-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DLbuDsg6+tufSDWyDPhu8lApvADvGSEpyxOjN4FAIf+BBYKkMugQqF4+FVIAieCz tvnyFfIRWPyInbjKi5AqEA== 0000950124-97-004605.txt : 19970912 0000950124-97-004605.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950124-97-004605 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19970904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IVEX PACKAGING CORP /DE/ CENTRAL INDEX KEY: 0000900367 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, FOIL & COATED PAPER BAGS [2673] IRS NUMBER: 760171625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 033-95436 FILM NUMBER: 97675054 BUSINESS ADDRESS: STREET 1: 100 TRI STATE DR STREET 2: SUITE 200 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 BUSINESS PHONE: 7089459100 MAIL ADDRESS: STREET 1: 100 TRI STATE DRIVE STREET 2: SUITE 200 CITY: LINCOLNSHIRE STATE: IL ZIP: 60069 FORMER COMPANY: FORMER CONFORMED NAME: IVEX HOLDINGS CORP DATE OF NAME CHANGE: 19940920 S-1/A 1 AMENDMENT # 7 TO FORM S-1 1 As Filed with the Securities and Exchange Commission on September 4, 1997. Registration No. 33-95436 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 7 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ IVEX PACKAGING CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ------------------------ DELAWARE 2679 76-0171625 (State or other jurisdiction of (Primary Standard Industrial (IRS employer identification number) incorporation or organization) Classification Code)
100 TRI-STATE DRIVE, SUITE 200, LINCOLNSHIRE, ILLINOIS 60069 (847) 945-9100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ G. DOUGLAS PATTERSON, ESQ. VICE PRESIDENT AND GENERAL COUNSEL IVEX PACKAGING CORPORATION 100 TRI-STATE DRIVE, SUITE 200 LINCOLNSHIRE, ILLINOIS 60069 TELEPHONE NO.: (847) 945-9100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: WILLIAM R. KUNKEL PAUL W. THEISS SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS) MAYER, BROWN & PLATT 333 W. WACKER DRIVE 190 SOUTH LASALLE STREET CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60603 TELEPHONE NO.: (312) 407-0700 TELEPHONE NO.: (312) 782-0600
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this registration statement has become effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
========================================================================================================================= PROPOSED MAXIMUM PROPOSED TITLE OF SECURITIES TO NUMBER OF SHARES OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF BE REGISTERED TO BE REGISTERED PER SHARE OFFERING PRICE(1)(2) REGISTRATION FEE(3) - ------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $0.01 per share....... 9,660,000 $16.00 $154,560,000 $46,837 =========================================================================================================================
(1) Includes options granted to the Underwriters by Ivex Packaging Corporation to cover over-allotments, if any. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. (3) All of which was previously paid in connection with this Registration Statement. $20,690 was paid in 1995 and $43,561 was paid on August 1, 1997. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and one to be used in a concurrent international offering outside the United States and Canada (the "International Prospectus"). The complete U.S. Prospectus follows immediately. Following the U.S. Prospectus are certain pages of the International Prospectus, which include an alternate front cover page, an alternate underwriting section and an alternate back cover page. All other pages of the U.S. Prospectus and the International Prospectus are identical. 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 4, 1997 PROSPECTUS 8,400,000 SHARES [IVEX LOGO] IVEX PACKAGING CORPORATION COMMON STOCK ------------------------ Of the 8,400,000 shares of Common Stock, $.01 par value (the "Common Stock"), of Ivex Packaging Corporation, a Delaware corporation (the "Company" or "Ivex"), being offered hereby, 6,700,000 shares are being offered by the Company and 1,700,000 shares are being offered by Acadia Partners, L.P. and certain related investors (the "Selling Stockholder" or "Acadia"). The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholder. See "Principal and Selling Stockholders." Of the 8,400,000 shares of Common Stock offered hereby, 6,720,000 shares are being offered initially in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and 1,680,000 shares are being offered initially in a concurrent international offering outside the United States and Canada by the International Managers (the "International Offering," and together with the U.S. Offering, the "Offerings"). The initial public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. For a discussion relating to factors considered in determining the initial public offering price, see "Underwriting." It is anticipated that the initial public offering price will be between $14.00 and $16.00 per share. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "IXX," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================================= PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER - ----------------------------------------------------------------------------------------------------------------------------- Per Share............ $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------------- Total(3)............. $ $ $ $ =============================================================================================================================
(1) The Company and the Selling Stockholder have agreed to indemnify the several Underwriters against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offerings payable by the Company estimated at $ . (3) The Company has granted to the U.S. Underwriters and the International Managers options to purchase up to an additional 1,008,000 shares and 252,000 shares of Common Stock, respectively, in each case exercisable within 30 days of the date hereof, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to the approval of certain legal matters by counsel for the Underwriters and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York, on or about , 1997. ------------------------ MERRILL LYNCH & CO. LEHMAN BROTHERS SALOMON BROTHERS INC ------------------------ The date of this Prospectus is , 1997. 4 The following photographs depict applications of the Company's plastic and paper packaging products. The Company is not the exclusive provider of packaging products to the companies whose name-branded products appear below. [photo of man] Medical Packaging [photo of woman] Supermarket Deli Containers [photo of food] Home Meal Replacement Packaging [photo of car] Surface Protection CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." 5 PROSPECTUS SUMMARY This summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this Prospectus. Except where the context otherwise requires, all references in this Prospectus to the "Company" or "Ivex" are to Ivex Packaging Corporation and its direct and indirect wholly owned subsidiaries, and all references to "IPC" are to IPC, Inc. and its direct and indirect wholly owned subsidiaries. IPC is the only direct subsidiary of Ivex and is wholly owned. All share and per share data in this Prospectus reflect the 9.65-for-1 split of the outstanding Common Stock of the Company effective immediately prior to the Offerings and assume no exercise of the Underwriters' over-allotment options. See "Underwriting." THE COMPANY Ivex is a vertically integrated specialty packaging company that designs and manufactures value-added plastic and paper-based flexible packaging products. The Company believes that it is the leading provider of customized packaging in specialty markets, ranking first or second in markets representing approximately 65% of the Company's revenues. Ivex has increased sales and profitability by focusing on niche markets that provide attractive margins and growth and where the Company's integrated manufacturing capabilities 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. Over the past several years, the Company has executed a comprehensive growth strategy based upon (i) achieving internal growth through product extensions and further penetration into higher growth markets and (ii) growth through strategic acquisitions. The Company has completed six acquisitions since 1995. Since 1993, net sales, Adjusted EBITDA and Adjusted EBIT (as defined herein) have increased at compound annualized growth rates of 9.6%, 12.8% and 20.8%, respectively, and, excluding such acquisitions, of 4.7%, 8.7% and 16.8%, respectively. MARKETS Consumer Packaging. The Consumer Packaging product group designs and manufactures plastic and paper-based products for food packaging applications and, more recently, for applications in the medical and electronics industries. The Company produces a broad array of items, including plastic containers for prepared foods, produce and baked goods; specialty paper products such as fluted baking cups and liners for cookies and other baked goods; microwaveable packaging materials; and protective packaging for medical devices and electronics products. The Consumer Packaging product group markets its products to a variety of end users, including national wholesale bakeries, supermarket chains, foodservice distributors, fast-food chains, major agricultural growers, medical equipment suppliers and electronics manufacturers. The Company also manufactures a variety of plastic sheet and film products from several different resins for internal use and sales to third party converters. Ivex is the leading producer of oriented polystyrene ("OPS") sheet in North America. The Consumer Packaging product group represented approximately 56% of the Company's net sales and 58% of the Company's Adjusted EBITDA during the 12 months ended June 30, 1997. Industrial Packaging. The Industrial Packaging product group manufactures and coats film, paper and foil products for protective packaging and specialty papers. The Company produces products for some of the fastest growing applications in the protective packaging industry, including film and paper maskings and self-sealing coated packaging applications. These products are marketed primarily to consumer durable goods manufacturers, automotive companies, other industrial manufacturers and integrated paper producers. The Company also manufactures a variety of recycled kraft paper made from post-consumer and post-industrial fibers and specialty lightweight paper made primarily from virgin pulp for internal use and sales to third party converters. The Industrial Packaging product group represented approximately 44% of the Company's net sales and 42% of the Company's Adjusted EBITDA during the 12 months ended June 30, 1997. BUSINESS STRATEGY Ivex seeks to differentiate itself from other packaging providers by offering customized packaging that addresses the specialized needs of its customers. The Company's goal is to be the number one or number two 3 6 provider of customized packaging in its markets. Ivex believes it has a number of key strengths that support its ability to implement this strategy: Focus on Niche Markets. Ivex focuses primarily on markets with attractive margin and growth characteristics. The Company's markets include the in-store bakery, delicatessen and prepared food sections of supermarkets; foodservice outlets; medical equipment and electronics goods manufacturers; and users of industrial protective masking. The Company believes that these markets have been among the fastest growing for packaging products over the past several years. Each of these is characterized by few competitors, technological barriers to entry, significant customer service requirements and attractive growth potential. Broad Product Range. Ivex manufactures a broad range of plastic and paper-based stock and customized packaging products to provide a full service approach to fulfilling its customers' packaging needs. Through its multi-resin extrusion and thermoforming capabilities, Ivex is able to offer its customers a variety of plastic packaging solutions. The Company believes its breadth of product range and customization capabilities are competitive advantages that allow it to be more responsive to, and provide a single supply source for, many of its customers' packaging needs. Further, these capabilities enhance the Company's ability to adapt to changing market preferences. Flexible Design and Engineering. Ivex seeks to maximize opportunities within niche markets by providing its customers with lower-cost product development and shorter lead times than its competitors. The Company delivers these benefits through research and development and technical expertise such as computer-aided design and manufacturing and extensive in-house mold-making capabilities. Vertical Integration. Ivex pursues a vertically integrated operating strategy in order to maximize product quality, minimize the influence of external commodity price fluctuations and maintain its low-cost position. Within Consumer Packaging, the Company operates two polymerization, seven extrusion and eleven thermoforming facilities. In 1996, the Company produced 42% of its polystyrene needs and 100% of its OPS sheet needs internally, resulting in a significant advantage over competitors that purchase these materials in the open market. Within Industrial Packaging, the Company's polyethylene film and paper facilities provide important source products and product development capabilities for many of the Company's protective packaging products. Proprietary Technology. Ivex's proprietary technology strengthens its product quality, market position and growth prospects in existing markets as well as new product and geographic markets. Examples of the Company's proprietary technology used by Consumer Packaging include extensive extrusion process technology, low residual monomer polymerization technology and the capability to manufacture OPS film to a gauge of less than one-thousandth of an inch. Because of its proprietary production technology, the Company's OPS is recognized as having a high level of quality within the industry. Within Industrial Packaging, the Company utilizes many customized adhesive and cohesive formulations in its surface protection and self-sealing products which strengthen its market position and product development capabilities. Broad Distribution Network. The geographic breadth of Ivex's manufacturing and distribution network, including 26 plants in North America and Europe and an extensive network of sales representatives, is another significant advantage over the Company's competitors, which are often smaller and regionally based. Ivex's distribution network allows it to meet the broad geographic needs of its larger customers from a single source, which is an advantage as customers seek to reduce their number of suppliers. Extensive geographic coverage also reduces transportation costs and contributes to the Company's cost competitiveness. GROWTH STRATEGY Over the past several years, Ivex has executed a comprehensive growth strategy based upon (i) internal growth through product extensions and further penetration into higher growth markets and (ii) growth through strategic acquisitions. Since 1993, net sales, Adjusted EBITDA and Adjusted EBIT have increased at compound annualized growth rates of 9.6%, 12.8% and 20.8%, respectively, and, excluding such acquisitions, of 4.7%, 8.7% and 16.8%, respectively. The Company believes it can continue growing sales and earnings through its growth strategy as well as through utilizing excess cash flow to reduce debt and interest expense. 4 7 Internal Growth. Ivex intends to utilize its business strategy and strong market position to capitalize on a number of emerging industry trends. As supermarkets, bakeries and foodservice distributors consolidate packaging vendors to create efficiencies, the Company plans to use its broad product offerings and distribution capabilities to capture market share through increased sales to these customers. Consumer trends toward convenient, ready-to-eat food products and the increased utilization of clear plastic packaging for more appealing presentation within the delicatessen, bakery and produce sections of supermarkets are resulting in increasing use of OPS sheet. As the leading producer of OPS sheet in North America, Ivex believes that it will experience increased production and sales of OPS sheet. In addition, manufacturers are increasingly realizing the quality and cost/benefit advantage of using protective packaging and masking to protect products from damage or breakage during manufacturing, handling, storage and shipping. This trend creates additional demand for the Company's protective masking products and corrugated cushioning materials. Acquisitions. Ivex has pursued a disciplined acquisition program of "bolt-on" acquisitions that are easily integrated into the Company's operations and that meet certain defined strategic and financial return criteria. Since 1995, Ivex has completed six acquisitions that achieve a number of strategic objectives: - apply existing technology to new products and markets (the acquisition of Plastofilm Industries, Inc. added medical and electronics end markets); - fill out or extend existing product lines and markets (the acquisition of Trio Products, Inc. added multi-resin capabilities and the acquisition of Packaging Products, Inc. expanded surface protection product offerings); - expand geographical presence (the acquisitions of M&R Plastics, Inc. and AVPEX International in Canada and the European OPS business of Viskase Limited extended operations outside the United States); and - create rationalization opportunities (the integration of Plastofilm's extrusion operation into Trio created a lower-cost operation). As a market leader with a broad range of products and proven capabilities, the Company believes that it is well positioned to continue to successfully apply its acquisition and operating expertise to take advantage of consolidation opportunities within the highly fragmented specialty packaging market. ------------------------ 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. RISK FACTORS Purchasers of Common Stock in the Offerings should carefully consider the factors set forth under the caption "Risk Factors" and other information included in this Prospectus prior to making an investment decision. In particular, such factors include the Company's highly leveraged condition, historical losses, the Company's dependence on subsidiary distributions, volatility of raw material pricing, cyclical demand for certain of the Company's products, highly competitive markets, risks associated with the Company's growth strategy, environmental matters, the limitation on the ability of the Company to use its net operating losses, control by principal stockholders, anti-takeover provisions, absence of a prior public market for the Common Stock, restrictions on the ability of the Company to pay dividends, shares eligible for future sale, dilution and tangible net worth deficiency and nonrecurring charges in connection with the Offerings. See "Risk Factors." THE REFINANCING The Offerings are 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 Ivex to continue to pursue investment opportunities. As part of this refinancing, IPC is in the process of negotiating a new credit facility (the "New Credit Facility") that will refinance its existing credit facility (the "Existing 5 8 Credit Facility"). The Company intends to use the proceeds of the Offerings together with borrowings under the New Credit Facility to refinance substantially all of its existing indebtedness. Specifically, IPC presently intends to use approximately $176.3 million of the funds to be provided under the New Credit Facility to retire the entire $158 million aggregate principal amount of its 12 1/2% Senior Subordinated Notes due 2002 (the "12 1/2% Subordinated Notes") and pay approximately $13.1 million of premiums and fees and $5.8 million of accrued interest (assuming the 12 1/2% Subordinated Notes are purchased September 30, 1997) pursuant to a tender offer and consent solicitation (the "Subordinated Note Offer"). The Company presently intends to use the proceeds of the Offerings and borrowings under the New Credit Facility to retire all or a portion of the $160 million aggregate principal amount ($116.8 million accreted value assuming the 13 1/4% Discount Debentures are purchased September 30, 1997) of its 13 1/4% Senior Discount Debentures due 2005 (the "13 1/4% Discount Debentures") plus approximately $17.4 million of premiums and fees pursuant to a tender offer and consent solicitation (the "Senior Debenture Offer" and, together with the Subordinated Note Offer, the "Offers"). See "The Refinancing," "Capitalization" and "Pro Forma Consolidated Financial Data -- Pro Forma Consolidated Statements of Operations." The New Credit Facility is expected to provide for IPC to borrow up to $475 million principal amount at variable interest rates. On a pro forma basis at June 30, 1997, the Company expects IPC to borrow approximately $328.4 million under the New Credit Facility to (i) refinance $49.2 million outstanding under the revolving credit portion of the Existing Credit Facility, (ii) refinance $52.5 million outstanding under the term loan portion of the Existing Credit Facility, (iii) apply approximately $178.2 million to the acquisition of the 12 1/2% Subordinated Notes and a portion of the 13 1/4% Discount Debentures, (iv) lend approximately $14.0 million to certain key executives to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options (as hereinafter defined) and (v) pay approximately $34.6 million of fees associated with these transactions, and to utilize approximately $45 million of availability under the New Credit Facility to refinance outstanding letters of credit. See "Description of Certain Indebtedness -- The New Credit Facility," "Capitalization" and "Pro Forma Consolidated Financial Data." THE OFFERINGS Common Stock offered by the Company.................. 6,700,000 shares(1) Common Stock offered by the Selling Stockholder...... 1,700,000 shares Common Stock to be outstanding after the Offerings... 19,166,666 shares(1)(2) Use of Proceeds...................................... To repay certain indebtedness. See "The Refinancing" and "Use of Proceeds." NYSE Symbol.......................................... The Common Stock has been approved for listing on the New York Stock Exchange (the "NYSE") under the symbol "IXX," subject to official notice of issuance.
- ------------------------- (1) Assumes no exercise of the over-allotment options granted by the Company to the Underwriters. (2) Includes 2,114,133 shares of Common Stock to be issued to certain officers of the Company concurrently with the closing of the Offerings, assuming an initial offering price of $15.00 per share (the midpoint of the range of the estimated public offering price set forth on the cover page hereof), but excludes approximately 766,667 shares (817,067 shares assuming exercise of the over-allotment option) of Common Stock (assuming such offering price) to be issued under outstanding stock options granted to certain officers of the Company. See "Management -- Executive Compensation." 6 9 SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA The following summary selected consolidated financial data presented below for, and as of the end of, each of the years in the five year period ended December 31, 1996, are derived from and should be read in conjunction with the consolidated audited financial statements of the Company. The data as of and for the six months ended June 30, 1996 and 1997 are derived from the consolidated unaudited interim financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for such periods. The financial data of Ivex reflect the following acquisitions as of the respective acquisition dates: Packaging Products, Inc. ("PPI") as of September 11, 1995; Plastofilm Industries, Inc. ("Plastofilm") as of August 16, 1996; Trio Products, Inc. ("Trio") as of September 11, 1996; the OPS business based in the United Kingdom (the "European OPS Business") as of January 17, 1997; and M&R Plastics Inc. ("M&R") as of February 21, 1997. The following summary selected financial data do not reflect the impact of any pro forma adjustments for the transactions contemplated hereby, except that the earnings (loss) per share amounts give effect to the Company's 9.65-for-1 stock split effective immediately prior to the Offerings.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, -------------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1996 1997 -------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales....................... $367,649 $ 366,851 $ 390,975 $ 451,569 $ 451,807 $ 210,443 $ 264,034 Gross profit.................... 74,076 72,213 74,271 85,160 100,383 45,775 56,361 Selling and administrative...... 38,502 39,274 41,662 42,567 47,462 22,132 29,467 Amortization of intangibles(1)................ 12,266 4,372 1,140 1,904 621 258 512 Write-off of goodwill(1)........ 113,859 13,471 Acquisition related expense(2).................... 1,100 Restructuring and special charges(3).................... 4,350 4,960 -------- --------- --------- --------- --------- --------- --------- Income (loss) from operations... 23,308 (90,742) 31,469 22,258 52,300 23,385 26,382 Interest expense................ 46,426 37,179 39,820 43,270 42,732 21,221 22,805 -------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item.......................... (23,118) (127,921) (8,351) (21,012) 9,568 2,164 3,577 Income tax provision............ (1,722) (1,177) (942) (1,113) (900) (440) (890) -------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item............ (24,840) (129,098) (9,293) (22,125) 8,668 1,724 2,687 Extraordinary item(4)........... (5,532) (2,359) -------- --------- --------- --------- --------- --------- --------- Net income (loss)............... $(30,372) $(129,098) $ (9,293) $ (24,484) $ 8,668 $ 1,724 $ 2,687 ======== ========= ========= ========= ========= ========= ========= Earnings (loss) per share(5): Income (loss) before extraordinary item.......... $ (12.63) $ (.90) $ (2.14) $ .84 $ .17 $ .26 ========= ========= ========= ========= ========= ========= Net income (loss)............. $ (12.63) $ (.90) $ (2.37) $ .84 $ .17 $ .26 ========= ========= ========= ========= ========= ========= OTHER OPERATING DATA: Cash flow from operating activities.................... $ 31,195 $ 22,157 $ 15,647 $ 22,746 $ 49,202 $ 17,451 $ 1,269 Cash flow used by investing activities.................... (11,306) (8,261) (13,057) (29,871) (38,136) (7,650) (41,689) Cash flow from (used by) financing activities.......... (24,838) (5,823) (6,102) 5,666 (13,074) (10,191) 45,943 Adjusted EBIT(6)................ 28,597 28,567 31,469 41,828 52,300 23,385 26,382 Depreciation and amortization(1)............... 30,931 137,837 22,189 35,871 22,724 11,303 13,290 Adjusted EBITDA(7).............. 54,239 52,545 53,658 63,089 75,024 34,688 39,672 Capital expenditures............ 12,820 9,528 16,769 19,385 17,633 7,996 10,984
DECEMBER 31, JUNE 30, -------------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1996 1997 -------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital(8).............. $ 28,451 $ 34,729 $ 32,853 $ 38,090 $ 32,539 $ 39,885 $ 60,200 Total assets.................... 423,051 297,674 304,246 294,911 315,901 289,476 370,642 Long-term debt.................. 278,369 330,201 330,768 353,717 352,893 349,850 404,612 Redeemable preferred stock...... 50,313 Stockholders' equity (deficit)..................... 23,899 (101,579) (111,266) (136,332) (127,344) (134,608) (124,392)
7 10 (1) Depreciation and amortization for the year ended December 31, 1995 includes the accelerated non-cash write-off of goodwill of $13,471 and the accelerated non-cash write-off of a non-compete agreement of $1,139. Depreciation and amortization for the year ended December 31, 1993 includes the accelerated non-cash write-off of goodwill totaling $113,859. Depreciation and amortization for the year ended December 31, 1992 includes the accelerated non-cash write-off of non-compete agreements and a patent totaling $5,289. (2) Acquisition related expense totaling $1,100 was incurred during 1993 in connection with an acquisition attempt. (3) Operating results for the year ended December 31, 1995 include the following special charges: $2,250 associated with IPC's special incentive agreement with certain executive officers, $1,950 of costs related to an attempted initial public equity offering and a reduction of land value of $760 associated with a donation of certain land to the Village of Chagrin Falls, Ohio. Operating results for the year ended December 31, 1993 include restructuring and special charges of $4,350, reflecting a $1,500 non-cash write-down of certain property held for sale and costs of $2,850 related to the reorganization of the Consumer Packaging product group, which include, among other things, severance, transition and relocation expenses. (4) In connection with the 1995 refinancing of IPC's credit facility, the Company wrote off deferred financing costs of $2,359. In connection with the 1992 12 1/2% Subordinated Note offering, the Company wrote off deferred financing costs of $5,977, net of a tax benefit of $445. (5) The earnings (loss) per share amounts give effect to the Company's 9.65-for-1 stock split effective immediately prior to the Offerings. A loss per share amount has not been presented for 1992 since the Company's combined financial statement presentation and capital structure precluded meaningful equivalent per share calculations. (6) Adjusted EBIT includes income from operations adjusted to exclude goodwill write-offs of $13,471 and $113,859 for the years ended December 31, 1995 and 1993, respectively, and acquisition related expenses of $1,100, restructuring charges of $2,850 and special charges of $1,500 for the year ended December 31, 1993. In addition, Adjusted EBIT for the year ended December 31, 1995 excludes the accelerated write-off of a non-compete agreement of $1,139 and special charges of $4,960, and for the year ended December 31, 1992 excludes the accelerated write-off of non-compete agreements and a patent totaling $5,289. Ivex believes that Adjusted EBIT provides additional information for determining its ability to meet future debt service requirements. However, Adjusted EBIT is not a defined term under generally accepted accounting principles ("GAAP"). (7) Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, goodwill write-offs of $13,471 and $113,859 for the years ended December 31, 1995 and 1993, respectively, and acquisition related expenses of $1,100, restructuring charges of $2,850 and special charges of $1,500 for the year ended December 31, 1993. In addition, Adjusted EBITDA for the year ended December 31, 1995 includes special charges of $4,960. Ivex believes that Adjusted EBITDA provides additional information for determining its ability to meet future debt service requirements. However, Adjusted EBITDA is not a defined term under GAAP and is not indicative of operating income or cash flow from operations as determined under GAAP. (8) Working capital is determined to be the excess of current assets over current liabilities (including the current portion of long-term debt). 8 11 SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED) The following summary unaudited pro forma consolidated financial data were derived from and should be read in conjunction with the "Pro Forma Consolidated Financial Data" included elsewhere in this Prospectus. The following summary pro forma consolidated financial data give effect to the transactions contemplated hereby as if such transactions had occurred at the beginning of the periods presented below for purposes of the statement of operations and other operating data, and as of the dates presented below for purposes of the balance sheet data. The following summary pro forma consolidated financial data do not reflect the Company's actual results of operations or financial position had the transactions contemplated hereby been consummated on the dates assumed. The pro forma results of operations for the period ended June 30, 1997 are not necessarily indicative of the results to be expected for the entire year. This unaudited data should be read in conjunction with the audited consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus.
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1996 JUNE 30, 1997 ----------------------------- ----------------------------- HISTORICAL PRO FORMA(1)(4) HISTORICAL PRO FORMA(1)(4) ---------- --------------- ---------- --------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales............................... $451,807 $ 451,807 $264,034 $264,034 Gross profit............................ 100,383 100,383 56,361 56,361 Selling and administrative.............. 47,462 47,462 29,467 29,467 Amortization of intangibles............. 621 621 512 512 ---------- ---------- ---------- ---------- Income from operations.................. 52,300 52,300 26,382 26,382 Interest expense........................ 42,732 25,147(2) 22,805 13,841(2) ---------- ---------- ---------- ---------- Income before income taxes.............. 9,568 27,153 3,577 12,541 Income tax provision.................... (900) (10,861)(3) (890) (5,016)(3) ---------- ---------- ---------- ---------- Income before extraordinary item........ $ 8,668 $ 16,292 $ 2,687 $ 7,525 ========== ========== ========== ========== Income before extraordinary item per share(5).............................. $ .84 $ .85 $ .26 $ .39 ========== ========== ========== ========== Average shares outstanding(5)........... 10,352,533 19,166,666 10,352,533 19,166,666 ========== ========== ========== ========== DECEMBER 31, 1996 JUNE 30, 1997 ----------------------------- ----------------------------- HISTORICAL PRO FORMA(1)(4) HISTORICAL PRO FORMA(1)(4) ---------- --------------- ---------- --------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital......................... $ 32,539 $ 21,419 $ 60,200 $ 50,330 Total assets............................ 315,901 351,893 370,642 405,154 Long-term debt.......................... 352,893 299,714 404,612 352,683 Stockholders' deficit................... (127,344) (56,228) (124,392) (53,044)
- ------------------------- (1) Adjusted for (i) the issuance and sale of shares of Common Stock by the Company (assuming net proceeds of $92,316), (ii) the issuance of 2,114,133 shares to management in connection with the conversion of the IPC Options and (iii) borrowings under the New Credit Facility, and the anticipated use of net proceeds from such transactions to purchase the 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures as if such issuances and borrowings had occurred at the beginning of the periods presented. Accordingly, the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding 12 1/2% Subordinated Notes and all of the outstanding 13 1/4% Discount Debentures. 9 12 (2) Represents the adjustment of interest expense, as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1996 JUNE 30, 1997 ----------------- ---------------- Estimated interest on the New Credit Facility at a weighted average interest rate of 7.9%................. $ 21,623 $12,173 Elimination of interest on the 12 1/2% Subordinated Notes.................................................. (19,891) (9,866) Elimination of interest on the 13 1/4% Discount Debentures............................................. (12,811) (6,968) Elimination of interest on the Existing Credit Facility............................................... (4,843) (3,439) Non-cash amortization of new deferred financing costs.... 677 339 Elimination of amortization of existing deferred financing costs........................................ (1,363) (714) Interest income on management note receivable (at 7.0%).................................................. (977) (489) -------- ------- Net change in interest expense...................... $(17,585) $(8,964) ======== =======
(3) The Company's income tax provision for the year ended December 31, 1996 and the six months ended June 30, 1997 has been adjusted to reflect a 40% effective tax rate on pro forma taxable income. (4) The pro forma statements of operations do not reflect non-cash extraordinary expense of $8,528 and $8,141 for previously capitalized debt issuance costs during the year ended December 31, 1996 and the six months ended June 30, 1997, respectively, and a cash extraordinary expense of $30,496 during both periods for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. Also the pro forma statements of operations for the year ended December 31, 1996 and the six months ended June 30, 1997 do not include a nonrecurring compensation charge of approximately $49,200 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of approximately $31,700 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a non-cash compensation charge of approximately $17,500 associated with the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge is expected to be recorded net of a tax benefit of approximately $35,300 and $35,100 during the year ended December 31, 1996 and the six months ended June 30, 1997. (5) The average shares outstanding and the income before extraordinary item per share give effect to the Company's 9.65-for-1 stock split immediately prior to the Offerings. 10 13 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained in this Prospectus, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the size and growth of the paper and plastic packaging markets for both consumer and industrial uses; the ability of the Company to sustain, manage or forecast its growth; the ability of the Company to successfully make and integrate acquisitions; the size, timing and mix of purchases of the Company's products; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; contingent liabilities and other claims asserted against the Company; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the use of proceeds from the Offering; and other factors referenced in this Prospectus. Certain of these factors are discussed in more detail elsewhere in this Prospectus, including, without limitation, under the captions "Risk Factors," "Use of Proceeds," "Capitalization," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Given these uncertainties, prospective purchasers are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. The safe-harbor provided by the PSLRA shall not apply to a forward-looking statement made in connection with an initial public offering. RISK FACTORS Prospective purchasers should consider carefully the specific risk factors set forth below before determining whether to purchase the shares of Common Stock offered hereby. LEVERAGE Ivex is, and immediately following the Offerings will remain, significantly leveraged. As set forth under "Capitalization," on a pro forma basis (assuming completion of the Offerings and use of the proceeds thereof as set forth herein) the Company would have had $352.7 million of long-term indebtedness outstanding (excluding current maturities) and stockholders' deficit of $53.0 million as of June 30, 1997. Pursuant to the terms of the indenture relating to the 12 1/2% Subordinated Notes (the "Subordinated Note Indenture"), IPC will be able to redeem any 12 1/2% Subordinated Notes that are not repurchased pursuant to the Subordinated Note Offer on December 15, 1997. Any 13 1/4% Discount Debentures remaining outstanding after completion of the Senior Debenture Offer will continue to accrete in value until March 15, 2000, at which time the interest on such debentures will become payable currently in cash. The Company's future operating performance and ability to service or refinance its indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond its control, and consequently the Company may be unable to service all of its debt in the future. There can be no assurance that the Company's future operating performance and the availability under the Company's New Credit Facility will be sufficient to service such indebtedness or that the Company will be able to refinance its indebtedness in whole or in part. The Subordinated Note Indenture and the indenture relating to the 13 1/4% Discount Debentures (the "13 1/4% Discount Indenture") contain, and are expected to continue to contain if the consent solicitations with respect thereto are not successful, and the New Credit Facility is expected to contain, covenants imposing certain operating and financial restrictions. The covenants under the New Credit Facility are expected to limit, 11 14 among other things, the incurrence of additional indebtedness by IPC and its subsidiaries, the payment by IPC of dividends or other distributions to the Company, the redemption of capital stock of IPC or the making of other restricted payments, transactions with affiliates, the use of proceeds from the disposal of assets, the incurrence of liens, and the merger, consolidation or sale of all or substantially all the assets of IPC. In addition, the New Credit Facility is expected to require IPC to maintain specified financial ratios and levels, including those relating to cash flow, net worth and maximum leverage. See "Description of Certain Indebtedness -- The New Credit Facility." The 13 1/4% Discount Indenture contains certain similar operating and financial restrictions and will continue to contain such restrictions if the consent solicitation with respect to the 13 1/4% Discount Debentures is not successful. The ability of IPC to comply with the covenants contained in the New Credit Facility and the ability of the Company to comply with the 13 1/4% Discount Indenture will depend on, among other things, IPC's future performance, which will, in part, be subject to prevailing economic, financial and business factors beyond IPC's control. The Company's or IPC's failure to comply with such financial provisions could result in a default under these agreements, which if not cured or waived, could have a material adverse effect on the Company. See "Description of Certain Indebtedness -- The New Credit Facility" and "-- The 13 1/4% Discount Debentures." The degree to which the Company is leveraged could have important consequences to holders of the Common Stock, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be limited; (ii) a substantial portion of the Company's cash flow from operations will be dedicated to the payment of the principal of and interest on its existing indebtedness, thereby reducing funds available for operations; (iii) the agreements governing the Company's long-term indebtedness and bank loans contain, and the New Credit Facility is expected to contain, certain restrictive covenants, including certain covenants that limit the payment of dividends and other distributions by IPC to the Company, and the 13 1/4% Discount Indenture contains, and will continue to contain if the consent solicitation with respect to the 13 1/4% Discount Debentures is not successful, certain restrictive covenants, including covenants that limit the ability of the Company to pay dividends and to make other distributions to its stockholders; (iv) borrowings under the New Credit Facility will be at floating rates of interest, causing the Company to be vulnerable to increases in interest rates; and (v) the Company's substantial degree of leverage could make it more vulnerable to a downturn in general economic conditions. The Company's ability to make scheduled payments of the principal of or interest on, or to refinance, its indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, primarily interest rate levels and financial, competitive, business and other factors, many of which are beyond its control. See "Description of Certain Indebtedness." HISTORICAL LOSSES Although the Company had net income of $8.7 million in 1996, the Company has experienced substantial net losses in the past, principally as a result of the significant interest charges, certain non-cash goodwill write-offs and other nonrecurring charges. These net losses were $9.3 million and $24.5 million for the years ended December 31, 1994 and 1995, respectively. DEPENDENCE ON SUBSIDIARY DISTRIBUTIONS The Company conducts business through IPC and IPC's subsidiaries and has no operations of its own. The primary asset of the Company is the capital stock of IPC. The Company has no cash flow other than from dividends and other distributions from IPC. The right of the Company to participate in any distribution of earnings or assets of IPC and IPC's subsidiaries is subject to the prior claims of the creditors of IPC and such subsidiaries. In addition, the agreements governing the Company's long-term indebtedness and bank loans contain, and the New Credit Facility is expected to contain, certain restrictive covenants, including certain covenants that limit IPC's ability to pay dividends or make other distributions to the Company. As part of the proposed amendments contained in the Subordinated Note Offer, the restrictions contained in the 12 1/2% Subordinated Notes on IPC's ability to pay dividends will be deleted if such offer is consummated. The 13 1/4% Discount Indenture also restricts the ability of the Company to pay dividends, unless such provisions are 12 15 amended or waived. As part of the proposed amendments contained in the Senior Debenture Offer, the restrictions contained in the 13 1/4% Discount Indenture on the Company's ability to pay dividends will be deleted if such offer is consummated. In addition, under Delaware law, IPC is permitted to pay cash dividends to the Company only (i) out of IPC's capital surplus (the excess of net assets over stated capital) or (ii) out of the net income of IPC for the fiscal year in which the dividend is declared and/or the preceding fiscal year. VOLATILITY OF RAW MATERIAL PRICING Styrene monomer, polystyrene, polyethylene, polypropylene, polyvinyl chloride and polyethylene terephthelate are the basic raw materials used in the manufacture of most of Consumer Packaging's plastic products. The prices of these raw materials are a function of, among other things, the manufacturing capacity for such raw materials and the price for the petrochemical feed stocks of such materials. Similarly, the prices for virgin pulp and recycled fiber which are the basic raw materials used directly in the manufacture of many of the Company's specialty kraft (non-bleached) papers and indirectly in the manufacture of many of Consumer Packaging's and Industrial Packaging's paper packaging products, are a function of, among other things, pulp manufacturing capacity, the price for pulp wood and wood chips and the price for old corrugated containers ("OCC"), double-lined kraft ("DLK") and other recycled paper materials. In the event of cost increases for raw materials, failure to achieve corresponding sales price increases in a timely manner, sales price erosion without a corresponding reduction in raw material costs or failure to renegotiate favorable raw material supply contracts could have a material adverse effect on the Company. CYCLICAL DEMAND FOR THE COMPANY'S PRODUCTS Demand and pricing for certain of Industrial Packaging's protective packaging products and specialty papers are cyclical in nature and are subject to general economic conditions that affect market demand. Demand for paper has historically corresponded to changes in the rate of growth in the U.S. economy and demand for protective packaging is driven by trends in the building, construction, automotive and durable goods markets. Growth in the U.S. economy generally stimulates demand for these products. Conversely, a weakening in the U.S. economy tends to decrease demand for these products, thereby adversely affecting the Company's profitability and its ability to satisfy its debt service obligations. Consequently, adverse economic conditions could have a material adverse effect on the condition of the Company. COMPETITION The markets in which the Company operates are highly competitive. The Company's competitors range from the largest packaging companies in the U.S. to small, emerging companies. Many of the companies that compete with the Company have greater financial and other resources than the Company, while others are significantly smaller with lower fixed costs and greater operating flexibility. See "Business -- Competition." RISKS ASSOCIATED WITH GROWTH STRATEGY The Company's future growth will depend in part on additional acquisitions of plastic and paper packaging businesses. There can be no assurance that the Company will be able to locate or acquire other suitable acquisition candidates on acceptable terms or that the Company will be able to fund future acquisitions because of limitations contained in its instruments and agreements governing its indebtedness or otherwise. See "Description of Certain Indebtedness." In pursuing its strategy of growth through acquisitions, the Company will face risks including difficulty in assimilating the operations and personnel of the acquired businesses, disruption of the Company's ongoing business, dissipation of the Company's limited management resources, and impairment of relationships with employees and customers of the acquired business as a result of changes in ownership and management. Moreover, additional indebtedness incurred to make acquisitions could adversely affect the Company's liquidity and financial stability, and the issuance of Common Stock to effect acquisitions could result in dilution to the Company's stockholders. 13 16 ENVIRONMENTAL MATTERS PERTAINING TO THE COMPANY 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 protection of the environment. The Company is currently involved with environmental remediation and on-going maintenance at certain of its facilities and from time to time is involved in regulatory proceedings and inquiries relating to compliance with environmental laws and permits and other environmental matters. In the future, the Company may be identified as a potentially responsible party ("PRP") and be subject to liability under applicable law. No assurance can be given that additional environmental issues relating to the presently known matters or identified sites or to other sites or matters related to the Company or to regulatory proceedings or inquiries will not require future expenditures. Various federal, state, local and foreign regulatory authorities from time to time have considered enacting and, on a number of occasions, have enacted, legislation regarding solid waste disposal, packaging recovery, recycling requirements and the use and content of plastic packaging. There can be no assurance that such legislation will not have a material adverse effect on the Company. See "Business -- Environmental Matters and Business Regulation." LIMITATION ON USE OF NET OPERATING LOSSES As of December 31, 1996, the Company had approximately $76 million of net operating loss ("NOL") carryforwards available to be used to offset income. Section 382 ("Section 382") of the Internal Revenue Code of 1986, as amended (the "Code"), imposes limitations on a corporation's ability to use NOL carryforwards if the corporation experiences a more-than-50-percent ownership change over a three-year testing period. In general, if such an ownership change occurs, Section 382 limits the amount of NOL carried over from pre-ownership change years that can be used in any one post-change year to an amount equal to the product of the value of the corporation's stock (with certain adjustments) at the time of the change multiplied by an interest rate determined by the Internal Revenue Service (the "IRS") for the month of the change. The Company expects that the Offerings, together with the conversion of the IPC Options, will result in a more-than-50% ownership change for purposes of Section 382, resulting in the imposition of Section 382 limitations on the use of the Company's NOL carryforwards existing as of the date of the ownership change. In addition, Ivex expects to have a significant NOL attributable to the period after such ownership change resulting from certain one-time charges expected to be incurred as a result of the refinancing transactions described herein. Consequently, if another more-than-50% ownership change takes place after the consummation of the Offerings, such ownership change could result in the imposition of Section 382 limitations on such NOL. CONTROL BY PRINCIPAL STOCKHOLDERS Immediately following the Offerings and the conversion of the IPC Options, assuming an initial public offering price of $15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof), the Selling Stockholder and certain related investors will beneficially own 8,536,673 shares of Common Stock (44.5%) (41.8% assuming the Underwriters' over-allotment options are exercised in full), and certain officers of the Company will beneficially own 2,229,993 shares of Common Stock (11.6%) (10.9% if the Underwriters' over-allotment options are exercised in full) and options exercisable into 766,667 shares of Common Stock. If these stockholders were to vote all of their shares in the same manner, they may have sufficient voting power to determine the outcome of any corporate transaction or other matter submitted to the stockholders for a vote, including the election of directors, mergers, consolidations and sales of all or substantially all of the Company's assets and preventing or causing a change of control of Ivex. See "Principal and Selling Stockholders." In addition, in connection with the Offerings, the Selling Stockholder and certain related investors and the officers of the Company intend to enter into a Voting Agreement (the "Voting Agreement") pursuant to which the parties thereto would agree to vote all of their outstanding shares of Common Stock, for so long as 14 17 they own such shares, for the nominees to the Board of Directors proposed according to the terms thereof. See "Principal and Selling Stockholders -- Voting Agreement." ANTI-TAKEOVER PROVISIONS The Company's Amended and Restated Certificate of Incorporation (the "Amended Certificate") and Amended and Restated By-Laws (the "Amended By-Laws") are expected to contain certain provisions that may have the effect of discouraging, delaying or making more difficult a change in control of the Company or preventing the removal of incumbent directors even if a majority of the Company's stockholders were to deem such an attempt to be in the best interest of the Company. Among other things, the Amended Certificate is expected to provide for a classified Board of Directors and to allow the Board of Directors to issue up to 5,000,000 shares of preferred stock and fix the rights, privileges and preferences of those shares without any further vote or action by the stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Any such issuance of shares of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. In addition, the Amended By-Laws, among other things, are expected to limit the manner in which directors may be nominated by stockholders and limit the manner in which proposals may be made at stockholder meetings. The Company is also subject to Section 203 of the Delaware General Corporation Law ("Delaware GCL"), which could have the effect of delaying or preventing a change of control of the Company. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares or could depress the market price of the Common Stock. See "Description of Capital Stock -- Certain Charter and By-Law Provisions" and "-- Certain Statutory Provisions." ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK Prior to the Offerings, there has not been any public market for the Common Stock. The Common Stock has been approved for listing on the NYSE under the symbol "IXX," subject to official notice of issuance. There can be no assurance, however, that an active public market will develop or be sustained for the Common Stock or that investors in the Common Stock will be able to resell their shares of Common Stock at or above the initial public offering price. If a public market develops for the Common Stock, future trading prices of such securities will depend on many factors, including, among other things, the Company's results of operations and the market for similar securities. The trading price of the Common Stock could be subject to wide fluctuations in response to the Company's quarterly operating results, changes in earnings estimates by analysts or general market or economic conditions. The initial public offering price will be determined through negotiations between Ivex and the Underwriters and may not be indicative of the market price for the Common Stock after the Offerings. See "Underwriting." Also, the NYSE imposes certain minimum financial conditions to determine whether a company's shares may continue to be listed on the NYSE and the Company's failure to comply with such requirements could result in the removal of the Company's shares from listing on the NYSE. RESTRICTIONS ON THE PAYMENT OF DIVIDENDS The Company currently intends to retain future earnings to fund the development and growth of its business and to repay indebtedness and, therefore, does not anticipate paying any cash dividends in the foreseeable future. In addition, the New Credit Facility is expected to contain restrictions on the ability of IPC to make distributions to the Company to allow the Company to pay dividends, and the 13 1/4% Discount Indenture restricts, unless amended, the ability of the Company to pay cash dividends. See "The Refinancing." SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offerings (assuming the Underwriters' over-allotment options are exercised in full) 20,426,666 shares of the Common Stock will be outstanding. Of such shares, the 9,660,000 shares sold in the Offerings will be freely tradeable by persons other than "affiliates" of the Company without restriction or 15 18 registration under the Securities Act of 1933, as amended (the "Securities Act"). Sales of substantial amounts of the Common Stock or the availability of such shares in the public markets could adversely affect prevailing market prices for the Common Stock. See "Shares Eligible for Future Sale." DILUTION AND TANGIBLE NET WORTH DEFICIENCY The deficit in net tangible book value of the Company at June 30, 1997 was $164.7 million or $15.91 per share. Based upon an assumed offering price of $15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof), purchasers of the Common Stock offered hereby will experience an immediate dilution in net tangible book value of $19.66 per share of the Common Stock purchased as a result of the purchase of their shares at such price and the issuance of 2,114,133 shares of Common Stock to management in connection with the conversion of the IPC Options concurrently with the closing of the Offerings. See "Dilution." After giving pro forma effect to the Offerings as if they had occurred on June 30, 1997, the Company would have had a tangible net worth deficiency of $89.3 million. NONRECURRING CHARGES IN CONNECTION WITH THE OFFERINGS The Company expects to realize significant one-time charges in connection with the consummation of the Offerings, including $8.1 million in connection with the non-cash write-off of previously capitalized debt issuance costs and $30.5 million of cash expense for prepayment costs paid in connection with the repurchase of the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures. Also, the Company expects to realize $49.2 million of executive compensation charges in connection with the Company's conversion, pursuant to the Amended and Restated Stock Option and Purchase Agreement, dated as of January 1, 1996, of certain key executives' stock options which are exercisable for 16,321 shares of IPC's common stock (the "IPC Options") into 2,114,133 newly issued shares of the Company's Common Stock and newly issued stock options exercisable for 766,667 shares of the Company's Common Stock. In addition, the executive compensation charge will include the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options. These one-time charges are not reflected in the Pro Forma Consolidated Statements of Operations Data for fiscal year 1996 or for the six months ended June 30, 1997. These one-time charges are reflected as an increase to stockholders' deficit in the Pro Forma Consolidated Balance Sheet as of June 30, 1997 included elsewhere herein. See "Pro Forma Consolidated Financial Data" and "Management -- Executive Compensation." USE OF PROCEEDS The net proceeds to the Company (after deducting the underwriting discount and estimated expenses) from the sale of the Common Stock in the Offerings are estimated to be approximately $92.3 million ($109.9 million assuming the Underwriters' over-allotment options are exercised in full) assuming an initial public offering price of $15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof). The Company intends to use the proceeds of the Offerings to retire all or a portion of the $160 million aggregate principal amount ($116.8 million accreted value as of September 30, 1997) of 13 1/4% Discount Debentures. See "The Refinancing." The 13 1/4% Discount Debentures mature on March 15, 2005 and accrete in value at the rate of 13 1/4% per year until March 15, 2000, at which time the interest on such debentures will become payable in cash at the rate of 13 1/4% per annum. See "Description of Certain Indebtedness -- 13 1/4% Discount Debentures." In the event the net proceeds of the Offerings exceed the aggregate amount required to repurchase the 13 1/4% Discount Debentures pursuant to the Senior Debenture Offer, any such excess proceeds will be used for working capital and general corporate purposes. 16 19 DIVIDEND POLICY The Company has not declared or paid any cash dividends on its Common Stock. The Company currently intends to retain future earnings to fund the development and growth of its businesses and to repay indebtedness, and, therefore, does not anticipate paying any cash dividends in the foreseeable future. The Company's principal source of cash from which to make dividend payments will be dividends distributed by IPC. The New Credit Facility is expected to contain provisions that limit the ability of IPC to pay dividends and make distributions to the Company, and the 13 1/4% Discount Indenture, unless amended, restricts the ability of the Company to pay cash dividends and make other distributions to its stockholders. See "Description of Certain Indebtedness." Any future determination to declare and pay dividends will be made by the Board of Directors of the Company in light of the Company's earnings, financial position, capital requirements, credit agreements and such other factors as the Board of Directors deems relevant. Under Delaware law, the Company is permitted to pay cash dividends to its stockholders only (i) out of its capital surplus (the excess of net assets over its stated capital) or (ii) out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. 17 20 DILUTION The deficit in net tangible book value of the Company as of June 30, 1997 was $164.7 million or $15.91 per share. Deficit in net tangible book value per share of Common Stock is determined by dividing the net tangible book value of the Company (tangible assets less total liabilities) by the number of shares of Common Stock outstanding. After giving effect to the sale of 6,700,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof), the application of the estimated net proceeds thereof, as described in "Use of Proceeds," and the issuance of 2,114,133 shares of Common Stock to management in connection with the conversion of the IPC Options, the pro forma deficit in net tangible book value of the Company at June 30, 1997 would have been $89.3 million, or $4.66 per share. This represents an immediate increase in net tangible book value of $11.25 per share to existing stockholders and an immediate dilution in net tangible book value of $19.66 per share to purchasers in the Offerings. Dilution to purchasers in the Offerings is determined by subtracting net tangible book value per share, after giving effect to the Offerings and the issuance of shares of Common Stock to management in connection with the conversion of the IPC Options, from an assumed initial public offering price of $15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof). The following table illustrates this dilution on a per share basis as of June 30, 1997. Assumed public offering price per share..................... $15.00 Deficit in net tangible book value per share before the Offerings................................................. $(15.91) Increase in net tangible book value per share attributable to purchasing stockholders and shares issued to management................................................ $ 11.25 ------- Pro forma deficit in net tangible book value per share after the Offerings............................................. (4.66) ------ Dilution per share to purchasing stockholders............... $19.66 ======
The following table summarizes, on a pro forma basis as of June 30, 1997, the number of shares of Common Stock purchased from the Company, the total consideration paid and the average price paid per share by the existing stockholders and the purchasers in the Offerings:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------- ----------------------- PRICE NUMBER % AMOUNT % PER SHARE ------ - ------ - --------- Existing stockholders(1)(2)............. 12,466,666 65.0% $124,998,000 55.4% $10.03 Purchasing stockholders................. 6,700,000 35.0 100,500,000 44.6 15.00 ---------- ----- ------------ ----- 19,166,666 100.0% $225,498,000 100.0% ========== ===== ============ =====
- ------------------------- (1) Total shares outstanding for existing stockholders includes 2,114,133 shares of Common Stock issued to management in connection with the conversion of the IPC Options and total consideration for existing stockholders includes $31.7 million related to management compensation associated with such conversion. (2) Sales by the Selling Stockholder in the Offerings will reduce the number of shares held by existing stockholders to 10,766,666 or approximately 56.2% of the total number of shares of Common Stock outstanding after the Offering (or approximately 52.7% if the Underwriters' over-allotment option is exercised in full), and will increase the number of shares held by new investors to 8,400,000, or approximately 43.8% of the total number of shares of Common Stock outstanding after the Offering (or 9,660,000 shares and approximately 47.3% if the Underwriters' over-allotment option is exercised in full). 18 21 THE REFINANCING The Offerings are 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 Ivex to continue to pursue investment opportunities. As part of this refinancing, IPC is in the process of negotiating the New Credit Facility that will refinance its Existing Credit Facility. The Company intends to use the proceeds of the Offerings together with borrowings under the New Credit Facility to refinance substantially all of its existing indebtedness. Specifically, IPC presently intends to use approximately $176.3 million of the funds to be provided under the New Credit Facility to retire the entire $158 million aggregate principal amount of its 12 1/2% Subordinated Notes and to pay approximately $13.1 million of premiums and fees and $5.8 million of accrued interest (assuming the 12 1/2% Subordinated Notes are purchased September 30, 1997) pursuant to the Subordinated Note Offer. The Company presently intends to use the proceeds of the Offerings and borrowings under the New Credit Facility to retire all or a portion of the $160 million aggregate principal amount ($116.8 million accreted value assuming the 13 1/4% Discount Debentures are purchased September 30, 1997) of its 13 1/4% Discount Debentures and to pay approximately $17.4 million of premiums and fees pursuant to the Senior Debenture Offer. The Subordinated Note Offer and the Senior Debenture Offer were commenced on August 27, 1997 and will expire (unless otherwise amended, extended or terminated) on September 24, 1997 and the Company's and IPC's obligations to accept and pay for any tendered 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures are conditioned upon, among other things, the completion of the Offerings yielding net proceeds of at least $92.3 million, the consummation of the New Credit Facility and the Company's and IPC's receipt of tendered notes and consents of at least a majority in aggregate principal amount of both the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures. The Company expects to consummate the Offers promptly following the sale of the Shares offered hereby, assuming all conditions to such Offers have been met. See "Capitalization" and "Pro Forma Consolidated Financial Data -- Pro Forma Consolidated Statements of Operations." The New Credit Facility is expected to provide for IPC to borrow up to $475 million principal amount at variable interest rates. On a pro forma basis at June 30, 1997, the Company expects IPC to borrow approximately $328.4 million under the New Credit Facility to (i) refinance $49.2 million outstanding under the revolving credit portion of the Existing Credit Facility, (ii) refinance $52.5 million outstanding under the term loan portion of the Existing Credit Facility, (iii) apply approximately $178.2 million to the acquisition of the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures, (iv) lend approximately $14.0 million to certain key executives to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options and (v) pay approximately $34.6 million of fees associated with these transactions, and to utilize approximately $45 million of availability under the New Credit Facility to refinance outstanding letters of credit. See "Description of Certain Indebtedness -- The New Credit Facility," "Capitalization" and "Pro Forma Consolidated Financial Data." 19 22 CAPITALIZATION The following table sets forth (i) the actual consolidated capitalization of the Company as of June 30, 1997, and (ii) the consolidated capitalization of the Company as adjusted to reflect the transactions contemplated hereby. This presentation should be read in conjunction with the consolidated financial statements and other financial information appearing elsewhere in this Prospectus.
JUNE 30, 1997 ------------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ (DOLLARS IN THOUSANDS) Current maturities of long-term debt........................ $ 8,012 $ 16,137(2) ========= ========= Long-term debt: Existing Credit Facility.................................. $ 94,825 (2) New Credit Facility....................................... $ 313,386(2) Industrial revenue bonds.................................. 37,623 37,623 12 1/2% Subordinated Notes, net of discount............... 157,395 (3) 13 1/4% Discount Debentures, net of discount.............. 113,095 (3) Other debt................................................ 1,674 1,674 --------- --------- Total long-term debt................................. 404,612 352,683 --------- --------- Stockholders' deficit: Ivex Packaging Corporation common stock, $.01 par value -- 45,000,000 shares authorized; and 1,072,246 (19,166,666 pro forma) shares issued and outstanding............... 11 192 Paid in capital in excess of par value.................... 177,375 301,222 Accumulated deficit....................................... (300,879) (353,559)(4) Foreign currency translation adjustment................... (899) (899) --------- --------- Total stockholders' deficit.......................... (124,392) (53,044) --------- --------- Total capitalization........................................ $ 280,220 $ 299,639 ========= =========
- ------------------------- (1) Adjusted for (i) the issuance and sale of shares of Common Stock by the Company (assuming net proceeds of $92,316), (ii) the issuance of 2,114,133 shares to management in connection with the conversion of the IPC Options and (iii) borrowings under the New Credit Facility, and the anticipated use of net proceeds from such transactions to purchase the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures as if such issuances and borrowings had occurred on June 30, 1997. Accordingly, the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding 12 1/2% Subordinated Notes and all of the outstanding 13 1/4% Discount Debentures. (2) Reflects borrowings of $300,000 under the term loan portion and $28,386 under the revolving credit portion of the New Credit Facility and the refinancing of $52,500 term loans and $49,200 revolving credit loans under the Existing Credit Facility. (3) Reflects the repurchase of all of outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. (4) The pro forma accumulated deficit balance is adjusted for a non-cash extraordinary expense of $8,141 for previously capitalized debt issuance costs and a cash extraordinary expense of $30,496 for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. The pro forma accumulated deficit balance is also adjusted for a nonrecurring compensation charge of approximately $49,200 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of approximately $31,700 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a non-cash compensation charge of approximately $17,500 associated with the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge are reflected as an increase to pro forma accumulated deficit, net of a tax benefit of approximately $35,100. 20 23 PRO FORMA CONSOLIDATED FINANCIAL DATA (UNAUDITED) The unaudited pro forma consolidated financial data on the following pages give effect to the transactions contemplated hereby as if such transaction had occurred at the beginning of the periods presented below for purposes of the statements of operations, and as of June 30, 1997, for purposes of the balance sheet data. The unaudited pro forma consolidated financial data do not reflect the Company's actual results of operations or financial position had the transactions contemplated hereby been consummated on the dates assumed. The pro forma results of operations for the period ended June 30, 1997 are not necessarily indicative of the results to be expected for the entire year. This unaudited data should be read in conjunction with the audited financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 ----------------------------------------------------- HISTORICAL ADJUSTMENTS(1)(4) PRO FORMA ---------- ----------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net sales...................................... $ 451,807 $ 451,807 Gross profit................................... 100,383 100,383 Selling and administrative..................... 47,462 47,462 Amortization of intangibles.................... 621 621 ---------- -------- ---------- Income from operations......................... 52,300 52,300 Interest expense............................... 42,732 $(17,585)(2) 25,147 ---------- -------- ---------- Income before income taxes..................... 9,568 17,585 27,153 Income tax provision........................... (900) (9,961)(3) (10,861) ---------- -------- ---------- Income before extraordinary item............... $ 8,668 $ 7,624 $ 16,292 ========== ======== ========== Income before extraordinary item per share(5)..................................... $ .84 $ .85 ========== ========== Average shares outstanding(5).................. 10,352,533 19,166,666 ========== ==========
SIX MONTHS ENDED JUNE 30, 1997 ----------------------------------------------------- HISTORICAL ADJUSTMENTS(1)(4) PRO FORMA ---------- ----------------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Net sales...................................... $ 264,034 $ 264,034 Gross profit................................... 56,361 56,361 Selling and administrative..................... 29,467 29,467 Amortization of intangibles.................... 512 512 ---------- -------- ---------- Income from operations......................... 26,382 26,382 Interest expense............................... 22,805 $ (8,964)(2) 13,841 ---------- -------- ---------- Income before income taxes..................... 3,577 8,964 12,541 Income tax provision........................... (890) (4,126)(3) (5,016) ---------- -------- ---------- Income before extraordinary item............... $ 2,687 $ 4,838 $ 7,525 ========== ======== ========== Income before extraordinary item per share(5)..................................... $ .26 $ .39 ========== ========== Average shares outstanding(5).................. 10,352,533 19,166,666 ========== ==========
- ------------------------- (1) Adjusted for (i) the issuance and sale of shares of Common Stock by the Company (assuming net proceeds of $92,316), (ii) the issuance of 2,114,133 shares to management in connection with the 21 24 conversion of the IPC Options and (iii) borrowings under the New Credit Facility, and the anticipated use of net proceeds from such transactions to purchase the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures as if such issuances and borrowings had occurred at the beginning of the periods presented. Accordingly, the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding 12 1/2% Subordinated Notes and all of the outstanding 13 1/4% Discount Debentures. (2) Represents the adjustment of interest expense, as follows:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1996 JUNE 30, 1997 ----------------- ---------------- Estimated interest on the New Credit Facility at a weighted average interest rate of 7.9%................. $ 21,623 $ 12,173 Elimination of interest on the 12 1/2% Subordinated Notes.................................................. (19,891) (9,866) Elimination of interest on the 13 1/4% Discount Debentures............................................. (12,811) (6,968) Elimination of interest on the Existing Credit Facility............................................... (4,843) (3,439) Non-cash amortization of new deferred financing costs.... 677 339 Elimination of amortization of existing deferred financing costs........................................ (1,363) (714) Interest income on management note receivable (at 7.0%).................................................. (977) (489) -------- -------- Net change in interest expense...................... $(17,585) $ (8,964) ======== ========
(3) The Company's income tax provision for the year ended December 31, 1996 and the six months ended June 30, 1997 has been adjusted to reflect a 40% effective tax rate on pro forma taxable income. (4) The pro forma statements of operations do not reflect non-cash extraordinary expense of $8,528 and $8,141 for previously capitalized debt issuance costs during the year ended December 31, 1996 and the six months ended June 30, 1997, respectively, and a cash extraordinary expense of $30,496 during both periods for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. Also the pro forma statements of operations for the year ended December 31, 1996 and the six months ended June 30, 1997 do not include a nonrecurring compensation charge of approximately $49,200 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of approximately $31,700 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a non-cash compensation charge of approximately $17,500 associated with the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge is expected to be recorded net of a tax benefit of approximately $35,300 and $35,100 during the year ended December 31, 1996 and the six months ended June 30, 1997. (5) The average shares outstanding and the income before extraordinary item per share give effect to the Company's 9.65-for-1 stock split effective immediately prior to the Offerings. 22 25 PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997 ---------------------------------------------- HISTORICAL ADJUSTMENTS(1) PRO FORMA ---------- -------------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents............................ $ 8,345 $ 8,345 Accounts receivable trade, net of allowance.......... 67,068 67,068 Inventories.......................................... 53,506 53,506 Prepaid expenses and other........................... 6,327 6,327 --------- -------- -------- Total current assets.............................. 135,246 135,246 --------- -------- Property, plant and equipment, net..................... 190,767 190,767 --------- -------- -------- Other assets: Goodwill............................................. 30,115 30,115 Deferred income taxes................................ $ 35,119(2) 24,637 (10,482)(3) Management note receivable........................... 13,953(4) 13,953 Miscellaneous........................................ 14,514 (4,078)(5) 10,436 --------- -------- -------- Total other assets................................ 44,629 34,512 79,141 --------- -------- -------- Total assets...................................... $ 370,642 $ 34,512 $405,154 ========= ======== ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Current installments of long-term debt............... $ 8,012 $ 8,125(7) $ 16,137 Accounts payable..................................... 35,795 35,795 Accrued salary and wages............................. 6,730 1,745(6) 8,475 Self insurance reserves.............................. 6,650 6,650 Accrued rebates and discounts........................ 3,559 3,559 Accrued interest..................................... 1,567 1,567 Other accrued expenses............................... 12,733 12,733 --------- -------- -------- Total current liabilities......................... 75,046 9,870 84,916 --------- -------- -------- Long-term debt......................................... 404,612 (51,929)(7) 352,683 --------- -------- -------- Other long-term liabilities............................ 4,894 15,705(6) 20,599 --------- -------- -------- Deferred income taxes.................................. 10,482 (10,482)(3) --------- -------- -------- Commitments............................................ --------- -------- -------- Stockholders' deficit: Ivex Packaging Corporation common stock, $.01 par value -- 45,000,000 shares authorized; and 1,072,246 (19,166,666 pro forma) shares issued and outstanding....................................... 11 181 192 Paid in capital in excess of par value................. 177,375 123,847 301,222 Accumulated deficit.................................... (300,879) (52,680)(8) (353,559) Foreign currency translation adjustment................ (899) (899) --------- -------- -------- Total stockholders' deficit....................... (124,392) 71,348 (53,044) --------- -------- -------- Total liabilities and stockholders' deficit....... $ 370,642 $ 34,512 $405,154 ========= ======== ========
- ------------------------- (1) Adjusted for (i) the issuance and sale of shares of Common Stock by the Company (assuming net proceeds of $92,316), (ii) the issuance of 2,114,133 shares to management in connection with the conversion of the IPC Options and (iii) borrowings under the New Credit Facility, and the anticipated use of net proceeds from such transactions to purchase the 12 1/2% Subordinated Notes and the 13 1/4% Discount Debentures as if such issuances and borrowings had occurred on June 30, 1997. Accordingly, 23 26 the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding 12 1/2% Subordinated Notes and all of the outstanding 13 1/4% Discount Debentures. (2) Reflects the increase in deferred tax assets associated with the extraordinary expense and nonrecurring charge associated with the Offerings. (3) Reflects the reclassification of deferred tax liabilities subsequent to the Offerings. (4) Reflects the issuance of a note receivable due from senior management to pay income taxes associated with the conversion of the IPC Options. (5) Reflects the write-off of $8,141 of previously capitalized debt issuance costs and the capitalization of $4,063 of deferred financing costs associated with the consummation of the New Credit Facility. (6) Reflects the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay, on an after tax basis, the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay income taxes payable in connection with the conversion of the IPC Options. (7) Reflects borrowings of $300,000 under the term loan portion and $28,386 under the revolving credit portion of the New Credit Facility and the refinancing of $52,500 term loans and $49,200 revolving credit loans under the Existing Credit Facility. Reflects the repurchase of all of outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. (8) The pro forma accumulated deficit balance is adjusted for a non-cash extraordinary expense of $8,141 for previously capitalized debt issuance costs and a cash extraordinary expense of $30,496 for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures. The pro forma accumulated deficit balance is also adjusted for a nonrecurring compensation charge of approximately $49,200 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of approximately $31,700 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a non-cash compensation charge of approximately $17,500 associated with the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge are reflected as an increase to pro forma accumulated deficit, net of a tax benefit of approximately $35,100. 24 27 SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data presented below for, and as of the end of, each of the years in the five year period ended December 31, 1996, are derived from and should be read in conjunction with the consolidated audited financial statements of the Company. The data as of and for the six months ended June 30, 1996 and 1997 are derived from the consolidated unaudited interim financial statements and include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for such periods. The financial data of Ivex reflect the following acquisitions as of the respective acquisition dates: PPI as of September 11, 1995; Plastofilm as of August 16, 1996; Trio as of September 11, 1996; the European OPS Business as of January 17, 1997; and M&R as of February 21, 1997. The following summary selected consolidated financial data do not reflect the impact of any pro forma adjustments for the transactions contemplated hereby, except that the earnings (loss) per share amounts give effect to the Company's 9.65-for-1 stock split effective immediately prior to the Offerings.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1996 1997 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales........................ $367,649 $ 366,851 $ 390,975 $ 451,569 $ 451,807 $ 210,443 $ 264,034 Gross profit..................... 74,076 72,213 74,271 85,160 100,383 45,775 56,361 Selling and administrative....... 38,502 39,274 41,662 42,567 47,462 22,132 29,467 Amortization of intangibles(1)... 12,266 4,372 1,140 1,904 621 258 512 Write-off of goodwill(1)......... 113,859 13,471 Acquisition related expense(2)... 1,100 Restructuring and special charges(3)..................... 4,350 4,960 -------- --------- --------- --------- --------- --------- --------- Income (loss) from operations.... 23,308 (90,742) 31,469 22,258 52,300 23,385 26,382 Interest expense................. 46,426 37,179 39,820 43,270 42,732 21,221 22,805 -------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and extraordinary item......... (23,118) (127,921) (8,351) (21,012) 9,568 2,164 3,577 Income tax provision............. (1,722) (1,177) (942) (1,113) (900) (440) (890) -------- --------- --------- --------- --------- --------- --------- Income (loss) before extraordinary item............. (24,840) (129,098) (9,293) (22,125) 8,668 1,724 2,687 Extraordinary item(4)............ (5,532) (2,359) -------- --------- --------- --------- --------- --------- --------- Net income (loss)................ $(30,372) $(129,098) $ (9,293) $ (24,484) $ 8,668 $ 1,724 $ 2,687 ======== ========= ========= ========= ========= ========= ========= Earnings (loss) per share(5): Income (loss) before extraordinary item........... $ (12.63) $ (.90) $ (2.14) $ .84 $ .17 $ .26 ========= ========= ========= ========= ========= ========= Net income (loss).............. $ (12.63) $ (.90) $ (2.37) $ .84 $ .17 $ .26 ========= ========= ========= ========= ========= ========= OTHER OPERATING DATA: Cash flow from operating activities..................... $ 31,195 $ 22,157 $ 15,647 $ 22,746 $ 49,202 $ 17,451 $ 1,269 Cash flow used by investing activities........... (11,306) (8,261) (13,057) (29,871) (38,136) (7,650) (41,689) Cash flow from (used by) financing activities........... (24,838) (5,823) (6,102) 5,666 (13,074) (10,191) 45,943 Adjusted EBIT(6)................. 28,597 28,567 31,469 41,828 52,300 23,385 26,382 Depreciation and amortization(1)................ 30,931 137,837 22,189 35,871 22,724 11,303 13,290 Adjusted EBITDA(7)............... 54,239 52,545 53,658 63,089 75,024 34,688 39,672 Capital expenditures............. 12,820 9,528 16,769 19,385 17,633 7,996 10,984 DECEMBER 31, JUNE 30, -------------------------------------------------------- --------------------- 1992 1993 1994 1995 1996 1996 1997 -------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital(8)............... $ 28,451 $ 34,729 $ 32,853 $ 38,090 $ 32,539 $ 39,885 $ 60,200 Total assets..................... 423,051 297,674 304,246 294,911 315,901 289,476 370,642 Long-term debt................... 278,369 330,201 330,768 353,717 352,893 349,850 404,612 Redeemable preferred stock....... 50,313 Stockholders' equity (deficit)... 23,899 (101,579) (111,266) (136,332) (127,344) (134,608) (124,392)
- ------------------------- (1) Depreciation and amortization for the year ended December 31, 1995 includes the accelerated non-cash write-off of goodwill of $13,471 and the accelerated non-cash write-off of a non-compete agreement of $1,139. Depreciation and amortization for the year ended December 31, 1993 includes the accelerated non-cash write-off of goodwill totaling $113,859. Depreciation and amortization for the year ended December 31, 1992 includes the accelerated non-cash write-off of non-compete agreements and a patent totaling $5,289. 25 28 (2) Acquisition related expense totaling $1,100 was incurred during 1993 in connection with an acquisition attempt. (3) Operating results for the year ended December 31, 1995 include the following special charges: $2,250 associated with IPC's special incentive agreement with certain executive officers, $1,950 of costs related to an attempted initial public equity offering and a reduction of land value of $760 associated with a donation of certain land to the Village of Chagrin Falls, Ohio. Operating results for the year ended December 31, 1993 include restructuring and special charges of $4,350, reflecting a $1,500 non-cash write-down of certain property held for sale and costs of $2,850 related to the reorganization of the Consumer Packaging product group, which include, among other things, severance, transition and relocation expenses. (4) In connection with the 1995 refinancing of IPC's credit facility, the Company wrote off deferred financing costs of $2,359. In connection with the 1992 12 1/2% Subordinated Note offering, the Company wrote off deferred financing costs of $5,977, net of a tax benefit of $445. (5) The earnings (loss) per share amounts give effect to the Company's 9.65-for-1 stock split effective immediately prior to the Offerings. A loss per share amount has not been presented for 1992 since the Company's combined financial statement presentation and capital structure precluded meaningful equivalent per share calculations. (6) Adjusted EBIT includes income from operations adjusted to exclude goodwill write-offs of $13,471 and $113,859 for the years ended December 31, 1995 and 1993, respectively, and acquisition related expenses of $1,100, restructuring charges of $2,850 and special charges of $1,500 for the year ended December 31, 1993. In addition, Adjusted EBIT for the year ended December 31, 1995 excludes the accelerated write-off of a non-compete agreement of $1,139 and special charges of $4,960 and for the year ended December 31, 1992 excludes the accelerated write-off of non-compete agreements and a patent totaling $5,289. Ivex believes that Adjusted EBIT provides additional information for determining its ability to meet future debt service requirements. However, Adjusted EBIT is not a defined term under GAAP. (7) Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, goodwill write-offs of $13,471 and $113,859 for the years ended December 31, 1995 and 1993, respectively, and acquisition related expenses of $1,100, restructuring charges of $2,850 and special charges of $1,500 and for the year ended December 31, 1993. In addition, Adjusted EBITDA for the year ended December 31, 1995 includes special charges of $4,960. Ivex believes that Adjusted EBITDA provides additional information for determining its ability to meet future debt service requirements. However, Adjusted EBITDA is not a defined term under GAAP and is not indicative of operating income or cash flow from operations as determined under GAAP. (8) Working capital is determined to be the excess of current assets over current liabilities (including the current portion of long-term debt). 26 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion addresses the information and financial data contained in "Selected Consolidated Financial Data." The Company is the sole stockholder of its operating subsidiary, IPC. The Company is a holding company with no operations of its own and is dependent on the operating cash flow of IPC and its subsidiaries in order to pay principal and interest on its debt; however, IPC has no contractual obligations to distribute any such cash flow to the Company. References to Ivex or the Company herein reflect the consolidated results of Ivex Packaging Corporation. RESULTS OF OPERATIONS -- FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 Net Sales The Company's net sales increased by 25.5% during the six months ended June 30, 1997 over the Company's net sales during the corresponding period in 1996 primarily as a result of incremental sales volume associated with the recently completed acquisitions (including approximately $38.7 million in revenues during the six months ended June 30, 1997 from the Plastofilm, Trio, European OPS Business and M&R acquisitions) and significantly increased volume of extruded sheet and film. The following table sets forth information with respect to net sales of the Company's product groups for the periods presented:
SIX MONTHS ENDED ---------------------------------------------- JUNE 30, % OF JUNE 30, % OF 1996 NET SALES 1997 NET SALES -------- --------- -------- --------- (DOLLARS IN THOUSANDS) Consumer Packaging..................... $103,495 49.2 $152,914 57.9 Industrial Packaging................... 106,948 50.8 111,120 42.1 -------- ----- -------- ----- Total............................. $210,443 100.0 $264,034 100.0 ======== ===== ======== =====
Consumer Packaging's net sales increased by 47.8% during the six months ended June 30, 1997 from the corresponding period in 1996 primarily due to incremental sales volume associated with the recently completed acquisitions aggregating approximately $38.7 million in revenues during the six months ended June 30, 1997, increased unit sales volume of extruded OPS sheet and film and increased sales of converted plastic and paper products. The increase in net sales was partially offset by decreased average selling price of OPS sheet and film. During the six months ended June 30, 1997, domestic production of extruded OPS sheet in pounds increased 18.7% while the average selling price per pound decreased 2.4% from the corresponding period in 1996. Sales of extruded OPS film in pounds increased 32.5% during the first six months of 1997 and the average selling price per pound decreased 6.2% from the corresponding period in 1996. Sales of converted plastic and paper products, excluding the sales relating to the newly acquired facilities, increased 8.0% during the six months ended June 30, 1997 over the corresponding period in 1996 primarily due to new product introductions in the supermarket and agricultural market segments. Industrial Packaging's net sales increased by 3.9% during the six months ended June 30, 1997 from the corresponding period in 1996, primarily due to increased unit volume of the Company's protective masking products and increased average selling price of the Company's recycled and specialty papers. The increase in net sales was partially offset by a decrease in volume of the Company's coated paper for stamp applications and decreased unit volume of the Company's recycled and specialty paper. The average net selling price of the Company's recycled and specialty paper increased 10.8% during the six months ended June 30, 1997 compared to the corresponding period in the prior year. However, the number of tons of recycled and specialty paper sold during the period decreased 4.9% compared to the corresponding period in 1996. 27 30 Gross Profit The Company's gross profit increased 23.1% during the six months ended June 30, 1997 compared to the corresponding period in the prior year primarily as a result of the incremental effects of newly acquired facilities and increased sales volume. The increased gross profit was partially offset by decreased margins in the Company's recycled and specialty paper operations due to market conditions and decreased profitability of the Company's polymerization operations. Gross profit margin was 21.3% and 21.8% during the six months ended June 30, 1997 and 1996, respectively. Operating Expenses Selling and administrative expenses increased 33.1% during the six months ended June 30, 1997 primarily as a result of the recently completed acquisitions. As a percentage of net sales, selling and administrative expenses increased to 11.2% during the six months ended June 30, 1997 compared to 10.5% during the same period in the prior year primarily due to the higher selling and administrative expenses at Plastofilm and Industrial Packaging. Amortization of intangibles increased 98.4% during the six months ended June 30, 1997 compared to the same period in 1996 as a result of increased goodwill and non-compete agreement amortization associated with the recently completed acquisitions. Income from Operations Income from operations was $26.4 million during the six months ended June 30, 1997 compared to income from operations of $23.4 million during the six months ended June 30, 1996. The increase in income from operations is primarily a result of the recently completed acquisitions and increased volume of extruded OPS sheet and film during the six months ended June 30, 1997. Operating margin was 10.0% for the six months ended June 30, 1997 compared to operating margin of 11.1% during the six months ended June 30, 1996. The decrease in operating margin is primarily due to the increased selling and administrative expenses as a percentage of net sales. Interest Expense Interest expense during the six months ended June 30, 1997 was $22.8 million compared to $21.2 million during the same period in 1996. The increase reflects greater outstanding aggregate indebtedness during 1997 as a result of accretion on the 13 1/4% Discount Debentures and additional borrowings under the Existing Credit Facility to finance the recently completed acquisitions. The increase was partially offset by decreased interest rates on the Existing Credit Facility. Net Income Net income was $2.7 million during the six months ended June 30, 1997 compared to net income of $1.7 million in the prior year. The increase in net income during the first six months of 1997 is primarily due to increased income from operations partially offset by higher interest expense. Adjusted EBITDA Adjusted EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, goodwill write-off, acquisition related expenses and restructuring 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 GAAP and is not indicative of operating income or cash flow from operations as determined under GAAP. 28 31 The following table sets forth information with respect to Adjusted EBITDA of the Company's product groups for the periods presented.
SIX MONTHS ENDED ------------------------------------------- JUNE 30, % OF JUNE 30, % OF 1996 NET SALES 1997 NET SALES -------- --------- -------- --------- (DOLLARS IN THOUSANDS) Consumer Packaging....................... $19,167 18.5 $25,339 16.6 Industrial Packaging..................... 18,452 17.3 17,516 15.8 Corporate Expense........................ (2,931) -- (3,183) -- ------- ---- ------- ---- Total............................... $34,688 16.5 $39,672 15.0 ======= ==== ======= ====
The Company's Adjusted EBITDA increased 14.4% from $34.7 million to $39.7 million; however, Adjusted EBITDA margin decreased from 16.5% to 15.0% during the six months ended June 30, 1997 compared to the same period in 1996. The 32.2%, or $6.2 million, increase in Consumer Packaging's Adjusted EBITDA during the six months ended June 30, 1997 is primarily attributable to the incremental Adjusted EBITDA from the recently completed acquisitions and to the increased sales of extruded sheet and film and converted plastic and paper products. Consumer Packaging's increased Adjusted EBITDA was partially offset by the decreased profitability of the Company's polymerization operations. The decrease in Industrial Packaging's Adjusted EBITDA of 5.1%, or $936,000, is primarily due to decreased gross profit associated with lower sales unit volume of the Company's recycled and specialty paper and increased operating expenses in the Company's protective masking business. RESULTS OF OPERATIONS -- FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 Net Sales The following table sets forth information with respect to net sales of the Company's product groups for the periods presented.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ % OF % OF % OF 1994 NET SALES 1995 NET SALES 1996 NET SALES ---- --------- ---- --------- ---- --------- (DOLLARS IN THOUSANDS) Consumer Packaging................. $189,089 48.4 $219,806 48.7 $234,584 51.9 Industrial Packaging............... 201,886 51.6 231,763 51.3 217,223 48.1 -------- ----- -------- ----- -------- ----- Total......................... $390,975 100.0 $451,569 100.0 $451,807 100.0 ======== ===== ======== ===== ======== =====
Consumer Packaging's net sales increased by 6.7% in 1996 from 1995 levels and 16.2% in 1995 from 1994 levels. The increase in 1996 compared to the prior year is the result of increased unit sales volume of extruded sheet and film, and the third quarter 1996 acquisitions of Plastofilm and Trio which generated revenue approximating $14.2 million in 1996, partially offset by a decrease in average selling price of substantially all products (primarily related to lower raw material costs during 1996). Near the end of 1995, Consumer Packaging increased OPS extrusion capacity with the completion of a new extrusion line in Manteno, Illinois. The increased capacity resulted in a 16.9% increase in pounds of extruded sheet and film sold during 1996 over the prior year. The increases in volume were partially offset by a decrease of 15.5% in the average selling price per pound of OPS in 1996 compared to 1995 (primarily related to lower raw material costs during 1996). Net sales of converted plastic and paper products were consistent during 1996 compared to 1995 reflecting slightly increased unit volume offset by decreased average selling price (primarily related to lower raw material costs during 1996). The 1995 increase from the prior year is the result of increased unit sales volume of extruded sheet and film and increased selling prices of substantially all products (primarily related to significantly higher raw material costs during 1995). During the third quarter of 1994, Consumer Packaging increased OPS extrusion capacity with the completion of a new extrusion line in Hazleton, Pennsylvania. Principally as a result of this extrusion capacity expansion, pounds of extruded sheet and film sold increased 15.4% during 1995 compared to 1994. Compared to the prior year, the average selling price per pound of extruded sheet 29 32 increased 12.7% during 1995. Net sales of converted plastic and paper products increased 7.9% during 1995, principally as a result of higher selling prices. Industrial Packaging's net sales decreased by 6.3% in 1996 from 1995 and increased by 14.8% in 1995 from 1994. The decrease in 1996 from 1995 is primarily attributable to a decrease in recycled and specialty lightweight paper unit sales volume and average selling price and a significant decrease in net sales of coated paper for stamp applications, partially offset by increased net sales of protective packaging products. During 1996, the unit sales volume of recycled and specialty lightweight paper sold decreased 9.1% and the average selling price decreased 13.0% due to declining raw material costs and aggressive competitive pricing in the industry. The 1996 decrease in net sales was partially offset by increased net sales of protective packaging products primarily associated with the third quarter 1995 acquisition of PPI which added revenues of approximately $14.3 million during 1996 and increased net sales of masking and cohesive products for applications in the automotive, housing and mail order industries. The increase in net sales in 1995 from 1994, in part, is due to the PPI acquisition which generated revenues of approximately $6.8 million during 1995 and unit sales volume increases of recycled paper and coated paper for stamp applications. The 1995 increase in net sales also is attributable to increases during 1995 in the average selling prices (primarily related to significantly higher raw material costs during 1995) in materials such as polyethylene, virgin pulp, OCC and DLK. Gross Profit The Company's gross profit increased 17.9% during 1996 compared to 1995 primarily as a result of the increased unit sales volume discussed above, the increased profitability of the Company's converted plastic and converted paper operations, the incremental effects of the Trio, Plastofilm and PPI acquisitions and decreased raw material costs (including styrene monomer, polystyrene, OCC, DLK and virgin pulp). These increases were offset, in part, by the decreased profitability of the Company's polymerization operations and specialty and lightweight paper operations. Gross profit margin increased to 22.2% in 1996 from 18.9% in 1995. The gross profit margin increase during 1996 is primarily attributable to cost decreases for certain of the Company's raw materials and improved operational efficiencies as a result of greater unit volume of extruded sheet and film. The Company's gross profit increased 14.7% during 1995 compared to 1994 primarily as a result of the increased net sales discussed above and the significantly increased profitability of the Company's polymerization operations. However, gross profit margin decreased slightly to 18.9% in 1995 from 19.0% in 1994. The gross profit margin decrease during 1995 is primarily attributable to significant cost increases for the Company's raw materials (including styrene monomer, polystyrene, polyethylene, OCC, DLK and virgin pulp). The decrease in the Company's gross profit margin was partially offset by improved operational efficiencies as a result of greater unit volume of extruded sheet and film and recycled paper and by the significantly increased profitability of the Company's polymerization operations due to, among other things, the Company's favorable styrene monomer purchases during 1995. Operating Expenses Selling and administrative expenses increased 11.5% during 1996 compared to the prior year and as a percentage of net sales increased to 10.5% during 1996 compared to 9.4% in 1995. The increase in selling and administrative expenses is primarily attributable to the PPI, Plastofilm and Trio acquisitions. The increase as a percentage of net sales is attributable to the decreases in the Company's average selling price as discussed above. Selling and administrative expenses increased 2.2% during 1995 compared to the prior year but as a percentage of net sales declined to 9.4% in 1995 compared to 10.7% in 1994. The decrease as a percentage of net sales is attributable to the significant increases in net sales dollars as discussed above without a comparable increase in operating expenses and a cost reduction plan implemented by management during the third quarter of 1994. Amortization of intangibles decreased during 1996 as compared to 1995 and increased in 1995 compared to 1994 as a result of the accelerated write-off of a non-compete agreement of $1.1 million during 1995. 30 33 During 1995, the Company wrote off $13.5 million of the goodwill associated with a portion of its Industrial Packaging businesses. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Results of Operations -- For the Years Ended December 31, 1996, 1995 and 1994 -- Goodwill Write-off." The $5.0 million of special charges taken in 1995 is comprised of the following: a $2.3 million charge associated with IPC's long-term special incentive agreement with senior management; a $2.0 million charge associated with the costs related to the Company's attempted public equity offering during the fourth quarter of 1995; and a reduction of land value of $760,000 associated with the Company's donation of a portion of its Chagrin Falls, Ohio paper mill site to the Village of Chagrin Falls. Goodwill Write-off During 1995, a portion of the Industrial Packaging businesses (such portion having been acquired primarily in the 1989 acquisition of L&CP Corporation) had experienced less sales volume growth and lower profitability than anticipated. As a consequence, and in response to dynamic market conditions, during the second quarter of 1995 the Company realigned the management of these businesses based on three distinct operating units -- masking, graphics and other protective products. Consistent with its accounting policy for goodwill and long-lived assets at that time, the Company made a reassessment of its remaining goodwill, all of which pertained to the above operating units, during the second quarter of 1995 and revised its projections to more accurately reflect expected future results. The Company segregated the assets and cash flows of these three operating units to the lowest level for which cash flows are identifiable and independent of one another at that time. In order to evaluate its goodwill impairment, the Company projected the cash flows allocable to these businesses over the estimated remaining goodwill amortization periods of approximately 34 years. The Company then discounted such cash flows at a rate which it believed was commensurate with the risk involved. The Company selected a pre-tax weighted average cost of capital (reflective of comparable companies within its industry) for purposes of discounting its cash flows. The discounted cash flows of each business were then compared to the sum of the business groups' working capital and net book value of fixed assets. Impairment of goodwill was then measured by comparing the remaining discounted cash flow to the net book value of the business groups' goodwill. Upon comparison, the discounted cash flows for the graphics and other protective products businesses were insufficient to recover each of such businesses' goodwill. Accordingly, the Company recorded an impairment of $13.5 million during the second quarter of 1995. The 1995 revised projections for this portion of the Company's business were extrapolated from market conditions and competitive pressures existing at that time and were based upon, among other things, the assumptions that growth of operating income before depreciation and amortization would range from 2-6% per year through 1999, from 1-3% per year from 2000-2010 and 0% per year from 2011-2029. The growth assumptions for the graphics and other protective products businesses were lower than the masking business. The projections assumed that capital expenditures would generally be consistent with depreciation over the long term. The Company believes that its revised projections based on the June 1995 existing historic financial trends and market conditions were its best estimate at that time of its future performance and that the Company's performance at such projected levels will not substantially detract from the Company's future earnings. However, there can be no assurances that such estimates will be indicative of future results, which ultimately may be less than or greater than these estimates. Income from Operations Income from operations and operating margin were $52.3 million and 11.6%, respectively, during 1996, compared to $22.3 million and 4.9%, respectively, during 1995 and $31.5 million and 8.0%, respectively, during 1994. The increase in 1996 income from operations and operating margin compared to 1995 primarily results from the $13.5 million goodwill write-off and $5.0 million of special charges recorded during 1995. Without these special charges during 1995, operating income and operating margin would have been $40.7 million and 9.0%, respectively, in 1995. The increase in 1996 income from operations and operating margin over 1995 31 34 income from operations and operating margin (before the 1995 write-off of goodwill and the special charges) was attributable to the improved gross profit and gross profit margin discussed above. The 1995 decrease in income from operations and operating margin compared to 1994 is primarily due to the write-off of goodwill and the special charges recorded during 1995. The increase in 1995 operating income and margin (before the 1995 write-off of goodwill and the special charges) compared to the 1994 operating income and margin was attributable to the Company's increased gross profit and reduced operating expenses as a percentage of net sales. Interest Expense Interest expense during 1996 was $42.7 million compared to $43.3 million and $39.8 million during 1995 and 1994, respectively. The decrease in 1996 from 1995 primarily results from lower interest rates during 1996 as a result of the Company's refinancing of the Existing Credit Facility during the fourth quarter of 1995. The increase in 1995 from 1994 resulted from a larger amount of outstanding indebtedness during 1995 as a result of accretion on the 13 1/4% Discount Debentures and increased borrowings under the Existing Credit Facility which were primarily related to the Company's acquisition of the assets of PPI. Income Taxes The Company's tax provisions for 1996, 1995 and 1994 primarily reflect provisions for federal alternative minimum tax and state taxes. Extraordinary Item The extraordinary item in 1995 reflects the write-off of deferred loan costs of $2.4 million written off in connection with the refinancing of the Existing Credit Facility. Net Income/Loss Net income was $8.7 million in 1996 compared to a net loss of $24.5 million in 1995. The improved net income during 1996 is primarily the result of the Company's improved gross profit during 1996 and the $13.5 million goodwill write-off and $5.0 million of special charges recorded during 1995. Net loss increased to $24.5 million in 1995 compared to $9.3 million in 1994. The $15.2 million increase in net loss during 1995 is primarily the result of the write-off of goodwill and special charges recorded during 1995. Adjusted EBITDA The following table sets forth information with respect to Adjusted EBITDA of the Company's product groups for the periods presented.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- % OF % OF % OF 1994 NET SALES 1995 NET SALES 1996 NET SALES ---- --------- ---- --------- ---- --------- (DOLLARS IN THOUSANDS) Consumer Packaging.................... $34,506 18.2 $36,954 16.8 $43,776 18.7 Industrial Packaging.................. 25,695 12.7 31,744 13.7 37,694 17.4 Corporate Expense..................... (6,543) -- (5,609) -- (6,446) -- ------- ------- ------- Total............................ $53,658 13.7 $63,089 14.0 $75,024 16.6 ======= ======= =======
The Company's Adjusted EBITDA increased by $11.9 million to $75.0 million in 1996, an Adjusted EBITDA margin of 16.6%, compared to 1995 Adjusted EBITDA of $63.1 million and an Adjusted EBITDA margin of 14.0%. The increase in Consumer Packaging's Adjusted EBITDA during 1996 is primarily attributable to the increased gross profit associated with the extruded sheet and film volume increases, improved operating performance of converted plastic and paper operations, and incremental Adjusted 32 35 EBITDA from Plastofilm. Such increases were partially offset by decreased profitability of the Company's polymerization operations. The increase in Industrial Packaging's Adjusted EBITDA during 1996 is primarily the result of the incremental Adjusted EBITDA from PPI and the improved sales volume of protective packaging products. Corporate expenses increased 14.9% from $5.6 million to $6.4 million primarily as the result of increased incentive compensation. The Company's Adjusted EBITDA increased by $9.4 million to $63.1 million in 1995, representing an Adjusted EBITDA margin of 14.0%, compared to 1994 Adjusted EBITDA of $53.7 million and an Adjusted EBITDA margin of 13.7%. The increase in Consumer Packaging's Adjusted EBITDA during 1995 is primarily attributable to the increased gross profit associated with the extruded sheet and film volume increases and significantly increased profitability of the Company's polymerization operations. The increase in Industrial Packaging's Adjusted EBITDA during 1995 is primarily the result of the increased unit sales of recycled kraft paper and the incremental Adjusted EBITDA from PPI during the fourth quarter of 1995. Corporate expense decreased 14.3% from $6.5 million to $5.6 million as a result of cost improvement actions taken by the Company in the third quarter of 1994. LIQUIDITY AND CAPITAL RESOURCES Recent Developments The discussion in "Historical Liquidity and Capital Resources" below does not give effect to the Offerings, the Offers and the New Credit Facility (described herein) pursuant to which Ivex expects IPC to borrow (on a pro forma basis at June 30, 1997) approximately $328.4 million under the New Credit Facility to (i) refinance $49.2 million outstanding under the revolving credit portion of the Existing Credit Facility, (ii) refinance $52.5 million outstanding under the term loan portion of the Existing Credit Facility, (iii) apply approximately $178.2 million to the acquisition of 12 1/2% Subordinated Notes and 13 1/4% Discount Debentures, (iv) lend approximately $14.0 million to certain key executives to enable them to pay their individual income taxes payable in connection with the conversion of the IPC Options and (v) pay approximately $34.6 million of fees associated with these transactions, and to utilize approximately $45.0 million of availability under the New Credit Facility to refinance outstanding letters of credit. See "The Refinancing," "Capitalization" and "Pro Forma Consolidated Financial Data." See "Description of Certain Indebtedness -- The New Credit Facility" for a summary of the terms and conditions of the New Credit Facility. The Company expects that the Offerings, together with the conversion of the IPC Options, will result in a more-than-50% ownership change for purposes of Section 382 of the Code, resulting in the imposition of Section 382 limitations on the use of the Company's NOL carryforwards existing as of the date of the ownership change. In addition, Ivex expects to have a significant NOL attributable to the period after such ownership change resulting from certain one-time charges expected to be incurred as a result of the refinancing transactions described herein. Consequently, if another more-than-50% ownership change takes place after the consummation of the Offerings, such ownership change could result in the imposition of Section 382 limitations on such NOL. Historical Liquidity and Capital Resources The Company conducts business through IPC and has no operations of its own. The primary asset of the Company is the common stock of IPC which has been pledged to secure the obligations of IPC and the subsidiaries under the Existing Credit Facility. The Company is dependent on the cash flow of IPC and its subsidiaries in order to pay the principal and interest on the 13 1/4% Discount Debentures; however, IPC has no contractual obligations to distribute any such cash flow to the Company. In addition, the Existing Credit Facility contains provisions that (except for certain limited exceptions) prohibit the payment of dividends and distributions by IPC to the Company. Moreover, the 12 1/2% Subordinated Note Indenture contains provisions that limit IPC's ability to pay dividends and make distributions to the Company. The Company's long-term debt, less current installments, increased to $404.6 million at June 30, 1997 from $352.9 million at December 31, 1996 primarily reflecting $7.0 million of accretion on the 13 1/4% Discount 33 36 Debentures, borrowings under the Existing Credit Facility of $49.2 million, $2.6 million of scheduled debt reductions and the reclassification of $1.9 million to current. The Company's long-term debt consists of the 13 1/4% Discount Debentures, with an accreted value of $113.1 million at June 30, 1997. The long-term debt of the Company's wholly-owned subsidiary, IPC, consists primarily of the $157.4 million of IPC's 12 1/2% Subordinated Notes, term loans of $45.6 million and revolving credit facility borrowing of $49.2 million under the Existing Credit Facility, $37.6 million of industrial revenue bonds and other debt of $1.7 million. At June 30, 1997, IPC had cash and cash equivalents of $8.3 million and $52.2 million was available under the revolving credit portion of the Existing Credit Facility. IPC's working capital at June 30, 1997 was $60.2 million. The Company's primary long-term cash requirements are for the debt service relating to the 13 1/4% Discount Debentures. Commencing on September 15, 2000, cash interest on the 13 1/4% Discount Debentures will be payable semi-annually and on March 15, 2005, the 13 1/4% Discount Debentures will mature and the aggregate principal amount then outstanding will become due and payable. The Company will be dependent on the cash flow of IPC and IPC's subsidiaries in order to meet its debt service obligations. Significant contractual and other restrictions exist on the payment of dividends and the making of loans by IPC to the Company. In addition, as a result of the goodwill write-offs in 1993 and 1995, IPC's ability to make distributions to the Company under the 12 1/2% Subordinated Note Indenture has been impaired; consequently this Indenture will require modification before any such distributions to the Company can be made. Regardless, IPC and IPC's subsidiaries may not generate sufficient cash flows to distribute to the Company in order for the Company to service the cash interest payments on the 13 1/4% Discount Debentures that commence in September 2000 or to retire the $160 million principal amount of 13 1/4% Discount Debentures upon their maturity in 2005. Consequently, all or a portion of the 13 1/4% Discount Debentures may require refinancing prior to such dates. The Company believes that distributions from IPC and its access to debt financing in the public and private markets should be sufficient to enable it to retire all or a portion of the principal amount of the 13 1/4% Discount Debentures and to refinance any remaining principal amount of the 13 1/4% Discount Debentures upon their maturity in 2005, although there can be no assurance that this will be the case. In the event that the Company is unable to service the cash interest payments on or to retire or refinance the 13 1/4% Discount Debentures or is unable to obtain any required consents from the holders of the 12 1/2% Subordinated Notes to make interest payments on the 13 1/4% Discount Debentures, the Company may be required to, among other things, seek appropriate waivers from such creditors or recapitalize its capital structure. The primary short-term and long-term operating cash requirements for IPC, the Company's wholly owned operating subsidiary, are for debt service, working capital and capital expenditures. The Company expects IPC to rely on cash generated from IPC's and IPC's subsidiaries' operations, supplemented by revolving credit facility borrowings under the Existing Credit Facility (at June 30, 1997, $52.2 million was available under the revolving credit portion of the Existing Credit Facility), to fund IPC's principal short-term and long-term cash requirements. The Company believes that IPC and IPC's subsidiaries should generate sufficient cash flows to service the cash interest payments on the 12 1/2% Subordinated Notes through their maturity in 2002, although there can be no assurances that such cash flows, if any, will be adequate to service these interest payments. However, IPC and IPC's subsidiaries may not generate sufficient cash flows to retire the $158.0 million principal amount of 12 1/2% Subordinated Notes prior to or upon their maturity in 2002. Consequently, all or a portion of the 12 1/2% Subordinated Notes may require refinancing prior to the maturity thereof. IPC believes that its consolidated cash flow from operations and access to debt financing in the public and private markets should be sufficient to enable it to retire all or a portion of the principal amount of the 12 1/2% Subordinated Notes and to refinance any remaining principal amount of the 12 1/2% Subordinated Notes prior to or upon their maturity, although there can be no assurance that this will be the case. In the event that IPC is unable to retire or refinance the 12 1/2% Subordinated Notes, IPC may be required to, among other things, seek appropriate waivers from such creditors or recapitalize its capital structure. IPC is required to maintain certain financial ratios and levels of net worth and future indebtedness and dividends, among other things, are restricted under these facilities. 34 37 The 12 1/2% Subordinated Notes require semi-annual interest payments on June 15 and December 15 and are subordinated in right of payment to all existing and future senior indebtedness of IPC. The 12 1/2% Subordinated Notes are redeemable at the option of IPC, in whole or in part, on or after December 15, 1997 at the following redemption prices (expressed in percentages of the principal amount thereof), plus accrued interest to the date of redemption. If redeemed during the twelve-month period beginning December 15,
YEAR PERCENTAGE - ---- ---------- 1997........................................................ 106.250% 1998........................................................ 103.125% 1999 and thereafter......................................... 100.000%
Each holder of the 12 1/2% Subordinated Notes may require IPC to repurchase such holders' 12 1/2% Subordinated Notes in the event of a change of control at 101% of principal amount thereof, plus accrued interest to the date of repurchase. The 12 1/2% Subordinated Note Indenture contains certain covenants that, among other things, limit the ability of IPC to incur additional indebtedness, pay dividends or repurchase stock. The Existing Credit Facility is comprised of $52.5 million in term loans, a $45.0 million letter of credit facility and a $105.0 million revolving credit facility of which approximately $52.2 million was available as of June 30, 1997. The term loans under the Existing Credit Facility require quarterly payments of $1.3 million through September 30, 1997; $1.9 million from December 31, 1997 through September 30, 1998; $3.0 million from December 31, 1998 through September 30, 1999; $3.5 million from December 31, 1999 through September 30, 2000; $4.1 million from December 31, 2000 through June 30, 2001; and $5.4 million on September 30, 2001. At the option of IPC, the term loans and borrowings on the revolving credit facility accrue interest at the LIBOR reserve adjusted rate, as defined in the Existing Credit Facility, plus 2.25% or the prime rate plus 1.0%. Such rates are subject to change based on IPC's ability to achieve certain financial ratios as defined in the Existing Credit Facility. The Company's actual interest rate on the term loans and the revolving credit facility as of June 30, 1997 was the LIBOR reserve adjusted rate, as defined, plus 1.75% or prime rate plus 0.75%. Borrowings are secured by substantially all the assets of IPC and its subsidiaries and the stock of IPC and IPC's subsidiaries. The revolving credit facility and letter of credit facility terminate on September 30, 2001. Under the Existing 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. During 1996, IPC entered into interest rate swap agreements for the term loans for notional amounts totaling $60.0 million through January 19, 1999. Such agreements effectively fix IPC's LIBOR base rate at 5.33% and income or expense related to settlements under the swap agreements are recorded as adjustments to interest expense in IPC's financial statements. 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 Existing Credit Facility provide credit enhancement for IPC's industrial revenue bonds. Primarily as a consequence of the Company's 1993 and 1995 goodwill write-offs, as of June 30, 1997, the Company's recorded assets are less than its recorded liabilities by approximately $124.4 million. The Company believes that its negative net worth will not have any material consequences on its operations or its ability to obtain trade credit or financing. On January 17, 1997, IPC purchased substantially all of the assets, excluding accounts receivable, of the European OPS Business for $11.9 million and on February 21, 1997, IPC purchased all of the outstanding common stock of M&R located in Laval, Quebec for $18.7 million, including the repayment of certain indebtedness of M&R and related acquisition fees and expenses. In addition, on August 8, 1997, IPC purchased all of the outstanding common stock of AVPEX International Corporation ("AVP") located in Newcastle, Canada for approximately $8.0 million, including the repayment of certain indebtedness of AVP and related fees and expenses. The acquired businesses were financed through revolving credit borrowings under IPC's senior credit facility. As of the date hereof, the Company is not presently committed under any 35 38 material contractual obligations for acquisitions. However, the Company expects that a portion of its growth in net revenues will result from future acquisitions. The Company made capital expenditures of $11.0 million, $17.6 million, $19.4 million and $16.8 million for the six months ended June 30, 1997 and the years 1996, 1995 and 1994, respectively. The spending during the six months ended June 30, 1997 and the year 1996 was directed, in part, to new stock thermoforming tooling and thermoforming machines at two of its converting facilities, a coextrusion line at one of the Company's extrusion facilities, and de-inking equipment at one of the Company's paper mill facilities. The spending in 1995 and 1994 was directed, in part, to the Company's new OPS extrusion line at the Company's Hazleton, Pennsylvania facility that was completed in 1994 and to the construction of a second OPS extrusion line at its Manteno, Illinois facility that was completed during the fourth quarter of 1995. The Company was not committed under any material contractual obligations for capital expenditures as of June 30, 1997. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Earnings Per Share In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which established a new accounting principle for the calculation of earnings per share. The new pronouncement is effective for accounting periods ending after December 15, 1997 and earlier application is not permitted. Upon adoption, all prior period earnings per share data presented shall be restated to conform to this Statement. As the Company's common stock equivalents were anti-dilutive during the periods presented, adoption of this standard is not expected to have a material impact on amounts previously reported as earnings per share. Reporting Comprehensive Income In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which will require the Company to disclose, in financial statement format, all non-owner changes in equity. Such changes include cumulative foreign currency translation adjustments and certain minimum pension liabilities. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997 and requires presentation of prior period financial statements for comparability purposes. The Company expects to adopt this standard during the year ended December 31, 1998. The adoption of this standard is not expected to have a material impact on disclosure in the Company's financial statements. Disclosures about Segments of an Enterprise and Related Information In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments in annual financial statements and interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997 and requires presentation of prior period financial statements for comparability purposes. The Company is currently evaluating its required disclosures under SFAS No. 131 and expects to adopt this standard during the year ended December 31, 1998. 36 39 BUSINESS GENERAL Ivex is a vertically integrated specialty packaging company that designs and manufactures value-added plastic and paper-based flexible packaging products. The Company believes that it is the leading provider of customized packaging in selected specialty markets, ranking first or second in markets representing approximately 65% of the Company's revenues. Ivex has increased sales and profitability by focusing on niche markets that provide attractive margins and growth and where the Company's integrated manufacturing capabilities 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. Over the past several years, the Company has executed a comprehensive growth strategy based upon (i) achieving internal growth through product extensions and further penetration into higher growth markets and (ii) growth through strategic acquisitions. The Company has completed six such acquisitions since 1995. Since 1993, net sales, Adjusted EBITDA and Adjusted EBIT have increased at compound annualized growth rates of 9.6%, 12.8% and 20.8%, respectively, and, excluding such acquisitions, of 4.7%, 8.7% and 16.8%, respectively. The core businesses of the Company were acquired by Acadia and certain related investors between 1988 and 1991. The acquisitions of four established companies, Kama Corporation, Ivex Corporation, L&CP Corporation and IPMC, Inc. were part of an overall strategic plan to create a vertically integrated specialty packaging company. In December 1992, in connection with the incorporation of IPC, the Company changed its name from Ivex Packaging Corporation to Ivex Holdings Corporation and IPC changed its name from New Packaging Corporation to Ivex Packaging Corporation. In August 1995, the Company changed its name from Ivex Holdings Corporation to Ivex Packaging Corporation and IPC changed its name from Ivex Packaging Corporation to IPC, Inc. Since August 1995, the Company has augmented its core businesses through the recent acquisitions of PPI, Plastofilm, Trio, the European OPS Business, M&R and AVP. MARKETS Consumer Packaging. The Consumer Packaging product group designs and manufactures plastic and paper-based products for food packaging applications and, more recently, for applications in the medical and electronics industries. The Company produces a broad array of items, including plastic containers for prepared foods, produce and baked goods; specialty paper products such as fluted baking cups and liners for cookies and other baked goods; microwaveable packaging materials; and protective packaging for medical devices and electronics products. The Consumer Packaging product group markets its products to a variety of end users, including national wholesale bakeries, supermarket chains, foodservice distributors, fast-food chains, major agricultural growers, medical equipment suppliers and electronics manufacturers. The Company also manufactures a variety of plastic sheet and film products from several different resins for internal use and sales to third party converters. Ivex is the leading producer of OPS sheet in North America. The Consumer Packaging product group represented approximately 56% of the Company's net sales and 58% of the Company's Adjusted EBITDA during the 12 months ended June 30, 1997. The Company's Consumer Packaging product group is hereinafter sometimes referred to as "Consumer Packaging". Industrial Packaging. The Industrial Packaging product group manufactures and coats film, paper and foil products for protective packaging and specialty papers. The Company produces products for some of the fastest growing applications in the protective packaging industry, including film and paper maskings and self-sealing coated packaging applications. These products are marketed primarily to consumer durable goods manufacturers, automotive companies, other industrial manufacturers and integrated paper producers. The Company also manufactures a variety of recycled kraft paper made from post-consumer and post-industrial fibers and specialty lightweight paper made primarily from virgin pulp for internal use and sales to third party converters. The Industrial Packaging product group represented approximately 44% of the Company's net sales and 42% of the Company's Adjusted EBITDA during the 12 months ended June 30, 1997. The Company's Industrial Packaging product group is hereinafter sometimes referred to as "Industrial Packaging". 37 40 The following table illustrates the wide variety of products that Ivex manufactures:
12 MONTHS ENDED JUNE 30, 1997 ---------------------- ADJUSTED PRODUCT GROUP NET SALES EBITDA PRODUCTS CUSTOMERS END PRODUCT USES ------------- --------- -------- -------- --------- ---------------- (DOLLARS IN THOUSANDS) Consumer Packaging..... $284,003 $49,948 Plastic containers, Supermarkets, Plastic hinged and corrugated paper foodservice two-piece containers, liners and specialty distributors, fast trays for deli foods, paper products, OPS food chains, bakery salads, cookies, sheet and film, HIPS and confectionery berries and cakes, sheet, PET sheet, PP companies, food film for envelope and sheet, PVC sheet and processors, plastic box windows, HDPE sheet converters, envelope protective plastic and folding carton packaging for medical manufacturers, medical and electronics device and supply applications, paper companies and liners for cookies, electronics microwaveable manufacturers packaging materials, fluted bakery cups and specialty paper products Industrial Packaging... 221,395 36,758 Protective packaging, Automotive companies, Paper and film including coated paper consumer durables protective masking and plastic, single manufacturers, other materials, cohesive face corrugated paper, industrial self-sealing packaging shippers and mailers manufacturers, paper papers, coated papers and manufactured distributors and for stamps, labels and paper, including kraft manufacturers of business forms, single papers and specialty postage stamps, face corrugated paper lightweight virgin business forms and for packaging, papers paper converters shippers and mailers, grocery and food bags, specialty lightweight papers for fast food and candy wrappers Corporate Expenses..... (6,698) -------- ------- Total.................. $505,398 $80,008 ======== =======
BUSINESS STRATEGY Ivex seeks to differentiate itself from other packaging providers by offering customized packaging that addresses the specialized needs of its customers. The Company's goal is to be the number one or number two provider of customized packaging in its markets. Ivex believes it has a number of key strengths that support its ability to implement this strategy: Focus on Niche Markets. Ivex focuses primarily on markets with attractive margin and growth characteristics. The Company's markets include the in-store bakery, delicatessen and prepared food sections of supermarkets; foodservice outlets; medical equipment and electronics goods manufacturers; and users of industrial protective masking. The Company believes that these markets have been among the fastest growing for packaging products over the past several years. Each of these is characterized by few competitors, technological barriers to entry, significant customer service requirements and attractive growth potential. Broad Product Range. Ivex manufactures a broad range of plastic and paper-based stock and customized packaging products to provide a full service approach to fulfilling its customers' packaging needs. Through its multi-resin extrusion and thermoforming capabilities, Ivex is able to offer its customers a variety of plastic 38 41 packaging solutions. The Company believes its breadth of product range and customization capabilities are competitive advantages that allow it to be more responsive to, and provide a single supply source for, many of its customers' packaging needs. Further, these capabilities enhance the Company's ability to adapt to changing market preferences. Flexible Design and Engineering. Ivex seeks to maximize opportunities within niche markets by providing its customers with lower-cost product development and shorter lead times than its competitors. The Company delivers these benefits through research and development and technical expertise such as computer-aided design and manufacturing and extensive in-house mold-making capabilities. Vertical Integration. Ivex pursues a vertically integrated operating strategy in order to maximize product quality, minimize the influence of external commodity price fluctuations and maintain its low-cost position. Within Consumer Packaging, the Company operates two polymerization, seven extrusion and eleven thermoforming facilities. In 1996, the Company produced 42% of its polystyrene needs and 100% of its OPS sheet needs internally, resulting in a significant advantage over competitors that purchase these materials in the open market. Within Industrial Packaging, the Company's polyethylene film and paper facilities provide important source products and product development capabilities for many of the Company's protective packaging products. Proprietary Technology. Ivex's proprietary technology strengthens its product quality, market position and growth prospects in existing markets as well as new product and geographic markets. Examples of the Company's proprietary technology used by Consumer Packaging include extensive extrusion process technology, low residual monomer polymerization technology and the capability to manufacture OPS film to a gauge of less than one-thousandth of an inch. Because of its proprietary production technology, the Company's OPS is recognized as having a high level of quality within the industry. Within Industrial Packaging, the Company utilizes many customized adhesive and cohesive formulations in its surface protection and self-sealing products which strengthen its market position and product development capabilities. Broad Distribution Network. The geographic breadth of Ivex's manufacturing and distribution network, including 26 plants in North America and Europe and an extensive network of sales representatives, is another significant advantage over the Company's competitors, which are often smaller and regionally based. Ivex's distribution network allows it to meet the broad geographic needs of its larger customers from a single source, which is an advantage as customers seek to reduce their number of suppliers. Extensive geographic coverage also reduces transportation costs and contributes to the Company's cost competitiveness. GROWTH STRATEGY Over the past several years, Ivex has executed a comprehensive growth strategy based upon (i) internal growth through product extensions and further penetration into higher growth markets and (ii) growth through strategic acquisitions. Since 1993, net sales, Adjusted EBITDA and Adjusted EBIT have increased at compound annualized growth rates of 9.6%, 12.8% and 20.8%, respectively, and, excluding such acquisitions, of 4.7%, 8.7% and 16.8%, respectively. The Company believes it can continue growing sales and earnings through its growth strategy as well as through utilizing excess cash flow to reduce debt and interest expense. Internal Growth. Ivex intends to utilize its business strategy and strong market position to capitalize on a number of emerging industry trends. As supermarkets, bakeries and foodservice distributors consolidate packaging vendors to create efficiencies, the Company plans to use its broad product offerings and distribution capabilities to capture market share through increased sales to these customers. Consumer trends toward convenient, ready-to-eat food products and the increased utilization of clear plastic packaging for more appealing presentation within the delicatessen, bakery and produce sections of supermarkets are resulting in increasing use of OPS sheet. As the leading producer of OPS sheet in North America, Ivex believes that it will experience increased production and sales of OPS sheet. In addition, manufacturers are increasingly realizing the quality and cost/benefit advantage of using protective packaging and masking to protect products from damage or breakage during manufacturing, handling, storage and shipping. This trend creates additional demand for the Company's protective masking products and corrugated cushioning materials. 39 42 Acquisitions. Ivex has pursued a disciplined acquisition program of "bolt-on" acquisitions that are easily integrated into the Company's operations and that meet certain defined strategic and financial return criteria. Since 1995, Ivex has completed six acquisitions that achieve a number of strategic objectives: - apply existing technology to new products and markets (the acquisition of Plastofilm added medical and electronics end markets); - fill out or extend existing product lines and markets (the acquisition of Trio added multi-resin capabilities and the acquisition of PPI expanded surface protection product offerings); - expand geographical presence (the acquisitions of M&R and AVP in Canada and the European OPS Business in the United Kingdom extended operations outside the United States); and - create rationalization opportunities (the integration of Plastofilm's extrusion operation into Trio created a lower-cost operation). As a market leader with a broad range of products and proven capabilities, the Company believes that it is well positioned to continue to successfully apply its acquisition and operating expertise to take advantage of consolidation opportunities within the highly fragmented specialty packaging market. CONSUMER PACKAGING General. The Consumer Packaging product group is an integrated manufacturer of plastic and paper products for use in a wide array of food applications and, since its acquisition of Plastofilm, medical and electronics packaging applications. The food packaging products are typically used for items sold in supermarkets, wholesale and retail bakeries, fast-food restaurants and institutional foodservice outlets. The Company's medical packaging products typically are used by the major medical supply companies for sterility packaging and its electronics packaging products generally are used as cushioning materials. Products. Consumer Packaging's products consist primarily of thermoformed plastic containers used in food, medical and electronics markets and paper products used in food packaging applications. Thermoformed plastic packaging includes hinged and two-piece containers, trays for delicatessen foods, salads, cookies, cakes and other items, sterility packaging for medical applications and cushioning products for the electronics industry. Paper products consist of single face corrugated paper liners for cookies and other baked goods, microwaveable materials, fluted cups for baking and other specialty paper products. As part of its integrated operations, Ivex is the largest manufacturer of OPS sheet in North America, 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 is one of the largest producers of OPS film in North America and believes that it is the only company in North America able to manufacture OPS film to a thickness of one-thousandth of an inch. 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 foodservice outlets, particularly fast-food restaurants and institutions such as schools, hospitals and corporate cafeterias. The Company's position in these markets results from the quality of its OPS sheet, its customized product development capabilities, its ability to provide both plastic and paper products and its long-term relationships with key accounts. The Company believes the supermarket and foodservice segments have been two of the fastest growing markets for food packaging products over the past several years. This growth has been fueled 40 43 by the expansions of bakery, delicatessen and take-out departments and by increased merchandising efforts by supermarkets in other areas such as produce and floral. Growing customer demand for freshness and convenience has increased the use of plastic packaging. In addition, in the foodservice area, the Company's historical relationships with fast-food operators enable it to leverage its reputation as new packaging opportunities arise in this market segment. The principal markets for the Company's medical and electronics packaging include medical device and supply manufacturers and electronics manufacturers. Ivex employs a national sales force to service each of the specific market segments that it targets. Approximately half of the packaging customers are serviced through distributors, with the balance serviced directly by the Company's national account sales representatives. The Company markets to end-users served by its distributors, such as small and regional supermarkets and convenience food outlets, in order to establish "pull-through" demand through this distribution channel. 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, six 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. The Company believes that its low residual monomer OPS affords it a quality advantage in certain areas of the food packaging industry where undesirable odor and taste transfer associated with high residual monomer levels are a concern. Extrusion is the process of converting plastic resin into plastic sheet and film used in the thermoforming process. In 1996, the Company produced approximately 79 million pounds of polystyrene resin and purchased approximately 107 million pounds of polystyrene resin and approximately 15 million pounds of other plastic resin from third-party sources. The Company is one of only two OPS producers that have polystyrene polymerization manufacturing facilities. This capability results in a competitive cost and quality advantage. Because of the Company's vertical integration and the technology employed in its extrusion operations, the Company believes it is one of the lowest cost producers of OPS in North America. Ivex's plastic thermoforming and paper converting operations are principally conducted in thirteen facilities located throughout North America and Europe. The Company's broad geographic coverage enables the Company to provide better customer service and reduce transportation costs. The Company's flexible manufacturing and engineering capabilities enable it to work with its customers to design custom packages. The Company believes that its strategically located manufacturing facilities, flexible manufacturing capabilities, in-house product engineering services and quality production expertise are all important competitive strengths. INDUSTRIAL PACKAGING General. The Industrial Packaging product group is an integrated manufacturer and coater of a variety of film, paper and foil products for protective packaging and a manufacturer and coater of various grades of papers. Products. Protective packaging products include protective paper and film maskings; self-sealing coated packaging papers, films and corrugated paper; and heavy-duty mailing envelopes marketed under the brand names Jet-Lite(R), Jet-Cor(TM) and Jet-Pak(R). The Company's manufactured papers include post-consumer and post-industrial recycled paper products (including lightweight kraft paper for grocery and food bags and heavyweight crepe kraft paper for bag closures), and specialty lightweight papers from virgin pulp used in the flexible packaging and food packaging industries. The Company's coated papers include water-activated gummed papers used for postage stamps, labels, and envelopes, release papers used for high-pressure decorative laminates, and laminations used for lottery ticket stock and decorative labels. Markets. The Company's industrial packaging products are used in a wide variety of commercial and industrial applications. 41 44 Ivex believes that it is one of the largest producers of industrial protective masking materials in North America. Management believes its strong position within the industrial protective masking market is a result of its chemical adhesive formulations and production technology. 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 33% 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; bag closures in pet food, seed, and fertilizer packaging; and fast-food and candy wrappers. These markets require high service levels, including fast delivery and the ability to produce a variety of colors, weights and formulations. Customers for the Company's manufactured paper products include large, integrated paper producers as well as packaging companies. Manufacturing. Ivex's primary raw materials for protective packaging products, principally low density polyethylene, specialty chemicals and paper, are obtained from external sources as well as from the Company's low density polyethelyne extrusion facility and recycled paper mill operations. Ivex's coating and paper converting operations are conducted at eleven facilities throughout the U.S. and Canada. The Company believes that its extensive geographic coverage reduces transportation costs and contributes to the cost competitiveness of the Company's packaging products. All of the paper produced at three of the Company's four paper mills is made entirely from post-consumer and post-industrial fibers, including OCC and DLK. The Company was among the first to use 100% recycled post-industrial fibers at one of its mills. Recycled paper accounts for approximately 65% of the total output of the Company's paper operations. The products at the Company's fourth mill in Detroit, Michigan are principally produced from virgin pulp and post-industrial recycled fiber. The Company has installed recycling equipment at its mill in Detroit, Michigan which enables the mill to substitute recycled material for a portion of the higher-cost virgin pulp. Ivex believes that its equipment provides greater flexibility than many larger competitors' machinery, enabling it to serve a large number of relatively small, niche markets. COMPETITION The Company operates in markets that are highly competitive and faces substantial competition throughout all of its product lines from numerous national and regional companies. Many of these competitors are considerably larger than the Company and have substantially greater financial and other resources than the Company, while others are significantly smaller with lower fixed costs and greater operating flexibility. In addition to price, competition with respect to many of the Company's products is based on quality, supplier response time, service and timely and complete order fulfillment. The Company's main competitor in the supermarket and foodservice segments is Tenneco Packaging. In the bakery area, the Company competes primarily with Detroit Forming Inc. in plastic products and James River Corporation of Virginia 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 42 45 Company competes with many regional thermoformers, including Prent Corporation, Placon Corp. and Crystal Thermoplastics, Inc. The Company competes primarily with the Dow Chemical Company in the OPS film market. Ivex's major competitors in protective masking include a joint venture between Minnesota Mining and Manufacturing Company and Sealed Air Corporation, American Biltrite, Inc. and Main Tape Company, Inc. The Company competes primarily with Sealed Air Corporation and AVI Products, Inc. in the mailing envelope market. EMPLOYEES As of June 30, 1997, the Company had 22 employees at its Lincolnshire, Illinois corporate headquarters and had 2,995 employees at plant locations, of which 651 were salaried and 2,344 were hourly. Of the hourly workers, approximately 914 were members of unions. The Company has collective bargaining agreements with seven unions in effect with respect to certain hourly employees at the Company's Joliet, Peoria, Chagrin Falls, Detroit, Troy, Newton, Avenel, Grove City and Elyria 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 Newton, Chagrin Falls and Avenel facilities will expire in 1998; the collective bargaining agreement at the Company's Troy facility will expire in 1999; the collective bargaining agreements at the Company's facilities in Joliet, Peoria and Elyria will expire in 2000; and the collective bargaining agreement at the Company's facilities in Grove City and Detroit will expire in 2001. The employees at the Company's Grant Park, Illinois facility recently voted against union representation. RAW MATERIALS Styrene monomer, polystyrene, polyethylene, polypropylene, polyvinyl chloride and various paper-based commodities (including recycled and virgin 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 in 1996 and the first half of 1997 and is expected to remain adequate throughout the remainder of 1997, although prices for certain items such as styrene monomer, polystyrene, OCC, DLK and virgin fiber 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)", "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, 1996. In general, the backlog of orders is not significant or material to an understanding of the Company's businesses. ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION The past and present business operations of the Company and the past and present ownership and operations of real property by the Company are subject to extensive and changing federal, state, local and 43 46 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 $2.1 million as of June 30, 1997 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 1997 and 1998 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. 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. 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 August 30, 1997, the Company had twenty-six non-warehouse facilities, nineteen of which are located in the U.S., five in Canada and two in the United Kingdom and, except as noted below, all are owned by IPC or a subsidiary of IPC. With certain limited exceptions, all of the owned 44 47 real estate is subject to mortgages securing IPC's indebtedness under the Existing Credit Facility and is expected to be subject to mortgages securing indebtedness under the New Credit Facility.
LOCATION FUNCTION SQUARE FOOTAGE -------- -------- -------------- DOMESTIC Avenel, NJ(1)......................... Extrusion 55,000 Bellwood, IL(2)....................... Paper Converting and Film Coating 71,000 Bellwood, IL(3)....................... Paper Converting 71,000 Bridgeview, IL........................ Paper Converting 115,000 Chagrin Falls, OH..................... Paper Mill 120,000 Detroit, MI........................... Paper Mill 255,000 Elyria, OH (4)........................ Extrusion 80,000 Grant Park, IL........................ Thermoforming/Engineering 184,000 Grove City, PA(5)..................... Thermoforming/Paper Converting 236,000 Hazleton, PA(6)....................... Polymerization/Extrusion 166,000 Joliet, IL............................ Paper Mill/Paper Converting 410,000 Madison, GA........................... Thermoforming/Paper Converting 141,000 Manteno, IL........................... Extrusion 105,000 Newton, MA(7)......................... Paper and Film Converting/Coating 225,000 Peoria, IL............................ Paper Mill 234,000 Sparks, NV(8)......................... Thermoforming 40,000 Troy, OH.............................. Paper Converting/Coating 320,000 Visalia, CA........................... Thermoforming/Paper Converting 144,000 Wheaton, IL........................... Thermoforming/Engineering 120,000 INTERNATIONAL Enniskillen, Northern Ireland(9)...... Thermoforming/Engineering 16,000 Laval, Quebec......................... Thermoforming/Extrusion/Engineering 60,000 Longueuil, Quebec..................... Thermoforming/Paper Converting 32,000 Newcastle, Ontario.................... Extrusion 45,000 Sedgefield, England................... Thermoforming/Extrusion 48,000 Summerstown, Ontario.................. Thermoforming 55,000 Toronto, Ontario...................... Paper Converting 54,000
- ------------------------- (1) Leased facility, with its lease expiring on December 31, 2003, subject to IPC's right to extend the lease for two successive five-year periods upon IPC's written notice to the lessor thereof not more than 12 nor less than 6 months prior to the end of the then current lease term. (2) Leased facility, with its lease expiring on December 31, 1997, subject to IPC's right to extend the lease for an additional two-year period until December 31, 1999, subject to landlord's right to terminate under certain circumstances on or after July 1, 1997, upon six months prior written notice. The Company is currently negotiating to purchase this facility from the landlord. (3) Leased facility, with its lease expiring on December 31, 1997, subject to IPC's right to extend the lease for an additional two-year period until December 31, 1999. The Company is currently negotiating a new five-year lease for this facility. (4) 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. (5) This facility is held subject to an installment sales contract with Grove City Industrial Development Corporation that holds title to the facility. (6) Leased facility, with its lease expiring on October 4, 1998, subject to IPC's right to extend the lease for two successive five-year periods upon IPC's written notice to lessor not more than 24 nor less than 6 months prior to the end of the then current lease term. (7) Leased facility, with its lease expiring on December 5, 2001, with three one-year options to extend. (8) Leased facility, with its lease expiring on December 31, 1999. (9) Leased facility, with its lease expiring on May 10, 2016. LITIGATION 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. 45 48 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS 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 director and executive officer of the Company.
NAME AGE POSITION ---- --- -------- George V. Bayly...................... 54 Director, Chairman of the Board, President and Chief Executive Officer of the Company since January 1991. Frank V. Tannura..................... 40 Director of the Company since August 1995. Vice President and Chief Financial Officer of the Company since October 1989. Richard R. Cote...................... 45 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. Donald C. Devine..................... 37 Vice President and General Manager of the Company. From 1993 to 1996, Mr. Devine was Vice President and General Manager of the Bag Division of Gaylord Container Corp. and from 1989 to 1993, General Manager of James River Corporation's Folding Carton Group. Thomas S. Ellsworth.................. 52 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 and Chief Financial Officer of the Company's paper mill operations from March 1991 to 1992. Gene J. Gentili...................... 50 Vice President and General Manager of the Company since 1994. Vice President of Sales of the Company from 1993 to 1994. Mr. Gentili was director of national accounts for the Company from 1991 to 1993. Roger A. Kurinsky.................... 45 Vice President and General Manager of the Company since 1994. Vice President of Marketing of the Company from 1991 to 1994. Jeremy S. Lawrence................... 46 Vice President of Human Resources of the Company since May 1991. G. Douglas Patterson................. 39 Vice President and General Counsel of the Company since June 1991. David E. Wartner..................... 30 Corporate Controller of the Company since 1994. Mr. Wartner was previously associated with Price Waterhouse LLP from 1988 to 1994. Eugene M. Whitacre................... 41 Vice President and General Manager of the Company since February 1991. Glenn R. August...................... 36 Director of the Company since March 1993 and a Managing Director of Oak Hill Partners, Inc. (Acadia's investment advisor) and its predecessor since 1987. Since August 1996, Mr. August has served as President of Oak Hill Advisors, Inc., the exclusive advisor to the Oak Hill Securities Fund, L.P., a $1.75 billion investment partnership. Anthony P. Scotto.................... 50 Director of the Company since August 1995. Managing Director of Oak Hill Partners, Inc. (Acadia's investment advisor) and its predecessor since March 1988. Mr. Scotto is also a director of Specialty Foods Corporation and Holophane Corporation.
All members of the Board of Directors of the Company serve until a successor is elected. All officers of the Company serve at the pleasure of the Company's Board of Directors. 46 49 The Board of Directors of the Company will be divided into three classes, as nearly equal in number as possible, having terms expiring at the annual meeting of the Company's stockholders in 1998 (comprised of Messrs. Tannura and August), 1999 (comprised of two independent directors to be designated after the completion of the Offerings) and 2000 (comprised of Messrs. Bayly and Scotto). At each annual meeting of stockholders, successors to the class of directors whose term expires at such meeting will be elected to serve for three-year terms and until their successors are elected and qualified. The outside directors (other than directors that are employed by Oak Hill Partners, Inc.) will receive an annual retainer of approximately $25,000 and an undetermined amount of Company options and will be reimbursed for out-of-pocket expenses incurred in connection with attending meetings. In connection with the Offerings, the Board intends to elect at least two independent directors and create compensation and audit committees. The identity of the independent directors has not yet been determined and may not be determined until after the completion of the Offerings. The Company does not have a nominating committee. EXECUTIVE COMPENSATION Summary Compensation Table. The following table sets forth the compensation paid by IPC to the Company's chief executive officer and each of the four most highly compensated officers of the Company whose aggregate cash compensation exceeds $100,000, in each case for all services rendered during the fiscal years 1996, 1995 and 1994:
SUMMARY COMPENSATION TABLE ------------------------------------------------------------------------------ LONG-TERM COMPENSATION(4) ----------------------- ANNUAL COMPENSATION(3) AWARDS PAYOUTS ------------------------------- ---------- ------- NUMBER OF SECURITIES UNDERLYING OPTIONS/ LTIP ALL OTHER NAME AND SALARY BONUS SARS PAYOUTS COMPENSATION PRINCIPAL POSITION YEAR ($)(1) ($)(2) (#)(5) ($)(6) ($)(7) ------------------ ---- ------ ------ ---------- ------- ------------ George V. Bayly............... 1996 420,000 600,000 97,331 765,938 314,721 President and Chief 1995 400,000 400,000 74,501 237,500 14,938 Executive Officer 1994 400,000 50,000 18,790 -- 5,667 Frank V. Tannura.............. 1996 249,100 290,000 45,424 282,188 40,368 Vice President and 1995 211,667 235,000 30,064 87,500 28,885 Chief Financial Officer 1994 191,667 25,000 7,516 -- 10,894 Eugene M. Whitacre............ 1996 236,250 230,000 32,459 201,563 7,500 Vice President and 1995 225,000 168,750 20,434 62,500 13,741 General Manager 1994 175,000 100,000 5,167 -- 8,744 Thomas S. Ellsworth........... 1996 250,000 100,000 32,459 -- 25,813 Vice President and 1995 229,000 168,750 20,434 -- 16,185 General Manager 1994 163,000 20,000 28,654 -- 7,325 Donald C. Devine.............. 1996 195,000 175,000 22,313 -- 2,965 Vice President and General Manager
- ------------------------- (1) Includes amounts deferred pursuant to IPC's Retirement Plan and Trust and under IPC's Executive Deferred Compensation Plan. (2) Includes annual bonus awards for services rendered in 1996, 1995 and 1994 that were paid under IPC's Executive Incentive Compensation Plan. The Executive Incentive Compensation Plan provides the executive officers of IPC with annual awards for outstanding individual performance contributing to the present and future success of the Company. This Plan is administered by the President in consultation 47 50 with the Board of Directors and awards are based upon IPC's achievement of certain predetermined financial objectives such as minimum Adjusted EBITDA and cash flow targets. Under the provisions of the Plan, participants have target incentive compensation of 40% to 50% of that year's base salary, although the actual incentive compensation paid in any given year may be significantly less than or greater than the target level based upon the extent of the Company's under-achievement or over-achievement of such predetermined financial objectives. (3) The column designated by the Securities and Exchange Commission (the "Commission") pursuant to applicable regulations for the reporting of "Other Annual Compensation" has been deleted because the dollar amount of perquisites and other personal benefits received by the named executive officers falls below the reporting threshold established by the Commission. (4) The column designated by the Commission pursuant to the applicable regulations for the reporting of "Restricted Stock Awards" has been deleted because no restricted stock of the Company was awarded to any of the named executive officers in any of the reported calendar years. Assuming an initial public offering price of $15.00 per share (the mid-point of the range of the estimated public offering price set forth on the cover page hereof), the estimated value of each named executive officer's shares of restricted common stock of the Company held as of the consummation of the Offerings and the number of such shares (as adjusted to reflect the 9.65-for-1 split of the outstanding Common Stock) as of such date would be as follows: Mr. Bayly's 19,310 shares -- $289,650; Mr. Tannura's 32,586 shares -- $488,790; Mr. Whitacre's 13,034 shares -- $195,510; and Mr. Ellsworth's 10,138 shares -- $152,070. All of such shares of the Company's Common Stock are vested and the Company has no present intentions to pay dividends on such shares. (5) The options reported for 1995 and 1994 as specified in this column were originally granted under IPC's Stock Option and Purchase Agreement, dated as of January 1, 1993 (the "Stock Option and Purchase Agreement"), pursuant to which options exercisable into an aggregate of 17,270 shares of IPC's common stock were originally granted to certain executive officers of IPC (including the named executive officers), 9,413 of such options were earned and vested (the "Original IPC Options") during 1993, 1994 and 1995 and 7,857 of such options were not earned during such period and were canceled. During the first quarter of 1996, the Stock Option and Purchase Agreement was amended and restated (the "Amended and Restated Stock Option and Purchase Agreement") and pursuant to the terms thereof options exercisable into an aggregate of 6,908 shares of IPC's common stock (the "IPC Performance Options" and together with the Original IPC Options, the "IPC Options") were granted during 1996 to certain executive officers of IPC (including the number of options reported for 1996 as specified in the Summary Compensation Table for the named executive officers), subject to vesting 33 1/3% in each of 1996, 1997 and 1998 and subject to being earned in 1996 and 1997 based upon IPC's attainment of certain growth objectives. During 1996, 3,454 of the IPC Performance Options were earned and as of December 31, 1996, one third of such earned amount, or 1,151, became vested. Simultaneously with the consummation of the Offerings and pursuant to the terms of the Amended and Restated Stock Option and Purchase Agreement, the remaining 3,454 IPC Performance Options will be earned and all 6,908 IPC Performance Options will become vested. In connection with the Offerings, such executive officers will exchange all of the IPC Options for (i) 2,114,133 shares of the Company's Common Stock and (ii) options exercisable for 766,667 shares of the Company's Common Stock at an exercise price equal to the initial offering price of the Offerings. Consequently, the options specified in this column reflect each named executive officer's portion of the Company options exercisable for 766,667 shares of Common Stock which they will receive upon the closing of the Offerings in exchange for the IPC Options allocable to each of 1994, 1995 and 1996. In addition, as a result of this exchange, it is expected that as of the consummation of the Offerings, Messrs. Bayly, Tannura, Whitacre, Ellsworth and Devine will beneficially own 761,404, 324,095, 224,872, 224,872 and 61,529 shares of the Company's Common Stock, respectively. Assuming an initial public offering price of $15.00 per share (the mid-point of the range of the estimated public offering price set forth on the cover page hereof), the estimated value of each named executive officer's shares of Common 48 51 Stock as of the consummation of the Offerings would be as follows: Mr. Bayly's 761,404 shares -- $11,421,060; Mr. Tannura's 324,095 shares -- $4,861,425; Mr. Whitacre's 224,872 shares -- $3,373,080; Mr. Ellsworth's 224,872 shares -- $3,373,080; and Mr. Devine's 61,529 shares -- $922,935. See "Principal and Selling Stockholders." (6) The amounts in this column represent the amounts paid to the named executive officers during the years ended December 31, 1995 and 1996 under IPC's Special Incentive Plan, dated as of January 1, 1993. Pursuant to such plan, upon the occurrence of certain "Payment Events" (therein defined), IPC was obligated to pay to certain executive officers an aggregate cash award up to a maximum amount of $2.25 million. During 1995 and 1996, IPC paid to certain executive officers (including the named executive officers) $550,000 and $1.7 million, respectively, under such plan. The 1995 and the 1996 payments under such plan were made by IPC notwithstanding the fact that there was not a Payment Event during 1995 or 1996, this condition having been waived by IPC. The IPC Special Incentive Plan has been terminated. (7) The 1996 All Other Compensation column reported includes (i) IPC's contributions (excluding employee earnings reduction contributions) under the IPC Retirement Plan and Trust and under IPC's Executive Deferred Compensation Plan during fiscal 1996 as follows: $7,500 to Mr. Bayly; $21,038 to Mr. Ellsworth; $0 to Mr. Devine; $38,314 to Mr. Tannura; and $7,500 to Mr. Whitacre; (ii) insurance premiums with respect to IPC's Executive Disability Income Coverage paid by IPC as follows: $7,221 for Mr. Bayly; $4,775 for Mr. Ellsworth; $2,965 for Mr. Devine; and $2,054 for Mr. Tannura; and (iii) IPC's payment during 1996 of $300,000 of nonqualified retirement benefits to Mr. Bayly pursuant to the terms of his Amended and Restated Employment Agreement, dated as of May 30, 1996. 49 52 OPTION/SAR GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATE OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(2) - ---------------------------------------------------------------------------------------- -------------------- NUMBER OF SECURITIES % OF TOTAL UNDERLYING OPTIONS/SARS EXERCISE OPTIONS/SARS GRANTED TO OR BASE GRANTED EMPLOYEES IN PRICE EXPIRATION NAME (#)(1) FISCAL YEAR ($/SH) DATE 5%($) 10%($) ---- ------------ ------------ -------- ---------- ----- ------ George V. Bayly............... 97,331 30.0 15.00 9/30/07 918,164 2,326,808 President and Chief Executive Officer Frank V. Tannura.............. 45,424 14.0 15.00 9/30/07 428,504 1,085,912 Vice President Eugene M. Whitacre............ 32,459 10.0 15.00 9/30/07 306,199 775,969 Vice President Thomas S. Ellsworth........... 32,459 10.0 15.00 9/30/07 306,199 775,969 Vice President Donald C. Devine.............. 22,313 6.9 15.00 9/30/07 210,488 533,418 Vice President
- ------------------------- (1) The options specified in this column reflect each named executive officer's portion of the Company options exercisable for 766,667 shares of Common Stock (allocable to the calendar year ending December 31, 1996) which they will receive upon the closing of the Offerings in exchange for the IPC Options assuming that the exchange had occurred on December 31, 1996. (2) As a result of the exchange of the IPC Options by the executive officers of the Company described in footnote 1 above, the potential realizable value was calculated based on stock price appreciation from the assumed initial public offering price of $15.00 per share (the mid-point of the range of the estimated public offering price set forth on the cover page hereof). The dollar amounts under these columns are the result of calculations at the 5% and 10% rates established by the Commission and therefore are not intended to forecast possible future appreciation, if any, of the stock price of the Company. 50 53 AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES --------------------------------------------------------------------- NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS SHARES AT FY-END(#) AT FY-END($) ACQUIRED ON VALUE ---------------- ---------------- EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/ NAME (#) ($) UNEXERCISABLE(1) UNEXERCISABLE(2) ---- ----------- -------- ---------------- ---------------- George V. Bayly....................... -- -- 194,990/81,125 $ 0 President and Chief Executive Officer Frank V. Tannura...................... -- -- 79,668/37,861 0 Vice President Eugene M. Whitacre.................... -- -- 54,490/27,057 0 Vice President Thomas S. Ellsworth................... -- -- 54,490/27,057 0 Vice President Donald C. Devine...................... -- -- 3,711/18,602 0 Vice President
- ------------------------- (1) The options specified in this column were originally granted under the Amended and Restated Stock Option and Purchase Agreement pursuant to which the IPC Options were granted to certain executive officers of the Company, including the named executive officers. In connection with the Offerings, the Company, IPC and such executive officers will exchange the IPC Options for (i) 2,114,133 shares of the Company's Common Stock, and (ii) options exercisable into 766,667 shares of the Company's Common Stock at an exercise price equal to the initial offering price of the Offerings. Consequently, the options specified in this column reflect the number of shares of Common Stock underlying the Company options which the named executive officers would have received in exchange for those IPC Options (assuming that the exchange occurred as of December 31, 1996) that would have been vested and unvested and thus exercisable/unexercisable at December 31, 1996. All of the options specified in this column will become fully vested and exercisable upon consummation of the Offerings. (2) The values specified is this column reflect the effect of the exchange described in footnote 1 above and are based on the fact that the exercise price for the options exercisable for shares of the Company's Common Stock will equal the initial offering price of the Offerings. Thus, as of December 31, 1996, assuming an exercise price equal to the initial offering price of the Offerings the Company options which the named executive officers received in exchange for their IPC Options had no "in-the-money" value, although there can be no assurances that such valuation is accurate because there was no closing market price for the stock as of December 31, 1996 as such stock was privately held. In connection with the consummation of the Offerings, all of the Company options of the named executive officers included in the table will become exercisable and the value of all such options as of the consummation of the Offerings would be zero for each of the named executive officers since the exercise price thereof will equal the initial public offering price. CERTAIN EMPLOYMENT ARRANGEMENTS Mr. Bayly has an amended and restated employment agreement with IPC, pursuant to which (i) IPC agrees to employ Mr. Bayly through December 31, 2000 (provided that beginning on January 1, 1998, the term thereof is automatically extended for one additional day for each day which has then elapsed since December 31, 1997 unless on or after December 31, 1997 either IPC's Board of Directors or Mr. Bayly gives notice that the automatic extension shall cease) as Chairman, President and Chief Executive Officer and to cause Mr. Bayly's election as a director of IPC, (ii) Mr. Bayly receives a base salary of $491,000 during 1997, 51 54 $515,550 during 1998, $541,327 during 1999 and $568,393 during 2000 (subject to increase at the discretion of the Board of Directors), (iii) Mr. Bayly is entitled to an aggregate of $150,000 per year for life insurance, disability insurance and nonqualified retirement benefits, (iv) Mr. Bayly is eligible for an annual performance bonus based upon the achievement of predetermined financial objectives, and (v) Mr. Bayly will receive certain severance benefits if his employment is terminated without cause or if Mr. Bayly terminates the agreement for good reason (including the giving of notice by the Board of Directors of IPC to stop the automatic extension of the term thereof and a termination by Mr. Bayly for any reason during the period of three months which begins six months after a change of control (as therein defined)). These severance benefits include the payment of a lump sum equal to four times the sum of (x) the annual salary then in effect and (y) the target amount of the annual performance bonus for the year in which the termination occurs, plus the continuation of all benefits and supplemental benefits for four years after the date of termination. The agreement restricts Mr. Bayly from competing with the Company during his employment and, in certain circumstances, for an additional one-year period after the termination of Mr. Bayly's employment. In addition, IPC has agreed to gross-up payments to Mr. Bayly for certain taxes, interest and penalties that may be imposed by certain sections of the Code. Mr. Tannura has an amended employment agreement with IPC, pursuant to which (i) IPC agrees to employ Mr. Tannura through May 31, 1999 (provided that beginning on June 1, 1996, the term thereof is automatically extended for one additional day for each day which has then elapsed since May 31, 1996 unless either the Board of Directors of IPC or Mr. Tannura gives notice that the automatic extension shall cease) as Vice President and Chief Financial Officer, (ii) Mr. Tannura is entitled to receive a base salary of $235,000 per year (subject to increase at the discretion of the Board of Directors), (iii) Mr. Tannura is eligible to receive an annual performance bonus based upon the achievement of predetermined financial objectives, and (iv) Mr. Tannura will receive certain severance benefits if his employment is terminated without cause or if Mr. Tannura terminates the agreement for good reason (including the giving of notice by the Board of Directors of IPC to stop the automatic extension of the term thereof) in an amount equal to (i) at Mr. Tannura's option, either (A) his annual salary for the remaining term thereof or (B) the present value (based upon a 10% interest rate) of the aggregate unpaid annual salary for the full term thereof, plus (ii) at Mr. Tannura's option, either (C) an annual bonus for each year remaining in the term in an amount equal to the target amount of his performance bonus for the year in which his termination of employment occurs, or (D) the present value of three times the target amount of his performance bonus for the year in which the termination of his employment occurs plus (iii) a pro rata portion of his performance bonus for the year in which his employment is terminated, plus (iv) unpaid benefits accrued up to the date of termination, plus (v) the continuation of all benefits for the full term. IPC has entered into severance agreements with the other named executive officers, pursuant to which such officers receive a severance payment equal to one year's salary if their employment is terminated other than for death, disability or cause. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, the Company's Board of Directors did not have a compensation committee (or other board committee performing equivalent functions). The members of the Board of Directors of the Company, in consultation with Mr. Bayly, the President of the Company, performed the functions normally performed by a compensation committee and participated in deliberations concerning executive officer compensation. No executive officer of the Company served as a member of the compensation committee (or other board committee performing equivalent functions) or as a member of the Board of another entity, one of whose executive officers served on the Board of Directors of the Company. IVEX PACKAGING CORPORATION 1997 LONG-TERM STOCK INCENTIVE PLAN Ivex intends to adopt the Ivex Packaging Corporation 1997 Long-Term Stock Incentive Plan (the "1997 Stock Incentive Plan" or the "LTIP"). The following is a summary of the material features of the plan. 52 55 Purpose. The purpose of the plan is to promote the interests of the Company and its stockholders by (i) attracting and retaining exceptional officers, employee-directors and other key employees and consultants of the Company and its affiliates; (ii) motivating such individuals by means of performance-related incentives to achieve longer-range performance goals; and (iii) enabling such individuals to participate in the long-term growth and financial success of the Company. Administration/Eligible Participants. The plan will be administered by a committee (the "Committee") of two or more members of the Board designated by the Board to administer the plan, each of whom is intended to be a "disinterested person" (within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange Act")) and an "outside director" (within the meaning of Code Section 162(m)); however, the mere fact that a Committee member shall fail to qualify as a disinterested person or outside director will not invalidate any award made by the Committee which award is otherwise validly made under the plan. The Committee has the sole and complete authority to determine the participants to whom awards shall be granted under the plan. In connection with the consummation of the Offerings, the Company expects to issue options exercisable into approximately 500,000 shares of Common Stock to certain key officers and employees of the Company. Number of Shares Authorized Under the Plan. The plan authorizes the grant of awards to participants with respect to a maximum of 2,000,000 shares of the Company's Common Stock ("Shares"), which awards may be made in the form of (i) nonqualified stock options; (ii) stock options intended to qualify as incentive stock options under Section 422 of the Code; (iii) stock appreciation rights; (iv) restricted stock and/or restricted stock units; (v) performance awards and (vi) other stock-based awards; provided that the maximum number of Shares with respect to which stock options and stock appreciation rights may be granted to any participant in the plan in any calendar year may not exceed 200,000. If, after the effective date of the plan, any Shares covered by an award granted under the plan, or to which such an award relates, are forfeited, or if an award has expired, terminated or been canceled for any reason whatsoever (other than by reason of exercise or vesting) and in either such case a participant has received no benefits of ownership with respect to the forfeited Shares or the Shares to which such expired, terminated or canceled award relates (other than voting rights and dividends that were forfeited in connection with such forfeiture, expiration, termination or cancellation), then the Shares covered by such award shall again be, or shall become, Shares with respect to which awards may be granted under the plan. Terms and Conditions of Awards Under the Plan. Non-qualified and incentive stock options granted under the plan shall be subject to such terms, including exercise price and conditions and timing of exercise, as may be determined by the Committee and specified in the applicable award agreement or thereafter; provided that stock options that are intended to qualify as incentive stock options will be subject to terms and conditions that comply with such rules as may be prescribed by Section 422 of the Code. Payment in respect of the exercise of an option granted under the Plan may be made in cash, or its equivalent, or, if and to the extent permitted by the Committee, by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest and which have been owned by such optionee for at least six months), or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the fair market value of such Shares so tendered to the Company as of the date of such tender is at least equal to the aggregate exercise price of the option. Stock appreciation rights granted under the plan shall be subject to such terms, including grant price and the conditions and limitations applicable to exercise thereof, as may be determined by the Committee and specified in the applicable award agreement or thereafter; provided that stock appreciation rights may not be exercisable earlier than six months after the date of grant. Stock appreciation rights may be granted in tandem with another award, in addition to another award, or freestanding and unrelated to another award. A stock appreciation right shall entitle the participant to receive an amount equal to the excess of the fair market value of a Share on the date of exercise of the stock appreciation right over the grant price thereof. The Committee shall determine whether a stock appreciation right shall be settled in cash, Shares or a combination of cash and Shares. 53 56 Restricted stock and restricted stock units granted under the plan shall be subject to such terms and conditions including, without limitation, the duration of the period during which, and the conditions under which, the restricted stock and restricted stock units may be forfeited to the Company, as may be determined by the Committee in its sole discretion. Each restricted stock unit shall have a value equal to the fair market value of a Share. Restricted stock units shall be paid in cash, Shares, other securities or other property, as determined in the sole discretion of the Committee, upon the lapse of the restrictions applicable thereto, or otherwise in accordance with the applicable award agreement. Dividends paid on any Shares of restricted stock may be paid directly to the participant, or may be reinvested in additional Shares of restricted stock or in additional restricted stock units, as determined by the Committee in its sole discretion. Performance awards granted under the plan shall consist of a right which is (i) denominated in cash or Shares, (ii) valued, as determined by the Committee, in accordance with the achievement of such performance goals during such performance periods as the Committee shall establish, and (iii) payable at such time and in such form as the Committee shall determine. Subject to the terms of the plan and any applicable award agreement, the Committee shall determine the performance goals to be achieved during any performance period, the length of any performance period, the amount of any performance award and the amount and kind of any payment or transfer to be made pursuant to any performance award. Performance awards may be paid in a lump sum or in installments following the close of the performance period or, in accordance with procedures established by the Committee, on a deferred basis. In addition to the foregoing types of awards, the Committee shall have authority to grant to participants an "other stock-based award," which shall consist of any right which is (i) not a stock option, stock appreciation right, restricted stock or restricted unit award or performance award and (ii) an award of Shares or an award denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as deemed by the Committee to be consistent with the purposes of the plan; provided that any such rights must comply, to the extent deemed desirable by the Committee, with Rule 16b-3 and applicable law. Subject to the terms of the plan and any applicable award agreement, the Committee shall determine the terms and conditions of any such other stock-based award, including the price, if any, at which securities may be purchased pursuant to any other stock-based award granted under this plan. In addition, in the sole and complete discretion of the Committee, an award, whether made as an other stock-based award or as any other type of award issuable under the plan, may provide the participant with dividends or dividend equivalents, payable in cash, Shares, other securities or other property on a current or deferred basis. Adjustments. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which awards may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding awards, and (iii) the grant or exercise price with respect to any award or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding award in consideration for the cancellation of such award; provided, in each case, that with respect to awards of incentive stock options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code, as from time to time amended or (iv) provide for the acceleration or exercisability or lapse of restrictions otherwise applicable to such awards, or the early cancellation, expiration or termination of such awards with or without consideration or consent. 54 57 Transferability. Each award, and each right under any award, shall be exercisable only by the participant during the participant's lifetime or, if permissible under applicable law, by the participant's guardian or legal representative or by a transferee receiving such award pursuant to a qualified domestic relations order ("QDRO"), as determined by the Committee. No award that constitutes a "derivative security", for purposes of Section 16 of the Exchange Act, may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant otherwise than by will or by the laws of descent and distribution or pursuant to a QDRO, and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. Amendment to Plan. The Board may amend, alter, suspend, discontinue, or terminate the plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement, including for these purposes any approval requirement which is a prerequisite for exemptive relief from Section 16(b) of the Exchange Act. Notwithstanding anything to the contrary herein, the Committee may amend the plan in such manner as may be necessary so as to have the plan conform with local rules and regulations in any jurisdiction outside the United States. PRINCIPAL AND SELLING STOCKHOLDERS As of September 4, 1997, the Company owned 100% of the outstanding capital stock of IPC (other than the IPC Options held by certain executive officers which concurrently with the Offerings will be exchanged for shares of the Company's Common Stock and options exercisable for shares of the Company's Common Stock). As of September 4, 1997, all issued and outstanding shares of capital stock of the Company were beneficially owned by Acadia, certain related investors and certain executive officers. Acadia has informed the Company that it is in the process of distributing its assets, which include Common Stock, as part of the liquidation of Acadia. Acadia has also informed the Company that it expects to sell or distribute the Common Stock held by Acadia to its general and limited partners in the future. However, Acadia has agreed that it will not sell or transfer the Common Stock held by it for a period of 180 days after the date of this Prospectus, without the prior written consent of Merrill Lynch (as defined herein) on behalf of the Underwriters. See "Underwriting." See "Certain Relationships and Related Transactions" for material relationships between the Selling Stockholder and the Company. The following table sets forth certain information regarding the beneficial ownership before and after the Offerings of the Common Stock as of September 4, 1997, (assuming the executive officers had exchanged their IPC Options for 2,114,133 shares of Common Stock and options exercisable for 766,667 shares of Common Stock as of such date) by (i) each person known by the Company to be the beneficial owner of more than 5% of the Common Stock, (ii) each of the directors of the Company, (iii) each of the named executive officers of the Company, and (iv) all executive officers and directors of the Company as a group. The following table is based on an assumed initial public offering price of $15.00 (the mid-point of the range of the estimated public offering price set forth on the cover page hereof).
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO OFFERINGS(1) AFTER OFFERINGS(1)(2) ------------------------------ ------------------------------ NUMBER OF SHARES NUMBER OF SHARES NAME AND ADDRESS OF THE COMPANY'S PERCENTAGE OF THE COMPANY'S PERCENTAGE OF BENEFICIAL OWNER COMMON STOCK(3) OF CLASS COMMON STOCK(3) OF CLASS ------------------- ---------------- ---------- ---------------- ---------- Acadia Partners, L.P.(4)................. 9,603,595 92.8% 7,903,595 39.7% George V. Bayly.......................... 19,310 * 1,056,829(7) 5.3% Frank V. Tannura......................... 32,586 * 474,211(7) 2.4% Eugene M. Whitacre....................... 13,034 * 319,453(7) 1.6% Thomas S. Ellsworth...................... 10,138 * 316,557(7) 1.6% Donald C. Devine......................... * 83,842(7) * Glenn R. August(5)(6).................... * * Anthony P. Scotto(6)..................... * * All directors and officers as a group.... 115,860 1.1% 2,996,660(8) 15.0%
- ------------------------- * Represents less than 1% of such Common Stock. 55 58 (1) Gives effect to the 9.65-for-1 stock split and the conversion of the IPC Options into shares of the Company's Common Stock and options exercisable for shares of the Company's Common Stock. (2) The Company has granted the Underwriters 30-day options to purchase up to 1,260,000 shares of the Company's Common Stock. The table does not reflect the possible sale of additional shares if the Underwriters' over-allotment options are exercised. (3) To the knowledge of the Company, each of such stockholders has sole voting and investment power as to the shares shown unless otherwise noted. (4) Includes shares held by Acadia and shares held by Acadia Electra Partners, L.P. ("Electra"), an affiliate of Acadia. Acadia is the general partner of Electra. The general partner of Acadia is Acadia FW Partners, L.P. ("Acadia FW"), the managing general partner of which is Acadia MGP, Inc. ("Acadia MGP"), a corporation controlled by J. Taylor Crandall. As such, Acadia FW, Acadia MGP and Mr. Crandall may be deemed to beneficially own the shares of the Company's common stock held by Acadia and Electra. Excludes an aggregate of 633,078 shares (approximately 3.2%) of the Company's Common Stock owned by FWHY Coinvestments I Partners, L.P. ("FCP-I"), FWHY Coinvestments III Partners, L.P. ("FCP-III"), Rosecliff-Ivex Packaging 1990 Partners, L.P. ("RIP") and Rosecliff-IPMC 1991 Partners, L.P. ("RIPMC"), which entities have entered into a Voting Agreement with Acadia, Electra and certain members of management of the Company in connection with the Offerings (see "Stockholders Agreement" below). Certain investors in FCP-I, FCP-III, RIP and RIPMC are employees of, or are otherwise associated with, Acadia or Oak Hill Partners, Inc., which is the investment advisor to Acadia. The address of Acadia, Electra, Acadia FW, Acadia MGP, FCP-I, FCP-III and Mr. Crandall is 3100 Texas Commerce Tower, 201 Main Street, Fort Worth, Texas 76102. The address of RIP and RIPMC is 65 East 55th Street, New York, New York 10022-3219. (5) Mr. August is an officer and director of Acadia MGP (see footnote 4 above). (6) The address of such individuals is c/o Oak Hill Partners, Inc., 65 East 55th Street, New York, New York 10022-3219. (7) Represents shares of outstanding Common Stock in the amounts of 780,714, 356,681, 237,906, 235,010 and 61,529 that are owned by Messrs. Bayly, Tannura, Ellsworth, Whitacre and Devine, respectively, and vested and earned options that are currently exercisable in the amounts of 276,115, 117,530, 81,547, 81,547 and 22,313 that are owned by Messrs. Bayly, Tannura, Ellsworth, Whitacre and Devine, respectively. (8) All directors and officers as a group hold shares of outstanding Common Stock in the aggregate amount of 2,229,993 and vested and earned options that are currently exercisable for 766,667 shares of Common Stock. Under the New Credit Facility, it is expected the Company will pledge to the banks under the New Credit Facility all of IPC's common stock, par value $0.01 per share, to collateralize the repayment of IPC's obligations thereunder. VOTING AGREEMENT In connection with the Offerings, Acadia and certain related investors and certain officers of the Company intend to enter into the Voting Agreement pursuant to which they will agree to vote all of their outstanding shares of Common Stock, for so long as they own such shares, for the director nominees proposed according to the terms thereof. The Voting Agreement is expected to provide that the stockholders thereto will vote their shares to the effect that the Board of Directors will consist of up to six members, two of whom will be initially designated by Acadia, two of whom will be initially designated by Mr. Bayly or a successor management employee and two of whom will be independent directors mutually acceptable to the parties. Acadia is expected to have the right (until Acadia's ownership of the outstanding Common Stock falls below 20.0%) to increase the size of the Board to nine members and designate an additional three directors. During the time that Acadia and such related investors own more than 12.5% and less than 20.0% of the outstanding Common Stock, Acadia will be entitled to designate two directors (if the Board of Directors has six directors) or three directors (if the Board of Directors has more than nine directors), and during the time that Acadia and its related investors own more than 5.0% and less than 12.5% of the outstanding Common Stock, Acadia will be entitled to designate one director. Also, during the time that Ivex's management owns 7.5% or more of 56 59 the outstanding Common Stock, Mr. Bayly or a successor management employee will be entitled to designate two directors, and during the time that Ivex's management owns more than 5.0% and less than 7.5% such management will be entitled to designate one director. The term of such agreement is ten years, subject to earlier termination upon the occurrence of certain events, including the point at which Acadia's holdings of Common Stock fall below 5.0% of the outstanding Common Stock of the Company. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On or about December 17, 1992, Penobscot-MB Partners (an affiliate of Acadia) ("Penobscot-MB") and IPC entered into a consulting agreement. Under this consulting agreement, IPC has agreed to pay Penobscot-MB $400,000 per year and Penobscot-MB will provide to IPC certain general financial advisory and other consulting services customarily provided by merchant banks. In addition, IPC has agreed to pay Penobscot-MB certain customary fees in connection with future acquisitions, divestitures, credit arrangements and corporate finance advice and to indemnify Penobscot-MB against certain liabilities in connection with its services to IPC. On or about December 17, 1992, IPC, its subsidiaries and the Company entered into a tax sharing agreement pursuant to which IPC and its subsidiaries will pay to the Company their respective shares of the Company's consolidated tax liability. Mr. Bayly and IPC are parties to an Employment Agreement, which provides for, among other things, the employment of Mr. Bayly by IPC and a Stock Option Agreement pursuant to which, among other things, Mr. Bayly has the option to purchase certain shares of IPC's common stock. See "Executive Compensation -- Summary Compensation Table" and "Management -- Certain Employment Arrangements." Mr. Tannura and IPC are parties to an Employment Agreement, which provides for, among other things, the employment of Mr. Tannura by IPC and a Stock Option Agreement pursuant to which, among other things, Mr. Tannura has the option to purchase certain shares of IPC's common stock. See "Executive Compensation -- Summary Compensation Table" and "Management -- Certain Employment Arrangements." Pursuant to a consulting agreement, dated October 29, 1996, Nicolaus Paper Inc. ("Nicolaus") pays IPC a performance-based consulting fee in an annual amount between $250,000 and $500,000 for certain services rendered to Nicolaus by IPC. Certain executive officers and directors of the Company together with certain members of management of Oak Hill Partners, Inc. (Acadia's investment advisor) own all of the outstanding common stock of Nicolaus. It is also expected that IPC will purchase certain grades of paper from Nicolaus for use in IPC's paper converting operations at market prices. Concurrently with the consummation of the Offerings, pursuant to the Amended and Restated Stock and Stock Option Agreement among the Company and certain members of management, including Messrs. Bayly, Tannura, Ellsworth, Whitacre and Devine, all of the IPC Options are expected to be exchanged for 2,114,133 shares of Common Stock and vested and earned options exercisable at any time on or prior to January 1, 2003 into an aggregate of 766,667 shares of the Company's Common Stock at the initial public offering price per share with respect to the Offerings. See "Executive Compensation -- Summary Compensation Table" (footnote 4) and "Principal and Selling Stockholders." In addition, management will have the right to have their shares of Common Stock registered by the Company in the event that Acadia's shares of Common Stock are registered under the Registration Rights Agreement. See "Shares Eligible For Future Sale -- Registration Rights." Also, pursuant to the Amended and Restated Stock and Stock Option Agreement, the Company is expected to agree to lend the management stockholders an amount equal to the aggregate tax liability, on a grossed-up basis, incurred by them upon their exchange of the IPC Options. Such loan will be non-recourse (other than to such shares) and will bear interest at the minimum permissible rate per annum allowable under the Code without imputation of income, payable in arrears on each December 31, commencing December 31, 1997, and is payable in full upon the earlier to occur of (i) the tenth anniversary of the date of the Offerings and (ii) the termination of the management stockholder's employment with the Company for any reason, but in no event on or before the date such shares are registered pursuant to a registration statement that has been declared effective. 57 60 DESCRIPTION OF CAPITAL STOCK The following summaries of the Amended Certificate and Amended By-laws are intended to describe all relevant material provisions thereof; however, such summaries are qualified by reference to such Amended Certificate and Amended By-laws, copies of which will be filed with the Commission. Prior to the completion of the Offerings, the Company's Board of Directors and stockholders will approve the Amended Certificate and a 9.65-for-1 stock split of the Common Stock. After giving effect thereto and the consummation of the Offerings, the authorized capital stock of the Company will consist of 45,000,000 shares of Common Stock, $.01 par value, of which 19,166,666 shares will be outstanding, and 5,000,000 shares of preferred stock, $.01 par value, of which no shares will be outstanding. COMMON STOCK Following the Offerings, 19,166,666 shares of Common Stock will be outstanding, assuming an initial public offering price of 15.00 per share (the mid-point of the range for the estimated public offering price set forth on the cover page hereof). Certain officers of the Company will beneficially own 2,229,993 shares of such Common Stock and options exercisable into an aggregate of 766,667 shares of the Company's Common Stock and 2,000,000 shares of such Common Stock will have been reserved for issuance under the 1997 Stock Incentive Plan. As of, or promptly after, the closing of the Offerings, the Company expects that options to acquire approximately 500,000 shares of Common Stock will have been, or will be, issued under this Plan. See "Management -- 1997 Long-Term Stock Incentive Plan." All of the issued and outstanding shares of Common Stock are, and upon completion of the Offerings the shares of Common Stock offered hereby will be, fully paid and non-assessable. Holders of Common Stock are entitled to one vote for each share on all matters voted upon by stockholders and have no preemptive or other rights to subscribe for additional securities of the Company. Each share of Common Stock has an equal and ratable right to receive dividends when, as and if declared by the Board of Directors out of assets legally available therefor. The 13 1/4% Discount Indenture restricts the Company's ability to pay cash dividends to holders of Common Stock, unless amended. See "Risk Factors -- Substantial Leverage," "Dividend Policy" and "Description of Certain Indebtedness -- 13 1/4% Discount Debentures." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock will be entitled to share equally and ratably in the distribution of all of the Company's assets remaining available for distribution after satisfaction of all its liabilities and the payment of the liquidation preference of any then outstanding preferred stock, if any. The Common Stock has been approved for listing on the NYSE under the symbol "IXX," subject to official notice of issuance. PREFERRED STOCK The Amended Certificate will authorize the Board of Directors to issue preferred stock in classes or series and to establish the designations, preferences, qualifications, limitations or restrictions of any class or series with respect to the rate and nature of dividends, the price and terms and conditions on which shares may be redeemed, the terms and conditions for conversion or exchange into any other class or series of the stock, voting rights and other terms. The Company may then issue, without approval of the holders of Common Stock, preferred stock which has voting, dividend or liquidation rights superior to the Common Stock and which may adversely affect the rights of holders of Common Stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of Common Stock and could have the effect of delaying or preventing a change in control of the Company. The Company has no present plan to issue any shares of preferred stock. CERTAIN CHARTER AND BY-LAW PROVISIONS As permitted by the Delaware GCL, the directors will be indemnified against certain expenses and liabilities incurred in their capacities as directors of the Company when acting in good faith and cannot be held personally liable for certain breaches of their fiduciary duty of care, as described below. 58 61 The Amended Certificate will provide for the Board of Directors to be divided into three classes, with staggered three-year terms. As a result, only one class of directors will be elected at each annual meeting of stockholders of the Company, with the other classes continuing for the remainder of their respective terms. The Amended Certificate also will provide that directors may be removed from office only for cause and only by the affirmative vote of the holders of at least two-thirds of the total outstanding voting stock of the Company. Vacancies on the Board of Directors, including those resulting from an increase in the number of directors, may be filled only by the remaining directors, not by stockholders. Any action required or permitted to be taken by the stockholders of the Company may be effected only at an annual or special meeting of stockholders and will not be permitted to be taken by written consent in lieu of a meeting (except that stockholders may take action by written consent in lieu of a meeting during the time period that the Stockholders Agreement remains in effect). The Amended Certificate and the Amended By-Laws also will provide that special meetings of stockholders may only be called by a majority of the Board of Directors of the Company. Stockholders will not be permitted to call a special meeting or to require that the Board of Directors call a special meeting of stockholders. Certain provisions contained in the Amended Certificate, including those relating to the size and classification of the Board of Directors, the removal of directors, the prohibition on action by written consent and the calling of special meetings, may only be amended by the affirmative vote of the holders of at least two-thirds of the total outstanding voting stock of the Company. In addition, the Amended Certificate will provide that the Amended By-Laws may only be amended by the affirmative vote of the holders of at least two-thirds of the outstanding voting stock of the Company or by a vote of two-thirds of the members of the Board of Directors in office. The Amended Certificate and the Amended By-Laws will establish an advance notice procedure for nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors, as well as for other stockholder proposals to be considered at annual meetings of stockholders. In general, notice of intent to nominate a director or raise business at such meeting must be received by the Company not less than 60 nor more than 90 days prior to the scheduled annual meeting, and must contain certain specified information concerning the person to be nominated or the matter to be brought before the meeting. The foregoing provisions could have the effect of discouraging, delaying or making more difficult certain attempts to acquire the Company or to remove incumbent directors even if a majority of the Company's stockholders were to deem such an attempt to be in the best interests of the Company and its stockholders. PERSONAL LIABILITY OF DIRECTORS The Delaware GCL authorizes a Delaware corporation to eliminate or limit the personal liability of a director to the corporation and its stockholders for monetary damages for breach of certain fiduciary duties as a director and, accordingly, the Company's Amended Certificate will include a provision eliminating liability for monetary damages for any breach of fiduciary duty as a director, except: (i) for any breach of the duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) for any transaction from which the director derived an improper personal benefit; or (iv) for willful or negligent payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. Pursuant to the Delaware GCL, directors of the Company are not insulated from liability for breach of their duty of loyalty (requiring that, in making a business decision, directors act in good faith and in the honest belief that the action taken was in the best interest of the corporation), or for claims arising under the Federal securities laws. The foregoing provision of the Amended Certificate may reduce the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breaches of their fiduciary duties, even though such an action, if successful, might otherwise have benefitted the Company and its stockholders. In addition, the Amended Certificate will provide that such provision may only be amended by the affirmative vote of the holders of at least 80% of the outstanding voting stock of the Company. 59 62 CERTAIN STATUTORY PROVISIONS Section 203 of the Delaware GCL contains certain provisions that may make more difficult the acquisition of control of the Company by means of a tender offer, open market purchase, proxy fight or otherwise. These provisions are designed to encourage persons seeking to acquire control of the Company to negotiate with the Board of Directors. However, these provisions could have the effect of discouraging a prospective acquiror from making a tender offer or otherwise attempting to obtain control of the Company. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares or could depress the market price of shares. Set forth below is a description of the relevant provisions of Section 203 of the Delaware GCL. The description is intended as summary only and is qualified in its entirety by reference to Section 203 of the Delaware GCL. Section 203 of the Delaware GCL prohibits certain "business combination" transactions between a publicly held Delaware corporation, such as the Company after the Offerings, and any "interested stockholder" for a period of three years after the date on which such stockholder became an interested stockholder, unless (i) the board of directors approves, prior to such date, either the proposed business combination or the proposed acquisition of stock which resulted in the stockholder becoming an interested stockholder, (ii) upon consummation of the transaction in which the stockholder becoming an interested stockholder, the interested stockholder acquires at least 85% of those shares of the voting stock of the corporation which are not held by the directors, officers or certain employee stock plans or (iii) on or subsequent to the consummation date, the business combination with the interested stockholder is approved by the board of directors and also approved at a stockholders' meeting by the affirmative vote of the holders of at least two-thirds of the outstanding shares of the corporation's voting stock other than shares held by the interested stockholder. For purposes of Section 203, a "business combination" includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of the corporation's voting stock. A corporation may, at its option, exclude itself from the coverage of Section 203 by amending its charter or by-laws by action of its stockholders to exempt itself from coverage, provided that such by-law or charter amendment shall not become effective until 12 months after the date it is adopted. The Company has not elected to opt out of Section 203 of the Delaware GCL pursuant to its terms. TRANSFER AGENT AND REGISTRAR The transfer agent, dividend paying agent and registrar for the Common Stock is First Chicago Trust Company of New York. DESCRIPTION OF CERTAIN INDEBTEDNESS The following summaries of the agreements governing the outstanding long-term indebtedness of the Company and its subsidiaries are intended to describe all relevant material provisions thereof; however, such summaries are qualified in their entirety by reference to the various agreements described herein, copies of which (except for the New Credit Facility) have been filed with the Commission. Capitalized terms used but not defined herein have the meanings ascribed to them in the applicable agreement. THE NEW CREDIT FACILITY The New Credit Facility is expected to provide for aggregate maximum borrowings by IPC of an aggregate principal amount originally of up to $475 million to be provided by the several banks thereunder, consisting of (i) term loans in an original aggregate amount of $300 million, consisting of a new Term A loan in an original principal amount of $150 million (the "Term A Loan") and a Term B loan in an original principal amount of $150 million (the "Term B Loan" and, collectively with the Term A Loan, the "New Term Loan Facility"); and (ii) a revolving credit facility (the "New Revolving Credit Facility") providing for borrowings by IPC of revolving loans of up to $175 million, up to $65 million of which may be in the form of letters of credit (the "New Revolving Loans"). The New Term Loan and the New Revolving Loans are collectively referred to herein as the "New Loans." 60 63 A commitment fee of 0.25% per annum is payable on the committed but unused portions of the New Revolving Credit Facility. The interest rate of the New Loans can be, at the election of IPC, based upon LIBOR or the Alternative Base Rate (to be defined in the New Credit Facility) and are, subject to certain performance pricing adjustments, based upon IPC's Total Debt to EBITDA Ratio (to be defined in the New Credit Facility). The Term A Loan and the New Revolving Loans that are LIBOR loans will bear interest at 1.375% per annum plus LIBOR. The Term B Loans that are LIBOR loans will bear interest at 1.75% per annum plus LIBOR. The New Revolving Loans and the Term A Loans that are Alternative Base Rate loans will bear interest at 0.375% per annum plus the Alternative Base Rate. The Term B Loans that are Alternative Base Rate Loans will bear interest at 0.75% per annum plus the Alternative Base Rate. The Term A Loan is expected to be required to be repaid in quarterly payments totalling $3.75 million in 1997, $16.25 million in 1998, $21.25 million in 1999, $25.0 million in 2000, $26.25 million in 2001, $31.25 million in 2002 and $26.25 million in 2003 and the Term B Loan is expected to be required to be repaid in quarterly payments totalling $1.5 million per annum and four installments of $35.25 million on December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004. The New Revolving Credit Facility and the Term A Loan will terminate on or about September 30, 2003 and the Term B Loan will terminate on or about September 30, 2004, respectively. IPC may prepay the New Term Loan Facility in accordance with the terms of the New Credit Facility. Subject to the provisions of the New Credit Facility, IPC will be able to, from time to time, borrow, repay and reborrow under the New Revolving Credit Facility. All net cash proceeds from the sale of assets of IPC and its subsidiaries in excess of a certain minimum amount and 75% of Excess Cash Flow (to be defined in the New Credit Facility) must, with certain exceptions, be applied to repay the New Term Loan Facility. Any such mandatory prepayments of the New Term Loan Facility is to be applied first to the New Term Loan Facility, if any, and second to the permanent reduction of the New Revolving Credit Facility. The New Term Loan Facility and the other obligations under the New Credit Facility are expected to be guaranteed by the Company and IPC's subsidiaries and are to be secured by (i) a pledge of the capital stock of IPC and each of IPC's subsidiaries; (ii) grants of security interests in substantially all of the assets of IPC and its subsidiaries; and (iii) mortgages on the real property of IPC and its subsidiaries. Certain interest rate hedging arrangements with respect to the New Term Loan Facility will be secured pari passu with the New Term Loan Facility and the other obligations under the New Credit Facility. The New Credit Facility is expected to contain restrictive covenants typical in facilities of its type, including, among others, the following: (i) delivery of financial statements and other reports; (ii) compliance certificates; (iii) notices of default, material litigation and material governmental and environmental proceedings; (iv) compliance with laws; (v) payment of taxes; (vi) maintenance of insurance; (vii) limitation on liens (to include standard exceptions and to permit the receivables securitization financing, if any); (viii) limitations on mergers, consolidations and sales of assets (with the asset sale restriction to include standard exceptions and to permit the receivables securitization financing, if any); (ix) limitations on incurrence of debt; (x) limitations on dividends and stock redemptions; (xi) except as otherwise therein specifically provided for, prohibition on the repayment and/or defeasance of any subordinated debt; (xii) limitations on investments; (xiii) certain ERISA covenants; and (xiv) restrictions on transactions with affiliates. In addition to the covenants described above, the New Credit Facility is expected to contain financial covenants with respect to, among others, (i) the ratio of EBITDA to Consolidated Interest Charges (to be defined in the New Credit Facility); (ii) the ratio of EBITDA to Fixed Charges (to be defined in the New Credit Facility); (iii) the ratio of Total Debt (to be defined in the New Credit Facility) to EBITDA; and (iv) IPC's Net Worth (to be defined in the New Credit Facility). The New Credit Facility is expected to provide for events of default typical in facilities of its type, including, among others, the following: (i) nonpayment of principal, interest, fees or other amounts; (ii) violation of covenants; (iii) inaccuracy of representations and warranties; (iv) cross-default of other indebtedness; (v) bankruptcy and other similar events; (vi) material unsatisfied judgments; (vii) certain 61 64 ERISA events; (viii) invalidity of any loan documents or security interests; and (ix) change in control (to be defined in the New Credit Facility). THE 13 1/4% DISCOUNT DEBENTURES The Company has commenced a tender offer and consent solicitation to purchase all or a portion of the 13 1/4% Discount Debentures. See "The Refinancing." The 13 1/4% Discount Debentures are general unsecured obligations of the Company, limited to $160 million aggregate principal amount, and will mature on March 15, 2005. The 13 1/4% Discount Debentures were issued for aggregate consideration of $65 million and are subordinated in right of payment to all existing and future senior indebtedness of the Company, including, without limitation, all obligations of the Company under the Existing Credit Facility. The 13 1/4% Discount Debentures also are structurally subordinated to all indebtedness of IPC and its subsidiaries. Prior to March 15, 2000, interest is not payable in cash on the 13 1/4% Discount Debentures but continues to accrete. Interest on the 13 1/4% Discount Debentures will be payable in cash semi-annually on each March 15 and September 15, commencing September 15, 2000, to holders of record of the 13 1/4% Discount Debentures at the close of business on the March 1 and September 1 next preceding the interest payment date. Interest will accrue from the most recent interest payment date to which interest has been paid or duly provided for or, if no interest has been paid or duly provided for, from March 15, 2000. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The 13 1/4% Discount Indenture provides that, upon occurrence of a change of control of the Company, the Company will make an offer to purchase all of the 13 1/4% Discount Debentures at 101% of the accreted value thereof. The 13 1/4% Discount Debentures are redeemable, in whole or in part, at the option of the Company, at any time, at the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption. The Offerings will not constitute a change of control under the 13 1/4% Discount Indenture. The 13 1/4% Discount Indenture restricts the ability of the Company and its subsidiaries to incur, issue, assume or guarantee indebtedness unless certain financial requirements are met. The Company and its subsidiaries are prohibited, with certain limited exceptions, from declaring or paying any dividends, purchasing, acquiring or redeeming for value any capital stock of the Company or any of its subsidiaries, making payments with respect to subordinated indebtedness, or making any other Restricted Payments unless (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (ii) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the issue date of the 13 1/4% Discount Debentures does not exceed the sum of (1) 50% of the Consolidated Net Income of the Company (or 100% of any loss) from January 1, 1993 through the most recent full fiscal quarter, taken as one accounting period, plus (2) 100% of the aggregate net cash proceeds from the issue or sale of equity securities of the Company, with certain exceptions, plus (3) $2.5 million; and (iii) at the time of and immediately after giving effect to such Restricted Payment, the Company would be entitled to incur additional indebtedness, subject to a minimum fixed coverage ratio. The Company is prohibited from creating any additional restrictions on the ability of the Company or any of its subsidiaries to pay dividends, make loans or transfer assets to the Company or any of its subsidiaries. The Company and its subsidiaries are also limited in their ability to engage in transactions with affiliates, create liens, incur senior indebtedness or engage in certain material acquisitions, sale and leaseback transactions or asset sales. The 13 1/4% Discount Indenture provides for customary events of default and provides that if an event of default (other than an event of default resulting from bankruptcy, insolvency or reorganization of the Company) occurs and continues, then either the trustee or the holders of not less than 25% in principal amount of the 13 1/4% Discount Debentures may declare the accreted value (if such event of default occurs on or prior to March 15, 2000) or the principal amount and accrued interest thereon, if any (if such event of default occurs after March 15, 2000) on all of the 13 1/4% Discount Debentures to be immediately due and payable. 62 65 OTHER INDEBTEDNESS Any 12 1/2% Subordinated Notes that are not repurchased pursuant to the Subordinated Note Offer may be redeemed by IPC on December 15, 1997. In addition, certain of the Company's subsidiaries have an aggregate of approximately $40.3 million principal amount of indebtedness (excluding indebtedness under the New Credit Facility) that will remain outstanding after the Offerings. Of this amount, $38.3 million in principal amount of such indebtedness relates to industrial development revenue bonds ("IRBs") secured by letters of credit under the Existing Credit Facility. Interest on the IRBs is exempt from federal income taxation, and a determination by the Internal Revenue Service that such exemption is no longer applicable would cause the mandatory redemption of the IRBs with resulting draws upon the letters of credit. The Company expects that the existing letters of credit (including those issued in connection with the IRBs) that were issued pursuant to the Existing Credit Facility will remain in place after the Offerings and will be included within the New Credit Facility. Certain of the IRBs are secured by certain real estate and other assets of the Company's subsidiaries. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offerings, 19,166,666 shares of Common Stock will be outstanding. Of such shares, the 8,400,000 shares sold in the Offerings will be freely tradeable by persons other than "affiliates" of the Company without restriction or registration under the Securities Act. The remaining outstanding shares of Common Stock were acquired by existing stockholders without registration under the Securities Act and are "restricted securities" for purposes of the Securities Act. Of such amount, Acadia, certain related investors and certain officers of the Company will beneficially own immediately following the Offerings 10,766,666 shares of Common Stock. Such shares may be sold in the future under Rule 144 which contains volume and manner of sales limitations. See "Principal and Selling Stockholders." In addition, certain officers of the Company will beneficially own options exercisable into 766,667 shares of the Common Stock. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated) (including affiliates of the Company) who has beneficially owned restricted shares for at least one year, will be entitled to sell in any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 191,666 shares immediately after the Offerings); or (ii) the average weekly trading volume during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to the manner of sale, notice and availability of current public information about the Company. A person (or persons whose shares are aggregated) who has beneficially owned restricted shares for at least two years and who is not an affiliate of the Company at any time during the 90 days immediately preceding the sale is entitled to sell such shares pursuant to Rule 144(k) without regard to the limitations described above. As defined in Rule 144, an "affiliate" of an issuer is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such issuer. Of the restricted securities outstanding following the Offerings, approximately 8,652,533 million shares will have been held for at least one year and will be eligible for resale subject to the volume and other limitations of Rule 144. Upon the consummation of the Offerings, the Company expects to file one or more Registration Statements on Form S-8 to register the shares covered by such officers' stock options as well as the shares of Common Stock covered by the 1997 Stock Incentive Plan under the Securities Act. Sales of substantial amounts of Common Stock in the public market following the Offerings, or the possibility that such sales may occur, may adversely affect the prevailing market price of the Common Stock. Also, prior to the Offerings, there has been no public trading market for the Common Stock and no predictions can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares of Common Stock for sales will have on the market price prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public markets could adversely affect prevailing market prices. 63 66 REGISTRATION RIGHTS Pursuant to a Registration Rights Agreement to be entered into by and among the Company, Acadia and the other stockholders listed therein, Acadia and/or holders owning at least 5.0% of the outstanding shares of Common Stock will have certain shelf, demand and piggyback registration rights. The Registration Rights Agreement will provide such stockholders with the right to request one or more "shelf" registrations (each, a "Shelf Registration") at any time after the Company is required to file periodic reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Registration Rights Agreement also will provide that at any time when a Shelf Registration is not in effect or not available for use by the holders of Common Stock, Acadia and/or the holders of at least 5.0% of the outstanding shares of Common Stock of the Company have the right to make up to three requests (in the aggregate) for an underwritten offering registered under the Securities Act (a "Demand Registration") of all or part of such stockholders' Common Stock subject to the Registration Rights Agreement. In the event that a Demand Registration is not declared effective within 120 days after a request is delivered, stockholders then acquire the right to request one additional Demand Registration. The Company may delay a Demand Registration otherwise required to be prepared and filed under the Registration Rights Agreement for up to 180 days under certain circumstances if such registration would, in the opinion of the Board of Directors, interfere with any material acquisition or financing transaction then being pursued by the Company. This right to delay registration may not be used more than once in any twelve-month period. In addition, in connection with any registration by the Company of its Common Stock, the Company is required to notify the stockholders subject to the Registration Rights Agreement of such registration and include in such registration all registrable Common Stock with respect to which the Company has received written requests for inclusion therein unless the underwriters determine that the number of shares requested to be included in such registration will have a material adverse effect on such registration, in which case only shares which may be sold without any such material adverse effect will be included, on a pro-rata basis. Under the Registration Rights Agreement, the Company is required to bear all costs and expenses of each such registration (other than the underwriters' commissions or discounts which are to be borne by the sellers), and the stockholders and the Company have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. Management also has the right to have their shares of Common Stock registered by the Company (on the same terms and conditions as Acadia) in the event Acadia's shares of Common Stock are registered under the Registration Rights Agreement. See "Certain Relationships and Related Transactions -- Transactions with Management." CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general discussion of certain United States Federal tax consequences of the acquisition, ownership, and disposition of Common Stock by a holder that, for United States Federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). This discussion is based upon the United States Federal tax law now in effect, which is subject to change, possibly retroactively. For purposes of this discussion, a "United States person" means a citizen or resident of the United States; a corporation, partnership, or other entity created or organized in the United States or under the laws of the United States or of any political subdivision thereof; an estate whose income is includible in gross income for United States Federal income tax purposes regardless of its source; or a "United States Trust." A United States Trust is (a) for taxable years beginning after December 31, 1996, or if the trustee of a trust elects to apply the following definition to an earlier taxable year, any trust if, and only if, (i) a court within the United States is able to exercise primary supervision over the administration of the trust and (ii) one or more United States trustees have the authority to control all substantial decisions of the trust, and (b) for all other taxable years, any trust whose income is includible in gross income for United States Federal income tax purposes regardless of its source. This discussion does not consider any specific facts or circumstances that may apply to a particular Non-United States Holder. Prospective investors are urged to consult their tax advisors regarding 64 67 the United States Federal tax consequences of acquiring, holding, and disposing of Common Stock, as well as any tax consequences that may arise under the laws of any foreign, state, local, or other taxing jurisdiction. DIVIDENDS Dividends paid to a Non-United States Holder will generally be subject to withholding of United States Federal income tax at the rate of 30% unless the dividend is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder (or if certain tax treaties apply, is attributable to a United States permanent establishment maintained by such Non-United States Holder), in which case the dividend will be subject to the United States Federal income tax on net income on the same basis that applies to United States persons generally. In the case of a Non-United States Holder which is a corporation, such effectively connected income also may be subject to the branch profits tax (which is generally imposed on a foreign corporation on the repatriation from the United States of effectively connected earnings and profits). Non-United States Holders should consult any applicable income tax treaties that may provide for a lower rate of withholding or other rules different from those described above. A Non-United States Holder may be required to satisfy certain certification requirements in order to claim treaty benefits or otherwise claim a reduction of or exemption from withholding under the foregoing rules. GAIN ON DISPOSITION A Non-United States Holder will generally not be subject to United States Federal income tax on gain recognized on a sale or other disposition of Common Stock unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder or, if tax treaties apply, is attributable to a United States permanent establishment maintained by the Non-United States Holder, (ii) in the case of a Non-United States Holder who is a nonresident alien individual and holds the Common Stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of disposition or either such individual has a "tax home" in the United States or the gain is attributable to an office or other fixed place of business maintained by such individual in the United States, (iii) the Company is or has been a "United States real property holding corporation" for United States Federal income tax purposes (which the Company does not believe that it is or likely to become) and the Non-United States Holder holds or has held, directly or indirectly, at any time during the five-year period ending on the date of disposition, more than 5% of the Common Stock or (iv) the Non-United States Holder is subject to tax pursuant to the Internal Revenue Code of 1986, as amended, provisions applicable to certain United States expatriates. Gain that is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder will be subject to the United States Federal income tax on net income on the same basis that applies to United States persons generally (and, with respect to corporate holders, under certain circumstances, the branch profits tax) but will not be subject to withholding. Non-United States Holders should consult any applicable treaties that may provide for different rules. FEDERAL ESTATE TAXES Common Stock owned or treated as owned by an individual who is not a citizen or resident of the United States at the date of death will be included in such individual's estate for United States Federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company must report annually to the Internal Revenue Service and to each Non-United States Holder the amount of dividends paid to, and the tax withheld with respect to, such holder, regardless of whether any tax was actually withheld. This information may also be made available to the tax authorities of a country in which the Non-United States Holder resides. Under the temporary United States Treasury regulations, United States information reporting requirements and backup withholding tax at a rate of 31% will generally apply to dividends paid on the Common Stock to a Non-United States Holder and to payments by a United States office of a broker of the proceeds of 65 68 a sale of Common Stock to a Non-United States Holder unless the holder certifies its Non-United States Holder status under penalties of perjury or otherwise establishes an exemption. Information reporting requirements (but not backup withholding) will also apply to payments of the proceeds of sales of Common Stock by foreign offices of United States brokers, or foreign brokers with certain types of relationships to the United States, unless the broker has documentary evidence in its records that the holder is a Non-United States Holder and certain other conditions are met, or the holder otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-United States Holder's United States Federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. These information reporting and backup withholding rules are under review by the United States Treasury, and their application to the Common Stock could be changed by future regulations. On April 22, 1996, proposed Treasury Regulations were published in the Federal Register concerning the withholding of tax and reporting for certain amounts paid to nonresident individuals and foreign corporations. The proposed Treasury Regulations, if adopted in their present form, would be effective for payments made after December 31, 1997. Prospective investors should consult their tax advisors concerning the potential adoption of such proposed Treasury Regulations and the potential effect on their ownership of Common Stock. 66 69 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc. and Salomon Brothers Inc are acting as representatives (the "U.S. Representatives") of each of the Underwriters named below (the "U.S. Underwriters"). Subject to the terms and conditions set forth in a U.S. purchase agreement (the "U.S. Purchase Agreement") among the Company, the Selling Stockholder and the U.S. Underwriters, and concurrently with the sale of 1,680,000 shares of Common Stock to the International Managers (as defined below), the Company has agreed to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
NUMBER OF U.S. UNDERWRITER SHARES ---------------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated Lehman Brothers Inc. Salomon Brothers Inc --------- Total.......................................... 6,720,000 =========
The Company and the Selling Stockholder have also entered into an international purchase agreement (the "International Purchase Agreement") with certain underwriters outside the United States and Canada (the "International Managers" and, together with the U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International, Lehman Brothers International (Europe) and Salomon Brothers International Limited are acting as lead managers (the "Lead Managers"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 6,720,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the International Managers, and the International Managers severally have agreed to purchase from the Company, an aggregate of 1,680,000 shares of Common Stock. The initial offering price per share and the total underwriting discount per share of Common Stock are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such agreement if any of the shares of Common Stock being sold pursuant to such agreement are purchased. The closings with respect to the sale of shares of Common Stock to be purchased by the U.S. Underwriters and the International Managers are conditioned upon one another. The U.S. Representatives have advised the Company and the Selling Stockholder that the U.S. Underwriters proposed initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share of Common Stock. The U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the U.S. Underwriters, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 1,008,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The U.S. Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the U.S. Underwriters exercise this option, each U.S. Underwriter 67 70 will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such U.S. Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the International Managers, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 252,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. The Company, its executive officers and directors and all existing stockholders have agreed, subject to certain exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act with respect to the foregoing except for the registration under the Securities Act of the Shares issuable under the 1997 Stock Incentive Plan and issuable under the option agreements of certain officers of the Company that may be registered on Form S-8 or any such successor form or (ii) enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of the Common Stock whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale." The U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the U.S. Underwriters and the International Managers are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. Prior to the Offerings, there has been no public market for the Common Stock of the Company. The initial public offering price has been determined through negotiations among the Company, the Selling Stockholder, the U.S. Representatives and the Lead Managers. The factors considered in determining the initial public offering price, in addition to prevailing market conditions, were price-earnings ratios of publicly traded companies that the U.S. Representatives believe to be comparable to the Company, certain financial information of the Company, the history of, and the prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations, the prospects for, and timing of, future revenues of the Company, the present state of the Company's development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to the Company. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "IXX," subject to official notice of issuance. In order to meet the requirements for listing of the Common Stock on that exchange, the U.S. Underwriters and the International Managers have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial owners. Because affiliates of Lehman Brothers Inc. beneficially own in excess of 10% of the capital stock of the Company, the underwriting arrangements for the Offering must comply with the requirements of Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD"). This Offering is being conducted in accordance with Rule 2720, which provides that, among other things, when an NASD member participates in 68 71 the underwriting of an affiliate's equity securities, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter." Accordingly, Merrill Lynch is acting as a qualified independent underwriter for purposes of determining the price of the Common Stock offered hereby and has conducted due diligence investigations and has reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. The price at which the Common Stock is being sold to the public is no higher than the price recommended by Merrill Lynch. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company and the Selling Stockholder have agreed to indemnify the U.S. Underwriters and the International Managers against certain liabilities, including certain liabilities under the Securities Act. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the U.S. Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offerings, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the U.S. Representatives may reduce that short position by purchasing Common Stock in the open market. The U.S. Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offerings. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the U.S. Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1996 and for each of the three years in the period ended December 31, 1996 included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. LEGAL MATTERS Certain legal matters in connection with the Offerings will be passed upon for the Company by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois and certain legal matters will be passed upon for the Underwriters by Mayer, Brown & Platt, Chicago, Illinois. 69 72 ADDITIONAL INFORMATION The Company has filed with the Commission a Registration Statement on Form S-1 under the Act with respect to the shares of Common Stock being offered by this Prospectus. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain portions of which have been omitted as permitted by the Securities Act and the rules and regulations of the Commission thereunder. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement, including the exhibits thereto, copies of which may be obtained upon payment of the fees prescribed by the Commission or examined without charge at (i) the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and (ii) the Commission's regional offices located at Northwest Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York 10048. Such reports and other information may also be accessed through the Commission's electronic data gathering, analysis and retrieval system via electronic means, including the Commission's web site on the Internet (http://www.sec.gov). Statements contained in this Prospectus as to the contents of any contract or other document are intended to discuss all relevant material provisions thereof; however, in each instance where such contract or other document is an exhibit to the Registration Statement, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, and each such statement is qualified in all respects by such reference. The Company is not currently subject to the informational requirements of the Exchange Act because prior to the Offerings the Company was not required to register under Section 12(g) of the Exchange Act and did not have securities registered on a national securities exchange under Section 12(b) of the Exchange Act. However, since March 1993, the Company has agreed to voluntarily comply with such informational requirements under the terms of the 13 1/4% Discount Indenture. As a result of the Offerings, the Company will become subject to the informational requirements of the Exchange Act, and in accordance therewith will be required to file reports and other information with the Commission. 70 73 INDEX TO FINANCIAL STATEMENTS IVEX PACKAGING CORPORATION:
PAGE ---- Audited Financial Statements: Report of Independent Accountants......................... F-2 Consolidated Balance Sheets at December 31, 1995 and 1996................................................... F-3 Consolidated Statements of Operations for the years ended December 31, 1994, 1995 and 1996.......................................... F-4 Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 1994, 1995 and 1996................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.......................................... F-6 Notes to Consolidated Financial Statements................ F-7 Unaudited Interim Financial Statements: Consolidated Balance Sheets at December 31, 1996 and June 30, 1997............................................... F-17 Consolidated Statements of Operations for the six months ended June 30, 1996 and 1997........................... F-18 Consolidated Statements of Changes in Stockholders' Deficit for the year ended December 31, 1996 and the six months ended June 30, 1997......................... F-19 Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1997........................... F-20 Notes to Consolidated Financial Statements................ F-21
F-1 74 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Ivex Packaging Corporation: In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, of changes in stockholders' deficit, and of cash flows present fairly, in all material respects, the financial position of Ivex Packaging Corporation ("the Company") and its subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Chicago, Illinois January 21, 1997, except as to Notes 5 and 14, which are as of March 24, 1997 F-2 75 IVEX PACKAGING CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, --------------------- 1995 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents................................. $ 4,830 $ 2,822 Accounts receivable trade, net of allowance............... 46,077 51,638 Inventories............................................... 44,050 49,023 Prepaid expenses and other................................ 5,417 5,395 --------- --------- Total current assets................................. 100,374 108,878 --------- --------- Property, Plant and Equipment: Buildings and improvements................................ 47,108 49,038 Machinery and equipment................................... 208,820 231,526 Construction in progress.................................. 4,159 8,069 --------- --------- 260,087 288,633 Less -- Accumulated depreciation.......................... (102,098) (123,957) --------- --------- 157,989 164,676 Land...................................................... 7,504 8,304 --------- --------- Total property, plant and equipment.................. 165,493 172,980 --------- --------- Other assets: Goodwill, net of accumulated amortization................. 13,938 20,506 Miscellaneous............................................. 15,106 13,537 --------- --------- Total other assets................................... 29,044 34,043 --------- --------- Total Assets................................................ $ 294,911 $ 315,901 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Current installments of long-term debt.................... $ 5,128 $ 5,921 Accounts payable.......................................... 31,934 36,748 Accrued salary and wages.................................. 7,781 8,603 Self insurance reserves................................... 6,339 7,453 Accrued rebates and discounts............................. 2,817 3,824 Accrued interest.......................................... 1,747 1,680 Other accrued expenses.................................... 6,538 12,110 --------- --------- Total current liabilities............................ 62,284 76,339 --------- --------- Long-Term Debt.............................................. 353,717 352,893 --------- --------- Other Long-Term Liabilities................................. 6,472 5,243 --------- --------- Deferred Income Taxes....................................... 8,770 8,770 --------- --------- Commitments................................................. --------- --------- Stockholders' Deficit: Ivex Packaging Corporation common stock, $.01 par value -- 2,000,000 shares authorized; 1,072,246 shares issued and outstanding................................. 11 11 Paid in capital in excess of par value.................... 177,375 177,375 Accumulated deficit....................................... (312,234) (303,566) Foreign currency translation adjustment................... (1,484) (1,164) --------- --------- Total stockholders' deficit.......................... (136,332) (127,344) --------- --------- Total Liabilities and Stockholders' Deficit................. $ 294,911 $ 315,901 ========= =========
The accompanying notes are an integral part of this statement. F-3 76 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, -------------------------------------- 1994 1995 1996 ---- ---- ---- Gross sales.............................................. $ 418,502 $ 483,689 $ 485,039 Freight out.............................................. 15,875 16,001 16,229 Discounts and returns.................................... 11,652 16,119 17,003 ---------- ---------- ---------- Net sales................................................ 390,975 451,569 451,807 Cost of goods sold....................................... 316,704 366,409 351,424 ---------- ---------- ---------- Gross profit............................................. 74,271 85,160 100,383 ---------- ---------- ---------- Operating expenses: Selling................................................ 18,166 18,027 20,306 Administrative......................................... 23,496 24,540 27,156 Amortization of intangibles............................ 1,140 1,904 621 Write-off of goodwill.................................. 13,471 Special charges........................................ 4,960 ---------- ---------- ---------- Total operating expenses.......................... 42,802 62,902 48,083 ---------- ---------- ---------- Income from operations................................... 31,469 22,258 52,300 Interest expense......................................... 39,820 43,270 42,732 ---------- ---------- ---------- Income (loss) before income taxes and extraordinary item................................................... (8,351) (21,012) 9,568 Income tax provision..................................... (942) (1,113) (900) ---------- ---------- ---------- Income (loss) before extraordinary item.................. (9,293) (22,125) 8,668 Extraordinary loss....................................... (2,359) ---------- ---------- ---------- Net income (loss)........................................ $ (9,293) $ (24,484) $ 8,668 ========== ========== ========== Earnings (loss) per share: Income (loss) before extraordinary item................ $ (8.67) $ (20.63) $ 8.08 Extraordinary loss..................................... (2.20) ---------- ---------- ---------- Net income (loss)...................................... $ (8.67) $ (22.83) $ 8.08 ========== ========== ========== Average shares outstanding............................... 1,072,246 1,072,246 1,072,246 ========== ========== ==========
The accompanying notes are an integral part of this statement. F-4 77 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
IVEX PACKAGING CORPORATION PAID IN FOREIGN COMMON STOCK CAPITAL CURRENCY ------------------ IN EXCESS OF ACCUMULATED TRANSLATION STOCKHOLDERS' SHARES AMOUNT PAR VALUE DEFICIT ADJUSTMENT DEFICIT ------ ------ ------------ ----------- ----------- ------------- Balance at December 31, 1993....................... 1,072,246 $11 $177,375 $(278,457) $ (508) $(101,579) Foreign currency translation adjustment.............. (394) (394) Net loss................... (9,293) (9,293) --------- --- -------- --------- ------- --------- Balance at December 31, 1994....................... 1,072,246 11 177,375 (287,750) (902) (111,266) Foreign currency translation adjustment.............. (582) (582) Net loss................... (24,484) (24,484) --------- --- -------- --------- ------- --------- Balance at December 31, 1995....................... 1,072,246 11 177,375 (312,234) (1,484) (136,332) Foreign currency translation adjustment.............. 320 320 Net income................. 8,668 8,668 --------- --- -------- --------- ------- --------- Balance at December 31, 1996....................... 1,072,246 $11 $177,375 $(303,566) $(1,164) $(127,344) ========= === ======== ========= ======= =========
The accompanying notes are an integral part of this statement. F-5 78 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, -------------------------------- 1994 1995 1996 ---- ---- ---- Cash flows from operating activities: Net income (loss)......................................... $ (9,293) $(24,484) $ 8,668 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation of properties............................ 21,049 20,496 22,103 Amortization of intangibles and debt issue costs...... 3,058 19,689 2,028 Deferred income taxes................................. (106) Write-down of property, plant and equipment, net...... 760 Non-cash interest..................................... 9,916 11,232 12,801 -------- -------- -------- 24,624 27,693 45,600 Change in operating assets and liabilities: Accounts receivable................................... (9,461) (550) 528 Inventories........................................... (10,871) 4,371 (743) Prepaid expenses and other............................ (719) (930) 621 Accounts payable...................................... 10,322 (8,486) 1,516 Accrued expenses and other liabilities................ 1,752 648 1,680 -------- -------- -------- Net cash from operating activities................. 15,647 22,746 49,202 -------- -------- -------- Cash flows from financing activities: Proceeds from senior credit facilities.................... 60,000 Payment of senior credit facilities....................... (5,342) (59,870) (5,000) Proceeds from revolving credit facility................... 8,500 Payment of revolving credit facility...................... (8,500) Payment of debt issue costs............................... (569) (2,779) (296) Other, net................................................ (191) (185) 722 -------- -------- -------- Net cash from (used by) financing activities....... (6,102) 5,666 (13,074) -------- -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment................. (16,769) (19,385) (17,633) Proceeds from the sale of real estate..................... 1,305 1,034 Acquisition of CFI Industries, Inc., net of cash acquired................................................ (17,262) Acquisition of the net assets of Trio Products............ (3,524) Acquisition of the net assets of Packaging Products, Inc..................................................... (11,735) Other, net................................................ 2,407 215 283 -------- -------- -------- Net cash used by investing activities.............. (13,057) (29,871) (38,136) -------- -------- -------- Net decrease in cash and cash equivalents................... (3,512) (1,459) (2,008) Cash and cash equivalents at beginning of year.............. 9,801 6,289 4,830 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 6,289 $ 4,830 $ 2,822 ======== ======== ======== Supplemental cash flow disclosures: Cash paid during the year for: Interest................................................ $ 27,740 $ 30,004 $ 28,592 Income taxes............................................ 935 1,052 1,199 Supplemental schedule of non-cash investing and financing activities: Issuance of non-current note for accounts receivable.... 2,000 1,000 The Company purchased all of the capital stock of CFI Industries, Inc. In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired......................... $ 27,127 Cash paid for the capital stock....................... (18,423) -------- Liabilities assumed................................... $ 8,704 ========
The accompanying notes are an integral part of this statement. F-6 79 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 is dependent on the operating cash flow of IPC and IPC's subsidiaries in order to pay principal and interest on its debt; however, IPC has no contractual obligations to distribute any such cash flow 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. Nature of operations The Company's subsidiary, IPC, engages in the business of manufacturing plastic and paper packaging products for different end-use packaging applications principally with customers in North America. These applications include: (i) the integrated production and conversion of oriented polystyrene sheet and other plastic sheet into thermoformed packaging products and the sale of such sheet to other packaging thermoformers; (ii) the manufacture and sale of coated and laminated unbleached kraft paper and plastic materials and single face corrugated products as protective materials in the packaging of industrial products; and (iii) the manufacture and sale of unbleached kraft paper and various lightweight specialty grades of paper for industrial and food service packaging applications. Accordingly, the accompanying financial data are reported as a single segment. Principles of consolidation All the accounts of the wholly-owned subsidiaries of the Company have been consolidated. All significant intercompany transactions and accounts have been eliminated. Revenue recognition The Company recognizes revenue upon shipment of products. Cash and cash equivalents The Company considers all short-term deposits with initial maturities of three months or less to be cash equivalents. Accounts receivable Accounts receivable at December 31, 1995 and 1996 consist of the following:
1995 1996 ---- ---- Accounts receivable........................................ $48,089 $53,718 Less -- Allowance for doubtful accounts.................... (2,012) (2,080) ------- ------- $46,077 $51,638 ======= =======
Accounts receivable from sales to customers are unsecured. F-7 80 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Inventories Inventories are stated at the lower of cost or market using the first-in, first-out (FIFO) method to determine the cost of raw materials and finished goods. Inventories at December 31, 1995 and 1996 consist of the following:
1995 1996 ---- ---- Raw materials.............................................. $24,148 $26,483 Finished goods............................................. 19,902 22,540 ------- ------- $44,050 $49,023 ======= =======
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. Expenditures for maintenance and repairs are charged to operations as incurred; major improvements are capitalized. During the first quarter of 1995, IPC revised the estimated remaining useful lives of certain machinery and equipment to more closely reflect expected remaining lives. The effect of this change in accounting estimate resulted in a decrease in IPC's annual depreciation of $1,800 in 1995 and in each year thereafter until the assets are fully depreciated. 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 amount required by the Internal Revenue Service in a given year. 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 a forty year period. Accumulated amortization was $18,315 and $18,781 as of December 31, 1995 and 1996, respectively. During 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of 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 F-8 81 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) is recognized. Otherwise, an impairment loss is not recognized. The effect of adopting this new accounting standard did not have an impact on the financial position of the Company. Prior to 1996, an impairment was recognized if it was probable that the present value of expected future cash flows (discounted and with interest charges) was less than the carrying amounts of goodwill and other long-lived assets. Earnings (loss) per share Earnings (loss) per share is computed by dividing earnings (loss) by the weighted average number of shares outstanding during each year. Common stock equivalent shares, issuable upon exercise of outstanding stock options, are included in these calculations when they would have a dilutive effect on the per share amounts. 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 a separate component of stockholders' deficit. Gains and losses resulting from foreign exchange transactions are recorded in the results from operations. Such amounts were not significant in 1994, 1995 and 1996. Fair value of financial instruments At December 31, 1996, the effective yield of the Company's 13 1/4% Senior Discount Debentures due 2005 (the "13 1/4 Discount Debentures") was 10.7% (approximate market price of 79). At December 31, 1996, the effective yield of IPC's 12 1/2% Subordinated Notes due December 15, 2002 (the "12 1/2% Subordinated Notes") was 9.3% (approximate market price of 109). The carrying amount of IPC's other financial instruments approximates their estimated fair value based on market prices for the same or similar type of financial instruments. Reclassifications Certain amounts in the consolidated balance sheets for 1995 have been reclassified to conform to the 1996 presentation. NOTE 3 -- GOODWILL: During 1995, a portion of the Industrial Packaging businesses (such portion having been acquired primarily in the 1989 acquisition of L&CP Corporation) had experienced less sales volume growth and lower profitability than anticipated. As a consequence, and in response to dynamic market conditions, during the second quarter of 1995 the Company realigned the management of these businesses based on three distinct operating units -- masking, graphics and other protective products. Consistent with its accounting policy for goodwill and long-lived assets at that time, the Company made a reassessment of its remaining goodwill, all of which pertained to the above operating units, during the second quarter of 1995 and revised its projections to more accurately reflect expected future results. The Company segregated the assets and cash flows of these three operating units to the lowest level for which cash flows are identifiable and independent of one another at that time. In order to evaluate its goodwill impairment, the Company projected the cash flows allocable to these businesses over the estimated remaining goodwill amortization periods of approximately 34 years. The Company then discounted such cash flows at a rate of 16 1/2% which it believed was commensurate with the risk involved. The Company selected a pre-tax weighted average cost of capital (reflective of comparable companies within its industry) for purposes of discounting its F-9 82 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) cash flows. The discounted cash flows of each business were then compared to the sum of the business groups' working capital and net book value of fixed assets. Impairment of goodwill was then measured by comparing the remaining discounted cash flow to the net book value of the business groups' goodwill. Upon comparison, the discounted cash flows for the graphics and other protective products businesses were insufficient to recover each of such businesses' goodwill. Accordingly, the Company recorded an impairment of $13,471 during the second quarter of 1995. The 1995 revised projections for this portion of the Company's business were extrapolated from market conditions and competitive pressures existing at that time and were based upon, among other things, the assumptions that growth of operating income before depreciation and amortization would range from 2-6% per year through 1999, from 1-3% per year from 2000-2010 and 0% per year from 2011-2029. The growth assumptions for the graphics and other protective products businesses were lower than the masking business. The projections assumed that capital expenditures would generally be consistent with depreciation over the long term. The Company believes that its revised projections based on the June 1995 existing historic financial trends and market conditions were its best estimate at that time of its future performance and that the Company's performance at such projected levels will not substantially detract from the Company's future earnings. However, there can be no assurances that such estimates will be indicative of future results, which ultimately may be less than or greater than these estimates. NOTE 4 -- MISCELLANEOUS OTHER ASSETS: Miscellaneous other assets at December 31, 1995 and 1996 consist of the following:
1995 1996 ---- ---- Deferred financing costs................................... $13,121 $13,416 Less -- Accumulated amortization........................... (2,966) (4,370) ------- ------- 10,155 9,046 Other...................................................... 4,951 4,491 ------- ------- $15,106 $13,537 ======= =======
Deferred financing costs are being amortized over the term of the related debt. During 1995, IPC recorded a write-off of a non-compete agreement with a net book value of $1,139. NOTE 5 -- LONG-TERM DEBT: Long-term debt comprised the following at December 31, 1995 and 1996:
1995 1996 ---- ---- Senior credit facility (A)............................... $ 68,500 $ 55,000 Industrial revenue bonds (B)............................. 38,293 38,293 12 1/2% Subordinated Notes, net of discount (C).......... 157,229 157,340 13 1/4% Discount Debentures, net of discount (D)......... 93,338 106,139 Other.................................................... 1,485 2,042 -------- -------- Total debt outstanding.............................. 358,845 358,814 Less -- Current installments of long-term debt........... (5,128) (5,921) -------- -------- Long-term debt...................................... $353,717 $352,893 ======== ========
A. Senior Credit Facility -- IPC's senior credit facility (the "Existing Credit Facility") is comprised of $55,000 in term loans, a $45,000 letter of credit facility and a $55,000 revolving credit facility of which F-10 83 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) approximately $52,798 was available at December 31, 1996. On March 24, 1997, IPC amended the Existing Credit Facility to, among other things, increase the revolving credit facility to $105,000. The term loans require quarterly payments of $1,250 from March 31, 1997 through September 30, 1997; $1,875 from December 31, 1997 through September 30, 1998; $3,000 from December 31, 1998 through September 30, 1999; $3,500 from December 31, 1999 through September 30, 2000; $4,125 from December 31, 2000 through June 30, 2001; and $5,375 on September 30, 2001. At the option of IPC, the term loans and borrowings on the revolving credit facility bear interest at the LIBOR reserve adjusted rate, as defined, plus 2.25% or the prime rate plus 1.0%. Such rates are subject to change based on IPC's ability to achieve certain financial ratios as defined in the Existing Credit Facility. The Company's actual interest rate on the term loans and the revolving credit facility at December 31, 1996 was the LIBOR reserve adjusted rate, as defined, plus 1.75% or prime rate plus 0.75%. IPC pays a fee of 0.5% on the unused portion of the revolving credit facility. The effective interest rate per annum under the Existing Credit Facility was 7.67% during 1996. Borrowings are secured by substantially all the assets of IPC and its subsidiaries and the stock of IPC and IPC's subsidiaries. Under the Existing Credit Facility, IPC is required to maintain certain financial ratios and levels of net worth while future indebtedness and dividends are restricted. Beginning January 6, 1996, IPC entered into interest rate swap agreements for the term loans for notional amounts totaling $60,000 through January 19, 1999. Such agreements effectively fix IPC's LIBOR base rate at 5.33% and income or expense related to settlements under the swap agreements are recorded as adjustments to interest expense in IPC's financial statements. B. Industrial Revenue Bonds -- Industrial Revenue Bonds requiring monthly interest payments with average effective rates during 1995 and 1996 of 6.2% and 5.8%, respectively, are due in varying amounts and dates through 2009 and are secured by certain assets of IPC. IPC's letter of credit facility provides credit enhancement for the Industrial Revenue Bonds. C. 12 1/2% Subordinated Notes -- On December 17, 1992, IPC issued $158,000 of 12 1/2% Senior Subordinated Notes due December 15, 2002 (the "12 1/2% Subordinated Notes"). The 12 1/2% Subordinated Notes require semi-annual interest payments on June 15 and December 15 and are subordinated in right of payment to all existing and future senior indebtedness of IPC. The 12 1/2% Subordinated Notes are redeemable at the option of IPC, in whole or in part, on or after December 15, 1997 at the following redemption prices (expressed in percentages of the principal amount thereof), plus accrued interest to the date of redemption. If redeemed during the twelve-month period beginning December 15,
YEAR PERCENTAGE ---- ---------- 1997........................................................ 106.250% 1998........................................................ 103.125% 1999 and thereafter......................................... 100.000%
Each holder of the 12 1/2% Subordinated Notes may require IPC to repurchase such holders' 12 1/2% Subordinated Notes in the event of a change of control at 101% of principal amount thereof, plus accrued interest to the date of repurchase. The indenture under which the 12 1/2% Subordinated Notes are issued contains certain covenants that, among other things, will limit the ability of IPC to incur additional indebtedness, pay dividends or repurchase stock. D. 13 1/4% Discount Debentures -- On March 8, 1993, the Company issued $160,000 of 13 1/4% Series A Senior Discount Debentures due 2005 (the "13 1/4% Discount Debentures") for an aggregate consideration of approximately $65,000 (the "1993 13 1/4% Discount Debenture Offering"). Commencing on September 15, 2000, cash interest on the 13 1/4% Discount Debentures will be payable semi-annually, and on March 15, 2005, the 13 1/4% Discount Debentures will mature and the aggregate principal amount then outstanding will become F-11 84 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) due and payable. The Company is dependent on the cash flow of IPC and IPC's subsidiaries in order to meet its debt service obligations. Significant contractual and other restrictions exist on the payment of dividends and the making of loans by IPC to the Company. In addition, as a result of a goodwill write-off in 1993, IPC's ability to make distributions to the Company under the indenture relating to IPC's 12 1/2% Subordinated Notes has been impaired and such indenture will require modification before any such distributions to the Company can be made. Consequently, all or a portion of the 13 1/4% Discount Debentures may require refinancing prior to the maturity thereof. During the period prior to September 15, 2000, the Company does not expect to have significant cash requirements. Long-term debt principal maturities are as follows: 1997........................................................ $ 5,921 1998........................................................ 10,267 1999........................................................ 15,148 2000........................................................ 17,279 2001........................................................ 16,115 Thereafter.................................................. 347,945 -------- 412,675 Discount on 13 1/4% Discount Debentures..................... (53,861) -------- $358,814 ========
NOTE 6 -- INCOME TAXES: The components of the income tax provision shown in the statement of operations are as follows:
1994 1995 1996 ---- ---- ---- Current provision: Federal........................................... $(106) $ (142) $ (415) State............................................. (942) (971) (485) Deferred (provision) benefit: Federal........................................... 106 (9,029) Benefit of net operating loss carryovers............ 9,029 ----- ------- ------- $(942) $(1,113) $ (900) ===== ======= =======
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:
1994 1995 1996 ---- ---- ---- Income (loss) before income taxes................. $(8,351) $(21,012) $ 9,568 ======= ======== ======= Computed expected (provision) benefit at the statutory rate.................................. $ 2,923 $ 7,354 $(3,349) Adjustments to the computed expected (provision) benefit resulting from: Amortization of goodwill........................ (214) (4,862) (77) Net operating loss carryover adjustments........ (3,108) (2,701) 3,077 State income taxes, net......................... (608) (610) (417) Other, net...................................... 65 (294) (134) ------- -------- ------- $ (942) $ (1,113) $ (900) ======= ======== =======
F-12 85 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Deferred tax liabilities (assets) are comprised of the following:
1995 1996 ---- ---- Depreciation............................................. $ 33,581 $ 33,449 Basis differences of acquired assets..................... 4,737 3,969 -------- -------- Deferred tax liabilities................................. 38,318 37,418 -------- -------- Environmental reserves................................... (478) (330) Non-compete agreements................................... (963) (613) Self insurance reserves.................................. (1,731) (1,979) Original issue discount accretion........................ (9,921) (14,394) Other.................................................... (2,709) (2,727) Net operating loss carryover............................. (37,646) (26,795) -------- -------- Deferred tax assets...................................... (53,448) (46,838) -------- -------- Deferred tax asset valuation allowance................... 23,900 18,190 -------- -------- $ 8,770 $ 8,770 ======== ========
At December 31, 1996, the Company has net operating loss carryovers, including the net operating loss carryovers of IPC, for income tax reporting purposes of approximately $76,556. These carryovers expire between 2005 and 2008. In the event of a change in ownership of the Company these net operating loss carryovers may be limited. A valuation allowance has been recorded against certain of the net operating loss carryovers for which utilization is uncertain. NOTE 7 -- EMPLOYEE BENEFIT PLANS: Net periodic pension expense related to the defined benefit plans for the years ended December 31, 1994, 1995 and 1996 is comprised of the following components:
1994 1995 1996 ---- ---- ---- Service cost component -- benefits earned by employees for services during this period......... $ 274 $ 265 $ 290 Interest cost component -- increase in projected benefit obligation due to the passage of time..... 1,029 1,070 1,208 Return on plan assets, net of administrative expense........................................... (79) (1,926) (1,317) Net amortization and deferral....................... (866) 1,084 372 ------ ------- ------- Net periodic pension cost........................... $ 358 $ 493 $ 553 ====== ======= =======
F-13 86 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Plan assets are invested in a deposit administration contract with an insurance company and 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.
1995 1996 ---- ---- Actuarial present value of vested benefit obligation....... $14,228 $15,139 ======= ======= Actuarial present value of accumulated benefit obligation............................................... $14,333 $15,252 ======= ======= Fair value of the plans' assets............................ $12,873 $14,202 Actuarial present value of projected benefit obligation.... 14,417 15,357 ------- ------- Fair value of the plans' assets less than the projected benefit obligation....................................... (1,544) (1,155) Unrecognized net transition obligation..................... 463 398 Unrecognized prior service cost............................ 1,070 952 Unrecognized net loss...................................... 243 650 ------- ------- Prepaid pension expense.................................... $ 232 $ 845 ======= =======
The following table sets forth significant assumptions utilized in the actuarial valuation.
1995 1996 ---- ---- Discount rate used to adjust for the time value of money.... 8.5% 8.5% Expected rate of increase in employee compensation costs.... 0%-5% 0%-5% Expected long-term rate of return on assets................. 9.0% 9.0%
The charge to operations under IPC's defined benefit and defined contribution plans was approximately $1,900, $2,063 and $2,351 for the years ended December 31, 1994, 1995 and 1996, respectively. NOTE 8 -- STOCK OPTION AND INCENTIVE PLANS: IPC and Ivex established a stock option plan (the "Plan") for certain key executives, effective January 1, 1993. Pursuant to the 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 options are exercisable at any time, once vested and earned, prior to January 1, 2003. At December 31, 1996, 9,413 of these options were vested and earned by the Plan participants and 7,857 of the options were canceled. The Plan also provides 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 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 will be available to be earned in 1996 and 1997 based on Adjusted EBITDA results. The provisions of the options are substantially the same as the previously issued options. During 1996, 3,454 of such options were earned. The Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under the provisions of such statement, the Company is required to at least disclose the pro forma impact of recognizing compensation expense for the fair value of those options granted since January 1, 1996. Under the provisions of SFAS No. 123, the Company has not recognized any compensation cost for stock option plans. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards during 1996 consistent with the provisions of SFAS No. 123, the Company's net income would have been reduced to $8,548. F-14 87 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The Company's pro forma net income was determined under the assumption that all applicable options were earned when available with equal vesting over the three years from January 1, 1996. The fair value of the options granted was estimated on the date earned using the Black-Scholes option-pricing model and utilized the following weighted-average assumptions for options earned in 1996: dividend yield of 0.00%; expected volatility of 22.63%; risk-free interest rate of 5.28%; and expected lives of 3 years. IPC also entered into a special incentive agreement (the "Agreement") with certain key executives, effective January 1, 1993. The Agreement provided for a special incentive payment of up to $2,250 upon the occurrence of certain events as defined in the Agreement. During 1995, management earned all of the special incentive payment and, accordingly, IPC recorded expense of $2,250. As of December 31, 1996, all amounts to be paid pursuant to the terms of the Agreement have been paid. See Note 9 -- Special Charges. NOTE 9 -- SPECIAL CHARGES: During the fourth quarter of 1995, the Company recorded the following special charges: $2,250 associated with the Agreement (see Note 8 -- Stock Option and Incentive Plans), $1,950 of costs related to an attempted initial public equity offering and a reduction of land value of $760 associated with a donation of land to the Village of Chagrin Falls, Ohio. NOTE 10 -- RELATED PARTY TRANSACTIONS: IPC recorded management fee expense to Acadia of $400 in 1996 which was unpaid as of December 31, 1996. IPC paid management fees to Acadia of $400 in 1994 and 1995. NOTE 11 -- COMMITMENTS: IPC leases certain of its facilities and equipment under non-cancelable operating leases, some of which contain renewal options, escalation clauses and requirements that IPC pay taxes, insurance and maintenance costs. Approximate future minimum annual rental payments under non-cancelable operating lease agreements are as follows: 1997........................................................ $4,151 1998........................................................ 3,438 1999........................................................ 3,163 2000........................................................ 2,350 2001........................................................ 7,553 Thereafter.................................................. 588
Rent expense under operating leases included in the accompanying statement of operations aggregated approximately $3,576, $4,339 and $4,954 during 1994, 1995 and 1996, respectively. NOTE 12 -- EXTRAORDINARY LOSS FROM EXTINGUISHMENT OF DEBT: Deferred financing costs of $2,359 written off in connection with the refinancing of IPC's senior credit facility are presented as an extraordinary item in the consolidated statements of operations for the year ended December 31, 1995. NOTE 13 -- PLASTOFILM ACQUISITION On August 16, 1996, IPC acquired CFI Industries, Inc. ("CFI" or "Plastofilm") for an aggregate purchase price of $18,423, including the repayment of certain indebtedness of CFI and related acquisition fees and expenses. Through its subsidiary, Plastofilm Industries, CFI is a fully integrated custom thermoformer of F-15 88 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) plastic packaging products for the medical, electronics and personal care industries. The acquisition was 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 1996 consolidated financial statements include the results of operations and cash flows of Plastofilm from August 16, 1996. The following unaudited pro forma summary presents the consolidated results of operations as if the acquisition of Plastofilm had occurred at the beginning of 1995, after giving effect for certain adjustments. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made as of that date or of results which may occur in the future.
1995 1996 ---- ---- Net Sales................................................ $483,259 $472,414 ======== ======== Net income (loss) before extraordinary items............. $(22,089) $ 8,545 ======== ======== Net income (loss)........................................ $(24,448) $ 8,545 ======== ========
NOTE 14 -- SUBSEQUENT EVENTS On January 17, 1997, IPC purchased substantially all of the assets, excluding accounts receivable, of the OPS business of Viskase Limited located in Sedgefield, England for $11,907 and on February 21, 1997, IPC purchased all of the outstanding common stock of M&R Plastics, Inc. located in Laval, Quebec for $18,651. The acquired businesses were financed through cash flow from operations and revolving credit borrowings under IPC's senior credit facility. As a result of these borrowings, IPC amended and restated its senior credit facility on March 24, 1997, to, among other things, increase its revolving credit facility from $55,000 to $105,000. NOTE 15 -- SUBSEQUENT EVENT -- INITIAL PUBLIC OFFERING (UNAUDITED) The Company intends to file a Registration Statement to register its Common Stock. In conjunction with the offering, the Company's Board of Directors will authorize a common stock split. Upon successful completion of the offering, such transaction would trigger a change in ownership of the Company, as defined under Section 382 of the Internal Revenue Code, resulting in a limitation of the Company's ability to utilize its net operating loss carryovers in the future. F-16 89 IVEX PACKAGING CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- ASSETS Current Assets: Cash and cash equivalents................................. $ 2,822 $ 8,345 Accounts receivable trade, net of allowance............... 51,638 67,068 Inventories............................................... 49,023 53,506 Prepaid expenses and other................................ 5,395 6,327 --------- --------- Total current assets................................... 108,878 135,246 --------- --------- Property, Plant and Equipment: Buildings and improvements................................ 49,038 53,491 Machinery and equipment................................... 231,526 249,091 Construction in progress.................................. 8,069 15,959 --------- --------- 288,633 318,541 Less -- Accumulated depreciation.......................... (123,957) (136,699) --------- --------- 164,676 181,842 Land...................................................... 8,304 8,925 --------- --------- Total property, plant and equipment.................... 172,980 190,767 --------- --------- Other Assets: Goodwill, net of accumulated amortization................. 20,506 30,115 Miscellaneous............................................. 13,537 14,514 --------- --------- Total other assets..................................... 34,043 44,629 --------- --------- Total Assets................................................ $ 315,901 $ 370,642 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current Liabilities: Current installments of long-term debt.................... $ 5,921 $ 8,012 Accounts payable.......................................... 36,748 35,795 Accrued salary and wages.................................. 8,603 6,730 Self insurance reserves................................... 7,453 6,650 Accrued rebates and discounts............................. 3,824 3,559 Accrued interest.......................................... 1,680 1,567 Other accrued expenses.................................... 12,110 12,733 --------- --------- Total current liabilities.............................. 76,339 75,046 --------- --------- Long-Term Debt.............................................. 352,893 404,612 --------- --------- Other Long-Term Liabilities................................. 5,243 4,894 --------- --------- Deferred Income Taxes....................................... 8,770 10,482 --------- --------- Stockholders' Deficit: Ivex Packaging Corporation common stock, $.01 par value -- 2,000,000 shares authorized; and 1,072,246 shares issued and outstanding................................. 11 11 Paid in capital in excess of par value.................... 177,375 177,375 Accumulated deficit....................................... (303,566) (300,879) Foreign currency translation adjustment................... (1,164) (899) --------- --------- Total stockholders' deficit............................ (127,344) (124,392) --------- --------- Total Liabilities and Stockholders' Deficit................. $ 315,901 $ 370,642 ========= =========
The accompanying notes are an integral part of this statement. F-17 90 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------ 1996 1997 ---- ---- Net sales................................................... $ 210,443 $ 264,034 Cost of goods sold.......................................... 164,668 207,673 ---------- ---------- Gross profit................................................ 45,775 56,361 ---------- ---------- Operating expenses: Selling................................................... 9,599 13,231 Administrative............................................ 12,533 16,236 Amortization of intangibles............................... 258 512 ---------- ---------- Total operating expenses.................................... 22,390 29,979 ---------- ---------- Income from operations...................................... 23,385 26,382 Interest expense............................................ 21,221 22,805 ---------- ---------- Income before income taxes.................................. 2,164 3,577 Income tax provision........................................ (440) (890) ---------- ---------- Net income.................................................. $ 1,724 $ 2,687 ========== ========== Net income per share........................................ $ 1.61 $ 2.51 ========== ========== Average shares outstanding.................................. 1,072,246 1,072,246 ========== ==========
The accompanying notes are an integral part of this statement. F-18 91 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (DOLLARS IN THOUSANDS) (UNAUDITED)
IVEX PACKAGING CORPORATION PAID IN FOREIGN COMMON STOCK CAPITAL CURRENCY ------------------ IN EXCESS OF ACCUMULATED TRANSLATION STOCKHOLDERS' SHARES AMOUNT PAR VALUE DEFICIT ADJUSTMENT DEFICIT ------ ------ ------------ ----------- ----------- ------------- Balance at December 31, 1995.... 1,072,246 $11 $177,375 $(312,234) $(1,484) $(136,332) Foreign currency translation adjustment................. 320 320 Net income.................... 8,668 8,668 --------- --- -------- --------- ------- --------- Balance at December 31, 1996.... 1,072,246 11 177,375 (303,566) (1,164) (127,344) Foreign currency translation adjustment................. 265 265 Net income.................... 2,687 2,687 --------- --- -------- --------- ------- --------- Balance at June 30, 1997........ 1,072,246 $11 $177,375 $(300,879) $ (899) $(124,392) ========= === ======== ========= ======= =========
The accompanying notes are an integral part of this statement. F-19 92 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------- 1996 1997 ---- ---- Cash flows from operating activities: Net income................................................ $ 1,724 $ 2,687 Adjustments to reconcile net income to net cash from operating activities: Depreciation of properties........................... 11,045 12,778 Amortization of intangibles and debt issue costs..... 951 1,251 Non-cash interest.................................... 6,139 6,956 -------- -------- 19,859 23,672 Change in operating assets and liabilities: Accounts receivable.................................. 828 (12,104) Inventories.......................................... (798) (532) Prepaid expenses and other........................... 852 (809) Accounts payable..................................... (3,517) (5,184) Accrued expenses and other liabilities............... 227 (3,774) -------- -------- Net cash from operating activities................ 17,451 1,269 -------- -------- Cash flows from financing activities: Payment of senior credit facility......................... (2,500) (2,500) Proceeds from revolving credit facility................... -- 49,200 Payment of revolving credit facility...................... (7,500) -- Payment of debt issue costs............................... (191) (327) Other, net................................................ -- (430) -------- -------- Net cash from (used by) financing activities...... (10,191) 45,943 -------- -------- Cash flows from investing activities: Purchase of property, plant and equipment................. (7,996) (10,984) Acquisition of the OPS business of Viskase Limited........ -- (11,907) Acquisition of M&R Plastics, Inc.......................... -- (18,651) Other, net................................................ 346 (147) -------- -------- Net cash used by investing activities............. (7,650) (41,689) -------- -------- Net increase (decrease) in cash and cash equivalents........ (390) 5,523 Cash and cash equivalents at beginning of period............ 4,830 2,822 -------- -------- Cash and cash equivalents at end of period.................. $ 4,440 $ 8,345 ======== ======== Supplemental cash flow disclosures: Cash paid during the period for: Interest............................................... $ 14,410 $ 15,222 Income taxes........................................... 742 1,072
The accompanying notes are an integral part of this statement. F-20 93 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- ACCOUNTING AND REPORTING POLICIES In the opinion of management, the information in the accompanying unaudited financial statements reflects all adjustments necessary for a fair statement of results for the interim periods. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included herein. The Company is the sole stockholder of its operating subsidiary, IPC, Inc. The Company is a holding company with no operations of its own and is dependent on the operating cash flow of IPC and its subsidiaries in order to pay principal and interest on its debt; however, IPC has no contractual obligation to distribute any such cash flow to the Company. The Company's accounting and reporting policies are summarized in Note 2 of Ivex's consolidated financial statements included herein. Accounts Receivable Accounts receivable at December 31, 1996 and June 30, 1997 consist of the following:
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- Accounts receivable...................................... $53,718 $69,370 Less -- Allowance for doubtful accounts.................. (2,080) (2,302) ------- ------- $51,638 $67,068 ======= =======
Inventories Inventories at December 31, 1996 and June 30, 1997 consist of the following:
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- Raw materials............................................ $26,483 $27,561 Finished goods........................................... 22,540 25,945 ------- ------- $49,023 $53,506 ======= =======
NOTE 2 -- INCOME TAXES Income taxes are provided at the estimated annual effective tax rate which differs from the federal statutory rate of 35% primarily due to net operating loss carryovers and state and foreign income taxes. F-21 94 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 -- LONG-TERM DEBT At December 31, 1996 and June 30, 1997, the long-term debt of the Company and its wholly owned subsidiary, IPC, was as follows:
DECEMBER 31, JUNE 30, 1996 1997 ------------ -------- Senior credit facility.................................. $ 55,000 $101,700 Industrial revenue bonds................................ 38,293 38,293 12 1/2% IPC Notes, net of discount...................... 157,340 157,395 13 1/4% Discount Debentures, net of discount............ 106,139 113,095 Other................................................... 2,042 2,141 -------- -------- Total debt outstanding............................. 358,814 412,624 Less -- Current installments of long-term debt.......... (5,921) (8,012) -------- -------- Long-term debt.......................................... $352,893 $404,612 ======== ========
NOTE 4 -- ACQUISITIONS On January 17, 1997, IPC purchased substantially all of the assets, excluding accounts receivable, of the OPS business of Viskase Limited located in Sedgefield, England for $11,907. On February 21, 1997, IPC 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 acquired businesses were financed through revolving credit borrowings under IPC's senior credit facility. As a result of these borrowings, IPC amended and restated its senior credit facility on March 24, 1997 to, among other things, increase its revolving credit facility from $55,000 to $105,000. Pro forma financial information associated with these acquisitions has not been included because these acquisitions are not material to the Company's consolidated financial statements. NOTE 5 -- SUBSEQUENT EVENT -- INITIAL PUBLIC OFFERING The Company intends to file a Registration Statement to register its Common Stock. In conjunction with the offering, the Company's Board of Directors will authorize a common stock split. Upon successful completion of the offering, such transaction would trigger a change in ownership of the Company, as defined under Section 382 of the Internal Revenue Code, resulting in a limitation of the Company's ability to utilize its net operating loss carryovers in the future. F-22 95 The following photographs depict applications of the Company's plastic and paper packaging products. The Company is not the exclusive provider of packaging products to the companies whose name-branded products appear below. [photo of man] Protective Packaging [photo of food] Food Packaging [photo of electronic packaging] Electronic Packaging [photo of boy] Supermarket Bakery Packaging The following trademarks used in this Prospectus are owned by Ivex Packaging Corporation or one of its affiliates: Ivex(R), Kama(R), Plastofilm(R), Jet-Pak(R), Jet-Lite(R) and Jet-Cor(TM). 96 ================================================================================ NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 3 Risk Factors........................... 11 Use of Proceeds........................ 16 Dividend Policy........................ 17 Dilution............................... 18 The Refinancing........................ 19 Capitalization......................... 20 Pro Forma Consolidated Financial Data................................. 21 Selected Consolidated Financial Data... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 27 Business............................... 37 Management............................. 46 Principal and Selling Stockholders..... 55 Certain Relationships and Related Transactions......................... 57 Description of Capital Stock........... 58 Description of Certain Indebtedness.... 60 Shares Eligible for Future Sale........ 63 Certain United States Federal Tax Consequences to Non-United States Holders.............................. 64 Underwriting........................... 67 Experts................................ 69 Legal Matters.......................... 69 Additional Information................. 70 Index to Financial Statements.......... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ================================================================================ ================================================================================ 8,400,000 SHARES [IVEX LOGO] IVEX PACKAGING CORPORATION COMMON STOCK --------------------------- PROSPECTUS --------------------------- MERRILL LYNCH & CO. LEHMAN BROTHERS SALOMON BROTHERS INC , 1997 ================================================================================ 97 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE OR JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR JURISDICTION. ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 4, 1997 PROSPECTUS 8,400,000 SHARES [IVEX LOGO] IVEX PACKAGING CORPORATION COMMON STOCK ------------------------ Of the 8,400,000 shares of Common Stock, $.01 par value (the "Common Stock"), of Ivex Packaging Corporation, a Delaware corporation (the "Company" or "Ivex"), being offered hereby, 6,700,000 shares are being offered by the Company and 1,700,000 shares are being offered by Acadia Partners, L.P. and certain related investors (the "Selling Stockholder" or "Acadia"). The Company will not receive any of the proceeds from the sale of shares of Common Stock by the Selling Stockholder. See "Principal and Selling Stockholders." Of the 8,400,000 shares of Common Stock offered hereby, 1,680,000 shares are being offered initially outside the United States and Canada by the International Managers (the "International Offering") and 6,720,000 shares are being offered initially in a concurrent offering in the United States and Canada by the U.S. Underwriters (the "U.S. Offering," and together with the International Offering, the "Offerings"). The initial public offering price and the underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is anticipated that the initial public offering price will be between $14.00 and $16.00 per share. For a discussion relating to factors considered in determining the initial offering price, see "Underwriting." The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "IXX," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
============================================================================================================================= PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER - ----------------------------------------------------------------------------------------------------------------------------- Per Share............ $ $ $ $ - ------------------------------------------------------------------------------------------------------------------------ Total(3)............. $ $ $ $ =============================================================================================================================
(1) The Company and the Selling Stockholder have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offerings payable by the Company estimated at $ . (3) The Company has granted the International Managers and the U.S. Underwriters options to purchase up to an additional 252,000 shares and 1,008,000 shares of Common Stock, respectively, in each case exercisable within 30 days of the date hereof, solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock are being offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to the approval of certain legal matters by counsel for the Underwriters and to certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York, on or about , 1997. ------------------------ MERRILL LYNCH INTERNATIONAL LEHMAN BROTHERS SALOMON BROTHERS INTERNATIONAL LIMITED ------------------------ The date of this Prospectus is , 1997. 98 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS UNDERWRITING Merrill Lynch International, Lehman Brothers International (Europe) and Salomon Brothers International Limited are acting as lead managers (the "Lead Managers") for each of the International Managers named below (the "International Managers"). Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company, the Selling Stockholder and the International Managers, and concurrently with the sale of 6,720,000 shares of Common Stock to the U.S. Underwriters (as defined below), the Company has agreed to sell to the International Managers, and each of the International Managers severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
NUMBER OF INTERNATIONAL MANAGERS SHARES ---------------------- --------- Merrill Lynch International................................. Lehman Brothers International (Europe)...................... Salomon Brothers International Limited...................... --------- Total.......................................... 1,680,000 =========
The Company and the Selling Stockholder have also entered into a U.S. purchase agreement (the "U.S. Purchase Agreement") with certain underwriters in the United States and Canada (the "U.S. Underwriters" and, together with the International Managers, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Lehman Brothers Inc. and Salomon Brothers Inc are acting as representatives ("the U.S. Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 1,680,000 shares of Common Stock to the International Managers pursuant to the International Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally have agreed to purchase from the Company, an aggregate of 6,720,000 shares of Common Stock. The initial public offering price per share and the total underwriting discount per share of Common Stock are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement and the U.S. Purchase Agreement, the several International Managers and the several U.S. Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such agreement if any of the shares of Common Stock being sold pursuant to such agreement are purchased. The closings with respect to the sale of shares of Common Stock to be purchased by the International Managers and the U.S. Underwriters are conditioned upon one another. The Lead Managers have advised the Company and the Selling Stockholder that the International Managers propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $. per share of Common Stock. The International Managers may allow, and such dealers may reallow, a discount not in excess of $. per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. The Company has granted an option to the International Managers, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 252,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The International Managers may exercise this option only to cover over-allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the International Managers exercise this option, each International Manager will be obligated, subject to certain conditions, to purchase a number of additional 67 99 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS shares of Common Stock proportionate to such International Manager's initial amount reflected in the foregoing table. The Company has also granted an option to the U.S. Underwriters, exercisable for 30 days after the date of this Prospectus, to purchase up to an aggregate of 1,008,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Managers. The Company, the Company's executive officers and directors and all existing stockholders have agreed, subject to certain exceptions, not to directly or indirectly (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of or otherwise dispose of or transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act with respect to the foregoing except for the registration under the Securities Act of the Shares issuable under the 1997 Stock Incentive Plan and issuable under the option agreements of certain officers of the Company that may be registered on Form S-8 or any such successor form or (ii) enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of the Common Stock whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, without the prior written consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days after the date of this Prospectus. See "Shares Eligible for Future Sale." The International Managers and the U.S. Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") that provides for the coordination of their activities. Pursuant to the Intersyndicate Agreement, the International Managers and the U.S. Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. Prior to the Offerings, there has been no public market for the Common Stock of the Company. The initial public offering price has been determined through negotiations among the Company, the Selling Stockholder, the U.S. Representatives and the Lead Managers. The factors considered in determining the initial public offering price, in addition to prevailing market conditions, were price-earnings ratios of publicly traded companies that the U.S. Representatives believe to be comparable to the Company, certain financial information of the Company, the history of, and the prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations, the prospects for, and timing of, future revenues of the Company, the present state of the Company's development, and the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to the Company. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "IXX," subject to official notice of issuance. In order to meet the requirements for listing of the Common Stock on that exchange, the U.S. Underwriters and the International Managers have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders. Because affiliates of Lehman Brothers Inc. beneficially own in excess of 10% of the capital stock of the Company, the underwriting arrangements for the Offering must comply with the requirements of Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD"). This Offering is being conducted in 68 100 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS accordance with Rule 2720, which provides that, among other things, when an NASD member participates in the underwriting of an affiliate's equity securities, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter." Accordingly, Merrill Lynch is acting as a qualified independent underwriter for purposes of determining the price of the Common Stock offered hereby and has conducted due diligence investigations and has reviewed and participated in the preparation of this Prospectus and the Registration Statement of which this Prospectus forms a part. The price at which the Common Stock is being sold to the public is no higher than the price recommended by Merrill Lynch. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company and the Selling Stockholder have agreed to indemnify the International Managers and the U.S. Underwriters against certain liabilities, including certain liabilities under the Securities Act. Until the distribution of the Common Stock is completed, rules of the Commission may limit the ability of the Underwriters and certain selling group members to bid for and purchase the Common Stock. As an exception to these rules, the U.S. Representatives are permitted to engage in certain transactions that stabilize the price of the Common Stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of the Common Stock. If the Underwriters create a short position in the Common Stock in connection with the Offerings, i.e., if they sell more shares of Common Stock than are set forth on the cover page of this Prospectus, the U.S. Representatives may reduce that short position by purchasing Common Stock in the open market. The U.S. Representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The U.S. Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the U.S. Representatives purchase shares of Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of the Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold those shares as part of the Offerings. In general, purchases of a security for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security. Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the U.S. Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. Each International Manager has agreed that (i) it has not offered or sold and, prior to the expiration of the period of six months from the Closing Date, will not offer or sell any shares of Common Stock to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which do not constitute an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Common Stock in, from or otherwise involving the United Kingdom; and it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issuance of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to whom such document may otherwise lawfully be issued or passed on. 69 101 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS No action has been or will be taken in any jurisdiction (except in the United States) that would permit a public offering of the shares of Common Stock, or the possession, circulation or distribution of this Prospectus or any other material relating to the Company, the Selling Stockholder or shares of Common Stock in any jurisdiction where action for that purpose is required. Accordingly, the shares of Common Stock may not be offered or sold, directly or indirectly, and neither this Prospectus nor any other offering material or advertisements in connection with the shares of Common Stock may be distributed or published, in or from any country or jurisdiction except in compliance with any applicable rules and regulations of any such country or jurisdiction. Purchasers of the shares offered hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase in addition to the offering price set forth on the cover page hereof. 70 102 ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS ====================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERINGS COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IN THE PROSPECTUS, REFERENCES TO "DOLLARS" AND "$" ARE TO UNITED STATES DOLLARS. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 3 Risk Factors........................... 11 Use of Proceeds........................ 16 Dividend Policy........................ 17 Dilution............................... 18 The Refinancing........................ 19 Capitalization......................... 20 Pro Forma Consolidated Financial Data................................. 21 Selected Consolidated Financial Data... 25 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 27 Business............................... 37 Management............................. 46 Principal and Selling Stockholders..... 55 Certain Relationships and Related Transactions......................... 57 Description of Capital Stock........... 58 Description of Certain Indebtedness.... 60 Shares Eligible for Future Sale........ 63 Certain United States Federal Tax Consequences to Non-United States Holders.............................. 64 Underwriting........................... 67 Experts................................ 70 Legal Matters.......................... 70 Additional Information................. 70 Index to Financial Statements.......... F-1
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 8,400,000 SHARES [IVEX LOGO] IVEX PACKAGING CORPORATION COMMON STOCK --------------------------- PROSPECTUS --------------------------- MERRILL LYNCH INTERNATIONAL LEHMAN BROTHERS SALOMON BROTHERS INTERNATIONAL LIMITED , 1997 ====================================================== 103 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses in connection with the registration of the shares of Common Stock are estimated as follows: Securities and Exchange Commission registration fee......... $22,871 NASD filing fee............................................. 14,875 NYSE filing fee*............................................ * Printing and engraving costs*............................... * Legal fees and expenses*.................................... * Accounting fees and expenses*............................... * Blue sky qualifications and related legal fees and expenses*................................................. * Miscellaneous*.............................................. * ------- Total*................................................. $ * =======
None of the expenses will be borne by the Selling Stockholders. - ------------------------- * To be provided by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law (the "GCL") provides that a Delaware corporation may, with certain limitations, indemnify any person who was or is a party or is threatened to be made a party to any action, civil or criminal, by virtue of the fact he is or was an officer, director, employee or agent of the corporation. Section 9.1 of the Company's Amended and Restated Certificate of Incorporation provides as follows: "To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other Entity to the extent the Board of Directors at any time specifies that such persons are entitled to the benefits of this Section 9." Sections 1 through 9 of Article 8 of the Company's Amended By-Laws provide as follows: "To the extent not prohibited by law, the Corporation shall indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed action, suit or proceeding (a "Proceeding"), whether civil, criminal, administrative or investigative, including, without limitation, an action by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a Director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (an "Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys' fees and disbursements). Persons who are not Directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to an Other II-1 104 Entity at the request of the Corporation to the extent the Board at any time specifies that such persons are entitled to the benefits of this Section 8." "The Corporation shall, from time to time, reimburse or advance to any Director or officer or other person entitled to indemnification hereunder 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 General Corporation Law, such expenses incurred by or on behalf of any Director or officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation of an undertaking, by or on behalf of such Director or officer (or other person indemnified hereunder), 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 such Director, officer or other person is not entitled to be indemnified for such expenses." "The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 8 shall not be deemed exclusive of any other rights to which a person seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any statute, the Certificate of Incorporation, these By-laws, any agreement, any vote of stockholders or disinterested Directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office." "The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 8 shall continue as to a person who has ceased to be a Director or officer (or other person indemnified hereunder) and shall inure to the benefit of the executors, administrators, legatees and distributees of such person." "The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of an Other Entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section 8, the Certificate of Incorporation or under Section 145 of the General Corporation Law or any other provision of law." "The provisions of this Section 8 shall be a contract between the Corporation, on the one hand, and each Director and officer who serves in such capacity at any time while this Section 8 is in effect and any other person indemnified hereunder, on the other hand, pursuant to which the Corporation and each such Director, officer or other person intend to be legally bound. No repeal or modification of this Section 8 shall affect any rights or obligations with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts." "The rights to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 8 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses 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 Corporation. Neither the failure of the Corporation (including its Board of Directors, its independent legal counsel and 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 Corporation (including its Board of Directors, its independent legal counsel and its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding." II-2 105 "Any Director or officer of the Corporation serving in any capacity (a) another corporation of which a majority of the shares entitled to vote in the election of its directors is held, directly or indirectly, by the Corporation or (b) any employee benefit plan of the Corporation or any corporation referred to in clause (a) shall be deemed to be doing so at the request of the Corporation." "Any person entitled to be indemnified or to reimbursement or advancement of expenses as a matter of right pursuant to this Section 8 may elect to have the 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 Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided, however, 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." ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES No securities of the Company have been issued or sold by the Company within the past three years which were not registered under the Securities Act. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits:
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - ------- ----------------------- ------- ---------------- *1.1 -- Form of U.S. Purchase Agreement *1.2 -- Form of International Purchase Agreement **1.3 -- Dealer Manager Agreement with Bankers Trust Company **2.1 -- Offers to Purchase and Consent Solicitations Statement, dated August 27, 1997, relating to the 13 1/4% Discount Debentures and the 12 1/2% Subordinated Notes together with the accompanying letters of transmittal 3.1 -- Certificate of Incorporation of IPC, Inc. ("IPC") 3.1 IPC Form S-1 (Registration No. 33-52150) 3.2 -- By-Laws of IPC 3.2 IPC Form S-1 (Registration No. 33-52150) *3.3 -- Amended and Restated Certificate of Incorporation of Ivex Packaging Corporation ("Holdings" or "Ivex") *3.4 -- Amended By-Laws of Ivex 4.1 -- Indenture relating to IPC's 12 1/2% Senior Subordinated Notes (including form of 12 1/2% Senior Subordinated Notes) 4.1 Ivex Form S-4 (Registration No. 33-60714)
II-3 106
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - --------- -------------------------------------------------------- --------- ------------------------------- 4.2 -- Indenture relating to Ivex's 13 1/4% Senior Discount Debentures (including form of 13 1/4% Senior Discount Debentures) 4.2 IPC 1992 Form 10-K (File No. 33-52150) *4.3 -- Registration Rights Agreement, dated as of , 1997, among Ivex, Acadia Partners, L.P., and the other stockholders party thereto *4.4 -- Form of First Supplemental Indenture relating to IPC's 12 1/2% Senior Subordinated Notes *4.5 -- Form of First Supplemental Indenture relating to Ivex's 13 1/4% Discount Debentures *5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois) *10.1 -- Form of Senior Management Incentive Compensation Plan for 1997 10.2 -- Form of Executive Deferred Compensation Plan 10.3 IPC 1994 Form 10-K (File No. 33-52150) 10.3 -- Form of Trust Agreement, dated October 17, 1996, between IPC, Inc. and the trustee thereof relating to executive deferred compensation 10.3 Ivex 1996 Form 10-K (File No. 33-52150) 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 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 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 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 10.14 Ivex 6/30/96 Form 10-Q (File No. 33-60714) 10.8 -- Employment Agreement, dated as of December 31, 1992, between IPC and Frank V. Tannura 10.30 IPC 6/30/93 Form 10-Q (File No. 33-52150)
II-4 107
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - ------- ----------------------- ------- ---------------- 10.9 -- Amendment No. 1, dated as of September 11, 1995, to the Employment Agreement, dated as of December 31, 1992, between IPC and Frank V. Tannura 10.59 IPC 6/30/95 Form 10-Q (File No. 33-52150) 10.10 -- Amendment No. 2 to Employment Agreement, dated May 30, 1996, between IPC and Frank V. Tannura 10.15 Ivex 6/30/96 Form 10-Q (File No. 33-60714) 10.11 -- Stock Option Agreement, dated as of January 22, 1991, among Ivex, Acadia Partners, L.P. and George V. Bayly 10.30 IPC Form S-1 (Registration No. 33-52150) 10.12 -- Form of Severance Agreement between the Company and certain named executive officers 1.1 IPC 1994 Form 10-K (File No. 33-52150) 10.13 -- Credit Agreement, dated as of December 7, 1995 (the "1995 Credit Agreement"), among Ivex, IPC, certain of IPC's subsidiaries, the lenders listed therein, and NationsBank, N.A., as agent 10.30 Ivex 1995 Form 10-K (File No. 33-60714) 10.14 -- Pledge Agreement, dated as of December 7, 1995, among Ivex, IPC, IPC's subsidiaries and NationsBank, N.A., as agent 10.31 Ivex 1995 Form 10-K (File No. 33-60714) 10.15 -- Security Agreement, dated as of December 7, 1995, among Ivex, IPC, IPC's subsidiaries and NationsBank, N.A., as agent 10.32 Ivex 1995 Form 10-K (File No. 33-60714) 10.16 -- Form of Mortgage and Security Agreement in favor of NationsBank, N.A., as agent 10.33 Ivex 1995 Form 10-K (File No. 33-60714) 10.17 -- Amendment No. 1 to Credit Agreement, dated as of August 16, 1996, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto 10.34 Ivex 1996 Form 10-K (File No. 33-60714) 10.18 -- Amendment No. 2 to Credit Agreement, dated as of November 21, 1996, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto 10.35 Ivex 1996 Form 10-K (File No. 33-60714)
II-5 108
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - ------- ----------------------- ------- ---------------- 10.19 -- Form of Amended and Restated Credit Agreement, dated as of March 24, 1997, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto 10.36 Ivex 1996 Form 10-K (File No. 33-60714) 10.20 -- Form of Amended and Restated Pledge Agreement among IPC, Ivex, certain of IPC's subsidiaries and NationsBank, N.A., as agent 10.37 Ivex 1996 Form 10-K (File No. 33-60714) 10.21 -- Form of Amended and Restated Security Agreement among IPC, Ivex, and certain of IPC's subsidiaries and NationsBank, N.A., as agent 10.38 Ivex 1996 Form 10-K (File No. 33-60714) 10.22 -- Loan Agreement, dated as of December 1, 1987, between the County of Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.11 IPC Form S-1 (Registration No. 33-52150) 10.23 -- Loan Agreement, dated as of June 1, 1988, between the Development Authority of Morgan County and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.13 IPC Form S-1 (Registration No. 33-52150) 10.24 -- Loan Agreement, dated as of October 1, 1987, between the County of Will, Illinois and LPX, Inc. 10.15 IPC Form S-1 (Registration No. 33-52150) 10.25 -- Loan Agreement, dated as of April 1, 1988, between the Illinois Development Finance Authority and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.17 IPC Form S-1 (Registration No. 33-52150) 10.26 -- Indenture of Trust, dated as of March 1, 1989, between Marine Midland Bank, N.A. and Ivex of Delaware, Inc. (n/k/a IPC, Inc.) 10.19 IPC Form S-1 (Registration No. 33-52150) 10.27 -- Loan Agreement, dated November 1, 1985, between the Village of Bridgeview, Illinois and L&CP Corporation 10.21 IPC Form S-1 (Registration No. 33-52150) 10.28 -- 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) 10.29 -- 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)
II-6 109
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - ------- ----------------------- ------- ---------------- 10.30 -- 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) 10.31 -- 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) 10.32 -- Lease, dated June 20, 1995, between Howard H. Gelb and Eunice Gelb and Kama Corporation Corporation (n/k/a IPC, Inc.) 10.44 Ivex 1995 Form 10-K (File No. 33-60714) 10.33 -- Industrial Building Lease, dated October 19, 1992, between Telegraph Road Properties, Inc. and Packaging Products, Inc. 10.45 Ivex 1995 Form 10-K (File No. 33-60714) 10.34 -- Industrial Building Lease, dated October 23, 1985, between IMAC Realty, Inc. and Packaging Products, Inc. 10.46 Ivex 1995 Form 10-K (File No. 33-60714) 10.35 -- Letter Agreement, dated March 10, 1995, between Packaging Products, Inc. and LeWa Company 10.47 Ivex 1995 Form 10-K (File No. 33-60714) 10.36 -- Tri-Party Agreement, dated September 11, 1995, among Packaging Products, Inc. and Telegraph Road Properties, Inc. 10.48 Ivex 1995 Form 10-K (File No. 33-60714) 10.37 -- 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) 10.38 -- Installment Sales Agreement, dated as of December 12, 1990, between Grove City Industrial Development Corporation and Ivex Converted Products Corporation (n/k/a IPC, Inc.) 10.39 IPC Form S-1 (Registration No. 33-52150) 10.39 -- Consulting Agreement, dated as of December 17, 1992, between IPC and Penobscot-MB Partners 10.39 IPC Form S-4 (Registration No. 33-60714) 10.40 -- 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)
II-7 110
INCORPORATED BY REFERENCE TO THE FOLLOWING EXHIBIT EXHIBIT REGISTRATION NO. NO. DESCRIPTION OF DOCUMENT NO. OR REPORT - --------- -------------------------------------------------------- --------- ------------------------------- 10.41 -- Transfer and Noncompete Agreement, dated as of October 14, 1992, between Ivex Converted Products Corporation (n/k/a IPC, Inc.) and MaxPack S.A. de C.V. 10.46 IPC Form S-1 (Registration No. 33-52150) 10.42 -- Stockholders Agreement, dated as of October 14, 1992, by and among MaxPack S.A. de C.V. and the stockholders thereof 10.46 IPC Form S-1 (Registration No. 33-52150) 10.43 -- Agreement and Plan of Merger, dated as of May 17, 1996 (as amended), among IPC, CFI Industries, Inc. and Equity Partners A-1 CFI Industries, Inc.'s Proxy Statement dated 7/22/96 *10.44 -- Form of Ivex Packaging Corporation 1997 Performance Incentive Plan *10.45 -- Form of Ivex Packaging Corporation 1997 Stock Option Plan *10.46 -- Form of First Amendment to the Consulting Agreement, dated as of January 1, 1991, between IPC and Penobscot-MB Partners *10.47 -- Form of Voting Agreement among Acadia, certain related investors and certain members of Ivex Management 21.1 -- Subsidiaries of Ivex(1) **23.1 -- Consent of Price Waterhouse LLP *23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1) 24.1 -- Powers of Attorney (included on signature page)
- ------------------------- * To be filed by amendment. ** Filed herewith. (1) Filed with Amendment No. 6 to the Company's Registration Statement on Form S-1 filed with the Commission on August 1, 1997. The following combined consolidated financial statement schedules are included as part of the Registration Statement immediately following the signature page: (b) Combined Consolidated Financial Statement Schedules:
SCHEDULE DESCRIPTION OF SCHEDULE - -------- ----------------------- Schedule I -- Condensed Financial Information Schedule II -- Valuation and Qualifying Accounts and Reserves
All other schedules of the Company for which provision is made in the applicable accounting regulations of the Commission are not required, are inapplicable or have been disclosed in the notes to the consolidated financial statements and therefore have been omitted. II-8 111 ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-9 112 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Lincolnshire, State of Illinois, on September 4, 1997. IVEX PACKAGING CORPORATION By: /s/ G. DOUGLAS PATTERSON ------------------------------------ Name: G. Douglas Patterson Title: Vice President and General Counsel Pursuant to the requirements of the Securities Act of 1933, this Amendment to Registration Statement has been signed by the following persons in the capacities indicated on September 4, 1997.
SIGNATURE TITLE --------- ----- GEORGE V. BAYLY* Director, Chairman of the Board, President and Chief - --------------------------------------------- Executive Officer (Principal Executive Officer) George V. Bayly FRANK V. TANNURA* Director, Vice President and Chief Financial Officer - --------------------------------------------- (Principal Financial Officer) Frank V. Tannura DAVID E. WARTNER* Corporate Controller (Principal Accounting Officer) - --------------------------------------------- David E. Wartner ANTHONY P. SCOTTO* Director - --------------------------------------------- Anthony P. Scotto GLENN R. AUGUST* Director - --------------------------------------------- Glenn R. August *By /s/ G. DOUGLAS PATTERSON - --------------------------------------------- G. Douglas Patterson, Attorney-in-fact
II-10 113 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------------- 1995 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents................................. $ 37 $ 27 --------- --------- Total current assets................................... 37 27 Investment in subsidiary.................................... 73,418 73,418 Debt issue costs, net....................................... 2,683 2,419 --------- --------- Total assets........................................... $ 76,138 $ 75,864 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Long-term debt.............................................. $ 93,338 $ 106,139 --------- --------- Stockholders' deficit: Ivex Packaging Corporation common stock, $0.01 par value -- 2,000,000 shares authorized; 1,072,246 shares issued and outstanding at December 31, 1995 and 1996.......... 11 11 Paid in capital in excess of par value.................... 177,375 177,375 Accumulated deficit....................................... (194,586) (207,661) --------- --------- Total stockholders' deficit............................ (17,200) (30,275) --------- --------- Total liabilities and stockholders' deficit................. $ 76,138 $ 75,864 ========= =========
See Notes to Consolidated Financial Statements. S-1 114 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF OPERATIONS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1994 1995 1996 ---- ---- ---- Interest expense............................................ $ 10,217 $ 11,508 $ 13,075 -------- -------- -------- Loss before income taxes.................................... (10,217) (11,508) (13,075) Income tax provision........................................ (6) -------- -------- -------- Net loss.................................................... $(10,223) $(11,508) $(13,075) ======== ======== ========
See Notes to Consolidated Financial Statements. S-2 115 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS)
COMMON STOCK PAID IN CAPITAL STOCKHOLDERS' ------------------ IN EXCESS OF ACCUMULATED EQUITY SHARES AMOUNT PAR VALUE DEFICIT (DEFICIT) ------ ------ --------------- ----------- ------------- Balance at December 31, 1993.......... 1,072,246 $11 $177,375 $(172,855) $ 4,531 Net loss.............................. (10,223) (10,223) --------- --- -------- --------- -------- Balance at December 31, 1994.......... 1,072,246 11 177,375 (183,078) (5,692) Net loss.............................. (11,508) (11,508) --------- --- -------- --------- -------- Balance at December 31, 1995.......... 1,072,246 11 177,375 (194,586) (17,200) Net loss.............................. (13,075) (13,075) --------- --- -------- --------- -------- Balance at December 31, 1996.......... 1,072,246 $11 $177,375 $(207,661) $(30,275) ========= === ======== ========= ========
See Notes to Consolidated Financial Statements. S-3 116 IVEX PACKAGING CORPORATION SCHEDULE I -- CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) STATEMENT OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1994 1995 1996 ---- ---- ---- Cash flows used by operating activities: Net loss.................................................... $(10,223) $(11,508) $(13,075) Adjustments to reconcile net loss to net cash used by operating activities: Amortization of debt issue costs.......................... 263 264 264 Non-cash interest......................................... 9,916 11,232 12,801 -------- -------- -------- Net cash used by operating activities....................... (44) (12) (10) -------- -------- -------- Net decrease in cash and cash equivalents................... (44) (12) (10) Cash and cash equivalents at beginning of year.............. 93 49 37 -------- -------- -------- Cash and cash equivalents at end of year.................... $ 49 $ 37 $ 27 ======== ======== ========
See Notes to Consolidated Financial Statements. S-4 117 IVEX PACKAGING CORPORATION SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (DOLLARS IN THOUSANDS)
BEGINNING ENDING DESCRIPTION BALANCE ADDITIONS DEDUCTIONS BALANCE ----------- --------- --------- ---------- ------- Accounts receivable -- allowance for doubtful accounts: 1994.............................................. $ 1,272 $ 594 $ (421)(1) $ 1,445 1995.............................................. 1,445 943 (376)(1) 2,012 1996.............................................. 2,012 281 (213)(1) 2,080 Income Taxes -- valuation allowance: 1994.............................................. $19,563 $ 309 $ -- $19,872 1995.............................................. 19,872 4,028 -- 23,900 1996.............................................. 23,900 -- (5,710) 18,190
- ------------------------- (1) Accounts charged off, less recoveries. S-5 118 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF DOCUMENT PAGES - ------- ----------------------- ------------ 1.1 -- Form of U.S. Purchase Agreement* 1.2 -- Form of International Purchase Agreement* 1.3 -- Dealer Manager Agreement with Bankers Trust Company(14) 2.1 -- Offers to Purchase and Consent Solicitations Statement, dated August 27, 1997, relating to the 13 1/4% Discount Debentures and the 12 1/2% Subordinated Notes together with the accompanying letters of transmittal(14) 3.1 -- Certificate of Incorporation of IPC, Inc. ("IPC")(1) 3.2 -- By-Laws of IPC(1) 3.3 -- Amended and Restated Certificate of Incorporation of Ivex Packaging Corporation ("Holdings" or "Ivex")* 3.4 -- Amended By-Laws of Ivex* 4.1 -- Indenture relating to IPC's 12 1/2% Senior Subordinated Notes (including form of 12 1/2% Senior Subordinated Notes)(2) 4.2 -- Indenture relating to Ivex's 13 1/4% Senior Discount Debentures (including form of 13 1/4% Senior Discount Debentures)(3) 4.3 -- Registration Rights Agreement, dated as of , 1997, among Ivex, Acadia Partners, L.P., and the other stockholders party thereto* 4.4 -- Form of First Supplemental Indenture relating to IPC's 12 1/2% Senior Subordinated Notes* 4.5 -- Form of First Supplemental Indenture relating to Ivex's 13 1/4% Discount Debentures* 5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)* 10.1 -- Form of Senior Management Incentive Compensation Plan for 1997* 10.2 -- Form of Executive Deferred Compensation Plan(4) 10.3 -- Form of Trust Agreement, dated October 17, 1996, between IPC, Inc. and the trustee thereof relating to executive deferred compensation(5) 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(6) 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(7) 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(7) 10.8 -- Employment Agreement, dated as of December 31, 1992, between IPC and Frank V. Tannura(8) 10.9 -- Amendment No. 1, dated as of September 11, 1995, to the Employment Agreement, dated as of December 31, 1992, between IPC and Frank V. Tannura(9) 10.10 -- Amendment No. 2 to Employment Agreement, dated May 30, 1996, between IPC and Frank V. Tannura(7)
S-6 119
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF DOCUMENT PAGES - ------- ----------------------- ------------ 10.11 -- Stock Option Agreement, dated as of January 22, 1991, among Ivex, Acadia Partners, L.P. and George V. Bayly(1) 10.12 -- Form of Severance Agreement between the Company and certain named executive officers(4) 10.13 -- Credit Agreement, dated as of December 7, 1995 (the "1995 Credit Agreement"), among Ivex, IPC, certain of IPC's subsidiaries, the lenders listed therein, and NationsBank, N.A., as agent(10) 10.14 -- Pledge Agreement, dated as of December 7, 1995, among Ivex, IPC, IPC's subsidiaries and NationsBank, N.A., as agent(10) 10.15 -- Security Agreement, dated as of December 7, 1995, among Ivex, IPC, IPC's subsidiaries and NationsBank, N.A., as agent(10) 10.16 -- Form of Mortgage and Security Agreement in favor of NationsBank, N.A., as agent(10) 10.17 -- Amendment No. 1 to Credit Agreement, dated as of August 16, 1996, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto(11) 10.18 -- Amendment No. 2 to Credit Agreement, dated as of November 21, 1996, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto(11) 10.19 -- Form of Amended and Restated Credit Agreement, dated as of March 24, 1997, by and among IPC, NationsBank, N.A., as agent, and the guarantors and lenders identified on the signature pages thereto(11) 10.20 -- Form of Amended and Restated Pledge Agreement among IPC, Ivex, certain of IPC's subsidiaries and NationsBank, N.A., as agent(11) 10.21 -- Form of Amended and Restated Security Agreement among IPC, Ivex, and certain of IPC's subsidiaries and NationsBank, N.A., as agent(11) 10.22 -- Loan Agreement, dated as of December 1, 1987, between the County of Kankakee, Illinois and Ivex of Delaware, Inc. (n/k/a IPC, Inc.)(1) 10.23 -- 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.)(1) 10.24 -- Loan Agreement, dated as of October 1, 1987, between the County of Will, Illinois and LPX, Inc.(1) 10.25 -- Loan Agreement, dated as of April 1, 1988, between the Illinois Development Finance Authority and Ivex of Delaware, Inc. (n/k/a IPC, Inc.)(1) 10.26 -- 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.)(1) 10.27 -- Loan Agreement, dated November 1, 1985, between the Village of Bridgeview, Illinois and L&CP Corporation(1) 10.28 -- Loan Agreement, dated as of June 1, 1988, between City of Troy, Ohio and L&CP Corporation (n/k/a IPC, Inc.)(1) 10.29 -- Lease Agreement, dated as of December 5, 1996, between State Street Bank and Trust Company and IPC(11) 10.30 -- Lease, dated as of October 4, 1988, between Seymour C. Graham and Kama Corporation (n/k/a IPC, Inc)(1)
S-7 120
SEQUENTIALLY EXHIBIT NUMBERED NO. DESCRIPTION OF DOCUMENT PAGES - ----------- ----------------------------------------------------------------------------------------- --------------- 10.31 -- Amendment to Lease, dated as of December 20, 1988, between Seymour C. Graham and Kama Corporation (n/k/a IPC, Inc)(1) 10.32 -- Lease, dated June 20, 1995, between Howard H. Gelb and Eunice Gelb and Kama Corporation Corporation (n/k/a IPC, Inc.)(10) 10.33 -- Industrial Building Lease, dated October 19, 1992, between Telegraph Road Properties, Inc. and Packaging Products, Inc.(10) 10.34 -- Industrial Building Lease, dated October 23, 1985, between IMAC Realty, Inc. and Packaging Products, Inc.(10) 10.35 -- Letter Agreement, dated March 10, 1995, between Packaging Products, Inc. and LeWa Company(10) 10.36 -- Tri-Party Agreement, dated September 11, 1995, among Packaging Products, Inc. and Telegraph Road Properties, Inc.(10) 10.37 -- Lease, dated as of September 11, 1996, by and between Joseph P. Bennett and Trio Products, Inc.(11) 10.38 -- 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.)(1) 10.39 -- Consulting Agreement, dated as of December 17, 1992, between IPC and Penobscot-MB Partners(2) 10.40 -- Tax Sharing Agreement, dated as of December 17, 1992, between Ivex and IPC and certain of IPC's subsidiaries(2) 10.41 -- Transfer and Noncompete Agreement, dated as of October 14, 1992, between Ivex Converted Products Corporation (n/k/a IPC, Inc.) and MaxPack S.A. de C.V.(1) 10.42 -- Stockholders Agreement, dated as of October 14, 1992, by and among MaxPack S.A. de C.V. and the stockholders thereof(1) 10.43 -- Agreement and Plan of Merger, dated as of May 17, 1996 (as amended), among IPC, CFI Industries, Inc. and Equity Partners(12) 10.44 -- Form of Ivex Packaging Corporation 1997 Performance Incentive Plan* 10.45 -- Form of Ivex Packaging Corporation 1997 Stock Option Plan* 10.46 -- Form of First Amendment to the Consulting Agreement, dated as of January 1, 1991, between IPC and Penobscot-MB Partners* 10.47 -- Form of Voting Agreement among Acadia, certain related investors and certain members of Ivex Management* 21.1 -- Subsidiaries of Ivex(13) 23.1 -- Consent of Price Waterhouse LLP(14) 23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.1)* 24.1 -- Powers of Attorney (included on signature page)(13)
- ------------------------- * To be filed by amendment. (1) Incorporated by reference to Registration Statement of IPC on Form S-1 (33-52150). (2) Incorporated by reference to Registration Statement of the Company on Form S-4 (33-60714). S-8 121 (3) Incorporated by reference to Annual Report of IPC on Form 10-K for the fiscal year ended December 31, 1992. (4) Incorporated by reference to Annual Report of IPC on Form 10-K for the fiscal year ended December 31, 1994. (5) Incorporated by reference to Annual Report of the Company on Form 10-K for the year ended December 31, 1996. (6) Incorporated by reference to Annual Report of IPC on Form 10-K for the year ended December 31, 1993. (7) Incorporated by reference to Quarterly Report of the Company on Form 10-Q for the three months ended June 30, 1996. (8) Incorporated by reference to Quarterly Report of IPC on Form 10-Q for the three months ended June 30, 1993. (9) Incorporated by reference to Quarterly Report of IPC on Form 10-Q for the three months ended June 30, 1995. (10) Incorporated by reference to Annual Report of the Company on Form 10-K for the year ended December 31, 1995. (11) Incorporated by reference to Annual Report of the Company on Form 10-K for the year ended December 31, 1996. (12) Incorporated by reference to Proxy Statement of CFI Industries, Inc. dated July 22, 1996. (13) Filed with Amendment No. 6 to the Company's Registration Statement on Form S-1 filed with the Commission on August 1, 1997. (14) Filed herewith. S-9 EX-1.3 2 DEALER MANAGEMENT AGREEMENT 1 EXHIBIT 1.3 DEALER MANAGER AGREEMENT August 27, 1997 BT SECURITIES CORPORATION 130 Liberty Street New York, New York 10006 Ladies and Gentlemen: IPC, Inc., a Delaware corporation ("IPC"), proposes to offer (the "Subordinated Notes Tender Offer") to the holders of its 12 1/2% Senior Subordinated Notes due 2002 (the "Subordinated Notes"), upon the terms and subject to the conditions set forth in the Offers to Purchase and Consent Solicitations Statement dated August 27, 1997 (as amended, modified or supplemented from time to time in accordance with the terms of this Agreement, the "Offers to Purchase"), to purchase for cash any and all of the outstanding Subordinated Notes. Ivex Packaging Corporation, a Delaware corporation ("Packaging," and together with IPC, the "Issuers"), proposes to offer (the "Discount Notes Tender Offer," and together with the Subordinated Notes Tender Offer, the "Tender Offers") to the holders of its 13 1/4% Senior Discount Debentures due 2005 (the "Discount Notes," and together with the Subordinated Notes, the "Notes"), upon the terms and subject to the conditions set forth in the Offers to Purchase, to purchase for cash any and all of the outstanding Discount Notes. Concurrently with the Subordinated Notes Tender Offer, IPC is soliciting consents (the "Subordinated Notes Consent Solicitation") from holders of the Subordinated Notes to amendments (the "Proposed Subordinated Notes Amendments") to certain of the provisions in the indenture governing the Subordinated Notes (the "Subordinated Notes Indenture"), as described in the Offers to Purchase. Concurrently with the Discount Notes Tender Offer, Packaging is soliciting consents (the "Discount Notes Consent Solicitation," and together with the Subordinated Notes Consent Solicitation, the "Consent Solicitations") from holders of the Discount Notes to amendments (the "Proposed Discount Notes Amendments," and together with the Proposed Subordinated Notes Amendments, the "Proposed Amendments") to certain of the provisions in the indenture governing the Discount Notes (the "Discount Notes Indenture," and together with the Subordinated Notes Indenture, the "Indentures"), as described in the Offers to Purchase. Upon receipt of the Requisite Consents (as defined in the Of- 2 -2- fers to Purchase) from holders of the Subordinated Notes, IPC, as issuer, and United States Trust Company of New York, as trustee under the Subordinated Notes Indenture (in such capacity, the "Subordinated Notes Trustee"), will enter into a supplemental indenture that will give effect to the Proposed Subordinated Notes Amendments (the "Subordinated Notes Supplemental Indenture"). Upon receipt of the Requisite Consents (as defined in the Offers to Purchase) from holders of the Discount Notes, Packaging, as issuer, and United States Trust Company of New York, as trustee under the Discount Notes Indenture (in such capacity, the "Discount Notes Trustee"), will enter into a supplemental indenture that will give effect to the Proposed Discount Notes Amendments (the "Discount Notes Supplemental Indenture," and together with the Subordinated Notes Supplemental Indenture, the "Supplemental Indentures"). The Tender Offers and Consent Solicitations will be made on the terms and subject to the conditions set forth in the Offers to Purchase and the accompanying consents and letters of transmittal (the "Letters of Transmittal"). Unless otherwise indicated, the use of the term Subordinated Notes Tender Offer herein shall be deemed to include the Subordinated Notes Consent Solicitation, the use of the term Discount Notes Tender Offer herein shall be deemed to include the Discount Notes Consent Solicitation and the use of the term Tender Offers herein shall be deemed to include the Consent Solicitations. IPC and Packaging hereby confirm their agreement with you as follows: 1. Tender Offer Materials. Each of the Issuers agrees to furnish you at its own expense with as many copies as you may reasonably request of the Offers to Purchase, and all attachments thereto, and the Letters of Transmittal and all other related offering materials prepared by the Issuers for use in connection with the Tender Offers (collectively, as amended or supplemented from time to time in accordance with the terms hereof and thereof and including all of the documents incorporated by reference therein, the "Offering Materials"). Each of the Issuers authorizes you to use the Offering Materials in connection with the Tender Offers, and you agree that you shall not use any material in connection therewith other than the Offering Materials and such other materials, if any, as the Issuers may approve. Each of the Issuers agrees to cause a copy of the Offering Materials to be mailed to each record holder of the Notes and to use its best efforts to cause a copy of the Offering Materials to be mailed to each beneficial holder of the Notes that is known to the Issuers. Thereafter, to the extent practicable until the expiration of the Tender Offers, each of the Issuers shall use its best efforts to cause copies of the Offering Materials to be mailed to each person who becomes a record holder of Notes and each beneficial holder 3 -3- of Notes that becomes known to the Issuers. You agree to use such information only in connection with the Tender Offers and not to furnish any such information to any other person except in connection with the Tender Offers. The date on which the Offering Materials are first mailed or otherwise distributed to holders of Notes is hereinafter referred to as the "Commencement Date." 2. Agreement to Act as Dealer Manager. Each of the Issuers hereby retains you, and you agree to act, as the exclusive dealer manager ("you" or the "Dealer Manager") to the Issuers in connection with the Tender Offers, until the earlier of (i) December 31, 1997 and (ii) (A)in the case of the Subordinated Notes Tender Offer, the date of the consummation (the "Subordinated Notes Closing") of the Subordinated Notes Tender Offer (the "Subordinated Notes Closing Date") and (B) in the case of the Discount Notes Tender Offer, the date of the consummation (the "Discount Notes Closing") of the Discount Notes Tender Offer (the "Discount Notes Closing Date"). As Dealer Manager, you agree, in accordance with your customary practices, to perform diligently those services in connection with the Tender Offers as are customarily performed by investment banking concerns in connection with tender offers and consent solicitations of like nature, including, but not limited to, soliciting tenders and consents pursuant to the Tender Offers and Consent Solicitations and communicating generally regarding the Tender Offers with brokers, dealers, commercial banks and trust companies and other persons, including the holders of the Notes. You agree to act in accordance with the Tender Offer Materials and agree to furnish no other written materials to any person in connection with the Tender Offers without our consent. (a) Each of the Issuers hereby authorizes you to act as Dealer Manager in connection with the Tender Offers, and, on the basis of the representations, warranties and agreements of the Issuers herein contained and subject to the terms and conditions hereof, you agree to act as Dealer Manager in connection with the Tender Offers. (b) Each of the Issuers agrees to use its best efforts to furnish you, or cause the Subordinated Notes Trustee or Discount Notes Trustee, as the case may be, to furnish you, as soon as practicable after the Commencement Date, with cards or lists or copies thereof showing the names of persons who were the holders of record of Notes as of the Commencement Date and, to the extent available to the Issuers, the beneficial holders of the Notes as of the Commencement Date, together with 4 -4- their addresses and the principal amount of Notes held by them. Additionally, each of the Issuers will use its best efforts to update such information from time to time during the term of this Agreement as reasonably requested by you and to the extent such information is reasonably available to the Issuers within the time constraints specified. You shall act hereunder as an independent contractor and nothing contained herein or in such information shall make (x) you the agent of either of the Issuers or any of their respective affiliates or (y) either of the Issuers or any of their respective affiliates an agent of you or any of your affiliates. Nothing contained in this Agreement shall constitute you a partner of or joint venturer with either of the Issuers or any of their respective affiliates. (c) Each of the Issuers agrees that any reference to the Dealer Manager in any Offering Materials or in any press release or other document or communication is subject to your prior approval. If you resign or your engagement hereunder is terminated prior to the dissemination of the Offering Materials or any other release or communication, no reference shall be made therein to you. In the event that applicable law requires a reference to the Dealer Manager, each of the Issuers agrees to provide you with prompt notice of such requirement to provide you a reasonable opportunity to seek an appropriate protective order or other remedy. (d) Each of the Issuers authorizes you to communicate with any depositary designated or retained by the Issuers with respect to the Tender Offers (the "Depositary"). (e) In full payment for services rendered and to be rendered hereunder by the Dealer Manager, the Issuers shall pay to the Dealer Manager on the Subordinated Notes Closing Date and/or the Discount Notes Closing Date in connection with your services rendered hereunder (i) upon consummation of the Subordinated Notes Tender Offer and the Discount Notes Tender Offer, a nonrefundable fee, in cash, in the aggregate amount of $250,000 with respect to both such offers or (ii) in the event only one of the Subordinated Notes Tender Offer or the Discount Notes Tender Offer is consummated, a nonrefundable fee, in cash, in the amount of $125,000. In addition, each of the Issuers agrees to reimburse the Dealer Manager promptly upon demand made from time to time, and whether or not the Tender Offers are consummated, for all reasonable out-of-pocket ex- 5 -5- penses (including all reasonable fees and expenses of Cahill Gordon & Reindel, counsel for the Dealer Manager) incurred in connection with your services as Dealer Manager for the Tender Offers. 3. Certain Covenants. Each of the Issuers covenants with you as follows: (a) Each of the Issuers will give the Dealer Manager notice of its intention to amend, supplement or prepare any amendment or supplement to any Offering Materials, will furnish the Dealer Manager with copies of such amendment or supplement and will not use any such amendment or supplement to which the Dealer Manager or counsel for the Dealer Manager shall reasonably object in writing within three business days after delivery thereof to the Dealer Manager. (b) If, during the Tender Offers, any event occurs as a result of which it shall, in the reasonable judgment of the Issuers or their counsel or the Dealer Manager or its counsel, be necessary to amend or supplement any of the Offering Materials in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or, if for any other reason it is necessary, in the reasonable judgment of any such person, at any time to amend or supplement any of the Offering Materials to comply in all material respects with the procedural requirements of Rule 14e-1 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other law, rule or regulation, such person shall promptly inform the Issuers and the Dealer Manager, and (subject to Section 3(a) above) the Issuers shall promptly prepare and furnish copies to you of such amendments or supplements to such Offering Materials, so that either (i) the statements in the Offering Materials, as so amended or supplemented, will not, in the light of the circumstances under which they were made, be misleading or (ii) such compliance is effected. (c) Each of the Issuers shall comply in all material respects with the applicable provisions, if any, of the Securities Act of 1933, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder (the "Act"), the Exchange Act and the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder (the "Trust Indenture Act"), in connection with the Offering Materials, the Tender Offers and the transactions contemplated hereby and thereby; each of the Issuers will take on a timely 6 -6- basis all actions reasonably necessary or legally required in relation to the Tender Offers and all other actions contemplated by this Agreement and by the Offering Materials; and each of the Issuers will take all necessary corporate action to authorize any amendments to or modifications of the Tender Offers. (d) Each of the Issuers will notify you, not less than two hours prior to the open of business, New York City time, of the Commencement Date or, after the Commencement Date, the date on which they propose to extend the Subordinated Notes Tender Offer or the Discount Notes Tender Offer, as the case may be and, immediately upon the commencement of each Tender Offer, the Issuers shall advise or cause the Depositary to advise you upon your reasonable request from time to time during the period of, and promptly after the expiration of, each Tender Offer, as to all names and addresses of the holders of the Notes that have been tendered and in respect of which a consent has been received, during the immediately preceding day, indicating the aggregate principal amount of Notes verified to be in proper form for tender and consent, rejected for tender or consent, and being processed; and will notify you promptly following expiration of each Tender Offer on the Expiration Date (as defined in the Offering Materials), of the aggregate principal amount of Notes in respect of which a consent has been verified to be in proper form, a tender and consent has been rejected and which are being processed. The Issuers shall promptly give you notice of changes in the Expiration Date with respect to each Tender Offer. The Issuers will not accept tenders and consents in respect of Notes, unless the conditions to the obligations of the Dealer Manager set forth in Section 6 hereof have been satisfied. (e) The Issuers shall advise you promptly of (i) the occurrence of any event that might reasonably be expected to cause any Issuer to amend, withdraw or terminate either Tender Offer, (ii) the occurrence of any event, or the discovery of any fact, the occurrence or existence of which would cause any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect, (iii) the issuance of any order or the taking of any other action by the Commission or any other governmental or regulatory agency with respect to either Tender Offer (and, if in writing, will promptly furnish you with a copy thereof), (iv) the occurrence of any event that might reasonably be expected to cause the Issuers to amend or supplement any of the Offering Materials, (v) the issuance or, to the knowledge of the Issuers, the threat- 7 -7- ened issuance of any order or the taking of any other action by any administrative or judicial tribunal or governmental agency or instrumentality concerning either Tender Offer (and, if in writing, will promptly furnish you a copy thereof) and (vi) any other information relating to either Tender Offer which you may from time to time reasonably request. (f) The Issuers will not commence the mailing of the Offering Materials unless the conditions set forth in Section 6 hereof with respect to the commencement of the Tender Offers shall have been satisfied and complied with prior to or concurrently with the commencement of such mailing or shall have otherwise been waived in writing by the Dealer Manager. 4. Expenses. In addition to the obligations of the Issuers to pay the fee and to reimburse the Dealer Manager for its reasonable out-of-pocket expenses as provided in Section 2(e) hereof, each of the Issuers agrees to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 8 hereof, including, but not limited to, all costs and expenses incident to (i) the printing, word processing or other production of documents with respect to such transactions, including any costs of printing the Offering Materials, (ii) all arrangements relating to the delivery to the Dealer Manager of copies of the foregoing documents, (iii) the fees and disbursements of counsel, accountants and any other experts or advisors retained by the Issuers, (iv) the fees and disbursements of the Subordinated Notes Trustee and the Discount Notes Trustee and the Depositary and any information agent and (v) any meetings with holders of Notes relating to the Tender Offers. 5. Representations and Warranties. Each of the Issuers, jointly and severally, represents and warrants to and agrees with you that, as of the Commencement Date, each date that any Offering Materials are published, sent, given or otherwise distributed (each a "Mailing Date") and the Subordinated Notes Closing Date and the Discount Notes Closing Date: (a) The Offering Materials, as amended and supplemented from time to time, do not and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading, except that the Issuers make no representation or warranty with respect to any statement contained in the Offering Materials based upon information furnished in 8 -8- writing by the Dealer Manager expressly for use therein. (b) The Offering Materials, as amended and supplemented from time to time, comply and will comply in all material respects with all applicable provisions of the Exchange Act, and with all applicable rules or regulations of any governmental or regulatory authority or body. (c) Each of the Issuers has been duly incorporated and is validly existing in good standing as a corporation under the laws of the State of Delaware, and each Issuer has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby and by the Offering Materials. (d) This Agreement has been duly authorized, executed and delivered by each of the Issuers. (e) The Subordinated Notes Supplemental Indenture, when executed and delivered by IPC, (assuming the due authorization, execution and delivery thereof by the Subordinated Notes Trustee, and assuming that written consents from the Holders of a majority in aggregate principal amount of the Subordinated Notes outstanding held by persons other than IPC and its affiliates are received and are valid and binding consents of such Holders authorizing execution of the Subordinated Notes Supplemental Indenture), will have been duly authorized, executed and delivered by, and will be the legal, valid and binding obligation of, IPC, and the Subordinated Notes Supplemental Indenture will conform, in all material respects, to the description thereof in the Offering Materials and will be enforceable against IPC in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (f) The Discount Notes Supplemental Indenture, when executed and delivered by Packaging, (assuming the due authorization, execution and delivery thereof by the Discount Notes Trustee, and assuming that written consents from the Holders of a majority in aggregate principal amount of the Discount Notes outstanding held by persons other than Packaging and its affiliates are 9 -9- received and are valid and binding consents of such Holders authorizing execution of the Discount Notes Supplemental Indenture), will have been duly authorized, executed and delivered by Packaging, and will be the legal, valid and binding obligation of, Packaging, and the Discount Notes Supplemental Indenture will conform, in all material respects, to the description thereof in the Offering Materials and will be enforceable against Packaging in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium and other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought; (g) The Supplemental Indentures will comply in all material respects with the TIA; (h) The execution, delivery and performance by each of the Issuers of this Agreement and consummation of the transactions contemplated hereby and by the Offering Materials will not conflict with or constitute or result in a breach or violation of any of (i) the terms or provisions of, or constitute a default by either of the Issuers or any of their respective subsidiaries under, any material indenture, mortgage, deed of trust, loan agreement (other than any loan agreement that will be repaid in full), note, lease, license, franchise agreement or other material agreement or instrument to which either of the Issuers or any of their respective subsidiaries is a party or to which any of them or their respective properties is subject, subject to the Issuers' obtaining such consents, waivers and amendments with respect to the foregoing on or prior to the Consummation Date or the Commencement Date, as applicable, as may be required under or pursuant to the foregoing, (ii) the certificate of incorporation or bylaws of either of the Issuers or any of their respective subsidiaries or (iii) any statute, judgment, decree, order, rule or regulation (excluding state securities and "Blue Sky" laws) of any court or governmental agency or other body applicable to either of the Issuers or any of their respective subsidiaries or any of their respective properties. (i) No consent, approval waiver, license or authorization or other action by, or filing or registration with, any court or governmental regulatory body or authority is required for the execution, delivery and performance by the Issuers of this Agreement or the 10 -10- consummation of the Tender Offers as contemplated by the Offering Materials. The representations and warranties set forth in this Section 5 shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any indemnified party referred to in Section 7, (ii) any termination of this Agreement or (iii) any withdrawal by you pursuant to Section 6 or otherwise; provided, that with respect to any termination or withdrawal, such representations and warranties shall be limited to the period prior to such termination or withdrawal. 6. Conditions of the Dealer Manager's Obligations. Your obligations to act and to continue to act (as the case may be) as Dealer Manager shall be subject, in your reasonable discretion, to the accuracy in all material respects of the representations and warranties contained herein as of the Commencement Date, as of each Mailing Date and as of each Closing Date as if made on and as of such date (except as expressly provided therein), to the accuracy in all material respects of the statements contained in certificates delivered by the officers of the Issuers pursuant to the provisions hereof, to the performance by each of the Issuers in all material respects of its covenants and agreements hereunder and to the following additional conditions unless waived in writing by the Dealer Manager: (a) There shall not have been any legal action, order, decree or other administrative proceeding instituted or threatened against either of the Issuers or any of their respective subsidiaries or against you relating to the Tender Offers or the Dealer Manager's activities in connection therewith or any of the other transactions contemplated hereby or by the Offering Materials. (b) The proceedings taken at or prior to the Closing Date in connection with the Tender Offers and the other transactions contemplated hereby and by the Offering Materials shall be in form and substance reasonably satisfactory to you and your counsel, and such counsel shall have been furnished with all such documents and certificates as they may reasonably request in order to evidence the accuracy and completeness in all material respects of any of the representations or warranties of the Issuers, the performance in all material respects of any covenants of the Issuers theretofore to be performed, or the compliance with any of the conditions herein contained. 11 -11- (c) On the Commencement Date, you shall have received, dated as of such date, (i) the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the Issuers, substantially in the form of Exhibit A hereto and (ii) the opinion of Doug Patterson, general counsel for the Issuers, substantially in the form of Exhibit B hereto. (d) On the Subordinated Notes Closing Date, you shall have received, dated as of such date, the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the Issuers, substantially in the form of Exhibit C hereto. (e) On the Discount Notes Closing Date, you shall have received, dated as of such date, the opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for the Issuers, substantially in the form of Exhibit D hereto. (f) Subsequent to the respective dates of the most recent financial statements contained or incorporated by reference in the Offering Materials, there shall have been no material adverse change in the general affairs, management, business, condition (financial or other) or results of operations of either of the Issuers and their respective subsidiaries taken as a whole (a "Material Adverse Change"). (g) Neither the Tender Offer nor any of the other transactions contemplated hereby or by the Offering Materials shall be enjoined (temporarily or permanently) and no restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to the Tender Offer, this Agreement or any of the other transactions contemplated hereby or by the Offering Materials, before any court or governmental authority. (h) On the Commencement Date, the Subordinated Notes Closing Date and the Discount Notes Closing Date, the Dealer Manager shall have received a certificate, dated such date, of the Chief Financial Officer of IPC or Packaging, as the case may be, to the effect that: (i) The representations and warranties in this Agreement are true and correct in all material respects as if made on and as of such date, and each of the Issuers has performed in all material respects all covenants and agreements and satisfied all conditions on its part to be performed or satisfied at or prior to such date; 12 -12- (ii) Subsequent to the date as of which information is given in the Offering Materials, as of the date hereof, there has not been any Material Adverse Change; and (iii) To the best of his knowledge, neither the Tender Offer, nor any of the other transactions contemplated hereby or by the Offering Materials, has been enjoined (temporarily or permanently). (i) On or before the Subordinated Notes Closing Date, IPC and the Subordinated Notes Trustee shall have executed and delivered the Subordinated Notes Supplemental Indenture, which shall be reasonably satisfactory in form and substance to the Dealer Manager and Cahill Gordon & Reindel, counsel for the Dealer Manager, and shall be in full force and effect. (j) On or before the Discount Notes Closing Date, Packaging and the Discount Notes Trustee shall have executed and delivered the Discount Notes Supplemental Indenture, which shall be reasonably satisfactory in form and substance to the Dealer Manager and Cahill Gordon & Reindel, counsel for the Dealer Manager, and shall be in full force and effect. On or before the Commencement Date, the Subordinated Notes Closing Date and the Discount Notes Closing Date, the Dealer Manager and counsel for the Dealer Manager shall have received such further documents, certificates and schedules or instruments relating to the business, corporate, legal and financial affairs of the Issuers and their subsidiaries as they shall have heretofore reasonably requested. Each of the Issuers shall furnish to the Dealer Manager such conformed copies of such opinions, certificates, letters, schedules, documents and instruments in such quantities as the Dealer Manager shall reasonably request. In the event that any of the foregoing conditions is not met when required to be met, then you shall be entitled to withdraw as Dealer Manager in connection with any Tender Offer without any liability or penalty (except that the fee provided for in Section 2(e) hereof shall not be payable in the event you so withdraw) to you or any other "indemnified party" (as defined in Section 7) and without loss of any right to the payment of all expenses payable hereunder. 7. Indemnification. Each of the Issuers, jointly and severally, agrees to indemnify and hold harmless the Dealer Manager and its affiliates, the directors, officers, agents, representatives and employees of the Dealer Manager or its af- 13 -13- filiates and each other person, if any, controlling the Dealer Manager and its respective affiliates within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each, an "indemnified party") from and against any and all losses, actions, claims, damages or liabilities, and will reimburse any indemnified party for all reasonable costs and expenses (including reasonable counsel fees) as they are incurred by such indemnified party in connection with investigating, preparing to defend or defending any such action or claim caused by or arising out of, or in connection with, the Tender Offers (whether or not consummated), the performance by you of the services contemplated by this Agreement, an untrue statement or alleged untrue statement of a material fact in any of the Offering Materials or an omission or an alleged omission to state a material fact in any of the Offering Materials necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or the transmittal of the Offering Materials to the Holders, or that arise out of or are based upon any failure to accept Notes or consents properly tendered pursuant to the Tender Offers; provided, however, that the Issuers will not be liable to any indemnified party to the extent that any claims, liabilities, losses, damages, costs or expenses are finally judicially determined by a court of competent jurisdiction to have resulted from (x) the gross negligence, bad faith or willful misconduct of such indemnified party or (y) the breach by such indemnified party of this Agreement. The Issuers will not, without the prior written consent of the Dealer Manager, which consent shall not be unreasonably withheld or delayed, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought by an indemnified party hereunder (whether or not any indemnified party is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes an unconditional release of the indemnified parties from all liability arising out of such claim, action, suit or proceeding. Promptly after receipt by an indemnified party of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the Issuers under this Section 7, notify the Issuers of the commencement thereof; but the omission so to notify the Issuers will not relieve the Issuers from any liability that it may have to any indemnified party otherwise than under this Section 7. In case any such action is brought against any indemnified party, and it notifies the Issuers of the commencement thereof, the Issuers will be entitled to participate therein and, to the extent that it may wish, to assume the defense 14 -14- thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that if the defendants in any such action include both the indemnified party and any indemnifying party and the indemnified party shall have been advised by counsel that the representation of both the indemnified party and the indemnifying party by such counsel would constitute a conflict of interest under applicable rules of professional conduct, then the indemnifying parties shall not have the right to direct the defense of such action on behalf of such indemnified party or parties and such indemnified party or parties shall have the right to select separate counsel to defend such action on behalf of such indemnified party or parties. After notice from the indemnifying parties to such indemnified party of its election so to assume the defense thereof and approval by such indemnified party of counsel appointed to defend such action, the indemnifying parties will not be liable to such indemnified party under this Section 7 for any legal or other expenses, other than reasonable costs of investigation, subsequently incurred by such indemnified party in connection with the defense thereof, unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the immediately preceding sentence (it being understood, however, that in connection with such action the indemnifying parties shall not be liable for the expenses of more than one separate counsel (in addition to local counsel) in any one action or separate but substantially similar actions in the same jurisdiction arising out of the same general allegations or circumstances, designated by the Dealer Manager, representing the indemnified parties, who are parties to such action or actions) or (ii) the indemnifying parties have authorized the employment of counsel for the indemnified party at the expense of the indemnifying parties. The indemnifying parties will not be liable for the costs and expenses of any settlement of such action effected by such indemnified party without the consent of the indemnifying parties, unless such indemnified party waived in writing its rights under this Section 7, in which case the indemnified party may effect such a settlement without such consent. In circumstances in which the indemnity agreement provided for in the preceding paragraphs of this Section 7 is unenforceable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof), each indemnifying party, in order to provide for just and equitable contribution, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect (i) the relative benefits received by the indemnifying party or parties on the one hand and the indemnified party on the other from the Tender Offers or (ii) if 15 -15- the allocation provided by the foregoing clause (i) is not permitted by applicable law, not only such relative benefits but also the relative fault of the indemnifying party or parties on the one hand and the indemnified party on the other in connection with such losses, claims, damages or liabilities (or actions in respect thereof). The relative benefits received by the Issuers on the one hand and the indemnified parties on the other shall be deemed to be in the same proportion as (i) the aggregate principal amount of Notes purchased pursuant to the Tender Offers bears to (ii) the fees paid or proposed to be paid by the Issuers to such indemnified party under this Agreement. The indemnity, reimbursement and contribution obligations of the Issuers under this Agreement shall be in addition to any rights that the Dealer Manager or any other indemnified party may have at common law or otherwise. The Issuers and the Dealer Manager agree that it would not be equitable if the amount of such contribution were determined by pro rata or per capita allocation (even if the Issuers on the one hand and the indemnified parties on the other hand were treated as one entity for such purpose) or by any other method of allocation that does not take into account the equitable considerations referred to in the first sentence of this paragraph. Notwithstanding any other provision of this paragraph, the indemnified parties shall not be obligated to make contributions hereunder that in the aggregate exceed the total fees received by the Dealer Manager under this Agreement, less the aggregate amount of any damages that the indemnified parties have otherwise been required to pay for which indemnification is provided for hereunder. For purposes of this paragraph, each person, if any, who controls the Dealer Manager within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as such Dealer Manager. 8. Termination. This Agreement may be terminated (i) by the Dealer Manager at any time upon notice to the Issuers if (A) the Issuers shall mail or otherwise distribute or propose to mail or otherwise distribute any supplement to any Offering Materials to which the Dealer Manager shall reasonably object or that shall be reasonably disapproved by its counsel, (B) at any time prior to the Subordinated Notes Closing, the Subordinated Notes Tender Offer is 16 -16- terminated or withdrawn for any reason (other than failure of the Dealer Manager to perform its obligations hereunder) or any restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to the Subordinated Notes Tender Offer, this Agreement or any of the other transactions contemplated by the Offering Materials, before any court or governmental authority that makes it inadvisable for the Dealer Manager, in its reasonable discretion, to continue to act as Dealer Manager hereunder, (C) at any time prior to the Discount Notes Closing, the Discount Notes Tender Offer is terminated or withdrawn for any reason (other than failure of the Dealer Manager to perform its obligations hereunder) or any restraining order or other injunctive order shall have been issued or any action, suit or proceeding shall have been commenced with respect to the Discount Notes Tender Offer, this Agreement or any of the other transactions contemplated by the Offering Materials, before any court or governmental authority that makes it inadvisable for the Dealer Manager, in its reasonable discretion, to continue to act as Dealer Manager hereunder, or (D) any of the conditions specified in Section 6 shall not have been fulfilled or waived or (ii) by the Issuers if at any time the Issuers determine not to consummate the Tender Offers. Termination of this Agreement pursuant to this Section 8 shall be without liability of any party to any other party except as provided in Section 11 hereof. 9. Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be mailed, telecopied or delivered (a) to the Issuers: c/o Ivex Packaging Corporation 100 Tri-State Drive Suite 200 Lincolnshire, Illinois 60069 Attention: Chief Executive Officer with a copy to: c/o Ivex Packaging Corporation 100 Tri-State Drive Suite 200 Lincolnshire, Illinois 60069 Attention: Vice President and General Counsel and Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606-1285 Attention: William R. Kunkel, Esq. or (b) to the Dealer Manager: BT Securities Corporation 130 Liberty Street New York, New York 10006 Attention: Mr. Tim Collins with a copy to: 17 -17- Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Attention: William M. Hartnett, Esq. Any notice given hereunder may be made by telecopier or telephone, but if so made shall be subsequently confirmed in writing. 10. Tombstone. The Issuers acknowledge that the Dealer Manager may at any time after consummation of the Tender Offers place an announcement in such newspapers and periodicals as it may choose, at its own cost (but subject to the reasonable approval of the Issuers), stating that the Dealer Manager acted as dealer manager to the Issuers in connection with the Tender Offers. 11. Survival. The provisions of Sections 2(e) and 4 hereof, the indemnity and contribution agreements contained in Section 7 hereof and the representations and warranties set forth in Section 5 hereof shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of the Dealer Manager, or by or on behalf of any affiliate of the Dealer Manager or any person controlling the Dealer Manager or such affiliate, (ii) consummation of the Tender Offers or (iii) any termination of this Agreement or of the Dealer Manager's engagement hereunder, and shall be binding upon and shall inure to the benefit of, any successors, assigns, heirs and personal representatives of the Issuers, the Dealer Manager and the indemnified parties referred to in Section 7 hereof. 12. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS PRINCIPLES OF CONFLICTS OF LAWS AND ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, ACTION, SUIT OR PROCEEDING ARISING OUT OF OR CONTEMPLATED BY THIS AGREEMENT IS HEREBY WAIVED. THE PARTIES HEREBY SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY MATTERS CONTEMPLATED HEREBY. 13. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, among the parties hereto with respect to the subject matter hereof. 14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be 18 -18- an original, but all of which together shall constitute one and the same instrument. 15. Benefits of Agreement. This Agreement has been and is made solely for the benefit of the parties hereto and of the persons and controlling persons referred to in Section 7 herein and their respective successors, assigns and heirs, and no other person shall acquire or have any right under or by virtue of this Agreement. 16. Headings. The section headings in this Agreement have been inserted as a matter of convenience of reference only and are not a part hereof. 19 -19- If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between the Issuers and the Dealer Manager. Very truly yours, IPC, INC. By: /s/ G. DOUGLAS PATTERSON ---------------------------- Name: G. Douglas Patterson Title: Vice President IVEX PACKAGING CORPORATION By: /s/ G. DOUGLAS PATTERSON ---------------------------- Name: G. Douglas Patterson Title: Vice President The foregoing Agreement is hereby confirmed and accepted as of the date first above written. BT SECURITIES CORPORATION By: /s/ FOTIS G. HASIOTIS ---------------------------- Name: Fotis G. Hasiotis Title: Vice President EX-2.1 3 OFFERS TO PURCHASE & CONSENT SOLICITATIONS STATMNT 1 EXHIBIT 2.1 OFFERS TO PURCHASE AND CONSENT SOLICITATIONS STATEMENT IVEX PACKAGING CORPORATION IPC, INC. OFFERS TO PURCHASE AND SOLICITATIONS OF CONSENTS WITH RESPECT TO 13 1/4% SENIOR DISCOUNT DEBENTURES DUE 2005 OF IVEX PACKAGING CORPORATION AND 12 1/2% SENIOR SUBORDINATED NOTES DUE 2002 OF IPC, INC. EACH OF THESE OFFERS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 24, 1997 UNLESS EXTENDED (SUCH DATE, THE "INITIAL EXPIRATION DATE" AND, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). HOLDERS OF NOTES (AS DEFINED HEREIN) MUST TENDER THEIR NOTES ON OR PRIOR TO THE EXPIRATION DATE IN ORDER TO RECEIVE THE TOTAL CONSIDERATION (AS DEFINED HEREIN). TENDERED NOTES MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE AND CONSENTS MAY BE REVOKED AT ANY TIME ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE INITIAL EXPIRATION DATE. EACH OF THESE OFFERS IS SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS, INCLUDING (I) THE VALID TENDER OF AT LEAST A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE OUTSTANDING NOTES OF EACH SERIES, (II) THE CONSENT CONDITION (AS DEFINED HEREIN), AND (III) THE FINANCING CONDITION (AS DEFINED HEREIN). Ivex Packaging Corporation, a Delaware corporation (the "Company"), hereby offers to purchase for cash, upon the terms and subject to the conditions set forth in this Offers to Purchase and Consent Solicitations Statement (as it may be supplemented from time to time, the "Statement"), and in the accompanying Consent and Letter of Transmittal (the "Consent and Letter of Transmittal" and, together with this Statement, the "Offers"), all of its outstanding 13 1/4% Senior Discount Debentures due 2005 (the "Senior Debentures"), issued pursuant to the Senior Debenture Indenture, dated as of March 8, 1993 (the "Senior Debenture Indenture") and IPC, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("IPC"), hereby offers to purchase for cash, upon the terms and subject to the conditions set forth in the Offers, all of its outstanding 12 1/2% Senior Subordinated Notes due 2002, (the "Subordinated Notes" and together with the Senior Debentures, the "Notes"), issued pursuant to the Subordinated Note Indenture, dated as of December 15, 1992 (the "Subordinated Note Indenture"). The consideration for each $1,000 principal amount of Senior Debentures tendered pursuant to the Offers shall be equal to (i) the greater of (A) $815 or (B) the present value on the Payment Date (as defined herein) of $1,000 assuming such amount is payable on March 15, 2000 (the date the Senior Debentures first accrete to their stated principal amount at maturity (the "Par Value Date")), determined on the basis of a yield (the "Tender Offer Yield" with respect to the Senior Debentures) to the Par Value Date equal to the sum of (x) the yield on the U.S. Treasury Coupon Strip due April, 2000 (the "Reference Security" with respect to the Senior Debentures), as calculated by the Dealer Manager in accordance with standard market practice, based on the bid price for such Reference Security as of 2:00 p.m., New York City time, on September 10, 1997, the tenth business day immediately preceding the Initial Expiration Date (the "Price Determination Date"), as displayed on the Bloomberg Government Pricing Monitor on "Page PXS" or any recognized quotation source selected by the Dealer Manager in its sole discretion if the Bloomberg Government Pricing Monitor is not available, plus (y) 150 basis points (such price being rounded to the nearest cent per $1,000 principal amount of Senior Debentures) (the consideration referred to in this clause (i) with respect to the Senior Debentures is referred to as the "Total Consideration"), minus (ii) $20 per each $1,000 principal amount of the Senior Debentures, which is equal to the Consent Payment, with respect to the Senior Debentures, referred to below (the Total Consideration minus the Consent Payment with respect to the Senior Debentures is referred to as the "Tender Offer Consideration"), payable on the date that the Notes are accepted for payment pursuant to the Offers (the "Payment Date"). The consideration for each $1,000 principal amount of Subordinated Notes tendered pursuant to the Offers shall be equal to (i) the greater of (A) $1,065 or (B) the present value on the Payment Date of $1,062.50 (the amount payable on the first date (December 15, 1997) on which the Subordinated Notes are redeemable (the "Earliest Redemption Date")) and all future interest payments payable up to the Earliest Redemption Date, determined on the basis of a yield (the "Tender Offer Yield" with respect to the Subordinated Notes) to the Earliest Redemption Date equal to the sum of (x) the yield on the 5 1/4% U.S. Treasury Note due December, 1997 (the "Reference Security" with respect to the Subordinated Notes), as calculated by the Dealer Manager in accordance with standard market practice, based on the bid price for such Reference Security as of 2:00 p.m., New York City time, on the Price Determination Date, as displayed on the Bloomberg Government Pricing Monitor on "Page PX3" or any recognized quotation source selected by the Dealer Manager in its sole discretion if the Bloomberg Government Pricing Monitor is not available, plus (y) 75 basis points (such price being rounded to the nearest cent per $1,000 principal amount of Subordinated Notes) (the consideration referred to in this clause (i) with respect to the Subordinated Notes is referred to as the "Total Consideration"), minus (ii) $20 per each $1,000 principal amount of the Subordinated Notes, which is equal to the Consent Payment, with respect to the Subordinated Notes,referred to below (the Total Consideration minus the Consent Payment with respect to the Subordinated Notes is referred to as the "Tender Offer Consideration"), plus (iii) accrued and unpaid interest to, but not including, the Payment Date, payable on the Payment Date. ------------------ The Dealer Manager for the Tender Offers and Consent Solicitations is: BT SECURITIES CORPORATION The date of the Offers to Purchase and Consent Solicitations Statement is August 27, 1997 2 In conjunction with the Offers, the Company and IPC hereby solicit (the "Solicitations") consents (the "Consents") of (i) registered holders of Senior Debentures to certain proposed amendments (the "Senior Indenture Proposed Amendments") to the Indenture, dated as of March 8, 1993, (as amended from time to time, the "Senior Debenture Indenture"), between the Company, as issuer, and the United States Trust Company of New York, as trustee (the "Trustee"), pursuant to which the Senior Debentures were issued, and (ii) registered holders of Subordinated Notes (together with the Senior Debentures, the "Holders") to certain proposed amendments (the "Subordinated Notes Proposed Amendments" and, together with the Senior Debentures Proposed Amendments, the "Proposed Amendments") to the Indenture, dated as of December 15, 1992, (as amended from time to time, the "Subordinated Note Indenture" and, together with the Senior Debenture Indenture, the "Indentures"), between IPC, as issuer, and the Trustee, as trustee, pursuant to which the Subordinated Notes were issued. Subject to the terms and conditions set forth in this Statement and the Consent and Letter of Transmittal, the Company hereby offers to pay $20 to each Senior Debenture Holder and IPC hereby offers to pay $20 to each Subordinated Note Holder who validly consents to the Proposed Amendments on or prior to 5:00 p.m., New York City time, on the Expiration Date for each $1,000 principal amount of the Notes for which Consents have been validly delivered and not validly revoked (the "Consent Payment"), with such payment to be made on the Payment Date if, but only if, the Notes are accepted for payment pursuant to the terms of the Offers. If any Holder's Notes are not properly tendered pursuant to the Offers on or prior to 5:00 p.m., New York City time, on the Expiration Date (and Consents thereby properly delivered with respect to such Notes), such Holder will not receive the Consent Payment, even though the Proposed Amendments will be effective as to all Notes that are not purchased in the Offers. Adoption of the Proposed Amendments may have adverse consequences for Holders who elect not to tender Notes in the Offers, because Holders of Notes outstanding after consummation of the Offers will not be entitled to the benefit of substantially all of the restrictive covenants and certain event of default provisions presently contained in the Indentures. In addition, the trading market for any Notes not tendered in response to the Offers is likely to be significantly more limited. See "Certain Significant Considerations" and "Proposed Amendments to the Indentures." HOLDERS WHO TENDER NOTES IN THE OFFERS ARE OBLIGATED TO CONSENT TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH NOTES. PURSUANT TO THE TERMS OF THE CONSENT AND LETTER OF TRANSMITTAL, THE COMPLETION, EXECUTION AND DELIVERY THEREOF BY A HOLDER IN CONNECTION WITH THE TENDER OF NOTES WILL BE DEEMED TO CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH NOTES. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT TENDERING THE RELATED NOTES IN THE OFFERS, AND MAY NOT REVOKE CONSENTS WITHOUT WITHDRAWING THE PREVIOUSLY TENDERED NOTES TO WHICH SUCH CONSENTS RELATE FROM THE OFFERS. NOTWITHSTANDING ANY OTHER PROVISION OF THE OFFERS OR THE SOLICITATIONS, THE COMPANY'S AND IPC'S OBLIGATIONS TO ACCEPT FOR PAYMENT, AND TO PAY FOR, NOTES VALIDLY TENDERED PURSUANT TO THE OFFERS IS CONDITIONED UPON (A) RECEIPT OF THE REQUISITE CONSENTS (AS DEFINED HEREIN) TO THE PROPOSED AMENDMENTS FROM NOT LESS THAN A MAJORITY IN AGGREGATE PRINCIPAL AMOUNT OF THE OUTSTANDING NOTES OF EACH SERIES AND THE EXECUTION BY THE TRUSTEE OF SUPPLEMENTAL INDENTURES TO EACH OF THE INDENTURES IMPLEMENTING THE PROPOSED AMENDMENTS IN THE MANNER SET FORTH BELOW (THE "CONSENT CONDITION"), (B) THERE HAVING BEEN VALIDLY TENDERED (AND NOT WITHDRAWN) PRIOR TO THE EXPIRATION DATE NOT LESS THAN A MAJORITY OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES OF EACH SERIES OUTSTANDING (THE "MINIMUM TENDER CONDITION"), (C) SATISFACTION OF THE FINANCING CONDITION (AS DEFINED HEREIN) AND (D) SATISFACTION OF THE GENERAL CONDITIONS (AS DEFINED HEREIN). SEE "CONDITIONS TO THE OFFERS." SUBJECT TO APPLICABLE SECURITIES LAWS AND THE TERMS SET FORTH IN THE OFFERS, THE COMPANY AND IPC RESERVE THE RIGHT (X) TO WAIVE ANY AND ALL CONDITIONS TO THE OFFERS OR THE SOLICITATIONS, (Y) TO EXTEND OR TO TERMINATE THE OFFERS OR THE SOLICITATIONS OR (Z) OTHERWISE TO AMEND THE OFFERS OR THE SOLICITATIONS IN ANY RESPECT. THE COMPANY AND IPC ARE NOT OBLIGATED TO EXTEND THE RIGHT OF A ii 3 HOLDER TO REVOKE ITS CONSENT BEYOND THE INITIAL EXPIRATION DATE IN THE EVENT THE OFFERS AND SOLICITATIONS ARE SO EXTENDED. As of the date hereof, there are $160.0 million in principal amount of Senior Debentures outstanding and $158.0 million in principal amount of Subordinated Notes outstanding. IN THE EVENT THAT THE OFFERS AND THE SOLICITATIONS ARE WITHDRAWN OR OTHERWISE NOT COMPLETED, THE TENDER OFFER CONSIDERATION AND CONSENT PAYMENT WILL NOT BE PAID OR BECOME PAYABLE TO HOLDERS OF NOTES WHO HAVE VALIDLY TENDERED THEIR NOTES AND DELIVERED CONSENTS IN CONNECTION WITH THE OFFERS AND THE SOLICITATIONS. Any questions or requests for assistance may be directed to the Dealer Manager at its address and telephone number set forth below. Requests for additional copies of this Statement, the Consent and Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Dealer Manager. Beneficial owners may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offers and the Solicitations. The Dealer Manager for the Offers and Solicitations is: BT SECURITIES CORPORATION One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 (212) 775-2822 iii 4 CERTAIN OFFER AND CONSENT SOLICITATION MATTERS The Company's and IPC's obligations to accept for purchase and to pay for Notes and the adoption of the Proposed Amendments are each conditioned on the satisfaction of the Consent Condition, the Minimum Tender Condition, the Financing Condition and the General Conditions. See "Conditions to the Offers." The purpose of the Offers is to acquire all outstanding Notes. The purpose of the Solicitations and the Proposed Amendments is to eliminate or modify certain covenants and other provisions contained in the Indentures. The Proposed Amendments will be effected by supplemental indentures (the "Supplemental Senior Debenture Indenture" and "Supplemental Subordinated Note Indenture", respectively, and collectively, the "Supplemental Indentures") to the Senior Debenture Indenture and Subordinated Note Indenture, each of which is to be executed by the Company or IPC, as the case may be, and the Trustee on the Initial Expiration Date. "Requisite Consents" shall be the Consents of Holders who hold not less than a majority in aggregate principal amount of the Notes of each series then outstanding. The elimination and modification of the covenants set forth in the Supplemental Indentures will not become operative unless and until the Offers are consummated on the Payment Date. The "Payment Date" is the date that the Company and IPC accept Notes for purchase pursuant to the Offers. If the Offers are terminated or withdrawn, or the Notes are never accepted for payment, the Supplemental Indentures will never become operative. Tenders of Notes may be validly withdrawn at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date and Consents may be validly revoked at any time on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date. A valid written withdrawal of tendered Notes on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date will constitute the concurrent valid revocation of such Holder's related Consent. In order for a Holder to revoke a Consent, such Holder must withdraw the related tendered Notes. In addition, tenders of Notes may be validly withdrawn if the Offers are terminated without any Notes being purchased thereunder. In the event of a termination of the Offers, the Notes tendered pursuant to the Offers will be returned to the tendering Holder. Both the Tender Offer Consideration and any Consent Payment which a tendering Holder of Notes is entitled to receive pursuant to the Offers will be paid on the Payment Date. If any Holder's Notes are not accepted for purchase and payment by the Company or IPC pursuant to the Offers, such Holder will not receive either the Tender Offer Consideration or the Consent Payment. See "Withdrawal of Tenders and Revocation of Consents." Under no circumstances will any interest be payable because of any delay in the transmission of funds to Holders. See "Certain Significant Considerations" and "Certain Federal Income Tax Consequences" for discussions of certain factors that should be considered in evaluating the Offers and the Solicitations, and also see "Proposed Amendments to the Indentures" for a description of the Proposed Amendments. Each of the Company and IPC expressly reserve the absolute right, in its sole discretion, from time to time to purchase any Notes remaining outstanding after consummation or expiration of the offers, through open market or privately negotiated transactions, one or more additional tender or exchange offers or otherwise on terms and at prices that may or may not differ materially from the terms of the Offers. NEITHER THE COMPANY OR IPC, NOR THE DEALER MANAGER, MAKE ANY RECOMMENDATION AS TO WHETHER OR NOT HOLDERS SHOULD TENDER NOTES IN RESPONSE TO THE OFFERS OR PROVIDE CONSENTS TO THE PROPOSED AMENDMENTS. ------------------ IMPORTANT Any Holder desiring to tender Notes and deliver Consents should either (a) in the case of a Holder who holds physical certificates evidencing such Notes, complete and sign the Consent and Letter of Transmittal (or a facsimile thereof) in accordance with the instructions therein, have his or her signature thereon iv 5 guaranteed (if required by Instruction 1 of the Consent and the Letter of Transmittal) and send or deliver such manually signed Consent and Letter of Transmittal (or a manually signed facsimile thereof), together with certificates evidencing such Notes and any other required documents to the United States Trust Company of New York, as Depositary (the "Depositary"), or (b) in the case of a Holder who holds Notes in book-entry form, request such Holder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such Holder. A beneficial owner who has Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such beneficial owner desires to tender and deliver Consents for Notes so registered. See "Procedures for Tendering Notes and Delivering Consents." Any Holder who desires to tender Notes but who cannot comply with the procedures set forth herein for tender on a timely basis or whose certificates for Notes are not immediately available may tender the Notes by following the procedures for guaranteed delivery set forth under "Procedures for Tendering Notes and Delivering Consents -- Guaranteed Delivery." The Depository Trust Company ("DTC") has authorized DTC participants that hold Notes on behalf of beneficial owners of Notes through DTC to tender their Notes and consent to the Proposed Amendments as if they were Holders. To effect a tender and consent, DTC participants may, in lieu of physically completing and signing the Consent and Letter of Transmittal, transmit their acceptance to DTC through the DTC Automated Tender Offer Program ("ATOP") for which the transaction will be eligible and follow the procedure for book-entry transfer set forth in "Procedures for Tendering Notes and Delivering Consents." A beneficial owner of Notes that are held of record by a custodian bank, depositary, broker, trust company or other nominee must instruct such Holder to tender the Notes on the beneficial owner's behalf. A Letter of Instructions is included in the solicitation materials provided along with this Statement which may be used by a beneficial owner in this process to effect the tender. See "Procedures for Tendering Notes and Delivering Consents." Tendering Holders will not be obligated to pay brokerage fees or commissions of the Dealer Manager or the Depositary. Questions and requests for assistance may be directed to the Dealer Manager at its address and telephone number set forth on the back cover of this Statement. Additional copies of this Statement, the Consent and Letter of Transmittal, the Notice of Guaranteed Delivery and other related materials may be obtained from the Dealer Manager. Beneficial owners may also contact their brokers, dealers, commercial banks or trust companies through which they hold the Notes with questions and requests for assistance. THIS STATEMENT CONSTITUTES NEITHER OFFERS TO PURCHASE NOR SOLICITATIONS OF CONSENTS IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFERS OR SOLICITATIONS UNDER APPLICABLE SECURITIES OR BLUE SKY LAWS. THE DELIVERY OF THIS STATEMENT SHALL NOT UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN ANY ATTACHMENTS HERETO OR IN THE AFFAIRS OF THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES SINCE THE DATE HEREOF. NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS STATEMENT AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, IPC OR THE DEALER MANAGER. v 6 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements contained or incorporated by reference in this Statement, including, without limitation, statements containing the words "believes," "anticipates," "expects" and words of similar import, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or IPC, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: international, national and local general economic and market conditions; demographic changes; the size and growth of the paper and plastic packaging markets for both consumer and industrial uses; the ability of the Company or IPC to sustain, manage or forecast its growth; the ability of the Company or IPC to successfully make and integrate acquisitions; the size, timing and mix of purchases of the Company's or IPC's products; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; contingent liabilities and other claims asserted against the Company or IPC; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and the use of proceeds from the Offering. Given these uncertainties, Holders are cautioned not to place undue reliance on such forward-looking statements. The Company and IPC disclaim any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. vi 7 TABLE OF CONTENTS
PAGE ---- 1. Summary..................................................... 1 2. Available Information; Incorporation of Documents by 3 Reference................................................... 3. Terms of the Offers and the Solicitations................... 3 4. Certain Significant Considerations.......................... 5 5. Purpose of the Offers and the Solicitations................. 7 6. Certain Information Concerning the Company and IPC.......... 7 7. Proposed Amendments to the Indentures....................... 10 8. Acceptance for Payment and Payment for Notes; Acceptance of 12 Consents.................................................... 9. Procedures for Tendering Notes and Delivering Consents...... 13 10. Withdrawal of Tenders and Revocation of Consents............ 16 11. Source and Amount of Funds.................................. 17 12. Conditions to the Offers.................................... 17 13. Certain Federal Income Tax Consequences..................... 18 14. The Dealer Manager and the Depositary....................... 19 15. Fees and Expenses........................................... 19 16. Miscellaneous............................................... 19
Appendix A -- Proposed Amendments to the Senior Debenture Indenture Appendix B -- Proposed Amendments to the Subordinated Note Indenture vii 8 1. SUMMARY The following summary is provided solely for the convenience of the Holders of the Notes. This summary is not intended to be complete and is qualified in its entirety by reference to the full text and more specific details contained in this Statement and any amendments hereto. Holders of the Notes are urged to read this Statement in its entirety. Each of the capitalized terms used this Summary and not defined herein has the meaning set forth elsewhere in this Statement. The Company................... Ivex Packaging Corporation, a specialty packaging company that designs and manufactures plastic and paper-based flexible packaging products. IPC........................... IPC, Inc., a wholly-owned subsidiary of the Company. The Senior Debentures......... 13 1/4% Senior Discount Debentures due 2005 of the Company, issued pursuant to the Senior Debenture Indenture. The Subordinated Notes........ 12 1/2% Senior Subordinated Notes due 2002 of IPC, issued pursuant to the Subordinated Note Indenture. The Notes..................... The Senior Debentures and the Subordinated Notes. The Offers.................... The Company and IPC hereby offer to purchase all of the outstanding Notes at the prices set forth below. Expiration Date............... The Initial Expiration Date of the Offers shall be 5:00 p.m., New York City time, on September 24, 1997, and, as the same may be extended, the Expiration Date. Consent Payment............... The Company and IPC are also soliciting from Holders Consents to the Proposed Amendments to the Indentures, and the Company and IPC are offering to pay to each Holder who validly Consents to the Proposed Amendments on or prior to 5:00 p.m., New York City time, on the Expiration Date, a Consent Payment in cash equal to $20 per each $1,000 principal amount of the Notes for which Consents have been validly delivered, with such payment to be made following the Expiration Date if, but only if, the Notes are accepted for payment pursuant to the terms of the Offers. Requisite Consents............ Duly executed (and not revoked) Consents to the Proposed Amendments from Holders representing a majority in aggregate principal amount outstanding of each of the Senior Debentures and Subordinated Notes (excluding for such purposes any Notes owned at such time by the Company or IPC or any of their affiliates). Total Consideration per $1,000 Principal Amount of Senior Debentures.................... The greater of (A) $815 or (B) the present value on the Payment Date of $1,000 determined on the basis of the Tender Offer Yield to the Par Value Date, equal to the sum of (x) the yield on the U.S. Treasury Coupon Strip due April, 2000 as of 2:00 p.m., New York City time, on the Price Determination Date plus (y) 150 basis points. Total Consideration per $1,000 Principal Amount of Subordinated Notes............ The greater of (A) $1,065 or (B) the present value on the Payment Date of $1,062.50 and all future interest payments 1 9 payable up to the Earliest Redemption Date (December 15, 1997) determined on the basis of the Tender Offer Yield to the Earliest Redemption Date, equal to the sum of (x) the yield on the 5 1/4% U.S. Treasury Note due December, 1997 as of 2:00 p.m., New York City time, on the Price Determination Date plus (y) 75 basis points. Tender Offer Consideration.... Total Consideration less the Consent Payment. Payment Date.................. The Payment Date shall be the date that the Notes are accepted for payment pursuant to the Offers, which shall be a date shortly after the Expiration Date of the Offers. How to Tender Notes or Deliver Consents...................... See "Procedures for Tendering Notes and Delivering Consents." For further information, call the Dealer Manager or consult your broker, dealer, commercial bank or trust company for assistance. Withdrawal Rights............. Tenders of Notes may be withdrawn at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date and Consents may be revoked at any time on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date. A valid written withdrawal of tendered Notes on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date will constitute the concurrent valid revocation of such Holder's related Consent. In order for a Holder to revoke a Consent, such Holder must withdraw the related tendered Notes. See "Withdrawal of Tenders and Revocation of Consents." Purpose of the Offers and Solicitations................. The purpose of the Offers is to acquire all outstanding Notes. The purpose of the Solicitations and the Proposed Amendments is to eliminate or modify certain covenants and other provisions contained in the Indentures. Source of Funds............... The Company and IPC expect to finance the purchase of Notes with the net proceeds from the underwritten public offering of the Company's common stock and borrowings under its New Credit Facility (as defined and discussed in "Certain Information Concerning the Company and IPC -- The Refinancing"). Brokerage Commissions......... No brokerage commissions are payable by Holders of the Notes. Further Information........... Additional copies of this Statement, the Consent and Letter of Transmittal and other related materials may be obtained by contacting, and questions about the Offers should be directed to, the Dealer Manager at its address and telephone number set forth on the back cover of this Statement. 2 10 2. AVAILABLE INFORMATION; INCORPORATION OF DOCUMENTS BY REFERENCE. Under the terms of the Senior Debenture Indenture and the Subordinated Note Indenture, the Company and IPC have agreed to voluntarily comply with the informational requirements of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), and in accordance therewith file reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information can be inspected and copied at the Public Reference Section of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington D.C. 20549 and at regional public reference facilities maintained by the Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission at prescribed rates. Such material may also be accessed electronically by means of the Commission's home page on the World Wide Web (http://www.sec.gov). The Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1996 and the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997 are incorporated herein by reference and shall be deemed to be a part hereof, except as superseded or modified herein. IPC's Annual Report on Form 10-K for its fiscal year ended December 31, 1996 and IPC's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997 are incorporated herein by reference and shall be deemed to be a part hereof, except as superseded or modified herein. All documents and reports filed by the Company and IPC with the Commission after the date of this Statement and on or prior to the termination of the Offers shall be deemed incorporated herein by reference and shall be deemed to be a part hereof from the date of filing of such documents and reports. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Statement to the extent that a statement contained herein or in any subsequently filed document or report that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Statement. 3. TERMS OF THE OFFERS AND THE SOLICITATIONS. Upon the terms and subject to the conditions of the Offers (including, if the Offers are extended or amended, the terms and conditions of any such extension or amendment), the Company is offering to purchase for cash all of the outstanding Senior Debentures and IPC is offering to purchase for cash all of the outstanding Subordinated Notes at a price, for each $1,000 principal amount of Notes tendered pursuant to the Offers, equal to the Tender Offer Consideration with respect to such Notes plus, in the case of the Subordinated Notes, accrued and unpaid interest to, but not including, the Payment Date. The Tender Offer Consideration is equal to the Total Consideration (as defined herein) minus the Consent Payment, which is equal to $20 for each $1,000 principal amount of Notes. The Total Consideration for each $1,000 principal amount of Senior Debentures is equal to (i) the greater of (A) $815 or (B) the present value on the Payment Date of $1,000, determined on the basis of the Tender Offer Yield to the Par Value Date, equal to the sum of (x) the yield on the Reference Security, as calculated by the Dealer Manager in accordance with standard market practice, based on the bid price for such Reference Security as of 2:00 p.m., New York City time, on the Price Determination Date, as displayed on the Bloomberg Government Pricing Monitor on "Page PXS" or any recognized quotation source selected by the Dealer Manager in its sole discretion if the Bloomberg Government Pricing Monitor is not available, plus (y) 150 basis points (such price being rounded to the nearest cent per $1,000 principal amount of Senior Debentures). The Total Consideration for each $1,000 principal amount of Subordinated Notes is equal to (i) the greater of (A) $1,065 or (B) the present value on the Payment Date of $1,062.50 and all future interest payments payable up to the Earliest Redemption Date (December 15, 1997), determined on the basis of the Tender Offer Yield to the Earliest Redemption Date, equal to the sum of (x) the yield on the Reference Security, as calculated by the Dealer Manager in accordance with standard market practice, based on the bid 3 11 price for such Reference Security as of 2:00 p.m., New York City time, on the Price Determination Date, as displayed on the Bloomberg Government Pricing Monitor on "Page PX3" or any recognized quotation source selected by the Dealer Manager in its sole discretion if the Bloomberg Government Pricing Monitor is not available, plus (y) 75 basis points (such price being rounded to the nearest cent per $1,000 principal amount of Subordinated Notes). In addition, upon the terms and subject to the conditions of the Solicitations (including, if the Solicitations are extended or amended, the terms of any such extension or amendment), the Company and IPC are soliciting Consents to the Proposed Amendments to the Indentures from Holders, and are offering to pay to each Holder who consents to the Proposed Amendments on or prior to 5:00 p.m., New York City time, on the Expiration Date, a Consent Payment in cash equal to $20 per $1,000 principal amount of the Notes for which Consents have been validly delivered and not validly revoked on or prior to 5:00 p.m. on the Expiration Date, with such payment to be made following the Expiration Date if, but only if, the Notes are accepted for payment pursuant to the terms of the Offers. Although the Tender Offer Yield on the Reference Security on the Price Determination Date will be determined only from the source noted above, information regarding the closing yield of the Reference Security may also be found in The Wall Street Journal and The New York Times. The yield on the Reference Security for the Senior Debentures as of 12:00 p.m., New York City time, on August 27, 1997 was 6.08% and the Reference Security for the Subordinated Notes at such time was 5.30%. Accordingly, if such yield were determined to be the yield on the Reference Security on the Price Determination Date and September 30, 1997 were to be the Payment Date for the Notes, the Tender Offer Yield, the Tender Offer Consideration and the Total Consideration (i.e., the Tender Offer Consideration plus the Consent Payment) per $1,000 principal amount of a Senior Debenture would be 7.58%, $812.90 and $832.90, respectively, and of a Subordinated Note would be 6.05%, $1,054.50 and $1,074.50, respectively. Promptly after the Price Determination Date, but in any event before 9:00 a.m., New York City time, on the following business day, the Company or IPC will publicly announce the pricing information referred to above by press release to Dow Jones News Service. If the Notes are accepted for payment pursuant to the Offers, Holders who validly tender their Notes pursuant to the Offers on or prior to 5:00 p.m., New York City time, on the Expiration Date will receive total consideration equal to the Tender Offer Consideration with respect to such Notes plus the Consent Payment (i.e., the Total Consideration), plus, with respect to the Subordinated Notes, accrued and unpaid interest to, but not including, the Payment Date. BECAUSE THE TOTAL CONSIDERATION IS BASED IN PART ON A FIXED SPREAD PRICING FORMULA LINKED TO A YIELD ON THE APPLICABLE REFERENCE SECURITY, THE TENDER OFFER CONSIDERATION MAY BE AFFECTED BY CHANGES IN SUCH YIELD PRIOR TO THE PRICE DETERMINATION DATE. HOLDERS WHO TENDER NOTES IN THE OFFERS ARE OBLIGATED TO CONSENT TO THE PROPOSED AMENDMENTS. PURSUANT TO THE TERMS OF THE CONSENT AND LETTER OF TRANSMITTAL, THE COMPLETION, EXECUTION AND DELIVERY THEREOF BY A HOLDER IN CONNECTION WITH THE TENDER OF NOTES WILL BE DEEMED TO CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT TENDERING THEIR NOTES IN THE OFFERS AND MAY NOT REVOKE CONSENTS WITHOUT WITHDRAWING FROM THE OFFERS THE PREVIOUSLY TENDERED NOTES TO WHICH SUCH CONSENTS RELATE. All Notes validly tendered in accordance with the procedures set forth in Section 9 and not withdrawn in accordance with the procedures set forth in Section 10 on or prior to the Expiration Date will, upon the terms and subject to the conditions hereof, including satisfaction of the Consent Condition, the Minimum Tender Condition, the Financing Condition and the General Conditions be accepted for payment by the Company or IPC, as the case may be, and payments will be made therefor, shortly after the Expiration Date. All conditions to the Offers will, if Notes are to be accepted for payment shortly after the Expiration Date, be either satisfied or waived by the Company or IPC, as the case may be, prior to the expiration of the Offers on the Expiration Date. 4 12 The Proposed Amendments will be effected by the execution of the Supplemental Indentures on the Initial Expiration Date. "Requisite Consents" shall be the Consents of Holders who hold not less than a majority in aggregate principal amount of each of the Senior Debentures and Subordinated Notes then outstanding (excluding for such purposes any Notes owned at the time by the Company or IPC or any of their affiliates) to the Proposed Amendments. The elimination and modification of the covenants set forth in the Supplemental Indentures will not become operative unless and until the Offers are consummated on the Payment Date. The "Payment Date" is the date that the Company or IPC, as the case may be, accepts Notes for purchase pursuant to the Offers. If the Offers are terminated or withdrawn, or the Notes are not accepted for payment, the Supplemental Indentures will not become operative. Tenders of Notes may be validly withdrawn at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date and Consents may be validly revoked at any time on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date, but not thereafter. A valid withdrawal of tendered Notes on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date will constitute the concurrent valid revocation of such Holder's related Consent. In order for a Holder to revoke a Consent, such Holder must withdraw the related tendered Notes in writing. If, after the Expiration Date, the Company or IPC, as the case may be, reduces either (A) the principal amount of Notes subject to the Offers or (B) the Tender Offer Consideration, then previously tendered Notes with respect to such Offer may be validly withdrawn in writing until the expiration of ten business days after the date that notice of any such reduction is first published, sent or given to Holders by the Company or IPC, as the case may be. In addition, tenders of Notes may be validly withdrawn if the Offers are terminated without any Notes being purchased thereunder. In the event of a termination of the Offers, the Notes tendered pursuant to the Offers will be returned to the tendering Holder. Each of the Company's and IPC's obligation to accept, and pay for, Notes validly tendered pursuant to the Offers is conditional upon satisfaction of (a) the Consent Condition, (b) the Minimum Tender Condition, (c) the Financing Condition and (d) the General Conditions. Consent Payments to Holders who have validly consented to the Proposed Amendments on or prior to 5:00 p.m., New York City time, on the Expiration Date are conditioned upon (a) satisfaction of the Consent Condition and (b) the Company's and IPC's acceptance of the Notes for purchase pursuant to the Offers. Subject to applicable securities laws and the terms set forth in this Statement, each of the Company and IPC reserve the right, prior to the expiration of the Offers on the Expiration Date, (i) to waive any and all conditions to the Offers or the Solicitations, (ii) to extend or to terminate the Offers or the Solicitations or (iii) otherwise to amend the Offers or the Solicitations in any respect. See "Conditions to the Offers." The rights reserved by the Company and IPC in this paragraph are in addition to the Company's and IPC's rights to terminate the Offers described in Section 12. Any extension, amendment or termination will be followed as promptly as practicable by public announcement thereof, the announcement in the case of an extension of the Offers to be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which any public announcement may be made, neither the Company nor IPC shall have any obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If the Company or IPC makes a material change in the terms of the Offers or the Solicitations or the information concerning the Offers or the Solicitations, the Company or IPC, as the case may be, will disseminate additional Offer and Solicitation materials and extend such Offers or, if applicable, the Solicitations, to the extent required by law. See "Withdrawal of Tenders and Revocation of Consents." 4. CERTAIN SIGNIFICANT CONSIDERATIONS. The following considerations, in addition to the other information described elsewhere herein, should be carefully considered by each Holder before deciding whether to participate in the Offers and the Solicitations. Effects of the Proposed Amendments. Notes not purchased pursuant to the Offers will remain outstanding. If the Proposed Amendments become operative, the principal restrictive covenants contained in the Indentures will be eliminated. The Indentures, as so amended, will continue to govern the terms of all Notes related thereto that remain outstanding under such Indentures after the consummation of the Offers. The 5 13 elimination of these restrictive covenants and other provisions would permit the Company or IPC, as the case may be, insofar as the Indentures are concerned, to, among other things, incur indebtedness, pay dividends or make other restricted payments, incur liens or engage in other transactions which would otherwise not have been permitted pursuant to the Indentures. It is possible that any such actions that the Company or IPC would be permitted to take as a result of the changes to the Indentures effected by the Supplemental Indentures will increase the credit risk with respect to the Company or IPC, as the case may be, faced by the non-tendering Holders or otherwise adversely affect the interests of the non-tendering Holders. See "Proposed Amendments to the Indentures." Leverage. The Company and IPC are, and immediately following the Refinancing will remain, significantly leveraged. As set forth under "Certain Information Concerning the Company and IPC -- Capitalization," on a pro forma basis (assuming completion of the Refinancing) the Company would have had $352.0 million of long-term indebtedness outstanding (excluding current maturities) and stockholders' deficit of $53.1 million as of June 30, 1997 and IPC would have had $352.0 million of long-term indebtedness outstanding (excluding current maturities) and stockholder's deficit of $22.9 million as of June 30, 1997. Each of the Company's and IPC's future operating performance and ability to service or refinance its indebtedness will be subject to future economic conditions and to financial, business and other factors, many of which are beyond its control, and consequently the Company and IPC may be unable to service all of their debt in the future. There can be no assurance that the Company's and IPC's future operating performance and the availability under the New Credit Facility will be sufficient to service such indebtedness or that the Company or IPC, as the case may be, will be able to refinance its indebtedness in whole or in part. The degree to which the Company and IPC are leveraged could have important consequences to Holders of the Notes, including the following: (i) the Company's and IPC's ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes may be limited; (ii) a substantial portion of the Company's and IPC's cash flow from operations will be dedicated to the payment of the principal of and interest on their existing indebtedness, thereby reducing funds available for operations; (iii) the agreements governing the Company's and IPC's long-term indebtedness and bank loans contain, and the New Credit Facility is expected to contain, certain restrictive covenants, including certain covenants that limit the payment of dividends and other distributions by IPC to the Company; (iv) borrowings under the New Credit Facility will be at floating rates of interest, causing the Company and IPC to be vulnerable to increases in interest rates; and (v) each of the Company's and IPC's substantial degree of leverage could make it more vulnerable to a downturn in economic conditions. The Company's and IPC's ability to make scheduled payments of the principal of or interest on, or to refinance, their indebtedness will depend on its future operating performance and cash flow, which are subject to prevailing economic conditions, primarily interest rate levels and financial, competitive, business and other factors, many of which are beyond their control. Limited Trading Market. The Notes are not listed on any national or regional securities exchange. To the extent that the Notes are tendered and accepted in the Offers, any existing trading market for the remaining Notes will become more limited because of the smaller principal amount of Notes outstanding. A debt security with a smaller outstanding principal amount available for trading (a smaller "float") may command a lower price than would a comparable debt security with a greater float. Consequently, the liquidity, market value and price volatility of Notes which remain outstanding may be adversely affected. Holders of unpurchased Notes may attempt to obtain quotations for the Notes from their brokers; however, there can be no assurance that any trading market will exist for the Notes following consummation of the Offers. The extent of the public market for the Notes following consummation of the Offers would depend upon the number of Holders remaining at such time, the interest in maintaining a market in Notes on the part of securities firms and other factors. Although the Company and IPC believe that the Notes trade on a negotiated basis between certain market makers and Holders of the Notes, no generally reliable public pricing information for the Notes is available. Holders of Notes are urged to contact their brokers to obtain the best available information as to potential current market prices. 6 14 5. PURPOSE OF THE OFFERS AND THE SOLICITATIONS. The purpose of the Offers, which are conditioned on satisfaction of the Consent Condition, the Minimum Tender Condition, the Financing Condition and the General Conditions, is to acquire all of the outstanding Notes. From time to time in the future, the Company, IPC or their affiliates may seek to acquire any Notes which remain outstanding following consummation or expiration of the Offers, through open market or privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as it may determine, which may be more or less than the price to be paid pursuant to the Offers and could be for cash or other consideration. Alternatively, the Company or IPC may consider taking other steps in order to render inapplicable the restrictions contained in the relevant covenants of the Indentures. There can be no assurance as to which, if any, of these alternatives (or combinations thereof) the Company or IPC may pursue or whether they would be successful. The purpose of the Solicitations and the Proposed Amendments is to eliminate or modify certain of the restrictive covenants and other provisions contained in the Indentures. 6. CERTAIN INFORMATION CONCERNING THE COMPANY AND IPC. The Company, through IPC, is a vertically integrated specialty packaging company that designs and manufactures value-added plastic and paper-based flexible packaging products. The Company serves a variety of markets, providing packaging for food, medical devices and electronic goods and protective packaging for industrial products. Consumer Packaging. Consumer Packaging designs and manufactures plastic and paper-based products for food packaging applications and, more recently, for applications in the medical and electronics industries. The Company produces a broad array of items, including plastic containers for prepared foods, produce and baked goods; specialty paper products such as fluted baking cups and liners for cookies and other based goods; microwaveable packaging materials; and protective packaging for medical devices and electronics products. Consumer Packaging markets its products to a variety of end users, including national wholesale bakeries, supermarket chains, foodservice distributors, fast-food chains, major agricultural growers, medical equipment suppliers and electronics manufacturers. The Company also manufactures a variety of plastic sheet and film products from several different resins for internal use and sales to third party converters. Ivex is the leading producer of OPS sheet in the world. Consumer Packaging represented approximately 56% of the Company's net sales and 58% of the Company's EBITDA during the 12 months ended June 30, 1997. Industrial Packaging. Industrial Packaging manufactures and coats film, paper and foil products for protective packaging and specialty papers. The Company produces products for some of the fastest growing applications in the protective packaging industry, including film and paper maskings and self-sealing coated packaging applications. These products are marketed primarily to consumer durable goods manufacturers, automotive companies, other industrial manufacturers and integrated paper producers. The Company also manufactures a variety of recycled kraft paper made from post-consumer and post-industrial fibers and specialty lightweight paper made primarily from virgin pulp for internal use and sales to third party converters. Industrial Packaging represented approximately 44% of the Company's net sales and 42% of the Company's EBITDA during the 12 months ended June 30, 1997. The Refinancing. The Offers are a component of a comprehensive refinancing strategy of the Company. As part of this refinancing, IPC is in the process of negotiating a new credit facility (the "New Credit Facility") that will refinance its existing credit facility. The Company also intends to raise additional equity financing through an underwritten public offering of its common stock that is expected to result in net proceeds to the Company of approximately $92.3 million (the "Stock Offering"). The Company intends to use the proceeds of the Stock Offering together with borrowings under the New Credit Facility to refinance substantially all of its existing indebtedness. The purchase of Notes pursuant to the Offers is subject, among other things, to the satisfactory completion of the New Credit Facility and funding thereunder and the consummation of the Stock Offering. See "Conditions to the Offers." 7 15 Specifically, IPC presently intends to use funds to be provided under the New Credit Facility to retire the entire $158 million aggregate principal amount of its Subordinated Notes. The Company presently intends to use the proceeds of the Stock Offering and borrowings under the New Credit Facility to retire the entire $160 million aggregate principal amount of its Senior Debentures. See "Capitalization". The New Credit Facility is expected to provide for IPC to borrow up to $475 million principal amount at variable interest rates. On a pro forma basis at June 30, 1997, the Company expects IPC to borrow approximately $327.7 million under the New Credit Facility in connection with the Refinancing. Capitalization. The following table sets forth the capitalization of each of the Company and IPC as of June 30, 1997, on a historical basis and as adjusted to give effect to the Stock Offering, the application of the net proceeds thereof, the New Credit Facility and the purchase of all of the outstanding Senior Debentures at an assumed price of $130.5 million and all of the outstanding Subordinated Notes at an assumed price of $170.5 million. 8 16 THE COMPANY
JUNE 30, 1997 ------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ (DOLLARS IN THOUSANDS) Current maturities of long-term debt........................ $ 8,012 $ 16,137(2) ========= ========= Long-term debt: Existing Credit Facility.................................. $ 94,825 (2) New Credit Facility....................................... $ 312,732(2) Industrial revenue bonds.................................. 37,623 37,623 12 1/2% Subordinated Notes, net of discount............... 157,395 (3) 13 1/4% Discount Debentures, net of discount.............. 113,095 (3) Other debt................................................ 1,674 1,674 --------- --------- Total long-term debt................................... 404,612 352,029 --------- --------- Stockholders' deficit: Ivex Packaging Corporation common stock................... 11 183 Paid in capital in excess of par value.................... 177,375 299,745 Accumulated deficit....................................... (300,879) (352,172)(4) Foreign currency translation adjustment................... (899) (899) --------- --------- Total stockholders' deficit............................ (124,392) (53,143) --------- --------- Total capitalization........................................ $ 280,220 $ 298,886 ========= =========
- ------------------------- NOTES TO CAPITALIZATION TABLE (THE COMPANY) (IN THOUSANDS) (1) Adjusted for (i) the issuance and sale of shares of Common Stock by the Company (assuming net proceeds of $92,316), (ii) the issuance of the Company's shares to management in connection with the conversion of certain IPC common stock options held by management (the "IPC Options") and (iii) borrowings under the New Credit Facility, and the anticipated use of net proceeds from such transactions to purchase the Subordinated Notes and the Senior Debentures as if such issuances and borrowings had occurred on June 30, 1997. Accordingly, the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding Subordinated Notes and all of the outstanding Senior Debentures. (2) Reflects borrowings of $300,000 under the term loan portion and $27,732 under the revolving credit portion of the New Credit Facility and the refinancing of $52,500 term loans and $49,200 revolving credit loans under the Existing Credit Facility. (3) Reflects the repurchase of all outstanding Subordinated Notes and Senior Debentures. (4) The pro forma accumulated deficit balance is adjusted for a non-cash extraordinary expense of $8,141 for previously capitalized debt issuance costs and a cash extraordinary expense of $30,496 for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding Subordinated Notes and Senior Debentures. The pro forma accumulated deficit balance is also adjusted for a nonrecurring compensation charge of approximately $46,900 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of $30,300 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a compensation charge of approximately $16,600 associated with the accrual of future Company payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by the Company. Such loans were made to senior management to enable them to pay income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge are reflected as an increase to pro forma accumulated deficit, net of a tax benefit of approximately $34,200. 9 17 IPC
JUNE 30, 1997 ------------------------- HISTORICAL PRO FORMA(1) ---------- ------------ (DOLLARS IN THOUSANDS) Current maturities of long-term debt........................ $ 8,012 $ 16,137(2) ======== ========= Long-term debt: Existing Credit Facility.................................. $ 94,825 (2) New Credit Facility....................................... $ 312,732(2) Industrial revenue bonds.................................. 37,623 37,623 12 1/2% Subordinated Notes, net of discount............... 157,395 (3) Other debt................................................ 1,674 1,674 -------- --------- Total long-term debt................................... 291,517 352,029 -------- --------- Stockholders' deficit: IPC, Inc. common stock.................................... 1 1 Paid in capital in excess of par value.................... 73,417 103,643 Accumulated deficit....................................... (86,119) (125,603)(4) Foreign currency translation adjustment................... (899) (899) -------- --------- Total stockholders' deficit............................ (13,600) (22,858) -------- --------- Total capitalization........................................ $277,917 $ 329,171 ======== =========
- ------------------------- NOTES TO THE CAPITALIZATION TABLE (IPC) (IN THOUSANDS) (1) Adjusted for (i) the issuance of the Company's shares to management in connection with the conversion of the IPC Options and (ii) borrowings under the New Credit Facility and the anticipated use of net proceeds from the New Credit Facility to purchase the Subordinated Notes and extend an intercompany loan to the Company to provide for a portion of the funds required to purchase Senior Debentures, as if such transactions had occurred on June 30, 1997. Accordingly, the pro forma adjustments reflect the refinancing of the Existing Credit Facility, the repurchase of all of the outstanding Subordinated Notes and the extension of a loan to the Company to purchase Senior Debentures. (2) Reflects borrowings of $300,000 under the term loan portion and $27,732 under the revolving credit portion of the New Credit Facility and the refinancing of $52,500 term loans and $49,200 revolving credit loans under the Existing Credit Facility. (3) Reflects the repurchase of all outstanding Subordinated Notes. (4) The pro forma accumulated deficit balance is adjusted for a non-cash extraordinary expense of approximately $5,854 for previously capitalized debt issuance costs and a cash extraordinary expense of $13,104 for prepayment costs assumed to have been paid in connection with the repurchase of all of the outstanding Subordinated Notes. The pro forma accumulated deficit is also adjusted for a nonrecurring compensation charge of approximately $46,900 in connection with the conversion of the IPC Options. The nonrecurring compensation charge consists of (i) a non-cash compensation charge of approximately $30,300 associated with the conversion of the IPC Options into shares of the Company's common stock and (ii) a compensation charge of approximately $16,600 associated with the accrual of future IPC payments to senior management of an amount which (after taxes) will enable such management to pay the interest on the loans made to them by IPC. Such loans were made to senior management to pay income taxes payable in connection with the conversion of the IPC Options. The extraordinary expense and nonrecurring charge are reflected as an increase to pro forma accumulated deficit, net of tax benefit of approximately $26,300. 7. PROPOSED AMENDMENTS TO THE INDENTURES. This section sets forth a brief description of the Proposed Amendments to each of the Indentures for which Consents are being sought pursuant to the Solicitations. The Proposed Amendments to the Senior 10 18 Debenture Indenture and the Proposed Amendments to the Subordinated Note Indenture are substantially identical insofar as this description of proposed amendments is concerned except as otherwise specifically set forth below. The summaries of provisions of the Indentures set forth below are qualified in their entireties by reference to the full and complete terms contained in the respective Indentures. Capitalized terms appearing below but not defined in this Statement have the meanings assigned to such terms in the respective Indentures. The elimination and modification of the covenants set forth in the Supplemental Indentures, as described below, will not become operative unless and until the Offers are consummated on the Payment Date. The Proposed Amendments to each of the Indentures are as follows: Deletion of Restrictive Covenants and Events of Default Related Thereto. The Proposed Amendments would delete in their entireties the following restrictive covenants and references thereto from both the Indentures (except as noted) as well as the events of default related solely to such restrictive covenants: Section 801 - Limitation on Mergers and Consolidations. Restricts the ability of the Company or IPC, as the case may be, to consolidate with or merge with or into another Person. Section 1005 - Maintenance of Properties. Requires the Company or IPC, as the case may be, and their respective subsidiaries to maintain all properties used in conduct of their business so that the business may be properly conducted. Section 1006 - Payment of Taxes and Other Claims. Requires the Company or IPC, as the case may be, and their respective subsidiaries to pay or discharge all taxes and claims which might become liens. Section 1007 - Limitations on Additional Indebtedness. Restricts the ability of the Company (in the case of the Senior Debentures), IPC or any Subsidiary of IPC to incur additional Indebtedness or issue preferred stock. Section 1008 - Limitations on Issuance and Sale of Subsidiary (Senior Stock. Restricts the ability of IPC to issue any capital Debenture stock other than to the Company or its wholly-owned Indenture only) subsidiaries. Section 1009 - Limitations on Sale and Leaseback Transactions. Restricts the ability of the Company (in the case of the Senior Debentures), IPC or any Subsidiary of IPC to enter into sale and leaseback transactions except in certain circumstances. Section 1010 - Limitations on Restricted Payments. Restricts the ability of the Company (in the case of the Senior Debentures), IPC or any Subsidiary of IPC to make restricted payments, including (i) certain dividends or distributions in respect of Capital Stock of the Company, IPC or any Subsidiary of IPC, (ii) certain purchases, redemptions, other acquisitions or retirements of Capital Stock or subordinated debt of the Company, IPC or any Subsidiary of IPC or (iii) Prohibited Investments. Section 1011 - Limitations on Restrictions on Distributions from Certain Subsidiaries. Prevents the Company or IPC, as the case may be, from limiting the ability of IPC or any Subsidiary of IPC to (i) pay dividends, make distributions or repay Indebtedness to the Company, IPC or any Subsidiary of IPC, (ii) make loans or advances to the Company, IPC or any Subsidiary of IPC or (iii) transfer its property or assets to the Company, IPC or any Subsidiary of IPC. Section 1012 - Limitations on Asset Sales. Restricts the ability of the Company (in the case of the Senior Debentures), IPC and any Subsidiary of IPC to sell assets other than for fair market value and consideration at least 80% of which is cash and requires the proceeds of any such sale to be applied, among other things, to repay senior debt and repurchase Notes. Section 1013 - Limitations on Transactions with Affiliates. Restricts the ability of the Company (in the case of the Senior Debentures), IPC and any Subsidiary of IPC to engage in transactions with Affiliates.
11 19 Section 1014 - Limitation on Liens. Restricts the ability of the Company or IPC, as the case may be, and their respective Subsidiaries to incur Liens with respect to its property or assets. In addition, the Proposed Amendments to the Subordinated Note Indenture would also delete in its entirety the following restrictive covenants and references thereto from the Subordinated Note Indenture as well as the events of default related solely to such restrictive covenants: Section 704 - Reports by Company. Requires IPC to file certain reports with the Commission. Section 1008 - Limitations on Preferred Stock of Subsidiaries. Restricts the ability of IPC to permit any of its Subsidiaries to issue any Preferred Stock other than to IPC or its wholly- owned subsidiaries. Section 1015 - Restriction on Additional Senior Subordinated Indebtedness. Restricts the ability of IPC to incur indebtedness subordinate to IPC's Senior Indebtedness and senior to the Subordinated Notes.
Deletion of Definitions. The Proposed Amendments would delete those definitions from the Indentures when references to such definitions would be eliminated as a result of the foregoing. A description of the foregoing covenants and events of default and the related definitions is set forth in Appendix A and Appendix B to this Statement. As to each Indenture, the Proposed Amendments constitute a single proposal and a tendering and consenting Holder must consent to the Proposed Amendments as an entirety and may not consent selectively with respect to certain of the Proposed Amendments. The elimination and modification of the covenants set forth in the Supplemental Indentures will not become operative unless and until the Offers are consummated on the Payment Date. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE HOLDERS OF NOTES WILL BE BOUND THEREBY. THEREFORE, CONSUMMATION OF THE OFFERS AND THE ADOPTION OF THE PROPOSED AMENDMENTS MAY HAVE ADVERSE CONSEQUENCES FOR HOLDERS WHO ELECT NOT TO TENDER IN THE OFFERS. Pursuant to the terms of each of the Indentures, the Proposed Amendments require the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes issued under such Indenture, excluding for such purposes any Notes owned at the time by the Company or IPC, as the case may be, or any of their affiliates. The valid tender by a Holder of Notes pursuant to the Offers will be deemed to constitute the giving of a Consent by such Holder to the Proposed Amendments with respect to such Notes. The Company and IPC are not soliciting and will not accept Consents from Holders who are not tendering their Notes pursuant to the Offers. 8. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR NOTES; ACCEPTANCE OF CONSENTS. Upon the terms and subject to the conditions of the Offers (including if the Offers are extended or amended, the terms and conditions of any such extension or amendment) and applicable law, the Company or IPC, as the case may be, will purchase, by accepting for payment, and will pay for, all Notes validly tendered pursuant to the Offers (and not withdrawn, or if withdrawn validly re-tendered), such payment to be made by the deposit of the aggregate Tender Offer Consideration plus the aggregate Consent Payments in immediately available funds by the Company or IPC, as the case may be, promptly after the Expiration Date with the Depositary, which will act as agent for tendering Holders for the purpose of receiving payment from the Company or IPC and transmitting such payment to tendering Holders. Under no circumstances will interest on the Tender Offer Consideration and the Consent Payment be paid by the Company or IPC by reason of any delay in making payment. The Company and IPC expressly reserve the right, in their sole discretion and subject to Rule 14e-1(c) under the Exchange Act, to delay acceptance for payment of or payment for Notes in order to comply, in whole or in part, with any applicable law. See "Conditions to the Offers." In all cases, payment by the Depositary to Holders or beneficial owners of the Tender Offer Consideration for Notes 12 20 purchased pursuant to the Offers will be made only after timely receipt by the Depositary of (i) certificates representing such Notes or timely confirmation of a book-entry transfer of such Notes into the Depositary's account at DTC pursuant to the procedures set forth in Section 9, (ii) a properly completed and duly executed Consent and Letter of Transmittal (or manually signed facsimile thereof) or a properly transmitted Agent's Message (as defined herein) and (iii) any other documents required by the Consent and Letter of Transmittal. For purposes of the Solicitations, Consents received by the Depositary will be deemed to have been accepted if, as and when (a) the Company or IPC, as the case may be, and the Trustee have executed the Supplemental Indentures on or promptly after 5:00 p.m., New York City time, on the Initial Expiration Date, and (b) the Company or IPC, as the case may be, has accepted the Notes for purchase and payment pursuant to the Offers. For purposes of the Offers, tendered Notes will be deemed to have been accepted for payment, if, as and when the Company or IPC, as the case may be, gives oral or written notice thereof to the Depositary. If any tendered Notes are not purchased pursuant to the Offers for any reason, such Notes not purchased will be returned, without expense, to the tendering Holder (or, in the case of Notes tendered by book-entry transfer, such Notes will be credited to the account maintained at DTC from which such Notes were delivered) after the expiration or termination of the Offers. Tendering Holders will not be obligated to pay brokerage fees or commissions to the Dealer Managers, the Depositary, the Company or IPC, or, except as set forth in Instruction 7 of the Consent and Letter of Transmittal, transfer taxes on the purchase of Notes pursuant to the Offers or the payment of the Consent Payment. The Company and IPC reserve the right to transfer or assign, in whole at any time or in part from time to time, to one or more of their affiliates, the right to purchase Notes tendered pursuant to the Offers, but any such transfer or assignment will not relieve the Company or IPC of its obligations under the Offers or prejudice the rights of tendering Holders to receive payment for Notes validly tendered and accepted for payment pursuant to the Offers. It is a condition precedent to each of the Company's and IPC's obligation to purchase the Notes pursuant to the Offers, among other conditions, that the Supplemental Indentures have been executed. It is a condition subsequent to effectiveness of the Proposed Amendments contained in the Supplemental Indentures that the Company or IPC, as the case may be, accept for payment all the Notes validly tendered (and not withdrawn) pursuant to the Offers (in which event the Company or IPC, as the case may be, will be obligated to pay all the Tender Offer Consideration for the Notes so accepted). See "Conditions to the Offers." 9. PROCEDURES FOR TENDERING NOTES AND DELIVERING CONSENTS. THE TENDER OF NOTES PURSUANT TO THE OFFERS AND IN ACCORDANCE WITH THE PROCEDURES DESCRIBED BELOW WILL CONSTITUTE THE DELIVERY OF A CONSENT WITH RESPECT TO THE NOTES TENDERED. HOLDERS WHO DESIRE TO TENDER THEIR NOTES PURSUANT TO THE OFFERS AND RECEIVE THE TENDER OFFER CONSIDERATION ARE REQUIRED TO DELIVER CONSENTS TO THE PROPOSED AMENDMENTS. HOLDERS MAY NOT DELIVER CONSENTS WITHOUT VALIDLY TENDERING THEIR NOTES PURSUANT TO THE OFFERS. Tender of and Consent for Notes. The tender by a Holder of Notes (and subsequent acceptance of such tender by the Company or IPC, as the case may be) pursuant to one of the procedures set forth below will constitute a binding agreement between such Holder and the Company or IPC in accordance with the terms and subject to the conditions set forth herein and in the Consent and Letter of Transmittal. Only Holders are authorized to tender their Notes and consent to the Proposed Amendments. The procedures by which Notes may be tendered and Consents given by beneficial owners that are not Holders will depend upon the manner in which the Notes are held. Holders who wish to transfer Notes without tendering prior to the Expiration Date and who wish to retain the benefit of the Consent Payment or wish to provide such benefit to a transferee should validly tender the Notes and deliver the related Consents, designating the transferee as payee in the boxes marked "Special Issuance/Delivery Instructions," as applicable, contained in the Consent and Letter of Transmittal. 13 21 Tender of Notes Held in Physical Form. To effectively tender Notes held in physical form pursuant to the Offers, a properly completed Consent and Letter of Transmittal (or a facsimile thereof duly executed by the Holder thereof) and any other documents required by the Consent and Letter of Transmittal must be received by the Depositary at its address set forth on the back cover of this Statement (or delivery of Notes may be effected through the deposit of Notes with DTC and making book-entry delivery as set forth below) on or prior to the Expiration Date, as applicable; provided, however, that the tendering Holder may instead comply with the guaranteed delivery procedure set forth below. CONSENTS AND LETTERS OF TRANSMITTAL AND NOTES SHOULD BE SENT ONLY TO THE DEPOSITARY AND SHOULD NOT BE SENT TO THE COMPANY, IPC OR THE DEALER MANAGER. Tender of Notes Held Through a Custodian. To effectively tender Notes that are held of record by a custodian bank, depositary, broker, trust company or other nominee, the beneficial owner thereof must instruct such Holder to tender the Notes on the beneficial owner's behalf. A Letter of Instructions is included in the Solicitation materials provided with this Statement which may be used by a beneficial owner in this process to effect the tender. Any beneficial owner of Notes held of record by DTC or its nominee, through authority granted by DTC, may direct the DTC participant through which such beneficial owner's Notes are held in DTC to execute on such beneficial owner's behalf a consent with respect to Notes beneficially owned by such beneficial owner on the day of execution without tendering the Notes. Tender of Notes Held Through DTC. To effectively tender Notes that are held through DTC, DTC participants may, in lieu of physically completing and signing the Consent and Letter of Transmittal and delivering it to the Depositary, electronically transmit their acceptance through ATOP (and thereby provide their Consents to the Proposed Amendments), and DTC will then edit and verify the acceptance end send an Agent's Message to the Depositary for its acceptance. Delivery of tendered Notes must be made to the Depositary pursuant to the book-entry delivery procedures set forth below or the tendering DTC participant must comply with the guaranteed delivery procedures set forth below. THE METHOD OF DELIVERY OF NOTES AND CONSENTS AND LETTERS OF TRANSMITTAL, ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED THROUGH ATOP, IS AT THE ELECTION AND RISK OF THE PERSON TENDERING NOTES AND DELIVERING CONSENTS AND LETTERS OF TRANSMITTAL AND, EXCEPT AS OTHERWISE PROVIDED IN THE CONSENT AND LETTER OF TRANSMITTAL, DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, AND THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO PERMIT DELIVERY TO THE DEPOSITARY PRIOR TO SUCH DATE. Except as provided below, unless the Notes being tendered are deposited with the Depositary on or prior to the Expiration Date (accompanied by a properly completed and duly executed Consent, as applicable, and Letter of Transmittal or a properly transmitted Agent's Message), the Company and IPC may, at their option, treat such tender as defective for purposes of the right to receive the Consent Payment and Tender Offer Consideration, respectively. Payment for the Notes will be made only against deposit of the tendered Notes and delivery of all other required documents. Book-Entry Delivery Procedures. The Depositary will establish accounts with respect to the Notes at DTC for purposes of the Offers within two business days after the date of this Statement, and any financial institution that is a participant in DTC may make book-entry delivery of the Notes by causing DTC to transfer such Notes into the Depositary's account in accordance with DTC's procedures for such transfer. However, although delivery of Notes may be effected through book-entry transfer into the Depositary's account at DTC, the Consent and Letter of Transmittal (or facsimile thereof), with any required signature guarantees or an Agent's Message in connection with a book entry transfer, and any other required documents, must in any case be transmitted to and received by the Depositary at one or more of its addresses set forth on the back cover of this Statement on or prior to the Expiration Date, or the guaranteed delivery procedure described below must be followed. Delivery of documents to DTC does not constitute delivery to the Depositary. The confirmation of a book-entry transfer into the Depositary's account at DTC as described above is referred to herein as a "Book-Entry Confirmation." 14 22 The term "Agent's Message" means a message transmitted by DTC to, and received by, the Depositary and forming a part of the Book-Entry Confirmation, which states that DTC has received an express acknowledgment from each participant in DTC tendering the Notes and that such participants have received the Consent and Letter of Transmittal and agree to be bound by the terms of the Consent and Letter of Transmittal and the Company or IPC may enforce such agreement against such participants. Signature Guarantees. Signatures on all Consents and Letters of Transmittal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (a "Medallion Signature Guarantor"), unless the Notes tendered thereby are tendered (i) by a registered Holder of Notes (or by a participant in DTC whose name appears on a security position listing as the owner of such Notes) who has not completed any of the boxes entitled "Special Issuance Delivery Instructions" on the Consent and Letter of Transmittal, or (ii) for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being referred to as an "Eligible Institution"). See Instruction 1 of the Consent and Letter of Transmittal. If the Notes are registered in the name of a person other than the signer of the Consent and Letter of Transmittal or if Notes not accepted for payment or not tendered are to be returned to a person other than the registered Holder, then the signatures on the Consents and Letters of Transmittal accompanying the tendered Notes must be guaranteed by a Medallion Signature Guarantor as described above. See Instructions 1 and 5 of the Consent and Letter of Transmittal. Guaranteed Delivery. If a Holder desires to deliver Consents and tender Notes pursuant to the Offers and Solicitations and time will not permit the Consents and Letter of Transmittal, certificates representing such Notes and all other required documents to reach the Depositary, or the procedures for book-entry transfer cannot be completed, on or prior to the Expiration Date, such Holder may nevertheless deliver its Consents, and such Notes may nevertheless be tendered, with the effect that such delivery and/or tender will be deemed to have been received on or prior to the Expiration Date if all of the following conditions are satisfied: (i) the tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by the Company or IPC herewith, or an Agent's Message with respect to guaranteed delivery that is accepted by the Company or IPC, is received by the Depositary on or prior to 5:00 p.m., New York City time, on the Expiration Date as provided below; and (iii) the certificates for the tendered Notes, in proper form for transfer (or a Book-Entry Confirmation of the transfer of such Notes into the Depositary's account at DTC as described above), together with a Consent and Letter of Transmittal (or facsimile thereof) properly completed and duly executed, with any required signature guarantees and any other documents required by the Consent and Letter of Transmittal or a properly transmitted Agent's Message, are received by the Depositary within three New York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be sent by hand delivery, telegram, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the Notice of Guaranteed Delivery. Failure to complete the guaranteed delivery procedure outlined above will not, of itself, affect the validity of, or effect a revocation of, any Consent properly executed by a Holder of Notes who attempted to use the guaranteed delivery procedures. Notwithstanding any other provision hereof, payment of the Tender Offer Consideration and the Consent Payment for Notes tendered and accepted for payment pursuant to the Offers will, in all cases be made only after timely receipt (i.e., on or prior to 5:00 p.m., New York City time, on the Expiration Date) by the Depositary of the tendered Notes (or Book-Entry Confirmation of the transfer of such Notes into the Depositary's account at DTC as described above), and a Consent and Letter of Transmittal (or facsimile 15 23 thereof) with respect to such Notes, properly completed and duly executed, with any required signature guarantees and any other documents required by the Consent and Letter of Transmittal, or a properly transmitted Agent's Message. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE COMPANY OR IPC BY REASON OF ANY DELAY IN MAKING PAYMENT TO ANY PERSON USING THE GUARANTEED DELIVERY PROCEDURES. THE TENDER OFFER CONSIDERATION FOR NOTES TENDERED PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES WILL BE THE SAME AS THAT FOR NOTES DELIVERED TO THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE, EVEN IF THE NOTES TO BE DELIVERED PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES ARE NOT SO DELIVERED TO THE DEPOSITARY, AND THEREFORE PAYMENT BY THE DEPOSITARY ON ACCOUNT OF SUCH NOTES IS NOT MADE, UNTIL AFTER THE PAYMENT DATE. Back-up U.S. Federal Income Tax Withholding. To prevent backup U.S. federal income tax withholding, each tendering Holder of Notes must provide the Depositary with such Holder's correct taxpayer identification number and certify that such Holder is not subject to backup U.S. federal income tax withholding by completing the Substitute Form W-9 included in the Consent and Letter of Transmittal. Determination of Validity. All questions as to the validity, form, eligibility (including time of receipt) and acceptance of any tendered Notes or Consents pursuant to any of the procedures described above will be determined by the Company or IPC, as the case may be, in its sole discretion (whose determination shall be final and binding). The Company and IPC reserve the absolute right to reject any or all tenders of any Notes or Consents determined by it not to be in proper form or, in the case of Notes, if the acceptance for payment of, or payment for, such Notes may, in the opinion of the Company's or IPC's counsel, be unlawful. The Company and IPC also reserve the absolute right, in their sole discretion, to waive any of the conditions of the Offers or any defect or irregularity in any tender with respect to Notes or Consents of any particular Holder, whether or not similar defects or irregularities are waived in the case of other Holders. The Company's and IPC's interpretation of the terms and conditions of their respective Offers and Solicitations (including the Consent and Letter of Transmittal and the Instructions thereto) will be final and binding. None of the Company, IPC, the Depositary, the Dealer Manager, the Trustee or any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. If the Company or IPC waives its right to reject a defective tender of Notes, the Holder will be entitled to the Total Consideration. 10. WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS. Tenders of Notes may be withdrawn in writing at any time on or prior to 5:00 p.m., New York City time, on the Expiration Date and the related Consents may be revoked at any time on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date. A valid withdrawal of tendered Notes effected on or prior to 5:00 p.m., New York City time, on the Initial Expiration Date will constitute the concurrent valid revocation of such Holder's related Consent. For a withdrawal of a tender or revocation of a Consent to be effective, a written, telegraphic or facsimile transmission notice of withdrawal or revocation must be timely received by the Depositary at its address set forth on the back cover of this Statement. Any such notice or withdrawal or revocation must (A) specify the name of the person who tendered the Notes to be withdrawn or to which the revocation of Consents relates, (B) contain the description of the Notes to be withdrawn or to which the revocation of Consents relates and identify the certificate number or numbers shown on the particular certificate evidencing such Notes (unless such Notes were tendered by book-entry transfer) and the aggregate principal amount represented by such Notes and (C) be signed by the Holder of such Notes in the same manner as the original signature on the Consent and Letter of Transmittal by which such Notes were tendered (including any required signature guarantees) or related Consent was given or be accompanied by (x) documents of transfer sufficient to have the Trustee register the transfer of the Notes into the name of the person withdrawing such Notes and/or revoking such related Consent and (y) a properly completed irrevocable proxy that authorized such person to effect such revocation on behalf of such Holder. If the Notes to be withdrawn have been delivered or otherwise identified to the Depositary, a signed notice of withdrawal is effective immediately upon written or 16 24 facsimile notice of withdrawal even if physical release is not yet effected. A withdrawal of Notes or revocation of Consents can only be accomplished in accordance with the foregoing procedures. ALL QUESTIONS AS TO THE FORM AND VALIDITY (INCLUDING TIME OF RECEIPT) OF NOTICES OF WITHDRAWAL OR REVOCATION WILL BE DETERMINED BY THE COMPANY OR IPC, AS THE CASE MAY BE, IN ITS SOLE DISCRETION (WHOSE DETERMINATION WILL BE FINAL AND BINDING). NONE OF THE COMPANY, IPC, THE DEPOSITARY, THE TRUSTEE OR ANY OTHER PERSON WILL BE UNDER ANY DUTY TO GIVE NOTIFICATION OF ANY DEFECTS OR IRREGULARITIES IN ANY NOTICE OF WITHDRAWAL OR REVOCATION OR INCUR ANY LIABILITY FOR FAILURE TO GIVE ANY SUCH NOTIFICATION. Any Notes properly withdrawn will be deemed to be not validly tendered for purposes of the Offers. Withdrawn Notes may be tendered and revoked Consents may be given by following one of the procedures described in Section 9 at any time prior to the Expiration Date. 11. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by the Company and IPC to purchase all of the Notes pursuant to the Offers and to pay related fees and expenses is estimated to be approximately $304.7 million (assuming 100% of the outstanding principal amount of Notes are tendered and accepted for payment on or before September 30, 1997). The Company and IPC will obtain such funds from the proceeds of the Stock Offering and borrowings under the New Credit Facility. 12. CONDITIONS TO THE OFFERS. Notwithstanding any other provisions of the Offers and in addition to (and not in limitation of) the Company's and IPC's rights to extend and amend the Offers at any time in their sole discretion, neither the Company nor IPC shall be required to accept for payment, purchase or pay for, and may delay the acceptance for payment of, any tendered Notes, in each event subject to Rule 14e-1(c) under the Exchange Act, and may terminate the Offers, if there shall not have been satisfied the Consent Condition, the Minimum Tender Condition, the Financing Condition and the General Conditions (each as defined herein). The "Consent Condition" with respect to each of the Senior Debentures and Subordinated Notes shall mean (i) receipt of the Requisite Consents from the Holders of both of the Senior Debentures and Subordinated Notes with respect to the Proposed Amendments and (ii) execution of both of the Supplemental Indentures pertaining to the Notes and providing for the Proposed Amendments. See "Terms of the Offers and the Solicitations" and "Proposed Amendments to the Indentures". The "Minimum Tender Condition" shall mean there having been validly tendered (and not withdrawn) prior to the Expiration Date not less than a majority of the aggregate principal amount of the Notes of each series outstanding. The "Financing Condition" shall mean (i) the consummation of the Stock Offering and receipt by the Company of net proceeds therefrom of not less than $92.3 million and (ii) the execution of the New Credit Facility on terms acceptable to IPC in its sole discretion and providing for borrowings by IPC thereunder of not less than $475 million in the aggregate. For purposes of the foregoing provision, the "General Conditions" shall be deemed to have been satisfied unless any of the following conditions shall occur on or after the date of this Statement and prior to the acceptance for payment of any Notes tendered pursuant to the Offers: (a) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, trading in securities in the United States securities or financial markets, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States (whether or not mandatory), (iii) any limitation by any governmental authority on the extension of credit by banks or other lending institutions in the United States, (iv) a commencement of a war, armed hostilities or other national or international crisis involving the United States or (v) in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof; 17 25 (b) there exists an order, statute, rule, regulation, executive order, stay, decree, judgment or injunction that shall have been proposed, enacted, entered, issued, promulgated, enforced or deemed applicable by any court or governmental, regulatory or administrative agency or instrumentally that, in the sole judgment of the Company or IPC, would or might prohibit, prevent, restrict or delay consummation of the Offers; (c) there shall have been instituted or threatened or be pending any action or proceeding before or by any court, governmental regulatory or administrative agency or instrumentality, or by any other person, in connection with the Offers or the Solicitations, that is, or is reasonably likely to be, in the sole judgment of the Company or IPC, materially adverse to the business, operations, properties, condition (financial or otherwise), assets, liabilities or prospects of the Company or IPC; or (d) the Trustee under either the Indenture shall have objected in any respect to, or taken any action that could, in the sole judgment of the Company or IPC, adversely affect the consummation of the Offers or the Company's or IPC's ability to effect the Proposed Amendments, or shall have taken any action that challenges the validity or effectiveness of the procedures used by the Company or IPC in soliciting the Consents (including the form thereof) or in the making of the Offers or the acceptance of the Notes or the Consents or the payment for the Notes. The foregoing conditions are for the sole benefit of the Company and IPC and may be asserted by the Company or IPC regardless of the circumstances giving rise to any such condition (including any action or inaction by the Company or IPC) and may be waived by the Company or IPC, in whole or in part, at any time and from time to time, in the sole discretion of the Company or IPC, as the case may be. The failure by the Company or IPC at any time to exercise any of the foregoing rights will not be deemed a waiver of any other right and each right will be deemed an ongoing right which may be asserted at any time and from time to time. 13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of certain U.S. federal income tax consequences of the Offers and the Proposed Amendments. This summary does not address all tax consequences that may be applicable to a Holder of a Note, nor does it address the tax consequences to (i) a Holder that may be subject to special treatment under U.S. federal income tax law, such as banks, insurance companies, thrift institutions, tax-exempt organizations and dealers in securities or currencies or (ii) a Holder that does not hold a Note as a capital asset. This summary is based on the Internal Revenue Code of 1986, as amended, Treasury regulations, Internal Revenue Service ruling and pronouncements and judicial decisions as of the date hereof, all of which are subject to change at any time, possibly on a retroactive basis. In addition, the recently enacted Taxpayer Relief Act of 1997 could affect the federal income tax consequences of the Offers in that, among other things, it reduces the rate of federal income tax imposed on capital gains of individual taxpayers for capital assets held more than eighteen months. The receipt of cash for Notes pursuant to the Offers will be a taxable transaction for U.S. federal income tax purposes and may also be a taxable transaction under applicable state, local or foreign tax laws. In general, a Holder who receives cash for Notes pursuant to the Offers will recognize gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized in exchange for the Notes sold (the amount of cash received by such Holder less any cash received in respect of accrued and unpaid interest on the Notes not previously includible in income) and such Holder's adjusted tax basis in such Notes. A Holder's adjusted tax basis for a Note generally is the price such Holder paid for the Note increased by the original issue discount or market discount, if any, previously included in such Holder's income and reduced (but not below zero) by any amortized premium. Except as provided below, any gain or loss recognized on a sale of a Note will give rise to capital gain or loss if the Note is held as a capital asset and will be long term capital gain or loss if the Holder has had the Note for more than one year at the time of sale. A Holder who has acquired a Note with market discount generally will be required to treat a portion of any gain on a sale of the Note as ordinary income to the extent of the market discount accrued to the date of the disposition, less any accrued market discount income previously included in such Holder's. Amounts received by a Holder in respect of 18 26 accrued and unpaid interest on the Notes not previously includible in income will be taxable as ordinary income. For U.S. federal income tax purposes, the Proposed Amendments to the Indentures should not constitute a significant modification in the terms of the Notes. Accordingly, the Proposed Amendments should not result in a deemed exchange of Notes for U.S. federal income tax purposes and should have no U.S. federal income tax consequences to the Holders of Notes. THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS BASED UPON PRESENT LAW. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE OFFERS TO THEM, INCLUDING THE APPLICATION AND EFFECT OF THE ALTERNATIVE MINIMUM TAX, AND STATE, LOCAL AND FOREIGN TAX LAWS. 14. THE DEALER MANAGER AND THE DEPOSITARY. BT Securities Corporation has been engaged to act as the Dealer Manager in connection with the Offers and the Solicitations. In its capacity as Dealer Manager, BT Securities Corporation may contact Holders regarding the Offers and the Solicitations and may request brokers, dealers, commercial banks, trust companies and other nominees to forward the Offers to Purchase and Consent Solicitations Statement and related materials to beneficial owners of Notes. BT Securities Corporation has provided certain investment banking and financial advisory services to the Company in the past and is a lender under IPC's Existing Credit Facility and is expected to be a co-agent bank under the New Credit Facility. At any given time, BT Securities Corporation may trade the Notes for its own accounts or for the accounts of customers, and, accordingly, may hold a long or short position in the Notes. The Company and IPC have agreed to indemnify the Dealer Manager and its affiliates against certain liabilities, including certain liabilities under the federal securities laws relating to or arising out of the Offers and the Solicitations. Any Holder that has questions concerning the terms of the Offers or the Solicitations may contact the Dealer Manager at its address and telephone number set forth on the back cover of this Statement. Holders of Notes may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offers or the Solicitations. United States Trust Company of New York has been appointed as Depositary for the Offers and the Solicitations. Consents and Letters of Transmittal and all correspondence in connection with the Offers or the Solicitations should be sent or delivered by each Holder or a beneficial owner's broker, dealer, commercial bank, trust company or other nominee to the Depositary at the address and telephone number set forth on the back coverage page of this Statement. Any Holder or beneficial owner that has questions concerning tender or consent procedures or whose Notes have been mutilated, lost, stolen or destroyed should contact the Depositary at the address and telephone number set forth on the back cover page of this Statement. 15. FEES AND EXPENSES. The Dealer Manager will receive customary fees upon consummation of the Offers, and reimbursement for its reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) in connection with the Offers and the Solicitations. The Depositary will also receive reasonable and customary fees for its services and reimbursement for its reasonable out-of-pocket expenses in connection therewith. Brokerage houses and other custodians, nominees and fiduciaries will be reimbursed for their reasonable out-of-pocket expenses incurred in forwarding copies of this Statement and related documents to the beneficial owners of Notes. 16. MISCELLANEOUS. The Company and IPC are not aware of any jurisdiction in which the making of the Offers and the Solicitations is not in compliance with applicable law. If the Company or IPC become aware of any jurisdiction in which the making of the Offers and the Solicitations would not be in compliance with applicable law, the Company or IPC will make a good faith effort to comply with any such law. If, after such 19 27 good faith effort, the Company or IPC cannot comply with any such law, the Offers and the Solicitations will not be made to (nor will tenders of Notes and Consents be accepted from or on behalf of) the Holders residing in such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF THE COMPANY OR IPC NOT CONTAINED IN THIS STATEMENT OR IN THE CONSENT AND LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. 20 28 Facsimile copies of the Consent and Letter of Transmittal, properly completed and duly executed, will be accepted. The Consent and Letter of Transmittal, Notes and any other required documents should be sent or delivered by each Holder or its broker, dealer, commercial bank or other nominee to the Depositary at its address set forth below. THE DEPOSITARY FOR THE OFFERS AND THE SOLICITATIONS IS: UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: By Mail: (212) 780-0592 United States Trust Company of New York Attention: Customer Service P.O. Box 843 Cooper Station Confirm by Telephone to: (800) 548-6565 New York, New York 10276 Attention: Corporate Trust Services By Hand before 4:30 p.m.: By Overnight Courier and By Hand after 4:30 United States Trust Company of New York p.m.: 111 Broadway United States Trust Company of New York New York, New York 10006 770 Broadway, 13th Floor Attention: Lower Level Corporate Trust Window New York, New York 10003
Any questions or requests for assistance or additional copies of this Statement, the Consent and Letter of Transmittal or the Notice of Guaranteed Delivery may be directed to the Dealer Manager at the telephone number and location listed below. You may also contact your broker, dealer, commercial bank or trust company or nominee for assistance concerning the Offers and the Solicitations. THE DEALER MANAGER FOR THE OFFERS AND THE SOLICITATIONS IS: BT SECURITIES CORPORATION One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 (212) 775-2822 21 29 APPENDIX A PROPOSED AMENDMENTS TO THE SENIOR DEBENTURE INDENTURE Set forth below are the provisions of the Senior Debenture Indenture (the "Indenture") that would be deleted or amended by the Proposed Amendments. The following is qualified in its entirety by reference to the Indenture, copies of which can be obtained without charge from the Dealer Manager. Capitalized terms not otherwise defined in this Appendix A have the meanings assigned thereto in the Indenture. Certain defined terms are set forth at the end of this Appendix A. For purposes of this Appendix A, Ivex Packaging Corporation is referred to as "Holdings". If the Proposed Amendments are adopted, the following sections will be deleted in their entirety from the Indenture, effective as of the Consent Date: Section 801. Holdings May Consolidate, Merge, Only on Certain Terms. Holdings shall not consolidate or merge with or into any Person, unless: (1) the Person formed by or surviving such consolidation or merger (if other than Holdings) (collectively, the "Successor"), is a corporation or other legal entity organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor assumes by supplemental indenture in a form reasonably satisfactory to the Trustee all of the obligations of Holdings under the Securities and this Indenture; (2) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Consolidated Net Worth of Holdings or the Successor, as the case may be, would be at least equal to the Consolidated Net Worth of Holdings immediately prior to such transaction; and Holdings shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. Section 1005. Maintenance of Properties. Holdings shall cause all properties owned by Holdings or any of its Subsidiaries or used or held for use in the conduct of its business or the business of any such Subsidiary to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of Holdings may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that noting in this Section shall prevent Holdings from selling or otherwise disposing of such properties or discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of Holdings, desirable in the conduct of its business or the business of any such Subsidiary. Section 1006. Payment of Taxes and Other Claims. Holdings will, and will cause each of its Subsidiaries to, pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon Holdings or any of its Subsidiaries or upon the income, profits or property of Holdings or any of its Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of Holdings or any of its Subsidiaries; provided that Holdings or any of its Subsidiaries shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. A-1 30 Section 1007. Limitations on Additional Indebtedness. (a) Holdings shall not permit the Company or any of the Company's Subsidiaries to create, incur, issue, assume, guarantee or otherwise become liable for or with respect to (collectively, for purposes of this Section, "incur") any Indebtedness (other than Permitted Indebtedness) or issue Preferred Stock unless (a) no Default or Event of Default shall have occurred and be continuing at the time of, or after giving effect to, the incurrence of such Indebtedness or the issuance of such Preferred Stock and (b) immediately after giving pro forma effect to the incurrence of such Indebtedness or such issuance of Preferred Stock, the Consolidated Fixed Charge Coverage Ratio of the Company, as at the date such Indebtedness is incurred or such Preferred Stock is issued, would be 1.75 to 1 if such Indebtedness is incurred or such Preferred Stock is issued on or prior to December 15, 1993 or 2.00 to 1 if such Indebtedness is incurred or such Preferred Stock is issued thereafter. (b) Holdings shall not incur any Indebtedness (other than the Securities or Permitted Indebtedness without duplication to the extent permitted to be incurred under paragraph (a) of this Section), unless (i) no Default or Event of Default shall have occurred and be continuing at the time of incurring, or after giving effect to, the incurrence of, such Indebtedness; and (ii) immediately after giving pro forma effect to the incurrence of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of Holdings, as at the date such Indebtedness is incurred, would be at least 1.75 to 1. Section 1008. Limitations on Issuance and Sale of Subsidiary Stock. Holdings shall not permit the Company to issue any shares of its Capital Stock to any Person other than to Holdings or one or more Wholly Owned Subsidiary of Holdings. Notwithstanding the foregoing, the Subsidiaries of Holdings (other than the Company) may issue shares of Capital Stock to any Person other than Holdings or one or more Wholly Owned Subsidiaries of Holdings and may issue Preferred Stock to Persons other than Holdings or a Wholly Owned Subsidiary of Holdings if the issuance of such Preferred Stock is permitted under Section 1007 hereof. Section 1009. Limitations on Sale and Leaseback Transactions. Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, enter into any arrangement with any Person providing for the leasing by Holdings, the Company or any such Subsidiary of the Company of any real or tangible personal property (except for leases between Holdings and the Company or any of such Subsidiaries or between Subsidiaries of the Company), which property has been or is to be sold or transferred by Holdings, the Company or such Subsidiary to such Person in contemplation of such leasing, unless (i) Holdings, the Company or such Subsidiary would be permitted under Section 1007 to incur indebtedness in an amount equal to the Attributable Indebtedness with respect to such arrangement and (ii) the gross proceeds of such sale are at least equal to the fair market value of such property and Holdings, the Company or such Subsidiary applies the Net Cash Proceeds of such sale as provided in Section 1012 hereof. Section 1010. Limitations on Restricted Payments. (a) Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, directly or indirectly, make any Restricted Payment unless: (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (ii) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (A) 50% of the Consolidated Net Income of Holdings (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit) from January 1, 1993 through the last day of the latest full fiscal quarter of Holdings prior to the date of such Restricted Payment (taken as one accounting period), plus (B) 100% of the aggregate net cash proceeds of, and the fair market value of marketable securities (as determined in good faith by the Board of Directors and evidenced by a Board Resolution) received by Holdings from, the issue or sale after the Issue Date of Capital Stock of A-2 31 Holdings or from a capital contribution to Holdings after the Issue Date (other than the issue or sale of (w) Disqualified Stock, (x) Capital Stock of Holdings to any Subsidiary of Holdings, (y)any capital contribution to Holdings by the Company or any Subsidiary of the Company or (z) the proceeds of any sale of Capital Stock of the Company or any Subsidiary of the Company that are subsequently contributed by Holdings (through a capital contribution or purchase of Capital Stock or otherwise) to a Subsidiary of Holdings other than the Company or a Subsidiary of the Company), including Indebtedness or other securities of Holdings convertible into or exercisable for Capital Stock (other than Disqualified Stock) of Holdings which has been so converted or exercised, as the case may be, plus (C) $2.5 million; and (iii) at the time of and immediately after giving effect to such Restricted Payment, Holdings would be entitled to incur (as the term is used in Section 1007) at least $1 of additional Indebtedness under the tests described in Section 1007. (b) The provisions of clause (a) above shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such date payment would comply with the provisions of this Indenture; (ii) the redemption, repurchase, retirement or other acquisition, in whole or in part, of any of Holdings', the Company's or any of the Company's Subsidiaries' Capital Stock in exchange for, or out of the net proceeds of the substantially concurrent sale (other than to a Subsidiary of Holdings) of, other Capital Stock (other than Disqualified Stock) of Holdings; and (iii) the redemption or repurchase of any Indebtedness of Holdings, the Company or any Subsidiary of the Company in exchange for, by conversion into, or out of the net proceeds of, a substantially concurrent (x) issue or sale of Capital Stock (other than Disqualified Stock) of Holdings or (y) incurrence of Refinancing Indebtedness; and (iv) the repurchase of equity securities or rights of Holdings or the Company from the management of Holdings or the Company upon such management's termination of employment with Holdings or the Company. The foregoing proviso will not affect the determination of whether the payment, retirement or redemption is a "Restricted Payment" pursuant to paragraph (a) of this section. In addition, the foregoing shall not prohibit the redemption of approximately $46.5 million of Holdings Preferred Stock and the repayment of approximately $15.0 million of principal payments under the Credit Facility with the proceeds of the sale of the Securities. Section 1011. Limitations on Restrictions on Distributions from Certain Subsidiaries. Holdings shall not, and shall not permit the Company or any Subsidiary of the Company to, create, incur or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction (other than encumbrances or restrictions imposed by law or by judicial or regulatory action or by provisions in leases or other agreements that restrict the assignability thereof) if such encumbrance or restriction would by its terms prohibit the Company or any Subsidiary of the Company from (a) paying dividends or making any other distributions on its Capital Stock or paying any indebtedness owed to Holdings, the Company or any Subsidiary of the Company, (b) making loans or advances to Holdings, the Company or any Subsidiary of the Company or (c) transferring any of its properties or assets to Holdings, the Company or any Subsidiary of the Company, except for encumbrances or restrictions existing under or by reason of (i) applicable law; (ii) such covenants or restrictions existing as of the Issue Date under or by reason of indebtedness existing as of the Issue Date; (iii) such encumbrances or restrictions in the Credit Facility or the Ivex Indenture; (iv) any covenants or restrictions contained in agreements creating or evidencing any Acquired Indebtedness permitted to be incurred under this Indenture, provided that such restrictions and encumbrances only apply to assets that were subject to such restrictions and encumbrances prior to the acquisition of such assets by Holdings, the Company or the Company's Subsidiaries; (v) restrictions or encumbrances replacing those permitted by clause (ii), (iii) or (iv) above which are not more restrictive; and (vi) any restrictions or encumbrances A-3 32 arising in connection with Refinancing Indebtedness, provided that any restrictions and encumbrances of the type described in this clause (vi) that arise under such Refinancing Indebtedness are not more restrictive than those under the agreement creating or evidencing the Indebtedness being refunded or refinanced. For purposes of this Section 1011, restrictions of the types set forth in the following sections of the Credit Facility as in effect of the date of this Indenture (and all amendments, modifications or changes thereto to the extent such amendments, modifications or changes do not alter the type of encumbrance or restriction contained therein) shall not be deemed to be consensual encumbrances or restrictions of the kind prohibited by this Section 1011: Sections 2.4, 2.6, 2.7, 2.8, 2.9, 2.10, 2.14, 5.5, 5.6, 5.7, 5.8, 5.11, 5.13, 5.14, 5.15, 5.16, 5.18, 5.20, 5.21, 5.22, 5.23, 5.25, 8.3 and 9.17, provided, however, that the omission of a particular section of the Credit Facility (other than Sections 5.9 and 5.17(b)) from the foregoing list shall not be deemed to restrict the Company from amending, modifying or changing the encumbrance or restriction contained in such omitted section if otherwise permitted under clause (iv). Section 1012. Limitations on Asset Sales. Holdings shall not and shall not permit the Company or any of the Company's Subsidiaries to sell, transfer or otherwise dispose of any shares of its Capital Stock of any of its Subsidiaries to any Person unless, at the time of such sale, transfer or other disposition, all shares of Capital Stock of such Subsidiary then owned by Holdings, the Company or any of the Company's Subsidiaries are so sold, transferred or otherwise disposed of by Holdings or any of its Subsidiaries. (a) Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, make any Asset Sale unless: (i) Holdings or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined by Holdings' Board of Directors and, if such fair market value shall exceed $10 million, by an independent financial adviser); (ii) at least 80% of the consideration received by Holdings or such Subsidiary from such Asset Sale is in the form of cash (or 50% in the case of an Asset Sale of the properties located at Kenilworth, New Jersey; Markham, Ontario; and Hillside, Illinois); provided that the amount of (A) any liabilities of Holdings or such Subsidiary (as shown on the most recent balance sheet of Holdings or such Subsidiary or in the notes thereto) that are assumed by the transferee in any such transaction and (B) any Cash Equivalents or notes or other obligations received by Holdings or such Subsidiary from such transferee that are promptly converted by Holdings or such Subsidiary into cash, shall both be deemed to be cash for purposes of this clause (ii); and (iii) the Net Cash Proceeds received by Holdings, the Company or such Subsidiary from such Asset Sale are applied in accordance with the following paragraphs. (b) Within 180 days following the receipt of cash proceeds from any Asset Sale, Holdings may (subject to clause (c) below) cause the Net Cash Proceeds received by Holdings, the Company or any of the Company's Subsidiaries from such Asset Sale to be applied: (i) to the repayment of Indebtedness of the Company or any of the Company's Subsidiaries under the Credit Facility, the Ivex Indenture or other Indebtedness of the Company or any of its Subsidiaries; provided that, any such repayment shall result in a permanent reduction in any revolving credit or other commitment relating thereto in an amount equal to the principal amount so repaid; or (ii) in a manner that would constitute a Related Business Expenditure. If at any time any non-cash consideration received by Holdings, the Company or any of the Company's Subsidiaries from any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash will constitute Net Cash Proceeds for purposes of the foregoing provision. A-4 33 (c) If, upon completion of the 180-day period provided for in clause (b) above (the "Net Proceeds Offer Trigger Date"), any portion of the Net Cash Proceeds of an Asset Sale shall not have been applied by Holdings, the Company or such Subsidiary of the Company in accordance with clause (b) above and such remaining Net Cash Proceeds, together with the remaining Net Cash Proceeds of any prior Asset Sale, exceed $5 million, then Holdings will be obligated to apply such remaining Net Cash Proceeds to the purchase of Securities tendered to Holdings for purchase at a price equal to 100% of Accreted Value thereof if such date of purchase is on or prior to March 15, 2000, or 100% of the principal amount thereof, plus accrued interest, if any, to the date of purchase if such date of purchase is after March 15, 2000, pursuant to an offer to purchase made by Holdings or the applicable Subsidiary (a "Net Proceeds Offer") with respect to the Securities. The Net Proceeds Offer shall be deemed to have commenced upon mailing of the notice described in clause (d) below and shall terminate 20 Business Days after its commencement, unless a longer offering period is required by applicable law. If the date on which the Net Proceeds Offer terminates (the "Net Proceeds Payment Date") is on or after a Regular Record Date and on or before the related Interest Payment Date, any Accreted Value or accrued interest, as the case may be, shall be paid to the Person in whose name a Security is registered at the close of business on such Regular Record Date, and no additional Accreted Value or interest shall be payable to Holders who tender Securities pursuant to the Net Proceeds Offer. (d) Within 180 days after a Net Proceeds Offer Trigger Date, Holdings (with notice to the Trustee), or the Trustee at the request and expense of Holdings, shall mail or cause to be mailed, first-class postage prepaid, to all Holders as of the Net Proceeds Offer Trigger Date, a notice of the Net Proceeds Offer. Such notice shall contain all instructions and materials necessary to enable Holders to tender Securities pursuant to the Net Proceeds Offer. Such notice, which shall govern the terms of the Net Proceeds Offer, shall state: (i) that the Net Proceeds Offer is being made pursuant to this Section and the length of time that the Net Proceeds Offer will remain open, and that all Securities or portions thereof tendered will be accepted for payment on a pro rata basis; (ii) the purchase price (including the amount of Accreted Value or accrued interest, if any) and the Net Proceeds Payment Date; (iii) that any Security not tendered will continue to accrete value or accrue interest as the case may be; (iv) that unless Holdings defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrete value or accrue interest as the case may be on the Net Proceeds Payment Date; (v) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Net Proceeds Payment Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, no later than two Business Days prior to the Net Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Security purchased; (vii) that if Securities in a principal amount in excess of the principal amount of the Securities to be acquired pursuant to the Net Proceeds Offer are tendered and not withdrawn pursuant to the Net Proceeds Offer, Holdings shall purchase Securities on a pro rata basis (with such adjustment as may be deemed appropriate by Holdings so that only Securities in denominations of $1,000 or integral multiples thereof shall be so acquired); and A-5 34 (viii) that the Holder of any Security purchased only in part will be issued a new Security or Securities in a principal amount equal to the unpurchased portion of the Securities surrendered provided that the foregoing shall have no effect on the calculation of the Accreted Value with respect to such unpurchased portion of the Security. (e) On or before a Net Proceeds Payment Date, Holdings shall, to the extent lawful, (i) accept for payment the Securities or portions thereof tendered pursuant to the Net Proceeds Offer (on a pro rata basis if required pursuant to clause (d)(7) above), (ii) deposit with the Paying Agent an amount sufficient to pay the purchase price of all Securities or portions thereof to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate identifying the Securities or portions thereof accepted for payment by Holdings in accordance with the terms of this Section. The Paying Agent shall promptly mail or deliver to each tendering holder an amount equal to the purchase price of the Securities tendered by such Holder and accepted by Holdings for purchase, and the Trustee shall promptly authenticate and mail or deliver to the Holders a new Security or Securities equal in principal amount to any unpurchased portion of any Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by Holdings to the Holder thereof, and any amounts remaining after the purchase of Securities shall be returned by the Trustee to Holdings. Holdings will publicly announce the results of the Net Proceeds Offer as promptly as practicable following the Net Proceeds Payment Date. For purposes of this Section, the Trustee shall act as the Paying Agent. Any Net Proceeds Offer shall be conducted in compliance with Rule 14e-1 under the Exchange Act, if so required, and all applicable laws in making any such offer to purchase Securities. Section 1013. Limitations on Transactions with Affiliates. (a) Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, make any loan, advance, guarantee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of, (i) any Affiliate of Holdings or any Affiliate of any of Holdings' Subsidiaries or (ii) any Person (or any Affiliate of such Person) holding 10% or more of the Common Equity of Holdings or any of its Subsidiaries (each an "Affiliate Transaction"), except in either case on terms that are no less favorable to Holdings or the relevant Subsidiary, as the case may be, than those that could have been obtained in a comparable transaction on an arm's length basis from a Person that is not an Affiliate; provided, however, that items (i) through (vi) of the proviso of the definition of Restricted Payment and item (iv) of Section 1010(b) shall not be prohibited by this provision. Capital contributions to the Company or any of its Subsidiaries from Holdings or to Holdings from one or more of its stockholders and additional purchases of the Common Equity of the Company by Holdings or of the Common Equity of Holdings by one or more of its stockholders shall not constitute an Affiliate Transaction. (b) Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, enter into an Affiliate Transaction, or any series of related Affiliate Transactions, involving or having a value of more than $500,000 unless Holdings has either (i) obtained the approval of a majority of the disinterested members of the Board of Directors or (ii) delivered to the Trustee an opinion of a qualified Independent Financial Advisor to the effect that such transaction or transactions are fair to Holdings or the relevant Subsidiary, as the case may be, from a financial point of view. (c) Holdings shall not, and shall not permit the Company or any of the Company's Subsidiaries to, enter into any Affiliate Transaction, or any series of related Affiliate Transactions, involving or having a value of more than $10 million unless such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and Holdings has delivered the opinion referred to in clause (b)(ii) above. (d) Holdings shall not permit the Company or any of the Company's Subsidiaries to merge or consolidate with or into an Affiliate unless: (i) immediately after giving effect to the transaction no Default or Event of Default shall have occurred and be continuing; A-6 35 (ii) immediately after giving effect to such transaction and the use of proceeds therefrom, if any, on a pro forma basis, the Consolidated Net Worth of the surviving entity would be at least equal to the Consolidated Net Worth of the Company or such Subsidiary, as the case may be, immediately prior to such transaction; and (iii) the surviving entity shall be a Subsidiary of Holdings and be treated as the Company (in the case of a merger or consolidation involving the Company) or a Subsidiary of the Company (in the case of any other merger or consolidation governed by this paragraph (d)) for the purposes of this Indenture. Section 1014. Limitations on Liens. Holdings will not, and will not permit any of its Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Lien of any kind upon any of the Holdings' property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Securities are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien, provided that the following Liens on Holdings' property and assets may be created or incurred or may exist or become effective without any requirement that such Securities be equally and ratably secured: (i) Liens existing on the Issue Date; (ii) Liens now or hereafter securing Indebtedness outstanding under the Credit Facility and Liens now or hereafter securing the interest rate hedging obligations which the Company is required to enter into with respect to the Term Loans under the Credit Facility; and (iii) Permitted Liens. A-7 36 RELEVANT SENIOR DEBENTURE INDENTURE DEFINITIONS "Accreted Value" means, as of any date of determination on or prior to March 15, 2000, the sum of (a) the initial offering price of the Securities and (b) the portion of the principal amount of each Security over such initial offering price which shall have been amortized through such date, such amount to be so amortized on a daily basis and compounded semiannually on each March 15 and September 15 at the rate of 13 3/4% per annum from the date of issuance of the Security through the date of determination. "Acquired Indebtedness" means (i) with respect to any Person that becomes a Subsidiary of the Company or of any Subsidiary of the Company after the Issue Date, Indebtedness of such Person and its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company or of any Subsidiary of the Company that was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company or of any Subsidiary of the Company and (ii) with respect to the Company or any of its Subsidiaries, any Indebtedness assumed by Holdings or any of its Subsidiaries in connection with the acquisition of any asset from another Person, which Indebtedness was not incurred by such other Person in connection with, or in contemplation of, such acquisition. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, the term "Affiliate" shall not include, (i) with respect to Holdings; the Company or any Subsidiary of the Company or (ii) with respect to the Company or any Subsidiary of the Company; Holdings, the Company or any such Subsidiary of the Company. The term "Affiliate" with respect to Holdings, the Company and any of the Companies Subsidiaries shall apply, however, to any Subsidiary of Holdings which is neither the Company nor a Subsidiary of the Company. "Asset Sale" for any Person means the sale, lease, conveyance or other disposition (including, without limitation, by merger or consolidation, and whether by operation of law or otherwise) of any of that Person's assets (including, without limitation, (x) any sale and leaseback arrangement, (y) any sale or other disposition of Capital Stock of any Subsidiary of such Person, whether by such Person or by such Subsidiary and (z) any sale or other disposition of any non-cash consideration received by such Person from any prior transaction or series of related transactions that constituted an Asset Sale hereunder), whether owned on the Issue Date or subsequently acquired, in one transaction or a series of related transactions; provided that the following shall not constitute Asset Sales: (i) a transaction or series of related transactions (other than transactions described in clause (z) above) in which the fair market value of the cash and/or other consideration received (including, without limitation, the unconditional assumption of Indebtedness) is less than $250,000; (ii) a transaction or series of related transactions that results in a Change of Control; (iii) transactions between Holdings and any of its Wholly Owned Subsidiaries or among such Wholly Owned Subsidiaries; (iv) Investments in any joint venture or corporation permitted under clause (viii) of the proviso to the definition of "Restricted Payment"; and (v) any execution on security interests granted in collateral securing the obligations of the Company and its Subsidiaries under the Credit Facility. "Attributable Indebtedness", when used with respect to any sale and leaseback arrangement, means, as at the time of determination, the greater of (i) the fair market value of the property subject to such arrangement and (ii) the present value (discounted at a rate equivalent to the Company's then current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). "Board of Directors" means with respect to any Person, either the board of directors or any duly authorized committee of that board empowered to act for it with respect to this Indenture. A-8 37 "Board Resolution" of any Person means a copy of a resolution certified by the Secretary or an Assistant Secretary of such Person to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which financial institutions in that Place of Payment are authorized or obligated by law, regulation or executive order to close. "Capital Stock" of any Person means any and all shares, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, common stock, preferred stock and partnership and joint venture interests) of such Person (excluding any debt securities that are convertible into, or exchangeable for, such equity). "Cash Equivalents", when used in Article X, means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or the equivalent thereof from Standard & Poor's Corporation or P-1 or the equivalent thereof from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any domestic commercial bank having combined capital and surplus of not less than $250,000,000; and (v) repurchase agreements and reverse repurchase agreements with any bank meeting the qualifications specified in clause (iv) above relating to securities of the types described in clauses (i), (ii) or (iv) above, in each case maturing within one year from the date of acquisition thereof. "Change of Control" means any of the following: (i) the direct or indirect sale, lease, conveyance or other disposition of all or substantially all of Holdings' or the Company's assets to any Person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act as in effect on the Issue Date) in one or a series of transactions, other than any such sale or other disposition to, or to any such "group" that is controlled by Acadia and its Affiliates; (ii) the liquidation or dissolution of Holdings or the Company; or (iii) any transaction or series of transactions (as a result of a tender offer, merger, consolidation or otherwise) that results in, or that is in connection with, any Person or "group" (within the meaning of Section 13(d)(3) of the Exchange Act as in effect on the Issue Date) acquiring after the Issue Date "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act as in effect on the Issue Date), directly or indirectly, of more than 50% of the aggregate voting power of all classes of Common Equity of Holdings or the Company (other than any such acquisition by, or by any such "group" that is controlled by, Acadia and its Affiliates); provided that, to the extent that any of the following would otherwise constitute a Change of Control, a Change of Control shall not be deemed to occur upon (i) the acquisition by the current partners of Acadia of shares of the Company's or Holdings' Common Equity pursuant to a distribution made in connection with the winding-up of Acadia or (ii) the acquisition of shares of the Company's or Holdings' Common Equity by any Person, the majority of the equity of which is owned by Persons (or their Affiliates) that in the aggregate currently control, or own a majority of the equity of, Acadia. "Common Equity" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Fixed Charge Coverage Ratio" of any Person means, with respect to any determination date, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of such Person for the prior four full fiscal quarters for which financial results have been reported immediately preceding such determination date A-9 38 to (ii) the sum of (x) Consolidated Interest Expense of such Person which shall accrue during the next succeeding four full fiscal quarters for which financial results will be reported immediately following such determination date, such Consolidated Interest Expense to be calculated on the basis of the amount of such Person's Indebtedness (on a consolidated basis) outstanding on the determination date and reasonably anticipated by the Board of Directors of such Person to be outstanding from time to time during such period and (y) all dividends on preferred stock of such Person which shall accrue during the next succeeding four fiscal quarters for which financial results will be reported immediately following such determination date, the amount of such dividend to be calculated on the basis of the amount of such Person's Preferred Stock reasonably anticipated by the Board of Directors of such Person to be paid during such period times a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal. "Consolidated Net Income" of any Person for any period means the net income (or loss) of such Person and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein), without duplication, (i) the net income (or loss) of any Person (other than a Subsidiary of the referent Person) in which any Person other than the referent Person has an ownership interest, except to the extent that any such income has actually been received by such Person or any of its Subsidiaries in the form of dividends or similar distributions during such period; (ii) to the extent includable in the consolidated net income of such Person, the net income (or loss) of any Person that accrued prior to the date that (A) such Person becomes a Subsidiary of the referent Person or is merged into or consolidated with the referent Person or any of its Subsidiaries or (B) the assets of such Person are acquired by the referent Person or any of its Subsidiaries; (iii) the net income of any Subsidiary of the referent Person to the extent that (but only as long as) the declaration or payment of dividends or similar distributions by that referent Person's Subsidiary of such net income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary during such period; (iv) any gain or loss, together with any related provisions for taxes, realized during such period by the referent Person or any of its Subsidiaries upon (A) the acquisition of any securities, or the extinguishment of any Indebtedness, of the referent Person or any of its Subsidiaries or (B) any Asset Sale by the referent Person or any of its Subsidiaries; (v) any extraordinary gain or loss, together with any related provision for taxes on any such extraordinary gain or loss, realized by the referent Person or any of its Subsidiaries during such period; and (vi) in the case of a successor to the referent Person by consolidation, merger or transfer of its assets, any earnings of the successor prior to such merger, consolidation or transfer of assets; and provided, further, that there shall be included in such net income (to the extent not otherwise included therein) the net income of any Subsidiary of the referent Person to the extent such net income is actually received by the referent Person or a Subsidiary of such Person in the form of cash dividends or other cash distributions from such Subsidiary. "Consolidated Net Worth" of any Person as of any date means the stockholders' equity (including any Preferred Stock that is classified as equity under GAAP, other than Disqualified Stock) of such Person and its Subsidiaries on a consolidated basis at such date, as determined in accordance with GAAP. "corporation" includes corporations, associations, companies and business trusts. "Credit Facility" means that certain First Amended and Restated Credit Agreement, dated December 17, 1992, and amended as of the date hereof, among the Company and its Subsidiaries, the banks and other financial institutions parties thereto and Wells Fargo Bank, N.A., as Agent and Banque Paribas, Houston Agency, as Co-Agent, and the notes, letters of credit, guarantees, pledge agreements, mortgages or other collateral agreements, documents, certificates or instruments now or hereafter arising with respect thereto, as the same may be amended, supplemented, extended, renewed, restated, increased or otherwise modified from time to time prior to, on or after the issue date of the Ivex 12 1/2% Notes, together with any and all the refinancings, refundings and replacements from time to time prior to, on, or after the issue date of the Ivex 12 1/2% Notes. "Default" means any event that is, or after notice or lapse of time or both would be, an Event of Default. A-10 39 "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity date of the Securities. "Dollars" and the sign "$" means the currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Article V of the Indenture. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" means a Person in whose name a Security is registered in the Security Register. "Holdings" means Ivex Holdings Corporation, a Delaware corporation. "incur", when used with respect to any Indebtedness, means to, directly or indirectly, create, incur, assume, issue, guarantee or otherwise become liable for or with respect to such Indebtedness; and the terms "incurred", "incurrence" and "incurring" have meanings correlative to the foregoing. "Indebtedness" of any Person at any date means, without duplication, (i) all indebtedness of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit incurred by such Person in the ordinary course of business, (iv) all obligations of such Person with respect to Hedging Obligations (other than foreign currency exchange agreements entered into in the ordinary course of business of such Person that do not relate to indebtedness for borrowed money of such Person), (v) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred in the ordinary course of business, (vi) all Capitalized Lease Obligations of such Person, (vii) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, (viii) all Indebtedness of others guaranteed by such Person to the extent of such guarantee and (ix) all Attributable Indebtedness. The amount of Indebtedness of any Person at any date shall be (a) the outstanding balance at such date of all unconditional obligations as described above, (b) the maximum liability of such Person for any contingent obligations under clause (v) above at such date and (c) in the case of clause (vii) above, the lesser of (A) the fair market value of any asset subject to a Lien securing the Indebtedness of others on the date that the Lien attaches and (B) the amount of the Indebtedness secured. To the extent such Person guarantees the obligation of another Person to pay interest on indebtedness owed by such other Person, then a designated percentage of the interest guaranteed or the principal amount of the underlying indebtedness, as the case may be, shall be deemed indebtedness of the referent Person. For purposes of this definition, the amount of such deemed indebtedness of the referent Person shall be equal to the lesser of: (x) the aggregate principal amount of the underlying indebtedness relating to such interest guarantee and (y) the aggregate amount of interest due and payable over the term of such indebtedness (or the term of the Securities if shorter) determined based upon the rate of interest in effect as of the date of such determination, together with the maximum prepayment premium or penalty which could become due or payable with respect to such indebtedness if such indebtedness was prepaid prior to the maturity of the Securities. Notwithstanding the foregoing, the term Indebtedness shall include all indebtedness, obligations, liabilities and undertakings under the Credit Facility. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable judgment of the Board of Directors, (i) qualified to perform the task for which it has been engaged and (ii) disinterested and independent with respect to Holdings, all of its Subsidiaries and each Affiliate of Holdings and/or its Subsidiaries that is involved in the A-11 40 transaction with respect to which such firm has been engaged; provided that, notwithstanding the foregoing, Donaldson, Lufkin & Jenrette Securities Corporation and Shearson Lehman Brothers Inc. shall each be deemed qualified to serve as an Independent Financial Advisor. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Issue Date" means the date on which the Securities are originally issued under this Indenture. "Ivex Indenture" means the Indenture relating to the Ivex 12 1/2% Notes Offering. "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest or other similar encumbrance of any kind in respect of such property or asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, and any lease in the nature thereof, any option or other agreement to sell, and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds Offer" has the meaning specified in Section 1012. "Net Proceeds Offer Trigger Date" has the meaning specified in Section 1012. "Net Proceeds Payment Date" has the meaning specified in Section 1012. "Officers' Certificate" means with respect to any Person a certificate signed by the Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of such Person, and delivered to the Trustee. "Opinion of Counsel" means with respect to any Person a written opinion of counsel, who may be counsel for such Person (including in-house counsel) or the Trustee, and who shall be acceptable to the Trustee. "Paying Agent" means any Person authorized by Holdings to pay the Accreted Value, or the principal of (and, in either case, premium, if any) or interest on any Securities on behalf of Holdings. "Permitted Indebtedness" means (i) Indebtedness of Holdings, the Company and any of the Company's Subsidiaries under the Credit Facility in an amount not in excess of $170.0 million aggregate principal amount reduced by (A) any scheduled principal payments irrevocably and indefeasibly made in cash and (B) any amounts by which the revolving credit facilities commitment is permanently reduced and the revolving credit loans, to the extent required, are indefeasibly and irrevocably repaid in cash; (ii) Indebtedness of Holdings, the Company and any of the Company's Subsidiaries outstanding on the Issue Date; (iii) Indebtedness of Holdings to Company or any Subsidiary of the Company and Indebtedness of any Subsidiary of the Company to Holdings, the Company or another Subsidiary of the Company; (iv) Hedging Obligations required by the terms of the Credit Facility; (v) Indebtedness of Holdings, the Company and any of the Company's Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (exclusive of Indebtedness permitted by any other clause of this paragraph or under Section 1007); (vi) additional Indebtedness of any of Holdings, the Company and any of the Company's Subsidiaries in an aggregate principal amount not to exceed $10.0 million at any one time outstanding (exclusive of Indebtedness permitted by any other clause of this paragraph or under Section 1007) either under the Credit Facility or under another facility approved by the Banks under the Credit Facility; and (vii) Refinancing Indebtedness. "Permitted Liens" means (i) Liens for taxes, assessments or governmental charges or claims that either (A) are not yet delinquent or (B) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP; (ii) statutory Liens of landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other Liens imposed by law and arising in the ordinary course of business and with respect to amounts that, to the extent applicable, either (A) are not yet delinquent or (B) are being contested in good A-12 41 faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP; (iii) Liens (other than any Lien imposed by the Employer Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, progress payments, government contracts and other obligations of like nature (exclusive of obligations for the payment of borrowed money), in each case, incurred in the ordinary course of business; (v) attachment or judgment Liens not giving rise to a Default or an Event of Default; and (vi) easements, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary conduct of the business of Holdings, the Company or any of its Subsidiaries. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" of any Person means all Capital Stock of such Person which has a preference in liquidation or a preference with respect to the payment of dividends. "redemption", when used with respect to any Security, includes any purchase of such Security by Holdings pursuant to a Change of Control Offer or Net Proceeds Offer. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness of Holdings or its Subsidiaries outstanding on the Issue Date or other Indebtedness permitted to be incurred by Holdings, the Company or its Subsidiaries pursuant to the terms of this Indenture, but only to the extent that (i) any Refinancing Indebtedness of Holdings is subordinated to the Securities to the same extent as the Indebtedness of Holdings being refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) if Indebtedness of Holdings, after the maturity date of the Securities or if Indebtedness of the Company or any Subsidiary of the Company, after the maturity date of the Ivex 12 1/2% Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Securities or the Ivex 12 1/2% Notes, as the case may be, has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Securities or the Ivex 12 1/2% Notes, as the case may be, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness and (v) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that (x) Holdings may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Subsidiary of Holdings and (y) any Subsidiary of Holdings may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of the Company or a Subsidiary of the Company; provided, however, that nothing contained in this definition shall limit or restrict the holders of the liabilities, undertakings, indebtedness and obligations now or hereafter evidenced by the Credit Facility from refinancing, refunding or replacing such obligations and indebtedness from time to time. "Regular Record Date" for the interest payable on any Interest Payment Date means the June 1 and December 1 (whether or not a Business Day) next preceding such Interest Payment Date. "Related Business Expenditure" means any capital expenditure, Investment or operating expense reasonably related to the business of the Company and its Subsidiaries as such business is conducted on the Issue Date. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution on Capital Stock of Holdings, the Company or any Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of Holdings, the A-13 42 Company or any Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) and (y) in the case of Subsidiaries of Holdings, dividends or distributions payable to Holdings or to the Company or one of its Subsidiaries; (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of Holdings, the Company or any of the Company's Subsidiaries held by any Person; (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness of Holdings which is subordinated in right of payment to the Securities (other than Indebtedness acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); and (iv) the making of any Prohibited Investment or guarantee of any Prohibited Investment in any Person; provided, however, that the following shall not be deemed Restricted Payments: (i) the payment by the Company and its Subsidiaries to Holdings of their respective shares of the consolidated tax liability pursuant to the Tax Sharing Agreement among Holdings, the Company and the Company's Subsidiaries; (ii) advances to employees, officers, directors, agents and representatives for travel and other reasonable and ordinary business expenses; (iii) advances and loans to employees and officers in connection with their relocation; (iv) loans to key employees to finance the purchase of Capital Stock of the Company or Holdings' but only to the extent the proceeds of such loans used to purchase the Capital Stock of Holdings are concurrently contributed by Holdings to the Company; (v) the payment to Acadia or its affiliates of consulting fees or $400,000 plus expenses per year pursuant to the terms of the Consulting Agreement; (vi) the payment by the Company to Holdings of management fees under or pursuant to the terms of the Management Agreement, provided such fees represent payment at cost for customary and ordinary expenses under leases and other contractual rights of Holdings during the period commencing on the Issue Date and terminating on the earlier to occur of (x) the 180th day after the Issue Date, or (y) the completion of the transfer by Holdings to the Company of all such leases and contractual rights; (vii) the redemption or retirement of indebtedness of a Subsidiary in exchange for, by conversion into, or out of the net proceeds of, a substantially concurrent incurrence of Refinancing Indebtedness; and (viii) Prohibited Investments by the Company or any of its Subsidiaries in any joint venture or corporation organized under the laws of a jurisdiction other than the United States, not in excess of $5.0 million in the aggregate (net of return of capital from such joint ventures or corporations) since December 31, 1992; and (ix) Prohibited Investments and Restricted Payments made with the proceeds of, and substantially concurrently with, any capital contribution to Holdings, or out of the net proceeds of any sale of Holdings Capital Stock (other than Disqualified Stock) or of Subsidiaries of Holdings other than the Company or its Subsidiaries. "Securities" means, collectively, the Series A Senior Discount Debentures due 2005 and, and when and if issued as provided in the Registration Rights Agreement, the Series B Senior Discount Debentures. "Subsidiary" of any Person means (i) any corporation of which at least a majority of the aggregate voting power of all classes of the Common Equity is owned by such Person directly or through one or more other Subsidiaries of such Person and (ii) any entity other than a corporation in which such Person, directly or indirectly, owns at least a majority of the Common Equity of such entity. "Successor" has the meaning specified in Section 801. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Wholly Owned Subsidiary" of any Person means (i) a Subsidiary, of which 100% of the Common Equity (except for directors' qualifying shares or certain minority interests owned by other persons solely due to local law requirements that there be more than one stockholder, but which interest is not in excess of what is required for such purpose) is owned directly by such Person or through one or more other Wholly Owned Subsidiaries of such Person or (ii) any entity other than a corporation in which such Person, directly or indirectly, owns all of the Common Equity of such entity. A-14 43 APPENDIX B PROPOSED AMENDMENTS TO THE SUBORDINATED NOTE INDENTURE Set forth below are the provisions of the Indenture that would be deleted or amended by the Proposed Amendments. The following is qualified in its entirety by reference to the Indenture, copies of which can be obtained without charge from the Information Agent or the Dealer Managers. Capitalized terms not otherwise defined in this Appendix B have the meanings assigned thereto in the Indenture. Certain defined terms are set forth at the end of this Appendix B. For purposes of this Appendix B, IPC, Inc. is referred to as the "Company". If the Proposed Amendments are adopted, except as otherwise noted below, the following sections will be deleted in their entirety from the Indenture, effective as of the Consent Date: Section 704. Reports by Company. (a) The Company shall remain subject to the informational filing requirements of the Commission pursuant to the Exchange Act. The Company shall deliver to the Trustee and the holders of the Securities, within 15 days after it files the same with the Commission, copies of the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Company shall also comply with the provisions of Section 314(a) of the Trust Indenture Act.* (b) If the Company is required to furnish annual or quarterly reports to its stockholders pursuant to the Exchange Act, the Company shall, within 15 days after it delivers the same to its stockholders, cause any annual report furnished to its stockholders generally and any quarterly or other financial reports furnished by it to its stockholders generally to be delivered to the Trustee and mailed to the Holders at their addresses appearing in the register of Securities maintained by the Registrar. Section 801. Company May Consolidate, etc., Only on Certain Terms. The Company shall not consolidate or merge with or into any Person, or sell, lease, convey or otherwise dispose of all or substantially all of its assets (including by way of liquidation or dissolution) or assign any of its obligations hereunder or under the Securities to any Person, unless: (1) the Person formed by or surviving such consolidation or merger (if other than the Company), or to which such sale, lease, conveyance or other disposition or assignment shall be made (collectively, the "Successor"), is a corporation or other legal entity organized and existing under the laws of the United States or any State thereof or the District of Columbia, and the Successor assumes by supplemental indenture in a form reasonably satisfactory to the Trustee all of the obligations of the Company under the Securities and this Indenture; (2) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction and the use of any net proceeds therefrom on a pro forma basis, the Consolidated Tangible Net Worth of the Company or the Successor, as the case may be, would be at least equal to the Consolidated Tangible Net Worth of the Company immediately prior to such transaction; and (4) the Consolidated Fixed Charge Coverage Ratio of the Company or the Successor, as the case may be, immediately after giving effect to such transaction, would be such that the Company or the Successor, as the case may be, would be entitled to incur at least $1 of additional Indebtedness under the Consolidated Fixed Charge Coverage Ratio test contained in Section 1007. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture comply with this Indenture. - --------------- * The last sentence of Section 704(a) shall not be deleted as a result of the Proposed Amendments and shall remain in effect after the Consent Date. B-1 44 Section 1005. Maintenance of Properties. The Company shall cause all properties owned by the Company or any of its Subsidiaries or used or held for use in the conduct of it business or the business of any such Subsidiary to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly conducted at all times; provided that nothing in this Section shall prevent the Company from selling or otherwise disposing of such properties or discontinuing the operation or maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any such Subsidiary. Section 1006. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (ii) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; provided that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. Section 1007. Limitations on Additional Indebtedness. The Company shall not, and shall not permit any of its subsidiaries to, incur any Indebtedness (other than Permitted Indebtedness), unless (i) no Default or Event of Default shall have occurred and be continuing at the time of incurring, or after giving effect to, the incurrence of, such Indebtedness; and (ii) immediately after giving pro forma effect to the incurrence of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the Company, as at the date such Indebtedness is incurred, would be at least 1.75 to 1 if such Indebtedness is incurred on or prior to December 15, 1993 or 2.0 to 1.0 if such Indebtedness is incurred thereafter. Section 1008. Limitations on Preferred Stock of Subsidiaries. The Company shall not permit any of its Subsidiaries to issue any Preferred Stock (other than to the Company or a Wholly Owned Subsidiary of the Company). Section 1009. Limitations on Sale and Leaseback Transactions. The Company shall not, and shall not permit any of its Subsidiaries to, enter into any arrangement with any Person providing for the leasing by the Company or any Subsidiary of the Company of any real or tangible personal property (except for leases between the Company and any of its Subsidiaries or between Subsidiaries of the Company), which property has been or is to be sold or transferred by the Company or such Subsidiary to such Person in contemplation of such leasing, unless (i) the Company or such Subsidiary would be permitted under Section 1007 to incur Indebtedness in an amount equal to the Attributable Indebtedness with respect to such arrangement and (ii) the gross proceeds of such sale are at least equal to the fair market value of such property and the Company or such Subsidiary applies the Net Cash Proceeds of such sale as provided in Section 1012. Section 1010. Limitations on Restricted Payments. (a) The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment unless: (i) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; (ii) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (A) 50% of the B-2 45 Consolidated Net Income of the Company (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit) from December 31, 1992 through the last day of the latest full fiscal quarter of the Company prior to the date of such Restricted Payment (taken as one accounting period), plus (B) 100% of the aggregate net cash proceeds of, and the fair market value of marketable securities (as determined in good faith by the Board of Directors and evidenced by a Board Resolution) received by the Company from, the issue or sale after the Issue Date of Capital Stock of the Company (other than the issue or sale of (y) Disqualified Stock or (z) Capital Stock of the Company to any Subsidiary of the Company) or any Indebtedness (other than Refinancing Indebtedness issued pursuant to clause (vii) of the proviso to the definition of Restricted Payment) or other securities of the Company convertible into or exercisable for Capital Stock (other than Disqualified Stock) of the Company which has been so converted or exercised, as the case may be, plus (C) $2.5 million; and (iii) at the time of and immediately after giving effect to such Restricted Payment, the Company or any of its Subsidiaries would be entitled to incur (as the term is used in Section 1007) at least $1 of additional Indebtedness (other than Permitted Indebtedness) under the tests described in Section 1007. (b) The provisions of clause (a) above shall not prohibit: (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of this Indenture; (ii) the retirement of any shares of Capital Stock of the Company in exchange for, or out of the net proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other shares of Capital Stock (other than Disqualified Stock) of the Company; (iii) the redemption or retirement of subordinated Indebtedness of the Company in exchange for, by conversion into, or out of the net proceeds of, a substantially concurrent (x) issue or sale of Capital Stock (other than Disqualified Stock) of the Company or (y) incurrence of Refinancing Indebtedness; and (iv) the repurchase of equity securities of the Company from the management of the Company upon such management's termination of employment with the Company to the extent required by a plan in effect on the Issue Date. Section 1011. Limitations on Restrictions on Distributions from Subsidiaries. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction (other than encumbrances or restrictions imposed by law or by judicial or regulatory action or by provisions in leases or other agreements that restrict the assignability thereof) if such encumbrance or restriction would by its terms prohibit any Subsidiary of the Company from (a) paying dividends or making any other distributions on its Capital Stock or any other interest or participation in, or measured by, its profits, owned by the Company or any of its other Subsidiaries, (b) making loans or advances to the Company or any of its other Subsidiaries or (c) transferring any of its properties or assets to the Company or any of its other Subsidiaries, except for encumbrances or restrictions existing under or by reason of (i) applicable law; (ii) any covenants or restrictions contained in agreements creating or evidencing Indebtedness of the Company or any of its Subsidiaries outstanding on the Issue Date; (iii) any restrictions contained in agreements creating or evidencing any Acquired Indebtedness permitted to be incurred under this Indenture; provided that such restrictions and encumbrances only apply to assets that were subject to such restrictions and encumbrances prior to the acquisition of such assets by the Company or its Subsidiaries; (iv) restrictions or encumbrances replacing those permitted by clause (ii) or (iii) above which are not more restrictive; and (v) any restrictions or encumbrances arising in connection with Refinancing Indebtedness, provided that any restrictions and encumbrances of the type described in this clause (v) that arise under such Refinancing Indebtedness are not more restrictive than those under the agreement creating or evidencing the Indebtedness being refunded or refinanced. For purposes of this Section 1011, restrictions of the types set forth in the following sections of the Credit Facility as in effect on B-3 46 the date of this Indenture (and all amendments, modifications or changes thereto to the extent such amendments, modifications or changes do not alter the type of encumbrance or restriction contained therein) shall not be deemed to be consensual encumbrances or restrictions of the kind prohibited by this Section 1011: Section 2.4, 2.6, 2.7, 2.8, 2.9, 2.10, 2.14, 5.5, 5.6, 5.7, 5.8, 5.11, 5.13, 5.14, 5.15, 5.16, 5.18, 5.20, 5.21, 5.22, 5.23, 5.25, 8.3 and 9.17, provided, however, that the omission of a particular section of the Credit Facility (other than Sections 5.9 and 5.17(b)) from the foregoing list shall not be deemed to restrict the Company from amending, modifying or changing the encumbrance or restriction contained in such omitted section if otherwise permitted under clause (iv). Section 1012. Limitations on Asset Sales. (a) The Company shall not, and shall not permit any of its Subsidiaries to, make any Asset Sale unless: (i) the Company or such Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (as determined by the Board of Directors and, if such fair market value shall exceed $10 million, by an independent financial adviser); (ii) at least 80% of the consideration received by the Company or such Subsidiary from such Asset Sale is in the form of cash (or 50% in the case of an Asset Sale of the Company's properties located at Kenilworth, New Jersey, Markham, Ontario and Hillside, Illinois); provided that the amount of (A) any liabilities of the Company or such Subsidiary (as shown on the most recent balance sheet of the Company or such Subsidiary or in the notes thereto) that are assumed by the transferee in any such transaction and (B) any Cash Equivalents or notes or other obligations received by the Company or such Subsidiary from such transferee that are promptly converted by the Company or such Subsidiary into cash, shall both be deemed to be cash for purposes of this clause (ii); and (iii) the Net Cash Proceeds received by the Company or such Subsidiary from such Asset Sale are applied in accordance with this Section. (b) Within 180 days following the receipt of cash proceeds from any Asset Sale, the Company may (subject to clause (c) below) cause the Net Cash Proceeds received by the Company or any of its Subsidiaries from such Asset Sale to be applied: (i) to the repayment of Indebtedness of the Company or any of its Subsidiaries under the Credit Facility or other Senior Indebtedness of the Company or any of its Subsidiaries; provided that, any such repayment shall result in a permanent reduction in any revolving credit or other commitment relating thereto in an amount equal to the principal amount so repaid; or (ii) in a manner that would constitute a Related Business Expenditure. If at any time any non-cash consideration received by the Company or any of its Subsidiaries from any Asset Sale is converted into or sold or otherwise disposed of for cash, then such cash will constitute Net Cash Proceeds for purposes of the foregoing provision. (c) If, upon completion of the 180-day period provided for in clause (b) above (the "Net Proceeds Offer Trigger Date"), any portion of the Net Cash Proceeds of an Asset Sale shall not have been applied by the Company in accordance with clause (b) above and such remaining Net Cash Proceeds, together with the remaining Net Cash proceeds of any prior Asset Sale, exceed $5 million, then the Company will be obligated to apply such remaining Net Cash Proceeds to the purchase of Securities tendered to the Company for purchase at a price equal to 100% of the principal amount thereof, plus accrued interest, if any, to the date of purchase pursuant to an offer to purchase made by the Company (a "Net Proceeds Offer") with respect to the Securities. The Net Proceeds Offer shall be deemed to have commenced upon mailing of the notice described in clause (d) below and shall terminate 20 Business Days after its commencement, unless a longer offering period is required by applicable law. If the date on which the Net Proceeds Offer terminates (the "Net Proceeds Payment Date") is on or after a Regular Record Date B-4 47 and on or before the related Interest Payment Date Date, any accrued interest shall be paid to the Person in whose name a Security is registered at the close of business on such Regular Record Date, and no additional interest shall be payable to Holders who tender securities pursuant to the Net Proceeds Offer. (d) Within 10 days after a Net Proceeds Offer Trigger Date, the Company (with notice to the Trustee), or the Trustee at the request and expense of the Company, shall mail or cause to be mailed, first-class postage prepaid, to all Holders as of the Net Proceeds Offer Trigger Date, a notice of the Net Proceeds Offer. Such notice shall contain all instructions and materials necessary to enable Holders to tender Securities pursuant to the Net Proceeds Offer. Such notice, which shall govern the terms of the Net Proceeds Offer, shall state: (1) that the Net Proceeds Offer is being made pursuant to this Section and the length of time that the Net Proceeds Offer will remain open, and that all Securities or portions thereof tendered will be accepted for payment on a pro rata basis; (2) the purchase price (including the amount of accrued interest, if any) and the Net Proceeds Payment Date; (3) that any Security not tendered will continue to accrue interest; (4) that unless the Company defaults in making payment therefor, any Security accepted for payment pursuant to the Net Proceeds Offer shall cease to accrue interest on the Net Proceeds Payment Date; (5) that Holders electing to have a Security purchased pursuant to a Net Proceeds Offer will be required to surrender the Security, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Security completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day prior to the Net Proceeds Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, no later than two Business Days prior to the Net Proceeds Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have such Security purchased; (7) that if Securities in a principal amount in excess of the principal amount of the Securities to be acquired pursuant to the Net Proceeds Offer are tendered and not withdrawn pursuant to the Net Proceeds Offer, the Company shall purchase Securities on a pro rata basis (with such adjustment as may be deemed appropriate by the Company so that only Securities in denominations of $1,000 or integral multiples thereof shall be so acquired); and (8) that the Holder of any Security purchased only in part will be issued a new Security or Securities in a principal amount equal to the unpurchased portion of the Securities surrendered. (e) On or before a Net Proceeds Payment Date, the Company shall, to the extent lawful, (i) accept for payment the Securities or portions thereof tendered pursuant to the Net Proceeds Offer (on a pro rata basis if required pursuant to clause (e) (7) above), (ii) deposit with the Paying Agent an amount sufficient to pay the purchase price of all Securities or portions thereof to be purchased and (iii) deliver to the Trustee Securities so accepted together with an Officers' Certificate identifying the Securities or portions thereof accepted for payment by the Company in accordance with the terms of this Section. The Paying Agent shall promptly mail or deliver to each tendering Holder an amount equal to the purchase price of the Securities tendered by such Holder and accepted by the Company for purchase, and the Trustee shall promptly authenticate and mail or deliver to the Holders a new Security or Securities equal in principal amount to any unpurchased portion of any Security surrendered. Any Securities not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof, and any amounts remaining after the purchase of Securities shall be returned by the Trustee to the Company. The Company will publicly announce the results of the Net Proceeds Offer as promptly as practicable following the Net Proceeds Payment Date. For purposes of this Section, the Trustee shall act as the B-5 48 Paying Agent. Any Net Proceeds Offer shall be conducted in compliance with Rule 14e-1 under the Exchange Act, if so required, and all applicable laws in making any such offer to purchase Securities. Section 1013. Limitations on Transactions with Affiliates. (a) The Company shall not, and shall not permit any of its Subsidiaries to, make any loan, advance, guarantee or capital contribution to, or for the benefit of, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or for the benefit of, or purchase or lease any property or assets from, or enter into or amend any contract, agreement or understanding with, or for the benefit of, (i) any Affiliate of the Company or any Affiliate of any of the Company's Subsidiaries or (ii) any Person (or any Affiliate of such Person) holding 10% or more of the Common Equity of the Company or any of its Subsidiaries (each an "Affiliate Transaction"), except in either case on terms that are no less favorable to the Company or the relevant Subsidiary, as the case may be, than those that could have been obtained in a comparable transaction on an arms' length basis from a Person that is not an Affiliate; provided, however, that items (i) through (vi) of the proviso of the definition of Restricted Payment and item (iv) of Section 1010(b) shall not be prohibited by this provision. (b) The Company shall not, and shall not permit any of its Subsidiaries to, enter into an Affiliate Transaction, or any series of related Affiliate Transactions, involving or having a value of more than $500,000 unless the Company has either (i) obtained the approval of a majority of the disinterested members of the Board of Directors or (ii) delivered to the Trustee an opinion of a qualified Independent Financial Advisor to the effect that such transaction or transactions are fair to the Company or the relevant Subsidiary, as the case may be, from a financial point of view. (c) The Company shall not, and shall not permit any of its Subsidiaries to, enter into any Affiliate Transaction, or any series of related Affiliate Transactions, involving or having a value of more than $10 million unless such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors and the Company has delivered the opinion referred to in clause (b)(ii) above. Section 1014. Limitations on Liens. The Company shall not, and shall not permit any of its Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Lien of any kind upon any of its property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Securities are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien; provided that the following Liens may be created or incurred or may exist or become effective without any requirement that the Securities be equally and ratably secured: (1) Liens existing on the Issue Date; (2) Liens now or hereafter securing Indebtedness outstanding under the Credit Facility and Liens now or hereafter securing the interest rate hedging obligations which the Company is required to enter into with respect to the term loans under the Credit Facility; (3) Liens on assets of the Company securing Senior Indebtedness permitted to be incurred under the Consolidated Fixed Charge Coverage Ratio test described in Section 1007; provided that such Liens are incurred within 90 days of the incurrence of such Indebtedness; (4) Liens on assets of any Subsidiary of the Company securing Indebtedness of such Subsidiary permitted to be incurred under the Consolidated Fixed Charge Coverage Ratio test described in Section 1007; provided that such Liens are incurred within 90 days of the incurrence of such Indebtedness; (5) Liens on assets of the Company or any Subsidiary of the Company securing Permitted Indebtedness of the Company or such Subsidiary described in clause (v) of the definition of Permitted Indebtedness; provided that such Liens are incurred within 90 days of the incurrence of such Indebtedness; B-6 49 (6) Liens securing Refinancing Indebtedness; provided that such Liens extend to or cover only the property or assets securing the Indebtedness being refinanced; and (7) Permitted Liens. Section 1015. Restriction on Additional Senior Subordinated Indebtedness. The Company shall not incur any Indebtedness that is subordinate or junior in right of payment to Senior Indebtedness and senior in any respect in right of payment to the Securities. B-7 50 RELEVANT SUBORDINATED NOTE INDENTURE DEFINITIONS "Acquired Indebtedness" means (i) with respect to any Person that becomes a Subsidiary of the Company after the Issue Date, Indebtedness of such Person and its Subsidiaries existing at the time such Person becomes a Subsidiary of the Company that was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of the Company and (ii) with respect to the Company or any or its Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries in connection with the acquisition of any asset from another Person, which Indebtedness was not incurred by such other Person in connection with, or in contemplation of, such acquisition. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, the term "Affiliate" shall not include, (i) with respect to the Company, any Subsidiary of the Company or (ii) with respect to any Subsidiary of the Company, the Company or any other Subsidiary of the Company. "Asset Sale" for any Person means the sale, lease, conveyance or other disposition (including, without limitation, by merger or consolidation, and whether by operation of law or otherwise) of any of that Person's assets (including, without limitation, (x) any sale and leaseback arrangement, (y) any sale or other disposition of Capital Stock of any Subsidiary of such Person, whether by such Person or by such Subsidiary and (z) any sale or other disposition of any non-cash consideration received by such Person from any prior transaction or series of related transactions that constituted an Asset Sale hereunder), whether owned on the Issue Date or subsequently acquired, in one transaction or a series of related transactions; provided that the following shall not constitute Asset Sales: (i) a transaction or series of related transactions (other than transactions described in clause (z) above) in which the fair market value of the cash and/or other consideration received (including, without limitation, the unconditional assumption of Indebtedness) is less than $250,000; (ii) a transaction or series of related transactions that results in a Change of Control; (iii) transactions between the Company and any of its Wholly Owned Subsidiaries or among such Wholly Owned Subsidiaries; and (iv) Investments in any joint venture or corporation permitted under clause (viii) of the proviso to the definition of "Restricted Payment". "Attributable Indebtedness", when used with respect to any sale and leaseback arrangement, means, as at the time of determination, the greater of (i) the fair market value of the property subject to such arrangement and (ii) the present value (discounted at a rate equivalent to the Company's then current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such arrangement (including any period for which such lease has been extended). "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day", when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which financial institutions in that Place of Payment are authorized or obligated by law, regulation or executive order to close. "Capital Stock" of any Person means any and all shares, rights to purchase, warrants or options (whether or not currently exercisable), participations or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, common stock, preferred stock and partnership and joint venture interests) of such Person (excluding any debt securities that are convertible into, or exchangeable for, such equity). B-8 51 "Cash Equivalents," when used in Article X, means (i) obligations issued or unconditionally guaranteed by the United States of America or any agency thereof, or obligations issued by any agency or instrumentality thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest ratings obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or the equivalent thereof from Standard & Poor's Corporation or P-1 or the equivalent thereof from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances maturing within one year from the date of acquisition thereof issued by any domestic commercial bank having combined capital and surplus of not less than $250,000,000; and (v) repurchase agreements and reverse repurchase agreements with any bank meeting the qualifications specified in clause (iv) above relating to securities of the types described in clauses (i), (ii) or (iv) above, in each case maturing within one year from the date of acquisition thereof. "Common Equity" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii), if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the Person named as the "Company" in the first paragraph of this instrument, until a successor Person shall have become such pursuant to the applicable provisions of this instrument, and thereafter "Company" shall mean such successor Person. "Consolidated Fixed Charge Coverage Ratio" of the Company means, with respect to any determination date, the ratio of (i) Consolidated Cash Flow Available for Fixed Charges of the Company for the prior four full fiscal quarters for which financial results have been reported immediately preceding such determination date to (ii) Consolidated Interest Expense which the Company shall accrue during the next succeeding four full fiscal quarters for which financial results will be reported immediately following such determination date, such Consolidated Interest Expense to be calculated on the basis of the amount of the Company's Indebtedness (on a consolidated basis) outstanding on the determination date and reasonably anticipated by the Board of Directors of the Company to be outstanding from time to time during such period provided that in any calculation of the Consolidated Fixed Charge Coverage Ratio of the Company, no adjustment shall be made with respect to any Asset Sale that has not taken place prior to the determination date. "Consolidated Net Income" of the Company for any period means the net income (or loss) of the Company and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein), without duplication, (i) the net income (or loss) of any Person (other than a Subsidiary of the Company) in which any Person other than the Company has an ownership interest, except to the extent that any such income has actually been received by the Company or any of its Subsidiaries in the form of dividends or similar distributions during such period; (ii) to the extent includable in the consolidated net income of the Company, the net income (or loss) of any Person that accrued prior to the date that (A) such Person becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries or (B) the assets of such Person are acquired by the Company or any of its Subsidiaries; (iii) the net income of any Subsidiary of the Company to the extent that (but only as long as) the declaration or payment of dividends or similar distributions by such Subsidiary of that income is not permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary during such period; (iv) any gain or loss, together with any related provisions for taxes, realized during such period by the Company or any of its Subsidiaries upon (A) the acquisition of any securities, or the extinguishment of any Indebtedness, of the Company or any of its Subsidiaries or (B) any Asset Sale by the Company or any of its Subsidiaries; (v) any extraordinary gain or loss, together with any related provision for taxes on any such extraordinary gain or loss, realized by the Company or any of its Subsidiaries during such period; and (vi) in the case of a successor to the Company by B-9 52 consolidation, merger or transfer of its assets, any earnings of the successor prior to such merger, consolidation or transfer of assets; and provided, further, that there shall be included in such net income (to the extent not otherwise included therein) the net income of any Subsidiary of the Company to the extent such net income is actually received by the Company or a Subsidiary of the Company in the form of cash dividends or other cash distributions from such Subsidiary. "Consolidated Tangible Net Worth" of the Company as of any date means the stockholders' equity (including any Preferred Stock that is classified as equity under GAAP, other than Disqualified Stock) of the Company and its Subsidiaries on a consolidated basis at such date, as determined in accordance with GAAP, less the book value of all Intangible Assets reflected on the consolidated balance sheet of the Company and its Subsidiaries as of such date. "Credit Facility" means that certain First Amended and Restated Credit Agreement, dated December 17, 1992, among the Company and its Subsidiaries, the banks and other financial institutions parties thereto and Wells Fargo Bank, N.A., as Agent and Banque Paribas, Houston Agency, as Co-Agent, and the notes, letters of credit, guarantees, pledge agreements, mortgages or other collateral agreements, documents, certificates or instruments now or hereafter arising with respect thereto, as the same may be amended, supplemented, extended, renewed, restated, increased or otherwise modified from time to time prior to, on or after the Issue Date, together with any and all the refinancings, refundings and replacements from time to time prior to, on, or after the Issue Date. "Default" means any event that is, or after notice or lapse of time or both would be, an Event of Default. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity date of the Securities. "Event of Default" has the meaning specified in Article V. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" means a Person in whose name a Security is registered in the Security Register. "incur", when used with respect to any Indebtedness, means to, directly or indirectly, create, incur, assume, issue, guarantee or otherwise become liable for or with respect to such Indebtedness; and the terms "incurred", "incurrence" and "incurring" have means correlative to the foregoing. "Indebtedness" of any Person at any date means, without duplication, (i) all indebtedness of such Person for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (or reimbursement obligations with respect thereto), other than standby letters of credit incurred by such Person in the ordinary course of business, (iv) all obligations of such Person with respect to Hedging Obligations (other than foreign currency exchange agreements entered into in the ordinary course of business of such Person that do not relate to indebtedness for borrowed money of such Person), (v) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, except trade payables and accrued expenses incurred in the ordinary course of business, (vi) all Capitalized Lease Obligations of such Person, (vii) all Indebtedness of others secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, (viii) all Indebtedness of others guaranteed by such Person to the extent of such guarantee and (ix) all Attributable Indebtedness. The amount of Indebtedness of any Person at any date shall be (a) the outstanding balance at such date of all unconditional obligations as described above, (b) the maximum liability of such Person for any contingent obligations under clause (v) above at such date and (c) in the case of clause (vii) above, the lesser of (A) the fair market value of any asset subject to a Lien securing the Indebtedness of others on the date that the Lien attaches and (B) the amount of the Indebtedness secured. To the extent such Person guarantees the obligation of another Person to pay interest on indebtedness owed by such other Person, then a designated percentage of the interest guaranteed or the B-10 53 principal amount of the underlying indebtedness, as the case may be, shall be deemed indebtedness of the referent Person. For purposes of this definition, the amount of such deemed indebtedness of the referent Person shall be equal to the lesser of: (x) the aggregate principal amount of the underlying indebtedness relating to such interest guarantee and (y) the aggregate amount of interest due and payable over the term of such indebtedness (or the term of the Securities if shorter) determined based upon the rate of interest in effect as of the date of such determination, together with the maximum prepayment premium or penalty which could become due or payable with respect to such indebtedness if such indebtedness was prepaid prior to the maturity of the Securities. Notwithstanding the foregoing, the term Indebtedness shall include all indebtedness, obligations, liabilities and undertakings under the Credit Facility. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Independent Financial Advisor" means an accounting, appraisal or investment banking firm of nationally recognized standing that is, in the reasonable judgment of the Board of Directors, (i) qualified to perform the task for which it has been engaged and (ii) disinterested and independent with respect to the Company, all of its Subsidiaries and each Affiliate of the Company and/or its Subsidiaries that is involved in the transaction with respect to which such firm has been engaged; provided that, notwithstanding the foregoing, Shearson Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette Securities Corporation shall each be deemed qualified to serve as an Independent Financial Advisor. "Interest Payment Date", when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Issue Date" means the date on which the Securities are originally issued under this Indenture. "Lien" means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest or other similar encumbrance of any kind in respect of such property or asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, and any lease in the nature thereof, any option or other agreement to sell, and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Net Cash Proceeds" means the Net Proceeds or any Asset Sale received in the form of cash or Cash Equivalents. "Net Proceeds" means (i) in the case of any Asset Sale by any Person, the aggregate net proceeds received by such Person, after payment of expenses, taxes, commissions and the like incurred in connection therewith (and the amount of cash, if any, applied to repay any Indebtedness secured by the asset involved in such Asset Sale), whether such proceeds are in cash or in property (valued at the fair market value thereof at the time of receipt), and (ii) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock (other than Disqualified Stock) of the Company, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to the Company upon such exchange, exercise, conversion or surrender, and less any and all payments made such holder and all expenses incurred by the Company in connection therewith). "Net Proceeds Offer" has the meaning specified in Section 1012. "Net Proceeds Offer Trigger Date" has the meaning specified in Section 1012. "Net Proceeds Payment Date" has the meaning specified in Section 1012. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. B-11 54 "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company (including in-house counsel) or the Trustee, and who shall be acceptable to the Trustee. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company. "Permitted Indebtedness" means (i) Indebtedness of the Company and its Subsidiaries under the Credit Facility in an amount not in excess of $170.0 million aggregate principal amount reduced by (A) any scheduled principal payments irrevocably and indefeasibly made in cash and (B) any amounts by which the revolving credit facilities commitment is permanently reduced and the revolving credit loans, to the extent required, are indefeasibly and irrevocably repaid in cash; (ii) Indebtedness of the Company and its Subsidiaries outstanding on the Issue Date; (iii) Indebtedness of the Company to any Subsidiary of the Company and Indebtedness of any Subsidiary of the Company to the Company or another Subsidiary of the Company; (iv) Hedging Obligations required by the terms of the Credit Facility; (v) Indebtedness of the Company and its Subsidiaries in an aggregate principal amount not to exceed $20.0 million at any one time outstanding (exclusive of Indebtedness permitted by any other clause of this paragraph or under Section 1007); (vi) additional Indebtedness of the Company and its Subsidiaries in an aggregate principal amount not to exceed $10.0 million at any one time outstanding exclusive of Indebtedness permitted by any other clause of this paragraph or under Section 1007) either under the Credit Facility or under another facility approved by the Banks under the Credit Facility; and (vii) Refinancing Indebtedness. "Permitted Liens" means (i) Liens for taxes, assessments or governmental charges or claims that either (A) are not yet delinquent or (B) are being contested in good faith by appropriate proceedings and as to which appropriate reserves have been established or other provisions have been made in accordance with GAAP; (ii) statutory Liens of landlords and carriers', warehousemen's mechanics', suppliers', materialmen's, repairmen's or other Liens imposed by law and arising in the ordinary course of business and with respect to amounts that, to the extent applicable, either (A) are not yet delinquent or (B) are being contested in good faith by appropriate proceedings and as to which appropriate reserves been established or other provisions have been made in accordance with GAAP; (iii) Liens (other than any Lien imposed by the Employer Retirement Income Security Act of 1974, as amended) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory obligations, surety and appeal bonds, progress payments, government contracts and other obligations of like nature (exclusive of obligations for the payment of borrowed money), in each case, incurred in the ordinary course of business; (v) attachment or judgment Liens not giving rise to a Default or an Event of Default; and (vi) easements, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary conduct of the business of the Company or any of its Subsidiaries. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" of any Person means all Capital Stock of such Person which has a preference in liquidation or a preference with respect to the payment of dividends. "redemption", when used with respect to any Security, includes any purchase of such Security by the Company pursuant to a Change of Control Offer or Net Proceeds Offer. "Refinancing" has the meaning specified in the second recital of this Indenture. "Refinancing Indebtedness" means Indebtedness that refunds, refinances or extends any Indebtedness outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Subsidiaries pursuant to the terms of this Indenture, but only to the extent that (a) the Refinancing Indebtedness is subordinated to the Securities to the same extent as the Indebtedness being refunded, refinanced or extended, if at all, (b) the Refinancing Indebtedness is scheduled to mature either (i) no earlier than the Indebtedness being refunded, refinanced or extended, or (ii) after the maturity date of the Securities, (c) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Securities has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is B-12 55 incurred that is equal to or greater than the Weighted Average Life to Maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Securities, (d) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (i) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (ii) the amount of accrued and unpaid interest, if any, on such Indebtedness being refunded, refinanced or extended and (iii) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness and (e) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that (x) the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of any Subsidiary of the Company and (y) any Subsidiary of the Company may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of a Subsidiary of the Company; provided, however, that nothing contained in this definition shall limit or restrict the holders of the liabilities, undertakings, indebtedness and obligations now or hereafter evidenced by the Credit Facility from refinancing, refunding or replacing such obligations and indebtedness from time to time. "Regular Record Date" for the interest payable on any Interest Payment Date means the June 1 and December 1 (whether or not a Business Day) next preceding such Interest Payment Date. "Related Business Expenditure" means any capital expenditure, Investment or operating expense reasonably related to the business of the Company and its Subsidiaries as such business is conducted on the Issue Date. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution on Capital Stock of the Company or any Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Subsidiary of the Company (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) and (y) in the case of Subsidiaries of the Company, dividends or distributions payable to the Company or to a Subsidiary of the Company); (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Subsidiaries; (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Securities (other than Indebtedness acquired in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition); and (iv) the making of any Prohibited Investment or guarantee of any Prohibited Investment in any Person; provided, however, that the following shall not be deemed Restricted Payments: (i) the payment by the Company and its subsidiaries to Holdings of their respective shares of the consolidated tax liability pursuant to the Tax Sharing Agreement; (ii) advances to employees, officers, directors, agents and representatives of Holdings' for travel and other reasonable and ordinary business expenses; (iii) advances and loans to employees and officers of Holdings' in connection with their relocation; (iv) loans to key employees to finance the purchase of Capital Stock of the Company or Holdings' but only to the extent the proceeds of such loans used to purchase the Capital Stock of Holdings are concurrently contributed by Holdings to the Company; (v) the payment to Acadia or its affiliates of consulting fees of $400,000 plus expenses per year pursuant to the terms of the Consulting Agreement; (vi) the payment by the Company to Holdings of management fees under or pursuant to the terms of the Management Agreement, provided such fees represent payment at cost for customary and ordinary expenses under leases and other contractual rights of Holdings during the period commencing on the Issue Date and terminating on the earlier to occur of (x) the 180th day after the Issue Date, or (y) the completion of the transfer by Holdings to the Company of all such leases and contractual rights; (vii) the redemption or retirement of subordinated indebtedness of the Company in exchange for, by conversion into, or out of the net proceeds of, a substantially concurrent incurrence of Refinancing Indebtedness; and (viii) Prohibited Investments in any joint venture or corporation organized under the laws of a jurisdiction other than the United States, not in excess of $5.0 million in the aggregate (net of return of capital from such joint ventures or corporations) since December 31, 1992. In no event shall any payment or prepayment with respect to the Credit Facility be deemed to be a Restricted Payment. B-13 56 "Securities" has the meaning specified in the first recital of this instrument and more particularly means any Securities authenticated and delivered under this Indenture. "Senior Indebtedness" means the principal and premium, if any, and interest on (including interest at the contract rate (including a default rate) that, but for the filing of a petition initiating any proceeding pursuant to any bankruptcy or reorganization law with respect to the Company, would accrue on such obligations, whether or not a claim therefor is allowed in such bankruptcy or reorganization proceeding) and all other monetary obligations of every kind or nature in respect of or incurred in connection with (a) Indebtedness of the Company under the Credit Facility and the interest rate hedging arrangements provided for therein; (b) obligations of the Company for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction; and (c) any other Indebtedness of the Company (other than the Securities), whether outstanding on the Issue Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Securities. Notwithstanding the foregoing, Senior Indebtedness shall not include (i) Indebtedness of the Company to a Subsidiary of the Company for money borrowed or advanced from such Subsidiary or (ii) amounts owed (except to banks and other financing institutions) for goods, materials or services purchased in the ordinary course of business. "Subsidiary" of any Person means (i) any corporation of which at least a majority of the aggregate voting power of all classes of the Common Equity is owned by such Person directly or through one or more other Subsidiaries of such Person and (ii) any entity other than a corporation in which such Person, directly or indirectly, owns at least a majority of the Common Equity of such entity. "Successor" has the meaning specified in Section 801. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Wholly Owned Subsidiary" of any Person means (i) a Subsidiary, of which 100% of the Common Equity (except for directors' qualifying shares or certain minority interests owned by other persons solely due to local law requirements that there be more than one stockholder, but which interest is not in excess of what is required for such purpose) is owned directly by such Person or through one or more other Wholly Owned Subsidiaries of such Person or (ii) any entity other than a corporation in which such Person, directly or indirectly, owns all of the Common Equity of such entity. B-14 57 CONSENT AND LETTER OF TRANSMITTAL TO TENDER AND TO GIVE CONSENT IN RESPECT OF 13 1/4% SENIOR DISCOUNT DEBENTURES DUE 2005 OF IVEX PACKAGING CORPORATION PURSUANT TO THE OFFERS TO PURCHASE AND CONSENT SOLICITATIONS STATEMENT DATED AUGUST 27, 1997 THE OFFER AND THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 24, 1997, UNLESS EXTENDED (SUCH DATE, THE "INITIAL EXPIRATION DATE" AND, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). TENDERS OF SENIOR DEBENTURES (AS DESCRIBED HEREIN) MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE AND CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE INITIAL EXPIRATION DATE. The Depositary for the Offer and the Solicitation is: UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: By Mail: (212) 780-0592 United States Trust Company of New York Attention: Customer Service P.O. Box 843 Cooper Station Confirm by Telephone to: (800) 548-6565 New York, New York 10276 Attention: Corporate Trust Services By Hand before 4:30 p.m.: By Overnight Courier and By Hand after 4:30 p.m.: United States Trust Company of New York United States Trust Company of New York 111 Broadway 770 Broadway, 13th Floor New York, New York 10006 New York, New York 10003 Attention: Lower Level Corporate Trust Window
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE TENDER OFFER CONSIDERATION PURSUANT TO THE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR SENIOR DEBENTURES AND DELIVER (AND NOT REVOKE) THEIR CONSENTS TO THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE. This Consent and Letter of Transmittal ("Consent and Letter of Transmittal") is to be used by Holders if: (i) certificates representing the 13 1/4% Senior Discount Debentures due 2005 (the "Senior Debentures"), issued pursuant to an Indenture dated as of March 8, 1993 (the "Senior Debenture Indenture") are to be physically delivered to the Depositary herewith by such Holders; (ii) tender of Senior Debentures is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PHILADEP") (each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in the Statement referred to above under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Book-Entry Transfer" by any financial institution that is a participant in a Book-Entry Transfer Facility and whose name appears on a security position listing as the owner of Senior Debentures (such participants, acting on behalf of Holders, are referred to herein, together with such Holders, as "Acting Holders"); (iii) tender of Senior Debentures is to be made according to the guaranteed delivery procedures set forth in the Statement under the caption "The Offer and the Solicitation--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery;" or (iv) a Holder wishes to deliver a Consent herewith. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. HOLDERS WHO TENDER SENIOR DEBENTURES WILL BE CONSENTING TO THE PROPOSED AMENDMENTS PURSUANT TO THIS CONSENT AND LETTER OF TRANSMITTAL. THE COMPLETION, EXECUTION AND DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL WILL CONSTITUTE A CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF SENIOR DEBENTURES MAY NOT VALIDLY TENDER SUCH SENIOR DEBENTURES WITHOUT DELIVERING A VALID CONSENT. 1 58 The undersigned has completed, executed and delivered this Consent and Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Offer and the Solicitation. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Statement referred to above. Your bank or broker can assist you in completing this form. The instructions included with this Consent and Letter of Transmittal must be followed. Questions and requests for assistance or for additional copies of the Statement, this Consent and Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Dealer Manager, whose address and telephone number appear on the back cover of this Consent and Letter of Transmittal. See Instruction 11 below. - -------------------------------------------------------------------------------- CHECK HERE IF TENDERED SENIOR DEBENTURES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution Name of Book-Entry Transfer Facility (check one): [ ] DTC [ ] PHILADEP Account Number Transaction Code Number
If Holders desire to tender Senior Debentures pursuant to the Offer and (i) certificates representing such Senior Debentures are not lost but are not immediately available, (ii) time will not permit this Consent and Letter of Transmittal, certificates representing such Senior Debentures or other required documents to reach the Depositary prior to the Expiration Date, or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Senior Debentures in accordance with the guaranteed delivery procedures set forth in the Statement under the caption "The Offer and the Solicitation--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery." See Instruction 1 below. CHECK HERE IF TENDERED SENIOR DEBENTURES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s): Window Ticket No. (if any): Date of Execution of Notice of Guaranteed Delivery: Name of Eligible Institution that Guaranteed Delivery: If Delivered by Book-Entry Transfer: Name of Book-Entry Transfer Facility (check one): [ ] DTC [ ] PHILADEP Account Number Transaction Code Number
2 59 List below the Senior Debentures to which this Consent and Letter of Transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately executed schedule and affix the schedule to this Consent and Letter of Transmittal. Tenders of Senior Debentures will be accepted only in principal amounts equal to $1,000 or integral multiples thereof. DESCRIPTION OF SENIOR DEBENTURES - ------------------------------------------------------------------------------------------------------------------------------ AGGREGATE PRINCIPAL AMOUNT PRINCIPAL TENDERED AND AS TO NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT WHICH CONSENTS (PLEASE FILL IN, IF BLANK) NUMBERS* REPRESENTED** ARE GIVEN - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ TOTAL PRINCIPAL AMOUNT OF SENIOR DEBENTURES - ------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by Holders tendering by book-entry transfer (see below). ** UNLESS OTHERWISE INDICATED IN THE COLUMN LABELED "PRINCIPAL AMOUNT TENDERED AND AS TO WHICH CONSENTS ARE GIVEN" AND SUBJECT TO THE TERMS AND CONDITIONS OF THE STATEMENT, A HOLDER WILL BE DEEMED TO HAVE TENDERED AND CONSENTED WITH RESPECT TO THE ENTIRE AGGREGATE PRINCIPAL AMOUNT REPRESENTED BY THE SENIOR DEBENTURES INDICATED IN THE COLUMN LABELED "AGGREGATE PRINCIPAL AMOUNT REPRESENTED." SEE INSTRUCTION 3. ANY ENTRY IN THIS COLUMN WILL BE DEEMED TO BE A CONSENT WITH RESPECT TO THE AGGREGATE PRINCIPAL AMOUNT ENTERED.
If you do not wish to tender your Senior Debentures and you wish to disapprove or abstain with respect to the matter described in the Statement for which Consents are sought, you do not need to return this Consent and Letter of Transmittal or take any other action. However, at your option, you may return this Consent and Letter of Transmittal and disapprove or abstain with respect to said matter by checking the appropriate box below. DO NOT CHECK EITHER OF THE FOLLOWING BOXES IF YOU ARE TENDERING SENIOR DEBENTURES HEREWITH OR DELIVERING CONSENTS WITH RESPECT TO SENIOR DEBENTURES HEREWITH. CHECKING EITHER BOX COULD RENDER YOUR TENDER OR CONSENT INVALID. [ ] [ ] Disapprove Abstain
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 3 60 LADIES AND GENTLEMEN: By execution hereof, the undersigned acknowledges receipt of the Offers to Purchase and Consent Solicitations Statement, dated August 27, 1997 (as the same may be amended from time to time (the "Statement"), of Ivex Packaging Corporation, a Delaware corporation (the "Company"), and this Consent and Letter of Transmittal and instructions hereto, which together constitute (i) the Company's offer to purchase for cash (the "Offer") all of its 13 1/4% Senior Discount Debentures Due 2005 (the "Senior Debentures"), upon the terms and subject to the conditions set forth in the Statement, and (ii) the Company's solicitation (the "Solicitation") of consents (the "Consents") from registered holders of Senior Debentures ("Holders") to certain proposed amendments (the "Proposed Amendments"), as described in the Statement, to the indenture dated as of March 8, 1993 between the Company and United States Trust Company of New York, as trustee (the "Trustee"), pursuant to which the Senior Debentures were issued (the "Senior Debenture Indenture"). Upon the terms and subject to the conditions of the Offer, the undersigned hereby tenders to the Company the principal amount of Senior Debentures indicated above and Consents to the Proposed Amendments (hereby revoking any previously submitted disapproval or abstention). Subject to, and effective upon, the acceptance for purchase of, and payment for, the principal amount of Senior Debentures tendered with this Consent and Letter of Transmittal, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company, all right, title and interest in and to the Senior Debentures that are being tendered hereby. The undersigned also consents to the Proposed Amendments effective as of the date hereof. The undersigned hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Depositary also acts as the agent of the Company) with respect to such Senior Debentures with full power of substitution (such power-of-attorney being deemed to be an irrevocable power coupled with an interest) to (i) present such Senior Debentures and all evidences of transfer and authenticity to, or transfer ownership of, such Senior Debentures on the account books maintained by any of the Book-Entry Transfer Facilities to, or upon the order of, the Company, (ii) present such Senior Debentures for transfer of ownership on the books of the Company, (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Senior Debentures and (iv) deliver to the Company and the Trustee this Consent and Letter of Transmittal as evidence of the undersigned's Consent to the Proposed Amendments and as certification that Requisite Consents to the Proposed Amendments duly executed by Holders have been received, all in accordance with the terms of and conditions to the Offer and the Solicitation as described in the Statement. The undersigned agrees and acknowledges that, by the execution and delivery hereof, the undersigned makes and provides the written Consent, with respect to the Senior Debentures tendered hereby or represented hereby, to the Proposed Amendments as permitted by Article IX, Section 902 of the Senior Debenture Indenture. The undersigned understands that the Consent provided hereby shall remain in full force and effect until such Consent is revoked in accordance with the procedure set forth in the Statement and this Consent and Letter of Transmittal. The undersigned understands that a revocation of such Consent will not be effective following the time and date on which a supplemental indenture providing for the Proposed Amendments is executed. The Company intends to cause the execution of the supplemental indenture to occur upon the Initial Expiration Date if the Requisite Consents have been obtained or, if the Requisite Consents have not been obtained, promptly upon obtaining the Requisite Consents. The undersigned understands that tenders of Senior Debentures may be withdrawn by written notice of withdrawal received by the Depositary at any time prior to the Expiration Date, and, thereafter, if the offer is terminated without any Senior Debentures being purchased thereunder. If a Holder who has tendered Senior Debentures subsequently effects a valid withdrawal of a prior tender of Senior Debentures (without a concurrent valid revocation of a Consent) prior to the Initial Expiration Date, such action will render the Consent with respect to such Senior Debentures defective. The undersigned understands that Consents may be revoked by written notice of revocation received by the Depositary at any time prior to the Initial Expiration Date. If a Holder who has tendered Senior Debentures subsequently effects a valid revocation of such Holder's Consent (without a concurrent valid withdrawal of Senior Debentures), such action will render 4 61 the prior tender of Senior Debentures with respect to which such Consent relates defective, and the Company will have the right, which it may waive, to reject such tender of Senior Debentures as invalid and ineffective. In the event of a termination of the Offer, the Senior Debentures tendered pursuant to the Offer will be returned to the tendering Holder promptly. If the Company or IPC makes a material change in the terms of the Offers or the Solicitations or the information concerning the Offers or the Solicitations, the Company or IPC, as the case may be, will disseminate additional Offer and Solicitation materials and extend such Offers or, if applicable, the Solicitations, to the extent required by law. The undersigned understands that notice of revocation of Consent, to be effective, must: (i) contain the name of the person who delivered the Consent and the description of the Senior Debentures to which it relates, the certificate number or numbers of such Senior Debentures (unless such Senior Debentures were tendered by book-entry delivery) and the aggregate principal amount represented by such Senior Debentures, (ii) be signed by the Acting Holder thereof in the same manner as the original signature on this Consent and Letter of Transmittal (including the required signature guarantee(s)) or be accompanied by evidence, satisfactory to the Company and the Depositary, that the holder of Senior Debentures revoking the Consent has succeeded to ownership of the Senior Debentures, (iii) if this Consent and Letter of Transmittal was executed by a person other than the registered Holder of the related Senior Debentures, be accompanied by a valid proxy signed by such registered Holder and authorizing the revocation of such Consent and (iv) be received by the Depositary at one of the addresses set forth in the Statement prior to the Initial Expiration Date. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. The undersigned understands that tenders of Senior Debentures pursuant to any of the procedures described in the Statement and in the instructions hereto and acceptance thereof by the Company will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Offer and the Solicitation. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Senior Debentures tendered hereby and to give the Consent contained herein, and that when such Senior Debentures are accepted for purchase and payment by the Company, the Company will acquire good title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Senior Debentures tendered hereby, to perfect the undersigned's Consent to the Proposed Amendments and to complete the execution of a supplemental indenture to the Indenture reflecting such Proposed Amendments. For purposes of the Offer, the undersigned understands that the Company will be deemed to have accepted for purchase validly tendered Senior Debentures (or defectively tendered Senior Debentures with respect to which the Company has waived such defect), if, as and when the Company gives oral (confirmed the following day in writing) or written notice thereof to the Depositary. The undersigned understands that, under certain circumstances and subject to certain conditions of the Offer (each of which the Company may waive) set forth in the Statement, the Company may not be required to accept for purchase any of the Senior Debentures tendered (including any Senior Debentures tendered after the Expiration Date). Any Senior Debentures not accepted for purchase will be returned promptly to the undersigned at the address set forth above, unless otherwise indicated herein under "Special Delivery Instructions" below. All authority conferred or agreed to be conferred by this Consent and Letter of Transmittal shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Consent and Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives. The undersigned understands that the delivery and surrender of the Senior Debentures is not effective, and the risk of loss of the Senior Debentures does not pass to the Depositary, until receipt by the Depositary of 5 62 this Consent and Letter of Transmittal, or a facsimile hereof, properly completed and duly executed, together with all accompanying evidences of authority and any other required documents in form satisfactory to the Company. All questions as to form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Senior Debentures and deliveries and revocations of Consents will be determined by the Company, in its sole discretion, which determination shall be final and binding. Unless otherwise indicated herein under "Special Issuance Instructions," the undersigned hereby requests that any Senior Debentures representing principal amounts not tendered or not accepted for purchase be issued in the name(s) of the undersigned (and in the case of Senior Debentures tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above), and checks for payments of the Tender Offer Consideration and Consent Payment to be made in connection with the Offer and the Solicitation be issued to the order of the undersigned. Similarly, unless otherwise indicated herein under "Special Delivery Instructions," the undersigned hereby requests that any Senior Debentures representing principal amounts not tendered or not accepted for purchase and checks for payments of the Tender Offer Consideration and Consent Payment to be made in connection with the Offer and the Solicitation be delivered to the undersigned at the address(es) shown above. In the event that the "Special Issuance Instructions" box or the "Special Delivery Instructions" box is, or both are, completed, the undersigned hereby requests that any Senior Debentures representing principal amounts not tendered or not accepted for purchase be issued in the name(s) of, certificates for such Senior Debentures be delivered to, and checks for payments of the Tender Offer Consideration and Consent Payment be issued in the name(s) of, and be delivered to, the person(s) at the address(es) so indicated, as applicable. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" box or "Special Delivery Instructions" box to transfer any Senior Debentures from the name of the registered Holder(s) thereof if the Company does not accept for purchase any of the principal amount of such Senior Debentures so tendered. 6 63 PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING AND CONSENTING HOLDERS OF SENIOR DEBENTURES REGARDLESS OF WHETHER SENIOR DEBENTURES ARE BEING PHYSICALLY DELIVERED HEREWITH) The completion, execution and delivery of this Consent and Letter of Transmittal will be deemed to constitute a Consent to the Proposed Amendments. This Consent and Letter of Transmittal must be signed by the registered Holder(s) of Senior Debentures exactly as their name(s) appear(s) on certificate(s) for Senior Debentures or, if tendered by a participant in one of the Book-Entry Transfer Facilities, exactly as such participant's name appears on a security position listing as the owner of Senior Debentures or by person(s) authorized to become registered Holder(s) by endorsements on certificates for Senior Debentures or by bond powers transmitted with this Consent and Letter of Transmittal. Endorsements on Senior Debentures and signatures on bond powers by registered Holders not executing this Consent and Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 4 below. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to the Company of such person's authority to so act. See Instruction 4 below. IF THE SIGNATURE APPEARING BELOW IS NOT OF THE REGISTERED HOLDER(S) OF THE SENIOR DEBENTURES, THEN THE REGISTERED HOLDER(S) MUST SIGN A CONSENT PROXY WHICH SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. THE CONSENT PROXY SHOULD ACCOMPANY THIS CONSENT AND LETTER OF TRANSMITTAL. X ------------------------------------------------------------------------------ X ------------------------------------------------------------------------------ SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY Date: , 1997 ------- Name(s): ----------------------------------------------------------------------- ------------------------------------------------------------------------------ (PLEASE PRINT) Capacity: ---------------------------------------------------------------------- Address: ----------------------------------------------------------------------- ------------------------------------------------------------------------------ (INCLUDING ZIP CODE) Area Code and Telephone No.: --------------------------------------------------- PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (PRINTED NAME) - -------------------------------------------------------------------------------- (TITLE) Dated: , 1997 ---- 7 64 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5, AND 7) To be completed ONLY if certificates for Senior Debentures in a principal amount not tendered or not accepted for purchase are to be issued in the name of, or checks for the Tender Offer Consideration are to be issued to the order of, someone other than the person or persons whose signature(s) appear(s) within this Consent and Letter of Transmittal or issued to an address different from that shown in the box entitled "Description of Senior Debentures" within this Consent and Letter of Transmittal, or if Senior Debentures tendered by book-entry transfer that are not accepted for purchase are to be credited to an account maintained at one of the Book-Entry Transfer Facilities other than the one designated above. Issue: [ ] Senior Debentures [ ] Checks (check as applicable) Name --------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------ (ZIP CODE) --------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) Credit unpurchased Senior Debentures by book-entry to the Book-Entry Transfer Facility account set forth below: [ ] DTC [ ] PHILADEP --------------------------------------------------------------------------- (DTC/PHILADEP ACCOUNT NUMBER) Name of Account Party: --------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5, AND 7) To be completed ONLY if certificates for Senior Debentures in a principal amount not tendered or not accepted for purchase or checks for the Tender Offer Consideration are to be sent to someone other than the person or persons whose signature(s) appear(s) within this Consent and Letter of Transmittal or to an address different from that shown in the box entitled "Description of Senior Debentures" within this Consent and Letter of Transmittal. Deliver: [ ] Senior Debentures [ ] Checks (check as applicable) Name --------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------ (PLEASE PRINT) --------------------------------------------------------------------------- (ZIP CODE) --------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) 8 65 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER AND THE SOLICITATION 1. DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL AND CERTIFICATES FOR SENIOR DEBENTURES OR BOOK-ENTRY CONFIRMATIONS; GUARANTEED DELIVERY PROCEDURES; WITHDRAWAL OF TENDERS. To tender Senior Debentures in the Offer and to deliver Consents in the Solicitation, physical delivery of certificates for Senior Debentures or a confirmation of any book-entry transfer into the Depositary's account with a Book-Entry Transfer Facility of Senior Debentures tendered electronically, as well as a properly completed and duly executed copy or facsimile of this Consent and Letter of Transmittal (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Senior Debentures tendered, a Consent Proxy executed by such registered Holder), and any other documents required by this Consent and Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date. Tenders of Senior Debentures in the Offer will be accepted prior to the Expiration Date in the manner described in the preceding sentence and otherwise in compliance with this Consent and Letter of Transmittal. The method of delivery of this Consent and Letter of Transmittal, Senior Debentures and all other required documents to the Depositary is at the election and risk of Holders. If such delivery is by mail, it is suggested that Holders use properly insured registered mail, return receipt requested, and that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Depositary prior to such date. Except as otherwise provided below, the delivery will be deemed made when actually received or confirmed by the Depositary. THIS CONSENT AND LETTER OF TRANSMITTAL AND SENIOR DEBENTURES SHOULD BE SENT ONLY TO THE DEPOSITARY, NOT TO THE COMPANY, THE TRUSTEE OR THE DEALER MANAGER. If Holders desire to tender Senior Debentures pursuant to the Offer and deliver Consents pursuant to the Solicitation and (i) certificates representing such Senior Debentures are not lost but are not immediately available, (ii) time will not permit this Consent and Letter of Transmittal, certificates representing Senior Debentures or other required documents to reach the Depositary prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date such Holders may effect a tender of Senior Debentures and delivery of a Consent in accordance with the guaranteed delivery procedures set forth in the Statement under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery." Pursuant to the guaranteed delivery procedures: (a) such tender and delivery must be made by or through an Eligible Institution (which is defined to include a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by the Securities Transfer Association, Inc.); (b) prior to the Expiration Date, the Depositary must have received from such Eligible Institution, at one of the addresses of the Depositary set forth herein, a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery) substantially in the form provided by the Company, setting forth the name(s) and address(es) of the Acting Holder(s), and the principal amount of Senior Debentures being tendered and with respect to which a Consent is being delivered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange ("NYSE") trading days after the date of the Notice of Guaranteed Delivery, a properly completed and duly executed Consent and Letter of Transmittal, or a facsimile thereof, together with certificates representing the Senior Debentures (or confirmation of book-entry transfer of such Senior Debentures into the Depositary's account with a Book-Entry Transfer Facility as described above), and any other documents required by this Consent and Letter of Transmittal (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Senior Debentures tendered, a Consent Proxy executed by such registered Holder) and the instructions hereto, will be deposited by such Eligible Institution with the Depositary; and (c) this Consent and Letter of Transmittal or a facsimile hereof, properly completed and duly executed, certificates for all physically delivered Senior Debentures in proper form for transfer (or confirmation of book-entry transfer of such Senior Debentures into the Depositary's account with a 9 66 Book-Entry Transfer Facility as described above) and all other required documents (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Senior Debentures tendered, or Consent Proxy executed by such registered Holder) must be received by the Depositary within three NYSE trading days after the date of the Notice of Guaranteed Delivery. Tenders of Senior Debentures may be withdrawn by written notice of withdrawal and revocation received by the Depositary delivered by mail, hand delivery or facsimile transmission, which notice must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date. Notice of withdrawal of tendered Senior Debentures, to be effective, must (i) be received by the Depositary at one of its addresses set forth herein, (ii) specify the name of the person who deposited the Senior Debentures to be withdrawn (the "Depositor"), the name in which the Senior Debentures are registered (and, if tendered by book-entry transfer, the name of the participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of such Senior Debentures) if different from that of the Depositor, (iii) state the principal amount of Senior Debentures to be withdrawn and (iv) be signed by the Depositor in the same manner as the original signature on this Consent and Letter of Transmittal (including any required signature guarantee(s)) or be accompanied by evidence satisfactory to the Company and the Depositary that the person withdrawing the tender has succeeded to beneficial ownership of the Senior Debentures. If certificates have been delivered or otherwise identified (through confirmation of book-entry transfer of such Senior Debentures) to the Depositary, the name of the Acting Holder and the certificate numbers relating to such Senior Debentures withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of the certificates for the withdrawn Senior Debentures (or, in the case of Senior Debentures transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with withdrawn Senior Debentures). If a Holder who has tendered Senior Debentures subsequently effects a valid withdrawal of a prior tender of Senior Debentures (without a concurrent valid revocation of a Consent) prior to the Initial Expiration Date, such action will render the Consent with respect to such Senior Debentures defective. 2. CONSENT TO PROPOSED AMENDMENTS; REVOCATION OF CONSENTS. In accordance with the Statement, all properly completed and executed Consents and Letters of Transmittal consenting to the Proposed Amendments that are received by the Depositary prior to the Expiration Date will be counted as Consents with respect to the Proposed Amendments, unless the Depositary receives, prior to the Initial Expiration Date or at such other times as are permitted in the Offer and Solicitation, a written notice of revocation of such Consent as described in the Statement. Notice of revocation of Consent, to be effective, must (i) contain the name of the person who delivered the Consent and the description of the Senior Debentures to which it relates, the certificate number or numbers of such Senior Debentures (unless such Senior Debentures were tendered by book-entry delivery) and the aggregate principal amount represented by such Senior Debentures, (ii) be signed by the Acting Holder thereof in the same manner as the original signature on this Consent and Letter of Transmittal (including the required signature guarantee(s)) or be accompanied by evidence satisfactory to the Company and the Depositary that the Holder revoking the Consent has succeeded to beneficial ownership of the Senior Debentures, (iii) if the Consent and Letter of Transmittal was executed by a person other than the registered Holder of the related Senior Debentures, be accompanied by a valid proxy signed by such registered holder and authorizing the revocation of such Consent and (iv) be received by the Depositary at one of its addresses set forth herein prior to the Initial Expiration Date. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. If a Holder who has tendered Senior Debentures subsequently effects a valid revocation of such Holder's Consent (without a concurrent valid withdrawal of Senior Debentures), such action will render the prior tender of the Senior Debentures with respect to which such Consent relates defective, and the Company will have the right, which it may waive, to reject such tender as invalid and ineffective. 10 67 THE COMPANY INTENDS TO CAUSE THE EXECUTION OF THE SUPPLEMENTAL INDENTURE PROVIDING FOR THE PROPOSED AMENDMENTS TO OCCUR UPON THE INITIAL EXPIRATION DATE IF THE REQUISITE CONSENTS HAVE BEEN OBTAINED AND NOT REVOKED OR, IF THE REQUISITE CONSENTS HAVE NOT THEN BEEN OBTAINED AND NOT REVOKED, PROMPTLY UPON OBTAINING THE REQUISITE CONSENTS. SUCH SUPPLEMENTAL INDENTURE WILL BE BINDING UPON EACH HOLDER OF SENIOR DEBENTURES WHETHER OR NOT SUCH HOLDER GIVES A CONSENT WITH RESPECT THERETO. 3. PARTIAL TENDERS AND CONSENTS. Tenders of Senior Debentures pursuant to the Offer (and the corresponding Consents thereto pursuant to the Solicitation) will be accepted only in and in respect of principal amounts equal to $1,000 or integral multiples thereof. If less than the entire principal amount of any Senior Debentures evidenced by a submitted certificate is tendered, the tendering Holder must fill in the principal amount tendered in the column of the box entitled "Description of Senior Debentures" herein. The entire principal amount represented by the certificates for all Senior Debentures delivered to the Depositary will be deemed to have been tendered, and a related Consent in respect thereof given, unless otherwise indicated. If the entire principal amount of all Senior Debentures is not tendered or not accepted for purchase (and the related Consent in respect thereof not given), Senior Debentures representing such untendered amount (or in respect of which a Consent is not given) will be sent (or, if tendered by book-entry transfer, returned by credit to the account at the Book-Entry Transfer Facility designated herein) to the Acting Holder unless otherwise provided in the appropriate box on this Consent and Letter of Transmittal (see Instruction 5), promptly after the Senior Debentures are accepted for purchase. 4. SIGNATURES ON THIS CONSENT AND LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENT; CONSENT PROXIES; GUARANTEE OF SIGNATURES. If this Consent and Letter of Transmittal is signed by the registered Holder(s) of the Senior Debentures tendered hereby and with respect to which Consent is given, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this Consent and Letter of Transmittal is signed by a participant in one of the Book-Entry Transfer Facilities whose name is shown as the owner of the Senior Debentures tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Senior Debentures. IF THIS CONSENT AND LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A CONSENT PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY AN ELIGIBLE INSTITUTION. If any of the Senior Debentures tendered hereby (and with respect to which Consent is given) are registered in the name of two or more Holders, all such Holders must sign this Consent and Letter of Transmittal. If any tendered Senior Debentures are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Consent and Letter of Transmittal and any necessary accompanying documents (including Consent Proxies) as there are different names in which certificates are held. If this Consent and Letter of Transmittal is signed by the Acting Holder, and the certificates for any principal amount of Senior Debentures not tendered or not accepted for purchase are to be issued (or if any principal amount of Senior Debentures that is not tendered or not accepted for purchase is to be reissued or returned) to or, if tendered by book-entry transfer, credited to the account at the Book-Entry Transfer Facility of the Acting Holder, and checks for payments of the Tender Offer Consideration to be made in connection with the Offer and the Solicitation are to be issued to the order of the Acting Holder, then the Acting Holder need not endorse any certificates for tendered Senior Debentures, nor provide a separate bond power. In any other case (including if this Consent and Letter of Transmittal is not signed by the Acting Holder), the Acting Holder must either properly endorse the certificates for Senior Debentures tendered or transmit a separate properly completed bond power with this Consent and Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on such Senior Debentures, and, with respect to a participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of 11 68 Senior Debentures, exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by an Eligible Institution, unless such certificates or bond powers are executed by an Eligible Institution. If this Consent and Letter of Transmittal, Consent Proxies or any certificates for Senior Debentures or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Company of their authority so to act must be submitted with this Consent and Letter of Transmittal. Endorsements on certificates for Senior Debentures, signatures on bond powers and Consents and Consent Proxies provided in accordance with this Instruction 4 by registered Holders not executing this Consent and Letter of Transmittal must be guaranteed by an Eligible Institution. No signature guarantee is required if (i) this Consent and Letter of Transmittal is signed by the registered Holder(s) of the Senior Debentures tendered herewith (or by a participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Senior Debentures) and the payment of the Tender Offer Consideration is to be made, or any Senior Debentures for principal amounts not tendered or not accepted for purchase are to be issued, directly to such Holder(s) (or, if signed by a participant in one of the Book-Entry Transfer Facilities, any Senior Debentures for principal amounts not tendered or not accepted for purchase are to be credited to such participant's account at such Book-Entry Transfer Facility) and neither the "Special Issuance Instructions" box nor the "Special Delivery Instructions" box of this Consent and Letter of Transmittal has been completed or (ii) such Senior Debentures are tendered for the account of an Eligible Institution. In all other cases, all signatures on Consents and Letters of Transmittal and endorsements on certificates, signatures on bond powers and Consent Proxies (if any) accompanying Senior Debentures must be guaranteed by an Eligible Institution. 5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders should indicate in the applicable box or boxes the name and address to which Senior Debentures for principal amounts not tendered or not accepted for purchase or checks for payment of the Tender Offer Consideration to be made in connection with the Offer and the Solicitation are to be issued or sent, if different from the name and address of the Acting Holder signing this Consent and Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. If no instructions are given, Senior Debentures not tendered or not accepted for purchase will be returned to the Acting Holder of the Senior Debentures tendered. Any Holder tendering by book-entry transfer may request that Senior Debentures not tendered or not accepted for purchase be credited to such account at any of the Book-Entry Transfer Facilities as such Holder may designate under the caption "Special Issuance Instructions." If no such instructions are given, any such Senior Debentures not tendered or not accepted for purchase will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 6. TAXPAYER IDENTIFICATION NUMBER. Each tendering Holder is required to provide the Depositary with the Holder's correct taxpayer identification number ("TIN"), generally the Holder's social security or federal employer identification number, on Substitute Form W-9, which is provided under "Important Tax Information" below, or, alternatively, to establish another basis for exemption from backup withholding. A Holder must cross out item (2) in the Certification box on Substitute Form W-9 if such Holder is subject to backup withholding. Failure to provide the information on the form may subject the tendering Holder to 31% federal income tax backup withholding on the payments made to the Holder or other payee with respect to Senior Debentures purchased pursuant to the Offer. The box in Part 3 of the form should be checked if the tendering Holder has not been issued a TIN and has applied for TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN within sixty days, thereafter the Depositary will withhold 31% on all such payments of the Offer Consideration until a TIN is provided to the Depositary. 12 69 7. TRANSFER TAXES. The Company will pay all transfer taxes applicable to the purchase and transfer of Senior Debentures pursuant to the Offer, except in the case of deliveries of certificates for Senior Debentures for principal amounts not tendered or not accepted for payment that are registered or issued in the name of any person other than the Acting Holder of Senior Debentures tendered thereby. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Consent and Letter of Transmittal. 8. IRREGULARITIES. All questions as to the form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Senior Debentures and deliveries and revocations of Consents will be determined by the Company, in its sole discretion, which determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OR CONSENTS WILL NOT BE CONSIDERED VALID. The Company reserves the absolute right to reject any or all tenders and Consents in respect of Senior Debentures that are not in proper form or the acceptance of which would, in the Company's opinion, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Senior Debentures or of delivery as to particular Consents. The Company's interpretations of the terms and conditions of the Offer and the Solicitation (including the instructions in this Consent and Letter of Transmittal) will be final and binding. Any defect or irregularity in connection with tenders of Senior Debentures or deliveries of Consents must be cured within such time as the Company determines, unless waived by the Company. Tenders of Senior Debentures shall not be deemed to have been made until all defects or irregularities have been waived by the Company or cured. A defective tender may, in the sole discretion of the Company, constitute a valid Consent and will be counted for purposes of determining whether Requisite Consents have been obtained even if the accompanying Senior Debentures are not accepted for purchase by reason of such defects. All tendering Holders, by execution of this Consent and Letter of Transmittal or a facsimile hereof, waive any right to receive notice of the acceptance of their Senior Debentures for purchase or of the effectiveness of the Proposed Amendments. None of the Company, the Depositary, the Dealer Manager, or any other person will be under any duty to give notice of any defects or irregularities in tenders of Senior Debentures or deliveries of Consents, or will incur any liability to Holders for failure to give any such notice. 9. WAIVER OF CONDITIONS. The Company expressly reserves the absolute right, in its sole discretion, to amend or waive any of the conditions to the Offer or the Solicitation in the case of any Senior Debentures tendered or Consents delivered, in whole or in part, at any time and from time to time. 10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR SENIOR DEBENTURES. Any Holder whose certificates for Senior Debentures have been mutilated, lost, stolen or destroyed should write to or telephone the Trustee at the address or telephone number set forth in the Statement under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Lost or Missing Certificates." 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering Senior Debentures and consenting to the Proposed Amendments and requests for assistance or additional copies of the Statement and this Consent and Letter of Transmittal may be directed to the Dealer Manager whose address and telephone number appear below. 13 70 IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose tendered Senior Debentures are accepted for payment is required to provide the Depositary (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Depositary is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service and payments made to such Holder with respect to Senior Debentures purchased pursuant to the Offer may be subject to backup withholding. Certain Holders (including, among other, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Depositary a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to Senior Debentures purchased pursuant to the Offer, the Holder is required to provide the Depositary with (i) the Holder's correct TIN by completing the Substitute Form W-9 below, certifying that the TIN provided on such form is correct (or that such Holder is awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder has not been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (C) the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding; and (ii) if applicable, an adequate basis for exemption. WHAT NUMBER TO GIVE THE DEPOSITARY The Holder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the registered Holder. If the Senior Debentures are held in more than one name or are not held in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 14 71 - ------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK - ------------------------------------------------------------------------------------------------------------------- PART 1 -- PLEASE PROVIDE YOUR TIN IN THE SUBSTITUTE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number OR Employer Identification Number FORM W-9 --------------------------------------------------------------------------------- PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding. --------------------------------------------------------------------------------- PAYER'S REQUEST FOR CERTIFICATION INSTRUCTIONS -- YOU MUST CROSS OUT PART 3 TAXPAYER IDENTIFICATION ITEM (2) IN PART 2 ABOVE IF YOU HAVE BEEN NOTIFIED NUMBER ("TIN") BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR Awaiting TIN [ ] DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS STATING THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2). SIGNATURE _____________________ DATE _____________ , 1997 _____________________________________________________________ NAME (Please Print) - ------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - ---- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I have not provided a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. ------------------------------------------------------------------- ------------------------------, 1997 Signature Date ------------------------------------------------------------------- Name (Please Print)
- -------------------------------------------------------------------------------- 15 72 The Dealer Manager for the Offers and the Solicitations is: BT SECURITIES CORPORATION One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 (212) 775-2822 16 73 CONSENT AND LETTER OF TRANSMITTAL TO TENDER AND TO GIVE CONSENT IN RESPECT OF 12 1/2% SENIOR SUBORDINATED NOTES DUE 2002 OF IPC, INC. PURSUANT TO THE OFFERS TO PURCHASE AND CONSENT SOLICITATIONS STATEMENT DATED AUGUST 27, 1997 THE OFFER AND THE SOLICITATION WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON SEPTEMBER 24, 1997, UNLESS EXTENDED (SUCH DATE, THE "INITIAL EXPIRATION DATE" AND, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE"). TENDERS OF SUBORDINATED NOTES (AS DEFINED HEREIN) MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE AND CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE INITIAL EXPIRATION DATE. The Depositary for the Offer and the Solicitation is: UNITED STATES TRUST COMPANY OF NEW YORK By Facsimile: By Mail: (212) 780-0592 United States Trust Company of New York Attention: Customer Service P.O. Box 843 Cooper Station Confirm by Telephone to: (800) 548-6565 New York, New York 10276 By Hand before 4:30 p.m.: Attention: Corporate Trust Services United States Trust Company of New York By Overnight Courier and By Hand after 4:30 p.m.: 111 Broadway United States Trust Company of New York New York, New York 10006 770 Broadway, 13th Floor Attention: Lower Level Corporate Trust Window New York, New York 10003
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE THE TENDER OFFER CONSIDERATION PURSUANT TO THE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW) THEIR SUBORDINATED NOTES AND DELIVER (AND NOT REVOKE) THEIR CONSENTS TO THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE. This Consent and Letter of Transmittal ("Consent and Letter of Transmittal") is to be used by Holders if: (i) certificates representing the 12 1/2% Senior Subordinated Notes due 2002 (the "Subordinated Notes"), issued pursuant to an Indenture dated as of December 15, 1992 (the "Subordinated Notes Indenture") are to be physically delivered to the Depositary herewith by such Holders; (ii) tender of Subordinated Notes is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PHILADEP") (each, a "Book-Entry Transfer Facility" and, collectively, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in the Statement referred to above under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Book-Entry Transfer" by any financial institution that is a participant in a Book-Entry Transfer Facility and whose name appears on a security position listing as the owner of Subordinated Notes (such participants, acting on behalf of Holders, are referred to herein, together with such Holders, as "Acting Holders"); (iii) tender of Subordinated Notes is to be made according to the guaranteed delivery procedures set forth in the Statement under the caption "The Offer and the Solicitation--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery;" or (iv) a Holder wishes to deliver a Consent herewith. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. HOLDERS WHO TENDER SUBORDINATED NOTES WILL BE CONSENTING TO THE PROPOSED AMENDMENTS PURSUANT TO THIS CONSENT AND LETTER OF TRANSMITTAL. THE COMPLETION, EXECUTION AND DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL WILL 1 74 CONSTITUTE A CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF SUBORDINATED NOTES MAY NOT VALIDLY TENDER SUCH SUBORDINATED NOTES WITHOUT DELIVERING A VALID CONSENT. The undersigned has completed, executed and delivered this Consent and Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Offer and the Solicitation. All capitalized terms used herein and not defined herein shall have the meaning ascribed to them in the Statement referred to above. Your bank or broker can assist you in completing this form. The instructions included with this Consent and Letter of Transmittal must be followed. Questions and requests for assistance or for additional copies of the Statement, this Consent and Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to the Dealer Manager, whose address and telephone number appear on the back cover of this Consent and Letter of Transmittal. See Instruction 11 below. - -------------------------------------------------------------------------------- [ ] CHECK HERE IF TENDERED SUBORDINATED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution ___________________________________ Name of Book-Entry Transfer Facility (check one): [ ] DTC [ ] PHILADEP Account Number______________ Transaction Code Number _____________ If Holders desire to tender Subordinated Notes pursuant to the Offer and (i) certificates representing such Subordinated Notes are not lost but are not immediately available, (ii) time will not permit this Consent and Letter of Transmittal, certificates representing such Subordinated Notes or other required documents to reach the Depositary prior to the Expiration Date, or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date, such Holders may effect a tender of such Subordinated Notes in accordance with the guaranteed delivery procedures set forth in the Statement under the caption "The Offer and the Solicitation--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery." See Instruction 1 below. [ ] CHECK HERE IF TENDERED SUBORDINATED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s): ____________________________________ Window Ticket No. (if any): ______________________________________ Date of Execution of Notice of Guaranteed Delivery: ______________ Name of Eligible Institution that Guaranteed Delivery: ___________ If Delivered by Book-Entry Transfer: _____________________________ Name of Book-Entry Transfer Facility (check one): [ ] DTC [ ] PHILADEP Account Number _______________ Transaction Code Number __________ 2 75 List below the Subordinated Notes to which this Consent and Letter of Transmittal relates. If the space provided below is inadequate, list the certificate numbers and principal amounts on a separately executed schedule and affix the schedule to this Consent and Letter of Transmittal. Tenders of Subordinated Notes will be accepted only in principal amounts equal to $1,000 or integral multiples thereof.
DESCRIPTION OF SUBORDINATED NOTES - ------------------------------------------------------------------------------------------------------------------------------ AGGREGATE PRINCIPAL AMOUNT PRINCIPAL TENDERED AND AS TO NAME(S) AND ADDRESS(ES) OF HOLDER(S) CERTIFICATE AMOUNT WHICH CONSENTS (PLEASE FILL IN, IF BLANK) NUMBERS* REPRESENTED** ARE GIVEN - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------ TOTAL PRINCIPAL AMOUNT OF SUBORDINATED NOTES - ------------------------------------------------------------------------------------------------------------------------------ * Need not be completed by Holders tendering by book-entry transfer (see below). ** UNLESS OTHERWISE INDICATED IN THE COLUMN LABELED "PRINCIPAL AMOUNT TENDERED AND AS TO WHICH CONSENTS ARE GIVEN" AND SUBJECT TO THE TERMS AND CONDITIONS OF THE STATEMENT, A HOLDER WILL BE DEEMED TO HAVE TENDERED AND CONSENTED WITH RESPECT TO THE ENTIRE AGGREGATE PRINCIPAL AMOUNT REPRESENTED BY THE SUBORDINATED NOTES INDICATED IN THE COLUMN LABELED "AGGREGATE PRINCIPAL AMOUNT REPRESENTED." SEE INSTRUCTION 3. ANY ENTRY IN THIS COLUMN WILL BE DEEMED TO BE A CONSENT WITH RESPECT TO THE AGGREGATE PRINCIPAL AMOUNT ENTERED.
If you do not wish to tender your Subordinated Notes and you wish to disapprove or abstain with respect to the matter described in the Statement for which Consents are sought, you do not need to return this Consent and Letter of Transmittal or take any other action. However, at your option, you may return this Consent and Letter of Transmittal and disapprove or abstain with respect to said matter by checking the appropriate box below. DO NOT CHECK EITHER OF THE FOLLOWING BOXES IF YOU ARE TENDERING SUBORDINATED NOTES HEREWITH OR DELIVERING CONSENTS WITH RESPECT TO SUBORDINATED NOTES HEREWITH. CHECKING EITHER BOX COULD RENDER YOUR TENDER OR CONSENT INVALID. [ ] [ ] Disapprove Abstain NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 3 76 LADIES AND GENTLEMEN: By execution hereof, the undersigned acknowledges receipt of the Offers to Purchase and Consent Solicitations Statement, dated August 27, 1997 (as the same may be amended from time to time (the "Statement"), of IPC, Inc., a Delaware corporation ("IPC"), and this Consent and Letter of Transmittal and instructions hereto, which together constitute (i) IPC's offer to purchase for cash (the "Offer") all of its 12 1/2% Senior Subordinated Notes Due 2002 (the "Subordinated Notes"), upon the terms and subject to the conditions set forth in the Statement, and (ii) IPC's solicitation (the "Solicitation") of consents (the "Consents") from registered holders of Subordinated Notes ("Holders") to certain proposed amendments (the "Proposed Amendments"), as described in the Statement, to the indenture dated as of December 15, 1992 between IPC and United States Trust Company of New York, as trustee (the "Trustee"), pursuant to which the Subordinated Notes were issued (the "Subordinated Note Indenture"). Upon the terms and subject to the conditions of the Offer, the undersigned hereby tenders to IPC the principal amount of Subordinated Notes indicated above and Consents to the Proposed Amendments (hereby revoking any previously submitted disapproval or abstention). Subject to, and effective upon, the acceptance for purchase of, and payment for, the principal amount of Subordinated Notes tendered with this Consent and Letter of Transmittal, the undersigned hereby sells, assigns and transfers to, or upon the order of, IPC, all right, title and interest in and to the Subordinated Notes that are being tendered hereby. The undersigned also consents to the Proposed Amendments effective as of the date hereof. The undersigned hereby irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Depositary also acts as the agent of IPC) with respect to such Subordinated Notes with full power of substitution (such power-of-attorney being deemed to be an irrevocable power coupled with an interest) to (i) present such Subordinated Notes and all evidences of transfer and authenticity to, or transfer ownership of, such Subordinated Notes on the account books maintained by any of the Book-Entry Transfer Facilities to, or upon the order of, IPC, (ii) present such Subordinated Notes for transfer of ownership on the books of IPC, (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Subordinated Notes and (iv) deliver to IPC and the Trustee this Consent and Letter of Transmittal as evidence of the undersigned's Consent to the Proposed Amendments and as certification that Requisite Consents to the Proposed Amendments duly executed by Holders have been received, all in accordance with the terms of and conditions to the Offer and the Solicitation as described in the Statement. The undersigned agrees and acknowledges that, by the execution and delivery hereof, the undersigned makes and provides the written Consent, with respect to the Subordinated Notes tendered hereby or represented hereby, to the Proposed Amendments as permitted by Article IX, Section 902 of the Subordinated Note Indenture. The undersigned understands that the Consent provided hereby shall remain in full force and effect until such Consent is revoked in accordance with the procedure set forth in the Statement and this Consent and Letter of Transmittal. The undersigned understands that a revocation of such Consent will not be effective following the time and date on which a supplemental indenture providing for the Proposed Amendments is executed. IPC intends to cause the execution of the supplemental indenture to occur upon the Initial Expiration Date if the Requisite Consents have been obtained or, if the Requisite Consents have not been obtained, promptly upon obtaining the Requisite Consents. The undersigned understands that tenders of Subordinated Notes may be withdrawn by written notice of withdrawal received by the Depositary at any time prior to the Expiration Date, and, thereafter, if the offer is terminated without any Subordinated Notes being purchased thereunder. If a Holder who has tendered Subordinated Notes subsequently effects a valid withdrawal of a prior tender of Subordinated Notes (without a concurrent valid revocation of a Consent) prior to the Initial Expiration Date, such action will render the Consent with respect to such Subordinated Notes defective. The undersigned understands that Consents may be revoked by written notice of revocation received by the Depositary at any time prior to the Initial Expiration Date. If a Holder who has tendered Subordinated Notes subsequently effects a valid revocation of such Holder's Consent (without a concurrent valid withdrawal of Subordinated Notes), such action will render the prior tender of Subordinated Notes with respect to which such Consent relates defective, and IPC 4 77 will have the right, which it may waive, to reject such tender of Subordinated Notes as invalid and ineffective. In the event of a termination of the Offer, the Subordinated Notes tendered pursuant to the Offer will be returned to the tendering Holder promptly. If the Company or IPC makes a material change in the terms of the Offers or the Solicitations or the information concerning the Offers or the Solicitations, the Company or IPC, as the case may be, will disseminate additional Offer and Solicitation materials and extend such Offers or, if applicable, the Solicitations, to the extent required by law. The undersigned understands that notice of revocation of Consent, to be effective, must: (i) contain the name of the person who delivered the Consent and the description of the Subordinated Notes to which it relates, the certificate number or numbers of such Subordinated Notes (unless such Subordinated Notes were tendered by book-entry delivery) and the aggregate principal amount represented by such Subordinated Notes, (ii) be signed by the Acting Holder thereof in the same manner as the original signature on this Consent and Letter of Transmittal (including the required signature guarantee(s)) or be accompanied by evidence, satisfactory to IPC and the Depositary, that the holder of Subordinated Notes revoking the Consent has succeeded to ownership of the Subordinated Notes, (iii) if this Consent and Letter of Transmittal was executed by a person other than the registered Holder of the related Subordinated Notes, be accompanied by a valid proxy signed by such registered Holder and authorizing the revocation of such Consent and (iv) be received by the Depositary at one of the addresses set forth in the Statement prior to the Initial Expiration Date. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. The undersigned understands that tenders of Subordinated Notes pursuant to any of the procedures described in the Statement and in the instructions hereto and acceptance thereof by IPC will constitute a binding agreement between the undersigned and IPC upon the terms and subject to the conditions of the Offer and the Solicitation. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Subordinated Notes tendered hereby and to give the Consent contained herein, and that when such Subordinated Notes are accepted for purchase and payment by IPC, IPC will acquire good title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim or right. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or by IPC to be necessary or desirable to complete the sale, assignment and transfer of the Subordinated Notes tendered hereby, to perfect the undersigned's Consent to the Proposed Amendments and to complete the execution of a supplemental indenture to the Subordinated Note Indenture reflecting such Proposed Amendments. For purposes of the Offer, the undersigned understands that IPC will be deemed to have accepted for purchase validly tendered Subordinated Notes (or defectively tendered Subordinated Notes with respect to which IPC has waived such defect), if, as and when IPC gives oral (confirmed the following day in writing) or written notice thereof to the Depositary. The undersigned understands that, under certain circumstances and subject to certain conditions of the Offer (each of which IPC may waive) set forth in the Statement, IPC may not be required to accept for purchase any of the Subordinated Notes tendered (including any Subordinated Notes tendered after the Expiration Date). Any Subordinated Notes not accepted for purchase will be returned promptly to the undersigned at the address set forth above, unless otherwise indicated herein under "Special Delivery Instructions" below. All authority conferred or agreed to be conferred by this Consent and Letter of Transmittal shall survive the death or incapacity of the undersigned and every obligation of the undersigned under this Consent and Letter of Transmittal shall be binding upon the undersigned's heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives. The undersigned understands that the delivery and surrender of the Subordinated Notes is not effective, and the risk of loss of the Subordinated Notes does not pass to the Depositary, until receipt by the Depositary of this Consent and Letter of Transmittal, or a facsimile hereof, properly completed and duly executed, 5 78 together with all accompanying evidences of authority and any other required documents in form satisfactory to IPC. All questions as to form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Subordinated Notes and deliveries and revocations of Consents will be determined by IPC, in its sole discretion, which determination shall be final and binding. Unless otherwise indicated herein under "Special Issuance Instructions," the undersigned hereby requests that any Subordinated Notes representing principal amounts not tendered or not accepted for purchase be issued in the name(s) of the undersigned (and in the case of Subordinated Notes tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility designated above), and checks for payments of the Tender Offer Consideration and Consent Payment to be made in connection with the Offer and the Solicitation be issued to the order of the undersigned. Similarly, unless otherwise indicated herein under "Special Delivery Instructions," the undersigned hereby requests that any Subordinated Notes representing principal amounts not tendered or not accepted for purchase and checks for payments of the Tender Offer Consideration and Consent Payment to be made in connection with the Offer and the Solicitation be delivered to the undersigned at the address(es) shown above. In the event that the "Special Issuance Instructions" box or the "Special Delivery Instructions" box is, or both are, completed, the undersigned hereby requests that any Subordinated Notes representing principal amounts not tendered or not accepted for purchase be issued in the name(s) of, certificates for such Subordinated Notes be delivered to, and checks for payments of the Tender Offer Consideration and Consent Payment be issued in the name(s) of, and be delivered to, the person(s) at the address(es) so indicated, as applicable. The undersigned recognizes that IPC has no obligation pursuant to the "Special Issuance Instructions" box or "Special Delivery Instructions" box to transfer any Subordinated Notes from the name of the registered Holder(s) thereof if IPC does not accept for purchase any of the principal amount of such Subordinated Notes so tendered. 6 79 PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING AND CONSENTING HOLDERS OF SUBORDINATED NOTES REGARDLESS OF WHETHER SUBORDINATED NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH) The completion, execution and delivery of this Consent and Letter of Transmittal will be deemed to constitute a Consent to the Proposed Amendments. This Consent and Letter of Transmittal must be signed by the registered Holder(s) of Subordinated Notes exactly as their name(s) appear(s) on certificate(s) for Subordinated Notes or, if tendered by a participant in one of the Book-Entry Transfer Facilities, exactly as such participant's name appears on a security position listing as the owner of Subordinated Notes or by person(s) authorized to become registered Holder(s) by endorsements on certificates for Subordinated Notes or by bond powers transmitted with this Consent and Letter of Transmittal. Endorsements on Subordinated Notes and signatures on bond powers by registered Holders not executing this Consent and Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 4 below. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must set forth his or her full title below under "Capacity" and submit evidence satisfactory to IPC of such person's authority to so act. See Instruction 4 below. IF THE SIGNATURE APPEARING BELOW IS NOT OF THE REGISTERED HOLDER(S) OF THE SUBORDINATED NOTES, THEN THE REGISTERED HOLDER(S) MUST SIGN A CONSENT PROXY WHICH SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. THE CONSENT PROXY SHOULD ACCOMPANY THIS CONSENT AND LETTER OF TRANSMITTAL. X ------------------------------------------------------------------------ X ------------------------------------------------------------------------ SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY Date:________, 1997 Name(s): ------------------------------------------------------------------------ ------------------------------------------------------------------------ (PLEASE PRINT) Capacity: ------------------------------------------------------------------------ Address: ------------------------------------------------------------------------ (INCLUDING ZIP CODE) Area Code and Telephone No.: PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW) CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION - -------------------------------------------------------------------------------- (NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES) - -------------------------------------------------------------------------------- (ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM) - -------------------------------------------------------------------------------- (AUTHORIZED SIGNATURE) - -------------------------------------------------------------------------------- (PRINTED NAME) - -------------------------------------------------------------------------------- (TITLE) Dated: , 1997 7 80 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5, AND 7) To be completed ONLY if certificates for Subordinated Notes in a principal amount not tendered or not accepted for purchase are to be issued in the name of, or checks for the Tender Offer Consideration are to be issued to the order of, someone other than the person or persons whose signature(s) appear(s) within this Consent and Letter of Transmittal or issued to an address different from that shown in the box entitled "Description of Subordinated Notes" within this Consent and Letter of Transmittal, or if Subordinated Notes tendered by book-entry transfer that are not accepted for purchase are to be credited to an account maintained at one of the Book-Entry Transfer Facilities other than the one designated above. Issue: [ ] Subordinated Notes [ ] Checks (check as applicable) Name --------------------------------------------------------------------------- (PLEASE PRINT) Address ------------------------------------------------------------------------ ------------------------------------------------------------------------ (ZIP CODE) --------------------------------------------------------------------------- (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) Credit unpurchased Subordinated Notes by book-entry to the Book-Entry Transfer Facility account set forth below: [ ] DTC [ ] PHILADEP --------------------------------------------------------------------------- (DTC/PHILADEP ACCOUNT NUMBER) Name of Account Party: --------------------------------------------------------------------------- SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3, 4, 5, AND 7) To be completed ONLY if certificates for Subordinated Notes in a principal amount not tendered or not accepted for purchase or checks for the Tender Offer Consideration are to be sent to someone other than the person or persons whose signature(s) appear(s) within this Consent and Letter of Transmittal or to an address different from that shown in the box entitled "Description of Subordinated Notes" within this Consent and Letter of Transmittal. Deliver: [ ] Subordinated Notes [ ] Checks (check as applicable) Name --------------------------------------------------------------------------- (PLEASE PRINT) Address --------------------------------------------------------------------------- (PLEASE PRINT) --------------------------------------------------------------------------- (ZIP CODE) (TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER) (SEE SUBSTITUTE FORM W-9 HEREIN) 8 81 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER AND THE SOLICITATION 1. DELIVERY OF THIS CONSENT AND LETTER OF TRANSMITTAL AND CERTIFICATES FOR SUBORDINATED NOTES OR BOOK-ENTRY CONFIRMATIONS; GUARANTEED DELIVERY PROCEDURES; WITHDRAWAL OF TENDERS. To tender Subordinated Notes in the Offer and to deliver Consents in the Solicitation, physical delivery of certificates for Subordinated Notes or a confirmation of any book-entry transfer into the Depositary's account with a Book-Entry Transfer Facility of Subordinated Notes tendered electronically, as well as a properly completed and duly executed copy or facsimile of this Consent and Letter of Transmittal (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Subordinated Notes tendered, a Consent Proxy executed by such registered Holder), and any other documents required by this Consent and Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date. Tenders of Subordinated Notes in the Offer will be accepted prior to the Expiration Date in the manner described in the preceding sentence and otherwise in compliance with this Consent and Letter of Transmittal. The method of delivery of this Consent and Letter of Transmittal, Subordinated Notes and all other required documents to the Depositary is at the election and risk of Holders. If such delivery is by mail, it is suggested that Holders use properly insured registered mail, return receipt requested, and that the mailing be made sufficiently in advance of the Expiration Date to permit delivery to the Depositary prior to such date. Except as otherwise provided below, the delivery will be deemed made when actually received or confirmed by the Depositary. THIS CONSENT AND LETTER OF TRANSMITTAL AND SUBORDINATED NOTES SHOULD BE SENT ONLY TO THE DEPOSITARY, NOT TO IPC, THE TRUSTEE OR THE DEALER MANAGER. If Holders desire to tender Subordinated Notes pursuant to the Offer and deliver Consents pursuant to the Solicitation and (i) certificates representing such Subordinated Notes are not lost but are not immediately available, (ii) time will not permit this Consent and Letter of Transmittal, certificates representing Subordinated Notes or other required documents to reach the Depositary prior to the Expiration Date or (iii) the procedures for book-entry transfer cannot be completed prior to the Expiration Date such Holders may effect a tender of Subordinated Notes and delivery of a Consent in accordance with the guaranteed delivery procedures set forth in the Statement under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Guaranteed Delivery." Pursuant to the guaranteed delivery procedures: (a) such tender and delivery must be made by or through an Eligible Institution (which is defined to include a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by the Securities Transfer Association, Inc.); (b) prior to the Expiration Date, the Depositary must have received from such Eligible Institution, at one of the addresses of the Depositary set forth herein, a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, facsimile transmission, mail or hand delivery) substantially in the form provided by IPC, setting forth the name(s) and address(es) of the Acting Holder(s), and the principal amount of Subordinated Notes being tendered and with respect to which a Consent is being delivered and stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange ("NYSE") trading days after the date of the Notice of Guaranteed Delivery, a properly completed and duly executed Consent and Letter of Transmittal, or a facsimile thereof, together with certificates representing the Subordinated Notes (or confirmation of book-entry transfer of such Subordinated Notes into the Depositary's account with a Book-Entry Transfer Facility as described above), and any other documents required by this Consent and Letter of Transmittal (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Subordinated Notes tendered, a Consent Proxy executed by such registered Holder) and the instructions hereto, will be deposited by such Eligible Institution with the Depositary; and (c) this Consent and Letter of Transmittal or a facsimile hereof, properly completed and duly executed, certificates for all physically delivered Subordinated Notes in proper form for transfer (or confirmation of book-entry transfer of such Subordinated Notes into the Depositary's account with a 9 82 Book-Entry Transfer Facility as described above) and all other required documents (including, if the person executing this Consent and Letter of Transmittal is not the registered Holder of the Subordinated Notes tendered, or Consent Proxy executed by such registered Holder) must be received by the Depositary within three NYSE trading days after the date of the Notice of Guaranteed Delivery. Tenders of Subordinated Notes may be withdrawn by written notice of withdrawal and revocation received by the Depositary delivered by mail, hand delivery or facsimile transmission, which notice must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date. Notice of withdrawal of tendered Subordinated Notes, to be effective, must (i) be received by the Depositary at one of its addresses set forth herein, (ii) specify the name of the person who deposited the Subordinated Notes to be withdrawn (the "Depositor"), the name in which the Subordinated Notes are registered (and, if tendered by book-entry transfer, the name of the participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of such Subordinated Notes) if different from that of the Depositor, (iii) state the principal amount of Subordinated Notes to be withdrawn and (iv) be signed by the Depositor in the same manner as the original signature on this Consent and Letter of Transmittal (including any required signature guarantee(s)) or be accompanied by evidence satisfactory to IPC and the Depositary that the person withdrawing the tender has succeeded to beneficial ownership of the Subordinated Notes. If certificates have been delivered or otherwise identified (through confirmation of book-entry transfer of such Subordinated Notes) to the Depositary, the name of the Acting Holder and the certificate numbers relating to such Subordinated Notes withdrawn must also be furnished to the Depositary as aforesaid prior to the physical release of the certificates for the withdrawn Subordinated Notes (or, in the case of Subordinated Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with withdrawn Subordinated Notes). If a Holder who has tendered Subordinated Notes subsequently effects a valid withdrawal of a prior tender of Subordinated Notes (without a concurrent valid revocation of a Consent) prior to the Initial Expiration Date, such action will render the Consent with respect to such Subordinated Notes defective. 2. CONSENT TO PROPOSED AMENDMENTS; REVOCATION OF CONSENTS. In accordance with the Statement, all properly completed and executed Consents and Letters of Transmittal consenting to the Proposed Amendments that are received by the Depositary prior to the Expiration Date will be counted as Consents with respect to the Proposed Amendments, unless the Depositary receives, prior to the Initial Expiration Date or at such other times as are permitted in the Offer and Solicitation, a written notice of revocation of such Consent as described in the Statement. Notice of revocation of Consent, to be effective, must (i) contain the name of the person who delivered the Consent and the description of the Subordinated Notes to which it relates, the certificate number or numbers of such Subordinated Notes (unless such Subordinated Notes were tendered by book-entry delivery) and the aggregate principal amount represented by such Subordinated Notes, (ii) be signed by the Acting Holder thereof in the same manner as the original signature on this Consent and Letter of Transmittal (including the required signature guarantee(s)) or be accompanied by evidence satisfactory to IPC and the Depositary that the Holder revoking the Consent has succeeded to beneficial ownership of the Subordinated Notes, (iii) if the Consent and Letter of Transmittal was executed by a person other than the registered Holder of the related Subordinated Notes, be accompanied by a valid proxy signed by such registered holder and authorizing the revocation of such Consent and (iv) be received by the Depositary at one of its addresses set forth herein prior to the Initial Expiration Date. A purported notice of revocation that lacks any of the required information or is dispatched to any other address will not be effective to revoke a Consent previously given. If a Holder who has tendered Subordinated Notes subsequently effects a valid revocation of such Holder's Consent (without a concurrent valid withdrawal of Subordinated Notes), such action will render the prior tender of the Subordinated Notes with respect to which such Consent relates defective, and IPC will have the right, which it may waive, to reject such tender as invalid and ineffective. 10 83 IPC INTENDS TO CAUSE THE EXECUTION OF THE SUPPLEMENTAL INDENTURE PROVIDING FOR THE PROPOSED AMENDMENTS TO OCCUR UPON THE INITIAL EXPIRATION DATE IF THE REQUISITE CONSENTS HAVE BEEN OBTAINED AND NOT REVOKED OR, IF THE REQUISITE CONSENTS HAVE NOT THEN BEEN OBTAINED AND NOT REVOKED, PROMPTLY UPON OBTAINING THE REQUISITE CONSENTS. SUCH SUPPLEMENTAL INDENTURE WILL BE BINDING UPON EACH HOLDER OF SUBORDINATED NOTES WHETHER OR NOT SUCH HOLDER GIVES A CONSENT WITH RESPECT THERETO. 3. PARTIAL TENDERS AND CONSENTS. Tenders of Subordinated Notes pursuant to the Offer (and the corresponding Consents thereto pursuant to the Solicitation) will be accepted only in and in respect of principal amounts equal to $1,000 or integral multiples thereof. If less than the entire principal amount of any Subordinated Notes evidenced by a submitted certificate is tendered, the tendering Holder must fill in the principal amount tendered in the column of the box entitled "Description of Subordinated Notes" herein. The entire principal amount represented by the certificates for all Subordinated Notes delivered to the Depositary will be deemed to have been tendered, and a related Consent in respect thereof given, unless otherwise indicated. If the entire principal amount of all Subordinated Notes is not tendered or not accepted for purchase (and the related Consent in respect thereof not given), Subordinated Notes representing such untendered amount (or in respect of which a Consent is not given) will be sent (or, if tendered by book-entry transfer, returned by credit to the account at the Book-Entry Transfer Facility designated herein) to the Acting Holder unless otherwise provided in the appropriate box on this Consent and Letter of Transmittal (see Instruction 5), promptly after the Subordinated Notes are accepted for purchase. 4. SIGNATURES ON THIS CONSENT AND LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENT; CONSENT PROXIES; GUARANTEE OF SIGNATURES. If this Consent and Letter of Transmittal is signed by the registered Holder(s) of the Subordinated Notes tendered hereby and with respect to which Consent is given, the signature(s) must correspond with the name(s) as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If this Consent and Letter of Transmittal is signed by a participant in one of the Book-Entry Transfer Facilities whose name is shown as the owner of the Subordinated Notes tendered hereby, the signature must correspond with the name shown on the security position listing as the owner of the Subordinated Notes. IF THIS CONSENT AND LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT THE REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A CONSENT PROXY, WITH THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY AN ELIGIBLE INSTITUTION. If any of the Subordinated Notes tendered hereby (and with respect to which Consent is given) are registered in the name of two or more Holders, all such Holders must sign this Consent and Letter of Transmittal. If any tendered Subordinated Notes are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate copies of this Consent and Letter of Transmittal and any necessary accompanying documents (including Consent Proxies) as there are different names in which certificates are held. If this Consent and Letter of Transmittal is signed by the Acting Holder, and the certificates for any principal amount of Subordinated Notes not tendered or not accepted for purchase are to be issued (or if any principal amount of Subordinated Notes that is not tendered or not accepted for purchase is to be reissued or returned) to or, if tendered by book-entry transfer, credited to the account at the Book-Entry Transfer Facility of the Acting Holder, and checks for payments of the Tender Offer Consideration to be made in connection with the Offer and the Solicitation are to be issued to the order of the Acting Holder, then the Acting Holder need not endorse any certificates for tendered Subordinated Notes, nor provide a separate bond power. In any other case (including if this Consent and Letter of Transmittal is not signed by the Acting Holder), the Acting Holder must either properly endorse the certificates for Subordinated Notes tendered or transmit a separate properly completed bond power with this Consent and Letter of Transmittal (in either case, executed exactly as the name(s) of the registered Holder(s) appear(s) on such Subordinated Notes, and, with respect to a participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of 11 84 Subordinated Notes, exactly as the name(s) of the participant(s) appear(s) on such security position listing), with the signature on the endorsement or bond power guaranteed by an Eligible Institution, unless such certificates or bond powers are executed by an Eligible Institution. If this Consent and Letter of Transmittal, Consent Proxies or any certificates for Subordinated Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to IPC of their authority so to act must be submitted with this Consent and Letter of Transmittal. Endorsements on certificates for Subordinated Notes, signatures on bond powers and Consents and Consent Proxies provided in accordance with this Instruction 4 by registered Holders not executing this Consent and Letter of Transmittal must be guaranteed by an Eligible Institution. No signature guarantee is required if (i) this Consent and Letter of Transmittal is signed by the registered Holder(s) of the Subordinated Notes tendered herewith (or by a participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Subordinated Notes) and the payment of the Tender Offer Consideration is to be made, or any Subordinated Notes for principal amounts not tendered or not accepted for purchase are to be issued, directly to such Holder(s) (or, if signed by a participant in one of the Book-Entry Transfer Facilities, any Subordinated Notes for principal amounts not tendered or not accepted for purchase are to be credited to such participant's account at such Book-Entry Transfer Facility) and neither the "Special Issuance Instructions" box nor the "Special Delivery Instructions" box of this Consent and Letter of Transmittal has been completed or (ii) such Subordinated Notes are tendered for the account of an Eligible Institution. In all other cases, all signatures on Consents and Letters of Transmittal and endorsements on certificates, signatures on bond powers and Consent Proxies (if any) accompanying Subordinated Notes must be guaranteed by an Eligible Institution. 5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders should indicate in the applicable box or boxes the name and address to which Subordinated Notes for principal amounts not tendered or not accepted for purchase or checks for payment of the Tender Offer Consideration to be made in connection with the Offer and the Solicitation are to be issued or sent, if different from the name and address of the Acting Holder signing this Consent and Letter of Transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. If no instructions are given, Subordinated Notes not tendered or not accepted for purchase will be returned to the Acting Holder of the Subordinated Notes tendered. Any Holder tendering by book-entry transfer may request that Subordinated Notes not tendered or not accepted for purchase be credited to such account at any of the Book-Entry Transfer Facilities as such Holder may designate under the caption "Special Issuance Instructions." If no such instructions are given, any such Subordinated Notes not tendered or not accepted for purchase will be returned by crediting the account at the Book-Entry Transfer Facility designated above. 6. TAXPAYER IDENTIFICATION NUMBER. Each tendering Holder is required to provide the Depositary with the Holder's correct taxpayer identification number ("TIN"), generally the Holder's social security or federal employer identification number, on Substitute Form W-9, which is provided under "Important Tax Information" below, or, alternatively, to establish another basis for exemption from backup withholding. A Holder must cross out item (2) in the Certification box on Substitute Form W-9 if such Holder is subject to backup withholding. Failure to provide the information on the form may subject the tendering Holder to 31% federal income tax backup withholding on the payments made to the Holder or other payee with respect to Subordinated Notes purchased pursuant to the Offer. The box in Part 3 of the form should be checked if the tendering Holder has not been issued a TIN and has applied for TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN within sixty days, thereafter the Depositary will withhold 31% on all such payments of the Offer Consideration until a TIN is provided to the Depositary. 12 85 7. TRANSFER TAXES. IPC will pay all transfer taxes applicable to the purchase and transfer of Subordinated Notes pursuant to the Offer, except in the case of deliveries of certificates for Subordinated Notes for principal amounts not tendered or not accepted for payment that are registered or issued in the name of any person other than the Acting Holder of Subordinated Notes tendered thereby. Except as provided in this Instruction 7, it will not be necessary for transfer tax stamps to be affixed to the certificates listed in this Consent and Letter of Transmittal. 8. IRREGULARITIES. All questions as to the form of all documents and the validity (including time of receipt) and acceptance of tenders and withdrawals of Subordinated Notes and deliveries and revocations of Consents will be determined by IPC, in its sole discretion, which determination shall be final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OR CONSENTS WILL NOT BE CONSIDERED VALID. IPC reserves the absolute right to reject any or all tenders and Consents in respect of Subordinated Notes that are not in proper form or the acceptance of which would, in IPC's opinion, be unlawful. IPC also reserves the right to waive any defects, irregularities or conditions of tender as to particular Subordinated Notes or of delivery as to particular Consents. IPC's interpretations of the terms and conditions of the Offer and the Solicitation (including the instructions in this Consent and Letter of Transmittal) will be final and binding. Any defect or irregularity in connection with tenders of Subordinated Notes or deliveries of Consents must be cured within such time as IPC determines, unless waived by IPC. Tenders of Subordinated Notes shall not be deemed to have been made until all defects or irregularities have been waived by IPC or cured. A defective tender may, in the sole discretion of IPC, constitute a valid Consent and will be counted for purposes of determining whether Requisite Consents have been obtained even if the accompanying Subordinated Notes are not accepted for purchase by reason of such defects. All tendering Holders, by execution of this Consent and Letter of Transmittal or a facsimile hereof, waive any right to receive notice of the acceptance of their Subordinated Notes for purchase or of the effectiveness of the Proposed Amendments. None of IPC, the Depositary, the Dealer Manager, or any other person will be under any duty to give notice of any defects or irregularities in tenders of Subordinated Notes or deliveries of Consents, or will incur any liability to Holders for failure to give any such notice. 9. WAIVER OF CONDITIONS. IPC expressly reserves the absolute right, in its sole discretion, to amend or waive any of the conditions to the Offer or the Solicitation in the case of any Subordinated Notes tendered or Consents delivered, in whole or in part, at any time and from time to time. 10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR SUBORDINATED NOTES. Any Holder whose certificates for Subordinated Notes have been mutilated, lost, stolen or destroyed should write to or telephone the Trustee at the address or telephone number set forth in the Statement under the caption "The Offers and the Solicitations--Procedures for Tendering Notes and Delivering Consents--Lost or Missing Certificates." 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering Subordinated Notes and consenting to the Proposed Amendments and requests for assistance or additional copies of the Statement and this Consent and Letter of Transmittal may be directed to the Dealer Manager whose address and telephone number appear below. 13 86 IMPORTANT TAX INFORMATION Under federal income tax laws, a Holder whose tendered Subordinated Notes are accepted for payment is required to provide the Depositary (as payer) with such Holder's correct TIN on Substitute Form W-9 below or otherwise establish a basis for exemption from backup withholding. If such Holder is an individual, the TIN is his social security number. If the Depositary is not provided with the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service and payments made to such Holder with respect to Subordinated Notes purchased pursuant to the Offer may be subject to backup withholding. Certain Holders (including, among other, all corporations and certain foreign persons) are not subject to these backup withholding and reporting requirements. Exempt Holders should indicate their exempt status on Substitute Form W-9. A foreign person may qualify as an exempt recipient by submitting to the Depositary a properly completed Internal Revenue Service Form W-8, signed under penalties of perjury, attesting to that Holder's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the Holder or other payee. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments made with respect to Subordinated Notes purchased pursuant to the Offer, the Holder is required to provide the Depositary with (i) the Holder's correct TIN by completing the Substitute Form W-9 below, certifying that the TIN provided on such form is correct (or that such Holder is awaiting a TIN) and that (A) such Holder is exempt from backup withholding, (B) the Holder has not been notified by the Internal Revenue Service that the Holder is subject to backup withholding as a result of failure to report all interest or dividends or (C) the Internal Revenue Service has notified the Holder that the Holder is no longer subject to backup withholding; and (ii) if applicable, an adequate basis for exemption. WHAT NUMBER TO GIVE THE DEPOSITARY The Holder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the registered Holder. If the Subordinated Notes are held in more than one name or are not held in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 14 87 - --------------------------------- PAYER'S NAME: UNITED STATES TRUST COMPANY OF NEW YORK - --------------------------------- PART 1 -- PLEASE PROVIDE YOUR TIN IN THE SUBSTITUTE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number OR Employer Identification Number FORM W-9 --------------------------------------------------------------------------------- PART 2 -- CERTIFICATION -- UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me) and (2) I am not subject to backup withholding because (i) I am exempt from backup withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding. --------------------------------------------- PAYER'S REQUEST FOR CERTIFICATION INSTRUCTIONS -- YOU MUST CROSS OUT PART 3 TAXPAYER IDENTIFICATION ITEM (2) IN PART 2 ABOVE IF YOU HAVE BEEN NOTIFIED NUMBER ("TIN") BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR Awaiting TIN [ ] DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS STATING THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2). SIGNATURE _____________________ DATE _____________ , 1997 _____________________________________________________________ NAME (Please Print) - ------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER AND THE SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. - ---- CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I have not provided a taxpayer identification number within sixty (60) days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. ------------------------------------------------------------------- ------------------------------, 1997 Signature Date ------------------------------------------------------------------- Name (Please Print)
- -------------------------------------------------------------------------------- 15 88 The Dealer Manager for the Offers and the Solicitations is: BT SECURITIES CORPORATION One Bankers Trust Plaza 130 Liberty Street New York, New York 10006 (212) 775-2822 16 EX-23.1 4 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-1 of our report dated January 21, 1997, except as to Notes 5 and 14, which are as of March 24, 1997, relating to the consolidated financial statements of Ivex Packaging Corporation and its subsidiaries, which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedules for the three years ended December 31, 1996 listed under Item 16(b) of this Registration Statement when such schedules are read in conjunction with the consolidated financial statements referred to in our report. The audits referred to in such report also included these schedules. We also consent to the reference to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Chicago, Illinois September 4, 1997 -----END PRIVACY-ENHANCED MESSAGE-----