UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-130353-04

PREGIS HOLDING II CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		20-3321581
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)
1650 Lake Cook Road
Deerfield, Illinois		60015
(Address of Principal Executive Offices)		(Zip Code)

(847) 597-2200
(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

		Name of each exchange
Title of each class		on which registered

Securities registered pursuant to Section 12(g) of the Act: None

(Title of class)

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o                      No þ

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes þ                      No o

     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 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 þ                     No o

     Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o                     No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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. þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Small reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                     No þ

     The registrant has no common stock, voting or non-voting, held by non-affiliates.

     There is no public market for the Company’s common stock. There were 149.0035 shares of the registrant’s common stock, par value $0.01 per share, issued and outstanding as of December 31, 2010 and as of March 24, 2011.

     Certain exhibits to the registrant’s registration statement on Form S-4, as amended, filed in 2006 and 2007, and other reports filed by the registrant with the SEC, are incorporated by reference into Item 15 of this report.

 

 

TABLE OF CONTENTS

		Page
PART I
ITEM 1. BUSINESS			1
ITEM 1A. RISK FACTORS			11
ITEM 1B. UNRESOLVED STAFF COMMENTS			24
ITEM 2. PROPERTIES			24
ITEM 3. LEGAL PROCEEDINGS			24
ITEM 4. RESERVED			24
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES			24
ITEM 6. SELECTED FINANCIAL DATA			25
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA			48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE			93
ITEM 9A. CONTROLS AND PROCEDURES			93
ITEM 9B. OTHER INFORMATION			94
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE			95
ITEM 11. EXECUTIVE COMPENSATION			99
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS			111
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE			113
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES			115
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES			116
EX-10.22
EX-10.23
EX-10.24
EX-12.1
EX-21.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

PART I

     Except as otherwise required by the context, (1) references in this report to “our company,” “we,” “our” or “us” (or similar terms) refer to Pregis Holding II Corporation, together with its consolidated subsidiaries, (2) references to “Pregis Holding II” or “the registrant” refer to Pregis Holding II Corporation only, (3) references to “Pregis” refer only to Pregis Corporation, a wholly-owned subsidiary of Pregis Holding II Corporation, and (4) references to “Pregis Holding I” refers to Pregis Holding I Corporation, which owns all of the capital stock of Pregis Holding II Corporation.

ITEM 1.		BUSINESS

The Company

     We are an international manufacturer, marketer and supplier of protective packaging products and specialty packaging solutions. We have two reportable segments:

	•		Protective Packaging, which manufactures, markets, sells and distributes protective packaging products in North America and Europe; and
	•		Specialty Packaging, which focuses on the development, production and marketing of innovative packaging solutions for food, medical, and other specialty packaging applications, primarily in Europe.

     Additional quantitative disclosures with respect to our reportable segments is presented in Note 18 to the audited financial statements included within this report, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 of this Report and incorporated herein by reference.

Competitive Strengths

     We believe we are distinguished by the following competitive strengths:

	•		Leading Positions in Fragmented Markets. As one of the leading providers of protective packaging products as well as a leading competitor in our target markets in European specialty packaging solutions, we benefit from our broad product offering, scale, expertise in innovation, long standing customer relationships and diverse end-markets. Our specialty packaging businesses focus on non-commodity, specialized niche market segments with deep, collaborative customer relationships, high service expectations and exacting product requirements.
	•		Broad Product Offering Combined with Customer-Focused Service. We believe we offer one of the broadest product lines in the packaging industry. Many of our customers tend to purchase multiple packaging products from manufacturers and our ability to bundle products reduces customer cost and simplifies procurement requirements. We also offer highly customized, value-added packaging solutions to attractive markets. Examples of these tailored solutions include customized shapes, customized laminates and other design services. In addition to our broad product line and customized solutions, we provide our customers with levels of quality, lead times, logistics and design services that we believe are among the most competitive in the packaging industry.
	•		Advanced, Low-Cost Manufacturing. We benefit from a number of competitive advantages that help us compete effectively in our markets. For example:

○

Manufacturing technologies and capabilities for our products depend on advanced technological know-how. Our advanced manufacturing capabilities allow us to produce unique and compelling products to meet our customers’ needs. For example, our ability to manufacture co-extruded cushioning packaging, polypropylene and polyethylene sheet foam, extruded plank and paper-based products is a significant advantage relative to our competitors, who generally have more limited product offerings. We also

believe we are the sole producer of low density polypropylene sheet foam products and one of only two producers of co-extruded bubble cushioning products.

	○		We continue to make significant investments in our manufacturing facilities, enabling us to produce higher-value added products, further broaden our product offering and improve profitability. Since the beginning of 2006, Pregis has invested over $150 million in capital expenditures in order to launch new products, restructure our operations, implement advanced manufacturing techniques and make other process improvements. We believe that our facilities are well-capitalized in comparison to many of our competitors.
	○		Many of the products in our industry are lightweight with an estimated cost-effective shipping radius in the industry of approximately 200 to 400 miles. In addition, many of our customers seek broad geographic coverage and timely, often overnight, deliveries. Our expansive manufacturing and distribution network, which included a network of 46 facilities in 18 countries as of December 31, 2010, allows us to provide our customers with the geographic scale and service levels required to meet their needs. For example, we are the only manufacturer of kraft honeycomb products that can offer a national presence throughout the United States and much of Western Europe.
	○		Our ability to procure lower cost raw materials due to our scale, coupled with our efficient manufacturing assets, enables us to maintain a cost structure which we believe to be lower than that of many of our competitors, which helps drive revenue growth and improve profitability.

	•		Significant Diversification. Our business is well balanced with a diversified range of product offerings, geographical markets, end-markets and customers. We believe we offer one of the broadest product lines in the packaging industry. Geographically, we primarily serve markets in North America, Europe and, to a lesser extent, other regions of the world. We also benefit from serving a diverse set of end-markets and a diverse customer base, with our largest customer representing approximately 2% of sales in 2010. We believe this diversity helps reduce overall business risk, enhances our revenue stability and provides us with opportunities for growth resulting from changing customer needs and market trends.
	•		Track Record of Customization and Innovation. Our focus on customized solutions is a key factor in our ability to grow by satisfying our customers’ changing needs. Examples of customization include surgical and procedure kits tailored to the needs of a hospital or an individual physician; custom print, decoration and barrier properties in flexible films; custom thermoformed container shapes and closure designs for the foodservice market; and die-cut and application-specific customized products for Protective Packaging’s Hexacomb® product line. The ability to innovate is a key factor in our ability to expand our product lines and meet shifts in market demand. For example, the Protective Packaging segment recently introduced a new family of “green” products to address the growing need for sustainable packaging alternatives. These products include Astro-Bubble® Green, the first air cushioning bubble product made with recycled content. Also included in our sustainable product portfolio are Astro-Bubble® Renew, Absolute EZ-Seam Renew™ (recycled content floor underlayment), Hefty Express® mailers and Jiffy™ Green bubble rolls and mailer products. In addition, we believe our Protective Packaging business is one of only two manufacturers of extruded engineered foam in both North America and Europe and the only producer of polypropylene sheet foam in North America. We believe that our customized and innovative products provide additional value to our customers.
	•		Experienced Management Team and Strong Equity Sponsorship. Our senior managers have extensive commercial, manufacturing and finance backgrounds. Our management team has demonstrated its ability to improve our competitive position by successfully developing and executing our global business strategy. Our management team has led the implementation of lean and other productivity programs and significant cost savings initiatives, as well as internal and acquisitive expansion efforts, which position us for future growth and margin expansion. We also benefit from our equity sponsor’s relationships,

knowledge of the packaging, specialty chemicals and consumer products industries, and significant investment experience.

Business Strategy

     We are pursuing a business strategy developed to increase revenue and cash flow. The key components of this strategy are:

	•		Capitalize on Our Market Position to Grow Sales. We are continuing to use our broad product offering, expansive geographic coverage, advanced manufacturing technologies and leading service levels to drive our growth. We also plan to continue to pursue initiatives that further broaden our product lines in the packaging industry. Our diversity of end-markets and customers, as well as our knowledge of trends and customer preferences, help us identify new business and product opportunities. Our product development teams continue to seek to enhance and expand the use of existing products as well as work collaboratively with our customers to design new products. We are also continuing to focus our efforts on the development of products that can provide immediate value to our customers and meet their performance requirements and quality expectations.
	•		Continue Customer-Focused Service. We have successfully differentiated ourselves through a reputation for customer-focused, high quality service. We intend to further enhance our service levels by using our strong relationships with customers and end-users to gain industry and consumer insight into emerging trends and customer preferences. We implement our customer-focused strategy through a regional sales and distribution infrastructure, tailored to fit the needs of our customers and end-markets. The key elements of this strategy require us to develop and maintain long-standing relationships and partnerships with our customers. We have an average relationship of 20 years with our top 10 customers. We intend to continue to use this strategy to capture increased value for our products and services.
	•		Maintain Technological Know-How and Low-Cost Manufacturing Position. We have made substantial investments to develop advanced packaging manufacturing technologies, and as a result we have a significant portfolio of industry-leading products and technologies. We continue to invest in advanced manufacturing capabilities and low-cost facilities in order to enable us to produce higher value-added products, further broaden our product offering and improve profitability.
	•		Continue to Use Our International Platform. We intend to continue to share products, technologies, manufacturing processes and best practices, and research and development resources across our protective packaging operations in North America and Europe. In addition, we are using this international platform to introduce new products and technologies more efficiently, obtain information on distribution channels and end-markets, and re-deploy manufacturing assets and sales personnel as needed to capitalize on emerging trends in the markets we serve.

History

     Pregis Holding II is a Delaware corporation formed in 2005. AEA Investors LP and certain of its affiliates (the “Sponsors” or “AEA Investors”), formed Pregis, Pregis Holding I, and Pregis Holding II for the purpose of acquiring all of the outstanding shares of capital stock of the global protective packaging and European specialty packaging businesses of Pactiv Corporation (the “Acquisition”). AEA Investors entered into a stock purchase agreement on June 23, 2005 with respect to the Acquisition, and the Acquisition was consummated on October 13, 2005. The adjusted purchase price for the Acquisition was $559.7 million, after giving effect to direct costs of the Acquisition, pension plan funding of $20.1 million, and post-closing working capital and indebtedness adjustments. The Stock Purchase Agreement also indemnifies the Company for payment of certain liabilities relating to the pre-Acquisition period.

     The Acquisition was financed with the proceeds from the offering of Pregis’s Second Priority Senior Secured Floating Rate Notes due 2013 and 12³/₈% Senior Subordinated Notes due 2013, borrowings under Pregis’s senior secured credit facilities and an equity contribution to Pregis Holding I by AEA Investors.

Products and Services

     Our broad, industry-leading product offerings include protective packaging, flexible packaging, rigid packaging, and medical supplies and packaging and serve a diversified range of end-markets. Our products are primarily plastic resin- and plastic film-based but also include products derived from kraft paper and other raw materials. Our protective packaging products are used for cushioning, void-fill, surface protection, containment and blocking and bracing. Our Protective Packaging business also acts as a distributor of protective packaging products in certain European markets, including the United Kingdom and Central Europe. Our specialty packaging products serve niche market segments with customized, value-added packaging solutions. The table below provides an overview of products and end-markets served within our segments.

		Protective Packaging		Specialty Packaging
Products		Protective mailers		Flexible packaging:
		Air-encapsulated cushion products		Bags
		Inflatable airbag systems		Pouches
		Sheet foam		Labels
		Engineered foam
		Honeycomb		Rigid packaging:
		Paper packaging systems		Thermoformed foodservice containers
		Foam-in-place		Custom packaging
				Medical supplies and packaging:
				Operating drapes and gowns
				Surgical procedure packs
				Medical packaging
End-Markets Served		General industrial		Fresh food
		High tech electronics		Dry food
		Furniture manufacturing		Consumer products
		Building products		Foodservice
		Retail		Hospitals
		Agriculture		Healthcare

     We manufacture protective packaging products in North America and Europe. We currently manufacture our specialty packaging products in Germany, the United Kingdom, Egypt, and Bulgaria.

     Protective Packaging Products

     Protective Mailers. Protective mailers are a lightweight, economical, pre-constructed means of protecting a wide variety of small items from damage during shipping. Types of protective mailers include cushion-lined, padded, foam-lined, rigid board and all-plastic mailers. Protective Packaging markets its line of protective mailers under the Hefty Express^® brand name in North America and Jiffy^™ brand name in Europe.

     Air-Encapsulated Cushion Products. Introduced in the 1960s, cushion products are made from extruded polyethylene or co-extruded polyethylene and nylon film with pockets of air encapsulated between the top and bottom layers of the film. Each cell acts as a mini-shock absorber to protect products during shipping. The primary functions of cushion products are cushion and void fill. Protective Packaging’s range of cushion products is sold primarily under the Astro-Cell^® and Astro-SupraBubble^® brand names. Based on customer preferences, Protective Packaging can customize its cushion products by laminating them with kraft paper, aluminum foil or other film. Co-extruded multi-layer cushion products retain air over extended periods of time and are generally viewed by customers as higher value-added alternatives to monolayer products. We believe that Protective Packaging is one of only two manufacturers of co-extruded bubble cushioning products.

     Inflatable Airbag Systems. Inflatable airbag systems consist of a dispenser which produces inflatable airbags on-demand at the end-user location. This inflated airbag is designed for void-fill and blocking and bracing applications. The competitive advantages of inflatable airbags compared to loose-fill, wadded paper and other substitute packaging materials are price, reduced freight costs, lower weight, lower inventory space and improved protection. Since inflatable airbags are produced on-demand, often at the customer’s on-site location, inventory, freight and warehousing requirements are significantly reduced for the customer.

     Sheet Foam. Sheet foams are extruded foamed plastics with thicknesses not exceeding 5 millimeters (approximately 3/16-inches). This product is primarily used as surface and light-cushioning protection in packaging applications, and as thermal and sound insulation in non-packaging applications, such as flooring underlayment and concrete curing blankets. Protective Packaging’s sheet foam is sold primarily under the Astro-Foam^™, Prop-X^™ and Microfoam^® brand names, while its laminated or custom sheet foams are sold under the Micro-Tuff^™ and Rhino^™ brand names. Protective Packaging differentiates and custom tailors sheet foam by laminating it with aluminum foil, high density polyethylene resin, kraft paper, non-woven materials and other substrates.

     Engineered Foam. Engineered foams are extruded foamed plastics with thicknesses greater than 5 millimeters (approximately 3/16-inches). This product provides a variety of functions, including cushioning and blocking and bracing. In packaging applications, engineered foam is fabricated into a wide range of protective packaging shapes, forms and die cuts for designed packages in which a clean, attractive appearance is required. Unlike other protective packaging products, engineered foam is typically sold to fabricators, who convert the material based on precise specifications required by end-users. Engineered foam’s characteristics include high impact strength, elasticity and chemical resistance. These characteristics make the product a preferred substrate in protective packaging applications for electronic and medical equipment, automotive parts and machine tools, as well as in certain non-packaging applications, particularly recreational uses.

     Honeycomb. Honeycomb is a protective packaging material made from kraft paper that is sliced into strips and glued together to form a pattern of nested hexagonal cells. Formed honeycomb is similar in appearance to a beehive honeycomb and is custom-designed to meet the needs of each end-user. Specific functional applications of honeycomb include spacing, cushioning and blocking and bracing, as well as structural support for doors and tabletops. Honeycomb demonstrates excellent protective qualities by minimizing the transfer of road-shock to products during shipping and by providing a combination of cushioning, and blocking and bracing functions. Honeycomb offers excellent performance due to its strength-to-weight ratio. As a result, honeycomb tends to be preferred to corrugated packaging given its lower cost and better performance in its targeted application. Select end-users value the product’s environmentally friendly characteristics compared to molded resin-based alternatives. Protective Packaging manufactures honeycomb under the Hexacomb^® brand name in both North America and Europe.

     Paper Packaging Systems. Our paper systems offer an additional solution to the void-fill portfolio of protective packaging products, using a flexible and eco-friendly packaging material. The systems deliver crumpled, recyclable, renewable and biodegradable kraft paper used for void-fill, cushioning, wrapping and blocking, and bracing applications. This packaging solution broadens and compliments the existing void-fill inflatable solutions portfolio, offering a wider selection of void-fill options to be placed at end-user sites, saving customers inventory, freight and packaging costs.

     Foam-in-place. Foam-in-place polyurethane is molded real-time by mixing two liquid chemicals contained in a thin, low density polyethylene bag. The mixture expends rapidly around the product being protected, creating a custom protective shell. This form of packaging is ideal for larger, heavier and irregularly shaped objects that are lower volume and require a high degree of packaging protection.

     Specialty Packaging Products

     Flexible Packaging Products

     Films. Films include film-on-the-reel consisting of high quality mono and co-extruded laminated polyethylene films for the fresh, dry and frozen foods, confectionery, hygiene, medical and consumer goods markets, as well as mono, modified atmospheric packaging base and top web clear and colored films with easy peel or fusion seal.

     Bags. Bag products include printed polyethylene bags for the household, personal care, horticultural and medical markets and reclosable bags.

     Pouches. Pouch products include laminated stand-up pouches, printed in up to ten colors, for food, hygienic and medical markets.

     Labels. Labels include shrink, stretch and wrap-around labels for glass and plastic bottles, printed in up to ten colors.

     Rigid Packaging Products

     Custom packaging. Custom packaging consists of individually customized packaging for food and foodservice products, including snacks, salads, confectionery, biscuits and prepared meals. A dedicated design and technology facility in Stanley, United Kingdom offers a full range of services covering the product development process from drafting of initial concepts in three dimensions through to the creation of prototype samples and final tool production. Custom solutions include trays for chocolates and biscuit inserts for biscuits and confectionery products.

     Foodservice. Foodservice products include standard thermoformed packaging produced internally, which are sold alongside third-party foodservice products purchased for resale. Products offered include containers and bowls, trays, tableware cups and cup carriers.

     Medical Supplies and Packaging

     Operating drapes. Operating drapes include a complete range of disposable operating drapes such as back table covers, small drapes, universal patient drapes, customized drape systems and drapes that are specific to particular operations. Products are sold under the Secu-Drape^™ brand as well as under private label brands.

     Procedure packs. Procedure packs consist of standard and highly customized drapes and other products (such as tubes, compresses, and scalpels) purchased from third-party suppliers that are used for numerous surgical disciplines.

     Medical packaging. Medical packaging includes transparent pouches and tubes and reels with or without indicators suitable for different sterilization processes and sold under the Medipeel^™ and Flexopeel^™ brands; transparent or colored pouches suitable for vacuum packaging and irradiation and sold under the Cleerpeel^™ brand; and wrapping materials and other accessories sold under the Steriflex^™ brand.

Customers

     For the year ended December 31, 2010, on a corporate-wide basis, our top ten customers accounted for approximately 12% of our net sales, with no single customer accounting for more than 2%.

     Protective Packaging

     We sell our protective packaging products to over 10,000 customers across North America and Europe, consisting primarily of distributors, fabricators and direct end-users. The majority of our protective packaging sales are to national and regional distributors who sell a variety of packaging and other industrial products to end-user customers. Our sales to fabricators are driven by engineered foam products, which are converted by fabricators into a wide range of protective packaging shapes, forms and die cuts for designed packages with the precise specifications required by end-users. We believe that packaging is critical to our customers’ packaged goods but accounts for only approximately 3% of our customers’ total product costs.

     Specialty Packaging

     Our specialty packaging products are sold to a wide range of end-user customers, both directly and through distributors, in the various markets the businesses serve, including major international food, consumer products and healthcare companies, regional producers and distributors and retailers, many with whom we have long-standing relationships.

Sales, Marketing and Distribution

     Because of our broad range of products and customers, our sales and marketing efforts are generally specific to a particular product, customer or geographic region. We market in various ways, depending on both the customer and the product. We have differentiated ourselves from our competitors by building a reputation for a customer-focused sales approach, quality service, product and service innovation and product quality. The key elements of this strategy require us to develop and maintain strong relationships with our customers, including direct end-users as well as distributors and fabricators.

     Our Protective Packaging sales and marketing is organized primarily on a regional basis in North America and a country basis in Europe. In North America, several specialty end-markets, such as agriculture, building products, furniture manufacturing and retail, as well as a small number of key accounts, are covered on a national basis. Our honeycomb products are sold by a dedicated sales force due to the specialized nature of the product offering. In Europe, specialists cover several key accounts in the protective mailer, engineered foam, and inflatable airbag systems product segments. Our Specialty Packaging businesses address the specialized market segments they serve with both a direct sales force and distributors, utilizing the most effective channels to address their customers’ needs. These businesses’ marketing efforts are led by their sales force and customer service staff and also include an international sales network through dedicated agents in various countries, including the United Kingdom, The Netherlands, Poland and Spain.

Research and Development

     Our product development efforts are an important part of our commitment to customer-focused service and innovative products and technology. Our research and development personnel work closely with customers to enhance existing products and develop new products, as well as to gain insights into emerging trends and customer preferences. We aim to launch a number of new products and applications each year. Our development efforts are

focused on new and existing product development, design and enhancement, manufacturing process optimization and material development, all of which reinforce our strong customer relationships and provide support to our sales and marketing teams. For the years ended December 31, 2010, 2009, and 2008, we spent $6.9 million, $5.4 million, and $5.8 million, respectively, on our research and development efforts.

Suppliers and Raw Materials

     Polyethylene, polypropylene, and other plastic resins constitute the primary raw materials used to make our products. We also purchase various other materials, including plastic film, nylon, kraft paper, corrugated products and inks. These materials are generally available from a number of suppliers. Our businesses purchase raw materials in coordination with one another, and we sometimes buy and sell additional quantities of resin, in order to take advantage of volume discounts. In line with industry practice, we have historically attempted to mitigate a portion of the impact of plastic resin price fluctuations by passing through changes in resin prices to customers through a combination of product selling price adjustments, contractual cost pass through mechanisms and/or commercial discussion and negotiation with customers. We cannot give any assurance as to whether we will be able to recover from customers all or any portion of these changes in resin prices. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1A, “Risk Factors—Risks Related to Our Business—Our financial performance is dependent on the cost of plastic resin, the continued availability of resin, and energy costs.”

Backlog

     We did not have a significant manufacturing backlog at December 31, 2010 or 2009. We do not have material long-term contracts with our customers, and the significant majority of our sales orders are filled within a month of receipt. While our backlog is not significantly impacted by any seasonal factors, it is subject to fluctuation given the size and timing of outstanding orders at any point in time. Therefore, our backlog level is not necessarily indicative of the level of future sales.

Competition

     The markets in which we operate are highly competitive on the basis of service, product quality and performance, product innovation and price. There are other companies producing competing products that are substantially larger, are well established and have greater financial resources than we have.

     Our protective packaging products compete with similar products made by other manufacturers and with a number of other packaging products that provide protection against damage to customers’ products during shipment and storage. Through our Protective Packaging segment, we are one of the few suppliers with a broad offering of protective packaging products and a presence in both North America and Europe. The majority of competing producers focus on a specific geography or a narrow product range. For example, our ability to manufacture co-extruded cushioning packaging, polypropylene and polyethylene sheet foam, extruded plank and paper-based products is a significant competitive advantage. Additionally, we are the sole producer of low density polypropylene sheet foam products and the only manufacturer of kraft honeycomb products with a national presence in North America. With a strategic footprint of 23 manufacturing facilities in North America and 14 in Europe as of December 31, 2010, the Protective Packaging segment benefits significantly from an estimated cost-effective shipping radius in the industry of approximately 200 to 400 miles. Our primary competitor in protective packaging is Sealed Air, while we also selectively compete with companies such as Poly Air, FP International and Storopack in North America and Fagerdala, Sansetsu and BFI in Europe.

     Our Specialty Packaging segment has strong positions in its particular areas of focus. For example, our flexible barrier packaging products have strong positions in detergent packaging, fresh food laminates and secondary medical packaging films in Germany. Additionally, we believe we are the second largest producer of disposable operating drapes in Germany and the third largest in Europe (by volume), while we are also a leading supplier of rigid packaging products to the foodservice market in the United Kingdom. The businesses comprising the

Specialty Packaging segment compete with a number of national and regional suppliers in each of their key products and end-markets, and there are additional competitive pressures in some markets due to increasing consolidation among our customers.

Employees

     As of December 31, 2010, we had approximately 4,000 total employees worldwide. Our Protective Packaging segment employed approximately 2,390 employees, the majority of which are non-union. There are six collective bargaining agreements in the United States, covering less than 200 employees. Our Specialty Packaging segment employed approximately 1,610 people, substantially all of whom are unionized or otherwise covered by company works councils. In the last three years, we have had no material work stoppages or strikes. We believe our employee relations are good.

Intellectual Property

     We have selectively pursued protection afforded by patents and trademarks whenever deemed critical. Our businesses also rely upon unregistered trademarks and copyrights, proprietary know-how and trade secrets. We do not believe, however, that any individual item of our intellectual property portfolio is material to our current business.

     The major trademarks of the protective packaging businesses are registered in the geographies where they operate. Selected trademarks include Astro-Foam^™, Astro-Cell^®, Astro-Bubble^®, Air Kraft^®, Furniture GUARD^®, IntelliPack^® Hexacomb^®, Jiffy^™, Microfoam^®, Nopaplank^™, Polylam^™ and Polyplank^®.

     The major trademarks of the specialty packaging businesses are registered in the markets where they operate. Major trademarks include Propyflex^™, Secu-Drape^™, Cleerpeel^™, Steriflex^™, Mediwell Super^™, Mediwell Super Plus^™, Medipeel^™, Flexopeel^™, and Secu-Tray^™.

     We also manufacture, distribute and sell shipping mailers, including protective bags comprised of paper or plastic and air cellular cushion material, under the Hefty Express^® brand name, pursuant to a trademark license agreement with Pactiv Corporation. The license is an exclusive, royalty-free license that terminates in October 2015. Pactiv has agreed that, following the expiration of the license, Pactiv will not use, or permit others to use, the Hefty Express^® mark in connection with the manufacture, marketing, distribution and sale of shipping mailers. In turn, we entered into a license agreement to grant Pactiv a perpetual, royalty-free license that allows Pactiv to continue to use certain patents that are owned by us in the manufacture and sale of certain products, including the manufacture of tamper-evident packaging containers in the United States.

Seasonality

     Primarily due to the impact of our customer buying patterns and production activity, our sales tend to be stronger in the second half of the year and weaker in the first half. In addition, our cash flow from operations tends to be weaker in the first half of the year and stronger in the second half due to seasonal working capital needs.

Environmental Matters

     We are subject to extensive federal, state, municipal, local and foreign laws and regulations relating to the protection of human health and the environment, including those limiting the discharge of pollutants into the air and water and those regulating the treatment, storage, disposal and remediation of, and exposure to, solid and hazardous wastes and hazardous materials. Certain environmental laws and regulations impose joint and several liability on past and present owners and operators of sites, to clean up, or contribute to the cost of cleaning up sites at which contaminants were disposed or released without regard to whether the owner or operator knew of or caused the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. In addition, under certain of these laws and regulations, a party that disposes of

contaminants at a third party disposal site may also become a responsible party required to share in the costs of the investigation or cleanup of the site.

     Our estimated expenditures for environmental compliance are incorporated into our annual operating budgets and we do not expect the cost of compliance with current environmental laws and regulations and liabilities associated with claims or known environmental conditions to be material to us. However, future events, such as new or more stringent environmental laws and regulations, any related damage claims, the discovery of previously unknown environmental conditions requiring response action, or more vigorous enforcement or new interpretations of existing environmental laws and regulations may require us to incur additional costs that could be material.

Available Information

We make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports on our website as soon as reasonably practicable after we electronically file these materials with, or furnish them to, the Securities and Exchange Commission. These reports are available, free of charge, at www.pregis.com. These reports may also be obtained at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. The SEC also maintains a web site at www.sec.gov that contains reports and other information regarding SEC registrants, including Pregis.

ITEM 1A.		RISK FACTORS

     You should carefully consider the risk factors set forth below as well as the other information contained in this report, including our consolidated financial statements and related notes. Any of the following risks could materially adversely affect our business, financial condition or results of operations. The risks described below are not the only risks facing us or that may materially adversely affect our business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business. Information contained in this section may be considered “forward-looking statements.” See “Cautionary Note Regarding Forward-Looking Statements” for a discussion of certain qualifications regarding such statements.

Risks Related to Our Business

Our financial performance is dependent on the cost of plastic resin, the continued availability of resin, and energy costs.

     The primary raw materials we use in the manufacture of some of our products are various plastic resins, primarily polyethylene, which represented approximately 57% of our 2010 material costs. In addition, approximately 77% of our 2010 net sales were from products made with plastic resins. Our financial performance therefore is dependent to a substantial extent on the plastic resin market.

     The capacity, supply and demand for plastic resins and the petrochemical intermediates from which they are produced are subject to cyclical price fluctuations and other market disturbances, including supply shortages. The majority of the plastic resins used in our U.S. operations are currently supplied by a single source, and the majority of the plastic resins used in our European operations are currently supplied by a different single source. If our primary plastic resin suppliers in the U.S. and Europe were to become unavailable to us, we believe we would be able to obtain plastic resins from other suppliers, though there are a limited number of suppliers who manufacture plastic resins suitable for us. In the event of an industry-wide general shortage of resins used by us, or a shortage or discontinuation of certain types or grades of resin purchased from one or more of our suppliers, we may not be able to arrange for alternative sources of resin. Any such shortage may negatively impact our sales and financial condition and our competitive position versus companies that are able to better or more cheaply source resin. Furthermore, we currently purchase many of our other (non-resin) raw materials from a few key strategic suppliers. In the event of a shortage or discontinuation of such raw materials, we could experience effects similar to those caused by a resin shortage or discontinuation.

     Additionally, we may be subject to significant increases in resin costs that may materially impact our financial condition. Resin costs have fluctuated significantly in recent years and may continue to fluctuate as a result of changes in natural gas and crude oil prices. For the year ended December 31, 2010, average resin costs increased approximately 27% in North America and 39% in Europe, compared to the prior year period, as measured by the Chemical Market Associates, Inc. (“CMAI”) index and PLATTS’s index, their respective market indices, and these increases in resin and other key raw material costs reduced our 2010 gross margin 480 basis points. The instability in the world markets for petroleum and in North America for natural gas could quickly affect the prices and general availability of raw materials, which could have a materially adverse impact to us. Due to the uncertain extent and rapid nature of cost increases, we cannot reasonably estimate our ability to successfully recover any cost increases. To the extent that cost increases cannot be passed on to our customers, or the duration of time lags associated with a pass-through becomes significant, such increases may have a material adverse effect on our profitability.

     Freight costs are also a meaningful part of our cost structure. Over the past several years, we have experienced increased freight costs as a result of rising energy costs. Such cost increases, to the extent that they cannot be passed on to our customers or minimized through our productivity programs, may have a material adverse effect on our profitability.

We may not generate sufficient cash flow to enable us to fund our liquidity needs.

Our ability to make payments on, or repay or refinance, our debt, including the notes, and to fund planned capital expenditures and meet our other liquidity requirements, will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our ABL credit facility (described in detail in the liquidity and capital resource section in Item 7 “Management Discussion and Analysis of Financial Conditions and Results of Operations”) and the indenture governing the notes and our other debt agreements, including other agreements we may enter into in the future. In particular, we may be required to maintain certain financial ratios under the terms of credit agreements we enter into. There can be no assurance that our business will generate sufficient cash flow from operations, that existing cash balances will be sufficient, or that future borrowings will be available under Pregis’s ABL credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

     We cannot assure you that we will be able to refinance any of our debt, including our outstanding notes and our ABL credit facility, on commercially reasonable terms or at all. In particular, our senior secured notes (of which euro 225,000,000 are outstanding) are due on April 15, 2013 and our senior subordinated notes (of which $150,000,000 are outstanding) are due October 15, 2013. If we were unable to refinance our debt or obtain new financing prior to the maturity of our debt, we would have to consider other options, such as sales of assets, sales of equity, and/or negotiations with our lenders to restructure the applicable debt. We cannot guarantee you that we would be able to consummate asset sales on terms and conditions satisfactory to us or at all. Market conditions may make it difficult, or impossible, to raise new debt or equity financing, and our equity holders may not approve the issuance of additional equity securities which would dilute their interest. We may also not be able to successfully restructure our debt. In addition, our ABL credit facility and the indenture governing the notes may restrict, or market or business conditions may limit, our ability to take some of these actions.

     In addition, we cannot assure you that we will generate or have access to sufficient cash flow to enable us to fund our liquidity needs, including capital expenditures and operating expenses. Our cash flows could be substantially and materially affected by increases in the cost of resin, which comprises a large percentage of our costs. Resin costs could increase significantly over a short period of time without a corresponding increase in our prices and revenue. To the extent we experience difficulties generating adequate liquidity, we may not have access to new debt or equity financing, on terms acceptable to us or at all, and our existing credit facilities may not be adequate to meet our needs.

     Other risks that could materially adversely affect our ability to meet our debt service obligations, refinance our outstanding indebtedness and satisfy our other liquidity requirements include, but are not limited to, risks related to our ability to obtain attractive working capital terms from our key suppliers, risks related to our ability to protect our intellectual property, rising interest rates, declines in the overall U.S. and European economies, weakening in our end-markets, the loss of key personnel, our ability to continue to invest in equipment, and a decline in relations with our key distributors and dealers.

Our ability to effectively manage our business could be significantly disrupted if members of our management team were to leave.

     Our success depends to a significant degree upon the continued contributions of our senior management. Our senior management members have extensive engineering, manufacturing and finance backgrounds. We believe that the depth of our management team is instrumental to our continued success. The loss of any of our key executive officers in the future could significantly impede our ability to successfully implement our business strategy, financial plans, expansion of services, marketing and other objectives.

     On February 23, 2011, we announced that Glenn M. Fisher was appointed as our new Chief Executive Officer. Mr. Fischer, who has served on Pregis’ Board of Directors since 2005, is an Operating Partner with AEA Investors and the former Chief Operating Officer of Airgas, Inc. Mr. Fisher replaced Michael T. McDonnell, who had served as our Chief Executive Officer from October 2006 through February 2011.

We face competition in each of our businesses and our customers may not continue to purchase our products.

     We face significant competition in the sale of our products. We compete with multiple companies with respect to each of our products, including divisions or subsidiaries of larger companies and foreign competitors. Certain of our competitors are substantially larger, are well established and have financial and other resources that are greater than ours and may be better able to withstand more challenging economic conditions. Specifically, our protective packaging products compete with similar products made by other manufacturers and with a number of other packaging products that provide protection against damage to customers’ products during shipment and storage. Our primary competitor in the Protective Packaging segment is Sealed Air, while we also selectively compete with companies such as Poly Air, FP International and Storopack in North America and Fagerdala, Sansetsu and BFI in Europe. Our Specialty Packaging segment competes with a number of national and regional suppliers in each of their key products and end-markets, and there are additional competitive pressures in certain markets due to increasing consolidation among our customers.

     We compete on the basis of a number of considerations, including price (on a price-to-value basis), service, quality, performance, product characteristics, brand recognition and loyalty, marketing, product development, sales and distribution, and ability to supply products to customers in a timely manner. Increases in our prices as compared to those of our competitors could materially adversely affect us.

     The competition we face involves the following key risks:

	•		loss of market share;
	•		failure to anticipate and respond to changing consumer preferences and demographics;
	•		failure to develop new and improved products;
	•		failure of consumers to accept our brands and exhibit brand loyalty and pay premium prices; and
	•		aggressive pricing by competitors.

     In addition, our competitors may develop products that are superior to our products or may adapt more quickly to new technologies or evolving customer requirements. Technological advances by our competitors may lead to new manufacturing techniques and make it more difficult for us to compete. In addition, since we do not have long-term arrangements with most of our customers, these competitive factors could cause our customers to cease purchasing our products.

If we are unable to meet future capital requirements, our businesses may be adversely affected.

     We have made significant capital expenditures in our businesses in recent years to improve productivity, quality and service. We spent approximately $31.0 million, $25.0 million, and $30.9 million in capital expenditures in fiscal years 2010, 2009 and 2008. As we grow our businesses, we may have to incur significant additional capital expenditures. We cannot assure you that we will have, or be able to obtain, adequate funds to make all necessary

capital expenditures when required, or that the amount of future capital expenditures will not be materially in excess of our anticipated or current expenditures. If we are unable to make necessary capital expenditures, our product offerings may become dated, our productivity may decrease and the quality of our products may be adversely affected, which, in turn, could reduce our sales and profitability. In addition, even if we are able to invest sufficient resources, these investments may not generate net sales that exceed our expenses, generate any net sales at all or result in any commercially acceptable products.

Our business could be materially hurt by economic downturns.

     Our business is affected by a number of economic factors, including the level of economic activity in the markets in which we operate, including, for the Protective Packaging segment, the general industrial, high tech electronics, furniture manufacturing, building products, retail, and agriculture end-markets, and for our Specialty Packaging segment, the fresh food, consumer products, dry food, medical, foodservice, convenience foods, bakery, and confectionery end-markets. The demand for our products by our customers in these end-markets depends, in part, on general economic conditions and business confidence levels. A decline in economic activity in the United States and/or Europe could materially adversely affect our financial condition and results of operations.

Difficult conditions and extreme volatility in capital, credit and commodities markets and in the global economy could have a material adverse effect on our business, financial condition and results of operations, and we do not know if these conditions will improve in the near future.

     Our business, financial condition and results of operations could be materially adversely affected by difficult conditions and extreme volatility in the capital, credit and commodities markets and in the global economy. These factors, combined with rising energy prices, declining business and consumer confidence and increased unemployment, precipitated an economic slowdown in the United States and globally during 2009 and 2010. The difficult conditions in these markets and the overall U.S. and global economy affect us in a number of ways. For example:

	•		Although we believe we have sufficient liquidity through existing cash and equivalents and under our ABL credit facility to run our business, under extreme market conditions there can be no assurance that such funds would be available or sufficient, and in such a case, we may not be able to successfully obtain additional financing on favorable terms, or at all.
	•		Market conditions could cause the counterparties to the derivative financial instruments we use to hedge our exposure to interest rate fluctuations to experience financial difficulties and, as a result, our efforts to hedge these exposures could prove unsuccessful and, furthermore, our ability to engage in additional hedging activities may decrease or become even more costly as a result of these conditions.
	•		Recent market volatility could make it difficult for us to raise capital in the public markets, if we needed to do so.
	•		As of December 2010 our Moody’s rating on our senior secured floating rate notes was B3, senior subordinated notes was Caa2, and revolving credit facility was Ba3. Our S&P ratings as of December 2010 on our secured floating rate notes was B-, senior subordinated notes was CCC+, and revolving credit facility was BB-. If our credit ratings are downgraded, there could be a negative impact on our ability to access capital markets and borrowing costs would increase.
	•		Market conditions could result in our significant customers experiencing financial difficulties. We are exposed to the credit risk of our customers, and their failure to meet their financial obligations when due because of bankruptcy, lack of liquidity, operational failure or other reasons could result in decreased sales and earnings for us.
	•		The economic slowdown decreased demand for our products, resulting in decreased sales volume. These volume decreases reduced our revenues and impacted earnings. There can be no assurance that our sales volumes will increase or stabilize in the future.

     The turmoil in the global economy may also impact our business, financial condition and results of operations in ways we cannot currently predict. We do not know if market conditions or the state of the overall U.S. or global economy will improve in the near future.

Our business is subject to risks associated with manufacturing processes.

     As of December 31, 2010, our Protective Packaging segment operated 23 manufacturing facilities in North America and 14 in Europe and our Specialty Packaging segment operated 9 manufacturing facilities in Germany, Bulgaria, the United Kingdom and Egypt. We produce substantially all of our products in these facilities, including medical supplies and foodservice products, which require special care to avoid contamination during manufacturing. Unexpected failures of our equipment and machinery, as well as contamination in the clean rooms used to manufacture our hospital supplies and foodservice products, may result in production delays, revenue loss, third party lawsuits and significant repair costs, as well as injuries to our employees. Any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows.

     While we maintain insurance covering our manufacturing and production facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to accident, fire, explosion, labor issues, weather conditions, other natural disaster or otherwise, whether short or long-term, could have a material adverse effect on us. Moreover, our business interruption and general liability insurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations. Furthermore, we cannot assure you that we will maintain our insurance on comparable terms in the future.

We may make acquisitions or divestitures that may be unsuccessful.

     We have made, and may in the future opportunistically consider, the acquisition of other manufacturers or product lines of other businesses that either complement or expand our existing business, or the divestiture of some of our businesses. We may consider and make acquisitions both in countries that we currently operate in and in other geographies. We cannot assure you that we will be able to consummate any acquisitions or divestitures or that any future acquisitions or divestitures will be able to be consummated at acceptable prices and terms. Acquisitions or divestitures involve a number of special risks, including some or all of the following:

	•		the diversion of management’s attention from our core businesses;
	•		the disruption of our ongoing business;
	•		the loss of key employees or customers of the acquired or divested business;
	•		entry into markets in which we have limited or no experience, including other geographies that we have not previously operated in;
	•		the ability to integrate our acquisitions without substantial costs, delays or other problems, which would be complicated by the breadth of our international operations;
	•		inaccurate assessment of undisclosed liabilities;
	•		the incorporation of acquired product lines into our business;
	•		the failure to realize expected synergies and cost savings;
	•		increasing demands on our operational systems;
	•		the integration of information system and internal controls; and
	•		possible adverse effects on our reported operating results, particularly during the first several reporting periods after the acquisition is completed.

        In addition, any acquisitions or divestitures would be affected by restrictions and limitations, captured in the documents governing our indentures, including the indentures governing our outstanding notes.

A small number of stockholders own all of our common stock and control all major corporate decisions, and their interests as equity holders may conflict with the interests of our noteholders.

     AEA Investors controls substantially all of our common stock and has the power to control our affairs and policies. AEA Investors also controls the election of our directors, the appointment of our management and the entering into of business combinations or dispositions and other extraordinary transactions. The directors so elected have the authority, subject to the terms of our indentures and our ABL credit facility, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions with respect to our company. In addition, Glenn Fischer, an operating partner of AEA Investors, is currently serving as our chief executive officer.

     The interests of AEA Investors could conflict with the interests of our noteholders. For example, the interests of AEA Investors, as equity holders, might conflict with the interests of our noteholders, particularly if we encounter financial difficulties or are unable to pay our debts as they come due. Moreover, affiliates of AEA Investors may also have an interest in pursuing acquisitions, divestitures, financings and other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to our noteholders or not be in the interests of our noteholders.

We may be unable to respond effectively to technological changes in our industry.

     We have made substantial investments to develop advanced packaging manufacturing technologies, and as a result we have a significant portfolio of industry-leading products and technologies. For instance, we believe Protective Packaging is one of only two major manufacturers of extruded engineered foam in both North America and Europe, the only producer of polypropylene sheet foam in North America and the first producer of inflatable engineered cushioning with individual cells. Our future business success will continue to depend upon our ability to maintain and enhance our technological capabilities, develop and market products and applications that meet changing customer needs and successfully anticipate or respond to technological changes on a cost-effective and timely basis. Our inability to anticipate, respond to or utilize changing technologies could have an adverse effect on our business, financial condition or results of operations.

Our business operations could be negatively impacted if we fail to adequately protect our intellectual property rights or if third parties claim that we are in violation of their intellectual property rights.

     We currently rely on a combination of registered and unregistered trademarks, patents, copyrights, domain names, proprietary know-how, trade secrets and other intellectual property rights throughout the world to protect certain aspects of our business. We employ various methods to protect our intellectual property, including confidentiality and non-disclosure agreements with third parties.

     While we attempt to ensure that our intellectual property and similar proprietary rights are protected, despite the steps we have taken to prevent unauthorized use of our intellectual property, third parties and current and former employees and contractors may take actions that affect our rights or the value of our intellectual property, similar proprietary rights or reputation. We have relied on, and in the future we may continue to rely on litigation to enforce our intellectual property rights and contractual rights, and, if such enforcement measures are not successful, we may not be able to protect the value of our intellectual property. Regardless of its outcome, any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations.

     In addition, we face the risk of claims that we are infringing third parties’ intellectual property rights. We believe that our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties. However, we have received, and from time to time, may receive in the future, claims from third parties by which such third parties assert infringement claims against us and can give no assurance that claims or litigation asserting infringement by us of third parties’ intellectual property rights will not be initiated in the future. Any such claim, even if it is without merit, could be expensive and time-consuming; could cause us to cease making, using or selling certain products that incorporate the disputed intellectual property; could require us to redesign our products, if feasible; could divert management time and attention; and could require us to enter into costly royalty or licensing arrangements, to the extent such arrangements are available.

We are subject to government regulation.

     We are subject to government regulation by many U.S. and non-U.S. supranational, national, federal, state and local governmental authorities. For instance, certain of our protective and specialty packaging products are subject to the U.S. Clean Air Act, U.S. Food, Drug and Cosmetic Act, U.S. Consumer Product Safety Act, U.S. Meat Products Inspection Acts, Canada Food and Drug regulations and various E.U. directives. In some circumstances, before we may sell some of our products these authorities must approve these products, our manufacturing processes and facilities. We are also subject to ongoing reviews of our products and manufacturing processes.

     In order to obtain regulatory approval of various new products, we must, among other things, demonstrate to the relevant authority that the product is safe and effective for its intended uses and that we are capable of manufacturing the product in accordance with current regulations. The process of seeking approvals can be costly, time consuming and subject to unanticipated and significant delays. There can be no assurance that approvals will be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate revenue from those products.

     New laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscation, recall or monetary fines, any of which could prevent or inhibit the development, distribution and sale of our products. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, as well as criminal penalties, which could have an adverse effect on our business, financial condition or results of operations.

The cost of complying with laws relating to the protection of the environment may be significant.

     We are subject to extensive federal, state, municipal, local and foreign laws and regulations relating to the protection of human health and the environment, including those limiting the discharge of pollutants into the air and water and those regulating the treatment, storage, disposal and remediation of, and exposure to, solid and hazardous wastes and hazardous materials. Certain environmental laws and regulations impose joint and several liability on past and present owners and operators of sites, to clean up, or contribute to the cost of cleaning up sites at which contaminants were disposed or released without regard to whether the owner or operator knew of or caused the presence of the contaminants, and regardless of whether the practices that resulted in the contamination were legal at the time they occurred. In addition, under certain of these laws and regulations, a party that disposes of contaminants at a third party disposal site may also become a responsible party required to share in the costs of the investigation or cleanup of the site.

     We believe that the future cost of compliance with current environmental laws and regulations and liabilities associated with claims or known environmental conditions will not have a material adverse effect on our business. We believe our costs for compliance with environmental laws and regulations have historically averaged $1 to $2 million, annually. However, future events, such as new or more stringent environmental laws and regulations, any related damage claims, the discovery of previously unknown environmental conditions requiring response action, or more vigorous enforcement or new interpretations of existing environmental laws and regulations may require us to incur additional costs that could be material.

     Concerns about greenhouse gas emissions on climate change and the resulting governmental and market response to these concerns could increase costs that we incur and could otherwise affect our consolidated financial position and results of operations.

     Numerous legislative and regulatory initiatives have been enacted and proposed in response to concerns about the impact of the emission of carbon dioxide and other greenhouse gases on climate change. We use petroleum-based raw materials to manufacture many of our products, including plastic packaging materials. Increased environmental legislation or regulation of the petroleum industry could result in higher costs for us in the form of higher raw material and freight and energy costs. We could also incur additional compliance costs for monitoring and reporting emissions and for maintaining permits.

Our international operations expose us to risks related to conducting business in multiple jurisdictions outside the United States.

     The international scope of our operations may lead to volatile financial results and difficulties in managing our business. We generated approximately 63% of our sales outside the United States for the year ended December 31, 2010; and we may expand our international operations in the future. International sales and operations are subject to a number of risks, including:

•

exchange rate fluctuations;

•

restrictive governmental actions such as the imposition of trade quotas and restrictions on transfers of funds;

•

changes in non-U.S. labor laws and regulations affecting our ability to hire, retain or dismiss employees;

•

the need to comply with multiple and potentially conflicting laws and regulations;

•

difficulties and costs of staffing, managing and accounting for foreign operations;

•

unfavorable business conditions or economic instability in any particular country or region; and

•

difficulty in obtaining distribution and support.

Any of these factors, by itself or in combination with others, could materially and adversely affect our business, results of operations or financial condition.

     Our exposure to currency exchange rate fluctuations results primarily from the translation exposure associated with the preparation of our consolidated financial statements, as well as from transaction exposure associated with generating revenues and incurring expenses in different currencies. While our consolidated financial statements are reported in U.S. dollars, the financial statements of our subsidiaries outside the United States are prepared using the local currency as the functional currency and translated into U.S. dollars by applying an appropriate exchange rate. As a result, fluctuations in the exchange rate of the U.S. dollar relative to the local currencies in which our subsidiaries outside the United States report could cause significant fluctuations in our results. Our sales and expenses are recorded in a variety of currencies. During periods of a strengthening U.S. dollar, our reported international sales and earnings could be reduced because foreign currencies may translate into fewer U. S. dollars. Also, while we generally incur expenses in the same geographic markets in which our products are sold, certain corporate overhead expenses are relatively concentrated in the United States as compared with sales, so that in a time of strengthening of the U.S. dollar, our profit margins could be reduced.

     While our expenses with respect to foreign operations are generally denominated in the same currency as the corresponding sales, we have transaction exposure to the extent our receipts and expenditures are not offsetting in any currency. Moreover, the costs of doing business abroad may increase as a result of adverse exchange rate fluctuations.

If we are unable to improve existing products and develop new products, our sales and industry position may suffer.

     We believe that our future success will continue to depend, in part, upon our ability to make innovations in our existing products and to develop, manufacture and market new products. This will depend, in part, on the success of our research and development and engineering efforts, our ability to expand or modify our manufacturing capacity and the extent to which we convince customers and consumers to accept our new products. Historically, our ability to innovate has been a key factor in our ability to expand our product line and grow our revenue base. For example, the Protective Packaging segment recently introduced a new family of “green” products to address the growing need for sustainable packaging alternatives. These products include Astro-Bubble^®, the first introduction of recycled-content bubble. Also included in our sustainable product portfolio are Astro-Bubble^® Renew, Absolute EZ-Seam Renew™ (recycled content floor underlayment), Hefty Express^® mailers and Jiffy™ Green bubble rolls

and mailer products. If we fail to successfully introduce, market and manufacture new products or product innovations and differentiate our products from those of our competitors, our ability to maintain or expand our sales and to maintain or enhance our industry position could be adversely affected, which in turn could materially adversely affect our business, financial condition or results of operations.

We are exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.

     In accordance with Section 404 of the Sarbanes-Oxley Act, we are currently required to evaluate our internal controls systems in order to allow management to report on our internal control over financial reporting. As a result of this evaluation, we may from time to time identify control deficiencies of varying degrees of severity under applicable SEC and Public Company Accounting Oversight Board (“PCAOB”) rules and regulations that remain unremediated. As a publicly reporting company, we are required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal control over financial reporting. A “material weakness” is a significant deficiency or combination of significant deficiencies in internal control over financial reporting that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

     If we do not appropriately evaluate our internal controls, or if we find material weaknesses in our internal controls that are not adequately remediated, we may become subject to adverse regulatory consequences or a loss of confidence in the reliability of our financial statements. We could also suffer a loss of confidence in the reliability of our financial statements if we do not develop and maintain effective controls and procedures or if we are otherwise unable to deliver timely and reliable financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to maintain adequate internal controls could affect our access to the capital markets. In addition, if we fail to remedy any material weakness, our financial statements may be inaccurate and we may face restricted access to the capital markets.

     Under current SEC rules, we are not required to obtain or include an attestation report of our independent registered public accounting firm with respect to management’s report on our internal controls. However, if in the future we are required to include such an attestation report, we could lose investor confidence in the accuracy and completeness of our financial reports if our auditors were unable to provide a required report or if the report identified weaknesses in our internal controls which we did not adequately remedy.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the instruments governing our indebtedness.

     We have a significant amount of indebtedness. As of December 31, 2010, we had total indebtedness of $489.3 million and $6.4 million in letters of credit outstanding.

     Our substantial indebtedness could have important consequences. For example, it could:

•

make it more difficult for us to satisfy our obligations under the instruments governing our indebtedness;

•

increase our vulnerability to general adverse economic and industry conditions;

•

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts and other general corporate purposes;

•

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

•

place us at a competitive disadvantage compared to our competitors that have less debt; and

•

limit our ability to borrow additional funds for capital expenditures, acquisitions, working capital or other purposes.

     At December 31, 2010, we had $336.4 million of variable rate debt. If market interest rates increase, such variable-rate debt will create higher debt service requirements, which could adversely affect our cash flow. We expect our 2011 cash interest expense to be approximately $37.4 million, calculated based on the interest rates and foreign currency exchange rates in effect at December 31, 2010. As of December 31, 2010, each one point increase or decrease in the applicable variable interest rates on Pregis’s then-existing senior secured credit facilities and Pregis’s senior secured floating rate notes would correspondingly change our 2011 interest expense by approximately $3.6 million (based on rates in effect at December 31, 2010). While we may enter into agreements limiting our exposure to higher interest rates, any such agreements may not offer complete protection from this risk.

The agreements governing our debt, including the notes and our ABL credit facility, contain various covenants that impose restrictions on us that may affect our ability to operate our business.

     Our existing agreements impose and future financing agreements are likely to impose operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and ratios and limit or prohibit our ability to, among other things:

•

incur, assume or permit to exist additional indebtedness, guaranty obligations or hedging arrangements;

•

incur liens or agree to negative pledges in other agreements;

•

make capital expenditures;

•

make loans and investments;

•

declare dividends, make payments or redeem or repurchase capital stock;

•

limit the ability of our subsidiaries to enter into agreements restricting dividends and distributions;

•

with respect to the senior secured floating rate notes, engage in sale-leaseback transactions;

•

engage in mergers, acquisitions and other business combinations;

•

prepay, redeem or purchase certain indebtedness;

•

amend or otherwise alter the terms of our organizational documents, our indebtedness and other material agreements;

•

sell assets or engage in receivables securitizations;

•

transact with affiliates; and

•

alter the business that we conduct.

     These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.

     Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain these financial tests and ratios. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, and interest on our debt, or if we other wise fail to comply with any of the covenants in our existing or future financing agreements, we could be in default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt, terminate other commitments to make loans, or prohibit the incurrence of additional indebtedness. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, secured lenders could initiate foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot

assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements, or that we will be able to refinance our debt on terms acceptable to us, or at all.

Not all of our subsidiaries guarantee our notes, and the assets of our non-guarantor subsidiaries may not be available to make payments on our notes.

          The guarantors of our notes do not include all of our subsidiaries. In particular, our foreign subsidiaries and all of our future unrestricted subsidiaries do not guarantee the notes. Payments on the notes are only required to be made by us and the subsidiary guarantors. As a result, no payments are required to be made from assets of subsidiaries that do not guarantee the notes, unless those assets are transferred by dividend or otherwise to us or a subsidiary guarantor. In 2010, our non-guarantor subsidiaries had sales of $548.9 million, or 63.9% of our combined 2010 sales, and a loss from continuing operations before income taxes of $(20.2) million. Similarly, at December 31, 2010, our non-guarantor subsidiaries had total assets of $423.1 million, or 59.7% of our total combined assets.

          In the event that any non-guarantor subsidiary becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its debt and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to us. Consequently, claims in respect of our notes will be structurally subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables. As of December 31, 2010, our non-guarantor subsidiaries had $73.5 million of trade payables and $3.9 million in short-term debt.

Our outstanding notes and the guarantees may not be enforceable because of fraudulent conveyance laws.

          Our obligations under our outstanding notes and the guarantors’ guarantees of our notes may be subject to review under federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy lawsuit is commenced by or on behalf of our or the guarantors’ unpaid creditors. Under these laws, if in such a lawsuit a court were to find that, at the time we or a guarantor incurred debt, including debt represented by the guarantee, we or such guarantor:

•

incurred this debt with the intent of hindering, delaying or defrauding current or future creditors; or

•

received less than reasonably equivalent value or fair consideration for incurring this debt and we or the guarantor

•

was insolvent or was rendered insolvent by reason of the related financing transactions;

•

was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business; or

•

intended to incur, or believed that it would incur, debts beyond its ability to pay these debts as they mature, as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes;

then the court could void the notes or the guarantee or subordinate the amounts owing under the notes or the guarantee to our or the guarantor’s presently existing or future debt or take other actions detrimental to you.

     The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, an entity would be considered insolvent if, at the time it incurred the debt or issued the guarantee:

•

it could not pay its debts or contingent liabilities as they become due;

•

the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or

•

the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and mature.

          If the notes or a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, noteholders will not have a claim against the relevant obligor and will only be our creditor or that of any guarantor whose obligation was not set aside or found to be unenforceable. In addition, the loss of a guarantee will

constitute a default under the indenture governing the notes, which default would cause all outstanding notes to become immediately due and payable.

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing our outstanding notes.

     Upon the occurrence of certain kinds of change of control events, we will be required to offer to repurchase all of our outstanding notes at 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase, unless all the notes have been previously called for redemption. Holders of debt securities that we may issue in the future may also have this right. Our failure to purchase tendered notes would constitute an event of default under the indenture governing the notes, which in turn, would constitute a default under our other outstanding indebtedness. In addition, the occurrence of a change of control would also constitute an event of default under our other outstanding indebtedness. A default under our other outstanding indebtedness would result in a default under the indenture if the lenders accelerate the debt under such other indebtedness.

     Therefore, it is possible that we would not have sufficient funds at the time of the change of control to make the required purchase of the notes. Moreover, indebtedness we incur may restrict our ability to repurchase the notes, including following a change of control event. As a result, following a change of control event, we would not be able to repurchase notes unless we first repay all indebtedness outstanding under any of our other indebtedness that contains similar provisions, or obtain a waiver from the holders of such indebtedness to permit us to repurchase the notes. We may be unable to repay all of that indebtedness or obtain a waiver of that type. Any requirement to offer to repurchase outstanding notes may therefore require us to refinance our other outstanding debt, which we may not be able to do on commercially reasonable terms, if at all. These repurchase requirements may also delay or make it more difficult for others to obtain control of us.

Cautionary Note Regarding Forward-Looking Statements

     This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should,” or “will,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets and growth in the use of our products, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions or future events or performance contained in this report under Item 1, “Business,” Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. In addition, the forward-looking statements contained herein regarding market share, market sizes and changes in markets are subject to various estimations, uncertainties and risks.

     We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this report under Item 1, “Business,” Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

•

risks associated with our substantial indebtedness and debt service;

•

increases in prices and availability of resin and other raw materials and our ability to pass these increased costs on to our customers and our ability to raise our prices generally with respect to our products;

•

our ability to retain management;

•

risks of increasing competition in our existing and future markets, including competition from new products introduced by competitors;

•

our ability to meet future capital requirements;

•

general economic or business conditions, including the possibility of a recession in the U.S. and a worldwide economic slowdown, as well as recent disruptions to the credit and financial markets in the U.S. and worldwide;

•

risks related to our acquisition or divestiture strategy;

•

our ability to protect our intellectual property rights;

•

changes in governmental laws and regulations, including environmental laws and regulations;

•

changes in foreign currency exchange rates; and

•

other risks and uncertainties, including those listed under Item 1A, “Risk Factors.”

     Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this report are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not applicable.

ITEM 2. PROPERTIES

     Our international corporate headquarters is located in Deerfield, Illinois in a leased facility. We position our manufacturing locations and warehouses in order to optimize access to our customers and distributors. Our Protective Packaging segment operates 23 manufacturing facilities in North America (United States, Canada and Mexico) and 14 in Europe. We have broad reach within Europe, through key facilities located in Belgium, Germany, the Netherlands, Italy, England, Poland and the Czech Republic. We own approximately 30% of our Protective Packaging facilities, while the rest are leased. Our Specialty Packaging segment produces flexible packaging products at two manufacturing facilities in Germany and one in Egypt, each of which are owned, while its rigid packaging products are produced in three leased facilities within the United Kingdom (one each in England, Scotland and Wales). Its medical supply products are manufactured at owned facilities in Germany and Bulgaria. We also lease other warehouse and administrative space at other locations. We believe the plants, warehouses, and other properties owned or leased by us are well maintained and in good operating condition.

ITEM 3. LEGAL PROCEEDINGS

     We are party to various lawsuits, legal proceedings and administrative actions arising out of the normal course of our business. While it is not possible to predict the outcome of any of these lawsuits, proceedings and actions, management, based on its assessment of the facts and circumstances now known, does not believe that any of these lawsuits, proceedings and actions, individually or in the aggregate, will have a material adverse effect on our financial position or that it is reasonably possible that a loss exceeding amount already recognized may be material. However, actual outcomes may be different than expected and could have a material effect on our results of operations or cash flows in a particular period.

ITEM 4. RESERVED

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

     There is no established public trading market for the registrant’s common stock. All of the registrant’s issued and outstanding common stock is held by Pregis Holding I.

     The registrant has not paid any cash dividends in the past. We anticipate that any earnings will be retained for development of our business and we do not anticipate paying any cash dividends in the foreseeable future. Pregis’s ABL credit facility, senior subordinated notes and senior secured notes all restrict our ability to issue cash dividends. Any future dividends declared would be at the discretion of our board of directors and would depend on our financial condition, results of operations, contractual obligations, the terms of our financing agreements at the time a dividend is considered, and other relevant factors.

ITEM 6. SELECTED FINANCIAL DATA

     The historical financial information as of December 31, 2010, 2009, 2008, 2007, and 2006, has been derived from the audited consolidated financial statements of Pregis Holding II following the Acquisition. You should read this data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this report.

		Year ended December 31,
(dollars in thousands)		2010				2009				2008				2007				2006
Statement of Operations:
Net Sales		$	873,206			$	801,224			$	1,019,364			$	979,399			$	925,499
Operating costs and expenses:
Cost of sales, excluding depreciation and amortization			684,498				609,515				798,690				740,235				713,550
Selling, general and administrative			130,057				117,048				127,800				137,180				125,944
Depreciation and amortization			46,454				44,783				52,344				55,799				53,179
Goodwill impairment			—				—				19,057				—				—
Other operating expense, net			9,442				14,980				8,146				190				234
Total operating costs and expenses			870,451				786,326				1,006,037				933,404				892,907
Operating income			2,755				14,898				13,327				45,995				32,592
Interest expense			48,364				42,604				49,069				46,730				42,535
Interest income			(254	)			(394	)			(875	)			(1,325	)			(246	)
Foreign exchange loss (gain), net			642				(6,303	)			14,728				(2,339	)			(6,139	)
Income (loss) before income taxes			(45,997	)			(21,009	)			(49,595	)			2,929				(3,558	)
Income tax expense (benefit)			(8,925	)			(2,999	)			(1,865	)			7,708				4,842
Net loss		$	(37,072	)		$	(18,010	)		$	(47,730	)		$	(4,779	)		$	(8,400	)
Other Data:
Capital expenditures		$	31,033			$	25,045			$	30,882			$	34,626			$	28,063

		2010				2009				2008				2007				2006
Balance Sheet Data (at end of years):
Cash and cash equivalents		$	47,845			$	80,435			$	41,179			$	34,989			$	45,667
Working capital (1)			46,592				103,828				106,346				129,370				121,851
Property, plant and equipment, net			198,260				226,882				245,124				277,398				270,646
Total assets			708,698				730,547				736,376				855,319				797,032
Total debt (2)			489,271				502,834				465,616				477,724				455,317
Total stockholder’s / owner’s equity			26,531				58,792				90,101				153,657				144,260

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this report. In addition to historical information, this discussion may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, those described in this report under Item 1A, “Risk Factors.” Future results could differ materially from those discussed below. See “Cautionary Note Regarding Forward-Looking Statements” in Item 1A above.

BASIS OF PRESENTATION

     We commenced operations as Pregis Corporation on October 13, 2005, at which time Pregis acquired all of the outstanding shares of capital stock of Pactiv Corporation’s subsidiaries operating its global protective packaging and European specialty packaging businesses.

     We have two reportable segments:

     Protective Packaging — This segment manufactures, markets, sells and distributes protective packaging products in North America and Europe. Its protective mailers, air-encapsulated bubble products, sheet foam, engineered foam, inflatable airbag systems, honeycomb products and other protective packaging products are manufactured and sold for use in cushioning, void-fill, surface-protection, containment and blocking & bracing applications.

     Specialty Packaging — This segment provides innovative packaging solutions for food, medical, and other specialty packaging applications, primarily in Europe. This segment includes the activities that had previously been reported as the Flexible Packaging, Rigid Packaging, and Hospital Supplies reportable segments.

     All significant intercompany transactions have been eliminated in the consolidated financial statements.

EXECUTIVE OVERVIEW

     We are an international manufacturer, marketer and supplier of protective packaging products and specialty packaging solutions. We currently operate 46 facilities in 18 countries, with approximately 4,000 employees world-wide. We sell our products to a wide array of customers, including retailers, distributors, packer processors, hospitals, fabricators and directly to the end-users. Approximately 63% of our 2010 net sales were generated outside of the U.S. As a result, we are sensitive to fluctuations in foreign currency exchange rates, primarily between the U.S. dollar and the euro and between the U.S. dollar and pound sterling.

     Our net sales for full year ended December 31, 2010 increased 9.0% over the comparable period of 2009. The increase was driven primarily by increased volumes due to the Company’s growth initiatives as well as the impact of economic recovery, sales associated with the IntelliPack acquisition, along with the impact of selling price increases implemented in 2010. This was partially offset by unfavorable foreign currency translation. Excluding the impact of unfavorable foreign currency translation and the IntelliPack acquisition, net sales for the year ended December 31, 2010 increased 9.8% compared to the same period in 2009.

     Our 2010 gross margin (defined as net sales less cost of sales, excluding depreciation and amortization) as a percent of net sales decreased to 21.6% compared to 23.9% for 2009. This decline was driven primarily by increased key raw material costs partially offset by year-over-year selling price increases.

     The majority of the products we sell are plastic-resin based, and therefore our operations are highly sensitive to fluctuations in the costs of plastic resins. In 2010, average resin costs increased 27% in North America and 39% in Europe, as measured by the CMAI index and ICIS index, their respective market indices, as compared to 2009. These increases in resin and other key raw material costs reduced the Company’s gross margin as a percent of sales by almost 500 basis points.

     In the first quarter of 2009, we implemented restructuring initiatives to further reduce our cost structure by optimizing our organizational structure and our operating processes. Although our major restructuring initiatives are now complete as of 2010, we expect modest restructuring to continue into the first quarter of 2011. In 2010, we incurred additional restructuring charges focused primarily in our European protective packaging and specialty businesses. During 2010 we realized year-over-year cost savings of approximately $14.1 million relating to our 2009 and 2010 cost reduction initiatives.

RESULTS OF OPERATIONS

Net Sales

																		Change Attributable to the
																		Following Factors
		Year ended December 31,																Price /																								Currency
		2010				2009				$ Change				% Change				Mix								Volume								Acquisitions								Translation
2010 versus 2009		$	873,206			$	801,224			$	71,982				9.0	%		$	4,863				0.6	%		$	73,730				9.2	%		$	17,562				2.2	%		$	(24,173	)			(3.0	)%
		2009				2008
2009 versus 2008		$	801,224			$	1,019,364			$	(218,140	)			(21.4	)%		$	(33,354	)			(3.2	)%		$	(131,055	)			(12.9	)%		$	—				0.0	%		$	(53,731	)			(5.3	)%

     Our 2010 net sales increased by 9.0% compared to 2009, driven by increased volumes due to the Company’s growth initiatives and economic recovery, sales associated with the IntelliPack acquisition, and selling price increases. This was partially offset by unfavorable foreign currency translation.

     Our 2009 net sales decreased by 21.4% compared to 2008, driven by decreased volumes resulting from the recessionary economic environment in North America and Europe, lower year-over-year selling prices resulting primarily from lower key raw material costs, and unfavorable foreign currency translation.

     A discussion of net sales by reportable segment is included in the Review of Business Segments section of this Management’s Discussion and Analysis.

Cost of sales, excluding depreciation and amortization

		2010				2009				2008
Cost of sales, excluding depreciation and amortization		$	684,498			$	609,515			$	798,690
Gross margin %			21.6	%			23.9	%			21.6	%

     Gross margin (defined as net sales less cost of sales, excluding depreciation and amortization) as a percentage of net sales decreased by 230 basis points to 21.6% in 2010 compared to 2009. The decline was driven primarily by increased material costs partially offset by year-over-year selling price increases.

     Gross margin as a percentage of net sales increased by 230 basis points to 23.9% in 2009 compared to 2008. The improvement in our 2009 margin percentage was driven by the impact of our aggressive cost reduction initiatives, continued disciplined pricing, and the impact of lower raw material costs, partially offset by the impact of lower year-over-year selling prices.

Selling, general and administrative

		2010				2009				2008
Selling, general and administrative		$	130,057			$	117,048			$	127,800
As a percent of net sales			14.9	%			14.6	%			12.5	%

     Selling, general and administrative expenses (SG&A) increased by $13.0 million in 2010 compared to 2009. This increase was primarily driven by legal expenses of $5.5 million, SG&A costs related to IntelliPack of $3.0 million, increased bad debt expense, stock compensation, and acquisition related expenses. The increased legal expenses were the result of a patent dispute related to the Company’s protective packaging segment. In March 2010, there was an initial ruling which was favorable to the Company. As of December 31, 2010, there is a pending appeal regarding this legal matter which the company also believes will have a favorable outcome to the Company.

     SG&A decreased by $10.8 million, or 8.4%, in 2009 compared to 2008. Excluding the impact of favorable foreign currency translation, SG&A expenses decreased by approximately $6.6 million. These decreases were primarily driven by cost savings from our cost reduction program. As a percent of net sales, SG&A increased by 210 basis points to 14.6% driven by lower sales volumes.

Depreciation and Amortization

		2010				2009				2008
Depreciation and Amortization		$	46,454			$	44,783			$	52,344
As a percent of net sales			5.3	%			5.6	%			5.1	%

     Depreciation and amortization expense (D&A) increased $1.7 million, or 3.7%, in 2010 compared to 2009. This increase was primarily due to the acquisition of IntelliPack, partially offset by favorable foreign currency translation resulting from a stronger U.S. dollar in 2010 compared to the same period of 2009.

     D&A declined $7.6 million, or 14.4%, in 2009 compared to 2008. The decrease in depreciation and amortization expense is due to favorable foreign currency translation resulting from a stronger U.S. dollar in 2009 compared to the same period of 2008.

Goodwill Impairment

     We performed our annual goodwill impairment test during the fourth quarters of 2010 and 2009 and determined that there was no impairment to goodwill.

Other Operating Expense, Net

		2010				2009				2008
Severance and restructuring		$	7,895			$	15,207			$	9,321
Loss on disposal of property, plant and equipment			1,595				—				—
Curtailment gain			—				—				(3,736	)
Trademark impairment			—				194				1,297
Other, net			(48	)			(421	)			1,264
		$	9,442			$	14,980			$	8,146

     Other operating expense, net includes other activity incidental to our operations, such as restructuring expenses, impairment losses, and gains or losses on sale of operating fixed assets.

     In 2010, other operating expense includes restructuring charges of $7.9 million, primarily for consulting expenses and severance charges related to management changes and headcount reductions, and a loss of $1.8 million relating to a sales leaseback transaction involving land, building and related improvements at two of its U.S. manufacturing facilities (offset by the amortization of deferred gain). See Note 15 to the consolidated financial statements for details regarding our restructuring activities. See Note 5 to the consolidated financial statements for details regarding the sale-leaseback transaction.

     In 2009, other operating expense includes restructuring charges of $15.2 million, primarily for severance charges relating to headcount reductions and consulting expenses. See Note 15 to the consolidated financial statements for details regarding our restructuring activities.

Operating Income

		2010				2009				2008
Operating income		$	2,755			$	14,898			$	13,327
As a percent of net sales			0.3	%			1.9	%			1.3	%

     Operating income in 2010 decreased $12.1 million compared to 2009. The decrease in operating income was primarily due to increased key raw material costs, partially offset by year-over-year selling price increases, the impact of higher sales volumes, and the acquisition of IntelliPack.

     Operating income in 2009 increased $1.6 million compared to 2008. The decrease in operating income was primarily the result of lower year-over-year sales volumes, partially offset by the Company’s aggressive cost reduction initiatives and lower raw material costs.

Interest Expense

		2010				2009				2008
Interest expense		$	48,364			$	42,604			$	49,069
As a percent of net sales			5.5	%			5.3	%			4.8	%

     Interest expense in 2010 increased $5.8 million compared to the same period of 2009. This increase was driven by higher debt balances and higher average interest rates, both resulting from the retirement of the Company’s term debt in the third quarter of 2009 and its replacement with new floating rate notes at a higher average interest rates. This increase was also reflective of higher amortization of discount and deferred financing fees, again resulting from the Company’s 2009 debt refinancing.

     Interest expense in 2009 decreased $6.5 million, or 13.2%, compared to 2008. The 2009 interest expense reflects the impact of lower U.S. dollar equivalent interest on our euro-denominated debt due to a stronger U.S. dollar in the 2009 period and lower LIBOR and EURIBOR-based rates underlying a portion of our floating rate debt. This was partially offset by the write-off of the deferred financing fees related to the refinancing of the Term B1 and B2 notes of $2.7 million. The interest rate swap had a negative impact to interest expense. The Company established an interest rate swap arrangement in order to maintain its targeted ratio of variable-rate versus fixed rate debt in the notional amount of 65 million euro. It exchanged EURIBOR-based floating rates to a fixed rate over the period of October 1, 2008 to April 15, 2011. For the year ended December 31, 2009, our interest expense increased by $2.0 million on the basis of settlements from the swap arrangements, compared to a reduction of $1.0 million for the year ended December 31, 2008.

Foreign Exchange Loss (Gain), Net

		2010				2009				2008
Foreign exchange loss (gain), net		$	642			$	(6,303	)		$	14,728

     A portion of our third-party debt is denominated in euro and revalued to U.S. dollars at our month-end reporting periods. We also maintain an intercompany debt structure, whereby Pregis Corporation has provided euro-denominated loans to certain of its foreign subsidiaries and these and other foreign subsidiaries have provided euro-denominated loans to certain U.K. based subsidiaries. At each month-end reporting period we recognize unrealized gains and losses on the revaluation of these instruments, resulting from the fluctuations between the U.S. dollar and euro exchange rate, as well as the pound sterling and euro exchange rate.

Income Tax Benefit

		2010				2009				2008
Income tax benefit		$	(8,925	)		$	(2,999	)		$	(1,865	)
Effective tax rate			19.4	%			14.3	%			3.8	%

     In 2010, although we generated a $46.0 million pre-tax loss for book purposes, our effective rate was decreased from a benefit at the U.S. statutory rate of 35% to a benefit of 19.4%, primarily due to the establishment of additional valuation allowances against losses in certain countries that are not more likely than not to result in future tax benefits, and foreign tax rate differentials.

     In 2009, although we generated a $21.0 million pre-tax loss for book purposes, our effective rate was increased from a benefit at the U.S. statutory rate of 35% to a benefit of 14.3%, primarily due to the establishment of additional valuation allowances against losses in certain countries that are not more likely than not to result in future tax benefits, and foreign tax rate differentials.

Net Loss

     As a result of the factors discussed previously, we generated a net loss of $37.1 million in 2010, compared to a net loss of $18.0 million in 2009, and a net loss $47.7 million in 2008.

REVIEW OF BUSINESS SEGMENTS

     Net Sales — 2010 vs. 2009

     The key factors that contributed to the increase in 2010 net sales were as follows:

																		Change Attributable to the
																		Following Factors
		Year ended December 31,																Price /																								Currency
		2010				2009				$ Change				% Change				Mix								Volume								Acquisitions								Translation
		(dollars in thousands)
Segment:
Protective Packaging		$	559,683			$	497,144			$	62,539				12.6	%		$	2,055				0.4	%		$	53,522				10.8	%		$	17,562				3.5	%		$	(10,600	)			(2.1	)%
Specialty Packaging			313,523				304,080				9,443				3.1	%			2,808				0.9	%			20,208				6.6	%			—				0.0	%			(13,573	)			(4.5	)%
Total		$	873,206			$	801,224			$	71,982				9.0	%		$	4,863				0.6	%		$	73,730				9.2	%		$	17,562				2.2	%		$	(24,173	)			(3.0	)%

     For the year ended December 31, 2010, net sales of our Protective Packaging segment totaled $559.7 million, representing an increase of $62.5 million, or 12.6%, compared to net sales of $497.1 million for the year ended December 31, 2009. The increase in net sales was due to increased sales volumes resulting from the impact of our growth initiatives and the acquisition of IntelliPack, partially offset by unfavorable foreign currency translation. Sales volume in the Company’s Protective Packaging segment increased by 10.8% for the year ended December 31, 2010 compared to the same period in 2009, as depicted in the table above. The volume increase was driven primarily by the impact of the Company’s growth initiatives in areas such as inflatable systems, sustainable products, and the flooring business, as well as improved economic conditions.

     Price/mix for the Company’s Protective Packaging segment increased net sales by 0.4% for the year ended December 31, 2010 compared to the same period in 2009. Price/mix was favorable year-over-year due to the impact of selling price increases implemented in 2010 in response to increased key raw material costs.

     Volume in the Company’s Specialty Packaging segment increased by 6.6% for the year ended December 31, 2010 compared to the same period of 2009. The volume increase was primarily due to the impact of the Company’s growth initiatives in our flexible packaging and thermoforming businesses.

     Price/mix for the Company’s Specialty Packaging segment increased net sales by 0.9% for the year ended December 31, 2010 compared to the same period in 2009. Price/mix was favorable year-over-year due to selling price increases implemented in our flexible packaging business in 2010 in response to increased key raw material costs.

Net Sales — 2009 vs. 2008

     The key factors that contributed to the decrease in 2009 net sales were as follows:

																		Change Attributable to the
																		Following Factors
		Year ended December 31,																Price /																Currency
		2009				2008				$ Change				% Change				Mix								Volume								Translation
		(dollars in thousands)
Segment:
Protective Packaging		$	497,144			$	661,976			$	(164,832	)			(24.9	)%		$	(28,154	)			(4.3	)%		$	(110,567	)			(16.7	)%		$	(26,111	)			(3.9	)%
Specialty Packaging			304,080				357,388				(53,308	)			(14.9	)%			(5,200	)			(1.5	)%			(20,488	)			(5.7	)%			(27,620	)			(7.7	)%
Total		$	801,224			$	1,019,364			$	(218,140	)			(21.4	)%		$	(33,354	)			(3.2	)%		$	(131,055	)			(12.9	)%		$	(53,731	)			(5.3	)%

     For the year ended December 31, 2009, net sales of our Protective Packaging segment totaled $497.1 million, representing a decrease of $164.8 million, or 24.9%, compared to net sales of $662.0 million for the year ended December 31, 2008. The decrease in net sales was primarily due to lower sales volumes. Sales volume in the Company’s Protective Packaging segment declined by 16.7% for the year ended December 31, 2009 compared to the same period in 2008, as depicted in the table above. The volume decrease was driven by economic weakness in both the North American and European markets, particularly within the industrial, housing and automotive sectors, key markets which are served by this segment.

     Price/mix for the Company’s Protective Packaging segment reduced net sales by 4.3% for the year ended December 31, 2009 compared to the same period in 2008. Price/mix was unfavorable year-over-year due to reduced market pricing resulting from year-over-year declines in resin costs in the first nine months of 2009.

     Volume in the Company’s Specialty Packaging segment decreased by 5.7% for the year ended December 31, 2009 compared to the same periods of 2008. The volume decline was primarily the result of the termination of a contract with a significant medical products customer. Excluding volume related to this one customer, volume for the year ended December 31, 2009 would have decreased $1.1 million compared to 2008.

     While the Specialty Packaging segment experienced minor volume decreases compared to 2008, after adjusting for the loss of the significant customer discussed above, these decreases have been less significant as compared to those experienced in the Protective Packaging segment. This is primarily due to the different end-markets the two segments serve. Protective Packaging primarily serves the industrial, housing, and automotive sectors, while the Specialty Packaging segment primarily serves the consumer food and medical sectors. The consumer food and medical sectors have experienced less sensitivity to the overall economic weakness as compared to the industrial, housing, and automotive sectors.

     Price/mix for the Company’s Specialty Packaging segment reduced net sales by 1.5% for the year ended December 31, 2009 compared to the same period in 2008. Price/mix was unfavorable year-over-year due primarily to reduced market pricing driven by increased market competitiveness as a result of the weak economic conditions.

Segment Income

     We measure our segment’s operating performance on the basis of segment EBITDA, which is calculated internally as net income before interest, taxes, depreciation, amortization, restructuring expense and adjustments for other non-cash charges and benefits. See Note 18 to the consolidated financial statements for a reconciliation of total segment EBITDA to consolidated income (loss) before income taxes. Segment EBITDA for the relevant periods is as follows:

		Year ended December 31,
		2010				2009				2008
		(dollars in thousands)
Segment:
Protective Packaging		$	47,824			$	52,561			$	61,166
Specialty Packaging			31,232				41,339				42,523
Total segment EBITDA		$	79,056			$	93,900			$	103,689

     On a consolidated basis, approximately $(2.1) million and $(6.8) million of the segment EBITDA decline in 2010 and 2009 in relation to the prior years was due to the unfavorable foreign currency impact from translating our foreign operations.

Segment Income — 2010 vs. 2009

     For the year ended December 31, 2010, the Protective Packaging segment’s EBITDA totaled $47.8 million, representing a decrease of $4.7 million, or 9.0%, compared to EBITDA of $52.6 million for the year ended December 31, 2009. The decline was driven primarily by increased key raw material costs which were partially offset by increased sales volumes, impact of selling price increases implemented through 2010, and the IntelliPack acquisition.

     For the year ended December 31, 2010, the Specialty Packaging segment’s EBITDA totaled $31.2 million, representing a decrease of $10.1 million, or 24.4%, compared to EBITDA of $41.3 million for the year ended December 31, 2009. This decrease was due primarily to higher key raw material costs, increased SG&A cost to upgrade our European management team, higher bad debt expense, and unfavorable foreign currency translation, partially offset by increased volumes.

Segment Income — 2009 vs. 2008

     For the year ended December 31, 2009, the Protective Packaging segment’s EBITDA totaled $52.6 million, representing a decrease of $8.6 million, or 14.1%, compared to EBITDA of $61.2 million for the year ended December 31, 2008. The decline was driven by lower sales volumes due to the weakened U.S. and European economic environments, unfavorable year-over-year selling prices, and unfavorable foreign currency translation. This was partially offset by the results of our cost reduction efforts, which totaled approximately $33.0 million for the year ended December 31, 2009.

     For the year ended December 31, 2009, the Specialty Packaging segment’s EBITDA totaled $41.3 million, representing a decrease of $1.2 million, or 2.8%, compared to EBITDA of $42.5 million for the year ended December 31, 2008. Excluding the impact associated with the loss of a significant medical customer we estimate EBITDA for this segment would have increased $5.3 million, or 12.5%, driven by the impact of our cost reduction initiatives.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

     Our cash flows from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows for the years ended December 31, 2010, 2009 and 2008, are summarized as follows:

		Year ended December 31,
		2010				2009				2008
		(dollars in thousands)
Cash provided by operating activities		$	12,741			$	25,617			$	39,654
Cash used in investing activities			(47,247	)			(13,429	)			(28,541	)
Cash provided by (used in) financing activities			4,066				26,135				(2,008	)
Effect of foreign exchange rate changes			(2,150	)			933				(2,915	)
Increase (decrease) in cash and cash equivalents		$	(32,590	)		$	39,256			$	6,190

     Cash generated by operating activities totaled $12.7 million, $25.6 million, and $39.7 million for the years ended December 31, 2010, 2009 and 2008, respectively. Cash provided by operating activities decreased by $12.9

million in 2010 compared to 2009. This decrease was primarily driven by our decreased earnings partially offset by working capital improvements.

     Cash from operating activities is sensitive to raw material costs and the Company’s ability to recover increases in these costs from its customers. Although price increases have typically lagged the underlying change in raw material costs, the Company has historically been able to recover significant increases in underlying raw material costs from its customers over a twelve to twenty-four month period. Future cash from operations are dependent upon the Company’s continued ability to recover increases in underlying raw material increases from its customers.

     Although accounts receivable and inventory balances increased year-over-year due to increased sales, the Company’s year-over-year days sales outstanding improved throughout 2010 due to the Company’s efforts to improve collections, year-over year days inventory on-hand was relatively flat, and year-over-year days payable outstanding improved as the Company implemented efforts throughout the year to drive cash flow. Significant increases in resin pricing could negatively affect our cash generated from operating activities in future periods.

     Cash provided by operating activities decreased by $14.0 million in 2009 compared to 2008. This decrease is driven primarily by cash payments for restructuring, $18.8 million in 2009 versus $6.9 million in 2008. This was partially offset by lower levels of accounts receivable and reduced investment in inventories resulting from lower volumes as well as our initiatives to reduce overall working capital levels.

     Cash used in investing activities totaled $47.2 million, $13.4 million, and $28.5 million for the years ended December 31, 2010, 2009 and 2008. This 2010 increase was primarily the result of the IntelliPack acquisition and higher capital expenditures, partially offset by proceeds from a sale-leaseback transaction in North America. On February 19 2010, Pregis acquired all of the stock of IntelliPack for an initial purchase price of $31.5 million and including certain escrowed amounts totaling $3.5 million, which was funded with cash-on-hand. Capital expenditures totaled $31.0 million in the 2010. On July 19, 2010 Pregis completed a sale-leaseback transaction involving land, building, and related improvements at two of its U.S. manufacturing facilities. Sales proceeds, net of direct costs of the transaction, totaled approximately $17.9 million.

     In 2009, cash used in investing activities totaled $13.4 million primarily for capital expenditures, which totaled $25.0 million which was partially offset by proceeds from a sale-leaseback transaction in Europe of $11.6 million. In 2008, cash used in investing activities was used primarily to fund capital expenditures of $30.9 million, offset by proceeds on minor disposals of fixed assets and insurance proceeds of $3.2 million used to replace a printing machine which had been destroyed by a fire. Additionally, in 2008 we funded final purchase price adjustments and acquisition costs of approximately $1.0 million relating to the Besin acquisition made in 2007.

     Cash provided by (used in) financing activities totaled $4.1 million, $26.1 million, and $(2.0) million for the years ended December 31, 2010, 2009 and 2008. In 2009 and 2008, the primary financing use of cash was to fund the scheduled principal payments under our debt obligations. In 2010, cash provided by financing activities included proceeds from local lines of credit totaling $3.7 million and the revolving credit facility draw of $0.5 million. In 2009, cash provided by financing activities included proceeds from the revolving credit facility draw of $42.0 million , and the issuance of the 2009 senior secured floating rate notes of $172.2 million, offset by the retirement of our Term B1 and B2 notes of $(177.0) million.

Contractual Obligations

     Our primary contractual cash obligations as of December 31, 2010 are summarized in the table below.

																										2016 and
		Total				2011				2012				2013				2014				2015				beyond
Debt obligations:
Principal		$	497,044			$	46,219			$	—			$	450,825			$	—			$	—			$	—
Interest (1)			93,880				37,366				36,567				19,947				—				—				—
Total debt obligations			590,924				83,585				36,567				470,772				—				—				—
Operating lease obligations			128,500				16,131				12,940				10,920				9,259				6,710				72,540
Capital lease obligations			427				144				283
Purchase obligations (2)			—				—				—				—				—				—				—
Total		$	719,851			$	99,860			$	49,790			$	481,692			$	9,259			$	6,710			$	72,540

     Due to the uncertainty of the timing of settlement with taxing authorities, we are unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits. Therefore, $5.7 million of unrecognized tax benefits as of December 31, 2010 has been excluded from the table above. Of this amount, $3.3 million is subject to indemnification under the Stock Purchase Agreement with Pactiv and would therefore be reimbursed if the Company is required to settle these amounts in cash. See Note 13 to the consolidated financial statements included elsewhere within this report.

     Our contractual obligations and commitments over the next several years are significant. In addition to our contractual obligations noted above, we will also require cash to make capital expenditures, pay taxes, and make contributions under the defined benefit pension plans covering certain of our European employees. We incur capital expenditures for the purpose of maintaining and replacing existing equipment and facilities, and from time to time, for facility expansion. Our capital expenditures totaled $31.0 million, $25.0 million, and $30.9 million for the years ended December 31, 2010, 2009 and 2008, respectively, and we expect our 2011 capital expenditures to total approximately $30 to $35 million. We paid taxes of $2.2 million, $4.3 million, and $1.4 million during 2010, 2009 and 2008, respectively, net of amounts repaid by Pactiv under the terms of the indemnity agreement. We contributed approximately $2.0 — $3.0 million annually to our defined benefit plans in each of the last three years and expect to contribute approximately $2.1 million during 2011, which is reduced due to the curtailment within our Netherlands pension plan. We are also paying an annual management fee of $1.5 million, plus reasonable out-of-pocket expenses, to AEA Investors LP for advisory and consulting services provided to us under the terms of a management agreement.

     Our principal source of liquidity will continue to be cash flows from operations, existing cash balances, and borrowings available to us under our $75 million ABL credit facility (which in March 2011 replaced our previous $50 million revolving credit facility which was in effect as of December 31, 2010). As of December 31, 2010, the Company had drawn $42.5 million under its then existing revolving credit facility and had $1.1 million of availability after reduction for $6.4 million in outstanding letters of credit.

     To the extent that we generate cash in excess of that needed to fund our requirements as discussed above, we presently expect that such excess cash would be used to invest in the business.

     Long-term Liquidity. We believe that cash flow generated from operations, existing cash balances, and our borrowing capacity will be adequate to meet our obligations and business requirements for the next twelve months. There can be no assurance, however, that our business will generate sufficient cash flows from operations, that anticipated operating improvements will be realized or that future borrowings will be available under Pregis’s ABL credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. Our ability to meet our debt service obligations and other capital requirements, including capital expenditures, will depend upon our future performance which, in turn, will be subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. Some other risks that could materially adversely affect our ability to meet our debt service obligations and other liquidity requirements include, but are not limited to, risks related to increases in the cost of resin, our ability to obtain attractive working capital terms from our key suppliers, our ability to protect our intellectual property, rising interest rates, a further decline in the overall U.S. and European economies, weakening demand in our end-markets, the loss of key personnel, our ability to continue to invest in equipment, and a decline in relations with our key distributors and dealers. In addition, any of the other items discussed in detail under Item 1A, “Risk Factors” may also significantly impact our liquidity.

     Senior Secured Credit Facilities. In connection with the Acquisition on October 13, 2005, Pregis entered into senior secured credit facilities which provided for a $50 million revolving credit facility and two term loans: an $88.0 million term B-1 facility and a €68.0 million term loan B-2 facility. The term loans were repaid in full in October 2009, the revolving credit facility was repaid in full in March 2011, and the senior secured credit facilities were terminated in March 2011 when we entered into our ABL credit facility.

      The revolving credit facility under our senior secured credit facilities provided for borrowings of up to $50.0 million, a portion of which could be made available to the Company’s non-U.S. subsidiary borrowers in euros and/or pounds sterling. The revolving credit facility also included a swing-line loan sub-facility and a letter of credit sub-facility. Interest on the revolving credit facility accrued at a rate equal to, at the Company’s option, (1) an alternate base rate or (2) LIBOR or EURIBOR, plus an applicable margin of 0.375% to 1.00% for base rate advances and 1.375% to 2.00% for LIBOR or EURIBOR advances, depending on the leverage ratio of the Company, as defined in the senior secured credit facilities. In addition, the Company was required to pay an annual commitment fee of 0.375% to 0.50% on the revolving credit facility depending on the leverage ratio of the Company, as well as customary letter of credit fees.

     The senior secured credit facilities also included an accordion feature which permitted us, subject to certain conditions, including the receipt of commitments from lenders, to incur up to $200.0 million (or euro equivalent thereof) of additional term loans (originally $100.0 million prior to the October 5, 2009 senior secured credit facility amendment).

     Subject to exceptions and, in the case of asset sale proceeds, reinvestment options, Pregis’s senior secured credit facilities require mandatory prepayments of the loans from excess cash flows, asset sales and dispositions (including insurance and condemnation proceeds), issuances of debt and issuances of equity. On October 5, 2009, the Company prepaid the term loans in full with proceeds of a €125.0 million note offering and cash on hand.

     Pregis’s senior secured credit facilities and related hedging arrangements were guaranteed by Pregis Holding II, the direct holding parent company of Pregis, all of Pregis’s current and future domestic subsidiaries and, if no material tax consequences would result, Pregis’s future foreign subsidiaries and, subject to certain exceptions, were secured by a first priority security interest in substantially all of Pregis’s and its current and future domestic subsidiaries’ existing and future assets (subject to certain exceptions), and a first priority pledge of the capital stock of Pregis and the guarantor subsidiaries and an aggregate of 66% of the capital stock of Pregis’s first-tier foreign subsidiary.

     Pregis’s senior secured credit facilities require that it comply on a quarterly basis with a First Lien Leverage Ratio test. In connection with the October 5, 2009 amendment to our senior secured credit facilities, the Maximum Leverage Ratio and Minimum Cash Interest Coverage Ratio covenants were eliminated, and the First Lien Leverage

Ratio covenant of 2.0x replaced the Maximum Leverage Ratio covenant. The First Lien Leverage Ratio was calculated as the ratio of (1) net debt that is secured by a first priority lien to (2) Consolidated EBITDA.

     The following table sets forth the First Lien Leverage Ratio as of December 31, 2010 and 2009:

						Ratios
(unaudited)		Covenant				Calculated at December 31,
(dollars in thousands)		Measure				2010				2009
First Lien Leverage Ratio		Maximum of 2.0x					0.05				—
Consolidated EBITDA			—			$	69,996			$	85,359
Net Debt Secured by First Priority Lien			—			$	3,802			$	(32,857	)*

     As used in the calculation of First Lien Leverage Ratio, Consolidated EBITDA was calculated by adding Consolidated Net Income (as defined by the facility), income taxes, interest expense, depreciation and amortization, other non-cash items reducing Consolidated Net Income that do not represent a reserve against a future cash charge, costs and expenses incurred with business acquisitions, issuance of equity interests permitted by the terms of the loan documents, the amount of management, consulting, monitoring, transaction, and advisory fees and related expenses paid to AEA, and unusual and non-recurring charges (including, without limitation, expenses in connection with actual and proposed acquisitions, equity offerings, issuances and retirements of debt and divestitures of assets, whether or not any such acquisition, equity offering, issuance or retirement or divestiture is actually consummated during such period that do not exceed, in the aggregate, 5% of EBITDA for such period).

     Consolidated EBITDA was calculated under the senior secured credit facility for the twelve months ended December 31, 2010 and 2009 as follows:

(unaudited)		Twelve Months Ended December 31,
(dollars in thousands)		2010				2009
Net Loss		$	(37,072	)		$	(18,010	)
Senior Secured Credit Facility Consolidated Net Income definition add backs:
Non-cash compensation charges			3,092				1,363
Net after tax extraordinary gains or losses (incl. severance and restructuring charges)			9,157				16,138
Non-cash unrealized currency gains or losses			1,008				(6,125	)
Any FAS 142, 144, 141 impairment charge or asset write off			—				(59	)
Consolidated Net Loss		$	(23,815	)		$	(6,693	)
Senior Secured Credit Facility Consolidated EBITDA definition add backs:
Interest expense, net			48,110				42,210
Income tax benefit			(8,925	)			(2,999	)
Depreciation expense and amortization			46,454				44,783
Other non-cash charges (including loss on sales leaseback)			1,837				—
Fees payable to AEA Investors LP			2,471				2,045
Unusual and non-recurring charges			10,022				6,013
Pro forma EBITDA of acquisitions			531				—
Adjustment for 5% EBITDA cap limitation of unusual and non-recurring items			(6,689	)			—
Consolidated EBITDA		$	69,996			$	85,359

     As of December 31, 2010, Pregis was in compliance with all covenants contained in its senior secured credit facilities.

     In October 2009 we used the proceeds of the offering of the unregistered 2009 senior secured notes (defined below), together with cash on hand, to repay in full amounts outstanding under the term loans under our senior secured credit facilities. However, following the issuance of the unregistered 2009 senior secured notes and the use of proceeds thereof and subject to compliance with ABL credit facility, the indenture governing the senior secured floating rate notes continues to allow us to incur at least $220 million (less amounts then outstanding under the ABL credit facility) of debt. If such debt is incurred under the $220.0 million credit facility basket or in compliance with a 3:1 senior secured leverage ratio, plus an additional $50.0 million, it would constitute first priority lien obligations and could be secured on a first priority basis.

     ABL Credit Facility. On March 23, 2011, Pregis Holding II and Pregis and certain of its subsidiaries entered into a $75 million Credit Agreement with Wells Fargo Capital Finance LLC, as agent, Wells Fargo Bank, National Association, as lender and other lenders from time to time parties thereto (“ABL credit facility”). The ABL credit facility provides for the borrowings in dollars, euros and pounds sterling and consists of (1) a UK facility, under which certain UK subsidiaries of Pregis (the “UK Borrowers”) may from time to time borrow up to a maximum amount of the lesser of the UK borrowing base and $30 million and (2) a US facility, under which certain US subsidiaries of Pregis (the “US Borrowers” and, together with the UK Borrowers, the “Borrowers”) may from time to time borrow up to a maximum amount of the lesser of the US borrowing base and $75 million less amounts outstanding under the UK facility. The borrowing base is calculated on the basis of certain permitted over advance amounts, plus a percentage of certain eligible accounts receivable and eligible inventory, subject to reserves established by the agent from time to time. The ABL credit facility provides for the issuances of letters of credit and a swingline subfacility. The ABL credit facility also provides for future uncommitted increases of its maximum amount, not to exceed $40 million.

The ABL credit facility matures on the earlier of March 22, 2016 and the date that is 90 days prior to the maturity of the existing high yield notes of Pregis Corporation (as such notes may be refinanced prior to such maturity date). Advances under the ABL credit facility bears interest, at the Borrowers’ option, equal to adjusted LIBOR, plus an applicable margin, or a base rate, plus an applicable margin. The applicable margin for LIBOR loans ranges from 2.5% to 3%, depending on the average quarterly excess availability of the Borrowers. The applicable margin for the base rate loans is 100 basis points lower than the applicable margin for the LIBOR loans.

The obligations of the US Borrowers are guaranteed by Pregis and substantially all of its US subsidiaries (subject to certain exceptions for immaterial and non wholly-owned subsidiaries) and are secured by a first priority security interest (ranking senior to the security interest securing Pregis Corporation’s secured notes) in substantially all of the assets (other than certain excluded property) of Pregis and its US subsidiaries and by the capital stock of substantially all of Pregis’ US subsidiaries and 65% of the voting stock (and 100% of the nonvoting stock) of its first-tier foreign subsidiaries. The obligations of the UK Borrowers are guaranteed by Pregis and substantially all of its foreign and domestic subsidiaries (subject to certain exceptions for immaterial and non wholly-owned subsidiaries) and are secured by substantially all of the assets (other than certain excluded property) of Pregis and its foreign and domestic subsidiaries and by the capital stock of substantially all of Pregis’ foreign and domestic subsidiaries.

The ABL credit facility contains customary representations, warranties, covenants and events of default, and requires monthly compliance with a “springing” fixed charge coverage ratio of 1.1 to 1.0 if the excess availability of Pregis and its subsidiaries falls below a certain level. The ABL credit facility is also subject to mandatory prepayments out of certain asset sale, insurance and condemnation proceeds, if the excess availability of Pregis and its subsidiaries falls below a certain level.

     Senior Secured Notes and Senior Subordinated Notes. In connection with the Acquisition on October 13, 2005, Pregis issued €100.0 million aggregate principal amount of second priority senior secured floating rate notes due 2013 (the “2005 senior secured notes”) and $150.0 million aggregate principal amount of 12⅜% senior subordinated notes due 2013 (the “senior subordinated notes”). On October 5, 2009 Pregis issued €125.0 million aggregate principal amount of additional second priority senior secured floating rate notes due 2013 (the “unregistered 2009 senior secured notes”, and together with the 2005 senior secured notes the “senior secured notes”). On March 5, 2010, Pregis exchanged all of the outstanding unregistered 2009 senior secured notes for registered senior secured notes (the “2009 senior secured notes”) pursuant to an exchange offer.

     The senior secured notes mature on April 15, 2013. Interest accrues at a floating rate equal to EURIBOR plus 5.00% per year and is payable quarterly on January 15, April 15, July 15 and October 15 of each year. The senior secured notes are guaranteed on a senior secured basis by Pregis Holding II, Pregis’s immediate parent, and each of Pregis’s current and future domestic subsidiaries. Pregis may redeem some or all of the senior secured notes at redemption prices equal to 100% of their principal amount. Upon the occurrence of a change of control, Pregis will be required to make an offer to repurchase each holder’s senior secured notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase.

     The senior subordinated notes mature on October 15, 2013. Interest accrues at a rate of 12.375% and is payable semi-annually on April 15 and October 15 of each year. The notes are senior subordinated obligations and rank junior in right of payment to all of Pregis’s senior indebtedness. The senior subordinated notes are guaranteed on a senior subordinated basis by Pregis Holding II and each of Pregis’s current and future domestic subsidiaries. Pregis may redeem some or all of the senior subordinated notes on or after October 15, 2010 at redemption prices equal to 103.094% of their principal amount (in the 12 months beginning October 15, 2010) and 100% of their principal amount (beginning October 15, 2011).

     The 2009 senior secured notes are treated as a single class under the indenture with the €100.0 million principal amount of 2005 senior secured notes. However, the 2009 senior secured notes do not have the same Common Code or ISIN numbers as the 2005 senior secured notes, are not fungible with the 2005 senior secured notes and will not trade together as a single class with the 2005 senior secured notes. The 2009 senior secured notes are treated as issued with more than de minimis original issue discount for United States federal income tax purposes, whereas the 2005 senior secured notes were not issued with original issue discount for such purposes. Together the 2005 senior secured notes and the 2009 senior secured notes are referred to herein as the senior secured notes.

     The indentures governing the senior secured notes and the senior subordinated notes contain covenants that limit or prohibit Pregis’s ability and the ability of its restricted subsidiaries, subject to certain exceptions, to incur additional indebtedness, pay dividends or make other equity distributions, make investments, create liens, incur obligations that restrict the ability of Pregis’s restricted subsidiaries to make dividends or other payments to Pregis, sell assets, engage in transactions with affiliates, create unrestricted subsidiaries, and merge or consolidate with other companies or sell all or substantially all of Pregis’s assets. The indentures also contain reporting covenants regarding delivery of annual and quarterly financial information. The indenture governing the senior secured notes limits Pregis’s ability to incur first priority secured debt to an amount which results in its secured debt leverage ratio being equal to 3:1, plus $50 million, and prohibits it from incurring additional second priority secured debt other than by issuing additional senior secured notes. The indenture governing the senior secured notes also limits Pregis’s ability to enter into sale and leaseback transactions. The indenture governing the senior subordinated notes prohibits Pregis from incurring debt that is senior to such notes and subordinate to any other debt.

     The senior secured notes and senior subordinated notes are not listed on any national securities exchange in the United States. The senior secured notes are listed on the Irish Stock Exchange. However, there can be no assurance that the senior secured notes will remain listed.

     The proceeds from the sale of the 2009 senior secured notes on October 5, 2009 were used to repay the Term B-1 and Term B-2 indebtedness under our then-existing senior secured credit facilities.

     Collateral for the Senior Secured Notes. The senior secured notes are secured by a second priority lien, subject to permitted liens, on all of the following assets owned by Pregis or the guarantors, to the extent such assets secure Pregis’s credit facilities on a first priority basis (subject to exceptions):

	(1)		substantially all of Pregis’s and each guarantor’s existing and future property and assets, including, without limitation, real estate, receivables, contracts, inventory, cash and cash accounts, equipment, documents, instruments, intellectual property, chattel paper, investment property, supporting obligations and general intangibles, with minor exceptions; and
	(2)		all of the capital stock or other securities of Pregis’s and each guarantor’s existing or future direct or indirect domestic subsidiaries and 66% of the capital stock or other securities of Pregis’s and each guarantor’s existing or future direct foreign subsidiaries, but only to the extent that the inclusion of such capital stock or other securities will mean that the par value, book value as carried by us, or market value (whichever is greatest) of such capital stock or other securities of any subsidiary is not equal to or greater than 20% of the aggregate principal amount of the senior secured floating rate notes outstanding.

     As of December 31, 2010, the capital stock of the following subsidiaries of Pregis constitutes collateral for the senior secured notes:

		As of December 31, 2010
		Amount of Collateral
		(Maximum of Book Value
		and Market Value,				Book Value of				Market Value of
Name of Subsidiary		Subject to 20% Cap)				Capital Stock				Capital Stock
Pregis Innovative Packaging Inc.		$	60,165,000			$	50,300,000			$	112,300,000
Hexacomb Corporation		$	43,400,000			$	43,300,000			$	37,200,000
IntelliPack		$	38,300,000			$	38,300,000			$	9,100,000
Pregis (Luxembourg) Holding S.àr.l. (66%)		$	17,300,000			$	17,300,000			$	—
Pregis Management Corporation		$	100			$	100			$	100

     As described above, under the collateral agreement, the capital stock pledged to the senior secured noteholders constitutes collateral only to the extent that the par value or market value or book value (whichever is greatest) of the capital stock does not exceed 20% of the aggregate principal amount of the senior secured notes. This threshold is €45,000,000, or, at the December 31, 2010 exchange rate of U.S. dollars to euro of 1.3370:1.00, approximately $60.2 million. As of December 31, 2010, the book value and the market value of the shares of capital stock of Pregis Innovative Packaging Inc. were approximately $50.3 million and $112.3 million, respectively; the book value and the market value of the shares of capital stock of Hexacomb Corporation were approximately $43.3 million and $37.2 million respectively; the book value of and the market value of the shares of capital stock of IntelliPack were approximately $38.3 million and $9.1 million respectively; and the book value and the market value of 66% of the shares of capital stock of Pregis (Luxembourg) Holding S.àr.l. were approximately $17.3 million and $ — million, respectively. Therefore, in accordance with the collateral agreement, the collateral pool for the senior secured floating rate notes includes approximately $60.2 million with respect to the shares of capital stock of Pregis Innovative Packaging Inc. Since the book value and market value of the shares of capital stock of our other domestic subsidiaries and Pregis (Luxemburg) Holdings S.ar.l are each less than the $60.2 million threshold, they are not effected by the 20% clause of the collateral agreement.

     For the year ended December 31, 2010, certain historical equity relating to corporate expenses incurred by Pregis Management Corporation were allocated to each of the three entities, Pregis Innovative Packaging Inc., Hexacomb Corporation, and Pregis (Luxembourg) Holding S.àr.l, in order to better reflect their current book values for presentation herein on a fully-allocated basis.

     The market value of the capital stock of the guarantors and subsidiaries constituting collateral for the senior secured notes has been estimated by us on an annual basis, using a market approach. At the time of the Acquisition, the purchase price paid for these entities was determined based on a multiple of EBITDA, as was contractually agreed in the stock purchase agreement. Since that time, we have followed a similar methodology, using a multiple of EBITDA, based on that of recent transactions of comparable companies, to determine the enterprise value of these entities. To arrive at an estimate of the market value of the entities’ capital stock, we have subtracted from the enterprise value the existing debt, net of cash on hand, and have also made adjustments for the businesses’ relative portion of corporate expenses. We have determined that this methodology is a reasonable and appropriate means for determining the market value of the capital stock pledged as collateral. We intend to complete these estimates of value of the capital stock of these subsidiaries for so long necessary to determine our compliance with the collateral arrangement governing the notes.

     The value of the collateral for the senior secured notes at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. As of December 31, 2010, the value of the

collateral for the senior secured floating rate notes totaled approximately $617.7 million, estimated as the sum of (1) the book value of the total assets of Pregis and each guarantor, excluding intercompany activity (which amount totaled $459.2 million), and (2) the collateral value of the capital stock, as outlined above (which amount totaled $158.5 million). Any proceeds received upon the sale of collateral would be paid first to the lenders under our ABL credit facility, who have a first lien security interest in the collateral, before any payment could be made to holders of the senior secured notes. There is no assurance that any collateral value would remain for the holders of the senior secured notes after payment in full to the lenders under our ABL credit facility.

     Covenant Ratios Contained in the Senior Secured Notes and Senior Subordinated Notes. The indentures governing the senior secured notes and senior subordinated notes contain two material covenants which utilize financial ratios. Non-compliance with these covenants could result in an event of default under the indentures and, under certain circumstances, a requirement to immediately repay all amounts outstanding under the notes and could trigger a cross-default under Pregis’s ABL credit facility or other indebtedness we may incur in the future. First, Pregis is permitted to incur indebtedness under the indentures if the ratio of Consolidated Cash Flow to Fixed Charges on a pro forma basis (referred to in the indentures as the “Fixed Charge Coverage Ratio”) is greater than 2:1 or, if the ratio is less, only if the indebtedness falls into specified debt baskets, including, for example, a credit agreement debt basket, an existing debt basket, a capital lease and purchase money debt basket, an intercompany debt basket, a permitted guarantee debt basket, a hedging debt basket, a receivables transaction debt basket and a general debt basket. In addition, under the senior secured floating rate notes indenture, Pregis is permitted to incur first priority secured debt only if the ratio of Secured Indebtedness to Consolidated Cash Flow on a pro forma basis (referred to in the senior secured floating rate notes indenture as the “Secured Indebtedness Leverage Ratio”) is equal to or less than 3:1, plus $50 million. Second, the restricted payment covenant provides that Pregis may declare certain dividends, or repurchase equity securities, in certain circumstances only if Pregis’s Fixed Charge Coverage Ratio is greater than 2:1.

     As used in the calculation of the Fixed Charge Coverage Ratio and the Secured Indebtedness Leverage Ratio, Consolidated Cash Flow, commonly referred to as Adjusted EBITDA, is calculated by adding Consolidated Net Income, income taxes, interest expense, depreciation and amortization and other non-cash expenses, amounts paid pursuant to the management agreement with AEA Investors LP, and the amount of any restructuring charge or reserve (including, without limitation, retention, severance, excess pension costs, contract termination costs and cost to consolidate facilities and relocate employees). In calculating the ratios, Consolidated Cash Flow is further adjusted by giving pro forma effect to acquisitions and dispositions that occurred in the prior four quarters, including certain cost savings and synergies expected to be obtained in the succeeding twelve months. In addition, the term Net Income is adjusted to exclude any gain or loss from the disposition of securities, and the term Consolidated Net Income is adjusted to exclude, among other things, the non-cash impact attributable to the application of the purchase method of accounting in accordance with GAAP, the cumulative effect of a change in accounting principles, and other extraordinary, unusual or nonrecurring gains or losses. While the determination of appropriate adjustments is subject to interpretation and requires judgment, we believe the adjustments listed below are in accordance with the covenants discussed above.

     The following table sets forth the Fixed Charge Coverage Ratio, Consolidated Cash Flow (“Adjusted EBITDA”), Secured Indebtedness Leverage Ratio, Fixed Charges and Secured Indebtedness as of and for the years ended December 31, 2010 and 2009:

						Ratios
(unaudited)		Covenant				Calculated at December 31,
(dollars in thousands)		Measure				2010				2009
Fixed Charge Coverage Ratio (after giving pro forma effect to acquisitions and/or dispositions occurring in the reporting period)		Minimum of 2.0x					1.8	x			2.2	x
Secured Indebtedness Leverage Ratio		Maximum of 3.0x					0.6	x			0.5	x
Consolidated Cash Flow (“Adjusted EBITDA”)			—			$	76,685			$	85,359
Fixed Charges (after giving pro forma effect to acquisitions and/or dispositions occurring in the reporting period)			—			$	41,694			$	38,834
Secured Indebtedness			—			$	46,647			$	42,578

     The Fixed Charge Coverage Ratio is primarily affected by increases or decreases in the Company’s trailing twelve month Consolidated Cash Flow (Adjusted EBITDA) and increases or decreases in the Company’s interest expense (interest expense net of interest income, excluding amortization of deferred financing fees and discount). Interest expense as used in this ratio is primarily affected by changes in interest rates (LIBOR and EURIBOR) and currency translation related to converting euro based interest expense into US dollars. The favorable impact resulting from lower interest rates, for the comparable twelve month periods ending December 31, 2010 and 2009, has been more than offset by the decrease in the Company’s trailing twelve month Consolidated Cash Flow over the same period, resulting in a reduction in the actual ratio. As of December 31, 2010, the Company’s Fixed Charge Coverage Ratio was less than 2:0. As a result the Company’s ability to borrow money was limited to its available debt baskets, including among others a $220 million credit facility basket, a $25 million general basket, and a $15 million capital lease basket.

     Adjusted EBITDA is calculated under the indentures governing our senior secured notes and senior subordinated notes for the years ended December 31, 2010 and 2009 as follows:

(unaudited)		Twelve Months Ended December 31,
(dollars in thousands)		2010				2009
Net loss of Pregis Holding II Corporation		$	(37,072	)		$	(18,010	)
Interest expense, net of interest income			48,110				42,210
Income tax benefit			(8,925	)			(2,999	)
Depreciation and amortization			46,454				44,783
EBITDA			48,567				65,984
Other non-cash charges (income):
Unrealized foreign currency transaction losses (gains), net			1,008				(6,125	)
Non-cash stock based compensation expense			3,092				1,363
Non-cash asset impairment charge			—				(59	)
Loss on sale leaseback transaction			1,837				—
Net unusual or nonrecurring gains or losses:
Restructuring, severance and related expenses			9,157				16,138
Other unusual or nonrecurring gains or losses			10,022				6,013
Other adjustments:
Amounts paid pursuant to management agreement with Sponsor			2,471				2,045
Pro forma adjusted EBITDA of acquired business			531				—
Adjusted EBITDA (“Consolidated Cash Flow”)		$	76,685			$	85,359

     Local lines of credit. From time to time, certain of the foreign businesses utilize various lines of credit in their operations. These lines of credit are generally used as overdraft facilities or for issuance of trade letters of credit and are in effect until cancelled by one or both parties. Amounts available under these lines of credit were $15.3 million and $14.8 million at December 31, 2010 and 2009, respectively. At December 31, 2010, $3.7 million borrowings were drawn under these lines and trade letters of credit totaling $3.3 million were issued and outstanding.

     Credit Ratings. Our credit ratings as of the date of this Report are summarized below. This downgrade has not impacted our borrowing costs.

		Moody’s				S&P
Senior Secured Floating Rate Notes (2005)			B3				B-
Senior Secured Floating Rate Notes (2009)			B3				B-
Senior Subordinated Notes		Caa2				CCC+
Revolver		Ba3				BB-

     Factors that can affect our credit ratings include changes in our operating performance, the economic environment, our financial position, and changes in our business strategy. Any future ratings downgrade could adversely impact, among other things, our future borrowing costs and access to the credit and capital markets.

OFF BALANCE SHEET ARRANGEMENTS

     We have no special purpose entities or off balance sheet arrangements, other than operating leases in the ordinary course of business, which are disclosed in Note 11 to the consolidated financial statements.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

     Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, which require management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. The Notes to our annual audited consolidated financial statements contain a summary of our significant accounting policies. We believe the following discussion addresses our most critical accounting policies, which are those that require our most subjective or complex judgments that could materially impact our reported results if actual outcomes differed significantly from estimates.

     Revenue Recognition. Our principal business is the manufacture and supply of protective and specialty packaging products. We recognize net sales of our products when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment (but in some cases may be upon delivery), based on specific terms of sale. In arriving at net sales, we estimate the amount of deductions from sales that are likely to be earned or taken by customers in conjunction with incentive programs, such as volume rebates and early payment discounts, and record such estimates as sales are recorded. Our deduction estimates are based on historical experience.

     In recent years, we began participating in programs in certain of our European protective packaging and flexible packaging businesses whereby the businesses purchase resin quantities in excess of their internal requirements and resell the surplus to other customers at a nominal profit. These “resin resale programs” enable the businesses to benefit from improved quantity discounts and volume rebates, as well as increased flexibility in their resin purchasing. This activity is presented on a net basis within net sales, in accordance with ASC Topic 605, Reporting Revenue Gross as a Principal versus Net as an Agent, on the basis that the third-party resin supplier is responsible for fulfillment of the order to the customer’s specifications, ships the resin directly to the customer, and maintains general inventory risk and risk of physical loss during shipment. We recognize revenue related to resin resale activity upon delivery to the customer.

     Pension. Predominantly in our U.K. and Netherlands based businesses, we provide defined benefit pension plan coverage for salaried and hourly employees. We use several statistical and other models which attempt to anticipate future events in calculating the expenses and liabilities related to the plans. These factors include actuarial assumptions about discount rates, long-term return on assets, salary increases, mortality rates, and other factors. The actuarial assumptions used may differ materially from actual results due to changing market and economic conditions, or longer or shorter life spans of participants. Such differences may result in a significant impact on the recognized pension expense and recorded liability.

     Goodwill and Other Indefinite Lived Intangible Assets. Carrying values of goodwill and other intangible assets with indefinite lives are reviewed for possible impairment annually on the first day of our fourth quarter, October 1, or when events or changes in business circumstances indicate that the carrying value may not be recoverable.

     The goodwill impairment test is performed at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (referred to as a “component”). A component is considered a reporting unit for purposes of goodwill testing if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. As such, we have tested for goodwill impairment at the component level within our Specialty Packaging reporting segment, represented by each of the businesses included within this segment. We also tested goodwill for impairment at each of the operating segments which have been aggregated to comprise our Protective Packaging reporting segment.

     We use a two-step process to test goodwill for impairment. First, the reporting unit’s fair value is compared to its carrying value. Fair value is estimated using primarily a combination of the income approach, based on the present value of expected future cash flows and the market approach. If a reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired, and the second step of the impairment test would be performed. The second step of the goodwill impairment test is used to measure the amount of the impairment loss, if any. In the second step, the implied fair value of the reporting unit’s goodwill is determined by allocating the reporting unit’s fair value to all of its assets and liabilities other than goodwill in a manner similar to a purchase price allocation. The implied fair value of the goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge would be recorded for the difference if the carrying value exceeds the implied fair value of the goodwill.

     We performed the annual goodwill impairment test during the fourth quarter of 2010. The fair value of our reporting units was estimated primarily using a combination of the income approach and the market approach. We used discount rates ranging from 13% to 14.0% in determining the discounted cash flows for each of our reporting units under the income approach, corresponding to our cost of capital, adjusted for risk where appropriate. In determining estimated future cash flows, current and future levels of income were considered that reflected business

trends and market conditions. Under the market approach, we estimated the fair value of the reporting units based on peer company multiples of earnings before interest, taxes, depreciation and amortization (EBITDA). We also considered the multiples at which businesses similar to the reporting units have been sold or offered for sale.

     The estimates and assumptions we use are consistent with the business plans and estimates we use to manage operations and to make acquisition and divestiture decisions. The use of different assumptions could impact whether an impairment charge is required and, if so, the amount of such impairment. Future outcomes may also differ. If we fail to achieve estimated volume and pricing targets, experience unfavorable market conditions or achieve results that differ from our estimates, then revenue and cost forecasts may not be achieved, and we may be required to recognize impairment charges.

     The initial step of our impairment test indicated no impairment. All of the reporting units had estimated fair values exceeding their carrying values. The range by which the fair values of the reporting units exceeded their carrying values was 10% — 87% as of October 1, 2010. The corresponding carrying values of goodwill for these reporting units ranged from $4.0 million to $61.0 million as of October 1, 2010.

     We test the carrying value of other intangible assets with indefinite lives by comparing the fair value of the intangible assets to the carrying value. Fair value is estimated using a relief of royalty approach, a discounted cash flow methodology. Our 2010 and 2009 annual tests for impairment of trade names, our only other intangible assets not subject to amortization, resulted in no impairment write-downs in 2010 and a write-down of approximately $0.2 million in 2009. The 2009 write-down was due primarily to reduced near-term net sales projections for the respective product.

     Impairment of Long-Lived Assets. The Company reviews long-lived assets held for use for impairment whenever events or changes in circumstances indicate that the carrying amount of the related asset may not be recoverable. We use estimates of undiscounted cash flows from long-lived assets to determine whether the book value of such assets is recoverable over the assets’ remaining useful lives. If an asset is determined to be impaired, the impairment is measured as the amount by which the carrying value of the asset exceeds its fair value. An impairment charge would have a negative impact on net income.

     Income Taxes. Our overall tax position is complex and requires careful analysis by management to estimate the expected realization of income tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. Deferred tax assets generally represent items that can be used as a tax deduction or credit in the tax return in future years for which we have already recorded the tax benefit in the financial statements. We regularly review our deferred tax assets for recoverability and establish a valuation allowance to reduce such assets to amounts expected to be realized. In determining the required level of valuation allowance, we consider whether it is more likely than not that all or some portion of deferred tax assets will not be realized. This assessment is based on management’s expectations as to whether sufficient taxable income of an appropriate character will be realized within the tax carryback and carryforward periods. Our assessment involves estimates and assumptions about matters that are inherently uncertain, and unanticipated events or circumstances could cause actual results to differ from these estimates. Should we change our estimate of the amount of deferred tax assets that we would be able realize, an adjustment to the valuation allowance would result in an increase or decrease to the provision for income taxes in the period such a change in estimate was made.

     We record liabilities for uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) Topic 740, Accounting for Uncertainty in Income Taxes (ASC Topic 740). The tax positions we take are based on our interpretations of tax laws and regulations in the applicable federal, state and international jurisdictions. We believe that our tax returns properly reflect the tax consequences of our operations, and that our reserves for tax contingencies are appropriate and sufficient for the positions taken. However, these positions are subject to audit and review by the tax authorities, which may result in future taxes, interest and penalties. Because of the uncertainty of the final outcome of these examinations, we have reserved for potential reductions of tax benefits (including related interest) for amounts that do not meet the more-likely-than-not thresholds for recognition

and measurement as required by ASC Topic 740. The tax reserves are reevaluated throughout the year, taking into account new legislation, regulations, case law and audit results.

     The Company does not provide for U.S. federal income taxes on unremitted earnings of foreign subsidiaries since it is management’s present intention to reinvest those earnings in foreign operations. Positive unremitted earnings of foreign subsidiaries totaled $85,278 at December 31, 2010. If such amounts were repatriated, determination of the amount of U.S. income taxes that would be incurred is not practical due to the complexities associated with this calculation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In January 2010, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”). ASU 2010-06 provides new and amended disclosure requirements related to fair value measurements. Specifically, this ASU requires new disclosures relating to activity within Level 3 fair value measurements, as well as transfers in and out of Level 1 and Level 2 fair value measurements. ASU 2010-06 also amends the existing disclosure requirements relating to valuation techniques used for fair value measurements and the level of disaggregation a reporting entity should include in fair value disclosures. This update is effective for interim and annual reporting periods beginning after December 15, 2009. The Company adopted this ASU as of January 1, 2010. The adoption did not have a material impact on the Company’s consolidated financial statements.

ITEM 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risks related to changes in interest rates, foreign currency exchange rates and commodity prices. To manage these risks, we may enter into various hedging contracts in accordance with established policies and procedures. We do not use hedging instruments for trading purposes.

     Interest Rate Risk. We are subject to interest rate market risk in connection with our long-term debt. Our principal interest rate exposure relates to outstanding amounts under our senior secured notes. At December 31, 2010, we had $336.4 million of variable rate debt. A one percentage point increase or decrease in the average interest rates would correspondingly change our interest expense by approximately $3.6 million per year. This excludes the impact of the interest rate swap arrangement currently in place to balance the fixed and variable rate debt components of our capital structure. At December 31, 2010 and 2009, the carrying value of our 2005 senior secured notes was $133.7 million and $143.2 million, respectively, which compares to fair value, based upon quoted market prices, of $125.7 million and $130.3 million for the respective periods. At December 31, 2010 and 2009, the carrying value of our 2009 senior secured notes was $160.2 million and $168.7 million, respectively, which compares to fair value, based upon quoted market prices, of $157.1 million and $162.8 million for the respective periods.

     The fair value of our fixed rate senior subordinated notes is exposed to market risk of interest rate changes. The carrying value of the senior subordinated notes was $148.7 million and $148.4 million at December 31, 2010 and 2009, respectively. The estimated fair value of such notes was $136.5 million and $145.5 million at December 31, 2010 and 2009, based upon quoted market prices.

     Raw Material; Commodity Price Risk. We rely upon the supply of certain raw materials and commodities in our production processes. The primary raw materials we use in the manufacture of our products are various plastic resins, primarily polyethylene and polypropylene. Approximately 57% of our 2010 net sales were from products made with plastic resins. We manage the exposures associated with these costs primarily through terms of the sales and by maintaining relationships with multiple vendors. We acquire these materials at market prices, which are negotiated on a continuous basis, and we do not typically buy forward beyond two or three months or enter into guaranteed supply or fixed price contracts with our suppliers. Additionally, we have not entered into hedges with respect to our raw material costs. We seek to mitigate the market risk related to commodity pricing by passing the increases in raw material costs through to our customers in the form of price increases.

     Foreign Currency Exchange Rate Risk. Our results of operations are affected by changes in foreign currency exchange rates. Approximately 63% of our 2010 net sales were made in currencies other than the U.S. dollar, principally the euro and the pound sterling. We have a natural hedge in our operations, as we typically produce, buy raw materials, and sell our products in the same currency. We are exposed to translational currency risk, however, in converting our operating results in Europe, the United Kingdom and to a lesser extent Egypt, Poland, the Czech Republic, Hungary, Bulgaria, Romania, Canada, and Mexico at the end of each reporting period. The strengthening of the U.S. dollar relative to the euro and the pound sterling in 2010 had an unfavorable impact on our financial results in U.S. dollars, compared to fiscal 2009 results. The translational currency impact of a plus/minus swing of 10% in the U.S. dollar exchange rate on our 2010 operating income would have no impact based on the offsetting operating income and losses. The euro companies’ operating loss offset the pound sterling companies’ operating income in 2010.

ITEM 8.		FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets, December 31, 2010 and 2009

Consolidated Statements of Operations, Years Ended December 31, 2010, 2009 and 2008

Consolidated Statements of Equity and Comprehensive Loss, Years Ended December 31, 2010, 2009 and 2008

Consolidated Statements of Cash Flows, Years Ended December 31, 2010, 2009 and 2008

Notes to Consolidated Financial Statements

Schedule II — Valuation and Qualifying Accounts

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholder of Pregis Holding II Corporation

We have audited the accompanying consolidated balance sheets of Pregis Holding II Corporation as of December 31, 2010 and 2009 and the related consolidated statements of operations, equity and comprehensive loss, and cash flows for the years ended December 31, 2010, 2009 and 2008. Our audits also included the financial statement schedule listed in the index to the financial statements as “Schedule II — Valuation and Qualifying Accounts”. These financial statements and schedule are the responsibility of Pregis Holding II Corporation’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 consolidated financial position of Pregis Holding II Corporation at December 31, 2010 and 2009 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also 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.

     /s/ Ernst & Young LLP

Chicago, Illinois

March 25, 2011

Pregis Holding II Corporation

Consolidated Balance Sheets
(dollars in thousands, except share and per share data)

		December 31,
		2010				2009
Assets
Current assets
Cash and cash equivalents		$	47,845			$	80,435
Accounts receivable
Trade, net of allowances of $7,513 and $6,015 respectively			118,836				120,812
Other			18,573				12,035
Inventories, net			88,975				81,024
Deferred income taxes			3,699				5,079
Due from Pactiv			1,161				1,169
Prepayments and other current assets			9,131				7,929
Total current assets			288,220				308,483
Property, plant and equipment, net			198,260				226,882
Other assets
Goodwill			139,795				126,250
Intangible assets, net			53,642				38,054
Deferred financing costs, net			4,816				8,092
Due from Pactiv, long-term			8,168				8,429
Pension and related assets			11,848				13,953
Restricted Cash			3,501				—
Other			448				404
Total other assets			222,218				195,182
Total assets		$	708,698			$	730,547
Liabilities and stockholder’s equity
Current liabilities
Current portion of long-term debt		$	46,363			$	300
Accounts payable			101,266				78,708
Accrued income taxes			2,971				5,236
Accrued payroll and benefits			14,626				14,242
Accrued interest			7,654				7,722
Other			20,903				18,311
Total current liabilities			193,783				124,219
Long-term debt			442,908				502,534
Deferred income taxes			16,029				19,721
Long-term income tax liabilities			5,732				5,463
Pension and related liabilities			4,149				4,451
Other			19,566				15,367
Stockholder’s equity:
Common stock — $0.01 par value; 1,000 shares authorized, 14,900.35 shares issued and outstanding at December 31, 2010 and 2009			—				—
Additional paid-in capital			155,055				151,963
Accumulated deficit			(119,400	)			(82,328	)
Accumulated other comprehensive loss			(9,124	)			(10,843	)
Total stockholder’s equity			26,531				58,792
Total liabilities and stockholder’s equity		$	708,698			$	730,547

The accompanying notes are an integral part of these financial statements

Pregis Holding II Corporation

		Year ended December 31,
		2010				2009				2008
Net Sales		$	873,206			$	801,224			$	1,019,364
Operating costs and expenses:
Cost of sales, excluding depreciation and amortization			684,498				609,515				798,690
Selling, general and administrative			130,057				117,048				127,800
Depreciation and amortization			46,454				44,783				52,344
Goodwill impairment			—				—				19,057
Other operating expense, net			9,442				14,980				8,146
Total operating costs and expenses			870,451				786,326				1,006,037
Operating income			2,755				14,898				13,327
Interest expense			48,364				42,604				49,069
Interest income			(254	)			(394	)			(875	)
Foreign exchange loss (gain), net			642				(6,303	)			14,728
Loss before income taxes			(45,997	)			(21,009	)			(49,595	)
Income tax benefit			(8,925	)			(2,999	)			(1,865	)
Net loss		$	(37,072	)		$	(18,010	)		$	(47,730	)