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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the
Quarterly Period Ended
March 31, 1998
[ ] 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 33-64814
SWEETHEART HOLDINGS INC.*
(Exact name of registrant as specified in its charter)
Delaware 06-1281287
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10100 Reisterstown Road, Owings Mills, Maryland 21117
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 410/363-1111
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 [ ]
The number of shares outstanding of the Registrant's stock
as of May 15, 1998:
Sweetheart Holdings Inc.
Class A Common Stock, $0.01 par value - 1,046,000 shares
Sweetheart Holdings Inc.
Class B Common Stock, $0.01 par value - 4,393,200 shares
* The Registrant is the guarantor of the 9 5/8 % Senior Secured Notes due
2000 and the 10 1/2% Senior Subordinated Notes due 2003 (collectively, the
"Notes") of Sweetheart Cup Company Inc., a wholly owned subsidiary of the
Registrant.
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Page 1 of 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Sweetheart Holdings Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
March 31, September 30,
1998 1997
--------------- ----------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,259 $ 2,650
Restricted cash - 29,016
Cash in escrow 10,286 13,323
Receivables, less allowances of $2,823 and $1,740, respectively
79,484 85,774
Inventories 147,708 148,845
Deferred income taxes 2,471 2,471
Assets held for sale - 8,466
Other current assets 18,613 20,868
--------- ---------
Total current assets 261,821 311,413
Property, plant and equipment 540,200 527,999
Less - Accumulated depreciation 164,838 145,508
--------- ---------
Net property, plant and equipment 375,362 382,491
Deferred income taxes 36,644 12,471
Other assets 14,986 13,155
--------- ---------
Total assets $ 688,813 $ 719,530
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 70,116 $ 58,933
Accrued payroll and related costs 43,945 40,528
Other current liabilities 44,953 43,815
Current portion of long-term debt 5,559 1,369
--------- ---------
Total current liabilities 164,573 144,645
--------- ---------
Long-term debt 417,429 430,499
Other liabilities 67,938 69,775
Shareholders' equity:
Common Stock - par value $.01 per share; 3,000,000 shares
authorized; 1,046,000 shares issued and outstanding - 101,100
Class A Common Stock - par value $.01 per share; 1,100,000
shares authorized; 1,046,000 shares issued and outstanding 101,100 -
Class B Common Stock - par value $.01 per share; 4,600,000
shares authorized; 4,393,200 shares issued and outstanding 44 -
Cumulative translation adjustment (841) (507)
Retained earnings (61,430) (25,611)
Note receivable related to purchase of common stock - (371)
--------- ---------
Total shareholders' equity 38,873 74,611
--------- ---------
Total liabilities and shareholders' equity $ 688,813 $ 719,530
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
Sweetheart Holdings Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the quarter ended For the six months ended
March 31, March 31,
--------------------------------- ------------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 191,216 $ 196,005 $ 393,168 $ 398,107
Cost of sales 185,959 186,209 373,965 385,530
--------- --------- --------- ---------
Gross profit 5,257 9,796 19,203 12,577
Selling, general and
administrative expense 19,022 16,699 38,124 32,915
Other expense, net 9,389 450 6,160 582
Restructuring charges 10,527 -- 10,527 --
--------- --------- --------- ---------
Operating loss (33,681) (7,353) (35,608) (20,920)
Interest expense, net of interest
income 10,719 9,949 21,498 19,501
--------- --------- --------- ---------
Loss before income tax
benefit and cumulative
effect of change in
accounting principle (44,400) (17,302) (57,106) (40,421)
Income tax benefit (17,759) (6,921) (22,840) (16,168)
--------- --------- --------- ---------
Loss before cumulative
effect of change in
accounting principle (26,641) (10,381) (34,266) (24,253)
Cumulative effect of change in
accounting principle (net of
income taxes of $1,007) -- -- (1,511) --
--------- --------- --------- ---------
Net loss $ (26,641) $ (10,381) $ (35,777) $ (24,253)
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Sweetheart Holdings Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
For the six months ended
March 31,
----------------------------------
1998 1997
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (35,777) $ (24,253)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 22,988 23,384
Deferred income tax benefit (22,840) (16,168)
Cumulative effect of a change in accounting principle 1,511 --
Gain on sale of bakery business (3,459) --
Gain on sale of property, plant and equipment (786) --
Decrease in receivables 6,290 11,129
Decrease in inventories 1,137 8,011
Increase (decrease) in accounts payable 11,183 (8,392)
Other, net 1,211 (11,771)
--------- ---------
Net cash used in operating activities (18,542) (18,060)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (20,342) (24,889)
Proceeds from sale of bakery business 889 --
Proceeds from sale of property, plant and equipment 14,743 --
--------- ---------
Net cash used in investing activities (4,710) (24,889)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of debt 225,392 170,058
Repayment of debt (232,838) (126,595)
Payment of financing fees (1,117) --
Decrease (increase) in restricted cash 29,016 (1,244)
Decrease in escrow cash 3,037 --
Payment received on common stock note receivable 371 52
--------- ---------
Net cash provided by financing activities 23,861 42,271
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
609 (678)
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period 2,650 4,371
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 3,259 $ 3,693
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 19,370 $ 18,529
========= =========
Income taxes paid $ 307 $ 571
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SWEETHEART HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the instructions of Form 10-Q and rule
10-01 of regulation S-X. Accordingly, these statements do not include all the
information required by GAAP for complete financial statements. The interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto in the Company's Form 10-K for the year
ended September 30, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation of Sweetheart Holdings Inc. and subsidiaries' (the "Company")
financial position as of March 31, 1998 and the results of operations and cash
flows for the six months ended March 31, 1998 have been included. Operating
results for the six month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the year ending September 30, 1998.
(2) RECLASSIFICATIONS
The Company has reclassified certain amounts for current year
presentation from prior year presentation. Within the statements of operations,
transportation costs, previously reported as a separate line item, are now a
component of cost of sales. Additionally, other expense, net is now reflected as
a component of operating loss, with interest expense being shown net of interest
income. Certain other reclassifications of balance sheet amounts have been made
to conform to current year's presentation. All prior periods have been restated
to conform to the current year presentation.
(3) ACCOUNTING PRONOUNCEMENTS
During the quarter ended December 31, 1997, the Company recorded a $1.5
million expense as a cumulative effect of change in accounting principle (net of
$1.0 million of income taxes) relating to the implementation of EITF 97-13,
which requires companies to expense any previously capitalized reengineering
costs in connection with software installation.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 ("SFAS 132"), "Employers'
Disclosures about Pensions and Other Postretirement Benefits". This statement
addresses disclosure matters and will have no impact on the Company's financial
position or results of operations. This statement becomes effective during the
Company's fiscal year 2000.
(4) INVENTORIES
The components of inventories were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------------ ------------------
<S> <C> <C>
Raw materials and supplies $ 27,769 $ 32,302
Finished goods and partly-finished products 119,939 116,543
--------- ----------
$ 147,708 $ 148,845
========= ==========
</TABLE>
5
<PAGE>
(5) STOCKHOLDERS' EQUITY
On March 12, 1998, the stockholders of the Company consummated an
agreement with SF Holdings Group, Inc. ("SF Holdings") and an affiliate of SF
Holdings. In connection with this transaction, all shareholders of record on
March 11, 1998 exchanged their shares of common stock for a new Class A Common
Stock. In addition, a stock dividend of 4.2 shares of a new Class B Common Stock
was declared to the shareholders of record on March 11, 1998. SF Holdings
acquired from the Company's stockholders 48% of the Company's outstanding Class
A Common Stock and all of the outstanding Class B Common Stock. As a result, SF
Holdings holds 90% of the total number of outstanding shares of both classes of
the Company's common stock.
The Class A and Class B Common Stock have the same powers, preferences
and rights, except that the Class B Common Stock has no voting rights. Class A
and Class B Common Stock share the profits and losses generated by the Company
on a pro-rata basis.
(6) OTHER EXPENSE, NET
In the quarter ended March 31, 1998, the Company recognized certain
one-time charges, consisting primarily of $4.4 million of financial advisory and
legal fees associated with the investment by SF Holdings (see Note 5 above) and
$3.7 million of severance expenses as a result of the termination of certain
officers of the Company pursuant to executive separation agreements and
retention plans for certain key executives.
(7) RESTRUCTURING CHARGES
In the quarter ended March 31, 1998, the Company reduced its salaried
workforce by approximately 15% and hourly workforce by less than 5%, and decided
to rationalize certain product lines, and in connection therewith, dispose of
the associated property and equipment. In connection with such plans, the
Company recognized $10.5 million of charges for severance and asset disposition
costs, of which $5.0 million of cash expenditures remain unpaid as of March 31,
1998. The Company anticipates substantial completion of this restructuring
within the next twelve months.
(8) SWEETHEART CUP COMPANY INC. SUMMARIZED FINANCIAL INFORMATION
Sweetheart Holdings Inc. is the guarantor of the 9 5/8% Senior Secured
Notes due 2000 and the 10 1/2% Senior Subordinated Notes due 2003 of Sweetheart
Cup Company Inc., a wholly owned subsidiary of Sweetheart Holdings Inc.
Summarized financial information for Sweetheart Cup Company Inc. is presented as
follows (in thousands):
(Unaudited)
March 31, 1998 September 30,1997
---------------------- ----------------------
Current assets $514,741 $562,731
Noncurrent assets 185,538 176,382
Current liabilities 135,835 114,415
Noncurrent liabilities 550,237 563,065
6
<PAGE>
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
For the quarter ended For the six months ended
March 31, March 31,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Net sales $191,216 $196,005 $393,168 $398,107
Gross profit (557) 6,690 7,714 6,896
Net loss before cumulative
effect of change in
accounting principle (17,275) (10,735) (26,583) (24,714)
Net loss (17,275) (10,735) (27,990) (24,714)
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
The Company operates in two principal business lines: Foodservice and
food packaging. Foodservice products include disposable hot and cold drink cups,
lids, food containers, plates, bowls and cutlery. These products are sold
directly and through distributors to fast food chains, full service restaurants,
hospitals, airlines, theaters and other institutional customers. Food packaging
products include paper and plastic containers for the dairy and food processing
industries. Food packaging also designs, manufactures and leases filling and
packaging machines that fill and seal the Company's containers in customers'
plants.
The Company's business is highly seasonal with the majority of its net
cash flows from operations realized in the second and third quarters of the
calendar year. The Company builds inventory to prepare for the higher seasonal
demands of the summer months when away-from-home consumption increases. As a
result, the Company uses its revolving credit facilities to meet its production
requirements during periods of reduced cash flow. Although the Company believes
that funds available under the credit facilities together with cash generated
from operations will be adequate to provide the Company's cash requirements,
there can be no assurance that such capital resources will be sufficient in the
future.
On March 12, 1998, the stockholders of the Company consummated an
agreement with SF Holdings and an affiliate of SF Holdings. In connection with
this transaction, all shareholders of record on March 11, 1998 exchanged their
shares of common stock for a new Class A Common Stock. In addition, a stock
dividend of 4.2 shares of a new Class B Common Stock was declared to the
shareholders of record on March 11, 1998. SF Holdings acquired from the
Company's stockholders 48% of the Company's outstanding Class A Common Stock and
all of the outstanding Class B Common Stock. As a result, SF Holdings holds 90%
of the total number of outstanding shares of both classes of the Company's
common stock.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Net sales decreased to $191.2 million for the three months ended March
31, 1998 from $196.0 million for the same period in 1997, a decrease of $4.8
million or 2.4%. The December 1997 sale of the bakery business resulted in a
$6.8 million decrease in sales. Excluding the impact of the bakery business
sale, net sales increased by $2.0 million, or 1.0%, reflecting a 2.6% increase
in domestic sales volume which is partially offset by a 1.5% decrease in
domestic sales price. Price has been negatively impacted both by competitive
market conditions and by falling raw material prices. The benefit of lower raw
material prices is generally passed on to customers. Foodservice sales volume
increased 3.6% while food packaging sales volume decreased 4.6%. Foodservice
volume has been positively impacted by the Company's focus on revenue growth
with key customers. The decrease in food packaging sales volume is primarily
attributable to decreases in demand by large accounts in their customer base due
to market conditions.
Gross profit decreased to $5.3 million for the three months ended March
31, 1998 from $9.8 million for the same period in 1997, a decrease of $4.5
million or 46.3%. As a percentage of net sales, gross profit decreased to 2.7%
for the three months ended March 31, 1998 from 5.0% for the same period in 1997.
Gross profit decreased by $0.7 million as a result of the sale of the bakery
business. Additionally, gross profit was negatively impacted by the
underabsorption of fixed overhead into inventory due to decreased production
during unscheduled down-time, which was partially offset by cost reduction
initiatives and lower raw material prices. Additionally,
8
<PAGE>
production was decreased to reduce inventory levels and increase inventory
turnover.
Selling, general and administrative expenses increased to $19.0 million
for the three months ended March 31, 1998 from $16.7 million for the same period
in 1997, an increase of $2.3 million or 13.9%. As a percentage of net sales,
selling, general and administrative expenses increased to 9.9% for the three
months ended March 31, 1998 from 8.5% for the same period in 1997. This increase
is primarily attributable to sales and marketing costs associated with the
Company's focus on increasing its sales volume with key customers, costs
associated with the new MIS system, and non-recurring expenses associated with
an executive retention plan and the year 2000 compliance program.
Other expense, net increased to $9.4 million in the three months ended
March 31, 1998 from expense of $0.5 million for the same period in 1997, an
increase of $8.9 million. In the quarter ended March 31, 1998, the Company
recognized certain one-time charges, consisting primarily of $4.4 million of
financial advisory and legal fees associated with the investment by SF Holdings
(see Note 5) and $3.7 million of severance expenses as a result of the
termination of certain officers of the Company pursuant to executive separation
agreements and retention plans for certain key executives.
Restructuring charges of $10.5 million were recognized in the quarter
ended March 31, 1998. In March 1998, the Company reduced its workforce and
decided to rationalize certain product lines and, in connection therewith,
dispose of the associated property and equipment. In connection with such plans,
the Company recognized charges for severance and asset disposition costs. The
Company believes that product line rationalizations will not have a material
adverse effect on the Company's results of operations or financial condition and
anticipates substantial completion of this restructuring within the next twelve
months.
Operating loss increased to $33.7 million for the three months ended
March 31, 1998 from $7.4 million for the same period in 1997 due to the reasons
described above.
Interest expense increased to $10.7 million for the three months ended
March 31, 1998 from $9.9 million for the same period in 1997, an increase of
$0.8 million or 7.7%, due primarily to higher average use of revolving credit
borrowings and incremental interest paid on the portion of the new U.S. Credit
Facility used to refinance the SRC Series 1994-1 A-V Notes.
Income tax benefit increased to $17.8 million for the three months
ended March 31, 1998 from $6.9 million for the same period in 1997. The
effective rate for the three month periods ending March 31, 1998 and 1997 was
40%.
Net loss increased to $26.6 million for the three months ended March
31, 1998 from $10.4 million for the same period in 1997 due to the reasons
described above.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
Net sales decreased to $393.2 million for the six months ended March
31, 1998 from $398.1 million for the same period in 1997, a decrease of $4.9
million or 1.2%. The December 1997 sale of the bakery business resulted in a
$7.5 million decrease in sales. Excluding the impact of the bakery business
sale, net sales increased by $2.6 million, or 0.7%, reflecting a 3.1% increase
in domestic sales volume which is partially offset by a 2.4% decrease in
domestic sales price. Price has been negatively impacted both by competition in
the marketplace and by falling raw material prices. The benefit of lower raw
material prices is generally passed on to customers. Foodservice sales volume
increased 3.1% while food packaging sales volume decreased 1.2%. Foodservice
volume has been positively impacted by the Company's focus on revenue growth
with key customers. The decrease in food packaging sales volume is primarily
attributable to decreases in demand by large accounts in their customer base due
to market conditions.
9
<PAGE>
Gross profit increased to $19.2 million for the six months ended March
31, 1998 from $12.6 million for the same period in 1997, an increase of $6.6
million or 52.7%. As a percentage of net sales, gross profit increased to 4.9%
for the six months ended March 31, 1998 from 3.2% for the same period in 1997.
This improvement primarily results from cost reduction programs implemented in
fiscal year 1997, including plant consolidation and manufacturing and
operational improvements, which have favorably impacted costs in fiscal year
1998. This improvement was partially offset by the underabsorption of fixed
overhead into inventory discussed in the three month comparison above.
Additionally, the Company has benefited from higher margin product sales to key
customers.
Selling, general and administrative expenses increased to $38.1 million
for the six months ended March 31, 1998 from $32.9 million for the same period
in 1997, an increase of $5.2 million or 15.8%. As a percentage of net sales,
selling, general and administrative expenses increased to 9.7% for the six
months ended March 31, 1998 from 8.3% for the same period in 1997. This increase
is primarily attributable to sales and marketing costs associated with the
Company's focus on increasing its sales volume with key customers, increased
wages and benefits, costs associated with the new MIS system, and non-recurring
expenses associated with an executive retention plan and year 2000 compliance
program.
Other expense, net increased to $6.2 million for the six months ended
March 31, 1998 from $0.6 million for the same period in 1997, an increase of
$5.6 million. In the quarter ended March 31, 1998, the Company recognized
certain one-time charges, consisting primarily of $4.4 million of financial
advisory and legal fees associated with the investment by SF Holdings (see Note
5) and $3.7 million of severance expenses as a result of the termination of
certain officers of the Company pursuant to executive separation agreements and
retention plans for certain key executives. These expenses are offset in part by
the $3.5 million gain on the sale of the bakery business recognized in the first
fiscal quarter of 1998.
Restructuring charges of $10.5 million were recognized in the quarter
ended March 31, 1998. In March 1998, the Company reduced its workforce and
decided to rationalize certain product lines and, in connection therewith,
dispose of the associated property and equipment. In connection with such plans,
the Company recognized charges for severance and asset disposition costs. The
Company believes these product line rationalizations will not have a material
adverse effect on the Company's results of operations or financial condition and
anticipates substantial completion of this restructuring within the next twelve
months.
Operating loss increased to $35.6 million for the six months ended
March 31, 1998 from $20.9 million for the same period in 1997 due to the reasons
described above.
Net interest expense increased to $21.5 million for the six months
ended March 31, 1998 from $19.5 million for the same period in 1997, an increase
of $2.0 million or 10.2%, due primarily to higher average use of revolving
credit borrowings and incremental interest paid on the portion of the new U.S.
Credit Facility used to refinance the SRC Series 1994-1 A-V Notes.
Income tax benefit increased to $22.8 million for the six months ended
March 31, 1998 from $16.2 million for the same period in 1997. The effective
rate for the six month periods ending March 31, 1998 and 1997 was 40%.
Cumulative effect of change in accounting principle was an expense
recorded to write-off previously capitalized costs as explained in Note 3.
Net loss increased to $35.8 million for the six months ended March 31,
1998 from $24.3 million for the same period in 1997 due to the reasons described
above.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the six months ended March
31, 1998 was $18.5 million compared to $18.0 million for the six month period
ended March 31, 1997. The net cash used in operating activities in both periods
was due principally to the net losses recorded in such periods which reflect
both market conditions and the seasonal low cash flow period for the Company.
The Company's investing activities which consist primarily of capital
expenditures historically have been funded through operating cash flow. Capital
expenditures for the six months ended March 31, 1998 were $20.3 million ($4.7
million net of proceeds from the sale of the bakery business and from the sale
of property, plant and equipment) compared to $24.9 million in the six months
period ended March 31, 1997. Capital expenditures were made primarily for
routine maintenance and capital improvements. During the current fiscal year,
the Company will rely principally on proceeds from the sale of property, plant
and equipment to fund capital expenditures.
On October 24, 1997, the Company refinanced its existing revolving
credit facility and other indebtedness and entered into a new revolving credit
facility, as amended, in an amount of up to $135.0 million, subject to borrowing
base limitations (the "U.S. Credit Facility"). Borrowings under the U.S. Credit
Facility mature on September 30, 2000. The Company's Canadian credit facility
(the "Canadian Credit Facility" and with the U.S. Credit Facility, the "Credit
Facilities") provides for a term loan of Cdn. $1.9 million and a revolving
credit facility of up to Cdn. $7.0 million. As of March 31, 1998, $5.9 million
is available under the U.S. Credit Facility, and Cdn. $1.0 million is available
under the Canadian Credit Facility. Historically, at March 31, the amount of
borrowing availability under the Credit Facilities is lowest due to the
Company's seasonality and scheduled interest payments. The Company is in
compliance with the debt covenants set forth in the Credit Facilities.
The Company's principal uses of cash will continue to be for working
capital, capital expenditures and debt service requirements. In addition, the
Company may be required to fund various contingent liabilities at any time,
including amounts accrued for litigation, claims and assessments reflected on
the balance sheet as other current liabilities. Although the Company believes
that cash generated by operations and funds available from working capital
borrowings under the Credit Facilities, as well as funds generated by asset
sales, will be sufficient to meet expected operating needs, planned capital
expenditures and debt service requirements, there can be no assurance that such
capital resources will be sufficient in the future.
NET OPERATING LOSS CARRYFORWARDS
As of September 30, 1997, the Company had approximately $170
million of net operating loss ("NOL") carryforwards for federal income tax
purposes. The investment in Sweetheart by SF Holdings discussed in Note 7 may
result in limitations on the use of these NOL carryforwards. Although the
Company has taken certain steps to allow utilization of the NOL carryforwards
and anticipates that a substantial portion of its NOL carryforwards will be
available to offset future taxable income, there can be no assurance that its
NOL carryforwards will become available or that the Company will generate future
taxable income. Accordingly, all or a portion of its NOL carryforwards could
expire unutilized, which could adversely affect the Company's ability to satisfy
obligations as they become due.
11
<PAGE>
YEAR 2000
The Company has implemented Year 2000 compliance programs designed to
ensure that its computer systems and applications will function properly beyond
1999. The Company expects its Year 2000 date conversion programs to be
substantially completed by the end of 1999 and believes that adequate resources,
both internal and external, have been allocated for this purpose. Management
estimates spending for these programs, including Fiscal 1998, to be
approximately $2.7 million and will be funded from cash from operations or
borrowings under the Credit Facilities. However, there can be no assurance that
the Company will identify all Year 2000 date conversion problems in its computer
systems in advance of their occurrence or that the Company will be able to
successfully remedy all problems that are discovered. Failure by the Company
and/or its significant vendors and customers to complete Year 2000 compliance
programs in a timely manner could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the revenue stream and financial stability of existing customers may be
adversely impacted by Year 2000 problems which could cause fluctuation in the
Company's revenues and operating profitability.
FORWARD-LOOKING STATEMENTS
Forward-looking statements in this filing, including those in the
footnotes to the financial statements, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to risks and uncertainties and actual
results could differ materially. Such risks and uncertainties include, but are
not limited to, general economic and business conditions, competitive market
pricing, increases in raw material, energy and other manufacturing costs,
fluctuations in demand for the Company's products, potential equipment
malfunctions and pending litigation. For additional information see the
Company's annual report on Form 10-K for the most recent fiscal year.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
As described in Note 5 to the financial statements, on March 12,
1998, the shareholders exchanged their common stock for a new
Class A Common Stock, and received a 4.2 share stock dividend in a
new Class B Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 11, 1998, the shareholders approved amendments to both
the Articles of Incorporation and the By-Laws of the Company.
These items are filed as an exhibit hereto.
ITEM 5. OTHER INFORMATION
The Board of Directors accepted the resignation of Jerry J.
Jasinowski, Peter W.C. Mather and William F. McLaughlin as
Directors of the Company effective March 9, 1998 and Burnell R.
Roberts effective March 10, 1998. Lawrence W. Ward, Jr. was
elected as a Director effective March 10, 1998, and Thomas Uleau
and Dennis Mehiel were elected as Directors effective March 12,
1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation of Sweetheart Holdings Inc. dated March 11,
1998.
3.4 Amendment and Restated By-Laws of Sweetheart Holdings
Inc. dated March 12, 1998.
10.47 Second Restated Management Services Agreement dated
March 12, 1998.
10.48 Amendment No. 1 to the Second Restated Management
Services Agreement dated March 12, 1998.
10.49 Amendment No. 2 to the Amended and Restated Loan and
Security Agreement dated March 10, 1998.
10.50 Amendment No. 3 to the Amended and Restated Loan and
Security Agreement dated May 12, 1998.
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
The first quarter earnings release was filed as an Item 5
disclosure on Form 8-K on January 27, 1998.
The investment by SF Holdings Group, Inc. in the Company was
filed as an Item 5 disclosure on Form 8-K on March 26, 1998.
A change in the Company's certifying accountant was filed as
an Item 4 disclosure on Form 8-K on May 1, 1998.
13
<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, its duly authorized officer and principal financial officer.
SWEETHEART HOLDINGS INC.
(registrant)
Date: May 15, 1998 By: /s/ Hans H. Heinsen
-------------- -------------------
Hans H. Heinsen
Vice President, Finance and
Chief Financial Officer
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
SWEETHEART HOLDINGS INC.
SWEETHEART HOLDINGS INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Sweetheart Holdings Inc.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on September 10, 1993.
3. The Restated Certificate of Incorporation of the Corporation is
hereby amended by:
(a) deleting Article FOURTH as it now exists and inserting in
lieu thereof the following:
"FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is 5,700,000, of which
1,100,000 shares shall be Class A Common Stock, par value $.01 per
share and 4,600,000 shares shall be Class B Common Stock, par value
$.01 per share. Class A Common Stock and Class B Common Stock shall
have the same powers, preferences and rights, except the Class B
Common Stock shall have no voting rights other than as required by
law. Each share of common stock of the Corporation which is issued and
outstanding on the date this Certificate of Amendment is filed with
the Secretary of State of Delaware shall be reclassified as a share of
Class A Common Stock."; and
(b) adding a new Article THIRTEENTH to read in its entirety as
follows:
"THIRTEENTH: The total number of directors constituting the full
Board of Directors shall be fixed at five. A total of four directors
shall constitute a quorum for the transaction of business."
4. The foregoing amendment to the Restated Certificate of Incorporation
herein certified was declared advisable by the Board of Directors of the
Corporation pursuant to a resolution duly adopting the amendment on March 11,
1998, and was duly adopted in accordance
<PAGE>
with the provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware by the affirmative vote of the holders of all of the
outstanding stock of the Corporation entitled to vote thereon.
Signed and attested to on March 11, 1998.
/s/ James R. Mullen
------------------------
Name: James R. Mullen
Title: Vice President
Attest:
- ----------------------
/s/ Daniel M. Carson
Name: Daniel Carson
Title: Secretary
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
SWEETHEART HOLDINGS INC.
A Delaware Corporation
(March 12, 1998)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be located at 32 Loockerman Square,
Suite L-100, in the City of Dover, County of Kent. The name of the corporation's
registered agent at such address shall be The Prentice-Hall Corporation System,
Inc. The registered office and/or registered agent of the corporation may be
changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have
offices at such other places, both within and without the State of Delaware, as
the board of directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of
the stockholders shall be held each year for the purpose of electing directors
and conducting such other proper business as may come before the meeting. The
date, time and place of the annual meeting shall be determined by the chairman
of the board or the president of the corporation; provided that if the chairman
of the board or the president does not act, the board of directors shall
determine the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders
may be called for any purpose and may be held at such time and place, within or
without the State of Delaware, as shall be stated in a notice of meeting or in a
duly executed waiver of notice thereof. Such meetings may be called at any time
by the chairman of the board, the president, the holders of two-thirds of the
shares then entitled to vote at an election of directors, or by resolution of
the board of directors.
<PAGE>
Section 3. Place of Meetings. The board of directors may
designate any place, either within or without the State of Delaware, as the
place of meeting for any annual or special meeting of stockholders. If no
designation is made, the place of meeting shall be the principal executive
office of the corporation.
Section 4. Notice. Whenever stockholders are required or
permitted to take action at a meeting, written or printed notice stating the
place, date, time, and, in the case of special meetings, the purpose or purposes
of such meeting, shall be given to each stockholder entitled to vote at such
meeting not less than 10 nor more than 60 days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the chairman of the board, the president or
the secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.
Section 5. Stockholders List. The officer having charge of the
stock ledger of the corporation shall make, at least 10 days before every
meeting of the stockholders, a complete list of the stockholders entitled to
vote at such meeting arranged in alphabetical order, showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 6. Quorum. The holders of a majority of the
outstanding shares of capital stock, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares present in person
or represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and/or place. When a quorum is once present
to commence a meeting of stockholders, it is not broken by the subsequent
withdrawal of any stockholders or their proxies.
Section 7. Adjourned Meetings. When a meeting is adjourned to
another time and place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
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Section 8. Vote Required. When a quorum is present, the
affirmative vote of the majority of .shares present in person of represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders, unless the question is one upon which by express provisions
of applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. All elections for directors shall be decided by a
plurality of the vote.
Section 9. Voting Rights. Except as otherwise provided by the
General Corporation Law of the State of Delaware or by the certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
or her by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. At each
meeting of the stockholders, and before any voting commences, all proxies filed
at or before the meeting shall be submitted to and examined by the secretary or
a person designated by the secretary, and no shares may be represented or voted
under a proxy that has been found to be invalid or irregular.
Section 11. Action by Written Consent. Unless otherwise
provided in the certificate of incorporation, any action required to be taken at
any annual or special meeting of stockholders of the corporation, or any action
which may be taken at any annual of special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken and bearing the dates
of signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the State of Delaware, or the corporation's principal place of business, or an
officer or agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested, provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until
received at the registered office. All consents properly delivered in accordance
with this section shall be deemed to be recorded when so delivered. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered to the
corporation as required by this section, written consents signed by the holders
of a sufficient number of shares to take such corporate action are so recorded.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
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<PAGE>
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of
directors.
Section 2. Number, Election and Term of Office. The total
number of directors shall be fixed at five. The directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote in the election of directors. The directors
shall be elected in this manner at the annual meeting of the stockholders,
except as provided in Section 4 of this Article III. Each director elected shall
hold office until a successor is duly elected and qualified or until his or her
earlier resignation or removal as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire
board of directors may be removed at any time, with or without cause, by the
holders of a majority of the shares then entitled to vote at an election of
directors. Any director may resign at any time upon written notice to the
corporation. Such written resignation shall take effect at the time specified
therein, and if no time be specified, at the time of its receipt by the
president or secretary. The acceptance of a resignation shall not be necessary
to make it effective.
Section 4. Vacancies. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly
elected board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other
than the annual meeting, of the board of directors may be held within or without
the State of Delaware and without notice at such time and at such place as shall
from time to time be determined by resolution of the board. Special meetings of
the board of directors may be called by or at the request of the chairman of the
board, the president or any director on at least 24 hours notice to each
director, either personally, by telephone, by mail or by telegraph.
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<PAGE>
Section 7. Quorum, Required Vote and Adjournment. A total of
four directors shall constitute a quorum for the transaction of business. The
vote of a majority of directors present at a meeting at which a quorum is
present shall be the act of the board of directors, except that the affirmative
vote of four directors shall be required to authorize or approve the following:
(i) the merger, consolidation or other combination of the corporation or
Sweetheart Cup Company, Inc. ("Cup") with or into another entity (regardless of
whether the corporation or Cup, as the case may be, is the surviving
corporation); (ii) the sale of all or a material portion of the assets of the
corporation or Cup; (iii) the entering into of any new line of business by the
corporation or Cup; (iv) the payment of any dividend or other distribution by
the corporation or Cup to their respective stockholders; (v) the issuance or
repurchase by the corporation or Cup of any equity securities; (vi) the
incurrence by the corporation or Cup of any indebtedness for money borrowed or
the refinancing of any existing indebtedness of the corporation or Cup or their
respective subsidiaries; (vii) the approval of the annual business plans and
operating budgets of the corporation or Cup; (viii) the termination or
modification of the terms of, or any decision not to pay any fees due under, the
Second Restated Management Services Agreement, dated as of March 12, 1998, among
the corporation, Cup, American Industrial Partners Management Company, Inc. and
SF Holdings Group, Inc., as amended, or the approval or modification of any
other transactions with affiliates of the corporation or Cup; (ix) the amendment
or modification of any provisions of the certificate of incorporation of the
corporation or Cup; (x) the amendment or modification of any provision of the
By-laws of the corporation or Cup; (xi) the election of the chief executive
officer, the chief operating officer and the chief financial officer of the
corporation or Cup and the setting of their respective compensation; provided,
however, that the chief operating officer and the chief financial officer shall
be elected upon the recommendation of the chief executive officer (so long as
such candidates are reasonably acceptable to four directors) and further
provided that in the event of the death or disability of the chief executive
officer, the chief operating officer shall automatically become the chief
executive officer; and (xii) the change in accountants or material accounting
policies or methods used by the corporation or Cup. If a quorum shall not be
present at any meeting of the board of directors, the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
corporation, which to the extent provided in such resolution or these By-laws
shall have and may exercise the powers of the board of directors in the
management and affairs of the corporation except as otherwise limited by law;
provided, however, that no such committee shall have the authority to authorize
or approve any of the matters set forth in clauses (i) through (xii) of Section
7 of this Article III. The board of directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Such committee or
committees shall have such name or names as may be determined from time to time
by resolution adopted by the board of directors. Each committee shall keep
regular minutes of its meetings ad report the same to the board of directors
when required.
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<PAGE>
Section 9. Committee Rules. Each committee of the board of
directors may fix its own rules of procedure and shall hold its meetings as
provided by such rules, except as may otherwise be provided by a resolution of
the board of directors designating such committee. Unless otherwise provided in
such a resolution, the presence of at least a majority of the members of the
committee shall be necessary to constitute a quorum. In the event that a member
and that member's alternate, if alternates are designated by the board of
directors as provided in section 8 of this Article III, of such committee is or
are absent or disqualified, the member or members thereof present at any meeting
and not disqualified from voting, whether or not such member or members
constitute a quorum may unanimously appoint another member of the board of
directors to act at the meeting in place of any such absent or disqualified
member.
Section 10. Communications Equipment. Members of the board of
directors or any committee thereof may participate in and act at any meeting of
such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any
member of the board of directors or any committee thereof who is present at a
meeting shall be conclusively presumed to have waived notice of such meeting
except when such member attends for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Such member shall be conclusively presumed
to have assented to any action taken unless his or her dissent shall be entered
in the minutes of the meeting or unless his or her written dissent to such
action shall be filed with the person acting as the secretary of the meeting
before the adjournment thereof or shall be forwarded by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to any member who voted in favor of such
action.
Section 12. Action by Written Consent. Unless otherwise
restricted by the certificate of incorporation, any action required or permitted
to be taken at any meeting of the board of directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the board or committee.
Section 13. Compensation. Unless otherwise restricted by the
certificate of incorporation, the board of directors shall have the authority to
fix the compensation of directors by written resolution. Nothing herein shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent or otherwise, and receiving compensation therefor.
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<PAGE>
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be
elected by the board of directors and shall consist of a chairman of the board
and chief executive officer, a president and chief operating officer, one or
more vice presidents (one of whom shall be the chief financial officer), a
secretary, a treasurer, one or more assistant secretaries and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person. In its
discretion, the board of directors may choose not to fill any office for any
period as it may deem advisable, except that the offices of president and
secretary shall be filled as expeditiously as possible.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be; provided, however, that any office other than chairman of
the board, president and chief financial officer may be filled by appointment by
the chairman of the board. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors. Each officer shall hold office
until a successor is duly elected and qualified or until his or her earlier
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board
of directors may be removed by the vote of four directors whenever in their
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officer or agent appointed by the chairman of the board may be
removed by the chairman of the board.
Section 4. Vacancies. Any vacancy occurring in the office of
chairman of the board, president or chief financial officer because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Compensation. Compensation of all officers elected
by the board of directors shall be fixed by the board of directors. No officer
shall be prevented from receiving such compensation by virtue of his or her also
being a director of the corporation. The vote of four directors shall be
required for the fixing of compensation of the chief executive officer, the
chief operating officer and the chief financial officer.
Section 6. The Chairman of the Board. The chairman of the
board shall be the chief executive officer of the corporation and, subject to
the powers of the board of directors, shall have general charge of the entire
business, affairs and property of the corporation and control over its officers,
agents and employees; shall be the chief policy making officer of the
corporation; and shall see that all orders and resolutions of the board of
directors are carried into effect. The chairman of the board shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise
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<PAGE>
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. The chairman of the board shall preside at all meetings of the
board of directors and stockholders and shall have such other powers and perform
such other duties as may be prescribed by the board of directors or provided by
these By-laws.
Section 7. The President. The president shall be the chief
operating officer of the corporation and, subject to the powers of the board of
directors and the chairman of the board, shall have general charge of the
ordinary operations of the corporation. The president shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation. The president shall have such other powers and perform such
other duties as may be prescribed by the board of directors or the chairman of
the board or as may be provided in these By-laws. Whenever the chairman of the
board is unable to serve, by reason of sickness, absence or otherwise, the
president shall perform all the duties and responsibilities and exercise all the
powers of the chief executive officer.
Section 8. Vice Presidents. The vice president, or if there
shall be more than one, the vice presidents in the order determined by the board
of directors shall, in the absence or disability of the president, act with all
of the powers and be subject to all the restrictions of the president. The vice
presidents shall also perform such other duties and have such other powers as
the board of directors, the chairman of the board, the president or these
By-laws may, from time to time, prescribe. The vice president who is designated
as chief financial officer of the corporation shall, subject to the powers of
the board of directors, the chairman of the board and the president, have
general charge and supervision of the financial affairs and reports of the
corporation, may sign and execute, in the name of the corporation, all
authorized credit agreements, indentures, notes, leases and other instruments
similar and related thereto and shall perform such related duties and have such
powers as the board of directors, the chairman of the board, the president or
these By-laws may, from time to time, prescribe.
Section 9. The Secretary and Assistant Secretaries. The
secretary shall attend all meetings of the board of directors, all meetings of
the committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the supervision of the chairman of the board, the secretary shall give, or
cause to be given, all notices required to be given by these By-laws or by law;
shall have such powers and perform such duties as the board of directors, the
chairman of the board, the president or these By-laws may, from time to time,
prescribe; and shall have custody of the corporate seal of the corporation. The
secretary, or an assistant secretary, shall have authority to affix the
corporate seal to any instrument requiring it and when so affixed, it may be
attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
or her signature. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or
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<PAGE>
disability of the secretary, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors, the chairman of the board, the president, or secretary may,
from time to time, prescribe.
Section 10. The Treasurer. The treasurer shall have the
custody of the corporate funds and securities; shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation;
shall deposit all monies and other valuable effects in the name and to the
credit of the corporation as may ordered by the board of directors; shall cause
the funds of the corporation to be disbursed when such disbursements have been
duly authorized, taking proper vouchers for such disbursements; and shall render
to the chairman of the board, the president and the board of directors, at its
regular meeting or when the board of directors so requires, an account of the
treasurer's actions; shall have such powers and perform such duties as the board
of directors, the chairman of the board, the president or these By-laws may,
from time to time, prescribe. If required by the board of directors, the
treasurer shall give the corporation a bond (which shall be rendered every six
years) in such sums and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of the office
of treasurer and for the restoration to the corporation, in case of death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money, and other property of whatever kind in the possession or under the
control of the treasurer belonging to the corporation.
Section 11. Other Officers, Assistant Officers and Agents.
Officers, assistant officers and agents, if any, other than those whose duties
are provided for in these By-laws, shall have such authority and perform such
duties as may from time to time be prescribed by the board of directors or the
chairman of the board.
Section 12. Absence or Disability of Officers. In the case of
the absence or disability of any officer of the corporation and of any person
hereby authorized to act in such officer's place during such officer's absence
or disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification of Directors and Officers.
Subject to the other provisions of this article, the corporation shall indemnify
and advance expenses to every director and officer (and to such person's heirs,
executors, administrators or other legal representatives) in the manner and to
the full extent permitted by applicable law as it presently exists, or may
hereinafter be amended, against any and all amounts (including judgments, fines,
payments in settlement, attorneys' fees and other expenses) reasonably incurred
by or on behalf of such person in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative ("a proceeding"), in which
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such director or officer was or is made or is threatened to be made a party or
is otherwise involved by reason of the fact that such person is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, fiduciary or member of any
other corporation, partnership, joint venture, trust, organization or other
enterprise. The corporation shall not be required to indemnify a person in
connection with a proceeding initiated by such person if the proceeding was not
authorized by the board of directors of the corporation.
Section 2. Advancement of Expenses of Directors and Officers.
The corporation shall pay the expenses of directors and officers incurred in
defending any proceeding in advance of its final disposition ("advancement of
expenses"); provided, however, that the payment of expenses incurred by a
director of officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the director or
officer is not entitled to be indemnified under this article or otherwise.
Section 3. Claims by Officers or Directors. If a claim for
indemnification or advancement of expenses by an officer or director under this
Article V is not paid in full within ninety days after a written claim therefor
has been received by the corporation, the claimant may file suit to recover the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or advancement of expenses under
applicable law.
Section 4. Indemnification of Employees. Subject to the other
provisions of this Article V, the corporation may indemnify and advance expenses
to every employee who is not a director of officer (and to such person' s heirs,
executors, administrators or other legal representatives) in the manner and to
the full extent permitted by applicable law as it presently exists, or may
hereafter be amended against any and all amounts (including judgments, fines,
payments in settlement, attorneys' fees and other expenses) reasonably incurred
by or on behalf of such person in connection with any threatened, pending or
completed action, suit, or proceeding, whether civil, criminal, administrative
or investigative ("a proceeding,'), in which such employee was or is made or is
threatened to be made a party or is otherwise involved by reason of the fact
that such person is or was an employee of the corporation, or is or was serving
at the request of the corporation is a director, officer, employee, fiduciary or
member of any other corporation, partnership, joint venture, trust, organization
or other enterprise. The ultimate determination of entitlement to
indemnification of employees who are not officers and directors shall be made by
the board of directors or by a committee of the board of directors in such
manner as the board or such committee shall determine. The corporation shall not
be required indemnify a person in connection with a proceeding initiated such
person if the proceeding was not authorized by the board directors of the
corporation.
Section 5. Advancement of Expenses of Employees. The
advancement of expenses of an employee who is not an officer director shall be
made by or in the manner
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provided by resolution of the board of directors or by a committee of the board
of directors of the corporation.
Section 6. Non-Exclusivity of Rights. The rights conferred on
any person by this Article V shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision of the
certificate of incorporation, these By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
Section 7. Other Indemnification. The corporation's
obligation, if any, to indemnify any person who was or is serving at its request
as a director, officer or employee of another corporation, partnership, joint
venture, trust, organization other enterprise shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, organization or other enterprise.
Section 8. Insurance. The board of directors may, to the full
extent permitted by applicable law as it presently exists, or may hereafter be
amended from time to time, authorize an appropriate officer or officers to
purchase and maintain at the corporation's expense insurance: (a) to indemnify
the corporation for any obligation which it incurs as a result of the
indemnification of directors, officers and employees under the provisions of
this Article V; and (b) to indemnify or insure directors, officers and employees
against liability in instances in which they may not otherwise be indemnified by
the corporation under the provisions of this Article V.
Section 9. Amendment or Repeal. Any repeal or modification of
the foregoing provisions of this Article V shall not adversely affect any right
or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation
shall be entitled to have a certificate, signed by, or in the name of the
corporation by the chairman of the board, the president or a vice president and
the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such holder in the corporation. If such a certificate
is countersigned (1) by a transfer agent or an assistant transfer agent other
than the corporation or its employee or (2) by a registrar, other than the
corporation or its employee, the signature of any such chairman of the board,
president, vice president, secretary, or assistant secretary may be facsimiles.
In case any officer or officers who have signed, or whose facsimile signature or
signatures have been used on, any such certificate or certificates shall cease
to be such officer or officers of the corporation, whether because of death,
resignation or otherwise, before such certificate or certificates have been
delivered by the corporation, such certificate or certificates may nevertheless
be issued and delivered as though the person or persons who signed such
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certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the corporation.
All certificates for shares shall be consecutively numbered or otherwise
identified. The name of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
books of the corporation. Shares of stock of the corporation shall only be
transferred on the books of the corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization, and other matters as the corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates, and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent of registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates previously issued by the corporation alleged to have
been lost, stolen, or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate of stock to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnity the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, the board
of directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more that sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board of
directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be the close of business on the next
day preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the board of directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of
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directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by statute, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the board of directors and prior action by the board of
directors is required by statute, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the board of directors adopts the
resolution taking such prior action.
Section 5. Fixing a Record Date for Other Purposes. In order
that the corporation may determine the stockholders entitle to receive payment
of any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful action,
the board of directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to
the corporation of the certificate or certificates for a share or shares of
stock with a request to record the transfer of such share or shares, the
corporation may treat the registered owner as the person entitled to receive
dividends, to vote, to receive notifications, and otherwise to exercise all the
rights and powers of an owner. The corporation shall not be bound to recognize
any equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided
for in the subscription agreement, subscriptions for shares shall be paid in
full at such time, or in such installments and at such times, as shall be
determined by the board of directors. Any call made by the board of directors
for payment on subscriptions shall be uniform as to all shares of the same class
or as to all shares of the same series. In case of default in the payment of any
installment or call when such payment is due, the corporation may proceed to
collect the amount due in the same manner as any debt due the corporation.
ARTICLE VII
GENERAL PROVISIONS
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Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of any
funds of the corporation available for dividends such sum or sums as the
directors may from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose,
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts and Orders. All checks, drafts, or
other orders for the payment of money by or to the corporation and all notes and
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner, as shall be determined by resolution of the board of directors or a
duly authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employees
of the corporation or of any subsidiary, including any officer or employee who
is a director of the corporation or any subsidiary, whenever in the judgment of
the directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation
shall be fixed by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide
a corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned by the Corporation. Subject
to the requirements of clauses (ix) and (x) of Section 7 of Article III, voting
securities in any other corporation held by the corporation shall be voted by
the chairman of the board or the president,
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unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the corporation's stock ledger, a
list of its stockholders, and its other books and records, and to make copies or
extracts therefrom. A proper purpose shall mean any purpose reasonably related
to such person's interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 9. Section Headings. Section headings in these By-laws
are for convenience of reference only and shall not be given any substantive
effect in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any
provision of these By-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these By-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
ARTICLE VIII
AMENDMENTS
These By-laws may be amended, altered, or repealed and new
By-laws adopted at any meeting of the board of directors by the vote of four
directors. The fact that the power to adopt, amend, alter of repeal the By-laws
has been conferred upon the board of directors shall not divest the stockholders
of the same powers.
SECOND RESTATED MANAGEMENT SERVICES AGREEMENT
Second Restated Management Services Agreement (the "Agreement"), dated
as of March 12, 1998, by and among Sweetheart Holdings Inc., a Delaware
corporation ("Holdings"), Sweetheart Cup Company Inc., a Delaware corporation
("Cup" and together with Holdings, the "Company"), American Industrial Partners
Management Company, Inc., a Delaware corporation ("AIPM"), and SF Holdings
Group, Inc., a Delaware corporation ("SF Holdings").
WHEREAS, pursuant to an Investment Agreement dated as of December 29,
1997 (the "Investment Agreement") by and among American Industrial Partners
Capital Fund L.P., the other stockholders of the Company, SF Holdings, and
Creative Expressions Group, Inc., SF Holdings will acquire 48% of the Class A
Common Stock and 100% of the Class B Common Stock of Holdings;
WHEREAS, pursuant to a Restated Management Services Agreement (the
"Existing Management Agreement"), dated as of August 31, 1993, by and among the
Company and AIPM, which is the general partner of American Industrial Partners
Capital Fund L.P., AIPM is providing certain management services to the Company;
and
WHEREAS, subject to the terms and conditions of this Agreement, the
Company desires to retain SF Holdings to provide certain management services to
the Company; and
WHEREAS, the parties hereby amend and restate the Existing Management
Agreement in its entirety as follows.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Credit Agreement" shall mean the Amended and Restated Loan and
Security Agreement dated as of October 24, 1997, as amended, among the
Company, the financial institutions named therein as lenders, and
BankAmerica Business Credit, Inc. as Agent. A reference herein to the
Credit Agreement shall not include any amendment or modification
thereof that is adverse to AIPM's and/or to SF Holdings's rights
hereunder unless each of AIPM and SF Holdings, as applicable,
expressly consents in writing to the applicability of such change upon
this Agreement.
"Indentures" shall mean, collectively, the Senior Secured Note
Indenture and the Senior Subordinated Note Indenture.
"Senior Secured Note Indenture" shall mean the Indenture, dated
as of August 30, 1993, by and among Cup, United States Trust Company
of New York, as trustee, and Holdings, as guarantor, pursuant to which
the Senior Secured Notes were issued. A reference herein to such
Indenture shall not include any amendment or modification thereof that
is adverse to AIPM's and/or to SF Holdings's rights hereunder unless
each of AIPM and SF Holdings, as applicable, expressly consents in
writing to the applicability of such change upon this Agreement.
<PAGE>
"Senior Secured Notes" means the $190,000,000 9.625% Senior
Secured Notes due 2000 of Cup.
"Senior Subordinated Note Indenture" shall mean the Indenture,
dated as of August 30, 1993, by and among Cup, United States Trust
Company of Texas, as trustee, and Holdings, as guarantor, pursuant to
which the Senior Subordinated Notes were issued. A reference herein to
such Indenture shall not include any amendment or modification thereof
that is adverse to AIPM's and/or to SF Holdings's rights hereunder
unless each of AIPM and SF Holdings, as applicable, expressly consents
in writing to the applicability of such change upon this Agreement.
"Senior Subordinated Notes" means the $110,000,000 10.5% Senior
Subordinated Notes due 2003 of Cup.
2. Management Services.
a. Until the third anniversary of the date first above written, AIPM
shall provide financial and other corporate advisory services to the Company.
Such services shall be performed by the qualified officers, employees or agents
of AIPM as the Company may reasonably request from time to time, and AIPM shall
at all times direct, monitor and supervise the performance of such services by
such officers, employees or agents. The Company recognizes that, during the term
of this Agreement, AIPM shall not be required to devote any minimum number of
hours or, other than as provided in the two immediately preceding sentences, to
perform any specific services or duties on behalf of the Company.
Notwithstanding anything in this Agreement to the contrary, the rights and
obligations of AIPM under this Agreement (other than AIPM's right to receive
Management Fees (as defined herein) theretofore accrued pursuant to Section 3
hereof) shall terminate upon the earlier to occur of (x) the third anniversary
of the date first above written, and (y) the date on which American Industrial
Partners Capital Fund, L.P. no longer holds any shares of capital stock of the
Company or any equity interests in SF Holdings.
b. During the term of this Agreement, SF Holdings shall provide general
management services to the Company and, subject to the direction of the Board of
Directors of the Company, shall have authority, responsibility and control over
all of the business operations of the Company, including, without limitation,
the following: (i) implementing the business plan of the Company; (ii) acquiring
and disposing of assets; (iii) entering into contracts, agreements and other
commitments for, and on behalf of, the Company; (iv) hiring, determining the
compensation of, and terminating employees of the Company other than the Chief
Executive Officer, Chief Financial Officer and Chief Operating Officer of each
of Holdings and of Cup; and (v) taking all other actions associated with
management of the day-to-day operations of the business of the Company. In
addition, SF Holdings shall provide financial and other corporate advisory
services to the Company. All of the services to be provided pursuant to this
Section 2(b) shall be performed by the qualified officers, employees or agents
of SF Holdings as the Company may reasonably request from time to time, and SF
Holdings shall at all times direct, monitor and supervise the performance of
such services by such officers, employees or agents.
3. Management Fees.
a. The Company shall pay aggregate annual management fees of $1,850,000
(the "Management Fees") as follows: (i) in respect of the period from the date
first above written (the "Closing Date") to the first anniversary thereof,
$925,000 to AIPM and $925,000 to SF Holdings; (ii) in respect of the period from
the first anniversary of the Closing Date to the second
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anniversary of the Closing Date, $740,000 to AIPM and $1,110,000 to SF Holdings;
(iii) in respect of the period from the second anniversary of the Closing Date
to the third anniversary of the Closing Date, $555,000 to AIPM and $1,295,000 to
SF Holdings; and (iv) thereafter, in respect of each period ending on the next
following anniversary of the date of the Management Agreement during the term of
this Agreement, $1,850,000 to SF Holdings. The Management Fees shall be payable
semi-annually in arrears forty-five (45) days after the payment of interest on
the Senior Secured Notes and the Senior Subordinated Notes.
b. Notwithstanding the provisions of Section 3(a) above, the payment of
the Management Fees shall be subject to the subordination and other terms and
conditions set forth in Section 9.15 of the Credit Agreement and Section 4.07 of
each of the Indentures. Any Management Fees which are not paid when due as a
result of the foregoing provisions shall be paid promptly after the time such
payment is not prohibited by Section 9.15 of the Credit Agreement and Section
4.07 of each of the Indentures. If either AIPM or SF Holdings ever receives a
payment of Management Fees in contravention of this Section 3(b), it shall hold
such payment in trust for the benefit of the lenders under the Credit Agreement
and the noteholders under the Indentures. The provisions of this Section 3(b)
cannot be amended without the consent of the "Agent" under the Credit Agreement
and the "Trustees" under each Indenture.
4. Additional Expenses. In addition to the Management Fees payable
pursuant to Section 3, the Company agrees to promptly reimburse AIPM and SF
Holdings for all reasonable out-of-pocket expenses incurred by AIPM and SF
Holdings in providing the services contemplated by this Agreement, including
reasonable fees and expenses paid to consultants, subcontractors and other third
parties in connection with such services; provided that the Chief Executive
Officer of the Company shall have previously approved the retention of such
consultant, subcontractor or other third party.
5. Term. Except as provided for herein, this Agreement shall be for an
initial term of three years from the date first above written. Such term shall
be renewed automatically for additional one-year terms thereafter unless SF
Holdings or the Company, upon approval of its Board of Directors, shall give
notice in writing within ninety days before the expiration of the initial three
year term or of any one-year renewal thereof of its desire to terminate this
Agreement. The provisions of Sections 7 and 8 shall survive the termination of
this Agreement.
6. Obligations Joint and Several. Holdings and Cup shall be jointly and
severally liable to AIPM and SF Holdings for all obligations of the Company
under this Agreement, including, without limitation, the payment of all
Management Fees and out-of-pocket expenses hereunder.
7. Indemnification. The Company will indemnify and hold harmless each
of AIPM and SF Holdings and their partners, employees, agents, representatives
and affiliates (each being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state law,
any claim made by any third party or otherwise, relating to or arising out of
the engagement of AIPM or SF Holdings, as applicable, pursuant to, and the
performance by AIPM or SF Holdings, as applicable, of the services contemplated
by, this Agreement, and the Company will reimburse any Indemnified Party for all
reasonable costs and expenses (including attorneys' fees and expenses) as they
are incurred in connection with the investigation of, preparation for or defense
of any pending or threatened claim, or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party hereto. The Company
will not be liable under the foregoing indemnification provision, and an
Indemnified Party shall reimburse
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the Company for any related payments made hereunder, to the extent that any
loss, claim, damage, liability, cost or expense is determined by a court, in a
final judgment from which no further appeal may be taken, to have resulted
primarily from the gross negligence or willful misconduct of AIPM or SF
Holdings, as applicable. No Indemnified Party shall be liable to the Company for
honest mistakes of judgment, or for action or inaction, taken in good faith in
the performance of services under this Agreement to the extent such action would
satisfy the standards for indemnification set forth in this Section 7.
8. Non-disclosure of Confidential Information. Each of the parties
hereto understands and acknowledges that during the term of this Agreement such
party will be provided with, or have access to, confidential information,
including, without limitation, trade secrets, customer lists, proprietary
manufacturing processes and marketing information, regarding the other's
operations and market structure (all of the foregoing collectively referred to
as the "Confidential Property"). Each of the parties will regard and preserve as
confidential and as trade secrets all Confidential Property of the others. Each
party agrees that it will not, directly or indirectly, communicate or divulge
to, or use for the benefit of itself or any other person, firm, association or
corporation, without the prior consent of the other party, which consent may be
withheld for any reason, any Confidential Property, all of which shall remain
the sole and exclusive property of the appropriate party.
9. Permissible Activities. Subject to all applicable provisions of
Delaware law that impose fiduciary duties upon AIPM or its partners or
affiliates or SF Holdings or its affiliates, nothing herein shall in any way
preclude AIPM or its partners or affiliates or SF Holdings or its affiliates
from engaging in any business activities or from performing services for its or
their own account or for the account of others.
10. Binding Effect; Assignability. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns. This Agreement may not be transferred or assigned by any
party without the prior written consent of each other party, except that SF
Holdings may assign all or any part of its rights and obligations, including,
without limitation, its right to receive Management Fees, under this Agreement
to The Fonda Group, Inc. without the consent of any of the other parties.
11. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement and understanding among the parties with respect to the subject matter
hereof and supersedes any earlier agreement with respect to the subject matter
hereof. This Agreement may be amended or modified, or any provisions hereof may
be waived; provided that such amendment or waiver is set forth in a writing
executed by the parties. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which taken together shall constitute a fully-executed
original instrument.
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
SWEETHEART HOLDINGS INC.
By: /s/ Daniel M. Carson
----------------------------
Name: Daniel M. Carson
Title: Vice President
SWEETHEART CUP COMPANY INC.
By: /s/ Daniel M. Carson
----------------------------
Name: Daniel M. Carson
Title: Vice President
AMERICAN INDUSTRIAL PARTNERS
MANAGEMENT COMPANY, INC.
By: /s/ Kenneth Pereira
----------------------------
Name: Kenneth A. Pereira
Title:
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
----------------------------
Name: Hans Heinsen
Title:
AMENDMENT NO. 1 TO THE SECOND RESTATED MANAGEMENT SERVICES AGREEMENT
Amendment No. 1 (the "Amendment") to the Second Restated Management
Services Agreement, dated as of March 12, 1998, by and among Sweetheart Holdings
Inc., a Delaware corporation ("Holdings"), Sweetheart Cup Company Inc., a
Delaware corporation ("Cup" and together with Holdings, the "Company"), American
Industrial Partners Management Company, Inc., a Delaware corporation ("AIPM"),
and SF Holdings Group, Inc., a Delaware corporation ("SF Holdings").
WHEREAS, Holdings, Cup, AIPM and SF Holdings are parties to the Second
Restated Management Services Agreement, dated as of March 12, 1998 (the
"Management Agreement"); and
WHEREAS, the parties hereto desire to extend the term of the Management
Agreement, subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Amendment. Section 5 of the Management Agreement is hereby amended
by deleting the first sentence and replacing it with the following sentence:
Except as provided for herein, this Agreement shall be for an initial
term commencing on the date first above written and ending on the tenth
anniversary of the date first above written.
2. Ratification. Except as expressly amended and extended hereby, the
Management Agreement is ratified and affirmed and shall remain in full force and
effect in accordance with its terms.
3. Binding Effect; Assignability. This Amendment shall be binding upon
and inure to the benefit of the parties hereto and their successors and
permitted assigns.
4. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether in the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
5. Counterparts. This Amendment may be executed in two or more
counterparts, each of which taken together shall constitute a fully-executed
original instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the day and year first above written.
SWEETHEART HOLDINGS INC.
By: /s/ Daniel M. Carson
-----------------------------
Name: Daniel M. Carson
Title: Vice President
SWEETHEART CUP COMPANY INC.
By: /s/ Daniel M. Carson
-----------------------------
Name: Daniel M. Carson
Title: Vice President
AMERICAN INDUSTRIAL PARTNERS
MANAGEMENT COMPANY, INC.
By: /s/ Kenneth Pereira
-----------------------------
Name: Kenneth A. Pereira
Title:
SF HOLDINGS GROUP, INC.
By: /s/ Hans Heinsen
-----------------------------
Name: Hans Heinsen
Title:
AMENDMENT NO. 2
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("this Amendment"), dated as of March 10, 1998, among SWEETHEART CUP
COMPANY INC. a Delaware corporation (the "Borrower"), SWEETHEART HOLDINGS INC.,
a Delaware corporation ("Holdings"), the lending institutions party hereto and
BANKAMERICA BUSINESS CREDIT, INC., as Agent (the "Agent").
WHEREAS, the Borrower, Holdings, the lenders party thereto and
the Agent entered into a certain Amended and Restated Loan and Security
Agreement, dated as of October 24, 1997, as amended (such agreement as so
amended being referred to herein as the "Loan and Security Agreement"), pursuant
to which such lenders have agreed, subject to certain terms and conditions, to
make revolving advances to the Borrower and to issue or to cause the issuance of
letters of credit for the account of the Borrower;
WHEREAS, the Borrower and Holdings desire to amend certain
financial covenants and the defined term "Change of Control" in the Loan and
Security Agreement;
WHEREAS, the Majority Lenders and the Agent are agreeable to
such amendments, subject to the terms and conditions herein contained;
NOW, THEREFORE, the Borrower, Holdings, the Majority Lenders
and the Agent hereby agree as follows:
SECTION 1. CAPITALIZED TERMS. Capitalized terms used but not
defined herein shall have the respective meanings set forth in the Loan and
Security Agreement.
SECTION 2. AMENDMENTS. The Loan and Security Agreement shall
be, and upon the fulfillment of the conditions set forth in Section 3 hereof is,
amended as follows:
2.1. The definition of "Adjusted Net Earnings from Operations"
in Section 1.1 of the Loan and Security Agreement is amended by:
(a) adding the following proviso to the end of clause (a)
thereof immediately before the semicolon:
"; provided that notwithstanding the foregoing, for
purposes of testing the Fixed Charge Coverage Ratio
for any Test Period ending on or after June 30, 1998,
any gain arising from the sale of any capital assets
(other than
<PAGE>
"; provided that notwithstanding the foregoing, for
purposes of testing the Fixed Charge Coverage Ratio
for any Test Period ending on or after June 30, 1998,
any gain arising from the sale of any capital assets
(other than Credit Agreement Collateral) of Parent or
any of its Subsidiaries permitted under Section 9.9
may be included in such net income if all of the net
cash proceeds of such sale have been reinvested in
any business of Parent or the Borrower permitted
under Section 9.18"; and
(b) deleting the last sentence of such definition and
substituting the following therefor:
"For purposes of the Fixed Charge Coverage Ratio test
set forth in Section 9.26, (i) Adjusted Net Earnings
From Operations shall not include the one-time costs
and expenses arising from (x) the transactions
contemplated hereby on the Closing Date or in
connection with the Divestiture or the sales
permitted by Sections 9.9(iv) and (v)(C) or (y) with
respect to Test Periods ending on or before March 31,
1998, the transfer and management of the Double Sided
Poly (DSP) Cold Cup conversion program, (ii) with
respect to Test Periods ending on or before March 31,
1998, any charge of the Borrower with respect to
plant closings, consolidations and the transfer and
management of the Double Sided Poly (DSP) Cold Cup
conversion program after the Closing Date and related
employee severance shall constitute an expense of the
Borrower when such charge is actually paid in cash by
the Borrower and not when such charge is accrued on
the books and records of the Borrower and (iii) with
respect to Test Periods ending on or after June 30,
1998, any charge of the Borrower with respect to
employee severance resulting from early termination
of employees of the Borrower shall constitute an
expense of the Borrower when such charge is actually
paid in cash by the Borrower and not when such charge
is accrued on the books and records of the Borrower."
2.2. The definition of "Change of Control" in
Section 1.1 of the Loan and Security Agreement is amended by:
(a) deleting clauses (i) and (ii) thereof and substituting the
following therefor:
" (i) Neither American Industrial Partners Capital Fund, L.P.,
a Delaware limited partnership ("AIP"), and/or SF Holdings
Group, Inc., a Delaware corporation (the "Buyer"), shall,
separately or collectively, be the record and Beneficial Owner
(as defined below) of a majority in the aggregate of the total
voting power of the Voting Stock (as defined below) of Parent,
whether as a result of an issuance of securities of Parent,
any merger, consolidation, liquidation or dissolution of
Parent, any direct or indirect transfer of securities or
otherwise; or
(ii) Neither AIP and/or the Buyer shall, separately
or collectively, have
2
<PAGE>
the right or ability, by voting power, contract or otherwise,
to elect or designate for election a majority of the Board of
Directors (as defined below) of Parent; or " and
(b) deleting the period at the end of clause (v) thereof,
substituting ";or " therefor and adding the following clauses after such clause
(v):
"(vi) None of AIP, Dennis Mehiel and/or any one or
more trusts, corporations, partnerships, limited liability
companies or other entities in which Dennis Mehiel has a
Beneficial Ownership interest of a majority in the aggregate
of the total voting power of such entity (each, a "Controlled
Entity") shall, separately or collectively, be the record and
Beneficial Owner of a majority in the aggregate of the total
voting power of the Voting Stock of the Buyer, whether as a
result of an issuance of securities of the Buyer, any merger,
consolidation, liquidation or dissolution of the Buyer, any
direct or indirect transfer of securities or otherwise; or
(vii) None of AIP, Dennis Mehiel and/or one or more
Controlled Entities shall, separately or collectively, have
the right or ability, by voting power, contract or otherwise,
to elect or designate for election a majority of the Board of
Directors of the Buyer."
2.3. The definition of "Fixed Charge Component " in Section
1.1 of the Loan and Security Agreement is amended by adding the clause ", for
the calculation of the Fixed Charge Coverage Ratio for Test Periods ending on or
before March 31, 1998," immediately before the phrase "Capital Expenditures paid
for by the Borrower with cash proceeds from the sale of assets" in clause (iii)
thereof.
2.4. Section 9.23 of the Loan and Security Agreement is
deleted in its entirety and the following shall be substituted therefor:
"9.23 Capital Expenditures. Neither Parent nor any of
its Subsidiaries shall make or incur any Capital
Expenditures in any Fiscal Year set forth below if,
after giving effect thereto, the aggregate amount of
all Capital Expenditures by Parent and its
Subsidiaries on a consolidated basis during such
Fiscal Year shall exceed the amount set forth below
opposite such Fiscal year:
Fiscal Year Amount
1998 $47,000,000
1999 $50,000,000
2000 $47,000,000
3
<PAGE>
The Borrower will use its commercially reasonable
best efforts to use the net proceeds (but in any
event shall use not less than 75% of the net
proceeds) of each sale of Secured Note Collateral
permitted pursuant to Sections 9.9(ii), (iii) and
(iv) to incur Capital Expenditures, to the extent
otherwise permitted under this Section. The Borrower
agrees to promptly notify the Agent of any such sale
and the amount of net proceeds to be derived from
each such sale."
2.5. Section 9.26 of the Loan and Security Agreement is
amended by deleting in its entirety the schedule contained therein and
substituting the following schedule therefor:
"Fiscal Quarter Ending Ratio
December 31, 1997 .15/1
March 31, 1998 .15/1
June 30, 1998 .54/1
September 30, 1998 .64/1
December 31, 1998 .64/1
March 31, 1999 .64/1
June 30, 1999 .66/1
September 30, 1999 .67/1
December 31, 1999 .69/1
March 31, 2000 .70/1
June 30, 2000 .73/1
September 30, 2000 .76/1 "
2.6. Section 11.1 of the Loan and Security Agreement is
amended by (i) deleting the word "or " at the end of clause (p) thereof, (ii)
deleting the period at the end of clause (q) thereof and substituting therefor
";or " and (iii) adding the following clause (r) thereto:
"(r) there shall occur any of the events, acts or
conditions described in Section 6 of the Waiver dated
January 21, 1998 by the Lenders to the Borrower and
Parent or any of the waivers or other agreements of
the Majority Lenders in such Waiver shall be revoked
or of no further force or effect as contemplated by
such Section 6; or the Borrower or Parent shall
breach any agreement made by it under such Waiver."
SECTION 3. EFFECTIVENESS. This Amendment shall become
effective only after satisfaction of the following conditions:
(a) the Agent shall have received an original
counterpart hereof duly executed and delivered by the
Borrower, Holdings, the Majority Lenders and the Agent;
4
<PAGE>
(b) SF Holdings Group, Inc. (the "Buyer ") shall have
acquired shares of the outstanding capital stock of Holdings
representing 90% of the outstanding shares of capital stock of
Holdings and 48% of the outstanding Voting Stock of Holdings
pursuant to and in accordance with the terms of the Investment
Agreement, dated as of December 29, 1997, among the
stockholders of Holdings immediately prior to such
acquisition, Creative Expressions Group, Inc. and the Buyer as
in effect on the date of execution thereof; and
(c) No Default or Event of Default shall have
occurred and be continuing.
SECTION 4. COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute a single instrument. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 5. REFERENCES TO LOAN AND SECURITY AGREEMENT. From and
after the effectiveness of this Amendment and the amendments contemplated
hereby, all references in the Loan and Security Agreement to "this Agreement",
"hereof", "herein", and similar terms shall mean and refer to the Loan and
Security Agreement, as amended and modified by this Amendment, and all
references in other documents to the Loan and Security Agreement shall mean such
agreement as amended and modified by this Amendment.
SECTION 6. RATIFICATION AND CONFIRMATION. The Loan and
Security Agreement is hereby ratified and confirmed and, except as herein
agreed, remains in full force and effect. Each of the Borrower and Holdings
represents and warrants that (i) all representations and warranties contained in
the Loan Documents are 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 hereof (except to the extent that such representations or warranties
expressly related to a specified prior date) and (ii) there exists no Default or
Event of Default.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of the
day and year first above written.
SWEETHEART CUP COMPANY INC.
By: /s/ Roger A. Lindahl
------------------------------
Name: Roger Lindahl
Title: Vice President and Treasurer
SWEETHEART HOLDINGS INC.
By: /s/ Roger A. Lindahl
------------------------------
Name: Roger Lindahl
Title: Vice President and Treasurer
BANKAMERICA BUSINESS CREDIT, INC.
Individually and as Agent
By: /s/ Louis Alexander
------------------------------
Name: Louis Alexander
Title: Vice President
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet S. Last
------------------------------
Name: Janet S. Last
Title: Vice President
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Michael S. Burns
------------------------------
Name: Michael S. Burns
Title: Senior Vice President
MELLON BANK, N.A.
By: /s/ Eric Serenkin
------------------------------
Name: Eric Serenkin
Title: Vice President
AT&T COMMERCIAL FINANCE
CORPORATION
By: /s/ James M. Vandervalk
------------------------------
Name: James M. Vandervalk
Title: Vice President
AMENDMENT NO. 3
TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 3 TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
("this Amendment"), dated as of May 12, 1998, among SWEETHEART CUP COMPANY INC.
a Delaware corporation (the "Borrower"), SWEETHEART HOLDINGS INC., a Delaware
corporation ("Holdings"), the lending institutions party hereto and BANKAMERICA
BUSINESS CREDIT, INC., as Agent (the "Agent").
WHEREAS, the Borrower, Holdings, the lenders party thereto and the
Agent entered into a certain Amended and Restated Loan and Security Agreement,
dated as of October 24, 1997, as amended (such agreement as so amended being
referred to herein as the "Loan and Security Agreement"), pursuant to which such
lenders have agreed, subject to certain terms and conditions, to make revolving
advances to the Borrower and to issue or to cause the issuance of letters of
credit for the account of the Borrower;
WHEREAS, the Borrower and Holdings desire to amend certain financial
covenants and the defined term "Eligible Accounts" in the Loan and Security
Agreement;
WHEREAS, the Majority Lenders and the Agent are agreeable to such
amendments, subject to the terms and conditions herein contained;
NOW, THEREFORE, the Borrower, Holdings, the Majority Lenders and the
Agent hereby agree as follows:
SECTION 1. CAPITALIZED TERMS. Capitalized terms used but not defined
herein shall have the respective meanings set forth in the Loan and Security
Agreement.
SECTION 2. AMENDMENTS. The Loan and Security Agreement shall be, and
upon the fulfillment of the conditions set forth in Section 3 hereof is, amended
as follows:
2.1. The definition of "Eligible Accounts" in Section 1.1 of the Loan
and Security Agreement is amended by:
(a) adding the following clause to the end of clause (a) thereof
immediately before the semicolon:
<PAGE>
"(for any Accounts owing by Fonda, with respect to which more
than forty-five days have elapsed since the date of the
original invoice therefor or it is more than fifteen days past
due)";
(b) adding the phrase "(ten percent (10%) with respect to Fonda)"
immediately after the phrase "fifty percent (50%)" in clause (f)
thereof; and
(c) adding the following proviso to the end of clause (h) thereof
immediately before the semicolon:
"; provided that the Agent may, in its sole discretion,
consider Accounts owing by Fonda not to be ineligible pursuant
to this clause (h) , and, without limiting such discretion or
the Agent's right to impose additional and/or different
conditions therefor, the following shall in any event be
satisfied as conditions thereto: (1) not greater than
$3,000,000 in the aggregate at any one time of all Accounts
owing by Fonda shall be considered Eligible Accounts, (2) the
pricing, other terms of sale for the goods giving rise to such
Accounts and the terms for such Accounts shall be no less
favorable to the Borrower than would be obtained by the
Borrower in a comparable arm's-length transaction with a third
party which is not an Affiliate with a financial condition
similar to that of Fonda and with sales volume of goods
purchased from the Borrower similar to that of Fonda, (3) any
audit by or on behalf of the Agent of the Borrower or its
property may, in the Agent's discretion, include a review of
the Borrower's invoicing to Fonda on all purchases by Fonda
from the Borrower, (4) not later than ten (10) days after the
end of each month, the Agent shall have received a certificate
from Fonda certifying, in such detail as the Agent shall
reasonably request, the undrawn availability under Fonda's
revolving credit facility as of the last day of such month
(such undrawn availability to be acceptable to the Agent), (5)
not later than ninety (90) days after the end of each fiscal
year of Fonda, the Agent shall have received the consolidated
audited balance sheet, statement of income and expense, cash
flow and of stockholder's equity for Fonda and its
Subsidiaries for such fiscal year, and the accompanying notes
thereto, setting forth in each case in comparative form
figures for the previous fiscal year, all in reasonable
detail, fairly presenting in all material respects the
financial position and the results of operations of Fonda and
its consolidated Subsidiaries as at the date thereof and for
its fiscal year then ended, and prepared in accordance with
GAAP (such statements to be satisfactory to the Agent and to
be examined in accordance with generally accepted auditing
standards by, accompanied by a report thereon unqualified as
to scope of, independent certified public accountants
reasonably satisfactory to the Agent) and (6) not later than
forty-five (45)
2
<PAGE>
days after the close of each fiscal quarter of Fonda other
than the fourth quarter of a fiscal year of Fonda, a
consolidated unaudited balance sheet of Fonda and its
consolidated Subsidiaries as at the end of such quarter, and a
consolidated unaudited statement of income and expense and
statement of cash flows for Fonda and its Subsidiaries for
such quarter, all in reasonable detail, fairly presenting in
all material respects the financial position and results of
operations of Fonda and its Subsidiaries as at the date
thereof and for such periods, prepared in accordance with GAAP
consistent with the audited financial statements required to
be delivered pursuant to clause (5) above (except for the
absence of footnotes and subject to normal year-end
adjustments) and otherwise satisfactory to the Agent, together
with a certificate signed by Fonda's chief financial officer
or treasurer that all such statements have been prepared in
accordance with GAAP and present fairly in all material
respects (except for the absence of footnotes and subject to
normal year-end adjustments) Fonda's financial position as at
the dates thereof and its results of operations for the
periods then ended".
2.2. The following definition is added to Section 1.1 of the Loan and
Security Agreement in the proper alphabetical order:
"`Fonda' means The Fonda Group, Inc."
2.3. The definition of "Test Period" in Section 1.1 of the Loan and
Security Agreement is amended by deleting the proviso contained therein and
substituting the following therefor:
"provided that, with respect to determining the Fixed Charge
Coverage Ratio under Section 9.26 at the end of the fiscal
quarter of the Borrower ending December 31, 1997, "Test
Period" means such fiscal quarter of the Borrower and, with
respect to determining the Fixed Charge Coverage Ratio under
Section 9.26 at the end of each of the fiscal quarters of the
Borrower ending June 30, 1998, September 30, 1998 and December
31, 1998, "Test Period" means, respectively, the fiscal
quarter of the Borrower ending June 30, 1998, the two
consecutive fiscal quarters of the Borrower ending September
30, 1998 (taken as one accounting period) and the three
consecutive fiscal quarters of the Borrower ending December
31, 1998 (taken as one accounting period)".
2.4. Section 9.26 of the Loan and Security Agreement is amended by:
(a) deleting in its entirety the schedule contained therein and
substituting the following schedule therefor:
3
<PAGE>
"Fiscal Quarter Ending Ratio
---------------------- -----
December 31, 1997 .15/1
June 30, 1998 .38/1
September 30, 1998 .77/1
December 31, 1998 .55/1
March 31, 1999 .52/1
June 30, 1999 .66/1
September 30, 1999 .67/1
December 31, 1999 .69/1
March 31, 2000 .70/1
June 30, 2000 .73/1
September 30, 2000 .6/1"
and
(b) adding the following sentence at the end thereof:
"The Borrower will maintain EBITDA of not less than negative
$2,000,000 for the two consecutive fiscal quarters of the
Borrower ending March 31, 1998 (taken as one accounting
period)."
SECTION 3. EFFECTIVENESS. This Amendment shall become effective only
after satisfaction of the following conditions:
(a) the Agent shall have received an original counterpart hereof duly
executed and delivered by the Borrower, Holdings, the Majority Lenders
and the Agent; and
(b) No Default or Event of Default shall have occurred and be
continuing.
SECTION 4. COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be an original, and all of which, taken
together, shall constitute a single instrument. This Amendment shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 5. REFERENCES TO LOAN AND SECURITY AGREEMENT. From and after
the effectiveness of this Amendment and the amendments contemplated hereby, all
references in the Loan and Security Agreement to "this Agreement", "hereof",
"herein", and similar terms shall mean and refer to the Loan and Security
Agreement, as amended and modified by this Amendment, and all references in
other documents to the Loan and Security Agreement shall mean such agreement as
amended and modified by this Amendment.
4
<PAGE>
SECTION 6. RATIFICATION AND CONFIRMATION. The Loan and Security
Agreement is hereby ratified and confirmed and, except as herein agreed, remains
in full force and effect. Each of the Borrower and Holdings represents and
warrants that (i) all representations and warranties contained in the Loan
Documents are 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
hereof (except to the extent that such representations or warranties expressly
related to a specified prior date) and (ii) there exists no Default or Event of
Default.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written.
SWEETHEART CUP COMPANY INC.
By: /s/ Roger A. Lindahl
-------------------------------
Name: Roger A. Lindahl
Title: Vice President and Treasurer
SWEETHEART HOLDINGS INC.
By: /s/ Roger A. Lindahl
-------------------------------
Name: Roger A. Lindahl
Title: Vice President and Treasurer
BANKAMERICA BUSINESS CREDIT, INC.
Individually and as Agent
By: /s/ Louis Alexander
-------------------------------
Name: Louis Alexander
Title: Vice President
CONGRESS FINANCIAL CORPORATION
By: /s/ Janet S. Last
-------------------------------
Name: Janet S. Last
Title: Vice President
6
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Michael S. Burns
-------------------------------
Name: Michael S. Burns
Title: Senior Vice President
MELLON BANK, N.A.
By: /s/ Eric Serenkin
-------------------------------
Name: Eric Serenkin
Title: Vice President
AT&T COMMERCIAL FINANCE
CORPORATION
By: /s/ Paul Seidenwar
-------------------------------
Name: Paul Seidenwar
Title: Assistant Vice President
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,545
<SECURITIES> 0
<RECEIVABLES> 82,307
<ALLOWANCES> (2,823)
<INVENTORY> 147,708
<CURRENT-ASSETS> 261,821
<PP&E> 540,200
<DEPRECIATION> (164,838)
<TOTAL-ASSETS> 688,813
<CURRENT-LIABILITIES> 164,573
<BONDS> 417,429
54
0
<COMMON> 0
<OTHER-SE> 38,819
<TOTAL-LIABILITY-AND-EQUITY> 688,813
<SALES> 393,168
<TOTAL-REVENUES> 393,168
<CGS> 373,965
<TOTAL-COSTS> 373,965
<OTHER-EXPENSES> 54,811
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,498
<INCOME-PRETAX> (57,106)
<INCOME-TAX> (22,840)
<INCOME-CONTINUING> (34,266)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (1,511)
<NET-INCOME> (35,777)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
