-----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, KWYGXD/ngzfWWlKSY37JTk35CPrtIGqZV9zuju2lEKCT9+axmJ7H/HjirbvimyGK ig7ad2GPGRDxBT9/jBk1+A== 0001047469-98-022023.txt : 19980529 0001047469-98-022023.hdr.sgml : 19980529 ACCESSION NUMBER: 0001047469-98-022023 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACKAGING RESOURCES INC CENTRAL INDEX KEY: 0000825790 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 363321568 STATE OF INCORPORATION: DE FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 033-81824 FILM NUMBER: 98632764 BUSINESS ADDRESS: STREET 1: ONE CONWAY PARK STREET 2: 100 FIELD DR STE 300 CITY: LAKE FOREST STATE: IL ZIP: 60045 BUSINESS PHONE: 7082966100 MAIL ADDRESS: STREET 1: 100 FIELD DRIVE STREET 2: STE 300 CITY: LAKE FOREST STATE: IL ZIP: 60045 10-K405 1 10-K405 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------------- For the fiscal year ended February 28, 1998 Commission file number 333-05885 PACKAGING RESOURCES INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 36-3321568 (State of Incorporation or organization) (IRS Employer Identification No.) One Conway Park 100 Field Drive, Suite 300 Lake Forest, Illinois 60045 (847) 295-6100 (Address, including zip code and telephone number, including area code, of registrant's principal executive offices) ---------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of May 28, 1998, 1,000 shares of the registrant's common stock, $0.01 par value per share, were outstanding. None of the outstanding shares were held by non-affiliates. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of Item 14 of Part IV are incorporated by reference to the registrant's Registration Statement on Form S-1 (Commission File No. 333-05885) filed on June 13, 1996 and certain exhibits to such Registration Statement. - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. GENERAL Packaging Resources Incorporated (the "Company" or "PRI") is a leading developer, manufacturer and marketer of rigid plastic packaging, serving primarily as a supplier of customized containers for national branded consumer products. The Company is the largest domestic manufacturer of refrigerated yogurt containers, shelf stable, multi-layer (impermeable to air and moisture) containers for nutritional supplements and frosting containers. The Company also is a leading designer, manufacturer and supplier of promotional beverage cups in the United States, marketing these products primarily to the fast-food and beverage industries. For the fiscal year ended February 28, 1998, the Company generated net sales of $121.3 million. Approximately 87% of the Company's net sales in such period were attributable to rigid plastic packaging and 13% to promotional beverage cups. The Company's packaging products are sold to over 450 customers, including manufacturers of national branded food, dairy and pharmaceutical products such as General Mills, Inc. ("General Mills"), including its Yoplait U.S.A. division ("Yoplait"), The Dannon Company, Inc. ("Dannon"), Ross Laboratories ("Ross Labs"), a division of Abbott Laboratories, Inc. ("Abbott Labs"), The Haagen Dazs Company, Inc. ("Haagen Dazs") and Pillsbury Company ("Pillsbury"). The Company is also a major supplier of promotional beverage cups to over 150 companies in the fast-food, sports stadium and beverage industries, including McDonald's, Pizza Hut, Taco Bell, Coca-Cola and Pepsi. PRI was formed as a Delaware corporation in 1984. In 1993, PRI became a wholly-owned subsidiary of Packaging Resources Group, Inc. ("Group"), a Delaware corporation that was formed at such time. PRODUCTS AND CUSTOMERS The Company's products are divided into two categories: rigid plastic packaging and promotional beverage cups. RIGID PLASTIC PACKAGING The Company serves a number of niche markets within the rigid plastic packaging industry with products that include various sizes of refrigerated yogurt containers, multi-layer containers for nutritional supplements and infant formula and frosting cans and lids. The Company also produces containers and lids for manufacturers of cottage and ricotta cheeses, whipped toppings, teas, dry soups, ice cream, cookie dough and dry roasted nuts. The Company sells its products to over 450 customers throughout the United States, including the following manufacturers of nationally branded products: General Mills Ross Labs (a division of Abbott Labs) The Dannon Company Yoplait (a division of General Mills) Pillsbury General Foods Tetley Tea Company Haagen Dazs The Company supplies substantially all of the single-serving yogurt containers used by Dannon and Yoplait. The Company is the sole source supplier of the multi-layer plastic container used by Ross Labs for its ENSURE-Registered Trademark- nutritional supplement and SIMILAC-Registered Trademark- infant formula product lines. The Company is also the sole supplier of plastic frosting cans and lids for Pillsbury and supplies substantially all the frosting containers and lids used by General Mills. General Mills (including Yoplait), Dannon and Ross Labs represented approximately 29%, 19% and 17%, respectively, of the Company's total net sales in the fiscal year ended February 28, 1998. -1- PROMOTIONAL BEVERAGE CUPS The Company is engaged in the design, manufacture and marketing of a wide assortment of promotional beverage cups. The Company's promotional cup products include beverage cups ranging in size from 12 ounces to 64 ounces. Promotional beverage cups are marketed directly to fast-food and beverage companies, such as McDonald's, Pizza Hut, Taco Bell, Coca-Cola and Pepsi, as well as to specialty distributors for resale to fast-food and beverage companies, sports stadiums, movie theaters and food service companies. The promotional beverage cup business is seasonal and generally peaks with consumption of soft drinks during the spring and summer months. This business is primarily supported by beverage companies attempting to stimulate syrup sales to fast-food operators and by fast-food companies featuring promotional cups with theme action figures and personalities in connection with campaigns linked to the release of major motion pictures or sporting events. MARKETING AND SALES The Company directs its sales effort by utilizing its technical expertise, diverse production capabilities (injection molding and linear melt phase thermoforming ("thermoforming")) and graphics capabilities to serve the needs of its new and existing customers. The Company's comprehensive, multiple-channel sales and marketing approach includes both the personnel in its technical centers as well as its direct sales force. By utilizing the capabilities provided by its technical centers and staff, the Company is able to create prototypes when introducing new products or concepts to its customers. Sales representatives marketing rigid plastic packaging solutions focus on national branded consumer food producers, while representatives selling promotional beverage cups focus on soft drink distributors, fast food chains and stadium promoters. Customer relationships in the food, dairy and pharmaceutical packaging industry generally are developed and maintained over extended periods. These relationships develop because of the high degree of coordination necessary between packaging suppliers and their customers to ensure that packaging parts conform precisely to the tolerances of the high speed automated filling systems commonly employed by customers. Pursuant to multi-year supply agreements with Yoplait, Dannon and Ross Labs, PRI manufactures and sells substantially all of the plastic containers required for the yogurt products of Dannon and Yoplait and the nutritional supplement and infant formula products of Ross Labs. The prices provided for in these supply agreements generally are based on volume levels and are subject to (i) adjustments for increases or decreases in resin prices and (ii) annual negotiated adjustments relating to cost elements other than resin price. The products manufactured under these agreements generally require the use of proprietary tooling and molds, some of which are owned by the Company. In certain cases, the tooling and molds owned by the Company are subject to purchase options which may be exercised by the customer upon termination of the applicable supply agreement. Certain of these supply agreements prohibit the Company from selling similar containers to the customer's competitors. The Company's current supply agreement with Dannon for eight ounce containers expires in December 1999. The Company's current supply agreements with Dannon for four ounce containers and six ounce containers expire in December 1998. The Company's current supply agreement with Yoplait for six ounce containers expires in December 1999. The Company's current supply agreement with Yoplait for four ounce containers expires in February 2003. During fiscal 1998 Yoplait advised PRI that, based on its decision to introduce a new packaging design, PRI will no longer serve as the supplier of the Yoplait six ounce yogurt container after December 31, 1999. During the fiscal year ended February 28, 1998, these containers accounted for approximately 23% of the Company's net sales. The current supply agreement with Ross Labs was entered into in January 1991 and expired in December 1997. PRI and Ross Labs have agreed to operate under the expired agreement while negotiations for a new long-term supply agreement are being finalized. All of PRI's supply agreements require PRI to satisfy certain product quality standards. Yoplait, Dannon and Ross Labs have been customers of the Company (or businesses acquired by the Company) since 1979, 1984 and 1991, respectively. While PRI anticipates that it will be able to extend or renew its existing supply agreements with its customers, except as noted above, on substantially similar terms, no assurance can be given that it will be able to do so. -2- MANUFACTURING The Company has production capabilities in injection molding and thermoforming. Because each of these processes offers advantages in achieving certain performance features such as structural strength, rigidity and graphics retention, the Company is able to be highly responsive to customer requirements and preferences by offering a broader range of packaging alternatives than many of its competitors. Management believes that the Company is the largest manufacturer of injection molded products in the domestic rigid plastic packaging and promotional beverage cup industries. Injection molding involves the injection of molten plastic into multi-cavity male and female molds at extremely high temperatures and the application of pressure to force the plastic to take the desired form. The Company operates high speed injection molding machines utilizing modern multi-cavity hot and cold runner molds. The Company's four 660 ton clamp capacity injection molding machines are designed specifically to produce lightweight, thin-walled parts and are among the most technologically advanced machines of their kind. They are controlled by micro-processors that provide statistical process control and state-of-the-art diagnostic capabilities. Unlike most of its competitors, the Company has the in-house capability to design, test and produce production molds for its injection molding machines. Injection molding generally provides more flexibility in part design than other forming processes. The use of male and female molds allows both interior and exterior surfaces to incorporate special design features. In addition, injection molding results in highly uniform parts with surfaces that can be more easily textured, pigmented and decorated. Further, injection molding requires relatively little floor space, thus reducing associated overhead costs. In the thermoforming process, an extruded sheet formed from plastic resins is rolled over a multi-cavity female steel mold and heated to its precise melting point. Parts are then formed and cut with a vacuum mold in a single operation. As with injection molding, the process concludes with the molded product being ejected for automated handling and processing. Thermoforming employs molds with higher cavitations than are presently feasible in other manufacturing processes and, therefore, is a low-cost means of manufacturing customized packaging products for high volume markets. Moreover, thermoforming equipment can be retooled relatively quickly and inexpensively, making the process well-suited for production runs requiring fast changeover times. The Company has developed thermoforming technologies that enable substantially all unused portions of the extruded sheet to be immediately recycled into the manufacturing process, resulting in reduced product cost and waste. When employed in conjunction with co-extrusion, thermoforming permits the manufacture of shelf stable plastic containers with excellent rigidity and heat resistance properties. Under this process, materials that combine to incorporate the precise properties required by the customer are co-extruded into a multi-layer sheet and then thermoformed into a container. In the manufacture of shelf stable plastic packaging, the co-extruded sheet contains co-polymer materials such as vinyl alcohol which effectively prevents gas and moisture from permeating a container. The Company's thermoforming lines are used principally in the manufacture of yogurt containers and packaging for nutritional supplements and infant formula. The Company believes that its thermoforming and co-extrusion abilities are among the most advanced in the rigid plastic packaging industry. Another important element of the Company's manufacturing technologies is its Autoweld-Registered Trademark- system. Autoweld-Registered Trademark- is a spin-welding process that joins pre-formed packaging parts with friction. The Company's most widely distributed product assembled with the Autoweld-Registered Trademark- process is the Yoplait yogurt container which is filled, assembled and sealed with equipment designed by the Company. Yoplait maintains such equipment at its various production facilities. The Company has the ability to produce state-of-the-art graphics on plastic packaging and promotional cups. The Company uses advanced computer technology and color processing to create photograph-like images on pre-formed plastic containers and cups. Also, the Company has the technology and high speed equipment to attach labels or souvenir cards to plastic cups. -3- The Company, like its competitors, is subject to rigorous quality control standards imposed by its customers. The Company has implemented a comprehensive quality assurance program, which includes computer-aided testing of parts for size, color, strength and, where appropriate, barrier properties. Using advanced laser measuring technology as well as state-of-the-art high speed vision systems, the Company is able to satisfy and exceed the most demanding customer requirements. Statistical quality control methods are also used to promote total customer satisfaction. The Company's manufacturing operations are conducted in four facilities. The Company's geographic coverage and the proximity of its facilities to major customers reduce transportation costs and enable the Company to more effectively serve its customers, many of which maintain "just-in-time" inventory systems. TECHNICAL CENTERS The Company's two technical centers feature extensive in-house design, engineering, tooling, prototype production and processing capabilities utilizing CAD/CAM technology. In addition to overseeing the ongoing maintenance and performance of the Company's manufacturing operations, these technical centers provide key support for the Company's marketing efforts. In this regard, the Company's in-house design and production engineers work closely with existing and potential customers in the preliminary stages of product design and development, in many instances using single cavity thermoforming and injection molding machines which are dedicated to product research and development to test prototype molds and packaging parts. Substantially all of the production molds used by the Company's injection molding machines are designed and manufactured at the Company's New Vienna, Ohio technical center. Thermoforming molds are designed by personnel at the Company's Coleman, Michigan technical center and outsourced for fabrication to various tooling shops with which the Company has long-established relationships. In the fiscal year ended February 28, 1998, the Company spent approximately $2.1 million on research and development activities. Management believes that the Company's in-house design, engineering and graphics capabilities are among the most extensive and sophisticated in the industry and significantly reduce the Company's tooling and equipment costs as well as product development time. COMPETITION The Company's business is highly competitive, with the degree of competition varying by product. Major competitive factors in the Company's business are product quality and differentiation, graphics design and print quality, innovation, service and price. As more companies adopt "just-in-time" inventory systems, delivery lead time has also taken on increased importance. Since the Company's products are shipped by customers' trucks or common carrier, the proximity of the manufacturing facility to the customer's plant can significantly affect the price of products. The locations of the Company's facilities make it well-positioned to serve national markets. Because the Company's products are bulky and shipping costs are relatively high, foreign competition has not been an important factor. The Company's main competitors in the rigid plastic packaging business are Landis Plastics, Inc., Airlite Plastics Company, Polytainers Inc. and Fabri-Kal Corp. It also competes, to a lesser extent, with Mount Vernon Plastics, a subsidiary of Reynolds Metals Co. In the promotional beverage cup business, the Company's principal competitors are Berry Sterling, Pescor, Canada Cup, a division of James River Corp. of Virginia, and Sweetheart Cup Company Inc. -4- RAW MATERIALS The raw materials used by the Company for the manufacture of plastic containers and promotional beverage cups are primarily resins in pellet form such as polyethylene, polypropylene and polystyrene. The Company's resin supplies are purchased under agreements with several suppliers for unspecified quantities. The price the Company pays for resin is determined at the time of purchase. The Company believes that its resin volume requirements are among the largest in the industry, and that its ability to purchase such materials in large quantity shipments enables it to obtain favorable pricing. Most of the plastic resins used by the Company are available from a variety of sources. The Company's current supply agreement with Ross Labs requires that it purchase one of several of the resins required for the shelf stable, multi-layer containers that the Company manufactures for Ross Labs exclusively from Exxon Corporation ("Exxon"). During the fiscal year ended February 28, 1998, this resin accounted for approximately 5.5% of the resins purchased by the Company. The Company has relied on Exxon as the sole source supplier of this particular resin since it began manufacturing products for Ross Labs in 1991 and has no reason to believe that Exxon will not continue to supply the Company with this resin. However, there can be no assurance that Exxon will be able to continue to supply the Company with adequate amounts of this resin on a timely basis in the future to allow the Company to meet its production requirements for Ross Labs containers. The unanticipated loss of Exxon as a supplier or a delay in its shipments could have a material adverse effect on the Company's business, financial condition and results of operations. PRI maintains a renewable one-year supply contract with Exxon which is scheduled to expire on February 28, 1999. With the exception of its relationship with Exxon, the Company does not believe that it is materially dependent upon any single source for any of its raw materials. The Company anticipates that it will be able to purchase sufficient quantities of resin for the foreseeable future. However, should any of its suppliers fail to deliver under their arrangements, the Company would be forced to purchase raw materials on the open market, and no assurances can be given that it would be able to make such purchases at prices which would allow it to remain competitive. Over one-half of the Company's net sales in the fiscal year ended February 28, 1998 were made pursuant to multi-year customer supply agreements that generally allow the Company to pass through increases in resin prices (and obligate the Company to pass on resin price decreases) to customers. Such pass-through provisions do not pertain to the Company's sales of promotional beverage cups which are generally made on a purchase order basis. The risk associated with resin price fluctuations in promotional beverage cup sales is mitigated in many instances by the relatively short time period between product order and delivery (approximately 3 to 6 weeks). Promotional beverage cups accounted for 13% of the Company's net sales during the fiscal year ended February 28, 1998. ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION The past and present operations of the Company and the past and present ownership and operations of real property by the Company are subject to extensive and changing federal, state and local environmental laws and regulations pertaining to the discharge of materials into the environment, the handling and disposition of wastes or otherwise relating to the protection of the environment. The Food and Drug Administration regulates the material content of direct-contact food containers and packages, including certain containers manufactured by the Company. The Company uses approved resins and pigments in its direct-contact food products. The Company, like all companies in the plastics industry, is also subject to federal, state, local and foreign legislation designed to reduce solid wastes by requiring, among other things, plastics to be degradable in landfills, minimum levels of recycled content, various recycling requirements, disposal fees and limits on the use of plastic products. In addition, various consumer and special interest groups have lobbied from time to time for the implementation of additional environmental protection measures. -5- PATENTS AND TRADEMARKS The Company owns a number of patents and trademarks. However, the Company believes that the design, innovation and quality of its products and its relationships with its customers are substantially more important to the maintenance and growth of its business than its patents and trademarks. Accordingly, the Company does not believe that its business is dependent to any material extent upon any single patent or group of patents. EMPLOYEES As of February 28, 1998, the Company had approximately 885 employees, of which 797 were engaged in production or production support, 52 in research, development and engineering, 22 in marketing and sales and 14 in corporate management and administration. None of the Company's employees are covered by a collective bargaining agreement. ITEM 2. PROPERTIES. The Company's operations are conducted through five facilities in four states within the United States. The Company's principal executive offices are located in Lake Forest, Illinois and are leased by the Company. The Company's facilities are designed to provide for efficient manufacturing, material handling and storage of its products and no facility is materially underutilized. Management believes that substantially all of the Company's property and equipment is in good condition and that it has sufficient capacity to meet its current manufacturing and distribution requirements. The following table provides certain information regarding the Company's operating facilities.
BUILDING FACILITY OWNERSHIP SQ. FEET FUNCTION LEASE EXPIRATION Coleman, MI Owned 123,000 Manufacturing/Technical Center - Kansas City, MO Leased 254,000 Manufacturing October 31, 2005 Mt. Carmel, PA Owned 141,000 Manufacturing - New Vienna, OH Owned 240,000 Manufacturing - New Vienna, OH Owned 63,000 Technical Center -
The Company owns a 40,000 square foot building in Ft. Worth, Texas that is currently for sale. In addition, the Company is a lessee under a long-term lease for a 133,014 square foot manufacturing facility that PRI formerly occupied in Cedar Grove, New Jersey. PRI has entered into a sub-lease with respect to the Cedar Grove facility that is scheduled to expire concurrently with the Company's underlying lease in June 2000. The owned facilities in Coleman, Michigan, Ft. Worth, Texas, Mt. Carmel, Pennsylvania, and New Vienna, Ohio are subject to a mortgage, and the leased facility in Kansas City, Missouri is subject to a leasehold mortgage, in favor of the trustee under the Indenture governing the Senior Secured Notes (as defined below) to secure the obligations under such Senior Secured Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operation--Liquidity and Capital Resources." ITEM 3. LEGAL PROCEEDINGS. Management does not believe that any of the litigation in which the Company is currently engaged will have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. -6- Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. All of the outstanding common stock of the Company is held by Group. All of the outstanding common stock of Group is held by HPH Industries, Ltd. ("HPH"), which is wholly-owned by Howard P. Hoeper, the Chairman of the Board of Directors, Chief Executive Officer and President of Group and PRI. As of February 28, 1998, assuming the exercise of all outstanding warrants to acquire the common stock of Group ("Warrants"), HPH, Apollo Packaging Partners, L.P., a Delaware limited partnership and an affiliate of Apollo Advisors, L.P. ("Apollo"), and TCW/Crescent Mezzanine Partners, L.P. ("TCW Partners"), together with TCW/Crescent Mezzanine Trust ("TCW Trust"), would beneficially own 60%, 29.3% and 10.7% of such stock, respectively. TCW Partners and TCW Trust (and together with TCW/Crescent Mezzanine Investment Partners, L.P., the "TCW Entities") are affiliates of Trust Company of the West. The holders of at least 25% of the Warrants (or shares of capital stock of Group obtainable upon exercise of the Warrants) on up to three separate occasions may require Group, subject to certain conditions, to effect the registration of such securities under the Securities Act of 1933, as amended (the "Securities Act"). In addition to such demand registration rights, such holders also may, subject to certain limitations, require Group to register such securities if Group registers any of its equity securities under the Securities Act. See "Certain Relationships and Related Transactions -- Equity Registration Rights Agreement." Except for a dividend of $31.8 million to the Company's sole stockholder in May 1996 from the net proceeds from the issuance of the Company's Senior Secured Notes (as defined below), no dividends have been declared on the Company's common stock nor does the Company intend to declare any such dividends in the forseeable future. The Indenture governing the Senior Secured Notes and the Credit Agreement (as defined below) restrict the Company's ability to pay dividends in respect of the Company's common stock based on, among other things, the Company's fixed charge coverage ratio and consolidated net income. See "Management's Discussion and Analysis of Financial Condition and Results of Operation -- Liquidity and Capital Resources." ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data are derived from the financial statements of the Company which have been audited by KPMG Peat Marwick LLP, independent auditors. The data should be read in conjunction with the financial statements, related notes and other financial information included herein and Management's Discussion and Analysis of Financial Condition and Results of Operation.
Fiscal Year Ended --------------------------------------------------------------- Feb. 28 Feb. 28 Feb. 29 Feb. 28 Feb. 28 1994 1995 1996 1997 1998 (dollars in thousands) STATEMENT OF OPERATIONS DATA: Net sales $118,844 $135,696 $132,852 $120,086 $121,303 Cost of goods sold 93,248 113,928 110,544 98,942 99,998 -------- -------- -------- -------- -------- Gross profit 25,596 21,768 22,308 21,144 21,305 Selling, general and administrative expenses 6,657 8,407 6,864 6,983 5,897 Amortization of intangibles 1,122 3,102 2,434 712 712 Other expense (a) - - - - 800 Nonrecurring charge (b) - 7,257 - - - -------- -------- -------- -------- -------- Operating income 17,817 3,002 13,010 13,449 13,896 Interest expense 5,482 8,503 10,671 12,711 13,580 -------- -------- -------- -------- -------- Income (loss) before income taxes, extraordinary item and cumulative effect of change in accounting principle 12,335 (5,501) 2,339 738 316 Income tax expense (benefit) 5,057 (1,980) 1,006 491 346 -------- -------- -------- -------- -------- Income (loss) before extraordinary item and cumulative effect of change in accounting principle 7,278 (3,521) 1,333 247 (30) Extraordinary item, net (c) (2,743) - - (1,139) - Cumulative effect of change in accounting principle (d) (2,300) - - - - -------- -------- -------- -------- -------- Net income (loss) $ 2,235 $ (3,521) $ 1,333 $ (892) $ (30) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- OTHER OPERATING DATA: EBITDA (e) $ 24,096 $ 20,751 $ 22,731 $ 21,488 $ 22,616 Depreciation and amortization (f) 6,279 10,492 9,721 8,039 7,920 Capital expenditures (g) 5,556 7,925 3,449 7,629 9,130 Ratio of earnings to fixed charges (h) 3.00x (i) 1.21x 1.06x 1.02x
-7- (a) The other expense in the fiscal year ended February 28, 1998 represents the loss on the sale of the Louisiana, Missouri property. (b) The nonrecurring charges in the fiscal year ended February 28, 1995 include a charge of $6.4 million relating to the closing and consolidation of certain manufacturing facilities and the write-off of $894 in costs associated with a public debt offering that was not completed by the Company. (c) The extraordinary items in the fiscal years ended February 28, 1994 and 1997 represent the write-off of unamortized financing fees and costs and the payment of certain premiums in connection with the recapitalization and refinancing that occurred in June 1993 and the refinancing that occurred in May 1996. See Notes 7 and 10 to the Company's financial statements contained herein. (d) Cumulative effect of change in accounting principle in the fiscal year ended February 28, 1994 reflects the Company's adoption of SFAS 109, "Accounting for Income Taxes." (e) EBITDA represents earnings (loss) before interest expense, provision (benefit) for income taxes, depreciation and amortization (excluding amortization of deferred financing costs), adjusted to exclude the other and nonrecurring charges, extraordinary items and cumulative effect of changes in accounting principles. EBITDA is presented because such data is used by certain investors to measure a company's ability to service debt. EBITDA should not be considered as an alternative to cash flow from operations as determined by generally accepted accounting principles, and does not necessarily indicate whether cash flow will be sufficient for cash requirements. (f) Depreciation and amortization as presented excludes amortization of deferred financing costs. (g) Capital expenditures in the fiscal year ended February 28, 1994 do not include $26.9 million expended for property, plant and equipment obtained through the acquisitions of Louisiana Plastics, Incorporated ("Louisiana Plastics") and Miner Container Printing, Inc. and certain affiliated companies (collectively, "Miner Container"). (h) For purposes of this computation, earnings are defined as income before income taxes plus fixed charges. Fixed charges consist of interest (including amortization of deferred financing costs and debt discount or premium) and that portion of rental expense that is representative of interest (deemed to be one-third of operating lease rental expense). (i) The Company's earnings were inadequate to cover fixed charges for the fiscal year ended February 28, 1995 by $5.5 million. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW Certain statements contained herein may be deemed to be "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of PRI to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors, include, among others, the following: the loss of a substantial customer or a significant reduction in its business; fluctuation in resin prices or shortages of resin; significant price competition; environmental liabilities which may arise in the future and which are not covered by insurance or indemnity; failure to adhere to government regulations, including regulations pertaining to the material content of direct-contact food and beverage containers and packages manufactured by the Company; and general economic and business conditions, which will, among other things, affect demand for the Company's products. The Company's fiscal year ends on the last day of February in each year. All references in this report to fiscal years refer to the fiscal year of the Company ended in the year indicated. For example, "fiscal 1998" refers to the fiscal year of the Company ended February 28, 1998. The Company is a leading developer, manufacturer and marketer of rigid plastic packaging, serving primarily as a supplier of customized containers for national branded consumer products. The Company is the largest domestic manufacturer of refrigerated yogurt containers, shelf stable, multi-layer (impermeable to air and moisture) containers for nutritional supplements and frosting containers. The Company also is a leading designer, manufacturer and supplier of promotional beverage cups in the United States, marketing these products primarily to the fast-food and beverage industries. -8- The following table sets forth, for the fiscal years indicated, the income statement of the Company expressed as a percentage of net sales:
1996 1997 1998 Net sales by product category: Packaging products................................... 82.8% 90.4% 87.3% Promotional beverage cups............................ 17.2% 9.6% 12.7% Net sales................................................. 100.0 100.0 100.0 Cost of goods sold........................................ 83.3 82.4 82.4 Gross profit.............................................. 16.7 17.6 17.6 Selling, general and administrative expenses.............. 5.1 5.8 4.9 Amortization of intangibles............................... 1.8 0.6 0.6 Other expense............................................. _ _ 0.6 Operating income.......................................... 9.8 11.2 11.5 Interest expense.......................................... 8.0 10.6 11.2 Income before income taxes and extraordinary item......... 1.8 0.6 0.3 Income tax expense........................................ 0.8 0.4 0.3 Income before extraordinary item.......................... 1.0 0.2 _ Extraordinary item........................................ _ (0.9) _ Net income (loss).................................... 1.0 (0.7) _
RESULTS OF OPERATIONS The following discussion represents the analysis by the Company's management of the results of operations for fiscal 1996, 1997 and 1998. This discussion should be read in conjunction with the financial statements of the Company and the notes thereto included elsewhere. FISCAL 1998 COMPARED TO FISCAL 1997 NET SALES. Net sales increased $1.2 million, or 1.0%, from $120.1 million for fiscal 1997 to $121.3 million for fiscal 1998. Packaging sales decreased $2.7 million, or 2.5%, from $108.6 million for fiscal 1997 to $105.9 million for fiscal 1998. Net sales to Yoplait increased $2.4 million in fiscal 1998 compared to fiscal 1997, to an aggregate of $28.5 million due to higher unit volume. This increase was partially offset by a decrease in net sales to Ross Labs of $.3 million, to an aggregate of $21.0 million, primarily reflecting lower resin prices. Net sales to Dannon of $23.0 million in fiscal 1998 remained virtually unchanged compared to the prior fiscal year. Packaging sales were adversely impacted by the Company's loss of certain lower margin accounts, and lower prices in fiscal 1998 versus fiscal 1997. Promotional sales increased $3.9 million, or 34.2%, from $11.5 million in fiscal 1997 to $15.4 million in fiscal 1998. This increase was primarily due to a higher level of plastic drink cup promotions by the Company's principal customers during fiscal 1998 when compared to fiscal 1997. GROSS PROFIT. Gross profit increased $.2 million, from $21.1 million for fiscal 1997 to $21.3 million for fiscal 1998. Gross margins of 17.6% for fiscal 1998 remained unchanged from fiscal 1997. The increase in gross profit reflects the higher net sales levels noted above. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased from $7.0 million during fiscal 1997 to $5.9 million for fiscal 1998 and decreased as a percentage of net sales from 5.8% to 4.9% primarily due to lower salary expense. AMORTIZATION EXPENSE. Amortization expense of $.7 million in fiscal 1998 remained unchanged compared to fiscal 1997. -9- OTHER EXPENSE. In February 1998, the Company recorded a $.8 million loss related to the sale of the Louisiana, Missouri property. OPERATING INCOME. Operating income increased $0.5 million, from $13.4 million for fiscal 1997 to $13.9 million for fiscal 1998, and increased as a percentage of net sales from 11.2% to 11.5%. INTEREST EXPENSE. Interest expense increased $0.9 million, from $12.7 million in fiscal 1997 to $13.6 million in fiscal 1998. The increase was primarily due to the issuance of the Senior Secured Notes (as defined below), which had a full year of interest expense in fiscal 1998 versus a partial year in fiscal 1997. INCOME TAXES. Income taxes decreased from $0.5 million for fiscal 1997 to $0.3 million for fiscal 1998. The relationship of income tax expense to income before income taxes was high in both fiscal years due to the provision for state income taxes. NET LOSS. For the reasons stated above and the extraordinary write-off recorded in fiscal 1997 (as discussed below), net loss was $892 in fiscal 1997 compared to $30 in fiscal 1998. FISCAL 1997 COMPARED TO FISCAL 1996 NET SALES. Net sales decreased $12.8 million, or 9.6%, from $132.9 million for fiscal 1996 to $120.1 million for fiscal 1997. Packaging sales decreased $1.3 million, or 1.2%, from $109.9 million for fiscal 1996 to $108.6 million for fiscal 1997. Net sales to Yoplait and Ross Labs increased $2.8 million and $1.0 million, respectively, in fiscal 1997 compared to fiscal 1996, to an aggregate of $26.1 million and $21.3 million, respectively, primarily reflecting higher unit volume. This increase was partially offset by a decrease in net sales to Dannon of $2.0 million, to an aggregate of $23.0 million, primarily reflecting lower unit volume. Packaging sales were adversely impacted by the Company's loss of certain lower margin accounts. Promotional sales decreased $11.5 million, or 50.0%, from $23.0 million in fiscal 1996 to $11.5 million in fiscal 1997. This decrease is primarily due to a lower level of plastic drink cup promotions by the Company's principal customers during fiscal 1997 when compared to fiscal 1996. GROSS PROFIT. Gross profit decreased $1.2 million, from $22.3 million for fiscal 1996 to $21.1 million for fiscal 1997. Gross margins improved from 16.7% for fiscal 1996 to 17.6% for fiscal 1997. This increase in gross margin reflects a favorable shift in product mix to higher margin products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased from $6.9 million during fiscal 1996 to $7.0 million for fiscal 1997 and increased as a percentage of net sales from 5.1% to 5.8% due to lower net sales. AMORTIZATION EXPENSE. Amortization expense decreased $1.7 million, from $2.4 million in fiscal 1996 to $0.7 million in fiscal 1997. The decrease is primarily attributable to the non-compete agreement related to the purchase of Miner Container being fully amortized in fiscal 1996. OPERATING INCOME. Operating income increased $0.4 million, from $13.0 for fiscal 1996 to $13.4 for fiscal 1997, and increased as a percentage of net sales from 9.8% to 11.2%. INTEREST EXPENSE. Interest expense increased $2.0 million, from $10.7 million in fiscal 1996 to $12.7 million in fiscal 1997. The increase is primarily due to the issuance of the Senior Secured Notes (as defined below). INCOME TAXES. Income taxes decreased from $1.0 million for fiscal 1996 to $0.5 million for fiscal 1997. The Company's effective State and Federal tax rate was 43.0% in fiscal 1996 and 66.5% in fiscal 1997. The high effective tax rate in fiscal 1997 results from certain State income taxes. INCOME BEFORE EXTRAORDINARY ITEM. For the reasons noted above, income before extraordinary item decreased from $1.3 million for fiscal 1996 to $0.2 million for fiscal 1997. -10- EXTRAORDINARY ITEM, NET OF TAX. In fiscal 1997, the Company recorded an extraordinary write-off net of taxes of $1.1 million for unamortized deferred financing costs related to bank debt which was repaid in May 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs arise primarily from capital investments, working capital requirements and interest payments on its indebtedness. The Company has met these liquidity requirements in the past three fiscal years primarily with funds provided by long-term borrowings and cash generated by operating activities. PRI issued $110.0 million in Senior Secured Notes due 2003 (the "Senior Secured Notes") in May 1996. The net proceeds from this issuance were used to repay all outstanding borrowings of the then existing senior secured credit facility (the "Old Credit Agreement") of $73.5 million and to fund a dividend of $31.8 million to the sole stockholder of the Company. In conjunction with this transaction, the Company also entered into a credit agreement (the "Credit Agreement") that, subject to certain borrowing conditions and limitations, provides for borrowings of up to $20.0 million. As of February 28, 1998, there were no outstanding borrowings under the Credit Agreement. Cash provided by operating activities decreased to $9.6 million for fiscal 1998 from $17.1 million for fiscal 1997. The decrease resulted primarily from a $3.9 million decrease in the change of current liabilities that was primarily due to the timing of trade payables and certain other accrued expenses. This decrease was further enhanced by an increase in the change of accounts receivable of $2.3 million due to the timing of certain promotional beverage cup sales, and an increase in the change of other assets of $1.7 million for deposits made in fiscal 1998 on equipment to be delivered to PRI in fiscal 1999. During fiscal 1998, investing activities included $1.5 million of proceeds from the sale of the Company's plant in Louisiana, Missouri which had previously been leased to a third party. Also in fiscal 1998, the Company received proceeds of $0.8 million from the sale of certain equipment that had been leased to Yoplait. Capital expenditures were $3.4 million, $7.6 million and $9.1 million for fiscal 1996, 1997 and 1998, respectively. These expenditures, which expanded production capacity and reduced costs, include (i) the engineering and manufacture of new production molds, (ii) the addition of new production lines and equipment and (iii) the expansion of the Company's manufacturing and warehouse space. These expenditures include new equipment and molds as well as plant expansion. Although there can be no assurances, the Company anticipates that its operating cash flow, together with borrowings under the Credit Agreement and other lines of credit, will be sufficient to meet its operating expenses, projected capital expenditures and debt service requirements as they become due. Instruments governing the Company's indebtedness, including the Credit Agreement and the Indenture governing the Senior Secured Notes, contain financial and other covenants that restrict, among other things, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of substantially all of the assets of the Company. Such limitations, together with the highly leveraged nature of the Company, could limit corporate and operating activities, including the Company's ability to respond to market conditions to provide for unanticipated capital investments or to take advantage of business opportunities. -11- SEASONALITY The Company's business is somewhat seasonal in nature with its fourth fiscal quarter historically the weakest due to lower consumer demand for refrigerated yogurt and soft drink products. The Company's working capital requirements historically have been relatively constant throughout the year but are subject to periodic fluctuations due to, among other things, large volume orders of promotional beverage cups that require increased inventories. INCOME TAX MATTERS At February 28, 1998, the Company had net operating loss carryforwards ("NOL's") of approximately $11.0 million which will expire at various dates from 2004 through 2012. Such NOL's are available to reduce future taxable income for Federal income tax purposes under a tax sharing agreement with HPH. See "Certain Relationships and Related Transactions -- Tax Sharing Agreement." INFLATION The principal component of the Company's products is resin. In recent years, resin prices have fluctuated, in part, due to industry capacity, consumption levels of resins and changes in the cost of feed stocks. In the event of significant inflationary pressures, the cost of the Company's raw materials, including resins, may increase. Under supply agreements with customers that accounted for more than half of the Company's net sales in fiscal 1998, the Company has the ability to pass through resin price increases (as well as the obligation to credit any resin price decreases). In the case of sales which are not made pursuant to supply agreements containing such pass-through provisions, the Company historically has passed on increases in resin prices (as well as decreases in resin prices) to its customers through price adjustments. Sales prices for promotional beverage cups are generally determined in advance of a promotion and, accordingly, the Company bears the risk of resin price increases while producing such products. Because plastic resin is the principal component in the Company's products, the Company's financial performance is materially dependent on its ability to pass resin price increases on to its customers through contractual arrangements or otherwise. There can be no assurance that a significant increase in resin prices would not negatively impact the Company. IMPACT OF THE YEAR 2000 ON THE COMPANY'S OPERATIONS The Company has commenced modifications to its software systems related to the impact of the year 2000 on such systems and such modifications are currently expected to be completed before the year 2000. While the Company can make no assurances as to the impact of the year 2000 on its operations, it currently anticipates that any adverse consequences of the year 2000 on the Company's software systems will not create a significant disruption to the Company's operations and that remedial costs, if any, are not anticipated to be material. The actual results of the Company's ongoing modifications may produce results materially different from the results presently anticipated due to, among other factors, (i) the accuracy and timeliness of any remedial steps performed by third party software providers to the Company, (ii) the ability and cost to identify, correct or replace all relevant software programs, and (iii) the cost and availability of personnel or third parties to provide effective and timely remedial action. -12- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements are included in this report beginning on page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Set forth below is certain information concerning the individuals who are directors and executive officers of the Company as of May 28, 1998.
NAME AGE POSITION ---- --- -------- Howard P. Hoeper 58 Chairman of the Board of Directors, Chief Executive Officer and President Jerry J. Corirossi 54 Vice President - Finance & Administration, Chief Financial Officer, Secretary and Director Donald L. MacLaughlin 60 Vice President - Manufacturing (Western Operations) and Director Walter C. Riesen 67 Vice President - Manufacturing (Eastern Operations)
Set forth below is a description of the business experience of each director and executive officer of the Company. HOWARD P. HOEPER. Mr. Hoeper has been Chairman of the Board, Chief Executive Officer and President of Group since its formation in 1993, and has served as Chairman of the Board and Chief Executive Officer of PRI since 1984. He was also elected President of PRI in 1989.Mr. Hoeper has been elected to serve as Chairman of the Board of each of Group and PRI until the next annual meeting of the stockholders or until his successor is elected and qualified. Mr. Hoeper is the sole shareholder of HPH, which owns all of the outstanding capital stock of Group. JERRY J. CORIROSSI. Mr. Corirossi has been Vice President - Finance & Administration, Chief Financial Officer and Secretary of the Company since 1989, and has been a Director of Group since its formation in 1993 and a Director of PRI since February 1990. Mr. Corirossi shall serve as a director of such companies until the next annual meeting of stockholders or until his successor is elected and qualified. Mr. Corirossi is a Certified Public Accountant and has over twenty-five years of financial managerial experience. DONALD L. MACLAUGHLIN. Mr. MacLaughlin has been Vice President - Manufacturing (Western Operations) since 1989, and has been a Director of Group and PRI since October 1993. Mr. MacLaughlin shall serve as a director of such companies until the next annual meeting of stockholders or until his successor is elected and qualified. Mr. MacLaughlin has more than twenty years of experience in the rigid plastics packaging industry with a concentration in the thermoforming process. WALTER C. RIESEN. Mr. Riesen has been Vice President - Manufacturing (Eastern Operations) since 1989. Mr. Riesen has more than twenty years of experience in the rigid plastics packaging industry with a concentration in the injection molding and pressure forming processes. -13- Effective April 24, 1998, Mr. Antony P. Ressler and Mr. David B. Kaplan resigned as Directors of PRI. Each of Messrs. Ressler and Kaplan had been designated by Apollo to serve as a Director of PRI in June 1993 pursuant to the Stockholders Agreement (as defined below). See "Certain Relationships and Related Transactions -- Stock and Warrant Holders Agreement and Option." Non-employee directors of PRI receive a fee of $3,500 for each meeting attended, up to a maximum of $15,000 per annum. Until April 1998, Messrs. Kaplan and Ressler had served as directors of Group and PRI pursuant to the Stock and Warrant Holders Agreement dated as of June 30, 1993 and amended as of September 24, 1996 (the "Stockholders Agreement"), which provides that two individuals designated by Apollo be elected as directors of Group and PRI so long as Apollo owns or has the right to acquire 15% or more of Group's voting securities (or one individual in the event Apollo owns or has the right to acquire between 10% and 14.99% of Group's voting securities). Apollo has not designated replacements for Messrs. Ressler and Kaplan to serve as Directors of Group and PRI. In addition, pursuant to the Stockholders Agreement, certain fundamental corporate actions proposed to be taken by Group or PRI require the approval of the directors designated by Apollo. See "Certain Relationships and Related Transactions -- Stock and Warrant Holders Agreement and Option." Apollo has given an undertaking to Group that, if Group objects, no such designee will serve as a director of a direct competitor of the Company. Mr. Hoeper has agreed with Apollo and the TCW Entities that he will not compete directly or indirectly with the business carried on by the Company or any of its subsidiaries until the later of (i) two years following cessation of his employment with the Company or its subsidiaries and (ii) the date on which he and the members of his family do not own, directly and indirectly, at least 50% of Group's capital stock. -14- ITEM 11. EXECUTIVE COMPENSATION. The following table summarizes information concerning annual and long-term cash and non-cash compensation paid to or accrued for the benefit of the Chief Executive Officer and each of the three other most highly compensated executive officers of the Company (collectively, the "named executive officers") for all services rendered in all capacities to the Company for fiscal 1998. SUMMARY COMPENSATION TABLE
NAME AND PRINCIPAL POSITION SALARY BONUS (1) OTHER ANNUAL ALL OTHER COMPENSATION(2),(3) COMPENSATION (4) Howard P. Hoeper $337,700 $100,000 $600,000 $5,600 Chairman of the Board, Chief Executive Officer and President Jerry J. Corirossi 197,000 50,000 _ 5,600 Vice President - Finance & Administration and Chief Financial Officer Donald L. MacLaughlin 197,000 50,000 _ 5,600 Vice President - Manufacturing (Western Operations) Walter C. Riesen 197,000 50,000 _ 5,600 Vice President - Manufacturing (Eastern Operations)
___________ Notes: (1) Consists of discretionary bonus awards accrued in fiscal 1998 and paid in fiscal 1999 pursuant to PRI's Bonus Plan. See "Bonus Plan". (2) The Company does not have restricted stock award plans or long-term incentive plans and has not granted stock appreciation rights. (3) "Other Annual Compensation" for Mr. Hoeper consists of fees paid by PRI to HPH pursuant to a management agreement. See "Certain Relationships and Related Transactions -- Management Agreement." None of the other named executive officers received reportable "Other Annual Compensation" in fiscal 1998. (4) Consists of contributions made by PRI on behalf of the named executive officers pursuant to the Pension Plan (as defined below). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's compensation policies are determined and executive officer compensation decisions are made by Mr. Hoeper, subject to the right of the directors designated by Apollo to approve the adoption of any employee stock option plan, stock bonus plan or any similar plan. Mr. Hoeper is the Chairman of the Board, Chief Executive Officer and President of the Company and indirectly owns, through his ownership of HPH, all of the outstanding capital stock of Group. See "Security Ownership of Certain Beneficial Owners and Management." -15- BONUS PLAN The Company maintains a cash bonus plan (the "Bonus Plan") for all of its executive officers and for certain other key management personnel. The bonus amount and the extent of participation in the Bonus Plan are discretionary. In the past, bonus awards to employees have been based on various qualitative and quantitative indicators of corporate and individual performance. The amounts of discretionary bonus awards accrued during fiscal 1998 are reflected in the Summary Compensation Table above. PENSION PLAN On September 30, 1985, the Company established a qualified defined contribution pension plan (the "Pension Plan") for the purpose of providing funds to its employees upon their retirement. Participation in the Pension Plan is open to substantially all of the Company's employees. The Pension Plan requires the Company to contribute a specified percentage of an employee's total compensation for each plan year, and such amounts are credited to each employee's individual account on an annual basis. If any employee retires at age 65, or at such later date as permitted under the Pension Plan, then the entire amount of his account becomes 100.0% vested as of that date. The amount in an employee's account will also be fully vested at the time of his death or total permanent disability. Distributions under the Pension Plan may be made in one lump sum payment, in designated installments, in installments based upon an employee's life expectancy at retirement, or in the form of an annuity, at the employee's election. If employment is terminated for any reason other than retirement, death or total and permanent disability, then his account will be deemed to have been 20.0% vested for each year of service. The amounts accrued for the benefit of the named executive officers pursuant to the Pension Plan during fiscal 1998 are reflected in the Summary Compensation Table above. 401(k) SAVINGS PLAN PRI has adopted a plan pursuant to Section 401(k) of the Internal Revenue Code (the "401(k) Plan") for employees that are age 18 or older and have been employed by PRI for at least three (3) months. Under the 401(k) Plan, each eligible employee is able to defer a portion of his or her salary each year on a before-tax basis. The portion deferred is paid by PRI to the trustee under the 401(k) Plan for the account of the participant. The Company does not match employee contributions or otherwise contribute to the 401(k) Plan on behalf of employee-participants. All employee-participant contributions are fully vested upon contribution. -16- INDEMNIFICATION OF DIRECTORS AND OFFICERS PRI's Certificate of Incorporation contains a provision permitted under the Delaware General Corporation Law (the "DGCL") eliminating (with limited exceptions) each director's personal liability for monetary damages for breach of any duty as a director. PRI's Certificate of Incorporation and Bylaws authorize PRI to indemnify its present and former directors and officers and to pay or reimburse expenses for such individuals in advance of the final disposition of a proceeding to the maximum extent permitted from time to time under the DGCL. The DGCL provides that indemnification of a person who is a party, or threatened to be made a party, to legal proceedings by reason of the fact that such a person is or was a director, officer, employee or agent of a corporation, or is or was serving as a director, officer, employee or agent of a corporation or other firm at the request of a corporation, against expenses, judgments, fines and amounts paid in settlement, is mandatory in certain circumstances and permissive in others, subject to authorization by the corporation's board of directors. PRI has entered into indemnification agreements with each of its directors and executive officers. The indemnification agreements require, among other things, that PRI indemnify such officers and directors to the fullest extent permitted by law, and advance to the officers and directors all related expenses, subject to reimbursement if it is subsequently determined that indemnification is not permitted. The indemnification agreements also require PRI to indemnify and advance all expenses incurred by officers and directors seeking to enforce their rights thereunder and cover officers and directors under the Company's directors' and officers' liability insurance. Although the indemnification agreements offer substantially the same scope of coverage afforded by provisions in PRI's Certificate of Incorporation and Bylaws, they provide greater assurance to directors and officers that indemnification will be available, because, as a contract, it cannot be unilaterally modified by the Board of Directors or by the stockholders to eliminate the rights it provides. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Group owns all of the outstanding capital stock of the Company. The following table sets forth certain information, as of February 28, 1998, regarding beneficial ownership of the capital stock of Group by each stockholder who is known by the Company to own beneficially more than 5% of the outstanding capital stock of Group. Except as identified below with respect to Mr. Hoeper, none of the executive officers or directors of Group beneficially own any shares of the capital stock of Group.
NAME AND COMPLETE MAIL ADDRESS AMOUNT PERCENTAGE PERCENTAGE OF OWNED OF VOTING VOTING SECURITIES (SHARES) SECURITIES OWNED (1) OWNED HPH Industries, Ltd. (2) 56,250 100% 60.0% One Conway Park 100 Field Drive Suite 300 Lake Forest, Illinois 60045 Apollo Packaging Partners, L.P. (3), (4) 27,500 _ 29.3% c/o Apollo Advisors, L.P. Two Manhattanville Road Purchase, New York 10577 TCW/Crescent Mezzanine Partners, L.P. (3), (5) 7,613 _ 8.1% 11100 Santa Monica Boulevard Suite 2000 Los Angeles, California 90025 TCW/Crescent Mezzanine Trust (3), (5) 2,387 _ 2.5% 11100 Santa Monica Boulevard Suite 2000 Los Angeles, California 90025
-17- ___________ Notes: (1) On a fully diluted basis, assuming the exercise of all of the Warrants (as discussed in note 3 below). (2) Through his ownership of HPH, Mr. Hoeper beneficially owns and exercises sole investment and voting rights with respect to 56,250 shares of capital stock of Group representing 100% of Group's outstanding capital stock. (3) Apollo and the TCW Entities own Warrants to purchase 27,500 and 10,000 shares of Group's capital stock, respectively (or 29.3% and 10.7% of such capital stock of Group, respectively, assuming full exercise of the Warrants). The Warrants are exercisable for an exercise price of $213.33 per share of capital stock of Group. The Warrants expire on June 30, 2003. Apollo and the TCW Entities also own an option to purchase additional shares of capital stock of Group under certain circumstances. See "Certain Relationships and Related Transactions -- Stock and Warrant Holders Agreement and Option." (4) The general partner of Apollo is AIF II, L.P., the general partner of which is Apollo Advisors, L.P. The general partner of Apollo Advisors, L.P. is Apollo Capital Management, Inc., the directors and stockholders of which are Messrs. Leon D. Black and John J. Hannan. See "Directors and Executive Officers of the Registrant." Messrs. Black and Hannan disclaim any beneficial ownership of the capital stock of Group. (5) The general partner of TCW Partners and the managing owner of TCW Trust is TCW/Crescent Mezzanine, L.L.C. ("TCW/Crescent LLC"). Messrs. Robert D. Beyer and Jean-Marc Chapus are portfolio managers of TCW/Crescent LLC and exercise voting and dispositive powers on its behalf. Messrs. Beyer and Chapus disclaim any beneficial ownership of the capital stock of Group. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. MANAGEMENT AGREEMENT Since its inception, PRI has paid certain fees to HPH in exchange for financial and management consulting services and has reimbursed HPH for expenses incurred in connection with the performance of such services. HPH owns all of the outstanding capital stock of Group and is itself wholly-owned by Mr. Hoeper, the Chairman, Chief Executive Officer and President of Group and PRI. The aggregate amount of payments received by HPH during fiscal 1996, 1997 and 1998 in respect of such fees and reimbursements were approximately $662,000, $662,000 and $600,000, respectively. PRI and HPH entered into a management agreement pursuant to which HPH will receive a fixed payment for financial and management consulting services in the amount of $600,000 per fiscal year, subject to increase at the discretion of the Company and to the extent permitted by instruments governing indebtedness of PRI, including the Indenture governing the Senior Secured Notes, or decrease to the extent required by the terms of such indebtedness. Because of the personal nature of the services provided by HPH and Mr. Hoeper, the Company cannot determine whether it could obtain the same services on more favorable terms from a third party. TAX SHARING AGREEMENT The operations of Group and PRI are included in the Federal income tax returns filed by HPH. The three companies have entered into a tax sharing agreement (the "Tax Sharing Agreement") which apportions the consolidated income tax liability of the affiliated group. Under the Tax Sharing Agreement, the Federal income tax liability of PRI is calculated on a separate return basis and the amount so calculated, which in no event may exceed the group's consolidated tax liability for such year, is paid to HPH which then pays the group's taxes for such year. None of HPH, Group or PRI is liable for (or is due) any amount to (or from) the other even though the tax liability of the group may have been reduced by reason of the inclusion of Group or PRI as a member of the group. -18- STOCK AND WARRANT HOLDERS AGREEMENT AND OPTION HPH, Apollo, the TCW Entities, Mr. Hoeper and Group are parties to the Stockholders Agreement which, among other things, gives Apollo and the TCW Entities the pre-emptive right to acquire a portion of additional shares of capital stock of Group issued by Group, a right of first refusal on shares of capital stock of Group owned by HPH, the right to require Group to purchase their equity interests if Group has not had a public offering of voting stock prior to June 30, 1999 (to the extent permitted under the Credit Agreement and the Indenture governing the Senior Secured Notes) and, subject to certain exceptions, the right to participate in any sale of capital stock of Group by HPH. In addition, if at any time after June 30, 1999, the holders of a majority of the shares of capital stock of Group propose to sell their shares, they may require the other parties to the Stockholders Agreement to participate in such sale. The Stockholders Agreement also provides that Mr. Hoeper will not, as long as HPH owns at least 10% of Group, transfer any shares of capital stock of HPH, except pursuant to the laws of descent. If any shares of HPH capital stock are transferred pursuant to laws of descent, Apollo and the TCW Entities will have the right to require the descendants to purchase their equity interests in Group at the fair market value thereof. Group has granted Apollo and the TCW Entities an option to purchase at fair market value that number of shares of capital stock of Group which, when aggregated with the other shares owned by them or which they have the right to acquire, equal 51% of the outstanding shares on a fully diluted basis. The option is exercisable during the period of 180 days following the date on which Mr. Hoeper and his heirs do not own and have the right to vote all of the shares of HPH. The exercise of the option is conditioned upon a simultaneous offer by the holders to purchase at fair market value all shares of Group owned by HPH. The Stockholders Agreement also provides, among other things, that Apollo has the right to designate (i) two members of the Board of Directors of Group and PRI so long as it owns or has the right to acquire 15% or more of the voting securities of Group outstanding as of the date of consummation of the Stockholders Agreement (the "Initial Voting Securities") and (ii) one member of the Board of Directors of Group and PRI so long as it owns or has the right to acquire between 10% and 14.99% of the Initial Voting Securities. In addition, a majority of the Apollo designees serving as members of the Board of Directors of Group or PRI must approve certain fundamental corporate actions proposed to be taken by each such company, including (i) the sale of all or substantially all of its assets, (ii) a merger, consolidation or dissolution, (iii) an acquisition involving consideration of more than $10.0 million, (iv) certain transactions with affiliates, (v) an amendment to its Certificate of Incorporation or By-laws, (vi) the adoption of certain employee benefit plans and (vii) any material change in its line of business. The Stockholders Agreement terminates on June 30, 2003. EQUITY REGISTRATION RIGHTS AGREEMENT Group, Apollo and the TCW Entities are parties to the Equity Registration Rights Agreement dated as of June 30, 1993 (the "Equity Registration Rights Agreement"). Under the Equity Registration Rights Agreement, the holders of at least 25% of the Warrants (or shares of capital stock of Group obtainable upon exercise of the Warrants (collectively, the "Registrable Equity Securities")) on up to three separate occasions may require Group, subject to certain conditions, to effect the registration of the Registrable Equity Securities under the Securities Act. In addition to such demand registration rights, such holders also may, subject to certain limitations, require Group to register their Registrable Equity Securities if Group registers any of its equity securities under the Securities Act. Group has agreed to bear all expenses incident to the registration rights provided under the Equity Registration Rights Agreement, except that expenses incurred in connection with any second or third demand registration are to be allocated equally between Group and the selling securityholders. Group has also agreed to indemnify selling securityholders against certain liabilities, including liabilities under the Securities Act. -19- Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)1 Financial Statements
PACKAGING RESOURCES INCORPORATED PAGE Independent Auditors' Report . . . . . . . . . . . . . . F-1 Balance Sheets as of February 28, 1997 and February 28, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Statements of Operations for the years ended February 29, 1996, February 28, 1997 and February 28, 1998 . . . . . . F-3 Statements of Stockholder's Equity (Deficit) for the years ended February 29, 1996, February 28, 1997 and February 28, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Statements of Cash Flows for the years ended February 29, 1996, February 28, 1997 and February 28, 1998 . . . . . F-5 Notes to Financial Statements . . . . . . . . . . . . . . F-6 (a)2 Financial Statement Schedule Independent Auditors' Report S-1 Schedule II -- Packaging Resources Incorporated's Valuation and Qualifying Accounts Information S-2
All other Financial Statement Schedules are omitted as they are inapplicable, immaterial or the required information is included in the consolidated financial statements or notes thereto. (a)3 Exhibits
EXHIBIT NO. EXHIBIT 3.1 ** Amended and Restated Certificate of Incorporation of PRI 3.2 ** Amended and Restated By-Laws of PRI 4.1 ** Indenture dated as of May 17, 1996 between PRI and LaSalle National Bank, as Trustee, relating to the Senior Secured Notes (including form of certificate to be delivered in connection with transfers to institutional accredited investors) 4.2 ** Registration Rights Agreement dated as of May 17, 1996 between PRI and BT Securities Corporation and Donaldson, Lufkin & Jenrette Securities Corporation 4.3 ** Credit Agreement dated as of May 17, 1996 among PRI, the lenders Signatory thereto and LaSalle National Bank, as administrative agent 10.5 ** Management Agreement dated as of May 17, 1996 between HPH Industries, Ltd. and PRI 10.6 ** Agreement Apportioning the Consolidated Income Tax Liability of HPH Industries, Ltd. Affiliated Group effective as of May 17, 1996 among HPH, Group and PRI
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10.7 ** The Dannon Company, Inc. 4 oz. Sprinkl'ins Dannon Cup Mold and Cup Manufacture Agreement between The Dannon Company, Inc. and PRI dated July 10, 1992, as amended April 4, 1994 and February 6, 1995* 10.8 ** The Dannon Company, Inc. 6 oz. Blended Cup Mold and Cup Manufacture Agreement between The Dannon Company, Inc. and PRI dated April 18, 1991, as amended July 10, 1992, April 4, 1994 and June 26, 1995* 10.9 ** The Dannon Company, Inc. 8 oz. Mold Manufacture and Cup Production Agreement between The Dannon Company, Inc. and PRI dated December 9, 1991, as amended October 27, 1992, April 4, 1994 and February 15, 1996* 10.9A** Extension Letter dated June 20, 1996 with respect to The Dannon Company, Inc. 8 oz. Mold Manufacture and Cup Production Agreement between The Dannon Company, Inc. and PRI* 10.10** The Dannon Company 8 oz. Mold Manufacture and Cup Production Agreement between The Dannon Company, Inc. and PRI (as successor to Miner Container of Texas, Inc.) dated January 15, 1992, as amended November 16, 1992* 10.11 The Parts Supply Agreement dated January 1, 1998 between General Mills Operations, "Yoplait", and PRI+ 10.11A The Multi-Pack Supply Agreement dated March 1, 1998 between General Mills Operations, "Yoplait", and PRI+ 10.12 ** The Cans Supply Agreement dated August 6, 1992 between Ross Laboratories, a Division of Abbott Laboratories, and PRI* 10.13 ** Form of Indemnification Agreement dated as of May 17, 1996 between PRI and each of its directors and officers 10.14 ** Description of Annual Bonus Plan 12.1 Statement re Computation of Ratios 27.1 Financial Data Schedule
___________ + The Registrant is filing contemporaneously herewith a request that certain portions of this agreement be given confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended; an unredacted copy is being filed with the Securities and Exchange Commission. * The Registrant has omitted certain portions of this agreement for which the Registrant has obtained confidential treatment pursuant to Rule 406 of the Securities Act of 1933, as amended; unredacted copies have been filed with the Securities and Exchange Commission. ** Incorporated by reference to the similarly numbered exhibits to the Registration Statement on Form S-1 (Commission File No. 333-05885) filed on June 13, 1996. -21- (b) Reports on Form 8-K. In January 1998 the Company filed a Current Report on Form 8-K dated January 26, 1998 reporting that Yoplait had advised the Company that based on its decision to introduce a new packaging design, PRI would no longer serve as the supplier of the Yoplait six ounce yogurt container after the expiration of its new supply agreement. -22- INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholder of Packaging Resources Incorporated: We have audited the accompanying balance sheets of Packaging Resources Incorporated as of February 28, 1997 and February 28, 1998, and the related statements of operations, stockholder's equity (deficit), and cash flows for each of the years in the three-year period ending February 28, 1998. These financial statements are the responsibility of the management of Packaging Resources Incorporated. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Packaging Resources Incorporated as of February 28, 1997 and February 28, 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended February 28, 1998 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Chicago, Illinois March 20, 1998 F-1 PACKAGING RESOURCES INCORPORATED BALANCE SHEETS FEBRUARY 28, 1997 AND FEBRUARY 28, 1998 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS 1997 1998 -------- -------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . $ 6,154 $ 7,929 Accounts receivable, net of allowance for doubtful accounts of $135 and $135 in 1997 and 1998, respectively. . . . . . . . . . . 10,978 13,549 Inventories . . . . . . . . . . . . . . . . . . . . . 21,396 20,529 Prepaid expenses. . . . . . . . . . . . . . . . . . . 69 284 Deferred income taxes . . . . . . . . . . . . . . . . 877 874 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . 39,474 43,165 Property, plant, and equipment, net. . . . . . . . . . . . 52,680 52,181 Intangibles, net . . . . . . . . . . . . . . . . . . . . . 20,505 19,793 Other assets . . . . . . . . . . . . . . . . . . . . . . 5,548 5,940 -------- -------- . . . . . . . . . . . . . . . . . . . . . . $118,207 $121,079 -------- -------- -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt. . . . . . . . . $ 950 $ - Accounts payable. . . . . . . . . . . . . . . . . . . 5,227 7,044 Accrued expenses. . . . . . . . . . . . . . . . . . . 8,754 10,537 Income taxes payable. . . . . . . . . . . . . . . . . 19 112 -------- -------- Total current liabilities. . . . . . . . . . . . . . . . . 14,950 17,693 Long-term debt, excluding current maturities . . . . . . . 110,000 110,000 Deferred income taxes. . . . . . . . . . . . . . . . . . . 7,645 7,804 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . . 132,595 135,497 -------- -------- Stockholder's equity (deficit): Common stock, $.01 par value; 1,000 shares authorized, issued, and outstanding in 1997 and 1998. . . . . . - - Additional paid-in capital. . . . . . . . . . . . . . - - Accumulated deficit . . . . . . . . . . . . . . . . . (14,388) (14,418) -------- -------- Total stockholder's equity (deficit) . . . . . . . . . . . (14,388) (14,418) -------- -------- $118,207 $121,079 -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. F-2 PACKAGING RESOURCES INCORPORATED STATEMENTS OF OPERATIONS YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998 (DOLLAR AMOUNTS IN THOUSANDS)
1996 1997 1998 -------- -------- -------- Net sales . . . . . . . . . . . . . . . . . . . . $132,852 $120,086 $121,303 Cost of goods sold . . . . . . . . . . . . . . . . 110,544 98,942 99,998 -------- -------- -------- Gross profit . . . . . . . . . . . . . . . . . . . 22,308 21,144 21,305 Selling, general, and administrative expenses. . . 6,864 6,983 5,897 Amortization of intangibles and other assets . . . 2,434 712 712 Other expense (note 8) . . . . . . . . . . . . . . - - 800 -------- -------- -------- Operating income . . . . . . . . . . . . . . . . . 13,010 13,449 13,896 Interest expense . . . . . . . . . . . . . . . . . 10,671 12,711 13,580 -------- -------- -------- Income before income taxes and extraordinary item. . . . . . . . . . . . . . 2,339 738 316 Income tax expense . . . . . . . . . . . . . . . . 1,006 491 346 -------- -------- -------- Income (loss) before extraordinary item. . . . . . 1,333 247 (30) -------- -------- -------- Extraordinary item - loss on early extinguishment of debt, net of tax. . . . . . . . . . . . . . . - 1,139 - -------- -------- -------- Net income (loss). . . . . . . . . . . . . . . . . $1,333 $(892) $(30) -------- -------- -------- -------- -------- --------
The accompanying notes are an integral part of these financial statements. F-3 PACKAGING RESOURCES INCORPORATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT) YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION)
TOTAL COMMON ADDITIONAL STOCK- COMMON STOCK PAID-IN ACCUMULATED HOLDER'S STOCK WARRANTS CAPITAL DEFICIT EQUITY ----- ------ ------- -------- ------- Balances at February 28, 1995. . . $- $- $20,278 $(3,346) $16,932 Net income . . . . . . . . . . . . - - - 1,333 1,333 ----- ------ ------- -------- ------- Balances at February 29, 1996. . . - - 20,278 (2,013) 18,265 Dividends paid on common stock . . - - (20,278) (11,483) (31,761) Net loss . . . . . . . . . . . . - - - (892) (892) ----- ------ ------- -------- ------- Balances at February 28, 1997. . . - - - (14,388) (14,388) Net loss . . . . . . . . . . . . - - - (30) (30) ----- ------ ------- -------- ------- Balances at February 28, 1998. . . $- $- $- $(14,418) $(14,418) ----- ------ ------- -------- ------- ----- ------ ------- -------- -------
The accompanying notes are an integral part of these financial statements. F-4 PACKAGING RESOURCES INCORPORATED STATEMENTS OF CASH FLOWS YEARS ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998 (DOLLAR AMOUNTS IN THOUSANDS)
1996 1997 1998 ------- ------- ------- Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . $ 1,333 $ (892) $ (30) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . 11,381 8,911 8,584 Write-off of financing costs. . . . . . . . . . . . - 1,139 - Deferred income taxes . . . . . . . . . . . . . . . 678 336 162 Loss on sale of property, plant, and equipment. . . 31 11 800 Change in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . 567 (259) (2,571) Inventories . . . . . . . . . . . . . . . . . . . 3,583 (2) 867 Prepaid expenses. . . . . . . . . . . . . . . . . (527) 577 (215) Other assets. . . . . . . . . . . . . . . . . . . (239) 80 (1,658) Accounts payable. . . . . . . . . . . . . . . . . (5,932) 2,612 1,817 Accrued expenses. . . . . . . . . . . . . . . . . (808) 4,842 1,783 Income taxes. . . . . . . . . . . . . . . . . . . 1,708 (221) 93 ------- ------- ------- Net cash provided by operating activities . . . . . . . . 11,775 17,134 9,632 ------- ------- ------- Cash flows from investing activities: Proceeds from sale of property, plant, and equipment. . 29 - 1,473 Proceeds from sale of leased equipment. . . . . . . . . - - 750 Payment for purchase of the net assets from Miner Container . . . . . . . . . . . . . . . . . . . (1,536) (764) - Capital expenditures. . . . . . . . . . . . . . . . . . (3,449) (7,629) (9,130) ------- ------- ------- Net cash used in investing activities . . . . . . . . . . (4,956) (8,393) (6,907) ------- ------- ------- Cash flows from financing activities: Net payments under credit agreement . . . . . . . . . . (5,603) (2,250) - Retirement of indebtedness under old credit agreement . - (73,474) - Net proceeds from senior secured notes. . . . . . . . . - 105,350 - Payment of promissory notes . . . . . . . . . . . . . . (1,050) (850) (950) Dividends paid. . . . . . . . . . . . . . . . . . . . . - (31,761) - ------- ------- ------- Net cash used in financing activities . . . . . . . . . . (6,653) (2,985) (950) ------- ------- ------- Net increase in cash and cash equivalents . . . . . . . . 166 5,756 1,775 Cash and cash equivalents at beginning of year. . . . . . 232 398 6,154 ------- ------- ------- Cash and cash equivalents at end of year. . . . . . . . . $398 $6,154 $ 7,929 ------- ------- ------- ------- ------- ------- Supplemental disclosure of cash flow information - cash paid for: Interest. . . . . . . . . . . . . . . . . . . . . . . . $9,239 $7,590 $12,924 Income taxes. . . . . . . . . . . . . . . . . . . . . . $117 $214 $251
The accompanying notes are an integral part of these financial statements. F-5 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996, FEBRUARY 28, 1997, AND FEBRUARY 28, 1998 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) DESCRIPTION OF BUSINESS Packaging Resources Incorporated (PRI or the Company) was organized in 1984 as a wholly owned subsidiary of HPH Industries, Ltd. (HPH). During fiscal 1994 PRI Holdings, Inc. (Holdings) acquired all of the common stock of PRI from HPH. During fiscal 1995 Holdings changed its name to Packaging Resources Group, Inc. (Group). Packaging Resources Group, Inc. is a wholly owned subsidiary of HPH. The primary business of PRI is the manufacture and sale of promotional beverage cups and plastic packaging for the food, dairy, and pharmaceutical industries. PRI has manufacturing facilities in Coleman, Michigan; Kansas City, Missouri; Mt. Carmel, Pennsylvania; and New Vienna, Ohio. (B) CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of deposits with banks and short-term investments with original maturities of three months or less. (C) INVENTORIES Inventories are stated at the lower of first-in, first-out cost or net realizable value. (D) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. Depreciation on plant and equipment is calculated on the straight-line method over the following estimated useful lives of the assets: Furniture and fixtures . . . . . . . . . . . . . . . 5 years Molds. . . . . . . . . . . . . . . . . . . . . . . . 3-5 years Machinery and equipment. . . . . . . . . . . . . . . 13 years Buildings and improvements . . . . . . . . . . . . . 35 years Land improvements. . . . . . . . . . . . . . . . . . 35 years Leasehold improvements are amortized ratably over the shorter of the lease term or estimated useful life of the assets. (E) INTANGIBLES Intangibles consist of patent costs, amortized over 14 years, and the excess of the cost over the fair value of net assets purchased, amortized over 40 years. The intangibles are amortized on a straight-line basis over their respective useful lives. Accumulated amortization was $4,577 and $5,290 at February 28, 1997 and February 28, 1998, respectively. F-6 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) At each balance sheet date, PRI evaluates the realizable value of intangibles on the basis of whether the intangibles are fully recoverable from projected, undiscounted net cash flows. Based on its most recent analysis, PRI believes no impairment of the carrying values of intangibles exists. (F) OTHER ASSETS The costs of debt issuance are included in other assets and are amortized over the term of the related debt on the straight-line method. (G) INCOME TAXES PRI is included in the consolidated Federal income tax return of HPH. Federal income taxes are calculated on a separate company basis and remitted to HPH. Deferred income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets are recorded when it is more likely than not that such tax benefits will be realized. (H) RETIREMENT PLANS PRI has two defined contribution retirement plans covering substantially all of its employees. PRI's Money Purchase Retirement Plan is funded entirely by employer contributions based upon a defined percentage of participating employees' compensation. PRI also has a 401(k) plan where participants elect to have a designated percentage of their salary withheld and contributed to the plan. (I) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-7 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (2) INVENTORIES Inventories consist of the following at February 28:
1997 1998 --------- --------- Finished Goods . . . . . . . . . . $ 12,747 $ 12,199 Raw Materials. . . . . . . . . . . 4,646 3,856 Supplies and mold materials. . . . 4,003 4,474 --------- --------- Total. . . . . . . . . . . . . . . $ 21,396 $ 20,529 --------- --------- --------- ---------
(3) PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment consist of the following at February 28:
1997 1998 --------- --------- Land . . . . . . . . . . . . . . . $ 309 $ 309 Buildings . . . . . . . . . . . . . 10,682 11,276 Machinery, equipment, and fixtures. 83,219 84,649 Leasehold improvements. . . . . . . 1,622 1,944 Construction in progress. . . . . . 4,048 7,763 --------- --------- 99,880 105,941 Less allowance for depreciation and amortization . . . . . . . . . . (47,200) (53,760) --------- --------- Total . . . . . . . . . . . . . . . $ 52,680 $ 52,181 --------- --------- --------- ---------
Construction in progress includes building improvements and machinery and equipment which have not yet been placed in service, and molds which are in the process of being manufactured. Depreciation expense for the years ended February 29, 1996, February 28, 1997, and February 28, 1998 was $7,287, $7,328, and $7,208, respectively. F-8 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (4) OTHER ASSETS Other assets consist of the following at February 28:
1997 1998 --------- --------- Debt issuance cost, net . . . . . . $ 4,125 $ 3,461 Leased equipment, net . . . . . . . 1,360 745 Equipment deposits. . . . . . . . . - 1,734 Other . . . . . . . . . . . . . . . 63 - --------- --------- $ 5,548 $ 5,940 --------- --------- --------- ---------
The debt issuance costs were incurred in connection with the 11-5/8% Senior Secured Notes described in note 7. The cost is being amortized over the remaining life of the notes. Amortization of these costs was $525 and $664 for the years ended February 28, 1997 and February 28, 1998, respectively. Leased equipment represents equipment leased and available for lease to PRI's customers. Equipment deposits represent deposits made on equipment to be delivered to PRI in fiscal 1999. (5) LEASES PRI has several noncancelable operating leases for substantial portions of the Company's plant and office facilities and machinery and equipment. Leased plant and office facilities generally contain renewal options. Rental expense for operating leases for the years ended February 29, 1996, February 28, 1997, and February 28, 1998 aggregated approximately $2,062, $1,757, and $1,554, respectively. Additionally, PRI has one facility which is being subleased. Future minimum lease payments and related sublease income under noncancelable operating leases (with initial or remaining lease terms in excess of one year) as of February 28, 1998 are:
OPERATING OPERATING LEASE SUBLEASE FISCAL YEAR PAYMENTS INCOME - ----------- -------- --------- 1999. . . . . . . . . . . . . . . . $ 1,333 $ (486) 2000. . . . . . . . . . . . . . . . 1,217 (486) 2001. . . . . . . . . . . . . . . . 969 (162) 2002. . . . . . . . . . . . . . . . 881 - 2003. . . . . . . . . . . . . . . . 896 - Thereafter. . . . . . . . . . . . . 1,078 - ------- ------- Total minimum lease payments (income) .$ 6,374 $(1,134) ------- ------- ------- -------
F-9 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (6) ACCRUED EXPENSES Accrued expenses consist of the following at February 28:
1997 1998 ------- ------- Interest. . . . . . . . . . . . . . $ 4,277 $ 4,266 Vacation. . . . . . . . . . . . . . 1,053 1,038 Pension . . . . . . . . . . . . . . 966 936 Other . . . . . . . . . . . . . . . 2,458 4,297 ------- ------- $ 8,754 $10,537 ------- ------- ------- -------
(7) LONG-TERM DEBT On May 17, 1996, PRI issued $110 million of 11-5/8% Senior Secured Notes due 2003. The funds from this issuance were used to repay all outstanding borrowings of the revolving credit loan and term loan and to fund a dividend to Group of $31.8 million. At this time, the Company also entered into a Senior Credit Facility which consists of a revolving credit facility and a letter of credit facility which permit borrowing at either LIBOR plus 2.00% or the prime rate plus 0.50% up to a maximum of $20.0 million and $2.0 million, respectively. The Senior Credit Facility matures on May 1, 1999 and shall renew automatically for successive one year periods thereafter unless canceled by either party. The Company pays a commitment fee of 0.50% per annum on the average daily unused amount of the revolving credit facility. The Senior Secured Notes are secured by certain equipment, fixtures and general intangibles, and mortgages on substantially all of the owned and certain of the leased real property of the Company, and proceeds therefrom. Obligations under the Senior Credit Facility are secured by all of PRI's accounts receivable and raw materials and finished goods inventory, including any proceeds therefrom. At February 28, 1998, there were no draws on the Senior Credit Facility. PRI paid approximately $4.65 million in fees in connection with the new credit agreement and the 11-5/8% Senior Secured Notes. In August 1996 the privately placed notes were exchanged for notes registered with the Securities Exchange Commission. There were no changes in the amounts or terms of the notes. Long-term debt consists of the following at February 28:
1997 1998 -------- -------- Senior Secured Notes, interest at 11-5/8%, paid semi-annually on May 1 and November 1, payable in full in May of 2003 . . . . . . . . . . . . $110,000 $110,000 Promissory note, interest at prime rate plus 0.75% and effective March 12, 1995, interest at prime rate plus 2.0%, payable in installments semiannually through July of 1997. . . . . . . . . . . . 950 - -------- -------- 110,950 110,000 Less current maturities of long-term debt . . 950 - -------- -------- $110,000 $110,000 -------- -------- -------- --------
F-10 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) PRI's credit agreements and other outstanding debt contain restrictions on incurring additional debt or liens, making investments, or making payments such as dividends, stock repurchases, or debt prepayments, and payments to affiliates. Aggregate maturities of long-term debt after February 28, 1998 are as follows:
FISCAL YEAR AMOUNT - ----------- ------ 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 -------- $110,000 -------- --------
(8) OTHER EXPENSE During fiscal 1998 an $800 loss was incurred related to the sale of the Louisiana, Missouri property. This property had previously been leased to a third party. (9) EARLY EXTINGUISHMENT OF DEBT During fiscal 1997, in connection with the issuance of the 11-5/8% Senior Secured Notes as discussed in note 7, the write-off of unamortized financing fees and costs associated with the early extinguishment of debt was recorded as an extraordinary item, net of taxes, in the accompanying statements of operations. F-11 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (10) INCOME TAXES Total income tax expense (benefit) for the years ended February 29, 1996, February 28, 1997, and February 28, 1998 was allocated as follows:
1996 1997 1998 ------ ------ ----- Income from operations . . . . . . . . $1,006 $ 491 $346 Extraordinary item - loss on early extinguishment of debt . . . . . . . . -- (728) -- ------ ----- ---- $1,006 $(237) $346 ------ ----- ---- ------ ----- ----
Income tax expense attributable to income before income taxes and extraordinary item for the years ended February 29, 1996, February 28, 1997, and February 28, 1998 consists of:
1996 ---- CURRENT DEFERRED TOTAL ------- -------- ------- Federal . . . . . . . . . . . . . . . . $ 103 $ 546 $ 649 State . . . . . . . . . . . . . . . . . 225 132 357 ----- ----- ------- $ 328 $ 678 $ 1,006 ----- ----- ------- ----- ----- ------- 1997 ---- CURRENT DEFERRED TOTAL ------- -------- ------- Federal . . . . . . . . . . . . . . . . $ -- $ 271 $ 271 State . . . . . . . . . . . . . . . . . 155 65 220 ----- ----- ------- $ 155 $ 336 $ 491 ----- ----- ------- ----- ----- ------- 1998 ---- CURRENT DEFERRED TOTAL ------- -------- ------- Federal . . . . . . . . . . . . . . . . $ -- $ 131 $ 131 State . . . . . . . . . . . . . . . . . 184 31 215 ----- ----- ------- $ 184 $ 162 $ 346 ----- ----- ------- ----- ----- -------
F-12 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) Income tax expense differed from the amounts computed by applying the U.S. Federal income tax rate of 34% in 1996, 1997, and 1998 to income before income taxes and extraordinary item as a result of the following:
1996 1997 1998 ------- ------ ------- Computed "expected" tax expense . . . . . $ 795 $ 250 $ 107 Increase (decrease) in income taxes resulting from: State income taxes, net of Federal income tax benefit . . . . . . . . . 235 145 143 Other, net . . . . . . . . . . . . . . (24) 96 96 ------- ------ ------- $ 1,006 $ 491 $ 346 ------- ------ ------- ------- ------ -------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at February 29, 1996, February 28, 1997, and February 28, 1998 are presented below:
1996 1997 1998 ------- ------ ------- Deferred tax assets: Compensated absences, principally due to accrual for financial reporting purposes . . . . . . . . . . . . . . . $ 343 $ 342 $ 336 Net operating loss carryforwards. . . . 4,785 5,132 4,160 Alternative minimum tax credit carryforwards . . . . . . . . . . . . 495 495 495 Other . . . . . . . . . . . . . . . . . 686 712 508 ------- ------ ------- Total gross deferred tax assets . . . . . 6,309 6,681 5,499 ------- ------ ------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation . . . . (11,843) (11,468) (10,501) Intangible assets . . . . . . . . . . . (1,520) (1,815) (1,928) Other . . . . . . . . . . . . . . . . . (107) (166) - ------- ------ ------- Total gross deferred liabilities. . . . . (13,470) (13,449) (12,429) ------- ------ ------- Net deferred liability. . . . . . . . . . $(7,161) $(6,768) $(6,930) ------- ------ ------- ------- ------ -------
PRI has not recorded a valuation allowance related to the deferred tax assets, as management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. At February 28, 1998 PRI has net operating loss carryforwards of approximately $11,000 which are available to reduce future taxable income for Federal income tax purposes under a tax sharing agreement with HPH. The operating loss carryforwards expire at various dates from 2004 through 2012. PRI also has alternative minimum tax credit carryforwards of approximately $500 which are available to reduce future Federal income taxes over an indefinite period under a tax sharing agreement with HPH. F-13 PACKAGING RESOURCES INCORPORATED NOTES TO FINANCIAL STATEMENTS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE INFORMATION) (11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents, receivables, accounts payable, and accrued expenses: The carrying amounts approximate fair value due to the short maturity of these instruments. Senior Secured Notes: The carrying amounts approximate fair value as all of the obligations incur interest at a market rate. In addition, the significant terms of fixed rate obligations do not differ materially from those currently available to PRI. (12) RETIREMENT PLAN PRI has a defined contribution retirement plan covering substantially all employees. Contributions are based upon a defined percentage of compensation. Provisions for the plan's contributions amounted to $670, $676, and $630 for the years ended February 29, 1996, February 28, 1997, and February 28, 1998, respectively. Provisions of the plan include 20% vesting per year. (13) RELATED-PARTY TRANSACTIONS PRI has various transactions with Group and HPH. These transactions include management fees and reimbursements to HPH of $662, $663, and $600 for each fiscal year 1996, 1997, and 1998, respectively. Additionally, PRI paid dividends of $31.8 million to Group on common stock in 1997. (14) BUSINESS AND CREDIT CONCENTRATIONS PRI's business is substantially dependent on a limited number of large customers. In fiscal years 1996, 1997, and 1998, PRI's ten largest customers accounted for approximately 78%, 80%, and 83%, respectively, of its net sales. PRI's largest customers are General Mills (including Yoplait), Dannon, and Ross Labs, which represented approximately 28.6%, 19.0%, and 17.3%, respectively, of PRI's net sales for fiscal 1998. No customer other than General Mills, Dannon, or Ross Labs accounted for more than 5% of PRI's net sales during fiscal 1998. Accounts receivable for General Mills, Dannon, and Ross Labs totaled $7,175 and $7,263 at February 28, 1997 and February 28, 1998, respectively. F-14 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lake Forest, State of Illinois, on May 28, 1998. PACKAGING RESOURCES INCORPORATED By: /s/ Howard P. Hoeper --------------------------------------- Howard P. Hoeper CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. NAME TITLE DATE ---- ----- ---- /s/ Howard P. Hoeper Chairman of the Board, May 28, 1998 - ----------------------- Chief Executive Officer Howard P. Hoeper and President (Principal Executive Officer) /s/ Jerry J. Corirossi Vice President, Finance May 28, 1998 - ----------------------- and Administration Jerry J. Corirossi (Principal Financial Officer and Principal Accounting Officer) /s/ Donald L. MacLaughlin Director May 28, 1998 - ----------------------- Donald L. MacLaughlin INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholder of Packaging Resources Incorporated: The audits referred to in our report dated March 20, 1998, included the related financial statement schedule as of February 28, 1998 and for each of the years in the three-year period ended February 28, 1998, included in the February 28, 1998 annual report on Form 10-K of Packaging Resources Incorporated. This financial statement schedule is the responsibility of Packaging Resources Incorporated's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, the financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. KPMG Peat Marwick LLP Chicago, Illinois March 20, 1998 S-1 SCHEDULE II PACKAGING RESOURCES INCORPORATED VALUATION AND QUALIFYING ACCOUNTS YEAR ENDED FEBRUARY 29, 1996, FEBRUARY 28, 1997 AND FEBRUARY 28, 1998
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED BEGINNING OF COSTS AND TO OTHER BALANCE AT DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - ----------- ------------ ---------- -------- ---------- ------------- 1996 Allowance for Doubtful Accounts $200,000 $ ___ $ 66,000 $ (110,000) $156,000 1997 Allowance for Doubtful Accounts $156,000 $ ___ $ 2,000 $ (23,000) $135,000 1998 Allowance for Doubtful Accounts $135,000 $ ___ $ 56,000 $ (56,000) $135,000
S-2 EX-10.11 2 EXHIBIT 10.11 EXHIBIT 10.11 [*] Confidential Treatment Requested PARTS SUPPLY AGREEMENT THIS PARTS SUPPLY AGREEMENT ("Agreement") is made and entered into as of January 1, 1998 by and between Packaging Resources Incorporated, a Delaware corporation ("PRI"), and General Mills Operations, Inc., a Delaware corporation ("Yoplait"). RECITALS: WHEREAS, PRI and Yoplait are parties to a Restated Parts Supply Agreement dated July 15, 1992, pursuant to which PRI sells to Yoplait rigid plastic container sidewalls and bottoms identified on Schedule A attached hereto and made a part hereof (the "Parts") for assembly into six-ounce reverse tapered, spin welded cups ("6 oz. Cups"); and WHEREAS, Yoplait desires to continue to purchase from PRI, and PRI desires to continue to sell to Yoplait, the Parts upon the terms and conditions hereof. NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. SUPPLY OF PARTS. PRI shall sell to Yoplait, and Yoplait shall purchase and take delivery from PRI the Parts in accordance with the terms of Schedule C, attached hereto and made a part hereof. Purchases of Parts shall be in accordance with Yoplait's written purchase orders submitted to PRI. In the event there is any conflict between the terms of any such purchase order and the terms of this Agreement, the terms of this Agreement shall govern. 2. TERM. (a) The term of this Agreement shall commence on January 1, 1998 and shall continue in full force and effect until December 31, 1999 (the "Initial Term"). (b) Yoplait shall have an option, subject to PRI's right of refusal, to renew the term of this Agreement for a period of one (1) year after the Initial Term upon written notice to PRI not less than nine (9) months prior to the end of the Initial Term upon such terms and conditions as the parties shall mutually agree in writing, including a new Schedule C. -1- 3. PRICE. (a) BASE PRICE. The base price of the Parts shall be as noted in Schedule B, attached hereto and made a part hereof. (b) RESIN PRICE CHANGES. Effective as of January 1, 1999, a price adjustment for the Parts shall be implemented and effective through December 31, 1999. Such price adjustment shall be based on any increase or decrease between the market price of polystyrene on March 1, 1998 and such price on January 1, 1999. Any price adjustment pursuant to this Section 3(b) shall be in accordance with the escalator/de-escalator provision of Schedule B. (c) COST SAVINGS. The parties agree that to the extent cost savings are identified, mutually-agreed and implemented, any such savings shall be passed along to GMI to reduce the base price of the Parts or to reduce such other applicable costs as are paid by GMI. 4. PURCHASE OF INVENTORY. Upon the termination of this Agreement for any reason, Yoplait shall purchase from PRI all Parts and related work in progress then in PRI's inventory; provided, however, that Yoplait shall not be obligated to purchase any such inventory in excess of the maximum inventory levels contemplated by the forecasts furnished by Yoplait pursuant to Section 5 hereof, nor shall Yoplait be obligated to purchase any such inventory in excess of the volume guarantees provided in Schedule C. 5. FORECASTS OF REQUIREMENTS. On or about the first (1st) day of each calendar month during the term hereof, Yoplait shall provide PRI with a four (4) calendar month forecast of Yoplait's anticipated needs for Parts hereunder including without limitation, the month, plant location, flavor design and product group. 6. SPECIFICATIONS AND STANDARDS. PRI in its performance hereunder shall comply with all specifications and quality control standards set forth in Schedule A and Schedule D, attached hereto and made a part hereof ("specifications"). If PRI shall fail to meet such specifications with respect to any Parts, such Parts shall be returned to PRI at PRI's sole expense and PRI shall, within thirty (30) days of its receipt of such defective Parts, either replace such Parts or refund (or credit) the entire amount of any base price paid for such Parts. 7. INDEMNIFICATION. (a) INDEMNIFICATION BY YOPLAIT. To the extent that the Parts supplied hereunder comply with the specifications agreed to by the parties in accordance with Section 6, Yoplait agrees to indemnify, defend and -2- hold PRI harmless from and against any and all demands, claims, actions, suits and proceedings which may at any time be brought against PRI and any and all liabilities, losses, damages, costs and expenses (including, but not limited to, reasonable attorneys' fees and other legal costs and expenses) which may at any time be suffered or incurred by PRI, as a result of, arising from or in connection with the handling, transportation, or use of the Parts or any products to be sold within the 6 oz. Cups. (b) INDEMNIFICATION BY PRI. To the extent that PRI shall fail to meet the specifications agreed to by the parties in accordance with Section 6 with respect to any Parts, PRI agrees to indemnify, defend and hold Yoplait harmless from and against any and all demands, claims, actions, suits and proceedings which may at any time be brought against Yoplait and any and all liabilities, losses, damages, costs and expenses (including, but not limited to, reasonably attorneys' fees and other legal costs and expenses) which may at any time be suffered or incurred by Yoplait, as a result of, arising from or on account of any act or omission in connection with the handling or transportation of such Parts, or any products to be sold within the 6 oz. Cups; provided, however, in no event shall PRI be liable for the incidental or consequential losses or damages (including lost profits) of Yoplait. 8. EXCLUSIVITY. PRI agrees that it will not sell Parts set forth on Schedule A to any third party. 9. MISCELLANEOUS. (a) FORCE MAJEURE. In the event that either party hereto shall be prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reasons of a like nature not the fault of, or under the control of, the party delayed in performing work or doing acts required under the terms of this Agreement, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay, provided the party delayed in performing promptly gives written notice to the other party of its inability to perform and provided, further, that upon the termination of the force majeure event the delayed party promptly commences performance. (b) NOTICES. Any notice, claim, demand, request or other communication required or permitted under this Agreement shall be valid and effective only if given by written instrument which is personally delivered, sent by facsimile, air courier or registered or certified airmail, postage prepaid, addressed as follows: -3- To PRI: Packaging Resources Incorporated One Conway Park 100 Field Drive, Suite 300 Lake Forest, Illinois 60045 Attention: Howard P. Hoeper Facsimile: (847) 295-3707 To Yoplait: General Mills Operations, Inc. Number One General Mills Boulevard Minneapolis, MN 55426 Attention: Kevin Dulin Facsimile: (612) 541-5000 Any notice, claim, demand, request or other communication given as provided in this Section if given personally, shall be effective upon delivery; if given by facsimile, shall be effective one day after transmission; if given by air courier, shall be effective five (5) days after deposit with the courier; and if given by mail, shall be effective ten (10) days after deposit in the mail. Either party may change the address at which it is to be given notice by giving written notice to the other party as provided in this Section. (c) ENTIRE AGREEMENT. This Agreement and the Schedules hereto constitute the entire understanding and agreement between the parties, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except by an instrument in writing executed by the parties hereto. (d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF. (e) BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of all successors and assigns of the parties hereto. (f) ASSIGNMENT. PRI shall not assign or otherwise transfer in any manner (either by contract, operation of law or change in control) this Agreement or any of PRI's rights or obligations without Yoplait's prior written consent, which consent shall not be unreasonably withheld or delayed. (g) SEVERABILITY. If any provision of this Agreement shall be found invalid or unenforceable, in whole or in part, by a court of competent -4- jurisdiction, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be, provided that the basic intent of the parties has not thus been rendered incapable of achievement. (h) HEADINGS. Section headings have been inserted in this Agreement as a matter of convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement. (i) COUNTERPARTS. This Agreement may be executed in one or more counterparts, and the parties may execute and deliver this Agreement by executing and delivering any of such counterparts. (j) PRIOR AGREEMENT. The execution of this Agreement shall render null and void any agreements previously executed by the parties regarding the subject matter of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PACKAGING RESOURCES INC. GENERAL MILLS OPERATIONS, INC. By: /s/ Howard P. Hoeper By: /s/ Ian R. Friendly ------------------------------ ------------------------------- Name: HOWARD P. HOEPER Name: Ian R. Friendly Title: PRES, C.E.O. Title: President, Yoplait Colombo -5- SCHEDULE A Schedule A 1 of 4 [*] SCHEDULE A 2 of 4 [*] SCHEDULE A 3 of 4 [*] SCHEDULE A 4 of 4 [*] Schedule B 1 of 3 March 1, 1998 SCHEDULE B PACKAGING RESOURCES INCORPORATED Pricing Schedule Effective March 1, 1998 Includes $0.03/lb Market Price Increase for High Impact Styrene (Initial Contract Pricing) YOPLAIT - COLOMBO ----------------- Ship to: Carson, California (#109779)
Part Description Price/M - ---------------- ------- POLYSTYRENE 6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*] 6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*] 6 oz. White Bottom, Unprinted [*]
Title: Passes at Packaging Resources Incorporated. Freight: Collect Terms: 1% 10 Days, Net 30 Days. Sale subject to credit approval. Current Resin Escalator/Deescalator - ---------------------------------- Price change for each $0.01/lb. of polystyrene market price change is as follows: Sidewall - [*] - [*] Bottom - [*] Tooling - ------- Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall tools (80 cavity, 56 cavity, 56 cavity). Packaging Resources performs and bears the cost of all routine maintenance to include routine inspection, periodic cleaning and polishing, and recalibration of all tooling assemblies and, at a minimum of every two years, a rebuild of main mold assemblies to include seals, shafts, die pins and bushings. 5 2 of 3 March 1, 1998 SCHEDULE B PACKAGING RESOURCES INCORPORATED Pricing Schedule Effective March 1, 1998 Includes $0.03/lb Market Price Increase for High Impact Styrene (Initial Contract Pricing) YOPLAIT - COLOMBO ----------------- Ship to: Reed City, Michigan (#109820)
Part Description Price/M - ---------------- ------- POLYSTYRENE 6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*] 6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*] 6 oz. White Bottom, Unprinted [*]
Title: Passes at Packaging Resources Incorporated. Freight: Customer Pickup. Terms: 1% 10 Days, Net 30 Days. Sale subject to credit approval. Current Resin Escalator/Deescalator - ---------------------------------- Price change for each $0.01/lb. of polystyrene market price change is as follows: Sidewall - [*] - [*] Bottom - [*] Tooling - ------- Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall tools (80 cavity, 56 cavity, 56 cavity). Packaging Resources performs and bears the cost of all routine maintenance to include routine inspection, periodic cleaning and polishing, and recalibration of all tooling assemblies and, at a minimum of every two years, a rebuild of main mold assemblies to include seals, shafts, die pins and bushings. 6 3 of 3 March 1, 1998 SCHEDULE B PACKAGING RESOURCES INCORPORATED Pricing Schedule Effective March 1, 1998 Includes $0.03/lb Market Price Increase for High Impact Styrene (Initial Contract Pricing) YOPLAIT - COLOMBO ----------------- Ship to: Methuen, Massachusetts (#109816)
Part Description Price/M - ---------------- ------- POLYSTYRENE 6 oz. White Sidewall, Printed (Process - 5 to 6 Colors) [*] 6 oz. Yellow Sidewall, Printed (Line - 4 Colors) [*] 6 oz. White Bottom, Unprinted [*]
Title: Passes at Packaging Resources Incorporated. Freight: Packaging Resources Arranges for, Prepays and Bills Customer. Terms: 1% 10 Days, Net 30 Days. Sale subject to credit approval. Current Resin Escalator/Deescalator - ---------------------------------- Price change for each $0.01/lb. of polystyrene market price change is as follows: Sidewall - [*] - [*] Bottom - [*] Tooling - ------- Packaging Resources owns all tools: 1 Bottom tool (100 cavity); 3 Sidewall tools (80 cavity, 56 cavity, 56 cavity). Packaging Resources performs and bears the cost of all routine maintenance to include routine inspection, periodic cleaning and polishing, and recalibration of all tooling assemblies and, at a minimum of every two years, a rebuild of main mold assemblies to include seals, shafts, die pins and bushings. 7 SCHEDULE C PARTS VOLUME REQUIREMENTS (1) Subject to paragraph (2) below, during the Initial Term of this Agreement, Yoplait guarantees PRI that Yoplait shall purchase [*] Parts during each calendar year of the Initial Term ("Guaranteed Purchase Volume"). If Yoplait does not purchase the Guaranteed Purchase Volume in each calendar year of the Initial Term, Yoplait shall pay PRI [*] per one thousand Parts on the difference between the Guaranteed Purchase Volume and the actual number of Parts purchased (the "Shortfall Amount"). Yoplait's payment to PRI of the Shortfall Amount shall be PRI's sole and exclusive remedy for Yoplait's failure to purchase the Guaranteed Purchase Volume during each year of the Initial Term. PRI shall invoice Yoplait for the Shortfall Amount at the end of each calendar year of the Initial Term and the terms of payment shall be net thirty (30) days. (2) Yoplait shall not be obligated to purchase the Guaranteed Purchase Volume during each calendar year of the Initial Term if Yoplait's total requirements for Yoplait 6 oz. Original, Custard and Light yogurt cups as referred to in Schedule A does not meet or exceed [*] during such year because Yoplait is not selling Yoplait Original, Custard and Light 6 oz. yogurt cups as referred to in Schedule A in sufficient quantities to meet the Guaranteed Purchase Volume. However, if during any such calendar year, Yoplait's total requirements do not meet or exceed the Guaranteed Purchase Volume and Yoplait elects to order Yoplait Original, Custard and Light 6 oz. cups as referred to in Schedule A from another source, then Yoplait will be obligated to pay PRI the Shortfall Amount, plus the applicable Financing Charges as described in subparagraph (3) below, but only on the quantity ordered from the other source. Yoplait shall notify PRI of any such quantities ordered from another source and PRI shall invoice Yoplait for the Shortfall Amount at the end of each calendar year of the Initial Term and the terms of payment shall be net thirty (30) days. -1 (3) Financing Charges are defined as: Quantity Shortfall X [*] per 1000 6 oz. cups X (Prime Interest Rate + [*] divided by 12) X Number of Months below. [*] "Prime Interest Rate" means the base rate as announced by Citibank N.A. and in effect on December 15 of the applicable calendar year during the Initial Term. -2 Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 1 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 2 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 3 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 4 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH
COMPONENTS Type Unit of Measure Value POLYSTYRENE
PHYSICAL PROPERTIES Name Unit of Measure Test Procedure Min Max This section currently has no information.
[*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 5 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 6 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 7 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] Printed: MAR 4 1990 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 39-302 PAGE 8 OF 28 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] SCHEDULE D PAGE 9 OF 28 [*] SCHEDULE D PAGE 10 OF 28 [*] SCHEDULE D Printed: MAR 4 1998 GENERAL MILLS, INC. PAGE 11 OF 28 PACKAGING SPECIFICATION No. 30-292 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] SCHEDULE D Printed: MAR 4 1998 GENERAL MILLS, INC. PAGE 12 OF 28 PACKAGING SPECIFICATION No. 30-292 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] [*] Printed : MAR 4 1998 GENERAL MILLS, INC. PACKAGING SPECIFICATION No. 30-293 SCHEDULE D PAGE 14 OF 28 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] Printed : MAR 4 1998 GENERAL MILLS, INC. PACKAGING SPECIFICATION No. 30-293 SCHEDULE D PAGE 15 OF 28 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] [*] Printed: Mar 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 30-294 PAGE 17 OF 28 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] Printed: Mar 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 30-294 PAGE 18 OF 28 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] PAGE 19 OF 28 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 20 OF 28 RETAINED SOLVENTS CONFIDENTIAL ORIGINATION DATE: 06/05/87 STATUS: ACTIVE REVISION DATE: 03/28/96 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 21 OF 28 RIGID PLASTICS CONFIDENTIAL ORIGINATION DATE: 08/09/89 STATUS: ACTIVE REVISION DATE: 01/28/93 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 22 OF 28 RIGID PLASTICS [*] DATE: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 23 OF 28 RIGID PLASTICS [*] DATE: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 24 OF 28 CORRUGATED CONFIDENTIAL ORIGINATION DATE: 12/04/89 STATUS: ACTIVE REVISION DATE: 08/23/95 [*] Date: MAR 4 1998 GENERAL MILLS, INC. GENERAL PACKAGING SPECIFICATION SCHEDULE D CORRUGATED PAGE 25 OF 28 [*] Date: MAR 4 1998 GENERAL MILLS, INC. GENERAL PACKAGING SPECIFICATION SCHEDULE D CORRUGATED PAGE 26 OF 28 [*] Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 27 OF 28 PAGES CORRUGATED [*] Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 28 OF 28 PAGES CORRUGATED [*] EX-10.11A 3 EXHIBIT 10.11A Exhibit 10.11A [*] Confidential Treatment Requested MULTI-PACK SUPPLY AGREEMENT --------------------------- THIS MULTI-PACK SUPPLY AGREEMENT ("Agreement") is made and entered into as of March 1, 1998 by and between Packaging Resources Incorporated, a Delaware corporation ("PRI"), and General Mills Operations, Inc., a Delaware corporation (Yoplait"). RECITALS: WHEREAS, Yoplait desires to purchase from PRI and PRI desires to sell to Yoplait, four-ounce (4 oz.) thermoformed multi-pack cups identified on Schedule A attached hereto and made a part hereof (the "Cups"). NOW, THEREFORE, in consideration of the foregoing and the mutual agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. SUPPLY OF CUPS. PRI shall sell to Yoplait, and Yoplait shall purchase and take delivery from PRI the Cups in accordance with the estimates noted in Schedule C attached hereto and made a part hereof. The parties acknowledge that Schedule C lists estimates only and that Yoplait does not guarantee the purchase of any volume of Cups. However, Yoplait agrees that PRI will be its exclusive and sole supplier to Trix multipack, Adventure Pack and Yoplait Original multipack Cups as described on Schedule A, subject to PRI's ability to perform in accordance with the terms of this Agreement. Purchases hereunder shall be in accordance with Yoplait's written purchase orders submitted to PRI. In the event there is any conflict between the terms of any such purchase order terms and the terms of this Agreement, the terms of this Agreement shall govern. 2. TERM. (a) The term of this Agreement shall commence as of March 1, 1998 and shall end on February 28, 2003 ("Initial Term"). (b) Yoplait shall have an option to renew the term of this Agreement for a period of one (1) year after the Initial Term upon written notice to PRI not less than nine (9) months prior to the end of the Initial Term. Any such notice of the exercise of the option to renew shall contain a new Schedule C. Other changes to the terms and conditions of this Agreement shall be as mutually agreed to in writing by the parties. -1- 3. PRICE. (a) BASE PRICE. The base price of the Cups shall be as noted in Schedule B attached hereto and made a part hereof. (b) RESIN PRICE CHANGES. Effective March 1, 1999 a price adjustment for the Cups shall be implemented effective through February 28, 2000. Such price adjustment shall be based on any increase or decrease between the market price of polystyrene on March 1, 1998 and such price on March 1, 1999. On March 1, 2000, a price adjustment for the Cups shall be implemented effective as of such date based on any increase or decrease between the market price of polystyrene on March 1, 1999 and such price on March 1, 2000. Except as expressly agreed otherwise at any time after March 1, 2000, price adjustments for the Cups based on any increase or decrease in the market price of polystyrene shall be implemented when incurred by PRI; provided, however, that no such price adjustment shall be effective without thirty (30) days prior written notice to Yoplait. Any price adjustment pursuant to this Section 3(b) shall be in accordance with Schedule B. (c) NON-RESIN PRICE CHANGES. In March of each year of the term hereof, PRI shall advise Yoplait in writing of all non-resin price increases and decreases which relate to the manufacture of the Cups. Upon mutual agreement of the parties, the base price of the Cups shall be appropriately adjusted and confirmed by the parties in writing on April 1 of each year of the term hereof; provided that Yoplait agrees to accept non-resin increases, not to exceed 2%, when PRI provides appropriate written documentation. The parties also agree that to the extent that cost savings are identified, mutually-agreed and implemented, any such savings shall be passed along to GMI to reduce the price of the Cups or to reduce such other applicable costs as are paid by GMI. 4. PURCHASE OF INVENTORY. Upon the termination of this Agreement for any reason, Yoplait shall purchase from PRI all Cups and related work in progress then in PRI's inventory; provided, however, that Yoplait shall not be obligated to purchase any such inventory in excess of the maximum inventory levels contemplated by the forecasts furnished by Yoplait pursuant to Section 5 hereof. 5. FORECASTS OF REQUIREMENTS. On or about the first (1st) day of each calendar month during the term hereof, Yoplait shall provide PRI with a four (4) calendar month forecast of Yoplait's anticipated needs for Cups hereunder including without limitation, the month, plant location, flavor design and product group. -2- 6. SPECIFICATIONS AND STANDARDS. PRI in its performance hereunder shall comply with all specifications and quality control standards set forth in Schedule A and Schedule D, attached hereto and made a part hereof ("specifications"). If PRI shall fail to meet such specifications with respect to any Cups, such Cups shall be returned PRI at PRI's sole expense and PRI shall, within thirty (30) days of its receipt of such defective Cups, either replace such Cups or refund (or credit) the entire amount of any base price paid for such Cups. 7. INDEMNIFICATION. (a) INDEMNIFICATION BY YOPLAIT. To the extent that the Cups supplied hereunder comply with the specifications and standards agreed to by the parties in accordance with Section 6, Yoplait agrees to indemnify, defend and hold PRI harmless from and against any and all demands, claims, actions, suits and proceedings which may at any time be brought against PRI and any and all liabilities, losses, damages, costs and expenses (including, but not limited to, reasonable attorney's fees and other legal costs and expenses) which may at any time be suffered or incurred by PRI, as a result of, arising from or in connection with the handling, transportation, or use of the Cups or any products to be sold within the Cups. (b) INDEMNIFICATION BY PRI. To the extent that PRI shall fail to meet the specifications and standards agreed to by the parties in accordance with Section 6 with respect to any Cups, PRI agrees to indemnify, defend and hold Yoplait harmless from and against any and all demands, claims, actions, suits and proceedings which may at any time be brought against Yoplait and any and all liabilities, losses, damages, costs and expenses (including, but not limited to, reasonable attorney's fees and other legal costs and expenses) which may at any time be suffered or incurred by Yoplait, as a result of, arising from or on account of any act or omission in connection with the handling or transportation of such Cups, or any products to be sold within the Cups; provided, however, in no event shall PRI be liable for the incidental or consequential losses or damages (including lost profits) of Yoplait. 8. EXCLUSIVITY. PRI agrees that it will not sell Cups set forth on Schedule A to any third party. 9. MISCELLANEOUS. (a) FORCE MAJEURE. In the event either party hereto shall be prevented from the performance of any act required hereunder by reason of strikes, lock-outs, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reasons of a like nature not the fault of, or under the control of, the party -3- delayed in performing work or doing acts required under the terms of this Agreement, then performance of such act shall be excused for the period of the delay and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay, provided the party delayed in performing promptly gives written notice to the other party of its inability to perform and provided, further, that upon the termination of the force majeure event the delayed party promptly commences performance. (b) NOTICES. Any notice, claim, demand, request or other communication required or permitted under this Agreement shall be valid and effective only if given by written instrument which is personally delivered, sent by facsimile, air courier or registered or certified airmail, postage prepaid, addressed as follows: To PRI: Packaging Resources Incorporated One Conway Park 100 Field Drive, Suite 300 Lake Forest, Illinois 60045 Attention: Howard P. Hoeper Facsimile: (847) 295-3707 To Yoplait: General Mills Operations, Inc. Number One General Mills Boulevard Minneapolis, MN 55426 Attention: Kevin Dulin Facsimile: (612) 541-5000 Any notice, claim, demand, request or other communication given as provided in this Section if given personally, shall be effective upon delivery; if given by facsimile, shall be effective one day after transmission; if given by air courier, shall be effective five (5) days after deposit with the courier; and if given by mail, shall be effective ten (10) days after deposit in the mail. Either party may change the address at which it is to be given notice by giving written notice to the other party as provided in this Section. (c) ENTIRE AGREEMENT. This Agreement and the Schedules hereto constitute the entire understanding and agreement between the parties, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement. This Agreement may not be modified or amended except by an instrument in writing executed by the parties hereto. (d) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE -4- STATE OF ILLINOIS, WITHOUT REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF. (e) BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of all successors and assigns of the parties hereto. (f) ASSIGNMENT. PRI shall not assign or otherwise transfer in any manner (either by contract, operation of law or change in control) this Agreement or any of PRI's rights or obligations without Yoplait's prior written consent, which consent shall not be unreasonably withheld or delayed. (g) SEVERABILITY. If any provision of this Agreement shall be found invalid or unenforceable, in whole or in part, by a court of competent jurisdiction, then such provision shall be deemed to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case my be, provided that the basic intent of the parties has not thus been rendered incapable of achievement. (h) HEADINGS. Section headings have been inserted in this Agreement as a matter of convenience only and are not a part of this Agreement and shall not be used in the interpretation of this Agreement. (i) COUNTERPARTS. This Agreement may be executed in one or more counterparts, and the parties may execute and deliver this Agreement by executing and delivering any of such counterparts. (j) PRIOR AGREEMENT. The execution of this Agreement shall render null and void any agreements previously executed by the parties regarding the subject matter of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. PACKAGING RESOURCES INC. GENERAL MILLS OPERATIONS, INC. By: /s/ Howard P. Hoeper By: /s/ Ian R. Friendly ----------------------------- ------------------------------- Name: Howard P. Hoeper Name: Ian R. Friendly --------------------------- ----------------------------- Title: PRES. C.E.O. Title: President, Yoplait-Colombo -5- SCHEDULE A Page 1 of 2 Yoplait 4 oz. Container Production Shipping Specification 09/10/97 [*] SCHEDULE A Page 2 of 2 [*] Page 1 of 1 SCHEDULE B March 1, 1998 PACKAGING RESOURCES INCORPORATED Pricing Schedule Effective March 1, 1998 Include $0.03/lb Market Price Increase for High Impact Styrene (Initial Contract Pricing) YOPLAIT - COLOMBO Ship to: Methuen, Massachusetts (#109816)
Part Description Price/M - ---------------- ------- POLYSTYRENE 4 oz. White Multi-Pack, Printed (Process - 5 to 6 Colors) [*] 4 oz. White Multi-Pack, Unprinted [*] 4 oz. Yellow Multi-Pack, Unprinted [*] 4 oz. Red Multi-Pack, Unprinted [*]
Title: Passes at Packaging Resources Incorporated Freight: Packaging Resources Arranges for, Prepays and Bills Customer Direct Freight Cost: Coleman to Methuen - $1600 Coleman to Tulare - $2850 Terms: 1% 10 Days, Net 30 Days. Sale subject to credit approval. Current Resin Escalator/Deescalator - ----------------------------------- Price change for each $0.01/lb. of High Impact Polystyrene market price change is as follows: 4 oz. Multi-Pack = [*] Tooling - ------- Yoplait Owns Tooling and Packaging Resources Maintains Tooling. SCHEDULE C MULTI-PACK VOLUME ESTIMATES (MM UNITS) [*] Volumes are estimates for the Agreement Years starting March 1, 1998. SCHEDULE D Printed: FEB 26 1998 GENERAL MILLS, INC. Page 1 of 3 PACKAGING SPECIFICATION No. 30-335 PAGE: 1 INTERNAL USE ONLY [*] SCHEDULE D Printed: FEB 26 1998 GENERAL MILLS, INC. Page 2 of 3 PACKAGING SPECIFICATION No. 30-335 PAGE: 2 INTERNAL USE ONLY [*] SCHEDULE D Printed: FEB 26 1998 GENERAL MILLS, INC. Page 3 of 3 Page: 3 PACKAGING SPECIFICATION No. 30-335 INTERNAL USE ONLY [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 30-335 PAGE 1 OF 19 For Supplier # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION NO. 30-335 PAGE 2 OF 19 FOR SUPPLIER # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION NO. 30-335 PAGE 3 OF 19 FOR SUPPLIER # 067443 PACKAGING RESOURCES NEW VIENNA, OH [*] PAGE 4 OF 19 [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION No. 30-367 PAGE 5 OF 19 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] Printed: MAR 4 1998 GENERAL MILLS, INC. SCHEDULED PACKAGING SPECIFICATION No. 30-367 PAGE 6 OF 19 For Supplier # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] [*] PAGE 7 OF 19 PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION NO. 30-368 PAGE 8 OF 19 FOR SUPPLIER # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] PRINTED: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D PACKAGING SPECIFICATION NO. 30-368 PAGE 9 OF 19 FOR SUPPLIER # 040335 WEYERHAEUSER - THREE RIVERS THREE RIVERS, MI [*] SCHEDULE D PAGE 10 OF 19 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 11 OF 19 RETAINED SOLVENTS CONFIDENTIAL ORIGINATION DATE: 06/05/87 STATUS: ACTIVE REVISION DATE: 03/28/96 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 12 OF 19 RIGID PLASTICS CONDFIDENTIAL ORIGINATION DATE: 08/09/89 STATUS: ACTIVE REVISION DATE: 01/28/93 [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 13 OF 19 RIGID PLASTICS [*] Date: MAR 3 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 14 OF 19 RIGID PLASTICS [*] Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 15 OF 19 CORRUGATED CONFIDENTIAL ORIGINATION DATE: 12/04/89 STATUS: ACTIVE REVISION DATE: 08/23/95 [*] Date: MAR 4 1998 GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 16 OF 19 CORRUGATED [*] GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 17 OF 19 CORRUGATED [*] GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 18 OF 19 CORRUGATED [*] GENERAL MILLS, INC. SCHEDULE D GENERAL PACKAGING SPECIFICATION PAGE 19 OF 19 CORRUGATED [*] EX-12.1 4 EXHIBIT 12.1 EXHIBIT 12.1 PACKAGING RESOURCES INCORPORATED STATEMENT RE COMPUTATION OF FINANCIAL RATIOS
Fiscal Year Ended ----------------------------------------------------------- Feb. 28 Feb. 28 Feb. 29 Feb. 28 Feb. 28 1994 1995 1996 1997 1998 -------- ------- ------- ------- ------- EBITDA: (dollars in thousands) Net income (loss) before extraordinary item and cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . 7,278 (3,521) 1,333 247 (30) Income tax expense (benefit) . . . . . . . . . . . . . . . 5,057 (1,980) 1,006 491 346 Interest expense . . . . . . . . . . . . . . . . . . . . . 5,482 8,503 10,671 12,711 13,580 Depreciation and amortization . . . . . . . . . . . . . . 6,279 10,492 9,721 8,039 7,920 Other expense . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 800 Nonrecurring charge . . . . . . . . . . . . . . . . . . . -- 7,257 -- -- -- ------ ------ ------ ------ ------ EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,096 20,751 22,731 21,488 22,616 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Earnings to fixed charge ratio: Fixed charges: Interest expense before deferred financing costs . . . . . . . . . . . . . . . . . . . 4,777 7,655 9,011 11,839 12,916 Interest element of rentals (1) . . . . . . . . . . . . 694 849 687 586 518 Amortization of deferred financing cost . . . . . . . . 705 848 1,660 872 664 ------ ------ ------ ------ ------ Total fixed charges. . . . . . . . . . . . . . . . . . . . 6,176 9,352 11,358 13,297 14,098 Earnings: Net Income (loss) before extraordinary item and cumulative effect of change in accounting principle . . . . . . . . . . . . . . . . . . . . . . . 7,278 (3,521) 1,333 247 (30) Income tax expense (benefit) . . . . . . . . . . . . . . . 5,057 (1,980) 1,006 491 346 Fixed charges . . . . . . . . . . . . . . . . . . . . . . 6,176 9,352 11,358 13,297 14,098 ------ ------ ------ ------ ------ Total earnings . . . . . . . . . . . . . . . . . . . . . . . 18,511 3,851 13,697 14,035 14,414 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ Ratio of earnings to fixed charges . . . . . . . . . . . . . 3.00 0.41(2) 1.21 1.06 1.02 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(1) Deemed to be approximately one-third of rental expenses. (2) Ratio is less than one; therefore, ratio is not disclosed elsewhere in the Company's annual report on Form 10-K. EX-27.1 5 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEETS AND STATEMENTS OF OPERATIONS FROM THE COMPANY'S FORM 10-K FOR THE YEAR- TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR FEB-28-1998 MAR-01-1997 FEB-28-1998 7,929 0 13,684 (135) 20,529 43,165 105,941 (53,760) 121,079 17,693 110,000 0 0 0 (14,418) 121,079 121,303 121,303 99,998 99,998 7,409 0 13,580 316 346 (30) 0 0 0 (30) 0 0
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