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
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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 Leverage 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.
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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
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(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:
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(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
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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.
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11. MISCELLANEOUS.
(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.
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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:
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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:
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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:
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BANQUE PARIBAS
By: __________________________________
Name:
Title:
CREDIT AGRICOLE INDOSUEZ
By: __________________________________
Name:
Title:
FREMONT INVESTMENT
By: __________________________________
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE
By: __________________________________
Name:
Title:
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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.
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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:
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