SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended: July 31, 1996
Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the Transition Period From _____________ to _____________
Commission File Number: 0-18252
ULTRA PAC, INC.
(Exact name of Registrant as specified in its Charter)
Minnesota 41-1581031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
21925 Industrial Boulevard, Rogers, Minnesota 55374
(Address of principal executive offices) Zip Code
(612) 428-8340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. _X_ Yes ___ No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock No Par Value 3,784,015
Class of Common Stock Shares outstanding as of
August 31, 1996
ULTRA PAC, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of July 31,
1996 and January 31, 1996 3
Statements of Operations for the
three and six months ended July 31, 1996
and 1995 5
Statements of Cash Flows for the
six months ended July 31, 1996
and 1995 6
Notes to Interim Financial
Statements 7
Item 2. Management's Discussion and
Analysis of Financial
Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders 19
Item 6. Exhibits and Reports on
Form 8-K 19
<TABLE>
<CAPTION>
Ultra Pac, Inc.
BALANCE SHEETS
ASSETS
July 31, January 31,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 92,363 $ 345,906
Accounts receivable - trade, less
allowances for doubtful receivables,
sales discounts and returns of
$388,606 at July 31 and $305,000
at January 31 4,521,657 4,706,477
Refundable income and sales taxes 20,702 1,534,500
Inventories
Raw materials 2,309,518 2,089,444
Work in process 1,414,291 2,077,652
Finished goods 4,320,526 5,432,419
Deferred income taxes 469,000 264,000
Other current assets 468,996 153,803
----------- -----------
Total current assets 13,617,053 16,604,201
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Building and improvements 3,491,268 3,491,268
Manufacturing equipment 21,811,410 22,592,367
Extrusion equipment 12,355,550 12,270,044
Other equipment and furnishings 972,896 1,868,806
Leasehold improvements 945,219 945,219
----------- -----------
39,576,343 41,167,704
Less accumulated depreciation and
amortization 10,929,851 9,837,213
----------- -----------
28,646,492 31,330,491
Deposits on manufacturing equipment 11,629 --
Land 737,317 737,317
----------- -----------
29,395,438 32,067,808
OTHER
Security deposits and leasehold costs
less accumulated amortization of
leasehold costs of $36,500 at July
31 and $24,333 at January 31 825,332 836,623
Investments in affiliates 266,961 143,215
Deferred income taxes 280,000 722,000
Other 268,944 207,391
----------- -----------
1,641,237 1,909,229
----------- -----------
$44,653,728 $50,581,238
=========== ===========
See accompanying notes to interim financial statements
</TABLE>
<TABLE>
<CAPTION>
Ultra Pac, Inc.
BALANCE SHEETS - CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
July 31, January 31,
1996 1996
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term
obligations $14,698,536 $ 1,900,220
Accounts payable - principally trade 6,881,322 10,437,204
Accrued liabilities
Salaries and commissions 872,780 843,922
Interest and other 625,783 737,481
Income taxes payable 21,595 --
----------- -----------
Total current liabilities 23,100,016 13,918,827
LONG-TERM OBLIGATIONS, less current
maturities 11,526,216 27,235,076
SHAREHOLDERS' EQUITY
Common stock - authorized, 5,000,000
shares of no par value; issued and
outstanding, 3,784,015 at July 31,
and 3,766,215 shares at January 31 7,685,897 7,631,572
Additional contributed capital 1,360,334 1,213,000
Retained earnings 981,265 582,763
----------- -----------
10,027,496 9,427,335
----------- -----------
$44,653,728 $50,581,238
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
<TABLE>
<CAPTION>
Ultra Pac, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended July 31, Six months ended July 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $18,970,423 $20,039,514 $34,730,827 $37,137,978
Cost of products sold 12,979,864 15,477,757 25,135,181 28,083,656
---------- ---------- ---------- ----------
Gross profit 5,990,559 4,561,757 9,595,646 9,054,322
Operating expenses
Marketing and sales expense 2,955,106 3,200,620 5,596,292 5,979,583
Administrative expense 784,027 704,248 1,525,552 1,372,256
---------- ---------- ---------- ----------
3,739,133 3,904,868 7,121,844 7,351,839
---------- ---------- ---------- ----------
Operating profit 2,251,426 656,889 2,473,802 1,702,483
Other income (expense)
Interest expense (648,137) (632,719) (1,274,720) (1,182,005)
Write down of recycling
equipment (459,638) - (459,638) -
Equity in net loss of
affiliates (10,000) - (27,000) -
Other (5,554) 23,520 (20,943) (2,436)
---------- --------- --------- ---------
(1,123,329) (609,199) (1,782,301) (1,184,441)
---------- --------- --------- ---------
Earnings before income taxes 1,128,097 47,690 691,501 518,042
Income taxes 403,000 18,000 293,000 195,000
---------- ---------- ---------- ----------
NET EARNINGS $ 725,097 $ 29,690 $ 398,501 $ 323,042
========== ========== ========== ==========
Earnings per common and common
equivalent share $ .19 $ .01 $ .11 $ .09
========== ========== ========== ==========
Weighted average number of
shares outstanding 3,797,643 3,767,078 3,779,094 3,766,882
========== ========== ========== ==========
</TABLE>
See accompanying notes to interim financial statements.
<TABLE>
<CAPTION>
Ultra Pac, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
Six months ended
July 31
----------------------------
Increase (Decrease) in Cash 1996 1995
----------- -----------
<S> <C> <C>
Cash flows provided by operating activities
Net earnings $ 398,501 $ 323,042
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 2,079,215 1,636,777
Amortization of warrants 19,734 --
Issuance of employee stock grants 54,325 --
Write down of recycling equipment 459,638
Equity in undistributed net loss of
affiliates 27,000 --
Gain on sale of equipment, net (31,540) (8,297)
Deferred Income Taxes 237,000 105,600
Change in assets and liabilities:
Accounts receivable 34,074 (262,639)
Refundable income and sales taxes 1,513,798 (114,392)
Inventories 1,555,180 (324,407)
Other current assets (60,192) (202,807)
Accounts payable (3,555,879) 539,372
Accrued liabilities (82,840) (46,509)
Income taxes payable 21,595 (322,054)
----------- -----------
Net cash provided by operating
activities 2,669,609 1,323,686
Cash flows from investment activities
Capital expenditures (199,945) (7,514,570)
Proceeds from sale of assets 110,000 87,500
Security deposits and other (50,263) (139,392)
----------- -----------
Net cash used in investing activities (140,208) (7,566,462)
Cash flows from financing activities
Proceeds from long-term obligations 2,600,000 7,609,490
Principal payments under long-term obligations (5,382,944) (1,376,260)
----------- -----------
Net cash provided by (used in) financing
activities (2,782,944) 6,233,230
----------- -----------
Net change in cash (253,543) (9,546)
Cash at beginning of period 345,906 145,731
----------- -----------
Cash at end of period $ 92,363 $ 136,185
=========== ===========
</TABLE>
See accompanying notes to interim financial statements.
Ultra Pac, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
July 31, 1996
(unaudited)
(1) Basis of Presentation
The interim financial statements presented herein are unaudited, but in
the opinion of management reflect all adjustments necessary for a fair
presentation of results for such periods. The results of operations for
any interim period are not necessarily indicative of results for the
full year. Information as of January 31, 1996 was taken from the
Company's Annual Report to Shareholders on Form 10-K for the year ended
January 31, 1996. These financial statements should be read in
conjunction with the financial statements and notes thereto contained
in the Company's Annual Report to Shareholders on Form 10-K for the
year ended January 31, 1996.
(2) Write Down of Recycling Equipment
Pursuant to Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets To Be Disposed Of",
the Company wrote down its recycling equipment by $459,638 to its
estimated net realizable value. This writedown was recorded after it
became apparent that a planned joint venture to utilize such assets
would not happen. This writedown was based on the estimated fair value
as determined by management and is included in other income(expense) in
the Statement of Operations for the three and six months ended July 31,
1996.
(3) Long Term Obligations
The Company received, in June 1996, an additional $2,600,000 from its
principal lender pursuant to a new term note due May 31, 1997.
Additionally, the Company modified certain terms of its existing
revolving credit facility and term note with its principal lender and
certain equipment notes with other of its lenders.
Prior to May 31, 1997, the Company will be required to refinance or
renew its existing $9,500,000 revolving credit facility and $7,400,000
of existing term notes and a mortgage. Management believes that the
above will be refinanced or renewed on similar terms. However, if the
Company is unable to secure a timely replacement, renewal or
satisfactory extension of the maturity dates of these facilities, or
raise sufficient additional equity, there could be a material adverse
effect on the Company's financial condition and business.
(4) Shareholders' Equity
In April 1996, the Company's Board of Directors granted non-qualified
stock options to purchase 76,000 shares of common stock to employees at
an exercise price of $2.94 per share. These options, which vest
immediately, were issued under the Company's 1996 Stock Option Plan and
expire in March 2001.
In May 1996, the Company's Board of Directors granted incentive stock
options to purchase 25,000 shares of common stock to the Company's new
Chief Operating Officer (COO) at an exercise price of $3.38 per share.
These options, which vest immediately, were issued under the Company's
1991 Stock Option Plan and will expire in May 2001. Additionally, in
May 1996, the COO was also granted non-qualified stock options to
purchase 75,000 shares of common stock at an exercise price of $3.38
per share which will expire in May 2001. The vesting of such options is
subject to acceleration based on the Company's annual net earnings.
These options were issued under the Company's 1996 Stock Option Plan.
The COO was also issued compensation in the form of 5,000 shares of the
Company's common stock.
In June 1996, non-qualified stock options to purchase 20,000 shares of
common stock expired. Additionally, options to purchase 19,000 shares
of common stock under the Company's 1991 Stock Option Plan have
expired.
In June 1996, the Company issued warrants to purchase 185,000 shares of
common stock to certain of its lenders at an exercise price of $3.00
per share which will expire in June 2006. The exercise price is subject
to reduction under certain circumstances. These warrants were issued in
connection with the financing discussed in (3) above and have certain
registration rights. Pursuant to applicable accounting principles, the
Company will record $147,334 as additional interest expense over the
term of such notes, equal to the estimated fair value of these warrants
at time of issuance. A significant portion of such interest expense
will be recognized from the date of issuance through May 31, 1997. A
total of $19,734 of this additional interest expense was recognized
during the second quarter ended July 31, 1996.
In August 1996, the Company amended its Articles of Incorporation to
increase the number of authorized shares of Capital Stock from
5,000,000 to 10,000,000 shares, as approved by the Company's
shareholders at the July 17, 1996, Annual Shareholders meeting.
(5) Income Taxes
As of July 31, 1996 the Company has recorded net deferred tax assets of
$749,000 primarily resulting from the benefit of net operating loss
carry forwards, which expire in varying amounts between the years
ending January 31, 2008 and 2012. Gross deferred tax assets of
$4,000,000 are offset by deferred tax liabilities of $3,251,000
resulting principally from accelerated depreciation.
The Company is not required to record valuation allowances for deferred
tax assets where management believes it is more likely than not that
the tax benefit will be realized. Valuation allowances were not
established against deferred tax assets as they are offset by existing
taxable temporary differences, principally depreciation, reversing
within the carryforward period and taxable income of approximately
$3,000,000 expected in future years. The Company believes the loss
experienced in fiscal 1996 was caused by several factors, including its
cost of raw materials and fixed overhead cost structure, which are not
expected to have a similar negative impact in future years. The Company
will continue to review this valuation allowance on a quarterly basis
and make adjustments as appropriate.
ITEM 2 - 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 virgin or recycled polyethylene
terephthalate ("PETE") which is extruded into plastic sheet and thermoformed
into various shapes.
Management believes that future sales and earnings could be affected by
variations in markets served, fluctuations in the cost of its primary raw
materials and a variety of other 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 of weather conditions 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of products sold 68.5 77.2 72.4 75.6
---- ---- ---- ----
Gross profit 31.5 22.8 27.6 24.4
Operating expenses
Marketing and sales 15.6 16.0 16.1 16.1
Administrative 4.1 3.5 4.4 3.7
---- ---- ---- ----
19.7 19.5 20.5 19.8
---- ---- ---- ----
Operating profit 11.8 3.3 7.1 4.6
Interest expense and other
Interest expense and other 3.5 3.0 3.8 3.2
Write down of recycling
equipment 2.4 - 1.3 -
---- ---- ---- ----
5.9 3.0 5.1 3.2
---- ---- ---- ----
Earnings before income taxes 5.9 0.3 2.0 1.4
Income taxes 2.1 0.1 .9 0.5
---- ---- ---- ----
NET EARNINGS 3.8% 0.2% 1.1% 0.9%
==== ==== ==== ====
</TABLE>
Net Sales:
Net sales decreased 5.3% from $20,039,514 to $18,970,423 for the three months
ended July 31, 1996, as compared to the three months ended July 31, 1995, and
6.5% from $37,137,978 to $34,730,827 for the six months ended July 31, 1996, as
compared to the six months ended July 31, 1995.
The decrease in sales during both periods is in part a result of the Company
focusing on margin improvement rather than on growing sales. The Company also
believes that the market for bakery and produce containers has become
increasingly competitive, however the Company has and is currently taking a
strategy of not pursuing sales purely based on competitive pricing. The Company
believes the pricing pressures come primarily from competitors who use
lower-cost, non-PETE resins such as oriented polystyrene.
The decrease in sales was offset in part by an increase in sales of the
Company's line of deli, Ultra Lite Bakeable products and its line of food
service products. The Company anticipates sales to decline in the second half of
fiscal 1997 as compared to the first half of fiscal 1997 and as compared to the
second half of fiscal 1996. This anticipated decline reflects the Company's
strategy as discussed above.
Management continues its efforts 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 future markets, product and price
strategies, as well as improve its production planning process. In connection
with its efforts in this area, the Company has recently hired a Director of
Sales and Marketing.
Gross Profit:
Gross profit margins improved from 22.8% to 31.5% for the three months ended
July 31, 1996, as compared to the three months ended July 31, 1995, and from
24.4% to 27.6% for the six months ended July 31, 1996, as compared to the six
months July 31, 1995. The improvement in gross profit margins can be attributed
to lower prices of PETE resin and of other raw materials, to the Company's
ability to supply all PETE sheet needs from in-house extrusion facilities and to
a decline in production labor costs coupled with improved manufacturing
efficiencies.
As previously discussed in the Company's Form 10-K and first quarter Form 10-Q,
the Company negotiated, late in fiscal 1996, 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). As recently
announced, this agreement, by practice between the Company and its suppliers,
has been informally amended to allow pricing to float with market conditions
subject to limits on the amount by which prices may change. The Company believes
the price it pays continues to be favorable under current market conditions.
Prices for PETE resins declined dramatically during the second quarter due in
part to increased capacity of refiners and the lower cost of paraxylene, a major
component of PETE resins. The Company anticipates, to a lesser extent, that
there will be additional PETE resin price declines during the balance of fiscal
1997. The declines in resin prices in fiscal 1997 have more than offset the
increases in resin prices in fiscal 1996.
With the installation of its fifth and sixth extrusion lines in fiscal 1996, the
Company expects to be able to supply all its PETE sheet needs for fiscal 1997.
In fact, at various times, the Company extrudes PETE sheet at less than its full
production capacity. The cost of plastic sheet extruded by the Company has been
significantly lower than the cost of plastic sheet purchased from outside
sources.
Additionally, the Company has significantly reduced its workforce from
approximately 434 in August 1995 to less than 300 in August 1996. The Company
has also improved productivity and reduced costs in thermoforming and extrusion
operations. Due to these factors, the Company believes it will require a smaller
workforce in fiscal 1997. As a result, the Company expects its labor costs will
decline during fiscal 1997, as compared to fiscal 1996.
With the anticipated decline in sales for the second half of fiscal 1997, the
Company expects its gross margin percentage to decline from its current level
due to fixed overhead costs, which are anticipated to decline at a slower rate
than sales. However, the factors discussed above are expected to continue to
have a positive impact on gross margins for the balance of fiscal 1997.
Operating Expenses:
Marketing and sales expense decreased from $3,200,620 or 16.0% of net sales, to
$2,955,106 or 15.6% of net sales during the three months ended July 31, 1996, as
compared to the three months ended July 31, 1995, and decreased from $5,979,583
or 16.1% of net sales to $5,596,292 or 16.1% of net sales for the six months
ended July 31, 1996, as compared to the six months ended July 31, 1995. The
decrease in marketing and sales expense was primarily due to lower sales levels
resulting in a reduction in freight and commission expense. Additionally, the
reduction in commission expense was due to a reduction in the commission rate
paid which also accounted for most of the decline of sales and marketing
expenses as a percent of net sales.
Administrative expenses increased from $704,248 or 3.5% of net sales to $784,027
or 4.1% of net sales during the three months ended July 31, 1996, as compared to
the three months ended July 31, 1995, and increased from $1,372,256 or 3.7% of
net sales to $1,525,552 or 4.4% of net sales for the six months ended July 31,
1996, as compared to the six months ended July 31, 1995. The increase in
administrative expenses was primarily due to increased legal costs associated
with certain litigation matters arising in the normal conduct of the Company's
business. The Company believes that ultimate resolution of such litigation will
not have a material adverse impact on the Company's financial condition. In
addition, expenses increased because the Company added two key individuals to
its management team. In May, the Company hired Michael J. Laub as its Chief
Operating Officer and in July 1996, the Company further strengthened its team by
hiring Gregory Nelson as its Director of Management Information Systems.
Interest Expense and Other:
Interest expense increased from $632,719 or 3.2% of net sales to $648,137 or
3.4% of net sales for the three months ended July 31, 1996, as compared to the
three months ended July 31, 1995 and increased from $1,182,005 or 3.2% of net
sales to $1,274,720 or 3.7% of net sales for the six months ended July 31, 1996,
as compared to the six months ended July 31,1995. The increase was principally
due to higher debt levels. The increase in debt was primarily the result of
financing additional property, equipment and improvements acquired during the
second and third quarters of fiscal 1996 and the losses incurred during the
third and fourth quarters of fiscal 1996.
During the three and six months ended July 1996, approximately $460,000 of other
expenses resulted from the writedown, to the estimated net realizable value, of
the Company's recycling equipment. While the Company has not operated this
equipment since August 1995, it was planning to use the equipment in connection
with a joint venture. The joint venture discussions were terminated during the
quarter ended July 31, 1996. Since then the Company has been actively searching
for a buyer of this equipment, but currently has no ongoing substantive
discussions with any potential purchasers.
Income Taxes:
As of July 31, 1996, the Company has $749,000 of net deferred tax assets. See
Footnote (5) of the "Notes to Interim Financial Statements" as of July 31, 1996,
for information regarding asset realizability.
Net Earnings:
As a result of the factors discussed above, net earnings for the three months
ended July 31, 1996 were $725,097 or 3.8% of net sales as compared to $29,690 or
0.2% of net sales for the three months ended July 31, 1995 and $398,501 or 1.1%
of net sales for the six months ended July 31, 1996 as compared to $323,042 or
0.9% of net sales for the six months ended July 31, 1995.
The Company believes inflation has not significantly affected its results of
operations.
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 July 31, 1996, the Company had borrowed $4,938,375 under its
$9,500,000 revolving credit facility, leaving $4,561,625 available. However,
under the Company's borrowing base, only $1,657,314 of the $4,561,625 was
available for the Company to borrow.
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 waivers for the existing defaults from such lenders and commitments to
amend certain financial covenants. The covenants were amended in June 1996 and
the Company believes it will be able to comply with such amended covenants at
least through the current fiscal year.
In June 1996, the Company received from its principal lender an additional
$2,600,000 pursuant to a new term note. The proceeds were used to pay down its
existing revolving credit facility, including excess borrowings under such
facility. The term note bears 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 were 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 new agreements with its principal lender, the Company and
certain of the Company's equipment lenders amended their equipment notes to
defer approximately $2,250,000 in principal payments due during fiscal 1997.
Pursuant to the amendments, 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 as determined on January 31, 1997
and 1998.
In connection with the above, the Company issued warrants to certain lenders to
purchase 185,000 shares of the Company's common stock. Such warrants are
exerciseable at $3.00 per share, representing the market price existing at time
of issuance, and will expire June 2006. The issuance of these warrants resulted
in $147,334 of additional interest to be recognized over the term of the
respective credit facilities and notes.
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 $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 $1,625,000 due on May
31, 1997 pursuant to the new term note, discussed above and $905,000 due under a
real estate mortgage. Because of the Company's operating losses in fiscal 1996
and the first quarter of fiscal 1997, 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 projections 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 term notes 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.
If the Company is unable to secure a timely replacement, renewal or satisfactory
extension of the maturity dates of these facilities, or raise sufficient
additional equity, there could be a material adverse effect on the Company's
financial condition and business.
Working capital decreased from $2,685,374 on January 31, 1996 to a shortfall of
$9,482,963 on July 31, 1996. This decrease is primarily due to an increase in
current maturities of long term debt as discussed above. Contributing to the
decrease in working capital were decreases in inventories and refundable income
and sales taxes, as well as an increase in income taxes payable. Offsetting the
decrease was a decrease in accounts payable. Accounts receivable declined from
$4,706,477 on January 31, 1996 to $4,521,657 on July 31, 1996. This decrease is
primarily due to the reduction in net sales. Inventories decreased from
$9,599,515 on January 31, 1996 to $8,044,335 on July 31, 1996. This decrease was
principally due to a decrease in the levels of work in process and finished
goods.
For the six months ended July 31, 1996, $2,669,609 of cash was provided by
operating activities. This reflects a decrease in refundable income and sales
taxes, and inventories, and other funds generated through operations, offset in
part by a decrease in accounts payable.
As of July 31, 1996, the Company had minimal outstanding capital commitments and
was reviewing only minimal capital expenditures related to improving
manufacturing efficiencies, as well as expenditures on molds for new products.
The Company anticipates that capital expenditures for fiscal 1997 will be
substantially less than the $9,600,000 expended in fiscal 1996 because it
believes that the current level of production equipment and facilities is
sufficient to meet anticipated fiscal 1997 requirements. The fiscal 1997
expenditures will be financed from funds available through the Company's credit
facility and funds generated from operations.
Seasonality of Sales and Earnings
With the introduction of its line of produce containers during 1992, the Company
has progressively received a greater portion of its sales during the first half
of its fiscal year. With its current fixed overhead cost structure, the
Company's gross margin and earnings have been lower during the second half of
its fiscal year due to lower sales levels during that period. The Company
expects this trend to continue for the foreseeable future.
PART II
OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1995 annual shareholders meeting of Ultra Pac, Inc. was held on
July 17, 1996. The issues and the respective vote totals were as
follows:
1. The proposal to set the number of directors at five was
approved with 3,446,736 shares voted in favor, 34,366 shares
voted against, and 15,036 shares abstaining.
2. The slate of five directors was elected with each candidate
receiving the number of votes indicated next to his name:
Withhold
For Authority
--- ---------
Calvin S. Krupa 3,425,730 70,048
James A. Thole 3,374,080 122,058
John F. DeBoer 3,434,016 62,122
Thomas F. Rains 3,426,230 69,908
Frank I. Harvey 3,373,966 122,172
3. The proposal to approve an amendment to the Company's Articles
of Incorporation to increase the number of authorized shares
of Capital Stock from 5,000,000 to 10,000,000 shares was
approved with 3,228,190 shares voted in favor, 219,816 shares
voted against, and 21,895 shares abstaining.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits:
3.1 Restated Articles of Incorporation (Exhibit No. 3.1) (1)
3.1a Articles of Amendment of Articles of Incorporation filed
August 12, 1996
10.1 Amended and Restated Credit and Security Agreement by and
between Ultra Pac, Inc. and Norwest Credit Inc. dated June 21,
1996.
10.2 Credit and Security Agreement by and between Ultra Pac, Inc.
and Norwest Bank Minneapolis, N.A., dated June 21, 1996.
10.3 First Amendment, dated June 21, 1996, to Loan and Security
Agreement between The CIT Group/Equipment Financing Inc. and
Ultra Pac, Inc. dated March 10, 1995.
10.4 Forbearance and Amendment Agreement between Ultra Pac, Inc.
and Norwest Equipment Finance, Inc., dated June 21, 1996.
10.5 Loan Modification Agreement dated June 21, 1996 to Security
Agreement between Ultra Pac, Inc. and USL Capital Corporation,
dated December 20, 1994.
10.6 Loan Modification Agreement, dated June 21, 1996, between
Ultra Pac, Inc. and Concord Commercial to Equipment Note
Agreement with Norwest Equipment Finance, Inc. dated May 24,
1994.
10.7 Warrant Agreement between Ultra Pac, Inc. and Norwest Credit
Inc., dated June 21, 1996.
10.8 Warrant Agreement between Ultra Pac, Inc. and Norwest Bank
Minneapolis, N.A., dated June 21, 1996.
10.9 Warrant Agreement between Ultra Pac, Inc. and The CIT
Group/Equipment Financing Inc., dated June 21, 1996.
10.10 Warrant Agreement between Ultra Pac, Inc., and Norwest
Equipment Finance, Inc., dated June 21, 1996.
10.11 Warrant Agreement between Ultra Pac, Inc. and USL Capital
Corporation, dated June 21, 1994.
27 Financial Data Schedule
(1) Incorporated by reference to the specified exhibit to Form 10-Q for the
quarter ended October 31, 1989.
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DATED: September 12, 1996 ULTRA PAC, INC.
---------------
(Registrant)
Calvin Krupa
------------
Calvin Krupa, President and
Chief Executive Officer
Bradley Yopp
------------
Bradley Yopp, Chief Financial
Officer
Exhibit 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ULTRA PAC, INC.
The undersigned, the President of ULTRA PAC, INC., a Minnesota
corporation (the "Corporation"), does hereby certify that by Annual Meeting of
the Shareholders held on July 17, 1996, the following resolution was adopted by
a majority of the shareholders of the Corporation in accordance with the
applicable provisions of Minnesota Statutes:
Resolution Amending
Articles of Incorporation
WHEREAS, it is in the best interest of the Corporation to increase its
number of authorized shares from 5,000,000 to 10,000,000;
NOW, THEREFORE, IT IS HEREBY
RESOLVED, that the Articles of Incorporation of the Corporation are
amended by deleting Article 4 in full and replacing it with the
following:
"ARTICLE 4.
SHARES
The shares of capital stock of the Corporation shall be subject to the
following:
(a) The corporation is authorized to issue ten million (10,000,000)
shares of capital stock, to be held, sold, and paid for at such times
and in such manner as the Board of Directors may from time to time
determine, in accordance with the laws of the State of Minnesota. All
shares of the Corporation shall be without par value, except that such
shares shall be deemed to have a par value of One Cent ($.01) per share
solely for the purpose of a statute or regulation imposing a tax or fee
based upon the capitalization of a corporation, and a par value fixed
by the Board of Directors for the purpose of a statute or regulation
requiring the shares of a corporation to have a par value.
(b) Unless otherwise established by the Board of Directors, all shares
of the Corporation are common shares entitled to vote and shall be of
one class and one series having equal rights and preferences in all
matters. Unless otherwise provided in these Articles, or Bylaws of the
Corporation, or in the terms of the shares, a common shareholder has
one (1) vote for each share held.
(c) The Board of Directors shall have the power to establish more than
one class or series of shares and to fix the relative rights and
preferences of any such different classes or series.
(d) The shareholders of the Corporation shall not have preemptive
rights, unless with respect to some or all of the authorized and
unissued shares, the Board of Directors grants preemptive rights.
(e) Cumulative voting for directors is not permitted"
FURTHER RESOLVED, that the President of the Corporation is hereby
authorized and directed to execute Articles of Amendment attesting to
the adoption of the foregoing amendment and to cause such Articles of
Amendment to be filed in the office of the Secretary of State of the
State of Minnesota.
IN WITNESS WHEREOF, I have subscribed my name this 8th day of August,
1996.
/S/ Calvin S. Krupa
Calvin S. Krupa
President
STATE OF MINNESOTA
Department of State
Filed
Aug 12 1996
/s/ Joan Anderson Growe
Secretary of State
----------------------------------------------
----------------------------------------------
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
ULTRA PAC, INC.
AND
NORWEST CREDIT, INC.
JUNE 21, 1996
[GRAPHIC OMITTED]
NORWEST LOGO
----------------------------------------------
----------------------------------------------
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
Section 1.1 Definitions......................................................................................1
Section 1.2 Cross References................................................................................12
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY..............................................................12
Section 2.1 Existing Advances...............................................................................12
Section 2.2 Revolving Advances..............................................................................12
Section 2.3 No Outstanding Letters of Credit................................................................13
Section 2.4 Letters of Credit...............................................................................13
Section 2.5 Payment of Amounts Drawn Under Letters of Credit; Obligation of Reimbursement...................14
Section 2.6 Special Account.................................................................................14
Section 2.7 Obligations Absolute............................................................................15
Section 2.8 Existing Term Advances..........................................................................15
Section 2.9 Payment of Term Note............................................................................16
Section 2.10 Interest; Default Interest; Participations; Usury...............................................16
Section 2.11 Fees............................................................................................17
Section 2.12 Computation of Interest and Fees; When Interest Due and Payable.................................18
Section 2.13 Capital Adequacy; Increased Costs and Reduced Return............................................18
Section 2.14 Voluntary Prepayment; Termination of Credit Facility by the Borrower; Permanent Reduction of the
Maximum Line; Prepayment of the Term Note; Waiver of Reduction and Prepayment Fees..............19
Section 2.15 Mandatory Prepayment............................................................................20
Section 2.16 Payment.........................................................................................20
Section 2.17 Payment on Non-Banking Days.....................................................................21
Section 2.18 Use of Proceeds.................................................................................21
Section 2.19 Liability Records...............................................................................21
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF................................................................21
Section 3.1 Grant of Security Interest......................................................................21
Section 3.2 Notification of Account Debtors and Other Obligors..............................................21
Section 3.3 Assignment of Insurance.........................................................................22
Section 3.4 Occupancy.......................................................................................22
Section 3.5 License.........................................................................................23
Section 3.6 Financing Statement.............................................................................23
Section 3.7 Setoff..........................................................................................23
ARTICLE IV CONDITIONS OF LENDING................................................................................24
Section 4.1 Conditions Precedent to the Initial Revolving and Term Advances and the Initial
Letter of Credit................................................................................24
Section 4.2 Conditions Precedent to All Advances and Letters of Credit......................................27
ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................................27
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
Tax Identification Number.......................................................................27
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.................................27
Section 5.3 Legal Agreements................................................................................28
Section 5.4 Subsidiaries....................................................................................28
Section 5.5 Financial Condition; No Adverse Change..........................................................28
Section 5.6 Litigation......................................................................................29
Section 5.7 Regulation U....................................................................................29
Section 5.8 Taxes...........................................................................................29
Section 5.9 Titles and Liens................................................................................29
Section 5.10 Plans...........................................................................................29
Section 5.11 Default.........................................................................................30
Section 5.12 Environmental Matters...........................................................................30
Section 5.13 Submissions to Lender...........................................................................31
Section 5.14 Financing Statements............................................................................31
Section 5.15 Rights to Payment...............................................................................31
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS.....................................................................32
Section 6.1 Reporting Requirements..........................................................................32
Section 6.2 Books and Records; Inspection and Examination...................................................34
Section 6.3 Account Verification............................................................................35
Section 6.4 Compliance with Laws............................................................................35
Section 6.5 Payment of Taxes and Other Claims...............................................................35
Section 6.6 Maintenance of Properties.......................................................................36
Section 6.7 Insurance.......................................................................................36
Section 6.8 Preservation of Existence.......................................................................36
Section 6.9 Delivery of Instruments, etc....................................................................36
Section 6.10 Collateral Account..............................................................................37
Section 6.11 Key Person Life Insurance.......................................................................37
Section 6.12 Performance by the Lender.......................................................................37
Section 6.13 Minimum Tangible Net Worth......................................................................38
Section 6.14 Maximum Debt to Tangible Net Worth Ratio........................................................39
Section 6.15 Minimum EBT.....................................................................................39
Section 6.16 Maximum Inventory Days..........................................................................39
Section 6.17 New Covenants...................................................................................40
ARTICLE VII NEGATIVE COVENANTS..................................................................................40
Section 7.1 Liens...........................................................................................40
Section 7.2 Indebtedness....................................................................................41
Section 7.3 Guaranties......................................................................................41
Section 7.4 Investments and Subsidiaries....................................................................41
Section 7.5 Dividends.......................................................................................42
Section 7.7 Consolidation and Merger; Asset Acquisitions....................................................42
Section 7.8 Sale and Leaseback..............................................................................42
Section 7.9 Restrictions on Nature of Business..............................................................43
Section 7.10 Capital Expenditures............................................................................43
Section 7.11 Operating Leases................................................................................43
Section 7.12 Accounting......................................................................................43
Section 7.13 Discounts, etc..................................................................................43
Section 7.14 Defined Benefit Pension Plans...................................................................43
Section 7.15 Other Defaults..................................................................................43
Section 7.16 Place of Business; Name.........................................................................43
Section 7.17 Organizational Documents; S Corporation Status..................................................43
Section 7.18 Salaries........................................................................................44
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES.............................................................44
Section 8.1 Events of Default...............................................................................44
Section 8.2 Rights and Remedies.............................................................................46
Section 8.3 Certain Notices.................................................................................47
ARTICLE IX MISCELLANEOUS........................................................................................47
Section 9.1 Restatement of Old Credit Documents.............................................................47
Section 9.2 Release.........................................................................................48
Section 9.3 No Waiver; Cumulative Remedies..................................................................48
Section 9.4 Amendments, Etc.................................................................................48
Section 9.5 Addresses for Notices, Etc......................................................................48
Section 9.6 Servicing of Credit Facility....................................................................49
Section 9.7 Further Documents...............................................................................50
Section 9.8 Collateral......................................................................................50
Section 9.9 Costs and Expenses..............................................................................50
Section 9.10 Indemnity.......................................................................................51
Section 9.11 Participants....................................................................................52
Section 9.12 Execution in Counterparts.......................................................................52
Section 9.13 Binding Effect; Assignment; Complete Agreement; Sharing of Information..........................52
Section 9.14 Severability of Provisions......................................................................52
Section 9.15 Headings........................................................................................52
Section 9.16 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial........................................52
</TABLE>
AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT
Dated as of June 21, 1996
This Agreement is made by ULTRA PAC, INC., a Minnesota corporation (the
"Borrower"), and NORWEST CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower, Norwest Bank and West One are parties to the Old Loan
Documents. (Capitalized terms used in these recitals shall have the meanings
given in Section 1.1.) Pursuant to the Assignment of Loan Documents, Norwest
Bank and West One have assigned all of their right, title and interest in the
Old Loan Documents and the Old Financing Statements to the Lender. The Lender
and the Borrower now desire to amend and restate the Old Loan Documents in their
entirety. Accordingly, the Borrower and the Lender hereby agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. For all purposes of this agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means a Revolving Advance or a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Amended and Restated Credit and
Security Agreement, as amended, supplemented or restated from time to
time.
"Assignment of Loan Documents" means the Assignment of Loan
Documents of even date herewith by Norwest Bank and West One in favor
of the Lender, pursuant to which Norwest Bank and West One assign to
the Lender all of their right, title and interest in the Old Loan
Documents.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank as its "base rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated
by the Lender.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the Lender's sole
discretion, the sum of: (i) 80% of Eligible Accounts; plus (ii) the
lesser of (A) 50% of Eligible Inventory or (B) $5,000,000; less (iii)
$1,000,000.
"Capital Expenditures" for a period means any expenditure of
money for the capitalized lease, purchase or other acquisition of any
capital asset.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any
Collateral Account, and any items in any Lockbox, together with (i)
all substitutions and replacements for and products of any of the
foregoing, (ii) proceeds of any and all of the foregoing, (iii) in
the case of all tangible goods, all accessions, (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any tangible goods, (v) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; (vi) all sums on deposit in the Special
Account; and (vii) the Life Insurance Policy.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank
and the Lender.
"Commitment" means the Lender's commitment to make Advances
and to cause the Issuer to issue Letters of Credit to or for the
Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Debt to Tangible Net Worth" as of a given date means the
ratio of the Borrower's Debt to the Borrower's Tangible Net Worth.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Advances,
an annual rate equal to two percent (2%) over the Revolving Floating
Rate, which rate shall change when and as the Revolving Floating Rate
changes and with respect to the Term Advances, an annual rate equal to
two percent (2%) over the Term Floating Rate, which rate shall change
when and as the Term Floating Rate changes.
"EBT" for a period means, pretax earnings from continuing
operations before (i) special extraordinary gains (ii) minority
interests, and (iii) miscellaneous gains and losses unless approved by
the Lender, in each case for such period.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts: (i) That portion of Accounts over 90 days past invoice date;
(ii) That portion of Accounts that are disputed or subject to a claim
of offset or a contra account; (iii) That portion of Accounts not yet
earned by the final delivery of goods or rendition of services, as
applicable, by the Borrower to the customer; (iv) Accounts owed by any
unit of government, whether foreign or domestic (provided, however,
that there shall be included in Eligible Accounts that portion of
Accounts owed by such units of government for which the Borrower has
provided evidence satisfactory to the Lender that (A) the Lender has a
first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against such unit of government under
all applicable laws); (v) Accounts owed by an account debtor located
outside the United States which are not backed by a bank letter of
credit assigned to the Lender, in the Lender's possession and
acceptable to the Lender in all respects, in its sole discretion or
credit insurance acceptable to the Lender in its sole discretion; (vi)
Accounts owed by an account debtor that is the subject of bankruptcy
proceedings or has gone out of business; (vii) Accounts owed by a
shareholder, Subsidiary, Affiliate, officer or employee of the Borrower
which are not backed by a bank letter of credit assigned to the Lender,
in the Lender's possession and acceptable to the Lender in all
respects, in its sole discretion or credit insurance acceptable to the
Lender in its sole discretion; (viii) Accounts not subject to a duly
perfected security interest in the Lender's favor or which are subject
to any lien, security interest or claim in favor of any Person other
than the Lender unless such Person is acceptable to the Lender in its
sole discretion; (ix) That portion of Accounts that have been
restructured, extended, amended or modified; (x) That portion of
Accounts that constitutes finance charges, service charges or sales or
excise taxes; (xi) 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 (i), (ii)
or (ix) above; and (xii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with
GAAP; provided, however, that the following shall not in any event be
deemed Eligible Inventory:
(i) Inventory that is: in-transit; located at any
warehouse, job site or other premises not approved by the
Lender in writing; located outside of the states, or
localities, as applicable, in which the Lender has filed
financing statements to perfect a first priority security
interest in such Inventory; covered by any negotiable or
non-negotiable warehouse receipt, bill of lading or other
document of title; on consignment from or to any Person or
subject to any bailment;
(ii) Supplies, packaging, parts or sample Inventory;
(iii) Inventory that is damaged, slow moving,
obsolete or not currently saleable in the normal course of the
Borrower's operations;
(iv) Inventory that the Borrower has returned, has
attempted to return, is in the process of returning or intends
to return to the vendor thereof;
(v) Inventory that is perishable or live;
(vi) Inventory manufactured by the Borrower pursuant
to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and
remedies against such Inventory;
(vii) Inventory that is subject to a security
interest in favor of any Person other than the Lender unless
such Person is acceptable to the Lender in its sole
discretion; and
(viii) Inventory otherwise deemed ineligible by the
Lender in its sole discretion.
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
"Equipment Lenders" means Norwest Equipment Finance, Inc., The
CIT Group/Equipment Financing Inc., USL Capital and Concord Commercial
a division of HSBC Business Loans, Inc.
"Equipment Lender Agreements" means the agreements executed by
each Equipment Lender and the Borrower pursuant to which each Equipment
Lender has agreed to finance the Borrower's purchase of certain
Equipment and to forbear from exercising its remedies for a certain
period of time.
"Equipment Lender Intercreditor Agreements" means the
Intercreditor Agreements dated as of or about even date herewith by and
among the Lender, Norwest Bank and each Equipment Lender.
"Event of Default" has the meaning specified in Section 8.1.
"Existing Revolving Advances" has the meaning specified in
Section 2.1.
"Funding Date" has the meaning given in Section 2.2.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5, except for any change in
accounting practices to the extent that, due to a promulgation of the
Financial Accounting Standards Board changing or implementing any new
accounting standard, the Borrower either (i) is required to implement
such change, or (ii) for future periods will be required to and for the
current period may in accordance with generally accepted accounting
principles implement such change, for its financial statements to be in
conformity with generally accepted accounting principles (any such
change is hereinafter referred to as a "Required GAAP Change"),
provided that (1) the Borrower shall fully disclose in such financial
statements any such Required GAAP Change and the effects of the
Required GAAP Change on the Borrower's income, retained earnings or
other accounts, as applicable, and (2) the Borrower's financial
covenants set forth in Sections 6.13, 6.14, 6.15, 6.16, 7.10 and 7.11
shall be adjusted as necessary to reflect the effects of such Required
GAAP Change.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to use
the Borrower's name, and the goodwill of the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Intercreditor Agreement" means the Intercreditor Agreement of
even date herewith, executed by Norwest Bank and the Lender and
acknowledged by the Borrower.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Inventory Days" as of any date means ratio of (i) Inventory
as of such date to (ii) the average daily cost of goods sold during the
three month period ending on such date.
"Issuer" means the issuer of any Letter of Credit.
"L/C Amount" means the sum of (i) the aggregate face amount of
any issued and outstanding Letters of Credit and (ii) the unpaid amount
of the Obligation of Reimbursement.
"L/C Application" means an application and agreement for
letters of credit in a form acceptable to the Issuer and the Lender.
"Letter of Credit" has the meaning specified in Section 2.4.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a lien on the Life Insurance Policy to secure
payment of the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.11.
"Loan Documents" means this Agreement, the Notes, the Security
Documents and the Warrant Agreement.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrower, Norwest Bank and, the Lender, of even date herewith.
"Maturity Date" means May 31, 1997.
"Maximum Line" means $9,500,000, unless said amount is reduced
pursuant to Section 2.14, in which event it means the amount to which
said amount is reduced.
"Norwest Bank" means Norwest Bank Minnesota, National
Association.
"Norwest Bank Credit Agreement" means the Credit and Security
Agreement by and between the Borrower and Norwest Bank of even date
herewith, as the same may hereafter be amended, supplemented or
restated from time to time.
"Norwest Bank Loan" means the $2,600,000 subordinated term
loan made by Norwest Bank to the Borrower pursuant to the Norwest Bank
Loan Documents.
"Norwest Bank Loan Documents" means the Norwest Bank Credit
Agreement, the Norwest Bank Note and all other documents executed in
connection therewith.
"Norwest Bank Note" means the $2,600,000 subordinated term
note of even date herewith by the Borrower in favor of Norwest Bank.
"Note" means the Revolving Note or the Term Note, and "Notes"
means the Revolving Note and the Term Note.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, the Obligation of Reimbursement and all indebtedness of
the Borrower arising under this Agreement, the Notes, any L/C
Application completed by the Borrower, or any other loan or credit
agreement or guaranty between the Borrower and the Lender, whether now
in effect or hereafter entered into.
"Obligation of Reimbursement" has the meaning given in Section
2.5(a).
"Old Credit Agreement" means that certain Credit and Security
Agreement dated as of June 13, 1994, by and among the Borrower, West
One and Norwest Bank, as amended through the date hereof.
"Old Financing Statements" means financing statement No.
1344270, filed on July 16, 1990 and No. 1505853, filed on June 1, 1992.
"Old Loan Documents" means the Old Credit Agreement, the Old
Revolving Notes and the Old Term Notes.
"Old Norwest Bank Revolving Note" means the Borrower's
revolving promissory note dated as of June 13, 1994, payable to the
order of Norwest Bank in the original principal amount of $4,400,000,
as amended through the date hereof, and having an amended principal
amount of $5,225,000.
"Old Norwest Bank Term Note" means the Borrower's term
promissory note dated as of June 13, 1994, payable to the order of
Norwest Bank in the original principal amount of $3,300,000, as amended
through the date hereof.
"Old Revolving Notes" means the Old Norwest Bank Revolving
Note and the Old West One Revolving Note.
"Old Term Notes" means the Old Norwest Bank Term Note and the
Old West One Term Note.
"Old West One Revolving Note" means the Borrower's revolving
promissory note dated as of June 13, 1994, payable to the order of West
One in the original principal amount of $3,600,000, as amended through
the date hereof, and having an amended principal amount of $4,275,000.
"Old West One Term Note" means the Borrower's term promissory
note dated as of June 13, 1994, payable to the order of West One in the
original principal amount of $2,700,000, as amended through the date
hereof.
"Operating Lease" means any lease of any asset whether payable
currently or in the future but excluding Capital Expenditures.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement of even date herewith by the Borrower in
favor of the Lender and Norwest Bank.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit D attached
hereto.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.2.
"Revolving Floating Rate" means an annual rate equal to the
sum of the Base Rate plus one and one-half percent (1.5%), which annual
rate shall change when and as the Base Rate changes.
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of
Exhibit A hereto.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Life Insurance
Assignment, the Patent and Trademark Security Agreement, and the Old
Financing Statements.
"Security Interest" has the meaning given in Section 3.1.
"Servicer" means Norwest Business Credit, Inc., a Minnesota
corporation, or such other person as the Lender may from time to time
designate.
"Special Account" means a specified cash collateral account
maintained by a financial institution acceptable to the Lender in
connection with Letters of Credit, as contemplated by Section 2.6.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Tangible Net Worth" means the difference between (i) the
tangible assets of the Borrower, which, in accordance with GAAP are
tangible assets, after deducting adequate reserves in each case where,
in accordance with GAAP, a reserve is proper and (ii) all Debt of the
Borrower other than deferred tax liabilities; provided, however, that
notwithstanding the foregoing in no event shall there be included as
such tangible assets patents, trademarks, trade names, copyrights,
licenses, goodwill, investments in Ultra Pac Sud America, S.A. and
Ultra Pac Middle East, receivables from or investments in Affiliates,
directors, officers or employees, prepaid expenses, deferred tax
assets, deposits, deferred charges or treasury stock or any securities
or Debt of the Borrower or any other securities unless the same are
readily marketable in the United States of America or entitled to be
used as a credit against federal income tax liabilities, and any other
assets designated from time to time by the Lender, in its sole
discretion.
"Term Advance" has the meaning specified in Section 2.8.
"Term Floating Rate" means an annual rate equal to the sum of
the Base Rate plus one and three-quarters percent (1.75%), which annual
rate shall change when and as the Base Rate changes.
"Term Note" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit B hereto.
"Termination Date" means the Maturity Date, or the earlier
date of termination in whole of the Commitment pursuant to Sections
2.14(a) or 8.2.
"Turnaround Plan" means the Borrower's turnaround plan dated
as of February 15, 1996, as amended and updated, copies of which have
been delivered to and accepted by the Lender and West One.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.16 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
"Warrant Agreement" means the Warrant for the purchase of
common stock of Ultra Pac, Inc. of even date herewith, by the Borrower
in favor of the Lender.
"West One" means West One Bank, Idaho, a subsidiary of US
Bancorp.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2. 1 Existing Advances. The Lender's predecessors in interest
have made various advances to the Borrower (the "Existing Revolving Advances")
pursuant to the Old Credit Documents. As of the date hereof, before the funding
of the Norwest Bank Loan and application of the proceeds to the Old Revolving
Notes, the outstanding principal balance of the Existing Revolving Advances was
$7,513,546.05. Upon execution and delivery of this Agreement, the Existing
Revolving Advances shall be deemed to be Revolving Advances made pursuant to
Section 2.2 and repayable in accordance with the Revolving Note. To the extent
the Revolving Note evidences the Existing Revolving Advances, the Revolving Note
shall be issued in substitution for and replacement of but not in payment of the
Old Revolving Notes.
Section 2.2 Revolving Advances. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make advances to the Borrower
from time to time from the date all of the conditions set forth in Section 4.1
are satisfied (the "Funding Date") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "Revolving Advances"). The
Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances under this Section 2.2 or otherwise would exceed the
Borrowing Base less the L/C Amount. The Borrower's obligation to pay the
Revolving Advances shall be evidenced by the Revolving Note and shall be secured
by the Collateral as provided in Article III. Within the limits set forth in
this Section 2.2, the Borrower may borrow, prepay pursuant to Section 2.14 and
reborrow. The Borrower agrees to comply with the following procedures in
requesting Revolving Advances under this Section 2.2:
(a) The Borrower shall make each request for a Revolving
Advance to the Lender before 1:00 p.m. (Minneapolis time) of the day of
the requested Revolving Advance. Requests may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and
the amount thereof. Each request shall be by (i) any officer of the
Borrower; or (ii) any person designated as the Borrower's agent by any
officer of the Borrower in a writing delivered to the Lender; or (iii)
any person whom the Lender reasonably believes to be an officer of the
Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth
in Article IV, the Lender shall disburse the proceeds of the requested
Revolving Advance by crediting the same to the Borrower's demand
deposit account maintained with Norwest Bank unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon
the Lender's request, the Borrower shall promptly confirm each
telephonic request for an Advance by executing and delivering an
appropriate confirmation certificate to the Lender. The Borrower shall
repay all Advances even if the Lender does not receive such
confirmation and even if the person requesting an Advance was not in
fact authorized to do so. Any request for an Advance, whether written
or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.2 have been satisfied as of
the time of the request.
Section 2.3 No Outstanding Letters of Credit No Outstanding Letters of
Credit. The Lender's predecessors in interest have issued no letters of credit
which are presently outstanding.
Section 2.4 Letters of Credit
(a) The Lender agrees, on the terms and subject to the
conditions herein set forth, to cause an Issuer to issue, from the
Funding Date to the Termination Date, one or more irrevocable standby
or documentary letters of credit (each, a "Letter of Credit") for the
Borrower's account. The Lender shall have no obligation to cause an
Issuer to issue any Letter of Credit if the face amount of the Letter
of Credit to be issued would exceed the lesser of:
(i) $1,000,000 less the L/C Amount, or
(ii) the Borrowing Base less the sum of (A) all
outstanding and unpaid Revolving Advances and (B) the L/C
Amount.
Each Letter of Credit, if any, shall be issued pursuant to a separate
L/C Application entered into between the Borrower and the Lender,
completed in a manner satisfactory to the Lender and the Issuer. The
terms and conditions set forth in each such L/C Application shall
supplement the terms and conditions hereof, but if the terms of any
such L/C Application and the terms of this Agreement are inconsistent,
the terms hereof shall control.
(b) No Letter of Credit shall be issued with an expiry date
later than the Termination Date in effect as of the date of issuance.
(c) Any request for the Lender to cause an Issuer to issue a
Letter of Credit under this Section 2.4 shall be deemed to be a
representation by the Borrower that the conditions set forth in Section
4.2 have been satisfied as of the date of the request.
Section 2.5 Payment of Amounts Drawn Under Letters of Credit; Obligation of
Reimbursement
The Borrower acknowledges that the Lender, as co-applicant, will be
liable to the Issuer for reimbursement of any and all draws under Letters of
Credit and for all other amounts required to be paid under the applicable L/C
Application. Accordingly, the Borrower agrees to pay to the Lender any and all
amounts required to be paid under the applicable L/C Application, when and as
required to be paid thereby, and the amounts designated below, when and as
designated:
(a) The Borrower hereby agrees to pay the Lender on the day a
draft is honored under any Letter of Credit a sum equal to all amounts
drawn under such Letter of Credit plus any and all reasonable charges
and expenses that the Issuer or the Lender may pay or incur relative to
such draw and the applicable L/C Application, plus interest on all such
amounts, charges and expenses as set forth below (the Borrower's
obligation to pay all such amounts is hereinafter referred to as the
"Obligation of Reimbursement").
(b) Whenever a draft is submitted under a Letter of Credit,
the Lender shall make a Revolving Advance in the amount of the
Obligation of Reimbursement and shall apply the proceeds of such
Revolving Advance thereto. Such Revolving Advance shall be repayable in
accordance with and be treated in all other respects as a Revolving
Advance hereunder.
(c) If a draft is submitted under a Letter of Credit when the
Borrower is unable, because a Default Period then exists or for any
other reason, to obtain a Revolving Advance to pay the Obligation of
Reimbursement, the Borrower shall pay to the Lender on demand and in
immediately available funds, the amount of the Obligation of
Reimbursement together with interest, accrued from the date of the
draft until payment in full at the Default Rate applicable to Revolving
Advances. Notwithstanding the Borrower's inability to obtain a
Revolving Advance for any reason, the Lender is irrevocably authorized,
in its sole discretion, to make a Revolving Advance in an amount
sufficient to discharge the Obligation of Reimbursement and all accrued
but unpaid interest thereon.
(d) The Borrower's obligation to pay any Revolving Advance
made under this Section 2.5, shall be evidenced by Revolving Note and
shall bear interest as provided in Section 2.10.
Section 2.6 Special Account. If the Commitment is terminated for any
reason whatsoever, while any Letter of Credit is outstanding, the Borrower shall
thereupon pay the Lender in immediately available funds for deposit in the
Special Account an amount equal to the L/C Amount. The Special Account shall be
an interest bearing account maintained for the Lender by any financial
institution acceptable to the Lender. Any interest earned on amounts deposited
in the Special Account shall be credited to the Special Account. Amounts on
deposit in the Special Account may be applied by the Lender at any time or from
time to time to the Obligations in the Lender's sole discretion, and shall not
be subject to withdrawal by the Borrower so long as the Lender maintains a
security interest therein. The Lender agrees to transfer any balance in the
Special Account to the Borrower at such time as the Lender is required to
release its security interest in the Special Account under applicable law.
Section 2.7 Obligations Absolute. The Borrower's obligations arising
under this Agreement shall be absolute, unconditional and irrevocable, and shall
be paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including (without limitation) the following
circumstances:
(a) any lack of validity or enforceability of any Letter of
Credit or any other agreement or instrument relating to any Letter of
Credit (collectively the "Related Documents");
(b) any amendment or waiver of or any consent to departure
from all or any of the Related Documents;
(c) the existence of any claim, setoff, defense or other right
which the Borrower may have at any time, against any beneficiary or any
transferee of any Letter of Credit (or any persons or entities for whom
any such beneficiary or any such transferee may be acting), or other
person or entity, whether in connection with this Agreement, the
transactions contemplated herein or in the Related Documents or any
unrelated transactions;
(d) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(e) payment by or on behalf of the Issuer or the Lender under
any Letter of Credit against presentation of a draft or certificate
which does not strictly comply with the terms of such Letter of Credit;
or
(f) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing.
Section 2.8 Existing Term Advances. The Lender's predecessors in
interest have made various advances to the Borrower (the "Term Advances"), the
Borrower's obligation to pay which is evidenced by the Old Term Notes. As of
June 1, 1996, the outstanding principal balance of the Term Advances was
$4,527,372.88. Upon execution and delivery of this Agreement, the Term Advances
shall be deemed to have been made pursuant to this Agreement and shall be
repayable in accordance with the Term Note, which the Borrower shall issue in
substitution for and replacement of but not in payment of the Old Term Notes.
Section 2.9 Payment of Term. The outstanding principal balance of the
Term Note shall be due and payable in equal monthly installments of $66,667,
beginning on June 1, 1996, and on the first day of each month thereafter until
the Termination Date when the entire unpaid principal balance of the Term Note,
and all unpaid interest accrued thereon, shall in any event be due and payable.
Section 2.10 Interest; Default Interest; Participations; Usury.
Interest accruing on the Notes shall be due and payable in arrears on the first
day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections 2.10(c)
and 2.10(e), the outstanding principal balance of the Revolving Note
shall bear interest at the Revolving Floating Rate.
(b) TERM NOTE. Except as set forth in Sections 2.10(c) and
2.10(e), the outstanding principal balance of the Term Note shall bear
interest at the Term Floating Rate.
(c) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(d) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under Sections 2.10(a) and 2.10(b), along with all other
fees, charges and other amounts due under this Agreement, regardless if
such Person elects to accept interest with respect to its participation
at a lower rate than the Revolving Floating Rate or the Term Floating
Rate, or otherwise elects to accept less than its prorata share of such
fees, charges and other amounts due under this Agreement.
(e) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.11 Fees.
(a) AMENDMENT FEE. The Borrower hereby agrees to pay the
Lender a fully earned and non-refundable amendment fee of $50,000, due
and payable upon the earlier of the occurrence of an Event of Default
or the Termination Date.
(b) AGENT FEE. The Borrower has paid the Lender an agent fee
of $25,000.
(c) UNUSED LINE FEE. For the purposes of this Section
2.11(c), "Unused Amount" means the Maximum Line reduced by (i)
outstanding Revolving Advances and (ii) the L/C Amount. The Borrower
agrees to pay to the Lender an unused line fee at the rate of
one-quarter of one percent (0.25%) per annum on the average daily
Unused Amount from the date of this Agreement to and including the
Termination Date, due and payable quarterly in arrears on the first day
of the month and on the Termination Date.
(d) LETTER OF CREDIT FEES. The Borrower agrees to pay the
Lender a fee with respect to each Letter of Credit, if any, accruing on
a daily basis and computed at the annual rate of two percent (2.0%) of
the aggregate amount that may then be drawn on all issued and
outstanding Letters of Credit, assuming compliance with all conditions
for drawing thereunder from and including the date of issuance of such
Letter of Credit until such date as such Letter of Credit shall
terminate by its terms or be returned to the Lender, due and payable
annually in advance. The foregoing fee shall be in addition to any and
all fees, commissions and charges of any Issuer of a Letter of Credit
with respect to or in connection with such Letter of Credit.
(e) LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees
to pay the Lender, on written demand, the administrative fees charged
by the Issuer in connection with the honoring of drafts under any
Letter of Credit, amendments thereto, transfers thereof and all other
activity with respect to the Letters of Credit at the then-current
rates published by the Issuer for such services rendered on behalf of
customers of the Issuer generally.
(f) AUDIT FEES. The Borrower hereby agrees to pay the Lender,
on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations
or business at the standard rate or rates established from time to time
by the Lender as its audit fees (which fees are currently $400 per day
per auditor), together with all actual out-of-pocket costs and expenses
incurred in conducting any such audit or inspection.
(g) DEFAULT FEE. Upon demand by the Lender, the Borrower
shall pay the Lender a default fee of $50,000 if the Borrower's audited
financial statements for its fiscal year ending January 31, 1997 show
that an Event of Default has occurred as of such date or if an Event of
Default occurs as of any time before such date.
Section 2.12 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.13 Capital Adequacy; Increased Costs and Reduced Return. If
any Related Lender determines at any time that its Return has been reduced as a
result of any Rule Change, such Related Lender may require the Borrower to pay
it the amount necessary to restore its Return to what it would have been had
there been no Rule Change. For purposes of this Section 2.13:
(a) "Capital Adequacy Rule" means any law, rule, regulation,
guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any
governmental or regulatory authority, central bank or comparable
agency, whether or not having the force of law, that applies to any
Related Lender. Such rules include rules requiring financial
institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters
of credit.
(b) "L/C Rule" means any law, rule, regulation, guideline,
directive, requirement or request regarding letters of credit, or the
interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not
having the force of law, that applies to any Related Lender. Such rules
include rules imposing taxes, duties or other similar charges, or
mandating reserves, special deposits or similar requirements against
assets of, deposits with or for the account of, or credit extended by
any Related Lender, on letters of credit.
(c) "Return", for any period, means the return as determined
by such Related Lender on the Advances and Letters of Credit based upon
its total capital requirements and a reasonable attribution formula
that takes account of the Capital Adequacy Rules then in effect and
costs of issuing or maintaining any Letter of Credit. Return may be
calculated for each calendar quarter and for the shorter period between
the end of a calendar quarter and the date of termination in whole of
this Agreement.
(d) "Rule Change" means any change in any Capital Adequacy
Rule or L/C Rule occurring after the date of this Agreement, but the
term does not include any changes in applicable requirements that at
the Closing Date are scheduled to take place under the existing Capital
Adequacy Rules or L/C Rules or any increases in the capital that any
Related Lender is required to maintain to the extent that the increases
are required due to a regulatory authority's assessment of the
financial condition of such Related Lender.
(e) "Related Lender" includes (but is not limited to) the
Lender, the Issuer, any parent corporation of the Lender or the Issuer
and any assignee of any interest of the Lender hereunder and any
participant in the loans made hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.13, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
Section 2. 14 Voluntary Prepayment; Termination of Credit Facility by
the Borrower; Permanent Reduction of the Maximum Line; Prepayment of the Term
Note; Waiver of Reduction and Prepayment Fees. Except as otherwise provided
herein, the Borrower may terminate the Credit Facility or prepay the Advances in
whole at any time or from time to time in part.
(a) TERMINATION BY BORROWER. The Borrower may terminate the
Credit Facility at any time so long as no Letter of Credit has been
issued and is outstanding with an expiration date after such date, and,
subject to payment and performance of all Obligations, may obtain any
release or termination of the Security Interest and the Security
Documents to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the
Borrower's intention to terminate the Credit Facility; and (ii) paying
the Lender reduction, termination and prepayment fees in accordance
with subsections (b) and (c) if the Borrower reduces the Maximum Line,
terminates the Credit Facility or prepays the Term Advances effective
as of any date other than the Maturity Date.
(b) PERMANENT REDUCTION OF MAXIMUM LINE. The Borrower may at
any time and from time to time, upon at least 30 days' prior written
notice to the Lender, permanently reduce in part or completely the
Maximum Line or terminate the Credit Facility in accordance with the
following provisions:
(i) The Borrower may not reduce the Maximum Line to
an amount less than the then-aggregate outstanding balance of
the Revolving Advances plus the L/C Amount.
(ii) If a reduction of the Maximum Line occurs at any
time other than the Maturity Date, the Borrower shall pay to
the Lender a premium in an amount equal to two percent (2%) of
the reduction.
(iii) If the Borrower reduces the Maximum Line to
zero, all Obligations shall be immediately due and payable.
(c) PREPAYMENT OF THE TERM NOTE. The Borrower may at any time
and from time to time, upon at least 30 days' prior written notice to
the Lender, prepay in part or in whole the outstanding principal
balance of the Term Note in accordance with the following provisions:
(i) If such prepayment occurs at any time other than
the Maturity Date, the Borrower shall pay to the Lender a
premium in an amount equal to two percent (2%) of the amount
prepaid.
(ii) Any partial prepayments of the Term Note shall
be applied to principal payments due and owing in inverse
order of their maturities and must be in a minimum amount of
$100,000.
(d) WAIVER OF REDUCTION, TERMINATION AND PREPAYMENT FEES. The
Borrower will not be required to pay the reduction, termination or
prepayment fees otherwise due under subsections (b) or (c) if the
Borrower requests such reduction or makes such prepayment because of (
i) increased cash flow generated from the Borrower's operations, (ii)
refinancing by an affiliate of the Lender, or (iii) the sale of
Collateral (other than Inventory) from time to time and the Lender
agrees to waive such fees.
Section 2.15 Mandatory Prepayment. Without notice or demand, if the sum
of the outstanding principal balance of the Revolving Advances plus the L/C
Amount shall at any time exceed the Borrowing Base, the Borrower shall (i)
first, immediately prepay the Revolving Advances to the extent necessary to
eliminate such excess; and (ii) if prepayment in full of the Revolving Advances
is insufficient to eliminate such excess, pay to the Lender in immediately
available funds for deposit in the Special Account an amount equal to the
remaining excess. Any payment received by the Lender under this Section 2.15 or
under Section 2.14 may be applied to the Obligations, in such order and in such
amounts as the Lender, in its discretion, may from time to time determine;
provided that any prepayment under Section 2.14 which the Borrower designates as
a partial prepayment of the Term Note shall be applied to principal installments
of the Term Note in inverse order of maturity.
Section 2.16 Payment. All payments to be applied to the Obligations
shall be made to the Lender in immediately available funds. The Lender may hold
all payments not constituting immediately available funds for three (3) days
before applying them to the Obligations. Notwithstanding anything in Section
2.2, the Borrower hereby authorizes the Lender, in its discretion at any time or
from time to time without the Borrower's request and even if the conditions set
forth in Section 4.2 would not be satisfied, to make a Revolving Advance in an
amount equal to the portion of the Obligations from time to time due and
payable.
Section 2.17 Payment on NonBanking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.18 Use of Proceeds. The Borrower shall use the proceeds of
Advances, and each Letter of Credit, if any, for ordinary working capital
purposes, and shall not use such proceeds for any speculative purpose.
Section 2.19 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
Section 2.20 Waiver of Defaults. On the Funding Date after all
conditions set forth in Article IV are satisfied or have been waived by the
Lender, all Defaults and Events of Default (as defined under the Old Loan
Documents) are hereby waived by the Lender.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3. 1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent and
Trademark Security Agreement, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
Federal Tax Identification No. 41-1581031
Name and address of Secured Party:
Norwest Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Federal Tax Identification No. 41-1712687
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Initial Revolving and Term
Advances and the Initial Letter of Credit. The Lender's obligation to make the
initial Revolving Advance and Term Advance or to cause to be issued the initial
Letter of Credit hereunder shall be subject to the condition precedent that the
Lender shall have received all of the following, each in form and substance
satisfactory to the Lender:
(a) The Assignment of Loan Documents, properly executed by
West One and Norwest Bank.
(b) UCC-3 assignments for the Old Financing Statements,
properly executed by Norwest Bank.
(c) The Old Revolving Notes and the Old Term Notes, properly
endorsed by Norwest Bank and West One.
(d) A certificate by Norwest Bank and West One with respect to
the Old Loan Documents, properly executed by Norwest Bank and West One.
(e) An estoppel certificate with respect to the Old Loan
Documents, properly executed by the Borrower.
(f) The Equipment Lender Agreements, properly executed by the
Equipment Lenders and acknowledged by the Borrower.
(g) The Equipment Lender Intercreditor Agreements, properly
executed by the Equipment Lenders and the Borrower.
(h) Copies of the Norwest Bank Loan Documents.
(i) Evidence that simultaneously with the making of the
initial Advances, all conditions precedent to the Norwest Bank Loan
shall be satisfied.
(j) This Agreement, properly executed by the Borrower.
(k) The Notes, properly executed by the Borrower.
(l) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises.
(m) A true and correct copy of any and all agreements pursuant
to which the Borrower's property is in the possession of any Person
other than the Borrower (including without limitation, Hands, Inc.),
together with, (i) an acknowledgment and waiver of liens from each
subcontractor who has possession of the Borrower's goods from time to
time, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing
statement covering such Person's property other than the Borrower, or
if there exists any such secured party, evidence that each such secured
party has received notice from the Borrower and the Lender sufficient
to protect the Borrower's and the Lender's interests in the Borrower's
goods from any claim by such secured party.
(n) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in
form and substance satisfactory to the Lender, together with such
evidence as the Lender may request that the Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.
(o) The Collateral Account Agreement, properly executed by the
Borrower and Norwest Bank.
(p) The Lockbox Agreement, properly executed by the Borrower
and Norwest Bank.
(q) The Patent and Trademark Security Agreement, properly
executed by the Borrower.
(r) A security agreement and financing statement(s) granting
Norwest Bank a perfected security interest in the Collateral to secure
the Borrower's obligations to the Lockbox agent and the Collateral
Account agent under the Lockbox Agreement and the Collateral Account
Agreement.
(s) The Intercreditor Agreement, properly executed by Norwest
Bank and acknowledged by the Borrower.
(t) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower; (ii) the Borrower has not assigned any of
the patents or trademarks subject to the Patent and Trademark Security
Agreement; (iii) no financing statements have been filed and remain in
effect against the Borrower except those financing statements relating
to Permitted Liens or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will
deliver UCC releases and/or terminations satisfactory to the Lender;
and (iv) the Lender has duly filed all financing statements necessary
to perfect the Security Interest, to the extent the Security Interest
is capable of being perfected by filing.
(u) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(v) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(w) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(x) A support agreement in favor of the Lender and Norwest
Bank, properly executed by the Borrower's president in his personal
capacity.
(y) An opinion of counsel to the Borrower, addressed to the
Lender.
(z) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in
the Lender's favor and with all liability insurance naming the Lender
as an additional insured.
(aa) Payment of the fees and commissions due through the date
of the initial Advance or Letter of Credit under Section 2.11 and
expenses incurred by the Lender through such date and required to be
paid by the Borrower under Section 9.9, including all legal expenses
incurred through the date of this Agreement.
(bb) Evidence that after the initial Revolving Advance is
made to the Borrower on the Funding Date, the difference of (i) the
Borrowing Base and (ii) the sum of (A) the outstanding principal
balance of the Revolving Note and (B) the L/C Amount is not less than
$1,500,000.
(cc) West One shall have executed and delivered a
participation agreement pursuant to which it purchases not less than an
undivided 45% interest in the Obligations.
(dd) The Borrower shall have extended reasonable offers to
retain consulting services on an extended basis with Jack Daugherty and
Quazar Capital with terms and conditions satisfactory to the Lender. If
such offers are rejected, the Borrower shall have hired other
consultants that are acceptable to the Lender in its sole discretion.
(ee) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Conditions Precedent to All Advances and Letters of Credit.
The Lender's obligation to make each Advance or to issue any Letter of Credit
shall be subject to the further conditions precedent that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance or issuance of Letter
of Credit as though made on and as of such date, except to the extent
that such representations and warranties relate solely to an earlier
date; and
(b) no event has occurred and is continuing, or would result
from such Advance or the issuance of such Letter of Credit, as the case
may be, which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Minnesota and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements.
(a) The Old Loan Documents constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms. The Borrower has no claim,
defense or offset to enforcement of the Old Credit Documents.
(b) This Agreement constitutes and, upon due execution by the
Borrower, the other Loan Documents will constitute the legal, valid and
binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries. The
Borrower does, however have minority investments in Ultra Pac SudAmerica, S.A.
($141,529) and Ultra Pac Middle East ($-0-).
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended January 31, 1996, and unaudited financial statements
of the Borrower for the months ended March 30, 1996, and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. Except as described in the letter to the
Borrower's auditors by the Borrower's attorneys, there are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest balance
sheet referred to in Section 5.5 and all proceeds thereof, free and clear of all
mortgages, security interests, liens and encumbrances, except for Permitted
Liens. No financing statement naming the Borrower as debtor is on file in any
office except to perfect only Permitted Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. Except for defaults on its agreements with the
Equipment Lenders which are cured or waived or with respect to which the
Borrower has obtained additional grace periods pursuant to the Equipment Lender
Agreements, the Borrower is in compliance with all provisions of all agreements,
instruments, decrees and orders to which it is a party or by which it or its
property is bound or affected, the breach or default of which could have a
material adverse effect on the Borrower's financial condition, properties or
operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not
and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5. 4 Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 92 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared by
such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in reasonable detail
to evidence, and the computations as to, whether or not the Borrower is
in compliance with the requirements set forth in Sections 6.13, 6.14,
6.15, 6.16, 7.10 and 7.11; and (iii) a certificate of the Borrower's
chief financial officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 20 days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Borrower's chief financial officer, substantially in the form of
Exhibit C hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections
6.13, 6.14, 6.15, 6.16, 7.10 and 7.11;
(c) within 15 days after the end of each month, agings of the
Borrower's accounts receivable and its accounts payable and an
inventory and accounts receivable certification report as at the end of
such month setting forth in form acceptable to the Lender the
Borrower's Accounts, Eligible Accounts, Inventory and Eligible
Inventory, provided, however that from February 1 to September 30 of
each year, the Borrower shall deliver such inventory certification
reports as of the 15th and last day of each month within 15 days of
such dates;
(d) within 20 days after the end of each month, a report by
the Borrower's management and its consultants as to the status of the
Borrower's Turnaround Plan and recommendations;
(e) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its discretion require;
(f) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $25,000 and not previously disclosed pursuant to
Section 5.6;
(g) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(h) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(i) as soon as possible, and in any event within 10 days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(j) promptly upon knowledge thereof, notice of (i) any
disputes or claims by the Borrower's customers exceeding $25,000
individually; and (ii) any change in the persons constituting the
Borrower's officers and directors;
(k) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(l) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(m) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall
file with the Securities and Exchange Commission or any national
securities exchange;
(n) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(o) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
The Borrower shall also send to the Lender's participants such copies of the
foregoing information as the Lender shall request from time to time.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6. 3 Account Verification. The Lender may at any time
and from time to time send or require the Borrower to send requests for,
verification of accounts or notices of assignment to account debtors and other
obligors. The Lender may also at any time and from time to time after notice to
the Borrower telephone account debtors and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6. 5 Payment of Taxes and Other Claims. The Borrower
will pay or discharge, when due, (a) all taxes, assessments and governmental
charges levied or imposed upon it or upon its income or profits, upon any
properties belonging to it (including, without limitation, the Collateral) or
upon or against the creation, perfection or continuance of the Security
Interest, prior to the date on which penalties attach thereto, (b) all federal,
state and local taxes required to be withheld by it, and (c) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
or charge upon any properties of the Borrower; provided, that the Borrower shall
not be required to pay any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all
claims or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Collateral Account. If, notwithstanding the instructions
to debtors to make payments to the Lockbox, the Borrower receives any payments
on Receivables, the Borrower shall deposit such payments into the Collateral
Account. Until so deposited, the Borrower shall hold all such payments in trust
for and as the property of the Lender and shall not commingle such payments with
any of its other funds or property.
(a) Amounts deposited in the Collateral Account shall not
bear interest and shall not be subject to withdrawal by the Borrower,
except after full payment and discharge of all Obligations.
(b) All deposits in the Collateral Account shall constitute
proceeds of Collateral and shall not constitute payment of the
Obligations. The Lender from time to time at its discretion may, after
allowing two (2) Banking Days, apply deposited funds in the Collateral
Account to the payment of the Obligations, in any order or manner of
application satisfactory to the Lender.
(c) All items deposited in the Collateral Account shall be
subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in
the Collateral Account, the bank maintaining such account, the amount
of that item, or such bank at its discretion may charge any uncollected
item to the Borrower's commercial account or other account. The
Borrower shall be liable as an endorser on all items deposited in the
Collateral Account, whether or not in fact endorsed by the Borrower.
Section 6.11 Key Person Life Insurance. The Borrower shall maintain
insurance upon the life of Calvin S. Krupa, its president, with the death
benefit thereunder in an amount not less than $3,500,000 (the "Life Insurance
Policy"). The right to receive the proceeds of the Life Insurance Policy shall
be assigned to the Lender and Norwest Bank by the Life Insurance Assignment.
Section 6.12 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5 and 6.7, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.12.
Section 6.13 Minimum Tangible Net Worth. The Borrower will maintain as
of the last day of each month listed below, its Tangible Net Worth at an amount
not less than the amount set forth opposite such month:
Month Minimum Tangible Net Worth
----- --------------------------
May 1996 $7,712,000
June 1996 $7,825,000
July 1996 $7,860,000
August 1996 $7,891,000
September 1996 $7,889,000
October 1996 $7,854,000
November 1996 $7,819,000
December 1996 $7,843,000
January 1997 $7,912,000
Section 6.14 Maximum Debt to Tangible Net Worth Ratio. The Borrower
will maintain as of the last day of each month listed below, the ratio of its
Debt to its Tangible Net Worth at not more than the ratio set forth opposite
such month:
Month Maximum Debt to Tangible Net Worth
----- ----------------------------------
Ratio
-----
May 1996 5.30 to 1.00
June 1996 5.10 to 1.00
July 1996 4.90 to 1.00
August 1996 4.80 to 1.00
September 1996 4.60 to 1.00
October 1996 4.60 to 1.00
November 1996 4.60 to 1.00
December 1996 4.60 to 1.00
January 1997 4.50 to 1.00
Section 6. 15 Minimum EBT. The Borrower will achieve during
each year-to-date period ending on the last day of each month listed below, EBT
of not less than the amount set forth opposite such month:
Month Minimum EBT
----- -----------
May 1996 ($620,000)
June 1996 ($430,000)
July 1996 ($360,000)
August 1996 ($290,000)
September 1996 ($300,000)
October 1996 ($350,000)
November 1996 ($390,000)
December 1996 ($340,000)
January 1997 ($220,000)
Section 6.16 Maximum Inventory Days. As of the end of each month listed
below, the Borrower shall achieve a turnover rate for its Inventory of not more
than the number of Inventory Days set forth opposite such month:
Month Inventory Days
----- --------------
May 1996 75
June 1996 68
July 1996 68
August 1996 65
September 1996 65
October 1996 70
November 1996 75
December 1996 75
January 1997 75
Section 6.17 New Covenants. On or before January 31, 1997, The Borrower
and the Lender shall agree on new covenant levels for Sections 6.13, 6.14, 6.15,
6.16, 7.10 and 7.11 for periods after such date. The new covenant levels will be
based on the Borrower's projections for such periods and shall be no less
stringent than the present levels.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the foregoing
the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is
not Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower and so long as
no Default Period is then in existence and no Default or Event of
Default would exist immediately after such acquisition.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits,
advances, any indebtedness for borrowed money, or any other indebtedness or
liability, in each case evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) investment in certain companies as set forth in
Section 5.4, provided that the Borrower shall make no further
cash investments in such companies.
(iii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $10,000; (iv) advances in the form of progress
payments, prepaid rent not exceeding two months or security
deposits; and (v) a promissory note by Maine Fresh Pack having
an outstanding balance of approximately $9,502.30 as of the
date hereof.
(b) The Borrower will not create or permit to exist any Subsidiary.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures except as budgeted in the Turnaround Plan
and not exceeding $850,000 in the aggregate during any fiscal year.
Section 7.11 Operating Leases. The Borrower will not incur or contract
to incur any new Operating Lease having a monthly payment exceeding $1000 except
to replace existing Equipment.
Section 7.12 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.13 Discounts, etc. The Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of
goods sold, or modify, amend, subordinate, cancel or terminate the obligation of
any account debtor or other obligor of the Borrower except in the ordinary
course of business and until the Lender directs it to cease such activity.
Section 7.14 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.15 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.16 Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.17 Organizational Documents; S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws except to the extent necessary to authorize the issuance
of up to 10,000,000 shares of its common stock. The Borrower will not become an
S Corporation within the meaning of the Internal Revenue Code of 1986, as
amended.
Section 7.18 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation. The Borrower will not increase the aggregate cash salary, bonus,
commissions, consultant fees or other compensation of Brad C. Yopp or Calvin S.
Krupa through May 31, 1997.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal of
the Notes when it becomes due and payable;
(b) Failure to pay when due any amount specified in Section
2.5 relating to the Borrower's Obligation of Reimbursement, or failure
to pay immediately when due or upon termination of the Credit Facility
any amounts required to be paid for deposit in the Special Account
under Section 2.6 or;
(c) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(d) Calvin S. Krupa shall cease to actively fulfill the
duties of president of the Borrower, Michael J. Laub shall cease to
actively fulfill the duties of chief operating officer of the Borrower,
or Brad C. Yopp shall cease to actively fulfill the duties of chief
financial officer of the Borrower.
(e) Calvin S. Krupa shall own less than 85% of the sum of the
outstanding shares of the Borrower's stock that he owns as set forth in
the Borrower's proxy statement dated on or about May 31, 1996 and any
shares that he receives through options, stock splits, or bonuses.
(f) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(g) The Borrower shall be or become insolvent, or admit in
writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply
for or consent to the appointment of any receiver, trustee, or similar
officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower, as the case may be; or the
Borrower shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower;
(h) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(i) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within 30 days and the Borrower shall not have delivered a
satisfactory renewal thereof to the Lender; or the Borrower shall fail
to pay any premium on the Life Insurance Policy when due; or the
Borrower shall take any other action that impairs the value of the Life
Insurance Policy.
(j) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement shall prove to have been incorrect in
any material respect when deemed to be effective;
(k) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $10,000 and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution;
(l) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(m) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(n) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(o) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(p) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than any
tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(q) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
(r) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Equipment
Intercreditor Agreement or any Moratorium Agreement or make any payment
that any Person was not entitled to receive under the provisions of any
Equipment Intercreditor Agreement or any Moratorium Agreement;
(s) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) The Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) The Lender may make demand upon the Borrower and,
forthwith upon such demand, the Borrower will pay to the Lender in
immediately available funds for deposit in the Special Account pursuant
to Section 2.15 an amount equal to the maximum aggregate amount
available to be drawn under all Letters of Credit then outstanding,
assuming compliance with all conditions for drawing thereunder;
(e) The Lender may exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(f) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(g) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(h), the Obligations shall be immediately due and
payable automatically without presentment, demand, protest or notice of any
kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.5) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 Restatement of Old Credit Documents. This Agreement is
executed for the purpose of amending and restating the Old Credit Documents.
Section 9.2 Release. The Borrower, hereby absolutely and
unconditionally releases and forever discharges the Lender, any participants and
any and all parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Agreement, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
Section 9.3 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.4 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.5 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
Telecopier: 612/428-8344
Attention: Brad C. Yopp
If to the Lender:
Norwest Credit, Inc.
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0152
Telecopier: 612/673-8589
Attention: Ken J. Timboe
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.6 Servicing of Credit Facility.
(a) The Lender has entered into a servicing agreement (the
"Servicing Agreement") with the Servicer to service and enforce the
Loan Documents and collect the Obligations on the Lender's behalf.
Pursuant to the Servicing Agreement, the Lender has authorized the
Servicer to take certain actions, perform certain duties and exercise
certain powers on the Lender's behalf under the provisions of the Loan
Documents and any other instruments and agreements referred to in this
Agreement.
(b) The Servicer shall have no duties or responsibilities to
the Borrower, but only to the Lender and then only as expressly set
forth in the Servicing Agreement. Without limiting the generality of
the foregoing, the Servicer shall have no obligation to make any loans
or advances to the Borrower. Neither the Servicer nor any of its
officers, directors, employees or agents shall be liable for any action
taken or omitted by them hereunder or in connection herewith, unless
caused by its or their willful misconduct. The Servicer's duties shall
be mechanical and administrative in nature; nothing in this Agreement,
express or implied, is intended to or shall be so construed as to
impose upon the Servicer any obligations with respect to the Loan
Documents except as expressly set forth herein. The Borrower shall not
in any way be construed to be a third party beneficiary of any
relationship between the Servicer and the Lender.
(c) The Servicer shall be entitled to rely, and shall be
fully protected in relying, upon any communication whether written or
oral believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person, and, with respect to all legal
matters pertaining to this Agreement and its duties hereunder, upon
advice of counsel selected by it.
(d) The Borrower shall be entitled to rely upon any
communication whether written or oral sent or made by the Servicer for
and on behalf of the Lender with respect to all matters pertaining to
the Loan Documents and the Borrower's duties and obligations hereunder,
unless and until the Borrower receives written notice from the Lender
that the Servicer is no longer servicing the Credit Facility.
(e) The Servicer shall hold and be the custodian of the
Loan Documents on the Lender's behalf for so long as the Servicer is
servicing the Credit Facility.
(f) The Servicing Agreement may be terminated at any time
without prior notice to or consent of the Borrower. Upon termination of
the Servicing Agreement and failure to replace the Servicing Agreement
with a new servicing agreement, all references herein to the Servicer
shall thereafter mean and refer to the Lender.
Section 9.7 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.8 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.9 Costs and Expenses. The Borrower agrees to pay on demand
all reasonable costs and expenses, including (without limitation) attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, any Letters of Credit, and any other document or agreement
related hereto or thereto, and the transactions contemplated hereby, including
without limitation all such costs, expenses and fees incurred in connection with
the negotiation, preparation, execution, amendment, administration, performance,
collection and enforcement of the Obligations and all such documents and
agreements and the creation, perfection, protection, satisfaction, foreclosure
or enforcement of the Security Interest.
Section 9.10 Indemnity. In addition to the payment of expenses pursuant
to Section 9.9, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or
the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.12 proves to be incorrect in any
respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the
Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.10 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.11 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.12 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.13 Binding Effect; Assignment; Complete Agreement; Sharing of
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender may share at any time with Norwest Corporation, and all
direct and indirect subsidiaries of Norwest Corporation, any and all information
the Lender may have in its possession regarding the Borrower and its Affiliates,
and the Borrower waives any right of confidentiality it may have with respect to
such sharing of such information.
Section 9.14 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.15 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.16 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. This
Guaranty shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (iv) agrees
that a final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST CREDIT, INC. ULTRA PAC, INC.
By /s/ Ken J. Timboe By /s/ Brad C. Yopp
Ken J. Timboe Brad C. Yopp
Its Vice President Its Chief Financial Officer
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Compliance Certificate
Exhibit D Premises
-------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
Exhibit A to Amended And Restated
Credit and Security Agreement
REVOLVING NOTE
$9,500,000 Minneapolis, Minnesota
June 21, 1996
For value received, the undersigned, ULTRA PAC, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Maturity Date under
the Credit Agreement (defined below), to the order of NORWEST CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Nine Million Five Hundred Thousand Dollars ($9,500,000) or,
if less, the aggregate unpaid principal amount of all Revolving Advances made by
the Lender to the Borrower under the Credit Agreement together with interest on
the principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Amended and Restated Credit and Security Agreement of even date
herewith (the "Credit Agreement") by and between the Lender and the Borrower.
The principal hereof and interest accruing thereon shall be due and payable as
provided in the Credit Agreement. This Note may be prepaid only in accordance
with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. To the extent this Note
evidences the Borrower's Obligation to pay Existing Revolving Advances, this
Note is issued in substitution for and replacement of but not in payment of the
Old Revolving Notes (as defined in the Credit Agreement). This Note is secured,
among other things, pursuant to the Credit Agreement and the Security Documents
as therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
ULTRA PAC, INC.
By _________________________________
Brad C. Yopp
Its Chief Financial Officer
Exhibit B to Amended And Restated
Credit and Security Agreement
TERM NOTE
$4,527,372.88 Minneapolis, Minnesota
June 21, 1996
For value received, the undersigned, ULTRA PAC, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Maturity Date under
the Credit Agreement (defined below), to the order of NORWEST CREDIT, INC., a
Minnesota corporation (the "Lender"), at its main office in Minneapolis,
Minnesota, or at any other place designated at any time by the holder hereof, in
lawful money of the United States of America and in immediately available funds,
the principal sum of Four Million Five Hundred Twenty-Seven Thousand Three
Hundred Seventy-Two Dollars and Eighty-Eight Cents ($4,527,372.88) or, if less,
the aggregate unpaid principal amount of all Term Advances made by the Lender to
the Borrower under the Credit Agreement (defined below) together with interest
on the principal amount hereunder remaining unpaid from time to time, computed
on the basis of the actual number of days elapsed and a 360-day year, from the
date hereof until this Note is fully paid at the rate from time to time in
effect under the Credit and Security Agreement of even date herewith (the
"Credit Agreement") by and between the Lender and the Borrower. The principal
hereof and interest accruing thereon shall be due and payable as provided in the
Credit Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. To the extent this Note evidences
the Borrower's obligation to pay the Existing Revolving Advances, this Note is
issued in substitution for and replacement of but not in payment of the Old Term
Notes (as defined in the Credit Agreement). This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
ULTRA PAC, INC.
By _________________________________
Brad C. Yopp
Its Chief Financial Officer
Exhibit C to Amended And Restated
Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Ken J. Timboe
Norwest Credit, Inc.
Date: __________________, 199___
Subject: Ultra Pac, Inc.
Financial Statements
In accordance with our Amended and Restated Credit and Security
Agreement dated as of June 21, 1996 (the "Credit Agreement"), attached are the
financial statements of Ultra Pac, Inc. (the "Borrower") as of and for
________________, 19___ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Tangible Net Worth. Pursuant to Section 6.13 of the
Credit Agreement, as of the Reporting Date the Borrower's Tangible Net
Worth was $____________ which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date:
Month Minimum Tangible Net Worth
----- --------------------------
May 1996 $7,712,000
June 1996 $7,825,000
July 1996 $7,860,000
August 1996 $7,891,000
September 1996 $7,889,000
October 1996 $7,854,000
November 1996 $7,819,000
December 1996 $7,843,000
January 1997 $7,912,000
2. Maximum Debt to Tangible Net Worth Ratio. Pursuant to
Section 6.14 of the Credit Agreement, as of the Reporting Date, the
ratio of the Borrower's Debt to its Tangible Net Worth was _____ to
1.00 which |_| satisfies |_| does not satisfy the requirement that such
ratio be no more than ______ to 1.00 on the Reporting Date as set forth
in table below:
Month Maximum Debt to Tangible Net Worth
----- ----------------------------------
Ratio
-----
May 1996 5.30 to 1.00
June 1996 5.10 to 1.00
July 1996 4.90 to 1.00
August 1996 4.80 to 1.00
September 1996 4.60 to 1.00
October 1996 4.60 to 1.00
November 1996 4.60 to 1.00
December 1996 4.60 to 1.00
January 1997 4.50 to 1.00
3. Minimum Earnings Before Taxes. Pursuant to Section
6.15 of the Credit Agreement, the Borrower's EBT as of the Reporting
Date, was $____________, which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ as set
forth in table below:
Month Minimum EBT
----- -----------
May 1996 ($620,000)
June 1996 ($430,000)
July 1996 ($360,000)
August 1996 ($290,000)
September 1996 ($300,000)
October 1996 ($350,000)
November 1996 ($390,000)
December 1996 ($340,000)
January 1997 ($220,000)
4. Maximum Inventory Days. Pursuant to Section 6.16 of the
Credit Agreement, the turnover rate of the Borrower's Inventory as of
the Reporting Date was ____ Inventory Days which |_| satisfies |_| does
not satisfy the requirement that such number be not more than _____
Inventory Days as of such date as set forth in table
Month Inventory Days
----- --------------
May 1996 75
June 1996 68
July 1996 68
August 1996 65
September 1996 65
October 1996 70
November 1996 75
December 1996 75
January 1997 75
5. Capital Expenditures. Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during the
fiscal year ended January 31, 199___, for Capital Expenditures,
$__________________ in the aggregate, which |_| satisfies |_| does not
satisfy the requirement that such expenditures not exceed $850,000 in
the aggregate during such year.
6. Operating Leases. Pursuant to Section 7.11 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date,
the highest monthly payment the Borrower has expended or contracted to
expend during the fiscal year ended January 31, 199___, for any
Operating Lease is $__________________, which |_| satisfies |_| does
not satisfy the requirement that such no such payment exceed $1,000.
7. Salaries. As of the Reporting Date, the Borrower |_| is |_|
is not in compliance with Section 7.18 of the Credit Agreement
concerning salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
ULTRA PAC, INC.
By ____________________________
Its Chief Financial Officer
Exhibit D to Amended And Restated Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement
are legally described as follows:
The Premises described in the referenced document are located
in Hennepin County, Minnesota and are described as follows:
PARCEL A
That part of the south half of the Southwest Quarter of Section 14,
Township 120 North, Range 23 West, Hennepin County, Minnesota,
described as follows:
Commencing at the southwest corner of said Section 14; thence on an
assumed bearing of West along the south line of the Southeast Quarter
of Section 15, Township 120 North, Range 23 West 267.95 feet to the
intersection with the northeasterly right of way line of the Burlington
Northern Railroad; thence North 40 degrees 25 minutes 40 seconds East
571.67 feet to the southwesterly right of way line of Minnesota State
Highway No. 152 as constructed and monumented, and the point of
beginning of the land to be described; thence South 40 degrees 25
minutes 40 seconds West 168.30 feet to the west line of said south half
of the Southwest Quarter of Section 14; thence South 1 degree 11
minutes 20 seconds East along said west line of the south half of the
Southwest Quarter of Section 14 a distance of 307.12 feet to the
southwest corner of said south half of the Southwest Quarter of Section
14; thence South 89 degrees 43 minutes 10 seconds East along the south
line of said south half of the Southwest Quarter of Section 14 a
distance of 197.66 feet; thence North 40 degrees 19 minutes 05 seconds
East 270.46 feet to said southwesterly right of way line of Minnesota
State Highway No. 152; thence North 49 degrees 34 minutes 20 seconds
West along said southwesterly right of way line of Minnesota State
Highway No. 152 a distance of 354.54 feet to the point of beginning.
PARCEL B
Parcel B
That part of the South Half of the Southwest Quarter (S1/2 SW1/4) of
Section Fourteen (14), Township One Hundred Twenty (120), Range
Twenty-three (23), Hennepin County, Minnesota, lying east of the West
264.71 feet, measured at right angles, of said South Half of the
Southwest Quarter (S1/2 SW1/4); lying southwesterly of the
southwesterly right-of-way line of Interstate Highway No. 94 as
monumented; lying northwesterly of a line described as commencing at
the most southerly corner of Lot One (1), Block One (1), FREEWAY 94
COMMERCIAL PAK, said Hennepin County; thence North 49 degrees 48
minutes secants West along the southwesterly line of said Lot One (1)
for a distance of 349.91 feet to the actual Point of Beginning of the
line to be hereby described; thence 30 degrees 26 minutes 54 seconds
East for a distance of 460.07 feet, more or less, to intersect with and
terminate at said southwesterly right-of-way line of Interstate Highway
No. 94; and lying northwesterly of the Northwesterly extension of said
Commercial Park, EXCEPTING therefrom all that part thereof described as
beginning at the point of intersection of the East line of said West
264.71 feet with said southwesterly right-of-way line of Interstate
Highway No. 94 as monumented; thence southeasterly along said highway
right-of-way for a distance of 93.57 feet; thence southwesterly at
right angles for a distance of 250.36 feet, more or less, to intersect
said East line of the West 264.71 feet; thence north along said East
line of the West 264.71 feet for a distance of 177.09 feet, more or
less, to the Point of Beginning
That part of the South Half of the Southwest Quarter (S1/2 SW1/4) of
Section Fourteen (14) , Township One Hundred Twenty (120), Range
Twenty-three (23), Hennepin County, Minnesota, described as commencing
at the point of intersection of the East line of the West 264.71 feet,
as measured at right angles of said South Half of the Southwest Quarter
(S1/2 SW1/4) with the southwesterly right-of-way line of Interstate
Highway No. 94 as monumented; thence southeasterly along said highway
right-of-way for a distance of 93.57 feet; thence southwesterly at
right angles for a distance of 150.36 feet, more or less, to intersect
said East line of the West 264.71 feet, said point of intersection also
being the actual Point of Beginning of the land to be hereby described;
thence continue southwesterly along the last described course for a
distance of 141.97 feet, more or less, to intersect the northeasterly
right-of-way line of Industrial Boulevard formerly known as Minnesota
Trunk Highway No. 152) as monumented; thence southeasterly along said
boulevard right-of-way for a distance of 100.30, more or less, to
intersect said East line of the West 264.71 feet; thence north along
said East line of the West 264.71 feet for a distance of 187.12 feet,
more or less, to the Point of Beginning;
which is now known as:
Lot Three (3), Block One (1), and Outlot B and Outlot C, Rogers Plastic
Center 2nd Addition, according to the plat thereof on file or of record
in the office of County Recorder, Hennepin County, Minnesota.
Schedule 5.1 to Amended And Restated
Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business,
and Locations of Collateral
TRADE NAMES
None
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
OTHER INVENTORY AND EQUIPMENT LOCATIONS
22051, 22000, 22001, 22201 and or 21925 Industrial Boulevard
Rogers, Minnesota 55374
Hands, Inc.
East First Street
Winthrop, Minnesota 55396
----------------------------------------------
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CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
ULTRA PAC, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
JUNE 21, 1996
[GRAPHIC OMITTED]
NORWEST LOGO
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<TABLE>
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Table of Contents
<S> <C>
ARTICLE I DEFINITIONS............................................................................................1
Section 1.1 Definitions......................................................................................1
Section 1.2 Cross References.................................................................................8
ARTICLE II AMOUNT AND TERMS OF THE CREDIT FACILITY...............................................................8
Section 2.1 Term Advance.....................................................................................8
Section 2.2 Payment of Term Note.............................................................................9
Section 2.3 Voluntary Prepayment.............................................................................9
Section 2.4 Interest; Default Interest; Participations; Usury................................................9
Section 2.5 Computation of Interest and Fees; When Interest Due and Payable.................................10
Section 2.6 Payment.........................................................................................10
Section 2.7 Payment on Non-Banking Days.....................................................................10
Section 2.8 Use of Proceeds.................................................................................10
Section 2.9 Liability Records...............................................................................10
ARTICLE III SECURITY INTEREST; OCCUPANCY; SETOFF................................................................10
Section 3.1 Grant of Security Interest......................................................................10
Section 3.2 Notification of Account Debtors and Other Obligors..............................................10
Section 3.3 Assignment of Insurance.........................................................................11
Section 3.4 Occupancy.......................................................................................11
Section 3.5 License.........................................................................................12
Section 3.6 Financing Statement.............................................................................12
Section 3.7 Setoff...........................................................................................12
ARTICLE IV CONDITIONS OF LENDING................................................................................13
Section 4.1 Conditions Precedent to the Term Advance........................................................13
Section 4.2 Additional Conditions Precedent.................................................................15
ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................................15
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations;
Tax Identification Number.......................................................................15
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements.................................16
Section 5.3 Legal Agreements................................................................................16
Section 5.4 Subsidiaries....................................................................................16
Section 5.5 Financial Condition; No Adverse Change..........................................................16
Section 5.6 Litigation......................................................................................17
Section 5.7 Regulation U....................................................................................17
Section 5.8 Taxes...........................................................................................17
Section 5.9 Titles and Liens................................................................................17
Section 5.10 Plans...........................................................................................17
Section 5.11 Default.........................................................................................18
Section 5.12 Environmental Matters...........................................................................18
Section 5.13 Submissions to Lender...........................................................................19
Section 5.14 Financing Statements............................................................................19
Section 5.15 Rights to Payment...............................................................................19
ARTICLE VI BORROWER'S AFFIRMATIVE COVENANTS.....................................................................20
Section 6.1 Reporting Requirements..........................................................................20
Section 6.2 Books and Records; Inspection and Examination...................................................22
Section 6.3 Account Verification............................................................................23
Section 6.4 Compliance with Laws............................................................................23
Section 6.5 Payment of Taxes and Other Claims...............................................................23
Section 6.6 Maintenance of Properties.......................................................................23
Section 6.7 Insurance.......................................................................................24
Section 6.8 Preservation of Existence.......................................................................24
Section 6.9 Delivery of Instruments, etc....................................................................24
Section 6.10 Key Person Life Insurance.......................................................................24
Section 6.11 Performance by the Lender.......................................................................24
Section 6.12 Minimum Tangible Net Worth......................................................................25
Section 6.13 Maximum Debt to Tangible Net Worth Ratio........................................................26
Section 6.14 Minimum EBT.....................................................................................26
Section 6.15 Maximum Inventory Days..........................................................................27
Section 6.16 New Covenants...................................................................................27
ARTICLE VII NEGATIVE COVENANTS..................................................................................27
Section 7.1 Liens...........................................................................................27
Section 7.2 Indebtedness....................................................................................28
Section 7.3 Guaranties......................................................................................28
Section 7.4 Investments and Subsidiaries....................................................................28
Section 7.5 Dividends.......................................................................................29
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations...................................29
Section 7.7 Consolidation and Merger; Asset Acquisitions....................................................29
Section 7.8 Sale and Leaseback..............................................................................29
Section 7.9 Restrictions on Nature of Business..............................................................30
Section 7.10 Capital Expenditures............................................................................30
Section 7.11 Operating Leases................................................................................30
Section 7.12 Accounting......................................................................................30
Section 7.13 Discounts, etc..................................................................................30
Section 7.14 Defined Benefit Pension Plans...................................................................30
Section 7.15 Other Defaults..................................................................................30
Section 7.16 Place of Business; Name.........................................................................30
Section 7.17 Organizational Document; S Corporation Status...................................................30
Section 7.18 Salaries........................................................................................31
ARTICLE VIII EVENTS OF DEFAULT, RIGHTS AND REMEDIES.............................................................31
Section 8.1 Events of Default...............................................................................31
Section 8.2 Rights and Remedies.............................................................................33
Section 8.3 Certain Notices.................................................................................34
ARTICLE IX MISCELLANEOUS........................................................................................34
Section 9.1 Release.........................................................................................34
Section 9.2 No Waiver; Cumulative Remedies..................................................................35
Section 9.3 Amendments, Etc.................................................................................35
Section 9.4 Addresses for Notices, Etc......................................................................35
Section 9.5 Servicing of Credit Facility....................................................................36
Section 9.6 Further Documents...............................................................................37
Section 9.7 Collateral......................................................................................37
Section 9.8 Costs and Expenses..............................................................................37
Section 9.9 Indemnity.......................................................................................37
Section 9.10 Participants....................................................................................38
Section 9.11 Execution in Counterparts.......................................................................38
Section 9.12 Binding Effect; Assignment; Complete Agreement; Sharing of Information..........................39
Section 9.13 Severability of Provisions......................................................................39
Section 9.14 Headings........................................................................................39
Section 9.15 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial........................................40
</TABLE>
CREDIT AND SECURITY AGREEMENT
Dated as of June 21, 1996
This Agreement is made by ULTRA PAC, INC., a Minnesota
corporation (the "Borrower"), and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
a national banking association (the "Lender").
Recitals
The Borrower, the Lender and West One are parties to the Old
Loan Documents. (Capitalized terms used in these recitals shall have the
meanings given to them in Article I.) Pursuant to the Assignment of Loan
Documents, the Lender and West One have assigned all of their right, title and
interest in the Old Loan Documents to NCI.
The Lender now desires to extend to the Borrower and the
Borrower desires to accept from the Lender a new term loan in the amount of
$2,600,000. Accordingly, the Borrower and the Lender hereby agree as follows:
ARTICLE I
Definitions
Section 1. 1 Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP.
"Accounts" means the aggregate unpaid obligations of customers
and other account debtors to the Borrower arising out of the sale or
lease of goods or rendition of services by the Borrower on an open
account or deferred payment basis.
"Advance" means a Term Advance.
"Affiliate" or "Affiliates" means any Person controlled by,
controlling or under common control with the Borrower, including
(without limitation) any Subsidiary of the Borrower. For purposes of
this definition, "control," when used with respect to any specified
Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"Assignment of Loan Documents" means the Assignment of Loan
Documents of even date herewith by the Lender and West One in favor of
NCI, pursuant to which the Lender and West One assign to the Lender all
of their right, title and interest in the Old Loan Documents.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in
Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from
time to time by the Lender as its "base rate" or, if such bank ceases
to announce a rate so designated, any similar successor rate designated
by the Lender.
"Capital Expenditures" for a period means any expenditure of
money for the capitalized lease, purchase or other acquisition of any
capital asset.
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, all sums on deposit in any
collateral account, and any items in any lockbox, together with (i)
all substitutions and replacements for and products of any of the
foregoing, (ii) proceeds of any and all of the foregoing, (iii) in
the case of all tangible goods, all accessions, (iv) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or
affixed to or used in connection with any tangible goods, (v) all
warehouse receipts, bills of lading and other documents of title now or
hereafter covering such goods; and (vi) the Life Insurance Policy.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article II.
"Credit Facility" means the credit facility being made
available to the Borrower by the Lender pursuant to Article II.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in
determining total liabilities as shown on the liabilities side of a
balance sheet of that Person as at the date as of which Debt is to be
determined. For purposes of determining a Person's aggregate Debt at
any time, "Debt" shall also include the aggregate payments required to
be made by such Person at any time under any lease that is considered a
capitalized lease under GAAP.
"Debt to Tangible Net Worth" as of a given date means the
ratio of the Borrower's Debt to the Borrower's Tangible Net Worth.
"Default" means an event that, with giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Period" means any period of time beginning on the
first day of any month during which a Default or Event of Default has
occurred and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means an annual rate equal to two percent (2%)
over the Floating Rate, which rate shall change when and as the
Floating Rate changes.
"EBT" for a period means, pretax earnings from continuing
operations before (i) special extraordinary gains, (ii) minority
interests and (iii) miscellaneous gains and losses unless approved by
the Lender, in each case for such period.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Environmental Laws" has the meaning specified in Section
5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired,
including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment,
office and recordkeeping equipment, parts, tools, supplies, and
including specifically (without limitation) the goods described in any
equipment schedule or list herewith or hereafter furnished to the
Lender by the Borrower.
"Equipment Lenders" means Norwest Equipment Finance, Inc., The
CIT Group/Equipment Financing Inc., USL Capital and Concord Commercial
a division of HSBC Business Loans, Inc.
"Equipment Lender Agreements" means the agreements executed by
each Equipment Lender and the Borrower pursuant to which each Equipment
Lender has agreed to finance the Borrower's purchase of certain
Equipment and to forbear from exercising its remedies for a certain
period of time.
"Equipment Lender Intercreditor Agreements" means the
Intercreditor Agreements dated as of or about even date herewith by and
among the Lender, NCI and each Equipment Lender.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus three percent (3.0%), which annual rate shall change
when and as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the
financial statements described in Section 5.5, except for any change in
accounting practices to the extent that, due to a promulgation of the
Financial Accounting Standards Board changing or implementing any new
accounting standard, the Borrower either (i) is required to implement
such change, or (ii) for future periods will be required to and for the
current period may in accordance with generally accepted accounting
principles implement such change, for its financial statements to be in
conformity with generally accepted accounting principles (any such
change is hereinafter referred to as a "Required GAAP Change"),
provided that (1) the Borrower shall fully disclose in such financial
statements any such Required GAAP Change and the effects of the
Required GAAP Change on the Borrower's income, retained earnings or
other accounts, as applicable, and (2) the Borrower's financial
covenants set forth in Sections 6.12, 6.13, 6.14, 6.15, 7.10 and 7.11
shall be adjusted as necessary to reflect the effects of such Required
GAAP Change.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or
hereafter acquired, including (without limitation) all present and
future patents, patent applications, copyrights, trademarks, trade
names, trade secrets, customer or supplier lists and contracts,
manuals, operating instructions, permits, franchises, the right to use
the Borrower's name, and the goodwill of the Borrower's business.
"Hazardous Substance" has the meaning given in Section 5.12.
"Intercreditor Agreement" means the Intercreditor Agreement of
even date herewith, executed by Norwest Bank and the Lender and
acknowledged by the Borrower.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired,
whether consisting of whole goods, spare parts or components, supplies
or materials, whether acquired, held or furnished for sale, for lease
or under service contracts or for manufacture or processing, and
wherever located.
"Inventory Days" as of any date means ratio of (i) Inventory
as of such date to (ii) the average daily cost of goods sold during the
three month period ending on such date.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the owner and the
beneficiary thereof, in form and substance satisfactory to the Lender,
granting the Lender a lien on the Life Insurance Policy to secure
payment of the Obligations.
"Life Insurance Policy" has the meaning given in Section 6.10.
"Loan Documents" means this Agreement, the Note, the Security
Documents and the Warrant Agreement.
"Maturity Date" means May 31, 1997.
"NCI" means Norwest Credit, Inc., a Minnesota corporation.
"NCI Credit Agreement" means the Credit and Security Agreement
by and between the Borrower and NCI of even date herewith, as the same
may hereafter be amended, supplemented or restated from time to time.
"NCI Loans" means the $9,500,000 revolving and $4,527,372.88
term facilities made by NCI to the Borrower pursuant to the NCI Loan
Documents.
"NCI Loan Documents" means the NCI Credit Agreement, the NCI
Notes and all other documents executed in connection therewith.
"NCI Notes" means the $9,500,000 revolving promissory note and
the [$4,712,000] term note, each of even date herewith, by the Borrower
in favor of NCI.
"Note" means the Term Note.
"Obligations" means the Note and each and every other debt,
liability and obligation of every type and description which the
Borrower may now or at any time hereafter owe to the Lender, whether
such debt, liability or obligation now exists or is hereafter created
or incurred, whether it arises in a transaction involving the Lender
alone or in a transaction involving other creditors of the Borrower,
and whether it is direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or sole,
joint, several or joint and several, and including specifically, but
not limited to, all indebtedness of the Borrower arising under this
Agreement, the Note, or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter
entered into.
"Old Credit Agreement" means that certain Credit and Security
Agreement dated as of June 13, 1994, by and among the Borrower, West
One and the Lender, as amended through the date hereof.
"Old Loan Documents" means the Old Credit Agreement, the Old
Security Documents, the Old Revolving Notes and the Old Term Notes.
"Old Norwest Bank Revolving Note" means the Borrower's
revolving promissory note dated as of June 13, 1994, payable to the
order of the Lender in the original principal amount of $4,400,000, as
amended through the date hereof, and having an amended principal amount
of $5,225,000.
"Old Norwest Bank Term Note" means the Borrower's term
promissory note dated as of June 13, 1994, payable to the order of the
Lender in the original principal amount of $3,300,000, as amended
through the date hereof.
"Old Revolving Notes" means the Old Norwest Bank Revolving
Note and the Old West One Revolving Note.
"Old Financing Statements" means financing statement No.
1344270, filed on July 16, 1990 and No. 1505853, filed on June 1, 1992.
"Old Term Notes" means the Old Norwest Bank Term Note and the
Old West One Term Note.
"Old West One Revolving Note" means the Borrower's revolving
promissory note dated as of June 13, 1994, payable to the order of West
One in the original principal amount of $3,600,000, as amended through
the date hereof, and having an amended principal amount of $4,275,000.
"Old West One Term Note" means the Borrower's term promissory
note dated as of June 13, 1994, payable to the order of West One in the
original principal amount of $2,700,000, as amended through the date
hereof.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement of even date herewith by the Borrower in
favor of the Lender and Norwest Bank.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company,
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without
limitation) the premises legally described in Exhibit C attached
hereto.
"Receivables" means each and every right of the Borrower to
the payment of money, whether such right to payment now exists or
hereafter arises, whether such right to payment arises out of a sale,
lease or other disposition of goods or other property, out of a
rendering of services, out of a loan, out of the overpayment of taxes
or other liabilities, or otherwise arises under any contract or
agreement, whether such right to payment is created, generated or
earned by the Borrower or by some other person who subsequently
transfers such person's interest to the Borrower, whether such right to
payment is or is not already earned by performance, and howsoever such
right to payment may be evidenced, together with all other rights and
interests (including all liens and security interests) which the
Borrower may at any time have by law or agreement against any account
debtor or other obligor obligated to make any such payment or against
any property of such account debtor or other obligor; all including but
not limited to all present and future accounts, contract rights, loans
and obligations receivable, chattel papers, bonds, notes and other debt
instruments, tax refunds and rights to payment in the nature of general
intangibles.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Security Documents" means this Agreement, the Life Insurance
Assignment and the Patent and Trademark Security Agreement.
"Security Interest" has the meaning given in Section 3.1.
"Servicer" means Norwest Business Credit, Inc., a Minnesota
corporation, or such other person as the Lender may from time to time
designate.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power
under ordinary circumstances to elect a majority of the board of
directors of such corporation, irrespective of whether or not at the
time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the Borrower and
one or more other Subsidiaries, or by one or more other Subsidiaries.
"Tangible Net Worth" means the difference between (i) the
tangible assets of the Borrower, which, in accordance with GAAP are
tangible assets, after deducting adequate reserves in each case where,
in accordance with GAAP, a reserve is proper and (ii) all Debt of the
Borrower other than deferred tax liabilities; provided, however, that
notwithstanding the foregoing in no event shall there be included as
such tangible assets patents, trademarks, trade names, copyrights,
licenses, goodwill, investments in Ultra Pac Sud America, S.A. and
Ultra Pac Middle East, receivables from or investments in Affiliates,
directors, officers or employees, prepaid expenses, deferred tax
assets, deposits, deferred charges or treasury stock or any securities
or Debt of the Borrower or any other securities unless the same are
readily marketable in the United States of America or entitled to be
used as a credit against federal income tax liabilities, and any other
assets designated from time to time by the Lender, in its sole
discretion.
"Term Advance" has the meaning specified in Section 2.1.
"Term Note" means the Borrower's promissory note, payable to
the order of the Lender in substantially the form of Exhibit A hereto.
"Turnaround Plan" means the Borrower's turnaround plan dated
as of February 15, 1996, as amended and updated, copies of which have
been delivered to and accepted by the Lender and West One.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.15 as the state whose laws
shall govern this Agreement, or in any other state whose laws are held
to govern this Agreement or any portion hereof.
"Warrant Agreement" means the Warrant for the purchase of
common stock of Ultra Pac, Inc. of even date herewith, by the Borrower
in favor of the Lender.
"West One" means West One Bank, Idaho, a subsidiary of US
Bancorp.
Section 1.2 Cross References. All references in this Agreement to
Articles, Sections and Subsections, shall be to Articles, Sections and
Subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
Amount and Terms of the Credit Facility
Section 2.1 Term Advance. The Lender agrees, on the terms and subject
to the conditions herein set forth, to make a single advance (the "Term
Advance") to the Borrower on the date all of the conditions set forth in Article
IV have been satisfied (the "Funding Date"). The Borrower's obligation to pay
the Term Advance shall be evidenced by the Term Note and shall be secured by the
Collateral as provided in Article III.
Section 2.2 Payment of Term Note. The outstanding principal balance of
the Term Note shall be due and payable in equal monthly installments of $75,000,
beginning on June 1, 1996, and on the first day of each month thereafter until
the Maturity Date when the entire unpaid principal balance of the Term Note, and
all unpaid interest accrued thereon, shall in any event be due and payable. In
addition, the Borrower shall prepay the Term Note by the amount of the income
tax refunds it receives for its fiscal year ended January 31, 1996 within one
Banking Day after receiving such refunds and shall prepay the Term Note in full
if the NCI Loans are paid in full.
Section 2.3 Voluntary Prepayment. Except as otherwise provided herein,
the Borrower may terminate the Credit Facility and prepay the Advances in whole
at any time or from time to time in part. The Borrower may terminate the Credit
Facility at any time, and, subject to payment and performance of all
Obligations, may obtain any release or termination of the Security Interest and
the Security Documents to which the Borrower is otherwise entitled by law by
(vii) giving at least 30 days' prior written notice to the Lender of the
Borrower's intention to terminate the Credit Facility.
Section 2.4 Interest; Default Interest; Participations; Usury.
Interest accruing on the Note shall be due and payable in arrears on the first
day of each month.
(a) TERM NOTE. Except as set forth in Sections 2.4(b) and
2.4(d), the outstanding principal balance of the Term Note shall bear
interest at the Floating Rate.
(b) DEFAULT INTEREST RATE. At any time during any Default
Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding
from time to time shall bear interest at the Default Rate, effective
for any periods designated by the Lender from time to time during that
Default Period.
(c) PARTICIPATIONS. If any Person shall acquire a
participation in the Advances under this Agreement, the Borrower shall
be obligated to the Lender to pay the full amount of all interest
calculated under Section 2.4(a), along with all other fees, charges and
other amounts due under this Agreement, regardless if such Person
elects to accept interest with respect to its participation at a lower
rate than the Floating Rate, or otherwise elects to accept less than
its prorata share of such fees, charges and other amounts due under
this Agreement.
(d) USURY. In any event no rate change shall be put into
effect which would result in a rate greater than the highest rate
permitted by law.
Section 2.5 Computation of Interest and Fees; When Interest Due and
Payable. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
Section 2.6 Payment. All payments to be applied to the Obligations
shall be made to the Lender in immediately available funds. The Lender may hold
all payments not constituting immediately available funds for three (3) days
before applying them to the Obligations.
Section 2.7 Payment on Non-Banking Days. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
Section 2.8 Use of Proceeds. The Borrower shall use the proceeds of
the Term Advance to reduce the outstanding principal balance of the Old West One
Revolving Note by $1,170,000.00 and the Old Norwest Revolving Note by
$1,430,000.00.
Section 2.9 Liability Records. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE III
Security Interest; Occupancy; Setoff
Section 3.1 Grant of Security Interest. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
Section 3.2 Notification of Account Debtors and Other Obligors. The
Lender may at any time (whether or not a Default Period then exists) notify any
account debtor or other person obligated to pay the amount due that such right
to payment has been assigned or transferred to the Lender for security and shall
be paid directly to the Lender. The Borrower will join in giving such notice if
the Lender so requests. At any time after the Borrower or the Lender gives such
notice to an account debtor or other obligor, the Lender may, but need not, in
the Lender's name or in the Borrower's name, (a) demand, sue for, collect or
receive any money or property at any time payable or receivable on account of,
or securing, any such right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact,
notify the United States Postal Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the Borrower's mail, and receive, open and dispose of the Borrower's mail,
applying all Collateral as permitted under this Agreement and holding all other
mail for the Borrower's account or forwarding such mail to the Borrower's last
known address.
Section 3.3 Assignment of Insurance. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, the Lender may
(but need not), in the Lender's name or in the Borrower's name, execute and
deliver proof of claim, receive all such monies, endorse checks and other
instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
Section 3.4 Occupancy.
(a) The Borrower hereby irrevocably grants to the Lender the
right to take possession of the Premises at any time during a Default
Period.
(b) The Lender may use the Premises only to hold, process,
manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the
Lender may in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall cease and
terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all
such goods to purchasers.
(d) The Lender shall not be obligated to pay or account for
any rent or other compensation for the possession, occupancy or use of
any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession,
occupancy or use of any of the Premises, the Borrower shall reimburse
the Lender promptly for the full amount thereof. In addition, the
Borrower will pay, or reimburse the Lender for, all taxes, fees,
duties, imposts, charges and expenses at any time incurred by or
imposed upon the Lender by reason of the execution, delivery,
existence, recordation, performance or enforcement of this Agreement or
the provisions of this Section 3.4.
Section 3.5 License. Without limiting the generality of the Patent and
Trademark Security Agreement, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 Financing Statement. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
Federal Tax Identification No. 41-1581031
Name and address of Secured Party:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0091
Federal Tax Identification No. 41-1592157
Section 3.7 Setoff. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition,
each other Person holding a participating interest in any Obligations shall have
the right to appropriate or setoff any deposit or other liability then owed by
such Person to the Borrower, whether or not due, and apply the same to the
payment of said participating interest, as fully as if such Person had lent
directly to the Borrower the amount of such participating interest.
ARTICLE IV
Conditions of Lending
Section 4.1 Conditions Precedent to the Term Advance. The Lender's
obligation to make the Term Advance shall be subject to the condition precedent
that the Lender shall have received all of the following, each in form and
substance satisfactory to the Lender:
(a) Payment from NCI with respect to the Assignment of Loan
Documents.
(b) An estoppel certificate with respect to the Old Loan
Documents, properly executed by the Borrower.
(c) The Equipment Lender Agreements, properly executed by the
Equipment Lenders and acknowledged by the Borrower.
(d) The Equipment Lender Intercreditor Agreements, properly
executed by the Equipment Lenders and the Borrower.
(e) Copies of the NCI Loan Documents.
(f) Evidence that simultaneously with the making of the
initial Advances, all conditions precedent to the NCI Loans shall be
satisfied.
(g) This Agreement, properly executed by the Borrower.
(h) The Note, properly executed by the Borrower.
(i) A true and correct copy of any and all leases pursuant to
which the Borrower is leasing the Premises.
(j) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any
Person other than the Borrower (including without limitation, Hands,
Inc.), together with, (i) an acknowledgment and waiver of liens from
each subcontractor who has possession of the Borrower's goods from time
to time, (ii) UCC financing statements sufficient to protect the
Borrower's and the Lender's interests in such goods, and (iii) UCC
searches showing that no other secured party has filed a financing
statement covering such Person's property other than the Borrower, or
if there exists any such secured party, evidence that each such secured
party has received notice from the Borrower and the Lender sufficient
to protect the Borrower's and the Lender's interests in the Borrower's
goods from any claim by such secured party.
(k) The Life Insurance Assignment, properly executed by the
beneficiary and owner thereof, and the Life Insurance Policy, each in
form and substance satisfactory to the Lender, together with such
evidence as the Lender may request that the Life Insurance Policy is
subject to no assignments or encumbrances other than the Life Insurance
Assignment.
(l) The Intercreditor Agreement, properly executed by NCI and
acknowledged by the Borrower.
(m) Current searches of appropriate filing offices showing
that (i) no state or federal tax liens have been filed and remain in
effect against the Borrower, (ii) the Borrower has not assigned any of
the patents or trademarks subject to the Patent and Trademark Security
Agreement; (iii) no financing statements have been filed and remain in
effect against the Borrower except those financing statements relating
to Permitted Liens or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will
deliver UCC releases and/or terminations satisfactory to the Lender;
and (iv) the Lender has duly filed all financing statements necessary
to perfect the Security Interest, to the extent the Security Interest
is capable of being perfected by filing.
(n) A certificate of the Borrower's Secretary or Assistant
Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution,
delivery and performance of the Loan Documents, (ii) the Borrower's
articles of incorporation and bylaws, and (iii) the signatures of the
Borrower's officers or agents authorized to execute and deliver the
Loan Documents and other instruments, agreements and certificates,
including Advance requests, on the Borrower's behalf.
(o) A current certificate issued by the Secretary of State of
Minnesota, certifying that the Borrower is in compliance with all
applicable organizational requirements of the State of Minnesota.
(p) Evidence that the Borrower is duly licensed or qualified
to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary.
(q) A support agreement in favor of the Lender and Norwest
Bank, properly executed by the Borrower's president in his personal
capacity.
(r) An opinion of counsel to the Borrower, addressed to the
Lender.
(s) Certificates of the insurance required hereunder, with
all hazard insurance containing a lender's loss payable endorsement in
the Lender's favor and with all liability insurance naming the Lender
as an additional insured.
(t) Payment of the fees and commissions due through the date
of the initial Advance and expenses incurred by the Lender through such
date and required to be paid by the Borrower under Section 9.8,
including all legal expenses incurred through the date of this
Agreement.
(u) West One shall have executed and delivered a
participation agreement pursuant to which it purchases not less than an
undivided 45% interest in the Obligations.
(v) The Borrower shall have extended reasonable offers to
retain consulting services on an extended basis with Jack Daugherty and
Quazar Capital with terms and conditions satisfactory to the Lender. If
such offers are rejected, the Borrower shall have hired other
consultants that are acceptable to the Lender in its sole discretion.
(w) Such other documents as the Lender in its sole discretion
may require.
Section 4.2 Additional Conditions Precedent. The Lender's obligation
to make the Term Advance shall be subject to the further conditions precedent
that on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and
as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
ARTICLE V
Representations and Warranties
The Borrower represents and warrants to the Lender as follows:
Section 5.1 Corporate Existence and Power; Name; Chief Executive
Office; Inventory and Equipment Locations; Tax Identification Number. The
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Minnesota and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
Section 5.2 Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's stockholders; (ii) require any
authorization, consent or approval by, or registration, declaration or filing
with, or notice to, any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any third party, except such
authorization, consent, approval, registration, declaration, filing or notice as
has been obtained, accomplished or given prior to the date hereof; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
Section 5.3 Legal Agreements. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 Subsidiaries. The Borrower has no Subsidiaries. The
Borrower does, however have minority investments in Ultra Pac SudAmerica, S.A.
($141,529) and Ultra Pac Middle East ($-0-).
Section 5.5 Financial Condition; No Adverse Change. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended January 31, 1996, and unaudited financial statements
of the Borrower for the months ended March 30, 1996, and those statements fairly
present the Borrower's financial condition on the dates thereof and the results
of its operations and cash flows for the periods then ended and were prepared in
accordance with generally accepted accounting principles. Since the date of the
most recent financial statements, there has been no material adverse change in
the Borrower's business, properties or condition (financial or otherwise).
Section 5.6 Litigation. Except as described in the letter to the
Borrower's auditors by the Borrower's attorneys, there are no actions, suits or
proceedings pending or, to the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Affiliates or the properties of the
Borrower or any of its Affiliates before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, if determined adversely to the Borrower or any of its Affiliates, would
have a material adverse effect on the financial condition, properties or
operations of the Borrower or any of its Affiliates.
Section 5.7 Regulation U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
Section 5.8 Taxes. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them. The Borrower and its Affiliates have
filed all federal, state and local tax returns which to the knowledge of the
officers of the Borrower or any Affiliate, as the case may be, are required to
be filed, and the Borrower and its Affiliates have paid or caused to be paid to
the respective taxing authorities all taxes as shown on said returns or on any
assessment received by any of them to the extent such taxes have become due.
Section 5.9 Titles and Liens. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest balance
sheet referred to in Section 5.5 and all proceeds thereof, free and clear of all
mortgages, security interests, liens and encumbrances, except for Permitted
Liens. No financing statement naming the Borrower as debtor is on file in any
office except to perfect only Permitted Liens.
Section 5.10 Plans. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the meaning of
ERISA; or
(b) Any liability or knows of any fact or circumstances which
could result in any liability to the Pension Benefit Guaranty
Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued
benefits which or which may become payable to participants or
beneficiaries of any such Plan).
Section 5.11 Default. Except for defaults on its agreements with the
Equipment Lenders which are cured or waived or with respect to which the
Borrower has obtained additional grace periods pursuant to the Equipment Lender
Agreements, the Borrower is in compliance with all provisions of all agreements,
instruments, decrees and orders to which it is a party or by which it or its
property is bound or affected, the breach or default of which could have a
material adverse effect on the Borrower's financial condition, properties or
operations.
Section 5.12 Environmental Matters.
(a) Definitions. As used in this Agreement, the following
terms shall have the following meanings:
(i) "Environmental Law" means any federal, state,
local or other governmental statute, regulation, law or
ordinance dealing with the protection of human health and the
environment.
(ii) "Hazardous Substances" means pollutants,
contaminants, hazardous substances, hazardous wastes,
petroleum and fractions thereof, and all other chemicals,
wastes, substances and materials listed in, regulated by or
identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not present
in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the
Borrower or the Lender under common law of any jurisdiction or under
any Environmental Law, and no Hazardous Substances have ever been
stored, buried, spilled, leaked, discharged, emitted or released in, on
or under the Premises in such a way as to create any such liability.
(c) To the Borrower's best knowledge, the Borrower has not
disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any requests,
claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the
Borrower, alleging liability under, violation of, or noncompliance with
any Environmental Law or any license, permit or other authorization
issued pursuant thereto. To the Borrower's best knowledge, no such
matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are and have in the past always been conducted in accordance
with all Environmental Laws and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary
for the lawful and efficient operation of such businesses are in the
Borrower's possession and are in full force and effect. No permit
required under any Environmental Law is scheduled to expire within 12
months and there is no threat that any such permit will be withdrawn,
terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises are not
and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list,
schedule, log, inventory or database.
(g) The Borrower has delivered to Lender all environmental
assessments, audits, reports, permits, licenses and other documents
describing or relating in any way to the Premises or Borrower's
businesses.
Section 5.13 Submissions to Lender. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, present a good faith opinion as to such projections,
valuations and proforma condition and results.
Section 5.14 Financing Statements. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
Section 5.15 Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
ARTICLE VI
Borrower's Affirmative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
Section 6.1 Reporting Requirements. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 92 days
after the end of each fiscal year of the Borrower, the Borrower's
audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and
acceptable to the Lender, which annual financial statements shall
include the Borrower's balance sheet as at the end of such fiscal year
and the related statements of the Borrower's income, retained earnings
and cash flows for the fiscal year then ended, prepared, if the Lender
so requests, on a consolidating and consolidated basis to include any
Affiliates, all in reasonable detail and prepared in accordance with
GAAP, together with (i) copies of all management letters prepared by
such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default hereunder and all relevant facts in reasonable detail
to evidence, and the computations as to, whether or not the Borrower is
in compliance with the requirements set forth in Sections 6.12, 6.13,
6.14, 6.15, 7.10 and 7.11; and (iii) a certificate of the Borrower's
chief financial officer stating that such financial statements have
been prepared in accordance with GAAP and whether or not such officer
has knowledge of the occurrence of any Default or Event of Default
hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) as soon as available and in any event within 20 days
after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as at the
end of and for such month and for the year to date period then ended,
prepared, if the Lender so requests, on a consolidating and
consolidated basis to include any Affiliates, in reasonable detail and
stating in comparative form the figures for the corresponding date and
periods in the previous year, all prepared in accordance with GAAP,
subject to year-end audit adjustments; and accompanied by a certificate
of the Borrower's chief financial officer, substantially in the form of
Exhibit B hereto stating (i) that such financial statements have been
prepared in accordance with GAAP, subject to year-end audit
adjustments, (ii) whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder not theretofore
reported and remedied and, if so, stating in reasonable detail the
facts with respect thereto, and (iii) all relevant facts in reasonable
detail to evidence, and the computations as to, whether or not the
Borrower is in compliance with the requirements set forth in Sections
6.12, 6.13, 6.14, 6.15, 7.10 and 7.11;
(c) within 20 days after the end of each month, a report by
the Borrower's management and its consultants as to the status of the
Borrower's Turnaround Plan and recommendations;
(d) at least 30 days before the beginning of each fiscal year
of the Borrower, the projected balance sheets and income statements for
each month of such year, each in reasonable detail, representing the
Borrower's good faith projections and certified by the Borrower's chief
financial officer as being the most accurate projections available and
identical to the projections used by the Borrower for internal planning
purposes, together with such supporting schedules and information as
the Lender may in its discretion require;
(e) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type
described in Section 5.12 or which seek a monetary recovery against the
Borrower in excess of $25,000 and not previously disclosed pursuant to
Section 5.6;
(f) as promptly as practicable (but in any event not later
than five business days) after an officer of the Borrower obtains
knowledge of the occurrence of any breach, default or event of default
under any Security Document or any event which constitutes a Default or
Event of Default hereunder, notice of such occurrence, together with a
detailed statement by a responsible officer of the Borrower of the
steps being taken by the Borrower to cure the effect of such breach,
default or event;
(g) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and
the action which the Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event to the
Pension Benefit Guaranty Corporation;
(h) as soon as possible, and in any event within 10 days
after the Borrower fails to make any quarterly contribution required
with respect to any Plan under Section 412(m) of the Internal Revenue
Code of 1986, as amended, the statement of the Borrower's chief
financial officer setting forth details as to such failure and the
action which the Borrower proposes to take with respect thereto,
together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any
Collateral or such other collateral or the prospect of payment thereof;
(j) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(k) promptly after the sending or filing thereof, copies of
all regular and periodic financial reports which the Borrower shall
file with the Securities and Exchange Commission or any national
securities exchange;
(l) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which
could materially and adversely affect the Borrower's business or its
financial condition; and
(m) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment
schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports,
records or information as the Lender may request.
The Borrower shall also send to the Lender's participants such copies of the
foregoing information as the Lender shall request from time to time.
Section 6.2 Books and Records; Inspection and Examination. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee, attorney or accountant for the
Lender to audit, review, make extracts from or copy any and all corporate and
financial books and records of the Borrower at all times during ordinary
business hours, to send and discuss with account debtors and other obligors
requests for verification of amounts owed to the Borrower, and to discuss the
Borrower's affairs with any of its directors, officers, employees or agents. The
Borrower will permit the Lender, or its employees, accountants, attorneys or
agents, to examine and inspect any Collateral, other collateral covered by the
Security Documents or any other property of the Borrower at any time during
ordinary business hours.
Section 6.3 Account Verification. The Lender may at any time and from
time to time send or require the Borrower to send requests for, verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time after notice to the Borrower
telephone account debtors and other obligors to verify accounts.
Section 6.4 Compliance with Laws.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would
materially and adversely affect its business or its financial condition
and (ii) use and keep the Collateral, and require that others use and
keep the Collateral, only for lawful purposes, without violation of any
federal, state or local law, statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable
Environmental Laws and obtain and comply with all permits, licenses and
similar approvals required by any Environmental Laws, and will not
generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation
under the common law of any jurisdiction or any Environmental Law.
Section 6.5 Payment of Taxes and Other Claims. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6 Maintenance of Properties.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from
time to time replace or repair any worn, defective or broken parts;
provided, however, that nothing in this Section 6.6 shall prevent the
Borrower from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the Lender's judgment,
desirable in the conduct of the Borrower's business and not
disadvantageous in any material respect to the Lender.
(b) The Borrower will defend the Collateral against all
claims or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all
security interests, liens and encumbrances except Permitted Liens.
Section 6.7 Insurance. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
keep all tangible Collateral insured against risks of fire (including so-called
extended coverage), theft, collision (for Collateral consisting of motor
vehicles) and such other risks and in such amounts as the Lender may reasonably
request, with any loss payable to the Lender to the extent of its interest, and
all policies of such insurance shall contain a lender's loss payable endorsement
for the Lender's benefit. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.
Section 6.8 Preservation of Existence. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 Delivery of Instruments, etc. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 Key Person Life Insurance. The Borrower shall maintain
insurance upon the life of Calvin S. Krupa, its president, with the death
benefit thereunder in an amount not less than $3,500,000 (the "Life Insurance
Policy"). The right to receive the proceeds of the Life Insurance Policy shall
be assigned to the Lender and NCI by the Life Insurance Assignment.
Section 6.11 Performance by the Lender. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5 and 6.7, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Floating Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.11.
Section 6.12 Minimum Tangible Net Worth. The Borrower will maintain as
of the last day of each month listed below, its Tangible Net Worth at an amount
not less than the amount set forth opposite such month:
Month Minimum Tangible Net Worth
----- --------------------------
May 1996 $7,712,000
June 1996 $7,825,000
July 1996 $7,860,000
August 1996 $7,891,000
September 1996 $7,889,000
October 1996 $7,854,000
November 1996 $7,819,000
December 1996 $7,843,000
January 1997 $7,912,000
Section 6.13 Maximum Debt to Tangible Net Worth Ratio. The Borrower
will maintain as of the last day of each month listed below, the ratio of its
Debt to its Tangible Net Worth at not more than the ratio set forth opposite
such month:
Month Maximum Debt to Tangible Net Worth
----- ----------------------------------
Ratio
-----
May 1996 5.30 to 1.00
June 1996 5.10 to 1.00
July 1996 4.90 to 1.00
August 1996 4.80 to 1.00
September 1996 4.60 to 1.00
October 1996 4.60 to 1.00
November 1996 4.60 to 1.00
December 1996 4.60 to 1.00
January 1997 4.50 to 1.00
Section 6. 14 Minimum EBT. The Borrower will achieve during
each year-to-date period ending on the last day of each month listed below, EBT
of not less than the amount set forth opposite such month:
Month Minimum EBT
----- -----------
May 1996 ($620,000)
June 1996 ($430,000)
July 1996 ($360,000)
August 1996 ($290,000)
September 1996 ($300,000)
October 1996 ($350,000)
November 1996 ($390,000)
December 1996 ($340,000)
January 1997 ($220,000)
Section 6.15 Maximum Inventory Days. As of the end of each month listed
below, the Borrower shall achieve a turnover rate for its Inventory of not more
than the number of Inventory Days set forth opposite such month:
Month Inventory Days
----- --------------
May 1996 75
June 1996 68
July 1996 68
August 1996 65
September 1996 65
October 1996 70
November 1996 75
December 1996 75
January 1997 75
Section 6.16 New Covenants. On or before January 31, 1997, The Borrower
and the Lender shall agree on new covenant levels for Sections 6.12, 6.13, 6.14,
6.15, 7.10 and 7.11 for periods after such date. The new covenant levels will be
based on the Borrower's projections for such periods and shall be no less
stringent than the present levels.
ARTICLE VII
Negative Covenants
So long as the Obligations shall remain unpaid, or the Credit Facility
shall remain outstanding, the Borrower agrees that, without the Lender's prior
written consent:
Section 7.1 Liens. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the foregoing
the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is
not Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in
title which do not materially interfere with the Borrower's business or
operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted
under Section 7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower and so long as
no Default Period is then in existence and no Default or Event of
Default would exist immediately after such acquisition.
Section 7.2 Indebtedness. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits,
advances, any indebtedness for borrowed money, or any other indebtedness or
liability, in each case evidenced by notes, bonds, debentures or similar
obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance
with Section 7.1.
Section 7.3 Guaranties. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary
course of business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons in
existence on the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 Investments and Subsidiaries.
(a) The Borrower will not purchase or hold beneficially any
stock or other securities or evidences of indebtedness of, make or
permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person, including
specifically but without limitation any partnership or joint venture,
except:
(i) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit obligations
of the United States of America having a maturity of one year
or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit
or bankers' acceptances having a maturity of one year or less
issued by members of the Federal Reserve System having
deposits in excess of $100,000,000 (which certificates of
deposit or bankers' acceptances are fully insured by the
Federal Deposit Insurance Corporation);
(ii) investment in certain companies as set forth in
Section 5.4, provided that the Borrower shall make no further
cash investments in such companies.
(iii) travel advances or loans to the Borrower's
officers and employees not exceeding at any one time an
aggregate of $10,000;
(iv) advances in the form of progress payments,
prepaid rent not exceeding two months or security deposits;
and
(v) a promissory note by Maine Fresh Pack having an
outstanding balance of approximately $9,502.30 as of the date
hereof.
(b) The Borrower will not create or permit to exist any
Subsidiaries.
Section 7.5 Dividends. The Borrower will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Section 7.6 Sale or Transfer of Assets; Suspension of Business
Operations. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 Consolidation and Merger; Asset Acquisitions. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 Sale and Leaseback. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 Restrictions on Nature of Business. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
Section 7.10 Capital Expenditures. The Borrower will not incur or
contract to incur Capital Expenditures except as budgeted in the Turnaround Plan
and not exceeding $850,000 in the aggregate during any fiscal year.
Section 7.11 Operating Leases. The Borrower will not incur or contract
to incur any new Operating Lease having a monthly payment exceeding $1000 except
to replace existing Equipment.
Section 7.12 Accounting. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.13 Discounts, etc. The Borrower will not grant any discount,
credit or allowance to any customer of the Borrower or accept any return of
goods sold, or modify, amend, subordinate, cancel or terminate the obligation of
any account debtor or other obligor of the Borrower except in the ordinary
course of business and until the Lender directs it to cease such activity.
Section 7.14 Defined Benefit Pension Plans. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.15 Other Defaults. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.16 Place of Business; Name. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.17 Organizational Document; S Corporation Status. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws except to the extent necessary to authorize the issuance
of up to 10,000,000 shares of its common stock. The Borrower will not become an
S Corporation within the meaning of the Internal Revenue Code of 1986, as
amended.
Section 7.18 Salaries. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation. The Borrower will not increase the aggregate cash salary, bonus,
commissions, consultant fees or other compensation of Brad C. Yopp or Calvin S.
Krupa through May 31, 1997.
ARTICLE VIII
Events of Default, Rights and Remedies
Section 8.1 Events of Default. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of any interest on or principal of
the Note when it becomes due and payable;
(b) Default in the payment of any fees, commissions, costs or
expenses required to be paid by the Borrower under this Agreement;
(c) Calvin S. Krupa shall cease to actively fulfill the duties
of president of the Borrower, Michael J. Laub shall cease to actively
fulfill the duties of chief operating officer of the Borrower, or Brad
C. Yopp shall cease to actively fulfill the duties of chief financial
officer of the Borrower.
(d) Calvin S. Krupa shall own less than 85% of the sum of the
outstanding shares of the Borrower's stock that he owns as as set forth
in the Borrower's proxy statement dated on or about May 31, 1996 and
any shares that he receives through options, stock splits, or bonuses.
(e) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(f) The Borrower shall be or become insolvent, or admit in
writing its inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower shall apply
for or consent to the appointment of any receiver, trustee, or similar
officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without
the application or consent of the Borrower, as the case may be; or the
Borrower shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, dissolution, liquidation or similar proceeding
relating to it under the laws of any jurisdiction; or any such
proceeding shall be instituted (by petition, application or otherwise)
against the Borrower or any such Guarantor; or any judgment, writ,
warrant of attachment or execution or similar process shall be issued
or levied against a substantial part of the property of the Borrower;
(g) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor;
(h) The Life Insurance Policy shall be terminated, by the
Borrower or otherwise; or the Life Insurance Policy shall be scheduled
to terminate within 30 days and the Borrower shall not have delivered a
satisfactory renewal thereof to the Lender; or the Borrower shall fail
to pay any premium on the Life Insurance Policy when due; or the
Borrower shall take any other action that impairs the value of the Life
Insurance Policy.
(i) Any representation or warranty made by the Borrower in
this Agreement, or by the Borrower (or any of its officers) in any
agreement, certificate, instrument or financial statement or other
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement shall prove to have been incorrect in
any material respect when deemed to be effective;
(j) The rendering against the Borrower of a final judgment,
decree or order for the payment of money in excess of $10,000 and the
continuance of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of execution;
(k) A default under any bond, debenture, note or other
evidence of indebtedness of the Borrower owed to any Person other than
the Lender, or under any indenture or other instrument under which any
such evidence of indebtedness has been issued or by which it is
governed, or under any lease of any of the Premises, and the expiration
of the applicable period of grace, if any, specified in such evidence
of indebtedness, indenture, other instrument or lease;
(l) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a
trustee to administer any Plan, shall have occurred and be continuing
30 days after written notice to such effect shall have been given to
the Borrower by the Lender; or a trustee shall have been appointed by
an appropriate United States District Court to administer any Plan; or
the Pension Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed
to make any quarterly contribution required with respect to any Plan
under Section 412(m) of the Internal Revenue Code of 1986, as amended,
which the Lender determines in good faith may by itself, or in
combination with any such failures that the Lender may determine are
likely to occur in the future, result in the imposition of a lien on
the Borrower's assets in favor of the Plan;
(m) An event of default shall occur under any Security
Document or under any other security agreement, mortgage, deed of
trust, assignment or other instrument or agreement securing any
obligations of the Borrower hereunder or under any note;
(n) The Borrower shall liquidate, dissolve, terminate or
suspend its business operations or otherwise fail to operate its
business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(o) The Borrower shall fail to pay, withhold, collect or
remit any tax or tax deficiency when assessed or due (other than any
tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate
reserves therefor) or notice of any state or federal tax liens shall be
filed or issued;
(p) Default in the payment of any amount owed by the Borrower
to the Lender other than any indebtedness arising hereunder;
(q) The Borrower shall take or participate in any action
which would be prohibited under the provisions of any Equipment
Intercreditor Agreement or any Moratorium Agreement or make any payment
that any Person was not entitled to receive under the provisions of any
Equipment Intercreditor Agreement or any Moratorium Agreement;
(r) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the
Lender.
Section 8.2 Rights and Remedies. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) The Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) The Lender may, by notice to the Borrower, declare the
Obligations to be forthwith due and payable, whereupon all Obligations
shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which
the Borrower hereby expressly waives;
(c) The Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) The Lender may exercise and enforce any and all rights
and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of
Collateral, or any evidence thereof, proceeding without judicial
process or by judicial process (without a prior hearing or notice
thereof, which the Borrower hereby expressly waives) and the right to
sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, the Borrower will on demand assemble the
Collateral and make it available to the Lender at a place to be
designated by the Lender which is reasonably convenient to both
parties;
(e) the Lender may exercise and enforce its rights and
remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Section 8.1(g), the Obligations shall be immediately due and
payable automatically without presentment, demand, protest or notice of any
kind.
Section 8.3 Certain Notices. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.4) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
Miscellaneous
Section 9.1 Release. The Borrower, hereby absolutely and
unconditionally releases and forever discharges the Lender, any participants and
any and all parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Agreement, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
Section 9.2 No Waiver; Cumulative Remedies. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.3 Amendments, Etc. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.4 Addresses for Notices, Etc. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
Telecopier: 612/428-8344
Attention: Brad C. Yopp
If to the Lender:
Norwest Bank Minnesota, National Association
Norwest Center
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0091
Telecopier: (612) 667-4144
Attention: Laura Schmaltz Oberst
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy.
Section 9.5 Servicing of Credit Facility.
(a) The Lender has entered into a servicing agreement (the
"Servicing Agreement") with the Servicer to service and enforce the
Loan Documents and collect the Obligations on the Lender's behalf.
Pursuant to the Servicing Agreement, the Lender has authorized the
Servicer to take certain actions, perform certain duties and exercise
certain powers on the Lender's behalf under the provisions of the Loan
Documents and any other instruments and agreements referred to in this
Agreement.
(b) The Servicer shall have no duties or responsibilities to
the Borrower, but only to the Lender and then only as expressly set
forth in the Servicing Agreement. Without limiting the generality of
the foregoing, the Servicer shall have no obligation to make any loans
or advances to the Borrower. Neither the Servicer nor any of its
officers, directors, employees or agents shall be liable for any action
taken or omitted by them hereunder or in connection herewith, unless
caused by its or their willful misconduct. The Servicer's duties shall
be mechanical and administrative in nature; nothing in this Agreement,
express or implied, is intended to or shall be so construed as to
impose upon the Servicer any obligations with respect to the Loan
Documents except as expressly set forth herein. The Borrower shall not
in any way be construed to be a third party beneficiary of any
relationship between the Servicer and the Lender.
(c) The Servicer shall be entitled to rely, and shall be
fully protected in relying, upon any communication whether written or
oral believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person, and, with respect to all legal
matters pertaining to this Agreement and its duties hereunder, upon
advice of counsel selected by it.
(d) The Borrower shall be entitled to rely upon any
communication whether written or oral sent or made by the Servicer for
and on behalf of the Lender with respect to all matters pertaining to
the Loan Documents and the Borrower's duties and obligations hereunder,
unless and until the Borrower receives written notice from the Lender
that the Servicer is no longer servicing the Credit Facility.
(e) The Servicer shall hold and be the custodian of the Loan
Documents on the Lender's behalf for so long as the Servicer is
servicing the Credit Facility.
(f) The Servicing Agreement may be terminated at any time
without prior notice to or consent of the Borrower. Upon termination of
the Servicing Agreement and failure to replace the Servicing Agreement
with a new servicing agreement, all references herein to the Servicer
shall thereafter mean and refer to the Lender.
Section 9.6 Further Documents. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.7 Collateral. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
Section 9.8 Costs and Expenses. The Borrower agrees to pay on demand
all reasonable costs and expenses, including (without limitation) attorneys'
fees, incurred by the Lender in connection with the Obligations, this Agreement,
the Loan Documents, and any other document or agreement related hereto or
thereto, and the transactions contemplated hereby, including without limitation
all such costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
Section 9.9 Indemnity. In addition to the payment of expenses pursuant
to Section 9.8, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by
reason of the execution and delivery of the Loan Documents or
the making of the Advances;
(ii) any claims, loss or damage to which any
Indemnitee may be subjected if any representation or warranty
contained in Section 5.12 proves to be incorrect in any
respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses,
damages, penalties, judgments, suits, claims, costs and
expenses of any kind or nature whatsoever (including, without
limitation, the reasonable fees and disbursements of counsel)
in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such
Indemnitee shall be designated a party thereto, which may be
imposed on, incurred by or asserted against any such
Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan
Documents or the use or intended use of the proceeds of the
Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.9 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.10 Participants. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
Section 9.11 Execution in Counterparts. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.12 Binding Effect; Assignment; Complete Agreement; Sharing of
Information. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
This Agreement, together with the Loan Documents, comprises the complete and
integrated agreement of the parties on the subject matter hereof and supersedes
all prior agreements, written or oral, on the subject matter hereof. Without
limiting the Lender's right to share information regarding the Borrower and its
Affiliates with the Lender's participants, accountants, lawyers and other
advisors, the Lender may share at any time with Norwest Corporation, and all
direct and indirect subsidiaries of Norwest Corporation, any and all information
the Lender may have in its possession regarding the Borrower and its Affiliates,
and the Borrower waives any right of confidentiality it may have with respect to
such sharing of such information.
Section 9.13 Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.14 Headings. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
[SIGNATURE PAGE FOLLOWS]
Section 9.15 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Minnesota. This
Guaranty shall be governed by and construed in accordance with the substantive
laws (other than conflict laws) of the State of Minnesota. The parties hereto
hereby (i) consents to the personal jurisdiction of the state and federal courts
located in the State of Minnesota in connection with any controversy related to
this Agreement; (ii) waives any argument that venue in any such forum is not
convenient, (iii) agrees that any litigation initiated by the Lender or the
Borrower in connection with this Agreement or the other Loan Documents shall be
venued in either the District Court of Hennepin County, Minnesota, or the United
States District Court, District of Minnesota, Fourth Division; and (iv) agrees
that a final judgment in any such suit, action or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
NORWEST BANK MINNESOTA, ULTRA PAC, INC.
NATIONAL ASSOCIATION
By /s/ Laura Schmaltz Oberst By /s/ Brad C. Yopp
Laura Schmaltz Oberst Brad C. Yopp
Its Vice President Its Chief Financial Officer
Table of Exhibits and Schedules
Exhibit A Form of Term Note
Exhibit B Compliance Certificate
Exhibit C Premises
-------------------
Schedule 5.1 Trade Names, Chief Executive Office,
Principal Place of Business, and
Locations of Collateral
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
TERM NOTE
$2,600,000 Minneapolis, Minnesota
June 21, 1996
For value received, the undersigned, ULTRA PAC, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay on the Maturity Date under
the Credit Agreement (defined below), to the order of NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association (the "Lender"), at its main
office in Minneapolis, Minnesota, or at any other place designated at any time
by the holder hereof, in lawful money of the United States of America and in
immediately available funds, the principal sum of Two Million Six Hundred
Thousand Dollars ($2,600,000) or, if less, the aggregate unpaid principal amount
of all Term Advances made by the Lender to the Borrower under the Credit
Agreement (defined below) together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (the "Credit Agreement") by and
between the Lender and the Borrower. The principal hereof and interest accruing
thereon shall be due and payable as provided in the Credit Agreement. This Note
may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Brad C. Yopp
Its Chief Financial Officer
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Laura Schmaltz Oberst
Norwest Bank Minnesota, National Association
Date: __________________, 199___
Subject: Ultra Pac, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as of June
___, 1996 (the "Credit Agreement"), attached are the financial statements of
Ultra Pac, Inc. (the "Borrower") as of and for ________________, 19___ (the
"Reporting Date") and the year-to-date period then ended (the "Current
Financials"). All terms used in this certificate have the meanings given in the
Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition as of the date thereof.
Events of Default. (Check one):
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
Financial Covenants. I further hereby certify as follows:
1. Minimum Tangible Net Worth. Pursuant to Section 6.12 of the
Credit Agreement, as of the Reporting Date the Borrower's Tangible Net
Worth was $____________ which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date:
Month Minimum Tangible Net Worth
----- --------------------------
May 1996 $7,712,000
June 1996 $7,825,000
July 1996 $7,860,000
August 1996 $7,891,000
September 1996 $7,889,000
October 1996 $7,864,000
November 1996 $7,819,000
December 1996 $7,843,000
January 1997 $7,912,000
2. Maximum Debt to Tangible Net Worth Ratio. Pursuant to
Section 6.13 of the Credit Agreement, as of the Reporting Date, the
ratio of the Borrower's Debt to its Tangible Net Worth was _____ to
1.00 which |_| satisfies |_| does not satisfy the requirement that such
ratio be no more than ______ to 1.00 on the Reporting Date as set forth
in table below:
Month Maximum Debt to Tangible Net Worth
----- ----------------------------------
Ratio
-----
May 1996 5.30 to 1.00
June 1996 5.10 to 1.00
July 1996 4.90 to 1.00
August 1996 4.80 to 1.00
September 1996 4.60 to 1.00
October 1996 4.60 to 1.00
November 1996 4.60 to 1.00
December 1996 4.60 to 1.00
January 1997 4.50 to 1.00
3. Minimum Earnings Before Taxes. Pursuant to Section
6.14 of the Credit Agreement, the Borrower's EBT as of the Reporting
Date, was $____________, which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ as set
forth in table below:
Month Minimum EBT
----- -----------
May 1996 ($620,000)
June 1996 ($430,000)
July 1996 ($360,000)
August 1996 ($290,000)
September 1996 ($300,000)
October 1996 ($350,000)
November 1996 ($390,000)
December 1996 ($340,000)
January 1997 ($220,000)
4. Maximum Inventory Days. Pursuant to Section 6.15 of the
Credit Agreement, the turnover rate of the Borrower's Inventory as of
the 390,000)December1996($340,000)January1997($220,000) Reporting Date
was ____ Inventory Days which |_| satisfies |_| does not satisfy the
requirement that such number be not more than _____ Inventory Days as
of such date as set forth in table below:
Month Inventory Days
----- --------------
May 1996 75
June 1996 68
July 1996 68
August 1996 65
September 1996 65
October 1996 70
November 1996 75
December 1996 75
January 1997 75
5. Capital Expenditures. Pursuant to Section 7.10 of the
Credit Agreement, for the year-to-date period ending on the Reporting
Date, the Borrower has expended or contracted to expend during the
fiscal year ended January 31, 199___, for Capital Expenditures,
$__________________ in the aggregate, which |_| satisfies |_| does not
satisfy the requirement that such expenditures not exceed $850,000 in
the aggregate.
6. Operating Leases. Pursuant to Section 7.11 of the
Credit Agreement, for the year-to-date period ending on the
Reporting Date, the highest monthly payment the Borrower has
expended or contracted to expend during the fiscal year ended
January 31, 199___, for any Operating Lease is
$__________________, which |_| satisfies |_| does not satisfy
the requirement that such no such payment exceed $1,000.
7. Salaries. As of the Reporting Date, the Borrower |_| is |_| is not
in compliance with Section 7.18 of the Credit Agreement concerning salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to above.
These computations were made in accordance with GAAP.
ULTRA PAC, INC.
By ____________________________
Its Chief Financial Officer
Exhibit C to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
legally described as follows:
The Premises described in the referenced document are located in
Hennepin County, Minnesota and are described as follows:
PARCEL A
That part of the south half of the Southwest Quarter of Section 14,
Township 120 North, Range 23 West, Hennepin County, Minnesota,
described as follows:
Commencing at the southwest corner of said Section 14; thence on an
assumed bearing of West along the south line of the Southeast Quarter
of Section 15, Township 120 North, Range 23 West 267.95 feet to the
intersection with the northeasterly right of way line of the Burlington
Northern Railroad; thence North 40 degrees 25 minutes 40 seconds East
571.67 feet to the southwesterly right of way line of Minnesota State
Highway No. 152 as constructed and monumented, and the point of
beginning of the land to be described; thence South 40 degrees 25
minutes 40 seconds West 168.30 feet to the west line of said south half
of the Southwest Quarter of Section 14; thence South 1 degree 11
minutes 20 seconds East along said west line of the south half of the
Southwest Quarter of Section 14 a distance of 307.12 feet to the
southwest corner of said south half of the Southwest Quarter of Section
14; thence South 89 degrees 43 minutes 10 seconds East along the south
line of said south half of the Southwest Quarter of Section 14 a
distance of 197.66 feet; thence North 40 degrees 19 minutes 05 seconds
East 270.46 feet to said southwesterly right of way line of Minnesota
State Highway No. 152; thence North 49 degrees 34 minutes 20 seconds
West along said southwesterly right of way line of Minnesota State
Highway No. 152 a distance of 354.54 feet to the point of beginning.
PARCEL B
Parcel B
That part of the South Half of the Southwest Quarter (S1/2 SW1/4) of
Section Fourteen (14), Township One Hundred Twenty (120), Range
Twenty-three (23), Hennepin County, Minnesota, lying east of the West
264.71 feet, measured at right angles, of said South Half of the
Southwest Quarter (S1/2 SW1/4); lying southwesterly of the
southwesterly right-of-way line of Interstate Highway No. 94 as
monumented; lying northwesterly of a line described as commencing at
the most southerly corner of Lot One (1), Block One (1), FREEWAY 94
COMMERCIAL PAK, said Hennepin County; thence North 49 degrees 48
minutes secants West along the southwesterly line of said Lot One (1)
for a distance of 349.91 feet to the actual Point of Beginning of the
line to be hereby described; thence 30 degrees 26 minutes 54 seconds
East for a distance of 460.07 feet, more or less, to intersect with and
terminate at said southwesterly right-of-way line of Interstate Highway
No. 94; and lying northwesterly of the Northwesterly extension of said
Commercial Park, EXCEPTING therefrom all that part thereof described as
beginning at the point of intersection of the East line of said West
264.71 feet with said southwesterly right-of-way line of Interstate
Highway No. 94 as monumented; thence southeasterly along said highway
right-of-way for a distance of 93.57 feet; thence southwesterly at
right angles for a distance of 250.36 feet, more or less, to intersect
said East line of the West 264.71 feet; thence north along said East
line of the West 264.71 feet for a distance of 177.09 feet, more or
less, to the Point of Beginning
That part of the South Half of the Southwest Quarter (S1/2 SW1/4) of
Section Fourteen (14) , Township One Hundred Twenty (120), Range
Twenty-three (23), Hennepin County, Minnesota, described as commencing
at the point of intersection of the East line of the West 264.71 feet,
as measured at right angles of said South Half of the Southwest Quarter
(S1/2 SW1/4) with the southwesterly right-of-way line of Interstate
Highway No. 94 as monumented; thence southeasterly along said highway
right-of-way for a distance of 93.57 feet; thence southwesterly at
right angles for a distance of 150.36 feet, more or less, to intersect
said East line of the West 264.71 feet, said point of intersection also
being the actual Point of Beginning of the land to be hereby described;
thence continue southwesterly along the last described course for a
distance of 141.97 feet, more or less, to intersect the northeasterly
right-of-way line of Industrial Boulevard formerly known as Minnesota
Trunk Highway No. 152) as monumented; thence southeasterly along said
boulevard right-of-way for a distance of 100.30, more or less, to
intersect said East line of the West 264.71 feet; thence north along
said East line of the West 264.71 feet for a distance of 187.12 feet,
more or less, to the Point of Beginning;
which is now known as:
Lot Three (3), Block One (1), and Outlot B and Outlot C, Rogers Plastic
Center 2nd Addition, according to the plat thereof on file or of record
in the office of County Recorder, Hennepin County, Minnesota.
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business,
and Locations of Collateral
TRADE NAMES
None
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
Ultra Pac, Inc.
21925 Industrial Boulevard
Rogers, Minnesota 55374-9575
OTHER INVENTORY AND EQUIPMENT LOCATIONS
22051, 22000, 22001, 22201 and or 21925 Industrial Boulevard
Rogers, Minnesota 55374
Hands, Inc.
East First Street
Winthrop, Minnesota 55396
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment") is made
and entered into as of the 21st day of June, 1996 by and between THE CIT
GROUP/EQUIPMENT FINANCING, INC., a New York corporation ("Lender"), and, ULTRA
PAC, INC., a Minnesota corporation ("Debtor").
RECITALS
A. Pursuant to a Loan and Security Agreement dated as of March 10, 1995
between Lender and Debtor (the "Loan Agreement"), Lender has made certain loans
to Debtor (collectively, the "Loans") and to secure the repayment of the Loans,
Debtor has granted to Lender a first priority security interest in certain
personal property owned by Debtor (the "Collateral"), which Collateral is more
fully described in the Loan Agreement and the documents and agreements executed
by Debtor and /or Lender in connection with the Loan Agreement.
B. Certain Events of Default (the "Identified Events of Default") have
occurred under the Loan Agreement by virtue of (i) Debtor's failure to make the
scheduled payment of principal due on January 15, 1996 and the scheduled
payments of principal and interest due on the Loans on February 15, 1996, March
15, 1996, April 15, 1996, May 15, 1996 and June 15, 1996, (ii) Debtor's failure
to comply with the financial covenants set forth in Sections 5.13 and 5.14 of
the Loan Agreement as of January 31, 1996 and (iii) Debtor's default in the
payment of indebtedness of Debtor to Norwest Bank Minnesota, National
Association, Norwest Credit, Inc., USL Capital, Eastman Chemical Company and
Concord Commercial, a Division of HSBC Business Loans, Inc. (collectively, the
"Existing Lenders").
C. As of the date hereof, (i) the aggregate amount of the delinquent
principal payments described in clause (i) of Recital B above, is $605,523.54,
(ii) the aggregate amount of the delinquent interest payments described in
clause (i) of Recital B is $213,459.27 and (iii) the aggregate amount of late
charges which have accrued under the Loan Agreement on such delinquent principal
amount and such delinquent interest amount from January 15, 1996 through June
14, 1996 is $11,827.87.
D. As a result of the Identified Events of Default, Lender currently
has the right to exercise all rights, remedies and privileges available to
Lender under the Loan Agreement.
E. Debtor has requested that Lender (i) forbear from exercising any of
its available rights, remedies and privileges under the Loan Agreement, (ii)
waive the Identified Events of Default, and (iii) provide Debtor with certain
debt service relief for the period commencing January 15, 1996 and ending on
December 15, 1996.
F. Lender is willing to agree to Debtor's requests on the terms and
conditions set forth in this Amendment, provided that the Existing Lenders
provide Debtor with debt service relief on terms and conditions similar to the
terms and conditions set forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Lender and Debtor hereby agree as
follows:
1. Incorporation by Reference. (a) All of the recitals set forth above
are incorporated into the body of this Amendment by this reference, as if set
forth in full herein.
(b) All capitalized terms used in this Amendment and not defined shall
have the meanings given to such terms in the Loan Agreement.
2. Current Status of Rights and Obligations. Debtor confirms,
acknowledges and agrees that (i) there currently exist no defenses or offsets
whatsoever to payment of any of the Obligations, (ii) Lender has a valid,
perfected, first priority security interest in the Collateral and (iii) Lender
currently has the right to exercise any and all of the rights, remedies and
privileges available to Lender under the Loan Agreement.
3. Amendments to Loan Agreement. Lender and Debtor agree to amend the
Loan Agreement as follows:
(a) New Definitions. Section 1.1 of the Loan Agreement is amended by
adding the following new definitions at the appropriate alphabetical location:
"Capital Expenditures" for any period shall mean any
expenditure of money during such period for the capitalized lease,
purchase or other acquisition of any capital asset.
"Debt" of any Person shall mean all items of indebtedness or
liability which in accordance with generally accepted accounting
principles would be included in determining total liabilities on the
liabilities side of a balance sheet of that Person as of the date as of
which Debt is to be determined. For purposes of determining a Person's
aggregate Debt at any time, "Debt" shall also include the aggregate
payments required to be made by such Person at any time under any lease
that is considered a capitalized lease under generally accepted
accounting principles.
"Debt to Tangible Net Worth Ratio" as of a given date shall
mean the ratio of Debtor's Debt to Debtor's Tangible Net Worth.
"EBT" for any period shall mean pretax earnings from
continuing operations before (i) special extraordinary gains (ii)
minority interests and (iii) miscellaneous gains and losses unless
approved by CIT, in each case for such period.
"Inventory Days" as of any date means the ratio of (i)
inventory as of such date to (ii) the average daily cost of goods sold
during the three-month period ending on such date.
"Operating Lease" shall mean any lease of any asset whether
payable currently or in the future but excluding Capital Expenditures.
"Tangible Net Worth" shall mean the difference between (i) the
tangible assets of Debtor which, in accordance with generally accepted
accounting principles, are tangible assets, after deducting adequate
reserves in each case where, in accordance with generally accepted
accounting principles, a reserve is proper, and (ii) all Debt of Debtor
other than deferred tax liabilities; provided, however, that
notwithstanding the foregoing in no event shall there be included as
such tangible assets patents, trademarks, trade names, copyrights,
licenses, goodwill, investments in Ultra Pac Sud America, S.A. and
Ultra Pac Middle East, receivables from or investments in affiliates,
directors, officers or employees, prepaid expenses, deferred tax
liabilities, deposits, deferred charges or treasury stock or any
securities or Debt of Debtor or any other securities unless the same
are readily marketable in the United States of America or entitled to
be used as a credit against federal income tax liabilities, and any
other assets designated from time to time by CIT, in the reasonable
exercise of its discretion.
"Turnaround Plan" means Debtor's turnaround plan dated as of
February 15, 1996, as amended and updated, copies of which have been
delivered to CIT.
(b) Repayment of Loans. Notwithstanding any provision of Section 2.2 or
Section 2.3 of the Loan Agreement to the contrary, so long as no Event of
Default has occurred, during the period commencing on January 15, 1996 through
December 15, 1996 (the "Principal Deferral Period"), Debtor shall have no
obligation to pay to Lender the scheduled installments of principal due on the
Loans. During the Principal Deferral Period, interest shall continue to accrue
on the Loans at the rate set forth in Section 2.2(b) or Section 2.3(b) of the
Loan Agreement, as applicable, and Debtor shall continue to pay to Lender all
accrued interest on the Loans as and when such interest becomes due in
accordance with the provisions of the Loan Agreement. The term of each Loan
shall not be extended beyond the Final Maturity Date (in the case of each A
Equipment Loan) or the Maturity Date (in the case of each B Equipment Loan) by
virtue of the deferral of principal payments. Accordingly, the amount of each
monthly installment of principal due on each Loan on and after January 15, 1997
shall remain the same as it was prior to the effectiveness of this Amendment,
and the aggregate principal amount of each Loan which is deferred during the
Principal Deferral Period shall be due and payable on the Final Maturity Date
(in the case of each A Equipment Loan) or the Maturity Date (in the case of each
B Equipment Loan). Upon the occurrence of an Event of Default during the
Principal Deferral Period, the deferral of principal payments described in this
paragraph shall automatically and immediately cease, and Debtor thereafter shall
pay all scheduled installments of principal due on the Loans as and when such
installments become due.
(c) Amendment to Section 2.5 Paragraph (d) is of Section 2.5 is
deleted, and substituted in lieu thereof are the following two new paragraphs:
"(d) On February 28, 1997 and on February 28, 1998, Debtor
shall prepay, without penalty or premium, the principal amount of the
Loans then outstanding by an amount equal to twenty-five percent (25%)
of the January Excess Availability Amount. On May 31, 1997 and May 31,
1998, Debtor shall prepay, without penalty or premium, the principal
amount of the Loans then outstanding by an amount equal to fifty
percent (50%) of the April Excess Availability Amount. For purposes of
this paragraph (d), the term "January Excess Availability Amount" shall
mean the lesser of (i) $300,000 or (ii) the amount by which the
availability for borrowing under Debtor's revolving credit facility
exceeds $2,000,000 as of January 31 of the year in which such
prepayment is due, and the term "April Excess Availability Amount"
shall mean the lesser of (i) $600,000, in the case of the prepayment
due on May 31, 1997, or $1,200,000, in the case of the prepayment due
on May 31, 1998, or (ii) the amount by which the availability for
borrowing under Debtor's revolving credit facility exceeds $2,000,000
as of April 30 of the year in which such prepayment is due. In no event
shall the prepayments made by Debtor under pursuant to this paragraph
(d) in 1997 exceed $600,000 in the aggregate, and in no event shall all
prepayments made by Debtor pursuant to this paragraph (d) exceed
$1,200,000 in the aggregate. Debtor shall have no obligation to make
any prepayment pursuant to this paragraph (d) on February 28 of 1997 or
1998 if the average daily availability for borrowing under Debtor's
revolving credit facility for the preceding month of January was not
equal to or greater than $2,000,000 (as calculated by Debtor's
revolving credit lender based on information provided by Debtor), and
Debtor shall have no obligation to make any prepayment pursuant to this
paragraph (d) on May 31 of 1997 or 1998 if the average daily
availability for borrowing under Debtor's revolving credit facility for
the preceding month of April was not equal to or greater than
$2,000,000 (as calculated by Debtor's revolving credit lender based on
information provided by Debtor). In addition, Debtor shall have no
obligation to make any prepayment required under this paragraph (d) if
there exists a default or event of default under Debtor's revolving
credit facility on the date on which such prepayment is due; provided
that if such default or event of default is subsequently cured by
Debtor or waived by Debtor's revolving credit lender(s), then Debtor
shall make such prepayment immediately after such default or event of
default is either cured or waived. CIT shall apply the prepayments made
under this paragraph (d) first, to the principal installments due on
the B Equipment Loans then outstanding, pro rata, in inverse order of
their maturities, and second, to the principal installments due on the
A Equipment Loans then outstanding, pro rata, in inverse order of their
maturities.
"(e) Except as provided in paragraphs (a), (b), (c) and (d)
above, the Loans shall not be prepaid in whole or in part."
(d) Amendment to Section 5.5. A new paragraph is added at the end of
Section 5.5 of the Loan Agreement which shall read as follows:
" In addition to the financial information required to be
furnished to Lender under the first paragraph of this Section 5.5,
Debtor shall furnish to CIT, within thirty (30) days after the end of
each calendar month, commencing with the month of May, 1996: (i) a
consolidated balance sheet of Debtor as of the end of such calendar
month and consolidated statements of income and cash flow of Debtor for
such calendar month and for the period from the beginning of Debtor's
current fiscal year to the end of such calendar month, all in
reasonable detail, prepared in accordance with generally accepted
accounting principles applied on a basis consistently maintained
throughout the period involved and signed by the chief financial
officer of Debtor, together with comparative information for the same
periods of Debtor's prior fiscal year; (ii) a compliance certificate,
executed by Debtor's chief financial officer, demonstrating Debtor's
compliance with provisions of Section 5.13 and 5.14 hereof which are
applicable during such calendar month; and (iii) a copy of Debtor's
most current borrowing base certificate (or equivalent document)
submitted by Debtor to its revolving credit lender in connection with
Debtor's revolving credit facility."
(e) Amendments to Section 5.13 and 5.14. Sections 5.13 and 5.14 of the
Loan Agreement are deleted, and substituted in lieu thereof is a new Section
5.13 which shall read as follows:
"5.13 Financial Covenants. From the date hereof through
January 31, 1997, Debtor shall comply with each of the following
financial covenants:
"(a) Tangible Net Worth. As of the last day of each month
listed below, Debtor shall maintain a Tangible Net Worth of not less
than the amount set forth opposite such month:
Month Tangible Net Worth
----- ------------------
June, 1996 $7,825,000
July, 1996 $7,860,000
August, 1996 $7,891,000
September, 1996 $7,889,000
October, 1996 $7,854,000
November, 1996 $7,819,000
December, 1996 $7,843,000
January, 1997 $7,912,000
"(b) Debt to Tangible Net Worth Ratio. As of the last day of each month
listed below, Debtor shall maintain a Debt to Tangible Net Worth Ratio of not
more than the ratio set forth opposite such month:
Month Debt to Tangible Net
----- --------------------
Worth Ratio
-----------
June, 1996 5.10:1.00
July, 1996 4.90:1.00
August, 1996 4.80:1.00
September, 1996 4.60:1.00
October, 1996 4.60:1.00
November, 1996 4.60:1.00
December, 1996 4.60:1.00
January, 1997 4.50:1.00.
"(c) EBT. During each fiscal year-to-date period ending on the last day
of each month listed below, Debtor shall achieve an EBT of not less than the
amount set forth opposite such month:
Month EBT
----- ---
June, 1996 ($430,000)
July, 1996 ($360,000)
August, 1996 ($290,000)
September, 1996 ($300,000)
October, 1996 ($350,000)
November, 1996 ($390,000)
December, 1996 ($340,000)
January, 1997 ($220,000).
"(d) Maximum Inventory Days. As of the last day of each month listed
below, Debtor shall achieve a turnover rate for its inventory of not more than
the number of Inventory Days set forth opposite such month:
Month Inventory Days
----- --------------
June, 1996 68
July, 1996 68
August, 1996 65
September, 1996 65
October, 1996 70
November, 1996 75
December, 1996 75
January, 1997 75.
"(e) Dividends. Debtor will not declare or pay any dividends
(other than dividends payable solely in stock of Debtor) on any class
of its stock or make any other payment on account of the purchase,
redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
"(f) Capital Expenditures. Debtor shall not incur or contract
to incur new Capital Expenditures except as budgeted in the Turnaround
Plan and not exceeding $850,000 in the aggregate during any fiscal
year.
"(g) Operating Leases. Debtor will not incur or contract to
incur any new Operating Lease having a monthly payment exceeding $1,000
except to replace existing equipment of Debtor.
"(h) New Covenants. On or before January 31, 1997, Debtor and
CIT shall agree on new covenant levels for Subsections 5.13(a), (b),
(c), (d), (f) and (g) for periods after such date. The new covenant
levels will be based on Debtor's projections and shall be no less
stringent than the present levels. In addition, CIT agrees to adopt the
covenant levels agreed to between Debtor and Debtor's revolving credit
lender if such covenants are satisfactory to CIT in the reasonable
exercise of its discretion."
Any and all references in the Loan Agreement to Section 5.13 or Section
5.14 shall hereafter be deemed to be references to the new Section 5.13 set
forth above.
4. Conditions Precedent. This Amendment and the agreements of Lender
set forth herein shall become effective only upon satisfaction of the following
conditions precedent:
(a) Lender shall have received three (3) counterparts of this
Amendment, executed by an authorized officer of Debtor;
(b) Lender shall have received from Debtor 49,000 warrants to purchase
the common stock of Debtor at an exercise price not to exceed the price
at which the final trade of Debtor's common stock occurred over the
Nasdaq National Market on the business day prior to the date of this
Agreement pursuant to an instrument (the "Warrant Agreement") in form
and substance satisfactory to Lender in all respects;
(c) Lender shall have received a certificate of the Secretary or
Assistant Secretary of Debtor (i) evidencing that all corporate
proceedings required to authorize the execution and delivery of this
Amendment and the Warrant Agreement (as well as the transactions
contemplated hereby and thereby) have been duly taken, and (ii) which
sets forth the names, offices and specimen signatures of all officers
of Debtor who are authorized to execute this Amendment and the
Warrant Agreement;
(d) Lender shall have received a legal opinion addressed to Lender from
counsel to Debtor as to matters set forth in paragraphs (a) through (d)
of Section 7 of this Amendment;
(e) Lender shall have received (i) payment in full of all accrued
interest on the Loans and $5,913.94 of the accrued late charges through
June 14, 1996 (and Lender hereby waives the requirement that Debtor pay
the remainder of the late charges which accrued through June 14, 1996),
and (ii) late charges which accrue under the Loan Agreement from June
14, 1996 through the date hereof (calculated, for purposes of this
provision only, at a rate of 9% per annum);
(f) Lender shall have received and reviewed copies of all agreements
(in substantially final form) between Debtor and the Existing Lenders
relating to the compromise, restructuring, deferral or settlement of
payment of any of Debtor's indebtedness to the Existing Lenders,
including, without limitation, all agreements pursuant to which the
Existing Lenders are granted warrants to purchase the capital stock of
Debtor (such agreements are referred to herein as the "Related
Restructuring Agreements"), and all terms, provisions and conditions of
such Related Restructuring Agreements shall be satisfactory to Lender
in its sole discretion;
(g) All Related Restructuring Agreements shall be effective or become
effective upon the effectiveness of this Amendment;
(h) Debtor shall have paid Lender a fee of $10,000 for the
documentation of this Amendment; and
(i) Debtor shall have taken any action and executed any other documents
as Lender may require in order to effectuate this Amendment and the
Warrant Agreement.
Debtor and Lender acknowledge that Lender continues to hold $9,171.27
representing the balance of the commitment fee paid by Debtor to Lender in
connection with the making of the Loans. Debtor and Lender agree that Lender may
apply this balance to the late charges payable by Debtor under clauses (i) and
(ii) of paragraph (e) above. To the extent that this balance exceeds the
aggregate amount of such late charges, Debtor and Lender agree that Lender may
apply the excess to the $10,000 fee payable by Debtor to Lender under paragraph
(h) above.
5. Waiver by Lender. Subject to the satisfaction of all conditions
precedent set forth in Section 4 of this Amendment, Lender waives the Identified
Events of Default.
6. Additional Covenants of Debtor. During the Principal Deferral
Period, Debtor agrees to: (a) duly observe and comply with all terms and
provisions of the Related Restructuring Agreements; (b) without the prior
written consent of Lender, not amend, supplement or restate any of the terms of
any Related Restructuring Agreement, if the effect of such amendment, supplement
or restatement is to increase the consideration given to the lender which is a
party thereto on account of such lender's accommodations to Debtor, or to
otherwise make the terms of such Related Restructuring Agreement more favorable
to such lender; and (c) furnish Lender with copies of all amendments,
supplements and restatements of any of the Related Restructuring Agreements,
regardless of the effect thereof, promptly after the execution thereof by
Debtor.
7. Representations and Warranties of Debtor. In order to induce Lender
to enter into this Amendment, Debtor represents and warrants to Lender as
follows:
(a) Power and Authority. Debtor has full power, authority and legal
right to execute, deliver and perform this Amendment and the Warrant Agreement,
and the execution, delivery and performance hereof and thereof have been duly
authorized by all necessary corporate action of Debtor.
(b) Enforceability. This Amendment and the Warrant Agreement have been
duly executed and delivered by Debtor, and constitute the legal, valid and
binding obligations of Debtor, enforceable in accordance with their respective
terms.
(c) Consents and Permits. The execution, delivery and performance of
this Amendment and the Warrant Agreement do not require any stockholder approval
or approval or consent of any trustee or holders of any indebtedness or
obligations of Debtor which has not been obtained, and will not contravene any
law, regulation, judgment or decree applicable to Debtor, or the certificate of
incorporation or bylaws of Debtor, or contravene the provisions of, or
constitute a default under, or result in the creation of any Lien upon any
property of Debtor under any mortgage, instrument or other agreement to which
Debtor is a party or by which Debtor or its assets may be bound or affected; and
no authorization, approval, license, filing or registration with any court or
governmental agency or instrumentality is necessary in connection with the
execution, delivery, performance, validity and enforceability of this Amendment
or the Warrant Agreement.
(d) Capitalization of Debtor. Debtor currently has authorized 5,000,000
shares of capital stock. As of May 31, 1996, Debtor had issued 3,766,215 shares
of capital stock, all of which were issued in compliance with all applicable
federal and state securities laws. Each share of outstanding capital stock is
entitled to identical voting rights and dividend preferences.
(e) No Defaults. Prior to the date of this Amendment, there existed no
Defaults or Events of Default other than the Identified Events of Default, and
upon the effectiveness of this Amendment and the Related Restructuring
Agreements, there will exist no Default or Event of Default. Upon the
effectiveness of the Related Restructuring Agreements, there shall exist no
defaults under any documents between Debtor and any Existing Lender.
(f) Related Restructuring Agreements. Debtor has furnished Lender with
true, correct and complete copies of all Related Restructuring Agreements.
In addition to the representations and warranties of Debtor set forth
above, and except to the extent disclosed on Schedule 7 attached hereto, Debtor
reaffirms and remakes all representations and warranties made by Debtor in the
Loan Agreement, effective as of the date of this Amendment.
8. Reference to and Effect of Amendment; Reservation of CIT's Rights.
(a) Upon the effectiveness of this Amendment, (i) each reference in the Loan
Agreement to "this Amendment," "hereunder," "hereof," "herein," "hereby" or
words of like import shall mean and be a reference to the Loan Agreement as
amended hereby, and (ii) each reference to the Loan Agreement in any other
document, instrument or agreement executed and/or delivered in connection with
the Loan Agreement shall mean and be a reference to the Loan Agreement as
amended hereby.
(b) Except as expressly provided in this Amendment, the execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy of Lender under the Loan Agreement, nor constitute a
waiver of noncompliance with, or a modification of, any term or provision
contained therein.
(c) Except as expressly modified by this Amendment, all of the terms
and provisions of the Loan Agreement are, and shall remain, in full force and
effect and shall apply with such force and effect to this Amendment, and Lender
hereby expressly reserves all rights, remedies, powers and privileges contained
therein and in any other document executed and delivered pursuant thereto.
9. Additional Events of Default. If Debtor shall fail to observe or
perform any covenant, condition or agreement of this Amendment, the Warrant
Agreement or any Related Restructuring Agreement, or if any representation or
warranty made by Debtor in this Amendment or in the Warrant Agreement shall at
any time prove to be untrue or misleading in any material respect as of the time
when made, then an Event of Default shall be deemed to have occurred, entitling
Lender to exercise any right, remedy or privilege available to Lender upon the
occurrence of an Event of Default.
10. Governing Law. This Amendment SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK.
11. Execution in Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, Lender and Debtor have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
LENDER: DEBTOR:
THE CIT GROUP/EQUIPMENT ULTRA PAC, INC.
FINANCING, INC.
By: /s/ Brad C. Yopp
By: /s/ (signature illegible) Title: CFO
Title: Vice President
SCHEDULE 7
TO
FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
DATED AS OF JUNE 21, 1996
BETWEEN
ULTRA PAC, INC.
AND
THE CIT GROUP/EQUIPMENT FINANCING, INC.
The following exceptions are noted with respect to the representations and
warranties of Ultra Pac, Inc. to The CIT Group/Equipment Financing, Inc. as
contained in the above-referenced agreement, as of June 21 1996:
4.5 No Default - Certain events have occurred which may constitute an event of
default on behalf of Ultra Pac, Inc. under certain agreements between Ultra Pac,
Inc. and certain other parties, as identified in the First Amendment to Loan and
Security Agreement as the "Identified Events of Default."
4.7 Litigation - Certain litigation matters are pending against Ultra Pac, Inc.,
as set forth in the letter to Ultra Pac, Inc.'s auditor from its attorneys, a
copy of which Ultra Pac, Inc. previously has delivered to Lender.
4.8 Title to Equipment and Facilities - In connection with the refinancing
between Ultra Pac, Inc. and Norwest Bank Minnesota, N.A. and Norwest Credit,
Inc., certain "A Equipment" and "B Equipment" may be subject to one or more
security interests created in favor of Norwest Bank Minnesota, N.A. and/or
Norwest Credit, Inc. In addition, Ultra Pac, Inc. will sublease a portion of
their leased real property at 22201 Industrial Boulevard to Graco and a third
party.
4.10 Financial Condition of Debtor - Since January 31, 1994, there has been a
material adverse change in the financial condition of Ultra Pac, Inc.
FORBEARANCE AND AMENDMENT AGREEMENT
This Agreement, dated as of June 21, 1996, is made by and between Ultra
Pac, Inc., a Minnesota corporation (the "Ultra Pac"), and Norwest Equipment
Finance, Inc., a Minnesota corporation ("NEFI").
Recitals
Ultra Pac and NEFI are parties to various loan and lease agreements
described below. Ultra Pac is in default of its payments under such agreements
and NEFI is presently entitled to exercise its remedies under such agreements.
Ultra Pac has requested that NEFI (i) agree to forbear from exercising
its remedies, (ii) waive existing defaults under such agreements, and (iii)
change the amortization and lease payment schedules under such agreements. NEFI
has agreed to grant Ultra Pac's requests subject to terms and conditions set
forth in this Agreement and execution and delivery by Ultra Pac of a warrant to
purchase shares of Ultra Pac's common stock.
Accordingly, Ultra Pac and NEFI hereby agree as follows:
1. Definitions. When used in this Agreement, the following terms shall
have the meanings given to them in this Paragraph:
"704 Note" means Ultra Pac's promissory note dated as of
October 19,1993, payable to the order of NEFI in the original principal
amount of $1,965,550.
"705 Note" means Ultra Pac's promissory note dated as of March
22,1993, payable to the order of NEFI in the original principal amount
of $2,388,141.36.
"706 Note" means Ultra Pac's promissory note dated as of
November 8, 1993, payable to the order of NEFI in the original
principal amount of $276,453.60.
"707 Note" means Ultra Pac's promissory note dated as of
December 6, 1993, payable to the order of NEFI in the original
principal amount of $316,160.40.
"708 Note" means Ultra Pac's promissory note dated as of
October 17,1994, payable to the order of NEFI in the original principal
amount of $697,592.40.
"Documents" means the Lease Agreement, the Security
Agreements, the Notes and all other documents executed by Ultra Pac or
NEFI in connection therewith.
"Early Buyout Option" means the Lease Addendum (Early Buyout
Option), dated as of August 7, 1995, by and between Ultra Pac and NEFI,
executed in connection with the Lease Agreement.
"Lease Agreement" means Master Lease No. 4657, together with
the Supplement No. 4657-100 to Master Lease, and the Early Buyout
Option, each dated as of August 7, 1995, by and between Ultra Pac and
NEFI.
"Notes" means the 704 Note, the 705 Note, 706 Note, 707 Note,
and 708 Note.
"Security Agreements" means the Security Agreements dated as
of June 4, 1993, October 19, 1993, March 22, 1993, November 8, 1993,
December 6, 1993 and October 17, 1994.
"Warrant Agreement" means the Warrant for the purchase of
12,000 shares of Common Stock by Ultra Pac in favor of NEFI of even
date herewith.
2. Reaffirmation of Obligations. Ultra Pac represents and warrants to
NEFI that the Documents constitute the legal, valid and binding obligations of
Ultra Pac, enforceable against Ultra Pac in accordance with their respective
terms. Ultra Pac has no claim, defense or offset to enforcement of the
Documents. As of December 31, 1995, the outstanding principal balance of (i) the
704 Note is $993,652.71, (ii) the 705 Note is $863,961.64, (iii) the 706 Note is
$143,038.73, (iv) the 707 Note is $171,807.57, and (v) the 708 Note is
$445,082.63. As of December 31, 1995, Ultra Pac had made 3 payments under the
Lease Agreement and the outstanding balance of the remaining payments was
$281,136.04.
3. Forbearance. So long as interest payments and reduced lease payments
are made pursuant to the revised amortization and lease payment schedules
attached hereto as Exhibit A, NEFI waives all presently existing defaults and
agrees to forbear from exercising its rights and remedies under the Documents
until October 31, 1996, after which date Ultra Pac shall resume making its
principal payments and full lease payment under the Documents, as amended by
this Agreement.
4. New Amortization and Lease Payment Schedules. Attached hereto as
Exhibit A are revised amortization and lease payment schedules for the Notes and
the payments under the Lease Agreement. The Notes and the Lease Agreement are
each amended to incorporate such revised schedules. The Early Buyout Option is
cancelled.
5. No Other Changes. Except as explicitly amended by this Agreement,
all of the terms and conditions of the Documents shall remain in full force and
effect.
6. Conditions Precedent. This Agreement shall be effective when NEFI
shall have received an executed original hereof, together with each of the
following, each in substance and form acceptable to NEFI in its sole discretion:
(a) The Warrant Agreement, duly executed by Ultra Pac.
(b) A certificate of Ultra Pac's Secretary or Assistant
Secretary certifying as to (i) the resolutions of Ultra Pac's directors
and, if required, shareholders, authorizing the execution, delivery and
performance of this Agreement and the Warrant Agreement, (ii) Ultra
Pac's articles of incorporation and bylaws, and (iii) the signatures of
Ultra Pac's officers or agents authorized to execute and deliver the
Documents and the Warrant Agreement and other instruments, agreements
and certificates, on Ultra Pac's behalf.
(c) An opinion of Ultra Pac's counsel as to the matters set
forth in paragraphs 7(a) and 7(b) hereof and as to such other matters
as NEFI shall require.
(d) Evidence that Ultra Pac has entered into similar
agreements with the CIT Group/Equipment Financing Inc., USL Capital and
Concord.
(e) Evidence that Ultra Pac has entered into credit facility
agreements with Norwest Credit, Inc. and Norwest Bank Minnesota,
National Association, satisfactory to NEFI.
7. Representations and Warranties. Ultra Pac hereby represents and
warrants to NEFI as follows:
(a) Ultra Pac has all requisite power and authority to execute
this Agreement and the Warrant Agreement and to perform all of its
obligations hereunder and thereunder, and this Agreement and the
Warrant Agreement have been duly executed and delivered by Ultra Pac
and constitute the legal, valid and binding obligation of Ultra Pac,
enforceable in accordance with its terms.
(b) The execution, delivery and performance by Ultra Pac of
this Agreement and the Warrant Agreement have been duly authorized by
all necessary corporate action and do not (i) require any
authorization, consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation or
of any order, writ, injunction or decree presently in effect, having
applicability to Ultra Pac, or the articles of incorporation or bylaws
of Ultra Pac, or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which Ultra Pac is a party or by which it or its
properties may be bound or affected.
(c) All of the representations and warranties contained in the
Documents are correct on and as of the date hereof as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
8. References. All references in each Note to "this Note" or in any
other Document to such Note shall be deemed to refer to such Note as amended
hereby; all references in the Lease Agreement to "this Agreement" or in any
other Document to the Lease Agreement shall be deemed to refer to the Lease
Agreement as amended hereby.
9. No Other Waiver. Except as set forth in Paragraph 3 hereof, the
execution of this Agreement and acceptance of the Warrant Agreement and any
documents related hereto shall not be deemed to be a waiver of any default or
Event of Default under the Documents or breach, default or event of default
under any other document held by NEFI, whether or not known to NEFI and whether
or not existing on the date of this Agreement.
10. Release. Ultra Pac hereby absolutely and unconditionally releases
and forever discharges NEFI, and any and all participants, parent corporations,
subsidiary corporations, affiliated corporations, insurers, indemnitors,
successors and assigns thereof, together with all of the present and former
directors, officers, agents and employees of any of the foregoing, from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which Ultra Pac has had, now has or has made claim to
have against any such person for or by reason of any act, omission, matter,
cause or thing whatsoever arising from the beginning of time to and including
the date of this Agreement, whether such claims, demands and causes of action
are matured or unmatured or known or unknown.
11. Costs and Expenses. Ultra Pac shall pay or reimburse NEFI on demand
for all costs and expenses incurred by NEFI in connection with the Documents and
all other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, Ultra Pac specifically agrees to pay all fees and
disbursements of counsel to NEFI for the services performed by such counsel in
connection with the preparation of this Agreement, the Warrant and the documents
and instruments incidental hereto.
12. Miscellaneous. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first written above.
NORWEST EQUIPMENT FINANCE, INC. ULTRA PAC, lNC.
By /s/ (signature illegible) By /s/ Brad C. Yopp
Its Vice President Brad C. Yopp
Its Chief Financial Officer
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement ("Agreement") is made and entered into
to be effective, subject to the terms and conditions contained herein, as of
January 1, 1996 ("Effective Date"), by and between Ultra Pac, Inc. ("Borrower")
and USL Capital Corporation ("Holder") and modifies that certain loan ("Loan")
from Holder to Borrower evidenced by that certain Promissory Note ("Note") in
the original principal amount of $2,493,816.50 dated December 20, 1994, executed
by Borrower in favor of Holder, which Note was secured by that certain Security
Agreement between Borrower and Holder dated as of December 20, 1994, and is
entered into with reference to the following facts:
A. Borrower is in default under the Note as a result of, among other
things, having failed to make the payments due pursuant to the Note for the
months of January, 1996, through June, 1996.
B. As of June 27, 1996, and as a result of the foregoing defaults, past
due interest was outstanding pursuant to the terms of the Note in the amount of
$120,838.50.
C. Holder and Borrower have agreed upon the terms upon which the loan
may be modified and the outstanding defaults thereunder may be cured.
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Holder
hereby agree to amend the Loan as follows:
1. Amendments to Note. Subject to the conditions contained herein, the
Note shall be modified to provide that, in lieu of the payments of principal and
interest provided in Schedule I to the Note, from and after the Effective Date
the principal sum of the Note shall be payable in accordance with the principal
payment schedule attached as Schedule A to the First Amendment to Promissory
Note appended hereto as Exhibit 1 ("Schedule A"), and interest on the Note shall
be due and payable in monthly installments payable on the date of each month
specified in the attached Schedule A, with all amounts outstanding under the
Note due and payable on November 27, 2001. Any payment which is due on a payment
date stated in Schedule A which is not a Business Day shall be due on the next
succeeding Business Day. Concurrently with the execution of this Agreement,
Borrower shall execute and deliver the First Amendment to Promissory Note in the
form appended hereto as Exhibit 1.
2. Contemporaneously with the execution of this Agreement, Borrower
shall pay to Holder all interest due pursuant to Schedule A through the date of
such execution.
3. In consideration of the amendments to the Loan provided for herein,
Borrower shall contemporaneously with execution of this Agreement deliver to
Holder a warrant to purchase 6,000 shares of common stock of Ultra Pac, Inc. in
the form appended hereto as Exhibit 2.
4. Upon Borrower's compliance with each of the terms and conditions
contained herein all outstanding defaults in respect of the loan shall be deemed
cured.
5. Borrower shall, on the 20th day of each month following execution of
this Agreement, provide Holder with a certification by a duly authorized officer
of Borrower that no default existed under this Agreement or under any of the
Creditor Agreements, as that term is defined in the First Amendment to
Promissory Note, as of the first day of the month in which such certification is
given. Failure to timely provide such certification shall constitute a default
hereunder.
6. This Agreement may be executed in counterparts which counterparts
shall, collectively, constitute one single agreement.
Executed and delivered this ___ day of June, 1996, to be effective as
of the date first set forth above.
BORROWER:
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Brad C. Yopp
Chief Financial Officer
USL CAPITAL CORPORATION
By /s/ (Illegible signature)
Its Director, Operations
FIRST AMENDMENT TO PROMISSORY NOTE
This First Amendment to Promissory Note ("Amendment") is made and
entered into to be effective as of January 1, 1996 ("Effective Date"), by and
between Ultra Pac, Inc. ("Borrower") and USL Capital Corporation ("Holder"), and
amends that certain Promissory Note ("Note") in the original principal amount of
$2,493,816.50 dated December 20, 1994, executed by Borrower in favor of Holder,
which is secured by that certain Security Agreement of even date with the Note
("Security Agreement") and is entered into with reference to the following
facts:
A. Borrower is in default under the note as a result of, among other
things, having failed to make the payments due pursuant to the Note for the
months of January, 1996, through June, 1996.
B. As of June 27, 1996, and as a result of the foregoing defaults, past
due interest was outstanding pursuant to the terms of the Note in the amount of
$120,838.50.
C. Concurrently with the entry into this Amendment, Borrower is
entering into a Loan Modification Agreement with Holder ("Modification
Agreement"), and into similar agreements with other of its creditors, which
agreements are described in the attached Schedule B ("Creditor Agreements").
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Note is hereby
modified as follows:
1. Payments. In lieu of the payments of principal and interest provided
in Schedule I to the Note, from and after the Effective Date, the principal sum
of the Note shall be payable in accordance with the principal payment schedule
attached hereto as Schedule A ("Schedule A") (or if the payment date there
stated is not a Business Day, on the next succeeding Business Day), and interest
on the Note shall be due and payable in monthly installments payable on the date
of each month specified in Schedule A (or if the payment date there stated is
not a Business Day, on the next succeeding Business Day), with all amounts
outstanding under the note as modified by this Amendment due and payable on
November 27, 2001.
2. Default. Any default under the Modification Agreement, or any
default under any of the Creditor Agreements which default gives rise to the
right of the creditor under such agreement to exercise one or more remedies
thereunder, shall constitute a default hereunder and an Event of Default under
the Security Agreement, and shall, among other things, entitle the Holder to
exercise each of its rights and remedies under the Security Agreement.
3. No Other Amendment. Except as modified expressly or by necessary
implication hereby, all of the terms and conditions of the Note shall remain
unchanged and in full force and effect. To the extent the provisions of this
Amendment are inconsistent with the provisions of the Note, the provisions of
this Amendment shall control and supersede such inconsistent provisions in the
Note.
4. This instrument may be executed in counterparts, which counterparts
shall, collectively, constitute one single instrument.
Executed and delivered this ___ day of June, 1996, to be effective as
of the date first set forth above.
BORROWER:
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Brad C. Yopp
Chief Financial Officer
USL CAPITAL CORPORATION
By /s/ (signature illegible)
Its Director, Operations
<TABLE>
<CAPTION>
SCHEDULE A
AMORTIZATION SCHEDULE FOR ULTRA PAC, INC.
PAYMENT PRINCIPAL
PMT # DUE DATE # DAYS PRINCIPAL INTEREST TOTAL BALANCE
----- -------- ------ --------- -------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
0 12/27/95 2,199,639.50
1 1/27/96 31 20,469.91 20,469.91 2,199,639.50
2 2/27/96 31 20,469.91 20,469.91 2,199,639.50
3 3/27/96 29 19,149.27 19,149.27 2,199,639.50
4 4/27/96 31 20,469.91 20,469.91 2,199,639.50
5 5/27/96 30 19,809.59 19,809.59 2,199,639.50
6 6/27/96 31 20,469.91 20,469.91 2,199,639.50
7 7/27/96 30 19,809.59 19,809.59 2,199,639.50
8 8/27/96 31 20,469.91 20,469.91 2,199,639.50
9 9/27/96 31 20,469.91 20,469.91 2,199,639.50
10 10/27/96 30 22,259.24 19,809.59 42,068.83 2,177,380.26
11 11/27/96 31 21,806.07 20,262.76 42,068.83 2,155,574.19
12 12/27/96 30 22,656.09 19,412.74 42,068.83 2,132,918.10
13 1/27/97 31 22,219.83 19,849.00 42,068.83 2,110,698.26
14 2/27/97 31 22,426.61 19,642.22 42,068.83 2,088,271.65
15 3/27/97 28 24,515.98 17,552.85 42,068.83 2,063,755.67
16 4/27/97 31 2,863.46 19,206.37 42,068.83 2,040,892.21
17 5/27/97 30 23,688.89 18,379.94 42,068.83 2,017,203.32
18 6/27/97 31 23,296.68 18,772.15 42,068.83 1,993,906.64
19 7/27/97 30 24,112.04 17,956.79 42,068.83 1,969,794.60
20 8/27/97 31 23,737.87 18,330.96 42,068.83 1,946,056.73
21 9/27/97 31 23,958.77 18,110.06 42,068.83 1,922,097.96
22 10/27/97 30 24,758.74 17,310.09 42,068.83 1,897,339.22
23 11/27/97 31 24,412,14 17,656.69 42,068.83 1,897,339.22
24 12/27/97 30 25,210.56 16,867.27 42,068.83 1,847,725.52
25 1/27/98 31 24,873.84 17,194.99 42,068.83 1,822,851.68
26 2/27/98 31 25,105.32 16,963.51 42,068.83 1,797,746.36
27 3/27/98 28 26,957.97 15,110.86 42,068.83 1,770,788.38
28 4/27/98 31 25,589.82 16,479.01 42,068.83 1,745,198.56
29 5/27/98 30 26,351.86 15,716.97 42,068.83 1,718,846.70
30 6/27/98 31 26,073.19 15,995.64 42,068.83 1,692,773.50
31 7/27/98 30 26,823.99 15,244.84 42,068.83 1,665,949.51
32 8/27/98 31 26,565.46 15,503.37 42,068.83 1,639,384.05
33 9/27/98 31 26,812.68 15,256.15 42,068.83 1,612,571.37
34 10/27/98 30 27,546.28 14,522.55 42,068.83 1,585,025.09
35 11/27/98 31 27,318.54 14,750.29 42,068.83 1,557,706.55
36 12/27/98 30 28,040.38 14,028.45 42,068.83 1,529,666.17
37 1/27/99 31 27,833.71 14,235.12 42,068.83 1,501,832.45
38 2/27/99 31 28,092.74 13,976.09 42,068.83 1,473,739.72
39 3/27/99 28 29,681.39 12,387.44 42,068.83 1,444,058.32
40 4/27/99 31 28,630.38 13,438.45 42,068.83 1,415,427.94
41 5/27/99 30 29,321.72 12,747.11 42,068.83 1,386,106.22
42 6/27/99 31 29,169.69 12,899.14 42,068.83 1,356,936.53
43 7/27/99 30 29,848.49 12,220.34 42,068.83 1,327,088.04
44 8/27/99 31 29,718.91 12,349.92 42,068.83 1,297,369.13
45 9/27/99 31 29,995.48 12,073.35 42,068.83 1,267,373.66
46 10/27/99 30 30,655.07 11,413.76 42,068.83 1,236,718.58
47 11/27/99 31 30,559.89 11,508.94 42,068.83 1,206,158.69
48 12/27/99 30 31,206.37 10,862.46 42,068.83 1,174,952.32
49 1/27/00 31 31,134.69 10,934.14 42,068.83 1,143,817.63
50 2/27/00 31 31,424.43 10,644.40 42,068.83 1,112,393.20
51 3/27/00 29 32,384.74 9,684.09 42,068.83 1,080,008.47
52 4/27/00 31 32,018.24 10,050.59 42,068.83 1,047,990.22
53 5/27/00 30 32,630.80 9,438.03 42,068.83 1,015,359.42
54 6/27/00 31 32,619.87 9,448.96 42,068.83 982,739.55
55 7/27/00 30 33,218.44 8,850.39 42,068.83 949,521.11
56 8/27/00 31 33,232.56 8,836.27 42,068.83 916,288.55
57 9/27/00 31 33,541.82 8,527.01 42,068.83 882,746.73
58 10/27/00 30 34,118.96 7,949.87 42,068.83 848,627.77
59 11/27/00 31 34,171.48 7,897.35 42,068.83 814,456.29
60 12/27/00 30 34,733.97 7,334.86 42,068.83 779,722.32
61 1/27/01 31 34,812.71 7,256.12 42,068.83 744,909.61
62 2/27/01 31 35,136.68 6,932.15 42,068.83 709,772.93
63 3/27/01 28 36,102.87 5,965.96 42,068.83 673,670.05
64 4/27/01 31 35,799.64 6,269.19 42,068.83 637,970.41
65 5/27/01 30 36,324.28 5,744.55 42,068.83 601,546.14
66 6/27/01 31 36,470.82 5,598.01 42,068.83 565,075.31
67 7/27/01 30 36,979.86 5,088.97 42,068.83 528,095.46
68 8/27/01 31 37,154.36 4,914.47 42,068.83 490,941.10
69 9/27/01 31 37,500.12 4,568.71 42,068.83 453,440.98
70 10/27/01 30 37,985.22 4,083.61 42,068.83 415,455.76
71 11/27/01 31 415,455.76 3,866.24 419,322.01 0.00
</TABLE>
(LETTERHEAD)
Concord Commercial
Division of HSBC Business Loans, Inc.
One Marine Midland Center
Buffalo, New York 14203
June 20, 1996
Ultra Pac, Inc.
21925 Industrial Blvd.
Rogers, NN. 55374-9474
Re: Security Agreement and Related Promissory Note
dated May 27, 1994
Dear Sir(s):
Reference is hereby directed toward that certain Security Agreement and related
Promissory Note dated May 27, 1994 (hereafter referred to as "Contracts")
between Ultra Pac, Inc. as Secured Party/Lender, with subsequent assignment to
Concord Commercial, division of Marine Midland Business Loans, Inc. ("Concord")
by means of that certain Participation Agreement ("Agreement" dated May 31, 1994
between NEFI and Concord.
This letter shall serve to modify said Contracts as follows:
(1) As of December 28, 1995, the remaining unpaid balance is $1,252,397.47.
(2) Ultra hereby agrees that any Event of Default under its loan
agreements with Norwest Credit, Inc., Norwest Finance, Inc, the CIT
Group/Equipment Financing, Inc, or USL Capital Corporation, which Event
of Default is not cured or waived by such lender (including, without
limitation, any Event of Default caused by any of the financial
covenants contained in such loan documents), shall constitute an Event
of Default under the loan agreements with Concord.
(3) Commencing May 31, 1996, there remains thirty-six (36) consecutive
monthly installments due as follows:
Period
No. of Months Total
Due Date Amount Due Payments Between Payments
-------- ---------- -------- ------- --------
05/31/96 $ 53,759.16 -1- -1- $ 53,759.16
06/30/96 $ 10,541.01 -1- -1- $ 10,541.01
07/31/96 $ 10,541.01 -1- -1- $ 10,541.01
08/31/96 $ 36,883.06 -32- -1- $1,180,257.92
04/30/99 $ 292,072.22 -1- -1- $ 292,072.22
-------------
$1,547,171.32
Telephone: (800) 511-1918
Facsimile: (716) 841-1713 Member HSBC Group
You will be invoiced directly by Concord for all future payments. All payments
should be directed to the following address.
Concord Commercial
P.O. Box 751144
Charlotte, NC 28275
All other terms and conditions of said Contracts remain in full force and
effect. Please acknowledge the above modification by signing this letter below,
as indicated, and return to my office in the enclosed envelope. Thank you for
your prompt attention to this matter.
Sincerely,
/s/ Michael Vitale
Michael Vitale
Portfolio Manager
MV/jms
Enclosure (s)
AGREED TO, ACKNOWLEDGED, AND ACCEPTED
Ultra Pac, Inc.
By: /s/ Brad C. Yopp
Title: CFO
Date: June 21, 1996
WARRANT
To Subscribe for and Purchase Common Stock of
ULTRA PAC, INC.
THIS CERTIFIES THAT, for value received, Norwest Credit, Inc. (herein
called "Purchaser") or registered assigns is entitled to subscribe for and
purchase from Ultra Pac, Inc. (herein called the "Company"), a corporation
organized and existing under the laws of the State of Minnesota, at the price
specified below (subject to adjustment as noted below) at any time from and
after the date hereof to and including June 21, 2006 Thirty-Eight Thousand
(38,000) fully paid and nonassessable shares of the Company's Common Stock
(subject to adjustment as noted below). The warrants represented by this Warrant
Certificate are referred to as the "Warrants" and have been issued in connection
with the Amended and Restated Credit and Security Agreement between the Company
and the Purchaser dated June 21, 1996.
The warrant purchase price (subject to adjustment as noted below) shall
be $3.00 per share.
The Warrants are subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant Certificate may be exercised
by the holder hereof, in whole or in part, by written notice of exercise
delivered to the Company 20 days prior to the intended date of exercise and by
the surrender of this Warrant Certificate (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares. The Company agrees that the shares so purchased shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant Certificate
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant Certificate shall have been so exercised, and, unless the Warrants
represented by this Warrant Certificate have expired, a new Warrant Certificate
representing the number of shares, if any, with respect to which the Warrants
represented by this Warrant Certificate shall not then have been exercised shall
also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of the
Warrants represented by this Warrant Certificate except in accordance with the
provisions, and subject to the limitations, of paragraph 8 hereof and the
restrictive legend under the heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant Certificate will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant Certificate may be exercised, the Company
will at all times have authorized, and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant
Certificate, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant Certificate.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of the Warrants represented by this Warrant Certificate, be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the warrant purchase price, the holder of this Warrant Certificate shall
thereafter be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of shares obtained by multiplying the warrant
purchase price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant to the Warrants represented by this Warrant
Certificate immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) Except for (i) the issuance of shares of Common Stock to employees
or consultants of the Company, whether pursuant to benefit plans adopted by the
Company or written agreements entered into by the Company, (ii) the issuance of
options to purchase Common Stock to employees and consultants of the Company,
whether pursuant to benefit plans adopted by the Company or written agreements
entered into by the Company and the issuance of shares of Common Stock upon
exercise of such options (provided that the aggregate number of shares thus
awarded and covered by unexercised options and thus issued pursuant to such
options (not including options outstanding as of the date hereof) shall not be
in excess of 5% of the shares of Common Stock outstanding), if and whenever the
Company shall issue or sell any shares of its Common Stock for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by (B)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of shares
of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
(c) For the purposes of paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the warrant purchase price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the warrant purchase price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants represented by this Warrant
Certificate immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving effect to
such adjustment of the warrant purchase price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (c).
(d) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(e) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant
Certificate, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to which such holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each dividend
described in clause (i) above and each dividend or distribution described in
clause (ii) above which such holder would have received by way of dividends or
distributions if continuously since such holder became the record holder of this
Warrant Certificate such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common Stock or
Convertible Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(e) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c) are
convertible into or exchangeable for Common Stock shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant Certificate and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of the Warrants represented by this Warrant Certificate to the end that the
provisions hereof (including without limitation provisions for adjustments of
the warrant purchase price and of the number of shares purchasable upon the
exercise of the Warrants represented by this Warrant Certificate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(h) Upon each adjustment of the warrant purchase price and upon each
change in the number of shares of Common Stock issuable upon the exercise of the
Warrants represented by this Warrant Certificate, and in the event of any change
in the rights of the holder of the Warrants represented by this Warrant
Certificate by reason of other events herein set forth, then in each such case
the Company shall file with its secretary or assistant secretary at its
principal office an officers' certificate setting forth the warrant purchase
price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon the
exercise of the Warrants represented by this Warrant Certificate, and setting
forth in reasonable detail the method of calculation used and the facts upon
which such calculation is based.
(1) Each such officers' certificate shall be made available at all
reasonable times for inspection by the registered holder of this
Warrant Certificate, and the Company, after each such adjustment, shall
forthwith send a copy of such officers' certificate to the last known
address of the registered holder of this Warrant Certificate. Except as
set forth in subpart (3) of this paragraph, such officers' certificate
shall be conclusive as to the correctness of such adjustment, unless
objected to by the holder of the Warrants represented by this Warrant
Certificate within 30 days following the receipt thereof by such
holder.
(2) If the holder of the Warrants represented by this Warrant
Certificate objects to such adjustment and the holder and the Company
are unable to mutually agree as to the correct warrant purchase price
or the correct number of shares issuable upon exercise of the Warrants
represented by this Warrant Certificate, the Board of Directors shall
appoint a firm of independent certified public accountants of
recognized standing, which may be the firm regularly retained by the
Company, to prepare a certificate stating the warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon
exercise of the Warrants represented by this Warrant Certificate, and
setting forth in reasonable detail the method of calculation used and
the facts upon which such calculation is based. The Company shall
promptly, but in any case within 45 days of receipt of the objection,
mail a copy of such accountant's certificate to the holder of this
Warrant Certificate, by first class mail, postage prepaid, addressed to
the holder at the address of such holder as shown on the books of the
Company. Except as set forth in subpart (3) of this paragraph, the
certificate of such firm of independent public accountants shall be
conclusive evidence as to the correctness of the computation with
respect to any such adjustment of the warrant purchase price and any
such change in the number of shares so issuable.
(3) If any officers' certificate is not prepared, filed and sent within
30 days of the adjustment or other event, or if such accountant's
certificate is not sent within 45 days of the date of objection, then
such certificate shall not be entitled to any presumption of
correctness.
(i) In case any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered holder
of this Warrant Certificate at the address of such holder as shown on the books
of the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also specify the date as of which the holders of Common
Stock of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of the Warrants represented by this Warrant
Certificate or of Common Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of the Warrants represented by this Warrant Certificate, but, instead
of any fraction of a share which would otherwise be issuable, the Company shall
pay a cash adjustment (which may be effected as a reduction of the amount to be
paid by the holder hereof upon such exercise) in respect of such fraction in an
amount equal to the same fraction of the market price per share of Common Stock
as of the close of business on the date of the notice required by paragraph 1
above. "Market price" for purposes of this paragraph 4(k) and for purposes of
paragraph 12(d) hereof shall mean, if the Common Stock is traded on a securities
exchange or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market System, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing bid
price, in each case averaged over a period of 20 consecutive business days prior
to the date as of which "market price" is being determined. If at any time the
Common Stock is not traded on an exchange or the NASDAQ National Market System,
or otherwise traded in the over-the-counter market, the "market price" shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to the Warrants represented by
this Warrant Certificate shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant Certificate or, in the
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(g) above.
6. So long as the Warrants represented by this Warrant Certificate
remain outstanding, the Company will not issue any additional capital stock of
any class preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par, liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
7. This Warrant Certificate shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
8. The holder of this Warrant Certificate, by acceptance hereof,
represents and acknowledges that the Warrants represented by this Warrant
Certificate and the shares which may be purchased upon exercise of the Warrants
represented by this Warrant Certificate are not being registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the issuance of the Warrants represented by this Warrant Certificate and the
offering and sale of such shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, neither the
Warrants represented by this Warrant Certificate nor the shares issuable or
issued upon exercise of the Warrants represented by this Warrant Certificate
shall be transferable or assignable except upon the conditions specified in this
paragraph 8, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of the Warrants represented by this Warrant Certificate or such shares. The
holder of this Warrant Certificate agrees to give written notice to the Company
before transferring the Warrants represented by this Warrant Certificate or
transferring any Common Stock issuable or issued upon the exercise thereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of the Warrants represented by this Warrant Certificate or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise thereof. Such holder shall also provide the
Company with an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer of the Warrants represented by this Warrant
Certificate or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of the Warrants represented by
this Warrant Certificate or the shares of Common Stock issuable or issued upon
the exercise thereof. Upon receipt of such written notice and opinion by the
Company, such holder shall be entitled to transfer the Warrants represented by
this Warrant Certificate, or to exercise the Warrants represented by this
Warrant Certificate in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of the Warrants represented by this Warrant
Certificate, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant Certificate or the certificates for such shares.
9. Subject to the provisions of paragraph 8 hereof, the Warrants
represented by this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the principal office of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant Certificate properly endorsed. Each taker and holder of the Warrants
represented by this Warrant Certificate, by taking or holding the same, consents
and agrees that the Company may deem and treat the registered holder of this
Warrant Certificate as the holder and owner hereof (notwithstanding any
notations of ownership or assignment or any writing made hereon by anyone other
than the Company) for all purposes and shall not be affected by any notice to
the contrary, until presentation of this Warrant Certificate for transfer as
provided herein and then only if such transfer meets the requirements of
paragraph 8 hereof.
10. This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the principal office of the Company, for new Warrant
Certificates of like tenor representing in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrant Certificates to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant Certificate, and, in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender and cancellation of this Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of this Warrant Certificate.
11. The holder of the Warrants represented by this Warrant Certificate
and of the Common Stock issuable or issued upon the exercise thereof shall be
entitled to the registration rights set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder of
the Warrants represented by this Warrant Certificate under the terms of the
Warrants represented by this Warrant Certificate, the holder of the Warrants
represented by this Warrant Certificate shall have the right (the "Conversion
Right") to convert the Warrants represented by this Warrant Certificate or any
portion thereof into shares of Common Stock as provided in this paragraph 12 at
any time or from time to time prior to their expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrants
represented by this Warrant Certificate (the "Converted Warrant Shares"), the
Company shall deliver to the holder of the Warrants represented by this Warrant
Certificate, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 12 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of the
Warrants represented by this Warrant Certificate an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the Warrants
represented by this Warrant Certificate by the surrender of this Warrant
Certificate at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrants represented by
this Warrant Certificate which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
Certificate together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrants represented by this Warrant Certificate.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant certificate evidencing the
shares remaining subject to the Warrants represented by this Warrant
Certificate, shall be issued as of the Conversion Date and shall be delivered to
the holder of the Warrants represented by this Warrant Certificate within 15
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the Warrants
represented by this Warrant Certificate remain outstanding, be deemed by the
Company's independent certified public accountants to give rise to a charge to
the Company's earnings for financial reporting purposes, the Company may give
written notice of such adverse accounting treatment and the Conversion Right
shall automatically terminate on the 15th day after the Company's written notice
to the holder of the Warrants represented by this Warrant Certificate, provided
that the Company may give such notice only if, at any time within 30 days prior
to the giving of such notice, the fair market value (as defined in paragraph (d)
below) of a share of Common Stock was at least 250% of the warrant purchase
price. Any such notice shall be given by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant Certificate at the address of
such holder as shown on the books of the Company.
(d) For purposes of this paragraph 12, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(k) hereof.
13. All questions concerning the Warrants represented by this Warrant
Certificate will be governed and interpreted and enforced in accordance with the
internal law of the State of Minnesota. This Warrant Certificate (including
Annex A hereto) may be amended only in a writing executed by the holder of the
Warrants represented by this Warrant Certificate and the Company.
14. The Company covenants and agrees that, during such time as the
holder of this Warrant Certificate or any person or entity controlling,
controlled by, or under common control with, the holder of this Warrant
Certificate is providing financing to the Company and such indebtedness is not
subordinated to any other financing of the Company, it will not issue any
warrants or options for the purchase of capital stock of the Company which
contain provisions that (i) require the Company to purchase the warrant or
option from the holder thereof at the option of the holder, or (ii) permit the
Company to purchase the warrant or option from the holder thereof at the option
of the Company, or (iii) result in the payment of cash or other consideration by
the Company to the holder of the warrant or option.
15. Any notice or other document required or permitted to be given or
delivered to the holder of the Warrants represented by this Warrant Certificate
shall be delivered or sent by certified or registered mail to such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrant Certificates. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or sent by
certified or registered mail to the principal office of the Company at 21925
Industrial Blvd., Rogers, Minnesota, 55374, Attention: President, and to Larkin,
Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes
Avenue South, Bloomington, Minnesota 55431, Attention:
Frank I. Harvey, or such other address as shall have been furnished to the
holder by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer and this Warrant Certificate to be
dated as of June 21, 1996.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Its CFO
RESTRICTION ON TRANSFER
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS THE SAME IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE COMPANY SHALL
RECEIVE AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY (OR THE COMPANY IS
OTHERWISE SATISFIED), THAT THERE EXISTS AN EXEMPTION FROM SUCH REGISTRATION."
WARRANT
To Subscribe for and Purchase Common Stock of
ULTRA PAC, INC.
THIS CERTIFIES THAT, for value received, Norwest Bank Minnesota,
National Association (herein called "Purchaser") or registered assigns is
entitled to subscribe for and purchase from Ultra Pac, Inc. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Minnesota, at the price specified below (subject to adjustment as noted below)
at any time from and after the date hereof to and including June 21, 2006 Eighty
Thousand (80,000) fully paid and nonassessable shares of the Company's Common
Stock (subject to adjustment as noted below). The warrants represented by this
Warrant Certificate are referred to as the "Warrants" and have been issued in
connection with the Credit and Security Agreement between the Company and the
Purchaser dated June 21, 1996.
The warrant purchase price (subject to adjustment as noted below) shall
be $3.00 per share.
The Warrants are subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant Certificate may be exercised
by the holder hereof, in whole or in part, by written notice of exercise
delivered to the Company 20 days prior to the intended date of exercise and by
the surrender of this Warrant Certificate (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares. The Company agrees that the shares so purchased shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant Certificate
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant Certificate shall have been so exercised, and, unless the Warrants
represented by this Warrant Certificate have expired, a new Warrant Certificate
representing the number of shares, if any, with respect to which the Warrants
represented by this Warrant Certificate shall not then have been exercised shall
also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of the
Warrants represented by this Warrant Certificate except in accordance with the
provisions, and subject to the limitations, of paragraph 8 hereof and the
restrictive legend under the heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant Certificate will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant Certificate may be exercised, the Company
will at all times have authorized, and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant
Certificate, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant Certificate.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of the Warrants represented by this Warrant Certificate, be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the warrant purchase price, the holder of this Warrant Certificate shall
thereafter be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of shares obtained by multiplying the warrant
purchase price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant to the Warrants represented by this Warrant
Certificate immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) Except for (i) the issuance of shares of Common Stock to employees
or consultants of the Company, whether pursuant to benefit plans adopted by the
Company or written agreements entered into by the Company, (ii) the issuance of
options to purchase Common Stock to employees and consultants of the Company,
whether pursuant to benefit plans adopted by the Company or written agreements
entered into by the Company and the issuance of shares of Common Stock upon
exercise of such options (provided that the aggregate number of shares thus
awarded and covered by unexercised options and thus issued pursuant to such
options (not including options outstanding as of the date hereof) shall not be
in excess of 5% of the shares of Common Stock outstanding), if and whenever the
Company shall issue or sell any shares of its Common Stock for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by (B)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of shares
of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
(c) For the purposes of paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the warrant purchase price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the warrant purchase price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants represented by this Warrant
Certificate immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving effect to
such adjustment of the warrant purchase price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (c).
(d) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(e) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant
Certificate, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to which such holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each dividend
described in clause (i) above and each dividend or distribution described in
clause (ii) above which such holder would have received by way of dividends or
distributions if continuously since such holder became the record holder of this
Warrant Certificate such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common Stock or
Convertible Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(e) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c) are
convertible into or exchangeable for Common Stock shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant Certificate and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of the Warrants represented by this Warrant Certificate to the end that the
provisions hereof (including without limitation provisions for adjustments of
the warrant purchase price and of the number of shares purchasable upon the
exercise of the Warrants represented by this Warrant Certificate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(h) Upon each adjustment of the warrant purchase price and upon each
change in the number of shares of Common Stock issuable upon the exercise of the
Warrants represented by this Warrant Certificate, and in the event of any change
in the rights of the holder of the Warrants represented by this Warrant
Certificate by reason of other events herein set forth, then in each such case
the Company shall file with its secretary or assistant secretary at its
principal office an officers' certificate setting forth the warrant purchase
price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon the
exercise of the Warrants represented by this Warrant Certificate, and setting
forth in reasonable detail the method of calculation used and the facts upon
which such calculation is based.
(1) Each such officers' certificate shall be made available at all
reasonable times for inspection by the registered holder of this
Warrant Certificate, and the Company, after each such adjustment, shall
forthwith send a copy of such officers' certificate to the last known
address of the registered holder of this Warrant Certificate. Except as
set forth in subpart (3) of this paragraph, such officers' certificate
shall be conclusive as to the correctness of such adjustment, unless
objected to by the holder of the Warrants represented by this Warrant
Certificate within 30 days following the receipt thereof by such
holder.
(2) If the holder of the Warrants represented by this Warrant
Certificate objects to such adjustment and the holder and the Company
are unable to mutually agree as to the correct warrant purchase price
or the correct number of shares issuable upon exercise of the Warrants
represented by this Warrant Certificate, the Board of Directors shall
appoint a firm of independent certified public accountants of
recognized standing, which may be the firm regularly retained by the
Company, to prepare a certificate stating the warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon
exercise of the Warrants represented by this Warrant Certificate, and
setting forth in reasonable detail the method of calculation used and
the facts upon which such calculation is based. The Company shall
promptly, but in any case within 45 days of receipt of the objection,
mail a copy of such accountant's certificate to the holder of this
Warrant Certificate, by first class mail, postage prepaid, addressed to
the holder at the address of such holder as shown on the books of the
Company. Except as set forth in subpart (3) of this paragraph, the
certificate of such firm of independent public accountants shall be
conclusive evidence as to the correctness of the computation with
respect to any such adjustment of the warrant purchase price and any
such change in the number of shares so issuable.
(3) If any officers' certificate is not prepared, filed and sent within
30 days of the adjustment or other event, or if such accountant's
certificate is not sent within 45 days of the date of objection, then
such certificate shall not be entitled to any presumption of
correctness.
(i) In case any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant Certificate at the address of such holder as shown on the books of the
Company, of the date on which (aa) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(bb) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of the Warrants represented by this Warrant
Certificate or of Common Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of the Warrants represented by this Warrant Certificate, but, instead
of any fraction of a share which would otherwise be issuable, the Company shall
pay a cash adjustment (which may be effected as a reduction of the amount to be
paid by the holder hereof upon such exercise) in respect of such fraction in an
amount equal to the same fraction of the market price per share of Common Stock
as of the close of business on the date of the notice required by paragraph 1
above. "Market price" for purposes of this paragraph 4(k) and for purposes of
paragraph 12(d) hereof shall mean, if the Common Stock is traded on a securities
exchange or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market System, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing bid
price, in each case averaged over a period of 20 consecutive business days prior
to the date as of which "market price" is being determined. If at any time the
Common Stock is not traded on an exchange or the NASDAQ National Market System,
or otherwise traded in the over-the-counter market, the "market price" shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to the Warrants represented by
this Warrant Certificate shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant Certificate or, in the
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(g) above.
6. So long as the Warrants represented by this Warrant Certificate
remain outstanding, the Company will not issue any additional capital stock of
any class preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par, liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
7. This Warrant Certificate shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
8. The holder of this Warrant Certificate, by acceptance hereof,
represents and acknowledges that the Warrants represented by this Warrant
Certificate and the shares which may be purchased upon exercise of the Warrants
represented by this Warrant Certificate are not being registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the issuance of the Warrants represented by this Warrant Certificate and the
offering and sale of such shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, neither the
Warrants represented by this Warrant Certificate nor the shares issuable or
issued upon exercise of the Warrants represented by this Warrant Certificate
shall be transferable or assignable except upon the conditions specified in this
paragraph 8, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of the Warrants represented by this Warrant Certificate or such shares. The
holder of this Warrant Certificate agrees to give written notice to the Company
before transferring the Warrants represented by this Warrant Certificate or
transferring any Common Stock issuable or issued upon the exercise thereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of the Warrants represented by this Warrant Certificate or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise thereof. Such holder shall also provide the
Company with an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer of the Warrants represented by this Warrant
Certificate or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of the Warrants represented by
this Warrant Certificate or the shares of Common Stock issuable or issued upon
the exercise thereof. Upon receipt of such written notice and opinion by the
Company, such holder shall be entitled to transfer the Warrants represented by
this Warrant Certificate, or to exercise the Warrants represented by this
Warrant Certificate in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of the Warrants represented by this Warrant
Certificate, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant Certificate or the certificates for such shares.
9. Subject to the provisions of paragraph 8 hereof, the Warrants
represented by this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the principal office of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant Certificate properly endorsed. Each taker and holder of the Warrants
represented by this Warrant Certificate, by taking or holding the same, consents
and agrees that the Company may deem and treat the registered holder of this
Warrant Certificate as the holder and owner hereof (notwithstanding any
notations of ownership or assignment or any writing made hereon by anyone other
than the Company) for all purposes and shall not be affected by any notice to
the contrary, until presentation of this Warrant Certificate for transfer as
provided herein and then only if such transfer meets the requirements of
paragraph 8 hereof.
10. This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the principal office of the Company, for new Warrant
Certificates of like tenor representing in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrant Certificates to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant Certificate, and, in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender and cancellation of this Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of this Warrant Certificate.
11. The holder of the Warrants represented by this Warrant Certificate
and of the Common Stock issuable or issued upon the exercise thereof shall be
entitled to the registration rights set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder of
the Warrants represented by this Warrant Certificate under the terms of the
Warrants represented by this Warrant Certificate, the holder of the Warrants
represented by this Warrant Certificate shall have the right (the "Conversion
Right") to convert the Warrants represented by this Warrant Certificate or any
portion thereof into shares of Common Stock as provided in this paragraph 12 at
any time or from time to time prior to their expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrants
represented by this Warrant Certificate (the "Converted Warrant Shares"), the
Company shall deliver to the holder of the Warrants represented by this Warrant
Certificate, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 12 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of the
Warrants represented by this Warrant Certificate an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the Warrants
represented by this Warrant Certificate by the surrender of this Warrant
Certificate at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrants represented by
this Warrant Certificate which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
Certificate together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrants represented by this Warrant Certificate.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant certificate evidencing the
shares remaining subject to the Warrants represented by this Warrant
Certificate, shall be issued as of the Conversion Date and shall be delivered to
the holder of the Warrants represented by this Warrant Certificate within 15
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the Warrants
represented by this Warrant Certificate remain outstanding, be deemed by the
Company's independent certified public accountants to give rise to a charge to
the Company's earnings for financial reporting purposes, the Company may give
written notice of such adverse accounting treatment and the Conversion Right
shall automatically terminate on the 15th day after the Company's written notice
to the holder of the Warrants represented by this Warrant Certificate, provided
that the Company may give such notice only if, at any time within 30 days prior
to the giving of such notice, the fair market value (as defined in paragraph (d)
below) of a share of Common Stock was at least 250% of the warrant purchase
price. Any such notice shall be given by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant Certificate at the address of
such holder as shown on the books of the Company.
(d) For purposes of this paragraph 12, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(k) hereof.
13. All questions concerning the Warrants represented by this Warrant
Certificate will be governed and interpreted and enforced in accordance with the
internal law of the State of Minnesota. This Warrant Certificate (including
Annex A hereto) may be amended only in a writing executed by the holder of the
Warrants represented by this Warrant Certificate and the Company.
14. The Company covenants and agrees that, during such time as the
holder of this Warrant Certificate or any person or entity controlling,
controlled by, or under common control with, the holder of this Warrant
Certificate is providing financing to the Company and such indebtedness is not
subordinated to any other financing of the Company, it will not issue any
warrants or options for the purchase of capital stock of the Company which
contain provisions that (i) require the Company to purchase the warrant or
option from the holder thereof at the option of the holder, or (ii) permit the
Company to purchase the warrant or option from the holder thereof at the option
of the Company, or (iii) result in the payment of cash or other consideration by
the Company to the holder of the warrant or option.
15. Any notice or other document required or permitted to be given or
delivered to the holder of the Warrants represented by this Warrant Certificate
shall be delivered or sent by certified or registered mail to such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrant Certificates. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or sent by
certified or registered mail to the principal office of the Company at 21925
Industrial Blvd., Rogers, Minnesota, 55374, Attention: President, and to Larkin,
Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes
Avenue South, Bloomington, Minnesota 55431, Attention:
Frank I. Harvey, or such other address as shall have been furnished to the
holder by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer and this Warrant Certificate to be
dated as of June 21, 1996.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Its CFO
RESTRICTION ON TRANSFER
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS THE SAME IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE COMPANY SHALL
RECEIVE AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY (OR THE COMPANY IS
OTHERWISE SATISFIED), THAT THERE EXISTS AN EXEMPTION FROM SUCH REGISTRATION."
WARRANT
To Subscribe for and Purchase Common Stock of
ULTRA PAC, INC.
THIS CERTIFIES THAT, for value received, The CIT Group/Equipment
Financing Inc. (herein called "Purchaser") or registered assigns is entitled to
subscribe for and purchase from Ultra Pac, Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Minnesota, at
the price specified below (subject to adjustment as noted below) at any time
from and after the date hereof to and including June 21, 2006 Forty-Nine
Thousand (49,000) fully paid and nonassessable shares of the Company's Common
Stock (subject to adjustment as noted below). The warrants represented by this
Warrant Certificate are referred to as the "Warrants".
The warrant purchase price (subject to adjustment as noted below) shall
be $3.00 per share.
The Warrants are subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant Certificate may be exercised
by the holder hereof, in whole or in part, by written notice of exercise
delivered to the Company 20 days prior to the intended date of exercise and by
the surrender of this Warrant Certificate (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares. The Company agrees that the shares so purchased shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant Certificate
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant Certificate shall have been so exercised, and, unless the Warrants
represented by this Warrant Certificate have expired, a new Warrant Certificate
representing the number of shares, if any, with respect to which the Warrants
represented by this Warrant Certificate shall not then have been exercised shall
also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of the
Warrants represented by this Warrant Certificate except in accordance with the
provisions, and subject to the limitations, of paragraph 8 hereof and the
restrictive legend under the heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant Certificate will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant Certificate may be exercised, the Company
will at all times have authorized, and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant
Certificate, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant Certificate.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of the Warrants represented by this Warrant Certificate, be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the warrant purchase price, the holder of this Warrant Certificate shall
thereafter be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of shares obtained by multiplying the warrant
purchase price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant to the Warrants represented by this Warrant
Certificate immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) Except for (i) the issuance of shares of Common Stock to employees
or consultants of the Company, whether pursuant to benefit plans adopted by the
Company or written agreements entered into by the Company, (ii) the issuance of
options to purchase Common Stock to employees and consultants of the Company,
whether pursuant to benefit plans adopted by the Company or written agreements
entered into by the Company and the issuance of shares of Common Stock upon
exercise of such options (provided that the aggregate number of shares thus
awarded and covered by unexercised options and thus issued pursuant to such
options (not including options outstanding as of the date hereof) shall not be
in excess of 5% of the shares of Common Stock outstanding), if and whenever the
Company shall issue or sell any shares of its Common Stock for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by (B)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of shares
of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
(c) For the purposes of paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the warrant purchase price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the warrant purchase price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants represented by this Warrant
Certificate immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving effect to
such adjustment of the warrant purchase price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (c).
(d) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(e) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant
Certificate, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to which such holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each dividend
described in clause (i) above and each dividend or distribution described in
clause (ii) above which such holder would have received by way of dividends or
distributions if continuously since such holder became the record holder of this
Warrant Certificate such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common Stock or
Convertible Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(e) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c) are
convertible into or exchangeable for Common Stock shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant Certificate and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of the Warrants represented by this Warrant Certificate to the end that the
provisions hereof (including without limitation provisions for adjustments of
the warrant purchase price and of the number of shares purchasable upon the
exercise of the Warrants represented by this Warrant Certificate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(h) Upon each adjustment of the warrant purchase price and upon each
change in the number of shares of Common Stock issuable upon the exercise of the
Warrants represented by this Warrant Certificate, and in the event of any change
in the rights of the holder of the Warrants represented by this Warrant
Certificate by reason of other events herein set forth, then in each such case
the Company shall file with its secretary or assistant secretary at its
principal office an officers' certificate setting forth the warrant purchase
price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon the
exercise of the Warrants represented by this Warrant Certificate, and setting
forth in reasonable detail the method of calculation used and the facts upon
which such calculation is based.
(1) Each such officers' certificate shall be made available at all
reasonable times for inspection by the registered holder of this
Warrant Certificate, and the Company, after each such adjustment, shall
forthwith send a copy of such officers' certificate to the last known
address of the registered holder of this Warrant Certificate. Except as
set forth in subpart (3) of this paragraph, such officers' certificate
shall be conclusive as to the correctness of such adjustment, unless
objected to by the holder of the Warrants represented by this Warrant
Certificate within 30 days following the receipt thereof by such
holder.
(2) If the holder of the Warrants represented by this Warrant
Certificate objects to such adjustment and the holder and the Company
are unable to mutually agree as to the correct warrant purchase price
or the correct number of shares issuable upon exercise of the Warrants
represented by this Warrant Certificate, the Board of Directors shall
appoint a firm of independent certified public accountants of
recognized standing, which may be the firm regularly retained by the
Company, to prepare a certificate stating the warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon
exercise of the Warrants represented by this Warrant Certificate, and
setting forth in reasonable detail the method of calculation used and
the facts upon which such calculation is based. The Company shall
promptly, but in any case within 45 days of receipt of the objection,
mail a copy of such accountant's certificate to the holder of this
Warrant Certificate, by first class mail, postage prepaid, addressed to
the holder at the address of such holder as shown on the books of the
Company. Except as set forth in subpart (3) of this paragraph, the
certificate of such firm of independent public accountants shall be
conclusive evidence as to the correctness of the computation with
respect to any such adjustment of the warrant purchase price and any
such change in the number of shares so issuable.
(3) If any officers' certificate is not prepared, filed and sent within
30 days of the adjustment or other event, or if such accountant's
certificate is not sent within 45 days of the date of objection, then
such certificate shall not be entitled to any presumption of
correctness.
(i) In case any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant Certificate at the address of such holder as shown on the books of the
Company, of the date on which (aa) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(bb) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of the Warrants represented by this Warrant
Certificate or of Common Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of the Warrants represented by this Warrant Certificate, but, instead
of any fraction of a share which would otherwise be issuable, the Company shall
pay a cash adjustment (which may be effected as a reduction of the amount to be
paid by the holder hereof upon such exercise) in respect of such fraction in an
amount equal to the same fraction of the market price per share of Common Stock
as of the close of business on the date of the notice required by paragraph 1
above. "Market price" for purposes of this paragraph 4(k) and for purposes of
paragraph 12(d) hereof shall mean, if the Common Stock is traded on a securities
exchange or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market System, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing bid
price, in each case averaged over a period of 20 consecutive business days prior
to the date as of which "market price" is being determined. If at any time the
Common Stock is not traded on an exchange or the NASDAQ National Market System,
or otherwise traded in the over-the-counter market, the "market price" shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to the Warrants represented by
this Warrant Certificate shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant Certificate or, in the
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(g) above.
6. So long as the Warrants represented by this Warrant Certificate
remain outstanding, the Company will not issue any additional capital stock of
any class preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par, liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
7. This Warrant Certificate shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
8. The holder of this Warrant Certificate, by acceptance hereof,
represents and acknowledges that the Warrants represented by this Warrant
Certificate and the shares which may be purchased upon exercise of the Warrants
represented by this Warrant Certificate are not being registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the issuance of the Warrants represented by this Warrant Certificate and the
offering and sale of such shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, neither the
Warrants represented by this Warrant Certificate nor the shares issuable or
issued upon exercise of the Warrants represented by this Warrant Certificate
shall be transferable or assignable except upon the conditions specified in this
paragraph 8, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of the Warrants represented by this Warrant Certificate or such shares. The
holder of this Warrant Certificate agrees to give written notice to the Company
before transferring the Warrants represented by this Warrant Certificate or
transferring any Common Stock issuable or issued upon the exercise thereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of the Warrants represented by this Warrant Certificate or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise thereof. Such holder shall also provide the
Company with an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer of the Warrants represented by this Warrant
Certificate or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of the Warrants represented by
this Warrant Certificate or the shares of Common Stock issuable or issued upon
the exercise thereof. Upon receipt of such written notice and opinion by the
Company, such holder shall be entitled to transfer the Warrants represented by
this Warrant Certificate, or to exercise the Warrants represented by this
Warrant Certificate in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of the Warrants represented by this Warrant
Certificate, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant Certificate or the certificates for such shares.
9. Subject to the provisions of paragraph 8 hereof, the Warrants
represented by this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the principal office of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant Certificate properly endorsed. Each taker and holder of the Warrants
represented by this Warrant Certificate, by taking or holding the same, consents
and agrees that the Company may deem and treat the registered holder of this
Warrant Certificate as the holder and owner hereof (notwithstanding any
notations of ownership or assignment or any writing made hereon by anyone other
than the Company) for all purposes and shall not be affected by any notice to
the contrary, until presentation of this Warrant Certificate for transfer as
provided herein and then only if such transfer meets the requirements of
paragraph 8 hereof.
10. This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the principal office of the Company, for new Warrant
Certificates of like tenor representing in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrant Certificates to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant Certificate, and, in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender and cancellation of this Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of this Warrant Certificate.
11. The holder of the Warrants represented by this Warrant Certificate
and of the Common Stock issuable or issued upon the exercise thereof shall be
entitled to the registration rights set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder of
the Warrants represented by this Warrant Certificate under the terms of the
Warrants represented by this Warrant Certificate, the holder of the Warrants
represented by this Warrant Certificate shall have the right (the "Conversion
Right") to convert the Warrants represented by this Warrant Certificate or any
portion thereof into shares of Common Stock as provided in this paragraph 12 at
any time or from time to time prior to their expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrants
represented by this Warrant Certificate (the "Converted Warrant Shares"), the
Company shall deliver to the holder of the Warrants represented by this Warrant
Certificate, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 12 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of the
Warrants represented by this Warrant Certificate an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the Warrants
represented by this Warrant Certificate by the surrender of this Warrant
Certificate at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrants represented by
this Warrant Certificate which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
Certificate together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrants represented by this Warrant Certificate.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant certificate evidencing the
shares remaining subject to the Warrants represented by this Warrant
Certificate, shall be issued as of the Conversion Date and shall be delivered to
the holder of the Warrants represented by this Warrant Certificate within 15
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the Warrants
represented by this Warrant Certificate remain outstanding, be deemed by the
Company's independent certified public accountants to give rise to a charge to
the Company's earnings for financial reporting purposes, the Company may give
written notice of such adverse accounting treatment and the Conversion Right
shall automatically terminate on the 15th day after the Company's written notice
to the holder of the Warrants represented by this Warrant Certificate, provided
that the Company may give such notice only if, at any time within 30 days prior
to the giving of such notice, the fair market value (as defined in paragraph (d)
below) of a share of Common Stock was at least 250% of the warrant purchase
price. Any such notice shall be given by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant Certificate at the address of
such holder as shown on the books of the Company.
(d) For purposes of this paragraph 12, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(k) hereof.
13. All questions concerning the Warrants represented by this Warrant
Certificate will be governed and interpreted and enforced in accordance with the
internal law of the State of Minnesota. This Warrant Certificate (including
Annex A hereto) may be amended only in a writing executed by the holder of the
Warrants represented by this Warrant Certificate and the Company.
14. The Company covenants and agrees that, during such time as the
holder of this Warrant Certificate or any person or entity controlling,
controlled by, or under common control with, the holder of this Warrant
Certificate is providing financing to the Company and such indebtedness is not
subordinated to any other financing of the Company, it will not issue any
warrants or options for the purchase of capital stock of the Company which
contain provisions that (i) require the Company to purchase the warrant or
option from the holder thereof at the option of the holder, or (ii) permit the
Company to purchase the warrant or option from the holder thereof at the option
of the Company, or (iii) result in the payment of cash or other consideration by
the Company to the holder of the warrant or option.
15. Any notice or other document required or permitted to be given or
delivered to the holder of the Warrants represented by this Warrant Certificate
shall be delivered or sent by certified or registered mail to such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrant Certificates. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or sent by
certified or registered mail to the principal office of the Company at 21925
Industrial Blvd., Rogers, Minnesota, 55374, Attention: President, and to Larkin,
Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes
Avenue South, Bloomington, Minnesota 55431, Attention:
Frank I. Harvey, or such other address as shall have been furnished to the
holder by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer and this Warrant Certificate to be
dated as of June 21, 1996.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Its CFO
RESTRICTION ON TRANSFER
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS THE SAME IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE COMPANY SHALL
RECEIVE AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY (OR THE COMPANY IS
OTHERWISE SATISFIED), THAT THERE EXISTS AN EXEMPTION FROM SUCH REGISTRATION."
WARRANT
To Subscribe for and Purchase Common Stock of
ULTRA PAC, INC.
THIS CERTIFIES THAT, for value received, Norwest Equipment Finance,
Inc. (herein called "Purchaser") or registered assigns is entitled to subscribe
for and purchase from Ultra Pac, Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Minnesota, at
the price specified below (subject to adjustment as noted below) at any time
from and after the date hereof to and including June 21, 2006 Twelve Thousand
(12,000) fully paid and nonassessable shares of the Company's Common Stock
(subject to adjustment as noted below). The warrants represented by this Warrant
Certificate are referred to as the "Warrants" and have been issued in connection
with the Forbearance and Amendment Agreement between the Company and the
Purchaser dated June 21, 1996.
The warrant purchase price (subject to adjustment as noted below) shall
be $3.00 per share.
The Warrants are subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant Certificate may be exercised
by the holder hereof, in whole or in part, by written notice of exercise
delivered to the Company 20 days prior to the intended date of exercise and by
the surrender of this Warrant Certificate (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares. The Company agrees that the shares so purchased shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant Certificate
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant Certificate shall have been so exercised, and, unless the Warrants
represented by this Warrant Certificate have expired, a new Warrant Certificate
representing the number of shares, if any, with respect to which the Warrants
represented by this Warrant Certificate shall not then have been exercised shall
also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of the
Warrants represented by this Warrant Certificate except in accordance with the
provisions, and subject to the limitations, of paragraph 8 hereof and the
restrictive legend under the heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant Certificate will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant Certificate may be exercised, the Company
will at all times have authorized, and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant
Certificate, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant Certificate.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of the Warrants represented by this Warrant Certificate, be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the warrant purchase price, the holder of this Warrant Certificate shall
thereafter be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of shares obtained by multiplying the warrant
purchase price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant to the Warrants represented by this Warrant
Certificate immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) Except for (i) the issuance of shares of Common Stock to employees
or consultants of the Company, whether pursuant to benefit plans adopted by the
Company or written agreements entered into by the Company, (ii) the issuance of
options to purchase Common Stock to employees and consultants of the Company,
whether pursuant to benefit plans adopted by the Company or written agreements
entered into by the Company and the issuance of shares of Common Stock upon
exercise of such options (provided that the aggregate number of shares thus
awarded and covered by unexercised options and thus issued pursuant to such
options (not including options outstanding as of the date hereof) shall not be
in excess of 5% of the shares of Common Stock outstanding), if and whenever the
Company shall issue or sell any shares of its Common Stock for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by (B)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of shares
of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
(c) For the purposes of paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the warrant purchase price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the warrant purchase price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants represented by this Warrant
Certificate immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving effect to
such adjustment of the warrant purchase price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (c).
(d) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(e) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant
Certificate, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to which such holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each dividend
described in clause (i) above and each dividend or distribution described in
clause (ii) above which such holder would have received by way of dividends or
distributions if continuously since such holder became the record holder of this
Warrant Certificate such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common Stock or
Convertible Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(e) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c) are
convertible into or exchangeable for Common Stock shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant Certificate and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of the Warrants represented by this Warrant Certificate to the end that the
provisions hereof (including without limitation provisions for adjustments of
the warrant purchase price and of the number of shares purchasable upon the
exercise of the Warrants represented by this Warrant Certificate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(h) Upon each adjustment of the warrant purchase price and upon each
change in the number of shares of Common Stock issuable upon the exercise of the
Warrants represented by this Warrant Certificate, and in the event of any change
in the rights of the holder of the Warrants represented by this Warrant
Certificate by reason of other events herein set forth, then in each such case
the Company shall file with its secretary or assistant secretary at its
principal office an officers' certificate setting forth the warrant purchase
price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon the
exercise of the Warrants represented by this Warrant Certificate, and setting
forth in reasonable detail the method of calculation used and the facts upon
which such calculation is based.
(1) Each such officers' certificate shall be made available at all
reasonable times for inspection by the registered holder of this
Warrant Certificate, and the Company, after each such adjustment, shall
forthwith send a copy of such officers' certificate to the last known
address of the registered holder of this Warrant Certificate. Except as
set forth in subpart (3) of this paragraph, such officers' certificate
shall be conclusive as to the correctness of such adjustment, unless
objected to by the holder of the Warrants represented by this Warrant
Certificate within 30 days following the receipt thereof by such
holder.
(2) If the holder of the Warrants represented by this Warrant
Certificate objects to such adjustment and the holder and the Company
are unable to mutually agree as to the correct warrant purchase price
or the correct number of shares issuable upon exercise of the Warrants
represented by this Warrant Certificate, the Board of Directors shall
appoint a firm of independent certified public accountants of
recognized standing, which may be the firm regularly retained by the
Company, to prepare a certificate stating the warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon
exercise of the Warrants represented by this Warrant Certificate, and
setting forth in reasonable detail the method of calculation used and
the facts upon which such calculation is based. The Company shall
promptly, but in any case within 45 days of receipt of the objection,
mail a copy of such accountant's certificate to the holder of this
Warrant Certificate, by first class mail, postage prepaid, addressed to
the holder at the address of such holder as shown on the books of the
Company. Except as set forth in subpart (3) of this paragraph, the
certificate of such firm of independent public accountants shall be
conclusive evidence as to the correctness of the computation with
respect to any such adjustment of the warrant purchase price and any
such change in the number of shares so issuable.
(3) If any officers' certificate is not prepared, filed and sent within
30 days of the adjustment or other event, or if such accountant's
certificate is not sent within 45 days of the date of objection, then
such certificate shall not be entitled to any presumption of
correctness.
(i) In case any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant Certificate at the address of such holder as shown on the books of the
Company, of the date on which (aa) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(bb) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of the Warrants represented by this Warrant
Certificate or of Common Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of the Warrants represented by this Warrant Certificate, but, instead
of any fraction of a share which would otherwise be issuable, the Company shall
pay a cash adjustment (which may be effected as a reduction of the amount to be
paid by the holder hereof upon such exercise) in respect of such fraction in an
amount equal to the same fraction of the market price per share of Common Stock
as of the close of business on the date of the notice required by paragraph 1
above. "Market price" for purposes of this paragraph 4(k) and for purposes of
paragraph 12(d) hereof shall mean, if the Common Stock is traded on a securities
exchange or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market System, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing bid
price, in each case averaged over a period of 20 consecutive business days prior
to the date as of which "market price" is being determined. If at any time the
Common Stock is not traded on an exchange or the NASDAQ National Market System,
or otherwise traded in the over-the-counter market, the "market price" shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to the Warrants represented by
this Warrant Certificate shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant Certificate or, in the
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(g) above.
6. So long as the Warrants represented by this Warrant Certificate
remain outstanding, the Company will not issue any additional capital stock of
any class preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par, liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
7. This Warrant Certificate shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
8. The holder of this Warrant Certificate, by acceptance hereof,
represents and acknowledges that the Warrants represented by this Warrant
Certificate and the shares which may be purchased upon exercise of the Warrants
represented by this Warrant Certificate are not being registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the issuance of the Warrants represented by this Warrant Certificate and the
offering and sale of such shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, neither the
Warrants represented by this Warrant Certificate nor the shares issuable or
issued upon exercise of the Warrants represented by this Warrant Certificate
shall be transferable or assignable except upon the conditions specified in this
paragraph 8, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of the Warrants represented by this Warrant Certificate or such shares. The
holder of this Warrant Certificate agrees to give written notice to the Company
before transferring the Warrants represented by this Warrant Certificate or
transferring any Common Stock issuable or issued upon the exercise thereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of the Warrants represented by this Warrant Certificate or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise thereof. Such holder shall also provide the
Company with an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer of the Warrants represented by this Warrant
Certificate or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of the Warrants represented by
this Warrant Certificate or the shares of Common Stock issuable or issued upon
the exercise thereof. Upon receipt of such written notice and opinion by the
Company, such holder shall be entitled to transfer the Warrants represented by
this Warrant Certificate, or to exercise the Warrants represented by this
Warrant Certificate in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of the Warrants represented by this Warrant
Certificate, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant Certificate or the certificates for such shares.
9. Subject to the provisions of paragraph 8 hereof, the Warrants
represented by this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the principal office of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant Certificate properly endorsed. Each taker and holder of the Warrants
represented by this Warrant Certificate, by taking or holding the same, consents
and agrees that the Company may deem and treat the registered holder of this
Warrant Certificate as the holder and owner hereof (notwithstanding any
notations of ownership or assignment or any writing made hereon by anyone other
than the Company) for all purposes and shall not be affected by any notice to
the contrary, until presentation of this Warrant Certificate for transfer as
provided herein and then only if such transfer meets the requirements of
paragraph 8 hereof.
10. This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the principal office of the Company, for new Warrant
Certificates of like tenor representing in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrant Certificates to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant Certificate, and, in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender and cancellation of this Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of this Warrant Certificate.
11. The holder of the Warrants represented by this Warrant Certificate
and of the Common Stock issuable or issued upon the exercise thereof shall be
entitled to the registration rights set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder of
the Warrants represented by this Warrant Certificate under the terms of the
Warrants represented by this Warrant Certificate, the holder of the Warrants
represented by this Warrant Certificate shall have the right (the "Conversion
Right") to convert the Warrants represented by this Warrant Certificate or any
portion thereof into shares of Common Stock as provided in this paragraph 12 at
any time or from time to time prior to their expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrants
represented by this Warrant Certificate (the "Converted Warrant Shares"), the
Company shall deliver to the holder of the Warrants represented by this Warrant
Certificate, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 12 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of the
Warrants represented by this Warrant Certificate an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the Warrants
represented by this Warrant Certificate by the surrender of this Warrant
Certificate at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrants represented by
this Warrant Certificate which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
Certificate together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrants represented by this Warrant Certificate.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant certificate evidencing the
shares remaining subject to the Warrants represented by this Warrant
Certificate, shall be issued as of the Conversion Date and shall be delivered to
the holder of the Warrants represented by this Warrant Certificate within 15
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the Warrants
represented by this Warrant Certificate remain outstanding, be deemed by the
Company's independent certified public accountants to give rise to a charge to
the Company's earnings for financial reporting purposes, the Company may give
written notice of such adverse accounting treatment and the Conversion Right
shall automatically terminate on the 15th day after the Company's written notice
to the holder of the Warrants represented by this Warrant Certificate, provided
that the Company may give such notice only if, at any time within 30 days prior
to the giving of such notice, the fair market value (as defined in paragraph (d)
below) of a share of Common Stock was at least 250% of the warrant purchase
price. Any such notice shall be given by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant Certificate at the address of
such holder as shown on the books of the Company.
(d) For purposes of this paragraph 12, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(k) hereof.
13. All questions concerning the Warrants represented by this Warrant
Certificate will be governed and interpreted and enforced in accordance with the
internal law of the State of Minnesota. This Warrant Certificate (including
Annex A hereto) may be amended only in a writing executed by the holder of the
Warrants represented by this Warrant Certificate and the Company.
14. The Company covenants and agrees that, during such time as the
holder of this Warrant Certificate or any person or entity controlling,
controlled by, or under common control with, the holder of this Warrant
Certificate is providing financing to the Company and such indebtedness is not
subordinated to any other financing of the Company, it will not issue any
warrants or options for the purchase of capital stock of the Company which
contain provisions that (i) require the Company to purchase the warrant or
option from the holder thereof at the option of the holder, or (ii) permit the
Company to purchase the warrant or option from the holder thereof at the option
of the Company, or (iii) result in the payment of cash or other consideration by
the Company to the holder of the warrant or option.
15. Any notice or other document required or permitted to be given or
delivered to the holder of the Warrants represented by this Warrant Certificate
shall be delivered or sent by certified or registered mail to such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrant Certificates. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or sent by
certified or registered mail to the principal office of the Company at 21925
Industrial Blvd., Rogers, Minnesota, 55374, Attention: President, and to Larkin,
Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes
Avenue South, Bloomington, Minnesota 55431, Attention:
Frank I. Harvey, or such other address as shall have been furnished to the
holder by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer and this Warrant Certificate to be
dated as of June 21, 1996.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Its CFO
RESTRICTION ON TRANSFER
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS THE SAME IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE COMPANY SHALL
RECEIVE AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY (OR THE COMPANY IS
OTHERWISE SATISFIED), THAT THERE EXISTS AN EXEMPTION FROM SUCH REGISTRATION."
WARRANT
To Subscribe for and Purchase Common Stock of
ULTRA PAC, INC.
THIS CERTIFIES THAT, for value received, USL Capital Corporation
(herein called "Purchaser") or registered assigns is entitled to subscribe for
and purchase from Ultra Pac, Inc. (herein called the "Company"), a corporation
organized and existing under the laws of the State of Minnesota, at the price
specified below (subject to adjustment as noted below) at any time from and
after the date hereof to and including June 21, 2006 Six Thousand (6,000) fully
paid and nonassessable shares of the Company's Common Stock (subject to
adjustment as noted below). The warrants represented by this Warrant Certificate
are referred to as the "Warrants".
The warrant purchase price (subject to adjustment as noted below) shall
be $3.00 per share.
The Warrants are subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant Certificate may be exercised
by the holder hereof, in whole or in part, by written notice of exercise
delivered to the Company 20 days prior to the intended date of exercise and by
the surrender of this Warrant Certificate (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares. The Company agrees that the shares so purchased shall be
and are deemed to be issued to the holder hereof as the record owner of such
shares as of the close of business on the date on which this Warrant Certificate
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for the
shares of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding 10 days, after the rights represented by this
Warrant Certificate shall have been so exercised, and, unless the Warrants
represented by this Warrant Certificate have expired, a new Warrant Certificate
representing the number of shares, if any, with respect to which the Warrants
represented by this Warrant Certificate shall not then have been exercised shall
also be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of the
Warrants represented by this Warrant Certificate except in accordance with the
provisions, and subject to the limitations, of paragraph 8 hereof and the
restrictive legend under the heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant Certificate will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant Certificate may be exercised, the Company
will at all times have authorized, and reserved for the purpose of issue or
transfer upon exercise of the subscription rights evidenced by this Warrant
Certificate, a sufficient number of shares of its Common Stock to provide for
the exercise of the rights represented by this Warrant Certificate.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of the Warrants represented by this Warrant Certificate, be subject to
adjustment from time to time as hereinafter provided. Upon each adjustment of
the warrant purchase price, the holder of this Warrant Certificate shall
thereafter be entitled to purchase, at the warrant purchase price resulting from
such adjustment, the number of shares obtained by multiplying the warrant
purchase price in effect immediately prior to such adjustment by the number of
shares purchasable pursuant to the Warrants represented by this Warrant
Certificate immediately prior to such adjustment and dividing the product
thereof by the warrant purchase price resulting from such adjustment.
(b) Except for (i) the issuance of shares of Common Stock to employees
or consultants of the Company, whether pursuant to benefit plans adopted by the
Company or written agreements entered into by the Company, (ii) the issuance of
options to purchase Common Stock to employees and consultants of the Company,
whether pursuant to benefit plans adopted by the Company or written agreements
entered into by the Company and the issuance of shares of Common Stock upon
exercise of such options (provided that the aggregate number of shares thus
awarded and covered by unexercised options and thus issued pursuant to such
options (not including options outstanding as of the date hereof) shall not be
in excess of 5% of the shares of Common Stock outstanding), if and whenever the
Company shall issue or sell any shares of its Common Stock for a consideration
per share less than the warrant purchase price in effect immediately prior to
the time of such issue or sale, then, forthwith upon such issue or sale, the
warrant purchase price shall be reduced to the price (calculated to the nearest
cent) determined by dividing (A) an amount equal to the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
multiplied by the then existing warrant purchase price, and (2) the
consideration, if any, received by the Company upon such issue or sale, by (B)
an amount equal to the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale and (2) the number of shares
of Common Stock thus issued or sold.
No adjustment of the warrant purchase price, however, shall be made in
an amount less than 2% of the warrant purchase price in effect on the date of
such adjustment, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent adjustment
which, together with any such adjustment so carried forward, shall be an amount
equal to or greater than 4% of the warrant purchase price then in effect.
(c) For the purposes of paragraph (b), the following provisions (i) to
(v), inclusive, shall also be applicable:
(i) In case at any time the Company shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (aa) the total amount, if any, received or receivable by the
Company as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible Securities
and upon the conversion or exchange thereof, by (bb) the total maximum
number of shares of Common Stock issuable upon the exercise of such
rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the warrant purchase price in effect
immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed to have been
issued for such price per share. Except as provided in paragraph (f)
below, no further adjustments of the warrant purchase price shall be
made upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such rights or options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
(ii) In case the Company shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Company upon the conversion or exchange thereof, by (bb)
the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the warrant purchase price in effect immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the issue or sale of
such Convertible Securities) be deemed to be outstanding and to have
been issued for such price per share, provided that (x) except as
provided in paragraph (f) below, no further adjustments of the warrant
purchase price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Securities, and (y) if
any such issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which adjustments of the
warrant purchase price have been or are to be made pursuant to other
provisions of this paragraph (c), no further adjustment of the warrant
purchase price shall be made by reason of such issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any such Common Stock
or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Company therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the
Board of Directors of the Company, without deducting therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Company in connection therewith. In
case any shares of Common Stock or Convertible Securities or any rights
or options to purchase such Common Stock or Convertible Securities
shall be issued in connection with any merger or consolidation in which
the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value as determined by the
Board of Directors of the Company of such portion of the assets and
business of the non-surviving corporation or corporations as such Board
shall determine to be attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event of any
consolidation or merger of the Company in which the Company is not the
surviving corporation or in the event of any sale of all or
substantially all of the assets of the Company for stock or other
securities of any other corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for a
consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and
if any such calculation results in adjustment of the warrant purchase
price, the determination of the number of shares of Common Stock
issuable upon exercise of the Warrants represented by this Warrant
Certificate immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving effect to
such adjustment of the warrant purchase price.
(iv) In case the Company shall take a record of the holders of
its Common Stock for the purpose of entitling them (aa) to receive a
dividend or other distribution payable in Common Stock or in
Convertible Securities, or in any rights or options to purchase any
Common Stock or Convertible Securities, or (bb) to subscribe for or
purchase Common Stock or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such rights of subscription or purchase, as the case
may be.
(v) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes of this
paragraph (c).
(d) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(e) below) or Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other dividend or
make any other distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the holder of this Warrant
Certificate, upon the exercise hereof, will be entitled to receive the number of
shares of Common Stock to which such holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each dividend
described in clause (i) above and each dividend or distribution described in
clause (ii) above which such holder would have received by way of dividends or
distributions if continuously since such holder became the record holder of this
Warrant Certificate such holder (i) had been the record holder of the number of
shares of Common Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common Stock or
Convertible Securities) payable in respect of such Common Stock or in respect of
any stock or securities paid as dividends or distributions and originating
directly or indirectly from such Common Stock. For the purposes of the
foregoing, a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that such earnings
or earned surplus are charged an amount equal to the fair value of such dividend
or distribution as determined by the Board of Directors of the Company.
(e) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or (iii)
the rate at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common Stock
shall change at any time (other than under or by reason of provisions designed
to protect against dilution), the warrant purchase price then in effect shall
forthwith be increased or decreased to such warrant purchase price which would
have obtained had the adjustments made upon the issuance of such rights, options
or Convertible Securities been made upon the basis of (i) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (ii)
the issuance at the time of such change of any such options, rights or
Convertible Securities then still outstanding for the consideration, if any,
received by the Company therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or the termination of
any such right to convert or exchange such Convertible Securities, the warrant
purchase price then in effect hereunder shall forthwith be increased to such
warrant purchase price which would have obtained had the adjustments made upon
the issuance of such rights or options or Convertible Securities been made upon
the basis of the issuance of the shares of Common Stock theretofore actually
delivered (and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such Convertible
Securities. If the purchase price provided for in any such right or option
referred to in clause (i) of paragraph (c) or the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c) are
convertible into or exchangeable for Common Stock shall decrease at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the warrant purchase price then in effect hereunder shall
forthwith be decreased to such warrant purchase price as would have obtained had
the adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant Certificate and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of the Warrants represented by this Warrant Certificate to the end that the
provisions hereof (including without limitation provisions for adjustments of
the warrant purchase price and of the number of shares purchasable upon the
exercise of the Warrants represented by this Warrant Certificate) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the registered
holder hereof at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(h) Upon each adjustment of the warrant purchase price and upon each
change in the number of shares of Common Stock issuable upon the exercise of the
Warrants represented by this Warrant Certificate, and in the event of any change
in the rights of the holder of the Warrants represented by this Warrant
Certificate by reason of other events herein set forth, then in each such case
the Company shall file with its secretary or assistant secretary at its
principal office an officers' certificate setting forth the warrant purchase
price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon the
exercise of the Warrants represented by this Warrant Certificate, and setting
forth in reasonable detail the method of calculation used and the facts upon
which such calculation is based.
(1) Each such officers' certificate shall be made available at all
reasonable times for inspection by the registered holder of this
Warrant Certificate, and the Company, after each such adjustment, shall
forthwith send a copy of such officers' certificate to the last known
address of the registered holder of this Warrant Certificate. Except as
set forth in subpart (3) of this paragraph, such officers' certificate
shall be conclusive as to the correctness of such adjustment, unless
objected to by the holder of the Warrants represented by this Warrant
Certificate within 30 days following the receipt thereof by such
holder.
(2) If the holder of the Warrants represented by this Warrant
Certificate objects to such adjustment and the holder and the Company
are unable to mutually agree as to the correct warrant purchase price
or the correct number of shares issuable upon exercise of the Warrants
represented by this Warrant Certificate, the Board of Directors shall
appoint a firm of independent certified public accountants of
recognized standing, which may be the firm regularly retained by the
Company, to prepare a certificate stating the warrant purchase price
resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such warrant purchase price upon
exercise of the Warrants represented by this Warrant Certificate, and
setting forth in reasonable detail the method of calculation used and
the facts upon which such calculation is based. The Company shall
promptly, but in any case within 45 days of receipt of the objection,
mail a copy of such accountant's certificate to the holder of this
Warrant Certificate, by first class mail, postage prepaid, addressed to
the holder at the address of such holder as shown on the books of the
Company. Except as set forth in subpart (3) of this paragraph, the
certificate of such firm of independent public accountants shall be
conclusive evidence as to the correctness of the computation with
respect to any such adjustment of the warrant purchase price and any
such change in the number of shares so issuable.
(3) If any officers' certificate is not prepared, filed and sent within
30 days of the adjustment or other event, or if such accountant's
certificate is not sent within 45 days of the date of objection, then
such certificate shall not be entitled to any presumption of
correctness.
(i) In case any time:
(1) the Company shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash dividend
theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the registered holder of this
Warrant Certificate at the address of such holder as shown on the books of the
Company, of the date on which (aa) the books of the Company shall close or a
record shall be taken for such dividend, distribution or subscription rights, or
(bb) such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as the case may be.
Such notice shall also specify the date as of which the holders of Common Stock
of record shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, as the case
may be. Such written notice shall be given at least 20 days prior to the action
in question and not less than 20 days prior to the record date or the date on
which the Company's transfer books are closed in respect thereto.
(j) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of the Warrants represented by this Warrant
Certificate or of Common Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid.
(k) No fractional shares of Common Stock shall be issued upon the
exercise of the Warrants represented by this Warrant Certificate, but, instead
of any fraction of a share which would otherwise be issuable, the Company shall
pay a cash adjustment (which may be effected as a reduction of the amount to be
paid by the holder hereof upon such exercise) in respect of such fraction in an
amount equal to the same fraction of the market price per share of Common Stock
as of the close of business on the date of the notice required by paragraph 1
above. "Market price" for purposes of this paragraph 4(k) and for purposes of
paragraph 12(d) hereof shall mean, if the Common Stock is traded on a securities
exchange or on the NASDAQ National Market System, the closing price of the
Common Stock on such exchange or the NASDAQ National Market System, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing bid
price, in each case averaged over a period of 20 consecutive business days prior
to the date as of which "market price" is being determined. If at any time the
Common Stock is not traded on an exchange or the NASDAQ National Market System,
or otherwise traded in the over-the-counter market, the "market price" shall be
deemed to be the higher of (i) the book value thereof as determined by any firm
of independent public accountants of recognized standing selected by the Board
of Directors of the Company as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to the Warrants represented by
this Warrant Certificate shall include shares designated as Common Stock of the
Company on the date of original issue of this Warrant Certificate or, in the
case of any reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(g) above.
6. So long as the Warrants represented by this Warrant Certificate
remain outstanding, the Company will not issue any additional capital stock of
any class preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up, unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par, liquidation or redemption value in respect of participation in dividends
and in the distribution of such assets.
7. This Warrant Certificate shall not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
8. The holder of this Warrant Certificate, by acceptance hereof,
represents and acknowledges that the Warrants represented by this Warrant
Certificate and the shares which may be purchased upon exercise of the Warrants
represented by this Warrant Certificate are not being registered under the
Securities Act of 1933, as amended (the "Securities Act") on the grounds that
the issuance of the Warrants represented by this Warrant Certificate and the
offering and sale of such shares are exempt from registration under Section 4(2)
of the Securities Act as not involving any public offering. Notwithstanding any
provisions contained in this Warrant Certificate to the contrary, neither the
Warrants represented by this Warrant Certificate nor the shares issuable or
issued upon exercise of the Warrants represented by this Warrant Certificate
shall be transferable or assignable except upon the conditions specified in this
paragraph 8, which conditions are intended, among other things, to ensure
compliance with the provisions of the Securities Act in respect of the transfer
of the Warrants represented by this Warrant Certificate or such shares. The
holder of this Warrant Certificate agrees to give written notice to the Company
before transferring the Warrants represented by this Warrant Certificate or
transferring any Common Stock issuable or issued upon the exercise thereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of the Warrants represented by this Warrant Certificate or such
holder's intention as to the disposition to be made of shares of Common Stock
issuable or issued upon the exercise thereof. Such holder shall also provide the
Company with an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer of the Warrants represented by this Warrant
Certificate or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of the Warrants represented by
this Warrant Certificate or the shares of Common Stock issuable or issued upon
the exercise thereof. Upon receipt of such written notice and opinion by the
Company, such holder shall be entitled to transfer the Warrants represented by
this Warrant Certificate, or to exercise the Warrants represented by this
Warrant Certificate in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of the Warrants represented by this Warrant
Certificate, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant Certificate or the certificates for such shares.
9. Subject to the provisions of paragraph 8 hereof, the Warrants
represented by this Warrant Certificate and all rights hereunder are
transferable, in whole or in part, at the principal office of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant Certificate properly endorsed. Each taker and holder of the Warrants
represented by this Warrant Certificate, by taking or holding the same, consents
and agrees that the Company may deem and treat the registered holder of this
Warrant Certificate as the holder and owner hereof (notwithstanding any
notations of ownership or assignment or any writing made hereon by anyone other
than the Company) for all purposes and shall not be affected by any notice to
the contrary, until presentation of this Warrant Certificate for transfer as
provided herein and then only if such transfer meets the requirements of
paragraph 8 hereof.
10. This Warrant Certificate is exchangeable, upon the surrender hereof
by the holder hereof at the principal office of the Company, for new Warrant
Certificates of like tenor representing in the aggregate the right to subscribe
for and purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrant Certificates to represent the right to
subscribe for and purchase such number of shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant Certificate, and, in case of loss, theft, or
destruction, of indemnity or security reasonably satisfactory to it and upon
surrender and cancellation of this Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor, in lieu
of this Warrant Certificate.
11. The holder of the Warrants represented by this Warrant Certificate
and of the Common Stock issuable or issued upon the exercise thereof shall be
entitled to the registration rights set forth in Annex A hereto.
12. (a) In addition to and without limiting the rights of the holder of
the Warrants represented by this Warrant Certificate under the terms of the
Warrants represented by this Warrant Certificate, the holder of the Warrants
represented by this Warrant Certificate shall have the right (the "Conversion
Right") to convert the Warrants represented by this Warrant Certificate or any
portion thereof into shares of Common Stock as provided in this paragraph 12 at
any time or from time to time prior to their expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to the Warrants
represented by this Warrant Certificate (the "Converted Warrant Shares"), the
Company shall deliver to the holder of the Warrants represented by this Warrant
Certificate, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 12 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of the
Warrants represented by this Warrant Certificate an amount in cash equal to the
fair market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of the Warrants
represented by this Warrant Certificate by the surrender of this Warrant
Certificate at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the Conversion
Right and indicating the number of shares subject to the Warrants represented by
this Warrant Certificate which are being surrendered (referred to in paragraph
(a) above as the Converted Warrant Shares) in exercise of the Conversion Right.
Such conversion shall be effective upon receipt by the Company of this Warrant
Certificate together with the aforesaid written statement, or on such later date
as is specified therein (the "Conversion Date"), but not later than the
expiration date of the Warrants represented by this Warrant Certificate.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant certificate evidencing the
shares remaining subject to the Warrants represented by this Warrant
Certificate, shall be issued as of the Conversion Date and shall be delivered to
the holder of the Warrants represented by this Warrant Certificate within 15
days following the Conversion Date.
(c) In the event the Conversion Right would, at any time the Warrants
represented by this Warrant Certificate remain outstanding, be deemed by the
Company's independent certified public accountants to give rise to a charge to
the Company's earnings for financial reporting purposes, the Company may give
written notice of such adverse accounting treatment and the Conversion Right
shall automatically terminate on the 15th day after the Company's written notice
to the holder of the Warrants represented by this Warrant Certificate, provided
that the Company may give such notice only if, at any time within 30 days prior
to the giving of such notice, the fair market value (as defined in paragraph (d)
below) of a share of Common Stock was at least 250% of the warrant purchase
price. Any such notice shall be given by first-class mail, postage prepaid,
addressed to the registered holder of this Warrant Certificate at the address of
such holder as shown on the books of the Company.
(d) For purposes of this paragraph 12, the "fair market value" of a
share of Common Stock as of a particular date shall be its "market price",
calculated as described in paragraph 4(k) hereof.
13. All questions concerning the Warrants represented by this Warrant
Certificate will be governed and interpreted and enforced in accordance with the
internal law of the State of Minnesota. This Warrant Certificate (including
Annex A hereto) may be amended only in a writing executed by the holder of the
Warrants represented by this Warrant Certificate and the Company.
14. The Company covenants and agrees that, during such time as the
holder of this Warrant Certificate or any person or entity controlling,
controlled by, or under common control with, the holder of this Warrant
Certificate is providing financing to the Company and such indebtedness is not
subordinated to any other financing of the Company, it will not issue any
warrants or options for the purchase of capital stock of the Company which
contain provisions that (i) require the Company to purchase the warrant or
option from the holder thereof at the option of the holder, or (ii) permit the
Company to purchase the warrant or option from the holder thereof at the option
of the Company, or (iii) result in the payment of cash or other consideration by
the Company to the holder of the warrant or option.
15. Any notice or other document required or permitted to be given or
delivered to the holder of the Warrants represented by this Warrant Certificate
shall be delivered or sent by certified or registered mail to such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrant Certificates. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered or sent by
certified or registered mail to the principal office of the Company at 21925
Industrial Blvd., Rogers, Minnesota, 55374, Attention: President, and to Larkin,
Hoffman, Daly & Lindgren, Ltd., 1500 Norwest Financial Center, 7900 Xerxes
Avenue South, Bloomington, Minnesota 55431, Attention:
Frank I. Harvey, or such other address as shall have been furnished to the
holder by the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its duly authorized officer and this Warrant Certificate to be
dated as of June 21, 1996.
ULTRA PAC, INC.
By /s/ Brad C. Yopp
Its CFO
RESTRICTION ON TRANSFER
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR
UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THESE SECURITIES, NOR ANY
PORTION THEREOF OR INTEREST THEREIN, MAY BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF, UNLESS THE SAME IS REGISTERED AND QUALIFIED IN ACCORDANCE WITH THE
1933 ACT AND ANY APPLICABLE STATE SECURITIES LAW, UNLESS THE COMPANY SHALL
RECEIVE AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY (OR THE COMPANY IS
OTHERWISE SATISFIED), THAT THERE EXISTS AN EXEMPTION FROM SUCH REGISTRATION."
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<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JUL-31-1996
<CASH> 92,363
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<RECEIVABLES> 4,866,934
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0
0
<COMMON> 7,685,897
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<INCOME-CONTINUING> 398,501
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