PRO-PAC PACKAGING LIMITED — Proxy Solicitation & Information Statement 2017

Sep 25, 2017

PRO-PAC PACKAGING LIMITED

A.C.N 112 971 874

NOTICE OF EXTRAORDINARY GENERAL MEETING, EXPLANATORY NOTES AND INDEPENDENT EXPERT'S REPORT

Date: 26 October 2017

Time: 12:00pm (Sydney time)

Place: Level 9, 33 Erskine Street, Sydney NSW 2000

The Independent Expert has concluded that Advent's acquisition of the Consideration Shares is not fair but reasonable to the Shareholders, and that the advantages outweigh the disadvantages of the acquisition. Further information is contained in the enclosed Independent Expert's Report.

The Directors unanimously recommend that Shareholders vote in favour of the Resolution.

This Notice of Meeting is dated 26 September 2017.

This document is important and requires your immediate attention. Carefully read this document in its entirety and consult your stockbroker, solicitor, accountant, licensed financial adviser or other professional adviser if you are in any doubt as to what to do.

Table of Contents

1	Chairman's Letter 3
2	Notice of Meeting 4
3	Explanatory Notes 6
4	Pro Forma Balance Sheet and ProForma Profit and Loss Forecast 18
5	Glossary 22
6	Independent Expert's Report 24

NOTE: Capitalised terms used in this document are defined in the Glossary (Section 5).

Key Dates

Due date for	12:00pm on 24 October
lodgement of proxy	2017
forms
Record Date	7:00pm on 24 October
	2017
General Meeting	12:00pm on 26 October
	2017

NOTE: The above timetable is indicative only. The Company may vary any of the above dates without notice, subject to the Corporations Act, the ASX Listing Rules and other applicable law.

Important Information

This Notice of Meeting is dated 26 September 2017.

A copy of this Notice of Meeting has been lodged with ASIC and ASX. Neither ASIC nor ASX takes any responsibility for the contents of this Notice of Meeting.

This Notice of Meeting does not take into account the individual investment objectives, financial situation or particular needs of any person. Shareholders should seek professional advice from a licensed financial adviser, accountant, stockbroker, lawyer or other professional adviser before deciding whether or not to approve the resolution set out in this Notice of Meeting.

This Notice of Meeting is governed by the law in force in New South Wales.

Corporate Directory

Current Directors

Mr Ahmed Fahour (Chairman and Non-Executive Director) Mr Elliott Kaplan (Non-Executive Director) Mr Brandon Penn (Non-Executive Director) Dr Gary Weiss (Non-Executive Director)

Company Secretary

Mr Mark Saus

Registered Office

147-151 Newton Road Wetherill Park NSW 2164 (PO Box 6484, Wetherill Park NSW 2164) Tel: (02) 8781 0500 Fax: (02) 8781 0599

Share Registry

Boardroom Pty Limited Level 12, 225 George Street Sydney NSW 2000 Tel: 1300 737 760

Independent Expert

Lonergan Edwards & Associates Limited Level 7, 64 Castlereagh Street Sydney NSW 2000

Auditors

UHY Haines Norton Level 11, 1 York Street Sydney NSW 2000

Solicitors

Thomson Geer Level 25, 1 O'Connell Street Sydney NSW 2000

1 Chairman's Letter

26 September 2017

Dear Shareholder,

On behalf of the Directors of Pro-Pac Packaging Limited (Company or PPG) I am pleased to invite you to an Extraordinary General Meeting of Shareholders to be held on 26 October 2017.

As announced on 11 September 2017, the Company has entered into a Share Sale Agreement to acquire the entire issued capital (Sale Shares) of Integrated Packaging Group Pty Ltd (IPG), the leading engineered films and flexible films packaging producer in Australia, for $177.5 million from funds managed by Advent Partners Pty Ltd (Advent) and IPG senior management shareholders (Other Vendors) (together, the Vendors), comprising part cash consideration and part equity consideration. The equity component of the consideration is the issue of 158,421,024 Shares in the Company to the Vendors (which includes the issue of the 145,925,090 Consideration Shares to Advent).

The business of the meeting is to seek shareholder approval for the proposed issue of the Consideration Shares in the Company to Advent on the basis outlined in the enclosed Explanatory Notes. Advent does not currently hold any Shares in the Company. Subject to and upon completion of the Share Sale Agreement, Advent will be issued the Consideration Shares and have a total relevant interest in 145,925,090 Shares, representing approximately 26.0% of the voting power attaching to and the number of all Shares on issue. The Other Vendors will together only hold 2.2% of the voting power attaching to the number of all Shares on issue.

As reflected in the Company's announcement and by the Resolution proposed, the Board considers that the acquisition in its entirety, including the issue of the Consideration Shares to Advent on the basis provided in the Resolution is in the Company's best interests and will be for the benefit of all Shareholders. The Board's reasons are set out more fully in the enclosed Explanatory Notes. In summary, the issue of the Consideration Shares to Advent will enable completion of the acquisition of IPG, which will result in the Company becoming significantly larger, with more diverse operations and enhanced growth prospects, and give Advent a vested interest in the ongoing success of the Company following its acquisition of IPG.

Further information regarding the Resolution to be considered at this meeting is set out in the enclosed Explanatory Notes.

The Independent Expert has been engaged to determine whether the acquisition of IPG and the issue of the Consideration Shares is fair and reasonable to the Shareholders and has determined that it is not fair but reasonable, and that the advantages outweigh the disadvantages. Further information is contained in the enclosed Independent Expert's Report.

The Company has obtained the commitment of its major shareholders – Bennamon Pty Limited, which holds 123,792,007 Shares (51.2%) and Brandon Penn who holds 24,958,817 Shares (10.32%) at the date of this Notice of Meeting – to vote in favour of the issue of the Consideration Shares to Advent at the General Meeting, in the absence of a superior proposal.

I look forward to your attendance at the General Meeting. If you are unable to attend the meeting in person, please complete, sign and return the enclosed proxy form by 12:00pm (Sydney time) on 24 October 2017.

Yours sincerely

Ahmed Fahour Chairman

NOTICE IS HEREBY GIVEN that an General Meeting of the Shareholders of Pro-Pac Packaging Limited (Company or PPG) will be held at Level 9, 33 Erskine Street, Sydney NSW 2000 on 26 October 2017 at 12:00pm (Sydney time).

Business:

Resolution – Approval of issue of Consideration Shares to Advent

To consider and, if thought fit, to pass the following resolution as an ordinary resolution:

"That, in accordance with item 7 of section 611 of the Corporations Act and for all other purposes, shareholder approval is given to the issue and allotment of the Consideration Shares (145,925,090 Shares) to Advent on the terms set out in the Explanatory Notes accompanying the notice convening this General Meeting."

Note: The vote on the Resolution will be taken on a show of hands and a poll.

Further information in relation to the Resolution is set out in the Explanatory Notes which accompany and form part of this Notice of Meeting.

By order of the Board

Mark Saus Company Secretary Date: 26 September 2017

2.1 Voting Exclusions

In accordance with the notice requirements of item 7 of section 611 of the Corporations Act, the Company will disregard any votes cast in relation to the Resolution by:

• (a) Advent; and
• (a) any Associates of Advent.

However, the Company need not disregard a vote if:

• (a) it is cast by a person as the proxy for a person who is entitled to vote, in accordance with the directions on the proxy form; or
• (b) it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with the directions on the proxy form.

2.2 Documents

A proxy form accompanies these documents.

2.3 Persons entitled to vote

Under regulation 7.11.37 of the Corporations Regulations 2001, the Directors have determined that the shareholding of each member for the purposes of ascertaining their voting entitlements at the General Meeting will be as it appears in the share register at 7:00 pm (Sydney time) on 24 October 2017.

2.4 How to Vote

If you are eligible, you may vote by attending the General Meeting in person or by proxy or attorney. A member who is a body corporate may appoint a representative to attend and vote on its behalf.

Note: The vote on the Resolution will be taken on a show of hands and a poll.

2.5 Voting in Person

To vote in person, attend the General Meeting at the time and place set out in this Notice of Meeting.

2.6 Voting by Proxy

To vote by proxy, please complete, sign and return the enclosed proxy form in accordance with the following instructions. If you require an additional proxy form, the Company will supply it on request.

2.7 Proxies

A Shareholder who is entitled to vote at the General Meeting may appoint:

• one proxy if the member is only entitled to one vote; or
• one or two proxies if the member is entitled to more than one vote.

Where the Shareholder appoints 2 proxies, the appointment may specify the proportion or number of votes that each proxy may exercise. If the appointment does not specify a proportion or number, each proxy may exercise one-half of the votes, in which case any fraction of votes will be disregarded.

A proxy need not be a Shareholder of the Company.

The proxy form must be signed by the Shareholder or the Shareholder's attorney. Proxies given by a corporation must be executed in accordance with the Corporations Act and the constitution of that corporation.

The proxy form and the power of attorney or other authority (if any) under which it is signed or a certified copy, must be received by the Company at least 48 hours before the time for holding of the General Meeting or any adjourned meeting (or such lesser period as the Directors may permit) at the Company's registered office:

147-151 Newton Road, Wetherill Park NSW 2164

(PO Box 6484, Wetherill Park NSW 2164)

or the following fax number at the Company's registered office: (02) 8781 0599.

2.8 Voting by Attorney

A Shareholder may appoint an attorney to act on the Shareholder's behalf at the General Meeting. The power of attorney or such other evidence of the attorney's appointment and authority to the satisfaction of the Directors must be received by the Company at least 48 hours before the time for holding of the General Meeting or any adjourned meeting.

2.9 Enquiries

For further information, please contact Mark Saus, Company Secretary, on (02) 8781 0500.

3 Explanatory Notes

These Explanatory Notes have been prepared for the information of Shareholders in connection with the business to be conducted at the General Meeting to be held at Level 9, 33 Erskine Street, Sydney NSW 2000 on 26 October 2017 at 12:00pm (Sydney time).

Resolution – Issue of Consideration Shares to Advent

3.1 Background

On 8 September 2017, the Company and the Vendors entered into a Share Sale Agreement, pursuant to which the Vendors agreed to sell and the Company agreed to purchase 100% of the issued capital of IPG (Sale Shares).

As consideration for the acquisition of the Sale Shares, the Company has agreed to pay $177.5 million on effectively a cash-free, debt-free valuation basis, comprising $117.5 million cash consideration and $60 million in scrip consideration by way of the issue of 158,421,024 Shares in the Company to the Vendors (which includes the issue of the 145,925,090 Shares (Consideration Shares) to Advent).

The Company is seeking the approval of Shareholders in accordance with item 7 of section 611 of the Corporations Act for the issue and allotment of the Consideration Shares to Advent in accordance with the terms and conditions of the Share Sale Agreement. The issue of the Consideration Shares is part of a larger series of transactions required to give effect to the Share Sale Agreement. As mentioned above, the consideration for the acquisition of the Sale Shares is part by way of cash consideration, part by way of an issue of Shares in the Company to the Vendors. The cash consideration is to be funded partly from the Company's debt facilities and partly through a fully underwritten non-renounceable, pro-rata 2 for 3 rights issue to eligible Shareholders of the Company (Rights Issue). Please refer to section 3.5 and pages 22 to 25 of the Investor Presentation for further details on the Rights Issue.

The Rights Issue will increase the number of Shares on issue and therefore affect the voting power of Advent following the issue of the Consideration Shares. Please refer to sections 3.7 and 3.11 for further details on the impact of the Rights Issue on the voting power of Advent following the issue of the Consideration Shares. Other than the Rights Issue and issue of the Consideration Shares to Advent, there are no other transactions which will have an effect on the control of the Company.

Completion of the acquisition of the Sale Shares is subject to a number of conditions precedent. Please refer to section 3.4(c) for further details on the conditions precedent to completion of the acquisition of the Sale Shares.

3.2 Information about IPG

IPG is Australia's largest specialist manufacturer and distributor of flexibles, film, wrap and associated products with #1 or #2 positions in key end markets. IPG operates five world class manufacturing facilities across Australia and New Zealand and has a strong and proven track record of manufacturing high quality products for its diversified blue-chip customer base.

Please refer to the Investor Presentation and sections IV and VII of the Independent Expert's Report for further information on IPG and section IX of the Independent Expert's Report for further information on the Combined Group and the Company's Shares post-completion of the acquisition of the Sale Shares.

3.3 Information about Advent

Advent Partners is an experienced Australian private equity investment firm that has invested in more than 90 companies over 30 years.

Advent Partners initially invested in IPG in August 2008 through two funds managed by it, APC I Pty Ltd as trustee for Advent V Trust A and APC II Pty Ltd as trustee for Advent V Trust B (Advent). Advent's initial investment enabled IPG to acquire the business and assets of Amcor Flexibles' Perth plant, which produces cast and blown polyethylene products including stretch and shrink film. Further follow-on funding in January 2013 funded the purchase of the business and assets of Amcor Flexibles Packaging plants in Cheltenham, Chester Hill and Kirrawee, which produce plain and printed polyethylene products including printed industrial bags, shrink film and PVC food films. This reinforced IPG's growth strategy in industrial and agricultural packaging as well as expanding the business into printing, converting and PVC food films.

3.4 Share Sale Agreement

(a) Background

Under the terms of the Share Sale Agreement, the Company has agreed to acquire the Sale Shares from the Vendors in consideration for $177.5 million on a cash-free, debt-free basis, comprising part cash consideration and part equity consideration, with the equity component being the issue of 158.4 million Shares in the Company to the Vendors (which includes the issue of the Consideration Shares to Advent).

The cash consideration is subject to usual post-completion adjustments for working capital and net debt in IPG and will be funded partly:

• (i) by a $70 million tranche of debt facilities provided to the Company by ANZ Bank; and
• (ii) with funds raised by the Company under the Rights Issue.

(b) Timing for completion

The Directors anticipate that completion of the acquisition of the Sale Shares will occur on or around 6 November 2017, with an effective date of 1 September 2017.

Completion of the acquisition of the Sale Shares will not occur unless and until the conditions precedent to the acquisition have been satisfied or waived (if possible) in accordance with the terms of the Share Sale Agreement.

(c) Conditions precedent

Completion under the Share Sale Agreement is conditional on the satisfaction or waiver (if possible) of a number of conditions precedent, including the following:

• (i) the Shareholders passing the Resolution by the requisite majority;
• (ii) the Company completing a fundraising of between $54 million and $55 million under the Rights Issue;
• (iii) the Company procuring a warranty and indemnity insurance policy on terms acceptable to the Company and the Vendors; and
• (iv) the conditions to the first drawing under the debt facility being satisfied by the Company.

As at the date of this Notice of Meeting, the Directors are not aware of any reason why any of the conditions precedent under the Share Sale Agreement will not be satisfied. The Directors will keep Shareholders and the ASX advised in that regard, including as to the outcome of the vote by Shareholders on the Resolution proposed.

(d) Other terms

The Company has executed a term sheet with ANZ Bank regarding the provision of the debt facilities referred to in clause 3.4(c)(iv). The term sheet contains conditions precedent to drawdown standard for facilities of this nature, including certain financial covenants which the Company must satisfy in order to draw down under the facility.

The Share Sale Agreement contains usual representations and warranties for a transaction of this nature.

If completion of the transactions contemplated by the Share Sale Agreement does not occur by 1 December 2017, the Company has undertaken to pay the Vendors interest on the purchase price of 11% per annum.

(e) Interests held following completion

Following the completion of the transactions contemplated by the Share Sale Agreement (taking into account the issue of Shares under the Rights Issue):

• (i) the Company will hold 100% of the issued share capital of IPG;
• (ii) Advent will hold 26.0% of the issued share capital of the Company; and
• (iii) the Other Vendors will hold 2.2% of the issued share capital of the Company.

3.5 Rights Issue and Underwriting Agreement

The Rights Issue referred to in clause 3.4(c)(ii) is fully underwritten by Bell Potter Securities Ltd (Underwriter) pursuant to an underwriting agreement dated 8 September 2017 between the Underwriter and the Company (Underwriting Agreement).

As is customary with these types of arrangements:

• (a) the Company has agreed, subject to certain carve-outs, to indemnify the Underwriter, its affiliated and related bodies corporate, and each of their directors, officers, employees, agents and advisers against any losses they may suffer or incur in connection with the Rights Issue;

• (b) the Company and the Underwriter have given certain representations, warranties and undertakings in connection with (amongst other things), the Rights Issue, the Underwriting Agreement or any acts or omissions of the indemnified parties in relation to the Underwriting Agreement;

• (c) the Underwriter may (in certain circumstances, having regard to the materiality of the relevant event) terminate the Underwriting Agreement and be released from its obligations under it on the occurrence of certain events, including but not limited to where:

  • (i) the Company chooses not to proceed with the Rights Issue or withdraws the Notice of Meeting;
  • (ii) a statement contained in the Rights Issue offer documents is misleading or deceptive, or is likely to mislead or deceive, or does not comply with the Corporations Act, ASX Listing Rules or any other applicable laws;
  • (iii) the Company ceases to be admitted to the official list of ASX;
  • (iv) trading of the Company's Shares on ASX is suspended without the prior approval of the Underwriter, or the Shares cease to be official quoted by ASX;
  • (v) the S&P/ASX200 Index closes at a level that is 85% or less of the level of that index as at the close of trading on 6 September 2017 and remains below that level either at the close of trading on ASX for 3 consecutive business days or at the close of trading on ASX on the business day immediately prior to settlement of the Rights Issue;
  • (vi) a voting intention statement made by a Shareholder is withdrawn or resiled from or found to be void or unenforceable or a condition on which the voting intention statement is given is satisfied or triggered by the Shareholder;

• (vii) the Share Sale Agreement is terminated or amended in a material respect without the consent of the Underwriter or a condition precedent in the Share Sale Agreement becomes incapable of being satisfied within the relevant period; or

• (viii) the debt facility is terminated or amended in a material respect without the consent of the Underwriter or a condition precedent to the debt facility becomes incapable of being satisfied within the relevant period; and

• (d) the Underwriter will be paid up to 3.5% of the total proceeds of the Rights Issue (excluding GST) in the form of fees for providing services and will be reimbursed for certain expenses.

Please refer to the Investor Presentation for further information about the Underwriting Agreement.

3.6 Approval under the Corporations Act

(a) Section 606 prohibition

Pursuant to section 606(1) of the Corporations Act, a person must not acquire a relevant interest in issued voting shares in a company if the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person and because of the transaction, that person's or someone else's voting power in the company increases:

• (i) from 20% or below to more than 20%; or
• (ii) from a starting point that is above 20% and below 90%.

A person's voting power in a company is determined in accordance with section 610 of the Corporations Act. A person's voting power is calculated by determining the percentage of the total number of votes attached to all voting shares in the company that a person and its associates have a relevant interest in.

A person has a relevant interest in securities if they:

• (iii) are the holder of the securities;
• (iv) have the power to exercise, or control the exercise of, a right to vote attached to the securities; or
• (v) have power to dispose of, or control the exercise of a power to dispose of, the securities.

It does not matter how remote the relevant interest is or how it arises. If two or more people can jointly exercise one of these powers, each of them is taken to have that power.

(b) Exception to the section 606 prohibition

Item 7 of section 611 of the Corporations Act provides an exception to the prohibition under section 606 of the Corporations Act. This exception provides that a person may acquire a relevant interest in a company's voting shares with shareholder approval.

In order for the exemption of item 7 of section 611 of the Corporations Act to apply, shareholders must be given all information known to the person making the acquisition or their Associates, or known to the company, that was material to the decision on how to vote in the resolution, including:

• (i) the identity of the person proposing to make the acquisition and their Associates;

• (ii) the maximum extent of the increase in that person's voting power in the company that would result from the acquisition;

• (iii) the voting power that person would have as a result of the acquisition;

• (iv) the maximum extent of the increase in the voting power of each of that person's Associates that would result from the acquisition; and

• (v) the voting power that each of that person's Associates would have as a result of the acquisition.

For responses on these matters, see section 3.8.

3.7 Why Shareholder approval is required

As at the date of this Notice of Meeting, being prior to the issue of the Consideration Shares, Advent holds no Shares in the Company.

Following the issue of the Consideration Shares to Advent in accordance with the terms of the Share Sale Agreement, Advent will hold 145.9 million Shares in the Company.

As mentioned in section 3.1, simultaneously with the issue of the Consideration Shares, the Company will undertake a Rights Issue to issue approximately 161.2 million1 Shares in the Company at $0.34 per Share.

Following completion of the Rights Issue, there will be 561.4 million Shares on issue in the Company.

Please refer to section 3.11 for further details on the number of Shares, the percentage of Shares and the voting power of Advent and the other Shareholders of the Company following completion of the Rights Issue.

The table below sets out the possible percentage shareholdings of Advent following the issue of the Consideration Shares (which will occur simultaneously with the issue of Shares under the Rights Issue):

Advent	Number of Sharesheld	Total percentage of Shares on issue
APC I Pty Ltd as trustee forAdvent V Trust A	72,962,545	13.0%
APC II Pty Ltd as trustee forAdvent V Trust B	72,962,545	13.0%
Total	145,925,090	26.0%

Please also refer to section 3.11 which sets out Advent's percentage shareholdings as compared to the existing Shareholders' percentage shareholdings prior to and following completion of the issue of Consideration Shares.

The issue of the Consideration Shares to Advent will increase Advent's voting power in the Company from 0% to a percentage in excess of 20%.

This increase in Advent's relevant interest in the Company from less than 20% to more than 20% is prohibited under section 606 of the Corporations Act. However, such issue would be permitted if prior Shareholder approval is granted for the issue of the Consideration Shares to Advent in accordance with the terms of the Resolution.

3.8 Information for Shareholders under item 7 of section 611 of the Corporations Act

The following information is provided to Shareholders for the purposes of the requirements under the Corporations Act in respect of obtaining Shareholder approval pursuant to item 7 of section 611 of the Corporations Act:

The identity of the person The persons proposing to make the acquisition (that, is the

1 Subject to Share Registry cut off and rounding of individual accounts.

proposing to make theacquisition and their	persons who will be issued the Consideration Shares) areAdvent, being:
associates	APC I Pty Ltd in its capacity as trustee of the Advent V TrustA; and;
	APC II Pty Ltd in its capacity as trustee of the Advent V TrustB.
	APC I Pty Ltd and APC II Pty Ltd are both wholly ownedsubsidiaries of Advent Partners Pty Ltd.
	None of Advent's other Associates will be issued anyConsideration Shares.
The maximum extent ofthe increase in thatperson's voting power inthe company that wouldresult from theacquisition	As at the date of this Notice of Meeting, Advent's voting power inthe Company is nil. The issue of the Consideration Shares toAdvent will represent an increase of Advent's voting power fromnil to 26.0% (taking into account the issue of Shares under theRights Issue).
The voting power that aperson would have as aresult of the acquisition	Advent's voting power as a result of the issue of theConsideration Shares will be 26.0% (taking into account theissue of Shares under the Rights Issue).
The maximum extent ofthe increase in the votingpower of each of thatperson's associates thatwould result from theacquisition	None of Advent's Associates will be issued any ConsiderationShares or acquire any voting power in the Company. As such,the maximum extent of the increase in the voting power ofAdvent's Associates as a result of the issue of the ConsiderationShares will be nil.
The voting power thateach of that person'sassociates would have asa result of the acquisition	None of Advent's Associates currently have nor will be issuedany Consideration Shares or acquire any voting power in theCompany. As such, the voting power of Advent's Associates oncompletion of the issue of the Consideration Shares will be nil.

3.9 Information for Shareholders required by RG 74

Further information required by ASIC Regulatory Guide 74 (RG 74) is set out below:

An explanation of thereasons for the proposedacquisition	Advent (together with the Other Vendors) are the currentshareholders of IPG. The Vendors have entered into a ShareSale Agreement, pursuant to which they have agreed to sell andthe Company has agreed to purchase the Sale Shares. As partconsideration for the sale, the Company has agreed to issue the158.4 million Shares to the Vendors (which includes the issue ofthe 145.9 million Consideration Shares to Advent). Please referto sections 3.1 and 3.4(a).
	The Company has agreed to acquire the similar packagingbusiness of IPG and its subsidiaries in order to become a leadingplayer in the Australian flexible packaging segment. TheCompany and IPG are highly complementary packagingbusinesses and the acquisition delivers a scaleable platform forfuture growth (both organic and through further acquisitions).The acquisition of IPG will position the Company to capitalise onthe growing flexibles market and the combination of theCompany. IPG's distribution and manufacturing capabilities, andcomplementary blue chip customers, will enable the Company todeliver a highly efficient and seamless packaging system.
	Following the acquisition of IPG by the Company, the combined

	group will be a segment leader in secondary (shrink wrap) andtertiary (stretch wrap) industrial packaging solutions, and aleading distributor and manufacturer of other packaging andindustrial products. Please refer to the Investor Presentation forfurther details on the reasons for the acquisition of IPG.The issue of the Consideration Shares as part consideration forthe acquisition of the Sale Shares is intended to give Advent avested interest in the ongoing success of the Company and thecombined group, for the benefit of its Shareholders, following theCompany's acquisition of IPG.
When the proposedacquisition is to occur	The Consideration Shares will be issued to Advent oncompletion of the Share Sale Agreement, details of which are setout in section 3.4(b).
The material terms of theproposed acquisition	The Consideration Shares will be issued in accordance with theterms and conditions of the Share Sale Agreement, details ofwhich are set out in section 3.4.
Details of the terms ofany other relevantagreement between the	Advent (together with the Other Vendors) and the Companyhave entered into a Share Sale Agreement. Details of the termsof the Share Sale Agreement are set out in section 3.4.
acquirer and the targetentity or vendor (or anyof their associates) that isconditional on (or directlyor indirectly depends on)members' approval of theproposed acquisition	Advent have agreed to enter into voluntary escrow agreementsrestricting the disposal of the Consideration Shares from theearlier of the date on which those shares are issued to close ofbusiness on the day the Company's audited financial results forthe financial year ending 30 June 2019 are released to themarket and two years from the date of the voluntary escrowagreements, subject to:
	50% of the escrowed Consideration Shares being releasedfrom escrow early if:
	othe EBITDA announced in the Company's auditedfinancial results for the financial year ending 30 June2018 is (FY18) equal to or exceeds the forecastEBITDA for FY18 announced on ASX by theCompany for the purposes of the Rights Issue; and
	othe VWAP of the Consideration Shares (adjusted totake into account the theoretical impact of anycapital restructure) over the 30 trading day periodending on the trading day after the announcement ofthe FY18 results and before all of the escrowedConsideration Shares have been dealt with exceedsthe Offer Price by 20% or more.
	100% of the escrowed Consideration Shares being releasedfrom escrow early if the VWAP of the Consideration Sharesover any 90 trading day period ending on a date after theannouncement of the FY18 results at any time after theannouncement of the FY18 results exceeds the Offer Priceby 40% or more.
A statement of theacquirer's intentionsregarding the future ofthe target entity ifmembers approve the	The issue of the Consideration Shares will not result in Adventacquiring a controlling interest in the Company. As such, whileAdvent can influence or be involved in the decision-making of theCompany, Advent will not have control over the decision-makingof the Company.
acquisition and, inparticular:	For so long as Advent's shareholding in the Company exceeds10%, Advent will have the right to appoint a director to the Board.Advent intend to initially appoint Mr Rupert Harrington as adirector on the Board from completion of the Share Sale

		Agreement. As a director on the Board, Mr Harrington will beable to represent Advent's position. However Mr Harrington willnot have a majority vote on the Board.
	any intention tochange the businessof the entity;	As noted above, Advent will not have control over any decisionto, nor do they have any present intention to, change thebusiness of the Company.
	any intention to injectfurther capital into theentity;	As noted above, Advent will not have control over any decisionto, nor do they have any present intention to, inject any furthercapital into the Company.
		It is noted that the Company will be undertaking the Rights Issueto raise approximately $54.8 million to partially fund theacquisition of the Sale Shares.
	the futureemployment ofpresent employees ofthe entity;	As noted above, Advent will not have control over any decisionto, nor do they have any present intention to, change theemployment of present employees of the Company.
	any proposal whereassets will betransferred betweenthe entity and theacquirer or vendor ortheir associates; and	Other than the transfer of the Sale Shares to the Company,Advent do not have any present intention to transfer assetsbetween themselves or their Associates and the Company.
	any intention tootherwise redeploythe fixed assets of theentity	As noted above, Advent will not have control over any decisionto, nor do they have any present intention to, redeploy the fixedassets of the Company.
Any intention of theacquirer to significantlychange the financialdividend distributionpolicies of the entity		As noted above, Advent will not have control over any decisionto, nor do they have any present intention to, significantly changethe financial dividend distribution policies of the Company.
The interests that anydirector has in theacquisition or anyrelevant agreementdisclosed in respect ofany other relevantagreement disclosedabove		None of the Directors has an interest in the proposed issue ofthe Consideration Shares to Advent nor any of the relevantagreements disclosed above.
The following detailsabout any person who isintended to become adirector if membersapprove the acquisition:		From completion of the Share Sale Agreement, Advent will beentitled to nominate a director to the Board of the Company if,and for so long as, the aggregate shareholding of Advent in theCompany is greater than 10%. Advent intend to appoint MrRupert Harrington as a director of the Company immediatelyfollowing completion under the Share Sale Agreement.
	name;	Mr Rupert Harrington.
	qualifications andrelevant professionalor commercialexperience;	Mr Harrington holds a Bachelor of Technology degree and aMasters of Business Management from Bradford University,along with a Certified Diploma in Accounting and Finance fromManchester University.Mr Harrington has been a director of a number of companies, as

		detailed below.
	any associations thatthe proposed directorhas with the acquirer,vendor or any of theirassociates; and	Mr Harrington is currently a director of IPG and the ExecutiveChairman of Advent Partners.Mr Harrington has also been a director of over 20 of Advent'sinvestees' companies operating in manufacturing, services,health, technology and more, and covering all investmentopportunities including expansion, MBO/MBI and generationalchange.
	any interest that theproposed director hasin the acquisition orany relevantagreement disclosedabove	Mr Harrington has an interest in the acquisition of theConsideration Shares by Advent and the entry by Advent into thevoluntary escrow agreements by virtue of his directorship ofAdvent.

3.10 ASX Listing Rule approval

(a) ASX Listing Rule 7.1

ASX Listing Rule 7.2, Exception 16 provides that if an issue of securities is approved for the purposes of item 7 of section 611 of the Corporations Act, ASX Listing Rules 7.1 and 7.1A do not apply. Accordingly, the Company is not required to seek approval of the issue of the Consideration Shares to Advent under either ASX Listing Rule 7.1 or 7.1A.

(b) ASX Listing Rules 11.1.2 and 11.1.3

On 10 August 2017, the Company sought confirmation from the ASX as to the application of ASX Listing Rules 11.1. 2 and 11.1.3 to the issue of the Consideration Shares to Advent.

On 12 September 2017, the ASX confirmed that, based solely on the information provided to it, ASX Listing Rules 11.1.1, 11.1.2 and 11.1.3 do not apply to the acquisition of the Sale Shares or issue of the Consideration Shares to Advent.

3.11 Current and proposed interests in the Company

The table below shows the percentage of the Shares that Advent hold, and the voting power of Advent as at the date of this Notice of Meeting, being prior to the issue of the Consideration Shares pursuant to the Share Sale Agreement:

	Number of Sharesheld	Percentage of Sharesheld	Percentage of votingpower held
ExistingShareholders	241,771,819	100%	100%
Advent	0	0%	0%
Total	241,771,819	100%	100%

If the Company issues the Consideration Shares to Advent in accordance with the terms of the Share Sale Agreement then, again noting that this will occur simultaneously with the issue of Shares under the Rights Issue, immediately after the issue of the Consideration Shares and the issue of Shares under the Rights Issue, the percentage of the Shares held by Advent, and the voting power of Advent, will be as follows:

	Number of Sharesheld	Percentage of Sharesheld	Percentage of votingpower held
ExistingShareholders2	402,953,0323	71.8%	71.8%
Advent	145,925,090	26.0%	26.0%
Other Vendors	12,495,934	2.2%	2.2%
Total	561,374,056	100%	100%

3.12 Effect of the acquisition of IPG

The Independent Expert's Report contains details of the financial performance and financial position of IPG.

The expected effect of the acquisition of IPG on the consolidated financial position and performance of the Company is set out in the pro forma balance sheet and FY18 forecast profit and loss statement respectively contained in section 4.

3.13 Independent Expert's Report

In accordance with the requirements of RG 74, the Directors engaged the Independent Expert to prepare and provide the Independent Expert's Report which contains an analysis of whether the proposed issue of the Consideration Shares is fair and reasonable to the non-associated Shareholders.

The Independent Expert's report compares the likely advantages and disadvantages for the nonassociated Shareholders if the proposal is agreed to, with the advantages and disadvantages to those Shareholders if it is not.

The Independent Expert has concluded that the proposed issue of the Consideration Shares to Advent is not fair but reasonable to the non-associated Shareholders. The Independent Expert considers that the advantages of the issue of the Consideration Shares to Advent clearly outweigh its disadvantages. For a summary of the Independent Expert's findings, please refer to the Independent Expert's Report.

The Independent Expert has given, and has not before the date of this Notice of Meeting withdrawn, its consent to the inclusion of the Independent Expert's Report in this Notice of Meeting and to the references to the Independent Expert's Report in this Explanatory Memorandum being made in the form and context in which each such reference is included.

3.14 Advantages and disadvantages

The Board is of the opinion that the benefits of the issue of the Consideration Shares proposed to be undertaken by the Company may include that:

• (a) it will enable completion by the Company of the acquisition of IPG. The Board is of the opinion that the benefits of the acquisition of IPG by the Company may include that:
  • (i) the acquisition of IPG will enable the Company to become a leading player in the Australian flexible packaging segment. The Company and IPG are highly complementary and the acquisition delivers a scaleable platform for future growth (both organic and through further acquisitions). The acquisition of IPG will position the Company to capitalise on the growing flexibles market;
  • (ii) the combination of the Company and IPG's distribution and manufacturing capabilities, and complementary blue chip and SME customers, will enable the

2 This will include the underwriter and sub-underwriters of the Rights Issue in the event that the existing Shareholders do not take up their full entitlement under the Rights Issue.

3 The number of Shares issued under the Rights Issue is subject to Share Registry cut off and rounding of individual accounts.

Company to deliver a highly efficient and seamless packaging system. Both the Company and IPG have diversified stable customer bases with no material crossover, resulting in a significantly diversified combined customer base of blue chip customers, with no customer contributing more than 4% of total revenue, as set out on page 14 of the Investor Presentation;

• (iii) following the acquisition of IPG by the Company, the combined group will be a segment leader in secondary (shrink wrap) and tertiary (stretch wrap) industrial packaging solutions, and a leading distributor and manufacturer of other packaging and industrial products. The acquisition of IPG will position the Company to capitalise on the growing flexibles market, underpinned by favourable consumer trends;
• (iv) as detailed in section 4 and on page 20 of the Investor Presentation, the Company's forecast EBITDA for FY18 increases from $14.5 million to $37.7 million (+160%)4, 5 on a Combined Group pro-forma basis (inclusive of synergies). The Company anticipates that significant cost and revenue synergies are achievable as a result of the acquisition of IPG, of which $2.0m are identifiable, near-term and included in the pro-forma forecasts in the Investor Presentation; and
• (v) further, as detailed in section 4 and on page 20 of the Investor Presentation, the acquisition of IPG is EPS accretive. EPS is expected to increase from 2.8cps for the Company to 3.3cps for the Combined Group (+18%),

all of which are expected to benefit the Company's Shareholders. Further advantages of the acquisition are contained in the Investor Presentation;

• (b) the issue of the Consideration Shares as part consideration for the acquisition of the Sale Shares is intended to give Advent a vested interest in the ongoing success of the Company, for the benefit of its Shareholders, following the Company's acquisition of IPG;
• (c) Advent are supportive of the Company's management and its current operating plan. As mentioned above, Advent will not be acquiring a controlling interest in the Company but in any event Advent do not have any present intention to change the Company's business as conducted by the current management; and
• (d) the Company has obtained the commitment of its major shareholders Bennamon Pty Limited, which holds 123,792,007 Shares (51.2%) and Brandon Penn who holds 24,958,817 Shares (10.32%) at the date of this Notice of Meeting – to vote in favour of the issue of the Consideration Shares to Advent at the General Meeting, in the absence of a superior proposal.

Potential disadvantages of the issue of the Consideration Shares include that:

• (e) Shareholders' interests in the Company will be diluted. However, the Directors consider that any dilution of Shareholders' interests will be offset by the immediate benefits of the long-term association of Advent and the dilution of the major Shareholder of the Company;
• (f) following the issue of the Consideration Shares, Advent will hold a relevant interest in the Company of 26.0%. Advent will also be able to appoint a representative director to the Board. This will place Advent in a position of some influence where Advent may be able to obstruct the decisions and operations of the Company. Advent has confirmed to the Company that it does not have a current intention to obstruct the decisions and operations of the Company;
• (g) you may not agree with the recommendation by the Directors and the Independent Expert. Notwithstanding the unanimous recommendation of the Directors and the Independent Expert's opinion that the acquisition of IPG is not fair but reasonable, you may believe the

4 Pro-forma earnings excluding the timing impact of gains relating to capital investments.

5 Inclusive of $2.0m in near term pre-tax synergies, tax effected at the NPAT line.

acquisition of IPG is not fair or reasonable, or otherwise not in your best interest or in the best interests of Shareholders;

• (h) the Company may be less attractive as a takeover target. Any bidder for the Combined Group under a takeover proposal would require Advent to support their bid in order to be successful. This may be a deterrent to future bidders. However, the Directors note that Bennamon's existing 51.2% shareholding is already sufficient to block a takeover bid seeking more than 50% of the Company and for all practical purposes may already be sufficient to prevent a bidder from acquiring 100% of the Company by takeover or scheme of arrangement; and
• (i) you may want to maintain your current investment profile. While the Company and IPG are both involved in the packaging industry, the profile, capital structure and size of the Combined Group will be different from that of the Company as it currently stands. Some Shareholders may prefer that the acquisition of IPG not occur because they are seeking an investment in a listed company with the specific characteristics, investment focus and scale of the Company as it currently stands.

Further advantages and disadvantages as determined by the Independent Expert are set out on page 47 of the Independent Expert's Report.

3.15 Interests of the Directors

None of the Directors is a related party or Associate of Advent. Therefore none of the Directors has any particular interest in this Resolution.

Name of Director	Number ofShares held	Percentage ofvoting powerheld	Number ofOptions	Percentage ofvoting powerheld (if Optionsare exercised)
Mr Ahmed Fahour	10,674,153	4.41%	0	0%
Mr Elliott Kaplan	266,357	0.11%	0	0%
Mr Brandon Penn	24,958,817	10.32%	0	0%
Dr Gary Weiss	300,000	0.12%	0	0%

As at the date of this Notice of Meeting, the Directors have the following voting power:

Notwithstanding the Rights Issue, no Director's voting power is expected to materially change between the date of this Notice of Meeting and the General Meeting.

3.16 Recommendation of the Directors

The Directors unanimously approve the proposal to put the Resolution to Shareholders for their approval.

The Board has carefully considered the advantages and disadvantages and evaluated their relative weight in the circumstances of the Company. The Board unanimously believes that the sum of the advantages outweighs the sum of the disadvantages and that the issue of the Consideration Shares to Advent is in the best interests of existing Shareholders as a whole for the reasons set out in this Explanatory Memorandum and the Independent Expert's Report.

The Directors unanimously recommend that Shareholders vote in favour of the Resolution.

The Directors advise that each of them proposes to vote in favour of the Resolution.

3.17 Further information

If you have any questions or need more information about the Resolution, please contact the Company Secretary, Mark Saus, at the Company on (02) 8781 0500.

4 Pro Forma Balance Sheet and Pro Forma Profit and Loss Forecast

4.1 Pro Forma Balance Sheet

A consolidated pro-forma balance sheet (Balance Sheet) is set out below to demonstrate the financial position of the Company assuming completion of the acquisition of the Sale Shares from the Vendors occurs.

Pro forma Balance Sheet for the period ending 30 June 2017
	Companystandalone1	IPG2	Pro-formaadjustments3	Combined Group
Cash & equivalents	$12.3m		$1.3m	$13.6m
Trade & other receivables	$37.7m	$38.0m		$75.8m
Inventories	$35.1m	$55.9m		$91.0m
PPE	$15.2m	$18.5m		$33.7m
Intangibles	$71.3m		$111.3m	$182.6m
Other	$8.4m	$1.9m		$10.3m
Total assets	$179.9m	$114.4m	$112.6m	$406.9m
Trade & other payables	$31.4m	$41.4m		$72.8m
Borrowings	$29.0m		$70.0m	$99.0m
Other	$5.8m	$6.8m		$12.6m
Total Liabilities	$66.3m	$48.2m	$70.0m	$184.4m
Net assets	$113.7m	$66.2m	$42.6m	$222.5m
Net Debt	$16.8m			$85.5m

Notes:

The Balance Sheet has been prepared on the following basis:

• 1. the starting position of the Company is a summarised version of the Company's balance sheet as at 30 June 2017 as set out in its Preliminary Final Report lodged with the ASX (Appendix 4E);
• 1. the starting position of IPG is derived from the unaudited management accounts of IPG as at 30 June 2017, reflecting the assets and liabilities to be acquired (on a cash free and debt free basis);
• 1. following completion of the Share Sale Agreement, the Company will undertake a formal purchase price allocation; and

1. the proposed acquisition of the Sale Shares is completed on the terms outlined in this Notice of Meeting.

4.2 Pro Forma Forecast Profit and Loss Statement

A consolidated pro-forma forecast FY18 profit and loss statement (FY18 P&L Forecast) is set out below to demonstrate the FY18 forecast financial performance of the Company assuming completion of the acquisition of the Sale Shares from the Vendors occurs.

Forecast pro forma Profit and Loss for the period ending 30 June 2018
	Companystandalone	IPG	Pro-formaadjustments	Combined Group
Revenue	$251m	$221m		$472m
EBITDA	$14.5m1	$21.2m1, 2	$2.0m3	$37.7m
D&A	($3.5m)	$(3.0m)		($6.4m)
EBIT	$11.1m	$18.2m	$2.0m	$31.3m
Net Interest expense	($1.4m)		($3.6m) 4	($5.0m)
PBT	$9.6m			$26.3m
Tax expense	($2.9m)			($7.9m)
NPAT	$6.7m			$18.4m
EBITDA % Sales	5.8%	9.6%		8.0%
Shares on Issue	241.8 m		319.6m	561.4m
Basic EPS	2.8 cents5			3.3 cents
EPS accretion				18%

Notes:

The FY18 P&L Forecast has been prepared on the following basis:

1. the Company's pro forma adjusted forecast FY18 EBITDA of $14.5 million, and IPG's pro forma adjusted forecast FY18 EBITDA of $21.2 million, have been determined on the following basis:

Pro forma Consolidated Group EBITDA – actual FY17 to forecast FY18
	Company	IPG	Synergies	CombinedGroup	Notes
FY17A pro formaadjusted EBITDA	$12.2m	$18.1m	-	$30.3m	The starting position of the Company isderived from the profit and loss statementof the Company as at 30 June 2017 as setout in its Preliminary Final Report lodgedwith the ASX (Appendix 4E). The starting

					position of IPG is derived from theunaudited management accounts of IPGas at 30 June 2017.
Industrial division	$4.9m	-	-	$4.9m	Forecast gross margin improvement fromthe Industrial division driven by continuedgrowth in sales to key customers, andfurther implementation of an onlinemarketing initiative.
Rigid division	$1.3m	-	-	$1.3m	Forecast gross margin improvement fromthe Rigid division driven by volumeincreases with existing key customers.
Admin and finance	($1.4m)	-	-	($1.4m)	Increase in admin and finance costs(excluding one-offs) driven by annualremuneration reviews, and additionalinformation technology and new businessdevelopment resources.
Distribution	($0.7m)	-	-	($0.7m)	Additional distribution costs driven by theforecast sales growth.
Sales and marketing	($1.3m)	-	-	($1.3m)	Additional marketing costs required todeliver the forecast improvement in grossmargin.
Occupancy andother	($0.5m)	-	-	($0.5m)	Higher occupancy costs due to therelocation of the Rigid Divisions, NewSouth Wales distribution centre andrelated increase in electricity and outgoingcosts.
Gains arising fromcapex initiatives	-	$2.1m	-	$2.1m	IPG has committed to the purchase andinstallation of two significant pieces ofcapital equipment, both of which areassumed to positively contribute toearnings via efficiency gains (reduced setup time, faster speed runs, reducinglabour and material waste).
Increased volumesfrom key customers	-	$1.0m	-	$1.0m	Represents the gross margin impact of theforecast uplift in volumes from keycustomers
Synergies	-	-	$2.0m	$2.0m	Combined Group synergies primarilycomprising improved resin procurementpricing, and operational savings from thereduction in group buying costs resultingfrom increased combined volumes.
FY18F pro formaadjusted EBITDA	$14.5m	$21.2m	$2.0m	$37.7m

• 1. IPG's pro-forma EBITDA recognises certain delays in the implementation of the capital expenditure required to deliver the forecast gains but excludes the impact of potential further delays;
• 1. a pro forma adjustment of $2.0 million is made in relation to the forecast Combined Group for near term pre-tax synergies, primarily comprising improved resin procurement pricing, and operational savings from the reduction in Combined Group buying costs resulting from increased combined volumes
• 1. a pro forma adjustment of $3.6m is made in relation to the incremental interest on debt drawn for the acquisition of the Sale Shares, and Shares issued to the Vendors as consideration for the acquisition of the Sale Shares and the Rights Issue;
• 1. basic EPS is calculated on the Company's Shares on issue as at 6 September 2017; and
• 1. the proposed acquisition of the Sale Shares is completed on the terms outlined in this Notice of Meeting.

4.3 Disclaimer

The Balance Sheet and FY18 P&L Forecast are presented in an abbreviated form as a guide and do not contain all of the disclosures that are usually provided in an annual report prepared in accordance with the Australian Accounting Standards and the Corporations Act.

You are cautioned not to place undue reliance on the Balance Sheet or FY18 P&L Forecast. While due care and attention has been used in the preparation of the Balance Sheet and FY18 P&L Forecast, and the forward looking statements, opinions, assumptions and estimates contained in this Section 4, these are based on assumptions and contingencies which are subject to change without notice.

5 Glossary

In this Notice of Meeting, unless the context or subject matter otherwise requires:

Advent	APC I Pty Ltd in its capacity as trustee of the Advent V Trust A and APC IIPty Ltd in its capacity as trustee of the Advent V Trust B.
ASIC	Australian Securities and Investments Commission.
Associate	Has the meaning given to that term in Part 1.2, Division 2 of theCorporations Act.
ASX	ASX Limited (ACN 008 624 691) or the stock exchange which it operates,as the context requires.
ASX Listing Rules	The official Listing Rules of the ASX.
Auditors	The auditors of the Company.
Balance Sheet	The pro forma consolidated balance sheet of the Company assumingcompletion of the acquisition of IPG.
Board	The board of Directors.
Combined Group	The Company and its subsidiaries and IPG and its subsidiaries.
Company or PPG	Pro-Pac Packaging Limited (ABN 36 112 971 874).
Consideration Shares	145,925,090 Shares to be issued to Advent.
Constitution	The constitution of the Company.
Corporations Act	Corporations Act 2001 (Cth) as amended from time to time.
Corporations Regulations	Corporations Regulations 2001 (Cth) as amended from time to time.
Directors	The directors of the Company.
EBITDA	Earnings before income, tax, depreciation and amortisation.
EPS	Earnings per share.
Explanatory Notes	The explanatory notes accompanying the Notice of Meeting.
FY17	The financial year ending 30 June 2017.
FY18	The financial year ending 30 June 2018.
FY18 P&L Forecast	The pro forma forecast profit and loss statement of the Company for FY18assuming completion of the acquisition of IPG.
General Meeting	The extraordinary general meeting of the Company to be held at the timeand place specified in the Notice of Meeting.
Independent Expert	Lonergan Edwards & Associates.
Independent Expert'sReport	The expert report prepared by the Independent Expert and attached assection 6 of this document.
Investor Presentation	The investor presentation titled 'Acquisition of Integrated PackagingGroup' dated 11 September 2017.
IPG	Integrated Packaging Group Pty Ltd (ACN 132 697 664).
Notice of Meeting	This document, comprising the Director's letter, notice of meeting andexplanatory notes.
Offer Price	The issue price per Consideration Share calculated by reference to theSSA VWAP.

Other Vendors	John Joseph Cerini, Patsy Seow Lee Ch'ng, Robert Bruce Archibald andDavid John Jesaveluk.
Resolution	The resolution to be considered by Shareholders at the ExtraordinaryGeneral Meeting, as set out in this Notice of Meeting.
RG 74	ASIC Regulatory Guide 74.
Rights Issue	The non-renounceable, pro-rata 2 for 3 rights issue to existingShareholders of the Company who are eligible to participate in the rightsissue to be undertaken by the Company.
Sale Shares	100% of the issued share capital in IPG.
Share Sale Agreement	The share sale agreement dated 8 September 2017 between theCompany and the Vendors in relation to the acquisition of the Sale Sharesby the Company.
Shareholder	Holder of Shares.
Shares	Ordinary shares in the capital of the Company.
SSA VWAP	The average of the daily volume weighted average price of the Shares
	traded on ASX during 30 trading days ending on the last trading day priorto signing of the Share Sale Agreement, but excluding any 'Crossing'transacted outside the 'Open Session State' or any 'Special Crossing'transacted at any time, each as defined in the official operating rules ofASX, or any overseas trades or trades pursuant to the exercise of optionsover the Shares. If the Company declares a dividend with a record dateprior to completion of the Share Sale Agreement, the SSA VWAP will bereduced by an amount equal to the dividend per share in the Companydeclared.
Underwriter	Bell Potter Securities Limited (ACN 006 390 772).
Underwriting Agreement	The underwriting agreement dated 8 September 2017 between theCompany and the Underwriter in relation to the underwriting of the RightsIssue.
Vendors	Advent and the Other Vendors.

6 Independent Expert's Report

The Directors Pro-Pac Packaging Limited Building 1, 147-151 Newton Road Wetherill Park NSW 2164

11 September 2017

Subject: Acquisition of Integrated Packaging Group Limited

Dear Directors

Proposed Transaction

• 1 On 11 September 2017, Pro-Pac Packaging Limited (Pro-Pac) announced that:
  • (a) it had entered into an agreement to acquire Integrated Packaging Group Pty Limited (IPG) for $177.5 million
  • (b) the consideration to be paid for IPG would comprise:
    • (i) $117.5 million in cash; plus
    • (ii) the issue of 158.4 million Pro-Pac shares to funds managed by Advent Partners Pty Ltd (Advent) and IPG management1 at a price of $0.379 per Pro-Pac share (i.e. some $60 million in Pro-Pac shares) (Share Issue)
  • (c) it would undertake a fully underwritten 2 for 3 non-renounceable entitlement offer at $0.34 per Pro-Pac share to raise $54.8 million before transaction costs (Entitlement Offer)

(collectively, the Proposed Transaction).

• 2 The purchase price for IPG of $177.5 million is on a cash and debt free basis, and is subject to customary adjustments for working capital and net debt. To fund the balance of the purchase price and transaction costs, Pro-Pac will also borrow an additional $70 million.
• 3 The Proposed Transaction is subject to a number of conditions, including the approval of Pro-Pac shareholders.
• 4 Pro-Pac has obtained the commitment of Bennamon Pty Limited (Bennamon) (which holds 51.2% of Pro-Pac) and Brandon Penn (who holds 10.32% of Pro-Pac) to vote in favour of the Share Issue in the absence of a superior proposal. Bennamon has also committed to take up

1 The vendors of IPG.

its pro-rata rights entitlement in the Entitlement Offer (being an amount of some $28.1 million).

Pro-Pac

5 Pro-Pac is an Australian diversified manufacturing and distribution company that provides innovative, flexible and rigid packaging solutions to more than 10,000 customers in Australia. The Company operates nationally with a focus on the industrial, food and beverage, healthcare and pharmaceutical industries.

IPG

6 IPG is one of the largest specialist manufacturers and distributors of stretch film wrap and associated equipment in Australia. The company operates nationally across Australia with a focus on the industrial, fast moving consumer goods (FMCG), logistics, agricultural and horticultural segments and has distribution networks spanning Australia, New Zealand and Canada.

Scope

• 7 Section 606 of the Corporations Act 2001 (Cth) (Corporations Act) generally prohibits the acquisition of a relevant interest in issued voting securities of an entity if the acquisition results in a person's voting power in a company increasing from below 20% to more than 20%, or from a starting point between 20% and 90%, unless a permissible exception applies2. A permissible exception to this general prohibition is set out in s611(7), whereby such an acquisition is allowed where the acquisition is approved by a resolution of securityholders of the entity at a general meeting and no votes are cast in respect of securities held by the acquirer, the vendor (where applicable) or any of their respective associates.
• 8 If the Proposed Transaction is approved and all conditions are satisfied, the Share Issue will result in Advent acquiring voting power in Pro-Pac of more than 20%. Accordingly, there is a regulatory requirement for Pro-Pac to commission an independent expert's report (IER) to approve the Share Issue.
• 9 Consequently, the Directors of Pro-Pac have requested that Lonergan Edwards & Associates Limited (LEA) prepare an IER setting out our opinion on whether the Proposed Transaction (including the Share Issue3) is fair and reasonable to Pro-Pac shareholders.
• 10 LEA is independent of Pro-Pac and IPG and has no involvement with or interest in the outcome of the Proposed Transaction other than the preparation of this report.

Summary of opinion

11 LEA has concluded that the Proposed Transaction is not fair, but is reasonable to Pro-Pac shareholders. We have arrived at this conclusion for the reasons set out below.

Assessment of fairness

12 Australian Securities & Investments Commission (ASIC) Regulatory Guide 111 – Content of expert reports (RG 111) requires that the fairness of the Proposed Transaction be assessed by comparing the controlling interest value of Pro-Pac shares prior to implementation of the

2 Subject to the 3% every six months "creep provisions".

3 The Share Issue is an integral part of the Proposed Transaction.

Proposed Transaction with the portfolio interest value of Pro-Pac shares following implementation (being the deemed "consideration" delivered to Pro-Pac shareholders). In order for the Proposed Transaction to be "fair" under RG 111, the portfolio interest value of Pro-Pac shares following implementation of the Proposed Transaction must be equal to, or greater than, the controlling interest value of Pro-Pac shares before implementation.

13 This comparison is set out below:

Low$ pershare	High$ pershare	Mid-point$ pershare
0.28	0.32	0.30
		0.34
(0.04)	(0.04)	(0.04)
	0.32	0.36

14 Based on the above we have concluded that the Proposed Transaction is not fair to Pro-Pac shareholders when assessed under RG 111.

Reasonableness

• 15 Under RG 111, the Proposed Transaction is "reasonable" if, despite not being fair but after considering other significant factors, the expert is of the opinion that the advantages of the Proposed Transaction outweigh the disadvantages from the perspective of Pro-Pac shareholders.
• 16 Consequently, we summarise below the advantages and disadvantages of the Proposed Transaction from the perspective of Pro-Pac shareholders:

Advantages

• (a) the Proposed Transaction is value accretive for Pro-Pac shareholders based on our comparison of the minority interest value of Pro-Pac shares before and after the Proposed Transaction
• (b) the Share Issue to the vendors and management of IPG is being priced at $0.379 per share, which is a premium to our controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction (of $0.32 to $0.36 per share)
• (c) the price at which shares will be issued under the Entitlement Offer of $0.34 per share (which is fully underwritten) is consistent with our controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction
• (d) Pro-Pac will become significantly larger, its operations will be more diverse and its growth prospects will be enhanced. In our view, this is likely to lead to a higher share value in the medium to long term

(e) the level of share trading in Pro-Pac shares prior to the announcement of the Proposed Transaction has been very low. As a result of (d) above and the Entitlement Offer, we consider that there are reasonable grounds to expect that the level of trading in Pro-Pac shares post implementation of the Proposed Transaction will increase

Disadvantages

• (f) the interests of Pro-Pac shareholders not associated with IPG will be diluted if the Proposed Transaction is approved
• (g) the Proposed Transaction significantly increases the gearing ratio of the Company
• (h) prima facie, the prospects of a future takeover offer are diminished if the Proposed Transaction is approved as Advent will be in a position to block any future takeover due to the Share Issue.
• 17 As indicated above there are a number of advantages and disadvantages associated with the Proposed Transaction. However, in our view, the advantages of the Proposed Transaction significantly outweigh the disadvantages.

Other matters

18 As noted above, Pro-Pac proposes to partially fund the acquisition of IPG through the Entitlement Offer. Whilst this report includes our opinion on the value of Pro-Pac shares, it does so for the sole purpose of determining our opinion on whether the Proposed Transaction is fair and reasonable to Pro-Pac shareholders. Accordingly, this report does not provide a recommendation to Pro-Pac shareholders in relation to their participation in the Entitlement Offer. Pro-Pac shareholders who wish to acquire more Pro-Pac shares in the Entitlement Offer must therefore form their own view as to their value and should have regard to, inter alia, their risk profile, liquidity preference and expectations as to value and future stock market conditions.

General

• 19 In preparing this report we have considered the interests of Pro-Pac shareholders as a whole. Accordingly, this report only contains general financial advice and does not consider the personal objectives, financial situations or requirements of individual shareholders.
• 20 The ultimate decision whether to approve the Proposed Transaction should be based on each Pro-Pac shareholder's assessment of their own circumstances. If Pro-Pac shareholders are in doubt about the action they should take in relation to the Proposed Transaction or matters dealt with in this report, Pro-Pac shareholders should seek independent professional advice.
• 21 For our full opinion on the Proposed Transaction, and the reasoning behind our opinion, we recommend that Pro-Pac shareholders read the remainder of our report.

Yours faithfully

Craig Edwards Martin Holt Authorised Representative Authorised Representative

Table of contents

Section		Page
I	The Proposed Transaction	7
	Key terms	7
	Escrow restrictions	7
	Conditions	8
II	Scope of our report	9
	Purpose	9
	Basis of assessment	9
	Limitations and reliance on information	10
III	Profile of Pro-Pac	12
	Overview	12
	History	12
	Current operations	13
	Financial performance	14
	Financial position	15
	Share capital and performance	17
IV	Profile of IPG	19
	Overview	19
	History	19
	Current operations	19
	Financial performance	22
	Financial position	23
V	Valuation methodology	24
	Valuation approaches	24
	Methodologies selected	25
	Value of IPG	25
	Value of Pro-Pac after Proposed Transaction	26
VI	Valuation of Pro-Pac before the Proposed Transaction	27
	Assessment of normalised EBITDA	27
	EBITDA multiple	28
	Enterprise value	32
	Surplus assets	32
	Net debt	32
	Value of Pro-PacImplied EBITA and PE multiples	3232

Section		Page
VII	Valuation of IPG	34
	Background	34
	Earnings	34
	Implied earnings multiples	36
	Conclusion	38
VIII	Synergies	39
	Overview	39
	Valuation	39
IX	Valuation of Pro-Pac shares after Proposed Transaction	41
	Methodology	41
	Minority interest value	41
	Cross-check based on implied EBITDA multiple	42
X	Evaluation of the Proposed Transaction	44
	Assessment of fairness	44
	Assessment of reasonableness	44
	Conclusion	47

Appendices

A	Financial Services Guide
B	Qualifications, declarations and consents
C	Listed company multiples
D	Glossary

I The Proposed Transaction

Key terms

• 22 On 11 September 2017, Pro-Pac Packing Limited (Pro-Pac) announced that:
  • (a) it had entered into an agreement to acquire Integrated Packaging Group Pty Limited (IPG) for $177.5 million
  • (b) the consideration to be paid for IPG would comprise:
    • (i) $117.5 million in cash; plus
    • (ii) the issue of 158.4 million Pro-Pac shares to funds managed by Advent Partners Pty Ltd (Advent) and IPG management4 at a price of $0.379 per Pro-Pac share (i.e. some $60 million in Pro-Pac shares) (Share Issue)
  • (c) it would undertake a fully underwritten 2 for 3 non-renounceable entitlement offer at $0.34 per Pro-Pac share to raise $54.8 million before transaction costs (Entitlement Offer)

(collectively, the Proposed Transaction).

• 23 The purchase price for IPG of $177.5 million is on a cash and debt free basis, and is subject to customary adjustments for working capital and net debt. To fund the balance of the purchase price and transaction costs, Pro-Pac will also borrow an additional $70 million.
• 24 A summary of the sources and uses of funds raised in connection with the Proposed Transaction is set out below:

Proposed Transaction – sources and uses of funds raised
Sources	$m	Uses	$m
Share issue	60.0	Acquisition of IPG	177.5
Entitlement Offer	54.8	Transaction costs	6.0
Debt facility	70.0	Additional working capital	1.3
Total	184.8	Total	184.8

Escrow restrictions

• 25 The shares to be issued to Advent and IPG management (i.e. the Share Issue) are to be escrowed until the earlier of:
  • (a) the date on which the FY19 financial results are announced to the ASX; and
  • (b) the date which is two years after the date the Escrowed Shares are issued

(the Escrow Period).

4 The vendors of IPG.

• 26 However, during the Escrow Period, Advent and IPG management may deal with up to 50% of its Escrowed Shares at any time after the ASX announcement of the FY18 financial results if:
  • (a) the EBITDA announced in the FY18 financial results is equal to or exceeds $37.7 million; and
  • (b) the volume weighted average price (VWAP) of Pro-Pac shares, adjusting for any capital restructure, over the 30 trading day period ending on any trading day after the announcement of the FY18 financial results and before all of the Escrowed Shares held by Advent and IPG management have been dealt with exceeds the Initial Price (as defined in the Voluntary Escrow Deed) by 20% or more.
• 27 Further, Advent and IPG management may deal with up to 100% of their escrowed shares at any time after the FY18 financial results are released to the ASX if the 90 day VWAP of Pro-Pac shares after the announcement of the FY18 financial results exceeds the Initial Price by 40% or more.

Conditions

• 28 The Proposed Transaction is subject to:
  • (a) Pro-Pac receiving shareholder approval for the Share Issue
  • (b) Pro-Pac completing an equity raising of $54.8 million under the Entitlement Offer
  • (c) Pro-Pac procuring a W&I Policy on terms acceptable to Pro-Pac, Advent and IPG management
  • (d) the conditions under a new ANZ debt facility being satisfied by Pro-Pac.
• 29 More detail on the above conditions is set out in the Notice of Meeting.

II Scope of our report

Purpose

• 30 Section 606 of the Corporations Act 2001 (Cth) (Corporations Act) generally prohibits the acquisition of a relevant interest in issued voting securities of an entity if the acquisition results in a person's voting power in a company increasing from below 20% to more than 20%, or from a starting point between 20% and 90%, unless a permissible exception applies5. A permissible exception to this general prohibition is set out in s611(7), whereby such an acquisition is allowed where the acquisition is approved by a resolution of securityholders of the entity at a general meeting and no votes are cast in respect of securities held by the acquirer, the vendor (where applicable) or any of their respective associates.
• 31 Section 611(7) of the Corporations Act and ASIC Regulatory Guide 74 Acquisitions approved by members (RG 74) prescribe certain requirements for the information to be provided to shareholders in relation to such resolutions. These requirements include the provision of an IER.
• 32 If the Proposed Transaction is approved and all conditions are satisfied, the Share Issue will result in Advent acquiring voting power in Pro-Pac of more than 20%. Accordingly, there is a regulatory requirement for Pro-Pac to commission an IER to approve the Share Issue.
• 33 Consequently, the Directors of Pro-Pac have requested that LEA prepare an IER setting out our opinion on whether the Proposed Transaction (including the Share Issue) is fair and reasonable to Pro-Pac shareholders.
• 34 This report has been prepared to assist the Directors of Pro-Pac in making their recommendation to Pro-Pac shareholders, and to assist these shareholders in assessing the merits of the Proposed Transaction.
• 35 Our report should not be used for any other purpose or by any other party. The ultimate decision whether to approve the Proposed Transaction should be based on each shareholder's assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If in doubt about the Proposed Transaction or matters dealt with in this report, Pro-Pac shareholders should seek independent professional advice.

Basis of assessment

• 36 In preparing our report, we have had regard to the Australian Securities Exchange (ASX) Listing Rules and Regulatory Guides issued by ASIC, particularly RG 111. RG 111 sets out (inter alia) the view of ASIC on the content of expert reports prepared for the purpose of seeking approval under s611(7) of the Corporations Act.
• 37 Under RG 111 the Proposed Transaction is deemed a "change of control" transaction because Advent will acquire a greater than 20% voting interest in Pro-Pac. As a consequence, RG 111 states that the Proposed Transaction must be analysed as if it were a takeover bid under Chapter 6 of the Corporations Act. Accordingly, the expert is required to assess the

5 Subject to the 3% every six months "creep provisions".

transaction in terms of the convention established for takeovers pursuant to s640 of the Corporations Act.

• 38 As the Proposed Transaction does not involve any takeover offer being made to Pro-Pac shareholders, RG 111 requires that the fairness of the Proposed Transaction be assessed by comparing the controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction with the portfolio value of Pro-Pac shares following implementation (being the deemed "consideration" delivered to Pro-Pac shareholders). In order for the Proposed Transaction to be "fair" under RG 111, the portfolio value of Pro-Pac shares following implementation of the Proposed Transaction must be equal to, or greater than, the controlling interest value of Pro-Pac shares before implementation.
• 39 The Proposed Transaction will be "reasonable" if it is "fair". In addition, the Proposed Transaction will be "reasonable" if, despite not being fair but after considering other significant factors, the expert is of the opinion that the advantages of the Proposed Transaction outweigh the disadvantages from the perspective of Pro-Pac shareholders.
• 40 Our report has therefore considered a range of both qualitative and quantitative factors including:
  • (a) the controlling interest value of 100% of Pro-Pac shares prior to implementing the Proposed Transaction
  • (b) the portfolio value of Pro-Pac shares following implementation of the Proposed Transaction (which also incorporates the value of IPG and related synergies)
  • (c) the difference between (a) and (b) in order to assess whether the Proposed Transaction is fair to Pro-Pac shareholders pursuant to RG 111
  • (d) the extent to which Advent and IPG management are being issued shares at a premium to the value in (a)
  • (e) the impact of the Proposed Transaction on the ownership and control of Pro-Pac
  • (f) the relevant position of Pro-Pac shareholders before and after implementation of the Proposed Transaction assessed on a consistent basis (i.e. by comparing the portfolio value before implementation with the portfolio value afterwards); and
  • (g) other qualitative and strategic issues associated with the Proposed Transaction and the extent to which, on balance, they may advantage or disadvantage existing Pro-Pac shareholders if the Proposed Transaction proceeds or is rejected.

Limitations and reliance on information

• 41 Our opinions are based on the economic, sharemarket, financial and other conditions and expectations prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.
• 42 Our report is also based upon financial and other information provided by or on behalf of Pro-Pac. We understand the accounting and other financial information that was provided to us has been prepared in accordance with the Australian equivalents to International Financial Reporting Standards. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld.

• 43 The information provided was evaluated through analysis, enquiry and review to the extent considered appropriate for the purpose of forming an opinion on the Proposed Transaction from the perspective of Pro-Pac shareholders. However, we do not warrant that our enquiries have identified or verified all of the matters which an audit, extensive examination or "due diligence" investigation might disclose. Whilst LEA has made what it considers to be appropriate enquiries for the purpose of forming its opinion, "due diligence" of the type undertaken by companies and their advisers in relation to (for example) prospectuses or profit forecasts is beyond the scope of an IER6.
• 44 Accordingly, this report and the opinions expressed therein should be considered more in the nature of an overall review of the anticipated commercial and financial implications of the proposed transaction, rather than a comprehensive audit or investigation of detailed matters. Further, this report and the opinions therein, must be considered as a whole. Selecting specific sections or opinions without context or considering all factors together, could create a misleading or incorrect view or opinion. This report is a result of a complex valuation process that does not lend itself to a partial analysis or summary.
• 45 An important part of the information base used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management of the relevant companies. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation.
• 46 We in no way guarantee the achievability of budgets or forecasts of future profits. Budgets and forecasts are inherently uncertain. They are predictions by management of future events which cannot be assured and are necessarily based on assumptions of future events, many of which are beyond the control of management. Actual results may vary significantly from forecasts and budgets with consequential valuation impacts.
• 47 In forming our opinion, we have also assumed that:
  • (a) the information set out in the Notice of Meeting is complete, accurate and fairly presented in all material respects
  • (b) if the Proposed Transaction becomes legally effective, it will be implemented in accordance with the terms set out in this report.

6 Pro-Pac management commissioned separate independent due diligence advice from a major international accounting firm in connection with the Proposed Transaction.

III Profile of Pro-Pac

Overview

48 Pro-Pac is an Australian diversified manufacturing and distribution company that provides innovative, flexible and rigid packaging solutions to more than 8,000 customers. The Company operates nationally with a focus on the industrial, food and beverage, healthcare and pharmaceutical industries.

History

49 Pro-Pac was established in 1987 with an initial focus on the manufacture of flowable void-fill packaging products. It was listed on the ASX on 27 April 2005 and since that date has grown significantly, both organically and through acquisitions of complementary businesses. A summary of the Company's key acquisitions7 since listing is set out below:

	Pro-Pac – key acquisitions
Date	Acquisition	Business overview
Jul 07	Plastic Bottles	Manufacturing, importation and distribution of protectivepackaging products including bottles, closures, drums andcontainers
Nov 08	Fastway Industrial Products	Distribution of industrial packaging products
Mar 09	Packstrap	Supply, installation and service of packaging tools, machineryand associated consumables
Apr 10	Creative Packaging	Manufacturing and distribution of corrugated cardboard,cardboard boxes and packaging
Jun 10	Ruscon Plastics	Manufacturing of flexible plastic films, bags and tubes
Aug 10	Dysher (GoodmanPackaging)	Distribution of packaging products with a focus on strappingmachinery and consumables
Sep 11	Medirite Australia	Importation and distribution of personal protective equipmentand safety products to the food, pharmaceutical and medicalindustries
Feb 12	Hills Industrial Products	Distribution of industrial packaging, safety and warehouseproducts
Apr 12	Deandy Packaging	Supply of food services packaging
Sep 12	Start Food Tech Australia	Supply of packaging consumables and products to the meat,chicken and fish processing industries
Nov 12	Source and Sell	Supply of packaging products to the food industry includinggrowers, packers and bakers
Jun 13	Eco Food Pack Australia	Manufacturing of food packaging trays for the fresh meat,seafood and poultry industries
Jun 13	Poly Product	Manufacturing of flexible packaging products and provision ofrelated printing services
Oct 14	Nelson Joyce	Supply of flexible packaging products to the food andindustrial markets

7 Businesses with annual revenue of at least $5 million at the time of the acquisition (as announced by Pro-Pac).

Current operations

• 50 Pro-Pac operates from a Sydney head office and employs more than 400 staff. It has operations in New South Wales, Victoria, Queensland, South Australia and Western Australia with 10 distribution and warehouse centres and six manufacturing plants.
• 51 The Company's operations are currently organised into two business segments that contain a number of individual businesses that deliver its products and services:
  • (a) Rigid Packaging manufacturing, sourcing and distribution of rigid packaging products such as containers, closures, jars, caps, bottles, sprays and pumps, pails and industrial drums. Industries serviced by the segment include the dairy, pharmaceutical, personal care, food service, industrial, chemical and automotive industries
  • (b) Industrial Packaging manufacturing, sourcing and distribution of industrial packaging products including biodegradable void-fill products and general packaging such as cardboard cartons, strapping tape, stretch wrap, shrink wrap, bubble wrap, strapping and flexible products. The segment covers all aspects of logistics from packaging, sealing and wrapping of goods through to storing and shipping.
• 52 Products sold by the Company are either manufactured at one of its manufacturing centres or are sourced from local and overseas suppliers. In addition, Pro-Pac sells and services a range of packaging tools, machines and systems including (but not limited to) stretch wrapping machines, shrink wrapping sealers, skin and blister packaging machines, bagging and bag sealing machines, gummed paper tape dispensers and bubble wrap systems.
• 53 An overview of the Company's packaging products and related services is provided below:

Financial performance

54 The financial performance of Pro-Pac for the four years ended 30 June 2017 (FY17) is set out below:

Pro-Pac – statement of financial performance(1)
	FY14	FY15	FY16	FY17
	Audited	Audited	Audited	Audited
	$m	$m	$m	$m
Rigid Packaging revenue	53.7	60.5	65.6	59.8
Industrial Packaging revenue	164.6	183.0	175.2	169.4
Total revenue	218.3	243.5	240.8	229.2
Rigid Packaging EBITDA	6.4	7.5	8.8	7.0
Industrial Packaging EBITDA	9.5	11.1	10.4	9.2
Unallocated costs	(2.1)	(3.4)	(3.9)	(4.0)
EBITDA(2) before non-recurring items	13.8	15.2	15.3	12.2
Depreciation and amortisation(3)	(3.6)	(3.6)	(3.3)	(3.2)
EBIT(4) before non-recurring items	10.2	11.6	12.0	9.0
Net finance expense	(1.3)	(1.7)	(1.4)	(1.2)
Non-recurring items(5)	(0.6)	(1.5)	(0.5)	(0.9)
Profit before tax	8.3	8.4	10.1	6.9
Income tax expense	(2.5)	(2.6)	(3.2)	(1.9)
Net profit after tax	5.8	5.8	6.9	5.0
EBITDA margin (before non-recurring items)	6.3%	6.2%	6.4%	5.3%
EBIT margin (before non-recurring items)	4.7%	4.8%	5.0%	3.9%

Note:

• 1 Rounding differences exist.
• 2 Earnings before interest, tax, depreciation and amortisation (EBITDA).
• 3 Includes amortisation of pre-paid royalties in connection with products that are manufactured and distributed under a licence agreement with the United Kingdom-based company Green Light Packaging Limited (FY14, FY15 and FY16).
• 4 Earnings before interest and tax (EBIT).
• 5 Comprises acquisition, rationalisation and relocation expenses.
• 55 The key factors that have impacted the financial performance of Pro-Pac in the four years to FY17 are summarised below:

Year to 30 June 2014 (FY14)

• ‒ revenue increased by 26.1% from a combination of both organic growth and integration of a number of acquisitions made throughout FY14 and the previous financial year (a total of 10 acquisitions were made between the beginning of FY13 and end of FY14)
• ‒ However, EBITDA only increased by 7.8%, reflecting a decline in the EBITDA margin due to a combination of adverse foreign exchange movements, rising resin and raw material input prices and an increase in lower margin direct drop ship sales

Year to 30 June 2015 (FY15)

‒ the implementation of revenue and business development strategies resulted in revenue growth of 11.5%, with EBITDA increasing by 10.1%. The EBITDA margin was negatively impacted by a continuation in the decline of the Australian dollar (relative to

the United States of America (US) dollar), however the full impact was partially offset by price increases being passed on to customers and a focus on reducing operational costs (primarily administration, distribution and selling expenses)

‒ the Industrial Packaging business achieved revenue and EBITDA growth of 11.2% and 16.8% respectively which was mainly organic, whilst the Rigid Packaging business achieved revenue and EBITDA growth of 12.7% and 17.2% respectively due to increased volumes, improved economies of scale and cost control measures

Year to 30 June 2016 (FY16)

• ‒ revenue declined by 1.1% which reflected lower volumes from the Industrial Packaging business as a result of weak economic activity and strong competition. Demand from customers in the manufacturing, distribution, resources and meat processing sectors was soft (particularly in the second half of the period). However, the Company experienced growth from customers in the pharmaceutical, healthcare, retail and dairy sectors
• ‒ despite the decline in revenue, EBITDA increased marginally by 0.7% due to further cost reduction measures being implemented and price increases being passed on to customers. EBITDA attributable to the Industrial Packaging business decreased by 6.3% and EBITDA attributable to the Rigid Packaging business increased by 17.3% largely as a result of lower resin input costs

Year to 30 June 2017 (FY17)

‒ revenue and EBITDA declined by 4.8% and 20.3% respectively as a result of soft trading conditions throughout the year (particularly in the first half). However, volume growth in flexible packaging for the food and beverage market in the second half of the period partially offset the overall decline in revenue and earnings

FY18 Outlook

• ‒ in the Notice of Meeting, Pro-Pac has forecast a rebound in profitability with EBITDA of $14.5 million expected in FY18. Whilst lower than the EBITDA achieved in FY15 and FY16, this improved performance (relative to FY17) is principally due to margin improvement in the Industrial division, driven by growth in sales to key customers and improved on-line marketing initiatives
• ‒ Further information on the key assumptions underlying Pro-Pac management's FY18 forecast is set out in the Notice of Meeting.

Financial position

56 The financial position of Pro-Pac as at 31 December 2016 and 30 June 2017 is set out below:

Pro-Pac – statement of financial position(1)
	31 Dec 16Reviewed	30 Jun 17Audited
	$m	$m
Debtors and prepayments	44.3	43.0
Inventories	36.2	35.1
Creditors, accruals and provisions	(36.7)	(35.6)
Net working capital	43.8	42.5
Plant and equipment	15.7	15.2
Goodwill	71.3	71.3
Deferred tax assets	2.0	2.2
Provisions (non-current)	(1.7)	(1.6)
Total funds employed	131.1	129.6
Cash and cash equivalents	11.0	12.3
Interest bearing liabilities	(28.4)	(29.1)
Derivative financial instruments (net)	0.9	0.9
Net cash / (borrowings)	(16.5)	(15.9)
Net assets attributable to Pro-Pac shareholders	114.6	113.7
Note:

1 Rounding differences exist.

Net asset position / goodwill

• 57 The net asset position as at 30 June 2017 represents some 47 cents per share, the largest component of which is goodwill (around 29.5 cents per share).
• 58 The carrying value of goodwill reflects the premiums paid above the fair value of the net tangible assets held by businesses acquired by Pro-Pac at the date of acquisition (refer paragraph 49 above). This goodwill is tested annually for impairment. Whilst no impairment write-downs have occurred in recent years, we note that our valuation of Pro-Pac (set out in Section VI) implies a lower value for goodwill.

Net debt

59 A summary of Pro-Pac's net debt position is set out below:

Pro-Pac – net debt(1)
	31 Dec 16	30 Jun 17
	$m	$m
Cash and cash equivalents	(11.0)	(12.3)
Interest bearing trade finance	-	0.8
Short-term borrowings	1.3	1.1
Long-term borrowing	27.1	27.2
Derivative financial instruments (net)	(0.9)	(0.9)
Net debt	16.5	15.9

Note:

1 Rounding differences exist.

60 Pro-Pac's net debt position at 30 June 2017 primarily related to hire purchase liabilities of which $1.1 million was due within 12 months.

Share capital and performance

61 As at 11 September 2017, Pro-Pac had 241.8 million fully paid ordinary shares on issue. This includes the issue of 3.773 million shares at 50.1 cents per share in September 2016 in relation to the Company's dividend reinvestment plan.

Significant shareholders

62 As at 11 September 2017, the significant shareholders in Pro-Pac (i.e. shareholders with an interest in Pro-Pac of more than 5.0%) were as follows:

Pro-Pac – substantial shareholders
		Shares held
Shareholder	Millions	% interest
Bennamon Pty Limited	123.8	51.2
Mr Brandon Penn	25.0	10.3
Trustees Australia Limited for Lanyon Australian Value Fund	18.4	7.6
	167.2	69.1

Share price performance

63 The following chart illustrates the movement in the share price of Pro-Pac from 1 July 2014 to 29 August 20178:

1 Based on closing prices. The S&P/ASX300 Index has been rebased to Pro-Pac's last traded price on 1 July 2014 of $0.48. Source: Bloomberg.

8 Being the date of Pro-Pac's FY17 results announcement in which it stated that it was evaluating a "major transformative corporate transaction" (i.e. the Proposed Transaction). We note that the announcement was released after the close of the ASX.

64 As indicated in the above chart, Pro-Pac shares have traded broadly in line with the S&P/ASX300 Index until late 2016. Since then however, Pro-Pac shares have underperformed the index due in part to weaker market conditions in the packaging sector.

Liquidity in Pro-Pac shares

65 The liquidity in Pro-Pac shares based on trading on the ASX over the 12 month period to 29 August 2017 is set out below:

Pro-Pac – liquidity in shares
		No. of shares	WANOS(1)	Implied level of liquidity
Period	Start date	End date	traded000	outstanding000	Period(2)%	Annual(3)%
1 month	30 Jul 17	29 Aug 17	600	241,772	0.2	3.0
3 months	30 May 17	29 Aug 17	1,677	241,772	0.7	2.8
6 months	02 Mar 17	29 Aug 17	4,445	241,772	1.8	3.7
1 year	30 Aug 16	29 Aug 17	6,159	242,146	2.5	2.5

Note:

1 Weighted average number of shares outstanding (WANOS) during relevant period.

2 Number of shares traded during the period divided by WANOS.

3 Implied annualised figure based upon implied level of liquidity for the period.

66 As indicated in the table above, the level of liquidity in Pro-Pac shares has been very low, due in part to the presence of one major shareholder (Bennamon) and two other substantial shareholders over the year to 29 August 2017.

IV Profile of IPG

Overview

67 IPG is one of the largest specialist manufacturers and distributors of stretch film wrap and associated equipment in Australia. The company operates nationally across Australia with a focus on the industrial, FMCG, logistics, agricultural and horticultural segments and has distribution networks spanning Australia, New Zealand and Canada.

History

68 As indicated below, some of the IPG businesses date back to 1982. At that time, the initial focus of the business was on blown extrusion products such as stretch film, net wrap and twine. A summary of the company's key acquisitions and operational developments since its establishment is set out below:

Year	Acquisition / operational development
1982	Integrated Packaging is established
1984	First wrapping machine for silage developed by Integrated Packaging
1995	Integrated Packaging Europe established
1997	IPG commences operations in New Zealand
2004	Integrated Packaging Europe sold
2006	Agricultural product range expanded to include horticultural nettings and twines
2008	Acquisition of Amcor Flexibles in Kewdale, Western Australia
2008	Added cast extrusion capability allowing production of cast and plain films, stretch hoods
2009	Acquisition of Donaghy's Australian Feed Conservation and Horticultural Twine business
2009	Added grain bags to product mix
2010	Acquisition of Integrated Recycling
2012	Acquisition of Amcor Flexibles Speciality Products Packaging plants, adding printing
	capabilities and larger focus on FMCG end markets
2012	Acquisition of Amity Agricultural Canada, enabling distribution of grain bags and
	horticultural products in North America
2013	Cotton wrap products added
2014	Acquisition of Donaghy's brand worldwide
2016	Development of recyclable plastic railway sleepers and rackable pallets
2017	Acquisition of Grain Bag Canada in June 2017, which broadened distribution in NorthAmerica

Current operations

69 IPG operates from a head office in Reservoir, Victoria and has manufacturing and warehouse locations across Australia, New Zealand and Canada. A summary of the group's operating locations is as follows:

IPG operating locations – Australia and New Zealand

Note:

1 The company also has a regional sales office and warehouse site located in Calgary, Canada which has not been included in the diagram above. Source: IPG information memorandum April 2017.

Integrated Packaging

• 70 IPG is a market leader in the flexible packing market with a focus on the FMCG, agriculture and horticulture, logistics and industrial end markets. The company operates at every stage of the manufacturing chain, from extrusion, printing, laminating and slitting to conversion. IPG sells approximately 65% of its products through its network of 68 sales representatives, with the other 35% of sales originating through a network of distributors to smaller companies.
• 71 An overview of the company's flexible packing products and related services is highlighted in the table below:

Product type	FY17sales(1)%	Description and application	Product examples
Stretch film	32	•Stretch film is a highly stretchable plasticthat ensures items are tightly bound•Principal end markets include distributors,food and beverage
Plain films andbags	18	•Principal markets include industrial,bedding, food, beverage and coated steel

	FY17sales(1)
Product type	%	Description and application	Product examples
Agricultural &horticulturalproducts	17	•Specialised packaging products for cropsincluding grape covers, grain bags, mulchfilms and pit covers
Printed filmand bags	10	•Food and beverage, personal hygiene,fertiliser, organic products
Silage film	8	•Principal market is fodder•Provides a waterproof weather shield forpasture and forage
Food film	8	•Applications in catering, meat, fruit andvegetables
Engineeredfilms	7	•Provide tailored solutions to the needs ofclients
Note:1		Source: IPG Information Memorandum April 2017.

Integrated Machinery

72 In addition, IPG sells and services a range of semi and fully automatic stretch wrapping machines as well as case handling, shrink packaging and conveying equipment under the Integrated Machinery brand (which is part of the Integrated Packaging group). This division accounted for approximately 5% of FY17E revenue9.

Integrated Recycling

• 73 Acquired by IPG in 2010, Integrated Recycling (IR) uses a mix of recycled plastics and organic fibres to manufacture strong durable products which offer benefits compared to timber for use in industrial, transport, land development / protection, landscaping and recreational markets. Two of the major product innovations for IR have been the development of recycled plastic composite railway sleepers and "rackable" pallets, both of which are sold into large growing markets. IR also provides bollards, dunnage, fencing, outdoor furniture and signage, garden landscaping, decking and marine products.
• 74 IR has recently won a contract for the first phase of the Queensland Rail project to replace 120,000 wood sleepers per year for five years commencing in 2019.

9 Per IPG information memorandum as at April 2017. Revenue percentage from this segment also includes other miscellaneous segments.

Key customers

75 IPG currently has a diverse customer base with over 2,000 active customers. The concentration of customers is relatively small, with the largest customer accounting for 6% of FY17 revenue and the top 10 customers accounting for 31%10 as shown in the chart below:

Financial performance

76 We set out below a summary of the pro-forma results of IPG for FY15 to FY17. These proforma results reflect the underlying business performance (as determined by independent accountants following due diligence), and exclude certain non-recurring items in order to render the results comparable across periods:

IPG - Summary of pro-forma results
Year ended 30 June	2015	2016	2017
	$m	$m	$m
Sales revenue	212.7	209.5	220.0
EBITDA	13.4	12.7	18.1
Depreciation	(3.5)	(3.1)	(2.7)
EBIT	9.9	9.5	15.3
EBITDA marginEBIT margin	6.3%4.7%	6.1%4.5%	8.2%7.0%
Note:
1Rounding differences exist.
Source: IPG.

77 Commentary on the above financial performance and the outlook for FY18 is set out in Section VII.

10 Based on FY17E revenue as at April 2017.

Financial position

78 The financial position of IPG as at 30 June 2017 is set out below:

IPG – statement of financial position(1)(2)
	30 Jun 17
	$m
Debtors and prepayments	38.0
Inventories	55.9
Creditors, accruals and provisions	(41.4)
Net working capital	52.5
Plant and equipment	18.5
Other assets	1.9
Other liabilities	(6.8)
Total funds employed	66.2
Net cash / (borrowings)(2)	-
Net assets attributable to IPG	66.2

Note:

• 1 Rounding differences exist.
• 2 The balance sheet of IPG has been presented on a cash and debt free basis as per the acquisition terms.

Source: IPG management accounts 30 June 2017.

V Valuation methodology

Valuation approaches

• 79 RG 111 outlines the appropriate methodologies that a valuer should consider when valuing assets or securities for the purposes of, amongst other things, share buy-backs, selective capital reductions, schemes of arrangement, takeovers and prospectuses. These include:
  • (a) the discounted cash flow (DCF) methodology
  • (b) the application of earnings multiples appropriate to the businesses or industries in which the company or its profit centres are engaged, to the estimated future maintainable earnings or cash flows of the company, added to the estimated realisable value of any surplus assets
  • (c) the amount that would be available for distribution to shareholders in an orderly realisation of assets
  • (d) the quoted price of listed securities, when there is a liquid and active market and allowing for the fact that the quoted market price may not reflect their value on a 100% controlling interest basis
  • (e) any recent genuine offers received by the target for any business units or assets as a basis for valuation of those business units or assets.
• 80 Under the DCF methodology the value of the business is equal to the net present value (NPV) of the estimated future cash flows including a terminal value. In order to arrive at the NPV the future cash flows are discounted using a discount rate which reflects the risks associated with the cash flow stream.
• 81 Methodologies using capitalisation multiples of earnings or cash flows are commonly applied when valuing businesses where a future "maintainable" earnings stream can be established with a degree of confidence. Generally, this applies in circumstances where the business is relatively mature, has a proven track record and expectations of future profitability and has relatively steady growth prospects. Such a methodology is generally not applicable where a business is in start-up phase, has a finite life, or is likely to experience a significant change in growth prospects and risks in the future.
• 82 Capitalisation multiples can be applied to either estimates of future maintainable operating cash flow, earnings before interest, tax, depreciation and amortisation (EBITDA), EBITA, EBIT or net profit after tax. The appropriate multiple to be applied to such earnings is usually derived from stock market trading in shares in comparable companies which provide some guidance as to value and from precedent transactions within the industry. The multiples derived from these sources need to be reviewed in the context of the differing profiles and growth prospects between the company being valued and those considered comparable. When valuing controlling interests in a business an adjustment is also required to incorporate a premium for control. The earnings from any non-trading or surplus assets are excluded from the estimate of the maintainable earnings and the value of such assets is separately added to the value of the business in order to derive the total value of the company.
• 83 An asset based methodology is applicable in circumstances where neither a capitalisation of earnings nor a DCF methodology is appropriate. It can also be applied where a business is no longer a going concern or where an orderly realisation of assets and distribution of the

proceeds is proposed. Using this methodology, the value of the net assets of the company are adjusted for the time, cost and taxation consequences of realising the company's assets.

Methodologies selected

Value of Pro-Pac before Proposed Transaction

• 84 The market value of Pro-Pac before taking into account the impact of the Proposed Transaction has been assessed by aggregating the market value of the business operations, together with the realisable value of any surplus assets and deducting net borrowings.
• 85 The valuation of the business operations has been made on the basis of market value as a going concern. The primary valuation method used to value Pro-Pac's business operations is the capitalisation of future maintainable EBITDA. Under this methodology the value of the business is represented by its core underlying maintainable EBITDA capitalised at a rate (or EBITDA multiple) reflecting the risks inherent in those earnings.
• 86 We have adopted this method when valuing the business operations of Pro-Pac for several reasons:
  • (a) Pro-Pac has both a demonstrated history of profitability and an expectation of ongoing profitability
  • (b) Pro-Pac's key business divisions operate in a mature industry and have well established market positions
  • (c) we do not have long-term cash flow projections which we regard as sufficiently robust to enable a DCF valuation to be undertaken
  • (d) the EBITDA multiples for listed companies exposed to similar industry sectors as the business divisions of Pro-Pac can be derived from publicly available information
  • (e) transaction evidence in the respective industry sectors is generally expressed in terms of EBITDA (and EBITA) multiples.
• 87 The resulting values have also been cross-checked by reference to the capitalisation of EBITA and net profit after tax (or price earnings (PE)) methods.
• 88 Due to the limited trading in Pro-Pac shares (less than 3% of the shares on issue traded in the 12 months prior to the announcement of the Proposed Transaction), in our opinion, the listed market price of Pro-Pac shares prior to the announcement of the Proposed Transaction is not a reliable reference point upon which to assess the value of Pro-Pac shares11. Accordingly, in assessing a controlling interest value of Pro-Pac shares, we do not consider it appropriate to take the listed market price prior to the announcement of the Proposed Transaction and add a control premium.

Value of IPG

89 Given the sale process with respect to IPG that gave rise to the Proposed Transaction, the value of IPG on a standalone basis has been determined based on the Proposed Transaction price. In order to confirm that the transaction price is reasonably representative of IPG's

11 This is consistent with the view expressed in RG 111.

market value we have also considered whether the earnings multiples implied by the transaction price for IPG are reasonable and appropriate.

Value of Pro-Pac after Proposed Transaction

• 90 The value of Pro-Pac after the Proposed Transaction has been derived by aggregating the value of:
  • (a) the Pro-Pac business (before debt) before the Proposed Transaction
  • (b) the IPG business (before debt)
  • (c) the value of expected cost synergies arising from the merger of Pro-Pac and IPG; less
  • (d) the pro-forma net debt of Pro-Pac following the acquisition of IPG and related equity raising12.
• 91 The value of expected synergy benefits (net of expected implementation costs) has been derived using the DCF method in order to allow for the quantum and timing of realisation.
• 92 Consistent with the requirements of RG 111, the value of Pro-Pac after implementation of the Proposed Transaction has been assessed on a minority interest basis. Empirical evidence undertaken by LEA on takeover premiums and minority interest discounts indicates that standard discounts for minority interests generally range from 20% to 25% of the full underlying (controlling interest) value of the company.
• 93 As a cross-check we have also considered the overall EBITDA multiple implied by our valuation range.

12 We have also had regard to the costs incurred by Pro-Pac in respect of the Proposed Transaction.

VI Valuation of Pro-Pac before the Proposed Transaction

94 As stated in Section IV, we have adopted the capitalisation of EBITDA method as our primary valuation method. Under this method the EBITDA (before non-recurring items) is capitalised at an appropriate EBITDA multiple. The value of the shares in Pro-Pac is then derived by deducting net interest bearing debt.

Assessment of normalised EBITDA

• 95 In order to assess the appropriate level of EBITDA for valuation purposes we have had regard to the historical and forecast results of the key Rigid Packaging and Industrial Packaging business divisions, and have discussed each business division's financial performance, operating environment and prospects with Pro-Pac management.
• 96 A summary of Pro-Pac's revenue and operating EBITDA13 (by business division) for the four years ended 30 June 2017 is summarised below:

Revenue and EBITDA by business division
	FY14(3)	FY15(3)	FY16	FY17
	$m	$m	$m	$m
Revenue
Rigid Packaging	53.7	60.5	65.6	59.8
Industrial Packaging	164.6	183.0	175.2	169.4
Total	218.3	243.5	240.8	229.2
EBITDA(1)
Rigid Packaging	6.4	7.5	8.8	7.0
Industrial Packaging	9.5	11.1	10.4	9.2
Unallocated costs	(2.1)	(3.4)	(3.9)	(4.0)
Total	13.8	15.2	15.3	12.2
EBITDA margin(1)
Rigid Packaging(2)	11.9%	12.4%	13.4%	11.7%
Industrial Packaging(2)	5.8%	6.1%	5.9%	5.4%
Total	6.3%	6.2%	6.4%	5.3%

Note:

1 Before significant items.

2 Before unallocated costs.

3 We note that Pro-Pac made a small acquisition (Nelson Joyce) in October 2014. At the date of acquisition Nelson Joyce had annualised revenue of around $7.4 million. The impact of this acquisition is not reflected in the FY14 results.

Rounding differences exist.

Historical results

97 Revenue and EBITDA before significant items were consistent in FY15 and FY16 reflecting the mature nature of the Pro-Pac business. However, revenue and EBITDA fell in FY17 as a result of weaker than normal trading conditions (particularly in the first half) in Pro-Pac's major market segments, particularly in the nutraceutical, red meat, beverage and retail

13 Before non-trading items.

markets. Whilst overheads were reduced during the year, the loss of contribution dollars from the decline in volumes resulted in lower EBITDA margins.

Earnings guidance

• 98 In the Notice of Meeting, Pro-Pac has forecast EBITDA of $14.5 million in FY18. Whilst lower than the EBITDA achieved in FY15 and FY16, this improved performance (relative to FY17) is principally due to margin improvement in the Industrial division, driven by growth in sales to key customers and improved on-line marketing initiatives.
• 99 Further information on the key assumptions underlying Pro-Pac management's FY18 forecast is set out in the Notice of Meeting.

EBITDA adopted for valuation purposes

100 Having regard to the above we have adopted EBITDA for valuation purposes of $14.5 million. This recognises that some recovery in sales volumes and/or margins is likely in the short to medium term compared to the result achieved in FY17.

EBITDA multiple

• 101 The selection of the appropriate EBITDA multiple to apply is a matter of judgement but normally involves consideration of a number of factors including, but not limited to:

  • The stability and quality of earnings
  • The quality of the management and the likely continuity of management
  • The nature and size of the business
  • The spread and financial standing of customers
  • The financial structure of the company and gearing level
  • The multiples attributed by share market investors to listed companies involved in similar activities or exposed to the same broad industry sectors
  • The multiples that have been paid in recent acquisitions of businesses involved in similar activities or exposed to the same broad industry sectors

• The future prospects of the business including the growth potential of the industry in which it is engaged, strength of competitors, barriers to entry, etc.

• The cyclical nature of the industry

• Expected changes in interest rates

• The asset backing of the underlying business of the company and the quality of the assets

• The extent to which a premium for control is appropriate

• Whether the assessment is consistent with historical and prospective earnings

• 102 We discuss below specific factors taken into consideration when assessing the appropriate EBITDA multiple range for Pro-Pac.

Listed company multiples

103 The EBITDA multiples for packaging companies listed in Australia or in developed overseas markets are set out in Appendix C and are summarised below. Given the small size of Pro-Pac, we have excluded packaging companies listed in developed overseas markets which have enterprise values exceeding A$500 million:

Listed company trading multiples(1)
	Enterprise	EBITDA multiples
	value(2)	Historical(3)	Forecast(4)
	A$m	x	x
Australian listed companies
Amcor	24,299	13.3	12.1
Orora	4,475	10.7	9.9

2,224	9.5	8.6
		5.9
		6.6
		6.5
		na
		na
		na
		10.9
		8.7
	4234154063822101437741	6.06.98.910.010.35.0nm7.2

Note:

• 1 Enterprise value and earnings multiples calculated as at 25 August 2017.
• 2 Enterprise value includes net debt (interest bearing liabilities less non-restricted cash), preference shares, convertible notes, net derivative liabilities, net pension liabilities, market capitalisation adjusted for material option dilution and buybacks and excludes surplus assets.
• 3 The historical multiples for the Australian companies are based on their actual results for the year ended 30 June 2017. The historical multiples for the overseas companies are based on their actual results for the year ended 31 December 2016.
• 4 The forecast multiples for the Australian companies are based on average analyst forecasts for the year ending 30 June 2018. The forecast multiples for the overseas companies are based on the average analyst forecasts for the year ending 31 December 2017. Analyst forecasts have been sourced from Bloomberg.

na – not available. nm – not meaningful.

Source: Bloomberg, latest full year statutory accounts, latest interim accounts, company announcements and LEA analysis.

• 104 As the level of EBITDA adopted for valuation purposes exceeds the level of operating EBITDA achieved in FY17, we have had more regard to the EBITDA multiples based on the average broker forecasts for each company for FY18.
• 105 The above multiples are based on the listed market price of each company's shares (and therefore exclude a premium for control). Empirical evidence undertaken by LEA indicates that the average premium paid above the listed market price in successful takeovers in Australia ranges between 30% and 35% (assuming the pre-bid market price does not reflect any speculation of the takeover). This broadly translates to a premium of 20% to 25% at the EBITDA multiple or enterprise value level, although this varies depending on the level of debt funding employed in each company.
• 106 In addition, we note that:
  • (a) none of the above listed companies are directly comparable to Pro-Pac. However, their EBITDA multiples provide guidance as to the values and multiples generally ascribed by share market investors to companies operating in the packaging sector

• (b) the implied EBITDA multiple for Pro-Pac based on its 1 month VWAP up to 29 August 2017 of $0.38 per share was 8.9 times FY17 EBITDA. However, as noted in Section III, due to the limited trading in Pro-Pac shares (less than 3% of the shares on issue traded in the 12 months prior to the announcement of the Proposed Transaction), in our opinion, the listed market price of Pro-Pac shares prior to the announcement of the Proposed Transaction is not a reliable reference point upon which to assess the value of Pro-Pac shares. Accordingly, we do not believe any reliance should be placed on Pro-Pac's implied EBITDA multiple based on share market trading
• (c) the above Australian listed packaging companies are substantially larger and have more diverse operations than Pro-Pac. Accordingly, we believe that the appropriate EBITDA multiple for Pro-Pac would be significantly lower than the implied EBITDA multiples for these companies
• (d) excluding the forecast EBITDA multiples for Imaflex Inc and Robinson plc (which appear to reflect higher earnings growth compared to Pro-Pac), the forecast EBITDA multiples for the smaller overseas companies (which we consider more relevant due to their more comparable size) range from 5.9 to 6.7 (prior to adding a control premium).

Transaction evidence

107 There have been a number of Australian transactions in the packaging sector in recent years. A summary of the EBITDA multiples implied by recent transactions (which reflect the acquisitions of controlling interests except where noted) with an enterprise value of less than A$250 million is shown below:

Transaction multiples
			EV(2)	EBITDA
Date(1)	Target	Acquirer	A$m	Multiple
Aug 17	Hannapak	WestRock	75	7.0 H
Feb 17	Pascoe's Group	Pact Group	41	6.5 H
	Australian Pharmaceutical
Sep 16	Manufacturers	Pact Group	90	6.5 H
		Graphic Packaging
Jan 16	Colorpak(3)	International	96	8.0 F
Jun 15	Jalco Group	Pact Group	80	6.5 H
Nov 13	Detmold Flexibles	Amcor	50	6.6 H
Jun 12	Wayne Richardson Sales	Amcor	n/a	6.5 H
Mar 12	National Can Industries(4)	Esk Holdings	78	5.8 F
Mar 12	Aperio Group	Amcor	238	6.0 H
Aug 11	Pro-Pac Packaging(5)	Bennamon	79	6.6 F

Note:

• 1 Date of announcement.
• 2 Enterprise value on a 100% basis.
• 3 Multiples based on future maintainable earnings assessed by the independent expert to the transaction.
• 4 Transaction was for the remaining 48.9% interest in the company that the acquirer did not already own.
• 5 Transaction was for a 30.17% interest in the company.
• H = Based on Historical EBITDA. F = Based on Forecast EBITDA. n/a not applicable.

Source: LEA analysis using data from ASX announcements, broker reports and company annual reports.

• 108 In relation to the transaction evidence it should be noted that:
  • (a) the transactions relate to the acquisition of 100% of the businesses and therefore implicitly incorporate a premium for control
  • (b) the companies acquired differ materially in terms of their size and nature of operations. Accordingly, in our view, the median or average multiples implied by these transactions are not necessarily representative of the multiples which should be applied to Pro-Pac's businesses
  • (c) the transaction multiples are calculated based on the most recent actual earnings (historical multiples) or expected future earnings for the current year at the date of the transaction (forecast multiples). The multiples are therefore not necessarily reflective of the multiple which would be derived from an assessment of each target company's "maintainable" earnings.
• 109 We note that the proposed acquisition of IPG by Pro-Pac under the Proposed Transaction implies an EBITDA multiple of 8.4 times the underlying EBITDA forecast by IPG in FY18. Whilst higher than the EBITDA multiples implied by the above transaction evidence, in our view, this is appropriate for the reasons set out in Section VII.
• 110 Given IPG's superior financial performance, market position and growth outlook compared to Pro-Pac, in our opinion, Pro-Pac should be valued on a significantly lower EBITDA multiple than IPG.

Conclusion on appropriate EBITDA multiples

• 111 In summary:
  • (a) the FY18 EBITDA multiples for the smaller overseas listed packaging companies we consider more relevant (due to their more comparable size and growth prospects) range from 5.9 to 6.7. After adjusting for a control premium the implied controlling interest EBITDA multiples range from around 7.1 to 8.4. However, these overseas companies appear to operate in markets with higher growth prospects than the markets which Pro-Pac services
  • (b) transaction evidence involving Australian businesses in the packaging sector imply EBITDA multiples of between 5.8 and 7.0 (excluding outliers), and averaged 6.6. As these transactions reflect the acquisitions of controlling interests these EBITDA multiples implicitly include a control premium
  • (c) whilst Pro-Pac has generally traded on higher EBITDA multiples than implied by the transaction evidence, we do not believe any reliance should be placed on Pro-Pac's implied EBITDA multiple based on share market trading due to the very low level of trading in Pro-Pac shares.
• 112 Given the above, for the purposes of our report we have adopted an EBITDA multiple range of 6.5 to 7.0.

Enterprise value

113 On this basis the value of Pro-Pac's business (before debt) is as follows:

Enterprise value
		Valuation
	Low	High
	$m	$m
EBITDA	14.5	14.5
EBITDA multiple	6.5	7.0
Enterprise value	94.3	101.5
Rounded to	94.0	102.0

Surplus assets

114 We understand that Pro-Pac has no material surplus assets.

Net debt

115 As at 30 June 2017, Pro-Pac had net debt of approximately $16 million.

Value of Pro-Pac

116 On this basis, the value of 100% of Pro-Pac on a controlling interest basis is as follows:

Value of Pro-Pac
	Low	High
	A$m	A$m
Enterprise value	94.0	102.0
Less net debt	(16.0)	(16.0)
Equity value	78.0	86.0
Fully diluted shares on issue	241.8	241.8
Equity value per share	$0.32	$0.36

Implied EBITA and PE multiples

117 The EBITA and PE multiples implied by our assessed value range are shown below:

Implied EBITA and PE multiples
	LowA$m	HighA$m
EBITA multiple
Enterprise value	94.0	102.0
EBITDA adopted for valuation purposes	14.5	14.5
Less depreciation and amortisation(1)	(3.2)	(3.2)
EBITA adopted for valuation purposes	11.3	11.3
Implied EBITA multiple	8.3	9.0
PE multiple
Equity value	78.0	86.0
EBITA	11.3	11.3
Less finance costs(2)	(1.2)	(1.2)
Profit before tax and amortisation of acquired intangibles	10.1	10.1
Less tax	(3.0)	(3.0)
Net profit after tax before amortisation of acquired intangibles	7.1	7.1
Implied PE ratio	11.0	12.1
Note:1Consistent with FY17 depreciation and amortisation.2Consistent with net finance costs in FY17.

118 Having regard to the EBITA and PE multiples for the listed companies14 in Appendix C, we consider the above implied multiples for Pro-Pac are reasonable. As noted above, we consider the listed company multiples for FY18 to be the most relevant given that the earnings adopted for valuation purposes exceed Pro-Pac's actual profitability in FY17.

14 EBITA and PE multiples for the transaction evidence set out in this Section are generally not available.

VII Valuation of IPG

Background

• 119 Pro-Pac has entered into a conditional agreement to acquire 100% of IPG (on a cash and debt free basis) for $177.5 million (Proposed Transaction). Prior to agreeing to the terms of the Proposed Transaction:
  • (a) IPG appointed external advisers to undertake a competitive sale process for the company. We understand that this sale process attracted local and international interest and resulted in indicative, non-binding and conditional bids ranging from $160 million to $195 million. Based on these indicative bids, two parties were provided access to a data room and undertook due diligence. Following the receipt of final binding bids, IPG and Pro-Pac agreed to the Proposed Transaction at a price consistent with the mid-point of the indicative, non-binding bids received
  • (b) Pro-Pac appointed a leading international accounting firm to undertake detailed due diligence on IPG.
• 120 Given that a comprehensive sale process was undertaken, the Proposed Transaction price is (prima-facie) the best indication of IPG's market value on a 100% controlling interest basis. However, in order to confirm that the transaction price is reasonably representative of IPG's market value we have also considered whether the earnings multiples implied by the acquisition price for IPG are reasonable and appropriate.

Earnings

Pro-forma earnings

121 Accordingly, we set out below a summary of the pro-forma results of IPG for FY15 to FY17. These pro-forma results reflect the underlying business performance (as determined by independent accountants following due diligence), and exclude certain non-recurring items in order to render the results comparable across periods:

IPG - Summary of pro-forma results
Year ended 30 June	2015	2016	2017
Sales revenue	$m212.7	$m209.5	$m220.0
EBITDA	13.4	12.7	18.1
EBIT	9.9	9.5	15.3
EBITDA marginEBIT margin	6.3%4.7%	6.1%4.5%	8.2%7.0%
Note:1Rounding differences exist.Source: IPG.

Commentary

122 Revenue fell in FY16 primarily due to:

• (a) IPG rationalising unprofitable customers and products following the acquisition of Amcor's Specialty Films business; and
• (b) reduced sales of silage film and grain bags following a weaker harvest season in Australia, Canada and New Zealand.
• 123 Revenue increased in FY17 due to a rebound in sales in the agricultural / horticultural sector following a stronger harvest season and growth in exports.
• 124 The improved EBITDA and EBIT performance has largely been due to increases in gross margins. This has principally been due to:
  • (a) higher margins on sales of new products including cotton wrap and surface protection films
  • (b) resin price inflation pass through to customers, and a change in resin purchasing strategy
  • (c) optimising cost structures through equipment / site rationalisation, production and purchasing efficiencies, headcount reductions and reduced wastage
  • (d) the rationalisation of unprofitable customers and products.

FY18 outlook

• 125 Further production efficiencies are expected to be generated in FY18 following the commissioning of 8 new colour print presses at the Chester Hill facility (which is expected to be operational in November 2017), and the commissioning of a five-layer blown extrusion line at the Kewdale facility (which is expected to be operational in September 2017)15.
• 126 In addition, the new colour printing presses at Chester Hill will allow IPG to compete in the higher value added FMCG sector.
• 127 The FY18 and full year impact on earnings of these capital expenditure initiatives are as follows:

15 Both these capital expenditure initiatives received IPG Board approval in FY17. To the extent that capital expenditure in relation to these items remains outstanding at completion we understand that there will be an appropriate adjustment on settlement to the IPG acquisition price of $177.5 million.

IPG – Impact of Chester Hill and Kewdale capital expenditure initiatives
	Expectedoperationaldate	Annualbenefit$m	FY18benefit$m
EBITDA impact
8 colour print press (Chester Hill)	Nov 17	1.8	1.2
5 layer blown extrusion line (Kewdale)	Sep 17	1.1	0.9
Total		2.9	2.1
EBIT impact
8 colour print press (Chester Hill)	Nov 17	1.5	1.0
5 layer blown extrusion line (Kewdale)	Sep 17	0.9	0.7
Total		2.4	1.7

128 Having regard to the above, IPG management have provided an EBITDA forecast for FY18 of $21.2 million for IPG. Further information on the key assumptions underlying IPG management's FY18 forecast is set out in the Notice of Meeting.

Implied earnings multiples

129 The implied EBITDA and EBIT multiples for IPG based on the Proposed Transaction price and the level of earnings in FY17 and IPG management's FY18 forecast are shown below:

IPG – EBITDA and EBIT multiples implied by Proposed Transaction price
	$m	Multiple
Proposed Transaction price	177.5
FY17 EBITDA	18.1	9.8
FY17 EBIT	15.3	11.6
FY18 EBITDA	21.2	8.4
FY18 EBIT(1)	18.1	9.8

Note:

• 1 For implied multiple purposes we have adopted FY17 depreciation of $2.7 million plus $0.4 million depreciation in respect of the above capital expenditure initiatives.
• 130 Given the anticipated benefits from the capital expenditure initiatives discussed above (which are not reflected in IPG's FY17 earnings), in our view, more regard should be had to the FY18 forecast multiples.

Listed company multiples

131 The EBITDA and EBIT multiples for selected overseas listed packaging companies with enterprise values below A$500 million16 are shown below:

16 The Australian listed packaging companies (excluding Pro-Pac) are not considered comparable to IPG due to their substantially larger size.

Listed company trading multiples(1)
	Enterprise	EBITDA multiples		EBIT multiples
	value(2)	Historical(3)	Forecast(4)	Historical(3)	Forecast(4)
	A$m	x	x	x	x
Overseas packaging companies
PSB Industries	423	6.0	5.9	10.7	10.4
Resilux	415	6.9	6.6	10.8	na
Reno de Medici	406	8.9	6.5	31.0	13.6
Richards Packaging Income Fund	382	10.0	na	10.5	na
UFP Technologies	210	10.3	na	15.3	10.4
Deufol	143	5.0	na	10.1	na
Imaflex	77	nm	10.9	nm	na
Robinson	41	7.2	8.7	11.9	20.0
Median		7.2	6.6	10.8	10.4(5)

Note:

• 1 Enterprise value and earnings multiples calculated as at 25 August 2017.
• 2 Enterprise value includes net debt (interest bearing liabilities less non-restricted cash), preference shares, convertible notes, net derivative liabilities, net pension liabilities, market capitalisation adjusted for material option dilution and buybacks and excludes surplus assets.
• 3 The historical multiples for the overseas companies are based on their actual results for the year ended 31 December 2016.
• 4 The forecast multiples for the overseas companies are based on the average analyst forecasts for the year ending 31 December 2017. Analyst forecasts have been sourced from Bloomberg.
• 5 Excluding outliers (e.g. Robinson EBIT multiple of 20.0).
• na not available. nm not meaningful.

Source: Bloomberg, latest full year statutory accounts, latest interim accounts, company announcements and LEA analysis.

• 132 Adjusting the median multiples for the above listed companies for a control premium17 results in:
  • (a) EBITDA multiples of 8.8 (historical) and 8.1 (forecast)
  • (b) EBIT multiples of 13.2 (historical) and 12.7 (forecast).

Transaction evidence

• 133 A summary of the EBITDA multiples18 implied by recent transactions involving Australian packaging businesses with enterprise values less than A$250 million are shown in Section VI.
• 134 These transactions imply EBITDA multiples of between 5.8 and 7.0 (excluding outliers), and averaged 6.6. As these transactions reflect the acquisitions of controlling interests these EBITDA multiples implicitly include a control premium.
• 135 In addition, we note that Amcor acquired:
  • (a) Alusa (the largest flexible packaging business in South America) in April 2016 for US$435 million, which represented a multiple of 8.5 times EBITDA

17 Assuming a control premium of between 20% and 25% at the enterprise value level (refer paragraph 103).

18 EBIT multiples for these transactions were not generally available.

• (b) a leading North American manufacturer of specialty containers used in the personal care and specialty food markets in September 2016 for US$280 million, which represented a multiple of 8.0 times the EBITDA achieved in the last 12 months.
• 136 The proposed acquisition of IPG by Pro-Pac under the Proposed Transaction therefore implies an EBITDA multiple which is above the overseas acquisition multiples. In our view, this is appropriate and reflects (inter-alia):
  • (a) IPG's market leadership position in the flexible packaging end markets that it serves19
  • (b) IPG's focus on engineered film products (e.g. shrink wraps) and other higher value added products which allow for higher margins and above average industry growth20 compared to traditional packaging markets (which are highly competitive). In fact, around 25% of IPG's revenue in FY17 is derived from products with a material element of patent or process protection
  • (c) IPG's strong recent financial performance and positive outlook21
  • (d) the low level of capital expenditure required to sustain IPG's business operations (due to the long life of blown and cast film extruders), which has resulted in sustaining capital expenditure being well below depreciation charges in recent years.
• 137 In our view, the above factors also support the application of higher earnings multiples for IPG relative to Pro-Pac, due to IPG's superior financial performance, market position and growth outlook compared to Pro-Pac.
• 138 Furthermore, as noted above, the price being paid by Pro-Pac for IPG reflects the outcome of a competitive sales process.

Conclusion

139 Given the above, we consider that the EBITDA and EBIT multiples implied by the Proposed Transaction price of $177.5 million for IPG are reasonable and appropriate. However, in order to allow for a range around this value, for the purposes of our report we have adopted a value for IPG (on a controlling interest basis) of $170 million to $185 million.

19 IPG is one of the three major flexible packaging participants in the Australasian market. Together these three participants (which include Amcor and Sealed Air) account for around 65% of revenues in the flexible packaging markets in Australasia.

20 Above gross domestic product growth in the Australian flexible packaging market is being driven by industry trends towards engineering films as substitutes for inferior forms of secondary packaging (e.g. shrink wrap as a substitute for crates and boxes).

21 IPG management are forecasting further earnings growth in FY18.

VIII Synergies

Overview

• 140 Pro-Pac has provided us with a detailed breakdown of identified cost savings arising from the merger of Pro-Pac and IPG. Based on our review of the information provided, for the purposes of this report, we have adopted annual cost savings (on a risk adjusted basis) of $5.0 million. These synergies reflect (inter-alia):
  • (a) reduction in administration, selling and corporate costs
  • (b) resin cost savings arising from:
    • (i) access to IPG's lower resin costs and extended trading terms
    • (ii) the renegotiation of pricing as a result of the increased resin volumes purchased by the group
  • (c) other economies of scale benefits.
• 141 Pro-Pac management have estimated that these cost savings will be gradually realised (i.e. phased in) over a two-year time frame. Due to the timing of completion of the Proposed Transaction, Pro-Pac management have forecast that only $2 million in cost savings will be realised in FY18. The anticipated synergies as a percentage of Pro-Pac's standalone revenues are set out in the following table:

Anticipated synergy benefits as a percentage of Pro-Pac revenue
	$m
Pro-Pac FY17 revenue	229.2
Anticipated synergy benefits (pre tax)	5.0
Synergies / FY17 revenue	2.2%
Source: LEA analysis.

Valuation

• 142 We have valued the synergy benefits using the DCF methodology. In doing so, we have had regard to:
  • (a) our review of the detailed calculations that support the anticipated range of synergy benefits
  • (b) our discussions with the management of Pro-Pac, including input from IPG
  • (c) our review of the announced estimated cost synergies in other packaging transactions:

• (d) the market's perception of (and unwillingness generally to pay for) anticipated revenue synergies22.
• 143 Our DCF valuation assumes that the synergy benefits (net of tax) will begin to be realised from 1 January 2018 and will be fully realised in FY19. Whilst Pro-Pac management have advised that one-off implementation costs associated with the realisation of the synergy benefits will be relatively modest, we have conservatively allowed for implementation costs of $1.0 million in our valuation. We have discounted the synergy benefits (net of implementation costs and tax) to reflect their present value using a cost of equity (discount rate) of 15% per annum23. Our terminal value at the end of FY19 reflects an implied EBITDA multiple of 6.0 to 6.5 times the ongoing annual synergy benefit adopted for valuation purposes. The lower implied multiple relative to that applied to our valuation of Pro-Pac and IPG reflects the lower growth in future cost savings relative to the growth that is anticipated in the underlying businesses.
• 144 Based on the above, for the purposes of this report, we have valued the synergy benefits (net of implementation costs and tax) on a 100% controlling interest basis at between $25 million and $30 million.

22 Our valuation of the synergy benefits does not include any revenue synergies.

23 In our opinion, a potential purchaser would consider the risks associated with the realisation of the synergy benefits (such as implementation risk and over estimation) to be higher than the risks associated with the general operations of either Pro-Pac or IPG.

IX Valuation of Pro-Pac shares after Proposed Transaction

Methodology

• 145 As set out in Section V, the value of Pro-Pac shares after the Proposed Transaction has been derived by aggregating the value of:
  • (a) the Pro-Pac business (before debt) before the Proposed Transaction
  • (b) the IPG business (before debt)
  • (c) the value of expected cost synergies arising from the merger of Pro-Pac and IPG; less
  • (d) the pro-forma net debt of Pro-Pac following the acquisition of IPG and the related equity raising. For the purposes of our report we have adopted the following net debt figure:

Pro-forma net debt
	$m
Pro-Pac – actual net debt as at 30 June 2017(1)	15.9
Cash cost of acquiring IPG (on a cash and debt free basis)(2)	117.5
Transaction and Entitlement Offer costs	6.0
Additional working capital	1.3
Gross proceeds of Entitlement Offer	(54.8)
Pro-forma net debt	85.9

Note:

• 1 This is net of a derivative financial asset of $0.9 million.
• 2 This figure is net of $60 million in Pro-Pac shares which are to be issued to Advent and IPG management.
• 146 Consistent with the requirements of RG 111, the value of Pro-Pac shares after implementation of the Proposed Transaction has been assessed on a minority interest basis. Empirical evidence undertaken by LEA on takeover premiums and minority interest discounts indicates that standard discounts for minority interests generally range from 20% to 25% of the full underlying (controlling interest) value of the company. For the purposes of our report we have therefore applied a minority interest discount of 22.5%.

Minority interest value

147 Based on the above and the analysis in the preceding sections, we have therefore assessed the minority interest value of Pro-Pac shares following implementation of the Proposed Transaction as follows:

Pro-Pac –minority interest value per share after Proposed Transaction
	Section	Low	High
	Ref.	$m	$m
Enterprise value of Pro-Pac before Proposed Transaction	VI	94.0	102.0
Enterprise value of IPG business	VII	170.0	185.0
Value of net cost synergies	VIII	25.0	30.0
Less pro-forma debt	IX	(85.9)	(85.9)
Controlling interest value of Pro-Pac shares		203.1	231.1
Minority interest discount (22.5%)		(45.7)	(52.0)
Minority interest value of Pro-Pac shares		157.4	179.1
Number of shares on issue(1)		561.4	561.4
Minority interest value per share		$0.28	$0.32
Note:
1Shares on issue comprise:
	(m)
Existing Pro-Pac shares on issue	241.8
Share Issue	158.4
Entitlement Offer	161.2
Total	561.4

Cross-check based on implied EBITDA multiple

148 As a cross-check we have also considered the overall EBITDA multiple implied by our valuation range.

Enterprise value

149 Based on the above, the enterprise value of Pro-Pac (following implementation of the Proposed Transaction and the related equity raising) on a minority interest basis is as follows:

Pro-Pac – estimated enterprise value following implementation of the Proposed Transaction
	LowHigh
	$m	$m
Minority interest value of Pro-Pac shares	157.4	179.1
Add pro-forma net debt	85.9	85.9
Enterprise value (following implementation of the Proposed Transaction)	243.3	265.0

Implied EBITDA multiple

• 150 For the purpose of calculating the EBITDA multiple implied by the above enterprise value we have adopted normalised EBITDA of around $40 million. This reflects:
  • (a) normalised EBITDA of $14.5 million for Pro-Pac on a standalone basis (refer Section VI); plus
  • (b) IPG management's forecast FY18 EBITDA for IPG of around $21 million24 (as set out in Section VII); plus

24 This incorporates the benefit from recent capital expenditure initiatives at IPG's Kewdale and Chester Hill facilities.

• (c) $5.0 million being the estimate of the full year annual cost synergies arising from the merger of Pro-Pac and IPG (as discussed in Section VIII).
• 151 On this basis, the EBITDA multiple incorporating the benefit of expected synergies (which are not expected by Pro-Pac to be achieved in full until FY19) on a minority interest basis is as follows:

Pro-Pac – implied EBITDA multiple post implementation of Proposed Transaction
	Low$m	High$m
Enterprise value (post implementation of the Proposed Transaction)	243.3	265.0
Normalised EBITDA (including expected synergies)Implied EBITDA multiple on a minority interest basis	40.06.1	40.06.6

Conclusion on implied EBITDA multiples

152 Based on the listed company EBITDA multiples in Appendix C, in our opinion, the above multiple range for Pro-Pac (post implementation of the Proposed Transaction) is reasonable having regard to the inherent risks associated with implementation of the acquisition and the realisation of the related synergy benefits. We therefore consider our assessed minority interest range of values for Pro-Pac shares (post implementation of the Proposed Transaction) to be reasonable and appropriate.

X Evaluation of the Proposed Transaction

Assessment of fairness

• 153 RG 111 requires that the fairness of the Proposed Transaction be assessed by comparing the controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction with the portfolio interest value of Pro-Pac shares following implementation (being the deemed "consideration" delivered to Pro-Pac shareholders). In order for the Proposed Transaction to be "fair" under RG 111, the portfolio interest value of Pro-Pac shares following implementation of the Proposed Transaction must be equal to, or greater than the controlling interest value of Pro-Pac shares before implementation.
• 154 This comparison is set out below:

	Low$ pershare	High$ pershare	Mid-point$ pershare
Portfolio interest value of Pro-Pac shares followingimplementation of the Proposed TransactionControlling interest value of Pro-Pac shares prior to	0.28	0.32	0.30
implementation of the Proposed Transaction	0.32	0.36	0.34
Extent to which portfolio interest value post implementationexceeds (or is less than) the controlling interest value of
Pro-Pac shares before implementation	(0.04)	(0.04)	(0.04)

155 Based on the above we have concluded that the Proposed Transaction is not fair to Pro-Pac shareholders when assessed under RG 111.

Assessment of reasonableness

• 156 Under RG 111, the Proposed Transaction is "reasonable" if, despite not being fair but after considering other significant factors, the expert is of the opinion that the advantages of the Proposed Transaction outweigh the disadvantages from the perspective of Pro-Pac shareholders.
• 157 Consequently, we set out below the advantages and disadvantages of the Proposed Transaction from the perspective of Pro-Pac shareholders.

Proposed issue price

• 158 As stated above, if the Proposed Transaction is approved and implemented, Advent and IPG management will be issued with 156.1 million new shares in Pro-Pac at a price of $0.379 per Pro-Pac share (Issue Price).
• 159 We note that the Issue Price is above the high end of our controlling interest valuation range for Pro-Pac shares prior to implementation of the Proposed Transaction of $0.32 to $0.36 per share. Thus, in our opinion, shares are being issued to Advent and IPG management at a price which is above the full underlying value of Pro-Pac shares prior to implementation of the Proposed Transaction.

Position of Pro-Pac shareholders

• 160 In considering whether the Proposed Transaction is reasonable, we have also considered whether Pro-Pac shareholders are likely to be better off from a value perspective if they approve the Proposed Transaction, by comparing the value of Pro-Pac shares pre and post the Proposed Transaction on a consistent portfolio basis.
• 161 Accordingly, we have reduced our controlling interest value prior to the Proposed Transaction by 22.5% (being the mid-point of the range of minority interest discounts generally applied) in order to estimate the corresponding portfolio interest value of Pro-Pac shares.
• 162 On this basis, we note that the Proposed Transaction is value accretive for Pro-Pac shareholders:

Comparative value of Pro-Pac shares
	Lowcents pershare	Highcents pershare	Mid-pointcents pershare
Portfolio interest value of Pro-Pac shares before the
Proposed Transaction(1)	0.25	0.28	0.265
Portfolio interest value of Pro-Pac shares after the Proposed
Transaction	0.28	0.32	0.30
Increase in portfolio interest value of Pro-Pac shares due to
the Proposed Transaction	0.03	0.04	0.035
% increase	12.0%	14.3%	13.2%

Note:

1 Being $0.32 to $0.36 per share less a minority interest discount of 22.5%.

Impact on control

163 If the Proposed Transaction is approved there will be an impact on the voting power and ownership of Pro-Pac. The impact of the Proposed Transaction on shareholder's voting and ownership interests in Pro-Pac is shown below:

Impact of Proposed Transaction on shareholdings (million shares)
	Existing		Entitlement	Post
Shareholder	position	Share Issue	Offer	transaction
Bennamon	123.8	-	82.5	206.3
Advent	-	145.9	-	145.9
IPG management	-	12.5	-	12.5
Other PPG shareholders	118.0	-	78.7	196.7
Total	241.8	158.4	161.2	561.4
% interest held by:BennamonAdvent	51.2%-			36.8%26.0%
IPG management	-			2.2%
Other PPG shareholders	48.8%			35.0%

• 164 As set out above, Bennamon currently holds a controlling interest in Pro-Pac. We understand however that in practice Bennamon has not sought to exercise this control and in particular has not sought Pro-Pac Board representation.
• 165 Pursuant to the Proposed Transaction, Advent will acquire a relevant interest in Pro-Pac of 26.0%. Therefore if the Proposed Transaction is approved Advent will have a significant voting interest in Pro-Pac.
• 166 However, Bennamon (whilst having a significantly diluted interest) will still be the largest shareholder, with an interest of 36.8%.

Dilution of existing shareholder interests

167 If the Proposed Transaction is approved the interests of Pro-Pac shareholders will be diluted as they will collectively hold only 71.8% of Pro-Pac shares after the share issue to Advent and IPG management. However, as noted above, in our opinion, the underlying value of Pro-Pac shares will increase when compared on a consistent portfolio basis.

Impact on gearing

168 As noted in Section III, prior to the Proposed Transaction Pro-Pac has a relatively low level of gearing. The Proposed Transaction will result in a significant increase in the level of Pro-Pac's gearing, as shown below:

Impact of Proposed Transaction on gearing(1)
	Pro-Pac	Pro-Pac
	30 Jun 17Actual	30 Jun 17Pro-forma
	$m	$m
Net debt	15.9(2)	85.9(2)
Shareholders' funds	113.7	221.3
Debt to equity ratio	14.0%	38.8%

Note:

• 1 Net debt and shareholders' funds are shown at accounting book values.
• 2 This is shown net of a derivative financial asset of $0.9 million.

Likelihood of receiving a future takeover offer

• 169 As noted above, prior to the Proposed Transaction, Bennamon holds a controlling 51.2% interest in Pro-Pac and theoretically is in a position (should it chose to do so) to make a takeover offer for the shares in Pro-Pac that it does not own. We understand however that in this regard Bennamon has indicated that it is supportive of the current Pro-Pac management and the related business strategy.
• 170 If the Proposed Transaction is approved Advent will hold a 26.0% interest in Pro-Pac, and will therefore be in a position to block any future takeover due to the size of its shareholdings.
• 171 Prima facie therefore, if the Proposed Transaction is approved, the prospects of a future takeover offer are diminished. However, in a practical sense, given the current indicated position of Bennamon as regards its shareholding in Pro-Pac, we do not consider there to be a significant change in circumstances as regards existing Pro-Pac shareholders other than Bennamon.

Conclusion

172 Based on the above we summarise below the advantages and disadvantages of the Proposed Transaction from the perspective of Pro-Pac shareholders:

Advantages

• (a) the Proposed Transaction is value accretive for Pro-Pac shareholders based on our comparison of the minority interest value of Pro-Pac shares before and after the Proposed Transaction
• (b) the Share Issue to the vendors and management of IPG is being priced at $0.379 per share, which is a premium to our controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction (of $0.32 to $0.36 per share)
• (c) the price at which shares will be issued under the Entitlement Offer of $0.34 per share (which is fully underwritten) is consistent with our controlling interest value of Pro-Pac shares prior to implementation of the Proposed Transaction
• (d) Pro-Pac will become significantly larger, its operations will be more diverse and its growth prospects will be enhanced. In our view, this is likely to lead to a higher share value in the medium to long term
• (e) the level of share trading in Pro-Pac shares prior to the announcement of the Proposed Transaction has been very low. As a result of (d) above and the Entitlement Offer, we consider that there are reasonable grounds to expect that the level of trading in Pro-Pac shares post implementation of the Proposed Transaction will increase

Disadvantages

• (f) the interests of Pro-Pac shareholders not associated with IPG will be diluted if the Proposed Transaction is approved
• (g) the Proposed Transaction significantly increases the gearing ratio of the Company
• (h) prima facie, the prospects of a future takeover offer are diminished if the Proposed Transaction is approved as Advent will be in a position to block any future takeover due to the Share Issue.
• 173 As indicated above there are a number of advantages and disadvantages associated with the Proposed Transaction. However, in our view, the advantages of the Proposed Transaction significantly outweigh the disadvantages.
• 174 For the reasons set out above, in our opinion, the Proposed Transaction is therefore not fair but is reasonable to Pro-Pac shareholders.

Appendix A

Financial Services Guide

Lonergan Edwards & Associates Limited

• 1 Lonergan Edwards & Associates Limited (ABN 53 095 445 560) (LEA) is a specialist valuation firm which provides valuation advice, valuation reports and independent expert's reports (IER) in relation to takeovers and mergers, commercial litigation, tax and stamp duty matters, assessments of economic loss, commercial and regulatory disputes.
• 2 LEA holds Australian Financial Services Licence No. 246532.

Financial Services Guide

• 3 The Corporations Act 2001 (Cth) (Corporations Act) authorises LEA to provide this Financial Services Guide (FSG) in connection with its preparation of an IER to accompany the Notice of Meeting to be sent to Pro-Pac shareholders in connection with the Proposed Transaction.
• 4 This FSG is designed to assist retail clients in their use of any general financial product advice contained in the IER. This FSG contains information about LEA generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the IER, and if complaints against us ever arise how they will be dealt with.

Financial services we are licensed to provide

5 Our Australian Financial Services Licence allows us to provide a broad range of services to retail and wholesale clients, including providing financial product advice in relation to various financial products such as securities, derivatives, interests in managed investment schemes, superannuation products, debentures, stocks and bonds.

General financial product advice

• 6 The IER contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs.
• 7 You should consider your own objectives, financial situation and needs when assessing the suitability of the IER to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment.

Fees, commissions and other benefits we may receive

• 8 LEA charges fees to produce reports, including this IER. These fees are negotiated and agreed with the entity who engages LEA to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the entity who engages us. In the preparation of this IER, LEA is entitled to receive a fee estimated at $65,000 plus GST.
• 9 Neither LEA nor its directors and officers receives any commissions or other benefits, except for the fees for services referred to above.

Appendix A

• 10 All of our employees receive a salary. Our employees are eligible for bonuses based on overall performance and the firm's profitability, and do not receive any commissions or other benefits arising directly from services provided to our clients. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits arising directly from services provided to our clients.
• 11 We do not pay commissions or provide other benefits to other parties for referring prospective clients to us.

Complaints

• 12 If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner.
• 13 If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Ombudsman Services Limited (FOS), an external complaints resolution service. You will not be charged for using the FOS service.

Contact details

14 LEA can be contacted by sending a letter to the following address:

Level 7 64 Castlereagh Street Sydney NSW 2000 (or GPO Box 1640, Sydney NSW 2001)

Appendix B

Qualifications, declarations and consents

Qualifications

• 1 LEA is a licensed investment adviser under the Corporations Act. LEA's authorised representatives have extensive experience in the field of corporate finance, particularly in relation to the valuation of shares and businesses and have prepared hundreds of IERs.
• 2 This report was prepared by Mr Craig Edwards and Mr Martin Holt, who are each authorised representatives of LEA. Mr Edwards and Mr Holt have over 23 years' and 31 years' experience respectively in the provision of valuation advice (and related advisory services).

Declarations

3 This report has been prepared at the request of the Directors of Pro-Pac to accompany the Notice of Meeting to be sent to Pro-Pac shareholders. It is not intended that this report should serve any purpose other than as an expression of our opinion as to whether or not the Proposed Transaction is fair and reasonable to Pro-Pac shareholders.

Interests

• 4 At the date of this report, neither LEA, Mr Edwards nor Mr Holt have any interest in the outcome of the Proposed Transaction. With the exception of the fee shown in Appendix A, LEA will not receive any other benefits, either directly or indirectly, for or in connection with the preparation of this report.
• 5 We have considered the matters described in ASIC RG 112 Independence of experts, and consider that there are no circumstances that, in our view, would constitute a conflict of interest or would impair our ability to provide objective independent assistance in this engagement.

Indemnification

6 As a condition of LEA's agreement to prepare this report, Pro-Pac agrees to indemnify LEA in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of Pro-Pac which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.

Consents

7 LEA consents to the inclusion of this report in the form and context in which it is included in Pro-Pac's Notice of Meeting.

Appendix C

Listed company multiples

1 A summary of the implied EBITDA, EBITA and PE multiples for listed companies operating in the packaging sector is set out below, with a brief description of each company's business activities following thereafter:

Listed company trading multiples(1)
	Enterprise	EBITDA multiples			EBITA multiples	PE multiples
	value(2)		Historic(3)Forecast(4)	Historic(3)Forecast(4)		Historic(3)Forecast(4)
	A$m	x	x	x	x	x	x
Australian companies
Amcor	24,299	13.3	12.1	17.4	15.7	26.6	24.2
Orora	4,475	10.7	9.9	14.8	13.7	20.5	18.9
Pact Group	2,224	9.5	8.6	13.0	11.6	15.7	14.1
Overseas companies(5)
PSB Industries	423	6.0	5.9	10.7	10.4	12.4	10.7
Resilux	415	6.9	6.6	10.8	na	15.6	14.1
Reno de Medici	406	8.9	6.5	31.0	13.6	59.6	16.2
Richards Packaging	382	10.0	na	10.5	na	17.5	na
Income Fund
UFP Technologies	210	10.3	na	15.3	10.4	27.7	19.4
Defuol	143	5.0	na	10.1	na	9.4	na
Imaflex	77	nm	10.9	nm	na	nm	21.5
Robinson	41	7.2	8.7	11.9	20.0	15.4	21.3

Note:

• 1 Enterprise value and earnings multiples calculated as at 25 August 2017.
• 2 Enterprise value includes net debt (interest bearing liabilities less non-restricted cash), preference shares, convertible notes, net derivative liabilities, net pension liabilities, market capitalisation adjusted for material option dilution and buybacks and excludes surplus assets.
• 3 The historical multiples for the overseas companies are based on their actual results for the year ended 31 December 2016.
• 4 The forecast multiples for the overseas companies are based on the average analyst forecasts for the year ending 31 December 2017. Analyst forecasts have been sourced from Bloomberg.
• 5 Excludes companies with an enterprise value of more than A$500 million.
• na not available. nm not meaningful.

Source: Bloomberg, latest full year statutory accounts, latest interim accounts, company announcements and LEA analysis.

Australian companies

Amcor Limited

2 Amcor is a global packaging company that has two key segments. The Rigid Plastics segment manufactures rigid plastic containers for a variety of food and beverage products and the Flexibles segment manufactures flexible and film packaging products that are supplied to a range of industries including the food and beverage, medical, pharmaceutical and tobacco industries. In addition, it holds a 47.6% interest in AMVIG Holdings Limited, a manufacturer

Appendix C

of tobacco packaging which is listed on the Hong Kong Stock Exchange. Amcor is headquartered in Melbourne, Australia and has operations in more than 40 countries.

Orora Limited

3 Orora is engaged in the provision of packaging solutions and related services. It manufactures fibre and beverage packaging products such as glass bottles, beverage cans, corrugated boxes and recycled paper and provides a range of services including printing and signage, product sourcing, logistics and retail display solutions. Its operations are focused in Australia, New Zealand and North America. Orora is headquartered in Melbourne, Australia and employs approximately 6,700 people.

Pact Group Holdings Limited

4 Pact Group is a provider of specialty packaging solutions in Australasia that serves customers in the consumer and industrial sectors. It manufactures and supplies rigid plastic and metal packaging products including bottles, containers, jars, tubes, closures, steel drums, tinplate pails and other metal containers. In addition, it provides contract manufacturing, recycling and sustainability services. Pact Group is headquartered in Melbourne, Victoria and has operations in Australia, New Zealand, China, Indonesia, the Philippines, Singapore and Thailand.

Overseas companies

PSB Industries SA

5 PSB Industries is a France-based manufacturer of packaging products and specialty chemicals that operates under four key brands, being Baikowski, CGL Pack, Texen and Plastibell. Its packaging operations are focused on the manufacturing of products that are supplied to the cosmetics, perfume, healthcare, food and non-food distribution sectors. In addition, the company specialises in the production of ultra-pure alumina powders and formulations. The company has 24 production sites and eight sales offices that are spread across Europe, Asia and the Americas.

Reno de Medici SpA

6 Reno De Medici is an Italy-based manufacturer and distributor of cardboard products. The company operates through its two segments of White Lined Chipboard and Folding Box Board, and primarily offers carton boards for packaging and binding applications through a network of agents. Its operations consist of six cartonboard production facilities spread across Italy, Germany, France and Spain that produce recycled as well as virgin fibre board which is sold in some 70 countries.

UFP Technologies Inc.

7 UFP Technologies is a producer of innovative customer-engineered components, products and speciality packing with a focus on foams, plastics, composites and natural fibre materials. The company offers medical device components, disposable wound care components, automotive interior trims, athletic padding, abrasive nail files and other beauty aids, air filtration, high-temperature insulation, military uniform and gear components, and cushion packaging products. It primarily services the medical, automotive, consumer, electronics, industrial, aerospace and defence industries in the US.

Appendix C

Deufol SE

8 Deufol is a German-based provider of packaging and related services with operations in Europe, the US, China and Singapore. Its core Export & Industrial Packaging segment comprises logistics activities for capital and investment goods manufacturers, such as construction, production and export of packaging. The company's Consumer & Data Packaging segment offers logistics services including packaging design and production, as well as automated and manual packaging. Its Supplementary Services segment provides planning, management, spare-parts and just-in-time logistics, storing and value-added services.

Imaflex Inc.

9 Imaflex develops, manufactures and markets flexible packaging materials, primarily in North America as well as internationally. With an emphasis on polyethylene (i.e. plastic) films and bags, the company offers its products to the consumer, industrial and agriculture markets. It also provides industrial products such as garbage and compostable bags, as well as bags on a roll and polyester products. The company is headquartered in Montreal, Canada and has manufacturing facilities in Canada and the US.

Robinson plc

10 Robinson is a packaging solutions provider specialising in injection, blow and stretch-blow moulded plastic and rigid paperboard that operates in the United Kingdom and Europe. The company offers various plastic packaging products, such as thin-walled containers and jars, and various types of paper packaging products including conventional boxes as well as luxury standard boxes for confectionary, cosmetics and designer clothing. Its products are supplied to the food and beverage, personal care, cosmetic and homecare markets.

Appendix D

Glossary

Meaning
The six months ended 31 December 2016
The six months ending 30 June 2017
APC I Pty Ltd in its capacity as trustee of the Advent V Trust A, and APC II
Pty Ltd in its capacity as trustee of the Advent V Trust B. Both of these funds
are managed by Advent Partners Pty Limited
Australian Securities & Investments Commission
Australian Securities Exchange
Corporations Act 2001 (Cth)
Discounted cash flow
Earnings before interest and tax
Earnings before interest, tax and amortisation of acquired intangibles
Earnings before interest, tax, depreciation and amortisation
2 for 3 non-renounceable entitlement offer at $0.34 per Pro-Pac share
Enterprise value
Financial Ombudsman Services Limited
Financial Services Guide
Financial year
Independent expert's report
Integrated Packaging Group Pty Limited
Integrated Recycling
Lonergan Edwards & Associates Limited
Price earnings
Pro-Pac Packaging Limited
Proposed transaction between Pro-Pac and IPG as described in paragraph 1
ASIC Regulatory Guideline 111 – Content of expert reports
The issue of 158.4 million Pro-Pac shares to Advent and IPG management at
a price of $0.379 per Pro-Pac share
Volume weighted average price
Weighted average number of shares outstanding

PRO-PAC PACKAGING LIMITED

A.C.N. 112 971 874

Registered Office: 147-151 Newton Road, Wetherill Park, Sydney, NSW 2164, Australia PO Box 6484, Wetherill Park, NSW 2164 Phone: (02) 8781 0500 Fax: (02) 8781 0599

		Proxy Form
I,	………………………………………………………………………………………………………………………………………………………….(FULL NAME, BLOCK LETTERS)
of	………………………………………………………………………………………………………………………………………………………….
	being a member of Pro-Pac Packaging Limited.
SECTION A	HEREBY APPOINT ………………………………………………………………………………………………………………………………………………
of	………………………………………………………………………………………………………………………………………………………….
	or, failing him/her, the Chairman of the Extraordinary General Meeting, as my/our proxy to vote for me/us and on my/our behalf at theExtraordinary General Meeting of the Company to be held on 26 October 2017 at 12:00pm (Sydney time), or at any adjournment thereof. Theproxy so appointed shall represent all my/our voting rights except those (if any) specified in B below.
	SECTION B (DO NOT COMPLETE THIS SECTION UNLESS YOU WISH TO APPOINT TWO PROXIES)
	AND I FURTHER APPOINT………………………………………………………………………………………………………………………….
of	………………………………………………………………………………………………………………………………………………………….
	as my proxy to vote for me/us and on my/our behalf at the said meeting or at any adjournment thereof. The proxy, appointed by this Section B,shall represent my/our voting rights in respect of …………………… Shares.
	I/ we instruct my/our proxy to vote as indicated below in respect of the Resolution:
			A			B
	Resolution – Issue of Consideration Shares to Advent	For	Against	Abstain	For	Against	Abstain
Where I/we have appointed the Chairman of the Meeting as my/our proxy (or the Chairman becomes my/our proxy by default), I/we expresslyauthorise the Chairman to exercise my/our proxy on the Resolution in accordance with my/our voting intention indicated above even though theResolution may be connected directly or indirectly with the remuneration of a member of key management personnel, which includes theChairman.
	Signed this…………………………………….day of …………………………………………….2017.
	…………………………………………………………….………Signature of Shareholder(s)		Signature of Witness	………………………………………………………………………

This proxy form and the power of attorney or other authority (if any) under which it is signed or a certified copy, must be received by the Company at least 48 hours before the time for holding of the meeting or any adjourned meeting (or such lesser period as the Directors may permit) at the Company's registered office: 147-151 Newton Road, Wetherill Park NSW 2164 (PO Box 6484, Wetherill Park NSW 2164); or the following fax number at the Company's registered office: (02) 8781 0599.