SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 31, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transaction 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 No.)
21925 Industrial Boulevard
Rogers, Minnesota 55374
(Address of Principal executive offices)
(612) 428-8340
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
As of March 31, 1996, 3,766,215 shares of Common Stock, no par value per
share, were outstanding, and the aggregate market value of the shares of Common
Stock (based upon the closing sales price on such date reported by NASDAQ) held
by nonaffiliates of the Registrant was approximately $9,556,815.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for its Annual Meeting
of Shareholders to be held July 16, 1996, are incorporated by reference into
Part III.
PART I.
ITEM 1 - BUSINESS
Company Background
Ultra Pac, Inc., designs, manufactures, markets and sells plastic
containers and packaging to food industry retailers and distributors, including
supermarkets, wholesale bakery companies, fruit and vegetable growers,
delicatessens, processors and retailers of prepared foods, and foodservice
providers. The Company's packaging is primarily made from polyethylene
terephthalate ("PETE") plastic sheet or recycled PETE that the Company
thermoforms into various shapes.
Generally, food industry packaging buyers select plastic packaging as an
alternative to paper or other materials in order to achieve marketing and
merchandising objectives. Plastic packaging generally allows food to be more
attractively displayed than alternative packaging materials, and provides more
efficient use of shelf space. Also, plastic packaging often helps preserve
food's freshness and decreases spoilage by allowing more complete sealing of the
package to minimize the effects of outside air and moisture.
Products
The largest market segments for the Company's products are: bakery and
deli departments of supermarkets; wholesale bakeries (both fresh and frozen);
and growers of fresh fruit and produce. Food packaging has accounted for almost
all of the Company's net sales during the past three fiscal years.
The Company strives to serve as a single source of plastic packaging for
its customers by offering a wide variety of shapes, styles and sizes of
containers. The Company's products may be made from clear or colored plastic or
a combination of both clear and colored plastic. The Company's current product
offerings include both: (1) products manufactured and maintained in inventory
(enabling timely shipment to customers); and, (2) special products that require
a minimum order quantity and production lead time. A great majority of the
Company's sales are from products manufactured for inventory.
The Company's current product strategy is twofold: (1) to primarily
manufacture products that will inherently appeal to multiple, high-volume
customers, rather than to design custom products that can be sold to a single
customer or limited customer markets; and (2) to manufacture and inventory its
most popular products in sufficient quantities to facilitate timely shipments to
customers and satisfy customers' "Just-in-time" requirements.
Although some of the Company's products are designed for specific "niche"
markets, others are more versatile and may be used in several different
packaging applications. For example, even designs specially made for niche uses,
such as muffin containers and cake domes, generally have multiple potential
customers. Most designs, like clamshells and rectangular designs, may be used
for a broad range of applications such as cookies or mini-muffins by a bakery or
salads or cold cuts by a delicatessen. The Company has attempted to produce
designs in sizes and shapes that will permit its products to be used in multiple
applications, and has avoided developing and manufacturing customized,
proprietary designs for a single customer. However, from time to time, on a
non-exclusive basis, the Company will create inserts to existing molds in order
to satisfy individual customer requirements. For example, the Company may create
an insert for a mold that would allow a rectangular clamshell container to have
two compartments, rather than one.
2
The Company produces its plastic products primarily from PETE and, to a
much lesser extent, polystyrene. A number of the Company's cake and pie bases,
and deli trays are made from either polystyrene or PETE while the balance of its
products are generally made exclusively from PETE. The Company believes that
packaging produced primarily from PETE is preferable to packaging produced from
polystyrene or other more rigid plastics, because PETE has superior flexibility
and is not prone to crack or chip like other plastic materials. The Company also
believes that PETE's distinctive characteristics benefit customers economically
through improved sales and lower food spoilage than alternative packaging
materials. PETE has also become the most widely recycled form of plastic
packaging in the United States, primarily as a result of its widespread usage in
plastic beverage bottles (see "Recycling and Recycled Products" below).
The Company offers a wide variety of bakery and deli containers. These
containers are of both the hinged clamshell-style, as well as two-piece designs
with domes and bases. Clamshells are most commonly used for pies, muffins,
cookies, donuts, rolls, salads, fruits, sandwiches, candies and nuts. The
two-piece container designs are typically used for cakes and pies, as well as
cookies, donuts and vegetables, fruit and snacks. While many of the Company's
bakery and deli containers are product-specific, the generic shapes of others
make them suitable for a wide variety of bakery and deli products.
In fiscal 1993, the Company introduced a line of produce containers which
are used by growers and distributors for shipping and displaying products such
as strawberries, blueberries, raspberries, tomatoes and other fruits and
vegetables. The Company manufactures many of these produce containers using
recycled PETE. The Company believes that consumers, producers and sellers of
fresh produce are becoming increasingly concerned about environmental issues
including the disposal of waste into landfills. The Company believes that its
consistent, ongoing use of recycled PETE in its produce containers appeals to
consumers, as well as producers and sellers of fresh produce.
During fiscal 1996, the Company recorded no sales from floral products
which had been introduced in fiscal 1993 and which, in fiscal 1995, had
accounted for only .2% of the Company's net sales.
During April 1994, the Company introduced its line of C-PET containers
that are suitable for baking in either conventional or microwave ovens. These
containers are primarily intended for use by commercial bakeries. This C-PET
material is extruded in-house in either a cellular form using a technology
licensed to the Company, or in a rigid form similar to the process used for
other PETE products. Compared to aluminum foil containers, these C-PET bakery
containers offer superior shape retention and durability. C-PET containers such
as the Company's, unlike aluminum foil containers, allow bakers and other food
processors to perform a detection process for metal contaminants. Currently,
wholesale bakeries and other food processors use these containers for both
baking and packaging angel food cakes, pizzas, cookies and muffins.
The Company routinely modifies existing container designs and develops new
designs. Such product development is based upon input from its customers and
distributors, as well as from ideas developed by Company staff. In certain
cases, customers may fund the cost of tooling or inserts related to the new
designs. The Company's development of new designs and marketing of existing
designs for new applications is an ongoing process. In fiscal 1993, the Company
began custom printing on certain of its
3
products as a value-added service. In addition, the Company began labeling
certain of its produce containers with customer names and UPC codes. The Company
believes that its printing of certain containers, and to a lesser extent, its
customer labeling and UPC codes distinguish it from competitors and provide
customers with additional value. The Company intends to continue focusing its
primary product development and marketing efforts on bakery, deli and produce
packaging.
Most of the Company's molds are designed to produce various types of
containers by using different sizes and shapes of inserts in a particular mold.
This technique minimizes the time and expense of designing and producing tooling
for new containers, where applicable.
Manufacturing and Supply of Raw Materials
The Company's products are manufactured from rolled plastic sheet (either
extruded by the Company or purchased from outside sources) using a thermoforming
process. These rolls of plastic sheet are made by a process that involves
melting petroleum-based resin pellets and then extruding (forcing under
pressure) the material through a die to form a flat sheet.
The plastic sheet unwinds from a large roll at the beginning of the
60-foot thermoforming production line. The sheet is first heated to
approximately 300(degree) Fahrenheit and then molded into the desired shape
using vacuum and air pressure. The molds are multiple-cavity and product
specific, with the number of cavities determined by the size and shape of the
container specific to that mold. The plastic retains a rigid shape as the mold
cavities are cooled by water. The plastic sheet which has been formed into
containers continues down the production line to a trim press which cuts and
stacks the product in preparation for packing into corrugated shipping cartons.
At April 1, 1996, the Company had 34 thermoforming lines in operation.
Prior to fiscal 1992, 100% of the plastic sheet used by the Company,
including PETE, and polystyrene, was purchased from outside sources. During the
first quarter of fiscal 1992, the Company installed its first extrusion line to
produce PETE sheet in-house. The Company enjoys significant cost savings by
manufacturing its own PETE plastic sheet from both virgin resin material, and
recycled material. During fiscal 1992, the majority of the Company's PETE sheet
requirements were met by its initial extrusion line. With the addition of
extrusion lines in July 1992, October 1993, April 1994, May 1995 and September
1995 (to a total of six lines), the Company was able to extrude approximately
55%, 65% and 85% of its PETE sheet requirements during fiscal 1994, 1995 and
1996, respectively. With its current extrusion capacity, the Company expects to
be able to supply all its PETE sheet needs for fiscal 1997. In fact, at
various times during the year, the Company anticipates it will be extruding PETE
sheet at less than its full production capacity.
The PETE resin pellets used to make plastic sheet may be purchased from
several large suppliers, including Eastman Chemical Company, Shell Chemical
Company, and E I Dupont DeNemours & Co. While the available supply of PETE has
historically been considered adequate, during fiscal 1996, supplies of resin did
tighten and the Company experienced significant increases in raw material costs
from its suppliers of virgin PETE resin and sources of recycled PETE material.
Among other factors, these prices reflect increasing demand for the use of PETE
resin by apparel manufacturers and soft drink
4
bottlers, among other users, worldwide. Furthermore, changes in world oil prices
and availability of oil may affect the cost and availability of resins and
plastic sheet. The Company believes that, as refiners expand their capacity
during the next 18 months, the supply of PETE will increase. During fiscal 1996,
the Company executed a three-year supply agreement for a major portion of its
virgin resin needs with a major PETE resin supplier.
Marketing and Sales
In promoting its products, the Company relies primarily on direct sales
contacts and the displaying of its products at industry trade shows, rather than
extensive print advertising. The Company markets and sells its products through
regional sales managers and through approximately 50 independent manufacturers'
representatives or "brokers." The Company employs managers with territorial
and/or product line sales responsibility. These sales managers supervise the
brokers' activities and make selected direct sales calls. In addition, the
Company's President manages overall sales activities and maintains direct
contact with certain key customers. Typically, brokers have responsibility for
calling on existing and potential customers, such as grocery store chains, food
processors and distributors. Generally, the Company assigns a specific sales
territory to each broker.
Although the market for the Company's food packaging is generally
nationwide, some product sales are concentrated in certain geographic areas,
such as blueberry packaging in certain northern tier states and strawberry
packaging in California and Florida. During the past three years, the Company
has shipped to a small but growing number of customers in other countries. In
addition, the Company has ownership interest in two joint ventures and a product
licensing agreement which involve marketing or manufacturing, or both, outside
the United States.
The Company primarily uses common carriers to ship its products. The
Company, like many other packaging manufacturers, generally sells its bakery and
deli products at a price that includes shipment to the customer's location.
While the Company generally sells its produce containers with the customer
responsible for bearing shipment costs, there are certain customers where the
selling price includes freight. The freight costs for shipment to a customer's
location from the Company's warehouse in Rogers, Minnesota may be financially
significant because freight expense is generally a significant part of the
Company's cost of servicing its customers. With freight expense a partial
consideration, in the past, the Company has explored sites for future expansion
outside Rogers, Minnesota. For the foreseeable future however, the Company has
no plans to expand its domestic operations outside Minnesota.
Recycling and Recycled Products
Several factors, including regulation, general consumer awareness of the
benefits of recycling plastics and other natural resources, and consumer habits,
have influenced the popularity of recycling. These factors, combined with
increasing demand, have encouraged the growth of a recycling industry that
collects, reprocesses and markets PETE and other recycled materials.
Accordingly, commodity markets have developed for these recycled materials,
including PETE. The Company's cost of purchasing recycled PETE has, and will
continue to be, influenced by such commodity market pricing.
5
In October 1992, the Company purchased a 21,500 square foot facility to
house the Company's recycling equipment which was installed in March 1993. This
facility is adjacent to the Company's other manufacturing facilities.
During the past year, the Company experienced increasing difficulty in
finding reliable sources of post-consumer PETE for reprocessing in its recycling
plant. As a result, the Company shut down its recycling plant in August 1995.
The Company continues to evaluate the disposition of its recycling equipment
through the formation of a recycling joint venture with a party located in
Mexico. As proposed, the Company would initially purchase post-consumer PETE
from the Mexican joint venture for processing in its recycling plant. After the
Company has had time to evaluate the process and the joint venture has secured
steady and reliable sources of post-consumer material for reprocessing, the
equipment would then be sold to the joint venture and moved to the Company's
partner's facilities in Mexico. The Company believes the recycled material from
this joint venture will be at a lower cost than it currently pays outside
suppliers primarily because the joint venture partner has access to less costly
raw materials and labor.
Government Regulation
The United States Food and Drug Administration ("FDA") regulates packaging
that comes into contact with food, including packaging made from recycled
material. The Company sought, and subsequently obtained, the FDA staff's
acknowledgment that it does not object to the use of recycled PETE in the
produce line of containers manufactured by the Company. In addition, the Company
also sought and obtained the FDA staff's acknowledgment that it does not object
to the use of co-extruded PETE (i.e., Petewich(R)).
The plastic packaging industry (including the Company) is subject to
existing federal, state and local regulations and potential regulations in
connection with legislation designed to reduce solid waste. Proposed regulations
have ranged from requiring plastics to be degradable in landfills, to banning
specific products altogether. Current regulations, however, range from: (1)
simple labeling requirements, which aid in the recycling process, to (2) banning
certain materials unless subject to specified recycling/reuse programs, to (3)
imposing taxes or advance disposal fees on all containers on a per-unit basis,
with the fees being used to fund recycling programs. At the present time, the
Company believes it is in substantial compliance with all local, state and
federal laws designed to reduce solid waste entering landfills.
Customer Base
The Company has over 600 active customers located throughout the United
States, Canada, Australia, South America, Mexico and other countries. Only one
customer, Kroger, accounted for more than 10% of the Company's sales during
fiscal 1996. The loss of this customer may have a material adverse effect on the
Company's operations. With time and subject to additional growth of its
business, the Company expects its dependence on any single customer or small
number of customers will diminish.
6
Backlog
Although from time to time the Company receives advance orders for certain
of its produce containers, the Company does not believe that backlog is a
material aspect of its business.
Competition
The Company's products compete with non-plastic packaging alternatives,
including paper, aluminum and paper pulp or wood (as often used in produce
packaging), as well as with packaging products made from polystyrene, other
plastics, and PETE. The Company believes that its primary competitive advantages
include: (1) its ability to rapidly conceive, develop and produce innovative
packaging designs to meet customer needs; (2) its ability to rapidly fulfill
most customer orders; and, (3) the functional, environmental and merchandising
advantages that result from the majority of the Company's containers being
fabricated from PETE.
The Company competes with packaging manufacturers possessing substantially
greater financial resources and larger marketing and development staffs than it
possesses. Primary competitors who manufacture plastic packaging include Tenneco
Packaging, IVEX Packaging Corporation and InLine Packaging. These competitors
may be able to sell products similar to those of the Company's at a lower price
than the Company, because a significant portion of their plastic products are
manufactured using polystyrene plastic material which is lower in cost than
PETE. The Company believes that the price advantage held by competitors using
non-PETE resins is, in part, offset by the higher quality, greater versatility
and superior utility that result from the Company's products being made
primarily from PETE. However, the degree to which this price advantage may
benefit competitors using non-PETE plastic will fluctuate from time to time,
depending on the cost disparity between polystyrene and PETE resin prices. This
cost disparity has increased significantly during the past year, creating
additional competitive pressure on pricing of the Company's products.
Patents and Trademarks
The Company currently holds a number of design patents related to bakery
and produce containers. As the Company develops new and innovative container
designs, it applies for design patents where possible. Also, the Company has
obtained federal trademark registrations on the marks "Ultra Fresh(R)," "Ultra
Tub(R)", "Ultra Clam(R)", "Show-bowls(R)", "Snack Clam(R)", "Eco Clear(R)", and
"Petewich(R)" from the United States Patent and Trademark Office. The Company
believes that the loss of its right to use one or more of its trademarks would
not have a material adverse effect on the Company's business. The Company
believes that its continued success will depend primarily on its level of
customer service, product design and the management abilities of its officers,
directors, key employees and sales representatives, rather than on ownership of
patents or trademarks.
Employees
As of March 30, 1996, the Company had 46 salaried employees (including
eight whose positions were converted from hourly to salaried positions during
the preceding year) and 255 hourly employees, none of whom were represented by
labor unions or subject to collective bargaining agreements. Also at March 30,
1996, the Company had contracted the services of approximately 48 production
workers through
7
temporary agencies. Because the unemployment rate is currently low, from time to
time, the Company may have difficulty in attracting and retaining qualified
employees. The Company generally believes its relations with its employees are
good.
ITEM 2 - PROPERTIES
The Company utilizes approximately 466,000 square feet for its
manufacturing, warehousing and office facilities located in Rogers, Minnesota.
Of the 466,000 square feet, the Company owns approximately 109,000 square feet
and leases the remaining facilities under five separate operating lease
agreements. The square feet covered under each lease and the respective
expiration date is as follows:
Lease Square Feet Expiration Date
----- ----------- ---------------
1 166,000 December 1, 2008
2 65,000 March 1, 2010
3 56,000 March 1, 2010
4 58,000 December 1, 2002
5 12,000 May 31, 1996
(not intended to be renewed)
All of these leases, except for the lease for 12,000 square feet, provide
for renewal options and purchase options during the lease term.
Although the Company has significantly expanded its Rogers, Minnesota
facilities by arranging for construction of new facilities under lease or
purchase agreements, from time to time, management has explored sites for future
expansion outside Rogers, Minnesota. Currently, the Company does not anticipate
the need for additional facilities in the foreseeable future.
ITEM 3 - LEGAL PROCEEDINGS
The Company is a party to various litigation matters arising in the normal
course of its business. Management believes that the ultimate resolution of
these matters will not have a material adverse impact on the Company's financial
condition.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters which were submitted to a vote of security holders
during the fourth quarter of the fiscal year ended January 31, 1996.
8
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock has been traded on the NASDAQ National Market
System under the symbol "UPAC" since January 7, 1992. The following table sets
forth, as reported by NASDAQ for the periods indicated, the range of high and
low sale prices of the Company's common stock.
HIGH LOW
FISCAL YEAR ENDED JANUARY 31, 1996
First Quarter $7-1/8 $5-3/8
Second Quarter 7-1/4 5-5/8
Third Quarter 6-1/8 3-7/8
Fourth Quarter 4-1/8 3-1/8
HIGH LOW
FISCAL YEAR ENDED JANUARY 31, 1995
First Quarter $7-1/2 $4-7/16
Second Quarter 7-1/2 5-1/4
Third Quarter 9 6-1/4
Fourth Quarter 7-1/4 4-1/2
As of April 16, 1996, there were approximately 314 holders of record, plus
approximately an additional 1,000 beneficial owners of the Company's common
stock.
The Company has never paid cash dividends on its common stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate payment of cash dividends in the foreseeable future. In addition, one
of the Company's current loan agreements prohibits the payment of dividends.
9
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended January 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands, except for Earnings per Common Share)
<S> <C> <C> <C> <C> <C>
Statements of Earnings Data
Net sales $ 66,129 $ 57,250 $ 41,189 $ 27,572 $ 18,254
Cost of products sold 54,187 41,625 30,521 19,688 11,648
-------- -------- -------- -------- --------
Gross profit 11,942 15,625 10,668 7,884 6,606
Operating expenses
Marketing and sales 11,481 10,066 8,202 5,287 3,269
Administrative 2,760 2,347 1,549 1,728 905
-------- -------- -------- -------- --------
14,241 12,413 9,751 7,015 4,174
-------- -------- -------- -------- --------
Operating profit (loss) (2,299) 3,212 917 869 2,432
Interest expense and other 2,581 1,507 842 413 398
-------- -------- -------- -------- --------
Earnings (loss) before income tax (4,880) 1,705 75 456 2,034
Income tax provision (benefit) (1,721) 654 16 186 755
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ (3,159) $ 1,051 $ 59 $ 270 $ 1,279
======== ======== ======== ======== ========
Earnings (loss) per common share
Primary $ (.84) $ .28 $ .02 $ .08 $ .42
======== ======== ======== ======== ========
Fully diluted $ N/A $ N/A $ N/A $ N/A $ .41
======== ======== ======== ======== ========
Common equivalent shares
Primary 3,766 3,766 3,768 3,587 3,082
======== ======== ======== ======== ========
Fully diluted N/A N/A N/A N/A 3,109
======== ======== ======== ======== ========
January 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Balance Sheet Data
Working capital $ 2,685 $ 6,771 $ 5,632 $ 5,084 $ 2,182
Total assets 50,581 44,322 32,801 23,503 11,743
Long-term obligations 27,235 20,227 13,652 6,564 3,464
Shareholders' equity 9,427 12,587 11,533 11,474 4,954
</TABLE>
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Background
Ultra Pac, Inc., designs, manufactures, markets and sells plastic
containers and packaging to food industry retailers and distributors, including
supermarkets, wholesale bakery companies, fruit and vegetable growers,
delicatessens, processors and retailers of prepared foods, and foodservice
providers. The Company's packaging is primarily made from polyethylene
terephthalate ("PETE") plastic sheet or recycled PETE that the Company
thermoforms into various shapes.
Because of the markets the Company serves, as well as fluctuations in the
cost of its primary raw materials, management believes that future sales and
earnings will be impacted by a variety of factors. These include: (1) market
demand for PETE raw material and the resulting impact on the Company's raw
material costs; (2) competitive pressures in the marketplace for the Company's
products; (3) the impact that weather conditions can have on the seasonal
production of fresh produce and the resulting demand for plastic packaging; and,
(4) fixed overhead and borrowing costs.
Results of Operations
The following table sets forth, for the periods indicated, information
derived from the Statements of Operations of the Company expressed as a
percentage of net sales.
Fiscal years ended January 31,
1996 1995 1994
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of products sold 81.9 72.7 74.1
----- ----- -----
Gross Profit 18.1 27.3 25.9
Marketing and sales expense 17.4 17.6 19.9
Administrative expense 4.2 4.1 3.8
----- ----- -----
21.6 21.7 23.7
----- ----- -----
Operating profit (loss) (3.5) 5.6 2.2
Interest expense and other 3.9 2.6 2.0
----- ----- -----
Earnings (loss) before income taxes (7.4) 3.0 .2
Income tax provision (benefit) (2.6) 1.2 .1
----- ----- -----
NET EARNINGS (LOSS) (4.8)% 1.8% .1%
===== ===== =====
Fiscal 1996 Compared To Fiscal 1995
Net Sales:
Net sales increased 15.5% from $57,249,979 to $66,128,723 for the year
ended January 31, 1996 (fiscal 1996), as compared to the year ended January 31,
1995 (fiscal 1995). The rate of sales growth during fiscal 1996 was
significantly lower than historical growth rates.
The increase in net sales during fiscal 1996 reflects increased unit
volume of the Company's produce containers and line of Ultra Lite Bakeables(TM)
(which the Company first introduced during the summer of 1994) in combination
with several price increases the Company implemented between October 1994 and
April 1995. While sales dollars have continued to grow in each product line
category, unit volume of bakery and deli containers declined by approximately 6%
during fiscal 1996 as compared to fiscal 1995.
11
The Company believes that the decline in unit volume of its bakery
containers and deli containers which may be used in bakery applications occurred
primarily due to the increasingly competitive nature of the marketplace that has
been caused by aggressive pricing practices by competitors. The Company believes
this is particularly the case with competitors who use lower-cost, non-PETE
resins such as oriented polystyrene. This cost disparity has increased
significantly during the past year, creating additional competitive pressure on
pricing of the Company's products. The Company has also seen an increase in the
number of packaging manufacturers serving the bakery/deli market. To a lesser
degree, the Company also believes that changing consumer buying habits,
including a shift from high-fat to low or non-fat products, may have accounted
for lower unit volume of certain bakery/deli containers. However, the Company
believes that its line of bakery and deli containers can accommodate bakery
products which satisfy such shifting consumer buying habits.
During fiscal 1997, the Company expects continuing growth in unit volume
of its line of produce containers, and believes that such growth will reflect
the produce industry's continuing trend toward increasing use of plastic
clamshell containers. The Company's expectation regarding sales of produce
containers assumes no substantial, unforeseen weather conditions of the type
that negatively affected the Company's sales of produce containers during fiscal
1996. The Company expects this increase in produce container sales to be offset
in part by a decline in bakery and deli product sales dollars.
Management has initiated an effort to identify and analyze long term
market trends, competitive strategies, and other factors that influence market
conditions or result in competitive pressures. Management believes that this
activity will assist the Company in developing market, product and price
strategies, as well as improve its production planning process.
Gross Profit:
Gross profit margins decreased from 27.3% during fiscal 1995 to 18.1%
during fiscal 1996. The decrease in gross profit margins during fiscal 1996 was
primarily due to the following three factors: (i) higher raw material costs;
(ii) higher fixed overhead costs that the Company incurred to support a
significant anticipated increase in sales that did not materialize; and (iii)
higher labor costs. The higher costs related to these three factors were not
fully offset by price increases to its customers.
The Company experienced significant increases in raw material costs from
its suppliers of virgin PETE resin and sources of recycled PETE material. The
purchase of resin material represents more than 50% of the Company's product
cost. Among other factors, these PETE raw material costs reflect increasing
demand for the use of PETE resin by apparel manufacturers and soft drink
bottlers, among other users, worldwide. The Company believes that the supply of
PETE will increase, as refiners continue to expand their capacity. While the
Company increased its prices to customers, such increases did not fully offset
these increases in raw material costs.
Higher fixed overhead costs resulted primarily from the addition of
thermoforming and extrusion equipment, molds, and leased facilities to increase
manufacturing capacity based on anticipated sales. As described above, the
Company experienced lower than anticipated sales of bakery and deli containers,
12
and, as described below, it also experienced significantly lower than
anticipated sales of produce containers during fiscal 1996.
At the beginning of the 1995 California berry season (i.e., during fiscal
1996), the Company began expanding its capacity to meet an anticipated increase
in demand for the Company's berry containers based on a significant anticipated
increase in the overall berry harvest. Despite heavy rains in California earlier
in the year, indications were that, although berry production might be delayed,
it would still meet the Company's earlier expectations. However, in mid-summer,
berry growers also 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 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 demand for the Company's
packaging. In July 1995, as a result of this reduction in demand, management
significantly reduced its temporary workforce.
The Company incurred higher labor costs due to the combined effect of a
wage increase plan the Company implemented and the fact that production
efficiencies did not increase at the same rate as the increase in wages. Because
the Company had experienced an excessive level of employee turnover which it
believes was related to low wage rates, it implemented the wage increase plan to
become more competitive in the local labor market. Management continues to
believe the long-term effect of this action will be an increase in productivity
and a more stable workforce.
The Company has taken a number of actions intended to improve gross profit
margins on a long-term basis. The most significant actions were the installation
of a fifth extrusion line in May 1995 and a sixth extrusion line in September
1995. 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. With its current extrusion capacity, the Company expects to be able to
supply all its PETE sheet needs for fiscal 1997. In fact, at various times
during the year, the Company anticipates it will be extruding PETE sheet at less
than its full production capacity. The Company will continue to purchase
polystyrene sheet from outside suppliers as it has in the past.
Also, the Company has negotiated a three-year supply agreement for a major
portion of its virgin PETE resin needs. Minimum resin quantities are required to
be purchased at a fixed price (adjusted annually) that is favorable to the
Company under current market conditions. While the Company believes that such
supply agreement will have a positive impact on the Company's gross profit
margins in the fiscal year ending January 31, 1997, the favorable pricing will
not offset resin price increases that the Company experienced during fiscal
1996. Further, in the event the market price of virgin PETE resin declines
between annual price adjustments, the advantage derived from this pricing
agreement may diminish and may even require the Company to pay a higher price
for PETE resin than the market price existing at that time.
During fiscal 1996, the Company's workforce declined from approximately
620 in June 1995, to approximately 355 in March 1996. This reduction primarily
resulted from the Company's layoff of personnel in production-related jobs in
July 1995 and January 1996.
13
Additionally, in January 1996, the Company engaged the services of an
outside manufacturing consultant to assist in improving efficiencies and
reducing costs in its thermoforming and extrusion operations and in its
distribution system. The Company believes that changes it has implemented in
these areas will allow for a smaller workforce during fiscal 1997, without a
dramatic loss of production capacity. As a result, the Company expects its labor
costs will decline during fiscal 1997, as compared to fiscal 1996.
The Company believes that during the fiscal year ending January 31, 1997,
its fixed overhead costs will grow at a much slower rate than during the fiscal
years ended January 31, 1996 and 1995. The Company believes its current level of
production equipment and facilities are sufficient to meet its anticipated
fiscal 1997 requirements. The Company's capital expenditures for fiscal 1997
will be substantially less than the $9,600,000 expended in fiscal 1996.
The Company believes these actions will result in an improvement in gross
profit margin performance in upcoming quarters. The Company does not expect to
realize much impact from these actions until at least the second quarter of
fiscal 1997, which ends July 31, 1996.
Operating Expenses:
Marketing and sales expense increased from $10,066,119, or 17.6% of net
sales, to $11,481,007 or 17.4% of net sales, during fiscal 1996, as compared to
fiscal 1995. The increase in marketing and sales expense during fiscal 1996 was
due in part to the increase in net sales, resulting in an increase in freight
and commission expense. Also, the Company incurred additional labor and
facilities costs to support its distribution operations. The decrease in
marketing and sales expense as a percentage of net sales is primarily the result
of sales growing at a faster rate than marketing and sales expense.
Administrative expense increased from $2,347,558, or 4.1% of net sales, to
$2,759,614 or 4.2% of net sales, during fiscal 1996, as compared to fiscal 1995.
The increase in administrative expense was to support the increase in net sales
and legal costs associated with certain litigation matters arising in the normal
conduct of its business. The Company believes that ultimate resolution of such
litigation will not have a material adverse impact on the Company's financial
condition.
Interest Expense and Other:
Interest expense and other increased from $1,506,820, or 2.6% of net
sales, to $2,581,852, or 3.9% of net sales, for fiscal 1996, as compared to
fiscal 1995. The increase was primarily due to higher debt levels and increases
in the average rate of interest paid by the Company. The increase in interest
rates is primarily due to an increase in base rates and an increase in the
differentials charged over the base rates.
Income Taxes:
The Company recognized an income tax benefit of $1,721,000 for operating
losses incurred during the fiscal year ended January 31, 1996. As of January 31,
1996, the Company has approximately $986,000 of net deferred tax assets
primarily resulting from net operating loss and other tax credit carryforwards
of $3,728,000. Realization of these tax carryforwards is dependent on generating
sufficient taxable income prior to expiration of the net operating loss
carryforwards. Although realization is not assured,
14
management believes it is more likely than not that all of the deferred tax
assets will be realized. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of future
taxable income during the carryforward period are reduced.
Extrusion Equipment Relocation Expense:
In its Form 10-Q for the quarter ended April 30, 1995, the Company
reported that it expected to incur expenses of approximately $600,000 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. Prior to that time, the Company had anticipated the
relocation of the four extrusion lines to take place during the third and fourth
quarters of fiscal 1996, but management has elected to delay the move
indefinitely.
Net Loss:
As a result of the factors discussed above, the Company incurred a net
loss of $3,152,397, or $.84 per share, during fiscal 1996 compared to net
earnings of $1,050,884, or $.28 per share, during fiscal 1995.
Fiscal 1995 Compared To Fiscal 1994
Sales:
Net sales for the fiscal year ended January 31, 1995 (fiscal 1995)
increased 39.0% to $57,249,979 from $41,189,297 for the fiscal year ended
January 31, 1994 (fiscal 1994). Such growth in net sales was most substantially
influenced by the ongoing increase in demand for the Company's line of produce
containers from new and existing customers. The Company also continued to see
increases in sales from its bakery and deli product lines. Net sales also
increased due to price increases implemented during April and October 1994.
Gross Profit:
Gross profit margin increased 1.4% from 25.9% of net sales in fiscal 1994
to 27.3% in fiscal 1995. Of the 1.4% increase, half was due to the manner in
which freight was handled with certain produce customers. The balance of the
improvement in gross margin was primarily due to several factors, including: (1)
favorable product mix (i.e., increased sales of certain produce containers which
have longer production runs); (2) implementation of price increases in April and
October 1994; and, (3) the installation of a fourth extrusion line in May 1994.
During fiscal 1995, the Company increased the selling price of produce
containers to certain customers with the Company bearing freight costs.
Typically, these freight costs are billed separately or paid directly by the
customer. The manner in which these freight charges are paid has changed and may
change from year to year.
Sales of produce containers, particularly berry containers, were strong in
fiscal 1995. Strong sales of berry containers resulted in longer production runs
and higher gross profit margins than most of the Company's other products. In
addition, the Company implemented price increases on certain products in April
and October 1994 in response to a general increase in costs.
15
Operating Expenses:
Marketing and sales expense increased from $8,202,048 to $10,066,119 for
fiscal 1995 as compared to fiscal 1994. The increase in marketing and sales
expense was primarily due to increased freight and sales commission expense
associated with higher net sales. Marketing and sales expense as a percentage of
net sales decreased from 19.9% to 17.6% for fiscal 1995 as compared to fiscal
1994. The decrease in marketing and sales expense as a percentage of net sales
was primarily attributable to a reduction in the cost of warehousing facilities
and sales increasing at a faster rate than marketing and sales expenses. The
reduction in warehousing facility costs resulted from the consolidation of
distribution facilities, beginning in December 1993, into the Company's leased
warehouse facility located adjacent to the Company's manufacturing facility.
Administrative expense increased from $1,548,942 to $2,347,558 for fiscal
1995 as compared to fiscal 1994. Administrative expense as a percentage of net
sales increased from 3.8% to 4.1% for fiscal 1995 as compared to fiscal 1994.
Both the increase in expenses and percentage increase were due to elevated
levels of staffing, higher recruiting costs, and increased consulting and
professional fees. Among other things, during fiscal 1995, the Company employed
a full-time Director of Human Resources, added several customer service
personnel, continued the implementation of its MIS system, and pursued patents
and trademarks on selected products.
Interest Expense and Other:
Interest expense and other, as a percentage of net sales, increased from
2.0% to 2.6% for fiscal 1995 as compared to fiscal 1994. The increase was
primarily due to higher debt levels, an increase in the lender's base rates, and
an increase in the differentials charged by the lender over its base rates,
offset in part by the increase in sales. The increase in debt levels was
primarily a result of financing additional property, equipment and improvements,
and an increase in working capital and other assets.
Net Earnings:
As a result of the factors discussed above, net earnings increased from
$58,503 to $1,050,884 for fiscal 1995 as compared to fiscal 1994.
Liquidity and Capital Resources
Because the Company's business is highly capital intensive, it has
traditionally relied heavily on bank and other debt financing to fund its
capital requirements. As of January 31, 1996, the Company had borrowed
$9,037,676 under its $9,500,000 revolving credit facility, leaving $462,324
available. In addition, the Company had borrowed all the available funds under
its $7,073,666 non-revolving equipment loan agreements for the purchase of the
fifth and sixth extrusion lines, additional thermoforming lines and molds. See
discussion below regarding an April 1996 commitment for an additional $2,600,000
of term note financing.
As of, or subsequent to, January 31, 1996, the Company was in default on
virtually all of its long-term obligations due to financial covenant violations
and failure to make certain required payments, including repayment of excess
borrowings under its revolving credit facility. In April 1996, the Company
received
16
waivers for the existing defaults from such lenders and commitments to amend
certain financial covenants. The Company believes it will be able to comply with
such amended covenants for at least the next fiscal year.
During April 1996, the Company received a commitment from its principal
lender for an additional $2,600,000 pursuant to a new term note. The proceeds
will be used to pay down its existing revolving credit facility, including the
excess borrowings under such facility. The term note will bear interest at 3%
over the bank's base rate with monthly installments of $75,000 plus interest
with the remaining balance of $1,625,000 due May 31, 1997. Additionally, the
terms of such facility and the existing term note with its principal lender will
be modified to (i) increase the interest rate differentials on both the facility
and existing term note by 1% and .875%, respectively and (ii) reduce the
Company's borrowing base under the facility by $1,000,000.
In addition to the commitments from its principal lender, certain of the
Company's equipment lenders have committed to defer approximately $2,250,000 in
principal payments due during fiscal 1997. Pursuant to the commitments from such
lenders, the deferred principal payments will be due with the last payment of
each respective equipment note. Additionally, the Company may be required,
subject to certain restrictions, to repay a portion of the deferred principal
over the next two fiscal years to the extent there is availability under the
Company's revolving credit facility.
In connection with all of the above commitments, the Company has agreed to
issue warrants to the lenders for purchase of 185,000 shares of the Company's
common stock. Such warrants will be exerciseable at the market price existing at
time of grant.
The Company believes its existing revolving credit facility is adequate to
support its operations through the term of such facility. However, the Company
will be required to renew or refinance up to an aggregate of $13,500,000 related
to its existing revolving credit facility ($9,500,000) and existing term note
($4,000,000) prior to their expiration in May 1997. This is in addition to the
$1,625,000 due on May 31, 1997 pursuant to the new term note as discussed above.
Because of the Company's operating loss in fiscal 1996 and its high debt levels,
such debt renewal or refinancing may be more difficult to secure than in the
past, may be more costly than its current credit facility, and may require
covenants or restrictions more difficult to comply with than those previously or
currently imposed. Additionally, renewal or refinancing will be dependent upon
the Company meeting its cash flow forecasts and managing its financial
performance, among other things. No assurance can be given that the Company will
be able to renew or refinance its existing credit facility or that it will be
able to do so on acceptable terms.
The Company may also explore equity financing but has not entered into any
agreement or negotiations related thereto.
See Note E to the Company's financial statements for additional
information regarding the Company's long-term obligations.
17
Working capital decreased $4,085,143 during fiscal 1996 from $6,770,517 to
$2,685,374. This decrease is primarily attributable to an increase in accounts
payable, a decrease in deferred income taxes and a decrease in inventories
offset in part by an increase in accounts receivable and a decrease in current
maturities of long-term obligations. Accounts receivable increased from
$4,386,376 on January 31, 1995 to $4,706,477 on January 31, 1996. This increase
is principally due to sales of plastic sheet to the Company's joint venture in
Chile, and product sales to the joint venture partner which are made with
payment terms longer than its standard payment terms. This foreign receivable
represents approximately 19% of trade receivables at January 31, 1996.
Inventories declined from $10,340,900 on January 31, 1995 to $9,599,515 on
January 31, 1996. This decrease is due to a reduction in inventory levels of raw
materials and work in process offset by an increase in finished goods inventory
levels. With the addition of the two extrusion lines this past year, the Company
was able to react more quickly to changes in demand for plastic sheet and
therefore was able to carry less raw material and work in process inventory. Its
finished goods inventory increased in part due to some carryover inventory from
last year's produce season and an increase in inventory of products manufactured
and maintained in inventory in order to provide a higher level of service to its
customer base. Accounts payable increased from $5,887,564 on January 31, 1995 to
$10,437,204 on January 31, 1996 primarily due to extended payment terms and
increased credit availability from the Company's largest vendor. The Company
negotiated with this vendor and others for extended payment terms during fiscal
1997.
For fiscal 1996, $3,563,404 of cash was provided by operating activities.
This reflects an increase in accounts payable and other funds generated through
operations, offset in part by an increase in accounts receivable.
Property, equipment and improvements increased from $26,576,873 on January
31, 1995 to $32,067,808 on January 31, 1996. The Company purchased $9,611,266 of
property and equipment, primarily during the first three quarters of fiscal
1996. These property and equipment purchases included the Company's fifth and
sixth extrusion lines, thermoforming equipment, molds, a building addition and
other manufacturing equipment. Many of these purchases were made to expand the
Company's manufacturing and extrusion capacity to support a significant increase
in anticipated sales that did not materialize.
As of January 31, 1996, the Company had no outstanding capital commitments
and was reviewing only minimal expenditures related to improving manufacturing
efficiencies and reducing costs, as well as expenditures on molds for new
products. Because the Company believes that its current level of production
equipment and facilities are sufficient to meet its anticipated fiscal 1997
requirements, its capital expenditures for fiscal 1997 will be substantially
less than the $9,600,000 expended in fiscal 1996. The fiscal 1997 expenditures
will be financed from funds available through the Company's credit facility and
funds generated 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 established a Chilean corporation ("Ultra Pac SudAmerica S.A.")
for the purpose of manufacturing, marketing and selling plastic packaging
18
in Chile. The Company owns 49% and Integrity owns 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 manufacturing
operations and as initial startup capital.
The Company intends to dispose of certain assets which have not met its
operational objectives. These include the tooling related to its line of floral
packaging, as well as, the machinery and equipment used in its PETE flake
recycling plant which was closed in August 1995.
Seasonality of Sales and Earnings
During the past three years, the Company's product mix has become
increasingly seasonal. 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 has gradually
re-directed the greatest share of its production capacity toward bakery and deli
containers. Historically, the average gross profit margin for all bakery and
deli containers produced during this period has been lower than the gross profit
margins on the Company's berry containers. However, beginning in fiscal 1996,
with increasing competition among producers of berry containers and the
resulting competitive pressure on pricing, gross profit margins for berry
containers no longer exceeded the average gross profit margin for bakery and
deli 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.
However, the Company believes that during the fiscal year ending January 31,
1997, its fixed overhead costs will grow at a much slower rate than during the
fiscal years ended January 31, 1996 and 1995.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Identified at Item 14 hereof and incorporated herein by reference are the
financial statements and schedules following Item 14 of this report.
ITEM 9 - CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III.
Items 10, 11, 12, and 13 of Part III are omitted because the Company
intends to file with the Securities and Exchange Commission within 120 days of
the close of the year ended January 31, 1996, a definitive proxy statement
containing information pursuant to Regulation 14A of the Securities Exchange Act
of 1934, and that such information shall be deemed to be incorporated herein by
reference from the date of filing such document.
19
PART IV.
ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
1. Financial Statements
The following financial statements of Ultra Pac, Inc. are included herein
at the indicated page numbers:
Page No.
Report of Independent Certified Public Accountants F-1
Balance Sheets at January 31, 1996 and 1995 F-2
Statements of Operations- Years ended January 31, 1996, 1995 and 1994 F-4
Statements of Shareholders' Equity - Years ended January 31, 1996,
1995, and 1994 F-5
Statements of Cash Flows - Years ended January 31, 1996, 1995,
and 1994 F-6
Notes to Financial Statements - January 31, 1996, 1995 and 1994 F-7
2. Financial Statement Schedule
The following financial statement schedule of Ultra Pac, Inc. is included
herein at the indicated page number:
Page No.
Report of Independent Certified Public Accountants on Schedule E-5
II. Valuation of Qualifying Accounts E-6
All other schedules of Ultra Pac, Inc. have been omitted since the
required information is not present or not present in an amount sufficient to
require submission of the schedule, or because the information required is
included in the financial statements or the notes thereto.
3. (a) Exhibits
The exhibits required to be a part of this Report are listed in the Index
to Exhibits which follows the Financial Statement Schedules. A copy of these
Exhibits will be furnished at a reasonable cost to any person who is a
shareholder of the Company as of May 17, 1996 upon receipt from any such person
of a written request for any such Exhibit. Such request should be sent to Ultra
Pac, Inc., 21925 Industrial Blvd., Rogers, Minnesota 55374, Attention: Chief
Financial Officer.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter
of the year ended January 31, 1996.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ULTRA PAC, INC.
Dated: April 26, 1996 By: /s/ Calvin Krupa
Calvin Krupa
Its: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Calvin Krupa President, Chief April 26, 1996
Calvin Krupa Executive Officer and
Director
/s/ Brad C. Yopp Chief Financial April 26, 1996
Brad C. Yopp Officer (Principal
Accounting Officer)
/s/ James A. Thole Secretary and April 26, 1996
James A. Thole Director
/s/ John F. DeBoer Director April 26, 1996
John F. DeBoer
/s/ Michael J. McGlynn Director April 26, 1996
Michael J. McGlynn
/s/ Frank I. Harvey Director April 26, 1996
Frank I. Harvey
No annual report or proxy materials have been sent to security holders. An
annual report for the Company's fiscal year ended January 31, 1996, will be
forwarded to shareholders.
22
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FORM 10-K
ULTRA PAC, INC.
FOR FISCAL YEAR ENDED JANUARY 31, 1996
Cover
Report of Independent Certified Public Accountants
Board of Directors and Shareholders
Ultra Pac, Inc.
We have audited the accompanying balance sheets of Ultra Pac, Inc. (a Minnesota
corporation) as of January 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended January 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ultra Pac, Inc. as of January
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the three years in the period ended January 31, 1996, in conformity with
generally accepted accounting principles.
St. Paul, Minnesota
April 13, 1996 (except for notes E and H, as
to which the date is April 26, 1996)
F-1
Ultra Pac, Inc.
BALANCE SHEETS
January 31, 1996 and 1995
ASSETS (Note E)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash (note C) $ 345,906 $ 145,731
Accounts receivable
Principally trade, less allowance for doubtful
receivables and sales discounts of $305,000
and $245,000 at January 31, 1996 and 1995,
respectively (notes C and D) 4,706,477 4,386,376
Refundable income and sales taxes 1,534,500 731,576
Inventories (notes A1 and B)
Raw materials 2,089,444 3,318,590
Work in process 2,077,652 3,389,893
Finished goods 5,432,419 3,632,417
Deferred income taxes (notes A1, A2, A4 and J) 264,000 1,094,833
Other current assets 153,803 170,607
----------- -----------
Total current assets 16,604,201 16,870,023
PROPERTY, EQUIPMENT AND IMPROVEMENTS - AT COST
Buildings and improvements (note K) 3,491,268 2,476,582
Manufacturing equipment (notes F and K) 22,592,367 18,523,467
Extrusion equipment 12,270,044 7,269,772
Other equipment and furnishings 1,868,806 1,647,035
Leasehold improvements (note F) 945,219 860,301
----------- -----------
41,167,704 30,777,157
Less accumulated depreciation and amortization
(notes A2 and B) 9,837,213 6,346,606
----------- -----------
31,330,491 24,430,551
Deposits on property and equipment -- 1,409,005
Land 737,317 737,317
----------- -----------
32,067,808 26,576,873
OTHER
Security deposits and leasehold costs less
accumulated amortization of
leasehold costs of $24,333 at January 31,
1996 (notes A2 and K) 836,623 781,529
Investments in affiliates (notes A3 and D) 143,215 4,800
Deferred income taxes (notes A1, A2, A4 and J) 722,000 --
Other 207,391 88,562
----------- -----------
1,909,229 874,891
----------- -----------
$50,581,238 $44,321,787
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
Ultra Pac, Inc.
BALANCE SHEETS (CONTINUED)
January 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,900,220 $ 2,525,272
Accounts payable - principally trade 10,437,204 5,887,564
Accrued liabilities
Salaries and commissions 843,922 781,782
Interest and other 737,481 582,834
Income taxes payable -- 322,054
----------- -----------
Total current liabilities 13,918,827 10,099,506
LONG-TERM OBLIGATIONS, less current maturities (note E) 27,235,076 20,227,316
DEFERRED INCOME TAXES (notes A1, A2, A4 and J) -- 1,408,233
COMMITMENTS AND CONTINGENCIES (notes E and G) -- --
SHAREHOLDERS' EQUITY
Common stock - authorized, 5,000,000 shares
of no par value; issued and
outstanding, 3,766,215 shares at January 31,
1996 and 1995 (notes E and H) 7,631,572 7,631,572
Additional contributed capital 1,213,000 1,213,000
Retained earnings 582,763 3,742,160
----------- -----------
9,427,335 12,586,732
----------- -----------
$50,581,238 $44,321,787
=========== ===========
</TABLE>
F-3
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
Years ended January 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales (notes C and D) $ 66,128,723 $ 57,249,979 $ 41,189,297
Cost of products sold (notes B and K) 54,186,647 41,624,598 30,521,683
------------ ------------ ------------
Gross profit 11,942,076 15,625,381 10,667,614
Operating expenses (note K)
Marketing and sales 11,481,007 10,066,119 8,202,048
Administrative 2,759,614 2,347,558 1,548,942
------------ ------------ ------------
14,240,621 12,413,677 9,750,990
------------ ------------ ------------
Operating profit (loss) (2,298,545) 3,211,704 916,624
Other income (expense)
Interest expense (2,516,672) (1,507,495) (795,675)
Equity in net loss of affiliates (notes A3 and D) (8,585) -- (48,279)
Other (56,595) 675 1,833
------------ ------------ ------------
(2,581,852) (1,506,820) (842,121)
------------ ------------ ------------
Earnings (loss) before income taxes (4,880,397) 1,704,884 74,503
Income tax provision (benefit)
(notes A1, A2, A4 and J) (1,721,000) 654,000 16,000
------------ ------------ ------------
NET EARNINGS (LOSS) $ (3,159,397) $ 1,050,884 $ 58,503
============ ============ ============
Earnings (loss) per common share (note A7) $ (.84) $ .28 $ .02
============ ============ ============
Weighted average number of shares outstanding
(note A7) 3,766,215 3,766,144 3,767,621
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
Ultra Pac, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY (Notes E and H)
Years ended January 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Additional
-------------------- contributed Retained
Shares Amount capital earnings
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance - January 31, 1993 3,765,715 $ 7,628,322 $ 1,213,000 $ 2,632,773
Net earnings for the year ended
January 31, 1994 -- -- -- 58,503
----------- ----------- ----------- -----------
Balance - January 31, 1994 3,765,715 7,628,322 1,213,000 2,691,276
500 shares of common stock issued
for services 500 3,250 -- --
Net earnings for the year ended
January 31, 1995 -- -- -- 1,050,884
----------- ----------- ----------- -----------
Balance - January 31, 1995 3,766,215 7,631,572 1,213,000 3,742,160
Net loss for the year ended
January 31, 1996 -- -- -- (3,159,397)
----------- ----------- ----------- -----------
Balance - January 31, 1996 3,766,215 $ 7,631,572 $ 1,213,000 $ 582,763
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS (Note L)
Years ended January 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows provided by operating activities
Net earnings (loss) $ (3,159,397) $ 1,050,884 $ 58,503
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization (notes A2 and B)
Property, equipment and improvements 3,896,560 2,777,982 1,761,546
Leasehold costs 24,333 -- --
Provision for doubtful receivables 60,000 (12,833) (108,277)
Net (gain) loss on asset disposal 16,971 (24,824) --
Non-cash compensation to employees 38,700 -- --
Equity in undistributed net loss of
affiliates 4,800 -- --
Net deferred income taxes (1,299,400) 306,300 (7,100)
Common stock issued for services -- 3,250 --
Change in assets and liabilities:
Accounts receivable (1,183,025) (1,420,130) (71,277)
Inventories 741,385 (2,640,451) (2,351,235)
Other current assets 16,804 (64,161) 1,937
Accounts payable 4,549,640 1,210,020 952,439
Accrued liabilities 178,087 396,948 388,722
Income taxes payable (322,054) 320,354 (2,830)
------------ ------------ ------------
Net cash provided by operating activities 3,563,404 1,903,339 622,428
Cash flows from investment activities
Capital expenditures (9,611,266) (8,881,457) (7,610,975)
Proceeds from sale of equipment 206,800 141,625 --
Security deposits and leasehold costs (79,427) (496,656) (295,079)
Investments in affiliates (143,215) (4,800) --
Other (118,829) (6,000) (8,031)
------------ ------------ ------------
Net cash used in investing activities (9,745,937) (9,247,288) (7,914,085)
Cash flows from financing activities
Bank overdraft -- -- (14,195)
Proceeds from long-term obligations 9,388,449 11,791,194 8,337,764
Principal payments under long-term obligations (3,005,741) (4,746,801) (587,125)
------------ ------------ ------------
Net cash provided by financing activities 6,382,708 7,044,393 7,736,444
------------ ------------ ------------
Net increase (decrease) in cash 200,175 (299,556) 444,787
Cash at February 1 145,731 445,287 500
------------ ------------ ------------
Cash at January 31 $ 345,906 $ 145,731 $ 445,287
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company designs and markets plastic containers in a wide range of sizes
and designs for use primarily in the food industry. In addition, the
Company had nominal sales to the floral industry through January 31, 1995;
however, the Company has stopped manufacturing for the floral industry and
has listed the related tooling for sale. The Company's products are
primarily manufactured by the Company in its vertically integrated
production facilities, located in Rogers, Minnesota, using both virgin and
recycled materials. Additionally, certain products are manufactured in
Chile by Ultra Pac SudAmerica S.A., a joint venture owned 49% by Ultra Pac,
Inc. Although sales are primarily within the continental United States, the
Company has some international sales, principally in Canada and South
America.
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
1. Inventories
Inventories are stated at the lower of cost or market; cost is determined
using the first-in, first-out method. Certain costs are expensed for
financial reporting purposes and capitalized for income tax reporting
purposes; deferred income taxes are provided for these timing differences.
Inventory categories consist of the following:
Raw materials which include virgin and recycled materials used in the
recycling and extrusion process, and packaging and shipping supplies.
Work in process which includes both purchased and internally extruded
plastic sheet used in the production of finished goods.
Finished goods which include completed, packaged products available
for shipment.
2. Depreciation and Amortization
For financial reporting purposes, depreciation of property and equipment is
provided using the straight-line method over the estimated useful lives of
the applicable assets while amortization of leasehold improvements is
provided over the lives of the respective leases or the service lives of
the improvements, whichever is shorter. Expenditures for maintenance and
repairs are charged to expense as incurred, whereas expenditures for
renewals and betterments are capitalized. The estimated useful lives used
to compute depreciation and amortization of property, equipment and
improvements are fifteen years for building and improvements and ten years
for all other depreciable property, equipment and improvements.
F-7
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
2. Depreciation and Amortization - Continued
Leasehold costs are amortized over 15 years, the term of the lease.
For income tax reporting purposes, other lives and methods may be used;
deferred income taxes are provided for these temporary differences.
3. Investments in Affiliates
Investments in the common stock of Ultra Pac SudAmerica, S.A. and Ultra Pac
Middle East EC are stated at cost plus equity in undistributed net earnings
(loss) since dates of acquisition.
4. Income Taxes
The Company provides for income taxes based on income reported for
financial reporting purposes. Certain charges to earnings differ as to
timing from those deducted for tax reporting purposes; these relate
primarily to accelerated depreciation and to net operating loss and
alternative minimum tax credit carryforwards. The tax effects of these
differences are recorded as deferred income taxes.
5. Accounting for Stock Based Compensation
The granting of all options and warrants were at 100% of market value, or
greater, on the dates of grant. No compensation cost or other accounting
recognition is given to stock options or stock purchase warrants until they
are exercised, at which time the proceeds are credited to common stock.
With respect to certain options currently outstanding, the Company may
recognize a tax benefit upon exercise of these options in an amount equal
to the difference between the exercise price and the fair market value of
the common stock if the fair market value exceeds the exercise price on the
day of the exercise.
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation," issued in October 1995 and effective for fiscal
years beginning after December 15, 1995, encourages, but does not require,
a fair value based method of accounting for employee stock options or
similar equity instruments. As permitted under the new standard, the
Company will continue to account for employee stock options under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The pro forma disclosures required by this standard will be
adopted during the year ended January 31, 1997.
F-8
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
CONTINUED
6. Accounting for the Impairment of Long-Lived Assets
On November 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to Be Disposed Of", which imposes a stricter criterion
for assets by requiring that such assets be probable of future recovery at
each balance sheet date. In connection with adopting this standard, the
Company provided an allowance of $100,000 during January 1996 in connection
with its decision to dispose of its tooling related to the floral industry
and its recycling equipment.
7. Earnings (Loss) Per Common Share
Earnings per share are based upon the weighted average number of common and
dilutive common equivalent shares outstanding.
NOTE B - USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Company's manufacturing processes (thermoforming and extrusion) produce
trim and other scrap material that may be ground into flake and blended
with virgin raw material for reuse by the Company. Most of the scrap
material ("regrind") is reused by the Company in the ordinary course of
business. However, some of the Company regrind is not reusable due to the
color, composition or quantity of the material and is disposed of through
sale or other means. Regrind in inventory is reported by the Company in its
balance sheet as raw material and is valued at its estimated net realizable
value. During the year ended January 31, 1996, the Company experienced an
increase in its regrind material and adjusted its estimated net realizable
valued downward by approximately $250,000.
In connection with the Company's decision to dispose of its tooling related
to the floral industry and its recycling equipment, the Company has
provided allowances of $100,000 during the year ended January 31, 1996 for
disposition of such assets. In addition, allowances of $200,000 and
$142,000 were provided for other tooling during the years ended January 31,
1996 and 1995, respectively. These allowances less writeoffs of $73,000,
are included in accumulated depreciation and amortization of property,
equipment and improvements as of January 31, 1996 and 1995 and in
depreciation and amortization expense during the years ended January 31,
1996 and 1995. Management believes that the undepreciated value of these
assets as of January 31, 1996 is realizable.
See note J for discussion of deferred tax asset realization.
F-9
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE C - CONCENTRATIONS OF CREDIT RISK AND SALES
Trade receivables have significant concentrations of credit risk in the
retail packaged food sector in the United States. As of January 31, 1996,
substantially all trade receivables relate to this sector.
The Company had sales to one customer which accounted for 12.3%, 10.9% and
11.9% of net sales during the years ended January 31, 1996, 1995 and 1994,
respectively. Included in trade receivables at January 31, 1996 are
$1,204,537 of receivables from foreign customers, of which $640,255 have
been subsequently collected.
The Company maintains its cash balances in one financial institution
located in Minneapolis, Minnesota. These balances are insured by the
Federal Deposit Insurance Corporation up to $100,000.
NOTE D - INVESTMENTS IN AND TRANSACTIONS WITH AFFILIATES
Investments in affiliates as of January 31, are as follows:
1996 1995
---------- ---------
Ultra Pac SudAmerica, S.A. ("UPSA")
Common stock, 147,107 shares (49%) $ 143,215 $ --
Ultra Pac Middle East EC
Common stock, 800 shares (40%) -- 4,800
---------- ---------
$ 143,215 $ 4,800
========== =========
Equity in undistributed net earnings (loss) of Ultra Pac SudAmerica, S.A.
and Ultra Pac Middle East EC, since acquisition amounted to $(3,785) and
$(53,079), respectively, as of January 31, 1996.
Net sales to affiliates and to UPSA's majority shareholder were $569,502
and $490,966, respectively, during the year ended January 31, 1996. As of
January 31, 1996, $936,897 was receivable from UPSA and UPSA's majority
shareholder.
F-10
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE E - LONG-TERM OBLIGATIONS
Long-term obligations as of January 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Facility A
Interest payable monthly at 2.375% above the three month LIBOR
rate (effective rate of 8.00% and 8.63% as of January 31,
1996 and 1995, respectively) $ 5,000,000 $ 5,000,000
Interest payable at .5% above banks' base rate
(effective rate of 9% as of January 31, 1996 and 1995) 4,037,676 2,426,193
Facility B; interest payable monthly at .875% above the
bank's base rate (effective rate of 9.375% as of
January 31, 1996 and 1995) 4,899,683 5,580,928
Facilities D and E; interest payable monthly at 2.5% above
the three month LIBOR rate (effective rate of 8.125%
as of January 31, 1996 6,445,313 --
Equipment notes payable in monthly installments,
including interest from 8.0% to 10.87%; subject to
prepayment penalties 6,756,564 7,422,329
Real estate mortgage payable in monthly installments,
including interest to be adjusted each three year
anniversary to a rate equal to 3% over the three year
U.S. Treasury Securities Yield (effective rate of 8%
through May 1996) 949,907 1,037,115
Contracts for deed payable in monthly installments,
including interest from 8.00% to 9.00% 377,456 399,653
Capitalized leases (note F) 668,697 886,370
----------- -----------
29,135,296 22,752,588
Less current maturities 1,900,220 2,525,272
----------- -----------
$27,235,076 $20,227,316
=========== ===========
</TABLE>
As of January 31, 1996, or subsequently, the Company was in default on
substantially all of its long-term obligations due to financial covenant
violations and its failure to make certain required payments under the
terms of the agreements. During April 1996, the Company received waivers of
the defaults from each of the respective lenders and commitments from its
lenders to modify the terms of their respective loan agreements, including
the following:
1. Defer approximately $2,250,000 of principal payments on Facilities D
and E and certain equipment notes from the year ending January 31,
1997 to later years
F-11
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE E - LONG-TERM OBLIGATIONS - CONTINUED
2. Accelerate approximately $750,000 of principal payments on the
equipment notes from the year ending January 31, 2004 to the year
ending January 31, 1998.
3. Provide an additional $2,600,000 term note ("Facility C") from its
bank due in monthly principal payments of $75,000 plus interest at 3%
above the banks' base rate with a final payment of $1,625,000 due May
31, 1997
4. Reduce the Company's borrowing base by $1,000,000 under Facility A
5. Increase the rate of interest on borrowings based on the bank's base
rate under Facilities A and B by 1% and .875%, respectively.
6. Repay up to an additional $600,000 to an equipment note holder during
each of the years ending January 31, 1997 and 1998, to the extent
available, as defined
7. Add or modify existing covenants and cross default provisions
8. Issue the lenders warrants to purchase 185,000 shares of the Company's
common stock: the warrants will be exercisable at the market price at
date of grant (closing); the term of the warrants has not been
determined
9. Pay $75,000 in agent and origination fees
10. Modify the prepayment penalty for Facilities A and B to 2%, as defined
The terms and maturities of the long-term obligations which follow, have
been adjusted for the impact of the above modifications.
The terms of the Company's credit and security agreement under Facilities
A, B and C include the following:
Facility A: $9,500,000 revolving note; interest at 1.5% above the
bank's base rate. The agreement provides for issuance of up to
$1,000,000 of letters of credit (none outstanding as of January 31,
1996). Borrowings are limited to a borrowing base of eligible accounts
receivable and inventory, less outstanding letters of credit. A
commitment fee of .25% per year is payable on the unused portion of
the revolving credit. Interest is payable monthly. A prepayment
penalty of 2% is provided for under certain circumstances. The note is
due on May 31, 1997.
Facility B: $6,000,000 non-revolving term note payable in monthly
installments of $66,667, plus interest at 1.75% above the bank's base
rate, through May 1997 with the remaining balance of approximately
$3,858,000 due on May 31, 1997.
F-12
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE E - LONG-TERM OBLIGATIONS - CONTINUED
Facility C: $2,600,000 non-revolving term note payable in monthly
installments of $75,000, plus interest at 3% above the bank's base
rate, with a final payment of $1,625,000 due on May 31, 1997.
During March 1995, the Company entered into a $7,073,666 non-revolving
equipment loan agreement with interest at 2.5% above the LIBOR rate. The
agreement provides for borrowings on specific equipment purchased subject
to the following terms:
Facility D: payable in monthly installments, plus interest, and
maturing at various dates during the year ending January 31, 2003.
Facility E: payable in monthly installments, plus interest, and
maturing at various dates during the year ending January 31, 1999.
The notes under Facilities D and E may be prepaid without penalty after
October 31, 1997.
The long-term obligations are collateralized by substantially all assets of
the Company and life insurance on the president of the Company. Certain
agreements contain covenants relating to financial performance, limitations
on payment of dividends, acquisitions, mergers, change in control,
investments, additional debt, capital expenditures, disposition of assets
and other matters. In addition, under the commitments, the respective
lending institutions have been provided cross defaults.
Aggregate maturities of long-term obligations for the four years following
January 31, 1997 are as follows: 1998, $17,509,075; 1999, $3,556,896; 2000,
$1,844,023; and 2001, $1,169,257.
NOTE F - CAPITALIZED LEASES
For financial reporting purposes, minimum lease rentals relating to certain
equipment and leasehold improvements have been capitalized.
The related assets and obligations have been recorded using the Company's
incremental borrowing rate at the inception of the leases. The leases,
which are noncancelable, expire at various dates through February 1999. The
following is a schedule of leased property under capital leases:
January 31,
------------------------
1996 1995
---------- ----------
Manufacturing equipment $ 744,808 $ 744,808
Leasehold improvements 301,756 301,756
---------- ----------
1,046,564 1,046,564
Less accumulated depreciation 211,808 107,151
---------- ----------
$ 834,756 $ 939,413
========== ==========
F-13
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE F - CAPITALIZED LEASES
The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease
payments at January 31, 1996.
Year ending January 31,
-----------------------
1997 $ 303,954
1998 274,102
1999 168,350
2000 9,085
----------
Total minimum lease payments 755,491
Less amount representing interest 86,794
----------
Present value of net minimum lease payments $ 668,697
==========
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company conducts a substantial portion of its operations in leased
facilities under noncancelable operating leases expiring at various dates
through 2008. At the end of the lease terms, substantially all of the
leases are renewable at the then fair rental value for periods of 3 to 15
years. Each of the leases provide that the Company pay property taxes,
maintenance, insurance and other occupancy expense applicable to leased
premises. Certain of the rents are subject to increases in proportion to
the increase in the Consumer Price Index and substantially all of the
leases contain purchase options.
Minimum rental commitments of non-cancelable operating leases are
approximately as follows:
Year ending January 31,
1997 $ 1,613,000
1998 1,514,000
1999 1,436,000
2000 1,365,000
2001 1,314,000
2002 and thereafter 8,744,000
-----------
$15,986,000
===========
Total rent expense for all operating leases for the years ended January 31,
1996, 1995 and 1994 was $2,294,579, $1,707,343 and $1,546,659,
respectively.
The Company has commitments to purchase equipment aggregating approximately
$110,000 at April 13, 1996.
F-14
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE G - COMMITMENTS AND CONTINGENCIES - CONTINUED
The Company has entered into two material supply agreements which will
fulfill a significant portion of its plastic resin and post consumer flake
needs. The agreements are for three and five year periods and call for
annual minimum purchase requirements. Pricing is reviewed and negotiated
annually in one of the agreements and prices on the other fluctuates with
market prices.
The Company is subject to certain lawsuits and other claims arising out of
the conduct of its business. In the opinion of management, all matters are
adequately provided for, are without merit or are of such a kind or involve
such amounts that they would not have a material effect on the financial
position or results of operations of the Company.
NOTE H - COMMON STOCK
On March 14, 1996, the Company adopted the 1996 Ultra Pac, Inc. Stock
Option Plan ("1996 Plan") which reserves 200,000 shares of common stock for
future issuance. During March 1996, options to purchase 75,000 shares of
common stock under the 1996 Plan were granted to employees at an exercise
price of $3.00 per share. These options expire March 31, 2001.
The 1991 Stock Option Plan ("1991 Plan"), reserves 100,000 shares of the
Company's authorized common stock for future issuance. Under the terms of
the 1991 Plan, the Company may grant to its employees and consultants
options to purchase shares with a term not to exceed ten years. No options
under the 1991 Plan have been exercised through January 31, 1996. Pursuant
to the 1991 Plan, the following non-qualified options were granted and
remain outstanding as of January 31, 1996:
Granted Expiring
during Common shares during
year ended covered by Exercise year ending
January 31, options price January 31,
----------- ------- ----- -----------
1996 15,000 $ 6.00 2001
1995 30,000 $ 5.13 to $ 8.00 2000
1994 11,000 $ 7.50 to $ 8.75 1999-2004
1993 8,000 $10.25 to $11.50 1998-2003
1992 18,500 $ 7.00 to $12.69 2002
---------
82,500
=========
Subsequent to January 31, 1996, options to purchase 17,000 shares of common
stock under the Plan were canceled.
F-15
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE H - COMMON STOCK - CONTINUED
The Outside Directors' Option Plan ("Directors' Plan"), reserves 100,000
shares of the Company's authorized common stock for future issuance. Under
the terms of the Outside Directors' Option Plan, the Company will grant to
its outside directors options to purchase shares with a term not to exceed
five years. No options under the Directors' Plan have been exercised
through January 31, 1996, however, options for 4,500 shares were canceled
during the year ended January 31, 1996. Pursuant to this plan, the
following non-qualified options were granted and remain outstanding as of
January 31, 1996:
Granted Expiring
during Common shares during
year ended covered by Exercise year ending
January 31, options price January 31,
----------- ------- ----- -----------
1996 5,500 $ 5.75 2001
1995 3,000 $ 7.25 2000
1994 3,000 $ 9.25 1999
1992 7,500 $12.69 1997
--------
19,000
========
In each of the four years ended January 31, 1993 through January 31, 1996,
the Company's Board of Directors granted non-qualified stock options to the
Company's Chief Executive Officer for 20,000 shares of common stock at
exercise prices ranging from $6.00 to $11.50 per share. These options each
have five year terms and remain outstanding at January 31, 1996.
In August 1991, the Company's Board of Directors granted a non-qualified
stock option for 50,000 shares of common stock at an exercise price of
$8.88 per share. This option was issued to the Company's principal
landlord, who is a former director of the Company, for past and future real
estate consulting services to the Company. This option was not exercised
and expired in August 1995.
In addition to the outstanding options to purchase common stock, the
Company issued warrants to purchase 30,000 shares of its common stock to an
Underwriter and certain of its employees in connection with the public
offering of the Company's common stock in May 1992. The warrants are
exercisable at prices ranging from $11.50 to $13.76 per share, depending
upon time of exercise. These warrants expire during the year ending January
31, 1998 and remain outstanding at January 31, 1996.
F-16
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE H - COMMON STOCK - CONTINUED
Transactions involving options and warrants are as follows:
Year ended January 31,
1996 1995 1994
-------- -------- --------
Outstanding at beginning of period 227,500 177,500 136,500
Granted 40,500 54,000 41,000
Exercised -- -- --
Expired/canceled (56,500) (4,000) --
-------- -------- --------
Outstanding at end of period 211,500 227,500 177,500
======== ======== ========
Exercisable 211,500 227,500 173,333
======== ======== ========
Option and warrant expiration dates as of January 31, 1996, and their
exercise price per share, are as follows:
Exercise
Year ending January 31, Shares Price
1997 27,500 $ 11.50 to $ 12.69
1998 32,000 $ 10.25 to $ 11.50
1999 34,000 $ 7.50 to $ 9.25
2000 53,000 $ 5.13 to $ 8.00
2001 40,500 $ 5.75 to $ 6.00
2002 18,500 $ 7.00 to $ 12.69
2003 6,000 $ 10.88 to $ 11.50
----------
211,500
==========
In connection with closing the debt restructuring (see note E), the Company
is to issue warrants for 185,000 shares of its common stock. The warrants
will be exercisable at the market price at date of grant (closing); the
term of the warrants has not been determined.
Effective April 1, 1996, the Company issued compensation in the form of
12,900 shares of its common stock to its hourly employees.
F-17
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE I - PROFIT-SHARING PLAN AND TRUST
During the year ended January 31, 1993, the Company implemented The Ultra
Pac, Inc. 401(k) Profit Sharing Plan and Trust which covers substantially
all of its employees. Participants may elect to enter into salary reduction
agreements with the Company for a portion of their compensation. The plan
authorizes the Board of Directors of the Company to annually authorize
contributions, out of earnings and profits, up to 50% of each participant's
contribution, not to exceed 2% of that participant's total compensation.
For the years ended January 31, 1996, 1995 and 1994, contributions to the
plan totaled $321,296, $219,135 and $159,806, respectively, of which
$78,262, $54,975 and $40,967, respectively, were contributed by the
Company.
NOTE J - INCOME TAXES
The components of the income tax provision (benefit) are as follows:
Year ended January 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Current
Federal $ (421,600) $ 312,600 $ 21,100
State -- 35,100 2,000
----------- ----------- -----------
(421,600) 347,700 23,100
Deferred
Federal (1,119,400) 275,000 (7,600)
State (180,000) 31,300 500
----------- ----------- -----------
(1,299,400) 306,300 (7,100)
----------- ----------- -----------
$(1,721,000) $ 654,000 $ 16,000
=========== =========== ===========
A reconciliation of the difference between income tax expense and the
amount computed by applying the statutory federal income tax rates to
earnings (loss) before income taxes is as follows:
<TABLE>
<CAPTION>
Year ended January 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax expense (benefit) at federal
statutory rate $(1,659,000) $ 580,000 $ 25,300
State taxes, less federal tax benefit (117,000) 44,000 1,600
Surtax exemption -- -- (11,600)
Tax effect of permanent financial statement/
tax differences 19,000 17,000 700
Other 36,000 13,000 --
----------- ----------- -----------
Income tax expense (benefit) $(1,721,000) $ 654,000 $ 16,000
=========== =========== ===========
</TABLE>
F-18
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE J - INCOME TAXES - CONTINUED
Deferred income taxes are the result of temporary differences in
recognition of income and expense for financial statement and tax
reporting. The major sources of these differences and the tax effect of
each are as follows:
<TABLE>
<CAPTION>
Year ended January 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Tax depreciation in excess of financial
statement depreciation $ 717,000 $ 799,000 $ 723,000
Net operating loss carryforwards (2,399,000) (113,000) (626,000)
Alternative minimum tax credit
carryforwards 439,000 (349,000) (24,000)
Allowance for doubtful receivables (22,000) 3,000 (39,000)
Inventories 35,000 17,000 (58,000)
Salaries (31,000) (26,000) --
Deferred gain (22,000) -- --
Real estate taxes 10,000 (10,000) --
Other (26,400) (14,700) 16,900
----------- ----------- -----------
$(1,299,400) $ 306,300 $ (7,100)
=========== =========== ===========
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
January 31,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets - current
Allowance for doubtful receivables $ 111,000 $ 89,000
Inventories 61,000 96,000
Salaries 57,000 26,000
Deferred gain 22,000 --
Real estate taxes -- 10,000
Net operating loss carryforwards -- 855,000
Other 13,000 18,833
----------- -----------
$ 264,000 $ 1,094,833
=========== ===========
January 31,
1996 1995
----------- -----------
Deferred tax assets (liabilities) - long-term
Depreciation of property, equipment and improvements $(3,002,000) $(2,304,000)
Net operating loss carryforwards 3,689,000 453,000
Alternative minimum tax credit carryforwards 39,000 478,000
Other (4,000) (35,233)
----------- -----------
$ 722,000 $(1,408,233)
=========== ===========
</TABLE>
F-19
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE J - INCOME TAXES - CONTINUED
As of January 31, 1996, the Company has net operating loss carryforwards
which expire as follows:
Federal State
------- -----
Year ending January 31,
-----------------------
2007 $ 938,000 $ 761,000
2008 637,000 249,000
2009 1,624,000 624,000
2010 133,000 33,000
2011 6,717,000 2,547,000
----------- -----------
$10,049,000 $ 4,214,000
=========== ===========
The Company has recorded net deferred tax assets of $986,000, primarily
resulting from the benefit of net operating loss carryforwards, which
expire in varying amounts between the years ending January 31, 2007 and
2011. Realization is dependent on generating sufficient taxable income
prior to expiration of the net operating loss carryforwards. Although
realization is not assured, management believes it is more likely than not
that all of the deferred tax assets will be realized. The amount of the
deferred tax assets considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward
period are reduced.
NOTE K - RELATED PARTY TRANSACTIONS
The Company conducts a portion of its operations from facilities leased
(see note G) and purchased from an individual who was a director of the
Company through July 14, 1995. During the year ended January 31, 1995, the
Company reimbursed this former director $365,000 for his costs of moving
and business interruption in connection with an expansion of the Company's
manufacturing facilities which are leased from this former director. The
Company also purchases certain tooling and services from a company owned in
part by this former director. The following is a summary of rent expense,
building and land acquisition costs, leasehold costs and tooling and
services purchased from this individual while he was a director during the
years ended January 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year ended January 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Lease obligations $ 388,000 $ 464,000 $ 525,000
Building, land and land acquisition costs 16,000 4,000 1,776,000
Leasehold costs -- 365,000 --
Tooling and services 63,000 312,000 262,000
Deposits on building and land -- -- (450,000)
----------- ----------- -----------
$ 467,000 $ 1,145,000 $ 2,113,000
=========== =========== ===========
</TABLE>
F-20
Ultra Pac, Inc.
NOTES TO FINANCIAL STATEMENTS
January 31, 1996, 1995 and 1994
NOTE K - RELATED PARTY TRANSACTIONS - CONTINUED
Sales to a customer whose chief executive officer is a director of the
Company were $531,000 from July 14, 1995, when such person became a
director of the Company, through January 31, 1996.
See note D for transactions with affiliates.
NOTE L - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest and income taxes is as follows:
Income
Year ended January 31, Interest taxes
---------------------- -------- -----
1996 $ 2,403,587 $ 421,438
1995 1,489,918 59,017
1994 769,864 96,241
During the years ended January 31, 1995 and 1994, the Company acquired
$745,930 and $305,521, respectively of manufacturing equipment and
leasehold improvements under capitalized leases.
NOTE M - FINANCIAL INSTRUMENTS
The financial statements include information about estimated fair values as
of January 31, 1996 and 1995, as required by FASB Statement 107. Such
information, which pertains to the Company's financial instruments, is
based on the requirements set forth in that Statement and does not purport
to represent the aggregate net fair value of the Company.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to
estimate that value:
CASH: The carrying amount approximates fair value based on the demand
nature of the deposits.
RECEIVABLES: The carrying amount approximates fair value based on the
short maturity of these instruments.
LONG-TERM OBLIGATIONS: The carrying amount approximates fair value,
where significant, because the interest rates are indexed to market
value, or, due to the short maturity of these instruments.
NOTE N - RECLASSIFICATIONS
Certain amounts for the year ended January 31, 1995 have been reclassified
to conform with the financial statement presentation used for the year
ended January 31, 1996. These reclassifications had no effect on previously
reported net earnings or stockholders' equity.
F-21
3. (A) EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
3.1 Restated Articles of Incorporation (Exhibit No. 3.1) (3)
3.2 Bylaws (Exhibit No. 3.2) (1)
10.2 Employment Agreement with Calvin Krupa, dated June 20, 1989 (Exhibit No. 10.2) (2)
10.3 First Amendment to Employment Agreement, dated March 31, 1990, with Calvin Krupa (Exhibit No. 10.17) (4)
10.4 Second Amendment to Employment Agreement, dated January 3, 1992, with Calvin Krupa (Exhibit No. 10.4) (9)
10.9 1991 Stock Option Plan (exhibit No. 10.3) (7)
10.15 Lease Agreement with Charles J. Van Heel for 21925 Industrial Boulevard, Rogers, Minnesota dated July 23,
1991 (Exhibit No. 10.2) (8)
10.16 Amendment dated July 23, 1991, to Lease Agreement with Charles J. Van Heel for 21925 Industrial
Boulevard, Rogers, Minnesota, dated July 23, 1991 (Exhibit No. 10.3) (8)
10.17 Outside Directors' Option Plan (Exhibit No. 10.17) (9)
10.19 Purchase Agreement and Contract For Deed with Clement L. Sharp dated October 29, 1992 (Exhibit 10.2) (10)
10.20 Purchase Agreement with Mr. Chuck Van Heel dated December 7, 1992 (Exhibit No. 10.3) (10)
10.22 Equipment Note Agreement with Norwest Equipment Finance, Inc., dated March 22, 1993 (Exhibit No. 10.22) (11)
10.23 Lease Agreement with MLH Partners, dated April 8, 1992 (Exhibit 10.23) (11)
10.24 Equipment Note Agreement with Norwest Equipment Finance Inc., dated April 14, 1993 (Exhibit 10.24) (11)
10.25 Letter of Intent for real estate mortgage agreement with AmeriBank dated March 17, 1993 (Exhibit 10.25) (11)
10.26 Amendment dated June 1, 1993, to Lease Agreement with Charles J. Van Heel for 21925
Industrial Boulevard, Rogers, Minnesota, N.A. dated May 26, 1992 (Exhibit No. 10.1) (12)
10.27 Real Estate Mortgage Agreement with AmeriBank dated June 1, 1993 (Exhibit No. 10.2) (12)
10.29 Assumption Agreement between Ultra Pac, Inc. and Charles J. Van Heel and Marilyn Van
Heel, dated June 3, 1993 and the Mortgage Note between Charles J. Van Heel and W.J.D. & Co.
(Exhibit No. 10.2) (13)
10.30 Equipment Lease Agreement with the CIT Group dated August 30, 1993 (Exhibit No. 10.1) (14)
10.31 Equipment Note Agreement with Norwest Equipment Finance, Inc., dated October 19, 1993 (Exhibit No. 10.2) (14)
10.32 Equipment Note Agreement with Norwest Equipment Finance, Inc., Dated November 8, 1993 (Exhibit No. 10.3) (14)
E1
10.33 Amendment dated December 1, 1993 to Lease Agreement with ML Limited Partnership dated April 8, 1993
(Exhibit 10.33) (15)
10.34 Patent, Technical Information and Technical Assistance Agreement with Shell Oil Company dated
May 28, 1993 (Exhibit 10.34) (15)
10.35 Interim Funding Agreement with Norwest Equipment Finance dated February 3, 1994 (Exhibit 10.35) (15)
10.37 Equipment Note Agreement with Norwest Equipment Finance, Inc. dated May 24, 1994 (Exhibit 10.1) (16)
10.38 Equipment Lease Agreement with the CIT Group dated February 1, 1994. (Exhibit 10.2) (16)
10.39 Credit and Security Agreement with Norwest Bank, Minnesota N.A. dated June 13, 1994. (Exhibit 10-3) (16)
10.40 Equipment Note Agreement with Norwest Equipment Finance, Inc. dated October 17, 1994 (Exhibit 10.1) (17)
10.41 Leasehold Lease Agreement with Linmark Financial Group, Inc. dated October 20, 1994 (Exhibit 10.2) (17)
10.42 Lease Agreement with Charles J. Van Heel, dated November 20, 1994, for 22101 Industrial Blvd., Rogers, Minnesota
(Exhibit 10.3) (17)
10.43 Lease Agreement with Charles J. Van Heel, dated November 20, 1994, for 22101 Industrial Blvd., Rogers, Minnesota
(Exhibit 10.4) (17)
10.44 Second Amendment dated November 2, 1994, to Lease Agreement with Charles J. Van Heel for 21925 Industrial Blvd.,
Rogers, Minnesota (Exhibit 10.5) (17)
10.45 Waiver dated December 14, 1994, related to Credit and Security Agreement with Norwest Bank, Minnesota N.A.
dated June 13, 1994 (Exhibit 10.6) (17)
10.46 Loan and Security Agreement with the CIT Group/Equipment Financing, Inc., dated March 10, 1995
(Exhibit 10.46) (18)
10.47 Amendment dated July 1, 1994 to the Credit and Security Agreement with Norwest Bank, Minnesota, N.A. dated
June 13, 1994 (Exhibit 10.47) (18)
10.48 Amendment dated March 7, 1995 to the Credit and Security Agreement with Norwest Bank, Minnesota, N.A. dated
June 13, 1994. (Exhibit 10.48) (18)
10.49 Waiver dated March 2, 1995, related to Credit and Security Agreement with Norwest Bank, Minnesota N.A. dated
June 13, 1994 (Exhibit 10.49) (18)
10.50 Waiver dated March 3, 1995, related to Real Estate Mortgage Agreement with AmeriBank, dated June 1, 1993
(Exhibit 10.50) (18)
10.51 Amendment dated June 1, 1995 to the Credit and Security Agreement with Norwest Bank, Minnesota N.A., dated
June 13, 1994. (Exhibit 10.1) (19)
10.52 Amendment dated June 30, 1995 to the Credit and Security Agreement with Norwest Bank, Minnesota N.A., dated
June 13, 1994. (Exhibit 10.1) (20)
10.53 Waiver dated September 7, 1995, related to the Credit and Security Agreement with Norwest Bank, Minnesota N.A.,
dated June 13, 1994. (Exhibit 10.2) (20)
E2
10.54 Amendment dated October 8, 1995 to the Credit and Security Agreement with Norwest Bank, Minnesota N.A., dated
June 13, 1994. (Exhibit 10.1) (21)
10.55 Waiver dated December 12, 1995 related to the Credit and Security Agreement with Norwest Bank, Minnesota N.A.,
dated June 13, 1994. (Exhibit 10.2) (21)
* 10.56 Material supply agreement with Eastman Chemical Company, dated January 2, 1996 (confidential treatment has been
requested with respect to selected portions of this exhibit).
* 10.57 Equipment note agreement with Wentworth Capital Corporation dated December 7, 1995.
* 10.58 Financing Commitment with Norwest Credit, Inc. dated April 25, 1996.
* 10.59 Financing Commitment with Norwest Bank Minnesota N.A. dated April 25, 1996.
* 10.60 Commitment Letter, dated April 25, 1996, to Amend the Security Agreement on Promissory Note with USL Capital
Corporation dated December 20, 1994.
* 10.61 Commitment Letter, dated April 25, 1996, to Amend the Loan and Security Agreement with The CIT Group/Equipment
Financing, Inc. dated March 10, 1995.
* 10.62 Commitment letter, dated April 25, 1996, to Amend the Equipment Note Agreement with Norwest Equipment Finance
dated May 24, 1994.
* 10.63 Commitment letter, dated April 26, 1996, to Amend the Equipment Note Agreements with Norwest Equipment Finance
dated March 22, 1993, April 14, 1993, October 19, 1993, November 8, 1993 and October 17, 1994 respectively.
* 10.64 Waiver dated April 26, 1996, related to the Credit and Security Agreement with Norwest Bank, Minnesota N.A.
dated June 13, 1994.
* 10.65 Waiver dated April 26, 1996, related to Real Estate Mortgage Agreement with AmeriBank, dated June 1, 1993.
</TABLE>
- - ----------------------------------------------------------------
* Filed herewith
(1) Incorporated by reference to the specified exhibit to the Form S-18
Registration Statement, dated August 15, 1988, Registration No. 33-23631C.
(2) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended July 31, 1989.
(3) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended October 31, 1989.
(4) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended January 31, 1990.
(5) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended July 31, 1990.
E3
(6) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended April 30, 1991.
(7) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended July 31, 1991.
(8) Incorporated by reference to the specified exhibit to the Registration
Statement on Form S-2 dated April 3, 1992, Registration No. 33-46937.
(9) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended April 30, 1992.
(10) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended October 31, 1992.
(11) Incorporated by reference to the specified exhibit to the Form 10-K for the
year ended January 31, 1993.
(12) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended April 30, 1993.
(13) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended July 31, 1993.
(14) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended October 31, 1993.
(15) Incorporated by reference to the specified exhibit to the Form 10-K for the
year ended January 31, 1994.
(16) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended April 30, 1994.
(17) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended October 31, 1994.
(18) Incorporated by reference to the specified exhibit to the Form 10-K for the
year ended January 31, 1995.
(19) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended April 30, 1995.
(20) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended July 31, 1995.
(21) Incorporated by reference to the specified exhibit to the Form 10-Q for the
quarter ended October 31, 1995.
E4
Report of Independent Certified Public Accountants on Schedule
Board of Directors
Ultra Pac, Inc.
In connection with our audit of the financial statements of Ultra Pac, Inc.
referred to in our report dated April 13, 1996 (except for notes E and H as to
which the date is April 26, 1996) which is included in Part II of this Form
10-K, we have also audited Schedule II for the years ended January 31, 1996,
1995 and 1994.
In our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
St. Paul, Minnesota
April 26, 1996
E-5
Ultra Pac, Inc.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years ended January 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E Col. F
- - ---------------------------------------------------------------------------------------------------------
Additions
----------------------------
Balance at Charged to Charged to Balance at
beginning costs and other accounts - Deductions - End of
Description of period expenses Retirement Describe (1) Period
- - ---------------------------------------------------------------------------------------------------------
Allowance deducted from asset to which it applies:
Allowance for doubtful receivables, sales discounts and returns:
<S> <C> <C> <C> <C> <C>
1996 $ 245,000 $ 123,000 $ -- $ 63,000 $ 305,000
1995 $ 257,833 $ 130,339 $ -- $ 143,172 $ 245,000
1994 $ 149,556 $ 119,082 $ -- $ 10,805 $ 257,833
</TABLE>
(1) Uncollected receivables written off.
E-6
Exhibit 10.56
Eastman Chemical Company
P.O. Box 431
EASTMAN Kingsport, Tennessee 37662
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Mr. Cal Krupa
Ultra Pac, Inc.
21925 Industrial Blvd.
Rogers, Minnesota 55374-9474
Dear Cal:
As you are aware, we are interested in developing a partnership arrangement with
Ultra Pac which would provide Ultra Pac with an adequate supply of PET at a good
price and eliminate the necessity of searching for material supply and provide
better pricing. This comes at a time when pressure is on from competition in the
marketplace for OPS products, and we feel this arrangement would be beneficial
for both Ultra Pac and Eastman. We very much appreciate the opportunity to offer
the following proposal to you.
PROPOSED TERMS OF AGREEMENT
DURATION: [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
MATERIALS: Eastapak PET Copolyester 9921 (APET)
Eastapak PET Polyester 12822 (CPET)
And other materials as mutually agreed upon by Ultra Pac and Eastman.
QUANTITY: 1996 [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT] of 9921 and
12822 in 1996. The maximum quarterly commitment by Eastman
can be no more than 1/4 of the [TEXT DELETED DUE TO
CONFIDENTIAL TREATMENT] yearly maximum, but Eastman will
supply over the quarterly maximum if material availability
permits.
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT] Ultra Pac will
forecast material requirements by product each quarter so
negotiations between Ultra Pac and Eastman can be concluded
60 days prior to the beginning of any calendar quarter.
Ultra Pac intends for Eastman to become it's [TEXT DELETED
DUE TO CONFIDENTIAL TREATMENT] supplier of prime grade
polyester raw materials. Consistent with this, Ultra Pac
will give Eastman [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT] beginning 11/1/95. If in the event that Eastman
rejects an order due to inability to supply, Ultra Pac will
be free to purchase prime polyester grades from competitive
suppliers [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Malcolm Baldridge
National
Quality
Award
1993
Winner
Eastman Chemical Company
Mr. Cal Krupa
Page 2
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT] If in
the event that Ultra Pac is unwilling to purchase the
material, Eastman [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
clause, the terms, and duration of this agreement remain in
effect.
1997 [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Ultra Pac desires for Eastman to [TEXT DELETED DUE TO
CONFIDENTIAL TREATMENT] of prime grade polyester raw
materials. Ultra Pac and Eastman will meet [TEXT DELETED DUE
TO CONFIDENTIAL TREATMENT] to assess the success of working
together under the details of the 1996 section of this
contract and will discuss [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT] nevertheless, the [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT] relationship will continue over this period.
Price: Effective [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT] Eastman's
price to Ultra Pac for bulk 190,000-pound RC purchases of Eastapak
PET copolyester 9921 will be [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT] and for the same quantities and packaging of Eastapak
PET polyester 12822 will be [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT]
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Standard net 30 days from date of invoice (shipment) with
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Eastman's standard Terms and Conditions to apply. See attached.
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
WIDE SPECIFICATION MATERIALS:
Eastman will work with Ultra Pac to increase Ultra Pac's ability to
use wide specification product in their process. Wide specification
material [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT] will be made
available to Ultra Pac at pricing consistent with ongoing market
competitive prices.
Mr. Cal Krupa
Page 3
[TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
CONFIDENTIALITY:
The terms of this agreement apply solely to transactions between
Ultra Pac and Eastman. [TEXT DELETED DUE TO CONFIDENTIAL TREATMENT]
Cal, please review this revised proposal. If you agree, please sign and date
both originals of this contract offer and forward them back to my attention in
Kingsport. I will make sure that they are countersigned on our end and will send
an original back to you for your record. I can be reached at (p) 800-327-8626
and (f) 423-224-0044 if you have any questions or comments. I welcome your
comments and suggestions.
Sincerely,
Paul R. Anderson
Business Market Manager, Food and Consumer Packaging
Specialty Packaging Plastics Business Organization
Eastman Chemical Company
ULTRA PAC, INC. EASTMAN CHEMICAL COMPANY
/s/ Cal Krupa /s/ (illegible)
Name Name
Chief Executive Officer VP and General Manager
Title Title
[TEXT DELETED DUE TO CONFIDENTIAL [TEXT DELETED DUE TO CONFIDENTIAL
TREATMENT] TREATMENT]
Date Date
cc: Mr. Jerry Flora
Eastman Chemical Company
- - --------------------------------------------------------------------------------
CONDITIONS OF SALE
1. PRICES
Prices for the materials sold under this agreement shall be Eastman's
prices in effect on the date of shipment, unless otherwise agreed in writing.
Buyer will also pay any applicable taxes. If payments are not made when due, or
if Eastman has reason to believe that Buyer has unsatisfactory financial
responsibility, Eastman may require cash in advance or other payment terms,
suspend shipments, or cancel this agreement.
2. LIMITED WARRANTY
Eastman warrants that the materials will meet its written specifications
and were produced in compliance with the requirements of the Fair Labor
Standards Act of 1938, as amended, and all other federal and state laws and
regulations applicable to the materials and Eastman's sale of them under this
agreement. Eastman also warrants that it has good and free title to the
materials and that the materials will not infringe any valid claim of any United
States' patent covering the materials themselves, but Eastman does not warrant
against infringement by reason of the use of the materials in combination with
other products or in the operation of any process. Eastman may discontinue
deliveries of any materials, the manufacture, sale or use of which in its
opinion would involve patent infringement. EASTMAN MAKES NO OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THOSE OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE.
3. INSPECTION; LIMITATION OF LIABILITY; BUYER'S REMEDY
Buyer must promptly inspect the materials upon their delivery and must
notify Eastman in writing of any claims within 45 days of their date of
delivery. Eastman's maximum liability and Buyer's sole remedy in the event of
delivery of materials that fail to comply with the terms of this agreement, or
for any other breach by Eastman under this agreement, is a refund of the
purchase price or, at Buyer's option and subject to availability, supply of
replacement materials, freight charges to be borne by Eastman. IN NO EVENT SHALL
EITHER EASTMAN OR BUYER BE LIABLE FOR ANY CONSEQUENTIAL OR OTHER INCIDENTAL
DAMAGES UNDER THIS AGREEMENT, WHETHER OR NOT CAUSED BY SUCH PARTY'S NEGLIGENCE.
4. TECHNICAL INFORMATION; HAZARDS AND PRECAUTIONARY PROCEDURES
Any technical information or assistance Eastman or any of its affiliates
provides is given and accepted at Buyer's risk and is not a warranty or a
specification. Buyer agrees that it will familiarize itself with all hazards and
precautionary procedures with respect to the handling, transportation or use of
the materials or products made in whole or in part from the materials, and the
containers in which such materials or products are shipped, and will manage the
materials, products and containers accordingly. Buyer will forward any product
safety information provided by Eastman or its affiliates to Buyer's employees,
to all others who handle the materials, and to its customers. Buyer agrees,
notwithstanding anything herein to the contrary, to indemnify Eastman and its
affiliates for any claims made against Eastman or its affiliates and for
associated damages and expenses (including reasonable attorneys' fees and
expenses), to the extent caused by Buyer's failure to familiarize itself with
such hazards and precautionary procedures, to manage accordingly, or to forward
such information.
5. QUANTITY
On bulk marine vessel shipments, claims may not be made for shortages of
less than 1.0% of the net weight. On bulk tank trucks, bulk tank cars, or
packaged shipments, claims may not be made for shortages of less than 0.5% of
net weight.
Delivery of within 10% of the quantity requested shall be accepted by Buyer
as complying with the order, although Buyer must pay for only the quantity
actually delivered.
6. FORCE MAJEURE; GOVERNMENTAL ACTIONS
Neither Buyer nor Eastman shall be liable for failure of such party to
perform where such failure is caused by war, fire, accident, strike, labor
trouble or shortages, equipment breakdown, governmental laws, regulations,
orders or decrees (including those relating to environmental matters),
unavailability of materials, containers or transportation, or acts of God or
other causes beyond such party's control, and upon the occurrence of any such
event pertaining to Eastman, Eastman may allocate any available material among
its customers, its internal needs and its affiliates without such allocation
constituting a default hereunder. If a governmental action substantially affects
Eastman's right to establish prices or transportation terms, Eastman may
terminate this agreement on 30 days' notice.
7. TITLE; CONTAINERS AND RAILCARS
Unless it is otherwise indicated elsewhere in this agreement, delivery and
sales terms are F.O.B. shipping point, freight prepaid to destination. Buyer is
responsible for protecting and returning in good condition any returnable drums
or other containers, or railcars provided by Eastman, which will at all times
remain Eastman's property. Buyer is responsible for ensuring that such drums,
containers or railcars are "empty" before return. Railcars for bulk shipments
will be furnished to Buyer without charge for a period prescribed by Eastman.
Such railcars may be retained thereafter only with Eastman's prior consent and
subject to Eastman's current daily charges.
8. MISCELLANEOUS
This agreement consists only of the terms on both sides of this document
and any attachments hereto. Any modifications must be in writing and signed by
both parties. A waiver by Eastman with respect to any breach by Buyer shall not
constitute a waiver of any other breach. This agreement shall be deemed to have
been entered into in Kingsport, Tennessee and the laws of the State of Tennessee
shall apply.
P:SC9-1 ECC
11/10/94 (IPC 11/94)
[LOGO] WENTWORTH CAPITAL CORPORATION Loan No. 5883
LOAN AND SECURITY AGREEMENT (EQUIPMENT)
Loan and Security Agreement entered into as of the 7th day of December, 1995
(the "Agreement") by and between WENTWORTH CAPITAL CORPORATION, a New Hampshire
corporation with its principal offices at One Harbour Place, Portsmouth, NH
03801 ("Lender") and ULTRA PAC, INC. a Minnesota corporation with its principal
office at 21925 and 22051 Industrial Blvd., Rogers, MN 55374-9474 ("Borrower").
WHEREAS, Borrower desires to obtain a secured loan from Lender to finance its
acquisition of equipment (and/or to refinance existing equipment); and
WHEREAS, Lender is agreeable to making a secured loan to Borrower on the terms
and conditions contained in this Loan and Security Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the parties'
mutual agreements below set forth, Borrower and Lender agree as follows:
1. THE LOAN AND LOAN REPAYMENT. As requested by Borrower, Lender agrees to lend
to Borrower the sum of Seven Hundred Three Thousand Three Hundred and 00/100
($703,300.00) Dollars ("Loan"). Borrower agrees to repay the Loan in successive
installments (which installment payments are inclusive of interest) as set forth
in the following Schedule:
SCHEDULE
<TABLE>
ADVANCE PAYMENT NUMBER OF INSTALLMENTS (Exclusive of PERIODIC INSTALLMENT PAYMENT AMOUNT
Advance Payment) AND PAYMENT PERIOD PER PERIOD
<S> <C> <C>
$35,706.54 46 Monthly Payments $ 17,853.27
__ Quarterly Payments
</TABLE>
Commencement Date: _______________ Security Deposit (if any): _______________
Equipment Location (if other than above address of Borrower): __________________
________________________________________________________________________________
Special Provisions (if any): ___________________________________________________
________________________________________________________________________________
The Advance Payment, if any, shall be due and payable upon execution of this
Agreement. The first periodic installment payment (after excluding the Advance
Payment, if any) shall be due on the first (1st) day of the month following the
advance of the Loan proceeds by Lender and Borrower authorizes Lender to insert
such date above as the Commencement Date. The remaining periodic installment
payments shall be due and payable on the same day of each successive month (or
quarter, if quarterly payments are provided for above). However, the parties
may select another Commencement Date by noting the same in the above Special
Provisions section or by a separate writing signed by Lender and Borrower in
which case the first periodic installment payment shall be due on such date.
Unless otherwise specifically provided for in this Agreement, the Loan may not
be prepaid.
2. UNCONDITIONAL OBLIGATION TO PAY, LATE PAYMENTS, ETC. All payments due
hereunder shall be paid to Lender or its assigns without notice or demand and
without abatement, offset, defense or counterclaim, at Lender's principal
office shown above, or such other place as Lender or its assignee may designate
in writing to Borrower. Borrower's obligation to pay the installments and other
payments due hereunder shall be absolute and unconditional and shall not be
affected by reason of (i) any defect in, lack of fitness for use of, damage to,
loss of possession or use of or destruction of, all or any of the Equipment (as
defined below) securing Borrower's obligations, (ii) the prohibition or other
restriction against Borrower's use of said Equipment or (iii) for any other
cause, it being the agreement of the parties that the Loan and any other amount
payable by Borrower hereunder shall continue to be payable in all events in the
manner and at the times provided in this Agreement.
The Loan shall become immediately due and payable in its entirety upon the
occurrence of any Event of Default (as defined below). If any periodic
installment payment or other payment is more than five (5) days late, Lender
may, at its election, and subject to prior exercise of its right of
acceleration, accept the payment in arrears and Borrower shall pay, as
liquidated damages, a late charge equal to two (2%) percent per month on each
defaulted payment from the due date thereof. In no event shall any amount
payable to Lender as interest, including any sum held by a Court of competent
jurisdiction to be "interest" under applicable law, exceed, with respect to any
period of time, the highest rate of interest permitted by applicable law. Any
amount received by Lender determined to be in excess of the highest rate of
interest receivable by Lender, shall be refunded to Borrower
3. SECURITY INTEREST. To secure payment when due (at maturity, by acceleration
or otherwise) of the Loan, any interim fundings against the Loan and any
additional or future advances, renewals, extensions and replacements thereto
and any and all other present and future obligations of Borrower to Lender,
whether direct or contingent or joint and several, Borrower hereby conveys,
assigns, and grants to Lender a continuing security interest in and to (i) the
equipment described in the annexed Schedule A including all present and future
additions, attachments, replacements, accessions and accessories thereto (the
"Equipment"), and all substitutions and proceeds thereof including all proceeds
of insurance thereon, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx all of the above,
collectively, the "Collateral".
BORROWER GRANTS LENDER THE AUTHORITY TO FILE THIS AGREEMENT OR A CARBON,
PHOTOGRAPHIC OR OTHER REPRODUCTION THEREOF AS A FINANCING STATEMENT UNDER THE
UNIFORM COMMERCIAL CODE WITH RESPECT TO ALL SECURITY INTERESTS CREATED HEREBY.
4. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. BORROWER
ACKNOWLEDGES THAT THE EQUIPMENT HAS BEEN OR WILL BE SELECTED AND ACQUIRED
SOLELY BY BORROWER AND THAT LENDER HAS NOT AND DOES NOT MAKE ANY WARRANTY WITH
RESPECT TO ITS CONDITION, MERCHANTABILITY, SUITABILITY, CAPACITY OR FITNESS FOR
ANY PARTICULAR PURPOSE.
5. REPRESENTATIONS AND WARRANTIES. Borrower warrants, represents and agrees as
follows (i) Borrower has full power and authority to execute, deliver and
perform its obligations under this Agreement; (ii) the execution and delivery
of this Agreement has been authorized by all requisite corporate (or
partnership) action; (iii) the execution, delivery and performance of this
Agreement do not and will not constitute a breach, default or violation of or
under Borrower's articles of incorporation, by laws (partnership agreement) or
any other agreement, law, order, lease, judgment or injunction to which it is a
party or may be bound; (iv) the Equipment is (or, on the Commencement Date,
will be) lawfully owned by Borrower, free and clear of all liens, encumbrances
and security interests and Borrower will warrant and defend title thereto
against all claims; (v) Borrower has not granted and will not grant to any one
other than Lender a security interest in the Equipment and no Financing
Statement or other instrument affecting the Equipment nor rights therein,
bearing the signature of, or otherwise authorized by, Borrower is on file in any
public office; (vi) the equipment shall at all times remain personal property
and be retained in Borrower's possession at its principal address set forth
above (or, if so indicated, at the Equipment Location set forth above); (vii)
the equipment shall be used for business purposes; and (viii) if the Equipment
is attached to real estate or if it is or may become subject to a prior
interest in favor of a party having any interest in the real estate, Borrower
will, on Lender's demand, furnish Lender with a writing by which any and all
parties having such prior interest waive or subordinate their rights and
priorities to, or in favor of, Lender's security interest provided herein.
6. INSURANCE. Borrower shall, at its sole cost and expense, procure and
maintain, so long as Borrower is indebted to Lender on the Loan or on any other
liability (i) insurance insuring the Equipment against all risks of physical
loss, theft, damage and destruction with extended coverage in an amount equal
to the greater of (a) the amount of the Loan or (b) the full replacement value
(new) of the Equipment with loss payable solely to Lender (and its assigns) and
Borrower as their interests may appear and (ii) personal injury liability and
property damage insurance with respect to the Equipment and the use thereof in
such amounts as may be reasonably acceptable to Lender, and naming Lender (and
its assigns) as additional insured. All insurers and coverages must be
reasonably satisfactory to Lender. Borrower shall deposit said policy or
policies or duplicates thereof or certificates of insurance with Lender and
said policies shall provide that the policies may not be cancelled or altered
without at least thirty (30) days prior notice to Lender and that the coverage
shall not be invalidated against Lender because of any violation of any
condition or warranty contained in any policy or application therefor by
Borrower or by reason of any action or inaction of Borrower.
7. USE, REPAIRS, LOSS AND DAMAGE. Borrower agrees to maintain the Equipment in
good condition and repair and in accordance with the manufacturer's
instructions, manuals and warranties (if any), and the requirements of any
applicable insurance and any governmental authority having jurisdiction.
Borrower shall pay for all fuel, service, inspection, overhaul, replacements,
substitutions, materials and labor necessary or desirable for the proper use,
repair, operation and maintenance of the Equipment. All risks of loss, theft,
damage or destruction of the Equipment shall be borne by Borrower and Borrower
shall promptly notify Lender in writing of any such loss, theft, damage or
destruction. In the event of any damage to the Equipment (unless the same is
damaged beyond repair) Borrower shall, at its expense, place the same in good
repair, condition and working order. If the Equipment is determined by Lender
to be lost, stolen or damaged beyond repair, or should the Equipment be
confiscated, seized or the use and title thereof requisitioned to someone other
than Borrower, Borrower shall immediately pay to Lender, in addition to unpaid
periodic installment payments on the Loan, other unpaid sums due hereunder and
late charges then past due, an amount equal to the then remaining periodic
installment payments due on the Loan discounted to present value at the rate of
six (6%) percent per annum, less the net amount of the recovery, if any,
actually received by Lender from insurance on the equipment.
TERMS AND CONDITIONS OF LOAN AND SECURITY AGREEMENT CONTINUED ON REVERSE SIDE
ORIGINAL
Accepted at Lendors Office at Portsmouth, New Hampshire.
The undersigned signatory affirms that he/she has read the terms and conditions
printed above and on the reverse side, that he/she is a duly authorized
officer, partner or proprietor of the Borrower, and has authority to execute
this Loan and Security Agreement on its behalf.
LENDER
WENTWORTH CAPITAL CORPORATION
AUTHORIZED OFFICER TITLE
BY: /s/ Margaret (illegible) Vice Pres.
BORROWER
ULTRA PAC, INC.
AUTHORIZED OFFICER, PARTNER OR PROPRIETOR TITLE
BY: /s/ Brad C. Yopp CFO
TERMS CONDITIONS OF LOAN AND SECURITY AGREEMENT (CONTINUED)
8. TAXES AND OTHER CHARGES. Borrower agrees to pay promptly when due all
registration, title, license and other fees, assessments and sales, use, gross
receipts, ad valorum, property and any and all other taxes imposed by any
State, Federal, local or foreign government upon this Agreement or upon
the ownership, shipment, delivery, use or operation of the Equipment or any
Collateral or upon or measured by any payments due hereunder (other than
taxes on or measured solely by the net income of Lender) and any fines,
penalties and interest thereon.
9. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby agrees and covenants
as follows: (i) except for the security interest granted hereby, Borrower
shall keep the Equipment free and clear of any security interest, lien or
encumbrance and shall not sell, lease, assign (by operation of law or
otherwise), exchange or otherwise dispose of any of the Equipment; (ii) at
the request of Lender, Borrower will affix conspicuous tags or plates on
the Equipment containing a notation that Lender has a security interest
therein and will join Lender in execution of one or more Financing
Statements and continuation statements pursuant to the Uniform Commercial
Code to establish and maintain its security interest in the Collateral, in
form satisfactory to Lender, and will pay any filing fees and/or costs with
respect thereto and for lien searches; (iii) Borrower authorizes Lender to
file one or more Financing Statements covering the Collateral without
Borrower's signature thereto; (iv) Borrower will immediately notify Lender
in writing of any change in its place(s) of business or the adoption or
change of any trade name or fictitious business names and will execute any
additional Financing Statements as Lender may request to perfect and
maintain its security interest, but such notice shall not be deemed an
authorization to move the Collateral without the prior written consent of
Lender; (v) if any part of the Collateral is subject to a certificate of
title law, Borrower will cause Lender's security interest to be noted
thereon and promptly deliver such certificate of title to Lender; (vi)
Borrower will allow Lender and its representatives free access to the
Collateral at all times during normal business hours, for purposes of
inspection and repair and, following an Event of Default, Lender shall have
the right to demonstrate and show the Collateral to others and (vii)
Borrower will furnish to Lender (and will cause any guarantor of
Borrower's obligations hereunder to furnish to Lender) (a) its unaudited
quarterly Financial Statements within sixty (60) days after the end of its
first three quarters in each fiscal year, (b) its certified Financial
Statement prepared by an independent certified public accountant within
one-hundred five (105) days after the close of its fiscal year
which shall be prepared in accordance with generally accepted accounting
principles and (c) all other financial information and reports that Lender
may from time to time reasonably request, including income tax returns of
Borrower and any guarantor of Borrower's obligations hereunder.
10. BORROWER'S FAILURE TO PAY TAXES, INSURANCE, ETC. Should Borrower fail
to make any payment or do any act as herein provided (including, but not
limited to, payment of taxes or for insurance), Lender shall have the right,
but not the obligation, and without releasing Borrower from any obligation
hereunder, to make or do the same, and to pay any sum due in connection
therewith or to contest or compromise any encumbrance, charge or lien and
in exercising any such rights, incur any liability and expend whatever
amounts in its absolute discretion it may deem necessary therefor. All
sums so incurred or expended by Lender shall be payable by Borrower on
demand with interest at the rate of two (2%) percent per month.
11. CROSS COLLATERALIZATION. Without in any way limiting the provisions of
Section 3, as additional collateral security for the Borrower's obligations
hereunder, Borrower grants to Lender a further security interest in all
machinery, equipment, goods and other collateral covered by any other Loan
and Security Agreement, note and security agreement, other agreement or
lease (collectively the "other agreements") between Borrower and Lender
whether such other agreements are now in existence or hereafter come into
existence and Borrower assigns to Lender as security for its obligations
hereunder, all of its rights, title and interest in and to any surplus money
to which Borrower may be entitled upon the sale of the machinery,
equipment, goods and other collateral covered by such other agreements.
Anything above to the contrary notwithstanding, the benefit of the
foregoing cross collateralization shall apply for the benefit of Lender
and its assignee holding this Agreement only to the extent that Lender or
such assignee is also the holder of such other agreements or one or more
of them.
12. INDEMNIFY. Borrower assumes liability for and agrees to indemnify,
defend, protect, save and keep harmless Lender from and against costs,
expenses and disbursements, including court costs and legal expenses, of
whatever kind and nature, imposed on, incurred by or asserted against
Lender (whether or not also indemnified against by any other person) in
any way relating to or arising out of this Agreement or the manufacture,
financing, ownership, delivery, possession, use, operation, condition or
disposition of the Equipment by Borrower, including, without limitation,
any claim alleging latent and other defects, whether or not discoverable
by Lender or Borrower, and any other claim arising out of strict liability
in tort, whether or not in either instance relating to an event occurring
while Borrower remains obligated under this Agreement, and any claim for
patent, trademark or copyright infringement. Each party agrees to give the
other notice of any claim or liability hereby indemnified against promptly
following learning thereof. The fact that a claim for which Lender is
entitled to indemnity under this Section is asserted after the termination
of this Agreement shall not release Borrower from its indemnity
obligations and this covenant of indemnity shall survive the termination
of this Agreement.
13. DEFAULT. The occurrence of any one of the following shall constitute an
Event of Default hereunder: (i) Borrower fails to pay any periodic installment
payment or other amount due hereunder on or before the fifth (5th) day following
the date when the same becomes due and payable; (ii) Borrower removes, sells,
transfers, encumbers, or parts with possession of the Equipment or any items
thereof or attempts to do any of the foregoing; (iii) Borrower fails to maintain
in force the required insurance on the Equipment in compliance herewith or fails
to provide loss payable protection to Lender in form satisfactory to Lender;
(iv) any representation or warranty made by Borrower herein or in any other
agreement between the parties or in any statement given to Lender shall be
materially untrue; (v) Borrower shall fail to observe or perform any of the
other obligations required to be observed or performed by Borrower hereunder, or
other obligation or indebtedness of Borrower to Lender otherwise owing or due by
Borrower to Lender in any other agreement now or hereafter executed between the
parties hereto, and such failure shall continue uncured for twenty (20) days
after written notice thereof to Borrower; (vi) Borrower shall (a) fail to pay
any indebtedness for borrowed money (other than the Loan) of the Borrower, or
any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), or (b) fail to perform
or observe any term, covenant, or condition on its part to be performed or
observed under any agreement or instrument relating to such indebtedness, when
required to have been performed or observed, if the effect of such failure to
perform or observe is to accelerate such indebtedness, or if any such
indebtedness shall be declared to be due or payable or required to be prepaid
(other than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; (vii) if Borrower leases the premises where the Equipment is
located, a breach of such lease by Borrower and the commencement of an action by
the landlord to evict Borrower or to repossess the premises; (viii) if Borrower
sells, leases or disposes of any of its assets except in the ordinary course of
its business and except for the disposition of any obsolete or retired property
not useful to Borrower; (ix) Borrower ceases doing business as a going concern,
makes an assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a voluntary petition in
bankruptcy, is adjudicated a bankrupt or an insolvent, files a petition seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar arrangement under any present or future
statute, law or regulation or files an answer admitting the material allegations
of a petition filed against it in any such proceeding, consents to or acquiesces
in the appointment of a trustee, custodian, receiver or liquidator of it or of
all or any substantial part of its assets or properties, or if it shall take any
action looking to its dissolution or liquidation, or an order for relief is
entered under the Bankruptcy Code against Borrower; (x) within sixty (60) days
after the commencement of any proceedings against Borrower seeking
reorganization, arrangement, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such proceedings
shall not have been dismissed, or if within sixty (60) days after the
appointment without Borrower's acquiescence of any trustee, custodian, receiver
or liquidator of it or of all or any substantial part of its assets and
properties, such appointment shall not be vacated; (xi) Borrower sells all or
substantially all of its assets or consolidates with or merges into any other
entity or Borrower's stockholders or partners sell all or substantially all of
their stock or partnership interests; or (xii) the death of a guarantor of
Borrower's obligations hereunder or the dissolution or filing of a petition in
bankruptcy by or against a guarantor of Borrower's obligations hereunder.
14. REMEDIES. Upon the occurrence of any Event of Default, Lender shall have the
right to recover from Borrower, as liquidated damages for loss of a bargain and
not as a penalty, a sum equal to the aggregate of the following: (a) all unpaid
periodic installment payments and other sums due under this Agreement to the
date of default plus late charges, if any, (b) the present value (using a 6% per
year discount rate) of all remaining periodic installment payments due under
this Agreement and (c) interest at the rate of two percent (2%) per month on the
total of (a) plus (b) from the date of default. In addition, Lender shall have
the right to recover from Borrower any expenses paid or incurred by Lender in
connection with the enforcement of its rights under this Agreement and the
repossession, holding, repair, preparing for sale and subsequent sale, lease or
other disposition of the Collateral including attorneys fees and legal expenses
(collectively "Repossession Expenses"). BORROWER AND LENDER WAIVE ANY AND ALL
RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON THIS AGREEMENT.
The Lender shall have all of the rights and remedies of a Secured Party under
the Uniform Commercial Code and Lender is hereby authorized and empowered, with
the aid and assistance of any person or persons, to enter any premises where the
Collateral or any part thereof is, or may be, placed, and to assemble and/or
remove same and/or to render it unusable and sell and dispose of such Collateral
at one or more public or private sales upon at least seven (7) days written
notice to Borrower of such sale. The proceeds of each such sale shall be applied
by the Lender toward the payment of the Repossession Expenses, the liquidated
damages specified above and other indebtedness secured hereby. Should the
proceeds of any such sale be insufficient to fully pay all the items above
mentioned Borrower hereby covenants and agrees to pay any deficiency to the
Lender. If Lender employs counsel for the purpose of effecting collection of any
monies due hereunder (whether or not Lender has retaken the Collateral or any
part thereof) or for the purpose of recovering the Collateral, or for the
purpose of protecting Lender's interest because of any default of Borrower,
Borrower agrees to pay reasonable attorney's fees. The Lender may require
Borrower to assemble the Collateral and make it available to Lender at a place
to be designated by Lender which is reasonably convenient to both parties. All
rights and remedies hereunder are cumulative and not exclusive and a waiver by
Lender of any breach by Borrower of the terms, covenants, and conditions hereof
shall not constitute a waiver of future breaches or defaults; and no failure or
delay on the part of Lender in exercising any of its options, powers, rights or
remedies, or partial or single exercise thereof, shall constitute a waiver
thereof.
If any court of competent jurisdiction determines that any provision of this
Section 14 is invalid or unenforceable in any jurisdiction, in whole or in part,
such determination, as to such jurisdiction, shall not prohibit Lender from
enforcing its rights and establishing its damages sustained as the result of any
breach of this Agreement in accordance with the laws of such jursdiction.
15. ASSIGNMENT. Lender may assign or otherwise transfer this Agreement and any
and all of Lender's right, title and interest hereunder and in the Collateral
including the right to receive all amounts payable hereunder or grant
participations therein without Borrower's consent. In the event of any such
assignment, the right of the assignee to receive all amounts payable hereunder
as well as any other right of the assignee shall not be subject to any defense,
set-off or counterclaim which Borrower may have against Lender although any
claim Borrower may have against Lender shall be preserved and may be separately
pursued against Lender. Upon Lender giving notice to Borrower of any such
assignment, Borrower shall promptly acknowledge its obligations hereunder to
such assignee, and shall comply with the written directions or demands of such
assignee and shall make all payments due hereunder as such assignee may direct
in writing. Following any such assignment the term "Lender" shall be deemed to
include or refer to Lender's assignee, but no such assignee shall be deemed to
assume any obligation or duty imposed upon Lender hereunder and Borrower shall
look only to Lender for performance thereof. As used in this Section 15,
"assign" shall be deemed to include a pledge, sale of, or grant of a mortgage
on, or a security interest in, any of the Collateral or this Agreement by Lender
and the term "assignee" shall be deemed to refer to the recipient of such
pledge, sale, mortgage or security interest. This Agreement and Borrower's
rights and obligations herein shall not be transferable or assignable by
Borrower without the Lender's express prior written consent and any such
purported assignment by Borrower without such consent shall be null and void.
16. GENERAL PROVISIONS. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CONNECTICUT. This Agreement may not be changed, modified or
discharged on behalf of Lender, in whole or part, and no right of Lender may be
waived except by a writing signed by a duly authorized officer of Lender. The
Lender is authorized and empowered to date this Agreement and the Schedule(s)
thereto and to fi11 in blank spaces in accordance with the terms of the
transaction, including, but not limited to inserting serial numbers and
equipment descriptions in Schedule A and the assignment of an account number.
Notices hereunder shall be in writing and shall be deemed given when personally
delivered or when sent by facsimile to a party's facsimile number or three days
after having been mailed to the other party at the address specified above or
such new address as to which a party may advise the other. Forbearance or
indulgence by Lender in any regard shall not constitute a waiver of the covenant
or condition to be performed by Borrower to which the same may apply. The
section captions are for convenience and are not a part of the Agreement. This
Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors and permitted assigns of the parties. 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. THIS AGREEMENT AND ANY OTHER WRITTEN AGREEMENTS EXECUTED
SIMULTANEOUSLY HEREWITH SUPERSEDE ANY PRIOR PROPOSAL LETTERS, COMMITMENT LETTERS
OR NEGOTIATIONS AND THERE ARE NO ORAL COVENANTS OR AGREEMENTS. This Agreement
shall not be binding on Lender until accepted and executed on behalf of Lender
at its Portsmouth, New Hampshire office.
- - --------------------------------------------------------------------------------
[LOGO] WENTW0RTH CAPITAL CORPORATION
LOAN NO. 5883
LOAN AND SECURITY AGREEMENT
SCHEDULE A
The following description of property supplements, and is part of, the Loan
and Security Agreement dated December 7, 1995 between the undersigned Borrower
and Wentworth Capital Corporation and may be attached to said Loan and Security
Agreement and any related UCC Financing Statements, Acceptance or Delivery
Certificate or other document describing the property.
OMNI TOOL, INC.
3500 48th Avenue North
Minneapolis, Minnesota 55429
One (1) Muffin Inserts - Set of 4 Cavity for C-Pet.
16H/16C Plug Assist, Per Prototype Mold.
One (1) Set of Molds for 6 Count C-Pet Muffin
12H/12 Cold, 12 Up Trim Die.
One (1) 8 x 8 Lid Mold for 8 x 8 Pan & 4 Count
Muffin Pan.
One (1) 8 x 8 C-pet Pan. 16/H/16C Must be
Insertable for both 8 x 8 & 4ct Muffin Pan.
One (1) 4 Up Dome Tooling Pkg for 1115-6
Three (3) Sets of Inserts with Plug Assists 1115-35
One (1) 4 x 8 C-Pet Loaf Pan 15H/15C & Trim Tool
One (1) 18 Up Lid and Trim Tool
One (1) 8 Up Mold w/o Die/4590-175 Clamshell
Press Box and 8 Up Mold Use Existing
Trim Tool.
One (1) 14 Cavity Berry Clamshell - Slot Venting
3737-1PT
All Equipment above complete with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and all proceeds, including insurance proceeds, thereof and
therefrom.
WENTWORTH CAPITAL CORPORATION
(Lender)
BY: /s/ Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
(Borrower)
BY: /s/ Brad C. Yopp
TITLE: CFO
- - --------------------------------------------------------------------------------
PAYMENT ADJUSTMENT RIDER
RIDER TO LOAN AND SECURITY AGREEMENT DATED DECEMBER 7, 1995, (THE
"CONTRACT") BETWEEN ULTRA PAC, INC. AS DEBTOR (THE "OBLIGOR") AND WENTWORTH
CAPITAL CORPORATION AS SECURED PARTY ("WCC")
1. Purpose. This Rider sets forth the terms of adjustment to the payments
set forth in the Contract.
2. Definitions. The following terms shall have the following meanings
herein:
(a) "Adjustment Date" shall mean the date WCC disburses the proceeds of
the Contract.
(b) "Final T-Note Average" shall mean the average of the yields on U.S.
Treasury Notes maturing in four years, as published by the Dow Jones Telerate
Access Services, Page 19901, for the close of business on each business day of
the two full calendar weeks preceding the week containing the Adjustment Date.
(c) "Preliminary Payments" shall mean the payments set forth in the
Contract, consisting of $35,706.54 due upon execution followed by forty-six (46)
consecutive monthly payments commencing 30 days after the Adjustment Date in
the amount of $17,853.27.
(d) "Preliminary T-Note Average" shall mean 5.59%.
3. Adjustment of Payments. The Preliminary Payments were calculated based
on a spread over the Preliminary T-Note Average. If the Adjustment Date occurs
after December 15, 1995 and the Final T-Note Average exceeds the Preliminary
T-Note Average, then the Preliminary Payments shall be revised. For each
increase of one (1) basis point (i.e., 1/100 of 1%) in the Final T-Note Average
above the Preliminary T-Note Average, the Preliminary Payments shall be revised
as follows:
* The $35,706.54 payment due upon execution shall remain unchanged.
* Each of the remaining forty-six (46) payments in the amount of $17,853.27
shall increase by $3.12.
Immediately after the determination of the revised payments due under the
Contract and prior to the Adjustment Date, Obligor shall, at the request of WCC,
execute an acknowledgement reflecting the revised payment schedule and, if
requested by WCC, a Replacement Contract containing the agreed to payments, but
the failure of WCC to make such a request or the failure of Obligor to execute
the acknowledgment or Replacement Contract shall in no way diminish Leasee's
obligations hereunder.
4. WCC's Requirements. The commencement of the Contract is subject to
satisfaction of all documentation and credit requirements of WCC. If such
requirements are not satisfied by the Adjustment Date, then at WCC's option, the
Adjustment Date shall be the date when such requirements are satisfied.
IN WITNESS WHEREOF, the parties have executed this Rider simultaneously
with the Contract.
WENTWORTH CAPITAL CORPORATION:
BY: Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
BY: Brad C. Yopp
TITLE: CFO
- - --------------------------------------------------------------------------------
LOAN
[LOGO] WENTWORTH CAPITAL CORPORATION
DELIVERY CERTIFICATE
TO: WENTWORTH CAPITAL CORPORATION LOAN NO. 5883
("Lender")
LOAN AND SECURITY
AGREEMENT DATE December 7, 1995
The undersigned certifies that all of the Equipment described below and in
the Loan and Security Agreement referred to above (the "Agreement") has been
delivered to and inspected by the undersigned; that said Equipment is in good
condition and has been unconditionally accepted by the undersigned. The
undersigned further acknowledges that the Agreement is free from any defense,
set-off or counterclaim as against the Lender and its assignees.
EQUIPMENT DESCRIPTION:
SEE SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF
ULTRA PAC, INC
Name of Borrower
/s/ Brad C. Yopp
Authorized Signature
CFO
Name and Title
Date 12-18, 1995
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
LOAN NO. 5883
LOAN AND SECURITY AGREEMENT
SCHEDULE A
The following description of property supplements, and is part of, the Loan
and Security Agreement dated December 7, 1995 between the undersigned Borrower
and Wentworth Capital Corporation and may be attached to said Loan and Security
Agreement and any related UCC Financing Statements, Acceptance or Delivery
Certificate or other document describing the property.
OMNI TOOL, INC.
3500 48th Avenue North
Minneapolis, Minnesota 55429
One (1) Muffin Inserts - Set of 4 Cavity for C-Pet.
16H/16C Plug Assist, Per Prototype Mold.
One (1) Set of Molds for 6 Count C-Pet Muffin
12H/12 Cold, 12 Up Trim Die.
One (l) 8 x 8 Lid Mold for 8 x 8 Pan & 4 Count
Muffin Pan.
One (1) 8 x 8 C-pet Pan. 16/H/16C Must be
Insertable for both 8 x 8 & 4ct Muffin Pan.
One (l) 4 Up Dome Tooling Pkg for 1115-6
Three (3) Sets of Inserts with Plug Assists 1115-35
One (1) 4 x 8 C-Pet Loaf Pan 15H/15C & Trim Tool
One (1) 18 Up Lid and Trim Tool
One (1) 8 Up Mold w/o Die/4590-175 Clamshell
Press Box and 8 Up Mold Use Existing
Trim Tool.
One (l) 14 Cavity Berry Clamshell - Slot Venting
3737-lPT
All Equipment above complete with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and all proceeds, including insurance proceeds, thereof and
therefrom.
WENTWORTH CAPITAL CORPORATION
(Lender)
BY: /s/ Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
(Borrower)
BY: Brad C. Yopp
TITLE: CFO
- - --------------------------------------------------------------------------------
LOAN NO. 5883
ULTRA PAC, INC.
21925 AND 22051 INDUSTRIAL BLVD.
ROGERS, MN 55374-9474
December 7, 1995
Wentworth Capital Corporation
One Harbour Place, Suite 275
Portsmouth, New Hampshire 03801
Gentlemen:
Reference is made herein to a certain Loan and Security Agreement (the
"Loan") dated December 7, 1995 between Wentworth Capital Corporation as Lender
and ULTRA PAC, INC as Borrower covering the Equipment listed on the annexed
Schedule A (the "Equipment").
We hereby authorize you to disburse the $703,300.00 proceeds of the Loan
as follows:
1. $469,000.00 TO ULTRA PAC, INC.
2. 234,300.00 TO OMNI TOOL, INC.
$703,300.00 TOTAL PROCEEDS
Very truly yours,
ULTRA PAC, INC
BY: /s/ Brad C. Yopp
TITLE: CFO
REF.PAYPRO
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
LOAN NO. 5883
LOAN AND SECURITY AGREEMENT
SCHEDULE A
The following description of property supplements, and is part of, the Loan
and Security Agreement dated December 7, 1995 between the undersigned Borrower
and Wentworth Capital Corporation and may be attached to said Loan and Security
Agreement and any related UCC Financing Statements, Acceptance or Delivery
Certificate or other document describing the property.
OMNI TOOL, INC.
3500 48th Avenue North
Minneapolis, Minnesota 55429
One (1) Muffin Inserts - Set of 4 Cavity for C-Pet.
16H/16C Plug Assist, Per Prototype Mold.
One (1) Set of Molds for 6 Count C-Pet Muffin
12H/12 Cold, 12 Up Trim Die.
One (1) 8 x 8 Lid Mold for 8 x 8 Pan & 4 Count
Muffin Pan.
One (1) 8 x 8 C-pet Pan. 16/H/16C Must be
. Insertable for both 8 x 8 & 4ct Muffin Pan.
One (1) 4 Up Dome Tooling Pkg for 1115-6
Three (3) Sets of Inserts with Plug Assists 1115-35
One (1) 4 x 8 C-Pet Loaf Pan 15H/15C & Trim Tool
One (1) 18 Up Lid and Trim Tool
One (l) 8 Up Mold w/o Die/4590-175 Clamshell
Press Box and 8 Up Mold Use Existing
Trim Tool.
One (1) 14 Cavity Berry Clamshell - Slot Venting
3737-1PT
All Equipment above complete with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and all proceeds, including insurance proceeds, thereof and
therefrom.
WENTWORTH CAPITAL CORPORATION
(Lender)
BY: Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
(Borrower)
BY: Brad C. Yopp
TITLE: CFO
- - --------------------------------------------------------------------------------
LOAN CERTIFICATE OF SECRETARY
The undersigned does hereby certify that he/she is Secretary of ULTRA PAC,
INC, (hereafter called the "Corporation") and the following is a true, complete
and correct copy of resolutions duly adopted by the Board of Directors of the
Corporation at a meeting thereof duly called and held on December 7, 1995 at
which a quorum was present and acting throughout, and that such resolutions are
in full force and effect:
"RESOLVED, that the Corporation enter into a Loan and Security Agreement
(the "Agreement") with Wentworth Capital Corporation (hereafter called
"WCC"), substantially in the form presented to this meeting, providing for
the Loan by the Corporation from WCC of the amount reflected in the
Agreement to be secured by the property described in the Agreement (the
"Collateral"); and it is further
RESOLVED, that the officers of the Corporation and each of them singly,
hereby are authorized (a) to execute and deliver said Agreement in the name
and on behalf of the Corporation, either in the form presented to this
meeting or with such changes therein as the officer executing the same may
approve, his approval and authority to be conclusively evidenced by his
execution thereof, such execution to be valid and binding on the
Corporation with or without the corporate seal of the Corporation, (b) to
carry out the obligations and enforce the rights of the Corporation under
said Agreement, (c) to execute and deliver in the name and on behalf of the
Corporation such other documents as may be requested or required by WCC in
connection with said Agreement including (without limiting the generality
of the foregoing) security agreements and financing statements evidencing
security interests of WCC and its assignees in and to the Equipment and/or
additional collateral, agreements with assignees of WCC as to the payment
of installments to such assignees and an Acceptance or Delivery Certificate
in respect of the Equipment as contemplated by said Agreement, and (d) to
take all other action deemed by them necessary or advisable in connection
with the foregoing; and it is further
RESOLVED, that the officers of the Corporation, and each of them singly,
hereby are authorized from time to time on behalf of the Corporation to
enter into additional Loan and Security Agreements or otherwise finance the
acquisition of additional equipment from WCC upon such terms and conditions
as the officers, or any one of them, shall determine, and in that
connection to execute and deliver in the name and on behalf of the
Corporation amendments or additional Loan and Security Agreements or
leases, together with all accompanying documents as are set forth in the
preceding resolutions; and it is further
RESOLVED, that all acts authorized in the foregoing resolutions, but
performed prior to the adoption of these resolutions, are hereby ratified
and affirmed."
The undersigned further certifies that the persons whose names, titles and
signatures appear below are the duly elected (or appointed), qualified and
acting officers of the Corporation and hold on the date of this Certificate the
offices set forth opposite their respective names, and the signatures appearing
opposite their respective names are the genuine signatures of such persons:
Name of Officer Title of Officer Signature of Officer
Cal Krupa Chief Executive Officer /s/ Cal Krupa
Brad Yopp Chief Financial Officer /s/ Brad Yopp
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said
Corporation this 7th day of December, 1995.
/s/ (illegible)
Secretary
(Corporate Seal)
(In the case where the Secretary is authorized to sign Loans and Security
Agreements, etc. by this resolution, and does or will execute the same, the
below Additional Certificate must be signed by a second officer of the
Corporation.)
ADDITIONAL CERTIFICATE
The undersigned does hereby certify that he is ___________ (title) of the above
Corporation and certifies that the foregoing is a true, complete and correct
copy of resolutions duly adopted by the Board of Directors and that the above
are the names, titles and genuine signatures of the presently-elected and acting
officers of the Corporation.
F-204A 8/94
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
Loan No. 5883
December 7, 1995
ULTRA PAC, INC.
21925 and 22051 Industrial Blvd.
Rogers, MN 55374-9474
Gentlemen:
As you are aware, Wentworth Capital Corporation requires the following
insurance coverage with companies and in form satisfactory to it as one of the
conditions of its entering into the proposed Lease or Note and Security
Agreement with respect to its contemplated equipment financing for your Company:
1. Insurance against loss, damage, destruction or theft of the Equipment,
with extended coverage, with loss payable solely to PHOENIXCOR, INC. AND/OR ITS
ASSIGNS in an amount equal to not less than the Equipment's full replacement
value. The amount initially required is $703,300.00.
2. $2,000,000.00 combined single limit for general liability insurance
written by an insurance carrier rated A+VIII by A.M. Best Company, with respect
to the Equipment, naming PHOENIXCOR, INC. AND/OR ITS ASSIGNS as Additional
Insured.
3. The policies must provide that they will not be cancelled or altered
without thirty (30) days prior written notice to the certificate holder which
shall be PHOENIXCOR, INC. AND/OR ITS ASSIGNS. All notices to Phoenixcor, Inc.
are to be sent to 65 Water Street, South Norwalk, CT 06854 until further notice
to the insurance carrier. The policies insuring against loss, damage,
destruction or theft must provide that the coverage will not be invalidated
against PHOENIXCOR, INC. AND/OR ITS ASSIGNS because of any violation of any
condition or warranty contained in any policy or application therefor by the
insured or others or by reason of any act of the insured.
4. Insurance must be effective and Wentworth Capital Corporation must
receive duplicates of policies or satisfactory certificates prior to the
commencement date of the applicable Lease, Note and Security Agreement or other
financing document.
Please be sure to forward a copy of this letter to your insurance company
to be processed, and sign and return a copy of this letter to us.
Very truly yours,
WENTWORTH CAPITAL CORPORATION
AGREED TO AND ACCEPTED BY: ATTENTION INSURANCE CARRIER:
ULTRA PAC, INC. PLEASE FAX A COPY OF THE BINDER
TO 603/433-4317 PRIOR TO MAILING.
BY: /s/ Brad C. Yopp THANK YOU.
O n e H a r b o u r P 1 a c e, S u i t e 2 7 5
P o r t s m o u t h, N e w H a m p s h i r e 0 3 8 0 l
TEL. 603 433-4310 FAX 603 433-4317
800 352-1354
SPI Member
- - --------------------------------------------------------------------------------
LEASE
CONSENT & WAIVER BY LANDLORD OR MORTGAGE OF REAL ESTATE
For good and valuable consideration, receipt of which is hereby acknowledged,
the undersigned (herein "Undersigned"), being (landlord) (mortgagee) of certain
real estate known as
21925 and 22051 Industrial Blvd. Rogers MN 55374
(Street) (City) (State)
said premises now being occupied by ULTRA PAC, INC. (herein "Occupant"), and
said Occupant having (i) leased (purchased) (agreed to lease) (agreed to
purchase) from Wentworth Capital Corporation having a place of business at
(illegible) Portsmouth, New Hampshire 03801 (herein "WCC") and/or (ii) granted
WCC a security interest in, the following personal property (herein the
"Equipment"):
SEE SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF
does hereby agree that the Equipment is to remain personal property notwith-
standing the manner in which it is affixed to the said real estate and that WCC
or its assigns or agents may remove the Equipment from the above-described
premises whenever WCC or its assigns feels it necessary to protect its interest.
The undersigned waives any right it now has or may hereafter have at law or by
the terms of any real estate lease or mortgage now in effect or hereafter
executed by the Undersigned and/or the Occupant and/or any other person having
an interest in said real estate to levy or distrain upon, for rent, in arrears,
in advance or both, or to claim or assert any title to, lien upon, or interest
in, the Equipment.
IN WITNESS WHEREOF, the Undersigned has set his hand and seal this 7th day of
December, 1995.
(Corporate Seal)
AmeriBank
(Type name of Corporation, Partnership or Proprietorship)
By: (illegible signature)
Senior Vice President
(Type Name of Signatory and Title)
Mortgagee
(Indicate whether Landlord or Mortgagee)
PROPER ACKNOWLEDGEMENT MUST BE COMPLETED
CORPORATE ACKNOWLEDGEMENT
STATE OF Minnetonka )
) ss.
COUNTY OF Hennepin )
On this 15th day of December, 1995, before me personally came Douglas L.
Van Metre, to me known, who being by me duly sworn, did depose and say that he
resides at Edina; that he is the Senior Vice President of AmeriBank, the
Corporation described in and which executed the foregoing Consent and Waiver;
that the Corporation voluntarily executed said instrument as the free act and
deed of the Corporation; that he knows the seal of said Corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the Board of Directors of said Corporation, and that he signed his
name thereto by like order.
/s/ Mary Kasel Olson
Notary Public
PARTNERSHIP ACKNOWLEDGEMENT
STATE OF )
) ss.
COUNTY OF )
On this _______________ day of _______________, 199 ___, before me personally
came ______________________________, to me known and known to me to be a general
partner of the partnership described in and which executed the foregoing Consent
and Waiver and he/she duly acknowledged to me that he/she executed the same in
said partnership name as the free act and deed of the partnership.
______________________________
Notary Public
INDIVIDUAL ACKNOWLEDGEMENT
STATE OF )
) ss.
COUNTY OF )
On this _______________ day of _______________, 199 ___, before me personally
came ______________________________, to me known and known to me to be the
individual described in and who executed the foregoing Consent and Waiver and
he/she duly acknowledged to me that he/she executed the same.
______________________________
Notary Public
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
LOAN NO. 5883
LOAN AND SECURITY AGREEMENT
SCHEDULE A
The following description of property supplements, and is part of, the Loan
and Security Agreement dated December 7, 1995 between the undersigned Borrower
and Wentworth Capital Corporation and may be attached to said Loan and Security
Agreement and any related UCC Financing Statements, Acceptance or Delivery
Certificate or other document describing the property.
OMNI TOOL, INC.
3500 48th Avenue North
Minneapolis, Minnesota 55429
One (1) Muffin Inserts - Set of 4 Cavity for C-Pet.
16H/16C Plug Assist, Per Prototype Mold.
One (1) Set of Molds for 6 Count C-Pet Muffin
12H/12 Cold, 12 Up Trim Die.
One (1) 8 x 8 Lid Mold for 8 x 8 Pan & 4 Count
Muffin Pan.
One (1) 8 x 8 C-pet Pan. 16/H/16C Must be
. Insertable for both 8 x 8 & 4ct Muffin Pan.
One (1) 4 Up Dome Tooling Pkg for 1115-6
Three (3) Sets of Inserts with Plug Assists 1115-35
One (1) 4 x 8 C-Pet Loaf Pan 15H/15C & Trim Tool
One (1) 18 Up Lid and Trim Tool
One (l) 8 Up Mold w/o Die/4590-175 Clamshell
Press Box and 8 Up Mold Use Existing
Trim Tool.
One (1) 14 Cavity Berry Clamshell - Slot Venting
3737-1PT
All Equipment above complete with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and all proceeds, including insurance proceeds, thereof and
therefrom.
WENTWORTH CAPITAL CORPORATION
(Lender)
BY: Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
(Borrower)
BY: Brad C. Yopp
TITLE: CFO
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
Loan No. 5883
December 7, 1995
ULTRA PAC, INC.
21925 and 22051 Industrial Blvd.
Rogers, MN 55374-9474
Gentlemen and Madames:
Under your Loan with Wentworth Capital Corporation, you are responsible for the
payment of all taxes related to the Equipment that we are financing for you.
While we normally bill for taxes, if any, payable on the rentals (sales/use
taxes), we will not bill you for or furnish any advice with respect to any taxes
on the Equipment such as property, ad valorem or other tax imposed by any state,
federal, local or foreign government in connection with the purchase,
possession, ownership or operation of the Equipment.
It is your obligation to timely submit such reports, file such returns and pay
the applicable taxes when due in connection with the Equipment. If local law
prohibits you from making direct payment or filing the applicable report or
return, it is your responsibility to immediately advise us, in writing, to such
effect and furnish us with the forms, data and information as will enable us to
make and file the return or report, along with your payment for the tax due.
Your prompt attention will avoid accrual of interest and penalties which would
be your responsibility.
Please sign and return a copy of this letter to us.
Very truly yours,
WENTWORTH CAPITAL CORPORATION
BY: Margaret (illegible)
TITLE: Vice President
The above is acknowledged and agreed to:
ULTRA PAC, INC.
BY: Brad C. Yopp
TITLE: CFO
O n e H a r b o u r P 1 a c e, S u i t e 2 7 5
P o r t s m o u t h, N e w H a m p s h i r e 0 3 8 0 l
TEL. 603 433-4310 FAX 603 433-4317
800 352-1354
SPI Member
- - --------------------------------------------------------------------------------
LOAN ACKNOWLEDGEMENT OF ASSIGNMENT
TO: PHOENIXCOR, INC. RE: LOAN AGREEMENT DATED December 7, 1995
65 WATER STREET WITH ULTRA PAC, INC.
SOUTH NORWALK, CONNECTICUT 06854
Gentlemen:
Reference is made to the annexed Note and Security Agreement dated December
7, 1995 (the "Loan") between WENTWORTH CAPITAL CORPORATION as Secured Party
("Secured Party") and the undersigned ULTRA PAC, INC. as Debtor. We consent to
Secured Party's assignment of the Loan to you, acknowledge receipt of notice of
such assignment and in consideration of your advancement of funds to the vendor
of the equipment described in the Loan (the "Equipment") and/or to Secured Party
with respect to the Loan, we hereby acknowledge and agree that:
1. The Loan is in full force and effect and constitutes our valid and
binding obligation, enforceable in accordance with its terms. We have not
entered into any agreement with any person modifying the provisions of the Loan
and we cannot make any future modification, termination or settlement of amounts
due under the Loan except with the consent of you or your assigns.
2. The Loan describes the entire agreement between Secured Party and us
regarding our use of and rights and obligations with respect to the Equipment
except ______________________. There are no "side letters" or verbal
understandings between us and Secured Party modifying the provisions of the Loan
or otherwise affecting our obligations to make the payments thereunder.
3. The Equipment was first delivered to our premises located at
______________________ on ______________________, 199___ and has been
unconditionally accepted by us. We agree to make no claims against you with
respect to the Equipment.
4. We do not have the right to assign, sublease or relocate the Equipment
without your prior written consent, which consent you are not obligated to give
to us.
5. Secured Party has assigned to you all of its right, title and interest
in the Loan but none of its obligations and you are the Secured Party of record
under the Loan. We agree to remit to you the remaining forty-six (46) monthly
loan payments consisting of $ 17,853.27, (plus tax if applicable) commencing
______________________, 19___ and continuing on the same day of every month
thereafter. These are the remaining monthly loan payments due after crediting
any prepaid loan payments paid to Secured Party. We will have no obligation to
you and you will have no obligation to us with respect to any such prepaid loan
payments paid to Secured Party. We agree to pay the same to you or your assigns
unconditionally without defense, setoff or counterclaim. However, we preserve
all our rights against Secured Party and the vendor of the Equipment. We agree
to make all payments due and to give all notices and information required under
the Loan to you at your above address or to any revised address of which you or
your assigns may advise us.
6. We will insure the Equipment as required under the Note and Security
Agreement and cause you to be named as loss payee and additional insured and we
will perform for your benefit all of our other obligations as Debtor under the
Loan.
7. We have received no notice of a prior sale, transfer, assignment,
hypothecation or pledge of the Loan, the payments reserved thereunder or the
Equipment.
8. If we default under the Loan, then we will pay to you all of your costs
and expenses, including reasonable attorney fees, incurred in enforcing your
rights under the Loan.
9. We have no right to prepay the sums due under the Loan.
10. There (a)___ will or (b) _x_ will not be use/sales tax due with each
payment under the Loan.
11. There are no judgements, suits or proceedings pending or threatened
against us which would adversely affect our ability to make payments under the
Loan.
12. No event of default (or that which would constitute an event of default
under the Loan with the passage of time, giving of notice, or both) on our part,
or to our knowledge, on the part of Secured Party, has occurred in the
performance of each such party's obligations under the Loan.
13. This Acknowledgement of Assignment shall inure to the benefit of your
successors and assigns.
14. We acknowledge and agree that the Loan and all related documents are
governed by the laws of the State of Connecticut and they were entered into with
the understanding that they were to be assigned to you and you require that the
laws of Connecticut govern your transactions so that the documents will be
applied and interpreted uniformly. We agree that such laws bear a reasonable
relationship to the Loan transaction.
DATED: December 7, 1995 Very truly yours,
ULTRA PAC, INC.
BY: Brad C. Yopp TITLE: CFO
ACKNOWLEDGEMENT OF SECURED PARTY
The undersigned Secured Party under the Loan defined in the foregoing
Acknowledgement of Assignment hereby consents to the foregoing and confirms that
it has assigned all remaining loan payments under the Loan to Phoenixcor, Inc.
as specified in the Acknowledgement of Assignment.
DATED: December 7, 1995 WENTWORTH CAPITAL CORPORATION (SECURED PARTY)
BY: Margaret (illegible) TITLE: Vice President\
ACKNOWLEDGEMENT OF GUARANTOR
The undersigned guarantor of the Loan defined in the foregoing
Acknowledgement of Assignment hereby consents to the foregoing.
DATED: ____________________, 199___ _________________________________
(GUARANTOR)
_________________________________
AGREED TO: PHOENIXCOR, INC. SIGNATURE
BY: _________________________________ TITLE: __________________________
- - --------------------------------------------------------------------------------
STANDARD FORM
JULIUS BLUMBERG, INC. NYC, 10013
UNIFORM COMMERCIAL CODE -- FINANCING STATEMENT -- FORM UCC-1
INSTRUCTIONS:
1. PLEASE TYPE this form. Fold only a1ong perforation for mailing.
2. Remove Secured Party and Debtor copies and send other 3 copies with
intreleaved carbon paper to the filing officer. Enclose filing fee.
3. If the space provided for any item(s) on the form is inadequate the item(s)
should be continued on additional sheets, preferably 5" x 8" or 8" x 10".
Only one copy of such additional sheets need be presented to the filing
officer with a set of three copies of the financing statement. Long schedules
of collateral, indentures, etc., may be on any size paper that is convenient
for the secured party. Indicate the number of additional sheets attached.
4. If collateral is crops or goods which are or are to become fixtures, describe
generally the real estate and give name of record owner.
5. When a copy of the security agreement is used as a financing statement, it is
requested that it be accompanied by a completed but unsigned set of these
forms, without extra fee.
6. At the time of original filing, filing officer should return third copy as an
acknowledgement. At a later time, secured party may date and sign Termination
Legend and use third copy as a Termination Statement.
This FINANCING STATEMENT is presented to a filing officer for filing pursuant
to the Uniform Commercial Code:
1. Debtor(s) (Last Name First) and address(es)
ULTRA PAC, INC.
21925 & 22051 Industrial Blvd.
Rogers, MN 55374-9474
Fed. I.D. #41-1581031
2. Secured Party(ies) and address(es)
Wentworth Capital Corporation
One Harbour Place, Suite 275
Portsmouth, NH 03801
3. Maturity date (if any):
For Filing Officer (Date, Time, Number, and Filing Office)
4. This financing statement covers the following types (or items) of property:
All property set forth in Loan and Security Agreement (Account #5883) dated
December 7, 1995 between Debtor and Secured Party as listed on the annexed
Schedule A.
5. Assignee(s) of Secured Party and Address(es)
Phoenixcor, Inc.
65 Water Street
South Norwalk, CT
This statement is filed without the debtor's signature to perfect a security
interest in collateral (check |x| if so)
|_| already subject to a security interest in another jurisdiction when it was
brought into this state.
|_| which is proceeds of the original collateral described above in which a
security interest was perfected:
Filed with:
Check |x| if covered:
|_| Proceeds of Collateral are also covered.
|_| Products of Collateral are also covered.
No. of additional Sheets presented:
ULTRA PAC, INC.
By: Brad C. Yopp
Signature of Debtor(s)
CFO
Title
Wentworth Capital Corporation
By: Margaret (illegible)
Signature of Secured Party(ies)
Vice Pres
Title
(1) Filing Officer Copy - Alphabetical
STANDARD FORM -- FORM UCC-1.
(For Use In Most States)
- - --------------------------------------------------------------------------------
[LOGO] WENTWORTH CAPITAL CORPORATION
LOAN NO. 5883
LOAN AND SECURITY AGREEMENT
SCHEDULE A
The following description of property supplements, and is part of, the Loan
and Security Agreement dated December 7, 1995 between the undersigned Borrower
and Wentworth Capital Corporation and may be attached to said Loan and Security
Agreement and any related UCC Financing Statements, Acceptance or Delivery
Certificate or other document describing the property.
OMNI TOOL, INC.
3500 48th Avenue North
Minneapolis, Minnesota 55429
One (1) Muffin Inserts - Set of 4 Cavity for C-Pet.
16H/16C Plug Assist, Per Prototype Mold.
One (1) Set of Molds for 6 Count C-Pet Muffin
12H/12 Cold, 12 Up Trim Die.
One (1) 8 x 8 Lid Mold for 8 x 8 Pan & 4 Count
Muffin Pan.
One (1) 8 x 8 C-pet Pan. 16/H/16C Must be
. Insertable for both 8 x 8 & 4ct Muffin Pan.
One (1) 4 Up Dome Tooling Pkg for 1115-6
Three (3) Sets of Inserts with Plug Assists 1115-35
One (1) 4 x 8 C-Pet Loaf Pan 15H/15C & Trim Tool
One (1) 18 Up Lid and Trim Tool
One (l) 8 Up Mold w/o Die/4590-175 Clamshell
Press Box and 8 Up Mold Use Existing
Trim Tool.
One (1) 14 Cavity Berry Clamshell - Slot Venting
3737-1PT
All Equipment above complete with any and all attachments, accessions,
additions, replacements, improvements, modifications and substitutions thereto
and therefor and all proceeds, including insurance proceeds, thereof and
therefrom.
WENTWORTH CAPITAL CORPORATION
(Lender)
BY: Margaret (illegible)
TITLE: Vice President
ULTRA PAC, INC.
(Borrower)
BY: Brad C. Yopp
TITLE: CFO
Mr. Brad Yopp
Chief Financial Officer
Ultra Pac, Inc.
2l925 Industrial Boulevard
Rogers, MN 55374-9474
Re: Commitment to Extend Revolving and Term Credit Facilities
Dear Mr. Yopp:
Norwest Credit, Inc. ("NCI") is pleased to present this commitment to
extend the revolving and term credit facilities described below to Ultra Pac,
Inc. This commitment is expressly conditioned as set forth in paragraph 22.
1. BORROWER. Ultra Pac, Inc., a Minnesota corporation.
2. REVOLVING FACILITY. Committed revolving facility equal to the lesser
of (a) $9,500,000 (the "Maximum Line") or (b) availability as
determined under the Borrowing Base.
3. BORROWING BASE. The Borrowing Base under the Revolving Facility will
be equal to (i) the sum of (A) 80% of Eligible Accounts and (B) the
lesser of $5,000,000 or 50% of Eligible Inventory, minus (ii)
$1,000,000. NCI will maintain absolute discretion in determining
eligibility, advance rates and caps on advances against accounts and
inventory throughout the term of the Revolving Facility.
4. ELIGIBLE ACCOUNTS. "Eligible Accounts" will be defined in the Credit
Agreement and will exclude (a) that portion of Accounts more than 90
days past invoice date; (b) Accounts that are disputed or subject to
claim of offset or a contra account; (c) Accounts owed by any unit
of government, whether foreign or domestic; (d) Accounts owed by an
account debtor located outside of the United States which are not
backed by a bank letter of credit or credit insurance acceptable to
NCI; (e) Accounts owed by an account debtor that is subject to
bankruptcy proceedings or has gone out of business; (f) Accounts
owed by a shareholder, subsidiary, affiliate, officer or employee of
the Borrower; (g) Accounts not subject to a duly perfected security
interest in favor of NCI or which are subject to any lien, security
interest or claim in favor of any person or entity other than NCI;
(h) Accounts that have been restructured, extended, amended or
modified; (i) Accounts owed by an account debtor, regardless of
whether otherwise eligible, if 10% or more of the total amount due
under Accounts from such debtor is ineligible under clauses, (a),
(b), or (h) above; and (j) Accounts otherwise deemed ineligible by
NCI from time to time in its sole discretion.
5. ELIGIBLE INVENTORY. "Eligible Inventory" will be defined in the
Credit Agreement and will include certain work-in-process inventory,
raw materials inventory and finished goods inventory as deemed
eligible by NCI in its sole and absolute discretion, but will
exclude (a) Inventory which is: in transit: located at any warehouse
or other premises not approved by NCI in writing; located outside of
the state, or localities, as applicable, in which NCI has filed
financing statements to perfect security interest in such inventory;
covered by any negotiable or non-negotiable warehouse receipt, bill
of lading or other document of title; on consignment to or from any
other person or entity or subject to any bailment; (b) Supplies or
parts inventory; (c) Inventory that is damaged, slow-moving,
obsolete, or not currently saleable in the normal course of the
Borrower's operations; (d) Inventory which the Borrower has
returned, or attempted to return, or is in the process of returning;
(e) Inventory which is subject to security interest in favor of any
person other than NCI; (f) Inventory otherwise deemed ineligible by
NCI from time to time in its sole discretion.
6. TERM FACILITY. Committed term loan made in a single advance equal to
the lesser of (a) $4,712,000 or (b) the then outstanding amounts of
the current term loans (the "Existing Term Loans") from Norwest Bank
Minnesota, National Association ("NBM") and West One Bank, Idaho
("West One").
7. USE OF PROCEEDS. The proceeds of the Revolving Facility and the Term
Facility (collectively, the "Facilities") shall be used to refinance
the Existing Term Loans and the existing revolving loans from West
One and NBM, and shall provide for ongoing working capital needs.
8. REPAYMENT. Final maturity of all facilities will be on May 31, 1997
(the "Maturity Date"). The Term Facility will have monthly principal
payments of $66,667. The Term Facility will be due and payable in
full if the Revolving Facility is terminated.
9. INTEREST RATE. The base rate of interest ("Base Rate") announced by
NBM from time to time plus 1.50% (Revolving Facility) and 1.75%
(Term Facility). All interest is floating, payable monthly in
arrears and calculated on the basis of actual days elapsed in a 360
day year. After an event of default (an "Event of Default") under
any Loan Document, the New NBM Facility (defined below) or any other
credit agreement of the Borrower, NCI, in its sole discretion, may
impose a discretionary default rate of interest equal to an
additional 2% on the Facilities, which such default rate shall be
retroactively effective to the date of such Event of Default.
10. FEES. Fees shall be due and payable by the Borrower as follows:
(a) An origination fee of $50,000 payable upon the earliest of (i)
the Maturity Date, (ii) the occurrence of an Event of Default,
or (iii) prepayment of the Term Facility.
(b) A default fee of $50,000 payable upon the occurrence of an
Event of Default.
(c) A non-refundable agent's fee (the "Agent's Fee") of $25,000
payable upon acceptance of this commitment as provided below.
(d) A facility fee of 0.25% of the difference of the Maximum Line
and the outstanding balance of the Revolving Facility, payable
monthly in arrears.
(e) A prepayment fee if either or both Facilities are repaid prior
to the Maturity Date through any means other than cash flow or
financing by a Norwest affiliate, payable upon the date of
such prepayment as follows: (i) Revolving Facility: two
percent (2%) of the Maximum Line; and/or (ii) Term Facility:
two percent (2%) of the outstanding principal balance.
11. COLLATERAL. (i) A first priority security interest in all of the
Borrower's personal property (except as provided below), including
without limitation, all inventory, accounts receivable, documents,
instruments, equipment and general intangibles (including
intellectual property); and (ii) a second priority security interest
in specific equipment in which NBM currently does not hold a first
priority security interest. All facilities will be secured by all
Collateral.
12. LOAN DOCUMENTS. The Loan Documents executed by the Borrower shall
include promissory notes evidencing the Revolving and Term
Facilities, a Credit and Security Agreement (the "Credit
Agreement"), the Warrants described below, the Security Documents
described below, the Debt Subordination Agreement described below,
the Management Support Agreement described below, the
Subcontractor's Acknowledgment and related Notices described below
and any other documents required by NCI. All Loan Documents must be
satisfactory to NCI.
13. SECURITY DOCUMENTS. The Security Documents will include:
(a) LOCKBOX AND COLLATERAL ACCOUNT AGREEMENTS. Lockbox and
collateral account agreements pursuant to which the Borrower
will direct all receipts to a lockbox established at NBM. All
receipts received at the lockbox or by the Borrower shall be
directly deposited to a collateral account at NBM. Amounts
will be held two days and then applied directly to the
outstanding balance of the Revolving Facility. If no loans are
outstanding, amounts will be deposited to an operating
account.
(b) MORTGAGEE'S AND LANDLORD'S DISCLAIMERS AND CONSENTS. The
Borrower will obtain disclaimers and consents from each of its
mortgagees and landlords, pursuant to which, among other
things, NCI will be able to use any premises used by the
Borrower for a period of up to 105 days.
(c) ASSIGNMENT OF LIFE INSURANCE. The Borrower will assign to NCI
as collateral its key man life insurance policy on the life of
Calvin Krupa.
14. DEBT SUBORDINATION AGREEMENT. NCI will require a debt subordination
agreement by and between NCI and NBM.
15. SUBCONTRACTOR'S ACKNOWLEDGMENT. NCI will require a Subcontractor' s
Acknowledgment of the Borrower's ownership of certain inventory and
equipment to be executed by Hands, Inc. ("Hands"), and a Notice of
Ownership of Goods to be delivered to each secured creditor of
Hands.
16. WARRANTS. The Borrower will issue, with terms and in form
satisfactory to NCI, warrants to NCI for the purchase of 50,000
shares of common stock.
17. MANAGEMENT SUPPORT AGREEMENT. No guarantee will be required.
However, NCI will require a management support agreement from Calvin
Krupa which provides for, among other things, personal liability in
case of fraud, an agreement to assist NCI at its request with an
orderly liquidation of the collateral, and a liquidated damages
clause in the event of a breach of such agreements equal to
$100,000.
18. EXPENSES. The Borrower will pay NCI for collateral monitoring costs
at the then per diem rate (currently $400 per diem per auditor plus
actual out-of-pocket expenses). The frequency of audits is expected
to be at least quarterly but may be increased or decreased in NCI's
sole discretion. All reasonable attorney fees and expenses related
to the preparation and execution of the Loan Documents and any
participations sold to other lenders, plus any subsequent amendments
or additional documentation, will also be paid by the Borrower.
19. REPORTING. The financial reporting requirements will include, but
may not be limited to: Annual audited financial statements and
annual CPA Management Letter prepared in accordance with GAAP within
90 days of fiscal year-end prepared by an independent auditor
acceptable to NCI; Daily reporting of sales and collections; Monthly
internally-prepared financial statements within 20 days of each
month-end; Monthly compliance certificates certifying compliance
with loan covenants, within 20 days of each month-end; Monthly
accounts receivable listing and aging reports along with
certification of eligible accounts within 15 days of each month-end;
Monthly inventory listings along with inventory amounts and
eligibility certifications within 15 days of each month-end; Monthly
accounts payable listing and aging within 15 days of each month-end;
Monthly updates provided by consultants and Borrower management
outlining recommendations and progress of recommendation
implementation; Annual financial projections, by month, due 30 days
prior to the beginning of the next fiscal year; and any other
information NCI may reasonably request.
20. FINANCIAL COVENANTS. Financial performance covenants will include
but may not be limited to: Minimum earnings test; Minimum inventory
turn ratio; Minimum tangible net worth test; Maximum leverage ratio;
Limitations on capital expended for research and development;
Limitations on capital expenditures, dividends, inter-company loans,
and other restricted payments; and limitations on the sale of
assets.
21. OTHER TERMS AND CONDITIONS. The Loan Documents will also contain
other restrictions and requirements including without limitation:
(i) all proceeds from the sale of assets shall be applied to
repayment of the Facilities (except with respect to the tax refund
for the fiscal year ending January 31, 1996, which shall be applied
to the New NBM Facility described below); (ii) no mergers,
acquisitions or other investments or advances to any officer or
affiliate without the prior approval of NCI; (iii) customary
representations and warranties; (iv) insurance policies acceptable
to NCI, containing a lender's and mortgagee's loss payable
endorsement acceptable to NCI; (v) if a change of management or
ownership control occurs, the Facilities shall be payable upon
demand; (vi) no distributions, advances or loans to stockholders;
(vii) compensation plans and bonuses to be paid to Brad Yopp and
Calvin Krupa acceptable to NCI.
22. CONDITIONS PRECEDENT TO NCI'S OBLIGATIONS. NCI shall have no
obligation to extend the credit facilities as described herein or
make any advance thereunder unless the following conditions are
satisfied:
(a) There must be no material adverse change in the business,
operations, property or financial or other condition of the
Borrower at any time since March 31, 1996 the date of the most
recent financial statement of the Borrower provided to NCI.
(b) West One must have entered into a participation agreement with
NCI, pursuant to which West One agrees to purchase an
undivided 45% (or greater) participating interest in the
Facilities.
(c) The Borrower must have availability of $1,500,000 under the
Revolving Facility at the time of closing.
(d) The Borrower shall have secured (and shall contemporaneously
with the initial funding hereunder receive the proceeds of) a
subordinate term loan in the amount of $2,600,000 from NBM
(the "New NBM Facility").
(e) There must be no Event of Default in existence.
(f) NCI shall have received the following items, each satisfactory
to NCI in its sole discretion: (i) the Loan Documents, duly
executed on behalf of the Borrower; (ii) satisfactory searches
showing that no UCC, tax, judgment or other lien is filed
against the Borrower except in favor of NCI or otherwise
acceptable to NCI; (iii) an opinion of counsel to the Borrower
with respect to the Loan Documents; (iv) an executed agreement
by and between Eastman Chemical Company and the Borrower with
respect to credit limit and sales terms; (v) executed Debt
Payment Moratorium Agreements from CIT, USL Capital and
Norwest Equipment Finance, Inc. and (vi) certain other
requirements as described in the Loan Documents.
(g) The Borrower must have (i) extended reasonable offers to
retain consulting services on an extended basis with Jack
Daugherty and Quazar Capital with terms and conditions
satisfactory to NCI and (ii) upon any rejection of such offer
or offers, secured replacements for such party or parties that
are acceptable to NCI in its sole discretion.
(h) The Borrower must have (i) extended a reasonable employment
offer to a qualified chief operating officer (to the
satisfaction of NCI) on or prior to May 15, 1996 and (ii) upon
the rejection of such offer, instituted a reasonable
contingency plan to find a replacement for such position
acceptable to NCI.
23. EXPIRATION OF COMMITMENT. This commitment to extend the Revolving
and Term Facilities to the Borrower shall expire if each condition
precedent to the Credit Agreement has not been met or the Loan
Documents have not been fully executed by 4:00 p.m. (Minneapolis
time) on May 31, 1996.
Please indicate your acceptance of this commitment by signing the
duplicate original of this letter and returning it to the attention of Annette
Roseland along with the Borrower's check for the Agent's Fee by no later than
April 26, 1996. Upon NCI's receipt of the signed duplicate letter (either the
original or a facsimile) and the non-refundable Agent's Fee, NCI will initiate
the documentation process. Please contact Annette Roseland at 673-8575 should
you have any questions or require additional information.
Very truly yours,
NORWEST CREDIT, INC.
By /s/ Annette K. Roseland
Annette K. Roseland
Its Business Development Officer
Acknowledged and Agreed to this
______ day of _____________, 1996
Ultra Pac, Inc.
By _________________________________
Its _____________________________
Mr. Brad Yopp
Chief Financial Officer
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, MN 55374-9474
Re: Commitment to Extend Term Credit Facility
Dear Mr. Yopp:
Norwest Bank Minnesota, National Association ("Norwest") is pleased to
present this commitment to extend the term credit facility described below to
Ultra Pac, Inc. This commitment is expressly conditioned as set forth in
paragraph 17.
1. BORROWER. Ultra Pac, Inc., a Minnesota corporation.
2. TERM FACILITY. Committed term loan made in a single advance equal to
$2,600,000.
3. USE OF PROCEEDS. The proceeds of the Term Facility shall be used to
refinance a portion of existing revolving loans from Norwest and
West One Bank, Idaho (West One").
4. REPAYMENT. The Term Facility will be due and payable in full on May
3l, 1997 (the "Maturity Date"). The Term Facility will have monthly
principal payments of $75,000.
5. INTEREST RATE. The base rate of interest ("Base Rate") announced by
Norwest from time to time plus 3.0%. All interest is floating,
payable monthly in arrears and calculated on the basis of actual
days elapsed in a 360 day year. After an event of default (an "Event
of Default") under any Loan Document, the Senior Facility (defined
below) or any other credit agreement of the Borrower, Norwest, in
its sole discretion, may impose a discretionary default rate of
interest equal to an additional 2%, which such default rate shall be
retroactively effective to the date of such Event of Default.
6. COLLATERAL. A security interest in all of the Borrower's personal
property (except as provided below), including without limitation,
all inventory, accounts receivable, equipment, documents,
instruments, general intangibles (including intellectual property);
said security interest shall be subordinate ONLY to (i) Norwest
Credit, Inc. ("NCI") and (ii) certain lenders, with respect only to
certain equipment, in which Norwest currently does not hold a first
priority security interest; provided, however, that pursuant to the
Debt Subordination Agreement described below, Norwest shall have a
first priority lien on all proceeds of the Borrower's tax refund
(the "Tax Refund") for the fiscal year ended January 31, 1996.
7. LOAN DOCUMENTS. The Loan Documents executed by the Borrower shall
include a promissory note evidencing the Term Facility, a Credit and
Security Agreement (the "Credit Agreement"), the Warrants described
below, the Security Documents described below, the Management
Support Agreement described below, the Subcontractor's
Acknowledgment and Notices described below, the Debt Subordination
Agreement described below and any other documents required by
Norwest. All Loan Documents must be satisfactory to Norwest.
8. SECURITY DOCUMENTS. The Security Documents will include:
(a) LANDLORD'S AND MORTGAGEE'S DISCLAIMERS AND CONSENTS. The
Borrower will obtain disclaimers and consents from each of its
landlords and mortgagees, pursuant to which, among other
things, Norwest will be able to use any premises used by the
Borrower for a period of up to 105 days.
(b) ASSIGNMENT OF LIFE INSURANCE. The Borrower will assign to
Norwest as collateral its key man life insurance policy on the
life of Calvin Krupa.
9. SUBCONTRACTOR'S ACKNOWLEDGMENT. Norwest will require a
Subcontractor' s Acknowledgment of the Borrower' s ownership of
certain inventory and equipment to be executed by Hands, Inc., and a
Notice of Ownership of Goods to be delivered to each secured
creditor of Hands, Inc.
l0. WARRANTS. The Borrower will issue, with terms and in form
satisfactory to Norwest, warrants to Norwest for the purchase of
80,000 shares of common stock.
11. MANAGEMENT SUPPORT AGREEMENT. No guarantee will be required.
However, Norwest will require a management support agreement from
Calvin Krupa which provides for, among other things, personal
liability in case of fraud, an agreement to assist Norwest at its
request with an orderly liquidation of the collateral, and a
liquidated damages clause in the event of a breach of such
agreements equal to $100,000.
12. DEBT SUBORDINATION AGREEMENT. Norwest will require a debt
subordination agreement by and between NCI and Norwest pursuant to
which NCI subordinates to Norwest its security interest in the Tax
Refund.
13. EXPENSES. The Borrower will pay all reasonable attorney fees and
expenses related to the preparation and execution of the Loan
Documents and any participation sold to other lenders, plus any
subsequent amendments or additional documentation.
14. REPORTING. The financial reporting requirements will include, but
may not be limited to: Annual audited financial statements and
annual CPA Management Letter prepared in accordance with GAAP within
90 days of fiscal year-end prepared by an independent auditor
acceptable to Norwest; Monthly internally-prepared financial
statements within 20 days of each month-end; Monthly compliance
certificates certifying compliance with loan covenants, within 20
days of each month-end; Monthly updates provided by consultants and
Borrower management outlining recommendations and progress of
recommendation implementation; Annual financial projections, by
month, due 30 days prior to the beginning of the next fiscal year;
and any other information Norwest may reasonably request.
15. FINANCIAL COVENANTS. Financial performance covenants will include
but may not be limited to: Minimum earnings test; Minimum inventory
turn ratio; Minimum tangible net worth test; Maximum leverage ratio;
Limitations on capital expended for research and development;
Limitations on capital expenditures, dividends, inter-company loans,
and other restricted payments; and limitations on the sale of
assets.
16. OTHER TERMS AND CONDITIONS. The Loan Documents will also contain
other restrictions and requirements including without limitation:
(i) all proceeds of the Tax Refund shall be immediately applied to
the Term Facility; (ii) no mergers, acquisitions or other
investments or advances to any officer or affiliate without the
prior approval of Norwest; (iii) customary representations and
warranties; (iv) if a change of management or ownership control
occurs, the Term Facility shall be payable upon demand; (v) no
distributions, advances or loans to stockholders; (vi) compensation
plans and bonuses to be paid to Brad Yopp and Calvin Krupa
acceptable to Norwest.
17. CONDITIONS PRECEDENT TO NORWEST'S OBLIGATIONS. Norwest shall have no
obligation to extend the credit facilities as described herein or
make any advance thereunder unless the following conditions are
satisfied:
(a) There must be no material adverse change in the business,
operations, property or financial or other condition of the
Borrower at any time since March 31, 1996 the date of the most
recent financial statement of the Borrower provided to
Norwest.
(b) West One must have entered into a participation agreement with
Norwest, pursuant to which West One agrees to purchase an
undivided 45% (or greater) participating interest in the Term
Facility.
(c) The Borrower shall have secured a senior term loan and senior
revolving line of credit from NCI (collectively, the "Senior
Facility") in the amount not to exceed $4,712,000 and
$9,500,000, respectively.
(d) There must be no Event of Default in existence.
(e) Norwest shall have received the following items, each
satisfactory to Norwest in its sole discretion: (i) the Loan
Documents, duly executed on behalf of the Borrower; (ii)
satisfactory searches showing that no UCC, tax, judgment or
other lien is filed against the Borrower except those in favor
of Norwest, filed pursuant to the Senior Facility or otherwise
acceptable to Norwest; (iii) an opinion of counsel to the
Borrower with respect to the Loan Documents; (iv) an executed
agreement by and between Eastman Chemical Company and the
Borrower with respect to credit limit and sales terms; (v)
executed Debt Payment Moratorium Agreements from CIT, USL
Capital and Norwest Equipment Finance, Inc. and (vi) certain
other requirements as described in the Loan Documents.
(f) The Borrower must have (i) extended reasonable offers to
retain consulting services on an extended basis with Jack
Daugherty and Quazar Capital with terms and conditions
satisfactory to Norwest and (ii) upon any rejection of such
offer or offers, located and executed consulting agreements
with replacements for such party or parties that are
acceptable to Norwest in its sole discretion.
(g) The Borrower must have (i) extended a reasonable employment
offer to a qualified chief operating officer (to the
satisfaction of Norwest) on or prior to May 15, 1996 and (ii)
upon the rejection of such offer, instituted a reasonable
contingency plan to find a replacement for such position
acceptable to Norwest.
18. EXPIRATION OF COMMITMENT. This commitment to extend the Term
Facility to the Borrower shall expire if each condition precedent to
the Credit Agreement has not been met or the Loan Documents have not
been fully executed by 4:00 p m. (Minneapolis time) on May 31, 1996.
Please indicate your acceptance of this commitment by signing the
duplicate original of this letter and returning it to the attention of Laura
Oberst by no later than April 26, 1996. Upon Norwest's receipt of the signed
duplicate letter (either the original or a facsimile), Norwest will initiate the
documentation process. Please contact Laura Oberst at 667-5714 should you have
any questions or require additional information.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Laura Oberst
Laura Oberst
Its Vice President
Acknowledged and Agreed to this
________ day of _____________, 1996
Ultra Pac, Inc.
By _____________________________
Its _________________________
April 24, 1996
Ms. L. Jane Ivy
Litigation and Control Manager
USL Capital
Business Equipment Financing
733 Front Street
San Francisco, CA 94111
Dear Ms. Ivy:
This letter will document the terms of the restructure of lease number
00123806-001 between USL Capital and Ultra Pac, Inc. which we discussed. The
restructure will be upon the following terms and conditions:
1. Interest only payments on the total principal amount outstanding at the
rate of 12% per annum shall be payable monthly from January 1, 1996,
through September, 1996.
2. All past interest will be brought current within five days of completing
the documentation of this restructure, to be funded out of the new bank
line supplied to Ultra Pac, Inc. by Norwest Bank, N.A.
3. USL Capital's deferral of debt will be cross defaulted with all other
creditors who are granting deferrals.
4. USL Capital waives all defaults, violations of covenants and other
violations of the lease arising or occurring prior to the date of this
letter.
5. Payments of principal will again commence November, 1996. The deferred
principal amount will be due on the final installment date of the
referenced lease agreement.
6. Ultra Pac, Inc. will provide to USL Capital, in consideration for the
deferral, a warrant to purchase 6,000 shares of Ultra Pac, Inc. common
stock at current market value. The warrant will be on the same terms as
the warrants issued to other creditors who are granting debt deferral to
Ultra Pac, Inc.
7. The transaction will be documented in form and format acceptable to USL
Capital and its counsel.
To reflect your agreement to the foregoing, I would appreciate it if you would
sign one copy of this letter and return it to the undersigned. Please return
your acceptance by no later than Thursday, April 25, 1996, at 5:00 PM.
Sincerely, Agreed to USL Capital
/s/ Brad C. Yopp
Brad C. Yopp By: /s/ L. Jane Ivy
Chief Financial Officer for Ultra Pac, Inc. Its:
April 25, 1996
Mr. Arthur M. Loewenthal
Senior Vice President
The CIT Group
Capital Equipment Financing, Inc.
1211 Avenue of the Americas
New York, NY 10036
Dear Art:
This letter will document the terms of the restructure of the Loan and Security
Agreement dated as of March 10, 1995, between the CIT Group/Equipment Financing,
Inc. and Ultra Pac, Inc. which we have discussed. The restructure will be upon
the following terms and conditions:
1. Interest only payments on the total principal amount outstanding shall be
payable monthly from January 15, 1996, through December 15, 1996.
2. All past interest will be brought current within five days of completing
the documentation of this restructure, to be funded out of the new bank
line supplied to Ultra Pac, Inc. by Norwest Bank, N.A.
3. The CIT Group's deferral of debt will be cross defaulted with all other
creditors who are granting deferrals.
4. The CIT Group waives all defaults, violations of covenants and other
violations of the lease arising or occurring prior to the date of this
letter. In addition, the CIT Group approval is subject to mutually
agreeable negotiated financial covenants which will not be more
restrictive than those with Norwest Bank or Norwest Credit, Inc.
5. Payments of principal will again commence January, 1997. The deferred
principal amount will be due on the final installment date of the
respective A Equipment Loan and B Equipment Loan.
6. The Company agrees to provide a cash recapture to the CIT Group to be
applied to the deferred principal payments for the two years ending
January 31, 1997 and 1998, as follows. To the extent the Company has
availability under its revolving credit facility in excess of $2,000,000,
50% of that excess will be remitted to the CIT Group following completion
of the Company's audited financial statements. The repayment will not
exceed $600,000 annually and in the aggregate no more than the deferred
amount, and will not be made if it puts the Company in violation of its
covenants or causes an event of default with any of its lenders.
7. Ultra Pac, Inc. will provide to The CIT Group, in consideration for the
deferral, a warrant to purchase 49,000 shares of Ultra Pac, Inc. common
stock at current market value. The warrant will be on the same terms as
the warrants issued to other creditors who are granting debt deferral to
Ultra Pac, Inc.
8. The transaction will be documented in form and format acceptable to The
CIT Group and its counsel.
To reflect your agreement to the foregoing, I would appreciate it if you would
sign one copy of this letter and return it to the undersigned. Please return
your acceptance by no later than Thursday, April 25, 1996, at 5:00 PM.
Sincerely, Agreed to The CIT Group/Capital
Equipment Financing, Inc.
Brad C. Yopp By: /s/ Arthur M. Loewenthal
Chief Financial Officer for Ultra Pac, Inc. Its: SVP
April 25, 1996
Mr. Brad C. Yopp
Chief Financial Officer
Ultra Pac, Inc.
21925 Industrial Blvd.
Rogers, Minnesota 55374-9575
Dear Brad:
This letter will document the terms of the restructure of the Security Agreement
and Related Promissory Note, dated May 27, 1994, between Norwest Equipment
Finance, Inc. and Ultra Pac, Inc. which is discussed. The restructure will be
upon the following terms and conditions:
1. Interest only payments on the total principal amount outstanding shall be
payable monthly form January 15, 1996 through June 1996.
2. All past due interest will be brought current by the later of five days
after completing the documentation of this restructure, to be funded out
of the new bank line supplied to Ultra Pac, Inc. by Norwest Bank, N.A., or
May 15, 1996.
3. Concord Commercial's deferral of debt will be cross-defaulted with all
other creditors who are granting deferrals.
4. Concord Commercial waives all payment defaults and other financial
covenant violations of the agreement arising or occurring prior to the
date of this letter.
5. Payment of principal and interest in the amounts specified in the
restructure documents shall commence in July 1996. The deferred principal
amount will be due on the final installment date of the referenced
Security Agreement.
6. The transaction will be documented in form and format acceptable to
Concord Commercial and its counsel, and closed no later than May 15, 1996.
7. All other terms and conditions of the above Security Agreement and related
Promissory Note remain in full force and effect, unless referenced in this
letter above.
Sincerely,
/s/ Phil Shoen
Phil Shoen
Region Portfolio Manager
April 26, 1996
Mr. Brad Yopp
ULTRA PAC, Inc.
21925 Industrial Blvd.
Rogers, Minnesota 55374-9575
Re: Restructure Leases/Loans # 10004657-100,704,705,706,,708
Dear Brad,
This letter will confirm our agreement to restructure the above accounts to
accommodate your request for a nine (9) month forbearance of principal with
monthly interest paid as agreed. The understanding is that NEFI and or NEFI
related accounts listed, will be documented in substance with all agreements
which are being used with the new borrowing agreement between Ultra Pac, Norwest
Bank Minnesota, and NCI. We agree to waive the events of default which exist as
of April 26, 1996. We will work towards final documentation with the Norwest
affiliates and Ultra Pac to set out the agreement as timely as possible. The
basics are:
1) Nine month forbearance of principal beginning January 96 and ending
September 96 with interest payable monthly and full payments to resume
October 96.
Principal amount forbeared to be due and payable at the final payment date
as per the original contracts.
2) Interest/Rate charged per contract to remain the same through the same
period covered by the new borrowing agreement with Norwest Banks.
3) Warrants covering the rate issue will be part of the Warrants issued to
the banking affiliates NCI/NBCI. NEFI will find mutual agreement with the
Norwest entities on amount.
4) All NEFI agreements will be cross defaulted with all obligations Ultra Pac
owes to any Norwest affiliate.
Please contact me if I can answer any questions or be of assistance.
Sincerely,
/s/ Kurt L. Isaacson
Kurt L. Isaacson
Assistant Vice President
Portfolio Administration
April 26, 1996
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, MN 55374-9474
Attention: Brad C. Yopp
Re: Credit and Security Agreement dated June 13, 1994, as amended
Dear Mr. Yopp:
We have received your letter dated April 17, 1996 disclosing four covenant
defaults, as of January 31, 1996, under the Credit and Security Agreement dated
June 13, 1994, as amended on June 30, 1995 and October 18, 1995 (as so amended,
the "Credit Agreement") between Norwest Bank Minnesota, National Association
("Norwest"), West One Bank, Idaho ("West One") and Ultra Pac, Inc. (the
"Company").
Norwest hereby waives the four covenant violations described in your April 17,
1996 letter. The present financial covenant requirements for the Company shall
be as attached to Norwest's Commitment to Extend Term Credit Facility, dated
April 26, 1996.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ Laura Schmaltz Oberst
Laura Schmaltz Oberst
Vice President
WAIVER AND MODIFICATION AGREEMENT
This Waiver and Modification Agreement (the "Agreement") is dated as of this
26th day of April 1996, and is by and between Ultra Pac, Inc., a Minnesota
corporation (the "Borrower"), and AmeriBank, a Minnesota Banking corporation
(the "Bank").
WHEREAS, Borrower is indebted to Bank for the total principal amount of
$926,993.29 as evidenced by the Combination Mortgage, Security Agreement,
Assignment of Rents and Fixture Financing Statement (the "Mortgage Agreement")
and the Promissory Note (the "Note") both dated May 28, 1993;
WHEREAS, Borrower has requested the waiver of certain covenant defaults for
Borrower's fiscal year 1996 (year ended January 31, 1996) within the letter
dated April 17, 1996, attached hereto as Exhibit A; and
WHEREAS, Borrower has requested certain amendments to specific covenant levels
within the Mortgage Agreement for its fiscal year 1997.
NOW THEREFORE, in consideration of its requirements contained herein, and each
intending to be to be legally bound hereby, the parties agree as follows:
COVENANT WAIVERS
Those specific defaults of covenant levels required under Section 1.6
(03)(a),(b),(c), and (e) of the Mortgage Agreement are hereby waived solely for
the Borrower's fiscal year end 1996.
Norwest Bank Minnesota, N.A. has required that Borrower comply with four
financial covenants and corresponding covenant levels for each month beginning
with April 1996 through May 1998. Bank hereby agrees to eliminate the previous
covenant requirements under Section 1.6 (03)(a), (c), and (e) of the Mortgage
Agreement. Effective as of the date of this Agreement, Bank and Borrower agree
to incorporate the covenant requirements of Norwest into the Mortgage Agreement,
that such covenant levels shall not deviate substantially from those levels
detailed in Exhibit B attached hereto, and that a default under the amended
Norwest covenant levels shall result in a default under the Mortgage Agreement
and related Promissory Note, as defined therein.
MATURITY DATE AMENDMENT
In consideration for the waivers and amendments provided above, Bank and
Borrower agree to further amend the Maturity Date of the Note, as defined
therein. The definition of Maturity Date under Section 1.06 of the Promissory
Note dated May 28, 1993 shall be amended to read as follows:
"Maturity Date" shall mean the last day of the fourth (4) Loan Year, or such
earlier date on which this Note becomes due and payable at the election of
Holder."
Accordingly, the Maturity Date of the Promissory Note shall now be June 1, 1997
rather than the original Maturity Date of June 1, 2003. Any reference to the
maturity date of the Note within the Mortgage Agreement shall now reflect the
new definition above.
All other terms and conditions under the Note, the Mortgage Agreement and
related documents shall remain in full force and effect, and the above waivers
and amendments to Section 1.6 of the Mortgage Agreement, and the modification to
Section 1.06 of the Promissory Note, shall be the only changes, alterations, or
modifications permitted herein. By signing below, Borrower also reaffirms all
representations and warranties made to Bank within the Mortgage Agreement,
Assignment of Leases and Rents, Indemnification Agreement, and related
documents.
In consideration of the covenant waiver and amendments by Bank, Borrower, for
and on behalf of itself, its officers, agents, assigns, directors, and
shareholders, agrees to, and hereby does, release, acquit, and forever discharge
Bank, its officers, directors, and shareholders, agents, and assigns, in each
and all thereof, all and from any and all manner of action or actions, suits,
claims, damages, judgements, levies, and executions, whether known or unknown,
liquidated or unliquidated, fixed or contingent, direct or indirect, whether
based on tort, contract, or any other theory of recovery, whether based on
federal, state, or local laws, ordinances, regulations, orders, or applicable
constitutional or common law, or statutory provisions, and whether for
compensatory or punitive damages which Borrower, its officers, directors,
shareholders, and/or successors ever had, has, or ever can, shall or may have or
claim to have against Bank, or upon or by reason of all loans and related
activities prior to the date of this Agreement and any activities associated
therewith, and under the Mortgage Agreement, Promissory Note, and any related
documents.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date and year first written above.
ULTRA PAC, INC. AMERIBANK
BY: /s/ Brad Yopp BY: (ILLEGIBLE)
ITS: CFO ITS: Senior Vice President
The terms and conditions of the Waiver and Modification Agreement above are
hereby accepted and agreed to by The Highland Bank as of the date of the
Agreement.
HIGHLAND BANK
BY: (ILLEGIBLE)
ITS: Senior Vice President
Mr. Doug Van Metre / April 17, 1996
Senior Vice President
AmeriBank
1809 Plymouth Road S.1
Plymouth, MN 55305
Dear Doug:
As per the Mortgage Agreement dated May 28, 1993 between Ultra Pac, Inc. and
AmeriBank, Ultra Pac, Inc. hereby serves notice that it is in default of Section
1.6 Items 03(a,b,c,e) which require Ultra Pac, Inc. to: 1.) maintain a total
debt to tangible net worth ratio not to exceed 1.75:1.0; 2.) maintain a minimum
cash flow coverage ratio of 1.30:1.0; 3.) maintain a minimum tangible net worth
of at least $11,000,000; and 4.) not incur a reduction in tangible net worth of
more than ten percent (10%) of tangible net worth for the previous fiscal year.
As you are well aware of, we are in non compliance with covenants with other
lenders as well and are vigorously working with them to resolve the issue of non
compliance. We are negotiating with each of those lenders for either a deferral
of principal payments during fiscal 1997 or in one situation asking for an
additional infusion of working capital. We have requested that each lender,
where applicable, to provide a waiver of the covenant violations as of January
31, 1996 and an agreement to amend the covenants for our fiscal year 1997 ending
January 31, 1997.
I hereby request that the defaults, as discussed above, be waived by AmeriBank
and that such waiver be sent in writing to my attention. In addition, I'm also
requesting your agreement, in writing, that you will amend the covenants for
fiscal 1997 ending January 31, 1997. Should you have any questions, please give
me a call.
Sincerely,
/s/ Brad C. Yopp
Brad C. Yopp
Chief Financial Officer
Exhibit B to Waiver and Modification Agreement
ULTRA PAC COVENANT REQUIREMENTS
Minimum Maximum
YTD Maximum Tangible Debt to
Pre-Tax Days Net Tangible Net
Fiscal Year 1997 Income(1) Inventory(2) Worth(3) Worth(4)
Apr (770) 77 8,550 4.70
May (590) 68 8,680 4.55
Jun (410) 68 8,780 4.40
Jul (340) 68 8,810 4.25
Aug (280) 65 8,840 4.15
Sept (290) 65 8,820 4.05
Oct (350) 65 8,770 4.00
Nov (390) 71 8,730 4.00
Dec (340) 71 8,750 4.00
Jan (220) 71 8,800 3.95
Fiscal Year 1998
Feb (625) 65 8,400 4.00
Mar (575) 65 8,460 4.05
Apr (385) 65 8,575 4.00
May -0- 65 8,820 3.90
(1) Minimum YTD Pre-tax Income: (calculated monthly on YTD basis; consistent
with minimum Debt Service Coverage ratio of 1.50: 1). NOTE: Numbers in
thousands of dollars.
(2) Maximum Days Inventory: (month-end inventory divided by average daily Cost
of Sales over last 3 fiscal months).
(3) Minimum Tangible Net Worth (TNW): (calculated as of the end of each month;
earnings cushion consistent with minimum pre-tax income covenant). NOTE:
Numbers in thousands of dollars.
(4) Maximum Debt/TNW: (total liabilities divided by TNW; provides for
approximately 1% negative variance in total liabilities and allowed
earnings variance per maximum TNW covenant).
All current definitions and terms to be defined by Generally Accepted Accounting
Principles.
4/26/96
Exhibit 24.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of Ultra Pac, Inc. of our report dated April 13, 1996 (except for notes E and H,
as to which the date is April 26, 1996) included in the 1996 Annual Report to
Shareholders of Ultra Pac, Inc.
St. Paul, Minnesota
April 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 345,906
<SECURITIES> 0
<RECEIVABLES> 4,612,926
<ALLOWANCES> 305,000
<INVENTORY> 9,599,515
<CURRENT-ASSETS> 16,604,201
<PP&E> 41,905,021
<DEPRECIATION> 9,837,213
<TOTAL-ASSETS> 50,581,238
<CURRENT-LIABILITIES> 13,918,827
<BONDS> 27,235,076
0
0
<COMMON> 7,631,572
<OTHER-SE> 1,213,000
<TOTAL-LIABILITY-AND-EQUITY> 50,581,238
<SALES> 66,128,723
<TOTAL-REVENUES> 66,128,723
<CGS> 54,186,647
<TOTAL-COSTS> 54,186,647
<OTHER-EXPENSES> 14,240,621
<LOSS-PROVISION> 123,000
<INTEREST-EXPENSE> 2,516,672
<INCOME-PRETAX> (4,871,812)
<INCOME-TAX> (1,721,000)
<INCOME-CONTINUING> (3,159,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,159,397)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> (.84)
</TABLE>
