SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File No. 0-795
BADGER PAPER MILLS, INC.
(Exact name of registrant as specified in its charter)
200 West Front Street WISCONSIN
P.O. Box 149 (State of incorporation)
Peshtigo, Wisconsin 54157-0149 39-0143840
(Address of principal executive office) (I.R.S. Employer Identification Number)
Registrant's telephone number, including area code: (715) 582-4551
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Nominal or Par Value
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of March 13, 2000, 1,974,168 shares of common stock were outstanding, and the
aggregate market value of the common stock (based upon the closing sale price of
the shares on the Nasdaq National Market) held by non-affiliates was
approximately $11,598,237. Determination of stock ownership by affiliates was
made solely for the purpose of responding to this requirement, and registrant is
not bound by this determination for any other purpose.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Proxy Statement for its 2000 Annual Meeting of Shareholders to be
filed with the Commission under Regulation 14A is herein incorporated by
reference into Part III of this Form 10-K to the extent indicated in Part III
hereof.
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Statement Regarding Forward-Looking Information
This Form 10-K, each of the Company's annual report to shareholders, Forms 8-K
and 10-Q, proxy statements, and any other written or oral statement made by or
on behalf of the Company subsequent to the filing of this Form 10-K may include
one or more "forward-looking statements" within the meaning of Sections 27A of
the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934 as
enacted in the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"). In making forward-looking statements within the meaning of the Reform
Act, the Company undertakes no obligation to publicly update or revise any such
statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially
include, but are not limited to the following:
o Increased competition from either domestic or foreign paper producers or
providers of alternatives to the Company's products, including increases
in competitive production capacity, resulting in sales declines from
reduced shipment volume and/or lower net selling prices in order to
maintain shipment volume.
o Changes in demand for the Company's products due to overall economic
activity affecting the rate of consumption of the Company's paper
products, growth rates of the end markets for the Company's products,
technological or consumer preference changes and acceptance of the
Company's products by the markets served by the Company.
o Changes in the price of pulp, the Company's main raw material. All of the
Company's pulp needs are purchased on the open market and price changes
for pulp have a significant impact on the Company's costs. Pulp price
changes can occur due to changes in worldwide consumption levels of pulp,
pulp capacity additions, expansions or curtailments affecting the supply
of pulp, inventory building or depletion at pulp consumer levels which
affect short-term demand, and pulp producer cost changes related to wood
availability, environmental issues and other variables.
o Unforeseen operational problems at any of the Company's facilities causing
significant lost production and/or cost issues.
o Changes in laws or regulations which affect the Company.
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Five-Year Comparison of Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Earnings (in thousands):
<S> <C> <C> <C> <C> <C>
Net sales $67,024 $65,727 $70,427 $76,276 $92,648
Cost of sales 60,336 58,505 67,600 72,411 83,890
Gross profit 6,688 7,222 2,827 3,865 8,758
Selling and administrative expenses 4,825 4,331 4,085 4,136 3,852
Restructuring provision - - 850 7,430 504
Pulp mill impairment charge - - 783 - -
Profit (loss) from operations 1,863 2,891 (2,891) (7,701) 4,402
Other income 617 946 650 4,842 414
Interest expense 1,064 1,196 1,354 894 1,305
Unrealized holding gain or (loss)
on trading securities - - - 307 549
Earnings (loss) before income taxes 1,416 2,641 (3,595) (3,446) 4,060
Income tax expense (benefit) 279 897 (1,153) (1,234) 1,312
Net earnings (loss) 1,137 1,744 (2,442) (2,212) 2,748
Common stock:
Number of shareholders of record 434 470 515 518 568
Weighted average shares outstanding 1,966,111 1,955,772 1,947,128 1,944,699 1,953,868
Earnings (loss) per share $.58 $0.89 $(1.25) $(1.14) $1.41
Cash dividends declared per share - - $ - $ 0.22 $0.10
Book value per share $9.91 $9.33 $8.42 $9.68 $11.04
Financial position (in thousands)
Working capital $8,259 $7,346 $7,196 $9,923 $10,459
Capital expenditures 2,815 3,004 4,686 6,856 2,705
Total assets 46,894 47,999 48,356 51,952 52,578
Long-term debt 15,705 16,126 20,394 18,617 17,236
Shareholders' equity 19,484 18,257 16,444 18,832 21,443
</TABLE>
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PART I
Item 1. Business
Badger Paper Mills, Inc. ("Badger" or the "Company") was incorporated under the
laws of the State of Wisconsin in 1929. It has been producing paper for over 70
years. Badger operates in two industry segments: the production of paper
products segment, and the printing and converting segment.
Products and Distribution
Badger's ISO 9001 certified paper mill, consisting of two paper machines, is
located in Peshtigo, Wisconsin. Converting facilities contiguous to the
papermaking facilities include punching equipment, sheeters, trimmers, sealers,
perforators, rewinders, waxers, paper drilling and die-cutting equipment.
Badger's flexographic printing and converting operation is located in Oconto
Falls, Wisconsin.
Products produced on Badger's Fourdrinier machine represented 78 percent of the
paper products manufactured by the Company in 1999, and sale of paper products
produced on this machine contributed more than 69 percent of 1999 revenue. Fine
paper grades are produced utilizing fiber purchased on the open market,
including pre- and post-consumer recycled fibers. These paper grades include
multi-purpose business papers, offset, opaque, endleaf, ledger, reply card,
watermarked, water-oil-grease resistant papers (WOGR), electrostatic copier,
text and cover, and technical and specialty papers. Badger offers a wide range
of colored papers and specializes in color matching. Badger sells a portion of
these products under certain trademarks and trade names, including Ta-Non-Ka(R),
Copyrite(R), ENVIROGRAPHIC(R), Northern Brights(R), Artopaque(R), Marks of
Distinction(R) and DuraEdge(R). These products are sold through paper merchants,
brokers and value-added converters who in turn sell to other value-adding
entities or direct to the consumer.
The Company's Yankee machine produced 22 percent of the paper products
manufactured by Badger in 1999, representing 31 percent of the 1999 revenue from
the sale of paper products. These products consist of converted plain or printed
waxed papers, laminating grades, machine-glazed, colors, specialty-coated base
papers, twisting papers and various other specialty papers. These products are
sold nationally and internationally to manufacturers, consumers and converters
by Badger's own sales personnel and commissioned brokers.
Consumers of Badger's paper products can be found in population centers
throughout North America.
The Company's Oconto Falls, Wisconsin facility has a printing and converting
operation that compliments Badger's packaging paper products. This facility
processes various substrates of film and paper and enhances the capabilities of
the Peshtigo packaging paper operations, resulting in opportunities to expand
business growth for both. The facility also has rewinding and polyethylene bag
making equipment. Oconto Falls contributed 13 percent of the Company's
consolidated revenues in 1999.
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Competition
Badger's manufactured paper products are highly sensitive to competition from
numerous sources, including other paper products and products of other
composition. Product quality, price, volume and service are all competitive
factors. Badger's production of fine papers from the Fourdrinier paper machine
represents less than one percent of the production capacity in the United States
for these products. Competition for these papers comes primarily from large
mills in North America and imports from other countries. Competition for
flexible packaging and specialty papers produced from the Yankee paper machine
comes from other specialty mills; some of the mills are similarly constituted as
Badger, others have greater capacity. Many of our larger competitors have
greater financial, technical, marketing and public relation resources, larger
client bases and greater brand or name recognition than Badger. Backlogs are
maintained by offering quality products, prompt service and technical
assistance, including a research and development program to develop new products
to meet customer product design specifications.
Raw Materials; Inventories
Badger's principal raw material used for papermaking operations is purchased
pulp. Badger utilizes a variety of fibers to meet the formulation requirements
of the papers it produces. Pre-consumer and post-consumer recycled pulp,
northern and southern softwood and hardwood pulps, and hard white rolls make up
the total fiber requirements. Badger purchases all its fiber requirements on the
open market.
Other raw materials are purchased directly from manufacturers and distributors.
Badger has at least two sources of supply for major items. Shortages of
purchased pulp or certain chemicals (including petrochemicals) could have an
adverse effect on Badger's ability to manufacture its products, and could
adversely affect product mix.
The printing and converting operations' primary raw materials are paper,
polyethylene and printing inks. They are purchased directly from manufacturers,
including paper purchases from the Peshtigo mill.
In-process and finished goods inventory at the end of 1999 was equivalent to
approximately 44 days of production, compared to 38 days in 1998.
Energy
Badger is a large consumer of electricity and natural gas. Electrical
requirements are purchased from local public utilities, and natural gas is
purchased from various sources in the United States and Canada. The Peshtigo
facility's heat requirements are supplied by two dual-fueled boilers capable of
burning natural gas or fuel oil, and one natural gas boiler. Management believes
current sources of natural gas, fuel oil and electricity are adequate to meet
Badger's needs, although temporary interruptions of electrical service were
experienced in the summer of 1999 due to regional shortages of electricity
during peak demand periods. Badger could experience similar interruptions in the
future.
Patents
Badger owns certain patents and licenses used in connection with its business,
none of which are individually considered material to its business.
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Research and Development
Badger maintains a dedicated technical staff to research and develop new
products, although outside consultants are utilized from time to time. The
technical staff also refines and improves existing products in response to
customer requirements and market demands. The amounts spent on product research
and development activities were $2,089,000 in 1999, $2,971,000 in 1998, and
$5,287,000 in 1997. The significant increase in research and development
expenditures in 1997 was related to new product introductions and development of
specialty products associated with the 1997 strategic initiative to refocus
Badger as a producer of specialty paper products rather than commodity paper
products.
Backlog
As of December 31, 1999, Badger's backlog of orders was approximately
$2,566,000, as compared to $2,106,000 and $3,550,000 at December 31, 1998 and
1997, respectively. The backlogs for 1999 and 1998 were reduced from prior years
because soft market conditions that existed at the end of each of these years
allowed customers to reduce inventories and order closer to their actual needs.
Customers
In 1999, 1998 and 1997, no customers represented over 10 percent of Badger's net
sales.
Environmental Matters
In 1999, the Wisconsin Department of Natural Resources ("WDNR") met with Badger
several times to determine the finalization of the Title V Air Operating Permit
at Badger's Peshtigo, Wisconsin facility. The final draft of the permit is
complete and is submitted to the WDNR for final approval. Badger expects to be
able to fully comply with the requirements of the permit as currently drafted.
Effluent flow from Badger's Peshtigo operations is directed into a joint
municipal waste water treatment plant, which Badger operates under contract with
the City of Peshtigo, Wisconsin. Management believes this water treatment plant
continues to meet or exceed all currently applicable environmental requirements.
Construction requirements necessary for the closure of the Company's former
landfill, known as the Harbor Road Landfill, were completed in December, 1999.
The final closure report was submitted to the WDNR in January, 2000. As part of
the closure agreement, the Company is required to provide proof of
responsibility for any future remediation efforts if environmental problems are
detected at this site. This amount increases over a five-year period from
$53,000 as of July 31, 1999 to $297,000 as of July 31, 2003. The Company met
this requirement as of December 31, 1999 with an irrevocable letter of credit
granted to the benefit of WDNR in the amount of $53,000.
Management believes the Oconto Falls, Wisconsin facility currently complies with
its air operating permit.
Badger believes it has in force all of the necessary environmental permits from
federal, state and local authorities, and does not anticipate any problem with
reissuance of any permits.
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Employees
As of December 31, 1999, the Company had 325 employees. Of the 268 employees at
the Peshtigo facility, 171 were covered by six-year collective bargaining
contracts running through May 2001. The Oconto Falls facility employs 57
personnel, none of whom are covered by a collective bargaining contract.
Item 2. Properties
The Company's approximately 3,750 square foot headquarters and approximately
88,500 square foot paper manufacturing facility are located in Peshtigo,
Wisconsin. The Company's approximately 40,000 square foot printing and
converting facility is located in Oconto Falls, Wisconsin. The Company considers
its facilities to be adequate and in good repair.
Item 3. Legal Proceedings
The Company has no pending material legal proceedings.
Item 4. Submission of matters to a vote of security holders
No matters were submitted to a vote of security holders in the fourth quarter of
1999.
PART II
Item 5. Market for the registrant's common stock and related security holder
matters.
Badger Paper Mills, Inc. common shares are traded on the Nasdaq National Market
under the symbol BPMI. There were 431 registered shareholders of record as of
March 13, 2000. Stock price and dividend information is found on page 35 of this
report.
Item 6. Selected financial data
Information regarding selected financial data of the Company is presented on
page 3 of this report.
Item 7. Management's discussion and analysis of financial condition and results
of operations
Results of Operations
Overview
The printing and converting segment achieved record sales and earnings, while
the paper products segment had flat sales and a 70 percent reduction in earnings
in 1999 when compared to 1998.
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Printing and converting segment sales improved primarily from the increased
volume of our tissue wrap business. Improved operating efficiencies on the
printing presses also contributed significantly to gross profit in this segment.
Weak market conditions throughout 1999 resulted in a slight reduction in
shipping volume and relatively flat selling prices in the paper products
segment. Market pressures prevented the Company from increasing its sales prices
sufficiently to fully recover the costs associated with increased pulp prices.
Therefore, margins were negatively impacted by a 37 percent increase in pulp
prices during 1999. Additionally, the operating efficiency of our Fourdrinier
paper machine was adversely affected during the second half of the year by the
start-up and fine tuning of a new process control system. The start-up issues
associated with the new process control system were resolved in December, and
the Fourdrinier paper machine is now operating at anticipated efficiency.
On August 31, 1999, Badger Paper Mills Flexible Packaging Division, Inc., our
former wholly-owned subsidiary that operated our Oconto Falls operations, was
merged with and into the Company.
1999 vs. 1998
Net Sales
- ---------
Net sales for 1999 increased $1,297,000, or 2 percent, to $67,024,000 from
$65,727,000 in 1998.
Paper products' net sales were flat as weak market conditions continued during
1999. Paper products' volume was down 3 percent, while selling prices remained
relatively flat. Printing and converting net sales increased 70 percent over
1998 due to growth in the printing business in 1999.
Specialty products were approximately 53 percent of gross sales dollars in both
1999 and 1998.
Cost of Sales
- -------------
Cost of sales for 1999 of $60,336,000 increased $1,831,000 or 3 percent over the
$58,505,000 reported in 1998.
During the second quarter of 1999, market prices for pulp, the primary raw
material in the Company's paper manufacturing, began to escalate. This trend
continued throughout the remainder of the year, with average year-end 1999
prices increasing 37 percent over the average price of pulp at the end of 1998.
This pulp increase contributed over $2,800,000 to the cost of sales for paper
manufacturing in 1999.
Production rates on the Fourdrinier paper machine were down 9 percent in 1999
compared to 1998 because of first quarter mechanical problems and difficulties
associated with the installation of a new process control computer in July 1999.
The Yankee paper machine and all converting operations had improved production
rates over 1998.
The printing and converting operations at Oconto Falls improved operating rates
through longer production runs, reduced change time between production runs,
improved waste rates and the elimination of mechanical problems previously
experienced on the Chadwick press.
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Gross Profit
- ------------
Gross profit margins decreased to 10 percent of net sales for 1999, compared to
11 percent in 1998. The overall decrease was due to a 22 percent gross margin
drop in our paper products segment caused by our inability to pass rapidly
escalating pulp prices through to our customers because of soft market
conditions.
The printing and converting segments' gross profit margin increased 29 percent
due to improved operating efficiencies.
Selling and Administration
- --------------------------
Selling and administration expenses of $4,825,000 increased $494,000 over the
$4,331,000 reported in 1998.
The increase resulted primarily from expenses associated with the reorganization
of sales staffing in the paper products segment to provide for a product
development function within the sales department, and an addition to the sales
staff. Non-capitalizable expenses associated with upgrading computers and
software in addressing Year 2000 concerns were included in administration
expenses.
Other Income and Expense
- ------------------------
In the second quarter of 1999, Badger Paper received $622,000 of life insurance
proceeds upon the death of a former president of the Company in March 1999. The
proceeds included $231,000 of cash surrender value carried as other assets on
our balance sheet, and $391,000 of non-recurring income.
In the second quarter of 1998, the Company recorded a non-recurring capital gain
of $611,000 on the sale of the Company's offsite training facility.
Non-recurring executive termination expenses of $286,000 associated with a
former president and vice president were also booked in the second quarter of
1998.
Other income (expense) for 1998 included $308,000 of realized gains on trade
credit contracts. In 1999, the realized gain on trade credit contracts was $0.
Income Taxes
- ------------
Badger Paper Mills effective tax rate was 19.8 percent for 1999, compared to 34
percent for the same period in 1998. The decreased effective rate was due to the
non-taxability of the life insurance proceeds we received in 1999, and the
utilization of net operating loss and tax credit carryovers in connection with
the merger of our former Badger Paper Mills Flexible Packaging Division, Inc.
subsidiary into the Company.
1998 vs. 1997
Net Sales
- ---------
In 1998 sales decreased $4,700,000, or 7 percent, to $65,727,000 from
$70,427,000 during 1997. Weak market conditions continued in the industry in
1998, especially in the commodity market. This resulted in a decline of 11
percent in the volume of shipments. The Company's average selling price
increased slightly despite the volume decrease, primarily due to an increased
percentage of higher margin products sold in 1998. Specialty products increased
to approximately 53 percent of our gross sales dollars in 1998 from 37 percent
in 1997.
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Cost of Sales
- -------------
Cost of sales of $58,505,000 for 1998 decreased by $9,095,000 or 13 percent from
$67,600,000 in 1997. This reduction was primarily the result of a 12 percent
decrease in production due to the weak market conditions in 1998. Our strategy
was to take downtime when market conditions warranted, versus running low margin
commodity products. Cost reductions were also achieved by the reduction of our
administrative and production workforce by approximately 71 employees. We also
experienced declining prices for the cost of purchased fiber during 1998.
Production rates at the Peshtigo facility were at record levels, while the
start-up of the new Chadwick printing press at the Oconto Falls plant
experienced some difficulties. These problems were resolved with the efforts of
engineering staffs at both facilities during the fourth quarter of 1998.
Gross Profit
- ------------
Gross profit in 1998 improved to $7,222,000 from $2,827,000 reported in 1997.
The increased percentage of higher margin specialty paper products in our sales
mix was the primary reason for the increase in gross profit in 1998. Workforce
reductions and cost saving initiatives that were implemented on the
manufacturing floor also contributed to the higher gross profit.
Selling and Administration
- --------------------------
Selling and administration expenses increased $246,000 to $4,331,000 in 1998.
The increase resulted primarily from sales and marketing expenses and the cost
of consultants incurred in 1998 associated with Badger's ongoing product
restructuring to specialty paper products from commodity paper products begun in
1997.
Other Income and Expense
- ------------------------
The Company recorded a second quarter non-recurring capital gain of $611,000 on
the sale of its offsite training facility. Additionally, non-recurring executive
termination expenses of $286,000 associated with the resignations of the
Company's former president and vice president were also recorded in the second
quarter of 1998.
Interest expense during 1998 decreased 12 percent to $1,196,000 compared to
$1,354,000 in 1997. The decrease in interest expense was primarily attributable
to lower average borrowings under the Company's revolving credit facility.
Income Taxes
- ------------
Badger's effective tax rate was a 34 percent provision in 1998, compared to a
32.1 percent benefit for the year 1997. The benefit in 1997 was associated with
the net loss for that year.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures
- --------------------
Capital expenditures for 1999 totaled $2,815,000 compared to $3,004,000 in 1998
and $4,686,000 in 1997. Depreciation was $2,853,000 in 1999 compared to
$2,752,000 and $2,790,000 in 1998 and 1997, respectively.
Major projects in 1999 for the Peshtigo facility included the completion of a
ramp and enclosure to our wax plant warehouse, a rewinder for the Wax
Department, a spare couch roll for the Yankee paper
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machine, a motor control center for the paper mill, and a landfill water
collection system. The Oconto Falls facility's capital expenditures included a
rewinder and improvements to the Chadwick press.
In 2000, we plan to continue our investments in upgrading our facilities,
including improvements and upgrades to the paper machines and converting
equipment.
Capital Resources
- -----------------
In January 1999, Badger refinanced its revolving credit facility with its
existing lender. The refinanced facility provides for borrowing up to
$12,000,000. The revolving credit facility contains certain covenants that
require the Company to maintain a specified fixed charge ratio, debt leverage
ratio, minimum tangible net worth, and also provide for limitations on capital
expenditures and require the Company to make minimum specified principal
payments on the Company's outstanding Industrial Development Revenue Bonds
("IDRBs"). Pursuant to the terms of the revolving credit facility, the debt
leverage ratio covenant became more restrictive effective December 31, 1999 and
the Company did not comply with the more restrictive ratio. The lender under the
revolving credit facility waived such non-compliance, and in March, 2000, the
Company and the lender amended the revolving credit facility to adjust the fixed
charge ratio and the debt leverage ratio. The amendment also tightened the
limitation on capital expenditures and extended the facility through November,
2003. Further detail is presented in Note F to the Company's Consolidated
Financial Statements.
At December 31, 1999, $10,700,000 was outstanding under the revolving credit
facility, a $500,000 increase from the balance outstanding at December 31, 1998.
The increase is primarily the result of borrowings under the revolving credit
facility used to partially fund an aggregate of $2,800,000 of principal payments
made during 1999 on certain of the Company's IDRBs.
In February 2000, the City of Peshtigo agreed to refinance an Urban Development
Action Grant ("UDAG") which was scheduled to mature in April, 2000. The terms of
the refinancing provide for a ten-year amortization with interest at 5 percent.
Cash Flows
- ----------
Cash provided from operations was $1,329,000 in 1999 and $2,079,000 in 1998. The
decrease relates primarily to reduced net income after excluding the one-time
non-operating gain from life insurance proceeds in 1999.
Net cash used in investing activities was $460,000 in 1999 compared to $171,000
of cash provided by investing activities in 1998. The change is primarily due to
the inclusion of non-recurring gains in 1998 involving the sale of the Company's
training facility and the maturity of certificates of deposit. The Company also
received $622,000 of life insurance proceeds in 1999 upon the death of a former
president of the Company.
Cash used in financing activities was $2,429,000 in 1999, compared to $1,323,000
in 1998. The increase was primarily the result of principal payments on the
Company's IDRBs required to be made pursuant to the terms of our refinanced
revolving credit facility.
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Year 2000
Badger formed a Year 2000 Committee that was assigned the task of assuring Year
2000 ("Y2K") compliance for all information technology and non-IT systems. The
Committee was on site at the change of the millennium and determined all Y2K
compliance issues have been resolved. There have been virtually no issues
related to the Y2K issue during 2000.
Other potential Y2K issues may occur on February 29, 2000 (Leap Year), October
10, 2000 (first ten-digit date) and December 31, 2000 (366th day). Our systems
have been tested and we believe they are in compliance with all of the above
future date issues.
We have had no Y2K issues from our key vendors in 2000. While we do not
anticipate any future Y2K related issues with our vendors, we cannot guarantee
their compliance.
The Company incurred approximately $50,000 of additional expenses associated
with contract programming and system upgrades and/or replacement to address Y2K
issues. This figure does not include normal wages and benefits of the
information technology and engineering staffs while working on Y2K issues. We
also replaced process computers on the two paper machines at a cost of
$1,935,000 during 1998 and 1999. While the costs were significant, they have not
been included in the above Y2K costs because the old process controllers were
obsolete, and there was no acceleration of the timing of these projects due to
Y2K-related issues.
Item 7a. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to market risk from changes in interest on its long-term
debt. The Company's revolving credit facility provides for borrowings up to $12
million and extends to November 2003. An annual commitment fee of 1/2 percent is
payable for unused amounts. Interest on borrowings is at various rates equal to
the Prime rate (totaling 8.5 percent at December 31, 1999) and the LIBOR rate
plus 2.0 percent (totaling 7.83 percent at December 31, 1999).
Certain of the Company's IDRBs require varying quarterly principal installments
of $140,000 plus interest quarterly through October 1, 2006, with payment of the
remaining balance due December 1, 2006, and the Company's revolving credit
facility requires it to make additional principal payments on its IDRBs. These
required payments included principal payments of $1,885,000 made in March 1999,
and $495,000 made in June, 1999. The remaining required payments under the
revolving credit facility are principal installments of $400,000 and $100,000
due July 1, 2000 and February 1, 2001, respectively. Interest on the IDRBs is
payable at floating rates determined by remarketing agents (5.65 percent at
December 31, 1999).
A majority of the Company's debt is at variable interest rates, and a
hypothetical 1 percent change in interest rates would cause an estimated
$168,000 increase in annual interest expense.
The Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
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Item 8. Financial statements and supplementary data
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Badger Paper Mills, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Badger Paper
Mills, Inc. (a Wisconsin corporation) and Subsidiary as of December 31, 1999 and
1998 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Badger Paper
Mills, Inc. and Subsidiary as of December 31, 1999 and 1998 and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ Grant Thornton LLP
Appleton, Wisconsin
February 1, 2000
(except for Note F, as
to which the date is
March 9, 2000)
13
<PAGE>
Badger Paper Mills, Inc. And Subsidiary
<TABLE>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(dollars in thousands)
<CAPTION>
ASSETS 1999 1998
---- ----
Current Assets
<S> <C> <C>
Cash and cash equivalents $ 669 $ 2,229
Certificates of deposit 500 996
Marketable securities 137 1,361
Accounts receivable, net 6,080 5,262
Inventories 7,819 6,201
Refundable income taxes 220 27
Deferred income taxes 1,160 1,220
Prepaid expenses and other 606 558
------------------------------
Total current assets 17,191 17,854
PROPERTY, PLANT AND EQUIPMENT, NET 27,240 27,291
OTHER ASSETS
Trade credits 609 696
Other 1,854 2,158
------------------------------
2,463 2,854
------------------------------
Total assets $ 46,894 $ 47,999
==============================
LIABILITIES
CURRENT LIABILITIES
Current portion of long-term debt $ 1,060 $ 3,068
Accounts payable 4,746 3,913
Accrued liabilities 3,126 3,357
Income taxes payable - 170
------------------------------
Total current liabilities 8,932 10,508
------------------------------
LONG-TERM DEBT 15,705 16,126
DEFERRED INCOME TAXES 1,840 1,700
OTHER LIABILITIES 933 1,408
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, no par value; 4,000,000 shares authorized,
2,160,000 shares issued 2,700 2,700
Additional paid in capital 201 200
Retained earnings 18,433 17,296
Treasury stock, at cost, 185,832 and 199,278 shares
in 1999 and 1998, respectively (1,850) (1,939)
------------------------------
Total shareholders' equity 19,484 18,257
------------------------------
Total liabilities and shareholders' equity $ 46,894 $ 47,999
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For Years Ended December 31, 1999, 1998 and 1997
(dollars in thousands, except per share data)
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales $67,024 $65,727 $70,427
Cost of sales 60,336 58,505 67,600
-----------------------------
Gross profit 6,688 7,222 2,827
Selling and administrative expenses 4,825 4,331 4,085
Restructuring provision - - 850
Pulp mill asset impairment charge - - 783
-----------------------------
4,825 4,331 5,718
-----------------------------
Operating income (loss) 1,863 2,891 (2,891)
Other income (expense):
Interest and dividend income 85 237 236
Interest expense (1,064) (1,196) (1,354)
Executive termination costs - (286) -
Gain from life insurance proceeds 391 - -
Gain (loss) on disposal of property, plant
and equipment - 632 (14)
Miscellaneous, net 141 363 428
-----------------------------
(447) (250) (704)
-----------------------------
Income (loss) before income taxes 1,416 2,641 (3,595)
Provision (benefit) for income taxes 279 897 (1,153)
-----------------------------
Net income (loss) $1,137 $1,744 $(2,442)
=============================
Net earnings (loss) per share (basic and diluted) $0.58 $0.89 $(1.25)
=============================
</TABLE>
The accompanying notes are an integral part of these statements.
15
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For Years ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<CAPTION>
1999 1998 1997
---- ---- ----
Common stock
<S> <C> <C> <C>
Balance, December 31 2,700 $2,700 $2,700
--------------------------------------
Additional paid-in capital
Balance, January 1 200 190 178
Treasury stock issued 1 10 12
--------------------------------------
Balance, December 31 201 200 190
--------------------------------------
Retained earnings
Balance, January 1 17,296 15,552 17,994
Net income (loss) 1,137 1,744 (2,442)
--------------------------------------
Balance, December 31 18,433 17,296 15,552
--------------------------------------
Treasury stock
Balance, January 1 (1,939) (1,998) (2,040)
Shares acquired (920 shares in 1997) - - (8)
Shares issued (13,446, 8,867, and 7,645 shares
in 1999, 1998 and 1997, respectively) 89 59 50
--------------------------------------
Balance, December 31 (1,850) (1,939) (1,998)
--------------------------------------
Shareholders' equity
Balance, December 31 $19,484 $18,257 $16,444
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years ended December 31, 1999, 1998 and 1997
(dollars in thousands)
<CAPTION>
1999 1998 1997
------ ------ ------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $1,137 $1,744 $(2,442)
Adjustments to reconcile to net cash provided
by operating activities:
Depreciation 2,853 2,752 2,790
Pulp mill impairment charge - - 783
Directors' fees paid in stock 90 69 60
Deferred income taxes 200 586 (746)
Realized (gain) loss on sale of marketable securities - 48 (8)
Gain from life insurance benefits (391) - -
(Gain) loss on disposal of property, plant and equipment - (632) 14
Changes in assets and liabilities
Accounts receivable, net (818) (142) (564)
Inventories (1,618) (1,357) 1,993
Accounts payable and accrued liabilities 602 (1,351) (2,250)
Income taxes refundable (payable) (363) 528 1,081
Other (363) (166) (312)
-----------------------------------------
Net cash provided by operating activities 1,329 2,079 399
-----------------------------------------
Cash flows from investing activities:
Additions to property, plant, and equipment (2,815) (3,004) (4,686)
Proceeds from sale of property, plant and equipment 13 2,880 627
Net sales (acquisitions) of certificates of deposit 496 386 (1,382)
Life insurance proceeds 622 - -
Purchases of marketable securities (36) (1,927) (1,192)
Proceeds from sale of marketable securities 1,260 1,836 1,682
-----------------------------------------
Net cash provided by (used in) investing activities (460) 171 (4,951)
-----------------------------------------
Cash flows from financing activities:
Payments on long-term debt (4,029) (2,323) (119)
Increase in revolving notes payable 1,600 1,000 1,900
Acquisition of treasury stock - net - - (6)
-----------------------------------------
Net cash provided by (used in) financing activities (2,429) (1,323) 1,775
-----------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,560) 927 (2,777)
Cash and cash equivalents:
Beginning of year 2,229 1,302 4,079
-----------------------------------------
End of year
$ 669 $2,229 $1,302
=========================================
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
Badger Paper Mills, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES
Badger Paper Mills, Inc. and Subsidiary ("Company") manufactures paper and paper
products and provides converting and printing services to customers throughout
North America. In August of 1999, the wholly owned subsidiary involved in
printing and converting was merged into Badger Paper Mills, Inc. In February
1998, Peshtigo Power, LLC ("Peshtigo") was incorporated to produce steam for
Badger Paper Mills, Inc. Peshtigo is wholly owned by the Company.
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
1. Consolidation Principles
The consolidated financial statements include the accounts of Badger Paper
Mills, Inc. and its wholly-owned Subsidiary. All significant intercompany
accounts and transactions have been eliminated.
2. Operating Segments
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information". SFAS 131 requires public companies to use a "management
approach" to defining and reporting the activities of operating segments. The
management approach defines operating segments along the lines used by
management to assess performance and make operating and capital decisions.
3. Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents and trade accounts
receivable. The Company places its cash and cash equivalents with high quality
financial institutions. The Company provides credit in the normal course of
business to its customers. These customers are located throughout North America.
The Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses and generally does not require collateral
to support the accounts receivable balances.
4. Financial Instruments
For cash and certificates of deposit, the carrying amount approximates fair
value because of the short maturity of these instruments. For long-term debt,
the carrying amount approximates fair value based on comparison with current
rates offered to the Company for debt with similar remaining maturities.
5. Estimates
Preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
6. Cash Equivalents and Certificates of Deposit
For financial reporting purposes, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
18
<PAGE>
7. Marketable Securities
The investment portfolio at December 31, 1999 and 1998, which consists of
taxable United States Agency Bonds, corporate bonds, tax-exempt bonds and equity
securities, are classified as available for sale. The difference between cost
and fair value is insignificant. The specific identification method is used to
compute realized gains and losses. The entire balance of marketable securities
at December 31, 1999 consists of bonds maturing at various dates after 10 years.
At December 31, 1998, marketable securities consisted of bonds of $1,201,374 and
equity securities of $160,000.
8. Receivables
Accounts receivable are stated net of an allowance for sales returns, cash
discounts and doubtful accounts.
9. Inventories
Substantially all inventories are valued at the lower of cost or market with
cost being determined on the last-in, first-out (LIFO) basis.
10. Property, Plant and Equipment
These assets are stated at cost, less depreciation. Depreciation of plant and
equipment is provided on the straight-line basis over the estimated useful lives
of the assets. Buildings useful lives range from 30 to 33 years and machinery
and equipment from three to 17 years. Accelerated depreciation is used for
income tax purposes.
11. Trade Credits
Trade credits represent credits issued by an international barter firm in
exchange for surplus inventory. Trade credits are recorded at the lower of cost
or market of the inventory exchanged. Previously, gain was recognized upon
utilization of the trade credits with the Company's suppliers and vendors. In
1999 and thereafter, gain will be recognized upon the recovery of the cost of
these trade credits.
12. Income Taxes
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable for the period and the change during the period in deferred tax
assets and liabilities.
13. Stock Options
The Company has elected to follow Accounting Principles Board Opinion (APB) No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock options. Under APB 25, because the exercise price of
the stock options exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recorded. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, "Accounting for Stock-Based Compensation."
14. Revenue Recognition
Revenue is recognized by the Company when goods are shipped.
19
<PAGE>
15. Net Earnings (Loss) Per Share
Net earnings (loss) per share are computed based on the weighted average number
of shares of common stock outstanding during the year (1,966,111 shares,
1,955,772 shares and 1,947,128 shares in 1999, 1998 and 1997, respectively). In
1999, for purposes of computing diluted net earnings per share, the 115,000
stock options granted in 1999 under the stock option plan were considered
antidilutive because their exercise prices were greater than the average market
price of the common shares.
16. Research and Product Development Costs
Research and product development costs related to potential new products and
applications are expensed when incurred. These costs totaled $2,089,000,
$2,971,000 and $5,287,000 for 1999, 1998 and 1997, respectively, and are
included in cost of sales.
17. Environmental Expenditures
Accruals for remediation costs are recorded when it is probable that a liability
has been incurred and the amount of the costs can be reasonably estimated.
NOTE B - RECEIVABLE ALLOWANCES
The receivable allowances at December 31, 1999 and 1998 are as follows (in
thousands):
1999 1998
------- -------
Sales returns and allowances $205 $154
Cash discounts 43 31
Doubtful accounts 48 59
---- ----
$296 $244
=== ===
NOTE C - INVENTORIES
The major classes of inventories, valued on the LIFO cost method, at December
31, 1999 and 1998 are as follows (in thousands):
1999 1998
------- -------
Raw Materials $1,559 $1,858
Work-in-process and finished stock 6,260 4,343
----- -----
$7,819 $6,201
===== =====
The FIFO cost of raw materials, work-in-process and finished stock inventories
approximated $11,890,000 and $10,150,000 at December 31, 1999 and 1998,
respectively. It is not practical to separate finished stock and work-in-process
inventories.
20
<PAGE>
NOTE D - PROPERTY, PLANT AND EQUIPMENT
The major classes of property, plant and equipment at December 31 are as follows
(in thousands):
1999 1998
------- -------
Land $ 199 $ 199
Buildings 8,698 8,297
Machinery and equipment 58,392 56,044
Construction-in-progress - equipment 567 549
------- -------
67,856 65,089
Accumulated depreciation 40,616 37,798
------- -------
$27,240 $27,291
======= =======
At December 31, 1999 and 1998, $17,302,000 and $15,911,000, respectively, of
fully depreciated assets were still in use. In December 1997, the Company
evaluated the remaining fixed assets held for resale relating to the closure of
the pulp mill by comparing the asset's carrying amount with its fair value less
cost to sell. As a result, the Company recorded an impairment charge of
$783,000.
During 1998, the Company sold its training facility for $725,000 resulting in a
gain of $611,000.
NOTE E - ACCRUED LIABILITIES
Accrued liabilities at December 31, 1999 and 1998 are as follows (in thousands):
1999 1998
------- -------
Compensation and related taxes $1,530 $1,539
Profit sharing 522 496
Restructuring - 15
Environmental remediation - 121
Other 1,074 1,186
------- -------
$3,126 $3,357
======= =======
NOTE F - LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998
consists of the following (in thousands):
1999 1998
------- -------
Revolving Credit Agreement $10,700 $10,200
Industrial Development Revenue Bonds (IDRB's) 4,550 7,417
Urban Development Action Grant 1,515 1,577
------- -------
16,765 19,194
Current portion 1,060 3,068
------- -------
$15,705 $16,126
======= ======
The Company's revolving credit facility provides for borrowings up to
$12,000,000 and, as amended on March 9, 2000 extends to November 2003. A
commitment fee of 1/2 percent is payable for unused amounts. Interest on
borrowings is at various rates equal to the Prime rate (totaling 8.5 percent at
December 31, 1999) and the LIBOR rate plus 2.0 percent (totaling 7.83 percent at
December 31, 1999). Borrowings are collateralized by cash and cash
21
<PAGE>
equivalents, certificates of deposit, marketable securities, accounts
receivable, inventory and certain property, plant and equipment. In 1999, the
Company issued a letter of credit under the revolving credit facility to the
Wisconsin Department of Natural Resources (WDNR) for approximately $53,000 (note
N).
Certain of the IDRBs require varying quarterly installments of $140,000 plus
interest quarterly through October 1, 2006, with payment of the remaining
balance due December 1, 2006. Principal installments of $400,000 are due July 1,
2000, and $100,000 due February 1, 2001. These installments are in addition to
the quarterly installments. Interest on the IDRBs is payable at floating rates
determined by remarketing agents (5.65 percent at December 31, 1999). The IDRBs
are collateralized by bank letters of credit expiring in 2006. The Company pays
annual fees at one-half of one percent of the amount available under the letters
of credit.
At December 31, 1999, covenants related to the revolving credit facility
include, among other items, the Company to maintain a fixed charge coverage
ratio, a debt coverage ratio, and a limitation on capital expenditures. The
Company was not in compliance with the debt leverage ratio at December 31, 1999,
and obtained a waiver related to this non-compliance. As amended on March 9,
2000, the revolving credit facility and certain IDRBs require, among other
items, the Company to maintain a fixed charge coverage ratio of 2.15 for the
period ending September 29, 2000, and 1.15 for periods thereafter, and a debt
leverage ratio of 3.75 through September 29, 2000 and 3.5 for periods
thereafter. Capital expenditures are limited to $3,700,000 in 2000 and
$4,800,000 in 2001 and periods thereafter.
In February, 2000, the Company refinanced the Urban Development Action Grant.
This grant is due in monthly installments of $15,437, including interest at an
effective rate of approximately 5.0 percent, through maturity in April 2010.
This grant is collateralized by certain machinery and equipment.
Future maturities of all long-term debt are as follows (in thousands):
Year ended December 31,
2000 $ 1,060
2001 777
2002 683
2003 11,389
2004 696
2005 and thereafter 2,160
-------
$16,765
=======
NOTE G - INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
1999 1998 1997
---- ---- ----
Currently payable (refundable)
Federal $62 $179 $(438)
State 17 132 31
-- --- -----
79 311 (407)
Deferred:
Federal $ 222 $336 $(746)
State (22) 250 -
---- --- -----
200 586 (746)
--- --- -----
$279 $897 $(1,153)
=== === ======
22
<PAGE>
The significant differences between the effective tax rate and the statutory
federal tax rates are as follows:
1999 1998 1997
---- ---- ----
Statutory Federal tax rate 34.0% 34.0% (34.0)%
Tax-exempt income - life insurance proceeds (9.4) - -
State taxes (5.7) - -
Other 0.9 - 1.9
---- ---- -----
Effective tax rate 19.8% 34.0% (32.1)%
==== ==== ====
The components of the deferred tax assets and liabilities as of December 31 are
as follows (in thousands):
1999 1998
------- --------
Deferred tax assets:
Accounts receivable $ 101 $ 143
Inventories 217 311
Accrued expenses 570 766
Deferred compensation 69 95
Postretirement benefits 222 290
Tax credit carryforwards 3,019 2,938
State net operating loss carryforwards 315 362
State credit carryforwards 1,460 2,099
Valuation allowance (1,835) (2,692)
------- --------
4,138 4,312
Deferred tax liabilities:
Fixed assets (4,818) (4,792)
------- --------
Net liability $ (680) $ (480)
======= ========
For Federal income tax purposes, the Company has research and development credit
carryovers and alternative minimum tax credit carryovers of $1,179,000 and
$1,840,000, respectively. For state income tax purposes, the Company has net
operating loss and tax credit carryovers of $11,735,000 and $1,460,000,
respectively. Certain carryforwards expire at various times over the next 15
years. For financial reporting purposes, a valuation allowance has been
established to the extent that state carryforwards, absent future taxable
income, will expire unused. The valuation allowance decreased $857,000 due
primarily to the expiration of $790,000 of state tax credits in 1999. The
remaining decrease of $67,000 is based on management's reevaluation of the
likelihood of realization.
NOTE H - EMPLOYEE BENEFITS
The Company has profit sharing plans covering substantially all employees.
Contribution expenses associated with these plans were $522,000, $496,000 and
$587,000 in 1999, 1998 and 1997, respectively.
23
<PAGE>
NOTE I - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows (in thousands):
1999 1998 1997
------ ------ ------
Interest $1,080 $1,235 $1,345
Income taxes 438 57 5
Noncash investing and financing activity:
At December 31, 1999, 1998 and 1997, accounts payable included $97,000, $22,000
and $134,000 respectively, for property and equipment additions.
NOTE J - OPERATING SEGMENTS
The Company adopted SFAS 131 in 1998. 1997 information has been restated to
present segment information for the Company's two business segments, paper
products and printing and converting services. The paper products segment
produces a variety of paper products including fine paper, business paper,
colored paper, waxed paper, specialty coated base papers and twisting papers.
The printing and converting segment prints and converts flexible packaging
materials for the paper products segment, as well as films and non-woven
materials from other customers.
The accounting policies of the segments are the same as those described in Note
A, Summary of Significant Accounting Policies. Intersegment revenue relates to
the transfer of material or provision of services between the two segments. The
Company evaluates the performance of its segments and allocates resources to
them based on net earnings. There are no jointly used or allocated assets
between the segments.
24
<PAGE>
The following provides information on the Company's segments (in thousands):
<TABLE>
<CAPTION>
Paper Products Printing and Converting Total
-------------- ----------------------- -----
1999 1998 1997 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues from
external customers $58,379 $60,648 $66,222 $ 8,645 $ 5,079 $ 4,205 $67,024 $65,727 $70,427
Intersegment revenues 2,858 588 38 1,506 1,630 972 4,364 2,218 1,010
Depreciation 2,634 2,560 2,617 219 192 173 2,853 2,752 2,790
Restructuring provision - - 850 - - - - - 850
Pulp mill asset
impairment charge - - 783 - - - - - 783
Interest and dividend income 69 214 218 16 23 18 85 237 236
Interest expense 997 1,097 1,250 67 99 104 1,064 1,196 1,354
Executive termination costs - 286 - - - - - 286 -
Gain from life
insurance proceeds 391 - - - - - 391 - -
Gain (loss) from disposal of
long-lived assets - 632 (14) - - - - 632 (14)
Income tax (benefit)
provision (69) 862 (1,325) 348 35 172 279 897 (1,153)
Segment income (loss) 448 1,490 (2,771) 689 254 329 1,137 1,744 (2,442)
Segment assets 44,188 43,605 44,382 5,857 5,397 5,222 50,045 49,002 49,604
Expenditures for
long-lived assets 2,490 2,498 3,502 325 506 1,184 2,815 3,004 4,686
</TABLE>
The following is a reconciliation of segment information to consolidated
information (in thousands):
1999 1998 1997
---- ---- ----
Revenues:
Total revenues for reportable segments $71,388 $67,945 $71,437
Elimination of intersegment revenues (4,364) (2,218) (1,010)
-------- ------- -------
Total consolidated revenues $67,024 $65,727 $70,427
======= ======= =======
Assets:
25
<PAGE>
Total assets for reportable segments $50,045 $49,002 $49,604
Elimination of intersegment receivables (2,401) (253) (498)
Elimination of intersegment investment (750) (750) (750)
-------- -------- -------
Total consolidated assets $46,894 $47,999 $48,356
======= ======= ======
Total segment income and other significant items are the same as the
consolidated information.
All operations of the Company are located in the United States. Revenues from
foreign countries are primarily from Canada and Mexico are immaterial to total
revenues.
NOTE K - DIRECTOR STOCK GRANT PLANS
In 1999 and 1997, in order to attract and retain competent directors to serve as
Directors of the Company, the Company established Director Stock Grant Plans. An
aggregate of 50,000 shares of Common Stock was reserved for issuance under the
1999 and 1997 Plans. Each Director of the Company is to receive a grant of
Common Stock in partial payment of his or her retainer fee. During 1999, 1998
and 1997, 13,446, 8,867 and 7,345 shares, respectively, were issued from
treasury stock, at a value of $90,000, $69,000 and $60,000, respectively.
NOTE L - STOCK OPTION PLAN
On May 11, 1999, the Company established an incentive stock option plan (Plan)
as a mechanism to attract and retain its officers and key employees by providing
additional performance incentives and the opportunity to share ownership in the
Company. The Plan allows the Company to grant options for 130,000 common shares.
Options awarded under the Plan vest over a three or five year period and expire
in five to nine years.
In 1999, the Company granted 115,000 options at an average exercise price of
$8.42 per common share. At the date of grant, the market value of the stock was
less than the exercise price of the options. As the plan is accounted for under
APB Opinion 25, no compensation cost has been recognized for the plan. As of
December 31, 1999, 64,000 options are vested.
Had compensation cost for the plan been determined based on the fair value of
the options at the grant dates consistent with the method prescribed by SFAS
123, the Company's net income and net earnings per share for 1999 would have
been $774,000 and $0.39, respectively. The fair value of each option grant is
estimated on the date of grant using the Black-Scholes options-pricing model
with the following weighted average assumptions used for grants in 1999:
expected volatility of 58 percent, risk-free interest rates ranging from 5.5
percent to 5.8 percent, and expected lives of 4 to 8 years.
NOTE M - RESTRUCTURING PROVISIONS
In December 1997, the Company recorded a charge of $850,000 in connection with a
plan to discontinue manufacturing certain products and eliminate certain
converting operations. The charge includes employee termination benefits
($297,000), write down of equipment ($313,000), write down of inventory
($152,000), and a provision for other miscellaneous costs ($88,000).
26
<PAGE>
NOTE N - COMMITMENTS AND CONTINGENCIES
Rental Agreements
- -----------------
The Company leases certain equipment under various agreements, classified as
operating leases, expiring through April 2007. Total rent expense amounted to
approximately $516,000, $222,200 and $123,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
Future minimum rental payments are as follows (in thousands):
Year ended December 31,
----------------------
2000 $ 552
2001 513
2002 475
2003 471
2004 381
2005 and thereafter 549
------
$2,941
======
Environmental Matters
- ---------------------
In May 1999, the Company entered into an agreement with the WDNR related to the
closure of a solid waste landfill. All costs associated with the initial closure
of this landfill have been completed as of December 31, 1999. As part of the
closure agreement, the Company is required to provide proof of responsibility
for any future remediation efforts if environmental problems are detected at
this site. This amount increases over a five-year period from $53,000 as of July
31, 1999 to $297,000 as of July 31, 2003. The Company has met this requirement
as of December 31, 1999 by having an irrevocable letter of credit granted to the
benefit of WDNR in the amount of $53,000.
27
<PAGE>
PART III
Item 9. Changes in and disagreements with accountants on accounting and
financial disclosure
No such disagreements have occurred.
Item 10. Directors and executive officers of the registrant
(a) Directors of the registrant
The information required by this item is incorporated by reference from the
information included under the captions, "Election of Directors" and "Compliance
with Section 16(a) of the Securities Exchange Act of 1934" set forth in the
Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders.
(b) Executive officers of registrant
Period Served
Name Age Office In This Office
---- --- ------ --------------
Michael J. Bekes 42 Vice President/COO of the Company 4 years
Vice President/COO, Fletcher Paper Co. 1-1/2 years
Mill Manager, Fletcher Paper Co. 1/2 year
Manager of Operations, Fletcher Paper Co. 5-1/2 years
Thomas W. Cosgrove 59 President and CEO of the Company 1-3/4 year
General Manager, Kimberly Clark
Corporation (Scott Paper Co.),
Marinette Division 8 years
Thomas J. Kuber 59 Chairman of the Board of the Company 2-1/2 years
President, K&K Warehousing 27 years
Chief Executive Officer, Great Lakes Pulp
& Fibre, Inc. 4 years
Clifton A. Martin 48 Vice President, Badger Paper Flexible Pkg. 3-3/4 years
General Manager, Badger Paper Flexible
Packaging 3-3/4 years
Sales Representative of the Company 6-1/2 years
Mark C. Neumann 40 Vice President/Sales of the Company 4-3/4 years
Director of Marketing of the Company 2-3/4 years
Sales Representative of the Company 7-1/2 years
George J. Zimmerman 53 Treasurer of the Company 1-3/4 year
Controller of the Company 3 years
Division Accounting Manager, Pope & Talbot 7 years
Officers are elected to hold office until the next annual meeting of
shareholders following the annual meeting of shareholders or until their
successors are elected and qualified. There is no arrangement or understanding
between any of the above officers or any other person pursuant to which such
officer was selected for the office held. No family relationship of any kind
exists between the officers.
28
<PAGE>
ITEM 11. Executive compensation
The information required by this item is incorporated by reference from the
information included under the captions "Executive Compensation", "Report of
Compensation Committee on Annual Executive Management Compensation" and
"Compensation Committee Interlocks and Insider Participation" set forth in the
Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders.
Item 12. Security ownership of certain beneficial owners and management
(a) Security ownership of certain beneficial owners
The information required by this item is incorporated by reference from the
information included under the caption "Stock Ownership of Certain Beneficial
Owners and Management," set forth in the Company's definitive proxy statement
for its 2000 Annual Meeting of Shareholders.
(b) Security ownership of management
The information required by this item is incorporated by reference from the
information included under the captions, "Stock Ownership of Certain Beneficial
Owners and Management," and "Election of Directors", set forth in the Company's
definitive proxy statement for its 2000 Annual Meeting of Shareholders.
Item 13. Certain relationships and related transactions
The information required by this item is incorporated by reference from the
information included under the caption, "Certain Transactions," set forth in the
Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders.
PART IV
Item 14. Exhibits, financial statement schedules and reports on Form 8-K
(a) (1) List of financial statements:
The following is a list of the financial statements of Badger Paper Mills, Inc.,
together with the report of independent accountant, included in this report:
Pages
-----
Reports of Independent Accountant
Consolidated balance sheets, December 31, 1999 and 1998....................14
Consolidated statements of operations for the years ended
December 31, 1999, 1998 and 1997....................................15
Consolidated statements of changes in shareholders' equity for
the years ended December 31, 1999, 1998 and 1997....................16
Consolidated statements of cash flows for the years ended
December 31, 1999 1998 and 1997..........................................17
Notes to financial statements..............................................18
(a)(2) List of financial schedules:
The following is a listing of data submitted herewith:
Reports of independent accountant on financial statement schedule
Schedule for the years ended December 31, 1999 1998 and 1997
II Valuation and qualifying accounts and reserves........................33
Financial statement schedules other than that listed above are omitted for the
reason that they are either not applicable, not required, or that equivalent
information has been included in the financial statements, the notes thereto or
elsewhere herein.
29
<PAGE>
(a)(3) Exhibits
Number Registration
- ------ ------------
(3) (i)Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3(i) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
(ii) By-laws as amended through August 12, 1999.
(4) (i) U.S. $12,000,000 Credit Agreement dated January 29, 1999, by and
among the Company, Badger Paper Mills Flexible Packaging Division,
Inc. (formerly known as Plas-Techs, Inc.) and Harris Trust and
Savings Bank, individually and as agent, and the lenders from time
to time party thereto (Incorporated by reference to Exhibit 4(i) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1998).
(ii)Paper Mills, Inc., Badger Paper Mills Flexible Packaging Division,
Inc., the Lenders, and Harris Trust and Savings Bank, as Agent
(Incorporated by reference to Exhibit 4(ii) to the Company's
Quarterly Report on Form First Agreement to Amended and Restated
Credit Agreement dated as of August 31, 1999 by and among Badger
10-Q for the quarter ended September 30, 1999).
(iii) Second Amendment to Amended and Restated Credit Agreement dated as
of March 9, 2000, by and between Badger Paper Mills, Inc.
(individually and as successor by merger to Badger Paper Mills
Flexible Packaging Division, Inc.), the Lenders, and Harris Trust
and Savings Bank, as Agent.
(10) Material Contracts:**
(i) Supplemental Executive Retirement Plan dated December 18, 1992
(Incorporated by reference to Exhibit 10 (ii) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992).
(ii)Executive Employment Agreement dated March 1, 1995, between the
Company and Claude L. Van Hefty (Incorporated by reference to
Exhibit 10(vii) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
(iii) Health Insurance Retirement Benefit Agreement dated January 1,
1996 between the Company and Claude L. Van Hefty (Incorporated by
reference to Exhibit 10(v) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
(iv)Director Stock Grant Plan dated July 23, 1997 (Incorporated by
reference to Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997).
(v) Employee Resignation and Release Agreement dated as of March 12,
1998 between Badger Paper Mills, Inc. and Claude L. Van Hefty
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
(vi)Employee Resignation and Release Agreement dated as of March 12,
1998 between Badger Paper Mills, Inc. and Miles L. Kresl, Jr.
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998).
(vii)Badger Paper Mills, Inc. 1998 Stock Option Plan (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999)
(vii) Form of Badger Paper Mills, Inc. 1998 Stock Option Agreement
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
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<PAGE>
(viii) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999)
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 2000 Annual Meeting of Shareholders (to
be filed with the Commission under Regulation 14A and incorporated by
reference herein to the extent indicated in this Form 10-K).
**Each of the "material contracts" represents a management compensatory
agreement or arrangement.
(b) Reports on Form 8-K:
(i) No reports on Form 8-K were filed during the fourth quarter of 1999.
31
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATE: March 21, 2000
BADGER PAPER MILLS, INC.
/s/ Thomas W. Cosgrove
By: Thomas W. Cosgrove
President & Chief Executive Officer
(Principal Executive Officer)
/s/ George J. Zimmerman
By: George J. Zimmerman
Treasurer
(Principal Executive Officer)
Pursuant to the Requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
/s/ L. Harvey Buek, Director March 21, 2000
L. Harvey Buek
/s/ Mark D. Burish, Director March 21, 2000
Mark D. Burish
/s/ Thomas W. Cosgrove, Director March 21, 2000
Thomas W. Cosgrove
/s/ James L. Kemerling, Director March 21, 2000
James L. Kemerling
/s/ Thomas J. Kuber, Director March 21, 2000
Thomas J. Kuber
/s/ John R. Peterson, Director March 21, 2000
John R. Peterson
32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Shareholders and
Board of Directors
Badger Paper Mills, Inc.
and Subsidiary
Peshtigo, Wisconsin
Our report on the 1999, 1998 and 1997 financial statements of Badger Paper
Mills, Inc. and Subsidiary is included on page 14 of this Form 10-K. In
connection with our audit of such financial statements, we have also audited the
related financial statement schedule listed in the index on page 29 of this Form
10-K.
In our opinion, the 1999, 1998 and 1997 financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Grant Thornton LLP
Appleton, Wisconsin
February 1, 2000
(Except for Note F, as to
which the date is March 9, 2000)
33
<PAGE>
Schedule II - Valuation and Qualifying Accounts and Reserves for the years ended
December 31, 1999, 1998 and 1997 (in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
Balance at charged to Balance
beginning costs and Deduc- at end of
Description of year expenses tions year
----------- ------- -------- ----- ----
<S> <C> <C> <C> <C>
Deducted in the balance sheet from
the assets to which they apply:
Allowance for discounts,
doubtful accounts and claims/allowances:
Year ended December 31, 1999:
Doubtful accounts and
claims/allowances $213 $ 574 $534 (A) $253
Discounts 31 679 667 (B) 43
---- ---- ---- ----
$244 $1,253 $1,201 $296
==== ====== ====== ====
Year ended December 31, 1998:
Doubtful accounts and
claims/allowances $283 $780 $850 (A) $213
Discounts 35 661 665 (B) 31
---- ---- ----- ----
$318 $1,441 $1,515 $244
==== ====== ====== ====
Year ended December 31, 1997:
Doubtful accounts and
claims/allowances $127 $791 $635 (A) $283
Discounts 38 814 817 (B) 35
---- --- ---- ----
$165 $1,605 $1,452 $318
==== ====== ====== ====
</TABLE>
(A) Write-off of uncollectable accounts and claims for products
(B) Discounts taken and allowed
Column C(2) has been omitted as the answer would be "None."
34
<PAGE>
Shareholders' information
Market makers: Stock transfer agent:
Robert W. Baird & Co., Inc. (BARD) Harris Trust & Savings Bank
Herzog, Heine, Geduld, Inc. (HRZG) 111 West Monroe Street
Spear, Leeds & Kellogg (SLKC) Chicago, Illinois 60690
Stock price and dividend information:
The following table presents high and low sales prices of the Company's Common
Stock in the indicated calendar quarters, as reported on the Nasdaq National
Market System.
Quarterly Price Ranges of Stock:
1999 1998
---- ----
Quarter High Low High Low
------- ---- --- ---- ---
First $9.000 $6.500 $8.875 $6.750
Second $7.500 $6.375 $10.750 $6.875
Third $8.625 $6.750 $9.750 $7.250
Fourth $6.938 $4.000 $8.500 $6.500
Quarterly Dividends Per Share:
Dividend rates are established by the Board of Directors. During the first
quarter 1997, the Board suspended payment of quarterly dividends. The Company's
line of credit maintains certain covenants which limit the Company's ability to
pay dividends. See "Management's Discussion and Analysis -- Liquidity and
Capital Resources -- Capital Resources."
Annual meeting of shareholders:
The Annual Meeting of Shareholders of Badger Paper Mills, Inc. will be held at
The Best Western Riverfront Inn, 1821 Riverside Avenue, Marinette, Wisconsin, on
Tuesday, May 9, 2000, at 10:00 a.m.
35
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors: Corporate Officers:
Thomas J. Kuber - Chairman Thomas J. Kuber
President Chairman of the Board
K&K Warehousing
Thomas W. Cosgrove
L. Harvey Buek President and CEO
LHB - O & M Consulting
Michael J. Bekes
Mark D. Burish Vice President and COO
President
Hurley, Burish & Milliken, SC Clifton A. Martin
Vice President
Thomas W. Cosgrove Badger Paper Flexible Packaging Div.
President and CEO
Badger Paper Mills, Inc. Mark C. Neumann
Vice President/Sales
James L. Kemerling
Consultant George J. Zimmerman
Treasurer
John R. Peterson
Managing Director Mark D. Burish
Tucker Anthony Inc. Secretary
Susan A. Rudolph
Assistant Secretary
36
<PAGE>
EXHIBIT INDEX
BADGER PAPER MILLS, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Numbers Description
- ------- -----------
(3) (i) Restated Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3(i) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
(ii) By-laws as amended through August 12, 1999.
(4) (i) U. S. $12,000,000 Credit Agreement dated January 29, 1999, by and
among the Company, Badger Paper Mills Flexible Packaging
Division, Inc. (formerly known as Plas-Techs, Inc.) and Harris
Trust and Savings Bank, individually and as agent, and the
lenders from time to time party thereto (Incorporated by
reference to Exhibit 4(i) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998).
(ii) First Agreement to Amended and Restated Credit Agreement dated as
of August 31, 1999 by and among Badger Paper Mills, Inc., Badger
Paper Mills Flexible Packaging Division, Inc., the Lenders, and
Harris Trust and Savings Bank, as Agent (Incorporated by
reference to Exhibit 4(ii) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999).
(iii) Second Amendment to Amended and Restated Credit Agreement dated
as of March 9, 2000, by and between Badger Paper Mills, Inc.
(individually and as successor by merger to Badger Paper Mills
Flexible Packaging Division, Inc.), the Lenders, and Harris Trust
and Savings Bank, as Agent.
(10) Material Contracts:**
(i) Supplemental Executive Retirement Plan dated December 18, 1992
(Incorporated by reference to Exhibit 10 (ii) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1992).
(ii) Executive Employment Agreement dated March 1, 1995, between the
Company and Claude L. Van Hefty (Incorporated by reference to
Exhibit 10(vii) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
(iii)Health Insurance Retirement Benefit Agreement dated January 1,
1996 between the Company and Claude L. Van Hefty (Incorporated by
reference to Exhibit 10(v) to the Company's Annual Report on Form
10-K for the year ended December 31, 1996).
(iv) Director Stock Grant Plan dated July 23, 1997 (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997).
(v) Employee Resignation and Release Agreement dated as of March 12,
1998 between Badger Paper Mills, Inc. and Claude L. Van Hefty
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
(vi) Employee Resignation and Release Agreement dated as of March 12,
1998 between Badger Paper Mills, Inc. and Miles L. Kresl, Jr.
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
(vii)Badger Paper Mills, Inc. 1998 Stock Option Plan (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999)
37
<PAGE>
(viii)Form of Badger Paper Mills, Inc. 1998 Stock Option Agreement
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999).
(ix) Badger Paper Mills, Inc. 1999 Directors Stock Grant Plan
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999)
(23) Consent of Independent Public Accountants
(27) Financial Data Schedule (EDGAR version only)
(99) Definitive Proxy Statement for 2000 Annual Meeting of Shareholders (to be
filed with the Commission under Regulation 14A and incorporated by
reference herein to the extent indicated in this Form 10-K).
**Each of the "material contracts" represents a management compensatory
agreement or arrangement.
38
Amended 08/12/99 Board of Directors Meeting
BY-LAWS
of
BADGER PAPER MILLS, INC.
A Corporation
ARTICLE I. Offices
1.01 Principal and Business Offices. The corporation may have such
principal and other business offices in addition to Peshtigo, Wisconsin, either
within or without the State of Wisconsin, as the Board of Directors may
designate or as the business of the corporation may require from time to time.
1.02 Registered Office. The registered office of the corporation
required by the Wisconsin Business Corporation Law to be maintained in the State
of Wisconsin may be, but need not be, identical with the principal office of the
corporation, and the address of the registered office may be changed from time
to time by the Board of Directors or by the registered agent. The business
office of the registered agent of the corporation shall be identical to such
registered office.
ARTICLE II. Shareholders
2.01 Annual Meeting. The annual meeting of the shareholders shall be
held on the second Tuesday in May in each year at 10:00 o'clock A. M., or at
such other time and date within thirty days before or after said date as may be
fixed by or under the authority of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Wisconsin, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein, or fixed as herein provided, for any annual meeting of
the shareholders, or at any adjournment thereof, the Board of Directors shall
cause the election to be held at a special meeting of the shareholders as soon
thereafter as conveniently may be.
2.02 Special Meeting. Special meetings of the shareholders, for any
purpose of purposes, unless otherwise prescribed by statute, may be called by
the Chairman of the Board of Directors, the President or Board of Directors or
by the person designated in the written request of the holder of not less than
one-tenth of all shares of the corporation entitled to vote at the meeting.
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Amended 08/12/99 Board of Directors Meeting
2.03 Place of Meeting. The Board of Directors may designate any place,
either within or without the State of Wisconsin, as the place of meeting for any
annual meeting or for any special meeting called by the Board of Directors. If
no designation is made, or if a special meeting be otherwise called, the place
of meeting shall be the principal business office of the corporation in
Peshtigo, Wisconsin, or such other suitable place in Marinette County, Wisconsin
as may be designated by the person calling such meeting, but any meeting may be
adjourned to reconvene at any place designated by vote of a majority of the
shares represented thereat.
2.04 Notice of Meeting. Written notice stating the place, day, and hour
of the meeting and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) days nor
more than fifty (50) days before the meeting, either personally or by mail, by
or at the direction of the President, or the Secretary, or the officer or
persons calling the meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the shareholder
at his address as it appears on the stock record books of the corporation with
postage thereon prepaid.
2.05 Closing of Transfer Books or Fixing of Record Date. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the Board of Directors may provide
that the stock transfer books shall be closed for a stated period but not to
exceed, in any case, seventy (70) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. In lieu of closing the stock
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than seventy (70) days and, in case of a meeting of shareholders, not less
than ten (10) days prior to the date on which the particular action, requiring
such determination of shareholders, is to be taken. If the stock transfer books
are not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the close of business on the date on
which notice of the meeting is mailed or on the date on which the resolution of
the Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall be applied
to any adjournment thereof except where the determination has been made through
the closing of the stock transfer books and the stated period of closing has
expired. If no record date is fixed by the Board of Directors or by the
Wisconsin Business Corporation Law for the determination of shareholders
entitled to demand a special meeting under Section 2.02, the record date shall
be the date that the first shareholder signs the
2
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Amended 08/12/99 Board of Directors Meeting
demand. Except, as provided by the Wisconsin Business Corporation Law for a
court-ordered adjournment, a determination of shareholders entitled to notice of
and to vote at a meeting of shareholders is effective for an adjournment of such
meeting unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date fixed
for the original meeting.
2.06 Voting Records. After a record date for a special or annual
meeting of shareholders has been fixed, the corporation shall prepare a list of
the names of all of the shareholders entitled to notice of the meeting. The list
shall be arranged by class or series of shares, if any, and shall show the
address of and number of shares held by each shareholder. Such list shall be
available for inspection by any shareholder, beginning two business days after
notice of the meeting is given for which the list was prepared, and continuing
to the date of the meeting, at the corporation's principal office or at a place
identified in the meeting notice in the city where the meeting will be held. A
shareholder or his, her, or its agent may, on written demand, inspect and,
subject to the limitations imposed by the Wisconsin Business Corporation Law,
copy the list, during regular business hours and at his, her, or its expense,
during the period that it is available for inspection pursuant to Section 2.07.
The corporation shall make the shareholders' list available at the meeting and
any shareholder or his, her, or its agent or attorney may inspect the list at
any time during the meeting or any adjournment thereof. Refusal or failure to
prepare or make available the shareholders' list shall not affect the validity
of any action taken at a meeting of shareholders.
2.07 Quorum. Shares entitled to vote as a separate voting group may
take action on a matter at a meeting only if a quorum of those shares exists
with respect to that matter. Except as otherwise provided in the articles of
incorporation or the Wisconsin Business Corporation Law, a majority of the votes
entitled to be cast on the matter shall constitute a quorum of the voting group
for action on that matter. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes of
determining whether a quorum exists for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for the
adjourned meeting. If a quorum exists, except in the case of the election of
directors, action on a matter shall be approved if the votes cast within the
voting group favoring the action exceed the votes cast opposing the action,
unless the articles of incorporation or the Wisconsin Business Corporation Law
requires a greater number of affirmative votes. Unless otherwise provided in the
articles of incorporation, each director shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election of directors at a
meeting at which a quorum is present. Though less than a quorum of the
outstanding votes of a voting group are represented at a meeting, a majority of
the votes so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
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Amended 08/12/99 Board of Directors Meeting
2.08 Conduct of Meetings. The Chairman of the Board of Directors or,
and in his absence, the President, and in his or her absence, a Vice-President
in the order provided under Section 4.06, and in their absence, any person
chosen by the shareholders present shall call the meeting of the shareholders in
order and shall act as Chairman of the meeting, and the Secretary of the
corporation shall act as Secretary of all meetings of the shareholders, but in
the absence of the Secretary, the presiding officer may appoint any other person
to act as secretary of the meeting.
2.09 Proxies. At all meetings of shareholders, a shareholder entitled
to vote may vote in person or by proxy appointed in writing by the shareholder
or by his or her duly authorized attorney in fact. Such proxy shall be filed
with the Secretary of the corporation before or at the time of the meeting.
Unless otherwise provided in the proxy, a proxy may be revoked at any time
before it is voted, either by written notice filed with the Secretary or the
acting secretary of the meeting or by oral notice given by the shareholder to
the presiding officer during the meeting. The presence of a shareholder who has
filed his, her, or its proxy shall not of itself constitute a revocation. No
proxy shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy. The Board of Directors shall have the power and
authority to make rules establishing presumptions as to the validity and
sufficiency of proxies.
2.10 Voting of Shares. There shall be no cumulative voting of shares.
Each outstanding share shall be entitled to one vote upon each matter submitted
to a vote at a meeting of shareholders.
2.11 Voting of Shares by Certain Holders.
(a) Other Corporations. Shares standing in the name of another
corporation may be voted either in person or by proxy, by the president
of such corporation or any other officer appointed by such president. A
proxy executed by any principal officer of such other corporation or
assistant thereto shall be conclusive evidence of the signer's
authority to act, in the absence of express notice to this corporation,
given in writing to the Secretary of this corporation, of the
designation of some other person by the board of directors or the
by-laws of such other corporation.
(b) Legal Representatives and Fiduciaries. Shares held by a
Personal Representative, guardian, conservator, trustee in bankruptcy,
receiver, or assignee for creditors may be voted by such holder, either
in person or by proxy, without a transfer of such shares into his, her
or its name. Shares standing in the name of a fiduciary may be voted by
such fiduciary, either in person or by proxy. A proxy executed by a
fiduciary shall be conclusive evidence of the signer's authority to
act, in the absence of express written notice to the Secretary
4
<PAGE>
Amended 08/12/99 Board of Directors Meeting
of this corporation that such manner of voting is expressly prohibited
or otherwise directed by the document creating the fiduciary
relationship.
(c) Pledgees. A shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred
into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
(d) Treasury Stock. Treasury shares shall not be voted at any
meeting or counted in determining the total number of outstanding
shares entitled to vote.
(e) Minors. Shares held by a minor may be voted by such minor
in person or by proxy, and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the Secretary of
the corporation has received written notice or has actual knowledge
that such shareholder is a minor.
(f) Incompetents and Spendthrifts. Shares held by an
incompetent or spendthrift may be voted by such incompetent or
spendthrift in person or by proxy and no such vote shall be subject to
disaffirmance or avoidance, unless prior to such vote the Secretary of
the corporation has actual knowledge that such shareholder has been
adjudicated an incompetent or spendthrift or actual knowledge of filing
of judicial proceedings for appointment of a guardian.
(g) Joint Tenants. Shares registered in the names of two or
more individuals who are named in the registration as joint tenants may
be voted in person or by proxy signed by any one or more of such
individuals if either (i) no other such individual or his legal
representative is present and claims the right to participate in the
voting of such shares or prior to the vote files with the Secretary of
the corporation a contrary written voting authorization or direction or
written denial of authority of the individual present or signing the
proxy proposed to be voted, or (ii) all such other individuals are
decreased and the Secretary of the corporation has no actual knowledge
that the survivor has been adjudicated not to be the successor to the
interests of those deceased.
ARTICLE III. Board of Directors
3.01 General Powers and Number. The business and affairs of the
corporation shall be managed by its Board of Directors. The number of directors
of the corporation shall be as determined from time to time by the Board of
Directors, but shall not be less than five nor more than nine persons.
3.02 Tenure and Qualifications. Each director shall be a stockholder of
the corporation but need not be a resident of the State of Wisconsin. Each
director shall
5
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hold office for a term of three years according to the Class to which such
director is elected under this Section 3.02, until his or her prior death,
resignation or removal. Any director may be removed from office by affirmative
vote of two-thirds of the outstanding shares entitled to vote for the election
of such director, taken at a meeting of shareholders called for that purpose or
by the affirmative vote of two-thirds of the directors in office at the time
such vote is taken. Any director may resign at any time by filing his or her
written resignation with the Secretary of the corporation.
The Board of Directors shall be divided into three Classes which shall
have equal numbers of directors to the extent practicable. The initial term of
office of Class I shall expire at the annual meeting of the shareholders in
1982; the initial term of office of Class II shall expire at the annual meeting
of shareholders in 1983; and the initial term of office of Class III shall
expire at the annual meeting of shareholders in 1984. Each such Class shall have
a regular three-year term commencing at the expiration of the respective initial
terms. The current directors of the corporation hereby are designated members of
the classes as follows:
Class I Class II Class III
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Timothy M. Dempsey Alvin O. Adrian Bennie C. Burish
Robert G. Schrank Robert F. Ecker Edwin A. Meyer, Jr.
This Section 3.02 may not be amended, altered or repealed except upon
the affirmative vote of two-thirds of the outstanding shares entitled to vote
upon such matters, taken at a meeting of shareholders called for that purpose.
3.03 Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after the annual
meeting of the shareholders, and each adjourned session thereof. The place of
such regular meeting shall be the same as the place of the meeting of the
shareholders which precedes it, or such other suitable place as may be announced
at such meeting of shareholders. The Board of Directors also shall meet
regularly on the first Tuesday of February, on the fourth Wednesday of July, on
the fourth Tuesday in October, and at such time and place as may be fixed by the
Chairman of the Board of Directors, in his absence, by the President. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of Wisconsin, for the holding of additional regular meetings
without other notice than such resolution.
3.04 Special Meetings. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board of Directors, the
President, Secretary, or any two directors. The Chairman, the President or
Secretary calling any special meeting of the Board of Directors may fix any
place, either within or without the State of Wisconsin, as the place for holding
any special meeting of the Board of Directors called by them, and if no other
place is fixed, the place of meeting shall be the principal business office of
the corporation in Peshtigo, Wisconsin.
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3.05 Notice; Waiver. Notice of each meeting of the Board of Directors
(unless otherwise provided in or pursuant to Section 3.03) shall be given by
written notice delivered personally or mailed or given by telegraph or facsimile
to each director at his or her business address or at such other address as such
director shall have designated in writing filed with the Secretary, in each case
not less than three days prior thereto. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail so addressed, with
postage thereon prepaid. If notice be given by telegram or facsimile, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegraph company and if by facsimile, when transmission is made. Whenever any
notice whatever is required to be given to any director of the corporation under
the Articles of Incorporation or by-laws or any provision of law, a waiver
thereof in writing, signed at any time, whether before or after the time of
meeting, by the director entitled to such notice, shall be deemed equivalent to
the giving of such notice. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting and objects thereat to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice or waiver of notice of such
meeting.
3.06 Quorum. Except as otherwise provided by law or by the Articles of
Incorporation or these by-laws, a majority of the number of directors as
provided in Section 3.01 shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but a majority of the
directors present (though less than such quorum) may adjourn the meeting from
time to time without further notice.
3.07 Manner of Acting. The act of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law or by the
Articles of Incorporation or these by-laws.
3.08 Conduct of Meetings. The Chairman of the Board of Directors or, in
his absence, the President, and in his or her absence, a Vice-President in the
order provided by the Board of Directors and in their absence, any director
chosen by the directors present, shall call meetings of the Board of Directors
to order and shall act as Chairman of the meeting. The Secretary of the
corporation shall act as secretary of all meetings of the Board of Directors,
but in the absence of the Secretary, the presiding officer may appoint any
Assistant Secretary or any director or other person present to act as Secretary
of the meeting.
3.09 Vacancies. Any vacancy occurring in the Board of Directors,
including a vacancy created by an increase in the number of directors, may be
filled by either: the shareholders; the Board of Directors; or, if the directors
then remaining in office
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constitute fewer than quorum of the Board of Directors, by the affirmative vote
of a majority of the directors remaining in office; provided, however, that if
such vacancy shall have been created by removal of a director by vote of the
shareholders, the shareholders shall have the right to fill such vacancy at the
same meeting at which removal was voted, or any adjournment of that meeting.
Directors elected by the shareholders under this Section 3.09 shall hold office
until the next annual meeting of shareholders at which the term of the Class to
which they have been elected shall expire.
3.10 Compensation. The Board of Directors, by affirmative vote of
majority of the directors then in office, and irrespective of any personal
interest of any of its members may establish reasonable compensation of all
directors for services to the corporation as directors, officers or otherwise or
may delegate such authority to an appropriate committee. The Board of Directors
also shall have authority to provide for or to delegate authority to an
appropriate committee to provide for reasonable pensions, disability or death
benefits, and other benefits or payments, to directors, officers and employees
and to their estates, families, dependents or beneficiaries on account of prior
service rendered by such directors, officers and employees to the corporation.
3.11 Committees. The Board of Directors by resolution adopted by the
affirmative vote of a majority of all of the directors then in office may create
one or more committees, appoint members of the Board of Directors to serve on
the committees and designate other members of the Board of Directors to serve as
alternates. Each committee shall have two or more members who shall, unless
otherwise provided by the Board of Directors, serve at the pleasure of the Board
of Directors. A committee may be authorized to exercise the authority of the
Board of Directors, except that a committee may not do any of the following: (a)
authorize distributions; (b) approve or propose to shareholders action that the
Wisconsin Business Corporation Law requires to be approved by shareholders; (c)
fill vacancies on the Board of Directors or, unless the Board of Directors
provides by resolution that vacancies on a committee shall be filled by the
affirmative vote of the remaining committee members, on any Board committee; (d)
amend the corporation's Articles of Incorporation; (3) adopt, amend or repeal
by-laws; (f) approve a plan of merger not requiring shareholder approval; (g)
authorize or approve re-acquisition of shares, except according to a formula or
method prescribed by the Board of Directors; and (h) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares,
except that the Board of Directors may authorize a committee to do so within
limits prescribed by the Board of Directors in creating the committee, a
committee may employ counsel, accountants and other consultants to assist it in
the exercise of its authority.
Audit Committee. There shall be an Audit Committee composed of not less
than three (3), nor more than five (5) members of the Board of Directors, a
majority of
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whom shall be directors who are not active officers of the corporation. It shall
be the duty of the Audit Committee to recommend to the Board of Directors the
accounting firm to be selected by the Board, or to be recommended by it for
shareholder approval, as independent auditor of the corporation and to act on
behalf of the Board in meeting and reviewing with the independent auditors and
the appropriate corporate officers matters relating to corporate financial
reporting and accounting procedures and policies, adequacy of financial,
accounting, and operating controls, and the scope of the respective audits of
the independent auditors and of any internal auditor of the corporation. The
Committee shall review the results of such audits with the respective auditing
agency and promptly shall report thereon to the Board of Directors. The
Committee additionally shall submit to the Board of Directors any
recommendations it may have from time to time with respect to financial
reporting and accounting practices and policies and financial, accounting, and
operation controls and safeguards.
3.12 Unanimous Consent Without Meeting. Any action required or
permitted by the Articles of Incorporation or by-laws or any provision of law to
be taken by the Board of Directors at a meeting or by resolution may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors then in office.
3.13 Telephonic Meetings. Except as provided by this by-law, any action
required or permitted by the Articles of Incorporation or by-laws or any
provision of law to be taken by the Board of Directors at a meeting or by
resolution may be taken by a quorum of the Board of Directors at a telephonic
meeting or other meeting utilizing electronic communication of all participating
directors:
are informed that a meeting is taking place at which
official business may be transacted;
simultaneously may hear each other during the
meeting;
immediately is able to send messages to all other
participating directors; and
if all communication during the meeting immediately
is transmitted to each participating director.
No meeting of the Board of Directors held pursuant to this by-law may
vote upon a plan of merger of shares exchange; or to sell, lease, exchange or
otherwise dispose of substantial property or assets of the corporation; to
dissolve voluntarily or to revoke voluntary dissolution proceedings; or to file
for bankruptcy.
3.14 Presumption of Assent. A director of the corporation who is
present at a meeting of the Board of Directors or a committee thereof of which
he or she is a
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member at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his or her dissent shall be entered in
the minutes of the meeting or unless he or she shall file his or her written
dissent to such action with the person acting as the Secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the Secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
ARTICLE IV. Officers
4.01 Number. The principal officers of the corporation shall be a
President, not more than five Vice-Presidents, a Secretary and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed by the
Board of Directors. Any two or more offices may be held by the same person,
except the offices of the President and Secretary, and the offices of President
and Vice-President.
4.02 Election and Term of Office. The officers of the corporation to be
elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each Annual
Meeting of the Shareholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as conveniently may
be. Each officer shall hold office until his or her successor shall have been
duly elected or until his or her prior death, resignation or removal.
4.03 Resignation; Removal. Any officer may resign at any time by
delivering written notice to an officer of the corporation. A resignation shall
be effective when delivered unless the notice specifies a later date which is
accepted by the corporation. Any officer or agent may be removed by the Board of
Directors whenever in its judgment the best interest of the corporation will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election or appointment shall not of
itself create contract rights.
4.04 Vacancies. A vacancy in any principal office because of death,
resignation, removal, disqualification or otherwise, shall be filled by the
Board of Directors for the unexpired portion of the term.
4.05 Chairman of the Board. The Chairman of the Board, subject to the
control of the Board of Directors, shall supervise the President and be
responsible, through the President, for the control of all of the business and
affairs of the corporation. In the absence of the President or in the event of
his or her death, inability or refusal to act, or in the event for any reason it
shall be impractical for the President to act, he or she shall have continuing
general powers of supervision and management of the corporation. When present,
he or she shall preside at all meetings of the shareholders and of the Board of
Directors. He or she shall see that all resolutions and orders of the Board of
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Directors and its committees are carried into effect. He or she shall have
authority to sign, execute, and acknowledge, on behalf of the corporation, all
deeds, mortgages, bonds, stock certificates, contracts, leases, reports and all
other documents or instruments necessary or proper to be executed in the course
of the ordinary business of the corporation, or which shall be authorized by
resolution of the Board of Directors. Except as otherwise provided by law or by
the Board of Directors, he or she also may authorize the President, any
Vice-President or other officer or agent of the corporation to sign, execute and
acknowledge such documents or instruments in his or her place and stead. In
general, he or she shall have the powers of supervision of the business of the
corporation.
4.06 President. The President, subject to the control of the Board of
Directors and the supervision of the Chairman of the Board, shall exercise the
general management and control of the business of the corporation. He or she
shall have authority, subject to such rules as may be prescribed by the Board of
Directors, to appoint such agents and employees of the corporation as he or she
shall deem necessary, to prescribe their powers, duties and compensation, and to
delegate authority to them. Such agents and employees shall hold office at the
discretion of the President. The President shall have the authority to sign,
execute and acknowledge on behalf of the corporation, all deeds, mortgages,
bonds, stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the ordinary
business of the corporation, or which shall be authorized by resolution of the
Board of Directors. Except as otherwise provided by law or the Board of
Directors, the President may authorize any Vice-President or any other officer
or agent of the corporation to sign, execute and acknowledge such documents or
instruments in his or her place and stead. In general, he or she shall have all
the powers and duties usually vested in the office of the President of the
corporation.
4.07 The Vice-Presidents. In the absence of the President, or in the
event of death, inability or refusal to act, or in the event for any reason it
shall be impracticable for the President to act personally, the Vice-President
(or in the event there be more than one Vice-President, the Vice-Presidents in
the order designated by the Board of Directors, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. Any Vice-President may sign, with
the Secretary or Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties and have such authority as from
time to time may be delegated or assign to him or her by the President or by the
Board of Directors. The execution of any instrument of the corporation by any
Vice-President shall be conclusive evidence, as to third parties, of his or her
authority to act in the stead of the President.
4.08 The Secretary. The Secretary shall: (a) keep the minutes of the
meetings of the shareholders and of the Board of Directors in one or more books
provided for that
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purpose; (b) see that all notices are fully given in accordance with the
provisions of these By-Laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation, and see that the seal of
the corporation is affixed to all documents the execution of which on behalf of
the corporation under this seal is duly authorized; (d) keep or arrange for the
keeping of a register of the post office addresses of each shareholder which
shall be furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice-President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and have such other duties an exercise such authority as from time to
time may be delegated or assigned to him or her by the President or by the Board
of Directors.
4.09 The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for money due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Section 5.04; and (c) in general perform all of the
duties incident to the office of Treasurer and have such other duties and
exercise such other authority as from time to time may be delegated or assigned
to him or her by the President, or by the Board of Directors. If required by the
Board of Directors, the Treasurer shall give a bond for the faithful discharge
of his or her duties in such sum and with such surety or sureties as the Board
of Directors shall determine.
4.10 Assistant Secretaries and Assistant Treasurers. There shall be
such number of Assistant Secretaries and Assistant Treasurers as the Board of
Directors may from time to time authorize. The Assistant Secretaries may sign
with the President, or a Vice-President, certificates for shares of the
corporation, the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Treasurers shall respectively, if required
by the Board of Directors, give bonds for the faithful discharge of their duties
in such sums and with such sureties as the Board of Directors shall determine.
The Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by the
President or the Board of Directors.
4.11 Other Assistants and Acting Officers. The Board of Directors shall
have the power to appoint any person to act as assistant to any officer, or as
agent for the corporation in his stead, or to perform the duties of such officer
whenever for any reason it is impracticable for such officer to act personally,
and such assistant or acting officer or other agent so appointed by the Board of
Directors shall have the power to perform all the duties of the office to which
he or she is so appointed to be assistant, or
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as to which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors.
4.12 Salaries. The salaries of the principal officers shall be fixed
from time to time by the Board of Directors or by a duly authorized committee
thereof, and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
4.13 Chief Executive Officer and Chief Operating Officer. At the time
the Board of Directors elects the officers of the corporation at its first
meeting held after each annual meeting of the Shareholders, the Board shall also
name the officers who shall in addition to his or her office hold the title
Chief Executive Officer and Chief Operating Officer. The officers shall hold the
title of Chief Executive Officer and Chief Operating Officer until the next
election of officers or until his or her successor shall be duly elected or
until his or her prior death, resignation or removal.
ARTICLE V. Contracts, Loans, Checks, and
Deposits; Special Corporate Accounts
5.01 Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute or deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. In the absence
of other designation, all deeds, mortgages and instruments of assignment or
pledge made by the corporation shall be executed in the name of the corporation
by the President or one of the Vice-Presidents and by the Secretary, an
Assistant Secretary, the Treasurer or an Assistant Treasurer; the Secretary or
an Assistant Secretary, when necessary or required, shall affix the corporate
seal thereto; and when so executed no other party to such instrument or any
third party shall be required to make any inquiry into the authority of the
signing officer or officers.
5.02 Loans. No indebtedness for borrowed money shall be contracted on
behalf of the corporation and no evidences of such indebtedness shall be issued
in its name unless authorized by or under the authority of a resolution of the
Board of Directors. Such authorization may be general or confined to specific
instances.
5.03 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or 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 from time to time be determined by
or under the authority of a resolution of the Board of Directors.
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5.04 Deposits. All funds of the corporation not otherwise employed
shall be deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositaries as may be selected by or under the
authority of a resolution of the Board of Directors.
5.05 Voting of Securities Owned by This Corporation. Subject always to
the specific directions of the Board of Directors, (a) any shares or other
securities issued by any other corporation and owned or controlled by this
corporation may be voted at any meeting of security holders of such other
corporation by the President of this corporation, if he be present, or in his
absence by the Treasurer of this corporation, and (b) whenever, in the judgment
of the President, or in his absence, the Treasurer, it is desirable for this
corporation to execute a proxy or written consent in respect to any shares or
other securities issued by any other corporation and owned by this corporation,
such proxy or consent shall be executed in the name of this corporation by the
President, or the Treasurer of the this Corporation, without necessity of any
authorization by the Board of Directors, affixation of corporate seal or
countersignature or attestation by another officer. Any person or persons
designated in the manner above stated as the proxy or proxies of this
corporation shall have full right, power and authority to vote the shares or
other securities issued by such other corporation and owned by this corporation
the same as such shares or other securities might be voted by this corporation.
5.06 Indemnification. Indemnification by the corporation shall be
provided pursuant to Wisconsin Statute Section 180.0859 et. seq. Such
indemnification shall be provided to directors, officers, employees, and agents
of the corporation. Directors and officers eligible for indemnification shall
include:
(a) A natural person who is or was a director or officer of the
corporation.
(b) A natural person who, while a director or officer of the
corporation is or was serving at the request of the
corporation as a director, officer, partner, trustee, member
of any governing or decision making committee, employee or
agent of another corporation or foreign corporation,
partnership, joint venture, trust or other enterprise.
(c) A natural person who, while a director or officer of the
corporation, is or was serving an employee benefit plan
because his or her duties to the corporation also imposed
duties on, or otherwise involved services by, the person to
the plan or to participants in or beneficiaries of the plan.
(d) And, unless the context requires otherwise, the estate or
personal representative of a director or officer.
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The corporation shall indemnify a director, officer, employee or agent
to the extent he or she has been successful on the merits or otherwise in the
defense of a proceeding for all reasonable expenses incurred in the proceeding
if the director, officer, employee, or agent was a party because he or she is a
member or officer of the corporation.
In cases not included under the above paragraph, the corporation shall
indemnify a director, officer, employee or agent against liability incurred by
that person in a proceeding to which that person was a party because he or she
is or was a director, officer, employee, or agent of the corporation, unless
liability was incurred because that person breached or failed to perform a duty
he or she owed to the corporation and the breach or failure to perform
constitutes any of the following:
(a) A willful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the person
has a material conflict of interest.
(b) A violation of criminal law unless the person had a reasonable
cause to believe his or her conduct was lawful or no
reasonable cause to believe his or her conduct was unlawful.
(c) A transaction from which the person derived an improper
personal profit.
(d) Willful misconduct.
For purposes of this Article, "expenses" shall be defined to include
fees, costs, charges, disbursements, attorneys fees and other expenses incurred
in connection with the proceeding. "Liability" includes an obligation to pay a
judgment, settlement, penalty, assessment, forfeiture or fine, including an
excess tax assessment with respect to an employee benefit plan, and reasonable
expenses. "Party" includes a natural person who was, or is threatened to be
made, a named defendant or respondent in a proceeding. "Proceeding" means any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, arbitration or other proceeding, whether formal or
informal, which involves foreign, federal, state or local law and which is
brought by or in the right of the corporation or by any other person.
The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not, by
itself, create a presumption that indemnification of the director or officer is
not required.
The director, officer, employee, or agent seeking indemnification shall
select one of the following means for determining his or her right to
indemnification:
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(a) By a majority vote of a quorum of the Board of Directors
consisting of directors not at the time parties to the sale or
related proceedings. If a quorum of disinterested directors
cannot be obtained, by majority vote of a committee duly
appointed by the Board of Directors and consisting solely of
two or more directors not at the same parties to the same or
related proceedings. Directors who are parties to the same or
related proceedings may participate in the designation of
members of the committee.
(b) By independent legal counsel selected by a quorum of the Board
of Directors or its committee in the manners prescribed in
paragraph (a) above, or, if unable to obtain such quorum or
committee, by a majority vote of the full Board of Directors,
including directors who are parties to the same or related
proceedings.
(c) By a panel of three arbitrators consisting of one arbitrator
selected by those directors entitled under paragraph (b) to
select independent legal counsel, one arbitrator selected by
the director or officer seeking indemnification, and one
arbitrator selected by the two arbitrators previously
selected.
(d) By an affirmative vote of shares as provided in Wisconsin
Statutes Sections 180.0725 through 180.0727. Shares owned by,
or voted under the control of, persons who are at the time
parties to the same or related proceedings, whether as
plaintiffs or defendants or in any other capacity, may not be
voted in making the determination.
(e) By a Court under Wisconsin Statutes Section 180.0854.
(f) By any other method provided for and any additional right to
indemnification permitted under Wisconsin Statutes Section
180.0858.
Upon written request by a person who is a party to a proceeding, a
corporation may pay or reimburse his or her reasonable expenses as incurred if
the person provides the corporation with a written affirmation of his or her
good faith belief that he or she has not reached or failed to perform his or her
duties to the corporation. A bond or undertaking need not be required prior to
the advancement of such expenses.
Indemnification additional to that set forth in this Article may be
provided by resolution of the Board of Directors except as restricted by law.
ARTICLE VI. Certificates for Shares and Their Transfer
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6.01 Certificates for Shares. Certificates representing shares of the
corporation shall be in such form, consistent with law, as shall be determined
by the Board of Directors. Such certificates shall be signed by the President, a
Vice-President, and by the Secretary or an Assistant Secretary. All certificates
for shares shall be consecutively numbered or otherwise identified. The name and
address 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 stock transfer
books of the corporation. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificates for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 6.06.
6.02 Facsimile Signatures and Seal. The seal of the corporation on any
certificates for shares may be a facsimile. The signatures of the President, a
Vice-President, and the Secretary or Assistant Secretary upon a certificate may
be facsimiles if the certificate is manually signed on behalf of a transfer
agent, other than the corporation itself.
6.03 Transfer of Shares. Prior to due presentment of a certificate for
shares for registration of transfer the corporation may treat the registered
owner of such shares as the person exclusively entitled to vote, to receive
notifications and otherwise to have and exercise all the rights and power of an
owner. Where a certificate for shares is presented to the corporation with a
request to register for transfer, the corporation shall not be liable to the
owner or any other person suffering loss as a result of such registration of
transfer if (a) there were on or with the certificate the necessary
endorsements, and (b) the corporation had no duty to inquire into adverse claims
or has discharged any such duty. The corporation may require reasonable
assurance that said endorsements are genuine and effective and compliance with
such other regulations as may be prescribed by or under the authority of the
Board of Directors.
6.04 Restrictions on Transfer. The face or reverse side of each
certificate representing shares shall bear a conspicuous notation of any
restriction imposed by the corporation upon the transfer of such shares.
6.05 Lost, Destroyed or Stolen Certificates. Where the owner claims
that his or her certificate for shares has been lost, destroyed or wrongfully
taken, a new certificate shall be issued in place thereof if the owner (a) so
requests before the corporation has notice that such shares have been acquired
by a bona fide purchaser, and (b) files with the corporation a sufficient
indemnity bond, and (c) satisfies such other reasonable requirements as may be
prescribed by or under the authority of the Board of Directors.
6.06 Consideration for Shares. The shares of the corporation may be
issued for such consideration as shall be fixed from time to time by the Board
of Directors. The consideration to be paid for shares may be paid in whole or in
part, in money, in other
17
<PAGE>
Amended 08/12/99 Board of Directors Meeting
property, tangible or intangible, or in labor or services actually performed for
the corporation. When payment of the consideration for which shares are to be
issued shall have been received by the corporation, such shares shall be deemed
to be fully paid and nonassessable by the corporation. No certificate shall be
issued for any share until such share is fully paid.
6.07 Stock Regulations. The Board of Directors shall have the power and
authority to make all such further rules and regulations not inconsistent with
the statutes of the State of Wisconsin as it may deem expedient concerning the
issue, transfer and registration of certificates representing shares of the
corporation.
ARTICLE VII. Mergers, Consolidations, Sales,
Reorganizations of the Corporation
Except as otherwise expressly provided in this Article VII: (i) any
merger or consolidation of the corporation with or into any other corporation;
or (ii) any sale, lease, exchange or other disposition of all or substantially
all of the assets of the corporation to, or with any other corporation, person
or other entity, shall require the affirmative vote of the holders of at least
two-thirds of the outstanding shares of capital stock of the corporation issued
and outstanding and entitled to vote if, as of the record date for the
determination of shareholders entitled to notice thereof and to vote thereon,
such other corporation, person or entity is the beneficial owner, directly or
indirectly, of five percent or more of the outstanding shares of capital stock
of the corporation issued and outstanding and entitled to vote.
This provision of this Article VII shall not apply to any transaction
described in clauses (i) or (ii) of this Article, (a) with another corporation
person or other entity if the Board of Directors of the corporation by
resolution shall have approved a memorandum of understanding with such other
corporation, person or other entity with respect to and substantially consistent
with such transaction prior to the time such other corporation, person or other
entity became the beneficial owner, directly or indirectly of five percent or
more of the outstanding shares of capital stock of the corporation entitled to
vote; or (b) which has been approved by resolution unanimously adopted by the
whole Board of Directors of the corporation at any time prior to the
consummation thereof.
For the purpose of this Article VII, a corporation, person or other
entity shall be deemed to be the beneficiary owner of any shares of capital
stock of the corporation (i) which it has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, or (ii) which are beneficially owned, directly or indirectly
[including shares deemed owned through application of clause (i) of this
paragraph above], by any other corporation, person or entity (a) with which it
or its "affiliate" or Associate" (as reference below) has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of capital stock of the corporation or (b) which is its "affiliate" or
"Associate" as those terms were
18
<PAGE>
Amended 08/12/99 Board of Directors Meeting
defined in Rule 12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect on April 21, 1981. For the purposes of this
Article VII, the outstanding shares of capital stock of the corporation shall
include shares deemed owned through the application of clauses (i) and (ii) of
this paragraph but shall not include any other shares which may be issuable
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise.
The Board of Directors of the corporation shall have the power and duty
to determine for the purposes of this Article VII on the basis of information
then known to it, whether (a) any corporation, person or other entity
beneficially owns, directly or indirectly five percent or more of the
outstanding shares of capital stock of the corporation entitled to vote; (b) any
sale lease, exchange or other disposition of part of the assets of the
corporation; and (c) the memorandum of understanding referred to above is
substantially consistent with the transaction to which it relates. Any such
determination by the Board shall be conclusive and binding for all purposes of
this Article VII.
This Article VII may not be amended or rescinded except by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of capital stock of the corporation issued and outstanding and entitled to vote
at any regular meeting of the shareholders, if notice of the proposed alteration
or amendment be contained in the notice of the meeting.
ARTICLE VIII. Reports Concerning Mergers or Acquisitions
If the corporation shall receive from any person or entity any written
notice of an intention to acquire the corporation or all, or substantially all,
of its assets, or to merge the corporation into such entity or a business
organization associated with such person or entity, the Board of Directors
promptly shall review and assess the social and economic effects of such
intended acquisition or merger. The review and assessment shall include, but
shall not be limited to, the effects on shareholders, the effects on employees,
including their health and safety, and the effects on customers and suppliers of
the corporation on the Peshtigo community and the environment. The review and
assessment shall be completed within ninety days of receipt by the corporation
of such written notice of intent to acquire or merge. A written report of such
review and assessment shall be prepared and distributed promptly to the
shareholders.
This Article VIII may not be amended or rescinded except by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of capital stock of the corporation issued and outstanding and entitled to vote
at any regular or special meeting of the shareholders, if notice of the proposed
alteration or amendment be contained in the notice of the meeting.
19
<PAGE>
Amended 08/12/99 Board of Directors Meeting
ARTICLE IX. Seal
9.01 The Board of Directors shall provide a corporate seal which shall
be circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE X. Amendments
10.01 By Shareholders. These By-Laws may be altered, amended or
repealed and new By-Laws may be adopted by the shareholders by affirmative vote
of not less than a majority of the shares present or represented at any annual
or special meeting of the shareholders at which a quorum is in attendance,
except as otherwise provided by any By-Law.
10.02 By Directors. These By-Laws also may be altered, amended or
repealed and new By-Laws may be adopted by the Board of Directors by affirmative
vote of a majority of the number of directors present at any meeting at which a
quorum is in attendance; but no By-Law adopted by the shareholders shall be
amended or repealed by the Board of Directors if bye By-Law so adopted provides
for altering amendment or repeal only upon the vote of the shareholders.
10.03 Implied Amendments. Any action taken or authorized by the
shareholders or by the Board of Directors, which would be inconsistent with the
By-Laws then in effect but is taken or authorized by affirmative vote of not
less than the number of shares or the number of directors required to amend the
By-Laws so that the By-Laws would be consistent with such action, shall be given
the same effect as though the By-Laws had been temporarily amended or suspended
so far, but only so far, as is necessary to permit the specific action so be
taken or authorized.
10.04 Procedures for Shareholder Amendments and Nominations. Proposals
by shareholders for amendment of these By-Laws or the Articles of Incorporation
of the corporation, and nominations by shareholders of directors for the Board
of Directors, shall be made by notice in writing, delivered or mailed by first
class United States mail, postage prepaid, to the Secretary of the corporation
not less than 120 days prior to the date of release of annual meeting proxy
materials tot he shareholders. The date of release for any year shall be
scheduled to provide the same period of notice to shareholders as was provided
to them for the next preceding annual shareholders meeting; provided, however,
that if a special meeting of shareholders is called for any purpose such notice
shall be delivered or mailed to the Secretary, as prescribed, not later than the
seventh day following the day on which notice of such meeting was mailed to
shareholders.
20
<PAGE>
Amended 08/12/99 Board of Directors Meeting
10.05 Procedures for Amendments and Nominations by the Board of
Directors. Notice of proposals by the Board of Directors for Amendment of these
By-Laws or the Articles of Incorporation of the Corporation where shareholder
approval is required by these By-Laws or by the Articles of Incorporation, and
nominations of directors by the Board of Directors shall be made by affirmative
vote of the number of directors present at any meeting at which a quorum is in
attendance, except as otherwise provided by these By-Laws.
10.06 Form of Notices of Amendments and Nominations.
(a) Each notice of a proposal to amend these By-Laws or the
Articles of Incorporation of the corporation shall set forth
the exact wording of the proposed amendment and a brief
explanation of the purpose and possible effect of the proposed
amendment.
(b) Each notice of nomination of a director to the Board of
Directors shall set forth: (i) the name, age, business address
and, if known, residence address of such nominee; (ii) his or
her principal occupation or employment; (iii) the number of
shares of stock of the corporation owned by such nominee; and
(iv) a brief statement of such other facts as may be relevant
to the election of such nominee to the Board of Directors of
the corporation.
(c) If the corporation shall oppose any proposal received from a
shareholder for amendment of these By-Laws or the Articles of
Incorporation, or for nomination of a director, upon the
request of the shareholder it shall include in the notice of
such proposal a statement by the proponent in support of the
proposal. Any such statement shall be limited to not more than
200 words unless the Board of Directors otherwise provides.
10.07 Action on Defective Proposals and Nominations. If the Chairman of
any meeting of the shareholders at which a proposal to amend these By-Laws or
the Articles of Incorporation of the corporation, or the nomination of a
director to the Board of Directors, is to be considered for action shall
determine that such proposal or nomination has not been made according to the
procedures prescribed by these By-Laws it shall be so stated to such meeting and
the said proposal or nomination shall not be considered for action at that
meeting or any adjournment thereof.
21
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement (the
"Amendment") dated as of March 9, 2000 (but effective as of February 29, 2000),
by and between Badger Paper Mills, Inc. (individually and as successor by merger
to Badger Paper Mills Flexible Packaging Division, Inc.) (the "Borrower"), the
Lenders, and Harris Trust and Savings Bank, as Agent (the "Agent");
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and Harris Trust and Savings Bank,
as Agent, have heretofore executed and delivered an Amended and Restated Credit
Agreement dated as of January 29, 1999, as previously amended by that certain
First Amendment to Amended and Restated Credit Agreement dated as of August 31,
1999 (said Amended and Restated Credit Agreement as so amended being referred to
herein as the "Credit Agreement"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that the
Credit Agreement shall be and hereby is amended effective as of February 29,
2000 as follows:
ARTICLE 1
AMENDMENTS
1.1 Sections 7.6, 7.8 and 7.12 of the Credit Agreement shall each be
amended in its entirety and as so amended shall be restated to read as follows:
Section 7.6. Fixed Charge Coverage Ratio. Badger
shall not, as of the last day of each fiscal month of
Badger ending during each of the periods specified below,
permit the ratio of (x) EBITDA for the twelve fiscal
months of Badger then ended minus the Capital Expenditure
Deduction to (y) Fixed Charges for the same twelve fiscal
months then ended to be less than:
FIXED CHARGE
COVERAGE RATIO
FROM AND SHALL
INCLUDING TO AND INCLUDING NOT BE LESS THAN:
February 29, 2000 September 29, 2000 2.15 to 1.00
September 30, 2000 At all times thereafter 1.15 to 1.00
<PAGE>
For the purposes hereof, the term "Capital
Expenditure Deduction" shall mean (a) at all times prior
to September 30, 2000, $0 and (b) at any time on or after
September 30, 2000, any amount equal to Capital
Expenditures of Badger during the twelve fiscal months of
Badger then ended.
Section 7.8. Leverage Ratio. Badger will not, as
of the last day of each fiscal month of Badger ending
during the periods specified below, permit the Leverage
Ratio to be more than:
LEVERAGE RATIO
FROM AND SHALL NOT BE
INCLUDING TO AND INCLUDING MORE THAN:
February 29, 2000 September 29, 2000 3.75 to 1.00
September 30, 2000 At all times thereafter 3.50 to 1.00
Section 7.12.Capital Expenditures. Badger will
not, nor will it permit any Subsidiary to, expend or
become obligated for Capital Expenditures in an aggregate
amount for Badger and the Subsidiaries in excess of the
following:
Fiscal Year 2000...............................$3,700,000
Fiscal Year 2001...............................$4,800,000
and each fiscal year thereafter
1.2 The definition of "Termination Date" appearing in Section 10 of the
Credit Agreement shall be amended in its entirety and as so amended shall be
restated to read as follows:
"Termination Date" means November 30, 2003 or
such earlier date on which the Commitments are terminated
in whole pursuant to Sections 3.5, 8.2 or 8.3 hereof,
provided that the Borrower may, at least 60 days prior to
such date, request the Lenders extend such date to a later
date at the Lenders' sole discretion.
ARTICLE II
EXTENSION OF LETTERS OF CREDIT
2.1 The Borrower hereby requests that Harris Trust and Savings Bank, in
its individual capacity as issuer of the Letters of Credit supporting the
Tax-Exempt Financings, extend the
-2-
<PAGE>
Stated Termination Date of each of such Letters of Credit from November 30, 2001
to November 30, 2003.
ARTICLE III
CONDITIONS PRECEDENT
3.1 This Amendment shall become effective as of the date hereof on the
date that each of the following conditions precedent have been met:
(a) the Agent shall have received counterparts
hereof executed by the Borrower and the Required Lenders;
and
(b) the Agent shall have received (i) a
certificate of the Secretary of the Borrower dated the
date of this Amendment certifying that attached thereto is
a true and complete copy of resolutions adopted by the
Board of Directors of the Borrower, authorizing the
execution, delivery and performance of this Amendment and
certifying the names and true signatures of the officers
of the Borrower authorized to sign this Amendment and (ii)
such supporting documents as the Agent may reasonably
request.
Upon satisfaction of the conditions set forth in Article III hereof, this
Amendment shall become effective as of February 29, 2000.
ARTICLE IV
MISCELLANEOUS
4.1. To induce the Agent and the Banks to enter into this Amendment, the
Borrower represents and warrants to the Agent and the Banks that: (a) the
representations and warranties contained in the Loan Documents, as amended by
the Amendment, are true and correct in all material respects as of the date
hereof with the same effect as though made on the date hereof; (b) after giving
effect to this Amendment, no Event of Default or Default exists; (c) this
Amendment has been duly authorized by all necessary corporate proceedings and
duly executed and delivered by the Borrower, and the Credit Agreement, as
amended by the Amendment, and each of the other Credit Documents are the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency or other similar laws of general application
affecting the enforcement of creditors' rights or by general principles of
equity; and (d) no consent, approval, authorization, order, registration or
qualification with any governmental authority is required for, and in the
absence of which would adversely effect, the legal and valid execution and
delivery or performance by any Borrower of this Amendment or the performance by
the Borrower of the Credit Agreement, as amended by the Amendment, or any other
Credit Document to which they are a party.
-3-
<PAGE>
4.2. The Borrower acknowledges and agrees that all of the Collateral
Documents to which it is a party remain in full force and effect for the benefit
and security of, among other things, the Obligations as modified hereby. The
Borrower further acknowledges and agrees that the Borrower's obligations owing
under the Applications and the Letters of Credit shall constitute Secured
Obligations as defined under the Collateral Documents. Nothing herein contained
shall in any manner affect or impair the priority of the liens and security
interests created and provided for by the Collateral Documents as to the
indebtedness which would be secured thereby prior to giving effect to this
Amendment. The Borrower further agrees to execute and deliver any and all
instruments or documents as may be required by the Lenders to confirm any of the
foregoing.
4.3. This Amendment may be executed in any number of counterparts and by
the different parties on separate counterparts and each such counterpart shall
be deemed to be an original, but all such counterparts shall together constitute
but one and the same Amendment.
4.4. Except as specifically provided above, the Credit Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed in all respects. The execution, delivery, and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power, or remedy of the Agent or any Bank
under the Credit Agreement or any of the other Loan Documents, nor constitute a
waiver or modification of any provision of any of the other Loan Documents.
4.5. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Illinois.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
Dated as of the date first above written.
BADGER PAPER MILLS, INC.
By:___/s/________________________________________
Title:___________________________________________
Accepted and agreed to as of the date and year first above written.
HARRIS TRUST AND SAVINGS BANK,
individually and as Agent
By:___/s/________________________________________
Title:___________________________________________
-5-
CONSENT OF INDEPENDENT ACCOUNTANT
Board of Directors
Badger Paper Mills, Inc. and Subsidiaries
We have issued our reports dated February 1, 2000, accompanying the consolidated
financial statements and schedules incorporated by reference in the Annual
Report of Badger Paper Mills, Inc. and Subsidiaries on Form 10-K for the years
ended December 31, 1999, 1998 and 1997. We hereby consent to the incorporation
by reference of said reports in the Registration Statements of Badger Paper
Mills, Inc. and Subsidiaries on Forms S-8 (File No. 333-01671, effective March
13, 1996 and File No. 333-01673, effective March 13, 1996).
/s/ Grant Thornton LLP
Appleton, Wisconsin
March 21, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BADGER PAPER MILLS, INC. AS OF AND FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 669
<SECURITIES> 500
<RECEIVABLES> 6,080
<ALLOWANCES> 0
<INVENTORY> 7,819
<CURRENT-ASSETS> 17,191
<PP&E> 67,855
<DEPRECIATION> 40,615
<TOTAL-ASSETS> 46,894
<CURRENT-LIABILITIES> 8,932
<BONDS> 0
0
0
<COMMON> 2,700
<OTHER-SE> 201
<TOTAL-LIABILITY-AND-EQUITY> 46,894
<SALES> 67,024
<TOTAL-REVENUES> 67,024
<CGS> 60,336
<TOTAL-COSTS> 65,161
<OTHER-EXPENSES> 617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,064
<INCOME-PRETAX> 1,416
<INCOME-TAX> 279
<INCOME-CONTINUING> 1,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,137
<EPS-BASIC> .58
<EPS-DILUTED> .58
</TABLE>
