<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 1998
Commission file number 0-21018
TUFCO TECHNOLOGIES, INC.
Delaware 39-1723477
----------------------------- -------------------
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
4800 Simonton Road, Dallas, Texas 75244
----------------------------------------
(Address of principal executive offices)
(972) 789-1079
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.
Yes X No
--- ---
Indicate the number of shares outstanding of each or the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at February 12, 1999
----- --------------------------------
<S> <C>
Common Stock, par value $0.01 per share 3,716,281
Non-Voting Common Stock, par value $.01 per share 709,870
</TABLE>
Page 1 of 13
<PAGE> 2
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C> <C>
PART I: CONDENSED FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1998 (Unaudited) and September 30, 1998 3
Condensed Consolidated Statements of Income for the three
months ended December 31, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the three
months ended December 31, 1998 and 1997 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II: OTHER INFORMATION 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Assets
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 988,720 $ 1,006,110
Restricted cash ......................................................... 378 20,328
Accounts receivable, net ................................................ 8,800,462 10,351,740
Inventories ............................................................. 10,316,465 8,956,949
Prepaid expenses and other current assets ............................... 752,814 303,605
Deferred income taxes ................................................... 596,678 596,678
------------ -------------
Total current assets .............................................. 21,455,517 21,235,410
PROPERTY, PLANT AND EQUIPMENT-Net .......................................... 17,132,014 17,360,302
GOODWILL -Net .............................................................. 18,283,868 18,423,999
OTHER ASSETS- Net .......................................................... 2,071,346 1,747,486
------------ -------------
TOTAL ...................................................................... $ 58,942,745 $ 58,767,197
============ =============
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of long-term debt ....................................... $ 1,672,265 $ 1,670,810
Accounts payable ........................................................ 4,707,039 4,559,341
Accrued payroll, vacation and payroll taxes ............................. 863,514 681,236
Other current liabilities ............................................... 1,611,100 1,629,519
Income taxes payable .................................................... 370,079 64,367
------------ -------------
Total current liabilities ......................................... 9,223,997 8,605,273
LONG-TERM DEBT- Less current portion ....................................... 15,108,808 16,025,796
DEFERRED INCOME TAXES ...................................................... 1,885,653 1,885,653
STOCKHOLDERS' EQUITY
Voting Common Stock; $.01 par value; 9,000,000 shares authorized;
3,786,223 shares issued, respectively ............................... 37,862 37,862
Nonvoting Common Stock; $.01 par value; 2,000,000 shares authorized;
709,870 shares issued and outstanding ............................... 7,099 7,099
Additional paid-in capital .............................................. 23,961,301 23,961,301
Retained earnings ....................................................... 9,347,265 8,878,453
Treasury stock at cost, 78,497 voting common shares, respectively ....... (534,045) (534,045)
Stock purchase plan notes ............................................... (95,195) (100,195)
------------ -------------
Total stockholders' equity ......................................... 32,724,287 32,250,475
------------ -------------
TOTAL ................................................................... $ 58,942,745 $ 58,767,197
============ =============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
December 31,
------------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES ................................................. $ 18,340,853 $ 16,690,216
COST OF SALES ............................................. 15,366,760 14,020,278
------------ ------------
GROSS PROFIT .............................................. 2,974,093 2,669,938
OPERATING EXPENSES:
Selling, general and administrative ....................... 2,010,972 1,703,051
Amortization and other post-
acquisition expenses ................................... 234,565 205,572
------------ ------------
OPERATING INCOME .......................................... 728,556 761,315
OTHER INCOME (EXPENSE):
Interest expense ....................................... (257,257) (222,747)
Interest and other income .............................. 4,314 13,961
Gain on sale of equipment .............................. 305,741 623
------------ ------------
INCOME BEFORE INCOME TAXES ................................ 781,354 553,152
INCOME TAX EXPENSE ........................................ 312,542 220,844
------------ ------------
NET INCOME ................................................ $ 468,812 $ 332,308
============ ============
EARNINGS PER SHARE:
Basic ................................................. $ 0.11 $ 0.08
Diluted ............................................... $ 0.11 $ 0.07
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common stocks ......................................... 4,417,596 4,408,300
Adjusted shares-assuming exercise of stock options .... 4,453,570 4,563,399
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
December 31,
----------------------------
1998 1997
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net Income ....................................................... $ 468,812 $ 332,308
Noncash items net income:
Depreciation and amortization .............................. 678,669 612,304
Provision for bad debts .................................... 9,248 9,000
Gain on sale of property and equipment ..................... (305,741) (623)
Changes in operating working capital:
Accounts receivable ...................................... 1,542,030 503,250
Inventories .............................................. (1,359,516) (1,420,171)
Prepaid expenses and other assets ........................ (356,511) (5,741)
Accounts payable ......................................... 185,723 307,575
Accrued and other current liabilities .................... 125,834 (534,872)
Income taxes payable ..................................... 305,712 (446,497)
----------- -----------
Net cash provided by (used in) operations ..................... 1,294,260 (643,467)
INVESTING ACTIVITIES
Additions to property, plant and equipment .................... (348,505) (702,319)
Deposits made on purchase of equipment ........................ (400,207) --
Proceeds from disposition of property, plant and equipment .... 352,001 4,935
Increase in advances to stockholders .......................... (22,356) (5,556)
Acquisition of Foremost Manufacturing, Inc. ................... (2,000) (5,500,000)
(Decrease)in restricted cash .................................. 19,950 (20,050)
----------- -----------
Net cash used in investing activities ......................... (401,117) (6,222,990)
FINANCING ACTIVITIES
Principal payments on long-term debt .......................... (915,533) (476,825)
Proceeds from issuance of notes payable ....................... -- 6,679,838
Decrease in stock purchase plan notes ......................... 5,000 289,862
Purchase of treasury stock .................................... -- (74,370)
Net proceeds from issuance of common stock .................... -- 399,904
----------- -----------
Net cash provided by (used in) financing activities ........... (910,533) 6,818,409
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................ (17,390) (48,048)
CASH AND CASH EQUIVALENTS:
Beginning of period ............................................ 1,006,110 747,404
----------- -----------
End of period ................................................. $ 988,720 $ 699,356
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
TUFCO TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
1. INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and Rule 10-01 of Regulation S-X. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Some adjustments involve estimates which may require revision
in subsequent interim periods or at year-end. The unaudited financial
statements and footnotes should be read in conjunction with the
Company's financial statements for the year ended September 30, 1998
that are included in Form 10-K that was filed with the Securities and
Exchange Commission on December 22, 1998. Operating results for the
three-month period are not necessarily indicative of results expected
for the remainder of the year.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
<S> <C> <C>
Raw materials .............. $ 5,308,922 $ 4,766,165
Finished products .......... 5,007,543 4,190,784
------------ -------------
Total ...................... $ 10,316,465 $ 8,956,949
============ =============
</TABLE>
3. ACQUISITION OF FOREMOST MANUFACTURING, INC.:
On November 13, 1997, the Company purchased all of the outstanding
stock of Foremost Manufacturing, Inc. (Foremost) for $5.25 million in
cash and $0.25 million in the Company's common stock (25,907 shares).
Goodwill of $4.7 million was recorded as a result of the acquisition.
Foremost manufactures and distributes products similar to those
produced and distributed by the Company in its Paint Sundries market
sector. The results of operation for Foremost have been included since
the date of acquisition.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL INFORMATION:
Tufco Technologies, Inc. (formerly Tufco Holding Company, the
"Company") was organized in 1992 to acquire Tufco Industries, Inc.
(located in Green Bay, WI) which was incorporated in Wisconsin in 1974.
Executive Converting Corporation (located in Dallas, TX) was acquired
in 1994, Hamco, Industries, Inc. (located in Newton, NC) was acquired
in 1995, and Foremost Manufacturing, Inc. (located in St. Louis, MO)
was acquired November 13, 1997.
The Company, through its wholly owned subsidiaries, manufactures and
distributes business imaging paper products and Away-From-Home towels
and wipes, provides diversified custom converting and specialty
printing services, and distributes paint sundry products used in home
improvement projects.
The Company normally operates at lower operating levels during the
first and second quarters of its fiscal year which ends September 30.
This occurs because of the seasonal demand for certain printed products
displaying a holiday theme as well as products which are used by
customers in conjunction with end-of-year activities. These products
are normally shipped during the Company's third and fourth fiscal
quarters. Demand for its Paint Sundry products is generally lower
during the first and second fiscal quarters as cold weather restricts
the amount of new construction and remodeling projects that require the
Company's products.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS --CONTINUED
RESULTS OF OPERATIONS:
Condensed operating data, percentages of net sales and year-to-year changes in
these items are as follows dollars in thousands:
<TABLE>
<CAPTION>
Three Months Ended Period-to-Period Change
December 31,
---------------------
1998 1997 $ %
------- ------- ---- -------
<S> <C> <C> <C> <C>
Net Sales $18,341 $16,690 1651 10
Gross Profit 2,974 2,670 304 11
16.0% 16.0%
Operating Expenses 2,245 1,909 336 18
12.0% 11.4%
Operating Income 729 761 (32) (4)
3.9% 4.6%
Interest Expense 257 223 34 15
1.4% 1.3%
Net Income $ 469 $ 332 137 41
2.6% 2.0%
</TABLE>
ANALYSIS OF NET SALES, PERCENTAGE OF TOTAL NET SALES, AND YEAR-TO-YEAR CHANGES
IN THE COMPANY'S PRIMARY MARKET SECTORS ARE AS FOLLOWS:
($000S)
<TABLE>
<CAPTION>
Three Months Ended Period-to-Period Change
December 31,
---------------------
1998 1997 $ %
------- ------- ----- ----
<S> <C> <C> <C> <C>
Business Imaging $ 6,491 $ 7,756 (1265) (16)
Products 35% 46%
Contract Converting 3,663 3,907 (244) (6)
& Specialty Printing 20% 23%
Paint Sundry Products 5,089 3,747 1342 36
28% 22%
Away-From-Home Products 3,098 1,280 1818 142
17% 8%
----- -----
Total Net Sales 18,341 16,690 1651 10
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -CONTINUED
NET SALES:
Net sales increased $1.7 million (10%) to $18.3 million. A portion of the
overall increase, $1.0 million or 6%, is attributable to additive impact, in the
Paint Sundry sector, of Foremost Manufacturing, which was acquired by Tufco in
November of 1997. After adjusting for the impact of Foremost, net sales for the
Company increased $0.7 million in spite of reduced sales in the Business Imaging
sector (down $1.3 million or 16%) and in the Contract Converting sector (down
$0.2 million or 6%). The Business Imaging sector continues to suffer from
aggressive price pressures due to new competitors attempting to gain market
share. While Tufco has lost some unit volume, reductions in unit selling prices
account for most of the reduction in net sales. The reduction in net Contract
Converting sales is the result of lower production volume attributed to one
specific customer for whom Tufco produced window insulation kits. In December of
fiscal 1999, Tufco began production of a new consumer product for Procter &
Gamble Manufacturing (P&G). When qualified by P&G, the initial production line
will have the capacity to produce up to $3 million in revenue for Tufco. Tufco
has submitted proposals to P&G to install 3 additional production lines, which
will increase Tufco's total production capacity to $12 million annually, and
Tufco management is optimistic that the Company will be awarded the additional
production capacity. It is important to note that the future revenue for Tufco
will be determined by consumer demand for the product, and not by production
capacity. Tufco anticipates that the first line will reach full production
during the second fiscal quarter, and that the additional production lines, if
awarded to Tufco, will start up before the end of the third fiscal quarter.
Also, as noted in the Company's 1998 annual report to its shareholders, other
production lines for P&G and Hallmark Cards, Inc. will begin operations later in
the year. Tufco reported strong gains in its Away-From-Home sector (up $1.8
million or 142%) due to continued expansion of the sector's base of customers.
Finally, after adjustment for Foremost, the Paint Sundry sector reported a $0.3
million (8%) increase in sales. Growth in the Paint Sundry sector was strong,
considering that Tufco was still in the process of consolidating its two Paint
Sundry product lines into one. Management expects that Paint Sundry sales will
continue to improve as sector management completes its consolidation and
refocuses its efforts on growth.
GROSS PROFIT:
Gross profit improved $0.3 million, or 11% over fiscal 1998, of which $0.2
million was attributable to the Foremost acquisition. Adjusted for the impact of
Foremost, gross profit increased $0.1 million or 4%. Gross profit margin was
unchanged at 16% of net sales. Further improvement in gross profit was inhibited
by costs totaling approximately $135,000 incurred during the first quarter of
fiscal 1999 to hire and train personnel associated with the P&G production line.
Tufco did not ship any P&G product during the quarter to offset costs incurred.
Additionally, the consolidation efforts in the Paint Sundry sector resulted in
redundant headcount and other costs totaling approximately $65,000. Once the P&G
start-up and the Paint Sundry consolidation are complete, management believes
that gross profit margins will improve. Claims under the Company's self-funded
health and workers' compensation insurance plans, which had been unusually high
in fiscal 1998, returned to normal levels during the first quarter of fiscal
1999. However, management increased its reserves against future claims in these
two areas during the first quarter of fiscal 1999, so no cost savings were
reported for the quarter. If claim trends remain at expected levels throughout
the remainder of the fiscal year, cost savings will be reflected in future
quarters. Finally, improved profit margin and sales volume in the Away-From-Home
sector offset volume and profit declines in the Company's Business Imaging
sector.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS --CONTINUED
OPERATING EXPENSES:
Operating expenses increased $336,000 or 18% to $2.2 million. The additive
impact of Foremost accounted for $122,000 of the increase. The remainder of the
increase is due to higher sales compensation as well as costs for Tufco
personnel to attend an Away-From-Home trade show in November of the current
fiscal year. The increased sales compensation relates to commissions paid to
independent sales agents who sell the Company's paint sundry products.
OPERATING INCOME:
Operating income declined $32,000 or 4%, to $729,000 for the quarter ended
December 31, 1998 compared to the same period a year ago, due primarily to the
higher sales costs. Reduced operating profit in the Business Imaging sector was
offset by increases in the Paint Sundries and Away-From-Home sectors.
INTEREST EXPENSE:
Interest expense increased $34,000 or 15% to $257,000 due to interest incurred
to finance the acquisition of Foremost. Adjusted for this fact, interest expense
actually declined by approximately $50,000.
NET INCOME AND EARNINGS PER SHARE:
Net income increased $137,000 or 41% due primarily to the gain realized on the
sale of certain equipment at the Company's Green Bay facility, which had
remained idle for several years. Tufco sold the equipment in November of fiscal
1999, recognizing a gain of $306,000. Adjusted for this fact, net income
declined $46,000 due to higher selling costs and higher interest costs. Earnings
per share increased to $0.11 (basic and diluted) compared to prior year (basic
- -$0.08; diluted $0.07).
LIQUIDITY AND CAPITAL RESOURCES:
For the quarter ended December 31, 1998, the Company generated $1.3 million from
operating activities. The principal source of cash for the first quarter of
fiscal 1999 was the collection of accounts receivable since the end of the prior
fiscal year.
Net cash used in investing activities was $0.4 million for the quarter ended
December 31, 1998, resulting from the purchase of production equipment.
Net Cash used in financing activities was $0.9 million for the first quarter of
fiscal 1998. The Company repaid debt using proceeds from operations.
The Company's management is currently contemplating the purchase of production
equipment valued at $4.1 million. The equipment would be used to support growth
in the Company's Contract Converting sector which would result in a 200%
increase in printing volume in the Company's Green Bay facility. The Company's
Board of Directors will consider the financial justification for the asset
purchase at its meeting scheduled for March 16, 1999. Aside from this specific
purchase, the Company's management believes that cash flow from operations will
be sufficient to fund its capital needs for fiscal 1999 and does not anticipate
any significant increase in borrowings during the year.
As of February 10, 1999, the Company had approximately $4.0 million available
under its revolving credit line.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -CONTINUED
LIQUIDITY AND CAPITAL RESOURCES CONTINUED:
The Company intends to retain earnings to finance future operations and
expansion and does not expect to pay any dividends within the foreseeable
future. In addition, the Company's primary lender must approve the payment of
any dividends.
YEAR 2000 SYSTEM ISSUES:
Many existing computer programs use only two digits to identify a year in the
date field, and if not corrected, many computer applications could fail or
create erroneous results by or at the year 2000. Left uncorrected, year 2000
systems issues could have a material negative impact on the Company's operations
and its profitability.
In response to ongoing business needs, Tufco has begun implementing a new
Enterprise Resource Planning system, and the year 2000 issue was one of the
design pre-requisites for this new system. As of September 30, 1998, the Company
has spent $1.6 million for hardware, software and consulting services related to
the project, and management estimates it will spend an additional $0.2 million
for completion of the conversion to the new system which began in fiscal 1998
and is scheduled to be completed in fiscal 1999. While the Company has taken
every precaution to ensure that the new information system will operate properly
in the year 2000, management has relied on assurances and warranties by its
hardware and software vendors. The Company will continue to test its new systems
for year 2000 compliance throughout the implementation process. The Company is
in the process of evaluating the possible negative impact on the Company of year
2000 issues relating to its significant vendors and customers, and management
anticipates completing that analysis by March 1999. The Company is also nearing
completion on its analysis of the potential impact of embedded date sensitive
programs included in any software used to operate its production equipment.
While management has not uncovered any specific instances where year 2000 issues
have not been addressed, the Company cannot rule out the possibility of
difficulties arising from year 2000 issues.
FORWARD LOOKING STATEMENTS:
Management's discussion of the Company's 1999 quarterly periods in comparison to
1998, contains forward-looking statements regarding current expectations, risks
and uncertainties for future periods. The actual results could differ materially
from those discussed here. As well as those factors discussed in this report,
other factors that could cause or contribute to such differences include, among
other items, significant changes in the cost of base paper stock, competition in
the Company's product areas, or an inability of management to successfully
reduce operating expenses in relation to net sales without damaging the
long-term direction of the Company. Therefore, the condensed financial data for
the periods presented may not be indicative of the Company's future financial
condition or results of operations.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
10.1 First Amendment to the Credit Agreement dated December 18, 1998.
(b) None.
12
<PAGE> 13
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.
TUFCO TECHNOLOGIES, INC.
Date: February 12, 1998 /s/ Louis LeCalsey, III
------------------------------------
Louis LeCalsey, III
Chief Executive Officer
Date: February 12, 1998 /s/ Greg Wilemon
------------------------------------
Greg Wilemon
Chief Financial Officer/Chief Operating Officer,
Secretary, Treasurer and Vice President - Finance
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 First Amendment to Credit Agreement
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (together with all amendments
and modifications, the "Agreement"), dated as of December 18, 1998, is by and
among TUFCO, L.P. a Delaware limited partnership (the "Borrower"), TUFCO
TECHNOLOGIES, INC., a Delaware corporation ("Parent"), CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, a national banking association ("Chase"), and FIRST UNION
NATIONAL BANK, a national banking association ("FUNB") (Chase and FUNB,
collectively, the "Banks"), individually and in its capacity as agent for the
Banks (the "Agent").
BACKGROUND
A. The Banks, the Borrower and Parent entered into that certain Credit
Agreement, dated as of August 28, 1998 (together with all amendments and
modifications thereto, the "Credit Agreement"), pursuant to which each of the
Banks agreed: (i) to make available to the Borrower a revolving credit facility
in a maximum aggregate principal amount of $4,500,000 (the "Revolver") and (ii)
to make a term loan to the Borrower in the initial aggregate principal amount of
$5,325,000 (the "Term Loan") (the Revolver and the Term Loan, collectively, the
"Loans").
B. In connection with the Credit Agreement and in order to evidence the
Loans, the Borrower executed and delivered to the Banks those certain Revolving
Notes, dated as of August 28, 1998, and those certain Term Notes, dated as of
August 28, 1998 (together with all amendments and modifications thereto, the
"Notes").
C. In connection with the Credit Agreement and the Notes and in order
to secure its obligations thereunder, the Borrower executed and delivered to the
Agent that certain Security Agreement, dated as of August 28, 1998 (together
with all amendments and modifications thereto, collectively, the "Security
Agreement").
D. In connection with the Credit Agreement and the Notes and in order
to secure the Borrower's obligations thereunder, Tufco Technologies, Inc., a
Delaware corporation, Tufco Tech, Inc., a Delaware corporation, Technologies I,
Inc., a Delaware corporation, Tufco, Inc., a Delaware corporation, TFCO, Inc., a
Delaware corporation, and Foremost Manufacturing Company, Inc., a Missouri
corporation (collectively, the "Guarantors") executed and delivered to the Agent
that certain Guaranty Agreement dated August 28, 1998 (the "Guaranty").
E. In connection with the Guaranty and in order to secure the
Guarantor's obligations thereunder, each of the Guarantors executed and
delivered to the Agent that certain Guarantor Security Agreement dated as of
August 28, 1998 (the "Guarantor Security Agreement").
<PAGE> 2
F. The Credit Agreement, the Notes, the Security Agreement, the
Guaranty, the Guarantor Security Agreement and all of the documents, instruments
and agreements executed and delivered in connection therewith, together with all
amendments and modifications thereto, shall be referred to hereinafter as the
"Loan Documents."
G. The Banks and the Borrower, pursuant to the terms hereof, wish to
amend certain of the terms of the Loan Documents.
NOW, THEREFORE, incorporating the foregoing Background herein by
reference and for other good and valuable consideration, the receipt and legal
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties agree as follows:
1. DEFINED TERMS. Terms used herein which are capitalized but not
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.
2. AMENDMENTS.
(a) Section 12.1 of the Credit Agreement, is hereby amended and
restated to read in its entirety as follows:
"Consolidated Tangible Net Worth. Parent will at all times maintain
a Consolidated Tangible Net Worth in an amount not less than the sum
of (a) Thirteen Million One Hundred Thousand Dollars ($13,100,000);
plus (b) fifty percent (50%) of Parent's net income determined on a
consolidated basis in accordance with GAAP for each Fiscal Quarter
to have completely elapsed since September 30, 1998; plus (c) one
hundred percent (100%) of the net cash proceeds of any sale of
securities or other cash contributions to the capital of the Parent
received by Parent since September 30, 1998, calculated without
duplication. If Parent's consolidated net income for a Fiscal
Quarter is zero or less, no adjustment to the requisite level of
Consolidated Tangible Net Worth shall be made. "Consolidated
Tangible Net Worth" means, at any particular time, the sum of (a)
all amounts which, in conformity with GAAP, would be included as
stockholders' equity on a consolidated balance sheet of Parent and
the Subsidiaries; minus (b) the amount by which stockholders' equity
has been increased by the write-up of any asset of the Parent and
the Subsidiaries after September 30, 1998; minus (c) the amount of
intangible assets carried on the balance sheet of the Parent and the
Subsidiaries at such date determined in accordance with GAAP on a
consolidated basis, including goodwill, patents,
-2-
<PAGE> 3
trademarks, trade names, organizational expense, deferred financing
charges, debt acquisition cost, computer software development costs,
start-up costs, pre-opening costs, prepaid pension costs, or any
other deferred charges; minus (d) the amount of deferred income tax
assets (less adjustments included in Consolidated Net Income after
September 30, 1998); minus (e) any capital stock or debt security
which is not readily marketable; minus (f) any cash held in a
sinking fund or other analogous fund established for the purpose of
redemption, retirement or prepayment of capital stock or Debt; minus
(g) the cumulative translation adjustments (less adjustments
included in Consolidated Net Income after September 30, 1998); minus
(h) the amount at which shares of capital stock of the Parent is
contained among the assets on the balance sheet of the Parent and
the Subsidiaries; minus (i) to the extent included in clause (a) the
amount properly attributable to the minority interests, if any, of
other Persons in the stock, additional paid-in capital, and retained
earnings of Subsidiaries."
3. CONDITIONS PRECEDENT. The effectiveness of this Agreement and the
Banks' obligations hereunder are conditioned upon the satisfaction of the
following conditions precedent:
(a) Each of the Borrower and Parent shall have delivered to the
Agent this Agreement duly executed by each of them.
(b) Each of the Guarantors shall have delivered to the Agent the
reaffirmation of their obligations set forth following this Agreement duly
executed by each of them.
(c) Chase shall have delivered to the Agent this Agreement duly
executed by it and FUNB shall have duly executed this Agreement, individually
and as Agent.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks to
enter into this Agreement, the Borrower and Parent hereby represent and warrant
to the Banks as follows:
(a) The representations and warranties contained in the Loan
Documents are true and correct on and as of the date of this Agreement and after
giving effect hereto, no Event of Default will be in existence or will occur as
a result of giving effect hereto.
-3-
<PAGE> 4
(b) The Borrower and Parent each have the power to execute,
deliver and perform this Agreement and each of the documents, instruments and
agreements to be executed or delivered in connection herewith and has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and each of the documents, instruments and agreements executed or
delivered in connection herewith and the performance of the Credit Agreement as
amended hereby.
5. REAFFIRMATION. Except as amended hereby, all of the terms,
covenants and conditions of the Credit Agreement and each of the other Loan
Documents (including, but not limited to, provisions relating to any authority
granted to the Banks to confess judgment against the Borrower and any waiver of
the right to trial by jury) are ratified, reaffirmed and confirmed and shall
continue in full force and effect as therein written and are not intended to be
re-enacted as of the above date, but rather to be effective as of the original
date of such documents.
6. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Banks and their respective successors and
assigns; provided, however, that the Borrower may not assign any of its rights,
nor delegate any of its obligations, under this Agreement without the prior
written consent of the Banks and any purported assignment or delegation absent
such consent shall be void. The Banks may at any time assign or otherwise
transfer (by participation or otherwise) any or all of their rights, or delegate
any or all of its obligations, hereunder, as provided in the Credit Agreement.
7. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in
any number of counterparts and by the different parties on separate
counterparts. Each such counterpart shall be deemed to be an original, but all
such counterparts shall together constitute one and the same agreement. This
Agreement shall be deemed to have been executed and delivered when the Agent has
received counterparts hereof executed by all parties listed on the signature
page(s) hereto.
8. AMENDMENT AND WAIVER. No amendment of this Agreement, and no
waiver of any one or more of the provisions hereof shall be effective unless set
forth in a writing and signed by the parties hereto.
9. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas and the applicable laws of the
United States of America.
10. SEVERABILITY. Any provision of this Agreement that is held to be
inoperative, unenforceable, voidable or invalid in any jurisdiction shall, as to
that jurisdiction, be ineffective, unenforceable, void or invalid without
affecting the remaining provisions in that or any other jurisdiction, and to
this end the provisions of this Agreement are declared to be severable.
-4-
<PAGE> 5
11. JUDICIAL PROCEEDINGS. Each party to this Agreement agrees that
any suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party, on or
with respect to this Agreement, the documents, instruments and agreements
executed in connection herewith, the Loan Documents or the dealings of the
parties with respect hereto and thereto, shall be tried only by a court and not
by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDINGS. Further,
each party waives any right it may have to claim or recover, in any such suit,
action or proceeding, any special, exemplary, punitive or consequential damages
or dames other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGE AND AGREE THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF
THIS AGREEMENT AND THAT THE BANKS WOULD NOT ENTER INTO THIS AGREEMENT IF THE
WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered as of the day and year first above
written.
BORROWER:
TUFCO, L.P.
By: Tufco Tech, Inc.,
its Managing General Partner
By: /s/ GREG WILEMON
--------------------------------
Name: Greg Wilemon
Title: CFO/COO
PARENT:
TUFCO TECHNOLOGIES, INC.
By: /s/ GREG WILEMON
-----------------------------------------
Name: Greg Wilemon
Title: CFO/COO
-5-
<PAGE> 6
AGENT:
FIRST UNION NATIONAL BANK, individually
as a Bank and as the Agent
By: /s/ RICHARD J. BANNING
-----------------------------------------
Name: Richard J. Banning
Title: Assistant Vice President
OTHER BANK:
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION
By: /s/ DAVID L. HOWARD
-----------------------------------------
Name: David L. Howard
Title: Vice President
The undersigned Guarantors, each of whom have guaranteed the
obligations of the Borrower under the Credit Agreement pursuant to the Guaranty,
hereby acknowledge that they have read and understand the provisions of this
Amendment, including without limitation the revised financial covenant set forth
in Section 12.1, and do hereby consent and agree to the Borrower's execution and
delivery of the First Amendment to Credit Agreement; and each of the undersigned
Guarantors hereby reaffirms, ratifies and confirms all of their respective
obligations under the Guaranty in favor of the Banks (the "Reaffirmed
Agreements") as if such Reaffirmed Agreements had been executed on the date
hereof.
GUARANTORS:
TUFCO TECHNOLOGIES, INC. TUFCO TECH, INC.
By: /s/ GREG WILEMON By: /s/ GREG WILEMON
-------------------------------- ----------------------------------
Name: Greg Wilemon Name: Greg Wilemon
Title: CFO/COO Title: CFO/COO
-6-
<PAGE> 7
TECHNOLOGIES I, INC. TUFCO, INC.
By: /s/ KATHY MANOS By: /s/ KATHY MANOS
-------------------------------- ----------------------------------
Name: Kathy Manos Name: Kathy Manos
Title: President Title: President
TFCO, INC. FOREMOST MANUFACTURING COMPANY, INC.
By: /s/ KATHY MANOS By: /s/ GREG WILEMON
-------------------------------- ----------------------------------
Name: Kathy Manos Name: Greg Wilemon
Title: President Title: CFO/COO
-7-
<PAGE> 8
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary Public,
the undersigned officer, personally appeared Greg Wilemon, who acknowledged
himself/herself to be CFO/COO of Tufco Tech, Inc., Managing Partner of Tufco,
L.P. and that he/she as such CFO/COO, being authorized to do so, executed the
foregoing Amendment for the purpose therein contained by signing the name of
Tufco Tech, Inc. by himself/herself as CFO/COO thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
[NOTARY STAMP] --------------------------------------
Notary Public
My Commission Expires:
03-28-00
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary Public,
the undersigned officer, personally appeared Greg Wilemon, who acknowledged
himself/herself to be CFO/COO of Tufco Tech, Inc. and that he/she as such
CFO/COO, being authorized to do so, executed the foregoing Amendment for the
purpose therein contained by signing the name of the corporation by
himself/herself as CFO/COO thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
[NOTARY STAMP] --------------------------------------
Notary Public
My Commission Expires:
03-28-00
-8-
<PAGE> 9
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary Public,
the undersigned officer, personally appeared Kathy Manos, who acknowledged
himself/herself to be President of Technologies I, Inc. and that he/she as such
President, being authorized to do so, executed the foregoing Amendment for the
purpose therein contained by signing the name of the corporation by
himself/herself as President thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
[NOTARY STAMP] --------------------------------------
Notary Public
My Commission Expires:
03-28-00
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary
Public, the undersigned officer, personally appeared Kathy Manos, who
acknowledged himself/herself to be President of Tufco, Inc. and that he/she as
such President, being authorized to do so, executed the foregoing Amendment for
the purpose therein contained by signing the name of the corporation by
himself/herself as President thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
--------------------------------------
Notary Public
My Commission Expires:
03-28-00 [NOTARY STAMP]
-9-
<PAGE> 10
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary
Public, the undersigned officer, personally appeared Kathy Manos, who
acknowledged himself/herself to be President of TFCO, Inc. and that he/she as
such President, being authorized to do so, executed the foregoing Amendment for
the purpose therein contained by signing the name of the corporation by
himself/herself as President thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
[NOTARY STAMP] --------------------------------------
Notary Public
My Commission Expires:
03-28-00
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary
Public, the undersigned officer, personally appeared Greg Wilemon, who
acknowledged himself/herself to be CFO/COO of Foremost Manufacturing Company,
Inc. and that he/she as such CFO/COO, being authorized to do so, executed the
foregoing Amendment for the purpose therein contained by signing the name of the
corporation by himself/herself as CFO/COO thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
--------------------------------------
Notary Public
My Commission Expires:
03-28-00 [NOTARY STAMP]
-10-
<PAGE> 11
STATE OF TEXAS :
: SS
COUNTY OF DALLAS :
On this 18th day of December, A.D., 1998, before me, a Notary Public,
the undersigned officer, personally appeared Greg Wilemon, who acknowledged
himself/herself to be CFO/COO of Tufco Technologies, Inc. and that he/she as
such CFO/COO, being authorized to do so, executed the foregoing Amendment for
the purpose therein contained by signing the name of the corporation by
himself/herself as CFO/COO thereof.
WITNESS, my hand and Notarial seal, the day and year aforesaid.
/s/ CYNTHIA SPIKER
[NOTARY STAMP] --------------------------------------
Notary Public
My Commission Expires:
03-28-00
-11-
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