Exhibit 10.1
THIS TEMPORARY WAIVER AND SECOND AMENDMENT (this "WAIVER AND
AMENDMENT"), dated as of October 11, 2000, is entered into by and among DIAMOND
BRANDS OPERATING CORP., a Delaware corporation (the "COMPANY"), the several
financial institutions (the "LENDERS") listed on the signature pages hereof, DLJ
CAPITAL FUNDING, INC., as Syndication Agent (the "SYNDICATION AGENT"), and XXXXX
FARGO BANK, N.A., as Swing Line Lender and Administrative Agent (the
"ADMINISTRATIVE AGENT").
RECITALS
A. The Company, the lenders party thereto, the Syndication Agent, the
Swing Line Lender and the Administrative Agent are parties to the Credit
Agreement dated as of April 21, 1998 (as amended by the First Amendment thereto
dated as of March 5, 1999, the "CREDIT AGREEMENT"), pursuant to which the
lenders party thereto have extended credit under various facilities to the
Company.
B. The Company has requested that such lenders waive the applicability
of the financial covenants in the Credit Agreement for a limited time and make
certain amendments with respect to the Credit Agreement. The Lenders now wish to
grant a waiver and make such amendments under the Credit Agreement as set forth
in greater detail below.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings assigned to them in the Credit
Agreement.
2. WAIVER
(a) The Lenders hereby temporarily waive
compliance by the Company with Section 7.06 of the Credit Agreement from the
Effective Date through March 31, 2001. The parties hereto acknowledge and
agree that should the financial statements delivered by the Company for the
fiscal quarters ending either September 30, 2000 or December 31, 2000
evidence that the Company would not be in compliance with Section 7.06 with
respect to either of such fiscal quarters but for this Waiver and Amendment,
and such financial covenants are not hereafter further waived or amended, an
Event of Default shall exist on April 1, 2001. From the period commencing on
the Effective Date until the expiration of this waiver on March 31, 2001, no
Event of Default or Potential Event of Default shall exist solely on account
of the fact that the Company has not complied with, and is not likely to
comply with, the covenants set forth in Section 7.06 of the Credit Agreement.
(b) The Lenders hereby waive any Event of
Default as may have occurred as a result of the failure of the Company to
provide written notice to the Administrative Agent for distribution to the
Lenders pursuant to Section 6.1(x) of the Credit Agreement of Empire
Manufacturing Company v. Empire Candle, Inc. District
1
Court, Wyandotte County, Kansas, a lawsuit in which Kent Meisemer, prior owner
of Empire Manufacturing Company, alleges that Diamond Brands did not fully
comply with required actions from the sales contract and alleges damages of
$1,200,000.
3. INTERIM COVENANTS. The Company covenants and agrees that
from the Effective Date through March 31, 2001, unless the Requisite Lenders
waive compliance in writing, the Company shall perform and comply with the
following covenants. The Company's failure to observe the following covenants
shall constitute an Event of Default without notice to the Company or any
grace period.
(a) MINIMUM FIXED CHARGE COVERAGE RATIO. The Company
shall not permit the ratio of (i) Consolidated EBITDA to (ii) Consolidated Fixed
Charges for any consecutive four-Fiscal Quarter period ending on the dates set
forth below to be less than the correlative ratio indicated:
Fiscal Quarter Minimum Fixed Charge
Ending Date Coverage Ratio
-------------- --------------------
September 30, 2000 0.80 to 1.0
December 31, 2000 0.70 to 1.0
(b) MAXIMUM LEVERAGE RATIO. The Company shall not
permit the Consolidated Ratio at any time during any of the periods set forth
below to exceed the correlative ratio indicated:
Period Maximum Leverage Ratio
------ ----------------------
September 30, 2000 8.00 to 1.0
December 31, 2000 8.85 to 1.0
(c) INTEREST COVERAGE RATIO. The Company shall not
permit the ratio of (i) Consolidated EBITDA to (ii) Consolidated Interest
Expense for any consecutive four-Fiscal Quarter period ending on the dates set
forth below to be less than the correlative ratio indicated:
Fiscal Quarter Minimum Interest
Ending Date Coverage Ratio
-------------- ----------------
September 30, 2000 1.20 to 1.0
December 31, 2000 1.0 to 1.0
(d) COMPLIANCE CERTIFICATE. The Company shall deliver
to the Administrative Agent and each Lender, together with the financial
statements it delivers pursuant to Section 6.1(i) for the monthly period ending
December 31, 2000, a Compliance Certificate demonstrating in reasonable detail
compliance at the end of such accounting period with the restrictions contained
in Sections 3(a) through (c) above. The Company agrees that the Administrative
Agent and the Lenders may conclusively rely upon such Compliance Certificate in
determining whether an Event of Default exists under those Sections for such
accounting period.
2
4. REVOLVING LOANS. Pursuant to Section 2.4(B)(ii) of the
Credit Agreement and commencing on the Effective Date, the Revolving Loan
Commitments shall be permanently reduced from $25,000,000 to $17,500,000 and
such reduction shall reduce the Revolving Loan Commitment of each Revolving
Lender proportionately to its Pro Rata Share. Notwithstanding the foregoing, the
Company shall not permit the Total Utilization of Revolving Loan Commitments (i)
from the Effective Date through December 31, 2000, to exceed $15,000,000 and
(ii) thereafter, to exceed $12,500,000. The Company acknowledges and agrees that
the foregoing shall not in any way limit the Company's obligation to pay
commitment fees on the entire amount of the unutilized Revolving Loan Commitment
as reduced by the first sentence of this Section.
5. SWING LINE LOANS. The Company and the Swing Line Lender
hereby agree that, from the Effective Date until otherwise agreed in writing by
the Swing Line Lender, the Swing Line Lender shall have no obligation to make
any Swing Line Loans under the Credit Agreement.
6. AMENDMENTS. The parties hereto hereby agree that the Credit
Agreement shall be amended as follows:
(a) Section 1 is amended by deleting the definition
of "Asset Sale" therein in its entirety and replacing it with the following new
definition:
"Asset Sale" means the sale by Company or any of its
Subsidiaries to any Person other than Company or any of its
wholly-owned Subsidiaries of (i) any of the equity ownership of any of
Company's Subsidiaries (other than directors' qualifying shares), (ii)
substantially all of the assets of any division or line of business of
Company or of its Subsidiaries, or (iii) any other assets (whether
tangible or intangible) of Company or any of its Subsidiaries (other
than (a) inventory sold in the ordinary course of business, (b) Cash
Equivalents, and (c) any such other assets to the extent that (i) the
aggregate value of such assets sold in any single transaction or
related series of transactions is equal to $500,000 or less and (ii)
the aggregate value of such assets sold in any Fiscal Year is equal to
$1,000,000 or less).
(b) Section 2.2(A) is amended by:
(i) deleting subsection (i)(a)(I) and (II) thereof in
their entireties and replacing them with the following:
(I) if a Base Rate Loan, then the sum of the Base
Rate PLUS 2.50%;
(II) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate PLUS 3.50%.
AND
3
(ii) deleting subsections (i)(b)(I) and (II) thereof
in their entireties and replacing them with the following:
(I) if a Base Rate Loan, then the sum of the Base
Rate PLUS 3.00%;
(II) if a Eurodollar Rate Loan, then at the sum of
the Adjusted Eurodollar Rate PLUS 4.00%.
(c) Section 2.4(B)(iii) is amended by:
(i) deleting subsection (a) thereof in its entirety
and replacing it with the following:
(a) PREPAYMENTS AND REDUCTIONS FROM NET ASSET SALE
PROCEEDS. No later than the fifth Business Day following the date of
receipt by Company or any of its Subsidiaries of any Net Asset Sale
Proceeds in respect of any Asset Sale, Company shall prepay the Loans
and/or the Revolving Loan Commitments shall be permanently reduced in
an aggregate amount equal to the amount of such Net Asset Sale
Proceeds.
AND
(ii) deleting the second proviso in subsection (d)
thereof and replacing it with the following: "PROVIDED FURTHER that none of the
Net Securities Proceeds from the issuance of Subordinated Indebtedness permitted
hereunder shall be applied to the mandatory prepayment of the Loans pursuant to
this subsection 2.4(B)(iii)(d) to the extent that it is used to make scheduled
payments of principal and interest on the Senior Subordinated Notes".
AND
(iii) deleting the second paragraph of subsection (g)
thereof in its entirety.
AND
(iv) deleting the reference to "$5,000,000" in the
third paragraph of subsection (g) thereof and replacing it with the following:
"$1,000,000".
(d) Section 7.1(vi) is amended by inserting the
following at the end thereof: "or other Subordinated Indebtedness in an
aggregate principal amount not in excess of $10,000,000".
(e) Section 7.3 is amended by:
4
(i) inserting the following after subsection (i)
thereof: "so long as the Administrative Agent holds a perfected first priority
security interest in such Investments in Cash Equivalents and either takes
possession of such Investments in Cash Equivalents or enters into an account
control agreement with Company or its applicable Subsidiary and the entity in
possession of such Investments in Cash Equivalents in form and substance
satisfactory to the Administrative Agent".
AND
(ii) deleting the reference to "$8,000,000" in
subsection (vi) thereof and replacing it with the following "$500,000".
(f) Section 7.4(iv) is amended by deleting the
reference to "$5,000,000" therein and replacing it with the following
"$1,000,000".
(g) Section 7.7 is amended by deleting subsection
(ii) thereof therefrom in its entirety and replacing the same with the following
"[Intentionally omitted]".
(h) Section 7.8 is amended by deleting such Section
in its entirety and replacing it with the following:
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
Holdings shall not, and shall not permit its
Subsidiaries to make or incur Consolidated Capital Expenditures in an
amount in excess of (x) $5,500,000 for Fiscal Year ending December 31,
2000 and (y) $4,000,000 for Fiscal Year ending December 31, 2001 and
each Fiscal Year thereafter.
7. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants as follows:
(a) The execution, delivery and performance by the
Company of this Waiver and Amendment have been duly authorized by all necessary
corporate and other action and do not and will not require any registration
with, consent or approval of, notice to or action by, any person (including any
governmental agency) in order to be effective and enforceable. The Credit
Agreement, as amended by this Waiver and Amendment, constitutes a legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its respective terms, without defense, counterclaim or offset,
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
(b) Except as set forth on Annex I, all
representations and warranties of the Company contained in the Credit Agreement
are true and correct in all
5
material respects as though made on and as of the Effective Date (except to the
extent such representations and warranties specifically relate to an earlier
date, in which case they were true and correct as of such earlier date).
(c) The Company is entering into this Waiver and
Amendment on the basis of its own investigation and for its own reasons, without
reliance upon the Administrative Agent and the Lenders or any other person.
8. EFFECTIVE DATE. This Waiver will become effective as of
date that each of the following conditions precedent is satisfied (the
"EFFECTIVE DATE"):
(a) the Administrative Agent or its counsel has
received from the Company and the Requisite Lenders a duly executed original or
facsimile of this Waiver and Amendment;
(b) the Company has paid all amounts described in
Section 9 below;
(c) each of the Company and its Subsidiaries has
executed and delivered account control agreements in form and substance
satisfactory to the Administrative Agent with respect to each of its deposit
accounts; and
(d) to the extent that the Administrative Agent has
been advised by its counsel in the relevant states that such action is customary
and reasonable for a waiver and amendment of this general nature, the Company
shall have caused the title company or companies that issued policies of title
insurance in connection with the Credit Agreement to issue endorsements
substantially in the form of CLTA endorsements 110.5 and 111.10 to assure the
Lenders of the continuing priority of the Liens securing the Loans made after
the Effective Date hereunder and shall have taken such additional steps as are
necessary to enable such endorsements to be issued.
9. WAIVER FEE. The Company shall pay to the Administrative
Agent for the account of each Lender that has delivered to the Administrative
Agent or its counsel a duly executed original or facsimile of this Waiver and
Amendment by 12:00 Noon California time on October 11, 2000 a nonrefundable
waiver fee equal to 0.125% of such Lender's Commitment.
10. RESERVATION OF RIGHTS. The Company acknowledges and agrees
that neither the Administrative Agent's nor the Lenders' execution and delivery
of this Waiver and Amendment shall be deemed to create a course of dealing or
otherwise obligate the Administrative Agent or the Lenders or any other party
hereto to execute similar waivers under the same or similar circumstances in the
future.
11. MISCELLANEOUS.
6
(a) Except as expressly set forth herein, this Waiver
and Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of, or otherwise affect the rights or remedies of the Administrative
Agent or the Lenders under the Credit Agreement or any of the other Loan
Documents, and shall not alter, modify, amend, or in any way affect the terms,
conditions, obligations, covenants, or agreements contained in the Credit
Agreement or the other Loan Documents, all of which are hereby ratified and
affirmed in all respects and shall continue in full force and effect.
(b) This Waiver and Amendment shall be binding upon
and inure to the benefit of the parties hereto and thereto and their respective
successors and assigns. No third party beneficiaries are intended in connection
with this Waiver and Amendment.
(c) This Waiver and Amendment shall be governed by
and construed in accordance with the law of the State of New York.
(d) This Waiver and Amendment may be executed in any
number of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
(e) This Waiver and Amendment, together with the
Credit Agreement, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This Waiver
and Amendment supersedes all prior drafts and communications with respect
thereto. This Waiver and Amendment may not be amended except in accordance with
the provisions of Section 10.6 of the Credit Agreement.
(f) If any term or provision of this Waiver and
Amendment shall be deemed prohibited by or invalid under any applicable law,
such provision shall be invalidated without affecting the remaining provisions
of this Waiver and Amendment or the Credit Agreement, respectively.
(g) The Company hereby covenants to pay or to
reimburse the Administrative Agent, upon demand, for all reasonable costs and
expenses (including reasonable attorney costs) incurred in connection with the
development, preparation, negotiation, execution and delivery of this Waiver and
Amendment.
(h) Hereafter, all references to the Credit Agreement
or any Loan Document contained in the Credit Agreement or any Loan Document or
any certificate delivered pursuant to the Credit Agreement or any Loan Document
shall be deemed to refer to the Credit Agreement and each Loan Document after
giving effect to the provisions of this Waiver and Amendment.
7
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Waiver and Amendment as of the
date first above written.
DIAMOND BRANDS OPERATING CORP.
By: _______________________________________________
Name:
Title:
XXXXX FARGO BANK, N.A., individually and as Swing
Line Lender and Administrative Agent
By: _______________________________________________
Name:
Title:
DLJ CAPITAL FUNDING, INC., individually and as
Syndication Agent
By: _______________________________________________
Name:
Title:
PARIBAS CAPITAL FUNDING LLC
By: _______________________________________________
Name:
Title:
XXXXX XXXXX MANAGEMENT
By: _______________________________________________
Name:
Title:
8
CAPTIVA III FINANCE LIMITED
By: _______________________________________________
Name:
Title:
ATHENA CDO, LIMITED
By: _______________________________________________
Name:
Title:
BLACK DIAMOND INTERNATIONAL
By: _______________________________________________
Name:
Title:
BLACK DIAMOND CLO
By: _______________________________________________
Name:
Title:
DELANO COMPANY
By: _______________________________________________
Name:
Title:
9
SENIOR DEBT PORTFOLIO
By: _______________________________________________
Name:
Title:
BHF-BANK AKTIENGESELLSCHAFT
By: _______________________________________________
Name:
Title:
BANK OF AMERICA, N.A. (formerly Bank of America
National Trust and Savings Association)
By: _______________________________________________
Name:
Title:
U.S. BANK, NATIONAL ASSOCIATION
By: _______________________________________________
Name:
Title:
10
BANQUE PARIBAS
By: _______________________________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: _______________________________________________
Name:
Title:
FREMONT INVESTMENT
By: _______________________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By: _______________________________________________
Name:
Title:
11
ANNEX I
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES OF THE COMPANY, PURSUANT TO SECTION
7(B) OF THIS WAIVER AND AMENDMENT
1. With respect to Section 5.4 of the Credit Agreement, the Company notes
that resin costs have escalated from prior years, adversely affecting
operating earnings.
2. With respect to Section 5.4 of the Credit Agreement, the Company notes
that, in December 1999, the Company divested their holdings in Empire
Candle Inc., with an associated loss on sale of assets.
12
ACKNOWLEDGMENT AND CONSENT
The undersigned, each a guarantor or third-party pledgor or
mortgagor with respect to the Company's Obligations to the Lenders under the
Credit Agreement, each hereby (i) acknowledge and consent to the execution,
delivery and performance by Company of the foregoing Amendment, (ii) reaffirm
and agree that the respective guaranty, third-party pledge or security
agreement, deed of trust, or mortgage to which the undersigned is party and all
other documents and agreements executed and delivered by the undersigned to the
Administrative Agent or the Lenders in connection with the Credit Agreement are
in full force and effect, without defense, offset or counterclaim and continue
to guaranty or secure the full amount of the Obligations to the extent provided
in the Loan Documents, and (iii) confirm that this Acknowledgment and Consent is
not required by the terms of the Loan Documents and need not be obtained in
connection with any prior or future waivers of or amendments to the Loan
Documents. (Capitalized terms used herein have the meanings specified in the
Amendment.)
Dated: October __, 2000 DIAMOND BRANDS INCORPORATED
By: __________________________________________
Name:
Title:
EMPIRE CANDLE, INC.
By: __________________________________________
Name:
Title:
XXXXXXX, INC.
By: __________________________________________
Name:
Title:
13
