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