-----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, CzkzqxF5Fg7CbuJFJDb1PbC35/XlhYq456vRspHJHXnpPpIqWdGsd8SmuEaAcMGq KczhVLwmSi9IChT4fuPTMQ== 0000950137-99-004150.txt : 19991117 0000950137-99-004150.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950137-99-004150 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 10-Q SEC ACT: SEC FILE NUMBER: 001-13968 FILM NUMBER: 99753301 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 10-Q 1 FORM 10-Q 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------ For the Quarter Ended September 30, 1999 Commission File Number 33-60714 IVEX PACKAGING CORPORATION (Exact name of registrant as specified in its charter) Delaware 76-0171625 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 100 Tri-State Drive Lincolnshire, Illinois 60069 (Address of Principal Executive Office) (Zip Code) Registrant's Telephone number, including area code: (847) 945-9100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- At November 12, 1999, there were 20,947,269 shares of common stock, par value $0.01 per share, outstanding. =============================================================================== 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS IVEX PACKAGING CORPORATION CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS September 30, December 31, 1999 1998 ---- ---- Current Assets: Cash and cash equivalents......................................... $ 4,057 $ 7,363 Accounts receivable trade, net of allowance....................... 98,486 76,699 Inventories....................................................... 90,589 77,509 Prepaid expenses and other........................................ 6,840 4,646 ------------- ------------- Total current assets............................................ 199,972 166,217 ------------- ------------- Property, Plant and Equipment: Buildings and improvements........................................ 63,821 62,779 Machinery and equipment........................................... 349,258 308,549 Construction in progress.......................................... 30,681 22,705 ------------- ------------ 443,760 394,033 Less - accumulated depreciation................................... (191,442) (165,207) ------------- ------------ 252,318 228,826 Land.............................................................. 12,610 12,538 ------------- ------------ Total property, plant and equipment............................. 264,928 241,364 ------------- ------------ Other Assets: Goodwill, net of accumulated amortization......................... 104,053 85,823 Deferred income taxes............................................. 8,096 16,955 Management receivable............................................. 9,828 11,919 Miscellaneous..................................................... 46,518 33,867 ------------- ------------ Total other assets.............................................. 168,495 148,564 ------------- ------------ Total Assets......................................................... $ 633,395 $ 556,145 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt............................ $ 27,624 $ 23,312 Accounts payable and accrued invoices............................. 54,595 36,744 Accrued salary and wages.......................................... 9,971 11,789 Self insurance reserves........................................... 7,821 7,523 Accrued rebates and discounts..................................... 7,362 7,534 Accrued interest.................................................. 4,563 3,279 Other accrued expenses............................................ 15,091 13,959 ------------- ------------ Total current liabilities....................................... 127,027 104,140 ------------- ------------ Long-Term Debt....................................................... 436,286 409,071 ------------- ------------ Other Long-Term Liabilities.......................................... 21,097 17,570 ------------- ------------ Deferred Income Taxes................................................ 4,774 3,173 ------------- ------------ Stockholders' Equity: Common stock, $.01 par value - 45,000,000 shares authorized; 20,947,269 and 20,931,268 shares issued and outstanding at September 30, 1999 and December 31, 1998, respectively ......... 209 209 Paid in capital in excess of par value............................ 339,354 339,098 Accumulated deficit............................................... (289,649) (311,642) Accumulated other comprehensive income (loss)..................... (5,703) (5,474) ------------- ------------ Total stockholders' equity ..................................... 44,211 22,191 ------------- ------------ Total Liabilities and Stockholders' Equity .......................... $ 633,395 $ 556,145 ============= ============
The accompanying notes are an integral part of this statement. 2 3 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Quarter Ended Nine Months Ended September 30, September 30, -------------------------- --------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Net sales............................................. $ 166,838 $ 159,953 $ 470,377 $ 452,740 Cost of goods sold.................................... 128,986 121,963 354,978 345,278 ----------- ------------ ------------ ------------ Gross profit.......................................... 37,852 37,990 115,399 107,462 ----------- ------------ ------------ ------------ Operating expenses: Selling............................................ 9,453 8,342 28,560 24,024 Administrative..................................... 9,794 8,830 30,650 24,515 Amortization of intangibles........................ 961 644 2,357 1,497 ----------- ------------ ------------ ------------ Total operating expenses.............................. 20,208 17,816 61,567 50,036 ----------- ------------ ------------ ------------ Income from operations................................ 17,644 20,174 53,832 57,426 Other income (expense): Interest expense................................... (7,945) (7,782) (22,473) (21,952) Income from equity investments..................... 587 2,298 ----------- ------------ ------------- ------------ Income before income taxes............................ 10,286 12,392 33,657 35,474 Income tax provision ................................. 2,612 4,853 11,664 14,190 ----------- ------------ ------------ ------------ Net income ........................................... $ 7,674 $ 7,539 $ 21,993 $ 21,284 =========== ============ ============ ============ Earnings per share: Basic: Net income ..................................... $ 0.37 $ 0.36 $ 1.05 $ 1.03 =========== ============ ============ ============ Weighted average shares outstanding............. 20,947,227 20,931,268 20,939,123 20,658,318 =========== =========== ============ ============ Diluted: Net income ..................................... $ 0.37 $ 0.36 $ 1.05 $ 1.02 =========== ============ ============ ============ Weighted average shares outstanding............. 20,976,421 21,094,865 21,023,112 20,875,961 =========== ============ ============ ============
The accompanying notes are an integral part of this statement. 3 4 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Ivex Packaging Corporation Paid in Accumulated Common Stock Capital Other Stockholders' ------------------- In Excess of Accumulated Comprehensive Equity Comprehensive Shares Amount Par Value Deficit Income (Loss) (Deficit) Income (Loss) ------ ------ ------------ ----------- ------------- ------------- ------------- Balance at December 31, 1997........... 20,426,666 $ 204 $328,322 $ (339,836) $ (859) $ (12,169) Issuance of common stock............ 500,000 5 10,702 10,707 Exercise of common stock options.... 4,602 74 74 Net income.......................... 28,194 28,194 $ 28,194 Other comprehensive loss (foreign currency translation adjustment)..................... (4,615) (4,615) (4,615) ---------- Comprehensive income (loss)......... $ 23,579 ---------- ----- -------- ---------- ------- -------- ---------- Balance at December 31, 1998........... 20,931,268 209 339,098 (311,642) (5,474) 22,191 Exercise of common stock options.... 16,001 256 256 Net income.......................... 21,993 21,993 $ 21,993 Other comprehensive loss ........... (229) (229) (229) ---------- Comprehensive income (loss)......... $ 21,764 ---------- ----- -------- ---------- ------- -------- ---------- Balance at September 30, 1999.......... 20,947,269 $ 209 $339,354 $ (289,649) $(5,703) $ 44,211 ========== ===== ======== ========== ======= =========
The accompanying notes are an integral part of this statement. 4 5 IVEX PACKAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 1999 1998 ---- ---- Cash flows from operating activities: Net income ..................................................................... $ 21,993 $ 21,284 Adjustments to reconcile net income to net cash from operating activities: Depreciation of properties................................................. 26,838 24,139 Amortization of intangibles and debt issue costs........................... 3,008 2,063 Non-cash income from equity investments.................................... (2,298) Non-cash interest income................................................... (1,125) Deferred income taxes...................................................... 8,858 10,433 ---------- ---------- 57,274 57,919 Change in operating assets and liabilities: Accounts receivable......................................................... (16,409) (11,797) Inventories................................................................. (8,305) (8,256) Prepaid expenses and other assets........................................... (1,576) (1,059) Accounts payable............................................................ 10,443 (3,296) Accrued expenses and other liabilities...................................... (5,819) (2,936) ---------- ---------- Net cash from operating activities............................................ 35,608 30,575 ---------- ---------- Cash flows from financing activities: Proceeds from issuance of stock................................................. 10,707 Payment of debt................................................................. (18,556) (30,742) Proceeds from revolving credit facility......................................... 47,600 91,000 Repayment of management loans................................................... 2,091 2,726 Issuance of management loans.................................................... (3,682) Other, net...................................................................... (785) (1,594) ---------- ---------- Net cash from financing activities............................................ 30,350 68,415 ---------- ---------- Cash flows from investing activities: Purchase of property, plant and equipment....................................... (36,667) (28,996) Acquisitions.................................................................... (27,997) (67,625) Other, net...................................................................... (4,600) 385 ---------- ---------- Net cash used by investing activities......................................... (69,264) (96,236) ---------- ---------- Net increase (decrease) in cash and cash equivalents............................... (3,306) 2,754 Cash and cash equivalents at beginning of period................................... 7,363 5,989 ---------- ---------- Cash and cash equivalents at end of period......................................... $ 4,057 $ 8,743 ========== ========== Supplemental cash flow disclosures: Cash paid during the period for: Interest...................................................................... $ 21,663 $ 22,912 Income taxes.................................................................. 5,344 3,241
The accompanying notes are an integral part of this statement. 5 6 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 -- ACCOUNTING AND REPORTING POLICIES In the opinion of management, the information in the accompanying unaudited consolidated financial statements reflects all adjustments necessary for a fair statement of results for the interim periods. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 1998 (the "Form 10-K") of Ivex Packaging Corporation ("Ivex" or the "Company"). IPC, Inc. ("IPC") is the only direct subsidiary of Ivex and is wholly owned. The Company's accounting and reporting policies are summarized in Note 2 to the consolidated financial statements of the Ivex Form 10-K. Accounts Receivable Accounts receivable at September 30, 1999 and December 31, 1998 consisted of the following:
September 30, December 31, 1999 1998 ---- ---- Accounts receivable.......................... $ 102,145 $ 79,566 Less - Allowance for doubtful accounts....... (3,659) (2,867) --------- ---------- $ 98,486 $ 76,699 ========= ==========
Inventories Inventories at September 30, 1999 and December 31, 1998 consisted of the following:
September 30, December 31, 1999 1998 ---- ---- Raw materials................................ $ 42,816 $ 34,136 Finished goods............................... 47,773 43,373 --------- ---------- $ 90,589 $ 77,509 ========= ==========
NOTE 2 - LONG TERM DEBT At September 30, 1999 and December 31, 1998, the long-term debt of the Company was as follows:
September 30, December 31, 1999 1998 ---- ---- Senior credit facility....................... $ 422,400 $ 390,925 Industrial revenue bonds..................... 39,610 39,667 Other ....................................... 1,900 1,791 ---------- ---------- Total debt outstanding................. 463,910 432,383 Less - Current installments of long-term debt............................. (27,624) (23,312) ---------- --------- Long-term debt......................... $ 436,286 $ 409,071 ========== =========
On October 26, 1999, the Company's Senior Credit Facility (the "Senior Credit Facility") was amended to revise certain covenants. The Company paid fees of $600 and increased the interest rate on all borrowings under the Senior Credit Facility by a range of 0.25% to 0.375% as a result of the amendment. 6 7 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3 - REPORTING SEGMENTS During 1999, Ivex realigned its operating segments in connection with the formation of the Technical Packaging Group which is comprised of the industrial packaging and medical & electronics product groups. The Company is divided into the Consumer Packaging and Technical Packaging operating segments based on the end use of the packaging product. All historical information has been restated to reflect the realignment. The reconciliation of the operating segment information to the Company's consolidated financial statements is as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------ 1999 1998 1999 1998 ------------- ------------- ------------ ------------- Net Sales: Consumer Packaging............... $ 101,496 $ 92,681 $ 288,191 $ 249,541 Technical Packaging.............. 65,342 67,272 182,186 203,199 ------------- ------------- ------------ ------------- Total.................... $ 166,838 $ 159,953 $ 470,377 $ 452,740 ============= ============= ============ ============= Income Before Income Taxes: EBITDA: Consumer Packaging....... $ 20,122 $ 20,574 $ 61,793 $ 54,912 Technical Packaging...... 9,394 10,798 27,172 31,268 Corporate Expense........ (1,715) (1,961) (5,938) (5,884) ------------- ------------- ------------ ------------- Total......... 27,801 29,411 83,027 80,296 Depreciation expense............. (9,196) (8,593) (26,838) (24,139) Amortization expense............. (961) (644) (2,357) (1,497) Special (charge) benefit......... 2,766 Income from equity investments... 587 2,298 Interest expense................. (7,945) (7,782) (22,473) (21,952) ------------- ------------- ------------ ------------- Income before income taxes $ 10,286 $ 12,392 $ 33,657 $ 35,474 ============= ============= ============ ============= Purchase of Property, Plant and Equipment: Consumer Packaging............... $ 7,093 $ 9,406 $ 22,794 $ 18,195 Technical Packaging.............. 3,729 3,076 11,656 9,582 Corporate........................ 1,416 577 2,217 1,219 ------------- ------------- ------------ ------------- Total ................... $ 12,238 $ 13,059 $ 36,667 $ 28,996 ============= ============= ============ ============= SEPTEMBER 30, ------------------------------- 1999 1998 ------------- ------------- Total Assets: Consumer Packaging .............. $ 387,630 $ 322,478 Technical Packaging ............. 211,187 164,021 Corporate 34,578 56,760 ------------- ------------- Total ................... $ 633,395 $ 543,259 ============= =============
7 8 IVEX PACKAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4 - ACQUISITIONS On April 20, 1999, Ivex acquired the electronics packaging business of Pactuco, Inc. ("Pactuco"), headquartered in Lompoc, California for a $21,000 initial payment and payments of $1,000 per year for the next five years. Based on the operating results of the business, the purchase price could be increased by as much as $3,000 per year over the next three years. With manufacturing operations in California, Malaysia and Hong Kong, this business provides technical packaging solutions for the computer and electronics industries and has annual sales of $35,000. The acquisition was financed through revolving credit borrowings under the Senior Credit Facility and was recorded using the purchase method of accounting. On July 30, 1999, Ivex acquired all of the outstanding stock of F.T.S. Holdings B.V. ("Folietechniek") headquartered in Raamsdonksveer, Netherlands for $4,792 and assumed debt of approximately $1,900. Folietechniek is a manufacturer of extruded plastic products and has annual sales of approximately $13,000. The acquisition was financed through revolving credit borrowings under the Senior Credit Facility and was recorded using the purchase method of accounting. NOTE 5 - SECONDARY OFFERING AND SPECIAL BENEFIT On May 27, 1998, Ivex completed a secondary offering (the "Secondary Offering") of 4,000,000 shares of common stock of the Company. In the Secondary Offering, the Company sold to the underwriters 500,000 previously unissued shares of common stock at an offering price of $24.00 per share yielding net proceeds of $10,707. Other selling stockholders, including members of Ivex management (the "Management Stockholders"), sold 3,500,000 previously issued and outstanding shares of common stock owned by them. The Company did not receive any of the proceeds from the sale of shares of common stock by such selling stockholders. The proceeds of the Secondary Offering were used to pay down borrowings under the Company's revolving credit facility. In conjunction with the sale of their stock in the Secondary Offering, the Management Stockholders repaid a portion of their loans from the Company (the "Management Loans") aggregating $2,726. The Management Loans were made to senior management during the fourth quarter of 1997 and the first quarter of 1998 pursuant to a stock option plan (the "IPC Option Plan") to enable them to pay their individual income taxes in connection with the conversion of options granted under the IPC Option Plan (the "IPC Options"). In addition, during the fourth quarter of 1997, the Company recorded an accrual for future Company payments to senior management of an amount which (after taxes) enabled such management to pay interest on the Management Loans. As a result of the loan repayment by the Management Stockholders, the Company's accrual for such future Company payments was reduced by $2,766 during the second quarter of 1998. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion addresses the consolidated financial statements of the Company. The Company owns 100% of the common stock of IPC. The Company is a holding company with no operations of its own and IPC has no contractual obligations to distribute funds to the Company. References to the Company or Ivex herein reflect the consolidated results of Ivex Packaging Corporation. RESULTS OF OPERATIONS - FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Net Sales The Company's net sales increased by 4.3% during the third quarter of 1999 over the Company's net sales during the corresponding period in 1998. The increase primarily resulted from the fourth quarter 1998 acquisition of the paper packaging business of Bleyer Industries, Inc. ("Bleyer Paper"), the second quarter 1999 acquisition of Pactuco and the third quarter 1999 acquisition of Folietechniek, as substantially offset by the fourth quarter 1998 disposition of the Company's Detroit paper mill ("Detroit"). Additionally, the increased sales resulted from increased sales of converted plastic and paper products for food, medical and electronics applications. The strongest growth in net sales resulted from the Company's facilities outside of the United States and Canada. The increase was partially offset by reduced sales volume of extruded OPS sheet due to reduced demand from certain integrated customers. Increased sales of surface protection and protective packaging products were partially offset by continued declining demand for the Company's coated and laminated products. See additional discussion in "Operating Segments". Gross Profit The Company's gross profit for the third quarter of 1999 was relatively consistent with the corresponding period in the prior year. The slight decrease in gross profit is primarily the result of poor operating performance at the facilities acquired in the Company's second quarter 1998 acquisition of Ultra Pac, Inc. ("Ultra Pac"), raw material cost increases in most businesses (including plastic resin and paper) and the fourth quarter disposition of Detroit. The poor operating performance at Ultra Pac primarily resulted from production inefficiencies at the Rogers, Minnesota facility, lower sales revenue and start-up costs at the Hollister, California facility (for which manufacturing capacity is currently in the process of being relocated). The decrease was offset by incremental gross profit from the Bleyer Paper and Pactuco acquisitions. Gross profit margin decreased to 22.7% during the third quarter of 1999 compared to 23.8% during the third quarter of 1998. The decrease in gross profit margin primarily resulted from the poor operating performance at Ultra Pac and increasing raw material costs. The decrease was also partially offset by a shift in product mix due to the addition of higher gross profit margin Bleyer Paper and Pactuco products and the elimination of lower gross profit margin Detroit products. The increase in the Company's raw material costs and the operating issues at Ultra Pac are expected to continue to negatively impact the Company's gross profit, income from operations and earnings through the fourth quarter of 1999 and early into the year 2000. Operating Expenses Selling and administrative expenses increased 12.1% during the third quarter of 1999 primarily as a result of the Bleyer Paper, Pactuco and Folietechniek acquisitions and increased sales and management resources for most businesses. The increase was partially offset by decreased incentive compensation expense. As a percentage of net sales, selling and administrative expenses increased to 11.5% during the third quarter of 1999 compared to 10.7% during the same period in the prior year. This increase was primarily due to the divestiture of Detroit with lower operating expenses as a percentage of net sales and the increased sales and management resources added for most businesses. 9 10 Amortization of intangibles increased 49.2% during the third quarter of 1999 compared to the same period in 1998 primarily as a result of increased goodwill and non-compete agreement amortization associated with the Bleyer Paper, Pactuco and Folietechniek acquisitions. Income from Operations Income from operations and operating margin were $17.6 million and 10.6%, respectively, during the third quarter of 1999 compared to income from operations of $20.2 million and 12.6%, respectively, during the third quarter of 1998. The decrease in operating income was primarily the result of the operational issues at Ultra Pac, rising raw material costs and increased selling and administrative costs. The decrease was partially offset by incremental income from operations from the recent acquisitions. The decrease in operating margin resulted from the decrease in gross profit margin and the additional selling and administrative expenses committed to the business. Interest Expense Interest expense during the third quarter of 1999 was $7.9 million compared to $7.8 million during the same period in 1998. The increase in interest expense primarily resulted from greater aggregate indebtedness, partially offset by decreased interest rates on borrowings and increased interest income. Income from Equity Investments Income from equity investments primarily results from the Company's equity interest in the net income of Packaging Holdings, LLC. The Company acquired its equity interest in Packaging Holdings, LLC during the fourth quarter of 1998 in exchange for the assets of Detroit. Income Taxes During the third quarter of 1999, the Company reversed a valuation allowance associated with its United Kingdom operations resulting in a one-time tax benefit of $1.4 million. This benefit represents the value of the previously unrecognized net operating tax loss carry forwards of the Company's United Kingdom operations. Aside from the one-time tax benefit, the Company's effective tax rate for the third quarter of 1999 approximated 39% which is consistent with the third quarter of 1998. Net Income Net income increased to $7.7 million during the third quarter of 1999 compared to net income of $7.5 million in the prior year. The increase primarily resulted from the one-time tax benefit discussed above. Earnings Per Share Diluted earnings per share increased to $0.37 during the third quarter of 1999 compared to earnings per share of $0.36 during the third of 1998. The increase in diluted earnings per share primarily resulted from the one-time tax benefit discussed above. 10 11 OPERATING SEGMENTS Net Sales The following table sets forth information with respect to net sales of the Company's operating segments for the periods presented:
Three Months Ended September 30, ----------------------------------------- (dollars in thousands) % of % of 1999 Net Sales 1998 Net Sales --------- --------- --------- --------- Consumer Packaging ............................ $ 101,496 60.8 $ 92,681 57.9 Technical Packaging ........................... 65,342 39.2 67,272 42.1 --------- ------ --------- ------ Total ................................... $ 166,838 100.0 $ 159,953 100.0 ========= ====== ========= ======
Consumer Packaging net sales increased by 9.5% during the third quarter of 1999 from the corresponding period in 1998. The increase primarily results from incremental sales associated with the Bleyer Paper and Folietechniek acquisitions and increased sales of converted plastic and paper products for food applications. During the third quarter of 1999, sales of converted plastic and paper products in the U.S. (excluding the sales relating to Bleyer Paper) increased approximately 5.7% while such sales outside of the U.S. (Europe, Canada and Mexico) increased approximately 18.7% compared to the third quarter of 1998. The largest increases in sales outside of the U.S. occurred for converted products in the United Kingdom and Continental Europe. The net sales increase was partially offset by reduced extruded OPS sheet sales due to decreased demand from certain integrated customers that are in the process of expanding their extrusion capacity. Technical Packaging net sales decreased by 2.9% during the third quarter of 1999 from the corresponding period in 1998, primarily due to the disposition of Detroit partially offset by increased sales of plastic products for medical and electronics applications (including sales from Pactuco). Additionally, the Company continues to experience significant unit volume decreases in its coated and laminated products as a result of the declining markets for these products. During the third quarter, the decrease in coated and laminated products was partially offset by increased sales for the Company's surface protection and protective packaging products compared to the third quarter of 1998. EBITDA EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, and special charges (benefit). The Company believes that EBITDA provides additional information for determining its ability to meet future debt service requirements. However, EBITDA is not a defined term under Generally Accepted Accounting Principles ("GAAP") and is not indicative of operating income or cash flow from operations as determined under GAAP. 11 12 The following table sets forth information with respect to EBITDA of the Company's operating segments for the periods presented:
Three Months Ended September 30, ----------------------------------------- (dollars in thousands) % of % of 1999 Net Sales 1998 Net Sales --------- --------- --------- --------- Consumer Packaging ............................ $ 20,122 19.8 $ 20,574 22.2 Technical Packaging ........................... 9,394 14.4 10,798 16.1 Corporate Expense.............................. (1,715) (1,961) --------- --------- Total .................................... $ 27,801 16.7 $ 29,411 18.4 ========= =========
The Company's EBITDA decreased 5.5% from $29.4 million to $27.8 million and EBITDA margin decreased from 18.4% to 16.7% during the third quarter of 1999 compared to the same period in 1998. The 2.2%, or $0.5 million, decrease in Consumer Packaging's EBITDA in the current quarter was primarily attributable to the poor operating performance at Ultra Pac and the raw material cost increases. This decrease was offset by incremental EBITDA from Bleyer Paper and Folietechniek. The decrease in Technical Packaging's EBITDA of 13.0%, or $1.4 million was primarily due to the disposition of Detroit. The decrease in Corporate expense was primarily the result of reduced incentive compensation expense offset by an increase in human resources required as a result of the Company's growth. RESULTS OF OPERATIONS - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Net Sales The Company's net sales increased by 3.9% during the first nine months of 1999 over the Company's net sales during the corresponding period in 1998. The increase primarily resulted from increased unit sales volume of extruded sheet and film and increased sales of converted plastic and paper products for food, medical and electronics applications. The increase in sales also was due to the Ultra Pac, Bleyer Paper, Pactuco and Folietechniek acquisitions as substantially offset by the fourth quarter 1998 disposition of Detroit. See additional discussion in "Operating Segments". Gross Profit The Company's gross profit increased 7.4% during the first nine months of 1999 compared to the corresponding period in the prior year primarily as a result of the incremental effects from the Ultra Pac, Bleyer Paper, Pactuco and Folietechniek acquisitions partially offset by the disposition of Detroit. Gross profit margin increased to 24.5% during the first nine months of 1999 compared to 23.7% during the first nine months of 1998. The increase in gross profit margin primarily resulted from a shift in product mix due to the addition of higher gross profit margin Ultra Pac, Bleyer Paper, Pactuco and Folietechniek products and the elimination of lower gross profit margin Detroit products. The increase in gross profit margin also resulted from lower raw material costs in most businesses during the first and second quarter of 1999 as compared to the prior year as partially offset by increased raw material costs and the poor operating performance at Ultra Pac during the third quarter of 1999 compared to the prior year. Operating Expenses Selling and administrative expenses (excluding the special (charge) benefit discussed below) increased 15.4% during the first nine months of 1999 primarily as a result of the higher selling and administrative expenses associated with the recent acquisitions and the increased sales and management resources for most businesses. The increase in selling and administrative expenses were partially offset by reduced incentive compensation. As a percentage of net sales, selling and administrative expenses (excluding the special (charge) benefit in 1998 discussed below) increased to 12.6% during the first nine months of 1999 compared to 11.3% during the same period in the prior year. This increase was primarily because of the addition of Ultra Pac and Pactuco with higher selling expenses as a percentage of net sales and the elimination of Detroit 12 13 with lower operating expenses as a percentage of net sales. The increase in percentage of net sales was also attributable to the increased sales and management resources for most businesses as offset by the reduction in incentive compensation. Amortization of intangibles increased 57.4% during the first nine months of 1999 compared to the same period in 1998 as a result of increased goodwill and non-compete agreement amortization associated with the recent acquisitions. Administrative expense for the nine months ended September 30, 1998 included a special (charge) benefit of $2.8 million. In conjunction with the sale of their stock, the Management Stockholders repaid loans from the Company aggregating $2.7 million. Such loans were made to senior management during the fourth quarter of 1997 and the first quarter of 1998 pursuant to the IPC Option Plan to enable them to pay their individual income taxes in connection with the conversion of options granted under the IPC Option Plan. During the fourth quarter of 1997, the Company also recorded an accrual for future Company payments to senior management of an amount which (after taxes) enabled such management to pay interest on the loans. As a result of the loan repayment by the Management Stockholders, the Company's accrual for such future Company payments was reduced by $2.8 million during the second quarter of 1998. Income from Operations Income from operations and operating margin were $53.8 million and 11.4%, respectively, during the first nine months of 1999 compared to income from operations and operating margin of $57.4 million and 12.7%, respectively, during the first nine months of 1998. Excluding special (charge) benefit, income from operations and operating margin were $54.7 million and 12.1%, respectively, during the nine months ended September 30, 1998. The decrease in operating income and margin was primarily the result of the operating issues and rising raw material costs during the Company's third quarter of 1999. Interest Expense Interest expense during the first nine months of 1999 was $22.5 million compared to $22.0 million during the same period in 1998. The increase is primarily due to greater indebtedness partially offset by decreased interest rates on borrowings and increased interest income. The greater indebtedness primarily resulted from the recent acquisitions and increased working capital. Income from Equity Investments Income from equity investments primarily resulted from the Company's equity interest in the net income of Packaging Holdings, LLC. The Company acquired its equity interest in Packaging Holdings, LLC during the fourth quarter of 1998 in exchange for the assets of Detroit. Income Taxes During the third quarter of 1999, the Company reversed a valuation allowance associated with its United Kingdom operations resulting in a one-time tax benefit of $1.4 million. This benefit represented the value of the previously unrecognized net operating tax loss carry forwards of the Company's United Kingdom operations. Aside from the one-time tax benefit, the Company's effective tax rate for the year approximated 39% compared with 40% for the same period in 1998. The decrease in effective tax rate reflected a lower aggregate effective rate for foreign operations. 13 14 Net Income Net income increased to $22.0 million during the first nine months of 1999 compared to net income of $21.3 million in the prior year. The increase in net income was primarily the result of the reduced income tax provision and the income from equity investments. Earnings Per Share Diluted earnings per share increased to $1.05 during the first nine months of 1999 compared to earnings per share of $1.02 during the first nine months of 1998. The increase is the result of the increased net income. OPERATING SEGMENTS Net Sales The following table sets forth information with respect to net sales of the Company's operating segments for the periods presented:
Nine Months Ended September 30, ----------------------------------------- (dollars in thousands) % of % of 1999 Net Sales 1998 Net Sales --------- --------- --------- --------- Consumer Packaging ............................ $ 288,191 61.3 $ 249,541 55.1 Technical Packaging ........................... 182,186 38.7 203,199 44.9 --------- ------ --------- ------ Total .................................... $ 470,377 100.0 $ 452,740 100.0 ========= ====== ========= ======
Consumer Packaging net sales increased by 15.5% during the first nine months of 1999 from the corresponding period in 1998. The increase primarily resulted from incremental sales associated with the Ultra Pac, Bleyer Paper and Folietechniek acquisitions and increased sales of converted plastic and paper products for food applications. During the first nine months of 1999, sales of converted plastic and paper products in the U.S. (excluding the sales relating to Ultra Pac and Bleyer Paper) increased approximately 6.5% while such sales outside of the U.S. (Europe, Canada and Mexico) increased 20.4% compared to the first nine months of 1998. The largest increase in sales outside of the U.S. occurred in the United Kingdom and Continental Europe. Technical Packaging net sales decreased by 10.3% during the first nine months of 1999 from the corresponding period in 1998, primarily due to the disposition of Detroit, partially offset by incremental sales from the Pactuco acquisition. Additionally, the Company continued to experience significant unit volume decreases in its coated and laminated products as a result of the declining markets for these products. Increased sales unit volume was mostly offset by decreased selling prices for the Company's surface protection, protective packaging and manufactured paper products during the first nine months of 1999 compared to 1998. Sales price increases effected near the end of the third quarter (associated with raw material cost increases) did not offset overall lower sales price during the first portion of 1999 compared to the prior year. EBITDA EBITDA includes income from operations adjusted to exclude depreciation and amortization expenses, and special charges (benefit). The Company believes that EBITDA provides additional information for determining its ability to meet future debt service requirements. However, EBITDA is not a defined term under GAAP and is not indicative of operating income or cash flow from operations as determined under GAAP. The following table sets forth information with respect to EBITDA of the Company's product groups for the periods presented: 14 15
Nine Months Ended September 30, ----------------------------------------- (dollars in thousands) % of % of 1999 Net Sales 1998 Net Sales --------- --------- --------- --------- Consumer Packaging ........................... $ 61,793 21.4 $ 54,912 22.0 Technical Packaging .......................... 27,172 14.9 31,268 15.4 Corporate Expense............................. (5,938) (5,884) --------- --------- ------ Total .................................. $ 83,027 17.7 $ 80,296 17.7 ========= =========
The Company's EBITDA increased 3.4% from $80.3 million to $83.0 million and EBITDA margin was unchanged at 17.7% during the first nine months of 1999 compared to the same period in 1998. The 12.5%, or $6.9 million, increase in Consumer Packaging's EBITDA was primarily attributable to the incremental EBITDA from Ultra Pac, Bleyer Paper, and Folietechniek, the increased sales volume and reduced incentive compensation. The decrease in Technical Packaging's EBITDA of 13.1%, or $4.1 million was primarily due to the disposition of Detroit and decreased sales in the first quarter of 1999 for the Company's protective packaging and surface protection product lines. The increase in Corporate expenses was primarily the result of an increase in human resources required as a result of the Company's growth partially offset by reduced incentive compensation expense. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1999, the Company had cash and cash equivalents of $4.1 million and availability under the revolving credit portion of its Senior Credit Facility was $60.2 million. The Company's working capital at September 30, 1999 was $72.9 million. On October 26, 1999, the Company's Senior Credit Facility was amended to revise certain covenants. The Company paid fees of $0.6 million and increased the interest rate on all borrowings under the Senior Credit Facility by a range of 0.25% to 0.375% as a result of the amendment. The Company's primary short-term and long-term operating cash requirements are for debt service, working capital, acquisitions and capital expenditures. The Company expects to rely on cash generated from operations supplemented by revolving credit facility borrowings under the Senior Credit Facility to fund the Company's principal short-term and long-term cash requirements. The Senior Credit Facility is comprised of a $150.0 million Term A Loan, a $150.0 million Term B Loan and a $265.0 million revolving credit facility (up to $65.0 million of which may be in the form of letters of credit). The Term A Loan is required to be repaid in quarterly payments totaling $21.25 million in 1999, $25.0 million in 2000, $26.25 million in 2001, $31.25 million in 2002 and $26.25 million in 2003, and the Term B Loan is required to be repaid in quarterly payments totaling $1.5 million per annum through September 30, 2003 and four installments of $35.25 million on December 31, 2003, March 31, 2004, June 30, 2004 and September 30, 2004. The interest rate of the Senior Credit Facility can be, at the election of IPC, based upon LIBOR or the Adjusted Base Rate, as defined therein, and is subject to certain performance pricing adjustments. The Term A Loan and loans under the revolving credit facility bear interest at rates up to LIBOR plus 1.625% or the Adjusted Base Rate plus 0.625%. As of September 30, 1999, such rate was LIBOR plus 1.125%. The Term B Loan bears interest at rates up to LIBOR plus 2.0% or the Adjusted Base Rate plus 1.0%. As of September 30, 1999, such rate for the Term B Loan was LIBOR plus 1.75%. Beginning in the fourth quarter of 1999, interest rates under the Senior Credit Facility are expected to increase in a range of 0.25% to 0.375% associated with the October 26, 1999 amendment. Borrowings are secured by substantially all the assets of the Company and its subsidiaries. The revolving credit facility and Term A Loan will terminate on September 30, 2003 and the Term B Loan will terminate on September 30, 2004. Under the Senior Credit Facility, IPC is required to maintain certain financial ratios and levels of net worth and future indebtedness and dividends are restricted, among other things. The Company believes it is currently in compliance with the terms and conditions of the Senior Credit Facility in all material respects. 15 16 IPC's industrial revenue bonds require monthly interest payments and are due in varying amounts and dates through 2009. Certain letters of credit under the Senior Credit Facility provide credit enhancement for IPC's industrial revenue bonds. In order to reduce the impact of changes in interest rates on its variable rate debt, the Company entered into interest rate derivative instruments discussed in "Quantitative and Qualitative Disclosures About Market Risk". The Company made capital expenditures of $36.7 million and $29.0 million in the nine months ended September 30, 1999 and 1998, respectively. At September 30, 1999, the Company has a significant number of capital projects ongoing in all major business groups, with the majority of the spending going to capacity additions in extrusion and converting for the Consumer Packaging operating segment and in surface protection for the Technical Packaging operating segment. Capital spending for 1999 is expected to range from $45.0 million to $50.0 million. On April 20, 1999, Ivex acquired the electronics packaging business of Pactuco, headquartered in Lompoc, California for a $21.0 million initial payment and payments of $1.0 million per year for the next five years. Based on the operating results of the business, the purchase price could be increased by as much as $3.0 million per year over the next three years. With manufacturing operations in California, Malaysia and Hong Kong, this business provides technical packaging for the computer and electronics industries and has annual sales of $35.0 million. On July 30, 1999, Ivex acquired all of the outstanding stock of Folietechniek headquartered in Raamsdonksveer, Netherlands for $4.8 million and assumed debt of approximately $1.9 million. Folietechniek is a manufacturer of extruded plastic products and has annual sales of approximately $13.0 million. The acquisitions were financed through revolving credit borrowings under the Senior Credit Facility and were recorded using the purchase method of accounting. On October 21, 1999, Ivex announced its plans to purchase up to $5.0 million of its outstanding shares of common stock, from time to time, in the open market and in individually negotiated transactions, subject to price, availability and general market conditions. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued FAS 133, "Accounting for Derivatives and Similar Financial Instruments and Hedging Activities," which requires all derivatives to be measured at fair value and recognized in the statement of financial position as assets or liabilities. In addition, all hedges fall into one of two categories - fair value and cash flow hedges - which determines whether changes in fair value of the hedge are recorded in net income or in other comprehensive income. FAS 133 is effective for fiscal years beginning after June 15, 2000. The Company is currently evaluating the impact of the adoption of FAS 133 on the Company's financial position and results of operations. YEAR 2000 The Year 2000 issue refers to computer equipment which uses two digits rather than four to define a given year and which therefore might read a date using "00" as the year 1900 rather than the year 2000. As the Year 2000 approaches, such systems may be unable to process certain date-based information. This could result in system failure or miscalculations causing disruptions of operations and the inability to engage in normal business activities. The Company initiated a company-wide program to prepare its computer systems and applications for the year 2000. The initial focus of the Company's compliance contained the following steps: assessment of the issue; planning the conversion; plan implementation; and testing. Those systems determined to be at risk were prioritized and plans were put in place to upgrade systems by remediation, replacements or outsourcing. The assessment and planning phases have been completed for all systems. A majority of the Company's facilities has already implemented or is in the process of implementing one information technology system (the "IT system"). The implementation of the IT system began in the mid-1990's as a strategic effort to upgrade the Company's computer systems. Based on vendor representation and in-house testing, the Company believes the IT system is Year 2000 compliant. All facilities that are not implementing the IT system have information technology systems that are believed to be Year 2000 compliant, based on vendor representation and in- 16 17 house testing. The Company believes it is currently Year 2000 compliant with all mission critical activities and systems, although there can be no assurances that this will be the case. It will continue further testing, verification and the final completion of less important systems during the fourth quarter of 1999. In addition to the information technology system review noted above, the Company has initiated processes to review and to modify where appropriate, other areas impacted by Year 2000. These areas include, but are not limited to, personal computer hardware and software, remote location access to information technology systems, facility management and certain non-information technology issues, such as the extent to which embedded chips are used in machinery and equipment used in operations. In relation to the Company's vendors, the Company is in the process of communicating with its significant vendors to determine the extent to which the Company is vulnerable to those third parties' failure to remedy their own Year 2000 compliance issues. The Company is currently completing its evaluation. The Company cannot guarantee that the failure of another company to be converted will not have an effect on the Company. However, the Company believes that any noncompliance by its vendors will not result in a material adverse effect on the Company, although there can be no assurances that this will be the case. The Company has determined that it has no exposure to contingencies related to the Year 2000 issue for products it has sold. The Company expects to incur internal and external expenses related to its remedy of the Year 2000 issue. Testing and remedy efforts are expected to cost approximately $180,000, of which $155,000 has already been incurred. These costs will be treated as period costs and expensed as incurred. Although no assurances can be given as to the Company's compliance, particularly as it relates to third-parties, based upon the progress to date, the Company does not expect that either future costs of modifications or the consequences of any unsuccessful modifications will have a material adverse effect on the Company's financial position or results of operations. Accordingly, the Company feels that the most reasonably likely worst case Year 2000 scenario would not have a material adverse effect on the Company's financial position or results of operations, although there can be no assurances that this will be the case. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Foreign Exchange The Company uses primarily foreign exchange forward contracts to hedge its exposure from adverse changes in foreign exchange rates. A 10% unfavorable movement in the foreign exchange rates would not expose the Company to material losses in earnings or cash flows. Interest Rates The Company uses interest rate swaps and collars to modify its exposure to interest rate movements and to reduce borrowing costs. The Company's net exposure to interest rate risk consists of floating rate debt instruments that are benchmarked to LIBOR. As of September 30, 1999, the Company had $320.0 million notional value of interest rate derivatives outstanding (described below). A 10% unfavorable movement in LIBOR rates would not expose the Company to material losses of earnings or cash flows. The Company has entered into interest rate swap agreements with a group of banks having notional amounts totaling $160.0 million and various maturity dates through November 5, 2002. These agreements effectively fix the Company's LIBOR base rate for $160.0 million of the Company's indebtedness at rates from 5.33% to 6.12% during this period. The Company has entered into no cost interest rate collar agreements with a group of banks having notional amounts totaling $100.0 million through November 5, 2002. These collar agreements effectively fix the LIBOR base rate for $100.0 million of the Company's indebtedness at a maximum of 7.00% and allow for the Company to pay the market LIBOR from a floor of 5.55% to the maximum rate. If LIBOR falls below 5.55%, the Company is required to pay the floor rate of 5.55%. The 17 18 Company has also entered into no cost interest rate collar agreements with a group of banks having notional amounts totaling $60.0 million of the Company's indebtedness through November 5, 2001 at a maximum of 5.31% and allow for the Company to pay the market LIBOR from a floor of 4.47% to the maximum rate. If LIBOR falls below 4.47%, the Company is required to pay the floor rate of 4.47%. Income or expense related to settlements under these agreements is recorded as adjustments to interest expense in the Company's financial statements. The fair market value of the Company's derivative instruments outlined above approximates a gain of $1.4 million as of September 30, 1999 and is based upon the amount at which it could be settled with a third party, although the Company has no current intention to trade any of these instruments and plans to hold them as hedges for the Senior Credit Facility. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - For the Three Months Ended September 30, 1999 and 1998, -- Results of Operations - For the Nine Months Ended September 30, 1999 and 1998, - Liquidity and Capital Resources, - Year 2000 and - Quantitative and Qualitative Disclosures About Market Risk" constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Among the factors that could cause results to differ materially from current expectations are: (i) changes in consumer demand and prices resulting in a negative impact on revenues and margins; (ii) raw material substitutions and increases in the costs of raw materials, utilities, labor and other supplies; (iii) increased competition in the Company's product lines; (iv) changes in capital availability or costs; (v) workforce factors such as strikes or labor interruptions; (vi) the ability of the Company and its subsidiaries to develop new products, identify and execute capital programs and efficiently integrate acquired businesses; (vii) the cost of compliance with applicable governmental regulations and changes in such regulations, including environmental regulations; (viii) the general political, economic and competitive conditions in markets and countries where the Company and its subsidiaries operate, including currency fluctuations and other risks associated with operating in foreign countries; (ix) the ability of the Company, its subsidiaries and those with whom they conduct business to timely resolve Year 2000 issues; and (x) the timing and occurrence (or non-occurrence) of transactions and events which may be subject to circumstances beyond the control of the Company and its subsidiaries. 18 19 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time Ivex and its subsidiaries are involved in various litigation matters arising in the ordinary course of business. Ivex believes that none of the matters in which Ivex or its subsidiaries are currently involved, either individually or in the aggregate, is material to Ivex or IPC. ITEM 5. OTHER INFORMATION. On October 1, 1999, Ivex commenced, subject to stockholder approval, the Ivex Packaging Corporation 1999 Employee Stock Purchase Plan which provides employees with the opportunity to buy shares of Ivex common stock at a discount. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. Exhibit No. Description ----------- ----------- 4.10 Form of Fourth Amendment to Amended and Restated Credit Agreement 10.16 Form of Ivex Packaging Corporation Employee Stock Purchase Plan (b) Reports on Form 8-K. None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IVEX PACKAGING CORPORATION By: /s/ Frank V. Tannura ------------------------------ Frank V. Tannura Executive Vice President and Principal Financial Officer November 12, 1999 19 EX-4.10 2 4TH AMEND TO CREDIT AGMT/1ST AMEND TO SECURITY AGM 1 EXHIBIT 4.10 FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND FIRST AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT AND FIRST AMENDMENT TO AMENDED AND RESTATED SECURITY AGREEMENT (this "Amendment") is entered into as of October 26, 1999 among IPC, INC., a Delaware corporation (the "Borrower"), IVEX PACKAGING CORPORATION, a Delaware corporation ("Holdings"), each of the Borrower's Domestic Subsidiaries (the Borrower's Domestic Subsidiaries, together with Holdings, individually a "Guarantor" and collectively the "Guarantors"), the Lenders party to the Credit Agreement defined below (the "Lenders"), BANK OF AMERICA, N.A. (formerly NationsBank, N.A.), as Administrative Agent (the "Administrative Agent") for the Lenders and BANKERS TRUST COMPANY, as Documentation Agent (the "Documentation Agent") for the Lenders (the Documentation Agent, together with the Administrative Agent, collectively the "Agents"). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement. RECITALS WHEREAS, the Borrower, the Guarantors, the Agents and the Lenders are parties to that certain Amended and Restated Credit Agreement dated as of October 2, 1997 (as amended by that certain First Amendment to Amended and Restated Credit Agreement dated as of October 10, 1997, by that certain Second Amendment to Amended and Restated Credit Agreement dated as of April 3, 1998, by that certain Third Amendment to Amended and Restated Credit Agreement, Consent and Waiver dated as of August 19, 1998 and as may be further amended, modified, supplemented, extended or restated from time to time, the "Credit Agreement"); WHEREAS, the Borrower, the Guarantors, the Documentation Agent and Bank of America, N.A. (formerly NationsBank, N.A.), as Collateral Agent (in such capacity, the "Collateral Agent") are parties to that certain Amended and Restated Security Agreement, dated as of October 2, 1997 (as may be amended, modified, supplemented or restated from time to time, the "Security Agreement"); WHEREAS, the Borrower wishes to amend and modify certain terms of the Credit Agreement and the Security Agreement as more fully set forth below and is requesting that the Required Lenders consent to such amendments and modifications; and WHEREAS, the Agents and the Required Lenders have agreed to amend certain terms of the Credit Agreement and the Security Agreement on the terms, and subject to the conditions, more fully set forth below. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 2 Part I Amendments to Credit Agreement. 1.1. Definitions. (a) Applicable Percentage. (i) The pricing table set forth in the definition of "Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is amended and restated in its entirety to read as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Applicable Applicable Percentage For Percentage For Applicable Applicable Pricing Eurodollar Base Rate Loans Applicable Applicable Percentage for Percentage for Level Leverage Loans that are that are Percentage for Percentage For Eurodollar Base Rate Loans Ratio Revolving Loans Revolving Loans Letter of Commitment Fees Loans that are that are or Tranche A or Tranche A Credit Fees Tranche B Term Tranche B Term Term Loans Term Loans Loans Loans - ----------------------------------------------------------------------------------------------------------------------------------- I <=3.0 to 1.0 1.250% 0.250% 1.250% 0.1875% 1.75% 0.750% - ----------------------------------------------------------------------------------------------------------------------------------- II <=3.50 to 1.0 1.375% 0.375% 1.375% 0.2500% 1.75% 0.750% but > 3.0 to 1.0 - ----------------------------------------------------------------------------------------------------------------------------------- III <=4.0 to 1.0 1.500% 0.500% 1.500% 0.3125% 2.00% 1.00% but > 3.50 to 1.0 - ----------------------------------------------------------------------------------------------------------------------------------- IV > 4.0 to 1.0 1.625% 0.625% 1.625% 0.3750% 2.00% 1.00% - -----------------------------------------------------------------------------------------------------------------------------------
(ii) The first sentence following the pricing table set forth in the definition of "Applicable Percentage" set forth in Section 1.1 of the Credit Agreement is amended and restated in its entirety to read as follows: The Applicable Percentage for Base Rate Loans, Eurodollar Loans, the Letter of Credit Fees and the Commitment Fees shall, in each case, be determined and adjusted quarterly on the date (each a "Calculation Date") five Business Days after the date by which the Borrower is required to provide the officer's certificate in accordance with the provisions of Section 7.1(d); provided that the Applicable Percentage for Base Rate Loans, Eurodollar Loans, the Letter of Credit Fees and the Commitment Fees from October 26, 1999 until the Calculation Date occurring immediately after September 30, 1999 shall be based on Pricing Level IV and, thereafter, the Pricing Level shall be determined by the then current Leverage Ratio; and provided further that if the Borrower fails to 2 3 provide the officer's certificate required by Section 7.1(d) on or before the most recent Calculation Date, the Applicable Percentage for Base Rate Loans, Eurodollar Loans, the Letter of Credit Fees and the Commitment Fees from such Calculation Date shall be based on Pricing Level IV until such time that an appropriate officer's certificate is provided whereupon the Pricing Level shall be determined by the then current Leverage Ratio. (b) EBITDA. The definition of "EBITDA" is amended and restated in its entirety to read as follows: "EBITDA" means, for any period, with respect to Holdings and its Subsidiaries on a consolidated basis, the sum of (a) Net Income for such period plus (b) an amount which, in the determination of Net Income for such period has been deducted for (i) Interest Expense for such period, (ii) total Federal, state, foreign or other income taxes for such period, (iii) all depreciation, amortization and other non-cash charges for such period, all as determined in accordance with GAAP, (iv) the net loss on the sale or disposition of any real property, and (v) all extraordinary losses, all as determined in accordance with GAAP, less (c) an amount which, in the determination of Net Income for such period has been added for (i) the net gain on the sale or disposition of any real property and (ii) all extraordinary gains, all as determined in accordance with GAAP, plus (d) the charges equal to the amount of all transaction costs incurred by Holdings and its Subsidiaries in connection with (A) the initial public offering of the common stock of Holdings, (B) this Credit Agreement, (C) the redemption by Holdings of the Holdings Debentures and (D) the payment by the Borrower of the Subordinated Notes, plus (e) up to $5,000,0000 of restructuring charges incurred between October 26, 1999 and December 31, 2000 and associated with plant closures, severance expenses incurred in connection with such plant closures and other corporate restructuring expenses. 1.2. Leverage Ratio. Clauses (iv) and (v) of Section 7.2(a) of the Credit Agreement are amended and restated in their entirety and new clauses (vi) and (vii) are added to such Section 7.2(a), each to read as follows: (iv) From October 1, 1999 to and including September 30, 2000, 4.25 to 1.0; (v) From October 1, 2000 to and including September 30, 2001, 4.00 to 1.0; (vi) From October 1, 2001 to and including September 30, 2002, 3.75 to 1.0; and (vii) From October 1, 2002 and thereafter, 3.25 to 1.0. 3 4 1.3. Indebtedness. Section 8.1 of the Credit Agreement is amended to delete the word "and" at the end of clause (j) thereof, to add the word "; and" to the end of clause (k) thereof and to add a new clause (l) thereto to read as follows: (l) Indebtedness incurred by one or more Credit Parties, in the form of a Guaranty Obligation, with respect to Indebtedness permitted by Section 8.1(j). Part II Amendments to Security Agreement 2.1. Grant of Security Interest in Collateral. Section 2 of the Security Agreement is amended as follows: (a) Clause (f) thereof is amended to delete the word "securities," set forth therein; and (b) clause (i) of the final paragraph of such Section 2 is amended and restated in its entirety to read as follows: (i) the Collateral shall exclude (A) the Newton Property until such time as any Obligor shall obtain a fee interest in the Newton Property, (B) any shares of capital stock or equity interests which constitute Margin Stock owned by any Obligor and (C) any of the Pledged Collateral (as defined in the Pledge Agreement) and Part III Consent 3.1 Consent to Delivery of Stock Certificates. The Lenders party hereto agree to accept the delivery of the certificates representing the shares of stock identified on the updated Schedule 6.15 to the Credit Agreement and Schedule 2(a) to the Pledge Agreement within sixty (60) days after the date hereof and hereby waive the Credit Parties' obligation to have delivered such certificates on or prior to the date hereof. Part IV Conditions Precedent 4.1. Conditions Precedent. The effectiveness of this Amendment is subject to the satisfaction of each of the following conditions: (a) The Administrative Agent shall have received copies of this Amendment duly executed by the Credit Parties and the Required Lenders. 4 5 (b) The Administrative Agent shall have received copies of resolutions of the Board of Directors of each Credit Party approving and adopting this Amendment, the transactions contemplated herein and authorizing execution and delivery hereof, certified by a secretary or assistant secretary of such Credit Party to be true and correct and in full force and effect as of the date hereof. (c) The Administrative Agent shall have received a certificate of good standing, existence or their equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of such Credit Party's formation. (d) The Administrative Agent shall have received an opinion from counsel to the Credit Parties, in form and substance satisfactory to the Administrative Agent, addressed to the Administrative Agent on behalf of the Lenders and dated as of the date hereof. (e) Each Lender who executes and delivers this Amendment on or before 12:00 p.m. Central Standard Time on October 26, 1999 (provided that this Amendment is approved by the Required Lenders and by the Credit Parties) shall have received an amendment fee in an amount equal to .15% of its total Commitment under the Credit Agreement. (f) Pursuant to Section 7.17 of the Credit Agreement, the Administrative Agent shall have received an updated Schedule 6.15 and Schedule 6.22 to the Credit Agreement and an updated Schedule 2(a) to the Pledge Agreement current to the date hereof. (g) The Administrative Agent shall have received such other documents and information as it deems reasonably necessary. Part V Miscellaneous 5.1. Miscellaneous. (a) The term "Credit Agreement" as used in each of the Credit Documents shall hereafter mean the Credit Agreement as amended by this Amendment and the term "Security Agreement" as used in each of the Credit Documents shall hereafter mean the Security Agreement as amended by this Amendment. Except as herein specifically agreed, the Credit Agreement and the Security Agreement, and the obligations of the Credit Parties thereunder and under the other Credit Documents, are hereby ratified and confirmed and shall remain in full force and effect according to their terms. (b) Each of the Borrower, the Guarantors, the Agents and the Lenders party 5 6 hereto represents and warrants as follows: (i) It has taken all necessary action to authorize the execution, delivery and performance of this Amendment. (ii) This Amendment has been duly executed and delivered by such party and constitutes such party's legal, valid and binding obligations, enforceable in accordance with its terms, except as such enforceability may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting creditors' rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). (iii) No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental authority or third party is required in connection with the execution, delivery or performance by such party of this Amendment. (c) Each Credit Party represents and warrants to the Lenders that (i) the representations and warranties of the Credit Parties set forth in each of Section 6 of the Credit Agreement and Section 5 of the Security Agreement are true and correct as of the date hereof, except those representations and warranties that expressly relate to a specific prior date (ii) no Default or an Event of Default has occurred or is continuing and (iii) it has no claims, counterclaims, offsets, credits or defenses to its obligations under the Credit Documents or to the extent it has any they are hereby released in consideration of the Required Lenders entering into this Amendment. (d) This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telecopy shall be effective as an original and shall constitute a representation that an executed original shall be delivered. (e) THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. [Rest of page intentionally left blank] 6 7 Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. BORROWER: IPC, INC. a Delaware corporation By: Name: Richard R. Cote Title: Vice President and Treasurer GUARANTORS: IVEX PACKAGING CORPORATION a Delaware corporation IVEX PAPER MILL CORPORATION a Delaware corporation IPMC HOLDING CORPORATION a Delaware corporation IPMC, INC. a Delaware corporation VALLEY EXPRESS LINES, INC. a Delaware corporation KAMA OF ILLINOIS CORPORATION a Delaware corporation PACKAGING PRODUCTS, INC. a Delaware corporation CFI INDUSTRIES, INC. a Delaware corporation CFI RECYCLING, INC. a Delaware corporation PLASTOFILM INDUSTRIES, INC. a Delaware corporation TRIO PRODUCTS, INC. a Delaware corporation CRYSTAL THERMOPLASTICS, INC. a Rhode Island corporation 8 ULTRA PAC, INC. a Minnesota corporation BLEYER ACQUISITION, INC. a Delaware corporation PACTUCO ACQUISITION, INC., a Delaware corporation By: Name: Richard R. Cote Title: Vice President and Treasurer of each of the above named Guarantors 9 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement LENDERS: BANK OF AMERICA, N.A. (FORMERLY NATIONSBANK, N.A.), individually in its capacity as a Lender and in its capacity as Administrative Agent and Collateral Agent By: Name: Title: BANKERS TRUST COMPANY, individually in its capacity as a Lender and in its capacity as Documentation Agent By: Name: Title: 10 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement SOCIETE GENERALE, SOUTHWEST AGENCY By: Name: Title: 11 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement ABN AMRO BANK N.V. By: Name: Title: By: Name: Title: 12 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement U.S. BANK NATIONAL ASSOCIATION D/B/A AND F/K/A FIRST BANK NATIONAL ASSOCIATION By: Name: Title: 13 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: 14 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement BANK OF MONTREAL By: Name: Title: 15 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement BHF (USA) CAPITAL CORPORATION By: Name: Title: 16 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement FIRST UNION NATIONAL BANK By: Name: Title: 17 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement CIBC, INC. By: Name: Title: 18 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement CREDIT LYONNAIS CHICAGO BRANCH By: Name: Title: 19 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement BANQUE PARIBAS By: Name: Title: By: Name: Title: 20 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement IMPERIAL BANK, A CALIFORNIA BANKING CORPORATION By: Name: Title: 21 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement THE BANK OF NEW YORK By: Name: Title: 22 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement DLJ CAPITAL FUNDING, INC. By: Name: Title: 23 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement DRESDNER BANK AG NEW YORK AND GRAND CAYMAN BRANCHES By: Name: Title: By: Name: Title: 24 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement BANK ONE, NA (MAIN OFFICE CHICAGO) By: Name: Title: 25 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement THE FUJI BANK, LIMITED By: Name: Title: 26 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement MERITA BANK LTD By: Name: Title: By: Name: Title: 27 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement THE MITSUBISHI TRUST & BANKING CORPORATION CHICAGO BRANCH By: Name: Title: 28 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement VAN KAMPEN CLO I, LIMITED By: Van Kampen American Capital Management Inc., as Collateral Manager By: Name: Title: 29 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement THE SUMITOMO BANK, LTD. By: Name: Title: 30 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement BALANCED HIGH-YIELD FUND I, LTD. By: BHF-Bank Aktiensgesellschaft acting through its New York Branch, as attorney in fact By: Name: Title: 31 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement ALLSTATE INSURANCE COMPANY By: Name: By: _________________________________ Name: _______________________________ Its Authorized Signatories 32 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement KZH-SOLEIL CORPORATION By: Name: Title: 33 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By: Name: Title: 34 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: Name: Title: 35 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement SENIOR DEBT PORTFOLIO By: Boston Management and Research, as Investment Advisor By: Name: Title: 36 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement MERRILL LYNCH PRIME RATE PORTFOLIO By: Merrill Lynch Asset Management, L.P., as Investment Advisor By: Name: Title: 37 Signature Page to Fourth Amendment to Amended and Restated Credit Agreement PARIBAS CAPITAL FUNDING, LLC By: Name: Title: EX-10.16 3 1999 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.16 IVEX PACKAGING CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS. The name of this plan is the Ivex Packaging Corporation 1999 Employee Stock Purchase Plan (the "Plan"). The Plan was adopted by the Board (defined below) on August 10, 1999, subject to the approval of the stockholders of the Company (defined below), which approval is expected to be obtained at the Company's annual meeting of stockholders in 2000. The purpose of the Plan is to provide Employees (defined below) of the Company (defined below), its Parent (defined below) and any Designated Subsidiary (defined below) with the opportunity to purchase Common Stock (defined below) through accumulated payroll deductions. It is the intention of the Company that the Plan qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code (defined below), and that the provisions of the Plan be construed in a manner consistent with the requirements of such Section of the Code. For purposes of the Plan, the following terms shall be defined as set forth below: (1) "Administrator" means the Board, or if and to the extent the Board does not administer the Plan, the Committee in accordance with Section 12 below. (2) "Board" shall mean the Board of Directors of the Company. (3) "Change in Capitalization" shall mean any increase, reduction, change or exchange of Shares for a different number of shares and/or kind of shares or other securities of the Company by reason of a reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants or rights, stock dividend, stock split or reverse stock split, combination or exchange of Shares, repurchase of Shares, change in corporate structure or otherwise. (4) "Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (5) "Committee" shall mean a committee appointed by the Board to administer the Plan and to perform the functions set forth herein. (6) "Common Stock" shall mean the common stock, $0.01 par value, of the Company. 2 (7) "Company" shall mean Ivex Packaging Corporation, a Delaware corporation. (8) "Compensation" shall mean the sum of a Participant's taxable income as reported on his or her Form W-2 by the Company (or on any equivalent tax forms by the Participant's employer in a jurisdiction other than the United States) and salary reductions and salary reductions, if any, pursuant to Code sections 125, 402(e)(3), 402(h), 403(b), 414(h)(2) or 457 (or any analogous provision in any jurisdiction to which the Plan may be extended), but excluding the following: (i) reimbursements or other expense allowances, cash and non-cash fringe benefits, moving expenses, welfare benefits; (ii) Company contributions, other than salary reduction contributions referred to above, to a plan of deferred compensation to the extent contributions are not included in gross income of the Participant for the taxable year in which contributed, or on behalf of a Participant to a Simplified Employee Pension plan to the extent such contribution are deductible under Code section 219, and any distributions from a plan of deferred compensation whether or not includible in the gross income of a Participant when distributed; (iii) amounts realized from the exercise of a non-qualified stock option, or when restricted stock (or property) held by a Participant becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (iv) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (v) any incentive bonus or other compensation paid to a key Employee in connection with the sale of the Company of its assets. (9) "Continuous Status as an Employee" shall mean the absence of any interruption or termination of service as an Employee. Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, its Parent or a Designated Subsidiary, as appropriate, provided that (x) such leave is for a period of not more than 90 days or (y) reemployment with the Company, its Parent or a Designated Subsidiary, as appropriate, is guaranteed by contract or statute upon expiration of such leave. (10) "Designated Subsidiary" shall mean a Subsidiary that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. (11) "Employee" shall mean any person who is customarily employed for at least twenty (20) hours per week and more than five (5) months in a calendar year by the Company, its Parent or a Designated Subsidiary. (12) "Enrollment Date" shall mean the first Trading Day of each Offering Period. (13) "Fair Market Value" as of a particular date shall mean the fair market value of the Shares as determined by the Administrator in its sole discretion; 3 provided, however, that (i) if the Shares are admitted to trading on a national securities exchange, fair market value of the Shares on any date shall be the closing sale price reported for the Shares on such exchange on such date or, if no sale was reported on such date, on the last date preceding such date on which a sale was reported, (ii) if the Shares are admitted to quotation on the National Association of Securities Dealers Automated Quotation ("Nasdaq") System or other comparable quotation system and have been designated as a National Market System ("NMS") security, fair market value of the Shares on any date shall be the closing sale price reported for the Shares on such system on such date or, if no sale was reported on such date, on the last date preceding such date on which a sale was reported, or (iii) if the Shares are admitted to quotation on the Nasdaq System and have not been designated as an NMS security, fair market value of the Shares on any date shall be the average of the highest bid and lowest asked prices of the Shares on such system on such date or, if no bid and ask prices were reported on such date, on the last date preceding such date on which both bid and ask prices were reported. (14) "Hardship" shall mean any of the following that the Administrator determines is sufficient reason to approve a hardship withdrawal or sale of Shares pursuant to Section 8(c) hereof: (i) expenses directly relating to the purchase of a Participant's principal residence (excluding mortgage payments); (ii) prevention of eviction or foreclosure on a Participant's principal residence; (iii) tuition and related educational expenses for the next twelve months for post-secondary education for a Participant or a Participant's spouse or dependents; or (iv) expenses incurred (prior to a Participant's requesting approval for the relevant hardship withdrawal or sale of Shares) by the Participant, the Participant's spouse or the Participant's dependents for medical care for the Participant, the Participant's spouse or the Participant's dependents. (15) "Investment Account" shall mean a Plan account at a brokerage firm or transfer agent, selected by the Company, that is established for each Participant and in which all Shares purchased by the Participant pursuant to the Plan and any dividends or Share splits credited to such Participant=s Investment Account are held until withdrawn, sold or delivered pursuant to Section 7 hereof. (16) "Offering Period" shall mean a period as described in Section 3 hereof. (17) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the granting of an option and at the time of purchase of Shares pursuant to an option granted hereunder, each of the corporations other than the Company owns Shares possessing fifty percent (50%) or more of the total combined voting power of all 3 4 classes of stock in one of the other corporations in such chain, whether or not such corporation now exists or hereafter acquires the Company. (18) "Participant" shall mean an Employee who elects to participate in the Plan pursuant to Section 4 hereof. (19) "Purchase Date" shall mean the last Trading Day of each Offering Period. (20) "Purchase Price" shall mean an amount equal to the lesser of (i) 85% of the Fair Market Value of a Share on the Enrollment Date or (ii) 85% of the Fair Market Value of Share on the Purchase Date. (21) "Restricted Period" shall have the meaning given in Section 8 hereof. (22) "Share" shall mean a share of Common Stock. (23) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations, beginning with the Company, if, at the time of the granting of an option and at the time of purchase of Shares pursuant to an option granted hereunder, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (24) "Trading Day" shall mean a day on which national stock exchanges and the Nasdaq System are open for trading. SECTION 2. ELIGIBILITY. (1) Subject to the limitations set forth in Section 2(b) hereof, any person who is an Employee as of an Enrollment Date shall be eligible to participate in the Plan in accordance with Section 4 hereof and shall be granted an option for the Offering Period commencing on such Enrollment Date. (2) Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted an option under the Plan (i) if such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or 4 5 value of all classes of stock of the Company, its Parent or of any Subsidiary or (ii) if such grant would permit such Employee's right to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company, its Parent and of any Subsidiary to accrue at a rate that exceeds twenty-five thousand dollars ($25,000) of Fair Market Value of such stock (determined at the time such option is granted) for any calendar year in which such option would be outstanding. Any amounts received from an Employee that cannot be used to purchase Shares as a result of this limitation shall be returned as soon as reasonably practicable to the Employee without interest. SECTION 3. OFFERING PERIODS. The Plan shall be implemented by a series of consecutive three-month Offering Periods, with a new Offering Period commencing on the first Trading Day on or after January 1 (beginning in 2001), April 1 (beginning in 2001), July 1 (beginning in 2000), and October 1 (beginning in 2000) of each year, or at such other time or times as may be determined by the Administrator, and ending on the last Trading Day on or before March 31, June 30, September 30 and December 31, respectively, or at such other time or times as may be determined by the Administrator; provided, however, that the first Offering Period under the Plan shall be for a period of approximately nine (9) months commencing on the first Trading Day on or after October 1, 1999 and ending on the last Trading Day on or before June 30, 2000. The Plan shall continue until terminated in accordance with Section 18 hereof. Subject to Section 18 hereof, the Administrator shall have the power to change the duration and/or the frequency of Offering Periods with respect to future offerings and shall use its best efforts to notify Employees of any such change at least fifteen (15) days prior to the scheduled beginning of the first Offering Period to be affected. In no event shall any option granted hereunder be exercisable more than twenty-seven (27) months from its date of grant. SECTION 4. ENROLLMENT; PARTICIPATION. (1) On each Enrollment Date, the Company shall commence an offering by granting each eligible Employee who has elected to participate in such Offering Period pursuant to Section 4(b) hereof an option to purchase on the Purchase Date of such Offering Period up to a number of Shares determined by dividing each Employee's payroll deductions accumulated prior to such Purchase Date and retained in the Participant's account as of such Purchase Date by the applicable Purchase Price; provided that in no event shall a Participant be permitted to purchase during each Offering Period more than 2,500 Shares (subject to any adjustment pursuant to Section 17 hereof), provided, further, that such purchase shall be subject to the limitations set forth in Sections 2(b) and 11 hereof. Exercise of the 5 6 option shall occur as provided in Section 6 hereof, unless the Participant has withdrawn pursuant to Section 9 hereof. The option with respect to an Offering Period shall expire on the Purchase Date with respect to such Offering Period or the withdrawal date, if earlier. (2) Subject to the limitations set forth in Section 2(b) hereof, an Employee may elect to become a Participant in the Plan by completing and filing a subscription agreement authorizing the Company to make payroll deductions (as set forth in Section 5 hereof) at least ten (10) business days prior to the applicable Enrollment Date unless a later time for filing the subscription agreement is set by the Administrator for all Employees. Unless a Participant, by giving written notice (or such other notice as may from time to time be prescribed by the Administrator), elects not to participate with respect to any subsequent Offering Period, the Participant shall be deemed to have accepted each new offer and to have authorized payroll deductions in respect thereof during each subsequent Offering Period. SECTION 5. PAYROLL DEDUCTIONS. (1) An Employee may, in accordance with rules and procedures adopted by the Administrator and subject to the limitation set forth in Section 2(b) hereof, authorize payroll deductions in amounts which are not less than one percent (1%) and not more than ten percent (10%) of such Employee's Compensation on each payday during the Offering Period. Payroll deductions shall commence on the first payroll paid following the Enrollment Date, and shall end on the last payroll paid prior to the Purchase Date of the Offering Period to which the subscription agreement is applicable, unless sooner terminated by the Participant's withdrawal from the Plan or termination of the Participant's Continuous Status as an Employee as provided in Section 9 hereof. A Participant may increase or decrease his or her rate of payroll deductions at any time during an Offering Period, but not more frequently than once during each Offering Period, or as may be determined by the Administrator prior to the commencement of an Offering Period, by giving written notice (or such other notice as may from time to time be prescribed by the Administrator). The change in rate shall be effective the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in rate of payroll deductions more quickly. (2) All payroll deductions made by a Participant shall be credited to such Participant's account under the Plan and shall be withheld in whole percentages only. A Participant may not make any additional payments into such account. (3) Notwithstanding the foregoing, to the extent necessary to 6 7 comply with Section 423(b)(8) of the Code and Section 2(b) hereof, a Participant's rate of payroll deductions may be decreased by the Company to zero percent (0%) at any time during an Offering Period. Payroll deductions shall recommence at the rate provided for in such Participant's subscription agreement at the beginning of the first Offering Period which is scheduled to end the following calendar year, unless a Participant increases or decreases the rate of his or her payroll deductions as provided in Section 5(a) hereof, or terminates his or her participation in the Plan as provided in Section 9 hereof. SECTION 6. PURCHASE OF SHARES. Subject to the limitations set forth hereunder, unless a Participant withdraws from the Plan as provided in Section 9 hereof, such Participant's election to purchase Shares shall be exercised automatically on each Purchase Date, and the maximum number of whole and partial Shares subject to option shall be purchased for each Participant at the applicable Purchase Price with the accumulated payroll deductions in each Participant's account as of the Purchase Date. Any payroll deductions remaining in a Participant's account following the purchase of Shares on any Purchase Date shall be returned to the Participant as soon as reasonably practicable following the Purchase Date. During a Participant's lifetime, a Participant's option to purchase Shares hereunder is exercisable only by the Participant. SECTION 7. DELIVERY OF SHARES; WITHDRAWAL OR SALE OF SHARES. (1) As promptly as reasonably practicable after each Purchase Date, the Company shall arrange the delivery of the Shares purchased on such date by each Participant to each Participant's Investment Account. (2) At any time after the Restricted Period with respect to any or all of a Participant's Shares held in his or her Investment Account has ended, the Participant (or, in the event of the Participant's death, the designated beneficiary, if any, or other appropriate person as set forth in accordance with Section 13 hereof) may submit a written request to the Company for withdrawal of such Shares from the Investment Account, or, in the alternative (with the consent of the brokerage firm or transfer agent at which the Participant's Investment Account is located), the Participant (or another person in accordance with Section 13 hereof) may direct the sale of such Shares by such brokerage firm or transfer agent. As promptly as practicable after receipt by the Company (or the brokerage firm or transfer agent) of such written request for withdrawal of such shares, the Company or the brokerage firm or transfer agent shall arrange the delivery to the Participant of a share certificate representing such Shares. 7 8 SECTION 8. RESTRICTIONS ON SALE OF STOCK. (1) Shares purchased pursuant to a Participant's exercise of an option under the Plan may not be sold by the Participant or withdrawn from the Participant's Investment Account during the Restricted Period with respect to such Shares. Subject to Sections 8(b) and 8(c) hereof, the Restricted Period with respect to any option Shares so purchased shall be the one year period immediately following the Purchase Date on which such Shares were purchased. For purposes of determining their Restricted Period, Shares received in Share dividends or Share splits on such option Shares shall be deemed to have been purchased on the same Purchase Date as such option Shares. (2) Notwithstanding the above, the Restricted Period with respect to all Shares held in a Participant's Investment Account shall end upon the termination of the Participant's Continuous Status as an Employee. (3) If the Administrator approves a written request by a Participant for a Hardship withdrawal or sale of Shares, the Restricted Period shall end upon a date determined by the Administrator with respect to such number of Shares held in a Participant's Investment Account as the Administrator shall determine. Any such determination or approval shall be made by and in the sole discretion of the Administrator. A Participant may request approval for a Hardship withdrawal or sale of Shares by filing a form with the Company which certifies that (i) the Hardship is of a type recognized by the Plan, and (ii) that the Hardship sale of such Shares will not generate proceeds in excess of the amount of the Participant's immediate and heavy financial need. Upon approval of a Hardship withdrawal or sale of Shares, the Participant must also withdraw from the Plan for the current Offering Period. A Participant who is then an Employee may rejoin the Plan for any subsequent Offering Period by complying with enrollment the procedures set forth in Section 4 hereof. SECTION 9. WITHDRAWAL; TERMINATION OF EMPLOYMENT. (1) A Participant may withdraw all, but not less than all, of the payroll deductions credited to such Participant's account (that have not been used to purchase Shares) under the Plan by giving written notice to the Company at least five (5) business days prior to the Purchase Date of the Offering Period in which the withdrawal occurs. Withdrawal of payroll deductions shall be deemed to be a withdrawal from the Plan. All of the payroll deductions credited to such Participant's account (that have not been used to purchase Shares) shall be paid to such Participant promptly after receipt of such Participant's notice of withdrawal, and such Participant's eligibility to participate in the Plan for the Offering Period in which the 8 9 withdrawal occurs shall be automatically terminated. No further payroll deductions for the purchase of Shares shall be made for such Participant during such Offering Period. If a Participant withdraws from an Offering Period, payroll deductions for such Participant shall not resume at the beginning of the succeeding Offering Period unless the Participant timely delivers to the Company a new subscription agreement in accordance with the provisions of Section 4 hereof. A Participant's withdrawal from an Offering Period shall not have any effect upon a Participant's eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after termination of the Offering Period from which the Participant withdraws. (2) Upon termination of a Participant's Continuous Status as an Employee during the Offering Period for any reason, including Participant's voluntary termination, retirement or death, all the payroll deductions credited to such Participant's account (that have not been used to purchase Shares) shall be returned to such Participant or, in the case of such Participant's death, to the person or persons entitled thereto under Section 13 hereof, and such Participant's option shall be automatically terminated. Such termination shall be deemed a withdrawal from the Plan. SECTION 10. DIVIDENDS; SHARE SPLITS; INTEREST. Cash dividends paid on Shares held in a Participant's Investment Account shall be paid to the Participant as soon as practicable. Share splits of, or dividends paid in Shares on, the Shares held in the Participant's Investment Account shall be held in the Participant's Investment Account until withdrawn or sold in accordance with Section 9 hereof. Dividends paid in property other than cash or Shares shall be distributed to the Participant as soon as practicable. No interest shall accrue on or be payable by the Company with respect to the payroll deductions of a Participant in the Plan. SECTION 11. STOCK SUBJECT TO PLAN. (a) Subject to adjustment upon Changes in Capitalization of the Company as provided in Section 17 hereof, the maximum aggregate number of Shares which shall be reserved for sale under the Plan for all Offering Periods that commence during each fiscal year of the Company occurring during the term of the Plan shall be 300,000 Shares. Such Shares shall be available as of the first day of the first Offering Period that commences in each such fiscal year. The Shares may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. If the total number of Shares which would otherwise be subject to options granted pursuant to Section 2(a) hereof on an Enrollment Date exceeds the number of Shares 9 10 then available under the Plan (after deduction of all Shares for which options have been exercised or are then outstanding), the Administrator shall make a pro rata allocation of the Shares remaining available for option grant in as uniform a manner as shall be practicable and as it shall determine to be equitable. In such event, the Administrator shall give written notice to each Participant of such reduction of the number of option Shares affected thereby and shall similarly reduce the rate of payroll deductions, if necessary. (b) No Participant shall have rights as a stockholder with respect to any option granted hereunder until the date on which such Shares shall be deemed to have been purchased by the Participant in accordance with Section 6 hereof. (c) Shares purchased on behalf of a Participant under the Plan shall be registered in the name of the Participant or, if requested in writing by the Participant, in the names of the Participant and the Participant's spouse. SECTION 12. ADMINISTRATION. The Plan shall be administered by the Board or a Committee. The Board or the Committee shall have full power and authority, subject to the provisions of the Plan, to promulgate such rules and regulations as it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, and to take all action in connection therewith or in relation thereto as it deems necessary or advisable. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting duly held. The Company shall pay all expenses incurred in the administration of the Plan. No member of the Board or Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan, and all members of the Board or Committee shall be fully indemnified by the Company with respect to any such action, determination or interpretation. All decisions, determinations and interpretations of the Board or Committee shall be final and binding on all persons, including the Company, its Parent, any Subsidiary, the Employee (or any person claiming any rights under the Plan through any Employee) and any stockholder of the Company, its Parent or any Subsidiary. SECTION 13. DESIGNATION OF BENEFICIARY. (1) A Participant may file, on forms supplied by and delivered to the Company, a written designation of a beneficiary who is to receive Shares and/or cash, if any, remaining in such Participant's cash account or Investment Account 10 11 under the Plan in the event of the Participant's death. (2) Subject to applicable law, such designation of beneficiary may be changed by the Participant at any time by written notice. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver the balance of the Shares and/or cash credited to Participant's account to the executor or administrator of the estate of the Participant or, if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such Shares and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. SECTION 14. TRANSFERABILITY. Neither payroll deductions credited to a Participant's account nor any rights with regard to the exercise of an option or any rights to receive Shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by the laws of descent and distribution or as provided in Section 13 hereof) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with Section 9 hereof. SECTION 15. USE OF FUNDS. All payroll deductions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. SECTION 16. REPORTS. Individual accounts shall be maintained by the Company for each Participant in the Plan which account shall be separate from the Investment Accounts. Statements of account shall be given to each Participant at least annually which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of Shares purchased and the remaining cash balance, if any. SECTION 17. EFFECT OF CERTAIN CHANGES. In the event of a Change in Capitalization or the distribution of an extraordinary dividend, the Administrator shall conclusively determine the appropriate equitable adjustments, if any, to be made under the Plan, including 11 12 without limitation adjustments to the number of Shares which have been authorized for issuance under the Plan, but have not yet been placed under option, as well as the Purchase Price of each option under the Plan which has not yet been exercised. In the event of a change in control of the Company, the Offering Period shall terminate unless otherwise provided by the Administrator. SECTION 18. AMENDMENT OR TERMINATION. The Board may at any time terminate or amend the Plan. Except as provided in Section 17 hereof, no such termination may adversely affect options previously granted and no amendment may make any change in any option theretofore granted which adversely affects the rights of any Participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required. SECTION 19. NOTICES. All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when they are received in a timely manner in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. SECTION 20. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW. (a) This Plan and the rights of all persons claiming hereunder shall be construed and determined in accordance with the laws of the State of Illinois without giving effect to the choice of law principles thereof, except to the extent that such law is preempted by Federal law. (b) The obligation of the Company to sell or deliver Shares with respect to options granted under the Plan shall be subject to all applicable laws, rules and regulations, including all applicable federal and state securities laws, and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Administrator. SECTION 21. WITHHOLDING OF TAXES. If the Participant makes a disposition, within the meaning of Section 424(c) of the Code of any Share or Shares issued to Participant pursuant to Participant's exercise of an option, and such disposition occurs within the two-year period commencing on the day after the Enrollment Date or within the one-year 12 13 period commencing on the day after the Purchase Date, Participant shall, within ten (10) days of such disposition, notify the Company thereof and thereafter immediately deliver to the Company any amount of Federal, state or local income taxes and other amounts which the Company informs the Participant the Company may be required to withhold. SECTION 22. EFFECTIVE DATE. The Plan shall be effective as of October 1, 1999 (the "Effective Date"), subject to the approval of the Plan by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. SECTION 23. TERM OF PLAN. No option shall be granted pursuant to the Plan and no Offering Period shall commence on or after the tenth anniversary of the Effective Date, but options theretofore granted may extend beyond that date. 13 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 4,057 0 102,145 3,659 90,589 199,972 456,370 191,442 633,395 127,027 436,286 0 0 209 44,002 633,395 470,377 470,377 354,978 354,978 0 0 22,473 33,657 11,664 21,993 0 0 0 21,993 1.05 1.05
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