##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES AND EXCHANGE ACT OF 1934o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31,
    2005                             Commission
    file number
    000-49741   PACKAGING DYNAMICS
    CORPORATION
 (Exact name of registrant as
    specified in its charter)
  Delaware(State or other
    jurisdiction of
    incorporation)

32-0009217(I.R.S. Employer
    Identification No.)3900 West
    43rd Street
    Chicago, Illinois(Address of Principal
    Executive Office)

60632(Zip
    Code)   Registrants telephone number, including area code:
 (773) 843-8000
  Securities registered pursuant to Section 12(b) of the
    Act:  None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $0.01 par value
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PagePART IItem 1.

Business


2Item 1A.

Risk Factors


6Item 1B.

Unresolved Staff
    Comments


9Item 2.

Properties


9Item 3.

Legal
    Proceedings


10Item 4.

Submission of
    Matters to a Vote of Security Holders


11PART IIItem 5.

Market for the
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


11Item 6.

Selected Financial
    Data


12Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


13Item 7A

Quantitative and
    Qualitative Disclosures About Market Risk


22Item 8.

Financial
    Statements and Supplementary Data


24Item 9.

Changes In and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


53Item 9A

Controls and
    Procedures


53Item 9B

Other
    Information


53PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


54Item 11.

Executive
    Compensation


56Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


60Item 13.

Certain
    Relationships and Related Transactions


61Item 14.

Principal
    Accounting Fees and Services


65PART IVItem 15.

Exhibits and
    Financial Statement Schedules


65SubsidiariesConsent of PricewaterhouseCoopers LLPCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of CEO and CFO   1




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##### Table of Contents



PART I  Item 1.
    Business  Organization
    and Structure
    Overview
      Hart-Scott-Rodino
  Products
    and Markets
  Food
    Packaging
   2




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Specialty
    Laminations
    Business
    Strategy
    New
    Product Design and Development
    Converting
    Capabilities
     3




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Competition
    Employees
    Raw
    Materials
    Intellectual
    Property
    Customers,
    Sales and Backlog
   4




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Environmental
    Matters and Government Regulation
        Financial
    Information About Segments and Geographic Areas
    Merger
    and Distribution
   5




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##### Table of Contents



C-corporation
      (773) 843-8000. www.pkdy.com. Form 10-K. Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors  Form 10-K,
  Obtaining
    required approvals and satisfying closing conditions may delay
    or prevent completion of our merger with Thilmany.
  Hart-Scott-Rodino
 6




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##### Table of Contents



Failure
    to complete the merger could adversely impact the market price
    of our common stock as well as our business and operating
    results.
    
    depending on the reasons for termination of the merger
    agreement, the requirement that we pay Thilmany a termination
    fee of $5.0 million;
    substantial costs related to the merger, such as legal,
    accounting, filing and printing fees, that must be paid
    regardless of whether the merger is completed; and
    potential disruption of our business and the distraction of our
    workforce and management team.  Our
    substantial indebtedness may impair our operations and depress
    our financial results.
    
    increase our vulnerability to general adverse economic and
    industry conditions;
    limit our ability to obtain additional financing;
    require us to dedicate a substantial portion of our cash flow
    from operations to interest and amortization payments on our
    indebtedness, reducing the amount of cash available for other
    purposes, including capital expenditures and other general
    corporate purposes;
    require us to sell debt or equity securities or to sell some of
    our core assets, possibly on unfavorable terms, to meet payment
    obligations;
    restrict us from making strategic acquisitions, introducing new
    technologies or exploiting business opportunities;
    limit our flexibility in planning for, or reacting to, changes
    in our business and our industry; and
    place us at a possible disadvantage compared to our competitors
    that have less debt.  Covenants
    in our senior credit facility could adversely affect our
    business by limiting our operating and strategic
    flexibility.
      
    incur more debt or guarantee indebtedness;
    create liens;
    make acquisitions or investments;
    enter into transactions with affiliates;
    enter into sale-leaseback transactions; 7




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##### Table of Contents




    merge, consolidate or sell assets; and
    pay dividends.    We may
    encounter difficulties arising from integrating acquisitions,
    restructuring operations or closing or disposing of
    facilities.
      Intense
    competition in our markets may harm our financial performance
    and growth prospects.
    Our
    financial performance may be harmed by raw material cost
    increases.
  and/or
  Inability
    to attract and retain key officers and management personnel
    could harm our performance and prospects.
   8




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Our
    business could suffer in the event of a work stoppage by our
    unionized labor force.
    We are
    subject to potential liability under environmental
    laws.
  and/or
  A
    significant write down of goodwill
    and/or other
    intangible assets could have a material adverse effect on our
    operating results and net worth.
    Packaging
    Investors, L.P. owns a significant interest in us and will
    significantly influence the election of directors and the
    outcome of stockholder votes, and its interests may conflict
    with your interests.
  change-in-control
  Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties    Owned
    Facilities
  Location

Square Feet


Principal Use

Operating SegmentChicago, Illinois


148,000


Office, Manufacturing and Warehouse

Food PackagingBaxter Springs, Kansas


265,000


Office, Manufacturing and Warehouse

Food PackagingCaldwell, Ohio


117,000


Office, Manufacturing and Warehouse

Specialty LaminationsBelpre, Ohio


81,000


Office, Manufacturing and Warehouse

Specialty Laminations  9




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##### Table of Contents



Leased
    Facilities
  Location

Square Feet


Principal Use

Operating SegmentChicago, Illinois(1)


65,000


Office and Warehouse

Food PackagingFort Madison, Iowa(2)


58,000


Office, Manufacturing and Warehouse

Food PackagingIuka, Mississippi(3)


90,000


Office, Manufacturing and Warehouse

Specialty LaminationsAtlanta, Georgia(4)


75,000


Office, Manufacturing and Warehouse

Food PackagingAtlanta, Georgia(4)


25,000


Office and Warehouse

Food PackagingCity of Industry, California(5)


79,000


Office, Manufacturing and Warehouse

Food PackagingFarmers Branch, Texas(6)


50,000


Office, Manufacturing and Warehouse

Food Packaging     (1)
    
    Lease expires in 2016, subject to our right to extend the lease
    for one additional ten-year period upon our written notice to
    the sublessor.(2)
    
    Lease expires in 2012, subject to our right to extend the lease
    for two successive five-year periods upon our written notice to
    the lessor.(3)
    
    Sublease expires in 2006, subject to our right to extend the
    lease for 53 consecutive annual renewal terms of one
    (1) year each through September 30, 2058 and one
    (1) final automatic renewal term of nine (9) years
    ending September 30, 2067.(4)
    
    Lease expires in 2009, subject to our right to extend the lease
    for three successive five-year periods upon our written notice
    to the lessor.(5)
    
    Sublease expires in 2009, subject to our right to extend the
    lease for two successive periods of approximately three-years
    each upon our written notice to the sublessor.(6)
    
    Lease expires in 2008, subject to our right to extend the lease
    for one successive five-year period upon our written notice to
    the lessor.  Item 3.
    Legal
    Proceedings     10




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##### Table of Contents



Camp Ger, Inc. and Ruthy Parness v.
    Frank V. Tannura
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    PricesHigh


Low


Dividends Declared2004First Quarter

$
13.44


$
9.27


$
0.05Second Quarter

$
15.85


$
11.74


$
0.05Third Quarter

$
15.29


$
11.40


$
0.05Fourth Quarter

$
15.38


$
12.90


$
0.0652005First Quarter

$
15.45


$
12.75


$
0.065Second Quarter

$
14.50


$
12.18


$
0.065Third Quarter

$
15.39


$
11.76


$
0.065Fourth Quarter

$
12.73


$
9.16


$
0.065    11




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##### Table of Contents



Item 6.
    Selected
    Financial Data      Year Ended
    December 31,2005


2004


2003


2002


2001(Dollars in thousands, except
    per share data)Statement of operations
    data:(1)Net sales

$
360,960


$
304,973


$
243,444


$
237,430


$
212,900Cost of sales


312,414



261,910



209,472



207,336



185,964Operating expenses


26,055



20,541



16,193



18,144



12,994Income from operations


22,491



22,522



17,779



11,950



13,942Interest expense


8,306



5,900



5,674



5,982



9,350Income before income taxes


14,185



16,622



12,105



5,968



4,592Income tax provision (benefit)(2)


5,461



6,566



4,736



2,521



603Income from continuing operations


8,724



10,056



7,369



3,447



3,989Loss from discontinued operations,
    net of tax benefit


(399
)


(1,278
)


(22,089
)


(2,516
)


(1,645
)Net Income (loss)


8,325



8,778



(14,720
)


931



2,344Basic net income(loss) per
    share:(3)Continuing operations


0.83



1.01



0.76







Discontinued operations


(0.04
)


(0.13
)


(2.28
)






Net income (loss)


0.79



0.88



(1.52
)






Diluted net income (loss) per
    share:(3)Continuing operations


0.80



0.98



0.75







Discontinued operations


(0.04
)


(0.13
)


(2.25
)






Net income (loss)


0.76



0.85



(1.50
)






Cash dividends declared per common
    share


0.26



0.22



0.05







   12




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##### Table of Contents



December 31,2005


2004


2003


2002


2001Balance sheet data (end of
    period):Total assets


232,213



228,667



142,956



166,355



160,010Total liabilities


174,133



178,805



111,566



120,648



126,013Long-term debt, including note
    payable to related party


96,894



110,386



66,700



67,710



94,962Stockholders
    equity/Members equity


58,080



49,862



31,390



45,707



33,997     (1)
    
    The financial data of Packaging Dynamics Corporation include the
    acquisition of the capital stock of Papercon, as of
    September 14, 2004, the net assets of the Iuka Lamination
    Division of Ormet Corporation (Iuka), as of
    December 4, 2003 and the common stock of Wolf Packaging,
    Inc. (Wolf), as of October 23, 2002.(2)
    
    Prior to July 1, 2002, for income tax purposes, Packaging
    Holdings federal and state taxable income, other than
    income generated by International Converter, Inc.
    (ICI), was reported by its members on their income
    tax returns as if the company were a partnership.(3)
    
    On July 1, 2002, the Company issued 9,437,750 shares
    of common stock in connection with the merger and distribution.
    Prior to July 1, 2002, the Company ownership consisted of
    membership units. Accordingly, no earnings per share information
    has been presented for 2002 or 2001.  Item 7.
    Managements
    Discussion and Analysis of Financial Condition
    and  Results of Operations      Summary
    and Outlook
     13




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##### Table of Contents



Financial
    Performance
      Food
    Packaging
  2005


2004


2003Net Sales

$
279,643


$
213,053


$
172,882Segment Operating Income

$
18,753


$
14,572


$
12,091Segment Operating Income Margin


6.7
%


6.8
%


7.0
%Depreciation and Amortization

$
6,409


$
4,503


$
3,895        14




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##### Table of Contents



Specialty
    Laminations
  2005


2004


2003Net Sales

$
86,255


$
95,454


$
73,720Segment Operating Income

$
4,079


$
7,895


$
6,501Segment Operating Income Margin


4.7
%


8.3
%


8.8
%Depreciation and Amortization

$
1,695


$
1,741


$
1,647             Asset
    Sales and Disposals and Facility Exit Costs
   15




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##### Table of Contents



Interest
    Expense
      Income
    Taxes
      Income
    from Continuing Operations
      Discontinued
    Operations
   16




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Disclosure
    About Critical Accounting Policies
    Revenue
    Recognition
    Inventories
  first-in, Form 10-K
  Accounts
    Receivable
      Form 10-K
 17




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Long-Lived
    Assets
      Impairment
    of Goodwill
            Stock-Based
    Compensation
   18




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Income
    Taxes
      Liquidity
    and Capital Resources
   19




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##### Table of Contents



20




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##### Table of Contents



Long-Term


Operating


CapitalDebt


Lease


Lease


Non-CompeteMaturities


Commitments


Commitments


Agreement


Total2006

$
14,093


$
2,396


$
90


$
1,333


$
17,9122007


8,092



1,819



90



1,000



11,0012008


8,343



1,578



68







9,9892009


80,459



1,308











81,7672010






587











587Thereafter






3,970











3,970Total

$
110,987


$
11,658


$
248


$
2,333


$
125,226     Recently
    Issued Accounting Pronouncements
  New
    Accounting Pronouncements
    FAS 109-1 (FAS 109-1); FAS 109-2 (FAS 109-2). FAS 109-1, FAS 109-2
   21




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##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk        Special
    Note Regarding Forward-Looking Statements
   22




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23




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##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data      
    Consolidated Balance Sheets at December 31, 2005 and 2004
    Consolidated Statements of Operations for the Years ended
    December 31, 2005, 2004 and 2003
    Consolidated Statements of Stockholders Equity and Other
    Comprehensive Income for the Years ended December 31, 2005,
    2004 and 2003
    Consolidated Statements of Cash Flows for the Years ended
    December 31, 2005, 2004 and 2003
    Notes to the Consolidated Financial Statements 24




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         25




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
 (Dollars in thousands)
  December 31,


December 31,2005


2004ASSETSCurrent Assets:Cash and cash equivalents

$
3


$
1,175Accounts receivable trade (net of
    allowance for doubtful accounts of $776 and $825)


31,263



31,174Inventories, net


42,036



36,506Prepaid expenses and other assets


6,502



5,962Total current assets


79,804



74,817Property, Plant and EquipmentBuildings and improvements


21,134



20,919Machinery and equipment


61,474



58,287Construction in progress


4,514



92487,122



80,130Less-Accumulated depreciation


(36,456
)


(29,284
)50,666



50,846Land


848



848Total property, plant and equipment


51,514



51,694Other Assets:Goodwill


81,263



81,263Intangibles and other assets, net


19,632



20,893Total other assets


100,895



102,156Total Assets

$
232,213


$
228,667LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Current maturities of long-term debt

$
14,093


$
6,093Cash overdraft


6,573



6,339Accounts payable


25,038



20,793Accrued salary and wages


2,628



3,420Other accrued liabilities


6,989



8,207Total current liabilities


55,321



44,852Long-term Debt


96,894



110,386Other Liabilities


3,041



7,592Deferred Income Taxes


18,877



15,975Total Liabilities


174,133



178,805Commitments and Contingencies
    (Note 11)Stockholders Equity:Common stock, $.01 par
    value  40,000,000 shares authorized;
    10,751,249 and 10,514,837 shares issued and outstanding at
    December 31, 2005 and December 31, 2004, respectively


107



105Preferred stock, $.01 par
    value  5,000,000 shares authorized; no
    shares issued and outstanding






Paid in capital in excess of par
    value


60,260



57,995Accumulated other comprehensive
    income


441



61Accumulated deficit


(2,728
)


(8,299
)Total stockholders equity


58,080



49,862Total Liabilities and
    Stockholders Equity

$
232,213


$
228,667    26




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
  CONSOLIDATED STATEMENTS OF OPERATIONS
 (Dollars in thousands, except per share data)
  For the Year Ended
    December 312005


2004


2003Net sales

$
360,960


$
304,973


$
243,444Cost of goods sold


312,414



261,910



209,472Gross profit


48,546



43,063



33,972Operating expenses:Selling, general and administrative


23,663



19,650



14,736Depreciation and amortization


2,051



946



644Asset sales and disposals






(55
)


813Facility exit costs


341







Total operating expenses


26,055



20,541



16,193Operating income


22,491



22,522



17,779Interest expense


8,306



5,900



5,674Income before income taxes


14,185



16,622



12,105Income tax provision


5,461



6,566



4,736Income from continuing operations


8,724



10,056



7,369Loss from discontinued operations,
    net of tax


(399
)


(1,278
)


(22,089
)Net income (loss)

$
8,325


$
8,778


$
(14,720
)Income (loss) per share:Basic:Continuing operations

$
0.83


$
1.01


$
0.76Discontinued operations


(0.04
)


(0.13
)


(2.28
)Net income

$
0.79


$
0.88


$
(1.52
)Diluted:Continuing operations

$
0.80


$
0.98


$
0.75Discontinued operations


(0.04
)


(0.13
)


(2.25
)Net income

$
0.76


$
0.85


$
(1.50
)Cash dividend declared per share

$
0.260


$
0.215


$
0.050Weighted average shares
    outstanding:Basic


10,573,137



9,927,406



9,667,301Diluted


10,941,000



10,268,678



9,808,164    27




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
    CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND
    OTHER COMPREHENSIVE INCOME
    (Dollars in thousands)
  AccumulatedOtherCommon Stock


Paid In


Accumulated


Comprehensive


Stockholders


ComprehensiveShares


Amount


Capital


Deficit


Income


Equity


IncomeBalance at December 31,
    2002  (Revised)


9,618,767


$
96


$
45,985


$
304


$
(678
)

$
45,707Net income














(14,720
)






(14,720
)

$
(14,720
)Issuance of common stock


62,737



1



443











444Other comprehensive income:Net change in fair value of
    derivative instruments, net of income taxes of $289


















443



443



443Comprehensive Income

























$
(14,277
)Cash dividend ($.05 per share)














(484
)






(484
)Balance at December 31, 2003


9,681,504


$
97


$
46,428


$
(14,900
)

$
(235
)

$
31,390Net income














8,778







8,778


$
8,778Issuance of common stock


833,333



8



11,567











11,575Other comprehensive income:Net change in fair value of
    derivative instruments, net of income taxes of $193


















296



296



296Comprehensive Income

























$
9,074Cash dividend ($.22 per share)














(2,177
)






(2,177
)Balance at December 31, 2004


10,514,837


$
105


$
57,995


$
(8,299
)

$
61


$
49,862Net income














8,325







8,325


$
8,325Issuance of common stock


236,412



2



2,265











2,267Other comprehensive income:Net change in fair value of
    derivative instruments, net of income taxes of $238


















380



380



380Comprehensive Income

























$
8,705Cash dividend ($.26 per share)














(2,754
)






(2,754
)Balance at December 31, 2005


10,751,249


$
107


$
60,260


$
(2,728
)

$
441


$
58,080    28




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 (Dollars in thousands)
   For the Year Ended
    December 312005


2004


2003Cash flows from operating
    activities:Net income

$
8,325


$
8,778


$
(14,720
)Loss from discontinued operations


399



1,278



22,089Adjustments to reconcile net income
    to net cash from operating activities:Depreciation and amortization


8,104



6,244



7,063Amortization and write-off of
    deferred finance costs


635



393



1,932(Gain)/Loss on disposal of assets






(55
)


813Provision for doubtful accounts


(49
)


126



(74
)Deferred income taxes


2,900



4,728



(3,507
)Changes in operating assets and
    liabilities:Accounts receivable


(44
)


128



(1,072
)Inventories


(5,530
)


(4,429
)


5,635Other assets


194



(1,674
)


111Accounts payable and accrued
    liabilities


(608
)


5,040



(1,426
)Net cash from continuing operating
    activities


14,326



20,557



16,844Net cash used by discontinued
    operating activities


(2,485
)


(3,230
)


(1,855
)Net cash from operating activities


11,841



17,327



14,989Cash flows used by investing
    activities:Proceeds from sale of assets






225



4Acquisitions, net of cash acquired






(45,124
)


(5,198
)Additions to property, plant and
    equipment


(6,990
)


(6,081
)


(6,272
)Net cash used by continuing
    investing activities


(6,990
)


(50,980
)


(11,466
)Net cash from (used by)
    discontinued investing activities


1,132



602



(855
)Net cash used by investing
    activities


(5,858
)


(50,378
)


(12,321
)Cash flows from (used by) financing
    activities:Principal payments for loan
    obligations


(6,092
)


(5,871
)


(75,680
)Proceeds from loan obligations






45,000



70,000Proceeds under revolving line of
    credit


74,900



89,600



59,400Repayments under revolving line of
    credit


(74,300
)


(91,900
)


(56,200
)Payment of dividends to stockholders


(2,741
)


(1,978
)


Payment of financing costs


(159
)


(670
)


(1,879
)Other, net


1,237



(408
)


280Net cash from (used by) financing
    activities


(7,155
)


33,773



(4,079
)Net increase (decrease) in cash and
    cash equivalents


(1,172
)


722



(1,411
)Cash and cash equivalents at
    beginning of period


1,175



453



1,864Cash and cash equivalents at end of
    period

$
3


$
1,175


$
453Supplemental cash flow disclosures:Cash paid during the year for:Interest

$
7,669


$
4,971


$
4,414Income taxes


4,083



290



400Non-cash investing and financing
    activities:Common stock issued in connection
    with the acquisition of subsidiary






11,575



Debt issued in connection with the
    acquisition of subsidiary






7,000



Non-compete agreement issued in
    connection with the acquisition of subsidiary






3,698



Declaration of dividend


698



683



484    29




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands)
  Note 1  
    Organization
    and Basis of Presentation      Note 2 
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Cash and
    Cash Equivalents
    Revenue
    Recognition
   30




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Inventories
  first-in,
  December 31,


December 31,2005


2004Raw materials

$
23,440


$
18,609Work-in-process


2,856



3,580Finished goods


16,065



14,608$
42,361


$
36,797Obsolescence reserve


(325
)


(291
)Net

$
42,036


$
36,506   Property,
    Plant and Equipment
      Long-Lived
    Assets
      Goodwill
    and Indefinite-Lived Intangible Assets
   31




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Stock
    Based Compensation
      For the Years Ended
    December 31,2005


2004


2003Net income (loss)

$
8,325


$
8,778


$
(14,720
)Deduct: Stock-based employee
    compensation expense determined under fair value based method,
    net of related tax effects


(352
)


(266
)


(36
)Pro forma net income (loss)

$
7,973


$
8,512


$
(14,756
)Income (Loss) Per Share:Basic  as reported

$
0.79


$
0.88


$
(1.52
)Basic  Pro forma

$
0.75


$
0.86


$
(1.53
)Diluted  as
    reported

$
0.76


$
0.85


$
(1.50
)Diluted  Pro forma

$
0.73


$
0.83


$
(1.50
)     2005


2004


2003Expected option life (years)


5



5



5Risk-free weighted average
    interest rate


4.35
%


3.59
%


3.09
%Stock price volatility


29.0
%


27.5
%


27.5
%Dividend yield


2.4
%


1.8
%


1.9
%    32




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Earnings
    Per Share
        2005


2004


2003Income from continuing operations

$
8,724


$
10,056


$
7,369Weighted average shares used to
    determine basic earnings per share from continuing operations


10,573,137



9,927,406



9,667,301Common stock equivalents


367,863



341,272



140,863Weighted average shares used to
    determine diluted earnings per share from continuing operations


10,941,000



10,268,678



9,808,164Basic earnings per share from
    continuing operations

$
0.83


$
1.01


$
0.76Diluted earnings per share from
    continuing operations

$
0.80


$
0.98


$
0.75   Derivatives
    and Other Comprehensive Income (Loss)
     33




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recently
    Issued Accounting Pronouncements
    FAS 109-1 (FAS 109-1); FAS 109-2 (FAS 109-2). FAS 109-1, FAS 109-2
     34




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Concentration
    of Credit Risk
    Fair
    Value of Financial Instruments
    Income
    Taxes
    Product
    Claim Cost
    Estimates
   35




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 3 
    Discontinued
    Operations        Year Ended
    December 31,2005


2004


2003SalesExternal

$



$



$
17,479Intercompany










24,883Discounts & Returns










(589
)Net Sales

$



$



$
41,773Loss from operations

$
(399
)

$
(2,113
)

$
(35,206
)Interest expense










1,305Loss before income taxes


(399
)


(2,113
)


(36,511
)Income tax benefit






835



14,422Net loss

$
(399
)

$
(1,278
)

$
(22,089
)  36




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     December 31,


December 31,2005


2004Accounts receivable trade (net of
    allowance for doubtful accounts of $0 and $45, respectively)

$



$
4Other current assets






138Total assets of discontinued
    operations






142Accounts payable






156Accrued liabilities


448



1,388Total liabilities of discontinued
    operations


448



1,544Net liabilities of discontinued
    operations

$
(448
)

$
(1,402
)     Severance


Pensionand Benefit


Charge


TotalBalance at December 31, 2002

$



$



$
Charges to expense


2,800



816



3,616Cash payments


(1,849
)






(1,849
)Balance at December 31, 2003


951



816



1,767Charges to expense


228



398



626Cash payments


(1,064
)






(1,064
)Balance at December 31, 2004


115



1,214



1,329Charged to expense


521







521Cash payments


(394
)


(1,214
)


(1,608
)Balance at December 31, 2005

$
242


$



$
242   Note 4 
    Acquisition  Papercon
       37




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Current assets (net of $22,650
    cash acquired)

$
17,985Property, plant and equipment


8,314Intangible assets


18,998Goodwill


38,669Total assets acquired (net of
    $22,650 cash acquired)


83,966Current liabilities


(7,881
)Deferred taxes


(7,984
)Total liabilities assumed


(15,865
)Net assets acquired (net of
    $22,650 cash acquired)

$
68,101   15-year
    For the Year EndedDecember 31,


December 31,2004


2003(unaudited)


(unaudited)Net sales

$
367,169


$
328,924Income from continuing operations

$
11,773


$
9,897Net income (loss)

$
10,495


$
(12,192
)Diluted income (loss) per share of
    common stock:Continuing operations

$
1.08


$
0.93Net income (loss)

$
0.97


$
(1.15
)  38




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Iuka
      Current assets

$
5,233Property, plant and equipment


1,258Intangible assets


Goodwill


Total assets acquired


6,491Current liabilities


(1,977
)Total liabilities assumed


(1,977
)Net operating assets acquired


4,514Debt assumed


Net assets acquired

$
4,514   Note 5 
    Goodwill
    and Intangible Assets    WeightedAverage Life


Carrying


Accumulated(Years)


Amount


Amortization


NetIntangible assets subject to
    amortizationCustomer contracts and
    relationships


19.4


$
10,880


$
1,075


$
9,805Covenants not to compete


9.6



4,014



714



3,300$
14,894


$
1,789


$
13,105Intangible assets not subject to
    amortizationTrademarks and trade names





$
4,800


$



$
4,800Goodwill






81,263







81,263$
86,063


$



$
86,063Total intangible assets and
    goodwill





$
100,957


$
1,789


$
99,168  39




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     WeightedAverage Life


Carrying


Accumulated(Years)


Amount


Amortization


NetIntangible assets subject to
    amortizationCustomer contracts and
    relationships


19.4


$
10,880


$
526


$
10,354Covenants not to compete


9.6



4,014



331



3,683$
14,894


$
857


$
14,037Intangible assets not subject to
    amortizationTrademarks and trade names





$
4,800


$



$
4,800Goodwill






81,263







81,263$
86,063


$



$
86,063Total intangible assets and
    goodwill





$
100,957


$
857


$
100,100     Year Ended
    December 31,2005


2004


2003Balance at beginning of period:

$
81,263


$
43,724


$
42,771Adjustments  purchase
    accounting






(1,130
)


Additions






38,669



953Balance at end of period

$
81,263


$
81,263


$
43,724     Note 6 
    Long-Term
    Debt    December 31,


December 31,2005


2004Senior Credit Facility:Term A Loan

$
19,500


$
24,750Term B Loan


82,987



83,829Revolving credit loan


1,500



900Seller note payable


7,000



7,000Subtotal


110,987



116,479Current maturities of long term
    debt


(14,093
)


(6,093
)Long-term debt

$
96,894


$
110,386   Senior
    Credit Facility
   40




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              
    under the leverage ratio covenant, as of the last day of each
    fiscal quarter, the ratio of total funded debt of the Company
    and its consolidated subsidiaries to consolidated EBITDA of the
    Company and its consolidated subsidiaries for the
    12-month
    period then ended must not exceed specified levels, decreasing
    from 4.25 to 1 at December 31, 2005 to 4 to 1;
    under the senior secured leverage ratio covenant, as of the last
    day of each fiscal quarter, the ratio of total secured funded
    debt of the Company and its consolidated subsidiaries to
    consolidated EBITDA of the Company and its consolidated
    subsidiaries for the
    12-month
    period then ended must not exceed specified levels, decreasing
    from 3.50 to 1 at December 31, 2005 to 3 to 1; 41




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    under the fixed charge coverage ratio covenant, as of the last
    day of each fiscal quarter, for the
    12-month
    period then ended, the ratio of consolidated EBITDA less capital
    expenditures and cash tax payments of the Company and its
    consolidated subsidiaries to cash interest expense and scheduled
    funded debt payments (excluding the $7,000 seller note issued in
    connection with the Papercon acquisition) of the Company and its
    consolidated subsidiaries must be equal to or greater than
    certain specified levels, increasing from 1.15 to 1 at
    December 31, 2005 to 1.2 to 1; and
    under the net worth covenant, Packaging Dynamics
    consolidated net worth as of the last day of each fiscal quarter
    must be equal to or greater than 80% of the net worth as of
    September 30, 2003 increased on a cumulative basis by
    (1) as of the last day of each fiscal quarter, 50% of the
    consolidated net income of Packaging Dynamics (to the extent
    positive) for the fiscal quarter then ended, (2) 75% of the
    net cash proceeds from any equity issuance by Packaging Dynamics
    or any subsidiary of Packaging Dynamics, and (3) 75% of the
    amount added to the equity of Packaging Dynamics in accordance
    with GAAP in connection with the Papercon acquisition.  and/or and/or and/or
        Seller
    Note Payable
   42




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Maturities
    Year ending December 31:2006

$
14,0932007


8,0922008


8,3432009


80,459$
110,987   Note 7 
    Operating
    Segment Information   43




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##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended
    December 31,2005


2004


2003Net Sales:Food Packaging

$
279,643


$
213,053


$
172,882Specialty Laminations


86,255



95,454



73,720Elimination of Specialty
    Laminations intercompany sales


(4,938
)


(3,534
)


(3,158
)Total

$
360,960


$
304,973


$
243,444Segment Operating Income:Food Packaging

$
18,753


$
14,572


$
12,091Specialty Laminations


4,079



7,895



6,501Total


22,832



22,467



18,592Asset sales and disposals






55



(813
)Facility exit costs


(341
)






Interest expense


(8,306
)


(5,900
)


(5,674
)Income before income taxes

$
14,185


$
16,622


$
12,105Purchase of Property, Plant and
    Equipment:Food Packaging

$
4,047


$
4,732


$
5,928Specialty Laminations


2,943



1,349



344Total

$
6,990


$
6,081


$
6,272Depreciation and Amortization:Food Packaging

$
6,409


$
4,503


$
3,895Specialty Laminations


1,695



1,741



1,647Discontinued operations










1,521Total

$
8,104


$
6,244


$
7,063   December 31,2005


2004Total AssetsFood Packaging

$
183,176


$
185,342Specialty Laminations


49,037



43,183Discontinued operations






142Total

$
232,213


$
228,667   44




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31,2005


2004GoodwillFood Packaging

$
70,057


$
70,057Specialty Laminations


11,206



11,206Total

$
81,263


$
81,263   Note 8 
    Related
    Party Transactions           45




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       46




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Note 9 
    Income
    Taxes    Year Ended
    December 31,2005


2004


2003Income tax provision:Current

$
4,234


$
864


$
2,605Deferred


1,227



5,702



2,131$
5,461


$
6,566


$
4,736     Year Ended
    December 31,2005


2004


2003Income from continuing operations
    before income taxes

$
14,185


$
16,622


$
12,105Computed expected provision at the
    statutory rate

$
4,965


$
5,818


$
4,237Adjustments to the computed
    expected provision resulting from:Benefit from American Jobs
    Creation Act of 2004


(142
)






State income taxes, net


561



831



605Other, net


77



(83
)


(106
)$
5,461


$
6,566


$
4,736     December 31,2005


2004Deferred Tax Assets:Compensation accruals

$
(1,409
)

$
(1,363
)Restructuring accruals






(619
)NOL carryforward






(492
)Other


(715
)


(899
)$
(2,124
)

$
(3,373
)Deferred Tax Liabilities:Depreciation

$
9,067


$
8,096Intangible assets


9,810



9,138Derivative instruments


281



37$
19,158


$
17,271Net Deferred Tax Liability

$
17,034


$
13,898    47




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Note 10 
    Employee
    Benefit Plans      Long-Term
    Incentive Stock Plans 
     48




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     WeightedShares Under


Option Price

AverageOption


Range ($)

Exercise Price ($)Outstanding at December 31,
    2002


786,087


3.90


3.90Granted


298,000


6.20 - 10.50


9.87Exercised


(62,739
)

3.90


3.90Canceled


(56,304
)

3.90


3.90Outstanding at December 31,
    2003


965,044


3.90 - 10.50


5.74Granted


368,000


12.08 - 14.40


14.35Exercised








Canceled


(41,332
)

6.31 - 10.50


9.82Outstanding at December 31,
    2004


1,291,712


3.90 - 14.40


8.07Granted


362,000


10.20 - 14.20


10.93Exercised


(231,412
)

3.90 - 12.70


4.63Canceled


(53,999
)

10.50 - 14.40


12.75Outstanding at December 31,
    2005


1,368,301


3.90 - 14.40


9.22       WeightedWeighted


AverageAverage


RemainingRange of

Options


Exercise


Contractual


OptionsExercise Prices ($)

Outstanding


Price ($)


Life (Years)


Exercisable3.90


469,301



3.90



6.50



469,3016.20 - 7.00


26,000



6.54



7.18



17,33710.20


289,000



10.20



6.98



10.50 - 14.28


292,000



11.86



5.43



131,67514.40


292,000



14.40



6.00



97,3393.90 - 14.40


1,368,301



9.22



6.28



715,652     Note 11 
    Commitments
    and Contingencies  Legal
    Proceedings
   49




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Lease
    Commitments
      Year ending December 31:2006

$
2,4862007


1,9092008


1,6462009


1,3082010


587Thereafter


3,970$
11,906     Environmental
    Matters and Government Regulation
       50




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 12 
    Asset
    Sales and Disposals    Note 13 
    Facility
    Exit Costs and Restructuring Charge  Facility
    Exit Costs
      For the Year EndedDecember 31, 2005Balance at the beginning of the
    year

$
Charges taken


168Payment of severance and benefits


(8
)Balance at the end of the year

$
160   Note 14 
    Unaudited
    Quarterly Results    March 31,


June 30,


September 30,


December 31,Quarter Ended

2005


2005


2005


2005Net sales

$
86,784


$
89,055


$
93,015


$
92,106Gross profit


12,676



11,003



12,471



12,398Income from operations


5,739



5,201



5,423



6,128Net income from continuing
    operations


2,245



1,943



2,047



2,489Income (loss) from discontinued
    operations


(223
)


(174
)


(137
)


135Net income


2,022



1,769



1,910



2,624Diluted earnings (loss) per share:Continuing operations

$
0.21


$
0.18


$
0.19


$
0.23Discontinued operations

$
(0.02
)

$
(0.02
)

$
(0.02
)

$
0.01Net income

$
0.19


$
0.16


$
0.17


$
0.24   51




---



##### Table of Contents



PACKAGING DYNAMICS CORPORATION
  NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  March 31,


June 30,


September 30,


December 31,Quarter Ended

2004


2004


2004


2004Net sales

$
68,534


$
69,742


$
74,314


$
92,383Gross profit


9,060



10,167



10,458



13,378Income from operations


4,292



5,720



5,360



7,150Net income from continuing
    operations


1,871



2,760



2,315



3,110Loss from discontinued operations


(389
)


(310
)


(122
)


(457
)Net income


1,482



2,450



2,193



2,653Diluted earnings (loss) per share:Continuing operations

$
0.19


$
0.28


$
0.23


$
0.29Discontinued operations

$
(0.04
)

$
(0.04
)

$
(0.01
)

$
(0.05
)Net income

$
0.15


$
0.24


$
0.22


$
0.24   Note 15 
    Subsequent
    Events    Ger, Inc. and Ruthy Parness v.
    Frank V. Tannura
   52




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosures    Item 9A.
    Controls
    and Procedures  Evaluation
    of disclosure controls and procedures.
  Rules 13a-15(e) 15d-15(e)
  Form 10-K
    Changes
    in internal control over financial reporting.
  Rules 13a-15(f) 15d-15(f)
    Item 9B.
    Other
    Information   53




---



##### Table of Contents



PART III  Item 10.
    Directors
    and Executive Officers of the Registrant      Term toName

Principal Occupation or
    Employment

Age


ExpireNomineesGeorge V. Bayly

Mr. Bayly has served as a Director
    of the Company since March 2002 and a member of the Packaging
    Holdings, L.L.C., the predecessor entity of  the Company
    (Packaging Holdings), management committee since
    January 2001. Mr. Bayly served as interim Chief Executive
    Officer of U.S. Can Corporation from April 2004 to January
    2005. He served as Chairman of the Board and Chief Executive
    Officer of Ivex from January 1991 until June 2002 when Ivex was
    acquired by Alcoa. Mr. Bayly is also Executive Chairman of
    U.S. Can Corporation and a director of Acco Brands
    Corporation, TreeHouse Foods, Inc. and Huhtamaki Oyi.


63



2007Anthony P. Scotto

Mr. Scotto has served as a
    Director of the Company since March 2002. He also has served as
    a member of the Packaging Holdings management committee since
    November 1998 and was a director of Ivex from August 1995 until
    June 2002 when Ivex was acquired by Alcoa. Since July 2004,
    Mr. Scotto has been a Partner of Roark Capital Group, an
    investment advisory firm. From September 1999 to June 2004,
    Mr. Scotto was a Managing Director of Oak Hill Advisors,
    Inc., an investment advisory firm.


59



2007Frank V. Tannura

Mr. Tannura has served as Chairman
    of the Board since July 1, 2002, a Director of the Company
    since March 2002, Chief Executive Office of the Company since
    September 2004 and as a member of the Packaging Holdings
    management committee since November 1998. Mr. Tannura served as
    a director of Ivex from August 1999 to June 2002, as an
    Executive Vice President and Chief Financial Officer of Ivex
    from February 1999 to June 2002 and Vice President and Chief
    Financial Officer from October 1989 to February 1999.


49



2007William J. White

Mr. White has served as a Director
    of the Company since July 1, 2002. Mr. White was a
    director of Ivex from 1997 until June 2002 when Ivex was
    acquired by Alcoa, and has been a professor at Northwestern
    University since January 1998. Mr. White served as Chairman
    of the Board and Chief Executive Officer of Bell &
    Howell Company from February 1993 to December 1997 and of
    Bell & Howell Operating Company from February 1990 to
    December 1997. He is also a director of Readers Digest
    Association, Inc.


67



2007Gaby A. Ajram

Mr. Ajram has served as a Director
    of the Company since September 21, 2005 and as Vice
    President of the Company from September 2004 to December 2005.
    Mr. Ajram served as President of Papercon from 1991 to 2005.


60



2007  54




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##### Table of Contents



Executive
    Officers of the Company
    Name

Age


InformationFrank V. Tannura


49


Mr. Tannura has served as the
    Chairman of the Board since July 1, 2002, a Director of the
    Company since March 2002, Chief Executive Officer of the Company
    since September 2004 and as a member of the Packaging Holdings
    management committee since November 1998. Mr. Tannura
    served as a director of Ivex from August 1999 to June 2002, as
    an Executive Vice President and Chief Financial Officer of Ivex
    from February 1999 to June 2002 and Vice President and Chief
    Financial Officer from October 1989 to February 1999. From 1996
    to December 2005, Mr. Tannura also served as Vice President
    of Valentine Paper, Inc. (Valentine). On
    June 6, 2005, Valentine filed a voluntary plan of
    reorganization under Chapter 11 of the U.S. Bankruptcy
    Code.Patrick T. Chambliss


38


Mr. Chambliss has served as Vice
    President, Chief Financial Officer and Secretary of the Company
    since September 2004. Mr. Chambliss served as a consultant
    to the Company from October 2003 to September 2004. From 1997 to
    2003 Mr. Chambliss was employed by the investment banking
    division of Merrill Lynch & Co., most recently as Vice
    President in the Mergers and Acquisitions group.Eugene J. Gentili


59


Mr. Gentili was appointed
    Executive Vice President and General
    Manager  Food Packaging in March 2005. Prior to
    joining Packaging Dynamics, Mr. Gentili served as President
    and Chief Executive Officer of Mullinix Packages, Inc. from
    January 2003 to March 2005 and Vice President and General
    Manager of Ivex from 1996 to 2003.Jeremy S. Lawrence


55


Mr. Lawrence has served as Vice
    President and General Manager  Specialty
    Laminations since October 2001. He joined Packaging Holdings in
    August 2000 as Vice President of Human Resources.
    Mr. Lawrence served as Vice
    President  Human Resources for Ivex from 1991 to
    July 2000.David E. Wartner


39


Mr. Wartner has served as Vice
    President, Finance and Corporate Controller of the Company since
    January 2005. Mr. Wartner served as Vice President and
    Chief Financial Officer of SEI Information Technology from 2003
    to January 2005 and of the Company from July 2002 to December
    2002. Mr. Wartner served as Vice President and Corporate
    Controller of Ivex prior to July 2002.   Code of
    Business Conduct and Ethics
    Determination
    of Director Independence
     55




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##### Table of Contents



Regulation S-K
  SECTION 16(A)
    BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
       Item 11.
    Executive
    Compensation  Directors
    Compensation
  1 3
 56




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##### Table of Contents



Executive
    Compensation
  Summary Compensation Table.
  Summary
    Compensation Table
  Annual


Long-Term
    Compensation(8)(9)Compensation(6)(7)


Securities


All OtherSalary


Bonus


Underlying


CompensationName and Principal
    Position

Year


($)


($)


Options/SARs (#)


(10)($)Frank V. Tannura


2005



383,333







60,000



22,623Chairman of the Board and


2004



287,420



162,000



60,000



16,027Chief Executive Officer(1)


2003



250,000



93,000



46,667



9,159Phillip D. Harris


2005



266,250











148,316President and


2004



325,000



130,000



35,000



22,196Chief Operating Officer(2)


2003



322,917



121,000



83,333



17,193Gaby A. Ajram


2005



250,000







5,000



Vice President(3)


2004



74,532







35,000



Eugene J. Gentili


2005



217,708







90,000



3,381Executive Vice President, andGeneral
    Manager  Food Packaging (4)Jeremy S. Lawrence


2005



200,000







25,000



13,242Vice President and General


2004



196,250



100,000



25,000



12,292Manager  Specialty
    Laminations


2003



185,000



80,000



20,000



8,042Patrick T. Chambliss


2005



204,167







30,000



6,653Vice President and


2004



248,427



50,000



65,000



81Chief Financial Officer(5)     (1)
    
    Mr. Tannura became the CEO of the Company in September 2004.(2)
    
    Mr. Harris resigned as President and Chief Operating
    Officer of the Company on September 30, 2005.
    Mr. Harris remains employed by the Company in a non-officer
    position.(3)
    
    Mr. Ajram commenced employment with the Company in
    September 2004 when Papercon was acquired. Mr. Ajram
    resigned as Vice President and President of Papercon on
    December 31, 2005. Mr. Ajram remains as a Director of
    the Company.(4)
    
    Mr. Gentili commenced employment with the Company in March
    2005.(5)
    
    Mr. Chambliss commenced employment with the Company on
    September 14, 2004. Prior to his employment with us,
    Mr. Chambliss was a consultant to the Company.(6)
    
    Includes amounts deferred pursuant to the Companys 401(k)
    Retirement Plan and Trust and the Companys Non-Qualified
    Deferred Compensation Plan.(7)
    
    The column designated by the Securities Exchange Commission (the
    SEC) for the reporting of Other Annual
    Compensation has been deleted because no such compensation
    in 2003, 2004 or 2005 reached a level that required such
    disclosure.(8)
    
    The column designated by the SEC pursuant to the applicable
    regulations for the reporting of restricted stock
    awards has been deleted because no restricted stock was
    awarded to any of the named executive officers.(9)
    
    The column designated as LTIP Payouts by the SEC has
    been deleted because no such payouts were made by the Company to
    any of the named executive officers. 57




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##### Table of Contents



(10)
    
    The 2005 All Other Compensation column includes: (a) the
    Companys matching contributions under Packaging
    Dynamics 401(k) Plan during fiscal 2005 as follows: $7,000
    to Mr. Tannura; $7,000 to Mr. Harris, $1,833 to
    Mr. Gentili, $7,000 to Mr. Lawrence and $6,167 to Mr.
    Chambliss; (b) the Companys matching contributions
    under the Packaging Dynamics Nonqualified Deferred Compensation
    Plan during 2005 as follows: $14,813 to Mr. Tannura, $7,950
    to Mr. Harris and $5,000 to Mr. Lawrence; (c) the
    Companys payment of certain group term life insurance
    benefits during fiscal year 2005 as follows: $810 for
    Mr. Tannura, $3,366 for Mr. Harris, $1,548 for
    Mr. Gentili, $1,242 for Mr. Lawrence and $486 for Mr.
    Chambliss; and (d) the Companys payment of $130,000
    of certain separation obligations to Mr. Harris.  Option/SAR
    Grants in Last Fiscal Year
  Individual GrantsClosingMarket


Number of


% of Total








Potential Realizable ValuePrice at


Securities


Options/SARs


Exercise





at Assumed Annual RateGrant


Underlying


Granted to


Or Base





of Stock Price AppreciationDate


Date


Options/SARs


Employees in


Price


Expiration


for Option Term(3)Name




Granted


($/Share)


Granted(#)


Fiscal Year(2)


($/Share)


Date


0%($)


5%($)


10%($)Frank V. Tannura


(1
)


12/22/2005



10.20



60,000



16.6



10.20



12/22/2012



0



249,145



580,615Chairman and Chief Executive OfficerPhillip D. Harris






































President and Chief Operating
    OfficerGaby A. Ajram


(1
)


12/22/2005



10.20



5,000



1.4



10.20



12/22/2012



0



20,762



48,385Vice PresidentEugene J. Gentili


(1
)


12/22/2005



10.20



40,000



11.0



10.20



12/22/2012



0



166,097



387,077Executive Vice President and
    General Manager  Food Packaging


(1
)


4/1/2005



13.70



50,000



13.8



13.70



4/1/2012



0



278,864



649,871Jeremy S. Lawrence


(1
)


12/22/2005



10.20



25,000



6.9



10.20



12/22/2012



0



103,811



241,923Vice President and General
    Manager  Specialty LaminationsPatrick T. Chambliss


(1
)


12/22/2005



10.20



30,000



8.3



10.20



12/22/2012



0



124,573



290,307Vice President and Chief Financial
    Officer     (1)
    
    The options specified in this row reflect each named executive
    officers portion of the Companys stock options which
    were issued pursuant to the Companys 2002 Long-Term Stock
    Incentive Plan and 2005 Long-Term Stock Incentive Plan. These
    options had an exercise price that was equal to the fair market
    value of Packaging Dynamics common stock on the grant date and
    will vest and become exercisable annually in equal one third
    portions over the three years after the grant date.(2)
    
    Reflects the percentage of all options granted to all employees
    during the fiscal year ended December 31, 2005.(3)
    
    The potential realizable dollar values shown represent the
    potential gains based upon annual compound annual price
    appreciation of 0%, 5% and 10% from the date of grant through
    the full option term. The dollar amounts under these columns are
    the result of calculations at the 0%, 5% and 10% rates
    established by the Commission and therefore are not intended to
    forecast possible future appreciation, if any, of the stock
    price of the Company. 58




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##### Table of Contents



Aggregated
    Option/SAR Exercises in Last Fiscal Year
    and FY-End Option/SAR Values
  Shares





Number of Securities


Value of UnexercisedAcquired on


Value


Underlying Unexercised


In-the-MoneyExercise


Realized


Options/SARs at FY-End (#)


Options/SARs at FY-End ($)Name

(#)


($)


Exercisable/Unexercisable


Exercisable/Unexercisable(1)Mr. Frank V. Tannura










111,761/110,000



537,855/67,000Mr. Phillip D. Harris










247,161/39,999



1,499,102/11,666Mr. Gaby A. Ajram










11,667/28,333



0/5,000Mr. Eugene J. Gentili










0/90,000



0/40,000Mr. Jeremy S. Lawrence










77,972/48,332



420,353/29,666Mr. Patrick T. Chambliss










21,668/73,332



0/30,000     (1)
    
    The value of the unexercised options is based upon the
    difference between the closing price of $11.20 per share of
    Common Stock on the Nasdaq National Markets System on
    December 30, 2005 (the last trading day in 2005) and
    the option exercise price.  Certain
    Employment and
    Change-in-Control
    Arrangements
  gross-up
      Compensation
    Committee Interlocks and Insider Participation
   59




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Number of Sharesof the CompanysCommon


PercentageName and Address of Beneficial
    Owner

Stock(1)(2)


of ClassBeneficial Owners of more than
    5% of Common StockPackaging Investors, L.P.(3)(4)


3,985,561



34.76
%J. Taylor Crandall(5)


4,023,793



35.09
%Fidelity Management &
    Research Company(6)


1,148,230



10.01
%Kayne Anderson Rudnick Investment
    Management, LLC(7)


691,664



6.03
%Named Executive
    OfficersFrank V. Tannura


357,693



3.12
%Phillip D. Harris


393,679



3.43
%Gaby A. Ajram


845,000



7.37
%Eugene J. Gentili


16,667



*Jeremy S. Lawrence


100,759



*Patrick T. Chambliss


21,668



*Non-Executive
    DirectorsGeorge V. Bayly


189,524



1.65
%Anthony P. Scotto


18,971



*William J. White


8,935



*All directors and executive
    officers as a group (10 individuals)


1,956,230



17.06
%     *
    
    Represents less than 1% of the outstanding shares of Packaging
    Dynamics common stock.(1)
    
    To our knowledge, each stockholder has sole voting and
    investment power as to the shares shown unless otherwise noted.(2)
    
    Shares beneficially owned include 111,761, 247,161, 11,667,
    16,667, 77,972, 21,668, 6,335, 6,335 and 6,335 stock options
    granted to Mr. Tannura, Mr. Harris, Mr. Ajram,
    Mr. Gentili, Mr. Lawrence, Mr. Chambliss,
    Mr. Bayly, Mr. Scotto and Mr. White,
    respectively, that are currently exercisable or exercisable
    within 60 days after March 17, 2005.(3)
    
    Packaging Investors is a party to a stockholders agreement
    containing obligations relating to, among other things, the
    nomination and election of members of the board of directors of
    Packaging Dynamics Corporation and the transfer of shares of the
    Companys common stock. See Certain Relationships and
    Related Transactions  Stockholders
    Agreement. In addition, Packaging Investors is party to a
    voting agreement with Thilmany, L.L.C. Subject to the terms of
    this voting agreement as described herein, Packaging Investors
    has the sole power to vote and to dispose of these shares.
    Pursuant to the terms of the voting agreement entered into in
    connection with the Companys previously announced
    agreement to merge with a subsidiary of Thilmany, Packaging
    Investors has agreed to vote all of its shares of common stock
    in favor of the merger agreement and the merger. Packaging
    Investors also agreed to vote all of its shares of common stock
    against any extraordinary corporate transactions other than the
    merger. Pursuant to the terms of the voting agreement, Packaging
    Investors granted an irrevocable proxy to Thilmany to vote all
    of its shares of common stock as set forth above. 60




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##### Table of Contents



(4)
    
    The address of Packaging Investors is 201 Main Street,
    Suite 3100, Fort Worth, Texas 76102. The sole general
    partner of Packaging Investors is Group III 31,
    L.L.C., a Delaware limited liability company located at
    201 Main Street, Suite 3100, Fort Worth, Texas
    76102. J. Taylor Crandall is the sole member of
    Group III 31, L.L.C.(5)
    
    Shares beneficially owned include 3,985,561 shares held by
    Packaging Investors (as discussed in footnote (4) above).
    J. Taylor Crandall is the sole member of Group III 31,
    L.L.C., which is the sole general partner of Packaging
    Investors. Mr. Crandalls address is
    c/o Group III 31,
    L.L.C., 201 Main Street, Suite 3100, Fort Worth, Texas
    76102.(6)
    
    Shares beneficially owned include 1,148,230 shares
    beneficially owned by various investment companies for which
    Fidelity Management & Research Company is the
    investment manager. The address of Fidelity
    Management & Research Company is 82 Devonshire Street,
    Boston, Massachusetts 02109. Fidelity Management &
    Research Company is a wholly-owned subsidiary of FMR Corp.(7)
    
    Shares beneficially owned include 691,664 shares held
    various entities for which Kayne Anderson Rudnick Investment
    Management LLC acts as investment manager. The address of Kayne
    Anderson Rudnick Investment Management, LLC is 1800 Avenue of
    the Stars,
    2nd Floor,
    Los Angeles, CA 90067.  Equity
    Compensation Plan Information
  Year Ended December 31,
    2005Weighted AverageNumber of Securities to be


Exercise Price of


Number of SecuritiesIssued Upon Exercise of


Outstanding


Remaining for FutureOutstanding Options,


Options, Warrants


Issuance Under EquityPlan Category

Warrants and Rights


and Rights


Compensation PlansEquity compensation plans approved
    by security holders(1)


1,368,301


$
9.22



623,198Equity compensation plans not
    approved by security holders










Total


1,368,301


$
9.22



623,198     (1)
    
    The 2002 Long-Term Stock Incentive Plan was adopted on
    July 1, 2002 by the Companys shareholders immediately
    prior to Ivexs distribution of its Packaging Dynamics
    Corporation shares to Ivexs shareholders. The 2005
    Long-Term Stock Incentive Plan was adopted on May 11, 2005
    by the Companys shareholders.  Item 13.
    Certain
    Relationships and Related Transactions  Acquisition
    of Papercon
       61




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##### Table of Contents



Registration
    Rights Agreement
   62




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##### Table of Contents



short-form S-3
  Stockholders
    Agreement
      
    Until the date on which Packaging Investors ceases to own at
    least 20% of the outstanding shares of the Companys common
    stock, the Company will, at each annual meeting of stockholders,
    nominate or cause to be nominated one individual designated by
    Packaging Investors for election to the board of directors.    
    any creation, incurrence, guarantee, refinancing or assumption
    of indebtedness by Packaging Dynamics or any subsidiary in
    excess of $15 million;
    any acquisition of any business, assets (other than the
    procurement of assets in the ordinary course of business),
    securities of, or investment in, or loan or advance to, any
    person (other than any loans, advances or contributions to any
    wholly-owned subsidiaries), by Packaging Dynamics or any
    subsidiary, in any transaction or series of related
    transactions, in an aggregate amount exceeding $10 million;
    any transfer of assets in excess of $10 million by
    Packaging Dynamics or any subsidiary (other than in the ordinary
    course of business and transfers to a wholly-owned subsidiary);
    the issuance by Packaging Dynamics or any subsidiary of any
    equity securities, except pursuant to the 2002 Long-Term Stock
    Incentive Plan; 63




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##### Table of Contents




    any merger, consolidation, amalgamation, recapitalization or
    other form of business combination, or any liquidation, winding
    up or dissolution of Packaging Dynamics or any material
    subsidiary (other than a merger of any wholly-owned subsidiaries
    with and into each other or Packaging Dynamics);
    Packaging Dynamics or any subsidiary engaging in any business
    other than any of the businesses conducted by Packaging Dynamics
    or a subsidiary on the date of the stockholders agreement;
    any material amendment to the certificate of incorporation or
    bylaws of Packaging Dynamics or any similar constituent
    documents of any subsidiary;
    any dividend or distribution with respect to, or any redemption
    or repurchase of, any equity securities of Packaging Dynamics;
    except as provided in any applicable annual budget, any
    expenditures, commitments, obligations or agreements by
    Packaging Dynamics or any subsidiary in excess of
    $5 million;
    any material transaction or series of related transactions
    between Packaging Dynamics or any subsidiary, on the one hand,
    and any party to the stockholders agreement or any affiliate of
    such party, on the other hand; and
    the adoption of any annual budget of Packaging Dynamics prepared
    for Packaging Dynamics and its subsidiaries for a succeeding
    fiscal year which is materially inconsistent with the annual
    budget then in effect, or any material amendment to an annual
    budget in any fiscal year.    
    Notice and Compliance with Securities
    Laws.  Prior to making any voluntary disposition
    of any of its shares of the Companys common stock (other
    than a disposition to any party to the stockholders agreement or
    under an effective registration statement under the Securities
    Act), Packaging Investors will notify the Company and refrain
    from the proposed disposition until notified by the Company that
    either (1) registration under federal and state securities
    laws is not required or (2) registration under or
    compliance with the applicable federal or state securities laws
    has been effected.  Other
   64




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##### Table of Contents



Item 14.
    Principal
    Accounting Fees and Services  INDEPENDENT
    AUDITOR
    Fees Paid
    to Independent Auditors
    Fiscal Year Ended
    December 31,2005


2004Fees


Expenses


Fees


ExpensesAudit Fees(1)

$
300,500


$
3,923


$
396,000


$
13,600Audit-Related Fees(2)


18,500







526,846



35,640Tax Fees (3)


182,025



1,380



136,250



3,660$
501,025


$
5,303


$
1,059,096


$
52,900     (1)
    
    Audit Fees represents fees and expenses for the annual audit of
    the Companys consolidated financial statements and the
    review of the Companys interim financial statements.(2)
    
    During 2005, Audit-Related Fees represents fees and expenses for
    Section 404 and certain due diligence support. During 2004,
    Audit-Related Fees represents the annual audit of the Packaging
    Dynamics 401(k) Plan, as well as the closing balance sheet
    audit and due diligence services in connection with the Papercon
    acquisition.(3)
    
    Tax Fees represents fees and expenses related to income tax
    compliance and consultation.   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Financial Statements
    Schedules
  
    Schedule I  Condensed Financial Information
    Schedule II  Valuation and Qualifying
    Accounts and Reserves   65




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##### Table of Contents



Exhibits
  3
.1***

Restated Certificate of
    Incorporation of Packaging Dynamics Corporation.3
.2**

Bylaws of Packaging Dynamics
    Corporation (filed on June 28, 2002 as Exhibit 4.2 to
    the Registrants registration statement on
    Form S-8
    (File
    No. 333-71516)
    and incorporated herein by reference).4
.1

Reference is hereby made to
    Exhibit 3.1 and Exhibit 3.2.4
.2**

Specimen Common Stock Certificate
    of Packaging Dynamics Corporation.4
.3

Registration Rights Agreement,
    dated July 1, 2002, by and among Packaging Investors, L.P.,
    DCBS Investors, L.L.C., CB Investors, L.L.C. and Packaging
    Dynamics Corporation (filed on August 9, 2002 as
    Exhibit 4.2 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference).4
.4***

First Amended and Restated
    Registration Rights Agreement, dated as of October 23,
    2002, by and among Packaging Investors, L.P., DCBS Investors,
    L.L.C., CB Investors, L.L.C., Mr. Thomas Wolf and Packaging
    Dynamics Corporation.4
.5

Amendment, dated
    September 14, 2003, to the First Amended and Restated
    Registration Rights Agreement, dated as of October 23,
    2002, by and among Packaging Investors, L.P., DCBS Investors,
    L.L.C., CB Investors, L.L.C., Mr. Thomas Wolf and Packaging
    Dynamics Corporation (filed on September 20, 2004 as
    Exhibit 10.4 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).4
.6

Stockholders Agreement, dated
    July 1, 2002, by and among Packaging Investors, L.P., DCBS
    Investors, L.L.C. and CB Investors, L.L.C. (filed on
    August 9, 2002 as Exhibit 4.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference).4
.7

Termination of Stockholders
    Agreement with respect to DCBS Investors, L.L.C. and CB
    Investors, L.L.C. dated January 15, 2004 (filed on
    March 25, 2004 as Exhibit 4.6 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2003 and
    incorporated herein by reference).4
.8

Registration Rights Agreement,
    dated September 14, 2004, by and among Mr. Gaby A.
    Ajram, Packaging Dynamics Corporation and Packaging Investors,
    L.P. (filed on September 20, 2004 as Exhibit 10.3 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.1

Tax Sharing Agreement, dated
    July 1, 2002, by and between Ivex Packaging Corporation and
    Packaging Dynamics Corporation (filed on August 9, 2002 as
    Exhibit 10 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference).10
.2

Amended and Restated Credit
    Agreement, dated September 29, 2003 among Packaging
    Dynamics Operating Company, Packaging Dynamics Corporation, each
    of the subsidiaries of Packaging Dynamics Operating Company,
    Bank of America, as Administrative Agent and L/C Issuer,
    National City Bank, as Syndication Agent, LaSalle Bank National
    Association, as Documentation Agent, and the Lenders party
    hereto (filed on November 14, 2003 as Exhibit 10.1 to
    the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003 and incorporated
    herein by reference).10
.3

First Amendment, dated
    August 6, 2004, to the Amended and Restated Credit
    Agreement, dated September 29, 2003 among Packaging
    Dynamics Operating Company, Packaging Dynamics Corporation, each
    of the subsidiaries of Packaging Dynamics Operating Company,
    Bank of America, as Administrative Agent and L/C Issuer,
    National City Bank, as Syndication Agent, LaSalle Bank National
    Association, as Documentation Agent, and the Lenders party
    hereto (filed on September 20, 2004 as Exhibit 10.7 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.4

Second Amendment to Credit
    Agreement, dated April 12, 2005, among Packaging Dynamics
    Operating Company, Packaging Dynamics Corporation, each of the
    domestic subsidiaries of Packaging Dynamics Operating Company,
    the lenders party thereto and Bank of America, N.A. (filed on
    April 14, 2005 as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    and incorporated herein by reference). 66




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##### Table of Contents



10
.5

Deferred Compensation Agreement
    dated August 14, 2003 (filed on November 14, 2003 as
    Exhibit 10.2 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003 and incorporated
    herein by reference).10
.6*

Packaging Holdings, L.L.C.
    Subordinated Note, dated July 1999, payable to Lombard
    Investments, Inc.10
.7*

Loan Agreement, dated
    December 27, 1993, by and between Bagcraft Corporation of
    America and the City of Baxter Springs, Kansas.10
.8*

Assignment and Assumption
    Agreement dated as of November 20, 1998 by and among
    Bagcraft Corporation of America, Packaging Dynamics, L.L.C. and
    Bagcraft Acquisition, L.L.C.10
.9*

Commercial Guaranty made as of
    November 20, 1998 by Bagcraft Acquisition, L.L.C. in favor
    of the City of Baxter Springs, Kansas.10
.10***

Lease, dated October 23,
    2002, between the Company and W.O.W., L.L.C.10
.11*

Sublease, dated December 16,
    1975, E.I. DuPont de Nemours and Company and Bagcraft
    Corporation of America, with amendment dated April 30, 1996.10
.12*

Lease, dated November 19,
    1999, between 6501 Corporation and Packaging Dynamics, L.L.C.10
.13*

ISDA®
    Master Agreement, dated as of May 16, 2001, between Bank of
    America, N.A. and Packaging Dynamics, L.L.C.10
.14*

Interest Rate Swap Confirmation,
    dated May 30, 2001, from Bank of America, N.A. to Packaging
    Dynamics, L.L.C.10
.15*

Interest Rate Swap Confirmation,
    dated September 25, 2001, from Bank of America, N.A. to
    Packaging Dynamics, L.L.C.10
.16*

ISDA®
    Master Agreement, dated as of December 4, 1998, between ABN
    AMRO Bank, N.V. and Packaging Dynamics, L.L.C.10
.17*

Interest Rate Swap Confirmation,
    dated September 14, 2001, from ABN AMRO Bank N.V., Chicago
    branch, to Packaging Dynamics, L.L.C.10
.18***

Severance and Change of Control
    Agreement, dated as of January 23, 2003, between Packaging
    Dynamics Corporation and Mr. Frank V. Tannura(1).10
.19

Amendment, dated October 1,
    2004, to the Severance and Change of Control Agreement, dated as
    of January 23, 2003, between Packaging Dynamics Corporation
    and Mr. Frank V. Tannura(1) (filed on October 7, 2004
    as Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.20*

Severance Agreement, dated
    August 1, 2000, between Packaging Dynamics, L.L.C. and
    Jeremy S. Lawrence(1).10
.21

Severance and Change of Control
    Agreement, dated October 1, 2004, between Packaging
    Dynamics Corporation and Mr. Patrick T. Chambliss(1) (filed
    on October 7, 2004 as Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.22

Severance and Change of Control
    Agreement, dated March 31, 2005, by and between Packaging
    Dynamics Corporation and Eugene J. Gentili (1) (filed on
    April 6, 2005 as Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference).10
.23

Severance and Change of Control
    Agreement, dated March 31, 2005, by and between Packaging
    Dynamics Corporation and David E. Wartner (1) (filed on
    April 6, 2005 as Exhibit 10.3 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference). 67




---



##### Table of Contents



10
.24

Amendment, dated March 31,
    2005, to the Severance and Change of Control Agreement, dated
    January 23, 2003, by and between Packaging Dynamics
    Corporation and Frank V. Tannura, as amended (1) (filed on
    April 6, 2005 as Exhibit 10.4 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference).10
.25**

Form of Packaging Dynamics 2002
    Long Term Incentive Stock Plan(1).10
.26*

Packaging Dynamics, L.L.C. 2002
    Incentive Compensation Plan for Packaging Dynamics Executives(1).10
.27*

Packaging Dynamics LLC Employee
    401(k) Plan(1).10
.28

Form of Nonqualified Stock Option
    Agreement(1) (filed on January 10, 2005 as Exhibit 10
    to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.29

Promissory Note issued by
    Packaging Dynamics Corporation to Mr. Gaby A. Ajram, dated
    September 14, 2004 (filed on September 20, 2004 as
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.30

Non-Competition Agreement, dated
    September 14, 2004, between Mr. Gaby A. Ajram and
    Packaging Dynamics Corporation (filed on September 20, 2004
    as Exhibit 10.2 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.31

Lease, dated September 14,
    2004, by and between GHGA Properties, L.P. and Papercon, Inc.
    (filed on September  20, 2004 as Exhibit 10.5 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.32

Guaranty of Packaging Dynamics
    Corporation, dated September 14, 2004, in the favor of GHGA
    Properties, L.P. (filed on September 20, 2004 as
    Exhibit 10.6 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).10
.33

Packaging Dynamics Corporation
    2005 Long Term Incentive Stock Plan (filed on May 16, 2005
    as Exhibit 10 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).21
****

Subsidiaries of Packaging Dynamics
    Corporation.23
****

Consent of PricewaterhouseCoopers
    LLP.31
.1****

Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2****

Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
****

Certification of CEO and CFO
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Incorporated by reference to the Registrants Form 10
    filed on April  19, 2002.  **
    
    Incorporated by reference to the Registrants
    Form 10/A Amendment No. 1 filed on May 21, 2002.   ***
    
    Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the fiscal year ended December 31, 2002.****
    
    Filed herewith.  (1)
    
    Management contract or compensatory plan or arrangement required
    to be filed as an Exhibit to this
    Form 10-K
    pursuant to Item 15 (c) of this report. 68




---



##### Table of Contents



SIGNATURES
  Pursuant to the requirements of Section 13 or 15(d) of
    the Securities Exchange Act of 1934, the Registrant has duly
    caused this Report to be signed on its behalf by the
    undersigned, thereunto duly authorized on March 17,
    2006.
  Packaging Dynamics
    Corporation
  By:
    /s/  Frank
    V. Tannura      Pursuant to the requirements of the Securities Exchange Act
    of 1934, this Report has been signed below by the following
    persons on behalf of the Registrant in the capacities indicated
    on March 17, 2006.
  Signature

Title/s/  Frank
    V. TannuraFrank
    V. Tannura

Director, Chairman of the Board
    and
    Chief Executive Officer
    (Principal Executive Officer)/s/  Patrick
    T. ChamblissPatrick
    T. Chambliss

Vice President and  Chief
    Financial Officer
    (Principal Financial Officer)/s/  David
    E. WartnerDavid
    E. Wartner

Vice President, Finance and
    Corporate Controller
    (Principal Accounting Officer)/s/  George
    V. BaylyGeorge
    V. Bayly

Director/s/  Anthony
    P. ScottoAnthony
    P. Scotto

Director/s/  William
    J. WhiteWilliam
    J. White

Director/s/  Gaby
    A. AjramGaby
    A. Ajram

Director  69




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   ON FINANCIAL STATEMENT SCHEDULES
    Form 10-K Form 10-K.
     70




---



##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
   SCHEDULE I  CONDENSED FINANCIAL
    INFORMATION
    (PARENT COMPANY ONLY)
   BALANCE SHEETS
    (Dollars in thousands)
  December 31,2005


2004ASSETSInvestment in subsidiary

$
59,682


$
51,828Deferred Tax Asset


591



837Total Assets

$
60,273


$
52,665LIABILITIES AND
    STOCKHOLDERS EQUITYCurrent Liabilities:Other liabilities (dividends)

$
698


$
683Total current liabilities


698



683Other liabilities


1,495



2,120Total Liabilities


2,193



2,803Stockholders Equity


58,080



49,862Total Liabilities and
    Stockholders Equity

$
60,273


$
52,665    71




---



##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
   SCHEDULE I  CONDENSED FINANCIAL
    INFORMATION
    (PARENT COMPANY ONLY)
   STATEMENTS OF OPERATIONS
    (Dollars in thousands)
  For the Years Ended
    December 31,2005


2004


2003Administrative expense

$



$



$
Interest expense










(168
)Income (loss) before income taxes
    and share of net income (loss) from subsidiary










(168
)Income tax (provision) benefit










66Share of net income (loss) from
    subsidiary


8,325



8,778



(14,618
)Net income (loss)

$
8,325


$
8,778


$
(14,720
)    72




---



##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
   SCHEDULE I  CONDENSED FINANCIAL
    INFORMATION
    (PARENT COMPANY ONLY)
   STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
    AND OTHER COMPREHENSIVE INCOME(LOSS)
    (Dollars in thousands)
  AccumulatedPackaging Dynamics
    Corporation





OtherCommon Stock


Paid In


Accumulated


Comprehensive


Stockholders


ComprehensiveShares


Amount


Capital


Deficit


Income(Loss)


Equity


Income (Loss)Balance at December 31, 2002
    (Revised)


9,618,767


$
96


$
45,985


$
304


$
(678
)

$
45,707Exercise of common stock options


62,737



1



443











444Net loss














(14,720
)






(14,720
)

$
(14,720
)Other comprehensive income (loss):Net change in fair value of
    derivative instruments, net of tax expense of $289


















443



443



443Comprehensive income (loss)

























$
(14,277
)Cash dividend ($.05 per share)














(484
)






(484
)Balance at December 31, 2003


9,681,504



97



46,428



(14,900
)


(235
)


31,390Issuance of common stock


833,333



8



11,567











11,575Net income














8,778







8,778


$
8,778Other comprehensive income (loss):Net change in fair value of
    derivative instruments, net of taxes expense of $193


















296



296



296Comprehensive income (loss)

























$
9,074Cash dividend ($.22 per share)














(2,177
)






(2,177
)Balance at December 31, 2004


10,514,837



105



57,995



(8,299
)


61



49,862Exercise of common stock options


236,412



2



2,265











2,267Net income














8,325







8,325


$
8,325Other comprehensive income (loss):Net change in fair value of
    derivative instruments, net of taxes expense of $238


















380



380



380Comprehensive income (loss)

























$
8,705Cash dividend ($.26 per share)














(2,754
)






(2,754
)Balance at December 31, 2005


10,751,249


$
107


$
60,260


$
(2,728
)

$
441


$
58,080    73




---



##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
   SCHEDULE I  CONDENSED FINANCIAL
    INFORMATION
    (PARENT COMPANY ONLY)
   STATEMENTS OF CASH FLOWS
    (Dollars in thousands)
  For the Years Ended
    December 31,2005


2004


2003Cash flows used by operating
    activities:Net income (loss)

$
8,325


$
8,778


$
(14,720
)Adjustments to reconcile net loss
    to net cash used by operating activities:Share of (earnings) loss from
    subsidiary


(8,325
)


(8,778
)


14,618Deferred income taxes


246







149Changes in operating assets and
    liabilities


(246
)






(114
)Net cash used by operating
    activities










(67
)Cash flows from financing
    activities:Principal payments of loan
    obligations










(3,000
)Transfer from (to) subsidiary


1,670



1,978



2,999Proceeds from stock options
    exercised


1,071







Payment of dividends


(2,741
)


(1,978
)


Other










68Net cash from financing activities










67Net change in cash and cash
    equivalents










Cash and cash equivalents at
    beginning of year










Cash and cash equivalents at end
    of year

$



$



$
Cash paid during the year for:Interest

$



$



$
282Non-cash transactions:Common stock issued in connection
    with the acquisition of subsidiary

$



$
11,575



Declaration of dividend


698



683



484    74




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##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
  SCHEDULE I  CONDENSED
    FINANCIAL INFORMATION
    (PARENT COMPANY ONLY)
    NOTES TO CONDENSED FINANCIAL INFORMATION
    (Dollars in thousands)
  Note 1 
    Basis of
    Presentation    Note 2 
    Other
    Information    Note 3 
    Derivatives
    and Other Comprehensive Income (Loss)   75




---



##### Table of Contents



PACKAGING
    DYNAMICS CORPORATION
   SCHEDULE II  VALUATION AND QUALIFYING
    ACCOUNTS AND RESERVES
    (Dollars in thousands)
  Charged toBeginning


(Reversed from)








EndingDescription

Balance


Costs and Expenses


Acquisitions


Deductions


BalanceFor the year ended
    December 31, 2005Allowance for doubtful accounts


825



(49
)










776Inventory reserves


291



34











325For the year ended
    December 31, 2004Allowance for doubtful accounts


375



357



312



(219
)


825Inventory reserves


312



(21
)










291For the year ended
    December 31, 2003Allowance for doubtful accounts


609



(122
)






(112
)


375Inventory reserves


241



215







(144
)


312  76




---



##### Table of Contents



Exhibits




| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3  | .1*** |  | Restated Certificate of
    Incorporation of Packaging Dynamics Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 3  | .2**  |  | Bylaws of Packaging Dynamics
    Corporation (filed on June 28, 2002 as Exhibit 4.2 to
    the Registrants registration statement on
    Form S-8
    (File
    No. 333-71516)
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .1    |  | Reference is hereby made to
    Exhibit 3.1 and Exhibit 3.2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .2**  |  | Specimen Common Stock Certificate
    of Packaging Dynamics Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .3    |  | Registration Rights Agreement,
    dated July 1, 2002, by and among Packaging Investors, L.P.,
    DCBS Investors, L.L.C., CB Investors, L.L.C. and Packaging
    Dynamics Corporation (filed on August 9, 2002 as
    Exhibit 4.2 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference).                                                                                                                                                                                                                                                          
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .4*** |  | First Amended and Restated
    Registration Rights Agreement, dated as of October 23,
    2002, by and among Packaging Investors, L.P., DCBS Investors,
    L.L.C., CB Investors, L.L.C., Mr. Thomas Wolf and Packaging
    Dynamics Corporation.                                                                                                                                                                                                                                                                                                                                                                                    
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .5    |  | Amendment, dated
    September 14, 2003, to the First Amended and Restated
    Registration Rights Agreement, dated as of October 23,
    2002, by and among Packaging Investors, L.P., DCBS Investors,
    L.L.C., CB Investors, L.L.C., Mr. Thomas Wolf and Packaging
    Dynamics Corporation (filed on September 20, 2004 as
    Exhibit 10.4 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .6    |  | Stockholders Agreement, dated
    July 1, 2002, by and among Packaging Investors, L.P., DCBS
    Investors, L.L.C. and CB Investors, L.L.C. (filed on
    August 9, 2002 as Exhibit 4.1 to the Registrants
    Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference).                                                                                                                                                                                                                                                                                                 
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .7    |  | Termination of Stockholders
    Agreement with respect to DCBS Investors, L.L.C. and CB
    Investors, L.L.C. dated January 15, 2004 (filed on
    March 25, 2004 as Exhibit 4.6 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2003 and
    incorporated herein by reference).                                                                                                                                                                                                                                                                                                   
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4  | .8    |  | Registration Rights Agreement,
    dated September 14, 2004, by and among Mr. Gaby A.
    Ajram, Packaging Dynamics Corporation and Packaging Investors,
    L.P. (filed on September 20, 2004 as Exhibit 10.3 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                     
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .1    |  | Tax Sharing Agreement, dated
    July 1, 2002, by and between Ivex Packaging Corporation and
    Packaging Dynamics Corporation (filed on August 9, 2002 as
    Exhibit 10 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended June 30, 2002 and incorporated herein
    by reference)                                                                                                                                                                                                                                                                                                                   
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .2    |  | Amended and Restated Credit
    Agreement, dated September 29, 2003 among Packaging
    Dynamics Operating Company, Packaging Dynamics Corporation, each
    of the subsidiaries of Packaging Dynamics Operating Company,
    Bank of America, as Administrative Agent and L/C Issuer,
    National City Bank, as Syndication Agent, LaSalle Bank National
    Association, as Documentation Agent, and the Lenders party
    hereto (filed on November 14, 2003 as Exhibit 10.1 to
    the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003 and incorporated
    herein by reference).   
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .3    |  | First Amendment, dated
    August 6, 2004, to the Amended and Restated Credit
    Agreement, dated September 29, 2003 among Packaging
    Dynamics Operating Company, Packaging Dynamics Corporation, each
    of the subsidiaries of Packaging Dynamics Operating Company,
    Bank of America, as Administrative Agent and L/C Issuer,
    National City Bank, as Syndication Agent, LaSalle Bank National
    Association, as Documentation Agent, and the Lenders party
    hereto (filed on September 20, 2004 as Exhibit 10.7 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 10 | .4    |  | Second Amendment to Credit
    Agreement, dated April 12, 2005, among Packaging Dynamics
    Operating Company, Packaging Dynamics Corporation, each of the
    domestic subsidiaries of Packaging Dynamics Operating Company,
    the lenders party thereto and Bank of America, N.A. (filed on
    April 14, 2005 as Exhibit 10.1 to the
    Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                                                                                                                                                                
| |    |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

77



---



##### Table of Contents



| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | -- | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .5     |  | Deferred Compensation Agreement
    dated August 14, 2003 (filed on November 14, 2003 as
    Exhibit 10.2 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarter ended September 30, 2003 and incorporated
    herein by reference).                                                                                                
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .6*    |  | Packaging Holdings, L.L.C.
    Subordinated Note, dated July 1999, payable to Lombard
    Investments, Inc.                                                                                                                                                                                                                                            
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .7*    |  | Loan Agreement, dated
    December 27, 1993, by and between Bagcraft Corporation of
    America and the City of Baxter Springs, Kansas.                                                                                                                                                                                                                
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .8*    |  | Assignment and Assumption
    Agreement dated as of November 20, 1998 by and among
    Bagcraft Corporation of America, Packaging Dynamics, L.L.C. and
    Bagcraft Acquisition, L.L.C.                                                                                                                                                                
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .9*    |  | Commercial Guaranty made as of
    November 20, 1998 by Bagcraft Acquisition, L.L.C. in favor
    of the City of Baxter Springs, Kansas.                                                                                                                                                                                                               
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .10*** |  | Lease, dated October 23,
    2002, between the Company and W.O.W., L.L.C.                                                                                                                                                                                                                                                                              
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .11*   |  | Sublease, dated December 16,
    1975, E.I. DuPont de Nemours and Company and Bagcraft
    Corporation of America, with amendment dated April 30, 1996.                                                                                                                                                                                                
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .12*   |  | Lease, dated November 19,
    1999, between 6501 Corporation and Packaging Dynamics, L.L.C.                                                                                                                                                                                                                                                            
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .13*   |  | ISDA®
    Master Agreement, dated as of May 16, 2001, between Bank of
    America, N.A. and Packaging Dynamics, L.L.C.                                                                                                                                                                                                                                 
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .14*   |  | Interest Rate Swap Confirmation,
    dated May 30, 2001, from Bank of America, N.A. to Packaging
    Dynamics, L.L.C.                                                                                                                                                                                                                                  
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .15*   |  | Interest Rate Swap Confirmation,
    dated September 25, 2001, from Bank of America, N.A. to
    Packaging Dynamics, L.L.C.                                                                                                                                                                                                                            
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .16*   |  | ISDA®
    Master Agreement, dated as of December 4, 1998, between ABN
    AMRO Bank, N.V. and Packaging Dynamics, L.L.C.                                                                                                                                                                                                                               
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .17*   |  | Interest Rate Swap Confirmation,
    dated September 14, 2001, from ABN AMRO Bank N.V., Chicago
    branch, to Packaging Dynamics, L.L.C.                                                                                                                                                                                                              
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .18*** |  | Severance and Change of Control
    Agreement, dated as of January 23, 2003, between Packaging
    Dynamics Corporation and Mr. Frank V. Tannura(1).                                                                                                                                                                                                   
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .19    |  | Amendment, dated October 1,
    2004, to the Severance and Change of Control Agreement, dated as
    of January 23, 2003, between Packaging Dynamics Corporation
    and Mr. Frank V. Tannura(1) (filed on October 7, 2004
    as Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).           
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .20*   |  | Severance Agreement, dated
    August 1, 2000, between Packaging Dynamics, L.L.C. and
    Jeremy S. Lawrence(1).                                                                                                                                                                                                                                       
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .21    |  | Severance and Change of Control
    Agreement, dated October 1, 2004, between Packaging
    Dynamics Corporation and Mr. Patrick T. Chambliss(1) (filed
    on October 7, 2004 as Exhibit 10.3 to the
    Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                       
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .22    |  | Severance and Change of Control
    Agreement, dated March 31, 2005, by and between Packaging
    Dynamics Corporation and Eugene J. Gentili (1) (filed on
    April 6, 2005 as Exhibit 10.1 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference).                                                         
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .23    |  | Severance and Change of Control
    Agreement, dated March 31, 2005, by and between Packaging
    Dynamics Corporation and David E. Wartner (1) (filed on
    April 6, 2005 as Exhibit 10.3 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference).                                                          
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        
| | 10 | .24    |  | Amendment, dated March 31,
    2005, to the Severance and Change of Control Agreement, dated
    January 23, 2003, by and between Packaging Dynamics
    Corporation and Frank V. Tannura, as amended (1) (filed on
    April 6, 2005 as Exhibit 10.4 to the Registrants
    Current Report on
    Form 8-K
    and incorporated herein by reference).
| |    |        |  |                                                                                                                                                                                                                                                                                                                                                        

78



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##### Table of Contents



| |    |        |  |                                                                                                                                                                                                                                                                         
| | -- | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .25**  |  | Form of Packaging Dynamics 2002
    Long Term Incentive Stock Plan(1).                                                                                                                                                                                                  
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .26*   |  | Packaging Dynamics, L.L.C. 2002
    Incentive Compensation Plan for Packaging Dynamics Executives(1).                                                                                                                                                                   
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .27*   |  | Packaging Dynamics LLC Employee
    401(k) Plan(1).                                                                                                                                                                                                                     
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .28    |  | Form of Nonqualified Stock Option
    Agreement(1) (filed on January 10, 2005 as Exhibit 10
    to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                                           
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .29    |  | Promissory Note issued by
    Packaging Dynamics Corporation to Mr. Gaby A. Ajram, dated
    September 14, 2004 (filed on September 20, 2004 as
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).          
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .30    |  | Non-Competition Agreement, dated
    September 14, 2004, between Mr. Gaby A. Ajram and
    Packaging Dynamics Corporation (filed on September 20, 2004
    as Exhibit 10.2 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .31    |  | Lease, dated September 14,
    2004, by and between GHGA Properties, L.P. and Papercon, Inc.
    (filed on September  20, 2004 as Exhibit 10.5 to
    the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                        
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .32    |  | Guaranty of Packaging Dynamics
    Corporation, dated September 14, 2004, in the favor of GHGA
    Properties, L.P. (filed on September 20, 2004 as
    Exhibit 10.6 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).      
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 10 | .33    |  | Packaging Dynamics Corporation
    2005 Long Term Incentive Stock Plan (filed on May 16, 2005
    as Exhibit 10 to the Registrants Current Report on
    Form 8-K
    and incorporated herein by reference).                                                           
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 21 | ****   |  | Subsidiaries of Packaging Dynamics
    Corporation.                                                                                                                                                                                                                     
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 23 | ****   |  | Consent of PricewaterhouseCoopers
    LLP.                                                                                                                                                                                                                              
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 31 | .1**** |  | Certification of Chief Executive
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                             
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 31 | .2**** |  | Certification of Chief Financial
    Officer pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.                                                                                                                                                             
| |    |        |  |                                                                                                                                                                                                                                                                         
| |    |        |  |                                                                                                                                                                                                                                                                         
| | 32 | ****   |  | Certification of CEO and CFO
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                          









|     |  |                                                                                                                                  
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------
|*    |  | Incorporated by reference to the Registrants Form 10
    filed on April  19, 2002.                                              
|    
|**   |  | Incorporated by reference to the Registrants
    Form 10/A Amendment No. 1 filed on May 21, 2002.                               
|    
|***  |  | Incorporated by reference to the Registrants Annual Report
    on
    Form 10-K
    for the fiscal year ended December 31, 2002.
|    
|**** |  | Filed herewith.                                                                                                                  



|    |  |                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Management contract or compensatory plan or arrangement required
    to be filed as an Exhibit to this
    Form 10-K
    pursuant to Item 15 (c) of this report.

79