<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the Year Ended December 31, 1998
Commission file number 0-24415
JPS Packaging Company
(Exact name of registrant as specified in its charter)
4200 Somerset Drive, Suite 208
Prairie Village, Kansas 66208
Telephone number (913) 381-0008
Incorporated in the State of Delaware
31-1311495
(IRS Employer Identification No.)
Securities Registered Pursuant to Section 12(g) of the Act:
Title of each class
Common stock, $.01 par value
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 (of 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.
(1) Yes [X] No [_](2) Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, [X]
As of February 26, 1999 there were 5,552,705 shares of Common Stock, $.01
par value, outstanding. On February 26, 1999, the aggregate market value of
such shares held by non-affiliates of the Registrant was approximately $13.8
million.
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<PAGE>
PART I
ITEM 1. BUSINESS
JPS Packaging Company, the Registrant, together with its subsidiary, is
referred to herein as the "Company". The Company was originally incorporated
in Ohio on November 1, 1990 and known as Sealright Manufacturing-East, Inc. On
March 24, 1998, Sealright Manufacturing-East, Inc. was reincorporated in
Delaware and thereafter changed its name to "JPS Packaging Company." Prior to
July 1, 1998, the Company was a subsidiary of Sealright Co., Inc.
("Sealright"). The Company is a manufacturer and converter of flexible
packaging and labeling products for use by customers in the food and beverage
industry and other niche markets. Additionally, the Company manufactures
sleeve labeling machinery under the StyrotechTM trade name. The Company
operates in the packaging industry.
At December 31, 1998, the Company operated two domestic manufacturing
facilities located in Akron, Ohio, and San Leandro, California. Additionally,
the Company maintains an equipment assembly facility in Raleigh, North
Carolina and a corporate office in Prairie Village, Kansas.
The Company manufactures and sells a broad variety of flexible packaging
products, most of which are printed by the Company. The Company's labeling
products for carbonated beverages, dairy beverages and juices are principally
manufactured at its Akron, Ohio facility. The Company also manufactures and
sells liquid novelty packaging, peelable lidding for single servings of
pudding, gelatin and cultured dairy products, and pouch packaging for dried
fruit and nut products, which are produced primarily at its San Leandro,
California facility. These products collectively accounted for approximately
70% of the Company's fiscal 1998 sales. The Company also produces and sells a
variety of other products, including packaging for single-serve condiments,
film-based products for the medical and construction industries and equipment
for the application of sleeve labels.
Sources of Raw Materials
The Company purchases raw materials from a variety of suppliers at
competitive prices and aligns its operations with suppliers who lead the
market in product innovation of packaging materials technology. The principal
raw materials used by the Company are plastic, resin, film, paper, foil and
ink. The Company has experienced little or no difficulty obtaining adequate
supplies of raw materials.
Trademarks and Patents
The Company's products are manufactured using machinery and processes
covered by patents owned or controlled by the Company. The Company has
domestic and foreign registered trademarks which are used in connection with
both product names and distinctive designs. However, the Company views its
business as one which is not primarily dependent on patent or trademark
protection.
Seasonal Operations
Due to the soft drink beverage market, the Company has historically
experienced revenue increases in the second and third quarters.
Customers
The Company has relationships with numerous customers in each of its
product categories. The Company has two customers (Constar International and
Portion Pac Inc.) which combined for 24% of sales in 1998. The loss of these
customers, while not anticipated, could have a material adverse effect on the
Company's financial condition, results of operations and cash flows.
2
<PAGE>
Sales and Backlog
The Company does not have an accurate methodology to track backlog, and
does not believe recorded sales backlog to be a significant factor in its
business. Customers generally place annual orders in quantities covering
demand for one to three months with shipments scheduled during that period.
Competition
The flexible packaging industry includes several hundred competitors.
Currently available trade and industry information indicates that the 10
largest flexible packaging companies account for approximately 35% of total
industry sales in 1998. Competitors in this industry include American National
Can, Bemis, Bryce, Cryovac, Huntsman Packaging, Printpack, Reynolds Metals,
and Sonoco Products, many of which are well capitalized and maintain a strong
market presence in the various markets in which the Company competes. All of
these competitors are substantially larger, more diversified and have greater
financial, personnel and marketing resources than the Company, and therefore
may have significant competitive advantages versus the Company.
Research and Development
The Company is engaged in designing and developing new products and
adapting existing products for new uses. Approximately $423,000, $547,000 and
$830,000 were expended for research and development in 1998, 1997 and 1996,
respectively.
Environmental and Governmental Regulations
Since most of the Company's packaging products are used in the food
industry, the Company is subject to the manufacturing standards of and
inspection by the U.S. Food and Drug Administration. Historically, compliance
with the standards of the food industry has not had a material effect on the
Company's operations, capital expenditures or competitive position.
The manufacturing operations of the Company are subject to Federal, state
and local regulations governing the environment and the discharge of materials
into air, land and water, as well as the handling and disposal of solid and
hazardous wastes. The Company believes it is in substantial compliance with
applicable environmental regulations and does not believe that costs of
compliance will have a material adverse effect on its operations, capital
expenditures, or competitive position.
Employees
The Company's average number of employees for 1998 was 400. Of these, 9 are
employed at the Company's headquarters in Prairie Village, Kansas and 11 are
employed at the Raleigh, North Carolina sales office. At the Akron, Ohio
facility, which employs approximately 230 people, the hourly employees are
covered under a collective bargaining agreement that expires in 2000. At the
San Leandro, California facility, which employs approximately 150 people, the
hourly employees are covered under a collective bargaining agreement that
expires in 2001. Overall, the Company believes its relations with its
employees, including union employees, are good.
Forward-Looking Statements
Certain written and oral statements in this document and elsewhere made by
management that are neither reported financial results nor other historical
information are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements are
not guarantees of future performance and are subject to known and unknown
risks, uncertainties and other factors which may cause or contribute to actual
results of the Company differing materially from those expressed in or implied
by the forward-looking statements. In addition to any such risks expressly
stated otherwise in this or other documents, other risks and uncertainties
include, but are not limited to, competitive pricing for the Company's
products, changes in raw material prices, fluctuations in customer demand,
changes in production capacities, and changes in exchange rates.
3
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ITEM 2. PROPERTIES
The following tables set forth the location, approximate square footage,
and principal use of each of the Company's facilities. The Company believes
that its facilities are well maintained and suitable for their respective
uses.
Owned Facilities
<TABLE>
<CAPTION>
Location Square Feet Principal Use
- -------- ----------- -------------
<S> <C> <C>
San Leandro, California................. 129,000 Manufacturing and Warehouse
Akron, Ohio............................. 125,000 Manufacturing and Warehouse
</TABLE>
Leased Facilities
<TABLE>
<CAPTION>
Location Square Feet Lease Expiration Principal Use
- -------- ----------- ---------------- -------------
<S> <C> <C> <C>
San Leandro, California....... 12,000 2002 Warehouse
Raleigh, North Carolina....... 11,000 1999 Office and Warehouse
Prairie Village, Kansas....... 1,600 1999 Corporate Office
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, the Company and its subsidiary are
subject to various pending claims, lawsuits, and contingent liabilities. The
Company maintains appropriate insurance policies to protect against various
claims and lawsuits. The Company does not believe that the disposition of
these matters will have a material adverse effect on the Company's
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Since September 30, 1998, there have been no matters submitted to a vote of
security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
Dividend
Quarter High Low per Share
------- ----- ------ ---------
<S> <C> <C> <C> <C>
1998............................................. First N/A N/A N/A
Second N/A N/A N/A
Third 5 1/8 2 7/16 N/A
Fourth 4 3/8 3 1/2 N/A
1997............................................. First N/A N/A N/A
Second N/A N/A N/A
Third N/A N/A N/A
Fourth N/A N/A N/A
</TABLE>
The Common Stock, which has a par value of $.01 per share, is traded in the
over-the-counter market. It is included in the NASDAQ National Market System
("NMS") under the symbol JPSP. The trading of JPS stock commenced on July 1,
1998. The table above sets forth the high and low sale prices, as quoted by
NMS, and dividends paid for each quarter of the last two calendar years. These
quotations reflect inter-dealer prices, without markup, markdown or
commissions.
As of December 31, 1998, there were 272 shareholders of record. Since many
shareholders hold their certificates in street name, management estimates the
number of individual stockholders is approximately 1,500.
4
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Statement of Operations Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
Years Ended December 31, ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales........................ $78,869 $91,520 $94,895 $103,469 $102,442
Cost of Goods Sold............... 72,502 85,761 84,327 92,198 84,967
------- ------- ------- -------- --------
Gross Profit..................... 6,367 5,759 10,568 11,271 17,475
SG&A Expense (1)................. 11,613 11,805 13,936 14,340 12,722
Transaction Expense and Net
Restructuring (Gain) Expense.... 689 (988) 1,893 6,866 --
------- ------- ------- -------- --------
Operating Income (Loss) from
Continuing Operations........... (5,935) (5,058) (5,261) (9,935) 4,753
Interest (Income) Expense, Net... (54) -- -- -- 34
------- ------- ------- -------- --------
Income (Loss) from Continuing
Operations Before Income Taxes.. (5,881) (5,058) (5,261) (9,935) 4,719
Income Taxes..................... (1,337) (1,737) (1,780) (3,407) 1,966
------- ------- ------- -------- --------
Income (Loss) from Continuing
Operations...................... (4,544) (3,321) (3,481) (6,528) 2,753
Discontinued Operation, Net of
Tax:
Income (Loss) from Operations.. (436) 98 462 354 896
Estimated Loss on Disposal..... (1,209) -- -- -- --
------- ------- ------- -------- --------
Income (Loss) from Discontinued
Operation....................... (1,645) 98 462 354 896
------- ------- ------- -------- --------
Net Income (Loss)................ $(6,189) $(3,223) $(3,019) $ (6,174) $ 3,649
======= ======= ======= ======== ========
Net Income (Loss) Per Share from
Continuing Operations Basic and
Diluted (2)..................... $ (0.82) $ (0.60) $ (0.63) $ (1.18) $ 0.50
Net Income (Loss) Per Share Basic
and Diluted (2)................. $ (1.12) $ (0.58) $ (0.55) $ (1.12) $ 0.66
Balance Sheet Data
(In thousands, except ratios)
<CAPTION>
1998 1997 1996 1995 1994
December 31, ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Working Capital.............. $14,231 $16,624 $15,520 $ 19,729 $ 22,223
Net Property, Plant & Equipment.. 28,354 31,806 34,592 41,116 45,240
Total Assets..................... 54,176 62,094 63,183 75,163 82,638
Long-Term Debt................... -- -- -- -- --
Total Liabilities................ 12,274 12,216 9,951 11,733 14,050
Stockholder's Equity............. 41,902 49,878 53,232 63,430 68,588
Current Ratio.................... 2.71:1 2.98:1 3.02:1 3.15:1 3.26:1
Other Data
(In thousands)
<CAPTION>
1998 1997 1996 1995 1994
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Income (Loss) from
Continuing Operations, Excluding
Restructuring and Transaction
Items........................... $(5,246) $(6,046) $(3,368) $ (3,069) $ 4,753
Depreciation and Amortization
Expense......................... 5,458 5,782 6,593 6,519 5,824
EBITDA (3)....................... (477) 724 1,332 (3,416) 10,577
EBITDA Excluding Restructuring
and Transaction Items........... 212 (264) 3,225 3,450 10,577
Capital Expenditures............. 2,017 5,432 1,363 6,849 6,560
</TABLE>
5
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- --------
(1) Selling, general and administrative expenses from 1994 to 1997 are based
on management's estimate of an equitable allocation of shared corporate
services. These expenses approximate what the Company would have incurred
had it operated on a stand-alone basis for periods prior to separation
from Sealright.
(2) Earnings (loss) per share for all periods has been computed under
Statement of Financial Accounting Standards No. 128. The number of shares
used in the computation prior to July 1, 1998 is the number of outstanding
common shares of Sealright adjusted for the exchange ratio of one-half
share of JPS Common Stock for each share of Sealright Common Stock. The
weighted average number of common shares used in the computation were
5,553,000 in 1998, 5,536,000 in 1997 and 1996, 5,534,000 in 1995, and
5,536,000 in 1994. There were no dilutive securities.
(3) EBITDA is defined as operating income (loss) from continuing operations
before interest, depreciation and amortization. EBITDA does not represent
cash flows as defined by generally accepted accounting principles (GAAP)
and does not necessarily indicate that cash flows are sufficient to fund
all of a company's cash needs. EBITDA is presented because the Company
believes it is a widely accepted financial indicator of a company's
ability to incur and service debt. However, EBITDA should not be
considered in isolation or as a substitute for net income (loss) or cash
flow data prepared in accordance with GAAP or as a measure of a company's
profitability or liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
1998 Compared to 1997
Net sales for the year ended December 31, 1998 were $78.9 million versus
$91.5 million in 1997, a decline of approximately $12.6 million, or 13.8%. The
decline in revenue from the prior year is primarily due to a decline in the
end-market demand of six key customers of the San Leandro, California facility
resulting in approximately $7.0 million of reduced revenue. In addition,
approximately $2.8 million of the decline in revenue was from lost customers
associated with the closure of the Charlotte, North Carolina facility in 1996
and the transfer of production to the Akron, Ohio facility.
Consolidated gross profit was $6.4 million in 1998 as compared to $5.8
million in 1997. The resulting gross profit percent was 8.1% in 1998, an
increase from 6.3% in 1997. The increase was a result of improved margins at
the Akron, Ohio facility. In 1997, Akron was adversely affected by production
inefficiencies and capacity constraints associated with the closure of the
Charlotte, North Carolina facility, and resulting transfer of production.
Gross profit at the San Leandro, California facility decreased approximately
$1.5 million as a result of reduced sales volume.
Selling, general and administrative expenses were $11.6 million in 1998 as
compared to $11.8 million in 1997. Included in selling, general and
administrative expenses in 1998 is approximately $862 thousand of non-
recurring severance and $464 thousand of non-recurring retention costs
associated with the merger. Adjusting for these non-recurring items, SG&A
expense was down approximately 13% as a result of cost savings initiatives.
1997 Compared to 1996
Consolidated net sales were $91.5 million in 1997, a decrease of $3.4
million, or 3.6%, from 1996. The decline in revenue resulted primarily from
lost customers associated with the closure of the Charlotte, North Carolina
facility and resulting transfer of production to the Company's Akron, Ohio
facility as part of the restructuring program. The Company subsequently
experienced capacity constraints during the first half of the year in Akron,
thus further constraining revenues. In addition, the Company experienced a
reduction in average selling prices for various food packaging products due to
competitive pressures, further reducing revenues.
Consolidated gross profit was $5.8 million in 1997 as compared to $10.6
million in 1996. The resulting gross profit percent was 6.3% in 1997, a
decline from 11.1% in 1996. Due to production inefficiencies at the Akron,
Ohio facility early in the year, and reduced sales volume during the latter
half of the year, the Company
6
<PAGE>
suffered a reduction in gross profit of approximately $5 million. Gross profit
at the Company's San Leandro, California facility increased $1.5 million
during the year as a result of improved manufacturing efficiencies from the
previous year and a reduction in material costs.
Liquidity and Capital Resources
JPS Packaging has historically relied on internally generated cash from
operations as well as funding from its former parent, Sealright Co., Inc. For
the year ended December 31, 1998, JPS's net loss was $6.2 million compared to
a net loss of $3.2 million in 1997. Cash generated from operations was $5.7
million in 1998 and $1.7 million in 1997. The primary change year over year
resulted from a reduction of accounts receivable and inventory.
During 1998, JPS Packaging invested $2 million in property, plant and
equipment. There were no individually significant capital investments made in
1998. During 1997, JPS Packaging invested $5.4 million in property, plant and
equipment. Major capital investments included building additions and
improvements of approximately $4 million in Akron, Ohio to accommodate the
consolidation from the Charlotte, North Carolina facility as well as additions
of various production related equipment and other cost savings initiatives.
JPS Packaging sold one idle facility during 1997, generating $3.2 million. The
proceeds from this sales were used to fund working capital needs.
JPS Packaging's operations require significant amount of working capital
particularly during the spring and summer of each year. Sales are generally on
terms of 30 days to 60 days, resulting in substantial accounts receivable
balances. The Company also builds substantial inventory levels during the
spring and summer of each year due to the demand of the soft drink label
business. Historically, inventory levels peak in July. JPS Packaging relies on
a revolving credit facility to finance these working capital requirements.
As of December 31, 1998, JPS Packaging had no borrowings under its $15
million revolving credit facility. The facility is secured by accounts
receivable, inventory, and property, plant and equipment. The borrowings under
the facility are limited to a percentage of accounts receivable and inventory.
As of December 31, 1998, $11.9 million was available under the revolving
credit facility. The revolving credit facility currently bears interest at a
floating rate of LIBOR plus 275 basis points or prime. In addition, JPS
Packaging is required to pay a fee of 25 basis points on the unused portion of
the commitment. The revolving credit facility includes financial covenants
regarding minimum tangible net worth, capital expenditures and cash flow. The
Company was in compliance with these covenants at December 31, 1998.
Management believes that cash generated from operations, together with the
revolving credit facility will be sufficient to meet its cash requirements in
1999.
Effects of Inflation
During the last three years, inflation has not had a material effect on the
Company. Increases in raw material costs to the Company typically lag
movements in the markets for such materials. Thus, in a period of rising
prices, the effects of such increases are delayed several months. The
Company's ability to pass these price increases to its customers also is
subject to similar lags.
New Accounting Pronouncements
In June, 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. The statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The Company
will adopt the provisions of SFAS No. 133 effective July 1, 1999. The Company
does not expect implementation to have any effect on its financial statements.
7
<PAGE>
Year 2000 Compliance
The Company's information systems are not currently year 2000 compliant.
Management currently estimates that it will cost approximately $350,000 to
modify the information systems to become year 2000 compliant. The Company has
expended approximately $225,000 in 1998 which has been charged to operations.
The Company is currently implementing the necessary changes, and management
believes the information systems will be year 2000 compliant by August 31,
1999. However, there can be no assurance that the information systems will be
compliant prior to the beginning of year 2000 and could therefore have an
adverse effect on the future financial results of the Company. The Company
does not currently have a formal contingency plan in place should the
information systems not be compliant prior to the beginning of year 2000, and
will develop a contingency plan by September 30, 1999.
The Company is currently in the process of determining whether its major
suppliers are year 2000 compliant and will have a plan for those who are not
compliant by September 30, 1999. The Company doesn't anticipate any problems
in securing the necessary inventory for production as there are multiple
vendors which can supply the necessary products.
Item 7a. MARKET RISK
The Company has no material market risk as of December 31, 1998.
8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
To The Board of Directors of JPS Packaging Company:
We have audited the accompanying consolidated balance sheets of JPS
Packaging Company as of December 31, 1998 and December 31, 1997, and the
related consolidated statements of operations, stockholder's equity and cash
flows for each of the years in the three year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of JPS
Packaging Company as of December 31, 1998 and 1997, and as the results of
their operations and their cash flows for each of the years in the three year
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Kansas City, Missouri
9
<PAGE>
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
At December 31,
----------------
ASSETS 1998 1997
------ ------- -------
<S> <C> <C>
CURRENT ASSETS
Cash........................................................ $ 2,414 $ 333
Accounts receivable, less allowance for doubtful accounts of
$214 in 1998 and $254 in 1997.............................. 9,803 12,874
Inventories (Note 1)........................................ 9,535 10,780
Other current assets........................................ 424 504
Current deferred income taxes (Note 2)...................... 369 529
------- -------
Total current assets...................................... 22,545 25,020
Property, plant and equipment, at cost (Note 1)
Land........................................................ 1,490 1,490
Buildings and improvements.................................. 11,069 11,710
Machinery and equipment..................................... 50,837 49,848
Furniture and fixtures...................................... 4,068 3,876
------- -------
67,464 66,924
Less accumulated depreciation............................... 39,110 35,118
------- -------
Property, plant and equipment, net.......................... 28,354 31,806
OTHER ASSETS
Goodwill, net (Note 1)...................................... 2,350 2,644
Prepaid pension (Note 4).................................... 471 478
Other (Note 8).............................................. 456 2,146
------- -------
Total other assets........................................ 3,277 5,268
------- -------
Total assets.............................................. $54,176 $62,094
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable............................................ $ 3,986 $ 3,681
Accrued customer rebates.................................... 1,476 1,477
Accrued vacation............................................ 681 565
Other accrued liabilities................................... 2,171 2,673
------- -------
Total current liabilities................................. 8,314 8,396
Deferred income taxes (Note 2)................................ 3,960 3,820
Commitments and contingencies (Note 3)........................
------- -------
Total liabilities......................................... 12,274 12,216
STOCKHOLDERS' EQUITY (Note 1 and 6)
Common stock, par value $0.01, 15,000,000 shares authorized;
5,552,705 shares issued and outstanding at December 31,
1998 and none in 1997...................................... 56 *
Preferred stock, par value $0.01, 1,000,000 shares
authorized; none outstanding............................... -- --
Additional paid-in capital (Note 6)......................... 47,744 49,587
Retained earnings (deficit)................................. (5,898) 291
------- -------
Total stockholders' equity................................ 41,902 49,878
------- -------
Total Liabilities and Stockholders' Equity................ $54,176 $62,094
======= =======
</TABLE>
* Less than $1,000
The accompanying notes are an integral part of these statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Sales.................................. $ 78,869 $ 91,520 $ 94,895
Cost of Goods Sold......................... 72,502 85,761 84,327
---------- ---------- ----------
Gross Profit........................... 6,367 5,759 10,568
Selling, General and Administrative
Expenses.................................. 11,613 11,805 13,936
Transaction Expense and Net Restructuring
(Gain) Expense (Note 5)................... 689 (988) 1,893
---------- ---------- ----------
Operating Loss from Continuing Operations.. (5,935) (5,058) (5,261)
Interest (Income) Expense, Net............. (54) -- --
---------- ---------- ----------
Loss from Continuing Operations Before
Income Taxes.............................. (5,881) (5,058) (5,261)
Income Taxes (Note 2)...................... (1,337) (1,737) (1,780)
---------- ---------- ----------
Loss from Continuing Operations........ (4,544) (3,321) (3,481)
Discontinued Operation, Net of Tax (Note
8):
Income (Loss) from Operations............ (436) 98 462
Estimated Loss on Disposal............... (1,209) -- --
---------- ---------- ----------
Income (Loss) from Discontinued Operation.. (1,645) 98 462
---------- ---------- ----------
Net Loss............................... $ (6,189) $ (3,223) $ (3,019)
========== ========== ==========
Net Loss Per Share From Continuing
Operations Basic and Diluted.............. (0.82) (0.60) (0.63)
Net Loss Per Share (Note 1) Basic and
Diluted................................... (1.12) (0.58) $ (0.55)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
<TABLE>
<CAPTION>
Total
Common Paid In Retained Stockholder's
Stock Capital Earnings Equity
------ ------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............ * $56,897 $ 6,533 $63,430
Net Loss................................ -- -- (3,019) (3,019)
Distributions to Parent................. -- (7,179) -- (7,179)
--- ------- ------- -------
Balance at December 31, 1996............ * 49,718 3,514 53,232
Net Loss................................ -- -- (3,223) (3,223)
Distributions to Parent................. -- (131) -- (131)
--- ------- ------- -------
Balance at December 31, 1997............ * 49,587 291 49,878
Net Loss................................ -- -- (6,189) (6,189)
Issuance of Stock....................... 56 (56) -- --
Distributions to Parent................. -- (1,787) -- (1,787)
--- ------- ------- -------
Balance at December 31, 1998............ 56 $47,744 $(5,898) $41,902
=== ======= ======= =======
</TABLE>
* Less than $1,000.
The accompanying notes are an integral part of these statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss................................. $ (6,189) $ (3,223) $ (3,019)
Adjustments To Reconcile Net Loss to Net
Cash Provided by Operating Activities...
Loss (Income) from Discontinued
Operations.............................. 436 (98) (462)
Estimated Loss on Disposal of
Discontinued Operations................. 1,209 -- --
Depreciation and Amortization............ 5,458 5,782 6,593
Deferred Income Taxes.................... 300 1,032 (118)
Gain from Disposal of Assets............. 135 (53) --
Restructuring Expense (Gain)............. -- (988) 1,893
Changes in Assets and Liabilities:
Accounts Receivable, Net............... 3,071 (2,235) 1,935
Inventories............................ 1,245 925 2,992
Accounts Payable....................... 305 (518) (1,873)
Net Restructuring...................... -- (729) (1,839)
Other.................................. (492) 1,825 947
---------- ---------- ----------
Net Cash Provided by Continuing
Operations.............................. 5,478 1,720 7,049
Net Cash Provided (Used) by Discontinued
Operations.............................. 236 (15) 7
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.. 5,714 1,705 7,056
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures..................... (2,017) (5,432) (1,363)
Proceeds from Disposal of Assets......... 171 3,566 193
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES...... (1,846) (1,866) (1,170)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions from (Distributions To)
Parent, Net............................. (1,787) 321 (5,916)
---------- ---------- ----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES (1,787) 321 (5,916)
---------- ---------- ----------
Net Increase (Decrease) In Cash.......... 2,081 160 (30)
Cash, Beginning of Year.................... 333 173 203
---------- ---------- ----------
Cash, End of Year.......................... $ 2,414 $ 333 $ 173
========== ========== ==========
Supplemental Cash Flow Information:
Cash Paid During the Year for
Interest............................... $ 22 -- --
Income Taxes........................... -- -- --
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. Principles of Consolidation--The accompanying financial statements
include the accounts of two former wholly owned subsidiaries of Sealright Co.,
Inc. (Sealright) and the accounts of a portion of Sealright and another
subsidiary. The resulting entity operates the San Leandro, California,
Raleigh, North Carolina, and Akron, Ohio, facilities and is collectively
referred to as JPS Packaging Company (the Company).
On March 24, 1998, the Company was reorganized and incorporated as a
Delaware corporation (the reorganization). Prior to July 1, 1998 the Company
was a subsidiary of Sealright. In connection with the merger of Sealright with
Huhtamaki Oy, JPS Packaging Company was formed from a partial distribution of
Sealright stock. The transaction closed on June 30, 1998 and Sealright
shareholders received $11 per share of cash and 1/2 share of stock (Exchange
Ratio) of JPS Packaging Company stock for each share of Sealright stock. The
Company was authorized to issue 15,000,000 shares of common stock, $0.01 par
value, and 1,000,000 shares of preferred stock, $0.01 par value. The Company
has one wholly owned subsidiary, incorporated in North Carolina.
A portion of selling, general and administrative expenses have been
included in the statements of operations based on management's estimate of an
equitable allocation of shared corporate services. These expenses approximate
what the Company would have incurred had it operated on a stand-alone basis
for periods prior to the Company's separation from Sealright, but may not be
indicative of the Company's cost structure in the future. The estimated
expense was approximately $2,500,000 in 1998, $5,700,000 in 1997 and
$3,200,000 in 1996.
b. Description of Business--The Company manufactures flexible packaging
material and label application machinery primarily for the food and beverage
industries. The Company has two customers which each had more than 10% of 1998
sales.
c. Inventories--Inventories are stated at the lower of cost or market.
Finished products, work in process and raw material inventories are carried at
last-in, first-out (LIFO) cost. Inventories include the cost of material,
labor and factory overhead required in the production of the Company's
products as follows:
<TABLE>
<CAPTION>
As of December
31,
--------------
1998 1997
------ -------
(In thousands)
<S> <C> <C>
Inventories carried on LIFO basis
Raw materials........................................... $3,666 $ 3,639
Work in process......................................... 2,211 1,418
Finished goods.......................................... 3,189 5,492
------ -------
Total FIFO basis...................................... 9,066 10,549
LIFO basis in excess of FIFO basis...................... 469 231
------ -------
Total LIFO basis...................................... $9,535 $10,780
====== =======
</TABLE>
d. Property, Plant and Equipment--Property, plant and equipment has been
recorded at cost and such assets are being depreciated over their estimated
useful lives using the straight-line method. The estimated useful lives are as
follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5 to 45 years
Machinery and equipment..................................... 3 to 15 years
Furniture and fixtures...................................... 3 to 8 years
</TABLE>
Maintenance and repairs are charged to expense as incurred. The cost and
accumulated depreciation of assets retired are removed from the accounts, and
any resulting gains or losses are reflected in current income.
e. Goodwill--The excess of purchase price over fair value of net assets
acquired is being amortized on a straight-line basis over 20 years.
Accumulated amortization was $3,525,000 and $3,231,000, as of December 31,
14
<PAGE>
1998 and 1997, respectively. The related amortization expense charged to
operations was $294,000 during each of the years ended December 31, 1998,
1997, and 1996, respectively.
The Company assesses the recoverability of long-lived assets by determining
whether the amortization of the balance over its remaining life can be
recovered through non-discounted future operating cash flows. The amount of
impairment, if any, is measured based on expected discounted future operating
cash flows. The assessment of the recoverability of long-lived assets will be
impacted if estimated future operating cash flows are not achieved.
f. Income Taxes--Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
g. Research and Development--Research and development costs are charged to
expense as incurred, and were $423,000, $547,000, and $830,000 in 1998, 1997,
and 1996 respectively. Research and development costs are classified as part
of Selling, General and Administrative expense.
h. Earnings Per Share--The number of shares used in the computation of
earnings per share prior to the reorganization is the number of outstanding
common shares of Sealright adjusted for the Exchange Ratio of one-half share
of the Company for each share of Sealright. The weighted average number of
common shares used in the computation were 5,553,000 in 1998, and 5,536,000 in
1997 and 1996. There were no dilutive securities.
i. Revenue Recognition--Revenue from the sale of packaging and packaging
equipment is recognized at the time of shipment to the customer.
j. Fair Value of Financial Instruments--The Company has various financial
instruments comprised of cash, trade and notes receivable and trade and other
payables. The carrying amounts of short-term assets and liabilities,
approximate fair value due to the short duration of these instruments.
k. Use of Estimates--Management of the Company has made a number of
estimates and assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to prepare these
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results may differ from those estimates.
l. New Accounting Pronouncements--In June, 1998, the FASB issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. The statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company will adopt the provisions
of SFAS No. 133 effective July 1, 1999. The Company does not expect
implementation to have any effect on its consolidated financial statements.
2. Income Taxes
Total income taxes are allocated as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31
-------------------------
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Continuing operations.......................... $(1,337) $(1,737) $(1,780)
Discontinued operations........................ (149) 51 238
------- ------- -------
Total tax benefit.......................... $(1,486) $(1,686) $(1,542)
======= ======= =======
</TABLE>
15
<PAGE>
Taxes from continuing operations were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Current
Federal............................ $ (1,220) $ (2,463) $ (1,528)
State and Local.................... (417) (306) (134)
---------- ---------- ----------
Total Current Tax Benefit........ (1,637) (2,769) (1,662)
Deferred
Federal............................ 233 898 (104)
State and Local.................... 67 134 (14)
---------- ---------- ----------
Total Deferred Tax Provision
(Benefit)....................... 300 1,032 (118)
---------- ---------- ----------
Total Tax Benefit................ $ (1,337) $ (1,737) $ (1,780)
========== ========== ==========
</TABLE>
A reconciliation of the income tax provision (benefit) from continuing
operations to the statutory Federal rate is 34% as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Statutory Federal Tax Rate........... $ (1,999) $ (1,720) $ (1,789)
Increase in Valuation Allowance...... 2,748 -- --
Nondeductible Expenses............... -- 97 107
State Income and Franchise Taxes..... (231) (114) (98)
Other................................ (35) -- --
Tax Benefit Allocation from
Sealright........................... (1,820) -- --
---------- ---------- ----------
Total............................ $ (1,337) $ (1,737) $ (1,780)
========== ========== ==========
</TABLE>
The operations of the Company were historically included in the
consolidated Federal income tax returns of Sealright. The policy of Sealright
was to allocate consolidated Federal income tax expense to members of the
affiliated group, including the Company, on a stand-alone basis. The Agreement
and Plan of Merger, dated March 2, 1998, provides for the reimbursement of
1998 tax benefits to the Company provided that Huhtamaki Oy is able to realize
the benefit. In the event that Huhtamaki Oy is able to utilize benefits
associated with the Company's tax losses from January 1, 1998 to June 30, 1998
in excess of the consolidated tax attributes which will be allocated directly
to the Company upon its departure from the consolidated group at June 30,
1998, the Company will receive a commensurate cash payment from Huhtamaki Oy.
Due to the uncertainty of realization of this payment from Huhtamaki Oy, such
payment has not been reflected as a receivable from Huhtamaki Oy in the
accompanying financial statements, but has been reflected as capital
distributed to Sealright Co., Inc.
16
<PAGE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
As of December
31,
--------------
1998 1997
------- ------
(In thousands)
<S> <C> <C>
Deferred Tax Assets:
Federal AMT Credit Carry Forward........................ $ 500 $ --
Federal Net Operating Loss.............................. 2,036 --
State Net Operating Loss................................ 360 --
Accrued Restructuring Liability......................... -- --
Accrued Vacation and Other Compensation................. 405 289
Accrued Workers' Compensation Reserve................... 47 98
Other Reserves.......................................... 629 613
------- ------
Total Gross Deferred Tax Assets....................... 3,977 1,000
------- ------
Valuation Allowance................................... 2,548 --
------- ------
$ 1,429 $1,000
======= ======
Deferred Tax Liabilities:
Property, Plant and Equipment........................... $ 4,181 $3,741
Inventories............................................... 324 373
Prepaid Pension, Net...................................... 174 177
Other..................................................... 341 --
------- ------
Total Gross Deferred Tax Liabilities.................. 5,020 4,291
------- ------
Net Deferred Tax Liability............................ $ 3,591 $3,291
======= ======
</TABLE>
The Company has recorded a valuation allowance for deferred tax assets as
of December 31, 1998 of $2,548,000. No valuation allowance was provided at
December 31, 1997. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable
income during the periods in which the temporary differences become
deductible. Management believes more likely than not the Company will realize
the benefits of these deductible differences net of the existing valuation
allowance at December 31, 1998.
At December 31, 1998, the Company had net operating loss carryforwards for
Federal income tax purposes of $5,988,000 which were available to offset
future federal taxable income, if any, through 2018. In addition, the Company
had alternative minimum tax credit carryforwards of approximately $500,000,
which were available to reduce federal regular income taxes, if any, over an
indefinite period.
3. Commitments and Contingencies
Future minimum rental payments required under the terms of operating leases
that have initial or remaining non-cancelable lease terms in excess of one
year from December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, (In thousands)
<S> <C>
1999..................................................... $296
2000..................................................... 286
2001..................................................... 181
2002..................................................... 72
2003..................................................... 4
</TABLE>
Principal operating leases are for equipment, warehouse facilities and
office space. Rent expense related to continuing operations for all operating
leases was $301,000, $182,000, and $244,000 in 1998, 1997, and 1996,
respectively. It is anticipated that leases will be renewed or replaced as
they expire.
The Company is a party to various legal matters incidental to its business.
In the opinion of management, these matters will not have a material impact on
the Company's financial statements. Liabilities for loss
17
<PAGE>
contingencies are recorded when it is probable that a liability has been
incurred and the amount of the loss can be reasonably estimated.
Credit Facility
In 1998 the Company entered into a $15 million secured revolving line of
credit with a bank. Borrowings under the revolving credit facility bear
interest at floating rates as determined at the Company's option to be LIBOR
plus 275 basis points or prime. In addition, the Company is required to pay a
fee of 25 basis points per annum on the unused portion of the commitment. The
amount of borrowing allowed under the facility is limited to an amount based
on certain percentages of accounts receivable and inventory. As of December
31, 1998, there were no borrowings under the facility and the amount available
was $11,893,830. In addition, the facility includes covenants regarding
minimum tangible net worth, capital expenditures and cash flow. As of December
31, 1998, the Company was in compliance with these covenants.
At December 31, 1998, the Company had a stand-by letter of credit
outstanding totaling $240,000 securing leased machinery.
4. Employee Benefit Plans
The Company sponsors a defined benefit pension plan covering the hourly
employees at its Akron, Ohio location. Benefits are based on a flat rate per
year of service.
The funded status of the plan was as follows:
<TABLE>
<CAPTION>
Year Ending
-----------------------------------
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year.... $ 958,532 $ 749,783
Service cost............................... 74,439 62,394
Interest cost.............................. 73,575 61,378
Actuarial loss............................. 164,019 121,100
Benefits and expenses paid................. (40,000) (36,123)
---------- ----------
Benefit obligation at end of year.......... $1,230,565 $ 958,532
========== ==========
Change in plan assets
Fair value of plan assets at beginning of
year...................................... $1,565,157 $1,274,986
Actual return on plan assets............... 106,711 326,294
Employer contribution...................... -0- -0-
Benefits paid.............................. (20,000) (18,858)
Expenses paid.............................. (20,000) (17,265)
---------- ----------
Fair value of plan assets at end of year... $1,631,868 $1,565,157
========== ==========
Funded status.............................. $ 401,303 $ 606,625
Unrecognized net actuarial gain (loss)..... 10,847 (191,428)
Unrecognized prior service cost............ 59,269 62,484
---------- ----------
Prepaid benefit cost....................... $ 471,419 $ 477,681
========== ==========
Weighted-average assumptions as of December
31
Discount rate.............................. 7.00% 7.25%
Expected return on plan assets............. 9.25% 9.25%
Components of net periodic benefit cost
Service cost............................... $ 74,439 $ 62,394
Interest cost.............................. 73,575 61,378
Expected return on plan assets............. (143,099) (116,073)
Amortization of prior service cost......... 3,215 3,215
Recognized net actuarial loss.............. (1,868) -0-
---------- ----------
Net periodic benefit cost.................. $ 6,262 $ 10,914
========== ==========
</TABLE>
18
<PAGE>
The Company makes contributions to a defined benefit multi-employer pension
plan for certain union employees at its San Leandro, California, manufacturing
facility. Amounts contributed to the plan totaled $246,000, $239,000 and
$350,000 in 1998, 1997, and 1996, respectively.
At July 1, 1998, the Company established a long-term savings plan available
to substantially all non-union employees. The total expense to the Company for
the plan was approximately $42,000 for the year ended December 31, 1998.
5. Transaction and Restructuring Expense
Transaction expense relating to the formation of the Company was $689,000
in 1998. These costs included investment banking fees, professional fees,
printer fees, bank fees and other transaction related costs.
During 1996, the Company moved the machine manufacturing operations
formerly conducted in Raleigh, North Carolina, to its DeSoto, Kansas facility
and consolidated the manufacturing operations conducted at Charlotte, North
Carolina into the Akron, Ohio facility. The costs associated with moving these
manufacturing operations and personnel were $1,893,000. At December 31, 1996,
$728,000 remained on the balance sheet as accrued restructuring liability. Of
this amount, $174,000 related to severance, and $14,000 related to legal
expenses. These amounts were paid during 1997.
During the second quarter of 1997, the Company sold the Charlotte, North
Carolina facility for a gain of $1,235,000, offsetting expenses of $247,000
related to completing the consolidation of the Charlotte facility.
6. Stock Option Plan
Stock options are granted under the 1998 Stock Option Plan. The purpose of
the Stock Option Plan is to align executive compensation and stockholder
return. The selection of the participants, allotment of shares, exercise
price, determination of the vesting schedule and other conditions are
established by the Compensation Committee. There is no explicit formula for
determining specific stock option grants. In awarding options the Committee
evaluates the recipient's ability to influence the Company's long-term growth
and profitability. The Committee also considers the number of options
previously granted to the recipient and, in certain cases, the number of
shares of common stock held by the recipient.
The Stock Option Plan has 550,000 shares of the Company's common stock
reserved for key employees, officers, and directors. Options issued under the
1998 plan are qualified and non-qualified. During the year 25,000 shares were
issued to directors of the Company under a non-qualified plan. Stock options
are granted at a price equal to the fair market value of JPS Packaging Company
Common Stock at the date of grant for terms of up to ten years. The options
vest over 5 years at a rate of 20% each year.
Information regarding the Company's stock options is summarized below:
<TABLE>
<CAPTION>
1998
---------------------------------
Weighted-Average
Number of Shares Exercise Price
---------------- ----------------
<S> <C> <C>
Outstanding at Beginning of Year.............. -- --
Granted..................................... 365,000 $4.03
Canceled.................................... -- --
Exercised................................... -- --
------- -----
Outstanding at End of Year.................... 365,000 $4.03
------- -----
Exercisable at End of Year.................... -- --
======= =====
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------- ------------------------
Weighted-
Average Weighted- Number Weighted-
Range of Number Contracted Average Exercisable Average
Exercise Outstanding Life in Exercise at Exercise
Price at 12/31/98 Years Price 12/31/98 Price
- ----------- ----------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$4.00-$4.06 365,000 9.69 $4.03 -- --
</TABLE>
19
<PAGE>
JPS Packaging Company applied APB Opinion No. 25 in accounting for stock
option grants and, accordingly, no compensation cost has been recognized. Had
the Company recognized a compensation expense in accordance with SFAS No. 123,
the Company's net income (loss) would have been as follows:
<TABLE>
<CAPTION>
1998
--------------
(In thousands)
except per
share data
<S> <C> <C>
Net Loss...................................... As Reported $(6,189)
Pro Forma (6,260)
Net Loss from Continuing Operations........... As Reported (4,544)
Pro Forma (4,615)
Basic and Diluted Earnings (Loss) Per Share... As Reported (1.12)
Pro Forma (1.13)
Basic and Diluted Earnings (Loss) Per Share As Reported (0.82)
from Continuing Operations................... Pro Forma (0.83)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The following assumptions were used.
<TABLE>
<CAPTION>
Year of Grant 1998
------------- -----
<S> <C>
Expected Dividend Yield............................................ 0%
Expected Volatility................................................ 25.20%
Risk Free Interest Rate............................................ 4.75%
Expected Remaining Life............................................ 8
Option Value....................................................... $1.48
</TABLE>
7. Summarized Quarterly Data (unaudited)
The following presents selected quarterly data for the two most recent
fiscal years (in thousands, except per share data). Sales and gross profit
have been restated to reflect the discontinued operation.
<TABLE>
<CAPTION>
Basic and
Diluted Net Basic and
Income Diluted
Income (Loss) From Net
(Loss) From Net Continuing Income
Net Gross Continuing Income Operations (Loss)
Sales Profit Operations (Loss) Per Share Per Share
------- ------ ----------- ------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First quarter........ $20,012 $1,590 $ (984) $(1,152) $(0.18) $(0.21)
Second quarter....... 22,246 2,199 (1,590) (1,712) (0.29) (0.31)
Third quarter........ 18,034 1,163 (910) (1,065) (0.16) (0.19)
Fourth quarter....... 18,577 1,415 (1,060) (2,260) (0.19) (0.41)
1997
First quarter........ 24,216 2,238 (685) (643) (0.12) (0.12)
Second quarter....... 24,814 2,259 323 363 0.06 0.07
Third quarter........ 21,627 477 (1,279) (1,213) (0.24) (0.23)
Fourth quarter....... $20,863 $ 785 $(1,680) $(1,730) $(0.30) $(0.30)
</TABLE>
8. Discontinued Operation and Subsequent Event
During the fourth quarter of 1998, the Company decided to exit its
Styrotech machine manufacturing business which builds equipment that is used
to apply polyester sleeve labels. The operations of the Styrotech business
have been presented as a discontinued operation and, accordingly, the
consolidated financial statements have been reclassified for all periods
presented. The estimated loss on disposal of $1,209,000 includes $150,000
operating losses during the 1999 phase-out period. The Company is actively
marketing the sale of Styrotech.
20
<PAGE>
The operating results of the discontinued operation are summarized below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Revenues........................................... $1,909 $3,971 $5,404
Income (loss) from operations...................... (585) 149 700
Income taxes (benefit)............................. (149) 51 238
Net income (loss).................................. $ (436) $ 98 $ 462
</TABLE>
Net assets of the discontinued operation, which are included in other
assets, are summarized below:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Accounts Receivable...................................... $ 273 $ 234
Inventories.............................................. 1,134 2,015
Other Assets............................................. 11 --
Property, Plant & Equipment.............................. 48 78
Other Liabilities........................................ (149) (338)
Estimated loss on disposal............................... (1,209) --
------- ------
Net assets............................................... $ 108 $1,989
======= ======
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Director Principal Occupation for Last Five Years
Name of Director Since Age and Directorships
---------------- -------- --- ------------------------------------------
<C> <C> <C> <S>
G. Kenneth Baum (1). 1998 68 Chairman of the Board of George K. Baum
Group, Inc., an investment company in
Kansas City, Missouri, since May 1994.
Chairman of the Board of George K. Baum &
Company, an investment banking firm, from
April 1982 until May 1994. Mr. Baum is
also a Director of H&R Block, Inc., Unitog
Company and Interstate Bakeries
Corporation.
Leo Benatar (1)..... 1998 69 Chairman of the Board of the Company since
August 1998. Associated consultant for A.
T. Kearney, Inc. and Principal of Benatar
& Associates from June 1996 to present.
Chairman of the Board of Engraph, Inc. (a
subsidiary of Sonoco Products Company) and
Senior Vice President of Sonoco Products
Company from October 1993 until May 1996.
Chairman and Chief Executive Officer of
Engraph, Inc. from 1981 until October
1993. Mr. Benatar is a Director of
Interstate Bakeries Corporation, Johns
Manville Corporation, Mohawk Industries,
Inc., PAXAR Corporation, and Aaron Rents,
Inc. and was the Chairman and a Director
of the Federal Reserve Bank of Atlanta
until January 1996.
John T. Carper...... 1998 47 President of the Company since March 1998
and Chief Financial Officer since November
1998. Senior Vice President of Finance and
Chief Financial Officer of Sealright Co.,
Inc. from May 1996 to June 1998. From May
1994 to June 1996, Mr. Carper was Vice
President-Finance and Chief Financial
Officer of Sealright Co., Inc. From July
1989 to May 1994, he was a partner with
KPMG LLP, independent public accountants.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Director Principal Occupation for Last Five
Name of Director Since Age Years and Directorships
---------------- -------- --- --------------------------------------
<C> <C> <C> <S>
D. Patrick Curran (2)... 1998 54 Chairman of the Board and President of
Curran Companies, a manufacturer and
supplier of specialty chemicals, since
August 1979. Mr. Curran is also a
Director of Unitog Company, Applebee's
International, Inc. and American
Safety Razor Co.
N. Brian Stevenson...... 1998 54 Chief Executive Officer of the Company
since September 1998. Executive Vice
President and Chief Operating Officer
of Huntsman Packaging Corporation from
January 1992 to September 1998.
Charles A. Sullivan..... 1998 63 Chairman of the Board of Interstate
Bakeries Corporation since May 1991.
President and Chief Executive Officer
of Interstate Business Corporation
since March 1989. Mr. Sullivan is a
Director of UMB Bank, n.a. and The
Andersons, Inc.
William D. Thomas (1)(2) 1998 55 Sr. Managing Director of George K.
Baum Merchant Banc LLC since May 1996,
President of George K. Baum Group,
Inc. since May 1994. Vice Chairman of
George K. Baum & Company from June
1991 until May 1994. Mr. Thomas is
also a Director of Unitog Company.
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Board Committees and Director Meetings
The Board of Directors of the Company held seven meetings during 1998. No
Director standing for election at the Annual Meeting attended fewer than 75% of
the total number of meetings of the Board of Directors and the committees of
the Board on which he served during 1998.
The Compensation Committee held two meetings during 1998. The primary
function performed by the Compensation Committee was the recruitment of and
negotiation of the compensation plans for the new Chief Executive Officer and
Chairman of the Board, the administration of the JPS Packaging 1998 Long-Term
Compensation Plan (the "Long-Term Plan") and the overall administration of the
Company's compensation program.
The Audit Committee held one meeting during 1998. The functions performed by
the Audit Committee are the review of significant financial information of the
Company, ascertainment of the existence of an effective accounting and internal
control system, oversight of the audit function and recommendation of the
appointment of the independent public accountants of the Company.
The Company does not have a standing Nominating Committee.
Compensation of Directors
Each non-officer Director is paid $5,000 annually, plus $500 for each
meeting of the Board of Directors and $500 for each meeting of its committees
which he attends. During the fiscal year 1998, the Company paid a total of
$10,500 in Directors' fees. Mr. Benatar, Mr. Stevenson, and Mr. Carper do not
receive any fees for attendance at the meetings.
The Long-Term Plan provides that the Compensation Committee is authorized
(i) to grant stock options that qualify as "Incentive Stock Options" under
Section 422 of the Internal Revenue Code of 1986, as amended, and (ii) to grant
stock options that do not so qualify. The option price for any stock options
shall not be less than 100% of the fair market value of the Company's common
stock on the date of grant. No stock options may be exercised more than ten
years after its date of grant. In the case of Incentive Stock Options, the
aggregate fair market value of the shares with respect to which options are
exercisable for the first time by any recipient during any calendar year
cannot, under present tax rules, exceed $100,000. During the fiscal year 1998,
each of the non-employee Directors was granted options for 6,250 shares of the
Company's common stock.
22
<PAGE>
Compensation Committee Interlocks
The Compensation Committee consists of G. Kenneth Baum, Leo Benatar and
William D. Thomas. There are no Compensation Committee interlocks with other
companies.
EXECUTIVE OFFICERS
In addition to those executive officers listed in the foregoing table of
directors, the Company's other executive officers as of March 20, 1999 are as
follows:
<TABLE>
<CAPTION>
Executive Officers Age Principal Occupation for Last Five Years
------------------ --- ------------------------------------------------------
<C> <C> <S>
Edwin W. Stranberg. 48 Senior Vice President of Operations of the Company
since November 1998. From January 1992 to November
1998, Mr. Stranberg was Vice President of Huntsman
Packaging Corporation.
A. Lawrence Walton. 54 Senior Vice President of Business Development and
Marketing of the Company since September 1998. From
July 1998 to September 1998, Mr. Walton was Vice
President of Sales of the Company. From September 1996
to June 1998, he was Vice President of Food and
Beverage Sales, Sealright Co., Inc. From February 1996
to August 1996, he was Vice President of Research and
Development of Sealright Co., Inc. Mr. Walton was Vice
President of Marketing and Technical Services of the
San Leandro facility of the Company from June 1994 to
February 1996. From July 1991 to June 1994, he was
Vice President of Marketing and Sales of Glenroy,
Inc., a flexible packaging company.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the Company's
Chief Executive Officer. The Company had no other executive officer whose
salary and bonus exceeded $100,000 determined as of 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------- -------------------------------------
Awards Payouts
--------------------- ---------------
Other All
Annual Restricted Securities Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus sation Award(s) Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- --------- ---- ------ ----- ------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
N. Brian 1998 $75,592 $70,000 $1,563 none 200,000 none none
Stevenson 1997 n/a n/a n/a n/a n/a n/a n/a
CEO 1996 n/a n/a n/a n/a n/a n/a n/a
</TABLE>
Option Grants in Last Fiscal Year
The following table summarizes options granted during 1998 pursuant to the
Long-Term Plan:
<TABLE>
<CAPTION>
Potential
realizable value at
assumed annual
rates of stock
price appreciation
Individual Grants for option term
----------------------------- -------------------
Number of Percent of
securities total options
underlying granted to Exercise or Grant date
options granted employees in base price Expiration present value
Name (#) fiscal year ($/Sh) date 5% ($) 10% ($) ($)
---- --------------- ------------- ----------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
N. Brian Stevenson 200,000 55% 4.06 9-14-08 $432,000 $1,100,000 none
CEO
</TABLE>
23
<PAGE>
All options were granted with an exercise price equal to the greater of the
closing price for the Company's common stock on the date of grant, as reported
on the NASDAQ National Market System or $4.00. Except in the event of death,
disability or retirement, if any of the named executive officers ceases to be
employed by the Company, his options shall terminate immediately. Upon a
merger or consolidation in which the Company is not the surviving corporation,
all options outstanding shall become vested and exercisable immediately prior
to such merger or consolidation.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table summarizes the net value realized on the exercise of
options in 1998, and the value of the outstanding options at December 31,
1998, for the Chief Executive Officer.
<TABLE>
<CAPTION>
Number of securities Value of unexercised
Shares underlying unexercised in-the-money options
acquired options at fiscal year- at fiscal year end
on Value end (#) ($)
exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
N. Brian Stevenson, CEO. -0- -0- -0- 200,000 $-0- $-0-
</TABLE>
JPS Packaging Company Savings Plan
The JPS Packaging Savings Plan (the "JPS Savings Plan") is a defined
contribution plan which is intended to be a 401(k) plan. All employees of the
Company not covered by a collective bargaining agreement are eligible for
participation in the JPS Savings Plan.
Participants in the JPS Savings Plan may elect to have up to fifteen
percent of their pre-tax compensation (up to a maximum of $10,000 per year)
and seven percent of their after-tax compensation contributed to the JPS
Savings Plan. For employees who have completed one year of service, the
Company will match fifty percent of each participant's pre-tax contribution,
but only to the extent that the participant's contribution does not exceed
five percent of compensation. Total contributions for a participant are
currently limited by Federal law to the lesser of twenty-five percent of such
participant's compensation or $30,000 per year. A participant's election
deferrals will be vested from the time made. The Company's matching
contributions will vest at the rate of twenty percent for each of the
participant's first five years of service and will be fully vested after five
years of employment or upon retirement, disability or death.
In addition to the Company's matching contributions, the Company may
contribute additional amounts determined by the Compensation Committee in its
sole discretion, which amounts will be allocated to each participant's account
in the proportion that such participant's compensation bears to the total
compensation of all participants for that plan year. These additional Company
contributions vest in the same manner as the Company matching contributions.
JPS Packaging 1998 Long-Term Compensation Plan
The Long-Term Plan, administered by the Compensation Committee, provides
for granting of stock options, restricted stock, performance shares and
performance units payable to employees of the Company, including the Company's
Directors and executive officers. Under the Long-Term Plan, the Compensation
Committee has sole discretion to determine those employees eligible to receive
awards and the amount and type of awards. Grants of awards to Directors of the
Company must be authorized by the Board of Directors.
The maximum number of shares of the Company's common stock subject to award
will be 550,000. No more than 55,000 shares may be issued pursuant to
restricted stock awards under the Long-Term Plan. Terms and conditions will be
set forth in written agreements, the terms of which will be consistent with
the Long-Term Plan.
Under the Long-Term Plan, the Compensation Committee is authorized (i) to
grant stock options that qualify as "Incentive Stock Options" under Section
422 of the Internal Revenue Code of 1986, as amended,
24
<PAGE>
and (ii) to grant stock options that do not so qualify. The option price for
any stock options shall not be less than 100% of the fair market value of the
Company's common stock on the date of grant. No stock options may be exercised
more than ten years after its date of grant. In the case of Incentive Stock
Options, the aggregate fair market value of the shares with respect to which
options are exercisable for the first time by any recipient during any
calendar year cannot, under present tax rules, exceed $100,000. The
Compensation Committee has discretion to determine the treatment of awards
under the Long-Term Plan in the event of a change in ownership or a change in
control of the Company.
Employment Agreement
Mr. Stevenson entered into an employment agreement with the Company
effective September 14, 1998. Under the agreement, Mr. Stevenson is entitled
to an annual base salary of $250,000, subject to annual adjustment by the
Compensation Committee. Mr. Stevenson is also entitled to receive an annual
incentive compensation bonus in an amount up to his annual base salary as
determined by the Compensation Committee. Upon commencement of his employment
Mr. Stevenson received a bonus of $75,000. Mr. Stevenson was also granted
options to purchase 200,000 shares of the Company's common stock which vests
over a period of five years from September 14, 1998 (the "Date of Grant"), ten
percent of which must be exercised or lost each year over a ten year period,
subject to certain restrictions, at an exercise price equal to $4.0625 per
share. In addition, Mr. Stevenson will be granted options to purchase 25,000
shares of the Company's common stock in each of the calendar years ending 1999
and 2000, if certain financial targets are met. If Mr. Stevenson's employment
is terminated without cause or if he resigns for good reason, he is entitled
to receive one year's current base salary in twelve equal payments. All stock
options awarded to Mr. Stevenson will vest immediately upon a termination of
his employment without cause, due to his disability, his resignation for good
reason or upon a change of control (as defined in his employment agreement).
COMPENSATION COMMITTEE REPORT
The Compensation Committee consists of the Chairman of the Board of
Directors and two non-employee Directors. It recommends to the full Board of
Directors the compensation of the Chief Executive Officer. The Compensation
Committee also approves and monitors the Executive Incentive Plan ("EIP"), Key
Management Incentive Plan, Sales Management Incentive Plan and Sales Account
Managers Incentive Plan, and it administers the Long-Term Plan. The
Compensation Committee's report for fiscal 1998 is set forth below.
Compensation Philosophy
The Compensation Committee believes that it is in the best interest of the
stockholders of the Company to attract, retain and motivate dedicated and
talented management personnel by offering a competitive compensation package
that maintains an appropriate relationship between compensation and the
creation of stockholder value. The general philosophy of the Compensation
Committee is to integrate (i) reasonable levels of annual base salary, (ii)
annual incentive bonus awards based upon achievement of short-term corporate
and individual performance goals such that management compensation levels will
be higher in years in which performance goals are achieved or exceeded, and
(iii) equity-based grants to ensure that management has a continuing stake in
the long-term success of the Company in return of value to its stockholders.
Base Salary
Base salary ranges are established each year for each executive position
based primarily on a review of salaries offered by other manufacturing
companies with revenues comparable to the Company for positions with
comparable responsibilities. The Compensation Committee may utilize external
salary surveys to establish base salaries in reference to comparable
manufacturing companies but has not yet undertaken or commissioned such a
survey. The Compensation Committee expects executive salaries each year to be
based upon job performance and results achieved, potential for future
responsibilities, and the overall financial performance of the Company.
25
<PAGE>
Annual Incentive Compensation
Incentive compensation is based on Company and individual performance, with
overall Company financial performance as the team measurement, and
quantitative goals as the measurement for individual performance. EBITDA is
currently used to measure the Company's financial performance. The EIP adopted
for 1998 set EBITDA targets which were not achieved, and thus executive
bonuses were not paid for 1998.
Equity-Based Grants
Individual stock options have been granted under the Long-Term Plan to the
Chairman of the Board and each of the other executive officers. The selection
of the participants, allotment of shares, exercise price, determination of the
vesting schedule and other conditions are established by the Compensation
Committee. While there is no explicit formula for deciding specific stock
option grants, the Chief Executive Officer and two other executive officers
have been advised that they may receive additional option grants based upon
the Company's performance in 1999 and 2000. In awarding options, the Committee
also evaluates the recipient's ability to influence the Company's long-term
growth and profitability as well as the number of options previously granted
to the recipient.
CEO Compensation
Mr. Stevenson was employed by the Company effective September 14, 1998, and
the terms of his employment agreement were negotiated by the Compensation
Committee. Under the terms of his employment agreement, his annual base salary
will be reviewed annually and he will participate in the EIP approved by the
Compensation Committee. The number of options granted upon commencement of his
employment and for the years 1999 and 2000 were set in his employment
agreement.
Deductibility of Compensation Expenses
Under the Omnibus Budget Reconciliation Act of 1993 the Company is not
allowed a tax deduction for compensation paid in excess of $1 million to any
officer listed in the Summary Compensation Table, subject to certain
exceptions. The Committee did not consider this restriction in setting
executive compensation because in no case does compensation subject to the
limitation paid to any executive approach the $1 million limit.
Summary
The Compensation Committee believes that the executive officers of the
Company are dedicated to achieving significant improvements in long-term
financial performance and that the compensation policies and programs
contribute to achieving this focus.
The Compensation Committee Report is submitted by:
G. Kenneth Baum
Leo Benatar
William D. Thomas
26
<PAGE>
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for the
Company as of December 31, 1998, the NASDAQ Composite and an index of peer
companies selected by the Company.
Comparison of Cumulative Total Return for Fiscal Year Ended December 31, 1998
(JPS Packaging Company, NASDAQ Composite, and Peer Group)
in Dollars
[GRAPH]
<TABLE>
<CAPTION>
July 1, 1998 December 31, 1998
------------ -----------------
<S> <C> <C>
The Company................................ 100.00 83.33
NASDAQ..................................... 100.00 92.76
Peer Group................................. 100.00 117.16
</TABLE>
The total cumulative return on investment (change in the year-end stock
price plus dividends reinvested at the ex-dividend date) for the fiscal year
ended December 31, 1998 for the Company, the peer group and the NASDAQ
Composite is based on the stock prices at the end of the fiscal year 1998,
assuming a $100 investment. The graph, prepared by the Media General Financial
Services, Inc., compares the performance of the Company with that of the
NASDAQ Composite and peer companies selected by the Company with the
investment weighted at the beginning of the period based on market
capitalization.
The peer group consists of the following companies: Bemis Company, Inc.,
Sonoco Products Company, Liqui-Box, Inc. and ACX Technologies, Inc. The peer
group was approved by the Compensation Committee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF JPS PACKAGING
COMMON STOCK
Amount and Nature of Beneficial Ownership
The following table sets forth with respect to the Company's common stock
as of December 31, 1998: (i) the only persons known to be beneficial owners of
more than five percent of the Company's voting common
27
<PAGE>
stock; (ii) the number of shares beneficially owned by each current Director
and nominee; (iii) the number of shares beneficially owned by the executive
officer named on the "Summary Compensation Table" set forth herein; (iv) the
number of shares beneficially owned by all directors and executive officers as
a group.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership(1) of Class
- ------------------- ----------------------- --------
<S> <C> <C>
G. Kenneth Baum............................... 1,866,137(2)(3) 33.6%
120 West 12th Street
Kansas City, MO 64105
William D. Thomas............................. 1,694,930(3)(4) 30.5%
120 West 12th Street
Kansas City, MO 64105
George K. Baum Group, Inc. ................... 1,488,100(5) 26.9%
120 West 12th Street
Kansas City, MO 64105
Leo Benatar................................... 45,500(6) *
N. Brian Stevenson............................ 22,000 *
John T. Carper................................ 27,762(7) *
Charles A. Sullivan........................... 11,230(8) *
D. Patrick Curran............................. 7,230(9) *
Edwin W. Stranberg............................ 5,000 *
A. Lawrence Walton............................ 1,628 *
Directors and Executive Officers as a Group (9 2,193,317 39.5%*
Persons)......................................
</TABLE>
- --------
* Percentages do not exceed 1% of the issued and outstanding shares of
common stock. Calculated in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. Nature of beneficial
ownership of securities is direct unless indicated otherwise by footnote.
Beneficial ownership as shown in the table arises from sole voting power
and sole investment power unless otherwise indicated by footnote.
(1) Includes 371,787 shares held indirectly by Mr. Baum, as trustee of a
revocable trust established by him, and 6,250 shares issuable pursuant to
options which are currently exercisable by Mr. Baum.
(2) Includes 1,488,100 shares owned by George K. Baum Group, Inc. ("Group").
Mr. Baum and Mr. Thomas are each officers and directors and have shared
voting and investment power over these shares. Mr. Baum is also a
shareholder of Group.
(3) Includes 150,480 shares held by Mr. Thomas as trustee of a revocable trust
established by him, 50,000 shares held by his spouse as trustee of a
revocable trust established by her, 100 shares held by his spouse as
custodian for their children, in which he disclaims beneficial ownership
and 6,250 shares issuable pursuant to options which are currently
exercisable by Mr. Thomas.
(4) Excludes shares owned by officers and employees of Group and its
subsidiaries.
(5) Includes 5,500 shares held directly by Mr. Benatar and, 40,000 shares
issuable pursuant to options which are currently exercisable by him.
(6) Includes 24,962 shares held directly by Mr. Carper and 2,800 shares held
indirectly by Mr. Carper as trustee of an irrevocable trust.
(7) Includes 6,250 shares issuable pursuant to options which are currently
exercisable by Mr. Sullivan.
(8) Includes 6,250 shares issuable pursuant to options which are currently
exercisable by Mr. Curran.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers to file with the Securities Exchange
Commission ("SEC") and The NASDAQ Stock Market initial reports of ownership
and reports of changes in ownership of the Company's common stock and other
equity securities. Directors and executive officers are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file.
28
<PAGE>
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during 1998 all Section 16(a) filing requirements
applicable to its Directors and executive officers were complied with.
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
certain officers of the Company, as well as persons who own more than 10% of
the Company's outstanding common stock ("Reporting Persons"), to file reports
of ownership and changes in ownership on Form 3, 4, and 5 with the Securities
and Exchange Commission. The Company believes that during the preceding year
all Reporting Persons timely complied with all filing requirements applicable
to them.
ITEM 13. CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
The Company's Directors, G. Kenneth Baum and William D. Thomas, have
certain affiliations with George K. Baum & Company ("GKB"), one of the
Company's financial advisors. Mr. Baum is an employee and Mr. Thomas is a Vice
President of GKB, and both Mr. Baum and Mr. Thomas are affiliated with George
K. Baum Group, Inc., which holds 1,488,100 shares of the Company's common
stock.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The Company's financial statement, prepared in accordance with Regulation
S-X, including statements of operations, cash flow, and stockholders' equity,
for the three fiscal periods ended December 31, 1997, 1996, and 1995, and
balance sheets as of December 31, 1997 and 1996, and related notes and the
independent auditors' opinion thereon are included under Item 8.
(2) Financial Statement Schedules
No financial statement schedules are required to be included in this Annual
Report by the Securities and Exchange Commission's current regulations.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3 (a) Amendment to Certificate of Incorporation, as amended, of the
Registrant (Incorporated by reference from Exhibit 3.1(c) to Form
S-4 dated June 9, 1998)
3 (b) Amended and Restated Bylaws dated April 22, 1998 (Incorporated by
reference from Exhibit 3.2 to Form S-4 dated June 9, 1998)
4 (a) Specimen Common Stock Certificate (Incorporated by reference from
Exhibit 4.1 to Form S-4 dated June 9, 1998)
4 (b) Credit Agreement with Harris Trust and Savings Bank, dated June
30, 1998, for a $15 million line of credit, filed herewith
10 (a) Long-Term Compensation Plan of JPS Packaging Company, effective
May 4, 1998 (Incorporated by reference from Exhibit 10.2 to Form
S-4 dated June 9, 1998)
10 (b) JPS Packaging Company Savings Plan, effective July 1, 1998, filed
herewith
10 (c) Employment Agreement with N. Brian Stevenson, effective September
14, 1998, filed herewith
10 (b) JPS Packaging Company Savings Plan, effective July 1, 1998, filed
herewith.
21 Subsidiaries of the registrant (Incorporated by reference from
Exhibit 21.1 to Form S-4 dated June 9, 1998)
27 Financial Data Schedule
</TABLE>
29
<PAGE>
Exhibit 4(B)
================================================================================
CREDIT AGREEMENT
DATED AS OF JUNE 30, 1998
BETWEEN
JPS PACKAGING COMPANY
AND
HARRIS TRUST AND SAVINGS BANK
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section DESCRIPTION Page
<S> <C> <C>
SECTION 1. THE CREDITS............................................................. 1
Section 1.1. Revolving Credit.................................................... 1
Section 1.2. Revolving Credit Loans.............................................. 2
Section 1.3. Letters of Credit................................................... 2
Section 1.4. Manner and Disbursement of Loans.................................... 3
SECTION 2. INTEREST, FEES, TERM AND TERMINATION.................................... 3
Section 2.1. Interest Rate Options............................................... 3
Section 2.2. Minimum and Maximum Amounts........................................ 5
Section 2.3. Manner of Rate Selection............................................ 5
Section 2.4. Change of Law....................................................... 5
Section 2.5. Unavailability of Deposits or Inability to Ascertain Adjusted LIBOR 5
Section 2.6. Taxes and Increased Costs........................................... 6
Section 2.7. Funding Indemnity................................................... 7
Section 2.8. Lending Branch...................................................... 7
Section 2.9. Bank's Duty to Mitigate............................................. 7
Section 2.10. Discretion of Bank as to Manner of Funding.......................... 8
SECTION 3. FEES, APPLICATION, PREPAYMENTS, COMPUTATIONS, AND NOTATIONS............. 8
Section 3.1. Facility Fee........................................................ 8
Section 3.2. Unused Line Fee..................................................... 8
Section 3.3. Audit Fees.......................................................... 8
Section 3.4. Letter of Credit Fees............................................... 8
Section 3.5. Computation of Interest and Fees.................................... 8
Section 3.6. Change in Capital Adequacy Requirements............................. 9
Section 3.7. Term and Termination................................................ 9
Section 3.8. Place and Application of Payments and Collections................... 9
Section 3.9. Voluntary Prepayments............................................... 10
Section 3.10. Mandatory Prepayment................................................ 11
Section 3.11. Computation of Obligations Outstanding.............................. 11
Section 3.12. Notations........................................................... 11
SECTION 4. COLLATERAL.............................................................. 12
Section 4.1. Collateral.......................................................... 12
Section 4.2. Collateral Proceeds................................................. 12
Section 4.3. Further Assurances.................................................. 13
Section 4.4. Ohio Title Problem.................................................. 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 5. DEFINITIONS; INTERPRETATION............................................. 13
Section 5.1. Definitions......................................................... 13
Section 5.2. Interpretation...................................................... 23
SECTION 6. REPRESENTATIONS AND WARRANTIES.......................................... 23
Section 6.1. Organization and Qualification...................................... 23
Section 6.2. Subsidiaries........................................................ 23
Section 6.3. Corporate Authority and Validity of Obligations..................... 24
Section 6.4. Use of Proceeds; Margin Stock....................................... 24
Section 6.5. Financial Reports................................................... 24
Section 6.6. No Material Adverse Change.......................................... 25
Section 6.7. Full Disclosure..................................................... 25
Section 6.8. Good Title.......................................................... 25
Section 6.9. Litigation and Other Controversies.................................. 25
Section 6.10. Taxes............................................................... 25
Section 6.11. Approvals........................................................... 25
Section 6.12. Affiliate Transactions.............................................. 25
Section 6.13. Investment Company; Public Utility Holding Company.................. 26
Section 6.14. ERISA............................................................... 26
Section 6.15. Compliance with Laws................................................ 26
Section 6.16. Other Agreements.................................................... 26
Section 6.17. No Default.......................................................... 26
SECTION 7. CONDITIONS PRECEDENT.................................................... 26
Section 7.1. All Advances........................................................ 27
Section 7.2. Initial Advance..................................................... 27
Section 7.3. Surveys............................................................. 29
Section 7.4. Ohio Title.......................................................... 29
SECTION 8. COVENANTS............................................................... 29
Section 8.1. Maintenance of Business............................................. 29
Section 8.2. Maintenance of Properties........................................... 29
Section 8.3. Taxes and Assessments............................................... 30
Section 8.4. Insurance........................................................... 30
Section 8.5. Financial Reports................................................... 30
Section 8.6. Inspection; Appraisals.............................................. 32
Section 8.7. Tangible Net Worth.................................................. 33
Section 8.8. EBITDA.............................................................. 33
Section 8.9. Capital Expenditures................................................ 33
Section 8.10. Indebtedness for Borrowed Money..................................... 34
Section 8.11. Liens............................................................... 34
Section 8.12. Investments, Acquisitions, Loans, Advances and Guaranties........... 35
Section 8.13. Mergers, Consolidations and Sales................................... 36
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 8.14. Maintenance of Subsidiaries......................................... 36
Section 8.15. Dividends and Certain Other Restricted Payments..................... 37
Section 8.16. ERISA............................................................... 37
Section 8.17. Compliance with Laws................................................ 37
Section 8.18. Burdensome Contracts With Affiliates................................ 37
Section 8.19. No Changes in Fiscal Year........................................... 37
Section 8.20. Formation of Subsidiaries........................................... 37
Section 8.21. Change in the Nature of Business.................................... 37
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.......................................... 38
Section 9.1. Events of Default................................................... 38
Section 9.2. Non-Bankruptcy Defaults............................................. 40
Section 9.3. Bankruptcy Defaults................................................. 40
Section 9.4. Collateral for Undrawn Letters of Credit............................ 40
SECTION 10. MISCELLANEOUS........................................................... 41
Section 10.1. Non-Business Days................................................... 41
Section 10.2. No Waiver, Cumulative Remedies...................................... 41
Section 10.3. Amendments, Etc..................................................... 41
Section 10.4. Costs and Expenses.................................................. 41
Section 10.5. Documentary Taxes................................................... 42
Section 10.6. Survival of Representations......................................... 42
Section 10.7. Notices............................................................. 43
Section 10.8. Participations...................................................... 43
Section 10.9. Construction........................................................ 43
Section 10.10. Headings............................................................ 44
Section 10.11. Severability of Provisions.......................................... 44
Section 10.12. Counterparts........................................................ 44
Section 10.13. Binding Nature, Governing Law, Etc.................................. 44
Section 10.14. Submission to Jurisdiction; Waiver of Jury Trial................... 44
Signature................................................................................ 45
EXHIBIT A -- REVOLVING CREDIT NOTE
EXHIBIT B -- BORROWING BASE CERTIFICATE
EXHIBIT C -- COMPLIANCE CERTIFICATE
SCHEDULE 6.2 -- SUBSIDIARIES
</TABLE>
-iii-
<PAGE>
Credit Agreement
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
The undersigned, JPS Packaging Company, a Delaware corporation (the
"Company"), applies to you (the "Bank") for your commitment, subject to the
terms and conditions hereof and on the basis of the representations and
warranties hereinafter set forth, to extend credit to the Company, all as more
fully hereinafter set forth.
Section 1. The Credits.
Section 1.1. Revolving Credit. Subject to the terms and conditions
hereof, the Bank agrees to extend a revolving credit (the "Revolving Credit") to
the Company which may be availed of by the Company from time to time during the
period from and including the date hereof to but not including the Termination
Date, at which time the commitment of the Bank to extend credit under the
Revolving Credit shall expire. The Revolving Credit may be utilized by the
Company in the form of Loans and Letters of Credit, all as more fully
hereinafter set forth, provided that the aggregate principal amount of Loans and
Letters of Credit outstanding at any one time shall not exceed the lesser of (i)
$15,000,000 (such amount as the same may be reduced pursuant hereto being
hereinafter referred to as the "Revolving Credit Commitment") and (ii) the
Available Borrowing Base as then determined and computed. During the period from
and including the date hereof to but not including the Termination Date, the
Company may use the Revolving Credit Commitment by borrowing, repaying and
reborrowing Loans in whole or in part and/or by having the Bank issue Letters of
Credit, having such Letters of Credit expire or otherwise terminate without
having been drawn upon or, if drawn upon, reimbursing the Bank for each such
drawing, and having the Bank issue new Letters of Credit, all in accordance with
the terms and conditions of this Agreement. Notwithstanding any other provision
of this Agreement to the contrary, the Bank shall have the right from time to
time to establish reserves against the amount of Revolving Credit which the
Company may otherwise request hereunder in such amounts and with respect to such
matters as the Bank shall deem necessary or appropriate in its reasonable
judgment. The amount of such reserves shall be subtracted from the Borrowing
Base when calculating the amount of availability under the Revolving Credit
Commitment. Additionally, the Bank may from time to time reduce the percentages
applicable to Eligible Accounts and Eligible Inventory as they relate to the
Borrowing Base if the Bank determines in its reasonable judgment that there has
been a material adverse change in circumstances relating to any or all of such
Collateral from those circumstances in existence on the date of this Agreement
or in the condition (financial or otherwise) of the Company. The Bank agrees to
give the Company five (5) Business Days' prior notice of the establishment of
any such reserve or the reduction of any such percentage.
<PAGE>
Section 1.2. Revolving Credit Loans. Subject to the terms and conditions
hereof, the Revolving Credit may be availed of by the Company in the form of
loans (individually a "Loan" and collectively the "Loans"). All Loans shall be
made against and evidenced by a single promissory note of the Company in the
form (with appropriate insertions) attached hereto as Exhibit A (the "Revolving
Credit Note") payable to the order of the Bank in the principal amount of its
Revolving Credit Commitment. The Revolving Credit Note shall be dated the date
of issuance thereof, be expressed to bear interest as set forth in Section 2
hereof, and be expressed to mature on the Termination Date. Without regard to
the principal amount of the Revolving Credit Note stated on its face, the actual
principal amount at any time outstanding and owing by the Company on account of
the Revolving Credit Note shall be the sum of all Loans made hereunder less all
payments of principal actually received by the Bank.
Section 1.3. Letters of Credit. (a) General Terms. Subject to the terms
and conditions hereof, the Revolving Credit may be availed of by the Company in
the form of standby and commercial letters of credit issued by the Bank for the
account of the Company (individually a "Letter of Credit" and collectively the
"Letters of Credit"), provided that the aggregate amount of Letters of Credit
issued and outstanding hereunder shall not at any one time exceed $1,500,000.
For purposes of this Agreement, a Letter of Credit shall be deemed outstanding
as of any time in an amount equal to the maximum amount which could be drawn
thereunder under any circumstances and over any period of time plus any
unreimbursed drawings then outstanding with respect thereto. If and to the
extent any Letter of Credit expires or otherwise terminates without having been
drawn upon, the availability under the Revolving Credit Commitment shall to such
extent be reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire not later
than the earlier of (i) twelve (12) months from the date of issuance (or be
cancelable not later than twelve (12) months from the date of issuance and each
renewal) or (ii) the Termination Date.
(c) General Characteristics. Each Letter of Credit issued hereunder shall
be payable in U.S. dollars, conform to the general requirements of the Bank for
the issuance of standby or commercial letters of credit, as the case may be, as
to form and substance, and be a letter of credit which the Bank may lawfully
issue.
(d) Applications. At the time the Company requests each Letter of Credit
to be issued (or prior to the first issuance of a Letter of Credit in the case
of a continuing application), the Company shall execute and deliver to the Bank
an application for such Letter of Credit in the form then customarily prescribed
by the Bank (individually an "Application" and collectively the "Applications").
Subject to the other provisions of this subsection, the obligation of the
Company to reimburse the Bank for drawings under a Letter of Credit shall be
governed by the Application for such Letter of Credit. Anything contained in the
Applications to the contrary notwithstanding, (i) in the event the Bank is not
reimbursed by the Company for the amount the Bank pays on any draft drawn under
a Letter of Credit issued hereunder by 11:00 a.m. (Chicago time) on the date
when such drawing is paid, the obligation of the Company to reimburse the Bank
for the amount of
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such draft paid shall bear interest (which the Company hereby promises to pay on
demand) from and after the date the draft is paid until payment in full thereof
at the rate per annum determined by adding 2% to the Domestic Rate as from time
to time in effect, (ii) the Company shall pay fees in connection with each
Letter of Credit as set forth in Section 2 hereof, (iii) except as otherwise
provided in Sections 3 and 4 hereof, prior to the occurrence of a Default or an
Event of Default the Bank will not call for additional collateral security for
the obligations of the Company under the Applications other than the collateral
security contemplated by this Agreement and the Collateral Documents and
collateral security consisting of rights in goods (or documents of title
evidencing the same) financed under such Applications, and (iv) except as
otherwise provided in Sections 3 and 4 hereof, prior to the occurrence of a
Default or an Event of Default the Bank will not call for the funding of a
Letter of Credit by the Company prior to being presented with a draft drawn
thereunder (or, in the event the draft is a time draft, prior to its due date).
Section 1.4. Manner and Disbursement of Loans. (a) The Company shall
give written or telephonic notice to the date Bank (which notice shall be
irrevocable once given) by no later than 1:00 p.m. (Chicago time) on the date
the Company requests the Bank to make a Loan hereunder. Each such notice shall
specify the date of the Loan requested (which must be a Business Day) and the
amount of such Loan. The Company agrees that the Bank may rely upon any written
or telephonic notice given by any person the Bank in good faith believes is an
Authorized Representative without the necessity of independent investigation.
(b) The Company hereby irrevocably authorizes the Bank to make Loans from
time to time hereunder for payment of any Obligation then due and payable
(whether such Obligation is for interest then due on a Loan, reimbursement under
an Application or otherwise), and any such Loan may be made without regard to
the provisions of Section 7 hereof. The Company acknowledges and agrees,
however, that the Bank shall not be under any obligation to make a Loan under
this Section 1.4(b), and the Bank shall incur no liability to the Company or any
other Person for refusing to make a Loan under this Section 1.4(b).
(c) Subject to the provisions of Section 7 hereof, the proceeds of each
Loan made under Section 1.4(a) hereof shall be made available to the Company at
the principal office of the Bank in Chicago, Illinois, in immediately available
funds, in the case of the initial Loan made hereunder, in accordance with the
terms of the written disbursement instructions of the Company, and, in the case
of each subsequent Loan, by deposit to the Company's general account with the
Bank known as Account Number 303-831-2. The proceeds of each Loan made under
Section 1.4(b) hereof shall be disbursed by the Bank by way of direct payment of
the relevant Obligation.
SECTION 2. INTEREST, FEES, TERM AND TERMINATION.
Section 2.1. Interest Rate Options. (a) Generally. Subject to all of the
terms and conditions of this Section 2, portions of the principal indebtedness
evidenced by the Revolving Credit Note (all of the indebtedness evidenced by the
Revolving Credit Note bearing interest at the same rate for the same period of
time being hereinafter referred to as
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<PAGE>
a "Portion") may, at the option of the Company, bear interest with reference to
the Domestic Rate (the "Domestic Rate Portion") or with reference to an Adjusted
LIBOR ("LIBOR Portions") and Portions may be converted from time to time from
one basis to the other. All of the indebtedness evidenced by the Revolving
Credit Note which is not part of a LIBOR Portion shall constitute a single
Domestic Rate Portion. All of the indebtedness evidenced by the Revolving Credit
Note which bears interest with reference to a particular Adjusted LIBOR for a
particular Interest Period shall constitute a single LIBOR Portion. There shall
not be more than three (3) LIBOR Portions applicable to the Revolving Credit
Note outstanding at any one time. Anything contained herein to the contrary
notwithstanding, the obligation of the Bank to create, continue or effect by
conversion any LIBOR Portion shall be conditioned upon the fact that at the time
no Default or Event of Default shall have occurred and be continuing. The
Company hereby promises to pay interest on each Portion at the rates and times
specified in this Section 2.
(b) Domestic Rate Portion. The Domestic Rate Portion shall bear interest
at the Domestic Rate as in effect from time to time, provided that if the
Domestic Rate Portion or any part thereof is not paid when due (whether by lapse
of time, acceleration or otherwise) such Portion shall bear interest, whether
before or after judgment, until payment in full thereof at the rate per annum
determined by adding 2% to the interest rate which would otherwise be applicable
thereto from time to time. Interest on the Domestic Rate Portion shall be
payable monthly in arrears on the first Business Day of each month in each year
(commencing August 1, 1998) and at maturity of the Revolving Credit Note and
interest after maturity (whether by lapse of time, acceleration or otherwise)
shall be due and payable upon demand. Any change in the interest rate on the
Domestic Rate Portion resulting from a change in the Domestic Rate shall be
effective on the date of the relevant change in the Domestic Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for each
Interest Period selected therefor at a rate per annum determined by adding the
Applicable Margin to the Adjusted LIBOR for such Interest Period, provided that
if any LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion shall bear interest, whether before or
after judgment, until payment in full thereof through the end of the Interest
Period then applicable thereto at the rate per annum determined by adding 2% to
the interest rate which would otherwise be applicable thereto (provided that if
any Interest Period is longer than one month, then interest on the LIBOR Portion
having such Interest Period shall be due and payable on the date occurring each
month after the date such Interest Period began and on the last day of such
Interest Period), and effective at the end of such Interest Period such LIBOR
Portion shall automatically be converted into and added to the Domestic Rate
Portion and shall thereafter bear interest at the interest rate applicable to
the Domestic Rate Portion after default. Interest on each LIBOR Portion shall be
due and payable on the last day of each Interest Period applicable thereto and
interest after maturity (whether by lapse of time, acceleration or otherwise)
shall be due and payable upon demand. The Company shall notify the Bank on or
before 11:00 a.m. (Chicago time) on the third Business Day preceding the end of
an Interest Period applicable to a LIBOR Portion whether such LIBOR Portion is
to continue as a LIBOR Portion, in which event the Company shall notify the Bank
of the new Interest Period selected therefor, and in the event the Company
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<PAGE>
shall fail to so notify the Bank, such LIBOR Portion shall automatically be
converted into and added to the Domestic Rate Portion as of and on the last day
of such Interest Period.
Section 2.2. Minimum and Maximum Amounts. Each LIBOR Portion shall be in a
minimum amount of $500,000 or such greater amount which is an integral multiple
of $100,000.
Section 2.3. Manner of Rate Selection. The Company shall notify the Bank by
11:00 a.m. (Chicago time) at least three (3) Business Days prior to the date
upon which the Company requests that any LIBOR Portion be created or that any
part of the Domestic Rate Portion be converted into a LIBOR Portion. If any
request is made to convert a LIBOR Portion into another type of Portion
available hereunder, such conversion shall only be made so as to become
effective as of the last day of the Interest Period applicable thereto. All
requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable. Such requests may be written or oral and the
Bank is hereby authorized to honor telephonic requests for creations,
continuances and conversions received by it from any person the Bank reasonably
believes to be an Authorized Representative without the need of independent
investigation, the Company hereby indemnifying the Bank from any liability or
loss ensuing from so acting.
Section 2.4. Change of Law. Notwithstanding any other provisions of this
Agreement or the Revolving Credit Note, if at any time the Bank shall determine
in good faith that any change in applicable laws, treaties or regulations or in
the interpretation thereof makes it unlawful for the Bank to create or continue
to maintain any LIBOR Portion, it shall promptly so notify the Company and the
obligation of the Bank to create, continue or maintain any such LIBOR Portion
under this Agreement shall terminate until it is no longer unlawful for the Bank
to create, continue or maintain such LIBOR Portion. The Company, on demand,
shall, if the continued maintenance of any such LIBOR Portion is unlawful,
thereupon prepay the outstanding principal amount of the affected LIBOR Portion,
together with all interest accrued thereon and all other amounts payable to the
Bank with respect thereto under this Agreement; provided, however, that the
Company may elect to convert the principal amount of the affected Portion into
another type of Portion available hereunder, subject to the terms and conditions
of this Agreement.
Section 2.5. Unavailability of Deposits or Inability to Ascertain Adjusted
LIBOR. Notwithstanding any other provision of this Agreement or the Revolving
Credit Note, if prior to the commencement of any Interest Period, the Bank shall
determine in good faith that deposits in the amount of any LIBOR Portion
scheduled to be outstanding during such Interest Period are not readily
available to the Bank in the relevant market or, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining Adjusted LIBOR, then the Bank shall promptly give notice thereof to
the Company and the obligations of the Bank to create such new LIBOR Portion,
continue such existing LIBOR Portion for a new Interest Period or effect such
new LIBOR Portion by conversion of the Domestic Rate Portion, as the case may
be, in such amount and for such Interest Period shall terminate until deposits
in such amount and for the Interest Period
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<PAGE>
selected by the Company shall again be readily available in the relevant market
and adequate and reasonable means exist for ascertaining Adjusted LIBOR.
Section 2.6. Taxes and Increased Costs. With respect to any LIBOR Portion,
if the Bank shall determine in good faith that any change in any applicable law,
treaty, regulation or guideline (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or any new law, treaty,
regulation or guideline, or any interpretation of any of the foregoing by any
governmental authority charged with the administration thereof or any central
bank or other fiscal, monetary or other authority having jurisdiction over the
Bank or its lending branch or the LIBOR Portions contemplated by this Agreement
(whether or not having the force of law), shall:
(i) impose, increase, or deem applicable any reserve, special
deposit or similar requirement against assets held by, or deposits in or
for the account of, or loans by, or any other acquisition of funds or
disbursements by, the Bank which is not in any instance already accounted
for in computing the interest rate applicable to such LIBOR Portion;
(ii) subject the Bank, any LIBOR Portion or the Revolving Credit Note
to the extent it evidences such a Portion to any tax (including, without
limitation, any United States interest equalization tax or similar tax
however named applicable to the acquisition or holding of debt obligations
and any interest or penalties with respect thereto), duty, charge, stamp
tax, fee, deduction or withholding in respect of this Agreement, any LIBOR
Portion or the Revolving Credit Note to the extent it evidences such a
Portion, except such taxes as may be measured by the overall net income or
gross receipts of the Bank or its lending branches and imposed by the
jurisdiction, or any political subdivision or taxing authority thereof, in
which the Bank's principal executive office or its lending branch is
located;
(iii) change the basis of taxation of payments of principal and
interest due from the Company to the Bank hereunder or under the Revolving
Credit Note to the extent it evidences any LIBOR Portion (other than by a
change in taxation of the overall net income or gross receipts of the
Bank); or
(iv) impose on the Bank any penalty with respect to the foregoing or
any other condition regarding this Agreement, its disbursement, any LIBOR
Portion or the Revolving Credit Note to the extent it evidences any LIBOR
Portion;
and the Bank shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to the Bank of creating or maintaining any LIBOR Portion hereunder or to
reduce the amount of principal or interest received or receivable by the Bank,
then the Company shall pay on demand to the Bank from time to time as specified
by the Bank such additional amounts as the Bank shall reasonably determine are
sufficient to compensate and indemnify it for such increased cost or reduced
amount. If the Bank makes such a claim for compensation, it shall provide to the
Company a certificate setting forth the computation of the increased cost or
reduced amount as a result
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<PAGE>
of any event mentioned herein in reasonable detail and such certificate shall be
conclusive if reasonably determined.
Section 2.7. Funding Indemnity. In the event the Bank shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired or contracted to be acquired by
the Bank to fund or maintain any LIBOR Portion or the relending or reinvesting
of such deposits or other funds or amounts paid or prepaid to the Bank) as a
result of:
(i) any payment of a LIBOR Portion on a date other than the last day
of the then applicable Interest Period for any reason, whether before or
after default, and whether or not such payment is required by any
provisions of this Agreement; or
(ii) any failure by the Company to create, borrow, continue or effect
by conversion a LIBOR Portion on the date specified in a notice given
pursuant to this Agreement;
then upon the demand of the Bank, the Company shall pay to the Bank such amount
as will reimburse the Bank for such loss, cost or expense. If the Bank requests
such a reimbursement, it shall provide to the Company a certificate setting
forth the computation of the loss, cost or expense giving rise to the request
for reimbursement in reasonable detail and such certificate shall be conclusive
if reasonably determined.
Section 2.8. Lending Branch. The Bank may, at its option (subject only to
Section 2.9 hereof), elect to make, fund or maintain Portions of the Loans
hereunder at such of its branches or offices as the Bank may from time to time
elect.
Section 2.9. Bank's Duty to Mitigate. The Bank agrees that, as promptly as
practicable after it becomes aware of the occurrence of an event or the
existence of a condition that would cause it to be affected under Section 2.4,
2.5 or 2.6 hereof, the Bank will, to the extent not inconsistent with the Bank's
internal policies and customary business practices, use reasonable efforts to
make, fund or maintain the LIBOR Portions through another lending branch or
office of the Bank if as a result thereof the unlawfulness which would otherwise
require payment of such Loans pursuant to Section 2.4 hereof would cease to
exist or the circumstances which under Section 2.5 hereof would otherwise
terminate such Bank's obligation to make LIBOR Portions would cease to exist or
the increased costs or other compensation which would otherwise be required to
be paid in respect of LIBOR Portions pursuant to Sections 2.6 hereof would be
materially reduced, and if, as determined by the Bank, in its sole discretion,
the making, funding or maintaining of such Portions through such other lending
branch or office would not otherwise adversely affect such Portions or the Bank.
The Company hereby agrees to pay all reasonable expenses incurred by the Bank in
utilizing another lending branch or office of the Bank pursuant to this Section
2.9.
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<PAGE>
Section 2.10. Discretion of Bank as to Manner of Funding. Subject to
Section 2.9 hereof, but notwithstanding any other provision of this Agreement to
the contrary, the Bank shall be entitled to fund and maintain its funding of all
or any part of the Revolving Credit Note in any manner it sees fit, it being
understood, however, that for the purposes of this Agreement all determinations
hereunder (including, without limitation, determinations under Sections 2.5, 2.6
and 2.7 hereof) shall be made as if the Bank had actually funded and maintained
each LIBOR Portion during each Interest Period applicable thereto through the
purchase of deposits in the relevant market in the amount of such LIBOR Portion,
having a maturity corresponding to such Interest Period, and bearing an interest
rate equal to the LIBOR for such Interest Period
SECTION 3. FEES, APPLICATION, PREPAYMENTS, COMPUTATIONS, AND NOTATIONS.
Section 3.1. Facility Fee. The Company has paid to the Bank prior to the
date hereof a non-refundable facility fee in the amount of $75,000.
Section 3.2. Unused Line Fee. For the period from and including the date
hereof to but not including the Termination Date, the Company shall pay to the
Bank a fee at the rate of 1/4 of 1% per annum on the average daily unused
portion of the Revolving Credit Commitment. Such fee shall be payable quarter-
annually in arrears on the first day of each calendar quarter in each year
(commencing October 1, 1998) and on the Termination Date.
Section 3.3. Audit Fees. The Company shall pay to the Bank charges for
audits of the Collateral performed by the Bank or its agents or representatives
in such amounts as the Bank may from time to time request (the Bank
acknowledging and agreeing that such charges shall be computed in the same
manner as it at the time customarily uses for the assessment of charges for
similar collateral audits); provided, however, that in the absence of any
Default or Event of Default, the Company shall not be required to pay the Bank
for more than four (4) such audits per calendar year and shall not be required
to pay more than $500 per day per person conducting the audit, plus the Bank's
out-of-pocket costs and expenses.
Section 3.4. Letter of Credit Fees. On the date of issuance of each Letter
of Credit, and as a condition thereto, and annually thereafter, the Company
shall pay to the Bank a letter of credit fee computed at the rate of 1/4 of 1%
per annum on the maximum amount of the related Letter of Credit which is
scheduled to be outstanding during the immediately succeeding twelve (12)
months. In addition to the letter of credit fee called for above, the Company
further agrees to pay to the Bank such processing and transaction fees and
charges as the Bank from time to time customarily imposes in connection with any
amendment, cancellation, negotiation and/or payment of letters of credit and
drafts drawn thereunder.
Section 3.5. Computation of Interest and Fees. All interest on the Loans
and on the reimbursement obligations with respect to all Applications and all
fees due hereunder shall be calculated on the basis of a year of 360 days for
the actual number of days elapsed. Any change in the interest rate applicable to
the Obligations resulting from a change in the Domestic Rate shall be effective
on the date of the relevant change in the Domestic Rate.
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Section 3.6. Change in Capital Adequacy Requirements. If the Bank shall
determine that the adoption after the date hereof of any applicable law, rule or
regulation regarding capital adequacy, or any change in any existing law, rule
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank (or any of
its branches) with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder to extend
credit constituting a LIBOR Portion to a level below that which the Bank could
have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies with respect to liquidity and capital
adequacy) by an amount deemed by the Bank to be material, then from time to
time, within fifteen (15) days after demand by the Bank, the Company shall pay
to the Bank such additional amount or amounts reasonably determined by the Bank
as will compensate the Bank for such reduction.
Section 3.7. Term and Termination. (a) Term. The term of the Revolving
Credit Commitment shall be approximately three years from the date hereof
through and including June 30, 2001, and the Revolving Credit Commitment shall
terminate on such date unless sooner terminated pursuant to this Section or as
otherwise provided in this Agreement. The Company may terminate the Revolving
Credit Commitment in whole (but not in part) at any time upon at least sixty
(60) days prior written notice to the Bank and upon (i) the payment in full of
all outstanding Obligations (including, without limitation, the outstanding
principal balance of the Revolving Credit Note), together with all accrued and
unpaid interest thereon, (ii) the payment of any accrued and unpaid unused line
fees to the date of termination and (iii) the payment of any prepayment premium
required pursuant to the terms of this Section, and (iv) the expiration or
termination of all Letters of Credit and, to the extent any such Letter of
Credit has not expired in accordance with its terms or otherwise been terminated
to the satisfaction of the Bank, accompanied by collateral security in form and
in such amounts as shall be satisfactory to the Bank. At the effective date of
any such termination of the Revolving Credit Commitment by the Company, the
Company shall pay a prepayment premium to the Bank, as liquidated damages for
the loss of bargain and not as a penalty, in an amount equal to $150,000 during
the initial term if termination occurs during the first 12-month period of the
initial term (the date hereof through and including June 30, 1999), and $75,000
at any time thereafter.
Section 3.8. Place and Application of Payments and Collections. (a) All
payments of principal, interest, fees and all other Obligations payable
hereunder and under the other Loan Documents shall be made to the Bank at its
office at 111 West Monroe Street, Chicago, Illinois (or at such other place as
the Bank may specify). All such payments shall be made in lawful money of the
United States of America, in immediately available funds at the place of
payment, without set-off or counterclaim and without reduction for, and free
from, any and all present or future taxes, levies, imposts, duties, fees,
charges, deductions, withholdings, restrictions or conditions of any nature
imposed by any government or any political subdivision or taxing authority
thereof (but excluding any taxes imposed on or measured by the net income or
gross receipts of the Bank). Payments received by the Bank after 1:30
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p.m. (Chicago time) shall be deemed received as of the opening of business on
the next Business Day. Unless the Company otherwise directs, principal payments
on the Revolving Credit Note shall be applied first to the Domestic Rate Portion
of the Revolving Credit Note until payment in full thereof, with any balance
applied to the LIBOR Portions of the Revolving Credit Note in the order in which
their Interest Periods expire.
(b) All payments made by the Company and all proceeds of Collateral shall,
upon receipt by the Bank, be applied by the Bank to the Obligations then due and
payable, with any balance of such proceeds not applied to the Obligations to be
held by the Bank as collateral security for the Obligations. Prior to the
occurrence of a Default or Event of Default, except as otherwise specifically
provided for herein, all payments made by the Company and all proceeds of
Collateral shall be applied by the Bank against the outstanding Obligations as
follows:
(i) first, to any outstanding fees, charges and expenses then due
the Bank;
(ii) second, to outstanding interest charges then due in respect of
the Obligations;
(iii) third, to the outstanding principal balance of the Loans and
reimbursement obligations in respect of drafts drawn under Letters of
Credit; and
(iv) finally, to be applied to, or held as collateral security for,
any remaining unpaid or unsatisfied Obligations.
Except as otherwise specifically provided for herein, the Company hereby
irrevocably waives the right to direct the application of payments and
collections at any time received by the Bank from or on behalf of the Company,
and the Company hereby irrevocably agrees that the Bank shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time by the Bank against the Obligations in such
manner as the Bank may deem advisable.
(c) The Company hereby irrevocably authorizes the Bank to charge any of
the Company's deposit accounts maintained with the Bank for the amounts from
time to time necessary to pay any then due Obligations; provided that the
Company acknowledges and agrees that the Bank shall be under no obligation to do
so and the Bank shall incur no liability to the Company or any other Person for
the Bank's failure to do so.
Section 3.9. Voluntary Prepayments.
(a) Domestic Rate Portion. The Company shall have the privilege of
voluntarily prepaying without premium or penalty and in whole or in part (but if
in part, then in an amount not less than $10,000) the Domestic Rate Portion of
the Revolving Credit Note at any time upon notice to the Bank prior to 11:00
a.m. (Chicago time) on the date fixed for prepayment.
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(b) LIBOR Portions. The Company may voluntarily prepay any LIBOR Portion
of the Revolving Credit Note only on the last date of the then applicable
Interest Period, in whole or in part (but if in part, then in an amount not less
than $500,000 or such greater amount which is an integral multiple of $100,000),
upon 3 Business Days' prior notice to the Bank (which notice shall be
irrevocable once given, must be received by the Bank no later than 11:00 a.m.
(Chicago time) on the third Business Day preceding the date of such prepayment,
and shall specify the principal amount to be repaid); provided, however, that
the outstanding principal amount of any LIBOR Portion of the Revolving Credit
Note prepaid in part shall not be less than $500,000 or such greater amount
which is an integral multiple of $100,000 after giving effect to such
prepayment. Any such prepayment shall be effected by payment of the principal
amount to be prepaid and accrued interest thereon to the end of the applicable
Interest Period.
Section 3.10. Mandatory Prepayment. The Company covenants and agrees that
if at any time the sum of the then unpaid principal balance of the Loans plus
the then outstanding amount of Letters of Credit shall be in excess of the
Available Borrowing Base as then determined and computed, the Company shall
immediately and without notice or demand pay over the amount of the excess to
the Bank as and for a mandatory prepayment on such Obligations, with each such
prepayment first to be applied to the Loans until payment in full thereof with
any remaining balance to be held by the Bank as collateral security for the
Obligations owing under the Applications.
Section 3.11. Computation of Obligations Outstanding. For the purpose of
calculating the aggregate principal balance of Obligations outstanding
hereunder, Obligations shall be deemed to be paid on the date payments or
collections, as the case may be, are applied by the Bank to such Obligations;
provided, however, for purposes of calculating interest payable by the Company
on the Loans and on any other interest-bearing Obligations under this Agreement,
any payment or collection, as the case may be, shall be deemed to be applied to
the Loans or other interest-bearing Obligations one (1) Business Day after
receipt of such payment or collection by the Bank. Notwithstanding the
foregoing, if any item presented for collection by the Bank is not honored, the
Bank may reverse any provisional credit which has been given for the item and
make appropriate adjustments to the amount of interest and principal otherwise
due hereunder.
Section 3.12. Notations. Each Loan made against the Revolving Credit Note,
the status of all amounts evidenced by the Revolving Credit Note as constituting
part of the Domestic Rate Portion or a LIBOR Portion, and, in the case of any
LIBOR Portion, the rates of interest and Interest Periods applicable to such
Portion shall be recorded by the Bank on its books and records or, at its
option, recorded on a schedule to the Revolving Credit Note and the unpaid
principal balance and status, rates and Interest Periods so recorded or endorsed
by the Bank shall be prima facie evidence in any court or other proceeding
brought to enforce the Revolving Credit Note of the principal amount remaining
unpaid thereon, the status of the Loan or Loans evidenced thereby and the
interest rates and Interest Periods applicable thereto; provided that the
failure of the Bank to record any of the foregoing shall not limit or otherwise
affect the obligation of the Company to repay the principal amount of the
Revolving Credit Note together with accrued interest thereon. Prior
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to any negotiation of the Revolving Credit Note, the Bank shall record on a
schedule thereto the status of all amounts evidenced thereby as constituting
part of the Domestic Rate Portion or a LIBOR Portion and, in the case of any
LIBOR Portion, the rates of interest and the Interest Periods applicable
thereto.
Section 4. Collateral.
Section 4.1. Collateral. The payment and performance of the Obligations
shall at all times be secured by, among other things, (a) all of the Company's
accounts, chattel paper, documents, instruments, general intangibles, inventory,
equipment, fixtures, investment property and certain other assets and property
of the Company, in each case whether now owned or held or hereafter acquired or
arising, in each case as described in and pursuant to that certain Security
Agreement dated of even date herewith, as the same may be amended, modified or
supplemented from time to time (the "Security Agreement"), (b) all of the
Company's real property and all improvements thereon and certain other related
assets and property located at Akron, Ohio pursuant to that certain Mortgage and
Security Agreement with Assignment of Rents dated of even date herewith, as the
same may be amended, modified or supplemented from time to time (the "Ohio
Mortgage"), (c) all of the Company's real property and all improvements thereon
and certain other related assets and property located at San Leandro, California
pursuant to that certain Deed of Trust and Security Agreement with Assignment of
Rents dated of even date herewith, as the same may be amended, modified or
supplemented from time to time (the "California Trust Deed") (the Ohio Mortgage
and the California Trust Deed being hereinafter referred to collectively as the
"Mortgages"), (d) all of the Company's trademarks, trademark licenses and
certain other related assets and property of the Company, in each case whether
now owned or held or hereafter acquired or arising, pursuant to that certain
Trademark Collateral Agreement dated of even date herewith, as the same may be
amended, modified or supplemented from time to time (the "Trademark Agreement"),
and (e) all of the Company's patents, patent applications and certain other
related assets and property of the Company, in each case whether now owned or
held or hereafter acquired or arising, pursuant to that certain Patent
Collateral Agreement dated of even date herewith, as the same may be amended,
modified or supplemented from time to time (the "Patent Agreement").
Section 4.2. Collateral Proceeds. The Company agrees to make such
arrangements as shall be necessary or appropriate to assure (through the use of
a lockbox under the sole control of the Bank) that all proceeds of the
Collateral are deposited (in the same form as received) in a remittance account
maintained with and under the control of the Bank, such account to constitute a
special restricted account. Any proceeds of Collateral received by the Company
shall be held by the Company in trust for the Bank in the same form in which
received, shall not be commingled with any assets of the Company, and shall be
delivered immediately to the Bank (together with any necessary endorsements
thereto) for deposit into such account. The Company acknowledges that the Bank
has (and is hereby granted to the extent it does not already have) a Lien on
such account and all funds contained therein to secure the Obligations. No
amounts deposited in such account shall be released to the Company, but shall
instead be applied to, or otherwise held as collateral security for, the
outstanding Obligations as set forth in Section 3 hereof, it being understood
and agreed that
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the Company notwithstanding such application shall have the right to obtain
additional Revolving Credit under this Agreement subject to the terms and
conditions hereof.
Section 4.3. Further Assurances. The Company covenants and agrees that it
shall comply with all terms and conditions of each of the Collateral Documents
and that it shall, at any time and from time to time as requested by the Bank,
execute and deliver such further instruments and do such other acts as the Bank
may deem necessary or desirable to provide for or protect or perfect the Lien of
the Bank in the Collateral.
Section 4.4. Ohio Title Problem. Prior to (but not after) September 30,
1998, notwithstanding anything in any Loan Document to the contrary, the Company
shall not be deemed in default of the Ohio Mortgage if (a) the Company does not
own fee simple title to each parcel of real property subject to the Lien of the
Ohio Mortgage by virtue of the failure of the County of Summit, Ohio to transfer
to the Company the County's interest in such real property and (b) the County
has not disputed its obligation to make such transfer.
Section 5. Definitions; Interpretation.
Section 5.1. Definitions. The following terms when used herein shall have
the following meanings:
"Adjusted LIBOR" means a rate per annum determined by the Bank in
accordance with the following formula:
Adjusted LIBOR = LIBOR
---------------------------
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted LIBOR, the
maximum rate of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental or other special reserves) imposed by the
Board of Governors of the Federal Reserve System (or any successor) under
Regulation D on Eurocurrency liabilities (as such term is defined in Regulation
D) for the applicable Interest Period as of the first day of such Interest
Period, but subject to any amendments to such reserve requirement by such Board
or its successor, and taking into account any transitional adjustments thereto
becoming effective during such Interest Period. For purposes of this definition,
LIBOR Portions shall be deemed to be Eurocurrency liabilities as defined in
Regulation D without benefit of or credit for prorations, exemptions or offsets
under Regulation D. "LIBOR" means, for each Interest Period, (a) the LIBOR Index
Rate for such Interest Period, if such rate is available, and (b) if the LIBOR
Index Rate cannot be determined, the arithmetic average of the rates of interest
per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) at which
deposits in U.S. Dollars in immediately available funds are offered to the Bank
at 11:00 a.m. (London, England time) two (2) Business Days before the beginning
of such Interest Period by three (3) or more major banks in the interbank
eurodollar market selected by the Bank for a period equal to such Interest
Period and in an amount equal or comparable to the applicable LIBOR Portion
scheduled to be outstanding from the Bank during such Interest Period. "LIBOR
Index Rate" means, for any Interest Period, the rate per annum
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(rounded upwards, if necessary, to the next higher one hundred-thousandth of a
percentage point) for deposits in U.S. Dollars for a period equal to such
Interest Period, which appears on the Telerate Page 3750 as of 11:00 a.m.
(London, England time) on the day two (2) Business Days before the commencement
of such Interest Period. "Telerate Page 3750" means the display designated as
"Page 3750" on the Telerate Service (or such other page as may replace Page 3750
on that service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of displaying
British Bankers' Association Interest Settlement Rates for U.S. Dollar
deposits). Each determination of LIBOR made by the Bank shall be conclusive and
binding absent manifest error.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control another Person for purposes of this
definition if such Person possesses, directly or indirectly, the power to
direct, or cause the direction of, the management and policies of the other
Person, whether through the ownership of voting securities, common directors,
trustees or officers, by contract or otherwise; provided, however, that, in any
event for purposes of this definition, any Person that owns, directly or
indirectly, 5% or more of the securities having the ordinary voting power for
the election of directors or governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person.
"Agreement" means this Credit Agreement, as the same may be amended,
modified or restated from time to time in accordance with the terms hereof.
"Applicable Margin" means 2.75%; provided, however, that such amount shall
be equal to 2.50% effective as of the first day of the calendar month following
submission to the Bank of the annual audit report of the Company required by
Section 8.5(d) hereof for its fiscal year ending on or about December 31, 1998
if and only if (i) the Company's EBITDA for both of two consecutive fiscal
quarters of the Company (the second of such quarters to end no earlier than
December 31, 1998) is greater than or equal to $1,000,000 for each such quarter
and (ii) the relevant financial statements required by Section 8.5 for such
quarters reflect an EBITDA of the requisite amount for each such quarter.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Company pursuant to Section 7.2(a) hereof, or on any
update of any such list provided by the Company to the Bank, or any further or
different officer of the Company so named by any Authorized Representative of
the Company in a written notice to the Bank.
"Available Borrowing Base" means, as of any time it is to be determined,
the amount (if any) by which (x) the Borrowing Base as then determined and
computed exceeds (y) $500,000.
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"Availability" means, as of any time it is to be determined, the amount (if
any) by which (x) the Available Borrowing Base as then determined and computed
exceeds (y) the aggregate principal amount of all Loans and Letters of Credit
outstanding under this Agreement.
"Bank" is defined in the introductory paragraph hereof.
"Borrowing Base" means, as of any time it is to be determined, the sum of:
(a) 85% (or such lesser percentage as the Bank may determine from
time to time pursuant to Section 1.1 hereof) of the remainder of the then
outstanding unpaid amount of Eligible Accounts less any and all returns,
rebates, discounts (which may, at the Bank's option, be calculated on the
shortest terms), credits, allowances, finance charges and/or taxes of any
nature at any time issued, owing, available to or claimed by account
debtors, granted, outstanding or payable in connection with such Eligible
Accounts at such time; plus
(b) the lesser of (i) $5,000,000 and (ii) the sum of (x) 60% (or such
lesser percentage as the Bank may determine from time to time pursuant to
Section 1.1 hereof) of the value (computed at the lower of market or cost
using the first-in/first-out method of inventory valuation applied by the
Company in accordance with GAAP) of Eligible Inventory consisting of raw
materials plus (y) 50% (or such lesser percentage as the Bank may determine
from time to time pursuant to Section 1.1 hereof) of the value (computed at
the lower of market or cost using the first-in/first-out method of
inventory valuation applied by the Company in accordance with GAAP) of
Eligible Inventory consisting of finished goods;
provided that the Borrowing Base shall be computed only as against and on so
much of such Collateral as is included on the certificates to be furnished from
time to time by the Company pursuant to this Agreement and, if required by the
Bank pursuant to any of the terms hereof or any Collateral Document, as verified
by such other evidence required to be furnished to the Bank pursuant hereto or
pursuant to any such Collateral Document.
"Business Day" means any day other than a Saturday or Sunday on which the
Bank is not authorized or required to close in Chicago, Illinois.
"Capital Lease" means any lease of Property which in accordance with GAAP
is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown on
the balance sheet of any Person in respect of a Capital Lease as determined in
accordance with GAAP.
"Change of Control Event" means the occurrence of any of the following
circumstances:
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(a) G. Kenneth Baum, William D. Thomas, George K. Baum Group, Inc., a
Delaware corporation, and the Affiliates of such corporation, taken
together (collectively, the "Baum Group"), shall cease at any time and for
any reason to own, both legally and beneficially, 30% or more of the
combined voting power of all securities of the Company entitled to vote in
the election of directors; or
(b) any Person or two or more Persons (other than the Baum Group)
acting in concert acquire beneficial ownership (within the meaning of Rule
13d-3 of the SEC under the Securities Exchange Act of 1934), directly or
indirectly, of common stock of the Company (or other securities convertible
into such common stock) representing a percentage greater than what the
Baum Group owns (both legally and beneficially) of the combined voting
power of all securities of the Company entitled to vote in the election of
directors; or
(c) during any period of up to 12 consecutive months, whether
commencing before or after the date hereof, the membership of the Board of
Directors of the Company changes for any reason (other than by reason of
death, disability, or scheduled retirement) so that the majority of the
Board of Directors is made up of Persons who were not directors at the
beginning of such 12 month period.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests and privileges from
time to time subject to the Liens granted to the Bank by the Collateral
Documents.
"Collateral Documents" means the Security Agreement, Mortgages, Patent
Agreement, Trademark Agreement and all other mortgages, deeds of trust, security
agreements, assignments, financing statements and other documents as shall from
time to time secure the Obligations.
"Company" is defined in the introductory paragraph hereof.
"Controlled Group" means all members of a controlled group of corporations
and all trades and businesses (whether or not incorporated) under common control
which, together with the Company or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Current Account" means an account receivable with terms requiring payment
within sixty (60) days of the original invoice date (which shall not be more
than five (5) days subsequent to the shipment date).
"Dated Jel-Sert Account" means an account receivable owing from Jel-Sert
with terms requiring payment in more than sixty (60), but not more than one
hundred twenty (120), days from the original invoice date (which shall not be
more than five (5) days subsequent to the shipment date).
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<PAGE>
"Default" means any event or condition the occurrence of which would, with
the passage of time or the giving of notice, or both, constitute an Event of
Default.
"Domestic Rate" means, for any day, the greater of (i) the rate of interest
announced by the Bank from time to time as its prime commercial rate, as in
effect on such day; and (ii) the sum of (x) the rate determined by the Bank to
be the average (rounded upwards, if necessary, to the next higher 1/100 of 1%)
of the rates per annum quoted to the Bank at approximately 10:00 a.m. (Chicago
time) (or as soon thereafter as is practicable) on such day (or, if such day is
not a Business Day, on the immediately preceding Business Day) by two or more
Federal funds brokers selected by the Bank for the sale to the Bank at face
value of Federal funds in an amount equal or comparable to the principal amount
owed to the Bank for which such rate is being determined, plus (y) 1/2 of 1%
(0.5%).
"EBITDA" means, with reference to any period, Net Income for such period
plus all amounts deducted in arriving at such Net Income amount in respect of
(i) Interest Expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets during such period on the
books of the Company and its Subsidiaries.
"Eligible Accounts" means all accounts receivable of the Company which the
Bank, in its reasonable judgment, deems to be Eligible Accounts; provided that
in no event shall an account receivable be deemed an Eligible Account unless all
representations and warranties set forth in the Collateral Documents with
respect to such account receivable are true and correct and such account
receivable:
(a) arises out of the sale by the Company of finished goods inventory
delivered to and accepted by, or out of the rendition by the Company of
services fully performed by the Company and accepted by, the account debtor
on such account receivable and such account receivable otherwise represents
a final sale;
(b) the account debtor on such account receivable is located within
the United States of America;
(c) is the valid, binding and legally enforceable obligation of the
account debtor obligated thereon and such account debtor is not (i) a
Subsidiary or an Affiliate of the Company, (ii) a shareholder, director,
officer or employee of the Company or any Subsidiary, (iii) the United
States of America, or any state or political subdivision thereof, or any
department, agency or instrumentality of any of the foregoing, unless the
Company has complied with the Assignment of Claims Act or any similar state
or local statute, as the case may be, to the satisfaction of the Bank, (iv)
a debtor under any proceeding under the United States Bankruptcy Code, as
amended, or any other comparable bankruptcy or insolvency law, or (v) an
assignor for the benefit of creditors;
(d) is not evidenced by an instrument or chattel paper unless the
same has been endorsed and delivered to the Bank;
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(e) is an asset of the Company to which it has good and marketable
title, is freely assignable, and is subject to a perfected, first priority
Lien in favor of the Bank free and clear of any other Liens;
(f) is not owing from an account debtor who is also a creditor or
supplier of the Company (provided that if any such account debtor is also a
creditor or supplier of the company, the portion of such accounts
receivable of such account debtor in excess of the aggregate amount
outstanding on the obligations of the Company and its subsidiaries to such
account debtor and its affiliates shall not be deemed ineligible by reason
of the foregoing provisions of this clause (f)), is not subject to any
offset, counterclaim or other defense with respect thereto and, with
respect to said account receivable or the contract or purchase order out of
which the same arose, no surety bond was required or given in connection
therewith;
(g) is either a Current Account or a Dated Jel-Sert Account;
(h) if a Current Account, such account receivable is not unpaid more
than ninety (90) days after the date of the applicable original invoice and
is not more than sixty (60) days past due from the original due date of the
applicable original invoice; or, if a Dated Jel-Sert Account, such account
receivable is not more than thirty (30) days past due from the original due
date of the applicable original invoice and unpaid more than one hundred
fifty (150) days after the date of the applicable original invoice;
(i) is not owed by an account debtor who is obligated on accounts
receivable owed to the Company more than 25% of the aggregate unpaid
balance of which have been past due for longer than the relevant periods
specified in subsection (h) above unless the Bank has approved the
continued eligibility thereof;
(j) would not cause the total accounts receivable owing from any one
account debtor (other than the Major Customers) and its Affiliates to
exceed 10% of all Eligible Accounts;
(k) would not cause the total accounts receivable owing from any
Major Customer and its Affiliates to exceed 25% of all Eligible Accounts;
(l) would not cause the total accounts receivable owing from any one
account debtor and its Affiliates to exceed any credit limit established
for purposes of determining eligibility hereunder by the Bank in its
reasonable judgment for such account debtor and for which the Bank has
given the Company at least five (5) Business Day's prior notice of the
establishment of any such credit limit; and
(m) does not arise from a sale to an account debtor on a bill-and-
hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any
other repurchase or return basis.
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"Eligible Inventory" means all raw materials and finished goods inventory
of the Company (other than spare parts, subassemblies, adhesives, inks or
packaging, crating and supplies inventory) which the Bank, in its reasonable
judgment, deems to be Eligible Inventory; provided that in no event shall
inventory be deemed Eligible Inventory unless all representations and warranties
set forth in the Collateral Documents with respect to such inventory are true
and correct and such inventory:
(a) is an asset of the Company to which it has good and marketable
title, is freely assignable, and is subject to a perfected, first priority
Lien in favor of the Bank free and clear of any other Liens;
(b) is located at the Company's facilities in San Leandro, California
or Akron, Ohio or DeSoto, Kansas or Raleigh, North Carolina or such other
locations as are approved in writing by the Bank and, in the case of
facilities owned by the Company subject to a mortgage or deed of trust or
facilities not owned by the Company, which are at times subject to mortgage
and/or landlord waiver agreements in form and substance satisfactory to the
Bank;
(c) is not so identified to a contract to sell that it constitutes an
account;
(d) is not obsolete or slow moving, and is of good and merchantable
quality free from any defects which might adversely affect the market value
thereof; and
(e) in the case of finished goods inventory, was produced pursuant to
binding and existing purchase orders therefor to which the Company has
title (provided that finished goods inventory consisting of flexible
packaging shall not be deemed ineligible by virtue of this clause (e) to
the extent the same constitutes a customary production overrun not more
than 10% in excess of the amount of such goods produced pursuant to
purchase orders as aforesaid).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Company and its Subsidiaries on a basis consistent
with the preparation of the Company's most recent financial statements furnished
to the Bank pursuant to Section 6.5 hereof.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than trade accounts payable arising in the ordinary course of
business which are not more than forty-five (45) days past due),
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(iii) all indebtedness secured by any Lien upon Property of such Person,
whether or not such Person has assumed or become liable for the payment of such
indebtedness, (iv) all Capitalized Lease Obligations of such Person, and (v) all
obligations of such Person on or with respect to letters of credit, bankers'
acceptances and other extensions of credit whether or not representing
obligations for borrowed money.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Company and its Subsidiaries for such period determined in accordance with GAAP.
"Interest Period" means, with respect to (a) any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending one (1), two (2) or three (3)
months thereafter as selected by the Company in its notice as provided herein;
provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(i) if any Interest Period would otherwise end on a day which is not
a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless in the case of an Interest Period for a
LIBOR Portion the result of such extension would be to carry such Interest
Period into another calendar month in which event such Interest Period
shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the Termination Date;
(iii) the interest rate to be applicable to each Portion for each
Interest Period shall apply from and including the first day of such
Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the Company will be unable to make a principal payment scheduled to
be made during such Interest Period without paying part of a LIBOR Portion
on a date other than the last day of the Interest Period applicable
thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a).
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"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loans" is defined in Section 1.2 hereof.
"Loan Documents" means this Agreement, the Revolving Credit Note, the
Applications, and the Collateral Documents.
"Major Customers" means such account debtors of the Company as the Bank
shall so designate from time to time in writing to and accepted by the Company.
"Merger" means the merger of Seal Acquisition Corporation, a Delaware
corporation, with and into Sealright Co., Inc., a Delaware corporation
("Sealright"), if such merger occurs as described in Sealright's June 9, 1998
Proxy Statement/Prospectus for such transaction.
"Mortgages" is defined in Section 4.1 hereof.
"Net Income" means, with reference to any period, the net income (or net
loss) of the Company and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP; provided, however, that there shall
be excluded from any determination of Net Income, all extraordinary gain or
extraordinary loss in each case attributable to the sale of discontinued
operations not relating to the Company's flexible packaging business.
"Obligations" means all obligations of the Company to pay principal and
interest on the Loans, all reimbursement obligations owing under the
Applications, all fees and charges payable hereunder, and all other payment
obligations of the Company arising under or in relation to any Loan Document, in
each case whether now existing or hereafter arising, due or to become due,
direct or indirect, absolute or contingent, and howsoever evidenced, held or
acquired.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Patent Agreement" is defined in Section 4.1 hereof.
"Person" means an individual, partnership, corporation, association, trust,
unincorporated organization or any other entity or organization, including a
government or agency or political subdivision thereof.
"Plan" means any employee pension benefit plan covered by Title IV of ERISA
or subject to the minimum funding standards under Section 412 of the Code that
either (i) is maintained by a member of the Controlled Group for employees of a
member of the Controlled Group or (ii) is maintained pursuant to a collective
bargaining agreement or any
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other arrangement under which more than one employer makes contributions and to
which a member of the Controlled Group is then making or accruing an obligation
to make contributions or has within the preceding five plan years made
contributions.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Commitment" is defined in Section 1.1 hereof.
"Revolving Credit Note" is defined in Section 1.2 hereof.
"SEC" means the federal Securities and Exchange Commission, and any
successor thereto.
"Security Agreement" is defined in Section 4.1 hereof.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares or other equity interests of which is at the
time directly or indirectly owned by the Company, by one or more of its
Subsidiaries, or by the Company and one or more of its Subsidiaries.
"Tangible Net Worth" means, as of any time the same is to be determined,
the total shareholders' equity (including capital stock, additional paid-in-
capital and retained earnings after deducting treasury stock, but excluding
minority interests in Subsidiaries) which would appear on the balance sheet of
the Company and its Subsidiaries determined on a consolidated basis in
accordance with GAAP minus the sum of (i) all assets which would be classified
as intangible assets under GAAP, including, without limitation, goodwill,
patents, trademarks, trade names, copyrights, franchises and deferred charges
(including, without limitation, unamortized debt discount and expense,
organization costs and deferred research and development expense) and similar
assets and (ii) the write-up of assets above cost.
"Termination Date" means June 30, 2001, or such earlier date on which the
Revolving Credit Commitment is terminated in whole pursuant to Section 3.7, 9.2
or 9.3 hereof.
"Trademark Agreement" is defined in Section 4.1 hereof.
"Unfunded Vested Liabilities" means, for any Plan at any time, the amount
(if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Welfare Plan" means a "welfare plan" as defined in Section 3(1) of ERISA.
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<PAGE>
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued and
outstanding shares of capital stock (other than directors' qualifying shares as
required by law) or other equity interests are owned by the Company and/or one
or more Wholly-Owned Subsidiaries within the meaning of this definition.
Section 5.2. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement.
Section 6. Representations and Warranties.
The Company represents and warrants to the Bank as follows:
Section 6.1. Organization and Qualification. The Company is duly
organized, validly existing and in good standing as a corporation under the laws
of the State of Delaware, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the failure to be
so licensed or qualified could have a material adverse effect on the financial
condition, Properties, business or operation of the Company or any Subsidiary.
Section 6.2. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the failure to
be so licensed or qualified could have a material adverse effect on the
financial condition, Properties, business or operation of the Company or any
Subsidiary. Schedule 6.2 hereto identifies each Subsidiary, the jurisdiction of
its incorporation or organization, as the case may be, the percentage of issued
and outstanding shares of each class of its capital stock or other equity
interests owned by the Company and the Subsidiaries and, if such percentage is
not 100% (excluding directors' qualifying shares as required by law), a
description of each class of its authorized capital stock and other equity
interests and the number of shares of each class issued and outstanding. All of
the outstanding shares of capital stock and other equity interests of each
Subsidiary are validly issued and outstanding and fully paid and nonassessable
and all such shares and other equity interests indicated on Schedule 6.2 as
owned by the Company or a Subsidiary are owned, beneficially and of record, by
the Company or such Subsidiary free and clear of all Liens. There are no
outstanding commitments or other obligations of any Subsidiary to issue, and no
options,
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warrants or other rights of any Person to acquire, any shares of any class of
capital stock or other equity interests of any Subsidiary.
Section 6.3. Corporate Authority and Validity of Obligations. The Company
has full right and authority to enter into this Agreement and the other Loan
Documents, to make the borrowings herein provided for, to issue its Revolving
Credit Note in evidence thereof, to grant to the Bank the Liens described in the
Collateral Documents, and to perform all of its obligations hereunder and under
the other Loan Documents. The Loan Documents delivered by the Company have been
duly authorized, executed and delivered by the Company and constitute valid and
binding obligations of the Company enforceable in accordance with their terms
except as enforceability may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws affecting creditors' rights generally and general
principles of equity (regardless of whether the application of such principles
is considered in a proceeding in equity or at law); and this Agreement and the
other Loan Documents do not, nor does the performance or observance by the
Company of any of the matters and things herein or therein provided for,
contravene or constitute a default under any provision of law or any judgment,
injunction, order or decree binding upon the Company or any provision of the
charter, articles of incorporation or by-laws of the Company or any covenant,
indenture or agreement of or affecting the Company or any of its Properties, or
result in the creation or imposition of any Lien on any Property of the Company.
Section 6.4. Use of Proceeds; Margin Stock. The Company shall use the
proceeds of the Loans and other extensions of credit made available hereunder
solely for its general working capital purposes and for such other legal and
proper purposes as are consistent with all applicable laws and the terms of this
Agreement. Neither the Company nor any Subsidiary is engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of any Loan or any other extension of
credit made hereunder will be used to purchase or carry any such margin stock or
to extend credit to others for the purpose of purchasing or carrying any such
margin stock.
Section 6.5. Financial Reports. The consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1997, and the related
consolidated statements of income retained earnings and cash flows of the
Company and its Subsidiaries for the fiscal year then ended, and accompanying
notes thereto, which financial statements are accompanied by the audit report of
KPMG Peat Marwick, independent public accountants, and the unaudited interim
consolidated balance sheet of the Company and its Subsidiaries as at March 31,
1998, and the related consolidated statements of income and cash flows of the
Company and its Subsidiaries for the three (3) months then ended, heretofore
furnished to the Lenders, fairly present the consolidated financial condition of
the Company and its Subsidiaries as at said dates and the consolidated results
of their operations and cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis. Neither
the Company nor any Subsidiary has contingent liabilities which are material to
it other than as indicated on such financial statements or, with respect to
future periods, on the financial statements furnished pursuant to Section 8.5
hereof.
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<PAGE>
Section 6.6. No Material Adverse Change. Since December 31, 1997, there has
been no change in the condition (financial or otherwise) or business prospects
of the Company or any Subsidiary except those occurring in the ordinary course
of business, none of which individually or in the aggregate have been materially
adverse.
Section 6.7. Full Disclosure. The statements and information furnished to
the Bank in connection with the negotiation of this Agreement and the other Loan
Documents and the commitment by the Bank to provide all or part of the financing
contemplated hereby do not contain any untrue statements of a material fact or
omit a material fact necessary to make the material statements contained herein
or therein not misleading, the Bank acknowledging that as to any projections
furnished to the Bank, the Company only represents that the same were prepared
on the basis of information and estimates the Company believed to be reasonable.
Section 6.8. Good Title. The Company and its Subsidiaries each have good
and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Company and its Subsidiaries furnished to the
Bank (except for sales of assets by the Company and its Subsidiaries in the
ordinary course of business), subject to no Liens other than such thereof as are
permitted by Section 8.11 hereof.
Section 6.9. Litigation and Other Controversies. There is no litigation or
governmental proceeding or labor controversy pending, nor to the knowledge of
the Company threatened, against the Company or any Subsidiary which if adversely
determined would (a) impair the validity or enforceability of, or impair the
ability of the Company to perform its obligations under, this Agreement or any
of the other Loan Documents or (b) result in any material adverse change in the
financial condition, Properties, business or operations of the Company or any
Subsidiary.
Section 6.10. Taxes. All tax returns required to be filed by the Company or
any Subsidiary in any jurisdiction have, in fact, been filed, and all taxes,
assessments, fees and other governmental charges upon the Company or any
Subsidiary or upon any of their respective Properties, income or franchises,
which are shown to be due and payable in such returns, have been paid. The
Company does not know of any proposed additional tax assessment against it or
its Subsidiaries for which adequate provision in accordance with GAAP has not
been made on its accounts. Adequate provisions in accordance with GAAP for taxes
on the books of the Company and each Subsidiary have been made for all open
years, and for its current fiscal period.
Section 6.11. Approvals. No authorization, consent, license, or exemption
from, or filing or registration with, any court or governmental department,
agency or instrumentality, nor any approval or consent of the stockholders of
the Company or any other Person, is or will be necessary to the valid execution,
delivery or performance by the Company of this Agreement or any other Loan
Document.
Section 6.12. Affiliate Transactions. Neither the Company nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
(other than with Wholly-Owned Subsidiaries) on terms and conditions which are
less favorable to the Company or
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<PAGE>
such Subsidiary than would be usual and customary in similar contracts or
agreements between Persons not affiliated with each other.
Section 6.13. Investment Company; Public Utility Holding Company. Neither
the Company nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, or a "public utility holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 6.14. ERISA. The Company and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any liability to the PBGC other than a
liability to the PBGC for premiums under Section 4007 of ERISA. Neither the
Company nor any Subsidiary has any contingent liabilities with respect to any
post-retirement benefits under a Welfare Plan, other than liability for
continuation coverage described in article 6 of Title I of ERISA.
Section 6.15. Compliance with Laws. The Company and its Subsidiaries each
are in compliance with the requirements of all federal, state and local laws,
rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, the Americans with Disabilities Act of 1990, and laws and
regulations establishing quality criteria and standards for air, water, land and
toxic or hazardous wastes and substances), non-compliance with which could have
a material adverse effect on the financial condition, Properties, business or
operations of the Company or any Subsidiary. Neither the Company nor any
Subsidiary has received notice to the effect that its operations are not in
compliance with any of the requirements of applicable federal, state or local
environmental, health and safety statutes and regulations or are the subject of
any governmental investigation evaluating whether any remedial action is needed
to respond to a release of any toxic or hazardous waste or substance into the
environment, which non-compliance or remedial action could have a material
adverse effect on the financial condition, Properties, business or operations of
the Company or any Subsidiary.
Section 6.16. Other Agreements. Neither the Company nor any Subsidiary is
in default under the terms of any covenant, indenture or agreement of or
affecting the Company, any Subsidiary or any of their Properties, which default,
if uncured, would have a material adverse effect on the financial condition,
Properties, business or operations of the Company or any Subsidiary.
Section 6.17. No Default. No Default or Event of Default has occurred and
is continuing.
Section 7. Conditions Precedent.
The obligation of the Bank to make any Loan or to issue any Letter of
Credit under this Agreement is subject to the following conditions precedent:
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<PAGE>
Section 7.1. All Advances. As of the time of the making of each extension
of credit (including the initial extension of credit) hereunder:
(a) each of the representations and warranties set forth in Section
6 hereof and in the other Loan Documents shall be true and correct as of
such time, except to the extent the same expressly relate to an earlier
date;
(b) the Company shall be in full compliance with all of the terms
and conditions of this Agreement and of the other Loan Documents, and no
Default or Event of Default shall have occurred and be continuing or would
occur as a result of making any such extension of credit;
(c) in the case of any request for an extension of credit under the
Revolving Credit, after giving effect to such extension of credit the
aggregate principal amount of all Loans and Letters of Credit outstanding
under this Agreement shall not exceed the lesser of (i) the Revolving
Credit Commitment and (ii) the Available Borrowing Base;
(d) in the case of the issuance of any Letter of Credit, the Bank
shall have received a properly completed Application therefor together with
the fees called for hereby; and
(e) such extension of credit shall not violate any order, judgment
or decree of any court or other authority or any provision of law or
regulation applicable to the Bank (including, without limitation,
Regulation U of the Board of Governors of the Federal Reserve System) as
then in effect.
The Company's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts set forth in subsections (a) through (e), both
inclusive, above.
Section 7.2. Initial Advance. At or prior to the making of the
initial extension of credit hereunder, the following conditions precedent shall
also have been satisfied:
(a) the Bank shall have received the following (each to be properly
executed and completed) and the same shall have been approved as to form
and substance by the Bank:
(i) the Revolving Credit Note;
(ii) the Collateral Documents, including the lockbox agreement
required pursuant to Section 4.2 hereof together with any financing
statements requested by the Bank in connection with the Collateral
Documents;
(iii) copies (executed or certified, as may be appropriate)
of all legal documents or proceedings taken in connection with the
execution and delivery
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<PAGE>
of this Agreement and the other Loan Documents to the extent the Bank or
its counsel may reasonably request;
(iv) an incumbency certificate containing the name, title and
genuine signatures of each of the Company's Authorized Representatives;
(v) evidence of insurance required by Section 8.4 hereof; and
(vi) except to the extent waived in writing by the Bank, landlords'
lien waivers in connection with the Property of the Company located in
leased premises;
(b) the Bank shall have received the initial fees called for hereby;
(c) the Bank shall have received such valuations and certifications as it
may require in order to satisfy itself as to the value of the Collateral, the
financial condition of the Company and its Subsidiaries, and the lack of
material contingent liabilities of the Company and its Subsidiaries;
(d) legal matters incident to the execution and delivery of this Agreement
and the other Loan Documents and to the transactions contemplated hereby and
thereby shall be satisfactory to the Bank and its counsel; and the Bank shall
have received the favorable written opinion of counsel for the Company in form
and substance satisfactory to the Bank and its counsel;
(e) the Bank shall have received a Borrowing Base certificate in the form
attached hereto as Exhibit C showing the computation of the Borrowing Base in
reasonable detail as of the close of business not earlier than the close of the
most recently completed calendar week prior to the making of the initial
extension of credit hereunder; and showing, among other things, Availability of
at least $4,500,000;
(f) the Merger shall have occurred and the Bank shall have received
assurances satisfactory to it of the foregoing;
(g) the Bank shall have received a good standing certificate for the
Company (dated as of the date no earlier than thirty (30) days prior to the date
hereof) from the office of the secretary of state of the state of its
incorporation and each state in which it is qualified to do business as a
foreign corporation;
(h) the Liens granted to the Bank under the Collateral Documents shall
have been perfected in a manner satisfactory to the Bank and its counsel;
(i) the Bank shall have received a title insurance policy in the amount of
$2,950,000 and issued by Stewart Title Insurance Company or another title
company to be approved by the Bank (or a binding commitment therefor) on each
parcel of real
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<PAGE>
property subject to the Lien of the California Trust Deed together with
such endorsements thereto as the Bank requests;
(j) the Bank shall have received fixed-asset appraisals on the
equipment of the Company performed by valuation consultants acceptable to
the Bank;
(k) the Bank shall have reasonably satisfied itself concerning the
environmental hazards and matters with respect to each parcel of real
property;
(l) the Bank shall have received such other agreements, instruments,
documents, certificates and opinions as the Bank may reasonably request.
Section 7.3. Surveys. No later than August 31, 1998, the Company shall
have furnished the Bank an ALTA survey prepared by a licensed surveyor on each
parcel of real property subject to the Liens of the Mortgages (which surveys
shall also state whether or not any portion of the real property is in a
federally designated flood hazard area). The Company's failure to furnish the
Bank any such survey by such deadline shall constitute an Event of Default
hereunder.
Section 7.4. Ohio Title. No later than September 30, 1998, (i) the Bank
shall have received a title insurance policy in the amount of $2,000,000 and
issued by Stewart Title Insurance Company or another title company to be
approved by the Bank (or a binding commitment therefor) on each parcel of real
property purported to be subject to the Lien of the Ohio Mortgage together with
such endorsements thereto as the Bank requests, which policy shows the Company
owns fee simple title to each parcel of such real property subject to no
exceptions to or defects in title other than those which are reasonably
acceptable to the Bank and which insures the validity and priority of the Ohio
Mortgage as a first Lien against such property with an effective date no earlier
than the date of the transfer to the Company from the County of Summit, Ohio
contemplated by Section 4.4 hereof and (ii) the Company shall take such action
and execute such instruments and documents as the Bank shall reasonably require
to confirm and assure that the Lien of the Ohio Mortgage encumbers fee simple
title to each parcel of the real property purported to be subject to the Lien
thereof.
Section 8. Covenants.
The Company agrees that, so long as any credit is available to or in use by
the Company hereunder, except to the extent compliance in any case or cases is
waived in writing by the Bank:
Section 8.1. Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall, and
shall cause each Subsidiary to, preserve and keep in force and effect all
licenses, permits and franchises necessary to the proper conduct of its
business.
Section 8.2. Maintenance of Properties. The Company shall maintain,
preserve and keep its property, plant and equipment in good repair, working
order and condition
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<PAGE>
(ordinary wear and tear excepted) and shall from time to time make all needful
and proper repairs, renewals, replacements, additions and betterments thereto so
that at all times the efficiency thereof shall be fully preserved and
maintained, and shall cause each Subsidiary to do so in respect of property,
plant and equipment owned or used by it.
Section 8.3. Taxes and Assessments. The Company shall duly pay and
discharge, and shall cause each Subsidiary to duly pay and discharge, all taxes,
rates, assessments, fees and governmental charges upon or against it or its
Properties, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves are provided therefor.
Section 8.4. Insurance. The Company shall insure and keep insured, and
shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Company shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
The Company shall in any event maintain insurance on the Collateral to the
extent required by the Collateral Documents. The Company shall upon request
furnish to the Bank a certificate setting forth in summary form the nature and
extent of the insurance maintained pursuant to this Section.
Section 8.5. Financial Reports. The Company shall, and shall cause each
Subsidiary to, maintain a standard system of accounting in accordance with GAAP
and shall furnish to the Bank and its duly authorized representatives such
information respecting the business and financial condition of the Company and
its Subsidiaries as the Bank may reasonably request; and without any request,
shall furnish to the Bank:
(a) as soon as available, and in any event no later than the last
Business Day of each calendar week, a Borrowing Base certificate in the
form attached hereto as Exhibit B showing the computation of the Borrowing
Base in reasonable detail as of the close of business on the last day of
the immediately preceding week, together with such other information as is
therein required, prepared by the Company and certified to by the President
or chief financial officer of the Company (provided, however, if and so
long as Availability has been $2,500,000 or greater at all times since the
beginning of the then most recently completed calendar week, then the
Company need not furnish the Bank a Borrowing Base certificate for such
week's close, but shall instead furnish the Bank as soon as available, and
in any event no later than five (5) days after the last day of the month in
which such week was completed, a Borrowing Base certificate showing the
computation of the Borrowing Base as of the close of business on the last
day of such month);
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<PAGE>
(b) as soon as available, and in any event within thirty (30) days
after the close of each monthly accounting period of the Company, a copy of
the consolidated and consolidating balance sheet of the Company and its
Subsidiaries as of the last day of such monthly accounting period and the
consolidated and the consolidating statements of income, retained earnings
and cash flows of the Company and its Subsidiaries for the month and for
the fiscal year-to-date period then ended, each in reasonable detail
showing in comparative form the figures for the corresponding date and
period in the previous fiscal year as well as showing in comparative form
the year-to-date comparisons to the Company's current business plan,
prepared by the Company in accordance with GAAP (but without requisite
notes commonly associated with year-end financial statements) and certified
to by the President or chief financial officer of the Company;
(c) within the period provided in subsection (b) above, an accounts
receivable aging and accounts payable listing together with an inventory
report, each in reasonable detail prepared by the Company and certified to
by the President or chief financial officer of the Company;
(d) as soon as available, and in any event within one hundred twenty
(120) days after the last day of each annual accounting period of the
Company, a copy of the consolidated and consolidating balance sheet of the
Company and its Subsidiaries as of the close of such period and the
consolidated and consolidating statements of income, retained earnings and
cash flows of the Company and its Subsidiaries for the period then ended,
and accompanying notes thereto, each in reasonable detail showing in
comparative form the figures for the previous fiscal year, accompanied by
an unqualified opinion thereon of KPMG Peat Marwick or another firm of
independent public accountants of recognized national standing, selected by
the Company and satisfactory to the Bank, to the effect that the financial
statements have been prepared in accordance with GAAP and present fairly in
accordance with GAAP the consolidated financial condition of the Company
and its Subsidiaries as of the close of such fiscal year and the results of
their operations and cash flows for the fiscal year then ended and that an
examination of such accounts in connection with such financial statements
has been made in accordance with generally accepted auditing standards and,
accordingly, such examination included such tests of the accounting records
and such other auditing procedures as were considered necessary in the
circumstances;
(e) within the period provided in subsection (d) above, the written
statement of the accountants who certified the audit report thereby
required that in the course of their audit they have obtained no knowledge
of any Default or Event of Default, or, if such accountants have obtained
knowledge of any such Default or Event of Default, they shall disclose in
such statement the nature and period of the existence thereof;
(f) promptly after receipt thereof, any additional written reports,
management letters or other detailed information contained in writing
concerning significant aspects of the Company's or any Subsidiary's
operations and financial affairs given to it by its independent public
accountants;
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<PAGE>
(g) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports the Company sends generally to
its shareholders, and copies of all other regular, periodic and special
reports and all registration statements the Company files with the SEC or
any successor thereto (including without limitation Forms 10-Q and 10-K),
or with any national securities exchanges;
(h) as soon as available, and in any event within thirty (30) days
prior to the end of each fiscal year of the Company, a copy of the
Company's consolidated and consolidating business plan for the following
fiscal year, such business plan to show the Company's projected
consolidated and consolidating revenues, expenses, and balance sheet on
month-by-month basis in reasonable detail, prepared by the Company and in
form reasonably satisfactory to the Bank; and
(i) promptly after knowledge thereof shall have come to the attention
of any responsible officer of the Company, written notice of any threatened
or pending litigation or governmental proceeding or labor controversy
against the Company or any Subsidiary which, if adversely determined, would
materially and adversely affect the financial condition, Properties,
business or operations of the Company or any Subsidiary or of the
occurrence of any Default or Event of Default hereunder.
Each of the financial statements furnished to the Bank pursuant to subsections
(b) and (d) of this Section 8.5 shall be accompanied by a written certificate in
the form attached hereto as Exhibit C signed by the President or chief financial
officer of the Company to the effect that to the best of such officer's
knowledge and belief no Default or Event of Default has occurred during the
period covered by such statements or, if any such Default or Event of Default
has occurred during such period, setting forth a description of such Default or
Event of Default and specifying the action, if any, taken by the Company to
remedy the same. Such certificate shall also set forth the calculations
supporting such statements in respect of Sections 8.7, 8.8 and 8.9 of this
Agreement.
Section 8.6. Inspection; Appraisals. The Company shall, and shall cause
each Subsidiary to, permit the Bank and its duly authorized representatives and
agents to visit and inspect any of the Properties, corporate books and financial
records of the Company and each Subsidiary, to examine and make copies of the
books of accounts and other financial records of the Company and each
Subsidiary, and to discuss the affairs, finances and accounts of the Company and
each Subsidiary with, and to be advised as to the same by, its officers,
employees and independent public accountants (and by this provision the Company
authorizes such accountants to discuss with the Bank the finances and affairs of
the Company and of each Subsidiary) at such reasonable times and reasonable
intervals as the Bank may designate. The Bank may obtain (or direct the Company
to obtain and provide to the Bank) updated appraisals on the Company's fixed
assets (including its equipment and/or real property), or portion thereof, from
time to time as the Bank may designate, which appraisal reports shall in each
case be prepared by an appraiser acceptable to the Bank and be in such format
and contain such detail as the Bank may reasonably request. The costs and
expenses incurred in obtaining any such appraisal shall in each case be borne by
the Company
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<PAGE>
(whether obtained by the Bank or by the Company), provided that prior to the
occurrence of a Default or Event of Default, the Company shall not be required
to pay for more than one appraisal of the Company's equipment per calendar year
and one appraisal of the Company's real property per calendar year. The Company
shall, at the Bank's request, provide, at the Company's expense, updated
environmental questionnaires concerning activities and conditions affecting the
real property owned, leased or operated by the Company or any of its
Subsidiaries and/or environmental reports prepared for the Bank by an
environmental consultant or an environmental engineering firm acceptable to the
Bank concerning any real property owned, leased or operated by the Company or
any of its Subsidiaries.
Section 8.7. Tangible Net Worth. The Company shall, at all times
during each of the periods specified below, maintain Tangible Net Worth at not
less than:
<TABLE>
<CAPTION>
Tangible Net Worth
From and To and shall not be
including including less than:
<S> <C> <C>
The date hereof December 31, 1999 $38,000,000
January 1, 2000 At all times thereafter $40,000,000
</TABLE>
Section 8.8. EBITDA. (a) Quarterly Test. The Company shall, as of the
last day of each calendar month ending during any one of the periods specified
below (commencing September 30, 1998), maintain EBITDA for the three calendar
months then ended of not less than:
<TABLE>
<CAPTION>
From and To and EBITDA shall not be
including including less than:
<S> <C> <C>
9/30/98 12/15/98 $ 0
12/16/98 3/15/99 $ 500,000
3/16/99 6/15/99 $ 600,000
6/16/99 9/15/99 $ 700,000
9/16/99 12/15/99 $ 850,000
12/16/99 At all times thereafter $1,000,000
</TABLE>
(b) Annual Test. The Company shall, as of December 31, 1999 and December
31, 2000, maintain EBITDA for the fiscal year of the Company ended on or about
such date of not less than $3,500,000 and $4,000,000, respectively.
Section 8.9. Capital Expenditures. The Company shall not, nor shall it
permit any Subsidiary to, expend or become obligated for capital expenditures
(as determined in accordance with GAAP) in an aggregate amount during any fiscal
year of the Company in excess of the amount set forth for such year below:
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<PAGE>
FOR THE YEAR ENDING ON: CAPITAL EXPENDITURES
SHALL NOT BE MORE THAN:
12/31/98 $3,000,000
12/31/99 $3,500,000
12/31/00 $5,500,000
Section 8.10. Indebtedness for Borrowed Money. The Company shall not, nor
shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations of the Company owing to the Bank and other
indebtedness and obligations of the Company or any Subsidiary from time to
time owing to the Bank;
(b) purchase money indebtedness and Capitalized Lease Obligations
secured by Liens permitted by Section 8.11(e) hereof in an aggregate amount
not to exceed $500,000 at any one time outstanding; and
(c) unsecured indebtedness not otherwise permitted by this Section
aggregating not more than $50,000 at any one time outstanding.
Section 8.11. Liens. The Company shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Company or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar
charges, good faith cash deposits in connection with tenders, contracts or
leases to which the Company or any Subsidiary is a party or other cash
deposits required to be made in the ordinary course of business, provided
in each case that the obligation is not for borrowed money and that the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate proceedings which prevent enforcement of the
matter under contest and adequate reserves have been established therefor;
(b) mechanics', workmen's, materialmen's, landlords', carriers', or
other similar Liens arising in the ordinary course of business with respect
to obligations which are not due or which are being contested in good faith
by appropriate proceedings which prevent enforcement of the matter under
contest;
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(c) the pledge of assets for the purpose of securing an appeal, stay
or discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest
and penalties thereon, if any, shall not be in excess of $100,000 at any
one time outstanding;
(d) the Liens granted in favor of the Bank by the Collateral
Documents;
(e) Liens on property of the Company or any of its Subsidiaries
created solely for the purpose of securing indebtedness permitted by
Section 8.10(b) hereof, representing or incurred to finance, refinance or
refund the purchase price of Property, provided that no such Lien shall
extend to or cover other Property of the Company or such Subsidiary other
than the respective Property so acquired, and the principal amount of
indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such Property;
(f) Liens created by judgments which do not constitute an event of
default under Section 9.1(h) hereof;
(g) survey exceptions or encumbrances, easements or reservations, or
rights of others for rights-of-way, utilities and other similar purposes,
or rights of lessors or sublessors of real property leased by the Company
or any Subsidiary, or zoning or other restrictions as to the use of real
properties which are necessary for the conduct of the activities of the
Company and any Subsidiary of the Company or which customarily exist on
properties of corporations engaged in similar activities and similarly
situated and which do not in any event materially impair their use in the
operation of the business of the Company or any Subsidiary of the Company;
and
(h) any Lien existing on any Property (other than receivables and
inventory) prior to the acquisition thereof by the Company or any
Subsidiary, provided that such Lien is not created in contemplation of or
in connection with such acquisition and the aggregate principal amount of
Indebtedness at any time outstanding, secured by such Liens, shall not
exceed $50,000.
Section 8.12. Investments, Acquisitions, Loans, Advances and Guaranties.
The Company shall not, nor shall it permit any Subsidiary to, directly or
indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances and other similar cash advances made to employees in
the ordinary course of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person or division
thereof, or be or become liable as endorser, guarantor, surety or otherwise for
any debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of another, or subordinate any claim or demand
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it may have to the claim or demand of any other Person; provided, however, that
the foregoing shall not apply to nor operate to prevent:
(a) investments in direct obligations of the United States of America
or of any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America, provided
that any such obligations shall mature within one year of the date of
issuance thereof;
(b) investments in commercial paper rated at least P-1 by Moody's
Investors Services, Inc. and at least A-1 by Standard & Poor's Corporation
maturing within 270 days of the date of issuance thereof;
(c) investments in certificates of deposit issued by any United
States commercial bank having capital and surplus of not less than
$100,000,000 which have a maturity of one year or less;
(d) endorsement of items for deposit or collection of commercial
paper received in the ordinary course of business; and
(e) investments, loans, advances and guaranties not otherwise
permitted by this Section aggregating not more than $50,000 at any one time
outstanding.
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 8.12, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby.
Section 8.13. Mergers, Consolidations and Sales. The Company shall not,
nor shall it permit any Subsidiary to, be a party to any merger or
consolidation, or sell, transfer, lease or otherwise dispose of all or any
substantial part of its Property, including any disposition of Property as part
of a sale and leaseback transaction, or in any event sell or discount (with or
without recourse) any of its notes or accounts receivable; provided, however,
that this Section shall not apply to nor operate to prevent the Company or any
Subsidiary from selling its inventory in the ordinary course of its business.
Any sale, transfer, lease or other disposition of more than five percent (5%) of
the Company's total assets shall be deemed "substantial" for purposes of this
Section.
Section 8.14. Maintenance of Subsidiaries. The Company shall not assign,
sell or transfer, or permit any Subsidiary to issue, assign, sell or transfer,
any shares of capital stock of a Subsidiary; provided that the foregoing shall
not operate to prevent the issuance, sale and transfer to any person of any
shares of capital stock of a Subsidiary solely for the purpose of qualifying,
and to the extent legally necessary to qualify, such person as a director of
such Subsidiary.
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Section 8.15. Dividends and Certain Other Restricted Payments. The
Company shall not during any fiscal year (a) declare or pay any dividends on or
make any other distributions in respect of any class or series of its capital
stock (other than dividends payable solely in its capital stock) or (b) directly
or indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock; provided, however, that the Company may expend up to $200,000 to redeem
fractional shares resulting from the exchange of stock occurring pursuant to an
Agreement and Plan of Merger dated as of March 2, 1998, which provides for,
among other things, the partial redemption of common stock of Sealright Co.,
Inc. ("Sealright") which will be converted into the right of the shareholders of
Sealright to receive a certain amount of cash and one-half share of common stock
of the Company.
Section 8.16. ERISA. The Company shall, and shall cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed might result in the
imposition of a Lien against any of its Properties. The Company shall, and shall
cause each Subsidiary to, promptly notify the Bank of (i) the occurrence of any
reportable event (as defined in ERISA) with respect to a Plan, (ii) receipt of
any notice from the PBGC of its intention to seek termination of any Plan or
appointment of a trustee therefor, (iii) its intention to terminate or withdraw
from any Plan, and (iv) the occurrence of any event with respect to any Plan
which would result in the incurrence by the Company or any Subsidiary of any
material liability, fine or penalty, or any material increase in the contingent
liability of the Company or any Subsidiary with respect to any post-retirement
Welfare Plan benefit.
Section 8.17. Compliance with Laws. The Company shall, and shall cause
each Subsidiary to, comply in all respects with the requirements of all federal,
state and local laws, rules, regulations, ordinances and orders applicable to or
pertaining to their Properties or business operations, non-compliance with which
could have a material adverse effect on the financial condition, Properties,
business or operations of the Company or any Subsidiary or could result in a
Lien upon any of their Property.
Section 8.18. Burdensome Contracts With Affiliates. The Company shall
not, nor shall it permit any Subsidiary to, enter into any contract, agreement
or business arrangement with any of its Affiliates on terms and conditions which
are less favorable to the Company or such Subsidiary than would be usual and
customary in similar contracts, agreements or business arrangements between
Persons not affiliated with each other.
Section 8.19. No Changes in Fiscal Year. Neither the Company nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Bank.
Section 8.20. Formation of Subsidiaries. Except for existing Subsidiaries
designated on Schedule 6.2 hereto, the Company shall not, nor shall it permit
any Subsidiary to, form or acquire any Subsidiary without the prior written
consent of the Bank.
Section 8.21. Change in the Nature of Business. The Company shall not,
and shall not permit any Subsidiary to, engage in any business or activity if as
a result the general nature
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of the business of the Company or any Subsidiary would be changed in any
material respect from the general nature of the business engaged in by the
Company or such Subsidiary on the date of this Agreement. Without limiting the
generality of the foregoing, the Company shall cause Venture Packaging, Inc. to
remain inactive until such Subsidiary is dissolved.
Section 9. Events of Default and Remedies.
Section 9.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of any
Obligation payable by the Company hereunder or under any other Loan
Document (whether at the stated maturity thereof or at any other time
provided for in this Agreement), or default shall occur in the payment when
due of any other indebtedness or obligation (whether direct, contingent or
otherwise) of the Company owing to the Bank; or
(b) default in the observance or performance of any covenant set
forth in Sections 8.5 or 8.7 hereof which is not remedied within ten (10)
days after the earlier of (i) the date on which such failure shall first
become known to any officer of the Company or (ii) written notice thereof
is given to the Company by the Bank; or
(c) default in the observance or performance of any covenant set
forth in Sections 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.13, 8.14 or 8.15
hereof or of any provision of any Loan Document requiring the maintenance
of insurance on the Collateral subject thereto or dealing with the use or
remittance of proceeds of Collateral; or
(d) default in the observance or performance of any other provision
hereof or of any other Loan Document which is not remedied within thirty
(30) days after the earlier of (i) the date on which such failure shall
first become known to any officer of the Company or (ii) written notice
thereof is given to the Company by the Bank; or
(e) any representation or warranty made by the Company herein or in
any other Loan Document, or in any statement or certificate furnished by it
pursuant hereto or thereto, or in connection with any extension of credit
made hereunder, proves untrue in any material respect as of the date of the
issuance or making thereof; or
(f) any event occurs or condition exists (other than those described
in subsections (a) through (e) above) which is specified as an event of
default under any of the other Loan Documents, or any of the Loan Documents
shall for any reason not be or shall cease to be in full force and effect,
or any of the Loan Documents is declared to be null and void, or any of the
Collateral Documents shall for any reason fail to create a valid and
perfected first priority Lien in favor of the Bank in any Collateral
purported to be covered thereby except as expressly permitted by the terms
thereof; or
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(g) default shall occur under any Indebtedness for Borrowed Money
issued, assumed or guaranteed by the Company or any Subsidiary, or under
any indenture, agreement or other instrument under which the same may be
issued, and such default shall continue for a period of time sufficient to
permit the acceleration of the maturity of any such Indebtedness for
Borrowed Money (whether or not such maturity is in fact accelerated), or
any such Indebtedness for Borrowed Money shall not be paid when due
(whether by lapse of time, acceleration or otherwise); or
(h) any judgment or judgments, writ or writs, or warrant or warrants
of attachment, or any similar process or processes in an aggregate amount
in excess of $250,000 shall be entered or filed against the Company or any
Subsidiary or against any of their Property and which remains unvacated,
unbonded, unstayed or unsatisfied for a period of thirty (30) days; or
(i) the Company or any member of its Controlled Group shall fail to
pay when due an amount or amounts aggregating in excess $100,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $100,000 (collectively, a
"Material Plan") shall be filed under Title IV of ERISA by the Company or
any other member of its Controlled Group, any plan administrator or any
combination of the foregoing; or the PBGC shall institute proceedings under
Title IV of ERISA to terminate or to cause a trustee to be appointed to
administer any Material Plan or a proceeding shall be instituted by a
fiduciary of any Material Plan against the Company or any member of its
Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and such
proceeding shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(j) dissolution or termination of existence of the Company or any
Subsidiary; or
(k) there shall occur any material adverse change in the condition
(financial or otherwise) of the Company or any Subsidiary; or
(l) a Change of Control Event shall occur; or
(m) the Company or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States
Bankruptcy Code, as amended, (ii) not pay, or admit in writing its
inability to pay, its debts generally as they become due, (iii) make an
assignment for the benefit of creditors, (iv) apply for, seek, consent to,
or acquiesce in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any substantial part of
its Property, (v) institute any proceeding seeking to have entered against
it an order for relief under the United States Bankruptcy Code, as amended,
to adjudicate it insolvent, or seeking dissolution, winding up,
liquidation, reorganization, arrangement, adjustment or composition of it
or its debts under any law relating to bankruptcy, insolvency or
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reorganization or relief of debtors or fail to file an answer or other
pleading denying the material allegations of any such proceeding filed
against it, (vi) take any corporate action in furtherance of any matter
described in parts (i) through (v) above, or (vii) fail to contest in good
faith any appointment or proceeding described in Section 9.1(n) hereof;
(n) a custodian, receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any Subsidiary or any
substantial part of any of their Property, or a proceeding described in
Section 9.1(m)(v) shall be instituted against the Company or any
Subsidiary, and such appointment continues undischarged or such proceeding
continues undismissed or unstayed for a period of 60 days.
Section 9.2. Non-Bankruptcy Defaults. When any Event of Default described
in subsection (a) through (l), both inclusive, of Section 9.1 has occurred and
is continuing, the Bank may, by notice to the Company, take one or more of the
following actions:
(a) terminate the obligation of the Bank to extend any further credit
hereunder on the date (which may be the date thereof) stated in such
notice;
(b) declare the principal of and the accrued interest on the
Revolving Credit Note to be forthwith due and payable and thereupon the
Revolving Credit Note, including both principal and interest and all fees,
charges and other Obligations payable hereunder and under the other Loan
Documents, shall be and become immediately due and payable without further
demand, presentment, protest or notice of any kind; and
(c) enforce any and all rights and remedies available to it under the
Loan Documents or applicable law.
Section 9.3. Bankruptcy Defaults. When any Event of Default described in
subsection (m) or (n) of Section 9.1 has occurred and is continuing, then the
Revolving Credit Note, including both principal and interest, and all fees,
charges and other Obligations payable hereunder and under the other Loan
Documents, shall immediately become due and payable without presentment, demand,
protest or notice of any kind, and the obligation of the Bank to extend further
credit pursuant to any of the terms hereof shall immediately terminate. In
addition, the Bank may exercise any and all remedies available to it under the
Loan Documents or applicable law.
Section 9.4. Collateral for Undrawn Letters of Credit. When any Event of
Default, other than an Event of Default described in subsections (m) or (n) of
Section 9.1, has occurred and is continuing, the Company shall, upon demand of
the Bank, and when any Event of Default described in subsections (m) or (n) of
Section 9.1 has occurred the Company shall, without notice or demand from the
Bank, immediately pay to the Bank the full amount of each Letter of Credit then
outstanding, the Company agreeing to immediately make such payment and
acknowledging and agreeing that the Bank would not have an adequate remedy at
law for failure of the Company to honor any such demand and that the
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Bank shall have the right to require the Company to specifically perform such
undertaking whether or not any draws have been made under any such Letters of
Credit.
Section 10. Miscellaneous.
Section 10.1. Non-Business Days. If any payment hereunder becomes due and
payable on a day which is not a Business Day, the due date of such payment shall
be extended to the next succeeding Business Day on which date such payment shall
be due and payable. In the case of any payment of principal falling due on a day
which is not a Business Day, interest on such principal amount shall continue to
accrue during such extension at the rate per annum then in effect, which accrued
amount shall be due and payable on the next scheduled date for the payment of
interest.
Section 10.2. No Waiver, Cumulative Remedies. No delay or failure on the
part of the Bank in the exercise of any power or right shall operate as a waiver
thereof or as an acquiescence in any default, nor shall any single or partial
exercise of any power or right preclude any other or further exercise thereof or
the exercise of any other power or right. The rights and remedies hereunder of
the Bank are cumulative to, and not exclusive of, any rights or remedies which
it would otherwise have.
Section 10.3. Amendments, Etc. No amendment, modification, termination or
waiver of any provision of this Agreement or of any other Loan Document, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank. No notice
to or demand on the Company in any case shall entitle the Company to any other
or further notice or demand in similar or other circumstances.
Section 10.4. Costs and Expenses; Environmental Indemnity. (a) The Company
agrees to pay on demand the costs and expenses of the Bank in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
other Loan Documents and the other instruments and documents to be delivered
thereunder, and in connection with the recording and filing of any of the
foregoing as well as in connection with lien searches from time to time obtained
by the Bank in its administration of the credit facilities provided for herein,
and in connection with the transactions contemplated hereby or thereby, and in
connection with any consents hereunder and any waivers or amendments hereto or
thereto, including the fees and expenses of Messrs. Chapman and Cutler, counsel
for the Bank, with respect to all of the foregoing (whether or not the
transactions contemplated hereby are consummated). The Company further agrees to
pay to the Bank or any other holder of the Obligations all costs and expenses
(including court costs and attorneys' fees), if any, incurred or paid by the
Bank or any other holder of the Obligations in connection with any Default or
Event of Default or in connection with the enforcement of this Agreement or any
other Loan Document or any other instrument or document delivered thereunder.
The Company further agrees to indemnify the Bank, and any security trustee, and
their respective directors, officers and employees, against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor, whether or not
the indemnified person is a party thereto)
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which any of them may pay or incur arising out of or relating to any Loan
Document or any of the transactions contemplated thereby or the direct or
indirect application or proposed application of the proceeds of any extension of
credit made available hereunder, other than those which arise from the gross
negligence or willful misconduct of the party claiming indemnification. The
Company, upon demand by the Bank at any time, shall reimburse the Bank for any
legal or other expenses incurred in connection with investigating or defending
against any of the foregoing except if the same is directly due to the gross
negligence or willful misconduct of the party to be indemnified. The obligations
of the Company under this Section 10.4 shall survive the termination of this
Agreement.
(b) The Company unconditionally agrees to forever indemnify, defend and
hold harmless, and covenants not to sue for any claim for contribution against,
the Bank for any damages, costs, loss or expense, including without limitation,
response, remedial or removal costs, arising out of any of the following: (i)
any presence, release, threatened release or disposal of any hazardous or toxic
substance or petroleum by the Company or any Subsidiary or otherwise occurring
on or with respect to its property, (ii) the operation or violation of any
environmental law, whether federal, state, or local, and any regulations
promulgated thereunder, by the Company or any Subsidiary or otherwise occurring
on or with respect to its property, (iii) any claim for personal injury or
property damage in connection with the Company or any Subsidiary or otherwise
occurring on or with respect to its property, and (iv) the inaccuracy or breach
of any environmental representation, warranty or covenant by the Company or any
Subsidiary made herein or in any loan agreement, promissory note, mortgage, deed
of trust, security agreement or any other instrument or document evidencing or
securing any indebtedness, obligations or liabilities of the Company owing to
the Bank or setting forth terms and conditions applicable thereto or otherwise
relating thereto, except for damages arising from the Bank's willful misconduct
or gross negligence. This indemnification shall survive the payment and
satisfaction of all indebtedness, obligations and liabilities of the Company
owing to the Bank and the termination of this agreement, and shall remain in
force beyond the expiration of any applicable statute of limitations and payment
or satisfaction in full of any single claim under this indemnification. This
indemnification shall be binding upon the successors and assigns of the Company
and shall inure to the benefit of the Bank and its directors, officers,
employees, agents, and collateral trustees, and their successors and assigns.
Section 10.5. Documentary Taxes. The Company agrees to pay on demand any
documentary, stamp or similar taxes payable in respect of this Agreement or any
other Loan Document, including interest and penalties, in the event any such
taxes are assessed, irrespective of when such assessment is made and whether or
not any credit is then in use or available hereunder.
Section 10.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
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Section 10.7. Notices. Except as otherwise specified herein, all notices
hereunder shall be in writing (including cable, telecopy or telex) and shall be
given to the relevant party at its address, telecopier number or telex number
set forth below, or such other address, telecopier number or telex number as
such party may hereafter specify by notice to the other given by United States
certified or registered mail, by telecopy or by other telecommunication device
capable of creating a written record of such notice and its receipt. Notices
hereunder shall be addressed:
to the Company at:
JPS Packaging Company
9201 Packaging Drive
Desoto, Kansas 66018
Attention: John T. Carper
Telephone: (913) 583-8730
Telecopy: (913) 583-8732
to the Bank at:
Harris Trust and Savings Bank
P.O. Box 755
111 West Monroe Street
Chicago, Illinois 60690
Attention: Commercial Finance Group
Telephone: (312) 461-2116
Telecopy: (312) 765-1641
Telex: 254157
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 10.7 and a confirmation of such telecopy has been
received by the sender, (ii) if given by telex, when such telex is transmitted
to the telex number specified in this Section 10.7 and the answerback is
received by sender, (iii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid, or (iv) if given by any other means,
when delivered at the addresses specified in this Section 10.7; provided that
any notice given pursuant to Section 1 hereof shall be effective only upon
receipt.
Section 10.8. Participations. The Bank may grant participations in its
extensions of credit hereunder to any other bank or other lending institution (a
"Participant"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement or the other Loan Documents and (ii) no sale
of such a participation in extensions of credit hereunder shall in any manner
relieve the Bank of its obligations hereunder.
Section 10.9. Construction. The provisions of this Agreement relating to
Subsidiaries shall only apply during such times as the Company has one or more
Subsidiaries. Nothing
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contained herein shall be deemed or construed to permit any act or omission
which is prohibited by the terms of any of the other Loan Documents, the
covenants and agreements contained herein being in addition to and not in
substitution for the covenants and agreements contained in the other Loan
Documents.
Section 10.10. Headings. Section headings used in this Agreement are for
convenience of reference only and are not a part of this Agreement for any other
purpose.
Section 10.11. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 10.12. Counterparts. This Agreement may be executed in any number
of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 10.13. Binding Nature, Governing Law, Etc. This Agreement shall be
binding upon the Company and its successors and assigns, and shall inure to the
benefit of the Bank and the benefit of its successors and assigns, including any
subsequent holder of the Obligations. The Company may not assign its rights
hereunder without the written consent of the Bank. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby. This Agreement and the rights and duties of the parties
hereto shall be governed by, and construed in accordance with, the internal laws
of the State of Illinois without regard to principles of conflicts of laws.
Section 10.14. Submission to Jurisdiction; Waiver of Jury Trial. The
Company hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. The Company irrevocably waives, to
the fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient forum. The Company and the Bank each hereby irrevocably waive
any and all right to trial by jury in any legal proceeding arising out of or
relating to any Loan Document or the transactions contemplated thereby.
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Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 30th day of June, 1998.
JPS PACKAGING COMPANY
By: /s/ John T. Carper
----------------------------------
Name: John T. Carper
-----------------------------
Title: President
----------------------------
Accepted and agreed to in Chicago, Illinois as of the day and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By: /s/ William J. Kane
----------------------------------
Name: William J. Kane
-----------------------------
Title: Vice President
----------------------------
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Exhibit A
JPS Packaging Company
Revolving Credit Note
Chicago, Illinois
$15,000,000 June 30, 1998
On the Termination Date, for value received, the undersigned, JPS Packaging
Company, a Delaware corporation (the "Company"), hereby promises to pay to the
order of Harris Trust And Savings Bank (the "Bank") at its office at 111 West
Monroe Street, Chicago, Illinois, the principal sum of (i) Fifteen Million and
no/100 Dollars ($15,000,000), or (ii) such lesser amount as may at the time of
the maturity hereof, whether by acceleration or otherwise, be the aggregate
unpaid principal amount of all Loans owing from the Company to the Bank under
the Revolving Credit provided for in the Credit Agreement hereinafter mentioned.
This Note evidences Loans made and to be made to the Company by the Bank
under the Revolving Credit provided for under that certain Credit Agreement
dated as of June 30, 1998 between the Company and the Bank (said Credit
Agreement, as the same may be amended, modified or restated from time to time,
being referred to herein as the "Credit Agreement"), and the Company hereby
promises to pay interest at the office specified above on each Loan evidenced
hereby at the rates and at the times and in the manner specified therefor in the
Credit Agreement.
Each Loan made against this Note and any repayment of principal hereon
shall be endorsed by the holder hereof on a schedule to this Note or recorded on
the books and records of the holder hereof (provided that such entries shall be
endorsed on a schedule to this Note prior to any negotiation hereof), and the
Company agrees that in any action or proceeding instituted to collect or enforce
collection of this Note, the entries endorsed on a schedule to this Note or
recorded on the books and records of the holder hereof shall be prima facie
evidence of the unpaid principal balance of this Note.
This Note is issued by the Company under the terms and provisions of the
Credit Agreement and is secured by, among other things, the Collateral
Documents, and this Note and the holder hereof are entitled to all of the
benefits and security provided for thereby or referred to therein, to which
reference is hereby made for a statement thereof. This Note may be declared to
be, or be and become, due prior to its expressed maturity, voluntary prepayments
may be made hereon, and certain prepayments are required to be made hereon, all
in the events, on the terms and with the effects provided in the Credit
Agreement. All capitalized terms used herein without definition shall have the
same meanings herein as such terms are defined in the Credit Agreement.
-46-
<PAGE>
The Company hereby promises to pay all costs and expenses (including
attorneys' fees) suffered or incurred by the holder hereof in collecting this
Note or enforcing any rights in any collateral therefor. The Company hereby
waives presentment for payment and demand. This Note shall be construed in
accordance with, and governed by, the internal laws of the State of Illinois
without regard to principles of conflicts of laws.
JPS PACKAGING COMPANY
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
-2-
<PAGE>
Harris Bank
Exhibit B
Borrowing Base Certificate
Report Number Date
------------ -----------------
Total Approved Revolving Line $ Maximum Inventory Loan $
--------- ---------
<TABLE>
<CAPTION>
======================================================================
Accounts Receivable Update
- ----------------------------------------------------------------------
<S> <C>
Additions:
(A) New Sales (See Attached)
----------
(B) Miscellaneous (+)
----------
Total Gross Additions (2)
----------
Deductions:
(A) Collections (See Attached)
----------
(B) Discounts Allowed
----------
(C) Credit Memos
----------
(D) Miscellaneous (-)
----------
Total Gross Deductions (3)
----------
</TABLE>
======================================================================
<TABLE>
<CAPTION>
======================================================================
Loan Balance Update
- ----------------------------------------------------------------------
<S> <C>
Loan Outstanding as of
-------
From Previous Report #
----------
Less Collections
----------
Additional Advance Requested
----------
New Loan Balance This Report
----------
Plus L/C or Other Reserves
----------
Total Loans and Other Liabilities
Carry to Line 12 ----------
======================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================
COLLATERAL STATUS
- ---------------------------------------------------------------------------------------
Accounts Raw Matrl. Finished GDS.
Receivbl. Inventory Inventory
- ---------------------------------------------------------------------------------------
As of Date MM/DD/YY MM/DD/YY MM/DD/YY
-------- -------- --------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
(1) Previous Collaterial
Balance
- ---------------------------------------------------------------------------------------
(2) + Additions
- ---------------------------------------------------------------------------------------
(3) - Collections/Deductions
- ---------------------------------------------------------------------------------------
(4) = New Collateral Balance
- ---------------------------------------------------------------------------------------
(5) Less Total Ineligibles
as of _______
- ---------------------------------------------------------------------------------------
(6) = Eligible Collateral
- ---------------------------------------------------------------------------------------
(7) x Rate of Advance 85% 60%* 50%*
- ---------------------------------------------------------------------------------------
(8) = Loan Value (A) (B) (C)
- ---------------------------------------------------------------------------------------
(9) Less $500,000 (D) ($500,000)
- ---------------------------------------------------------------------------------------
(10) Total Loan Value =
A/R + Inv - $500,000;
A + B + C - $500,000
- ---------------------------------------------------------------------------------------
(11) Maximum Borrowing Limit =
Less of Total Loan Value
OR Total Approved Revolving Line
- ---------------------------------------------------------------------------------------
(12) Less Total Loans and Other Liabilities
- ---------------------------------------------------------------------------------------
(13) NEW AVAILABILITY
(Line 11 minus 12)
=======================================================================================
</TABLE>
Pursuant to the terms of the Credit Agreement dated as of June 30, 1998 between
us (the "Credit Agreement"), we submit this Borrowing Base Certificate to you
and certify that the information set forth above and on any attachments to this
Certificate is true, correct and complete as of the date of this Certificate.
Borrower: JPS Packaging Company
Authorized Signer:
---------------------------------
* An overall inventory cap on raw material and finished goods inventory of
$5,000,000.
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
This Compliance Certificate is furnished to Harris Trust and Savings Bank
(the "Bank") pursuant to that certain Credit Agreement dated as of June 30,
1998, by and between JPS Packaging Company (the "Company") and the Bank (the
"Credit Agreement"). Unless otherwise defined herein, the terms used in this
Compliance Certificate have the meanings ascribed thereto in the Credit
Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ___________________ of the Company;
2. I have reviewed the terms of the Credit Agreement and I have made,
or have caused to be made under my supervision, a detailed review of the
transactions and conditions of the Company and its Subsidiaries during the
accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or the occurrence of any
event which constitutes a Default or Event of Default during or at the end of
the accounting period covered by the attached financial statements or as of the
date of this Certificate, except as set forth below;
4. The financial statements required by Section 8.5 of the Credit
Agreement and being furnished to you concurrently with this certificate are, to
the best of my knowledge, true, correct and complete as of the dates and for the
periods covered thereby; and
5. The Attachment hereto sets forth financial data and computations
evidencing the Company's compliance with certain covenants of the Credit
Agreement, all of which data and computations, to the best of my knowledge,
fairly present the consolidated financial condition of the Company and its
Subsidiaries as at said dates and the consolidated results of their operations
and cash flows for the periods then ended in conformity with generally accepted
accounting principles applied on a consistent basis.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Company has taken, is taking, or proposes to
take with respect to each such condition or event:
<PAGE>
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
The foregoing certifications, together with the computations set forth in
the Attachment hereto and the financial statements delivered with this
Certificate in support hereof, are made and delivered this _________ day of
____________, 1998.
JPS PACKAGING COMPANY
By________________________________
Name:___________________________
Title:__________________________
-2-
<PAGE>
ATTACHMENT TO COMPLIANCE CERTIFICATE
JPS PACKAGING COMPANY
Compliance Calculations for Credit Agreement
Dated as of June 30, 1998
Calculations as of _______________, 19__
- --------------------------------------------------------------------------------
A. Tangible Net Worth (Section 8.7)
1. Total shareholder's equity $__________
A1
2. Sum of:
(i) intangibles $___________
(ii) write-up of assets $___________ $__________
A2
3. Line A1 minus Line A2 $
==========
(Tangible Net Worth) A3
4. Line A3 must be greater than or equal to $__________
B. EBITDA (Section 8.8)*
1. Net Income for past 3 months $__________
B1
2. Interest Expense for past 3 months $__________
B2
3. Federal, state and local income $__________
taxes for past 3 months B3
4. Depreciation and Amortization for past 3 months $__________
B4
- ----------------------
*EBITDA is also tested at 12/31/99 and 12/31/00 using the prior 12 month
periods.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
5. Add Lines B1, B2, B3 and B4 $
(EBITDA) =========
B5
6. Line B5 must not be less than $
=========
C. Capital Expenditures (Section 8.9)
----------------------------------
1. Capital Expenditures for month $
---------
C1
2. Capital Expenditures fiscal year to date $
---------
C2
3. Line C2 must be less than or equal to $
---------
D. Indebtedness for Borrowed Money (Section 8.10)
----------------------------------------------
1. Purchase Money Indebtedness $
---------
D1
2. Capitalized Lease Obligations $
---------
D2
3. Add Lines D1 and D2 $
=========
D3
4. Line D3 must be less than or equal to $
---------
E. Operating Leases (Section 8.14)
-------------------------------
1. Operating Leases for month $
---------
E1
2. Operating Leases fiscal year to date $
---------
E2
3. Line E2 must be less than or equal to $
---------
</TABLE>
-2-
<PAGE>
SCHEDULE 6.2
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF PERCENTAGE
NAME INCORPORATION OWNERSHIP
<S> <C> <C>
Venture Packaging, Inc. North Carolina 100%
</TABLE>
<PAGE>
Exhibit 10(b)
ADOPTION AGREEMENT FOR
----------------------
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION PLAN
-----------------------------------
(Profit Sharing - Nonstandardized)
ADOPTION OF PLAN
- ----------------
[X] Adoption - With the consent of State Street Bank and Trust Company (the
"sponsor"), the undersigned JPS Packaging Company (the "employer") hereby adopts
as a profit sharing plan for its employees the form of plan known as State
Street Solutions Prototype Defined Contribution Plan, and hereby agrees to
become a party to the Trust Agreement under State Street Solutions Prototype
Defined Contribution Trust (the "trust"), which forms a part of the plan.
[ ] Amendment of State Street Solutions Prototype Defined Contribution Plan-
_________________________________________________(the "employer") previously has
adopted a profit sharing plan in the form of State Street Solutions Prototype
Defined Contribution Plan and the execution of this adoption agreement
constitutes an amendment of that plan.
[ ] Restatement of Other Profit Sharing Plan - With the consent of State
Street Bank and Trust Company (the "sponsor"), the undersigned
____________________________ (the "employer") hereby adopts as a profit sharing
plan for its employees the form of plan known as State Street Solutions
Prototype Defined Contribution Plan, and hereby agrees to become a party to the
Trust Agreement under State Street Solutions Prototype Defined Contribution
Trust (the "trust"), which forms a part of the plan.
Name of Plan. The name of this plan as adopted by the employer is the JPS
Packaging Company Savings Plan (the "plan").
With respect to the variable features contained in the plan, the employer hereby
makes the following selections granted under the provisions of the plan:
-1-
<PAGE>
GENERAL INFORMATION (Sections 1 and 2 of the plan)
1. Adopting Entity. The employer adopts the plan as: (subsection 1.2)
[x] (a) a single employer plan.
[ ] (b) a plan of a controlled group of corporations or trades or
businesses under common control.
[ ] (c) a plan of an affiliated service group.
Item (a) should be selected if the plan is being adopted by the employer
only. If the plan is adopted by one or more related employers in addition
to the employer, item (b) or (c) should be selected and the related
employers adopting the plan should be specified below:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
The adopting employers and the employer are referred to herein collectively
as the "employer."
2. Employer's Address. The employer's principal business address is:
JPS Packaging Company
---------------------------------------------
4200 Somerset, Suite 208
---------------------------------------------
Prairie Village, Kansas 66208
---------------------------------------------
(subsection 1.4)
3. Employer's Name and ID Number. The employer's name and employer
identification number that will be used for filing annual return/reports
is:
JPS Packaging Company 31-1311495
--------------------------------------------------------------.
-2-
<PAGE>
4. Effective Date. The "effective date" of the initial adoption of this plan or
this plan amendment is July 1 ,1998 (subsection 2.6). If this is an
amendment and restatement of a prior profit sharing plan, the initial
effective date of the prior plan was ________, 19 __ .
5. Employer's Fiscal Year. The last month and day of the employer's fiscal year
is 12/31 (subsection 2.11).
6. Plan Year. The "plan year" of the plan shall be (subsection 2.21):
[x] (a) A calendar year.
[ ] (b) The fiscal year of the employer.
[ ] (c) The fiscal year ending [specify month and day].
[x] (d) A short plan year beginning July 1, 1998 and ending December
31, 1998; and thereafter the plan year shall be as indicated in
(a), (b) or (c) above.
7. Plan Administrator. The plan administrator (subsection 1.3) of the plan is
The Committee appointed by the Board of Directors of JPS Packaging Company
(fill in the name(s) of the individuals or entity that is responsible for
administration of the plan) and such other persons or entity as the employer
shall appoint from time to time. The employer will notify the trustee of any
change in the administrator.
-3-
<PAGE>
COMPENSATION
- ------------
8. Exclusions from Compensation. For purposes of subsection 2.3 of the
plan, the definition of compensation:
(a) [x] shall include
[ ] shall not include
all employer contributions made pursuant to a compensation deferral (or
reduction) election which are not includible in the gross income of
the employee under Sections 125, 402(e)(3), 402(h), 457(b), 403(b) or
414(h)(2) of the Code; and
(b) [ ] shall
[ ] shall not
exclude the following items from the compensation of an employee:
-----------------------------------------------------------------------
[If you exclude items from compensation under (b) above, the plan will be
required to demonstrate that the resulting definition of compensation is
non-discriminatory.]
-4-
<PAGE>
ELIGIBILITY TO PARTICIPATE
- --------------------------
9. Entry Date. The entry date (subsection 2.9) is: [Select one]
[x] (a) The first day of each month.
[ ] (b) The first day of each plan year quarter.
[ ] (c) The first day of each plan year and the first day of the
seventh month of each plan year.
[ ] (d) The last day of the sixth month of each plan year and the last
day of each plan year.
[ ] (e) The first day of each plan year, provided the plan year begins
on the first day of a month. [If you select this option, the age
requirement in item 10(a) may not exceed 20-1/2 years and the
service requirement in item 10(b) may not exceed 1/2 year.]
[ ] (f) The date that the employee satisfies the plan's eligibility
requirements.
10. Eligibility Requirements. Subject to the provisions of subsection 3.1 of the
plan, each employee of the employer will be eligible to participate in the
plan if the employee satisfies all of the following eligibility
requirements:
(a) Minimum Age. The employee has attained at least age 21 years (specify
21 or less - or specify that "no" age requirement shall apply).
(subparagraph 3.1(a))
(b) Minimum Service. The employee has completed at least 1 year(s) of
service (specify 2 or less). If you permit compensation deferral
contributions, the employee will be eligible to participate in the
compensation deferral (and matching contribution, if any) arrangement
under this plan if the employee completes at least 1 year of service
(specify 1 or less). (subparagraph 3.1(b))
Note: The 1 year eligibility restriction will be waived for those who
wish to make 401(k) deferrals.
-5-
<PAGE>
(c) Eligible Classes. The employee belongs to at least one of the groups
or classes of employees specified below (subparagraph 3.1(c)):
[ ] All employees.
[x] All employees who are not included in a unit of employees covered
by be a collective bargaining agreement between employee
representatives and one or more employers, if retirement benefits
were the subject of good faith bargaining between the employer
and such employee representatives, if two percent or less of the
employees who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of the Income Tax
Regulations, and if participation in the plan has not been
extended to such unit of employees.
[ ] Salary based employees
[ ] Hourly based employees
[ ] Commissioned salesmen
[ ] Other (specify)
-------------------------------------------------
----------------------------------------------------------------.
[If you select any of the last four choices in item (c) above, the plan must
satisfy on a continuing basis the non-discrimination test of Section
401(a)(4), the participation test of Section 401(a)(26) and the coverage
test of Section 410(b) of the Internal Revenue Code. These participation
and coverage tests will automatically be satisfied if you select only the
first or second choice in (c) above.]
-6-
<PAGE>
YEAR OF SERVICE
- ---------------
11. Eligibility Service. A "year of service" (subsection 2.28) for purposes of
determining eligibility to participate in the plan shall be computed in
accordance with: [Select one]
[x] (a) Hours of service completed in a year, in accordance with
subparagraph 2.28(a) of the plan.
[ ] (b) Elapsed time, in accordance with subparagraph 2.28(b) of the
plan.
12. Vesting Service. A "year of service" (subsection 2.28) for purposes of
determining vesting under the plan shall be computed in accordance with:
[Select one]
[x] (a) Hours of service completed in a plan year, in accordance with
subparagraph 2.28(a) of the plan.
[ ] (b) Elapsed time, in accordance with subparagraph 2.28(b) of the
plan.
This item must be completed even though the number "0" has been specified in
item 10(b).
13. Hours of Service. [Do not complete item 13 if you selected both 11(b) and
12(b) above]. If item 11(a) or 12(a) has been specified, an employee shall
be credited with hours of service (subsection 2.13), as follows: [Select
one]
[x] (a) Actual hours of service for which an employee is paid or
entitled to payment.
[ ] (b) 10 hours of service for each day or portion of a day.
[ ] (c) 45 hours of service for each week or portion of a week.
[ ] (d) 190 hours of service for each month or portion of a month.
-7-
<PAGE>
COMPENSATION DEFERRAL CONTRIBUTIONS
- -----------------------------------
14. Compensation Deferral Contributions Permitted. Compensation deferral
contributions by participants under subsection 4.1 of the plan are
permitted.
[x] (a) Yes. A participant's compensation deferral contribution
election: [Select one]
[x] (i) shall
[ ] (ii) shall not
apply to cash bonuses.
[ ] (b) No.
15. Compensation Deferral Contribution Limits. Between 1% and 15% of a
participant's compensation (specify minimum and maximum whole percentages)
may be deferred by a participant and contributed to the plan as
compensation deferral contributions in accordance with subsections 4.1 and
6.2 of the plan. Compensation deferral contributions withheld from
participants' compensation are deemed to be made by the employer.
Compensation deferral contributions may not exceed the dollar limit in
effect under Section 402(g) of the Internal Revenue Code for any taxable
year, and excess deferrals under Section 402(g) must be remedied as a
matter of plan qualification.
The plan contains limitations on the percentage of compensation that
"highly compensated employees" may elect to defer as compared to all other
participants (subsection 4.5). The plan also contains a limitation ($9,500
for 1998, and indexed to the cost-of-living) on the compensation deferral
contributions made by any participant for any calendar year (subsection
4.4). You may wish to take these limitations into consideration when
selecting the maximum and minimum percentages above. Under no circumstances
may a salary reduction agreement or other deferral mechanism be adopted
retroactively.
-8-
<PAGE>
16. Compensation Deferral Contribution Changes. A participant may elect to
change the rate of his compensation deferral contributions under subsection 4.3
of the plan as of the first payroll period beginning on or after: [Select one]
[ ] (a) The first day of any plan year.
[ ] (b) The first day of any plan year and the first day of the seventh
month of any plan year.
[ ] (c) The first day of any plan year quarter.
[x] (d) The first day of any month.
VOLUNTARY PARTICIPANT CONTRIBUTIONS
- -----------------------------------
17. Voluntary Contributions Permitted. If the employer has specified that
participants may make compensation deferral contributions under the plan,
participants also may elect to make voluntary contributions under
subsection 5.1 of the plan. Note: If you maintain another qualified
retirement plan that permits voluntary participant contributions, you must
check "No".
[x] (a) Yes. A participant's voluntary contribution election:
[Select one]
[x] (i) shall
[ ] (ii) shall not
apply to cash bonuses.
[ ] (b) No.
-9-
<PAGE>
18. Voluntary Contribution Limits. If the employer has specified in item 17
above that participants may elect to make voluntary contributions, such
contributions may be between one and 7 percent of their compensation
(specify a whole number, up to 10 percent).
The plan contains limitations on the percentage of compensation that
"highly compensated employees" may elect to contribute (when added together
with any employer matching contributions allocated to such participants),
as compared to all participants (subsection 4.6). You may wish to take
these limitations into account when setting the maximum percentage in this
item 18, unless you have prohibited highly compensated employees from
making contributions by item 29 below.
19. Voluntary Contribution Changes. If the employer has specified in item 17
above that participants may elect to make voluntary contributions, a
participant may elect to change the rate of his voluntary contributions
under subsection 5.3 of the plan as of the first payroll period beginning
on or after: [select one]
[ ] (a) The first day of any plan year.
[ ] (b) The first day of any plan year and the first day of the seventh
month of any plan year.
[ ] (c) The first day of any plan year quarter.
[x] (d) The first day of any month.
MATCHING CONTRIBUTIONS
- ----------------------
20. Employer Matching Contributions Permitted. In addition to the compensation
deferral contributions under subsection 6.2 of the plan, the employer will
make a matching contribution on behalf of each participant under subsection
6.3 of the plan.
[x] Yes.
[ ] No.
-10-
<PAGE>
21. Amount of Matching Contribution. If the employer has specified that it
will make employer matching contributions on behalf of participants, such
matching contributions will be in an amount determined as follows: [Select one]
[ ] (a) ___% of the compensation deferral contributions made by each
participant.
[x] (b) At a percentage of the compensation deferral contributions to be
determined solely in the discretion of the employer in a
nondiscriminatory manner.
[If (a) or (b) above is selected, the employer will not match compensation
deferral contributions in excess of $_______ or 5% of each participant's
compensation -- specify either a dollar amount or a whole percentage which
is between 1% and the highest percentage specified in item 15.]
[ ] (c) $________ for each participant who made compensation deferral
contributions of at least ____% of compensation.
[ ] (d) ____% of the compensation of each participant who made
compensation deferral contributions of at least ___% of
compensation.
[ ] (e) In an amount to be determined solely in the discretion of the
employer in a nondiscriminatory manner, to be allocated to those
participants who made compensation deferral contributions of at
least ____% of compensation, pro rata, according to the
compensation paid to them by the employer.
[ ] (f) ____% of that portion of the compensation deferral contributions
made by each participant which does not exceed ____% of the
participant's compensation; plus ____% of that portion, if any,
of the compensation deferral contributions made by each
participant which exceeds ____% of the participant's compensation
but does not exceed ____% of the participant's compensation; plus
____% of that portion, if any, of the compensation deferral
contributions made by each
-11-
<PAGE>
participant which exceeds ____% of the participant's compensation
but does not exceed ____% of the participant's compensation.
Subsection 4.6 of the plan contains limitations on the percentage of
compensation which a highly compensated participant can have credited to
his account through employer matching contributions; and Section 17 of the
plan contains limitations on the total amount which may be credited to a
participant's account for any year.
22. Compensation in Initial Year of Participation. A participant's
compensation which is used in the allocation of employer matching
contributions under item 21(d) or (e) shall: [Select one]
[ ] (a) exclude compensation before becoming a participant.
[x] (b) exclude compensation before meeting the plan's eligibility
requirements.
[ ] (c) include compensation in the first plan year of participation.
23. Employees Eligible to Receive Matching Contribution. Employer matching
contributions made for each plan year shall be allocated and credited to
the employer matching contribution accounts of the following participants:
[Select one]
[ ] (a) Participants who were employed by the employer during that plan
year, other than participants who resigned or were dismissed
prior to completing ____ (not more than 1,000) hours of service
during that plan year.
[x] (b) Participants who were employed by the employer during that plan
year.
[ ] (c) Participants who were employed by the employer on the last day of
that plan year.
-12-
<PAGE>
[ ] (d) Participants who both were employed by the employer on the last
day of that plan year and had completed at least ____ (not more
than 1,000) hours of service during that plan year.
[Selection of more than 501 hours in item 23(a) or selection of item 23(c)
or 23(d) could result in discrimination in operation and plan
disqualification.]
24. Qualified Matching Contributions. Employer matching contributions made
under item 21 may constitute "qualified matching contributions" or the
employer may make additional matching contributions which constitute
"qualified matching contributions" that are fully vested and subject to
distribution restrictions.
[ ] (a) Yes. The portion of the employer matching contributions which
constitutes qualified matching contributions shall be:
[ ] (i) All matching contributions.
[ ] (ii) Only the portion of the matching contributions required to
satisfy the ADP test under subsection 4.5 of the plan.
Qualified matching contributions shall be allocated to:
[ ] (iii) All participants.
[ ] (iv) All participants who are not highly compensated employees.
[x] (b) No.
-13-
<PAGE>
EMPLOYER CONTRIBUTIONS
- ----------------------
25. Allocation Formula. Employer contributions shall be allocated to
participants' accounts as follows:
[x] (a) Compensation Formula: According to participants' compensation as
provided in subparagraph 8.7(a) of the plan.
[ ] (b) Permitted Disparity Formula: According to a formula which
emphasizes compensation in excess of the taxable wage base, as
provided in subparagraph 8.7(b) of the plan. The integration
level shall be:
[ ] (i) $__________________ (a dollar amount less than the taxable
wage base).
[ ] (ii) ____% (up to 100%) of the taxable wage base in effect for
the calendar year in which the plan year begins.
If the employer has adopted this plan as a paired plan with State Street
Solutions Prototype Defined Contribution Plan (Money Purchase -
Nonstandardized), only one of the plans may provide for permitted disparity
under item (b) above.
26. Compensation in Initial Year of Participation. A participant's compensation
which is used in the allocation of employer contributions shall: [Select
one]
[ ] (a) exclude compensation before becoming a participant.
[ ] (b) exclude compensation before meeting the plan's eligibility
requirements.
[x] (c) include all compensation in the first plan year of participation.
-14-
<PAGE>
27. Employees Eligible to Receive Employer Contribution. Employer contributions
made for each plan year (and forfeitures, if applicable) shall be allocated
and credited to the employer contribution accounts of the following
participants: [Select one]
[ ] (a) Participants who were employed by the employer during that plan
year, other than participants who resigned or were dismissed
prior to completing ________ (not more than 1,000) hours of
service during that plan year.
[ ] (b) Participants who were employed by the employer during that plan
year.
[X] (c) Participants who were employed by the employer on the last day of
that plan year.
[ ] (d) Participants who both were employed by the employer on the last
day of that plan year and had completed at least ____ (not more
than 1,000) hours of service during that plan year.
[Selection of more than 501 hours in item 27(a) or selection of item 27(c)
or 27(d) could result in discrimination in operation and plan
disqualification.]
28. Qualified Nonelective Contributions. Employer contributions made under
subparagraph 6.1(b) of the plan may constitute "qualified nonelective
contributions" or the employer may make additional contributions which
constitute "qualified nonelective contributions" that are fully vested and
subject to distribution restrictions.
[x] (a) Yes. The portion of the employer contributions which constitutes
qualified nonelective contributions shall be:
[ ] (i) All employer contributions.
[x] (ii) Only the portion of the employer contributions required to
satisfy the ADP test under subsection 4.5 of the plan and
the ACP test under subsection 4.6 of the plan.
Qualified nonelective contributions shall be allocated to:
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<PAGE>
[ ] (iii) All participants.
[x] (iv) All participants who are not highly compensated employees.
[ ] (b) No.
HIGHLY COMPENSATED EMPLOYEES
- ----------------------------
29. Contributions by Highly Compensated Employees Prohibited
--------------------------------------------------------
[ ] (a) Compensation Deferral Contributions. Participants who are deemed
to be "highly compensated employees" under subsection 2.12 of the
plan (including certain family members) shall not be permitted to
make compensation deferral contributions under the plan
(subsection 4.7).
[ ] (b) Voluntary Contributions. Participants who are deemed to be
"highly compensated employees" under subsection 2.12 of the plan
(including certain family members) shall not be permitted to make
voluntary contributions under the plan (subsection 4.7).
ACCOUNTING
- ----------
30. Regular Accounting Date. A "regular accounting date" (under subsection 8.2)
for purposes of the plan shall mean: [Select one]
[x] (a) The last day of each plan year quarter.
[ ] (b) The last day of the six month of each plan year and the last day
of each plan year.
[ ] (c) The last day of each plan year.
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<PAGE>
31. Application of Forfeitures. Forfeitures arising during a plan year (except
forfeitures arising under subsection 4.6) under subsection 10.2 of the plan
shall be applied as follows:
[ ] (a) Forfeitures shall be allocated to participants, in accordance
with subparagraph 8.8(a), or
[x] (b) Forfeitures shall be applied to reduce employer matching
contributions, if any, and then employer contributions required
under the plan, in accordance with subparagraph 8.8(b) of the
plan.
PLAN INVESTMENTS
- ----------------
32. Investment Options.
------------------
[ ] (a) Investment options shall not be offered.
[ ] (b) Investment Options - All Accounts. Participants shall direct the
investment of their account balances under the plan among the
various investment options established by agreement between the
employer and the trustee.
[x] (c) Investment Options - Specified Accounts Only. Participants shall
direct the investment of the following accounts under the plan
among the various investment options established by agreement
between the employer and the trustee (select one or more):
[x] (i) Compensation deferral contribution account.
[x] (ii) Voluntary contribution account.
[x] (iii) Rollover account.
[x] (iv) Matching contribution account.*
[x] (v) Employer contribution account.
The administrator shall direct the investment among the investment
options of the remaining accounts under the plan.
* As of 3/1/99, all new matching contributions will be employer
directed.
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<PAGE>
33. Investment Increments. If the employer has specified that participants may
direct the investment of their accounts under item 32(b) or (c) above, such
directions must be in increments of: [Select one]
[ ] (a) 10% and multiples thereof.
[x] (b) 5% (specify a whole number).
VESTING AND DISTRIBUTION OF BENEFITS
- ------------------------------------
34. Vesting of Employer Contributions. A participant's vested percentage
(subsection 10.2) in employer contributions will be determined under the
vesting period selected below: [Select one]
[ ] (a) 100% vested at all times (this box must be checked if a number
greater than "1" has been specified in item 10(b) or if you
elected to treat all employer contributions as "qualified
nonelective contributions" in item 28(a)(i) above for purposes of
the anti-discrimination tests described in subsections 4.5 and
4.6 of the plan).
[ ] (b) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year ___%
1 year but less than 2 ___%
2 years but less than 3 ___%
3 years but less than 4 ___% (20% or more)
4 years but less than 5 ___% (40% or more)
5 years but less than 6 ___% (60% or more)
6 years but less than 7 ___% (80% or more)
7 or more years 100%
[X] (c) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0%
1 year but less than 2 20%
2 years but less than 3 40%
3 years but less than 4 60%
4 years but less than 5 80%
5 or more years 100%
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<PAGE>
If the plan becomes top-heavy (as defined in subsection 19.2 of the plan), the
vesting period must meet the requirements of subsection 19.5 of the plan.
35. Vesting of Matching Contributions. If employer matching contributions may
be made under item 20, a participant's vested percentage in employer
matching contributions will be determined under the vesting period selected
below: [Select one if applicable]
[ ] (a) 100% vested at all times (this box must be checked if a number
greater than "1" has been specified in item 10(b) or if you
elected to treat all employer matching contributions as
"qualified matching contributions" in item 24(a)(i) above for
purposes of the anti-discrimination test described in subsection
4.5 of the plan).
[ ] (b) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0 %
1 year but less than 2 ___%
2 years but less than 3 ___%
3 years but less than 4 ___% (20% or more)
4 years but less than 5 ___% (40% or more)
5 years but less than 6 ___% (60% or more)
6 years but less than 7 ___% (80% or more)
7 or more years ___%
[x] (c) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0 %
1 year but less than 2 20%
2 years but less than 3 40%
3 years but less than 4 60%
4 years but less than 5 80%
5 or more years 100%
36. Service Before Plan's Establishment Excluded. Years of service earned prior
to establishment of the plan shall be disregarded for purposes of
determining vesting under the plan:
[ ] Yes.
[x] No.
-19-
<PAGE>
37. Service Before Age 18 Excluded. Years of service earned prior to attaining
age 18 years shall be disregarded for purposes of determining vesting under
the plan:
[x] Yes.
[ ] No.
38. Normal Retirement Age. For each participant, normal retirement age is:
[x] (a) Age 65 (not to exceed 65)
----
[ ] (b) The later of:
(i) age ____ (not to exceed 65)
(ii) the ____ (not to exceed 5th) anniversary of the participation
commencement date.
39. Early Retirement. The plan provides for early retirement at or after age
______ years and after completing ____ years of service.
[ ] Yes. (If you select this option, you must fill in the early retirement
age and service requirement above.)
[x] No.
40. Joint and Survivor Annuity. Benefits under the plan are subject to the
joint and survivor annuity requirements. (Once you respond to this
statement and select the optional form(s) of benefit, you cannot later
amend the plan or adoption agreement to change your response or remove the
option as to existing accounts.)
(See Attachment)
[X] (a) No. Lump sum is normal form of benefit. Optional form(s) of
benefit, if any:
[X] Installment payment.
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<PAGE>
[ ] Joint and survivor annuity. (If you select this option, the joint
and survivor annuity requirements of Section 11 of the plan will
apply to this form of benefit).
[ ] (b) Yes. Joint and survivor annuity is normal form of benefit.
Optional form(s) of benefit:
[ ] (i) Lump sum payment.
[ ] (ii) Installment payment.
41. Installments for Beneficiaries. Participants may select an installment
method of payment for their beneficiaries.
[x] Yes.
[ ] No.
42. Protected Benefits.
[x] Benefits under the plan are payable under another distribution option
that is a "protected benefit" under Section 411(d)(6) of the Internal
Revenue Code. [Check this box if the plan is a restatement,
continuation, transferee, etc. of another plan under which benefits
were payable in a form not selected in items 40 and 41. Attach a
separate page identifying the protected distribution option(s).]
LOANS AND WITHDRAWALS
43. Loans. Loans to participants under subsection 12.4 of the plan are
permitted.
[x] Yes.
[ ] No.
44. Hardship Withdrawals. Hardship withdrawals of participants' compensation
deferral contributions shall be permitted (subsection 12.5).
[x] Yes.
[ ] No.
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<PAGE>
45. Pre-Termination Distributions. In addition to withdrawals described in item
44 and subsection 12.1 of the plan, if any, pre-termination distributions
of account balances that are 100% vested (subsection 12.2) are permitted.
[Select one]
[ ] (a) No.
[ ] (b) Yes, after attaining age 59-1/2.
[ ] (c) Yes [except for compensation deferral contribution accounts and
employer contributions treated as qualified matching
contributions or qualified nonelective employer contributions
(and earnings thereon), if any] after both attaining age ____ and
completing ____ years of participation in the plan (specify 5 or
more).
[x] (d) Yes, see Attachment.
LIMITATION ON ALLOCATIONS (Section 17 of the plan)
46. Other Qualified Plans Maintained. If the employer maintains or ever
maintained another qualified plan in which any participant in this plan is
(or was) a participant or could become a participant, the employer must
complete this item if it desires to apply the Code Section 415 limits in a
manner other than as provided in Section 17 of the plan. The employer must
also complete this item if it maintains a welfare benefit fund, as defined
in Section 419(e) of the Code, or an individual medical account, as defined
in Section 415(l)(2) of the Code, under which amounts are treated as annual
additions with respect to any participant.
[ ] (a) Other Defined Contribution Plan(s) Maintained. If the employer
maintains other qualified defined contribution plans other than a
master or prototype plan, any excess amount shall be considered
attributable to amounts last allocated to such other plans and
shall be handled in the manner provided for in such plans as
follows:
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<PAGE>
[Provide the method under which the plans will limit total annual additions
to the maximum permissible amount, and will properly reduce any excess
amounts in a manner that precludes employer discretion.]
[ ] (b) Defined Benefit Plan(s) Maintained. If the employer maintains, or
at any time maintained, one or more qualified defined benefit
plans and the sum of the defined contribution fraction and the
defined benefit fraction with respect to any participant for a
limitation year exceeds 1.0, the 1.0 limitation under subsection
17.11 will be met by limiting the annual addition to this plan as
provided for in subsection 17.4 for the limitation years so that
the sum of the defined contribution fraction and the defined
benefit fraction do not exceed 1.0. If in any limitation year the
1.0 limitation would be exceeded, the limitation will be
satisfied as follows:
[Provide the method under which the 1.0 limitation will be satisfied, in a
manner that precludes employer discretion.]
PREDECESSOR EMPLOYER
47. Employment with Predecessor Employer.
[x] Employment with the following "predecessor employers" (as described in
subsection 2.22) shall be considered employment with the employer for
the periods and purposes of the plan set forth below:
Service credit is given for purposes of eligibility and vesting for
employment with Jaite Packaging, Venture Packaging, Indopak dba, Sealright of
Australia
MINIMUM CONTRIBUTION (TOP-HEAVY) (Section 19 of the plan)
48. Defined Benefit Plan Maintained - 4% Minimum. The minimum employer
contribution figure specified under subsections 19.6 and 19.8 of the plan
will be 4 percent in order to preserve the method of calculating the
defined benefit and defined contribution fractions under subsection 17.12
of the plan.
[x] Yes.
[ ] No.
-23-
<PAGE>
49. Minimum Benefit Under Other Employer Plan. The minimum employer
contribution or benefits required under Section 19 of the plan will be
provided to participants under another plan or plans maintained by the
employer.
[ ] Yes.
[x] No.
The plan provides that, in the event the plan becomes top heavy, a minimum
contribution will be made by the employer, unless you specify that such
contributions (or a minimum benefit) will be provided for all participants
under another plan maintained by the employer.
50. Defined Benefit Plan - Actuarial Assumptions. If the employer maintains any
defined benefit plan, the actuarial assumptions utilized under such plan
are as follows (subparagraph 19.2(c) of the plan):
N/A
[Provide the interest rate and mortality factors used to determine the
present value of accrued benefits. If the employer does not maintain a
defined benefit plan, specify "N/A".]
The failure to properly complete the elections in this Adoption Agreement could
result in disqualification of the plan.
Only those elections that are completed shall be considered as provisions
applicable to and forming a part of the plan.
This Adoption Agreement may only be used in conjunction with basic plan document
01.
Terms used in this Adoption Agreement which are defined in State Street
Solutions Prototype Defined Contribution Plan shall have the meaning given them
therein.
The employer hereby acknowledges that it is adopting this profit sharing plan as
part of State Street Solutions Prototype Defined Contribution Plan Program (the
"program"). To the extent that federal legislation or other changes in the law
relating to employee benefit plans requires that the plan be amended, the
-24-
<PAGE>
sponsor will amend the plan and furnish amended copies to the employer for
adoption as long as the employer is part of the program. The sponsor will inform
the employer of any amendment made to the plan or of the discontinuance or
abandonment of the plan by the sponsor. If the employer declines to adopt an
amendment furnished by the sponsor to comply with legal changes, the employer
will no longer be considered part of the program. The employer may amend the
plan or trust by giving notice to the sponsor in writing, but such amendment
will remove the employer from the program. The preceding sentence shall not
apply to the employer's addition of overriding plan language to this adoption
agreement, where such language is necessary to satisfy Sections 415 or 416 of
the Internal Revenue Code because of the required aggregation of multiple plans;
provided that the employer must obtain a determination letter in order to
continue reliance on the plan's qualified status. The sponsor reserves the right
to discontinue the Prototype Plan at any time by giving the employer 60 days'
prior written notice.
The sponsor's address and telephone number are State Street Bank and Trust
Company, Two International Place, Boston, Massachusetts 02110, (617) 654-6008.
The employer may not rely on the notification letter issued to the sponsor by
the Internal Revenue Service with respect to the qualification of the plan and
should apply to the appropriate Key District Director of the Internal Revenue
Service for a determination as to the qualification of the plan as adopted by
the employer.
* * *
-25-
<PAGE>
The undersigned duly authorized owner, partner, or officer of the
employer hereby executes the plan and trust on behalf of the employer.
Dated this day of , 199 .
---- -------------------------- ---
----------------------------------
Employer
By
--------------------------------
Its
-----------------------------
The undersigned hereby consents to the adoption of the plan by the
employer.
Dated this day of , 199 .
---- -------------------------- ---
STATE STREET BANK AND TRUST COMPANY
By
--------------------------------
Its
-----------------------------
-26-
<PAGE>
Exhibit 10(c)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of the 14th day of
September, 1998, by and between JPS PACKAGING COMPANY (the "Company") and BRIAN
STEVENSON ("Executive").
RECITALS
A. The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware and is
engaged principally in the design and manufacture of flexible packaging
products.
B. Executive is duly qualified to render services in connection with
the business of the Company.
C. The Company has offered to employ Executive on the basis set
forth in this Agreement, and Executive has indicated his willingness to accept
said offer.
D. The parties believe that it is in their best interests to provide
for the specific terms and conditions of Executive's employment.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
as hereinafter set forth, the parties agree as follows:
1. Employment.
The Company agrees to employ Executive as Chief Executive Officer of
the Company pursuant to the terms set forth below, and Executive agrees to
accept such employment with the Company in accordance with the terms and
conditions set forth in this Agreement.
2. Term.
The term of this Agreement shall begin on September 14, 1998, and
shall continue until either party gives the other thirty (30) days written
notice of its/his election to terminate this Agreement.
3. Compensation.
For services rendered by Executive pursuant to this Agreement, Executive
shall receive from the Company the following:
(a) Base Compensation. Executive's starting monthly salary shall
be $20,833.33 ($250,000, annualized amount ["Base Compensation"]). During
the term of this Agreement, the Compensation Committee of the Board of the
Directors of the Company (the "Board") (or, if no such committee or similar
committee exists, the entire
<PAGE>
Board) (the "Compensation Committee") shall review the performance of
Executive, which review shall serve as the basis for determining the amount
of increase, if any, of Executive's Base Compensation. The amount and terms
of any such adjustments shall be in the discretion of the Compensation
Committee.
(b) Bonuses/Incentive Compensation. Upon commencement of
employment with the Company, Executive shall receive a one-time bonus
payment of $75,000. As an executive officer of the Company, Executive will
be eligible to participate in the Company's Incentive Compensation Plan
(the "Incentive Plan"), which shall be jointly developed by Executive and
the Compensation Committee. Under the Incentive Plan, Executive will be
eligible to receive annual incentive compensation in an amount up to his
current Base Compensation, including any adjustments thereto. Pursuant to
the Incentive Plan, the Compensation Committee will annually establish both
the Company-wide goal and individual target awards. Notwithstanding the
foregoing, payment of bonuses under the Incentive Plan for any year is
dependent upon Executive's employment with the Company at the end of such
calendar year.
(c) Stock Options. Subject to the terms and conditions of the
JPS Packaging Company 1998 Long-Term Compensation Plan (the "Plan") and the
Stock Option Agreement between the Company and Executive attached hereto as
Exhibit A (the "Option Agreement"), the Company will grant to Executive an
"incentive stock option" (as defined in the Plan) to purchase 200,000
shares of the common stock of the Company (the "Option"). The terms and
conditions of the Option are set forth in the Option Agreement, which is
incorporated herein and made part of this Agreement. Additionally,
Executive will receive additional stock options to purchase 25,000 shares
of the Company's common stock at the end of each of the calendar years 1999
and 2000 (an aggregate of 50,000 shares), provided, that specified and
mutually agreeable financial targets for the Company are met or exceeded in
each such calendar year. Thereafter, Executive will be eligible to
participate in any incentive stock option plan then in place for employees
and officers of the Company.
4. Benefits.
Executive shall be entitled to participate in all benefit programs and
incentive compensation plans that the Company makes generally available to its
executive officers, subject to Executive's meeting the eligibility provisions
thereof and, if applicable, as determined by the Compensation Committee. With
respect to the Company's qualified benefit plans (including the Company's
Savings Plan), Executive shall receive credit (for purposes of qualification,
vesting and benefit calculation) for the period of his prior employment with
Huntsman Packaging Corporation or its affiliates and Packaging Industries.
Nothing contained herein shall preclude the Company, in its sole discretion,
from changing or amending, in whole or in part, or revoking any one or more of
such benefit programs or compensation plans or adopting new employee benefit
programs or compensation plans.
2
<PAGE>
5. Duties.
During Executive's term of employment by the Company, Executive shall
devote his normal working hours, attention and energies to the Company.
Executive shall serve to the best of his ability and shall perform the duties
and have such responsibilities consistent with Executive's position as Chief
Executive Officer of the Company, which duties and responsibilities shall be
similar to those of chief executive officers of companies in the packaging
industry having revenues comparable to those of the Company. Executive agrees to
abide by the rules, procedures, regulations, instructions, and practices of the
Company and any changes therein which may be adopted from time to time by the
Company.
6. Business Expenses.
In addition to compensation paid to Executive pursuant to Section 3,
during the term of Executive's employment hereunder, the Company agrees to
reimburse Executive for all reasonable and necessary business expenses which
Executive incurs in the performance of his duties hereunder in accordance with
the policies and procedures adopted from time to time by the Company (whether or
not in writing).
7. Employment Termination.
The employment of Executive by the Company pursuant to this Agreement shall
terminate upon the occurrence of any of the following:
(a) Death or Disability. Immediately upon the death or
disability of Executive. For purposes of this Agreement, "disability" shall
mean the inability of Executive to perform his duties hereunder for a
period of ninety (90) consecutive calendar days, or for a period of one
hundred twenty (120) calendar days whether or not consecutive, during any
three hundred and sixty (360) day period due to a physical or mental
incapacity. The determination of disability shall be made by a
disinterested medical doctor, licensed to practice in the State of Kansas,
chosen jointly by the parties. Notwithstanding the definition of
"disability" herein, if and only if the Company provides disability
insurance coverage to Executive at the Company's cost, Executive's
employment hereunder shall not be terminated by reason of disability until
the Company's disability insurance carrier has certified Executive as
disabled and has commenced (or agreed in writing) to pay disability
benefits to Executive.
(b) Cause. At the election of the Company for cause, immediately
(except as provided below) upon written notice by the Company to Executive.
For purposes of this Agreement, "cause" shall mean:
(i) The willful failure by Executive to perform his
material duties hereunder (other than any such failure resulting from
Executive's death or disability), as determined in good faith by a
majority of the Board;
(ii) The (A) continued failure (which failure need not be
willful) by Executive to perform his material duties hereunder (other
than any
3
<PAGE>
such failure resulting from Executive's death or disability) or (B)
breach by Executive of any material provision of this Agreement (which
failure or breach has not been cured by Executive within thirty (30)
days after written notice thereof by the Board of Directors), all as
determined in good faith by a majority of the Board;
(iii) Executive's conviction of a felony by a trial court
of competent jurisdiction, whether or not an appeal is taken; or
(iv) The willful engaging by Executive in unlawful conduct
(including acts of dishonesty) in connection with the business of the
Company, as determined in good faith by a majority of the Board.
(c) Good Reason. At the election of Executive for good reason,
immediately upon written notice by Executive to the Company. For purposes
of this Agreement, "good reason" shall mean:
(i) A change in Executive's responsibilities, titles, or
offices (including directorships) that is not consistent with
Executive's status and duties hereunder; or
(ii) A Change of Control (as hereinafter defined) during
the period of Executive's employment hereunder. For the purposes of this
Agreement, the term "Change of Control" shall mean: (A) a person,
corporation, entity or group, which (collectively) does not beneficially
own at least twenty-five percent (25%) of the Company's issued and
outstanding voting stock as of the date hereof, (I) makes a tender or
exchange offer for the issued and outstanding voting stock of the Company
and beneficially owns 25% or more of the issued and outstanding voting
stock after such tender or exchange offer, or (II) acquires, directly or
indirectly, the beneficial ownership of 25% or more of the issued and
outstanding voting stock of the Company in a single transaction or series
of transactions (excluding the acquisition of newly issued voting stock of
the Company issued in full or part payment for the purchase by the Company
or any subsidiary of the Company of stock or assets), or (B) the Company is
a party to a merger, consolidation or similar transaction and following
such transaction 50% or more of the issued and outstanding voting
securities of the resulting entity is beneficially owned by a person,
corporation, entity or group other than the stockholders of the Company
immediately prior to the transaction, or (C) the Company sells 50% or more
of its assets to any other person or persons.
(d) Election of Company. Upon thirty (30) days prior written
notice from the Company to Executive, for reasons other than "cause," as
defined in 7(b), above.
(e) Election of Executive. Upon thirty (30) days prior written
notice from Executive to Company, for reasons other than "good reason," as
defined in 7(c), above.
4
<PAGE>
8. Effect of Termination.
(a) Base Compensation and Benefits. In the event Executive's
employment is terminated for any reason, all compensation and benefits
shall cease, except that the Company shall pay to Executive that portion of
his then Base Annual Compensation that has been earned but unpaid at the
time of such termination and reimbursable expenses incurred by but not yet
reimbursed to Executive at the time of such termination.
(b) Termination Payment. In the event Executive's employment is
terminated by Executive pursuant to Section 7(c) or by the Company pursuant
to Section 7(d), the Company shall pay to Executive an amount equal to
Executive's current Base Compensation, including any adjustments thereto,
as a termination payment, payable in equal installments over the twelve
(12) months following the date of Executive's termination. Such termination
payment shall be in addition to any amounts owed to Executive pursuant to
Section 8(a).
(c) Stock Options.
(i) In the event Executive's employment is terminated
pursuant to Section 7(a), (c) or (d), Executive's Option, to the extent not
previously vested, shall immediately vest and shall become exercisable for
the total amount of unexercised Option Shares (as defined in the Option
Agreement) thereunder until the first to occur of: (A) midnight on the
tenth anniversary of the Grant Date; or (B) the one year anniversary date
of the termination of Executive. Any such exercise following Executive's
death may be made only by such Executive's personal representative, unless
Executive's will specifically disposes of the Option, in which case such
exercise shall be made only by the recipient of such specific disposition.
If Executive's personal representative, or such recipient, shall be
entitled to exercise the Option pursuant to the preceding sentence, such
representative or recipient shall be bound by all the terms and conditions
of this Agreement, the Option Agreement and the Plan which would have
applied to Executive's exercise of the Option.
(ii) In the event Executive's employment is terminated
pursuant to Section 7(b) or by Executive pursuant to Section 7(e), the
Option shall terminate and expire on the day Executive's employment
terminates; provided, however, that in the discretion of the Board, the
Option shall terminate and expire on the day Executive is notified of his
dismissal.
9. Restrictive Covenants. In consideration of the Company employing
Executive as the Chief Executive Officer of the Company, during Executive's
employment with the Company hereunder or otherwise and for a period equal to two
(2) years after Executive is no longer employed by the Company, Executive shall
not:
5
<PAGE>
(a) directly or indirectly, either individually, or as a principal,
partner, member, manager, agent, employee, employer, consultant, stockholder,
joint venturer, or investor, or as a director or officer of any corporation or
association, or in any other manner or capacity whatsoever, (i) divert or
attempt to divert from the Company any customer or account as set forth on a
mutually agreeable list attached hereto as Schedule A, or (ii) induce or cause,
or attempt to induce or cause, any employee, member, manager, partner,
shareholder, director or officer of the Company to leave the employ of the
Company.
(b) If Executive violates any of the provisions of this Section 9
after the date hereof, the time period set forth in this Section 9 shall be
extended for a period of time equal to the period of any such violation.
10. Non-Disclosure. Executive shall not at any time or in any
manner, directly or indirectly, use or disclose to any party other than the
Company any trade secrets or other Confidential Information (defined herein)
learned or obtained by him while a shareholder, officer or director of the
Company. As used herein, the term "Confidential Information" means information
disclosed to or known by Executive as a consequence of his position with the
Company and not generally known in the industry in which the Company is engaged
and that in any way relates to the products, processes, services, inventions
(whether patentable or not), formulas, techniques or know-how, including, but
not limited to, information relating to distribution systems and methods,
research, development, manufacturing, purchasing, accounting, procedures,
engineering, marketing, merchandising and selling, of the Company.
11. Affiliate Transactions. For as long as Executive is employed by
the Company, neither Executive, any member of his family nor any affiliate of
Executive shall engage, directly or indirectly, in any business transaction with
the Company without the written approval of the Board of Directors of the
Company.
12. Specific Performance. The parties hereto agree that their rights
under Sections 9 and 10 of this Agreement are special and unique and that any
violation thereof would not be adequately compensated by money damages, and each
grants the other the right to specifically enforce (including injunctive relief
where appropriate) the terms of Sections 9 and 10 of this Agreement. In any
proceeding, in equity or law, Executive specifically waives any proof that any
violation of the terms of Sections 9 or 10 of this Agreement will cause
irreparable injury or that there is not an adequate remedy at law. In addition,
Executive also agrees not to raise as a defense in any such proceeding any
allegation that any of the provisions of Sections 9 or 10 of this Agreement are
either unnecessary or unreasonable or that any of them illegally restrain trade
or any of his personal rights or that payments made by the Company subsequent to
gaining knowledge of a violation of this Agreement prejudices the Company's
rights to enforce this Agreement or to recover payments made.
13. Notices.
Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given if delivered
personally or if sent by certified mail, return receipt requested, with first
class postage prepaid, addressed (a) to Executive at 2782
6
<PAGE>
E. Shady Brook Lane, Salt Lake City, Utah 84121, and (b) to the Company at 9201
Packaging Drive, DeSoto, Kansas 66018, Attention: Chairman of the Board. Any
notice which is required to be made within a stated period of time shall be
deemed timely if made before midnight of the last day of such period.
14. Alteration, Amendment or Termination.
No change or modification of this Agreement shall be valid unless the
same is in writing and signed by all the parties hereto. No waiver of any
provision of this Agreement shall be valid unless in writing and signed by the
person against whom it is sought to be enforced. The failure of any party at any
time to insist, or a delay in insisting, upon strict performance of any
condition, promise, agreement or understanding set forth herein shall not be
construed as a waiver or relinquishment of the right to insist upon strict
performance of the same condition, promise, agreement, or understanding at a
future time. A waiver or consent given by a party hereto on one occasion shall
be effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provisions were omitted.
15. Integration.
This Agreement sets forth (and is intended to be an integration of)
all of the promises, agreements, conditions, understandings, warranties and
representations, oral or written, express or implied, among the parties hereto
with respect to the terms of employment, and there are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, among the parties hereto with respect to the terms of
employment other than as set forth herein.
16. Governing Law and Venue.
This Agreement and all disputes arising hereunder shall be subject to,
governed by and construed in accordance with the laws of the State of Kansas,
irrespective of the fact that one or more of the parties now is or may become a
resident of a different state. Executive hereby expressly submits and consents
to the exclusive in personam jurisdiction and exclusive venue of the courts of
competent jurisdiction in the State of Kansas, including the United States
District Court for the District of Kansas.
17. Benefit and Burden.
This Agreement shall inure to the benefit of, and shall be binding
upon, the parties hereto and their respective successors, heirs, and personal
representatives. This Agreement, including the Option granted herein, shall not
be assignable, except the Option may be assignable pursuant to Section 9(c)(i).
7
<PAGE>
18. Captions.
The headings of the sections and paragraphs are for convenience only
and in no way define, limit or affect the scope or substance of any section or
paragraph of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized officers and its corporate seal to be affixed hereto, and
each of the parties hereto has executed this Agreement effective as of the date
and year first above written.
COMPANY:
JPS PACKAGING COMPANY
By:
-------------------------------
Name: Leo Benatar
Title: Chairman of the Board
EXECUTIVE:
___________________________________
Brian Stevenson
8
<PAGE>
EXHIBIT A
INCENTIVE STOCK OPTION AGREEMENT
UNDER THE
JPS PACKAGING COMPANY
1998 LONG-TERM COMPENSATION PLAN
THIS AGREEMENT, made effective as of the 14th day of September, 1998
("Date of Grant"), by and between JPS PACKAGING COMPANY, a Delaware corporation
(hereinafter called the "Company"), and BRIAN STEVENSON (hereinafter called
"Optionee"),
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Company ("Board of Directors")
has adopted the JPS Packaging Company 1998 Long-Term Compensation Plan (the
"Plan") pursuant to which options covering shares of the Common Stock of the
Company may be granted to employees of the Company; and
WHEREAS, Optionee is employed as the chief executive officer of the
Company; and
WHEREAS, the Company has granted to Optionee the option to purchase
certain shares of its stock under the terms of the Plan in accordance with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the mutual
agreements hereinafter set forth, it is agreed as follows:
1. Grant Subject to Plan. This option is granted under, and is
expressly subject to, all the terms and provisions of the Plan and Sections 7
and 8 of the Employment Agreement dated as of even date herewith between the
Company and Optionee (the "Employment Agreement"), which terms are incorporated
herein and made part of this Agreement. The Compensation Committee ("Committee")
of the Board of Directors has been appointed by the Board of Directors, and
designated by it, to make grants of options.
2. Grant and Terms of Option. As of the Date of Grant, pursuant to
action of the Committee, the Company has granted to Optionee the option to
purchase all or any part of two hundred thousand (200,000) shares (the "Option
Shares") of the common stock of the Company, par value $.01 per share ("Common
Stock"), for a period of ten (10) years from the Date of Grant, unless the
option is sooner terminated pursuant to Section 7 below, at the purchase price
per share equal to the greater of (a) average of the high and the low trading
price of Company's Common Stock on the National Market System of The Nasdaq
Stock Market, on the Date of Grant, $4.0625 per share, or (b) $4.00 per share
(the "Option Price"); provided, however, that the right to exercise such option
shall be, and is hereby, restricted as follows:
9
<PAGE>
<TABLE>
<CAPTION>
Cumulative Shares/Percentage
Commencing Exercisable (Vested)
---------- ----------------------------
<S> <C>
9/14/98 (Grant Date) 0/0%
9/14/99 40,000/20%
9/14/00 80,000/40%
9/14/01 120,000/60%
9/14/02 160,000/80%
9/14/03 200,000/100%
</TABLE>
Notwithstanding the foregoing, if a "Change of Control" (as defined in the
Employment Agreement) occurs, any portion of this option which is unvested shall
immediately mature and vest in full. It is intended that the option shall
qualify as an "incentive stock option" as defined in Section 422A of the
Internal Revenue Code of 1986, as amended.
3. Exercise of Option. Optionee shall exercise the option by giving
written notice to the Company, indicating that he desires to exercise the option
and the number of Option Shares he desires to purchase. The Option Price shall
be paid in full (a) in cash, (b) by the tender to the Company of shares of
Common Stock of the Company owned by Optionee and registered in his name having
a Fair Market Value equal to the Option Price, or (c) by any combination of the
payment methods specified in (a) and (b). After receipt of such notice, the
Company shall provide Optionee with a restricted, legended certificate for the
Option Shares. Optionee is required to exercise this option with respect to 10%
of the vested Option Shares annually, as measured from the date of this
Agreement (the "Mandatory Option Exercise"); provided, however, all prior
exercises of this option will be considered in satisfying this requirement.
Failure to comply with the Mandatory Option Exercise will result in the
termination of Optionee's right to exercise the number of vested Option Shares
which were required to be purchased.
4. Anti-Dilution Provisions. In the event that, during the term of
this Agreement, there is any change in the number of shares of outstanding
Common Stock of the Company by reason of stock dividends, recapitalizations,
mergers, consolidations, split-ups, combinations or exchanges of shares and the
like, the number of shares covered by this option agreement and the price
thereof shall be adjusted, to the same proportionate number of shares and price
as in this original agreement so that the value of the option to the Optionee
shall remain the same, all as provided for pursuant to the Plan.
5. Investment Purpose. Optionee represents that, in the event of the
exercise by him of the option hereby granted, or any part thereof, he intends to
purchase the shares acquired on such exercise for investment and not with a view
to resale or other distribution and Optionee agrees to execute and deliver to
the Company a letter or certificate containing such investment representations,
agreements restricting sale (including, without
10
<PAGE>
limitation, provision for stop transfer orders and restrictive legend on stock
certificates) and confirmation of other relevant facts to support any exemption
from the registration requirements under the Securities Act of 1933 and such
state securities laws on which the Company intends to rely, all as shall be
deemed reasonably necessary by counsel for the Company and in such form as such
counsel shall determine; except that the Company, at its election, may waive or
release this condition in the event the shares acquired on exercise of the
option are registered under the Securities Act of 1933, or upon the happening of
any other contingency which the Company shall determine warrants the waiver or
release of this condition. Optionee agrees that the certificates evidencing the
shares acquired by him on exercise of all or any part of this option, may bear a
restrictive legend, if appropriate, indicating that the shares have not been
registered under said Act and are subject to restrictions on the transfer
thereof, which legend may be in the following form (or such other form as the
Company shall determine to be proper), to-wit:
(i) "The shares represented by this certificate have not been registered
under the Securities Act of 1933, but have been issued or transferred to
the registered owner pursuant to the exemption afforded by Section 4(2) of
said Act. No transfer or assignment of these shares by the registered owner
shall be valid or effective, and the issuer of these shares shall not be
required to give any effect to any transfer or attempted transfer of these
shares, including without limitation, a transfer by operation of law,
unless (a) the issuer shall have received an opinion of its counsel that
the shares may be transferred without requirement of registration under
said Act, or (b) there shall have been delivered to the issuer a `no-
action' letter from the staff of the Securities and Exchange Commission, or
(c) the shares are registered under said Act."
6. Non-Transferability. Neither the option hereby granted nor any
rights thereunder or under this Agreement may be assigned, transferred or in any
manner encumbered except by will or the laws of descent and distribution, and
any attempted assignment, transfer, mortgage, pledge or encumbrance, shall be
void and of no effect. The option hereby granted may be exercised, during the
lifetime of Optionee, only be Optionee.
7. Termination of Employment. In the event of Optionee's Termination
of employment with the Company, the treatment of Optionee's vested and unvested
options shall be governed by the terms of the Employment Agreement.
8. Shares Issued on Exercise of Option. Upon any exercise of this
option, the Company will transfer to Optionee shares of its Common Stock to
satisfy its obligations to deliver shares on any exercise hereof.
9. Committee Administration. This option has been granted pursuant
to a determination made by the Committee or the Board of Directors, and such
Committee or any successor or substitute committee authorized by the Board of
Directors or the Board of Directors itself, subject to the express terms of this
option, shall have plenary authority to interpret any provision of this option
and to make any determinations necessary or advisable for the administration of
this option and the exercise of the rights herein granted, and may waive or
amend any provisions hereof in any manner not adversely affecting the rights
granted to Optionee by the express terms hereof.
11
<PAGE>
10. Non-Waiver of Rights. The failure to enforce at any time any of
the provisions of this Agreement or to require at any time performance by the
other party of any of the provisions hereof shall in no way be construed as a
waiver of such provisions or to affect either the validity of this Agreement, or
any part hereof, or the right of either party thereafter to enforce each and
every provision in accordance with the terms of this Agreement.
11. Invalidity of Provisions. If any provision of this Agreement is
declared invalid by any tribunal, then such provision shall be deemed
automatically adjusted to the minimum extent necessary to conform to the
requirements for validity as declared at such time and, as so adjusted, shall be
deemed a provision of this Agreement as though originally included herein. In
the event that the provision invalidated is of such a nature that it cannot be
so adjusted, the provision shall be deemed deleted from this Agreement as though
such provision had never been included herein. In either case, the remaining
provisions of this Agreement shall remain in effect.
12. Assignments. This Agreement shall be assignable without
Optionee's consent by the Company to, and upon such assignment shall be binding
upon and inure to the benefit of, any other entity which shall succeed to the
business presently being operated by the Company.
13. Amendments. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing specifically
referring hereto, and signed by the parties hereto.
14. Governing Law. This Agreement shall be interpreted in accordance
with and governed by the laws of the State of Kansas as applied to contracts to
be wholly performed within such state.
15. Definitions. Unless otherwise defined herein, all capitalized
terms shall be defined as set forth in the Plan.
12
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf, pursuant to due authorization, and Optionee has signed
this Agreement to evidence his acceptance of the option herein granted and of
the terms hereof, effective as of the Date of Grant.
COMPANY:
JPS PACKAGING COMPANY
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
OPTIONEE:
----------------------------------------
Brian Stevenson
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,414
<SECURITIES> 0
<RECEIVABLES> 10,017
<ALLOWANCES> 214
<INVENTORY> 9,535
<CURRENT-ASSETS> 22,545
<PP&E> 67,464
<DEPRECIATION> 39,110
<TOTAL-ASSETS> 54,176
<CURRENT-LIABILITIES> 8,314
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 41,846
<TOTAL-LIABILITY-AND-EQUITY> 54,176
<SALES> 78,869
<TOTAL-REVENUES> 78,869
<CGS> 72,502
<TOTAL-COSTS> 72,502
<OTHER-EXPENSES> 12,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (54)
<INCOME-PRETAX> (5,881)
<INCOME-TAX> (1,337)
<INCOME-CONTINUING> (4,544)
<DISCONTINUED> (1,645)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,189)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
