SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| 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: 333-8043
Four M Corporation
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(Exact name of registrant as specified in its charter)
Maryland 52-0822639
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
115 Stevens Avenue
Valhalla, New York 10595
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(Address of principal executive offices) (Zip Code)
(914) 749-3200
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Registrant's telephone number, including area code:
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
As of August 1, 1997, the registrant had 6,815,867 shares of Common Stock
outstanding.
<PAGE>
FOUR M CORPORATION
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I - Financial Information
Page
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 (audited) 2
Consolidated Statements of Operations for the three and
six months ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 15
<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
June 30, 1997 December 31, 1996
(unaudited) (audited)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,246 $ 2,431
Accounts receivable, less allowance for doubtful accounts of 49,694 52,775
$1,768 and $1,621
Inventories (Note 6) 26,631 32,896
Deferred income taxes 9,060 12,661
Notes, advances and other receivables 2,413 3,863
Income taxes recoverable 5,983 4,207
- -----------------------------------------------------------------------------------------------------------
Total current assets 95,027 108,833
Property, plant and equipment, net of accumulated depreciation 174,561 173,333
Goodwill and other intangibles, net of accumulated amortization 4,495 4,678
Other assets 16,846 16,801
- -----------------------------------------------------------------------------------------------------------
$290,929 $303,645
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- -----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued liabilities (Note 7) $ 43,410 $ 60,537
Current maturities of long-term debt and subordinated debt 3,159 2,447
- -----------------------------------------------------------------------------------------------------------
Total current liabilities 46,569 62,984
Long-term debt, less current maturities 213,151 208,777
Subordinated debt, less current maturities 1,900 1,914
Deferred income taxes 13,866 14,486
Minority interest and other liabilities 2,598 3,296
- -----------------------------------------------------------------------------------------------------------
Total liabilities 278,084 291,457
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Stockholder's equity:
Common stock, par value $ .125: Authorized shares -
10,000,000; shares issued 7,229,770, and outstanding
6,815,867 904 904
Additional paid-in capital 717 717
Retained earnings 12,186 11,529
- -----------------------------------------------------------------------------------------------------------
13,807 13,150
Less treasury stock, at cost (413,903 shares) 962 962
- -----------------------------------------------------------------------------------------------------------
Total stockholder's equity 12,845 12,188
- -----------------------------------------------------------------------------------------------------------
$290,929 $303,645
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- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
2
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Three months ended June 30, Six months ended June 30,
-------------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 116,129 $ 74,701 $ 234,025 $ 127,170
Cost of goods sold 97,578 66,003 196,632 111,948
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 18,551 8,698 37,393 15,222
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Selling, general and administrative expenses 11,852 5,640 23,558 9,660
- -------------------------------------------------------------------------------------------------------------------------
Income from operations 6,699 3,058 13,835 5,562
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Other Income (expense):
Interest expense (6,200) (2,781) (12,624) (3,637)
Other -- 94 85 223
- -------------------------------------------------------------------------------------------------------------------------
(6,200) (2,687) (12,539) (3,414)
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Income before provision for income
taxes and minority interest 499 371 1,296 2,148
Provision for income taxes 201 41 536 902
- -------------------------------------------------------------------------------------------------------------------------
Income before minority interest 298 330 760 1,246
Minority interest (125) -- (103) --
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 173 $ 330 $ 657 $ 1,246
--------- -------- --------- ---------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
3
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) Six months ended June 30,
-------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 657 $ 1,246
Adjustment to reconcile net income to net cash provided by
(used for) operating activities
Depreciation and amortization 7,369 2,548
Allowance for doubtful accounts 304 102
Deferred income taxes 2,981 (2,286)
Loss on sale of fixed assets 26 96
Change in assets and liabilities, net of effect of St. Joe
Container acquisition:
Accounts, notes, advances, and other receivables 4,227 (5,298)
Inventories 6,265 10,985
Income taxes recoverable or payable (1,776) (1,728)
Other assets, net of other liabilities (801) (1,276)
Accounts payable and accrued liabilities (17,127) 8,380
- --------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,125 12,769
- --------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (11,061) (7,118)
Proceeds from sale of fixed assets 2,679 393
Purchase of net assets of St. Joe Container -- (159,168)
- --------------------------------------------------------------------------------------------------------
Net cash used for investing activities (8,382) (165,893)
- --------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit
agreements 3,985 1,429
Secured term, mortgage, equipment and other
borrowings 2,336 231
Repayment of long-term debt (1,249) (10,123)
Proceeds from bond issuance -- 170,000
Financing costs -- (8,798)
- --------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,072 152,739
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents:
Decrease in cash and cash equivalents (1,185) (385)
Cash and cash equivalents, beginning of period 2,431 1,100
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,246 $ 715
-------- ---------
- --------------------------------------------------------------------------------------------------------
Supplemental cash flow information:
Cash paid (received)
during the period for:
Interest $ 12,613 $ 1,651
Income taxes, net of refunds $ (856) $ 2,016
- --------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
4
<PAGE>
FOUR M CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation of the results for
interim periods. Operating results for the six months ended June 30, 1997 are
not necessarily indicative of the results to be expected for the full year
ending December 31, 1997. For further information refer to the consolidated
financial statements and footnotes thereto contained in the Four M Corporation
report on Form 10-K for the transition period from August 1, 1996 to December
31, 1996.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Business: Four M Corporation and subsidiaries ("Four M" or the "Company") are
manufacturers of corrugated packaging and semi-chemical corrugating medium. The
Company uses the trade name Box USA to conduct the bulk of its business
activities. Four M has no assets or independent business operations other than
its ownership interest in its subsidiaries.
Use of estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include the
accounts of Four M Corporation and all of its subsidiaries. All of the common
stock of Four M is owned by its Chairman of the Board and Chief Executive
Officer, Dennis Mehiel. Investments in certain companies, of which Four M owns
50% but does not maintain operational control, are accounted for using the
equity method.
All significant intercompany amounts and transactions have been eliminated.
NOTE 3 - SIGNIFICANT ACQUISITIONS
St. Joe Container Company
On May 30, 1996, the Company acquired (i) substantially all of the assets
of St. Joe Container, which consisted primarily of 16 converting facilities and
related working capital (the "Acquisition") and (ii) through a joint venture
with Stone Container Corporation (the "Mill Joint Venture"), a 50% interest in a
linerboard mill located at Port St. Joe, Florida (the "Mill") (See Note 4).
The Acquisition has been accounted for using the purchase method of accounting.
5
<PAGE>
Box USA of New Jersey, Inc.
On August 5, 1996, the Company acquired 490 shares of common stock of Box
USA of New Jersey, Inc. ("New Jersey") formerly known as MannKraft Corporation
from Stone Container Corporation ("Stone Container") (the "New Jersey
Acquisition"). The purchase represented 49% of New Jersey's outstanding shares,
increasing the Company's ownership interest to 50%. Since the remaining 50%
interest in New Jersey is owned indirectly by the Company's stockholder, the
financial statements of MannKraft are included in the Company's consolidation.
NOTE 4 - CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
In connection with the Acquisition, the Company issued and sold $170.0
million aggregate principal amount of 12% Senior Secured Notes due 2006 (the
"Notes"). The Notes are fully and unconditionally guaranteed on a joint and
several basis by Box USA, Four M Paper Corporation, Page Packaging Corporation,
Box USA, Inc. and Four M Manufacturing Group of Georgia, Inc., each a direct or
indirect wholly owned subsidiary of the Company (collectively, the
"Guarantors"). Separate financial statements and other disclosures concerning
the Guarantors are not presented because management has determined that they are
not material to the holders of the Notes. The Notes are not guaranteed by Box
USA Paper Corporation, Box USA of Florida, L.P. ("Florida L.P."), Florida Coast
Paper Company, L.L.C. ("Florida Coast"), New Jersey or Fibre Marketing Group,
L.L.C. (collectively, the "Non-Guarantors"). The following are unaudited
condensed consolidating financial statements regarding the Company (on a
stand-alone basis and on a consolidated basis) and the Guarantors and
Non-Guarantors as of and for the six months ended June 30, 1997:
Condensed Consolidating Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Current assets ............... $ -- $ 84,900 $10,170 $ -- $ 95,027
Investment in affiliates ..... 12,845 5,730 -- (13,045) 5,530
Total assets ................. 12,845 264,475 26,654 (13,045) 290,929
Current liabilities .......... -- 38,891 7,678 -- 46,569
Total liabilities ............ -- 254,925 23,159 -- 278,084
Stockholder's equity ......... 12,845 9,550 3,495 (13,045) 12,845
</TABLE>
Condensed Consolidating Statement of Operations
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net sales .................... $ -- $209,844 $24,181 $ -- $ 234,025
Gross profit ................. -- 34,121 3,272 -- 37,393
Income from operations ....... -- 13,039 796 -- 13,835
Income(loss) before income
taxes ........................ -- 1,291 5 -- 1,296
Net income of subsidiaries ... 657 -- -- (657) --
Net income (loss) ............ 657 599 58 (657) 657
</TABLE>
6
<PAGE>
Condensed Consolidating Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Four M Elimination
Corporation Guarantors Non-Guarantors Entries Consolidated
----------- ---------- -------------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used
for) operating activities ... $ -- $ (445) $ 2,570 $ -- $ 2,125
Net cash used for investing
activities ................... -- (7,089) (1,293) -- (8,382)
Net cash provided by (used
for) financing activities .... -- 6,503 (1,431) -- 5,072
--------------------------------------------------------------------------
Decrease in cash and cash
equivalents .................. -- (1,031) (154) -- (1,185)
Cash and cash equivalents,
beginning of period .......... -- 2,064 367 -- 2,431
--------------------------------------------------------------------------
Cash and cash equivalents,
end of period ................ -- $ 1,033 $ 213 -- $ 1,246
==========================================================================
</TABLE>
NOTE 5 - INVESTMENT IN MILL JOINT VENTURE
In conjunction with the formation of the Mill Joint Venture, the Company
and Stone Container each invested $5 million for a 50% interest in Florida Coast
Holding Co., L.L.C. ("Florida Coast Holding"), the holder of all of the member
interests in the Mill Joint Venture and, Stone Container made a $30 million loan
to Florida Coast Holding. In addition, the Company and Stone Container have each
agreed to provide the Mill Joint Venture with up to $10 million of subordinated
financing, if needed, for general corporate purposes. As of June 30, 1997, the
Mill Joint Venture was indebted to the Company under this facility in the amount
of $2.3 million.
The Company did not allocate any portion of the Acquisition's purchase
price to its investment in the Mill Joint Venture since management believes the
investment value is nominal.
The Company's investment in the Mill Joint Venture is accounted for using
the equity method of accounting. The Company did not record its 50% share of the
Mill Joint Venture's operating results for the six month period ended June 30,
1997 of $ (11.6) million since its investment had no carrying value.
Summarized unaudited income statement information of the Mill Joint
Venture for the six months ended June 30, 1997 were as follows:
Summarized Statement of Operations (in thousands):
Six Months
Ended
June 30, 1997
- --------------------------------------------------------------
Net sales $ 42,856
Net operating loss (11,722)
Interest expense 11,700
Net loss (23,111)
- --------------------------------------------------------------
7
<PAGE>
Pursuant to an Output Purchase Agreement, the Company and Stone Container
have agreed to purchase one-half of the Mill's entire linerboard production at a
price indexed to market prices but subject to a minimum purchase price. This
purchase price is intended to generate sufficient funds to cover cash operating
costs, cash interest expense and maintenance capital expenditures of the Mill.
In accounting for the Acquisition, the Company determined that it would be
required to pay additional amounts above market price for linerboard and
possibly incur other additional costs to fulfill its obligations under the
Output Purchase Agreement and established a reserve for such amounts. The
Company charged approximately $6.5 million against this reserve for the six
months ended June 30, 1997, the remaining balance of such reserve was
approximately $11.4 million at June 30, 1997.
NOTE 6 - INVENTORY
Inventories are valued at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
June 30, December 31,
1996 1997
------- -------
Raw Materials $19,618 $25,056
Work-in-process 1,683 1,615
Finished goods 5,330 6,225
------- -------
$26,631 $32,896
======= =======
NOTE 7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accrued liabilities were approximately $23.2 million at June 30, 1997 and
$30.2 million at December 31, 1996 respectively. These amounts include reserves
for unfavorable contracts related to the Acquisition (See Note 5), acquisition
related provisions, and accruals for various items including employee benefits,
utilities, interest and plant repairs.
NOTE 8 - MILL SHUTDOWNS AND REOPENINGS
In the latter part of 1996 and first quarter of 1997, the Company
experienced a decline in prices for corrugating medium as a result of increased
capacity in the industry and decreased demand for such products. As a result,
the Company shut down its Ft. Madison Mill ("the Fort Madison Mill") on March
31, 1997 for an indefinite period of time. Recently, market conditions for
corrugating medium have improved and the Company has announced that it expects
to resume production at the Ft. Madison Mill on August 18, 1997.
In addition, the Company and Stone Container, as partners in the Mill
Joint Venture, shut down the Mill in April, 1997 for an indefinite period of
time due to a decline in prices for linerboard as a result of increased capacity
in the industry. The Mill Joint Venture has announced that limited production
will resume in early September, 1997 with full production to commence shortly
thereafter. During the period of the Mill shut down, the Company remains subject
to the terms of the Output Purchase Agreement (see Note 5).
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following tables set forth certain consolidated statement of
operations data and such data as a percentage of net sales for the periods
indicated (Dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------------------------
1997 1996
--------------------- --------------------
Percent of Percent of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net Sales ............................................ $116.1 100.0% $ 74.7 100.0%
Cost of goods sold ................................... (97.6) (84.0) (66.0) (88.4)
------ ------ ------ ------
Gross profit ......................................... 18.5 16.0 8.7 11.6
Selling, general and
administrative expenses ............................ (11.8) (10.2) (5.6) (7.5)
------ ------ ------ ------
Income from operations ............................... 6.7 5.8 3.1 4.1
Interest expense ..................................... (6.2) (5.3) (2.8) (3.7)
Other income (expense) ............................... -- -- 0.1 0.1
------ ------ ------ ------
Income before provision for
income taxes and minority interest ................ 0.5 0.5 0.4 0.5
Provision for income taxes .......................... (0.2) (0.2) (0.1) (0.1)
------ ------ ------ ------
Income before minority interest ...................... $ 0.3 0.3% $ 0.3 0.4%
===============================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------
1997 1996
--------------------- ----------------------
Percent of Percent of
Amount Net Sales Amount Net Sales
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Net Sales ................................................. $234.0 100.0% $127.2 100.0%
Cost of goods sold ........................................ (196.6) (84.0) (112.0) (88.0)
------ ------ ------ ------
Gross profit .............................................. 37.4 16.0 15.2 12.0
Selling, general and
administrative expenses .................................. (23.6) (10.1) (9.7) (7.6)
------ ------ ------ ------
Income from operations .................................... 13.8 5.9 5.6 4.4
Interest expense .......................................... (12.6) (5.4) (3.6) (2.9)
Other income (expense) ................................... 0.1 -- 0.2 0.2
------ ------ ------ ------
Income before provision for
income taxes and minority interest ....................... 1.3 0.5 2.1 1.7
Provision for income taxes ................................ (0.5) (0.2) (0.9) (0.7)
------ ------ ------ ------
Income before minority interest ........................... $ 0.8 0.3% $ 1.2 1.0%
===============================================
</TABLE>
Consolidated net sales of $116.1 million and $234.0 million were achieved
by the Company for the three and six months ended June 30, 1997, respectively,
which represented increases of 55.5% and 84.0% from the respective 1996
consolidated net sales amounts of $74.7 million and $127.2 million. Net sales
for the Company's converting facilities increased $44.0 million and $113.1
million in the second quarter and six months ended June 30, 1997, or by 62.6%
and 97.6% to $114.3 million and $229.0 million from the comparable 1996 periods
of $70.3 million and $115.9 million respectively. The increases in both of the
1997 periods is primarily a result of the Acquisition and the New Jersey
Acquisition, which increased sales by $65.5 million and $ 9.7 million for the
three months ended June 30, 1997 and by
9
<PAGE>
$129.1 million and $20.2 million respectively for the first six months of 1997.
These increases were partially offset by lower average selling prices in the
1997 periods due to reduced raw material prices and by the closure in August
1996 of the Company's Flint, Michigan facility. The Ft. Madison Mill was shut
down on March 31, 1997 due primarily to a decline in prices for corrugating
medium. For the three and six months ended June 30, 1997 net sales were $1.8
million and $5.0 million compared to the respective 1996 period net sales of
$4.4 million and $11.2 million. Net sales in the second quarter of 1997 were
from a run off of medium previously produced and the resale of certain purchased
medium to meet obligations to customers. The Company has recently announced that
it expects to resume production at the Ft. Madison Mill on August 18, 1997.
The Companys cost of goods sold as a percentage of net sales decreased to
84.0% for both the three and six months ended June 30, 1997 from the
corresponding 1996 periods of approximately 88% primarily as a result of lower
raw material costs. Cost of goods sold as a percentage of net sales at the
Company's converting facilities decreased to 83.4%for both 1997 periods from
87.9% and 88.3% in the comparable second quarter and six months ended June 30,
1996. Cost of goods sold at the Ft. Madison Mill increased as a percentage of
net sales to 125.7% for the three months and to 121.0% for the six months ended
June 30, 1997. For the comparable 1996 periods, cost of goods sold as a
percentage of net sales were 95.7% and 85.4%. These increases were the result of
the Ft. Madison Mill being shut down in the second quarter of 1997 and decreased
selling price per ton of corrugating medium in 1997.
Gross profit increased $9.9 million or 113.3% to $18.5 million and $22.2
million or 145.7% to $37.4 million for the three and six months ended June 30,
1997 compared to $8.7 million and $15.2 million in the respective 1996 periods
primarily as a result of the Acquisition and the New Jersey Acquisition. The
Company's converting operation gross profit as a percentage of net sales
increased to 16.6% for the three and six months ended June 30, 1997 as compared
to 12.1% and 11.7% for the corresponding three and six months 1996 periods.
Gross profit (loss) as a percentage of net sales for the Ft. Madison Mill
decreased to (25.7%) and ( 21.0%) in the second quarter and six months ended
June 30, 1997. The corresponding 1996 percentages were 4.3% and 14.6%.
Selling, general and administrative expenses increased by $ 6.2 million
and $ 13.9 million or by 110.1% and 143.9%, to $11.8 million and $23.6 million,
respectively, for the three and six months ended June 30, 1997, compared to the
corresponding 1996 amounts of $5.6 million and $9.7 million, respectively. This
increase is primarily attributable to the Acquisition and the New Jersey
Acquisition. As a percentage of net sales, selling, general and administrative
expenses increased to 10.2% and 10.1% for the three and six months ended June
30, 1997 compared to 7.6% in both comparable 1996 periods principally as a
result of lower average selling prices.
As a result of the foregoing factors, income from operations increased
$3.6 million or 119.1% and $8.3 million and 148.7% for the three and six months
ended June 30, 1997 to $6.7 million and $13.8 million, respectively, from $3.1
million and $5.6 million in the three and six months ended June 30, 1996.
Interest expense increased $3.4 million or 122.9% to $6.2 million for the
three months and $9.0 million or 247.1% to $12.6 million for the six months
ended June 30, 1997 from corresponding 1996 amounts as a result of the Company's
12% Senior Secured Notes due 2006 issued in connection with the Acquisition.
Comparable three and six months ended June 30, 1996 interest expense amounts
were $2.8 million and $3.6 million respectively.
Liquidity and Capital Resources
Historically, the Company has relied on cash flows from operations and
bank borrowings to finance its working capital requirements and capital
expenditures.
Net cash provided by operating activities for the six months ended June
30, 1997 was $2.1 million compared to net cash provided by operating activities
of $12.8 million for the six months ended June 30, 1996. Cash used in operating
activities for the six months ended June 30, 1997 was driven by net income of
$.7 million for the period, and a $6.3 million decrease in inventory and a $4.2
million decrease in accounts, notes, advances and other receivables which
10
<PAGE>
was more than offset by a $17.1 million decrease in accounts payable and accrued
liabilities. The decrease in accounts payable and accrued liabilities between
the comparable 1997 and 1996 periods is largely attributable to certain costs
incurred and additional amounts paid for inventory above market price totalling
approximately $8 million being charged to reserves established as part of the
Acquisition and the Company's decision in the latter part of 1996 to accelerate
payments to vendors to take advantage of early payment discounts.
Net cash used for investing activities was $8.4 million for the six months
ended June 30, 1997 compared to $165.9 million for the six months ended June 30,
1996. This difference was primarily the result of the Company acquiring the net
assets of St. Joe Container for $159.2 million on May 30, 1996.
Net cash provided by financing activities was $5.1 million for the six
months ended June 30, 1997 compared to net cash used for financing activities of
$152.7 million for the six months ended June 30, 1997. This difference is
primarily attributable to the net cash provided by the Notes in the amount of
$170 million related to the Acquisition on May 30, 1996.
Capital expenditures for the six months ended June 30, 1997 were $11.1
million as compared to $7.1 million for the six months ended June 30, 1996. This
increase was primarily due to upgrade and maintenance capital expenditures at
the converting facilities acquired by the Company in the Acquisition and
includes outfitting the Company's new facility in Vernon, California with
machinery and equipment. A portion of the $11.1 million of 1997 capital
expenditures was derived from the proceeds of the sale of other fixed assets. At
the present time, the Company expects to spend approximately $14 million in
capital expenditures in 1997.
On May 30, 1996, the Company established a Credit Facility which will
mature in 2001. The Credit Facility provides total borrowing capacity of up to
$80.0 million on a revolving basis, subject to borrowing base limitations, to
finance the Company's working capital needs. Unused borrowing base availability
must be at least $5.0 million. On February 28, 1997, the Credit Facility was
amended and Florida, L.P. was made an additional borrower hereunder. The sole
general partner of Florida, L.P. is Four M Manufacturing Group of Georgia, Inc.
one of the guarantors of the Notes. Pursuant to the Credit Facility, the Company
is subject to certain affirmative and negative covenants customarily found in
agreements of this type. As of June 30, 1997, such covenants were amended and
the Company is in compliance with these covenants, as amended. At August 1,
1997, the Company had unused borrowing capacity of approximately $21.1 million
under the Credit Facility.
The Company and Stone Container have each agreed to provide the Mill Joint
Venture with up to $10.0 million of subordinated indebtedness on a revolving
credit basis. As of June 30, 1997, the Mill Joint Venture was indebted to the
Company under this facility in the amount of $2.3 million.
Pursuant to the Output Purchase Agreement, the Company was required to pay
the Mill Joint Venture $3.3 million as a purchase price adjustment for its 50%
share of the linerboard produced by the Mill during the six month
period ended June 30, 1997.
Although there can be no assurance, the Company believes that cash
generated by operations together with amounts available under the Credit
Facility, will be sufficient to meet its capital expenditure needs, debt service
requirements and working capital needs through the end of 1997.
Environmental Matters
The Company's operations are subject to environmental regulation by
federal, state and local authorities in the United States. The Company believes
that it is in substantial compliance with current federal, state and local
environmental regulation. Unreimbursed liabilities arising from environmental
claims, if significant, could have a material adverse effect on the Company's
results of operations and financial condition. Furthermore, actions by federal,
state and local governments concerning environmental matters could result in
laws or regulations that could increase the cost of compliance with
environmental laws and regulations.
11
<PAGE>
In November 1993, the EPA announced proposed regulations, known as the
"cluster rules," that would require more stringent controls on air and water
discharges from pulp and paper mills under the Clean Water Act and the Clean Air
Act. Pulp and paper manufacturers have submitted extensive comments to the EPA
on the proposed cluster rules in support of the position that requirements under
the proposed regulations are unnecessarily complex, burdensome and
environmentally unjustified. It cannot be predicted at this time whether the EPA
will modify the requirements in the final regulations. Based on information
presently available from the EPA, it is expected that the EPA will promulgate
the final cluster rules in 1997. In addition, the Company anticipates that the
earliest time for industry compliance with certain aspects of the regulations
should not be prior to the last quarter of 1997, and that compliance with the
remaining elements will be required by the end of 1999. The Company estimates
that these regulations, if adopted as currently proposed, would require capital
expenditures of approximately $1.5 million to $2.0 million by the Company with
respect to the Ft. Madison Mill. The ultimate financial impact of the proposed
regulations on the Company will depend on the nature of the final regulations,
the timing of required implementation and the cost and availability of new
technology.
12
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against claims in an amount which it believes to be adequate.
The Company believes that it is not presently a party to any litigation, the
outcome of which could reasonably be expected to have a material adverse effect
on its financial condition or results of operations.
On July 19, 1996, a civil action was filed in the Superior Court of Fulton
County, Georgia (the "Suit") by Sid Dunken, individually and on behalf of D&M
Partnership, a purported Georgia partnership, against the Company, Box USA, Four
M Manufacturing Group of Georgia, Inc. and Dennis Mehiel. The complaint alleges
that Dunken is entitled to an equity interest in the Company or in the
alternative, $150 million in compensatory damages, as well as punitive damages
and attorneys' fees. On September 23, 1996, the Company filed an answer in
response to the complaint. The Company believes the Suit is without merit. The
Company intends to defend against the Suit vigorously and believes it has
adequate defenses. However, the Suit is in a preliminary stage, and there can be
no assurance that the outcome of the Suit will not be adverse to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 2.1 through 10.6 and Exhibit 21.1, are incorporated herein by
reference to the exhibit with the corresponding number filed as part of the
Company's Registration Statement on Form S-4 filed on July 12, 1996, and all
amendments thereto (File No. 333-8043). Exhibits 10.7 and 12.1 are incorporated
by reference to the exhibit with the corresponding number filed as part of the
Company's Form 10-K for the transition period ended December 31, 1996. Exhibits
10.8 and 10.9 are filed as part of this document.
Exhibit
Number Description of Exhibit
2.1 Asset Purchase Agreement, dated as of November 1, 1995, among Four
M Corporation (the "Company"), St. Joe Forest Products Company, St.
Joe Container Company, St. Joe Paper Company and Florida Coast
Paper Company, L.L.C. ("Florida Coast").
3.1 Certificate of Incorporation of the Company.
3.2 Certificate of Incorporation of Box USA Group, Inc. ("Box USA")
3.3 Certificate of Incorporation of Four M Paper Corporation.
3.4 Certificate of Incorporation of Page Packaging Corporation.
3.5 Certificate of Incorporation of Box USA, Inc.
3.6 Certificate of Incorporation of Four M Manufacturing Group of
Georgia, Inc.
3.7 By-laws of the Company.
3.8 By-laws of Box USA
3.9 By-laws of Four M Paper Corporation.
3.10 By-laws of Page Packaging Corporation.
3.11 By-laws of Box USA, Inc.
3.12 By-laws of Four M Manufacturing Group of Georgia, Inc.
4.1 Indenture, dated as of May 30, 1996, between the Company and
Norwest Bank Minnesota, National Association (the "Trustee").
4.2 Form of 12% Series A and Series B Senior Secured Notes, dated as of
May 30,1996 (incorporated by reference to Exhibit 4.1).
13
<PAGE>
4.3 Registration Rights Agreement, dated as of May 30, 1996, among the
Company, the Guarantors and Bear, Stearns & Co. Inc. (the "Initial
Purchaser").
4.4 Security Agreement, dated as of May 30, 1996, between the Company
and the Trustee.
4.5 Subsidiary Security Agreement, dated as of May 30, 1996, between
the Guarantors and the Trustee.
4.6 Contribution Agreement, dated as of May 30, 1996, between the
Company, the Guarantors and the Trustee.
4.7 Drop Down Notes, dated as of May 30, 1996, executed by each of the
Guarantors.
4.8 Drop Down Notes Security Agreement, dated as of May 30, 1996,
between the Guarantors and the Company.
4.9 Guaranty, dated as of May 30, 1996, among the Guarantors and the
Trustee.
4.10 Form of Company Pledge Agreement, dated as of May 30, 1996, between
the Company and the Trustee.
4.11 Form of Subsidiary Pledge Agreement, dated as of May 30, 1996,
among the Guarantors and the Trustee.
4.12 Warrant Agreement, dated as of May 30, 1996, between the Company
and the Initial Purchaser.
10.1 Output Purchase Agreement, dated as of May 30, 1996, among the
Company, Florida Coast and Stone Container Corporation ("Stone").
10.2 Financing and Security Agreement, dated as of May 30, 1996, among
the Company, the Guarantors, NationsBank, N.A. ("NationsBank"), the
financial institutions named therein (together with NationsBank,
the "Lenders"), and NationsBank, as agent (NationsBank, in such
capacity, the "Agent").
10.3 Subordinated Credit Agreement, dated as of May 30, 1996, among the
Company, Florida Coast and Stone.
10.4 Environmental Indemnity Agreement, dated as of May 30, 1996,
between the Company and Florida Coast.
10.5 Stock Appreciation Unit Plan of the Company, dated as of August 1,
1992, and Amendment No. 1 thereto, dated as of August 1, 1995.
10.6 Subordination, Nondisturbance and Attornment Agreement, dated as of
May 30, 1996, between the Trustee, and Box USA Group, Inc.
10.7 First Amendment to Financing and Security Agreement and Additional
Borrower Joinder Supplement dated as of February 28, 1997, among
the Company, the Guarantors, the Lenders, the Agent and Box USA of
Florida, L.P.
10.8 Second Amendment to Finance and Security Agreement
10.9 Third Amendment to Finance and Security Agreement
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of the registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None.
14
<PAGE>
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.
FOUR M CORPORATION
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal
Accounting Officer)
Date: August 12, 1997
FOUR M PAPER CORPORATION
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal
Accounting Officer)
Date: August 12, 1997
BOX USA GROUP, INC.
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal
Accounting Officer)
Date: August 12, 1997
PAGE PACKAGING CORPORATION
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal
Accounting Officer)
Date: August 12, 1997
15
<PAGE>
BOX USA, INC.
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal
Accounting Officer)
Date: August 12, 1997
FOUR M MANUFACTURING GROUP OF GEORGIA, INC.
By: /s/ Timothy D. McMillin
-------------------------------------
Timothy D. McMillin
Senior Vice President and Chief
Financial Officer (Principal Accounting
Officer)
Date: August 12, 1997
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made as of the 27th day of March, 1997, by and among
Four M Corporation, a corporation organized under the laws of the State of
Maryland ("FMC"), Box USA Group, Inc., a corporation organized under the
laws of the State of New York ("Box"), Four M Paper Corporation, a
corporation organized under the laws of the State of Delaware ("Paper"),
Four M Manufacturing Group of Georgia, Inc., a corporation organized under
the laws of the State of Pennsylvania ("Georgia") Page Packaging
Corporation, a corporation organized under the laws of the State of
Delaware ("Page"), and Box USA of Florida, L.P., a limited partnership
organized under the laws of the State of Georgia ("Florida Partnership")
jointly and severally (FMC, Box, Paper, Georgia, Page and the Florida
Partnership, are sometimes herein collectively referred to as the
"Borrowers"; FMC, Box, Paper, Georgia, Page and the Florida Partnership
are sometimes herein collectively referred to as the "Borrowers" and
individually, as a "Borrower");
NATIONSBANK, N.A., a national banking association ("NationsBank"), and the
other financial institutions listed on the signature pages hereof
(NationsBank and the other financial institutions are herein collectively
referred to as the "Lenders" and individually, as a "Lender"), and
NATIONSBANK, N.A., a national banking association (the "Agent").
RECITALS
A. The Agent, the Lenders and the Borrowers are parties to the Financing
and Security Agreement dated as of May 30, 1996 (as amended by First Amendment
to Financing and Security Agreement dated February 28, 1997 (the "First
Amendment") and as amended, modified, restated, substituted, extended and
renewed at any time and from time to time, the "Financing Agreement"). Under the
terms of the First Amendment, the Florida Partnership was added as a Borrower.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings given to them in the Financing Agreement.
B. In compliance with Section 6.2.15(b) of the Financing Agreement, the
Borrowers gave the Agent notice that they changed their fiscal year and from
July 31 to December 31, beginning December 31, 1996.
<PAGE>
C. As required by Section 6.2.15(b) of the Financing Agreement, the
Borrowers, the Agent and the Lenders wish to enter into this Agreement to reset
the financial covenants contained in the Financing Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers,
the Agent and the Lenders agree that the Financing Agreement is hereby amended
as follows:
1. The Borrowers, the Agent and the Lenders agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined in this
Agreement. Unless otherwise expressly defined in this Agreement, terms defined
in the Financing Agreement shall have the same meaning under this Agreement.
2. Sections 6.1.14(a), (b), (c) and (d) of the Financing Agreement are
hereby amended to read as follows:
(a) Tangible Net Worth. The Borrowers will at all times
(tested as of the end of each fiscal quarter) maintain a Tangible Net worth
of not less than the following:
Date Amount
---- ------
Closing Date through December 30, 1996 $ 3,500,000
December 31, 1996 through March 30, 1997 $ 5,500,000
March 31, 1997 through June 29, 1997 $ 6,000,000
June 30, 1997 through September 29, 1997 $ 6,500,000
September 30, 1997 through December 30, 1997 $ 7,000,000
December 31, 1997 through March 30, 1998 $ 7,500,000
March 31, 1998 through June 29, 1998 $10,000,000
June 30, 1998 through September 29, 1998 $15,000,000
September 30, 1998 through December 30, 1998 $17,000,000
December 31, 1998 through March 30, 1999 $20,000,000
March 31, 1999 through June 29, 1999 $24,000,000
June 30, 1999 through September 29, 1999 $29,000,000
September 30, 1999 through December 30, 1999 $31,000,000
2
<PAGE>
Date Amount
---- ------
December 31, 1999 through March 30, 2000 $34,000,000
March 31, 2000 through June 29, 2000 $40,000,000
June 30, 2000 through September 29, 2000 $45,000,000
September 30, 2000 through December 30, 2000 $48,000,000
December 31, 2000 through March 30, 2001 $52,000,000
March 31, 2001 through June 29, 2001 $56,000,000
June 30, 2001 and thereafter $64,000,000
(b) Interest Coverage Ratio. The Borrowers will maintain
(tested, commencing December 31, 1996, as of the last day of each fiscal
quarter in each fiscal year for the three (3), six (6), nine (9) or twelve
(12) month period of such fiscal year, as appropriate, ending on that date)
(provided that, only for the period ending prior to December 31, 996, in
calculating the Interest Coverage Ratio there shall be added to EBITDA an
amount equal to the purchase price adjustments under the Purchase
Agreement) an Interest Coverage Ratio of not less than the following:
Fiscal Quarter Ended Ratio
-------------------- -----
December 31, 1996 1.20 to 1.0
March 31, 1997 1.40 to 1.0
June 30, 1997 1.50 to 1.0
September 30, 1997 1.50 to 1.0
December 31, 1997 1.50 to 1.0
March 31, 1998 1.50 to 1.0
June 30, 1998 1.70 to 1.0
September 30, 1998 1.90 to 1.0
December 31, 1998 2.00 to 1.0
March 31, 1999 2.00 to 1.0
June 30, 1999 2.25 to 1.0
September 30, 1999 and thereafter 2.50 to 1.0
(c ) Fixed Charge Coverage Ratio. The Borrowers will
maintain (tested as of the last day of each fiscal quarter in each fiscal
year for the three (3), six (6), nine (9) or twelve (12) month period of
such fiscal
3
<PAGE>
year, as appropriate, ending on that date) a Fixed Charge Coverage Ratio of
not less than the following:
Fiscal Quarter Ended Ratio
-------------------- -----
March 31, 1997 0.90 to 1.0
June 30, 1997 through March 31, 1999 1.00 to 1.0
June 30, 1999 and thereafter 1.10 to 1.0
(d) Funded Debt to EBITDA Ratio. The Borrowers will
maintain (tested, commencing December 31, 1996, as of the last day of each
of the Borrower's fiscal quarters (x) with respect to each fiscal quarter
up to and including June 30, 1997, for the period commencing with the first
day of August, 1996 and continuing through and including the test date and
(y) commencing September 30, 1997,for the four (4) quarter period ending on
the test date) a ratio of Funded Debt to EBITDA (provided that, only for
the periods ending prior to September 30, 1997 there shall be added to
EBITDA an amount equal to the purchase price adjustments under the Purchase
Agreement) of not more than the following:
Fiscal Quarter Ended Ratio
-------------------- -----
December 31, 1996 30.00 to 1.0
March 31, 1997 10.00 to 1.0
June 30, 1997 7.00 to 1.0
September 30, 1997 6.00 to 1.0
December 31, 1997 5.00 to 1.0
March 31, 1998 5.00 to 1.0
June 30, 1998 4.75 to 1.0
September 30, 1998 4.50 to 1.0
December 31, 1998 4.25 to 1.0
March 31, 1999 4.00 to 1.0
June 30, 1999 3.50 to 1.0
September 30, 1999 and thereafter 3.00 to 1.0
3. Each of the Borrowers hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Financing Agreement,
as amended hereby. Each of the Borrowers agrees that this Agreement is not
intended to and shall not cause a novation with respect to any or all of the
Obligations. This Agreement is one of the Financing Documents.
4
<PAGE>
4. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland, without regard to principles
of choice of law.
5. The Borrowers shall pay at the time this Agreement is executed and
delivered all fees, commissions, costs, charges, taxes and other expenses
incurred by the Agent and its counsel in connection with this Agreement,
including, but not limited to, reasonable fees and expenses of the Agent's
counsel and all recording fees, taxes and charges.
6. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument. The Borrowers agree that the Agent and the Lenders may rely on a
telecopy of any signature of any Borrower. The Agent and the Lenders agree that
the Borrower may rely on a telecopy of this Agreement executed by the Agent and
the Lenders, respectively.
IN WITNESS WHEREOF, each of the parites hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above.
WITNESS OR ATTEST: FOUR M CORPORATION
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA GROUP, INC.
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: FOUR M PAPER CORPORATION
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Linda Schroeder Timothy D. McMillin
Senior Vice President
5
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS OR ATTEST: FOUR M MANUFACTURING GROUP OF GEORGIA,
INC.
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: PAGE PACKAGING CORPORATION
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA OF FLORIDA, L.P.
BY: FOUR M MANUFACTURING GROUP OF
GEORGIA, INC.
/s/ Linda Schroeder By: /s/ Timothy D. McMillin (Seal)
- ------------------- -----------------------
Timothy D. McMillin
Senior Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
By: (Seal)
- ------------------- -----------------------
Name:
Title:
6
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS OR ATTEST: FOUR M MANUFACTURING GROUP OF GEORGIA,
INC.
By: (Seal)
- ------------------ ----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: PAGE PACKAGING CORPORATION
By: (Seal)
- ------------------ ----------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA OF FLORIDA, L.P.
BY: FOUR M MANUFACTURING GROUP OF
GEORGIA, INC.
By: (Seal)
- ------------------ -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ Mary J. Klunsmith By: /s/ Vickie Tillman (Seal)
- --------------------- ---------------------
Name: Vickie Tillman
Title: V.P.
6
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
/s/ Mary J. Klunsmith By: /s/ Vickie Tillman (Seal)
- --------------------- --------------------
Name: Vickie Tillman
Title: V.P.
WITNESS: IBJ SCHRODER BANK & TRUST COMPANY
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
7
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: IBJ SCHRODER BANK & TRUST COMPANY
/s/ James [ILLEGIBLE] By: /s/ Robert R. Wallace (Seal)
- --------------------- ---------------------
Name: Robert R. Wallace
Title: Vice President
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
7
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: IBJ SCHRODER BANK & TRUST COMPANY
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: SANWA BUSINESS CREDIT CORPORATION
/s/Donald A. Mastro By: /s/Michael J. Cox (Seal)
- -------------------- --------------------
Donald a. Mastro Name: Michael J. Cox
Title: V.P.
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
7
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: IBJ SCHRODER BANK & TRUST COMPANY
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
[ILLEGIBLE] By: /s/ Ryan Peak (Seal)
- -------------------- --------------------
Name: Ryan Peak
Title: VP
WITNESS: FLEET CAPITAL CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
7
<PAGE>
SIGNATURE PAGE TO
SECOND AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: NATIONSBANK, N.A.
in its capacity as a Lender
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: IBJ SCHRODER BANK & TRUST COMPANY
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
[Illegible] By: (Seal)
- -------------------- --------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
By: /s/ Howard Handman (Seal)
- -------------------- --------------------
Name: Howard Handman
Title:
7
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made as of the 31st day of July, 1997, by and among
Four M Corporation, a corporation organized under the laws of the State of
Maryland ("FMC"), Box USA Group, Inc., a corporation organized under the
laws of the State of New York ("Box"). Four M Paper Corporation, a
corporation organized under the laws of the State of Delaware ("Paper"),
Four M Manufacturing Group of Georgia, Inc., a corporation organized under
the laws of the State of Pennsylvania ("Georgia"), Page Packaging
Corporation, a corporation organized under the laws of the State of
Delaware ("Page"), and Box USA of Florida, L.P., a limited partnership
organized under the laws of the State of Georgia (the "Florida
Partnership") jointly and severally (FMC, Box, Paper, Georgia, Page and
the Florida Partnership, are sometimes herein collectively referred to as
the "Borrowers;" FMC, Box, Paper, Georgia, Page, and the Florida
Partnership are sometimes herein collectively referred to as the
"Borrowers" and individually, as a "Borrower");
NATIONSBANK, N.A., a national banking association ("NationsBank"), and the
other financial institutions listed on the signature pages hereof
(NationsBank and the other financial institutions are herein collectively
referred to as the "Lenders" and individually, as a "Lender"); and
NATIONSBANK, N.A., a national banking association (the "Agent").
RECITALS
A. The Agent, the Lenders and the Borrowers are parties to the Financing
and Security Agreement dated as of May 30, 1996 (as amended by First Amendment
to Financing and Security Agreement dated February 28, 1997 (the "First
Amendment"). Second Amendment to Financing and Security Agreement dated March
27, 1997 and as amended, modified, restated, substituted, extended and renewed
at any time and from time to time, the "Financing Agreement"). Under the terms
of the First Amendment, the Florida Partnership was added as a Borrower.
Capitalized terms not otherwise defined in this Agreement shall have the
meanings given to them in the Financing Agreement.
B. The Agent, the Lenders and the Borrowers wish to enter into this
Agreement to amend the Sections 6.1.14 (c) of the Financing Agreement for the
periods ending June 30, 1997 and September 30, 1997 only.
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrowers,
the Agent and the Lenders agree that the Financing Agreement is hereby amended
as follows:
1. The Borrowers, the Agent and the Lenders agree that the Recitals above
are a part of this Agreement. Unless otherwise expressly defined in this
Agreement, terms defined in the Financing Agreement shall have the same meaning
under this Agreement.
2. Sections 6.1.14 (c) of the Financing Agreement is hereby amended to
read as follows:
(c) Fixed Charge Coverage Ratio. The Borrowers will
maintain (tested as of the last day of each fiscal quarter in each fiscal
year for the three (3), six (6), nine (9) or twelve (12) month period of such
fiscal year, as appropriate, ending on that date) a Fixed Charge Coverage
Ratio of not less than the following:
Fiscal Quarter Ended Ratio
-------------------- -----
March 31, 1997 through September 30, 1997 0.90 to 1.0
December 31, 1997 through March 31, 1999 1.00 to 1.0
June 30, 1999 and thereafter 1.10 to 1.0
3. In consideration and as a condition of the execution of this Agreement
by the Lenders, at the time this Agreement is executed and delivered the
Borrowers shall pay to the Lenders an amendment fee in the amount of $20,000,
which fee shall be fully earned when due and non-refundable when paid.
4. Each of the Borrowers hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Financing Agreement,
as amended hereby. Each of the Borrowers agrees that this Agreement is not
intended to and shall not cause a novation with respect to any or all of the
Obligations. This Agreement is one of the Financing Documents.
5. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Maryland, without regard to principles
of choices of law.
6. The Borrowers shall pay at the time this Agreement is executed and
delivered all fees, commissions, costs, charges, taxes and other expenses
incurred by the Agent and its counsel in connection with this Agreement,
including, but not limited to,
2
<PAGE>
reasonable fees and expenses of the Agent's counsel and all recording fees,
taxes and charges.
7. This Agreement may be executed in any number of duplicate originals or
counterparts, each of such duplicate originals or counterparts shall be deemed
to be an original and all taken together shall constitute but one and the same
instrument. The Borrowers agree that the Agent and the Lenders may rely on a
telecopy of any signature of any Borrower. The Agent and the Lenders agree that
the Borrower may rely on a telecopy of this Agreement executed by the Agent and
the Lenders, respectively.
IN WITNESS WHEREOF, each of the parties hereto have executed and delivered
this Agreement under their respective seals as of the day and year first written
above.
WITNESS OR ATTEST: FOUR M CORPORATION
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA GROUP, INC.
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: FOUR M PAPER CORPORATION
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: FOUR M MANUFACTURING GROUP OF GEORGIA,
INC.
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
3
<PAGE>
SIGNATURE PAGE TO
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS OR ATTEST: PAGE PACKAGING CORPORATION
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA OF FLORIDA, L.P.
BY: FOUR M MANUFACTURING GROUP
OF GEORGIA, INC.
/s/ Lurline Arco By: /s/ Timothy D. McMillin (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
WITNESS: NATIONSBANK, N.A.
in its capacity as Lender
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
WITNESS: IBJ SCHRODER BUSINESS CREDIT CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
4
<PAGE>
SIGNATURE PAGE TO
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS OR ATTEST: PAGE PACKAGING CORPORATION
By: (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS OR ATTEST: BOX USA OF FLORIDA, L.P.
BY: FOUR M MANUFACTURING GROUP
OF GEORGIA, INC.
By: (Seal)
- ---------------------- -------------------------
Timothy D. McMillin
Senior Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as Agent
/s/ Mary J. Klunsmith By: /s/ Vickie Tillman (Seal)
- ---------------------- -------------------------
Name: Vickie Tillman
Title: Vice President
WITNESS: NATIONSBANK, N.A.
in its capacity as Lender
/s/ Mary J. Klunsmith By: /s/ Vickie Tillman (Seal)
- ---------------------- -------------------------
Name: Vickie Tillman
Title: Vice President
WITNESS: IBJ SCHRODER BUSINESS CREDIT CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
4
<PAGE>
SIGNATURE PAGE TO
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: /s/ Lawrence J. Placek (Seal)
- ---------------------- -------------------------
Name: Lawrence J. Placek
Title: Vice President
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
5
<PAGE>
SIGNATURE PAGE TO
THIRD AMENDMENT TO FINANCING AND SECURITY AGREEMENT
WITNESS: SANWA BUSINESS CREDIT CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
WITNESS: THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: (Seal)
- ---------------------- -------------------------
Name:
Title:
WITNESS: FLEET CAPITAL CORPORATION
/s/ [Illegible] By: /s/ Robert M. Dailey (Seal)
- ---------------------- -------------------------
Name: Robert M. Dailey
Title: Vice President
5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,246
<SECURITIES> 0
<RECEIVABLES> 51,462
<ALLOWANCES> 1,768
<INVENTORY> 26,631
<CURRENT-ASSETS> 95,027
<PP&E> 211,409
<DEPRECIATION> 36,847
<TOTAL-ASSETS> 290,929
<CURRENT-LIABILITIES> 46,569
<BONDS> 213,151
904
0
<COMMON> 0
<OTHER-SE> 12,903
<TOTAL-LIABILITY-AND-EQUITY> 290,929
<SALES> 234,025
<TOTAL-REVENUES> 234,025
<CGS> 196,632
<TOTAL-COSTS> 220,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,624
<INCOME-PRETAX> 1,296
<INCOME-TAX> 536
<INCOME-CONTINUING> 657
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
