<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________to____________________
Commission file number 333-05885
Packaging Resources Incorporated
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(Exact name of registrant as specified in its charter)
Delaware 36-3321568
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Conway Park, 100 Field Drive, Suite 300, Lake Forest, Illinois 60045
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(Address of principal executive offices) (Zip code)
(847) 295-6100
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(Registrant's telephone number, including area code)
Indicate by check mark whether 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the amount outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
As of August 31, 1998, the issuer had outstanding 1,000 shares of
Common Stock, $.01 par value per share.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Three Months Ended Six Months Ended
August 31 August 31
---------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $33,852 $30,149 $70,673 $61,299
Cost of goods sold 27,596 24,825 56,768 50,213
------- ------- ------- -------
Gross profit 6,256 5,324 13,905 11,086
Selling, general & administrative expenses 1,518 1,454 2,985 2,941
Amortization of intangibles and other assets 178 178 356 356
------- ------- ------- -------
Operating income 4,560 3,692 10,564 7,789
Interest expense 3,390 3,398 6,778 6,805
------- ------- ------- -------
Income before income taxes 1,170 294 3,786 984
Income tax expense 503 125 1,628 421
------- ------- ------- -------
Net income $667 $169 $2,158 $563
------- ------- ------- -------
------- ------- ------- -------
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED
BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
AUGUST 31, FEBRUARY 28,
ASSETS 1998 1998
---------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,445 $ 7,929
Accounts receivable, net 12,277 13,549
Inventories 20,153 20,529
Prepaid expenses 378 284
Deferred income taxes 874 874
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Total current assets 37,127 43,165
Property, plant, and equipment, net 62,605 52,181
Intangibles, net 19,437 19,793
Other assets 6,271 5,940
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$ 125,440 $121,079
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--------- --------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 7,372 $ 7,044
Accrued expenses 11,234 10,649
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Total current liabilities 18,606 17,693
Long-term debt, excluding current maturities 110,000 110,000
Deferred income taxes 9,094 7,804
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Total liabilities 137,700 135,497
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Stockholder's equity (deficit):
Common stock, $.01 par value; 1,000 shares
authorized, issued, and outstanding -- --
Accumulated deficit (12,260) (14,418)
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Total stockholder's equity (deficit) (12,260) (14,418)
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$ 125,440 $121,079
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--------- --------
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
<CAPTION>
PACKAGING RESOURCES INCORPORATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
Six Months Ended
August 31
----------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $2,158 $563
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,558 4,301
Deferred income taxes 1,290 415
Change in assets and liabilities:
Change in current assets 1,554 725
Change in current liabilities 913 778
Change in other assets (651) -
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Net cash provided by operating activities 9,822 6,782
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Cash flows from investing activities:
Capital expenditures (14,306) (5,092)
Proceeds from sale of leased equipment - 750
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Net cash used in investing activities (14,306) (4,342)
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Cash flows from financing activities:
Payments of promissory notes - (950)
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Net cash used in financing activities - (950)
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Net (decrease) increase in cash and cash equivalents (4,484) 1,490
Cash and cash equivalents at beginning of period 7,929 6,154
--------- --------
Cash and cash equivalents at end of period $3,445 $7,644
--------- --------
--------- --------
Supplemental disclosure of cash flow
information - cash paid for:
Interest $6,444 $6,480
Income taxes $338 $166
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PACKAGING RESOURCES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1) BASIS OF PRESENTATION
The balance sheet as of August 31, 1998 and the statements of operations for
the three and six month periods ended August 31, 1998 and the statement of cash
flows for the six months ended August 31, 1998 have been prepared by Packaging
Resources Incorporated ("PRI" or the "Company"). In the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial results for the interim periods included
herein have been made. The results of operations for the three and six month
periods ended August 31, 1998 are not necessarily indicative of the results to
be expected for the full year.
For further information, refer to the financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended
February 28, 1998.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTH PERIOD ENDED AUGUST 31, 1998 COMPARED TO
THE THREE MONTH PERIOD ENDED AUGUST 31, 1997
NET SALES: Net sales increased $3.7 million, or 12.3%, from $30.1 million
in the second quarter of fiscal 1998 to $33.8 million in the second quarter of
fiscal 1999. Packaging sales increased $1.0 million, or 3.8%, from $25.6
million in the second quarter of fiscal 1998 to $26.6 million in the second
quarter of fiscal 1999, primarily as a result of higher volume including sales
of new products to a new customer. Promotional sales increased $2.7 million,
or 59.4%, from $4.6 million in the second quarter of fiscal 1998 to $7.3
million in the second quarter of fiscal 1999, due to higher volume including
sales of a new product to existing customers.
GROSS PROFIT: Gross profit increased $.9 million, from $5.3 million in
the second quarter of fiscal 1998 to $6.2 million in the second quarter of
fiscal 1999 due to higher sales. Gross margins increased from 17.7% in the
second quarter of fiscal 1998 to 18.5% in the second quarter of fiscal 1999
primarily due to higher plant utilization resulting from the higher level of
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses of $1.5 million in the second quarter of fiscal 1998
remained constant in the second quarter of fiscal 1999, but decreased as a
percentage of net sales from 4.8% to 4.5% due to the higher level of sales.
OPERATING INCOME: Operating income increased $.9 million, from $3.7
million, or 12.3% of net sales, in the second quarter of fiscal 1998 to $4.6
million, or 13.5% of net sales, in the second quarter of fiscal 1999 due to the
reasons noted above.
INCOME TAXES: Income taxes increased $0.4 million, from $0.1 million in
the second quarter of fiscal 1998 to $0.5 million in the second quarter of
fiscal 1999, due to higher earnings. The Company's effective state and Federal
tax rate was 43% in the second quarters of fiscal 1998 and 1999.
NET INCOME: For the reasons noted above, net income increased $0.5
million, from $0.2 million in the second quarter of fiscal 1998 to $0.7 million
in the second quarter of fiscal 1999.
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RESULTS OF OPERATIONS - SIX MONTH PERIOD ENDED AUGUST 31, 1998 COMPARED TO THE
SIX MONTH PERIOD ENDED AUGUST 31, 1997
NET SALES: Net sales increased $9.4 million, or 15.3%, from $61.3 million
in the first six months of fiscal 1998 to $70.7 million in the first six months
of fiscal 1999. Packaging sales increased $0.4 million, or .8%, from $52.8
million in the first six months of fiscal 1998 to $53.2 million in the first
six months of fiscal 1999, primarily as a result of higher volume including
sales of new products to a new customer. Promotional sales increased $9.0
million, or 105.3%, from $8.5 million in the first six months of fiscal 1998 to
$17.5 million in the first six months of fiscal 1999, due to higher volume
including sales of a new product to existing customers.
GROSS PROFIT: Gross profit increased $2.8 million, from $11.1 million in
the first six months of fiscal 1998 to $13.9 million in the first six months of
fiscal 1999 due to higher sales. Gross margins increased from 18.1% in the
first six months of fiscal 1998 to 19.7% in the first six months of fiscal 1999
primarily due to higher plant utilization resulting from the higher level of
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
administrative expenses increased slightly by $.1 million from $2.9 million in
the first six months of fiscal 1998 to $3.0 million in the first six months of
fiscal 1999, but decreased as a percentage of net sales from 4.8% to 4.2% due
to the higher level of sales.
OPERATING INCOME: Operating income increased $2.8 million, from $7.8
million, or 12.7% of net sales, in the first six months of fiscal 1998 to $10.6
million, or 14.9% of net sales, in the first six months of fiscal 1999 due to
the reasons noted above.
INCOME TAXES: Income taxes increased $1.2 million, from $0.4 million in
the first six months of fiscal 1998, to $1.6 million in the first six months of
fiscal 1999. The Company's effective state and Federal tax rate was 43% in the
first six months of fiscal 1998 and 1999.
NET INCOME: For the reasons noted above, net income increased $1.6
million, from $0.6 million in the first six months of fiscal 1998 to $2.2
million in the first six months of fiscal 1999.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
PRI issued $110.0 million in Senior Secured Notes due 2003 (the "Senior
Secured Notes") in May 1996. In conjunction with this transaction, the
Company also entered into a credit agreement (the "Credit Agreement") that,
subject to certain borrowing conditions and limitations, provides for
borrowings of up to $20.0 million under a Revolving Commitment. On August 5,
1998 the Credit Agreement was amended, subject to certain borrowing
conditions and limitations, to provide for additional borrowings of up to
$10.0 million. This additional borrowing capacity will allow PRI to finance,
in part, the purchase of equipment for use by PRI in its promotional cup and
packaging business. As of August 31, 1998, there were no outstanding
borrowings under the Credit Agreement.
Cash provided by operating activities increased to $9.8 million in the first
six months of fiscal 1999 from $6.8 million in the comparable period of fiscal
1998. The increase resulted primarily from a $1.6 million increase in net
income and increases from other working capital items, partially offset by a
change in other assets for deposits made on equipment to be delivered to PRI at
a later date.
Capital expenditures were $5.1 million and $14.3 million for the first six
months of fiscal 1998 and 1999, respectively. These expenditures, which will
expand production capacity and reduce costs, included (i) the addition of new
production lines and printing equipment, (ii) the expansion of the Company's
manufacturing space and (iii) the engineering and manufacture of new production
molds. PRI's estimated capital expenditures for the balance of fiscal 1999 are
expected to exceed $20.0 million.
In June 1998 the Company entered into a long-term operating lease agreement on
a building in Phoenix, Arizona. This additional facility will expand
production capacity and will be used for the manufacture, warehouse and
distribution of PRI's products. The plant is expected to be operational in the
fourth quarter of fiscal 1999.
Although there can be no assurances, the Company anticipates that its operating
cash flow along with the borrowings available under the Credit Agreement, will
be sufficient to meet its current operating expenses, projected capital
expenditures and debt service requirements as they become due.
Instruments governing the Company's indebtedness, including the Credit
Agreement and the Indenture governing the Senior Secured Notes, contain
financial and other covenants that restrict, among other things, the Company's
ability to incur additional indebtedness, incur liens, pay dividends or make
certain other restricted payments, consummate certain asset sales, enter into
certain transactions with affiliates, merge or consolidate with any other
person or sell, assign, transfer, lease, convey or otherwise dispose of
substantially all of the assets of the Company. Such limitations, together
with the highly leveraged nature of the Company, could limit corporate and
operating activities, including the Company's ability to respond to market
conditions to provide for unanticipated capital investments or to take
advantage of business opportunities.
IMPACT OF THE YEAR 2000 ON THE COMPANY'S OPERATIONS
The Company has commenced modifications to its software systems related to
the impact of the year 2000 on such systems and such modifications are
currently expected to be completed before the year 2000. The Company
estimates that the cost of bringing its existing systems into compliance for
the year 2000 will not be material. While the Company can make no assurances
as to the impact of the year 2000 on its operations, it currently anticipates
that any adverse consequences of the year 2000 on the Company's software
systems will not create a significant disruption to the Company's operations
and that remedial costs, if any, are not anticipated to be material.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
N/A
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
N/A
ITEM 2. CHANGES IN SECURITIES
N/A
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
N/A
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A
ITEM 5. OTHER INFORMATION
N/A
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The following exhibit is included in this Report on
Form 10-Q:
4.3A Fifth Amendment dated as of August 5, 1998 to the
Credit Agreement dated as of May 17, 1996 among PRI,
the lenders signatory thereto and LaSalle National
Bank, as administrative agent.
27.1 Financial Statement Schedule
(b) REPORTS ON FORM 8-K: The Company did not file any reports on
Form 8-K during the three months ended
August 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACKAGING RESOURCES INCORPORATED
Registrant
Date October 7, 1998 /s/ Jerry J. Corirossi
---------------------------------
Jerry J. Corirossi
Vice President, Finance and Administration
and Chief Financial Officer and duly
authorized officer
<PAGE>
FIFTH AMENDMENT TO CREDIT AGREEMENT
AND FIRST AMENDMENT TO SECURITY AGREEMENT
FIFTH AMENDMENT TO CREDIT AGREEMENT ("Fifth Amendment"), dated as
of August 5, 1998 to the Credit Agreement, dated as of May 17, 1996, among
Packaging Resources Incorporated, a Delaware corporation (the "Borrower"),
the lender signatories thereto ("Lenders") and LaSalle National Bank, a
national banking association ("LaSalle"), as agent for such Lenders
("LaSalle, in such capacity, the "Agent"), and First Amendment to Security
Agreement dated as of August 5, 1998 to the Security Agreement dated as of
May 17, 1996 by and between the Borrower and the Agent.
WHEREAS, the Borrower, the Lenders and the Agent have entered into
that certain Credit Agreement dated as of May 17, 1996 as amended by that
certain First Amendment to Credit Agreement, dated December 12, 1996, by and
among the Borrower, the Lenders and the Agent ("First Amendment"), by that
certain Second Amendment to Credit Agreement dated as of April 24, 1997, by
and among the Borrower, the Lenders and the Agent ("Second Amendment"), by
that certain Third Amendment to Credit Agreement dated August 27, 1997, by
and among the Borrower, the Lenders and the Agent ("Third Amendment") and by
that certain Fourth Amendment to Credit Agreement dated as of April 30, 1998,
by and among the Borrower, the Lenders and the Agent ("Fourth Amendment")
(said Credit Agreement, as amended, is hereinafter referred to as the "Credit
Agreement");
WHEREAS, the Borrower and the Agent have entered into that certain
Security Agreement dated as of May 17, 1996 (the "Security Agreement"); and
WHEREAS, the Borrower, the Lenders and the Agent wish to amend and
modify certain of the provisions of the Credit Agreement and the Security
Agreement pursuant to the terms hereof;
NOW THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained and contained in the Credit Agreement, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Except as otherwise provided herein,
capitalized terms used herein without definition shall have the meanings set
forth in the Credit Agreement.
2. AMENDED DEFINITIONS AND ADDITIONAL DEFINITIONS. The
definitions of "Advance", "Applicable Margin", "Commitment", "Base Rate
Advance", "EBITDA", "Eurodollar Advance", "Fixed Charges", "Loans", "Maturity
Date" and "PRO RATA" contained in Section 1.1 of the Credit Agreement are
hereby deleted and the following are inserted in their stead. The following
new definitions of "Base Rate Revolving Advance", "Base Rate Equipment
Advance", "Eligible Equipment", "Equipment Advance", "Equipment Commitment",
"Equipment Loan", "Equipment
<PAGE>
Maturity Date", "Equipment Note","Equipment Security Agreement", "Eurodollar
Equipment Advance", "Eurodollar Revolving Advance", "Fifth Amendment", "Fifth
Amendment Effective Date" and "Revolving Advance" are hereby inserted into
Section 1.1 of the Credit Agreement.
"Advance" shall mean and include each borrowing hereunder of a
Revolving Advance, including each Eurodollar Revolving Advance and each Base
Rate Revolving Advance, and each borrowing hereunder of an Equipment Advance,
including each Eurodollar Equipment Advance and each Base Rate Equipment
Advance.
"Applicable Margin" shall mean: (i) with respect to Eurodollar
Revolving Advances, two percentage points (2%); (ii) with respect to Base
Rate Revolving Advances, one-half of one percentage point (1/2%); (iii) with
respect to Eurodollar Equipment Advances, two and one-quarter percentage
points (2 1/4%); and (iv) with respect to Base Rate Equipment Advances,
three-quarters of one percentage point (3/4%).
"Base Rate Advance" shall mean any portion of a Revolving Advance
or an Equipment Advance which is not a Eurodollar Advance.
"Base Rate Equipment Advance" shall mean any portion of an
Equipment Advance which is not a Eurodollar Equipment Advance.
"Base Rate Revolving Advance" shall mean a portion of a Revolving
Advance which is not a Eurodollar Revolving Advance.
"Commitment" shall mean with respect to each Lender, such Lender's
Revolving Commitment and Equipment Commitment, as set forth on Schedule 1.1.
"EBITDA" for any period shall mean, consolidated pre-tax income
from operations of the Borrower and its Subsidiaries as determined in
accordance with GAAP for such period, PLUS Interest Expense for such period,
PLUS the amount of noncash charges including, without limitation, noncash
charges for deprecation and amortization, of the Borrower and its
Subsidiaries on a consolidated basis for such period, PLUS or MINUS any
extraordinary losses or gains, PLUS any prepayment premiums or write-down or
write-off of debt discount or deferred financing costs to the extent such
amounts are incurred as a result of the prepayments of any Indebtedness of
the Borrower with the proceeds of the Senior Notes, PLUS for fiscal periods
ending on the last day of August and November 1998 and February 1999 only,
Seven Million Nine Hundred Twenty-Nine Thousand Dollars ($7,929,000).
"Eligible Equipment" shall mean equipment to be purchased by
Borrower for use by Borrower in its promotional cup and packaging business.
"Equipment Advance" shall have the meaning set forth in Section
2.3.1 hereof.
2
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"Equipment Commitment" for each Lender shall mean the amount set
forth opposite such Lender's name on Schedule 1.1 hereof as such Lender's
Equipment Commitment.
"Equipment Loans" shall mean the Loans to be made by Lender to
Borrower pursuant to Section 2.3.1 hereof.
"Equipment Maturity Date" shall mean the earlier of (i) the
Maturity Date and (ii) November 30, 2002.
"Equipment Note" shall mean each Equipment Promissory Note to be
executed in favor of each Lender as provided in Section 2.3.1 of the
Agreement which shall be in the form of EXHIBIT 2.3.1 to the Agreement."
"Equipment Security Agreement" shall mean the Equipment Security
Agreement dated as of August __, 1998, by and between the Borrower and the
Agent, as the same may be amended and modified from time to time.
"Eurodollar Equipment Advance" shall mean any portion of an
Equipment Advance designated to bear interest based upon the Adjusted
Eurodollar Rate as provided in Section 2 hereof.
"Eurodollar Revolving Advance" shall mean any portion of any
Eurodollar Advance designated to bear interest based upon the Adjusted
Eurodollar Rate as provided in Section 2 hereof.
"Fifth Amendment" shall have the meaning set forth in the first
paragraph of the Fifth Amendment.
"Fifth Amendment Effective Date" shall have the meaning set forth
in Section 11 of the Fifth Amendment.
"Fixed Charges" shall mean, for any period, the sum of (i) Capital
Expenditures of the Borrower and its Subsidiaries on a consolidated basis during
such period, excluding (x) Capital Expenditures made in an aggregate amount not
to exceed $2,302,000 associated with the tooling Expenditures described on
Exhibit A to the First Amendment and (y) Capital Expenditures described on
Exhibit A to the Fourth Amendment in an aggregate amount not to exceed
$5,832,000 associated with the purchase of eight new printing presses, and
(z) Capital Expenditures financed with the proceeds of Revolving Advances or
Equipment ADVANCES, PLUS (ii) Interest Expense of the Borrower and its
Subsidiaries for such period, PLUS (iii) the aggregate amount of payments of
principal on Indebtedness for Borrowed Money (including, without limitation,
Capitalized Lease Obligations but excluding principal payments made in respect
to the Bemis Note), PLUS (iv) the aggregate amount of cash dividends paid by the
Borrower during such period.
"Loans" shall mean the Revolving Loan and the Equipment Loans.
3
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"Maturity Date" shall mean the earlier of (i) July 31, 2001 or, if the
term of this Agreement is extended pursuant to Section 3.6(b) hereof, the
last day of any applicable Renewal Term and (ii) the date on which Borrower
elects to terminate this Agreement pursuant to Section 12.8(b).
"PRO RATA" (as applied to allocations among the Lenders) shall
mean, with respect to each Lender, a percentage equal to the ratio that (i)
with respect to the Revolving Loan, the Revolving Commitment of such Lender
as set forth on Schedule 1.1 as it bears to the aggregate Revolving
Commitments of all Lenders, (ii) with respect to the Equipment Loan, the
Equipment Commitment of such Lender as set forth on Schedule 1.1 as it bears
to the Aggregate Equipment Commitments of all Lenders, and (iii) in all other
instances, the Commitment of such Lender as it bears to the Commitments of
all Lenders.
* * *
3. EQUIPMENT ACQUISITION LOANS. The following shall be
inserted into the Credit Agreement as Section 2.3.1:
"Section 2.3.1 EQUIPMENT ACQUISITION LOANS. During the period
between the Fifth Amendment Effective Date and the date which is the earlier
of (i) the Maturity Date and (ii) eighteen months after the Fifth Amendment
Effective Date, each Lender agrees, for so long as no Default or Event of
Default exists, to make such Lender's PRO RATA share of equipment acquisition
loans (each such loan an "Equipment Advance" and the outstanding principal
balance of all Equipment Advances from time to time, the "Equipment Loan") to
the Borrower to finance, in part, the purchase by the Borrower of Eligible
Equipment. The aggregate principal amount of the Equipment Commitments is
Ten Million Dollars ($10,000,000). Subject to all of the terms and
conditions of this Agreement, each Lender agrees, for so long as no Default
or Event of Default exists, to make Equipment Advances to the Borrower from
time to time, as requested by the Borrower in accordance with the terms of
Section 2.4 hereof, up to a maximum principal amount at any time outstanding
equal to the product of (A) Ten Million Dollars ($10,000,000), multiplied by
(B) such Lender's PRO RATA share of the Equipment Commitments. In no event
(x) shall any one request by the Borrower for Equipment Advances be in the
amount of less than One Million Dollars ($1,000,000) or, (y) shall the amount
of any one request by Borrower for Equipment Advances exceed sixty-seven
percent (67%), the hard cost (invoice price less taxes and delivery) of the
Eligible Equipment, the purchase of which is to be financed, in part, with
the proceeds of the applicable Equipment Advance. Prior to the funding of
any Equipment Advance, the Borrower shall provide the Agent with (i) copies
of the invoices or other comparable documentation for the Eligible Equipment,
the purchase of which is to be financed, in part, with the proceeds of such
proposed Equipment Advance together with such other supporting details as
reasonably requested by Agent, and (ii) properly executed UCC-1 Financing
Statements describing, in sufficient detail to meet the requirements of the
Uniform Commercial Code for perfection of purchase money security interests,
such Eligible Equipment. All such Equipment Advances shall be secured by all
of the Eligible Equipment, the purchase of which was financed, in part, by
the proceeds of Equipment Advances. The principal amount of all Equipment
Advances shall be due on the Maturity Date or as otherwise provided in the
Equipment Note or as otherwise provided herein, provided that Borrower may
prepay, without penalty or
4
<PAGE>
premium, the outstanding principal balance of any Equipment Advance. The
Equipment Advances shall be evidenced by promissory notes to be executed and
delivered by the Borrower to the Lenders on or prior to the Fifth Amendment
Effective Date, the form of which is attached hereto and made a part hereof
as Exhibit 2.3.1 (the "Equipment Note(s)"), shall bear interest as specified
in Section 2.6 and shall be repayable in accordance with the terms hereof
and of the Equipment Notes. On the date which is eighteen months after the
Fifth Amendment Effective Date, the outstanding Equipment Advances shall be
converted into term loans. The principal amount of such Equipment Advances
so converted to a term obligation shall be amortized on the basis of sixty
(60) equal monthly payments, commencing on the first day of the calendar
month after the calendar month in which the conversion occurs. The foregoing
notwithstanding, the entire principal balance of all Equipment Advances shall
be due and payable on the Equipment Maturity Date."
4. NOTICE OF BORROWING; BORROWER'S CERTIFICATE. Section 2.4
of the Credit Agreement is hereby deleted and the following is inserted in
its stead:
"Section 2.4 NOTICE OF BORROWING; BORROWER'S CERTIFICATE. (a)
Whenever the Borrower desires to make a borrowing of a Revolving Advance or
an Equipment Advance the Borrower shall give the Agent, at its address
referred to in Section 12.4 hereof, not later than 11:00 a.m. (Chicago time),
at least three Business Days' (or, in the case of an Advance which shall be a
Base Rate Advance, same Business Day) prior Written Notice or telephonic
notice from an Authorized Representative confirmed promptly in writing (which
notice shall be irrevocable) of its desire to make a borrowing of an Advance.
Each notice of borrowing under this Section 2.4 shall be substantially in
the form of Exhibit 2.4 to the Fifth Amendment (each a "BORROWER'S
CERTIFICATE") and specify, INTER ALIA, the date on which the Borrower desires
to make a borrowing of an Advance (which in each instance shall be a Business
Day), the amount of such borrowing, whether such borrowing shall be a Base
Rate Equipment Advance, Base Rate Revolving Advance, Eurodollar Revolving
Advance or a Eurodollar Equipment Advance or any combination thereof, and, in
the case of the selection of a Eurodollar Advance, the proposed Interest
Period therefor, and, in respect to Revolving Advances, shall refer to the
most recent Borrowing Base Certificate delivered by the Borrower pursuant to
Section 8.1(h) hereof and set forth the Borrowing Base provided therein.
Further, if a Borrower's Certificate shall request the Lenders to make an
Equipment Advance, the Borrower's Certificate shall include copies of the
invoices or other comparable documentation and supporting details reasonably
requested by Agent as required by Section 2.3.1 hereof to evidence that the
conditions for an Equipment Advance have been met and shall further include a
certified copy of Borrower's casualty insurance policy, together with loss
payable endorsements on a standard form loss payee endorsement naming Agent
as loss payee and co-insured in respect to the Eligible Equipment, the
purchase of which is to be financed, in part, with the proceeds of the
requested Equipment Advance. If such notice shall be with respect to a
borrowing of a Eurodollar Advance but fails to state an applicable Interest
Period therefor, then such notice shall be deemed to be a request for a
one-month Interest Period. If the Borrower shall fail to state in any such
notice whether such Advance shall be a Base Rate Advance or a Eurodollar
Advance, then the Borrower shall be deemed to have selected a Base Rate
Advance. Subject to the other provisions of this Agreement, Base Rate
Advances and Eurodollar Advances of more than one type may be outstanding at
the same time; PROVIDED, HOWEVER, that (i) Eurodollar Advances shall be in an
amount equal to $1,000,000 or any integral
5
<PAGE>
multiple of $200,000 in excess of $1,000,000, and (ii) Eurodollar Advances
shall be available for election by the Borrower only for one, two or three
month Interest Periods PROVIDED, that no more than six (6) Eurodollar
Advances in the aggregate may be outstanding at any one time. The Agent
shall give each Lender telephonic notice (confirmed promptly in writing) on
the same day as Agent receives any such Borrower's Certificate of the
proposed borrowing of an Advance, of such Lender's PRO RATA share thereof,
and of the other matters covered by the Borrower's Certificate.
(b) The Borrower shall not be permitted to select a borrowing of
a Eurodollar Advance in any Borrower's Certificate (x) to the extent such
selection would be prohibited by Section 2.10 or 2.11 hereof, or (y) if a
Default or an Event of Default shall be in existence as of the date of
selection of the applicable Interest Period.
(c) Each Lender shall make available to the Agent such Lender's
PRO RATA portion of the Advance (subject to the conditions of this Agreement
as to the making of such Advance by such Lender), to be made on the date
specified in the Borrower's Certificate, no later than 2:00 (Chicago time) on
such specified date, in U.S. dollars in immediately available funds, at the
office of the Agent located at 135 South LaSalle Street, Chicago, Illinois
60603 or such other office as the Agent may from time to time direct (the
"PAYMENT OFFICE") for the account of such office of the Agent. The portion
of each Advance to be funded by each Lender shall be an amount equal to (x)
the dollar amount of the Advance requested under the applicable Borrower's
Certificate, multiplied by (y) the percentage set forth opposite such
Lender's name on Schedule 1.1 hereto with respect to such Lender's Revolving
Commitment (in the case of Revolving Advances) or such Lender's Equipment
Commitment (in the case of Equipment Advances).
(d) Except for Revolving Advances made pursuant to Section
4A.1(c) hereof (which Revolving Advances shall be applied to the
reimbursement of drawings under the Letter of Credit for which such Revolving
Advance was made in accordance with such Section 4A.1(c) hereof), subject to
satisfaction of all applicable conditions precedent, proceeds of each Advance
received by the Agent shall be made available to the Borrower by the Agent at
its Payment Office (or such other office of the Agent in Illinois as the
Borrower may from time to time specify in writing to the Agent)."
5. INTEREST. Section 2.6 of the Credit Agreement is hereby
deleted and the following is inserted in its stead:
"Section 2.6 INTEREST. (a) Interest on Eurodollar Advances. Except
as provided in Section 2.6(c) hereof, the Borrower shall pay interest on the
unpaid principal amount of each Eurodollar Revolving Advance and each Eurodollar
Equipment Advance made to it outstanding from time to time, (i) on each Interest
Payment Date with respect to such Eurodollar Advance, (ii) at the date of
conversion of such Eurodollar Advance (or portion thereof) to a Base Rate
Advance, (iii) at maturity of each such Eurodollar Advance and (iv) after
maturity of such Eurodollar Advance (whether by acceleration or otherwise) upon
demand, in each case at an interest rate per annum equal to the Adjusted
Eurodollar Rate for the Interest Period in effect for such Eurodollar Revolving
Advance or Eurodollar Equipment Advance plus the Applicable Margin.
6
<PAGE>
(b) INTEREST ON BASE RATE ADVANCES. Except as provided in
Section 2.6(c) hereof, the Borrower shall pay interest on the unpaid
principal amount of the Base Rate Revolving Advances and the Base Rate
Equipment Advances made to it hereunder, and, to the extent due and payable,
Additional Indebtedness incurred by it, in each case, outstanding from time
to time at an interest rate per annum equal to the Base Rate in effect from
time to time. Interest on Base Rate Advances shall be payable monthly in
arrears on the last day of each month of each calendar year commencing with
May 31, 1996, and at maturity (whether by acceleration or otherwise) and
thereafter on demand. Interest on Additional Indebtedness shall be payable
upon demand.
(c) Default Interest. Notwithstanding anything to the contrary
contained herein, while any Event of Default is continuing, interest on the
Base Rate Advances, Eurodollar Advances, and Additional Indebtedness shall be
payable on demand at a rate per annum equal to two percentage points (2%) in
excess of the rate then otherwise applicable hereunder thereto.
(d) Eurodollar Rate Determination. The Agent, upon determining
the Eurodollar Rate and the Adjusted Eurodollar Rate for any Interest Period,
shall promptly notify by telephone (confirmed promptly in writing) or in
writing the Borrower and the Lenders of such rates. Such determination
shall, in the absence of manifest error, be conclusive and binding upon the
Borrower and the Lenders.
(e) Changes in Base Rate. After each change in the Base Rate,
the Agent shall promptly notify the Borrower and each Lender by telephone
(confirmed promptly in writing) or in writing of the date of such change and
the new Base Rate; PROVIDED, HOWEVER, that the failure of the Agent to so
notify the Borrower or any Lender shall not affect the effectiveness of such
change."
6. MANDATORY PAYMENTS. Section 3.1 of the Credit Agreement is
hereby deleted and the following is inserted in its stead:
"Section 3.1 MANDATORY PAYMENTS. (a) Asset Sales (Other than
Eligible Equipment). Until such time as there shall be outstanding no
Revolving Loan and no Commitments, the Borrower shall pay and there shall
become due and payable, concurrently with the receipt by any Credit Party of
Net Proceeds with respect to any Asset Sale (other than Asset Sales of
Eligible Equipment, the purchase of which was financed, in part, with the
proceeds of Equipment Advances), a payment in respect to the Lender Debt
(other the Equipment Loan) equal to one hundred percent (100%) of the book
value of any Collateral included within such Asset Sale. Said payment shall
be applied FIRST, to the outstanding interest and principal due in respect of
the Revolving Loan until the Revolving Loan has been paid in full and SECOND,
to provide Letter of Credit Cash Collateral until there shall have been
provided Letter of Credit Cash Collateral equal to the undrawn amount of all
Letters of Credit.
(b) Asset Sales (Eligible Equipment). Until such time as the outstanding
principal balance of the Equipment Loan has been paid in full, the Borrower
shall pay and there shall become due and payable, concurrently with the receipt
by any Credit Party of proceeds with respect to any Asset Sale of Eligible
Equipment, the purchase of which was financed, in part, with the proceeds of an
Equipment Advance, a payment in respect to the outstanding Equipment Loan equal
to one
7
<PAGE>
hundred percent (100%) of the Net Proceeds of any such Asset Sale. Said
payment shall be applied to regularly scheduled installments of principal due
under the Equipment Term Notes PRO RATA in consecutive order of maturity.
(c) Extraordinary Receipts (Including Insurance Proceeds) (Other than
Eligible Equipment). Until such time as there shall be outstanding no
Revolving Loan and no Commitments, the Borrower shall pay and there shall
become due and payable, concurrently with the receipt by any Credit Party of
Net Proceeds with respect to any Extraordinary Receipt from the sale,
destruction, damage or condemnation of any Collateral (other than Eligible
Equipment, the purchase of which was financed, in part, with the proceeds of
Equipment Advances), a payment in respect to Lender Debt (other than the
Equipment Loan) equal to one hundred percent (100%) of the book value of any
such Collateral so sold, damaged, or destroyed or condemned. Said payment
shall be applied FIRST, to the outstanding interest and principal due in
respect of the Revolving Loan until the Revolving Loan has been paid in full
and SECOND, to provide Letter of Credit Cash Collateral until there shall
have been provided Letter of Credit Collateral equal to the undrawn amount of
all Letters of Credit.
(d) Extraordinary Receipts (Including Insurance Proceeds) (Eligible
Equipment). Until such time as the outstanding principal balance of the
Equipment Loan has been paid in full, the Borrower shall pay and there shall
become due and payable, concurrently with the receipt by any Credit Party of
proceeds with respect to any Extraordinary Receipt from the sale, destruction,
damage or condemnation of any Eligible Equipment, the purchase of which was
financed, in part, with the proceeds of an Equipment Advance, a payment in
respect to the outstanding Equipment Loan equal to one hundred percent (100%)
of the amount of any such Extraordinary Receipts. Said payment shall be applied
to regularly scheduled installments of principal due under the Equipment Notes
PRO RATA in consecutive order of maturity; PROVIDED, HOWEVER, that so long as no
Event of Default has occurred and is continuing, the Borrower may retain any
Extraordinary Receipts not in excess of $500,000 to restore, repair or replace
such damaged Eligible Equipment if Lender has a first, valid, perfected Lien on
such restored, repaired or replaced Eligible Equipment and if there are no other
Liens on such Eligible Equipment other than Permitted Liens.
(e) Revolving Advances in Excess of the Borrowing Limit. If at any time
the sum of the then aggregate outstanding principal amount of the Revolving Loan
PLUS the Letter of Credit Usage at such time shall exceed the Borrowing Limit at
such time, the Borrower shall immediately eliminate such excess by paying an
amount equal to such excess until the sooner to occur of (x) the elimination in
full of such excess, and (y) the Revolving Loan is paid in full and, to the
extent then necessary to eliminate any remaining excess after payment in full,
by providing Letter of Credit Cash Collateral in an amount equal to the
remaining excess for any outstanding Letters of Credit, until there shall have
been provided Letter of Credit Cash Collateral equal to the undrawn amount of
all Letters of Credit.
(f) Payments to Include Interest. All prepayments under Sections 3.1 and
3.2 hereof shall be made together with accrued interest to the date of such
prepayment on the principal amount
8
<PAGE>
prepaid, provided, that, all such payments shall be subject to payment of any
applicable indemnity obligations pursuant to Section 2.12 hereto."
* * *
7. UNUSED EQUIPMENT ACQUISITION LOAN FACILITY FEE. The
following are inserted into the Credit Agreement as Sections 3.8 and 3.9:
"Section 3.8 UNUSED FACILITY FEE. The Borrower shall pay to the Agent
for the PRO RATA account of the Lenders a commitment fee, which shall accrue
from and after the Closing Date until the date of the expiration, termination
or cancellation of the Borrower's ability to request Equipment Advances
payable quarterly in arrears on each March 31, June 30, September 30 and
December 31, commencing September 30, 1998 (and on the date which is the
earlier of eighteen months from the Fifth Amendment Effective Date or earlier
expiration, termination or cancellation of Borrower's ability to request
Equipment Advances), of one-half of one percent (0.5%) per annum on the
average amount, calculated on a daily basis based on a 360-day year, by which
Ten Million Dollars ($10,000,000) exceeds the aggregate amount of Equipment
Advances made by Lenders pursuant to the terms hereof.
Section 3.9 EQUIPMENT LOAN CLOSING FEE AND AMENDMENT FEE. In order
to induce the Lenders to enter into the Fifth Amendment, the Borrower shall,
on the Fifth Amendment Effective Date, pay to the Agent for the PRO RATA
amount of the Lenders an equipment loan origination fee in the amount of
Fifty Thousand Dollars ($50,000) and an additional amendment fee in the
amount of Fifty Thousand Dollars ($50,000)."
* * *
8. FINANCIAL COVENANTS. Section 8.16 of the Credit Agreement is
deleted and the following is inserted in its stead:
"Section 8.16 FINANCIAL COVENANTS. The Borrower covenants and agrees
that:
(a) Fixed Charge Coverage Ratio: The Fixed Charge Coverage Ratio, as of
the end of (i) the one fiscal quarter then ended in respect to the fiscal
quarter ending on August 31, 1996, (ii) the two consecutive fiscal quarters then
ended in respect to the fiscal quarter ending on November 30, 1996, (iii) the
three consecutive fiscal quarters then ended in respect to the fiscal quarter
ending on February 28, 1997, and (iv) the four consecutive fiscal quarters then
ended in respect to the fiscal quarter ending on May 31, 1997 and the last day
of each August, November, February and May thereafter, shall not be less than
the ratio set forth opposite such date:
9
<PAGE>
<TABLE>
<CAPTION>
Four fiscal quarters
ending on the last day of Ratio
------------------------- -----
<S> <C>
August and November, 1998 1.00 to 1
February, 1999 1.05 to 1
May, August and November, 1999 and 1.10 to 1
February, 2000
May, August and November, 2000 and 1.20 to 1
February, 2001 and each fiscal
quarter thereafter
</TABLE>
(b) FUNDED DEBT TO EBITDA RATIO: The ratio of Funded Debt as of the
last day of each of the fiscal quarters listed below to EBITDA for the four
consecutive fiscal quarters then ended shall not be more than the amount set
forth below opposite such period:
<TABLE>
<CAPTION>
Fiscal quarter
ending on the last day of Ratio
------------------------- -----
<S> <C>
August and November, 1998 5.00 to 1
February, May, August and 4.75 to 1
November, 1999
February, May, August and 4.50 to 1
November, 2000
February, 2001 and each fiscal 4.25 to 1
quarter thereafter
</TABLE>
(c) ADJUSTED WORKING CAPITAL: As of the last day of each fiscal quarter
listed below, Adjusted Working Capital shall equal or exceed the amount set
forth opposite such fiscal period in the following schedule:
<TABLE>
<CAPTION>
Fiscal quarter
ending on the last day of Amount
------------------------- ------
<S> <C>
August and November, 1998 $ 7,500,000
February, May, August and $10,000,000
November, 1999
February, May, August and $10,000,000
November, 2000
February, 2001 and each fiscal $15,000,000"
quarter thereafter
</TABLE>
9. APPLICATION OF PROCEEDS. Section 10.5 of the Credit
Agreement is hereby deleted and the following is inserted in its stead:
10
<PAGE>
"Section 10.5. APPLICATION OF PROCEEDS. (a) After the occurrence of
an Event of Default and acceleration of the Lender Debt, the proceeds of the
Collateral (other than Eligible Equipment, the purchase of which was financed,
in part, with the proceeds of Equipment Advances) and of property of Persons
other than the Credit Parties securing the Lender Debt and collections from each
Guaranty shall be applied by the Agent to payment of the Lender Debt (other than
that portion of the Lender Debt due in connection with the Equipment Loan and
the Equipment Security Agreement) in the following order, unless the Lenders
otherwise agree in writing or a court of competent jurisdiction shall otherwise
direct:
(i) FIRST, to payment of all costs and expenses of the Agent and
the Lenders incurred in connection with the preservation, collection and
enforcement of the Lender Debt (other than that portion of the Lender Debt
due in connection with the Equipment Loan and the Equipment Security
Agreement) or any Guaranties, or of any of the Liens granted to the Agent
pursuant to the Security Documents (other than the Equipment Security
Agreement) or otherwise, including, without limitation, any amounts
advanced by the Agent or the Lenders to protect or preserve such
Collateral;
(ii) SECOND, ratably, to (A) each Lender (or affiliate of Lender)
to reimburse such Lender (or Affiliate of Lender) for amounts due under any
Hedge Agreements to the extent such Hedge Agreements constitute Lender Debt
and (B) to payment of that portion of the Lender Debt constituting accrued
and unpaid interest and fees in respect to the Revolving Loan and
indemnities payable under Section 2 hereof, ratably amongst the Agent and
the Lenders in accordance with the proportion which (1) the accrued
interest and fees in respect to the Revolving Loan and indemnities payable
under Section 2 hereof constituting the Lender Debt owing to the Agent or
any Lender, as the case may be, at such time bears to (2) the aggregate
amount of accrued interest and fees in respect to the Revolving Loan and
indemnities payable under Section 2 hereof constituting the Lender Debt
owing to the Agent and all of the Lenders at such time, until such
interest, fees and indemnities shall be paid in full;
(iii) THIRD, to each Issuing Lender to reimburse the Issuing Lender
for that portion of any payments made by it with respect to Letters of
Credit for which a Lender, as a participant in such Letter of Credit,
failed to pay its PRO RATA share thereof as required pursuant to Section
12.16 hereof;
(iv) FOURTH, to payment of the principal of the Lender Debt
(excluding the aggregate undrawn amount of any then outstanding Letters of
Credit and that portion of the Lender Debt due in connection with the
Equipment Loan and the Equipment Security Agreement), ratably amongst the
Lenders in accordance with the proportion which the principal amount of the
Lender Debt owing to each such Lender bears to the aggregate principal
amount of the Lender Debt (excluding the aggregate undrawn amount of any
then outstanding Letters of Credit and that portion of the Lender Debt due
in connection with the Equipment Loan and the Equipment Security Agreement)
owing to all of the Lenders until such principal of such portion of the
Lender Debt shall be paid in full;
11
<PAGE>
(v) FIFTH, to the extent that the Letter of Credit Cash
Collateral, if any, held by the Agent as security for the Letters of Credit
is less than the undrawn amount of the Letters of Credit outstanding at the
time of distribution hereunder, to the Agent to be held by the Agent as
additional collateral therefor;
(vi) SIXTH, to the payment of all other Lender Debt (other than
that portion of the Lender Debt due in connection with the Equipment Loan
and the Equipment Security Agreement), ratably amongst the Lenders in
accordance with the proportion which the amount of such other Lender Debt
(other than that portion of the Lender Debt due in connection with the
Equipment Loan and the Equipment Security Agreement) owing to each such
Lender bears to the aggregate principal amount of such other Lender Debt
(other than that portion of the Lender Debt due in connection with the
Equipment Loan and the Equipment Security Agreement) owing to all of the
Lenders until such other Lender Debt (other than that portion of the Lender
Debt due in connection with the Equipment Loan and the Equipment Security
Agreement) shall be paid in full; and
(vii) SEVENTH, the balance, if any, after all of the Lender Debt
(other than that portion of the Lender Debt due in connection with the
Equipment Loan and the Equipment Security Agreement) has been satisfied,
shall, except as otherwise provided in the Security Documents, be deposited
by the Agent in an operating account of the Borrower with the Agent
designated by the Borrower, or paid over to such other Person or Persons as
may be required by law.
The Credit Parties acknowledge and agree that they shall remain liable
to the extent of any deficiency between the amount of the proceeds of the
Collateral and collections under the Guaranties (to the fullest extent
recourse to such Credit Parties under such Guaranties) and the aggregate
amount of the sums referred to in subparagraphs (a) and (b) above.
(b) After the occurrence of an Event of Default and acceleration
of the Lender Debt, the proceeds of the Collateral consisting of Eligible
Equipment, the purchase of which was financed, in part, with the proceeds of
Equipment Advances and of property of Persons other than the Credit Parties
securing the Lender Debt and collections from each Guaranty shall be applied
by the Agent to payment of that portion of the Lender Debt due in connection
with the Equipment Loan and the Equipment Security Agreement in the following
order, unless the Lenders otherwise agree in writing or a court of competent
jurisdiction shall otherwise direct:
(i) FIRST, to payment of all costs and expenses of the
Agent and the Lenders incurred in connection with the preservation,
collection and enforcement of that portion of the Lender Debt due in
connection with the Equipment Loan and the Equipment Security Agreement or
any Guaranties, or of any of the Liens granted to the Agent pursuant to the
Equipment Security Agreement or otherwise, including, without limitation,
any amounts advanced by the Agent or the Lenders to protect or preserve
such Collateral consisting of Eligible Equipment, the purchase of which was
financed, in part, with the proceeds of Equipment Advances;
12
<PAGE>
(ii) SECOND, ratably, to the payment of that portion of the
Lender Debt consisting of accrued and unpaid interest and fees and
indemnities, payable under Section 2 hereof in respect to the Equipment
Loan, ratably amongst the Agent and the Lenders in accordance with the
proportion which (1) the accrued interest and fees and indemnities payable
under Section 2 hereof constituting the Lender Debt in respect to the
Equipment Loan owing to the Agent or any Lender, as the case may be, at
such time bears to (2) the aggregate amount of accrued interest and fees
and indemnities payable under Section 2 hereof constituting the Lender Debt
in respect to the Equipment Loan owing to the Agent and all of the Lenders
at such time, until such interest, fees and indemnities shall be paid in
full;
(iii) THIRD, to payment of the principal of the Equipment
Loan, ratably amongst the Lenders in accordance with the proportion which
the principal amount of the Equipment Loan owing to each such Lender bears
to the aggregate principal amount of the Equipment Loan owing to all of the
Lenders until such principal of the Equipment Loan shall be paid in full;
(iv) FOURTH, to the payment of all other Lender Debt owing
under the Equipment Loan or the Equipment Security Agreement, ratably
amongst the Lenders in accordance with the proportion which the amount of
such other Lender Debt owing under the Equipment Loan or the Equipment
Security Agreement to each such Lender bears to the aggregate principal
amount of such other Lender Debt owing under the Equipment Loan or the
Equipment Security Agreement to all of the Lenders until such other Lender
Debt owing under the Equipment Loan or the Equipment Security Agreement
shall be paid in full; and
(v) FIFTH, the balance, if any, after all of the Lender
Debt owing under the Equipment Loan or the Equipment Security Agreement has
been satisfied, shall, except as otherwise provided in the Equipment
Security Agreement, be deposited by the Agent in an operating account of
the Borrower with the Agent designated by the Borrower, or paid over to
such other Person or Persons as may be required by law.
The Credit Parties acknowledge and agree that they shall remain liable to
the extent of any deficiency between the amount of the proceeds of the Eligible
Equipment, the purchase of which was financed, in part, with the proceeds of
Equipment Advances, and collections under the Guaranties (to the fullest extent
recourse to such Credit Parties under such Guaranties) and the aggregate amount
of the sums referred to in subparagraphs (a) and (b) above."
* * *
10. SECURITY AGREEMENT. Section 1 of the Security Agreement is
hereby deleted and the following is inserted in its stead:
"1. GRANT OF SECURITY. As collateral security for the prompt and complete
payment, performance and observance by the Credit Parties of all present and
future Lender Debt (other than
13
<PAGE>
any amount due in respect to Equipment Loans), whether at stated maturity, by
acceleration or otherwise (including, without limitation, all interest
thereon, whether accruing prior or subsequent to the commencement of a
bankruptcy or similar proceeding involving any of the Credit Parties as a
debtor), and all present and future obligations of Grantor under this
Security Agreement and the other Loan Documents (other than the Equipment
Security Agreement), whether at stated maturity, by acceleration or otherwise
(all of the foregoing being herein referred to as the "OBLIGATIONS"), Grantor
hereby grants to the Agent for its benefit and the ratable benefit of the
Lenders, a continuing security interest in and a right of set-off against,
and Grantor hereby assigns to the Agent for its benefit and the ratable
benefit of the Lenders, the collateral described in paragraph 2 below (the
"COLLATERAL"); PROVIDED, HOWEVER, anything herein or in any other Loan
Document to the contrary notwithstanding, the maximum liability of Grantor
secured by the Collateral hereunder and under the other Loan Documents shall
in no event exceed an amount equal to the largest amount that would not
render Grantor's obligations hereunder subject to avoidance under Section 548
of the United States Bankruptcy Code or any equivalent provision of the law
of any state."
* * *
11. CONDITIONS PRECEDENT. This Fifth Amendment shall become
effective upon receipt by Lender of each of the following documents, each in
form and substance acceptable to Lender:
(A) UCC-1 Financing Statements properly executed by the Borrower to the
extent necessary to perfect the Liens of Agent, for its benefit and the ratable
benefit of the Lenders, in the Eligible Equipment, the purchase of which is to
be financed, in part, with the proceeds of Equipment Advances, and evidence in a
form reasonably acceptable to Agent that such Liens constitute valid and
perfected security interests and Liens, having the Lien priority specified
herein;
(B) Good standing certificate for Borrower, issued by the Secretary of
State or other appropriate official of Borrower's jurisdiction of organization;
(C) The Equipment Security Agreement;
(D) The Equipment Notes;
(E) A Certificate of the Secretary of the Borrower, together with true and
correct copies of Bylaws of the Borrower, and all amendments thereto, true and
correct copies of the resolutions of the members of the Board of Directors of
the Borrower authorizing or ratifying the execution, delivery and performance of
this Fifth Amendment, the Equipment Acquisition Notes, the Equipment Security
Agreement and the other agreements to be executed by the Borrower in connection
thereafter and the names of the officer or officers of the Borrower authorized
to sign the Fifth Amendment, the Equipment Acquisition Notes, the Equipment
Security Agreement and such other agreements together with a sample of the true
signature of each such officer;
14
<PAGE>
(F) The favorable, written opinions of Winston & Strawn, counsel to the
Borrower, as to the transactions contemplated by this Agreement and any of
the other Loan Documents; and
(G) Such other documents, instruments and agreements as Agent shall
reasonably request in connection with the foregoing matters.
The date on which all of the foregoing conditions precedent to the
effectiveness of this Fifth Amendment have been satisfied or waived by Agent
is hereafter referred to as the "Fifth Amendment Effective Date."
* * *
12. SCHEDULE 1.1. Schedule 1.1 attached to the Credit Agreement
is hereby deleted and Schedule 1.1 attached to this Fifth Amendment is hereby
inserted in its stead.
13. CONTINUING EFFECT. Except as otherwise specifically set out
herein, the provisions of the Loan Agreement shall remain in full force and
effect.
14. COUNTERPARTS. This Fifth Amendment may be executed in any
number of separate counterparts, each of which shall, collectively and
separately, constitute one agreement.
IN WITNESS WHEREOF, this Fifth Amendment has been duly executed as
of the date first written above.
PACKAGING RESOURCES INCORPORATED, LASALLE NATIONAL BANK,
as Borrower as Agent and Lender
By: /s/ Jerry J. Corirossi By: /s/ Angie L. Maersch
------------------------------ -------------------------------------
Name: Jerry J. Corirossi Name: Angie L. Maersch
Title: Vice President Title: Commercial Banking Officer
15
<PAGE>
EXHIBIT 2.3.1
FORM OF EQUIPMENT ACQUISITION NOTE
$10,000,000 Chicago, Illinois
August __, 1998
FOR VALUE RECEIVED, PACKAGING RESOURCES INCORPORATED, a Delaware
corporation (the "Debtor"), hereby promises to pay to the order of
_______________________, (the "Payee"), at the offices of
____________________________________________, or at such other place as the
Payee or any holder hereof may from time to time designate, on the "Maturity
Date" (as defined in the Credit Agreement referred to below) (or earlier as
hereinafter referred to), the principal sum of Ten Million Dollars
($10,000,000), or such lesser amount as shall then constitute the Payee's PRO
RATA share of the Equipment Loan (as defined in the Credit Agreement referred
to below), in lawful money of the United States, and to pay interest in like
money at such office or place and at such rates and times on the unpaid
principal balance hereof as provided in the Credit Agreement, dated as of May
17, 1996 (as amended, modified or supplemented from time to time in
accordance with its terms, the "Credit Agreement"), among the Debtor, the
lender parties thereto (collectively, the "Lenders") and LaSalle National
Bank, as agent (in such capacity, the "Agent") for the Lenders. Capitalized
terms used herein without definition shall have the meanings contained in the
Credit Agreement.
This Equipment Note is issued pursuant to the Credit Agreement, and is
entitled to the benefits thereof, including all Collateral provided for
therein or in connection therewith. Reference is made to the Credit
Agreement for rights as to mandatory and optional prepayments and payments,
and for rights as to the acceleration of the unpaid principal balance hereof
before its stated maturity upon the happening of certain events and/or the
passage of time and/or the giving of notice. The Debtor shall make when due
any and all payments and prepayments on the Equipment Loan required under the
Credit Agreement.
For so long as no Event of Default shall have occurred the principal
amount of this Equipment Acquisition Note shall be due and payable monthly
commencing on February 1, 2000, and continuing on the first day of each month
thereafter to and including the first day of January, 2005, in installments
equal to one-sixtieth (1/60th) of the aggregate amount of all Equipment
Advances made by the Payee to the Debtor pursuant to the Credit Agreement.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon the
Equipment Maturity Date.
The Debtor waives diligence, demand, presentment, protest and notice of
any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice.
<PAGE>
In the event the Payee, the Agent or any holder hereof shall refer this
Equipment Note to any attorney for collection, the Debtor agrees to pay, in
addition to unpaid principal and interest, all the reasonable and documented
out of pocket costs and expenses incurred in attempting or effecting
collection hereunder, including reasonable attorneys' fees, whether or not
suit is instituted.
Each portion of the amount of each Equipment Advance which the Payee has
made to the Debtor and the amount of each payment or prepayment made on
account of principal thereof shall be recorded by the Payee and endorsed on
the grid schedule attached hereto, which is made a part of this Equipment
Note (or so noted in its records); PROVIDED, HOWEVER, that the failure of the
Payee to make any such endorsement or recordation shall not in any manner
affect the obligation of the Debtor to repay the Payee's PRO RATA share of
the Equipment Loan in accordance with the terms hereof. Any such endorsement
or recordation shall represent conclusive evidence of the date and amount of
the Payee's PRO RATA share of the Equipment Loan or any payment or prepayment
of principal thereon, absent manifest error.
This Equipment Note may not be changed, modified or terminated orally,
but only by an agreement in writing signed by the Debtor or any successor or
assign of the Debtor and the Payee or any holder hereof.
IN THE EVENT OF ANY LITIGATION WITH RESPECT TO THIS EQUIPMENT NOTE, THE
DEBTOR WAIVES (TO THE EXTENT PERMITTED BY LAW) THE RIGHT TO A TRIAL BY JURY,
ALL RIGHTS OF SETOFF AND RIGHTS TO INTERPOSE COUNTERCLAIMS AND CROSS-CLAIMS
(UNLESS SUCH SETOFF, COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY
APPLICABLE FEDERAL OR STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR
ALLEGED IN ANY OTHER ACTION) AND THE DEFENSES OF FORUM NON CONVENIENS AND
IMPROPER VENUE. The Debtor hereby irrevocably consents to the non-exclusive
jurisdiction of the courts of the State of Illinois and of any Federal court
located in the City of Chicago, Illinois in connection with any action or
proceeding arising out of or relating to this Equipment Note. This Equipment
Note shall be governed by and construed in accordance with the internal laws
of the State of Illinois, and shall be binding upon the successors and
assigns of the Debtor and inure to the benefit of the Payee, its successors,
endorsees and assigns. If any term or provision of this Revolving Note shall
be held invalid, illegal or unenforceable, the validity of all other terms
and provisions herein shall in no way be affected thereby.
PACKAGING RESOURCES INCORPORATED
By: _____________________________
Name: Jerry J. Corirossi
Title: Vice President
2
<PAGE>
GRID SCHEDULE
Attached to and made a part of the Equipment Note, dated ___________, ____,
by Packaging Resources Incorporated, a Delaware corporation (the "Debtor") to
the order of __________________________, (the "Payee") pursuant to the Credit
Agreement, dated as of May 17, 1996, among the Debtor, the lender parties
thereto and LaSalle National Bank, as Agent.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Payee's Pro Rata Unpaid Principal
Share of Equipment Amount of Principal Balance of Name of Person
Date Advance Paid or Prepaid Equipment Note Making Notation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
EXHIBIT 2.4
BORROWER'S CERTIFICATE
_____________, 199__
LaSalle National Bank
120 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
The undersigned refers to the Credit Agreement, dated as of May 17, 1996
(as the same may be amended, restated, supplemented or otherwise modified
from time to time in accordance with its terms, the "CREDIT AGREEMENT") among
Packaging Resources Incorporated, a Delaware corporation (the "BORROWER"),
the lender signatories thereto (collectively, the "LENDERS") and LaSalle
National Bank, as agent for the Lenders (in such capacity "Agent").
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Credit Agreement. The Borrower hereby gives
the Agent notice, irrevocably, pursuant to Section 2.4 or Section 4A.1 of the
Credit Agreement, as the case may be, that the undersigned hereby requests
(i) a borrowing of a Revolving Advance (a "PROPOSED REVOLVING BORROWING") as
required by Section 2.4 of the Credit Agreement, (ii) the issuance of a
Letter of Credit (a "PROPOSED L/C") as required by Section 4A.1 of the Credit
Agreement, or (iii) a borrowing of an Equipment Advance (a "Proposed
Equipment Borrowing") as required by Section 2.4 of the Credit Agreement:
(A) Proposed Revolving Borrowing/Proposed L/C/Proposed Equipment
Borrowing:
(i) The Business Day of such Proposed Revolving
Borrowing/Proposed Equipment Borrowing shall be ____________, 199__;
(ii) The principal amount of such Proposed Revolving
Borrowing/Proposed Equipment Borrowing shall be $__________;
(iii) The Proposed Revolving Borrowing/Proposed Equipment
Borrowing shall be $__________ as a Base Rate Advance and $__________
as a Eurodollar Advance;
(iv) In the case of a Eurodollar Advance, the proposed
Interest Period is __________; and
(v) In the case of request to issue a Proposed L/C, the
amount, maturity date, beneficiary, drawing conditions and all other
material terms and conditions of
<PAGE>
LaSalle National Bank
____________, 199__
Page 2
the Proposed L/C are set forth on Schedule A attached hereto and
incorporated herein.
(B) The undersigned hereby certifies that, as of the date hereof:
(i) The conditions contained in Section 6 of the Credit
Agreement (and in respect to Equipment Advances, Sections 2.4 and 2.6
of the Credit Agreement) and all representations and warranties made
by each of the Credit Parties contained herein or otherwise made in
any Loan Document, officer's certificate or any agreement, instrument,
certificate, document or other writing delivered to the Agent or any
Lender in connection therewith or with the Credit Agreement, shall be
true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of
the date of the Proposed Borrowing (unless any such representation or
warranty speaks as of a particular date, in which case it shall be
deemed repeated as of such date); and
(ii) No Default or Event of Default has occurred or is
continuing as of the date hereof and as of the date of the Proposed
Borrowing, or would result from the Proposed Borrowing requested
hereby or from the applications of the proceeds therefrom.
Very truly yours,
PACKAGING RESOURCES
INCORPORATED
By: _________________________
Name: ___________________
Title: __________________
<PAGE>
SCHEDULE 1.1
<TABLE>
<CAPTION>
REVOLVING MAXIMUM MAXIMUM
COMMITMENT REVOLVING EQUIPMENT
LENDER PERCENTAGE COMMITMENT COMMITMENT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
La Salle National Bank 100% $20,000,000 $10,000,000
</TABLE>
<PAGE>
INITIAL EURODOLLAR OFFICES
LASALLE NATIONAL BANK
Address: 135 South LaSalle Street
Chicago, IL 60603
Attention: Ms. Karen Daly
Tel. No.: (312) 904-2081
Telecopier No.: (312) 904-4448
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> AUG-31-1998
<CASH> 3,445
<SECURITIES> 0
<RECEIVABLES> 12,277
<ALLOWANCES> 0
<INVENTORY> 20,153
<CURRENT-ASSETS> 37,127
<PP&E> 120,225
<DEPRECIATION> (57,620)
<TOTAL-ASSETS> 125,440
<CURRENT-LIABILITIES> 18,606
<BONDS> 110,000
0
0
<COMMON> 0
<OTHER-SE> (12,260)
<TOTAL-LIABILITY-AND-EQUITY> 125,440
<SALES> 70,673
<TOTAL-REVENUES> 70,673
<CGS> 56,768
<TOTAL-COSTS> 59,753
<OTHER-EXPENSES> 356
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,778
<INCOME-PRETAX> 3,786
<INCOME-TAX> 1,628
<INCOME-CONTINUING> 2,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,158
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
