0000897101-95-000350.txt : 19950915 0000897101-95-000350.hdr.sgml : 19950915 ACCESSION NUMBER: 0000897101-95-000350 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950731 FILED AS OF DATE: 19950913 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ULTRA PAC INC CENTRAL INDEX KEY: 0000813134 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 411581031 STATE OF INCORPORATION: MN FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18252 FILM NUMBER: 95573514 BUSINESS ADDRESS: STREET 1: 21925 INDUSTRIAL BLVD CITY: ROGERS STATE: MN ZIP: 55374 BUSINESS PHONE: 6124288340 MAIL ADDRESS: STREET 1: 21925 INDUSTRIAL BLVD CITY: ROGERS STATE: MN ZIP: 55374 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q _X_ Quarterly Report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended: July 31, 1995 ___ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period From __________________ to __________________________ Commission File Number: 0-18252 ULTRA PAC, INC. (Exact name of Registrant as specified in its Charter) Minnesota 41-1581031 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification number) 21925 Industrial Boulevard, Rogers, Minnesota 55374 (Address of principal executive offices) Zip Code (612) 428-8340 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. _X_ Yes ___ No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock No Par Value 3,766,215 Class of Common Stock Shares outstanding as of (September 5, 1995) ULTRA PAC, INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial statements Balance Sheets as of July 31, 1995 and January 31, 1995 3 Statements of Earnings for the three and six months ended July 31, 1995 and 1994 5 Statements of Cash Flows for the six months ended July 31, 1995 and 1994 6 Notes to Interim Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 17 Item 6. Exhibits and Reports on Form 8-K 17 Ultra Pac, Inc. BALANCE SHEETS ASSETS July 31, January 31, 1995 1995 (unaudited) CURRENT ASSETS Cash $ 136,185 $ 145,731 Accounts receivable - trade, less allowance for doubtful receivables of $264,000 at July 31 and $245,000 at January 31, 1995 4,649,015 4,386,376 Refundable sales and income taxes 845,968 731,576 Inventories Raw materials 3,661,072 3,318,590 Work in process 2,816,055 3,389,893 Finished goods 4,188,180 3,632,417 Deferred income taxes 274,000 1,094,833 Other current assets 373,414 170,607 Total current assets 16,943,889 16,870,023 PROPERTY, EQUIPMENT AND IMPROVEMENTS Building and improvements 3,147,974 2,476,582 Manufacturing equipment 20,610,975 18,523,467 Extrusion equipment 10,413,048 7,269,772 Other equipment and furnishings 1,829,046 1,647,035 Leasehold improvements 860,301 860,301 36,861,344 30,777,157 Less accumulated depreciation 7,615,101 6,346,606 29,246,243 24,430,551 Deposits on manufacturing equipment 2,391,903 1,409,005 Land 737,317 737,317 32,375,463 26,576,873 OTHER Security deposits and leasehold costs 978,883 842,491 Sundry 35,400 32,400 1,014,283 874,891 $50,333,635 $44,321,787 See accompanying notes to interim financial statements. Ultra Pac, Inc. BALANCE SHEETS - CONTINUED LIABILITIES AND SHAREHOLDERS' EQUITY July 31, January 31, 1995 1995 (unaudited) CURRENT LIABILITIES Current maturities of long-term obligations $ 3,914,053 $ 2,525,272 Accounts payable - principally trade 6,426,936 5,887,564 Accrued liabilities Salaries and commissions 846,306 781,782 Interest and other 471,801 582,834 Income taxes payable - 322,054 Total current liabilities 11,659,096 10,099,506 LONG-TERM OBLIGATIONS, less current maturities 25,071,765 20,227,316 DEFERRED INCOME TAXES 693,000 1,408,233 SHAREHOLDERS' EQUITY Common stock - authorized, 5,000,000 shares of no par value; issued and outstanding, 3,766,215 shares 7,631,572 7,631,572 Additional contributed capital 1,213,000 1,213,000 Retained earnings 4,065,202 3,742,160 12,909,774 12,586,732 $50,333,635 $44,321,787 See accompanying notes to interim financial statements. Ultra Pac, Inc. STATEMENTS OF EARNINGS (unaudited)
Three months ended July 31, Six months ended July 31, 1995 1994 1995 1994 Net Sales $20,039,514 $16,978,022 $37,137,978 $29,355,226 Cost of products sold 15,477,757 11,691,295 28,083,656 20,613,392 Gross profit 4,561,757 5,286,727 9,054,322 8,741,834 Operating expenses Marketing and sales expense 3,200,620 2,785,305 5,979,583 5,103,371 Administrative expense 704,248 573,226 1,372,256 1,068,407 3,904,868 3,358,531 7,351,839 6,171,778 Operating profit 656,889 1,928,196 1,702,483 2,570,056 Interest expense and other 609,199 367,791 1,184,441 650,435 Earnings before income taxes 47,690 1,560,405 518,042 1,919,621 Income taxes 18,000 585,400 195,000 720,100 NET EARNINGS $ 29,690 $ 975,005 $ 323,042 $ 1,199,521 Earnings per common and common equivalent share $ .01 $ .26 $ .09 $ .32 Weighted average number of common and common equivalent shares outstanding 3,767,078 3,765,715 3,766,882 3,765,715
See accompanying notes to interim financial statements. Ultra Pac, Inc. STATEMENTS OF CASH FLOWS (unaudited) Six months ended July 31, 1995 1994 Increase (Decrease) in Cash Cash flows provided by (used in) operating activities Net earnings $ 323,042 $ 1,199,521 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation of equipment, furnishings and improvements 1,636,777 1,223,313 Deferred income taxes 105,600 308,875 Gain on sale of equipment, net (8,297) -- Change in assets and liabilities: Accounts receivable (262,639) (2,247,093) Refundable sales and income taxes (114,392) (44,690) Inventories (324,407) (715,797) Other current assets (202,807) 5,726 Accounts payable 539,372 2,225,737 Accrued liabilities (46,509) (53,691) Income taxes payable (322,054) 341,134 Net cash provided by operating activities 1,323,686 2,243,035 Cash flows from investment activities Capital expenditures (7,514,570) (4,308,102) Security deposits and sundry (139,392) (58,424) Proceeds from sale of equipment 87,500 -- Net cash used in investing activities (7,566,462) (4,366,526) Cash flows from financing activities Proceeds from long-term obligations 7,609,490 3,000,074 Principal payments under long-term obligations (1,376,260) (763,911) Net cash provided by financing activities 6,233,230 2,236,163 Net change in cash (9,546) 112,672 Cash at beginning of period 145,731 445,287 Cash at end of period $ 136,185 $ 557,959 See accompanying notes to interim financial statements. Ultra Pac, Inc. NOTES TO INTERIM FINANCIAL STATEMENTS July 31, 1995 (unaudited) (1) Basis of Presentation The interim financial statements presented herein are unaudited but, in the opinion of management reflect all adjustments necessary for a fair presentation of results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. Information as of January 31, 1995 was taken from the Company's Annual Report to Shareholders on Form 10-K for the year ended January 31, 1995. These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company's Annual Report to Shareholders on Form 10-K for the year ended January 31, 1995. (2) Common Stock In July 1995, the Company's Board of Directors granted non-qualified stock options for 15,000 shares at an exercise price of $6.00 per share. These options were issued under the Company's 1991 Incentive Stock Option Plan and expire in July 2000. In July 1995, a non-qualified stock option for 50,000 shares at a purchase price of $8.88 expired. In July 1995, the Company's Board of Directors granted a non-qualified stock option for 20,000 shares to the Company's President and Chief Executive Officer. The option has an exercise price of $6.00 per share and expires in July 2000. In July 1995, the Company granted options for 6,500 shares under the Outside Directors' Option Plan at an exercise price of $5.75 per share. These options expire in July 2000. (3) Long Term Obligations At January 31, 1995, the Company had an $8,000,000 revolving credit facility with a bank. This credit facility was amended in March and June 1995 to increase the amount available to $11,500,000 through June 30, 1995 and decrease the amount available to $9,500,000 through May 31, 1997. In addition, certain covenants relating to financial performance and capital expenditures were also amended. At July 31, 1995, the Company was in violation of one of these covenants which violation was subsequently waived. Ultra Pac, Inc. NOTES TO INTERIM FINANCIAL STATEMENTS July 31, 1995 (unaudited) (3) Long Term Obligations-continued: In connection with the purchase of two extrusion lines, additional manufacturing equipment, and molds, the Company borrowed $6,371,626 on a $7,000,000 non-revolving equipment loan agreement with interest at 2.5% above the LIBOR rate. The agreement provides for borrowings on specific equipment, subject to the following terms: Facility A: payable in monthly installments, including interest, over a seven year period ($5,430,217 advanced through July 31, 1995); Facility B: payable in monthly installments, including interest, over a three year period ($941,409 advanced through July 31, 1995). ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations: The following table sets forth, for the periods indicated, information derived from the Statements of Earnings of the Company expressed as a percentage of net sales. Three Months Ended Six Months Ended July 31, July 31, 1995 1994 1995 1994 Net sales 100.0% 100.0% 100.0% 100.0% Cost of products sold 77.2 68.9 75.6 70.2 Gross profit 22.8 31.1 24.4 29.8 Operating expenses Marketing and sales 16.0 16.4 16.1 17.4 Administrative 3.5 3.4 3.7 3.6 19.5 19.8 19.8 21.0 Operating profit 3.3 11.3 4.6 8.8 Interest expense and other 3.0 2.2 3.2 2.2 Earnings before income taxes .3 9.1 1.4 6.6 Income taxes .1 3.4 .5 2.5 NET EARNINGS .2% 5.7% .9% 4.1% Net Sales: Net sales increased 18.0% from $16,978,022 to $20,039,514 for the three months ended July 31, 1995 as compared to the three months ended July 31, 1994 and 26.5% from $29,355,226 to $37,137,978 for the six months ended July 31, 1995 as compared to the six months ended July 31, 1994. The increase in net sales was primarily the result of growth in demand for the Company's Ultra Lite Bakeables(TM) line of bakery containers made from C-PET plastic material (introduced in second half of fiscal 1995) and the Company's line of produce containers and, to a lesser degree, continuing growth of the Company's bakery and deli containers. In addition, there have been several price increases that the Company implemented between October 1994 and April 1995 as a result of increases in the cost of raw materials. The Company anticipates that third and fourth quarter net sales will exceed net sales recorded during the respective periods last year. Gross Profit: Gross profit margins decreased from 31.1% to 22.8% for the three months ended July 31, 1995 as compared to the three months ended July 31, 1994 and from 29.8% to 24.4% for the six months ended July 31, 1995 as compared to the six months ended July 31, 1994. The decrease in gross profit margins was primarily the result of weather conditions which caused orders for berry containers, particularly during July, to be dramatically lower than expected. Higher manufacturing and direct labor costs were incurred in order to meet anticipated higher sales which did not materialize. At the beginning of the California berry season, the Company began expanding its capacity to meet an anticipated increase in demand for the Company's berry containers based on an anticipated increase in the overall berry harvest. Despite heavy rains in California earlier this year, indications were that, although berry production might be delayed, it would still meet the Company's earlier expectations. However, berry growers have more recently suffered an extended period of 100 degree-plus heat which compounded the effect of the prior excessive rainfall. These factors reduced the overall size of the berry crop and have now caused a higher than normal percentage of the berry crop to be used for frozen and other applications, rather than for fresh berry produce. This led to a reduction in the anticipated demand for the Company's packaging. As a result, management significantly reduced its temporary workforce and continues to evaluate measures to improve overall productivity. In addition, the Company has continued to experience increases in raw material costs from its suppliers of virgin PETE resin and sources of recycled PETE material. The Company believes that, as PETE refiners increase their capacity during the next 12 to 18 months, increases in raw material costs may begin to subside. Lastly, .8% of the decrease in gross profit margins was attributable to a change in the manner in which freight charges were handled with several customers. During the six months ended July 31, 1994, the Company increased the selling price of produce containers to certain customers to help offset the Company's freight costs. These freight costs were recorded as a marketing and sales expense. During the six months ended July 31, 1995, however, prices for these same customers were adjusted downward as freight costs are now billed separately or paid directly by these customers. The .8% decline in gross profit margins as a result of this change in freight costs was accompanied by a corresponding decline in marketing and sales expense. The manner in which these freight charges are paid has changed and may continue to change from time to time. The Company has taken a number of other actions which are intended to improve gross margins on a long-term basis. The most significant actions are the installation of a fifth extrusion line in May 1995, and the scheduled startup of a sixth extrusion line during the third quarter. The cost of plastic sheet which is extruded by the Company has been significantly lower than the cost of plastic sheet purchased from outside sources. While the Company anticipates that its demand for PETE extruded sheet in the fourth quarter will be less than its capacity to extrude, it still anticipates having to purchase PETE extruded sheet from outside sources during fiscal 1997. Operating Expenses: Marketing and sales expense increased from $2,785,305, or 16.4% of net sales, to $3,200,620, or 16.0% of net sales, during the three months ended July 31, 1995 as compared to the three months ended July 31, 1994 and increased from $5,103,371, or 17.4% of net sales to $5,979,583, or 16.1% of net sales, for the six months ended July 31, 1995 as compared to the six months ended July 31, 1994. The increase in marketing and sales expense was primarily due to the increase in net sales, resulting in an increase in freight and commission expense. The decrease in marketing and sales expense as a percentage of net sales is primarily attributable to sales increasing at a faster rate than marketing and sales expense and a reduction in freight as a percentage of net sales, as discussed previously. Administrative expense increased from $573,226, or 3.4% of net sales, to $704,248, or 3.5% of net sales, for the three months ended July 31, 1995, as compared to the three months ended July 31, 1994 and increased from $1,068,407, or 3.6% of net sales, to $1,372,256, or 3.7% of net sales for the six months ended July 31, 1995 as compared to the six months ended July 31, 1994. The increase in administrative expense during the three and six month periods ended July 31, 1995 was to support the increase in net sales. Interest Expense and Other: Interest expense and other increased from $367,791, or 2.2% of net sales, to $609,199, or 3.0% of net sales, for the three months ended July 31, 1995, as compared to the three months ended July 31, 1994 and increased from $650,435, or 2.2% of net sales, to $1,184,441, or 3.2% of net sales for the six months ended July 31, 1995, as compared to the six months ended July 31, 1994. The increase was primarily due to higher debt levels, an increase in the bank's base rates, an increase in the differentials charged by the bank over its base rates, and higher rates on additional equipment financing, offset in part by the increase in sales. The increase in debt levels was primarily a result of financing additional property, equipment and improvements. The increase in the differentials coincided with the refinancing of the Company's revolving credit and term note agreement in June 1994. Extrusion Equipment Relocation Expense: The Company will incur expenses in connection with the relocation of four of its extrusion lines from their existing locations into the newly constructed 83,000 square foot leased facility completed in March 1995. Such extrusion equipment relocation expenses do not pertain to installation of the fifth or sixth extrusion lines. The resulting consolidation of all extrusion activities into a single location that was designed specifically to optimize extrusion operations is expected to improve efficiency, as well as increase extrusion capacity. These relocation expenses, estimated at $600,000, will include dismantling the four extrusion lines, as well as moving, installing and connecting the extrusion lines at the new facility. The relocation of the four extrusion lines will be scheduled based on the Company's demand for extruded plastic sheet and the desire to minimize the need to purchase sheet from outside sources. While the Company had earlier anticipated the relocation of the four extrusion lines to take place during the third and fourth quarters of fiscal 1996, management has elected to delay the move until sometime in fiscal 1997. The decision to delay moving these extrusion lines is primarily the result of two factors: (1) management's desire to defer a significant one-time charge; and, (2) no immediate plans to purchase additional thermoforming lines which, if purchased, would be installed in the space to be vacated by the four extrusion lines. The moving expenses will be charged to earnings as they are incurred. Net Earnings: As a result of the factors discussed above, net earnings for the three months ended July 31, 1995 were $29,690, or .2% of net sales, as compared to $975,005, or 5.7% of net sales, for the three months ended July 31, 1994 and $323,042, or .9% of net sales, for the six months ended July 31, 1995 as compared to $1,199,521, or 4.1% of net sales, for the six months ended July 31, 1994. The Company believes inflation has not significantly affected its results of operations. Liquidity and Capital Resources Working Capital decreased from $6,770,517 on January 31, 1995 to $5,284,793 on July 31, 1995. This decrease is primarily due to an increase in accounts payable and current maturities of long term obligations, offset in part by an increase in accounts receivable and inventories. Accounts receivable increased from $4,386,376 on January 31, 1995 to $4,649,015 on July 31, 1995. This increase is primarily due to the increase in net sales. Inventories increased from $10,340,900 on January 31, 1995 to $10,665,307 on July 31, 1995. This increase was principally due to an increase in the levels of finished goods to support the Company's increase in sales. For the six months ended July 31, 1995, $1,323,686 of cash was provided by operating activities. This reflects an increase in accounts payable and other funds generated through operations, offset in part by increases in accounts receivable, inventories, other assets and a decrease in income taxes payable. Property, equipment and improvements increased from $26,576,873 on January 31, 1995 to $32,375,463 on July 31, 1995. The Company purchased $7,514,570 of property and equipment during the six months ended July 31, 1995. These equipment purchases included the Company's fifth extrusion line, thermoforming equipment, molds, building addition and other manufacturing equipment, as well as additional deposits of $982,898 on the Company's sixth extrusion line and additional thermoforming equipment. These purchases provide additional production capacity to support the continued sales growth and expansion of the Company's product lines. As of July 31, 1995, the Company had borrowed $8,598,591 under its $9,500,000 credit facility, leaving $901,409 available. In addition, the Company borrowed $6,371,626 under the Company's $7,000,000 non-revolving equipment loan agreement for the purchase of the fifth and sixth extrusion lines, additional thermoforming lines and molds. As of July 31, 1995, the Company had outstanding capital expenditures of approximately $2,850,000 and was reviewing additional capital expenditures of approximately $550,000. On July 31, 1995, approximately $2,392,000 of cash deposits had been made in connection with these outstanding commitments. Most of the commitments and capital expenditures under review are for the sixth extrusion line, thermoforming equipment, molds, and other manufacturing equipment. The capital expenditures will be financed primarily from funds available under the non-revolving equipment loan agreement, funds available under the Company's credit facility, and proceeds from operations. In August 1995, the Company entered into a Shareholder's Joint Venture Agreement with Integrity Investrading S.A. (a company located in Chile). This joint venture will establish a Chilean corporation ("Ultra Pac SudAmerica S.A.") for the purpose of manufacturing, marketing and selling plastic packaging in Chile. The Company will own 49% and Integrity will own 51% of the newly formed corporation. During August 1995, the Company contributed $147,000 and Integrity contributed $153,000 to be used to equip the plant to begin operations and as initial startup capital. The Company sold to Ultra Pac SudAmerica a thermoforming line and miscellaneous related equipment for $113,000. Although the Company realized a $65,000 gain from the sale of this equipment, such gain will be recognized over the depreciable life of the equipment. Seasonality of Sales and Earnings: The Company's product mix has become increasingly seasonal since fiscal 1994. From late in the fourth quarter through almost all of the second quarter, a higher percentage of the Company's production capacity has been dedicated to long production runs of berry containers for the produce-grower's market. In the third quarter, the Company gradually re-directs the greatest share of its production capacity toward bakery and deli containers. Because the Company's extensive line of bakery and deli containers includes numerous products with lower customer demand, production runs can be either long or short. As a result, gross profit margins on certain bakery and deli containers are lower due to shorter production runs and more frequent machine setup procedures, while other bakery and deli products have long production runs and generate higher gross profit margins. Since 1994, the average gross profit margin for all bakery and deli containers produced during this period is lower than the gross profit margins on the Company's berry containers. Additionally, during the fourth quarter of recent years, the Company has been increasing fixed manufacturing overhead costs as it prepared to accommodate substantially higher customer demand anticipated in the next fiscal year. This combination of lower gross margin and higher overhead costs has resulted in a loss in the fourth quarter in recent years. Changes in these sales and earnings patterns will depend on the Company's ability to increase sales in the fourth quarter of: (1) higher margin products; or (2) existing products that would give the Company additional ability to improve production output relative to cost. The Company's results of operations during the three months ended July 31, 1995 are not consistent with the seasonality of sales and earnings described above due to the effect of weather related factors. See page 10. PART II OTHER INFORMATION ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1995 annual shareholders meeting of Ultra Pac, Inc. was held on July 12, 1995. The issues and the respective vote totals were as follows: 1. The proposal to set the number of directors at five was approved with 3,372,696 shares voted in favor, 14,790 shares voted against, and 11,580 shares abstaining. 2. The slate of five directors was elected with each candidate receiving the number of votes indicated next to his name: Withhold For Authority Calvin Krupa 3,365,276 33,790 James A. Thole 3,309,111 89,955 John F. Deboer 3,308,676 90,390 Michael J. McGlynn 3,365,476 33,590 Frank I. Harvey 3,308,776 90,290 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) List of Exhibits: 10.1 Amendment dated June 30, 1995 to the Credit and Security Agreement with Norwest Bank, Minnesota N.A., dated June 13, 1994 10.2 Waiver dated September 7, 1995 related to Credit and Security Agreement with Norwest Bank, Minnesota N.A., dated June 13, 1994 27 Financial Data Schedule (For SEC use only) (b) Reports on Form 8-K: None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED: September 13, 1995 ULTRA PAC, INC. (Registrant) /s/Calvin Krupa Calvin Krupa, President and Chief Executive Officer /s/Bradley Yopp Bradley Yopp, Chief Financial Officer EX-10.1 2 FOURTH AMENDMENT OF LOAN DOCUMENTS THIS AMENDMENT, made as of the 30th day of June, 1995, by and between ULTRA PAC, INC., a Minnesota corporation (the "Borrower"), WEST ONE BANK, IDAHO, an Idaho banking corporation ("West One") and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Norwest") (West One and Norwest, respectively and collectively, together with any lender who subsequently becomes a party hereto, the "Lenders"). W I T N E S S E T H: WHEREAS, the Borrower and the Lenders entered into that certain Credit and Security Agreement dated June 13, 1994, by and between the Borrower and the Lenders, as amended by that certain First Amendment of Loan Documents, dated July 1, 1994 (the "First Amendment") and that certain Second Amendment of Loan Documents, dated March 7, 1995 (the "Second Amendment") and that certain Third Amendment of Loan Documents, dated June 1, 1995 (the "Third Amendment") (such agreement, as so amended, the "Credit Agreement"), pursuant to which the Lenders agreed to extend an $8,000,000 line of credit (the "Revolving Loan") and a additional term loans in the aggregate amount of $6,000,000 (the "Term Loans") to the Borrower; and WHEREAS, the Revolving Loan is evidenced by that certain $4,400,000 revolving note dated June 13, 1994, executed by the Borrower and payable to the order of Norwest, as heretofore and hereinafter amended, (the "$4,400,000 Revolving Note") and that certain $3,600,000 revolving note dated June 13, 1994, executed by the Borrower and payable to the order of West One, as heretofore and hereinafter amended, (the "$3,600,000 Revolving Note") (the $4,400,000 Revolving Note and the $3,600,000 Revolving Note are hereinafter collectively referred to as the "Revolving Notes"); and WHEREAS, the Term Loan is evidenced by that certain $3,300,000 Term Note dated June 13, 1994, executed by the Borrower and payable to the order of Norwest, as heretofore and hereinafter amended, (the "$3,300,000 Note") and that certain $2,700,000 Term Note dated June 13, 1994, executed by the Borrower and payable to the order of West One (the "$2,700,000 Note") (the $3,300,000 Note and the $2,700,000 Note are hereinafter collectively referred to as the "Term Notes"); and WHEREAS, the Borrower has requested the Lenders to (i) increase the amount of the Revolving Loan from $8,000,000 to $9,500,000; (ii) extend the "Termination Date" of the "Credit Facility" (as that term is defined in the Credit Agreement) from May 31, 1996 to May 31, 1997; (iii) amend certain financial covenants as contained herein (iv) increase the capital expenditure limitation to $9,500,000, all as herein contained and (v) extend the maturity date of the Term Notes; and WHEREAS, the Lenders are willing to agree to the foregoing subject to the terms and conditions contained herein. NOW, THEREFORE, in consideration of the foregoing recitals and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Amendment of Term Notes A. $3,300,000 Term Note. The $3,300,000 Term Note is hereby amended by (i) deleting the date "May 31, 1996" and substituting "May 31, 1997" therefor and (ii) deleting the date "June 1, 1996" and substituting "June 1, 1997" therefor. B. $2,700,000 Term Note. The $2,700,000 Term Note is hereby amended by (i) deleting the date "May 31, 1996" and substituting "May 31, 1997" therefor and (ii) deleting the date "June 1, 1996" and substituting "June 1, 1997" therefor. 2. Amendment of Revolving Notes. A. $4,400,000 Revolving Note. The $4,400,000 Revolving Note is hereby amended by deleting the date "May 31, 1996" and substituting "May 31, 1997" therefor and to increase the amount payable thereunder from $4,400,000 to $5,225,000. Accordingly, the Revolving Notes, the Credit Agreement and all other Loan Documents are amended to reflect such increase. B. $3,600,000 Revolving Note. The $3,600,000 Revolving Note is hereby amended by deleting the date "May 31, 1996" and substituting "May 31, 1997" therefor and to increase the amount payable thereunder from $3,600,000 to $4,275,000. Accordingly, the Revolving Notes, the Credit Agreement and all other Loan Documents are amended to reflect such increase. 3. Amendments to Credit Agreement. A. The Credit Facility is hereby increased from $8,000,000 to $9,500,000. Accordingly, all references in the Credit Agreement and the Loan Documents of "$8,000,000" and/or the amount of the Credit Facility shall hereafter be "$9,500,000." B. Section 1.1 of the Credit Agreement entitled "Amount of Commitment" shall be deleted in its entirety and the following substituted therefor: "Amount of Commitment" shall be $9,500,000 in the aggregate and, for each Lender, shall initially be as set forth below: Revolving Note Term Note Norwest $5,225,000 (55%) $3,300,000 (55%) West One $4,275,000 (45%) $2,700,000 (45%) C. Section 1.1 of the Credit Agreement entitled "Borrowing Base" shall be deleted in its entirety and the following substituted therefor: "Borrowing Base" means, at any time and subject to change from time to time in the Lenders' sole discretion, the lesser of (a) $9,500,000 or (b) the sum of (i) 80% of Eligible Accounts, plus (ii) 40% of Eligible Inventory consisting of raw materials and work in process, plus (iii) 40% of Eligible Inventory consisting of finishing goods (provided, that during the period June 1, 1995 to September 30, 1995, the percentage for finished goods Eligible Inventory shall be 50%). D. Section 2.5 of the Credit Agreement entitled "Nature of this Facility; Termination by the Lenders" is hereby amended by deleting the date "May 31, 1996" therefrom and substituting the date "May 31, 1997" therefor. E. Section 2.15(a) of the Credit Agreement is hereby amended by deleting the amount of "$8,000,000" and substituting the amount of "$9,500,000" therefor. F. Section 6.12(a) of the Credit Agreement is hereby amended by deleting the date "January 31, 1995" and substituting the date "January 31, 1996" therefor. G. Section 6.12(b) of the Credit Agreement is deleted in its entirety and the following shall be substituted therefor: (b) a minimum net income after taxes of $750,000 year to date as of the fiscal quarter ended July 31, 1995; and $1,150,000 as of the fiscal year ended January 31, 1996; H. Section 6.12(c) of the Credit Agreement is hereby amended by deleting "1.6:1.0 as of the fiscal year ended January 31, 1995" therefrom and substituting "1.25:1.0 as of the fiscal year ended January 31, 1996" therefor. I. Section 6.12(d) of the Credit Agreement is hereby deleted in its entirety and the following shall be substituted therefor: (d) a ratio of Indebtedness to Tangible Net Worth of not more than 3.15:1.0 at any time from February 1, 1995 until September 30, 1995; not more than 3.0:1.0 from October 1, 1995 to January 30, 1996 and not more than 2.80:1.0 on January 31, 1996 and at all times thereafter; J. Section 6.12(e) of the Credit Agreement is hereby deleted in its entirety and the following substituted therefor: (e) for the periods ending July 31, 1995, October 31, 1995 and January 31, 1996, an Interest Coverage Ratio of 2.5:1.0 based upon the previous four quarters' results. K. The paragraphs between Section 6.12(e) and Article VII of the Credit Agreement are hereby deleted in their entirety and the following substituted therefor: The Borrower understands that new mutually agreeable financial covenants for the fiscal year ending January 31, 1997 will have to be set prior to January 31, 1996. If such covenants are not established by such date, the following shall apply: (a) working capital (current assets less current liabilities, calculated in accordance with generally accepted accounting principles, consistently applied) in an amount not less than $2,000,000 at all times from January 31, 1997; (b) a minimum net income after taxes of $750,000 year to date as of the fiscal quarter ended July 31, 1996; and $1,150,000 as of the fiscal year ended January 31, 1997; (c) a ratio of traditional cash flow (net income plus non-cash expense items) to the current portion (those payments due within the following 12 month period) of the Borrower's long-term debt (not including deferred income taxes) of at least 1.25:1.0 as the fiscal year ended January 31, 1997; (d) a ratio of Indebtedness to Tangible Net Worth of not more than 3.15: 1.0 at any time from February 1, 1996 until September 30, 1996; not more than 3.0:1.0 from October 1, 1996 to January 30, 1997 and not more than 2.80:1.0 on January 31, 1997 and at all times thereafter; (e) on a quarterly basis, maintain an Interest Coverage Ratio of 2.5:1.0 based upon the previous four quarters' results. L. Section 7.10, Capital Expenditures, of the Credit Agreement is hereby deleted in its entirety and the following shall be substituted therefor: 7.10 Capital Expenditures. The Borrower's capital expenditures during its fiscal year ending January 31, 1996 together with any capital lease obligations, shall not exceed $9,500,000 in the aggregate, without the prior written approval of the Agent; provided, however, that during any fiscal year of the Borrower, capital expenditures out of the ordinary course of the Borrower's business shall not exceed $1,000,000 in the aggregate; further provided, that the Borrower shall promptly notify the Agent of any and all capital expenditures in excess of $1,000,000 for the purchase of any single item. Capital expenditure limitations for the fiscal year ending January 31, 1997 shall be established by the Agent and agreed to by the Borrower on or before May 31, 1996. 4. Amendment of Loan Documents. The Credit Agreement, the Revolving Notes, the Term Notes, and the "Loan Documents" (as defined in the Credit Agreement) are each hereby amended to incorporate the foregoing amendments. 5. Representations. The Borrower hereby warrants and represents to the Lenders that (a) each and all of the representations and warranties set forth and contained in the Credit Agreement, the Loan Documents and the documents related thereto are true, correct and complete in all respects as of the date hereof, and (b) no Event of Default (as that term is defined in the Credit Agreement), and no event, circumstance or condition which with the giving of notice or the passage of time or both would constitute an Event of Default, has occurred or is continuing as of the date hereof, unless specifically waived in writing by the Lender. 6. No Set-Off. The Borrower hereby acknowledges and agrees with the Lenders that (i) the Note, the Credit Agreement, and any and all other documents related thereto, executed by it and delivered to the Lenders remain in full force and effect in accordance with its original terms, except as previously amended in writing or as amended herein, and (ii) no events, conditions or circumstances have arisen or exist as of the date hereof which would give the Borrower the right to assert a defense, counterclaim and/or setoff to any claim by the Lenders for payment of amount owing under the Revolving Notes, the Credit Agreement, the Loan Documents or any of the documents related thereto. 7. Release. The Borrower hereby releases the Lenders and each of its officers, directors, agents, employees, legal counsel and other representatives from any and all claims, demands, causes of action, liability, damage, loss, cost and expense which it has paid, incurred or sustained or believe it has paid, incurred or sustained, known or unknown, absolute or contingent, liquidated or unliquidated, as a result of or related to their past or present relationship with the Lenders, including, but not limited to (a) the transactions evidenced by or related to the Credit Agreement, the Revolving Notes, the Loan Documents and any and all other documents, agreements or instruments related thereto, or (b) any acts or omissions of the Lenders or any of its officers, directors, agents, employees, legal counsel or other representatives in connection therewith or related thereto, or (c) the extension or denial of credit. 8. No Other Amendments. Except as expressly amended hereby, the Credit Agreement, the Revolving Notes, the Loan Documents, and the documents related thereto shall remain in full force and effect in accordance with the original terms, and no course of dealing or other action or statement of the Lenders or any of its officers, directors, agents, employees, legal counsel or other representative shall amend, or be deemed an amendment of, the Loan Documents, the Revolving Notes, the Credit Agreement or any of the documents related thereto. 9. Costs and Expenses. In accordance with the Credit Agreement, the Borrower shall pay on demand all costs and expenses, including attorneys' fees, incurred by the Lenders in connection with the preparation of this Agreement and the documents related hereto. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the day and year first above written. BORROWER: ULTRA PAC, INC. By: /s/ Brad Yopp Its CFO And: Its LENDERS: WEST ONE BANK, IDAHO By: /s/ James Hawken Its Vice President NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ Laura Schmadt Oberst Its Vice President EX-10.2 3 September 7, 1995 Ultra Pac, Inc. 21925 Industrial Boulevard Rogers, Minnesota 55374 Attention: Brad Yopp, Chief Financial Officer Ultra Pac, Inc. (the "Borrower") entered into a Revolving Credit and Term Loan Agreement with Norwest Bank Minnesota, National Association (the "Bank") dated June 13, 1994 and amended on June 30, 1995 (the "Agreement") which requires compliance with the following covenant under Section 6.12(b): The Borrower agreed to achieve a minimum net income after taxes of $750,000 year to date as of fiscal quarter ended July 31, 1995. The Borrower is presently in default of the Agreement based upon net income after taxes through July 31, 1995 (the "Current Default"). The Bank hereby waives the Current Default with respect to the fiscal quarter ending July 31, 1995. This waiver does not constitute a waiver of any future violation of such covenant or of any other violation that may occur, nor shall the Bank be obligated to grant any waivers in the future. The waiver is valid only with regard to the Current Default. Waiver periods may only be extended in writing. Bank expressly reserves the right to exercise any contractual and/or legal remedies available to it upon occurrence of future defaults, without granting similar waivers. NORWEST BANK MINNESOTA NATIONAL ASSOCIATION By: Laura Schmadt Oberst Its: Vice President Accepted and Agreed to by: ULTRA PAC, INC. By: /s/ Bud Yopp Its: CFO The undersigned Participant consents to the above Waiver. Dated: ___________________________ WEST ONE BANK By: ___________________________ Its:___________________________ EX-27 4
5 6-MOS JAN-31-1996 JUL-31-1995 136,185 0 4,707,343 264,000 10,665,307 16,943,889 39,990,564 7,615,101 50,333,635 11,659,096 25,071,765 7,631,572 0 0 1,213,000 50,333,635 37,137,978 37,137,978 28,083,656 28,083,656 7,351,839 0 1,184,441 518,042 195,000 323,042 0 0 0 323,042 .09 .09