from the second
quarter 1998 acquisition of Ultra Pac, the fourth quarter 1998 acquisition of
Bleyer Paper and the Company's 1997 acquisitions (including M&R, AVP and
Crystal). Additionally, the 1998 increase is the result of increased unit sales
volume of extruded sheet and film and converted plastic and paper products
partially offset by lower average selling prices. The largest unit sales volume
growth rates occurred in the Company's custom extruded sheet product category in
the areas of PET sheet and HIPS sheet.
Technical Packaging's net sales decreased by 6.1% in 1999 from 1998 and
decreased by 3.4% in 1998 from 1997. The decrease in 1999 resulted primarily
from the disposition of Detroit, partially offset by incremental sales from the
Pactuco acquisition. Additionally, during 1999 the Company continued to
experience significant unit volume decreases in its coated and laminated
products as a result of declining markets for these products. During 1999,
increased sales unit volume was mostly offset by decreased selling prices for
the Company's surface protection, protective packaging and manufactured paper
products. The decrease in 1998 from 1997 was attributable to the disposition of
Detroit in November 1998 and lower unit sales volume in most product categories.
As expected, the Company experienced significant unit volume decreases in its
coated and laminated products as a result of declining markets for these
products. In addition, the Company experienced unit volume decreases in its
protective packaging products as a result of, among other things, increased
competition for certain of these products. The Company also experienced unit
volume decreases in its surface protection business primarily as a result of
reduced demand from its customers and slower market growth resulting from end
use customer market dislocations in Asia. The 1998 decrease was partially offset
by increased volume in certain adhesiveless surface protection product groups as
well as increased volume in the segment's Canadian paper packaging business.
<PAGE> 25
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
ADJUSTED EBITDA Adjusted EBITDA includes income from operations adjusted to
exclude depreciation and amortization expenses, the 1999 restructuring charge,
the 1998 special benefit and 1997 IPC Option Plan charge. The Company believes
that Adjusted EBITDA provides additional information for determining its ability
to meet future debt service requirements. However, Adjusted EBITDA is not a
defined term under Generally Accepted Accounting Principles ("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 Adjusted EBITDA of
the Company's operating segments for the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31 1999 % of Net Sales 1998 % of Net Sales 1997 % of Net Sales
(dollars in thousands)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer Packaging $ 80,931 20.5 $ 73,727 21.6 $ 52,127 19.7
Technical Packaging 36,071 14.5 41,646 15.7 40,695 14.9
Corporate expenses (8,158) -- (7,622) -- (6,018) --
------------------------------------------------------------------------
Total $ 108,844 16.9 $ 107,751 17.8 $ 86,804 16.1
========================================================================
</TABLE>
The Company's Adjusted EBITDA increased by $1.1 million to $108.8 million in
1999, an Adjusted EBITDA margin of 16.9%, compared to 1998 Adjusted EBITDA of
$107.8 million and an Adjusted EBITDA margin of 17.8%. The 9.8%, or $7.2
million, increase in Consumer Packaging's Adjusted EBITDA was primarily
attributable to the incremental Adjusted EBITDA from Ultra Pac, Bleyer Paper,
and Folietechniek, increased sales volume and reduced incentive compensation.
The increase was partially offset by third and fourth quarter increases in raw
material costs and poor operating performance at Ultra Pac. The decrease in
Technical Packaging's Adjusted EBITDA of 13.4%, or $5.6 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.
The Company's Adjusted EBITDA increased by $20.9 million to $107.8 million in
1998, an Adjusted EBITDA margin of 17.8%, compared to 1997 Adjusted EBITDA of
$86.8 million and an Adjusted EBITDA margin of 16.1%. The increase in Consumer
Packaging's Adjusted EBITDA during 1998 was primarily attributable to the
incremental Adjusted EBITDA from the recently completed acquisitions and the
incremental profitability associated with the increased sales volume and
improved gross profit margin. The slight increase in Technical Packaging's
Adjusted EBITDA was the result of improved gross profit margins resulting from
lower raw material costs partially offset by lower sales volume. The increase in
Corporate expenses was primarily due to higher compensation and incentive
compensation expense and public company expenses.
<PAGE> 26
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had cash and cash equivalents of $5.8 million
and $54.9 million was available under the Revolving Credit Facility of IPC's
Senior Credit Facility (the "Senior Credit Facility"). IPC's working capital at
December 31, 1999 was $69.2 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 primary short-term and long-term operating cash requirements for the Company
are for debt service, working capital and capital expenditures. The Company
expects to rely on cash generated from operations supplemented by Revolving
Credit Facility borrowings under the Senior Credit Facility to fund the
Company's principal short-term and long-term cash requirements.
The Senior Credit Facility is comprised of a $150.0 million Term A Loan, $150.0
million Term B Loan and $265.0 million revolving credit facility (up to $65.0
million of which may be in the form of letters of credit). The Term A Loan is
required to be repaid in quarterly payments totaling $25.0 million in 2000,
$26.25 million in 2001, $31.25 million in 2002 and $26.25 million in 2003 and
the Term B Loan is required to be repaid in quarterly payments totaling $1.5
million per annum through September 30, 2003 and four installments of $35.25
million on December 31, 2003, March 31, 2004, June 30, 2004 and September 30,
2004. The interest rate of the Senior Credit Facility can be, at the election of
IPC, based upon LIBOR or the Adjusted Base Rate, as defined therein, and is
subject to certain performance pricing adjustments. The Term A Loan and loans
under the Revolving Credit Facility bear interest at rates up to LIBOR plus
1.625% or the Adjusted Base Rate plus 0.625%. As of December 31, 1999, such
rates are 1.5% plus LIBOR. The Term B Loan bears interest at rates up to LIBOR
plus 2.00% or the Adjusted Base Rate plus 1.0%. As of December 31, 1999, such
rates are 2.0% plus LIBOR. Borrowings are secured by substantially all the
assets of the Company and its subsidiaries. The Revolving Credit Facility and
Term A Loan will terminate on September 30, 2003 and the Term B Loan will
terminate on September 30, 2004. Under the Senior Credit Facility, IPC is
required to maintain certain financial ratios and levels of net worth and future
indebtedness and dividends are restricted, among other things. The Company
believes it is currently in compliance with the terms and conditions of the
Senior Credit Facility in all material respects.
IPC's industrial revenue bonds require monthly interest payments and are due in
varying amounts and dates through 2009. Certain letters of credit under the
Company's 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 $48.3 million, $40.1 million and $25.4
million in 1999, 1998 and 1997, respectively. At December 31, 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. In future
periods, the capital spending is expected to approximate or slightly exceed
depreciation expense.
<PAGE> 27
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 (including non-compete
agreements). 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. At December 31, 1999, the Company had purchased $1.2
million of its outstanding shares of common stock.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the financial accounting standards board issued financial
accounting standards no. 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. In June 1999, the statements' effective date was delayed by one year,
and it will be effective January 1, 2001 for the company. The effect of adoption
of this statement on the company's results of operations or financial position
has not been determined.
YEAR 2000
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the "Year 2000 issue." However, it
is possible that the full impact of the date change, which was of concern due to
computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues such as leap year-related problems may occur with the billing,
payroll, or financial closings at month, quarter or year end. The Company
believes that any such problems are likely to be minor and correctable. In
addition, the Company could still be negatively affected if its customers or
suppliers are adversely affected by the Year 2000 or similar issues. The Company
currently is not aware of any significant Year 2000 or similar problems that
have arisen for its customers or suppliers.
The Company expended approximately $180,000 on Year 2000 readiness efforts from
1997 to 1999. These efforts included replacing some outdated, noncompliant
hardware and noncompliant software as well as identifying and remediating Year
2000 problems.
<PAGE> 28
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE The Company uses primarily foreign exchange forward contracts
to hedge its exposure from adverse changes in foreign exchange rates. A 10%
unfavorable movement in the foreign exchange rates would not expose the Company
to material losses in earnings or cash flows.
INTEREST RATES The Company uses interest rate swaps and collars to modify its
exposure to interest rate movements and to reduce borrowing costs. The Company's
net exposure to interest rate risk consists of floating rate debt instruments
that are benchmarked to LIBOR. As of December 31, 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 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 $5.5 million as of December
31, 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.
LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
The Company and its subsidiaries are subject to various claims arising in the
ordinary course of business, and are parties to various legal proceedings, which
constitute ordinary routine litigation incidental to the business of the Company
and its subsidiaries. In the opinion of the Company's management, none of these
proceedings or claims is material to the business or financial condition of the
Company.
The Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations pertaining to the discharge of
materials into the environment, the handling and disposition of wastes and the
protection of the environment. As is the case with manufacturers in general, if
a release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable. From time to time, the Company is involved in regulatory
proceedings and inquiries relating to compliance with environmental laws,
permits and other environmental matters. The Company is currently involved with
environmental remediation and on-going maintenance at certain of its facilities.
The Company believes that the costs of such remediation have been adequately
reserved for and that such costs are unlikely to have a material adverse effect
on the Company. No assurance can be given, however, that additional
environmental issues relating to the presently known remediation matters or
identified sites or to other sites or matters will not require additional
investigation, assessment or expenditures.
<PAGE> 29
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
From time to time, the Company is involved in cases arising under the
environmental Superfund law. These cases generally involve sites, which
allegedly have received wastes from current or former Company locations. Based
on information available to the Company, a reasonable estimate is calculated for
the Company's share, if any, of the probable costs associated with such cases
and is provided for in the Company's financial statements. The Company reviews
its accruals on a regular basis and believes that the potential costs for the
cleanup of such sites will not have a material adverse effect on the Company.
Although, no assurance can be given that additional issues relating to presently
known sites or to other sites will not require additional investigation or
expenditures.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Results of Operations-For the Years Ended
December 31, 1999, 1998 and 1997,-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 any
remaining 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.
<PAGE> 30
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
December 31
(dollars in thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,824 $ 7,363
Accounts receivable trade, net of allowance 98,280 76,699
Inventories 97,519 77,509
Prepaid expenses 5,036 4,646
----------------------
Total current assets 206,659 166,217
----------------------
PROPERTY, PLANT AND EQUIPMENT
Buildings and improvements 65,994 62,779
Machinery and equipment 368,050 308,549
Construction in progress 19,119 22,705
----------------------
453,163 394,033
Less-Accumulated depreciation (199,457) (165,207)
----------------------
253,706 228,826
Land 12,608 12,538
----------------------
Total property, plant and equipment 266,314 241,364
----------------------
OTHER ASSETS
Goodwill, net of accumulated amortization 104,411 85,823
Deferred income taxes 5,934 16,955
Management receivable 9,817 11,919
Miscellaneous 47,452 33,867
----------------------
Total other assets 167,614 148,564
----------------------
Total Assets $ 640,587 $ 556,145
======================
<PAGE> 31
Ivex Packaging Corporation
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
December 31 (dollars in thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current installments of long-term debt $ 27,806 $ 23,312
Accounts payable and accrued invoices 64,108 36,744
Accrued salary and wages 9,980 11,789
Self insurance reserves 8,853 7,523
Accrued rebates and discounts 7,595 7,534
Accrued interest 3,164 3,279
Other accrued expenses 15,954 13,959
----------------------
Total current liabilities 137,460 104,140
----------------------
LONG-TERM DEBT 434,902 409,071
----------------------
OTHER LONG-TERM LIABILITIES 21,566 17,570
----------------------
DEFERRED INCOME TAXES 1,351 3,173
----------------------
COMMITMENTS AND CONTINGENCIES (NOTE 10) -- --
----------------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value-45,000,000 shares authorized; 209 209
20,793,469 and 20,931,268 shares issued and outstanding
Paid in capital in excess of par value 339,354 339,098
Accumulated deficit (286,400) (311,642)
Treasury stock, at cost-153,800 shares (1,216) --
Accumulated other comprehensive loss (6,639) (5,474)
----------------------
Total stockholders' equity 45,308 22,191
----------------------
Total Liabilities and Stockholders' Equity $ 640,587 $ 556,145
======================
</TABLE>
The accompanying notes are an integral part of this statement
<PAGE> 32
Ivex Packaging Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31 (dollars in thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 643,026 $ 606,451 $ 538,475
Cost of goods sold 489,969 461,135 418,815
------------------------------------------------------------
Gross profit 153,057 145,316 119,660
------------------------------------------------------------
Operating expenses
Selling 38,169 32,517 27,625
Administrative 41,589 34,110 31,299
Amortization of intangibles 3,436 2,196 1,111
Restructuring charge 4,950 -- --
IPC Option Plan charge -- -- 53,329
------------------------------------------------------------
Total operating expenses 88,144 68,823 113,364
------------------------------------------------------------
Income from operations 64,913 76,493 6,296
Other income (expense)
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense (30,757) (29,561) (41,889)
Income from equity investments 3,012 -- --
------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss 37,168 46,932 (35,593)
Income tax (benefit) provision 11,926 18,738 (26,053)
------------------------------------------------------------
Income (loss) before extraordinary loss 25,242 28,194 (9,540)
Extraordinary loss -- -- (26,730)
------------------------------------------------------------
Net income (loss) $ 25,242 $ 28,194 $ (36,270)
============================================================
</TABLE>
<PAGE> 33
Ivex Packaging Corporation
Consolidated Statements of Operations
(continued)
<TABLE>
<CAPTION>
Year Ended December 31 (dollars in thousands, except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (Loss) Per Share
Basic:
Income (loss) before extraordinary loss $ 1.21 $ 1.36 $ (0.75)
Extraordinary loss -- -- (2.10)
------------------------------------------------------------
Net income (loss) $ 1.21 $ 1.36 $ (2.85)
------------------------------------------------------------
Weighted average shares outstanding $20,915,910 $20,726,556 $12,747,029
------------------------------------------------------------
Diluted:
Income (loss) before extraordinary loss $ 1.20 $ 1.35 $ (0.75)
Extraordinary loss -- -- (2.10)
------------------------------------------------------------
Net income (loss) $ 1.20 $ 1.35 $ (2.85)
============================================================
Weighted average shares outstanding 20,978,942 20,909,317 12,747,029
============================================================
- ------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE> 34
Ivex Packaging Corporation
Consolidated Statements of Operations
(continued)
<TABLE>
<CAPTION>
Common
Stock Paid in Capital
---------------------- In Excess of
(dollars in thousands, except per share data) Shares Amount Par Value
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1996 1,072,246 $ 11 $177,375
Issuance of management shares 218,968 2 33,824
Common stock split 11,175,452 112 (112)
Issuance of common stock 7,960,000 79 117,235
Net loss -- -- --
Other comprehensive income -- -- --
Comprehensive income (loss
------------------------------------------
Balance at December 31, 1997 20,426,666 204 328,322
Issuance of common stock 500,000 5 10,702
Exercise of common stock options 4,602 -- 74
- ----------------------------------------------------------------------------------------
Net income -- -- --
Other comprehensive income -- -- --
Comprehensive income (loss)
------------------------------------------
Balance at December 31, 1998 20,931,268 209 339,098
Exercise of common stock options 16,001 -- 256
Purchase of treasury stock (153,800) (153,800) -- --
Net income -- -- --
Other comprehensive loss -- -- --
Comprehensive income (loss)
------------------------------------------
Balance at December 31, 1999 20,793,469 $209 $339,354
==========================================
<CAPTION>
Accumulated
Other
Compre- Stock- Comp-
hensive holders' hensive
Accumulated Treasury Income Equity Income
(dollars in thousands, except per share data) Deficit Stock (Loss) (Deficit) (Loss)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $(303,566) -- $(1,164) $(127,344)
Issuance of management shares -- -- -- 33,826
Common stock split -- -- -- --
Issuance of common stock -- -- -- 117,314
Net loss (36,270) -- -- (36,270) $(36,270)
Other comprehensive income -- -- 305 305 305
--------
Comprehensive income (loss $(35,965)
-------------------------------------------------- ========
Balance at December 31, 1997 (339,836) -- (859) (12,169)
Issuance of common stock -- -- -- 10,707
Exercise of common stock options -- -- -- 74
- ------------------------------------------------------------------------------------------------- ---------
Net income 28,194 -- -- 28,194 $ 28,194
Other comprehensive income -- -- (4,615) (4,615) (4,615)
--------
Comprehensive income (loss) $ 23,579
-------------------------------------------------- ========
Balance at December 31, 1998 (311,642) -- (5,474) 22,191
Exercise of common stock options -- -- -- 256
Purchase of treasury stock (153,800) -- $(1,216) -- (1,216)
Net income 25,242 -- -- 25,242 $ 25,242
Other comprehensive loss -- -- (1,165) (1,165) (1,165)
--------
Comprehensive income (loss) 24,077
-------------------------------------------------- ========
Balance at December 31, 1999 (286,400) $(1,216) $(6,639) $ 45,308
==================================================
</TABLE>
The accompanying notes are an integral part of this statement.
- ------------------------------------------------------------------------------
<PAGE> 35
Ivex Packaging Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 (dollars in thousands,
except per share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $ 25,242 $ 28,194 $ (36,270)
Adjustments to reconcile net income (loss)
to net cash from operating activities:
Depreciation of properties 35,545 31,828 26,068
Amortization of intangibles and debt issue costs 4,335 2,978 2,404
Non-cash restructuring charge 4,586 -- --
Non-cash income from equity investments (3,012) -- --
Non-cash interest (income) expense (1,609) (1,072) 11,223
Non-cash IPC Option Plan charge -- -- 53,329
Extraordinary loss -- -- 26,730
Deferred income taxes 7,653 12,749 (28,433)
-------------------------------------
72,740 74,677 55,051
-------------------------------------
Change in operating assets and liabilities:
Accounts receivable (16,865) (10,372) (7,342)
Inventories (15,329) (11,244) (4,946)
Prepaid expenses (220) (232) (212)
Accounts payable 20,049 (5,557) (3,907)
Accrued expenses and other liabilities (6,365) (3,246) (2,169)
--------------------------------------
Net cash from operating activities 54,010 44,026 36,475
--------------------------------------
Cash Flows from Financing Activities
Proceeds from issuance of stock -- 10,707 117,314
Proceeds from senior credit facility -- -- 300,000
Payment of debt (25,237) (36,117) (59,125)
Proceeds from revolving credit facility 52,900 111,800 1,000
Redemption of 131/4% Discount Debentures -- 10, 707 (117,363)
Redemption of 121/2% Subordinated Notes -- -- (157,423)
--------------------------------------
Management receivable 2,102 (784) (11,625)
Debt redemption costs -- -- (33,339)
Payment of debt issue costs and other (509) (2,744) (4,556)
--------------------------------------
Net cash from financing activities 29,256 82,862 34,883
--------------------------------------
Cash Flows from Investing Activities
Purchase of property, plant and equipment (48,323) (40,137) (25,364)
Acquisitions (28,061) (85,005) (42,728)
Other, net (8,421) (372) (99)
--------------------------------------
Net cash used by investing activities (84,805) (125,514) (68,191)
--------------------------------------
Net increase (decrease) in cash and cash equivalents (1,539) 1,374 3,167
Cash and cash equivalents at beginning of period 7,363 5,989 2,822
--------------------------------------
Cash and cash equivalents at end of period $ 5,824 $ 7,363 $ 5,989
======================================
Supplemental cash flow disclosures
Cash paid during the year for:
Interest $ 31,582 $ 30,757 $ 28,761
Income taxes 6,232 3,412 1,561
The accompanying notes are an integral part of this statement.
</TABLE>
<PAGE> 36
Ivex Packaging Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 1--ORGANIZATION
Ivex Packaging Corporation (the "Company") owns 100% of the common stock of IPC,
Inc. ("IPC"). The Company is a holding company with no operations of its own and
IPC has no contractual obligations to distribute funds to the Company.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION All the accounts of the wholly-owned subsidiaries of
the Company have been consolidated. All significant intercompany transactions
and accounts have been eliminated.
REVENUE RECOGNITION The Company recognizes revenue upon shipment of products.
CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with
initial maturities of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
December 31 1999 1998
- -------------------------------------------------------------------------------
Accounts receivable $103,273 $79,566
Less-Allowance for doubtful accounts (4,993) (2,867)
-------------------------------
$ 98,280 $76,699
===============================
Accounts receivable from sales to customers are unsecured.
INVENTORIES Inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method to determine the cost of raw materials
and finished goods.
December 31 1999 1998
- -------------------------------------------------------------------------------
Raw materials $ 46,018 $34,136
Finished goods 51,501 43,373
-------------------------------
$ 97,519 $77,509
===============================
<PAGE> 37
Ivex Packaging Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
PROPERTY, PLANT AND EQUIPMENT Depreciation of property, plant and equipment is
computed using the straight-line method over the estimated useful lives of the
assets (generally 30 years for buildings and 3-15 years for equipment).
Expenditures for maintenance and repairs are charged to operations as incurred;
major improvements are capitalized.
INCOME TAXES The Company recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than enactments of changes in the tax law or rates.
EMPLOYEE BENEFIT PLANS IPC and its subsidiaries have defined contribution and
defined benefit plans covering substantially all employees. IPC's contributions
to the defined contribution plans are determined by matching employee
contributions and by discretionary contributions. Defined benefit plan
contributions are determined by independent actuaries and are generally funded
in the minimum annual amount required by the Employee Retirement Income Security
Act of 1974.
IPC provides limited post retirement benefits to a select group of employees.
The current period cost and reserves related to these benefits are not material.
- -------------------------------------------------------------------------------
GOODWILL AND OTHER LONG-LIVED ASSETS Goodwill represents the excess purchase
price over fair value of net assets acquired and is being amortized using the
straight-line method over forty-year periods. Accumulated amortization was
$23,889 and $21,304 as of December 31, 1999 and 1998, respectively.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. If the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount of the asset, an impairment loss is recognized. No such impairment has
occurred in the periods presented.
EARNINGS PER SHARE Basic earnings (loss) per share excludes dilution and is
computed by dividing income (loss) by the weighted average number of common
shares outstanding during each period. Diluted earnings (loss) per share
reflects the potential dilution that could occur if common stock options are
exercised and is computed by dividing income (loss) by the weighted average
number of common shares outstanding, including common stock equivalent shares,
issuable upon exercise of outstanding stock options, to the extent that they
would have a dilutive effect on the per share amounts. Dilution of the Company's
weighted average shares outstanding results from common stock issuable upon
exercise of outstanding stock options (63,032 and 182,761 for the years ended
December 31, 1999 and 1998, respectively).
- -------------------------------------------------------------------------------
<PAGE> 38
Ivex Packaging Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
OTHER COMPREHENSIVE INCOME During 1998, the Company adopted Financial Accounting
Standards Board Statement ("SFAS") No. 130, "Reporting Comprehensive Income"
which requires the Company to disclose, in financial statement format, all
non-owner changes in equity.
Other comprehensive income (loss) resulted from the following:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Foreign currency translation adjustments $ 84 $(4,615) $305
Minimum pension liability adjustment (1,249) -- --
----------------------------------------------------
$(1,165) $(4,615) $305
===================================================
</TABLE>
FOREIGN CURRENCY TRANSLATION The financial statements of the Company's foreign
subsidiaries are maintained in local currency which is the functional currency.
The balance sheets of these subsidiaries are translated at exchange rates in
effect at the balance sheet date and the related statements of operations are
translated at weighted average rates of exchange for the year. Translation
adjustments resulting from this process are reflected as comprehensive income
(loss). Gains and losses resulting from foreign exchange transactions are
recorded in the results from operations. Such amounts were not significant in
the periods presented.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION The Company
engages in the business of manufacturing plastic and paper packaging products
for different end-use packaging applications principally with customers in North
America and Europe. The Company is divided into two operating segments, Consumer
Packaging and Technical Packaging, based on management decisions as to resource
allocation. Consumer Packaging applications include the integrated production
and conversion of oriented polystyrene sheet, other plastic sheet and paper into
thermoformed and converted packaging products and the sale of plastic sheet to
other packaging thermoformers. Technical Packaging applications include the
manufacture and sale of converted, coated and laminated paper and plastic
materials as well as the manufacture and sale of recycled kraft paper. Operating
performance and decisions are based on Adjusted EBITDA of each segment which
includes income from operations adjusted to exclude depreciation and
amortization expenses and nonrecurring charges.
FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of financial
instruments, other than the Company's interest rate derivative instruments (see
Note 5-Long-Term Debt), approximates their estimated fair value based on market
prices for the same or similar type of financial instruments.
- -------------------------------------------------------------------------------
RECLASSIFICATIONS Certain amounts in the consolidated financial statements for
1998 and 1997 have been reclassified to conform to the 1999 presentation.
<PAGE> 39
Ivex Packaging Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 3--PUBLIC OFFERINGS AND REFINANCING
On May 27, 1998, the Company completed a secondary offering (the "Secondary") of
4,000,000 shares of common stock of the Company. In the Secondary, the Company
sold to the underwriters 500,000 previously unissued shares of common stock at
an offering price of $24.00 per share yielding net proceeds of $10,707. Other
selling stockholders, including members of the Company's management (the
"Management Stockholders"), sold 3,500,000 previously issued and outstanding
shares of common stock owned by them. The Company did not receive any of the
proceeds from the sale of shares of common stock by such selling stockholders.
The proceeds of the Secondary were used to pay down borrowings under the
Company's revolving credit facility.
On October 6, 1997, the Company completed an initial public offering (the
"Offering") of 9,660,000 shares of common stock of the Company. In connection
with the Offering, the Company increased its authorized capital stock to
45,000,000 shares of common stock and effected a 9.65-for-1 stock split of its
outstanding common stock. All share and per share data have been adjusted to
give effect to the increased authorized capital stock and stock split. In the
Offering, the Company sold to the underwriters 7,960,000 previously unissued
shares of common stock at an initial public offering price of $16.00 per share
yielding net proceeds of $117,314. Acadia Partners, L.P. and certain related
investors ("Acadia") sold to the underwriters 1,700,000 previously issued and
outstanding shares of common stock owned by them. The Company did not receive
any of the proceeds from the sale of shares of common stock by Acadia.
The Offering was a component of a comprehensive refinancing strategy of the
Company to significantly lower its interest expense, strengthen its balance
sheet and provide financial flexibility to enable the Company to continue to
pursue investment opportunities. As part of this refinancing, simultaneously
with the consummation of the Offering, the Company entered into a new credit
facility (the "Senior Credit Facility") that refinanced its existing credit
facility. The Company used the proceeds of the Offering together with borrowings
under the Senior Credit Facility to refinance substantially all of its existing
indebtedness. During the fourth quarter of 1997, the Company repurchased all of
its 12 1/2% Subordinated Notes due 2002 (the "12 1/2% Subordinated Notes") and
repurchased all of its 13 1/4% Discount Debentures due 2005 (the "13 1/4%
Discount Debentures").
In connection with the above repurchase of the 12 1/2% Subordinated Notes and
the 13 1/4% Discount Debentures, the Company paid premiums aggregating $32,374.
In connection with the refinancing, the Company incurred expense of
approximately $8,177 related to the write-off of previously capitalized debt
issuance costs and paid costs of $1,214 associated with the repurchase of
existing debt. See Note 11-Extraordinary Loss from Extinguishment of Debt.
<PAGE> 40
Ivex Packaging Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share data)
NOTE 4--MISCELLANEOUS OTHER ASSETS
<TABLE>
<CAPTION>
December 31 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Investments in Packaging Holdings, L.L.C. $24,992 $18,929
Non-compete agreements, net 7,553 1,750
Deferred financing costs, net 4,460 4,622
Other 10,447 8,566
------------------------------------
$47,452 $33,867
====================================
</TABLE>
Investments in Packaging Holdings, L.L.C. On November 19, 1998, Packaging
Holdings L.L.C., a newly organized Delaware limited liability company
("Packaging") acquired (i) the business of Bagcraft Corporation of America
("Bagcraft") for a cash purchase price of $89,000 (including a two year
non-compete agreement for $5,000) and (ii) the business of the Company's Detroit
paper mill facility ("Detroit") for 12% Subordinated Notes with an original face
value of $12,500 (the "Packaging Notes") and an equity interest equal to 49.5%
of the common stock of Packaging. The remaining equity investors in Packaging
include, among others, certain members of the Company and Bagcraft management.
Additionally, the Company received a $1,000 fee resulting from work performed in
the formation and acquisitions of Packaging.
During 1999, Ivex contributed additional capital of $1,800 to Packaging in
connection with the acquisition of International Converters, Inc. ("ICI"), a
flexible packaging converter supplying product to consumer and industrial
markets. The Company has accounted for its investment in Packaging through the
equity method of accounting. The Company's equity investment asset of $10,717
differs from the underlying equity in net assets of Packaging by $7,911 due to
the deferred gain on the sale of Detroit.
Packaging is an integrated manufacturer of flexible packaging supplying products
to the food service, bakery, microwave popcorn, supermarket and industrial
market segments. Additionally, Packaging manufactures specialty lightweight
papers with waxing and foil lamination capabilities for the flexible packaging
industry and food packaging converters, masking tape base stock and natural
kraft paper.
<PAGE> 41
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
Condensed financial information for Packaging is as follows:
December 31 1999 1998
BALANCE SHEET
Current assets $ 59,204 $ 36,905
Property, plant and equipment 76,131 65,091
Other assets 41,627 31,950
---------------------------
Total assets $176,962 $133,946
===========================
Current liabilities $ 25,595 $ 21,636
Long-term liabilities 113,685 82,564
Members' capital 37,682 29,746
---------------------------
Total liabilities and members' capital $176,962 $133,946
===========================
For the period from
- --------------------------------------------------------------------------------
For the year ended November 19, 1998 to
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------
INCOME STATEMENT
Net sales $199,645 $ 17,878
Cost of goods sold 159,968 15,659
Operating expense 25,950 1,945
Interest and income taxes 10,045 828
---------------------------
Net income (loss) $ 3,682 $ (554)
===========================
At December 31, 1999 and 1998, the balance on the Packaging Notes was $14,275
and $12,666. Interest on the Packaging Notes is currently paid-in-kind at a rate
of 12% on a semi-annual basis. The Packaging Notes are unsecured and mature on
November 21, 2005.
NON-COMPETE AGREEMENTS Non-compete agreements are amortized over the related
life of the agreement (generally 5 to 10 years). At December 31, 1999 and 1998,
accumulated amortization on the non-compete agreements was $1,740 and $777,
respectively.
DEFERRED FINANCING COSTS Deferred financing costs are being amortized over the
term of the related debt. At December 31, 1999 and 1998, accumulated
amortization was $2,151 and $1,275, respectively.
<PAGE> 42
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NOTE 5--LONG-TERM DEBT
December 31 1999 1998
- ---------------------------------------------------------------------
Senior credit facility $ 421,075 $ 390,925
Industrial revenue bonds 39,590 39,667
Other 2,043 1,791
----------------------
Total debt outstanding 462,708 432,383
Less-Current installments of long-term debt (27,806) (23,312)
----------------------
Long-term debt $ 434,902 $ 409,071
======================
SENIOR CREDIT FACILITY On October 26, 1999, 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. The Senior Credit Facility is
comprised of a $150,000 Term A Loan, a $150,000 Term B Loan and a $265,000
revolving credit facility (up to $65,000 of which may be in the form of letters
of credit). At December 31, 1999, borrowings of $165,700 were outstanding and
$54,878 was available under the revolving credit portion of the Senior Credit
Facility. The Term A Loan is required to be repaid in quarterly payments
totaling $25,000 in 2000, $26,250 in 2001, $31,250 in 2002 and $26,250 in 2003
and the Term B Loan is required to be repaid in quarterly payments totaling
$1,500 per annum through September 30, 2003 and installments of $35,250 on
December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004. The
interest rate of the Senior Credit Facility can be, at the election of the
Company, based upon LIBOR or the Adjusted Base Rate, as defined, and is subject
to certain performance pricing adjustments. The Term A Loan and loans under the
revolving credit facility bear interest at rates up to LIBOR plus 1.625% or the
Adjusted Base Rate plus 0.625%. At December 31, 1999, such rates are 1.50% plus
LIBOR. The Term B Loan bears interest at rates up to LIBOR plus 2.00% or the
Adjusted Base Rate plus 1.0%. As of December 31, 1999, such rates are 2.0% plus
LIBOR. Substantially all the assets of the Company and its subsidiaries are
pledged as collateral for the Senior Credit Facility. The revolving credit
facility and Term A Loan will terminate on September 30, 2003 and the Term B
Loan will terminate on September 30, 2004. Under the Senior Credit Facility, the
Company is required to maintain certain financial ratios and levels of net
worth, and future indebtedness and dividends are restricted, among other things.
Limitations on dividends, advances and loans between IPC and the Company, as
defined in the Senior Credit Facility, restrict substantially all of IPC's net
assets.
<PAGE> 43
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
In order to reduce the impact of changes in interest rates on its variable rate
debt, the Company entered into the following interest rate derivative
instruments. The Company has entered into interest rate swap agreements with a
group of banks having notional amounts totaling $160,000 and various maturity
dates through November 5, 2002. These agreements effectively fix the Company's
LIBOR base rate for $160,000 of the Company's indebtedness at rates from 5.33%
to 6.12% during this period. The Company has entered into no cost interest rate
collar agreements with a group of banks having notional amounts totaling
$100,000 through November 5, 2002. These collar agreements effectively fix the
LIBOR base rate for $100,000 of the Company's indebtedness at a maximum of 7.00%
and allow for the Company to pay the market LIBOR from a floor of 5.55% to the
maximum rate. If LIBOR falls below 5.55%, the Company is required to pay the
floor rate of 5.55%. The Company has also entered into no cost interest rate
collar agreements with a group of banks having notional amounts totaling $60,000
through November 5, 2001. These collar agreements effectively fix the LIBOR base
rate for $60,000 of the Company's indebtedness at a maximum of 5.31% and allow
for the Company to pay the market LIBOR from a floor of 4.47% to the maximum
rate. If LIBOR falls below 4.47%, the Company is required to pay the floor rate
of 4.47%. Income or expense related to settlements under these agreements are
recorded as adjustments to interest expense in the Company's financial
statements. The fair market value of the Company's derivative instruments
outlined above approximate a gain of $5,504 as of December 31, 1999 and is based
upon the amount at which such instruments could be settled with a third party.
INDUSTRIAL REVENUE BONDS Industrial Revenue Bonds requiring monthly interest
payments with average effective rates during 1999 and 1998 of 5.6% and 5.9%,
respectively, are due in varying amounts and dates through 2009 and are secured
by certain assets of IPC. Letters of credit under the Senior Credit Facility
provide credit enhancement for the Industrial Revenue Bonds.
Long-term debt principal maturities are as follows:
- -----------------------------------------------------------------------
2000 $ 27,806
2001 27,994
2002 33,011
2003 62,903
2004 106,016
Thereafter 204,978
- -----------------------------------------------------------------------
$462,708
=======================================================================
<PAGE> 44
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NOTE 6--INCOME TAXES
The components of the income tax provision shown in the statements of operations
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current provision (benefit):
Federal $ (660) $ 979 --
State 865 1,163 $ 454
Foreign 3,615 3,847 1,926
Deferred provision (benefit) 8,106 12,749 (26,059)
Benefit of net operating loss carryovers -- -- (2,374)
--------------------------------
$ 11,926 $ 18,738 $(26,053)
================================
<CAPTION>
The provision recognized for income taxes differs from the amount determined by
applying the U.S. federal income tax rate of 35% due to the following:
Year Ended December 31 1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary loss $ 37,168 $ 46,932 $(35,593)
================================
Computed expected provision (benefit)
at the statutory rate $ 13,009 $ 16,426 $(12,458)
Adjustments to the computed expected provision
(benefit) resulting from:
Reduction of valuation allowance (1,400) -- (13,200)
Amortization of goodwill 598 536 151
Net operating loss carryover adjustments -- -- (2,374)
State income taxes, net 562 756 713
Other, net (843) 1,020 1,115
--------------------------------
$ 11,926 $ 18,738 $(26,053)
================================
</TABLE>
<PAGE> 45
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
U.S. federal deferred tax liabilities (assets) are comprised of the following:
December 31 1999 1998
- -------------------------------------------------------------------------------
Depreciation $ 39,956 $ 41,498
Basis differences of acquired assets 2,182 2,923
--------------------
Total deferred tax liabilities 42,138 44,421
====================
Non-compete agreements -- (216)
Self insurance reserves (1,595) (1,248)
Management compensation accrual (3,482) (4,665)
Other (6,451) (7,416)
Net operating loss carryovers (38,738) (50,407)
--------------------
Total deferred tax assets (50,266) (63,952)
Valuation allowance on deferred tax assets 2,194 2,576
--------------------
Net deferred tax assets (48,072) (61,376)
--------------------
Deferred tax asset $ (5,934) $(16,955)
====================
The Company's foreign and state deferred tax liabilities at December 31, 1999
and 1998 of $1,351 and $3,173, respectively, arose primarily due to differences
between book and tax depreciation.
At December 31, 1999, the Company has U.S. federal net operating loss
carryovers, including the net operating loss carryovers of IPC, for income tax
reporting purposes of approximately $110,679. Approximately $74,410 of these
losses will be limited in their annual usage to approximately $10,500 per year
under Section 382 of the Internal Revenue Code. These carryovers expire between
2005 and 2012. In the event of a change in ownership of the Company these net
operating loss carryovers may be limited.
During 1999, the Company determined that it was more likely than not that its
net operating loss carryovers in the United Kingdom would be realized. As such,
the Company reversed $1,400 of its valuation reserve. Additionally during 1999,
the Company recorded a $1,172 nonrecurring tax benefit in its income tax
provision resulting from the carryback of certain tax losses.
During 1997, the Company determined that it was more likely than not that a
portion of its net operating loss carryovers would be realized primarily as the
result of the Offering and refinancing. See Note 3-Public Offerings and
Refinancing. Accordingly, the valuation allowance recorded against certain of
the net operating loss carryovers was reduced by $13,200 during 1997.
<PAGE> 46
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NOTE 7--EMPLOYEE BENEFIT PLANS
Plan assets of the Company's defined benefit plans are invested in money market,
equity and bond funds.
The following table sets forth the funded status of these plans as of the date
of the latest available actuarial valuation.
<TABLE>
<CAPTION>
December 31 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 17,875 $ 16,990
Service cost 348 320
Interest cost 1,333 1,282
Actuarial gain 743 435
Change in actuarial assumption -- 294
Benefits paid (1,334) (1,446)
--------------------
Benefit obligation at end of year $ 18,965 $ 17,875
====================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 17,189 $ 15,576
Actual return on plan assets 2,011 1,345
Company contributions 875 1,714
Benefits paid (1,334) (1,446)
--------------------
Fair value of plan assets at end of year $ 18,741 $ 17,189
====================
RECONCILIATION OF PREPAID (ACCRUED) AND TOTAL AMOUNT RECOGNIZED
Funded status $ (224) $ (686)
Unrecognized net actuarial loss 1,272 258
Unrecognized prior service costs 1,241 1,211
Unrecognized net transition obligation 204 269
--------------------
Net amount recognized $ 2,493 $ 1,052
====================
AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
Prepaid benefit cost $ 3,047 $ 2,634
Accrued benefit liability (3,025) (3,061)
Intangible asset 1,402 1,479
Accumulated other comprehensive income 1,249 --
--------------------
Net amount recognized $ 2,493 $ 1,052
====================
</TABLE>
<PAGE> 47
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Net periodic pension expense related to the defined benefit plans for the years
ended December 31, 1999, 1998 and 1997 is comprised of the following components:
Year Ended December 31 1999 1998 1997
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.5% 7.5% 8.0%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Expected rate of compensation increase 0%-5% 0%-5% 0%-5%
COMPONENTS OF NET PERIODIC PENSION EXPENSE
Service cost $ 348 $ 320 $ 279
Interest cost 1,333 1,282 1,248
Expected return on plan assets (1,533) (1,422) (1,645)
Amortization of transition obligation 313 234 568
-------------------------------
Net periodic pension expense $ 461 $ 414 $ 450
-------------------------------
The charge to operations under the Company's defined contribution plans was
approximately $3,580, $3,077 and $3,364 for the years ended December 31, 1999,
1998 and 1997, respectively.
NOTE 8--STOCK OPTION AND INCENTIVE PLANS
THE 1997 STOCK INCENTIVE PLAN In connection with the Offering, the Company
adopted the Ivex Packaging Corporation 1997 Long-Term Stock Incentive Plan (the
"1997 Stock Incentive Plan") which authorizes the grant of stock options at a
fair market value, as defined, to participants with respect to a maximum of
2,000,000 shares of the Company's common stock.
The following nonqualified options were granted under the 1997 Stock Incentive
Plan:
Year Ended December 31 1999 1998
- -------------------------------------------------------------------------------
Options outstanding at the beginning of the year 881,501 467,500
Granted 523,000 449,500
Exercised (16,001) --
Cancelled (98,332) (35,499)
-----------------------------
Options outstanding at the end of the year 1,290,168 881,501
-----------------------------
At December 31, 1999, the exercise prices of outstanding options range from
$7.63 to $23.25, with a weighted average of $16.62. At December 31, 1999,
1,195,500 of such options were exercisable. The outstanding options vest over a
period of three years from the date of grant and expire on dates in a range from
September 30, 2007 to December 31, 2009.
<PAGE> 48
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
THE 1999 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS On May 11, 1999, the
Company adopted the Ivex Packaging Corporation 1999 Stock Option Plan for
Non-Employee Directors (the "1999 Director Stock Option Plan") which authorizes
the grant of stock options at a fair market value, as defined, to participants
with respect to a maximum of 100,000 shares of the Company's common stock.
During 1999, 8,000 stock options were granted with an exercise price of $19.88
and all such options were outstanding at December 31, 1999. The options vest
over a period of three years form the date of grant and expire on May 12, 2009.
THE IPC OPTION PLAN IPC and the Company established a stock option plan (the
"IPC Option Plan") for certain key executives, effective January 1, 1993.
Pursuant to the IPC Option Plan, IPC irrevocably granted options to purchase
17,270 shares of its common stock at an exercise price of $619.56 per share
approximating fair market value (the "IPC Options"). The IPC Option Plan also
provided IPC and the participants with certain rights to exchange options to
purchase IPC's common stock for options to purchase the Company's common stock.
On January 1, 1996, the IPC Option Plan was amended and extended to grant an
additional 6,908 options subject to vesting over three years from January 1,
1996, and such options were available to be earned based on operating income, as
defined. The provisions of the options were substantially the same as the
previously issued options.
On September 30, 1997, earned and vested IPC Options exercisable for 16,321
shares of IPC's common stock (comprising all of the IPC Options outstanding on
such date) were exchanged for 2,114,133 newly issued shares of the Company's
common stock and newly issued nonqualified stock options exercisable for 817,067
shares of the Company's common stock at an option price of $16.00 (fair market
value at the date of grant). Such options expire in 2007 and are fully vested
and exercisable. During 1998, 4,602 were exercised and, as such, at December 31,
1999 and 1998, 812,465 options were outstanding and exercisable.
During the third quarter of 1997, the Company recorded a nonrecurring non-cash
compensation charge of $53,329 in connection with the Company's exchange,
pursuant to the IPC Option Plan, of the IPC Options into 2,114,133 newly issued
shares of the Company's common stock and newly issued stock options exercisable
for 817,067 shares of the Company's common stock. The nonrecurring compensation
charge consists of (i) a non-cash compensation charge of $33,826 associated
with the exchange of the IPC Options into shares of the Company's common stock
and (ii) a non-cash compensation charge of $19,503 associated with the accrual
of future Company payments to senior management of an amount which (after taxes)
will enable such management to pay interest on the loans made to them by the
Company (the "Management Receivable"). As of December 31, 1999 and 1998, the
balance of this management compensation accrual is $9,175 and $13,327,
respectively. The Management Receivable bears interest at the minimum applicable
federal rate at the date of funding (averaging approximately 6.5%) and are
secured only by the newly issued shares of stock exchanged for the IPC options
and are nonrecourse to any other personal assets.
<PAGE> 49
Ivex Packaging Corporation
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(dollars in thousands, except per share data)
SFAS 123 DISCLOSURES On a pro forma basis, had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date, the Company's net income (loss) and diluted earnings (loss) per share
would have been as follows:
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------
Net income (loss) $ 24,406 $ 27,865 $ (17,224)
-------------------------------------
Diluted earnings (loss) per share $ 1.16 $ 1.33 $ (1.35)
-------------------------------------
The Company's pro forma net income was determined under the assumption that
options granted were fully earned with equal vesting over the three years from
date of grant. The fair value of the options granted was estimated on the date
earned using the Black-Scholes option-pricing model and utilized the following
weighted-average assumptions:
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------------
Dividend yield 0.00% 0.00% 0.00%
Volatility 35.00% 25.00% 21.25%
Risk-free interest rate 6.45% 5.50% 5.91%
Expected lives 3 years 3 years 3 years
- -------------------------------------------------------------------
Fair value of options $ 3.99 $ 3.61 $ 3.69
NOTE 9--RELATED PARTY TRANSACTIONS
Pursuant to a consulting agreement, Packaging pays IPC a fixed annual consulting
fee for certain services rendered to Packaging by IPC. During 1999 and 1998, the
Company recorded consulting fee income of $625 and $60 related to this
agreement. See Note 4-"Miscellaneous Other Assets."
The Company paid a management fee to Acadia of $400 in 1997. In addition, in
connection with the Company's initial public offering, the Company paid a
one-time $500 fee to Acadia and certain related investors.
NOTE 10--COMMITMENTS AND CONTINGENCIES
IPC leases certain of its facilities and equipment under non-cancelable
operating leases, some of which contain renewal options, escalation clauses and
requirements that IPC pay taxes, insurance and maintenance costs.
Approximate future minimum annual rental payments under non-cancelable operating
lease agreements are as follows:
- ----------------------------------------
2000 $8,072
2001 7,396
2002 5,672
2003 4,043
2004 3,164
Thereafter 8,839
Rent expense under operating leases included in the accompanying statements of
operations aggregated approximately $7,565, $8,073 and $6,832 during 1999, 1998
and 1997, respectively.
<PAGE> 50
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The Company is a party to litigation matters and claims, including environmental
that are normal in the course of its operations. Insurance coverages are
maintained and estimated costs are recorded for claims that are reasonably
estimable. It is management's opinion that none of these will have a materially
adverse effect on the Company's financial position.
NOTE 11--EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT
An extraordinary loss of $26,730 (net of tax benefit of $15,035) was recorded in
the consolidated statement of operations for the year ended December 31, 1997.
This loss consists of $32,374 of premiums paid to retire the 13 1/4% Discount
Debentures and the 12 1/2% Subordinated Notes, the write-off of $8,177 of
deferred financing costs related to the retired debt and the refinancing of the
Company's existing credit facility, and $1,214 of expenses incurred to retire
the debt.
NOTE 12--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 (including
non-compete agreements). 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. 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.
On April 23, 1998, Ivex acquired all of the common stock of Ultra Pac, Inc.
("Ultra Pac"), a Rogers, Minnesota based specialty packaging company, for
$67,625. In addition, Ivex assumed approximately $33,000 of Ultra Pac
liabilities (including $18,000 of indebtedness) and paid fees associated with
the transaction of approximately $2,500. Ultra Pac is a leading North American
producer of PET food packaging that designs and manufactures plastic containers
and packaging for the food industry. On October 2, 1998, Ivex acquired the paper
packaging business of Bleyer Industries, Inc., headquartered in Valley Stream,
New York for $17,380. The acquired business manufactures fluted cups and pads
for the baking and candy industries.
On January 17, 1997, the Company purchased substantially all of the assets,
excluding accounts receivable, of the oriented polystyrene ("OPS") business of
Viskase Limited located in Sedgefield, England for $11,907. On February 21,
1997, the Company purchased all of the outstanding common stock of M&R Plastics,
Inc. ("M&R") located in Laval, Quebec for $18,651, including the repayment of
certain indebtedness of M&R and related acquisition fees and expenses. The OPS
business of Viskase and M&R are integrated producers and converters of OPS sheet
with primary applications in food packaging markets. On August 8, 1997, the
Company purchased all of the outstanding common stock of AVPEX International
Corporation ("AVP") located in Newcastle, Canada for $8,103, including the
repayment of certain indebtedness of AVP and related fees and expenses. AVP
extrudes and converts OPS film with applications primarily in windows for
envelopes and folding cartons. On November 3, 1997, the Company purchased all of
the outstanding common stock of Crystal Thermoplastics, Inc. ("Crystal") of
Cumberland, Rhode Island for $4,067 (plus assumed debt of $1,468). Crystal
manufactures thermoformed plastic packaging for the medical and electronics
markets. Under earn out agreements, the purchase price of M&R, AVP and Crystal
may be increased if certain performance targets are met over the next one to
three years. During 1999 and 1998, the Company paid additional purchase price of
approximately $5,405 and $1,500 under the terms of these earnout agreements.
<PAGE> 51
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
The acquired businesses were financed through revolving credit borrowings under
the Senior Credit Facility. All of these acquisitions were accounted for as a
purchase; accordingly, the purchase price was allocated to the specific assets
acquired and liabilities assumed based upon their fair value at date of
acquisition. The Company's consolidated financial statements include the results
of operations and cash flows of these acquisitions from the purchase date.
Adjusting for the full year effect of the acquisitions, unaudited pro forma net
sales would have been approximately $12,943 and $77,707 higher than the
Company's reported net sales in 1999 and 1998, respectively. Unaudited pro forma
net income would have been $650 less in 1999 and $400 higher in 1998 than the
Company's reported results. The unaudited pro forma results of operations were
prepared as if these acquisitions had occurred as of the beginning of 1999 and
1998, after giving effect for certain adjustments. These unaudited pro forma
results were prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisitions been made as of the
beginning of the year, or of results which may occur in the future.
NOTE 13--REPORTING SEGMENTS
The Company is divided into the Consumer Packaging and Technical Packaging
operating segments based on management decisions as to resource allocation.
Operating segment information based on Adjusted EBITDA is as follows:
Year Ended December 31 1999 1998 1997
CONSUMER PACKAGING
Net Sales $394,669 $341,920 $264,646
Adjusted EBITDA 80,931 73,727 52,127
Total Assets 395,583 347,660 204,438
Purchase of property, plant and equipment 30,609 24,538 15,533
TECHNICAL PACKAGING
Net Sales 248,357 264,531 273,829
Adjusted EBITDA 36,071 41,646 40,695
Total Assets 212,659 160,838 162,531
Purchase of property, plant and equipment 13,909 14,094 8,433
The reconciliation of the operating segment information to Ivex consolidated
financial statements is as follows:
<PAGE> 52
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
Consumer Packaging $ 394,669 $ 341,920 $ 264,646
Technical Packaging 248,357 264,531 273,829
-----------------------------------
Total $ 643,026 $ 606,451 $ 538,475
-----------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY LOSS
Adjusted EBITDA:
Consumer Packaging $ 80,931 $ 73,727 $ 52,127
Technical Packaging 36,071 41,646 40,695
Corporate expenses (8,158) (7,622) (6,018)
-----------------------------------
Total 108,844 107,751 86,804
Depreciation expense 35,545 31,828 26,068
Amortization expense 3,436 2,196 1,111
Special benefit -- (2,766) --
Restructuring charge 4,950 -- --
IPC Option Plan charge -- -- 53,329
Income from equity investments (3,012) -- --
Interest expense 30,757 29,561 41,889
-----------------------------------
Income (loss) before income taxes and extraordinary loss $ 37,168 $ 46,932 $ (35,593)
-----------------------------------
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT
Consumer Packaging $ 30,609 $ 24,538 $ 15,533
Technical Packaging 13,909 14,094 8,433
Corporate spending 3,805 1,505 1,398
-----------------------------------
Total $ 48,323 $ 40,137 $ 25,364
-----------------------------------
December 31 1999 1998 1997
- -------------------------------------------------------------------------------------------------
TOTAL ASSETS
Consumer Packaging $ 395,583 $ 347,660 $ 204,438
Technical Packaging 212,659 160,838 162,531
Corporate 32,345 47,647 60,496
-----------------------------------
Total $ 640,587 $ 556,145 $ 427,465
-----------------------------------
</TABLE>
<PAGE> 53
' Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
FOREIGN OPERATIONS The Company has operations in the United States, Canada,
Europe and Southeast Asia. The following table allocates net sales and
identifiable assets between U.S. operations and non-U.S. operations based on
manufacturing locations.
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------
Net Sales
United States $515,130 $511,214 $469,323
Foreign subsidiaries 127,896 95,237 69,152
------------------------------
$643,026 $606,451 $538,475
==============================
December 31 1999 1998 1997
- --------------------------------------------------------
Identifiable Assets
United States $528,932 $479,129 $356,487
Foreign subsidiaries 111,655 77,016 70,978
------------------------------
$640,587 $556,145 $427,465
==============================
NOTE 14--RESTRUCTURING CHARGE
During 1999, Ivex recorded a restructuring charge of $4,950 related to exit
costs and certain asset impairments associated with closing the
Hollister, California manufacturing facility, rationalizing and realigning
manufacturing capacity in certain of the Company's businesses and exiting Ultra
Pac's joint venture agreement in Chile.
The Company recorded expense of $4,000 related to exit costs for the Hollister,
California manufacturing facility. The Company is committed to an operating
lease of the facility through March 1, 2008. All manufacturing ceased in
Hollister during the fourth quarter of 1999 and was relocated to the other
manufacturing facilities in Visalia, California, Rogers, Minnesota and Grove
City, Pennsylvania. The $4,000 expense includes an accrual for the estimated
difference between the lease commitment and expected sublease proceeds of
$2,758, a leasehold improvements impairment of $1,062 and other exit costs of
$180.
The Company recorded expense of $450 as a result of the implementation of a
manufacturing capacity rationalization plan during the fourth quarter of 1999.
The plan resulted in exiting the Sparks, Nevada facility and removing Technical
Packaging production from the Grove City, Pennsylvania facility. The planned
consolidations are expected to be completed by the second quarter of 2000. The
$450 expense includes an asset impairment for certain equipment of $280, an
accrual for lease exit costs in Sparks of $85 and severance for approximately 15
manufacturing employees of $85.
Ivex initiated a plan to exit Ultra Pac's joint venture business in Chile. The
Company recorded expense of $500 as a result of the impairment of assets
associated with this joint venture.
<PAGE> 54
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NOTE 15 --UNAUDITED QUARTERLY RESULTS
Summarized unaudited quarterly data for the years ended December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $143,208 $160,331 $166,838 $172,649
Gross profit 37,192 40,355 37,852 37,658
Income from operations 16,642 19,546 17,644 11,081
Net income 6,193 8,126 7,674 3,249
Diluted earnings per share:
Net income $ 0.29 $ 0.39 $ 0.37 $ 0.16
Quarter Ended March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998
- ------------------------------------------------------------------------------------------------
Net sales $136,168 $156,619 $159,953 $153,711
Gross profit 31,497 37,975 37,990 37,854
Income from operations 15,357 21,895 20,174 19,067
Net income 5,315 8,430 7,539 6,910
Diluted earnings per share:
Net income $ 0.26 $ 0.40 $ 0.36 $ 0.33
</TABLE>
<PAGE> 55
Ivex Packaging Corporation
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
NOTE 16--STOCKHOLDERS RIGHTS PLAN
On February 10, 1999, the Board of Directors adopted a Stockholder Rights Plan
in which rights were distributed as a dividend at the rate of one Right for each
share of common stock, par value $0.01 per share, of the Company held by
stockholders of record as of the close of business on March 16, 1999. The Rights
Plan is designed to deter coercive takeover tactics including the accumulation
of shares in the open market or through private transactions and to prevent an
acquiror from gaining control of the Company without offering a fair price to
all of the Company's stockholders. The Rights will expire on February 10, 2009.
Each Right initially will entitle stockholders to buy one unit of a share of
preferred stock for $80.00. The Rights will be exercisable only if a person or
group acquires beneficial ownership of 15% or more of the Company's common
stock, if a person or group commences a tender or exchange offer upon
consummation of which such person or group would beneficially own 15% or more of
the Company's common stock or if the Board of Directors determines that a person
or group, having obtained beneficial ownership of at least 10% of the Company's
common stock, is seeking short-term financial gain which would not serve the
long-term interests of the Company or whose ownership is causing or is likely to
cause a material adverse impact on the Company (an "Adverse Person").
If any person becomes the beneficial owner of 15% or more of the Company's
common stock, other than pursuant to a tender or exchange offer for all
outstanding shares of the Company approved by a majority of the independent
directors not affiliated with a 15%-or-more stockholder, or the Board of
Directors determines that any person or group is an Adverse Person, then each
Right not owned by a 15%-or-more stockholder or related parties will entitle its
holder to purchase, at the Right's then current exercise price, shares of the
Company's common stock (or, in certain circumstances as determined by the Board,
cash, other property, or other securities) having a value of twice the Right's
then current exercise price. In addition, if after any person has become a
15%-or-more stockholder, Ivex Packaging Corporation is involved in a merger or
other business combination transaction with another person in which the Company
does not survive or in which its common stock is changed or exchanged, or sells
50% or more of its assets or earning power to another person, each Right will
entitle its holder to purchase, at the Right's then current exercise price,
shares of common stock of such other person having a value of twice the Right's
then current exercise price.
The Company will generally be entitled to redeem the Rights at $0.01 per Right
at any time prior to 10 days (subject to extension) following a public
announcement that a 15% position has been acquired or the date a person is
declared by the Board to be an Adverse Person.
<PAGE> 56
Ivex Packaging Corporation
Report of Independent Accountants
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF IVEX PACKAGING CORPORATION
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of stockholders'
equity (deficit) present fairly, in all material respects, the financial
position of Ivex Packaging Corporation ("the Company") and its subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 27, 2000
<PAGE> 57
Ivex Packaging Corporation
Corporate and Investor Information
<TABLE>
<CAPTION>
<S> <C>
BOARD OF DIRECTORS JOHN D. MAXWELL
Vice President and General Manager
GEORGE V. BAYLY Polymerization and Extrusion
Chairman, President and Chief Executive Officer
Ivex Packaging Corporation G. DOUGLAS PATTERSON
Vice President and General Counsel
FRANK V. TANNURA
Executive Vice President and Chief Financial Officer DAVID E. WARTNER
Ivex Packaging Corporation Vice President and Corporate Controller
GLENN R. AUGUST STOCKHOLDER INFORMATION
Managing Director, Oak Hill Partners
CORPORATE OFFICES
R. JAMES COMEAUX (1) 100 Tri-State Drive, Suite 200
President, Management Associates Lincolnshire, Illinois 60069
847.945.9100
ANTHONY P. SCOTTO (2) www.ivexpackaging.com
Managing Director, Oak Hill Partners
INVESTOR CONTACTS
WILLIAM J. WHITE (1,2) Richard R. Cote
Retired, Chairman, Bell and Howell Company Vice President and Treasurer
(1)- member of audit committee 847.374.4324
(2) member of compensation committee
TRICIA A. KELLY
Manager Investor Relations
OFFICERS 847.374.4313
GEORGE V. BAYLY NEWS RELEASES
Chairman, President and Chief Executive Officer Copies of recent news releases are available at no charge
through PR Newswire (IVEX code #123480)
FRANK V. TANNURA 800.758.5804
Executive Vice President and Chief Financial Officer www.prnewswire.com
GORDON B. BONFIELD ANNUAL MEETING
President and Chief Operating Officer The Annual Meeting of stockholders is scheduled to be held
Consumer Packaging on Wednesday, April 26, 2000 at 9:00 A.M. at the Deerpath Inn,
Lake Forest, Illinois.
RICHARD R. COTE
Vice President and Treasurer TRANSFER AGENT
First Chicago Trust Company, a Division of EquiServe
THOMAS S. ELLSWORTH P.O. Box 2500
Vice President and General Manager Jersey City, New Jersey 07303.2500
Paper Mills
LEGAL COUNSEL
GENE J. GENTILI Skadden, Arps, Slate, Meagher and Flom
Vice President and General Manager Chicago, Illinois
Consumer Packaging
AUDITOR
ROGER A. KURINSKY PricewaterhouseCoopers LLP
Executive Vice President and Chief Operating Officer
Technical Packaging
JEREMY S. LAWRENCE
Vice President, Human Resources
</TABLE>
<PAGE> 58
COMMON STOCK
The Company's Common Stock is listed on the New York and Chicago Stock Exchanges
trading symbol [IXX]
The Company is currently subject to certain covenants in loan documents that
limit the payment of cash dividends
No dividends were paid in 1999
<TABLE>
<CAPTION>
Quarter Ended March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
High 26 1/8 22 22 1/8 12 1/8
Low 13 1/8 13 3/8 9 1/4 6 1/8
Quarter Ended March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998
- -------------------------------------------------------------------------------------
High 25 1/4 29 1/2 24 1/8 23 3/4
Low 19 3/8 21 13 3/8 13 1/2
</TABLE>
<PAGE> 59
Ivex Packaging Corporation 100 Tri-State Drive Suite 200 Lincolnshire Illinois
60069
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-47397 and 333-30880) of Ivex Packaging
Corporation of our report dated January 27, 2000 relating to the financial
statements, which appears in the Annual Report to Stockholders, which is
incorporated in this Annual Report on Form 10-K. We also consent to the
incorporation by reference of our report dated January 27, 2000 relating to the
financial statement schedules, which appears in this Form 10-K.
/S/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
March __, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,824
<SECURITIES> 0
<RECEIVABLES> 103,273
<ALLOWANCES> 4,993
<INVENTORY> 97,519
<CURRENT-ASSETS> 206,659
<PP&E> 465,771
<DEPRECIATION> 199,457
<TOTAL-ASSETS> 640,587
<CURRENT-LIABILITIES> 137,460
<BONDS> 434,902
0
0
<COMMON> 209
<OTHER-SE> 45,099
<TOTAL-LIABILITY-AND-EQUITY> 640,587
<SALES> 643,026
<TOTAL-REVENUES> 643,026
<CGS> 489,969
<TOTAL-COSTS> 489,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,757
<INCOME-PRETAX> 37,168
<INCOME-TAX> 11,926
<INCOME-CONTINUING> 25,242
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,242
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.20
</TABLE>
