<PAGE>
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-12147
DELTIC TIMBER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 71-0795870
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
210 East Elm Street, P. O. Box 7200, El Dorado, Arkansas 71731-7200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (870) 881-9400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Series A Participating Cumulative New York Stock Exchange, Inc.
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No ____.
---
Indicate by check mark 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 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. [X]
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the average of the high and low prices of the Common Stock
on the New York Stock Exchange on February 26, 1999, was $184,446,598. For
purposes of this computation, all officers, directors, and 5% beneficial owners
of the registrant (as indicated in Item 12) are deemed to be affiliates. Such
determination should not be deemed an admission that such directors, officers,
or 5% beneficial owners are, in fact, affiliates of the registrant.
Number of shares of Common Stock, $.01 Par Value, outstanding at February 28,
1999, was 12,776,779.
Documents incorporated by reference:
The Registrant's definitive Proxy Statement relating to the Annual Meeting of
Stockholders on April 29, 1999.
================================================================================
<PAGE>
TABLE OF CONTENTS - 1998 FORM 10-K REPORT
<TABLE>
<CAPTION>
Page
Numbers
-------
<S> <C>
PART I
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 58
PART III
Item 10. Directors and Executive Officers of the Registrant 59
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners and Management 59
Item 13. Certain Relationships and Related Transactions 59
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 60
Signatures 62
</TABLE>
2
<PAGE>
PART I
ITEM 1. BUSINESS
Introduction. Deltic Timber Corporation ("Deltic" or the "Company") is a
natural resources company engaged primarily in the growing and harvesting of
timber and the manufacture and marketing of lumber. The Company owns
approximately 444,000 acres in Arkansas and north Louisiana, including 397,000
acres of timberland (the "timberlands"). Sawmill operations consist of two
mills, one at Ola in central Arkansas and another at Waldo in south Arkansas.
In addition to its timber and lumber operations, Deltic is engaged in real
estate development projects in central Arkansas and owns approximately 37,000
acres of farmland in northeast Louisiana. The Company also holds a 50 percent
interest in a joint venture to manufacture and market medium density fiberboard
("MDF"), which began production operations in April 1998.
Deltic believes that its primary strengths are its strategically located
timberlands, its efficient sawmill operations, its well-established real estate
developments, its experienced management team, and its capacity to pursue a
timber-based acquisition strategy.
The timberlands consist primarily of Southern Pine. Management considers
the timberlands to be Deltic's most valuable asset and the harvest of this
stumpage to be the Company's most significant source of income. Estimated pine
sawtimber inventory as of December 31, 1998 was 9,603,000 tons. The southern
United States, in which all of the Company's operations are located, is a major
timber and lumber producing region. Unlike other major timber-producing areas
in North America, most timber acreage in the southern United States is privately
held, rendering it potentially available for acquisition. Deltic's current
growth strategy emphasizes a significant timberlands acquisition program in such
region, which has facilitated an increase in harvest levels.
The Company harvests timber from the timberlands in accordance with its
harvest plans and either sells timber in the domestic market or converts timber
to lumber in its sawmills. In 1998, Deltic harvested approximately 431,600 tons
of pine sawtimber from its timberlands. The Company's two sawmills employ
modern technology in order to improve efficiency, reduce labor costs, maximize
utilization of the timber resource, and maintain high quality standards of
production. In addition, each sawmill is strategically located near significant
portions of the timberlands. During 1998, Deltic's sawmills produced
approximately 159.7 million board feet of lumber. Logs processed for the
production of lumber are obtained from the timberlands and from public and
private landowners. The Company selects logs for processing in its sawmills
based on size, grade, and the then prevailing market price. The Ola Mill is
equipped for maximum utilization of smaller diameter logs, while the Waldo Mill
can process both smaller and larger diameter logs. Approximately $31.6 million
has been invested in upgrades of the two sawmills over the past five years,
expanding both production capacity and product lines. Combined annual capacity
is currently 226 million board feet. The Company's sawmills produce a variety
of products, including dimension lumber, boards, timbers, decking, and secondary
manufacturing products such as finger-jointed studs. The lumber is sold
primarily to wholesalers and treaters in the South and Midwest and is used in
residential construction, roof trusses, laminated beams, and remanufactured
items.
3
<PAGE>
The Company's real estate operations were started in 1985 to add value to
former timberland strategically located in the growth corridor of west Little
Rock, Arkansas. Since that time, the Company has been developing a 4,800-acre
premier upscale planned community, Chenal Valley, centered around a Robert Trent
Jones, Jr. designed golf course at Chenal Country Club. The property is being
developed in stages, and real estate sales to date have consisted primarily of
residential lots. Commercial development began in 1996.
In addition to Chenal Valley, Deltic is developing Chenal Downs, a 400-acre
equestrian development located outside of Chenal Valley being sold in estate-
sized lots of approximately five acres each with controlled access, and Red Oak
Ridge, Deltic's first real estate development outside of the Little Rock/Pulaski
County area. The first phase of lot sales in Chenal Downs was offered in
December 1997, with 25 of the 44 lots offered sold as of the end of 1998. Red
Oak Ridge, located near Hot Springs, Arkansas, is an 800-acre, upscale community
designed for residential, resort, or retirement living. The first two
neighborhoods in this development, offering a choice of either estate-sized
homesites, with many overlooking one of the two lakes, or lots in a garden-home
neighborhood, were offered for sale in late 1998.
The Company owns 37,000 acres of farmland in northeast Louisiana.
Approximately 26,000 acres of the total are farmed by Deltic, while the majority
of the remaining 11,000 acres is rented to third parties. Crops grown on
Company-farmed acreage in 1998 were soybeans and corn.
Deltic owns 50 percent of the membership interest of Del-Tin Fiber, L.L.C.
("Del-Tin Fiber"), a joint venture to manufacture and market medium density
fiberboard. The Del-Tin Fiber plant is located near El Dorado, Arkansas.
Construction of this facility commenced in mid-1996 and initial production began
on April 29, 1998. MDF, which is used in the furniture, flooring, and molding
industries, is manufactured from sawmill residuals, such as chips, shavings, and
sawdust, held together by an adhesive bond. The plant is designed to have an
annual production capacity of approximately 150 million square feet, 3/4" basis,
making it one of the largest of its type in the world. The plant also adds value
to Deltic's operations by providing an additional outlet for wood chip and bark
production from the Waldo Mill. During 1998, Deltic sold approximately
$2,126,000 of these lumber manufacturing by-products to Del-Tin Fiber.
FOREST PRODUCTS
The demand for, and prices of, timber and manufactured wood products depend
on the level of housing starts, repair and remodeling activity, industrial
construction activity, competition from non-wood products, and seasonal factors
such as weather. These factors in turn are strongly influenced by overall
economic activity, interest rates, and demographics. Reductions in levels of
construction activity are generally followed by declining lumber prices, which
are ordinarily followed by declining timber prices within several months.
However, despite strong economic conditions and housing starts in the U.S.
during 1998, a downturn in Asian export markets caused the North American lumber
market to be oversupplied for much of 1998. Lumber that was normally exported
from North America to Asia was redirected to U.S. markets, causing supply to
outpace demand and depressing prices. However, demand for timber, as well as
timber prices, remained relatively strong during 1998.
The supply of timber, and therefore lumber, is significantly affected by
the availability of timber from public lands, particularly in the Pacific
Northwest. In recent years, the U.S. government has dramatically reduced the
amount of timber offered for sale in response to environmental concerns. This
has resulted in increased demand for timber in the southern U.S., as well as
increased lumber imports from Canada.
4
<PAGE>
The southern U.S., in which all of the Company's operations are located, is
a major timber and lumber producing region. There are an estimated 209 million
acres of timberland in the region, of which approximately 91 million acres
contain softwood, predominately Southern Pine. Unlike other major timber-
producing areas in North America, most of this acreage is privately held. The
estimated breakdown of ownership of softwood timberland in the southern U.S. is
89 percent private, seven percent national forest, and four percent other
public. Although there can be no assurance, management anticipates that the
southern U.S. timber resource will be subject to strong demand in the future and
also believes that the South will have a strategic advantage over other U.S.
timber-producing regions due to regulatory, geographic, and other factors.
WOODLANDS
The Company owns approximately 397,000 acres of timberland, primarily in
Arkansas and north Louisiana, stocked principally with Southern Pine.
Management considers the timberlands to be Deltic's most valuable asset and the
harvest of this stumpage to be the Company's most significant source of income.
The breakdown of the Company's timberland acreage at year-end 1998 consisted of
the following:
<TABLE>
<CAPTION>
Acres
-------
<S> <C>
Pine forest.................................. 240,000
Pine plantation (less than 15 years old)..... 90,000
Hardwood forest.............................. 32,000
Other........................................ 35,000
-------
Total........................................ 397,000
=======
</TABLE>
Timber Inventory. The Company's estimated standing timber inventory on
this acreage is calculated for each tract by utilizing growth formulas based on
representative sample tracts and tree counts for various diameter
classifications. The calculation of pine inventory is subject to periodic
adjustments based on sample cruises or actual volumes harvested from related
tracts. The hardwood inventory shown in the following table is only an
approximation, so physical quantity of such timber may vary significantly from
this approximation. Estimated inventory of standing timber as of December 31,
1998 consisted of the following:
<TABLE>
<CAPTION>
Estimated
Volume
(Tons)
----------
<S> <C>
Pine timber
Sawtimber..................... 9,603,000
Pulpwood...................... 4,797,000
Hardwood timber
Sawtimber..................... 1,063,000
Pulpwood...................... 1,345,000
</TABLE>
The Company's pine sawtimber is either used in its sawmills or sold to
third parties. Products manufactured from this resource include dimension
lumber, boards, timbers, decking, and secondary manufacturing products, used
primarily in residential construction. Deltic's hardwood sawtimber is sold to
third parties and is primarily used in the production of railroad ties,
flooring, and pallets. Pulpwood consists of logs with a diameter of less than
nine inches. Both pine and hardwood pulpwood are sold to third parties for use
primarily in the manufacture of paper.
5
<PAGE>
Timber Growth. Timber growth rate is an important variable for forest
products companies since it ultimately determines how much timber can be
harvested. A higher growth rate permits larger annual harvests as replacement
timber regenerates. Growth rates vary depending on species, location, age, and
forestry management practices. The growth rate for Deltic's Southern Pine is on
average, net of mortality, 5 percent to 5 1/2 percent of standing inventory per
annum.
The Company's timberlands are well diversified by age distribution. A
significant portion of the timberlands contains mature timber that is ready to
be harvested in the next several years. The Company considers a 30 to 35 year
rotation optimal for most of the timberlands. Timber under 15 years of age is
generally considered premerchantable.
Access. Substantially all of the timberlands are accessible by a system of
low maintenance roads. Deltic generally uses third-party road crews to conduct
construction and maintenance of these roads and the Company regularly exchanges
access easements and cooperates with other area forest products companies and
the U.S. Forest Service.
Reforestation. Deltic has developed and operates its own seed orchard.
Seeds from the orchard are grown by third parties to produce genetically-
superior seedlings for planting. These seedlings are developed through selective
cross-pollination to produce trees with preferred characteristics, including
higher growth rates, fewer limbs, straighter trunks, and greater resistance to
disease. The seedlings are planted in all-aged stands or a site is completely
replanted with these superior seedlings in the case of a regeneration harvest.
During 1998, 2,800 acres were planted using seedlings grown from seeds produced
at the orchard facility. This level is expected to accelerate significantly with
approximately 6,000 acres scheduled for reforestation in 1999, as the Company's
land acquisition program continues. The Company meets or exceeds, in all
material respects, the reforestation recommendations of the Arkansas Forestry
Commission's Best Management Practices.
Harvest Plans. Management views the timberlands as assets with substantial
inherent value apart from the sawmills and intends to manage the timberlands on
a basis that permits regeneration of the timberlands over time. The Company
intends to continue to manage the timberlands on a sustainable-yield basis and
has no plans to harvest timber at levels that exceed growth. Under the current
plan, Deltic intends to increase its harvest level to 445,000 tons of pine
sawtimber in 1999, an increase of three percent over 1998 levels. (See "Growth
Strategy".)
The Company's harvest plans are generally designed to project multi-year
harvest schedules. In addition, harvest plans are updated at least annually and
reviewed on a monthly basis to monitor performance and to make any necessary
modifications to the plans in response to changing forestry conditions, market
conditions, contractual obligations, regulatory limitations, and other relevant
factors.
Since harvest plans are based on projections of demand, price, availability
of timber from other sources, and other factors that may be outside of the
Company's control, actual harvesting levels may vary. Management believes that
the Company's harvest plans, which are reviewed monthly and revised at least
annually, are sufficiently flexible to permit modification in response to
fluctuations in the markets for logs and lumber.
Timber Resource Management. The Company's timber operations involve forest
management, harvesting operations, and ongoing reforestation. Forest management
decisions are based upon information which includes site indices, classification
of soils, the species and number of trees by size and age classification, and
stocking per acre, as well as information on forest management costs. From this
data, Deltic develops its annual harvest plans, which are based upon
silvicultural considerations and existing and expected future economic and
market conditions, with a view toward maximizing the value of its timber and
timberland assets over time.
6
<PAGE>
Particular forestry practices vary by geographic region and depend upon
factors such as soil productivity, weather, terrain, tree size, age, and timber
stocking. Forest stands are thinned periodically, to improve growth and stand
quality, until they are harvested. Different areas within a forest may be
planted or seeded in successive years to provide a distribution of age classes
within the forest. This distribution of age classes will tend to provide Deltic
with an annual revenue stream, as the various timber stands reach harvestable
age.
The timing of harvest of merchantable timber depends in part on growth
cycles and in part on economic conditions. Growth cycles for timber tend to
change over time as a result of technological and genetic advances that improve
forest management practices. The Company will continue to develop its forest
management operations to take advantage of such advances and improve timber
yields.
The Company actively utilizes commercial-thinning timber management
practices. In the context of long-term value maximization, commercial thinning
improves the overall productivity of the timberlands by enhancing the growth of
the remaining trees while generating revenues.
Client-Land Management. In addition to managing its own timberlands,
Deltic also manages timberlands owned by others under management contracts with
one-year renewable terms. This program provides harvest planning, silvicultural
improvements, and maintenance work for approximately 79,000 acres.
SAWMILLS
The Company's two sawmills are located at Ola in central Arkansas and at
Waldo in south Arkansas, near significant portions of the timberlands. The Ola
Mill is equipped for maximum utilization of smaller diameter logs, while the
Waldo Mill can process both smaller and larger diameter logs. Approximately
$31.6 million has been invested in the two sawmills over the past five years,
expanding both production capacity and product lines. Combined annual capacity
at December 31, 1998 was 226 million board feet.
Deltic employs modern technology in its sawmills in order to improve
overall efficiency, reduce labor costs, and maximize utilization of available
timber resources, while continuing to maintain high quality standards for lumber
production. The Company continues to upgrade and expand its sawmills to
increase production capacity and diversify the product mix offered.
During 1998, the Ola Mill completed installation of a new boiler system and
an additional kiln. These capital projects increased the annual lumber drying
capacity of this mill to 100 million board feet. A small log processing deck was
placed into service in the second quarter of 1998, allowing the extraction of
small diameter logs from pulpwood to facilitate log supply and reduce log cost.
The Company also began the construction of a new planermill, an automated lumber
sorting system, and an optimized edger system to further increase both
production capability and efficiency at this facility in order to increase
profitability. These improvements are expected to be completed during the first
half of 1999.
The Waldo Mill's finger-jointing operation completed its first year of
operation in 1998 with 3.7 million board feet of production. This secondary
manufacturing operation adds value to Waldo's planermill operation by using
short, trim pieces to manufacture finger-jointed studs, an addition to the
product sales mix, instead of selling these pieces at low prices, thus enhancing
the mill's sales price average. Residual by-products from the Waldo Mill are now
being used by Del-Tin Fiber in the production of medium density fiberboard. The
Company is committed to increased utilization of modern technology at its mills
during 1999, an example of which is the planned addition of a new log
optimization
7
<PAGE>
system at the Waldo Mill. With the completion of installation of this optimized
log bucking system, the Waldo Mill will have been upgraded from its log deck to
its lumber sorting system, which is expected to result in additional production
cost savings for this mill.
The Company pursues waste minimization practices at both of its sawmills.
Wood chips are usually sold to paper mills or Del-Tin Fiber and bark is
frequently sold for use as fuel. Bark, sawdust, shavings, and wood chips that
cannot be sold are used as "hog fuel" to fire the boilers that heat the drying
kilns. In the future, the Company expects to sell a more significant portion of
its Waldo Mill's residual wood chip production to Del-Tin Fiber pursuant to a
fiber supply agreement.
Each mill facility has the capability to ship its lumber by truck or rail.
While the cyclicality of the lumber market may occasionally require the
interruption of operations at one or both of the Company's sawmills, suspension
of milling activities is unusual. Management is not currently anticipating any
interruption of operations at either of Deltic's sawmills, but no assurance can
be given that market conditions or other factors will not render such an action
economically advisable in the future.
GROWTH STRATEGY
The Company's current strategy for growth continues to emphasize a
significant timberland acquisition program, which has facilitated an increase in
its harvest levels, and the expansion of its manufacturing operations.
Timberland Acquisitions. The Company's ongoing timberland acquisition
program will enable it to continue to increase harvest levels, while expanding
its timber inventory. In addition, it will allow the Company to maintain or
increase the volume of logs supplied to its sawmills from its own timberlands,
when it is economically feasible.
Timberland acquisitions are necessary for continued growth in harvest
levels over the long-term. The Company intends to continue to focus its
acquisition program on timberlands in the southern United States that range from
fully-stocked to cutover tracts, with preference given to stocked acreage.
Timberland in the southern United States is 89 percent owned by private
landowners, rendering it potentially available for acquisition. There can be no
assurance that timber properties suitable for acquisition will be identified by
the Company, or that once identified, such properties will ultimately be
acquired by the Company.
Acting upon this strategy of timberland acquisition, Deltic formed a land
acquisition team. Lands considered for purchase were evaluated based on
location, site index, timber stocking, and growth potential. As a result,
approximately 58,600 acres, 30,400 in 1998, of strategically located pine
timberland have been added since the inception of the acquisition program in
late 1996. Individual land purchases ranged from 10 acres to 16,300 acres, with
the average block to-date being 413 acres. The major acquisition in 1998 was the
former McKinney lands in south Arkansas, consisting of 16,300 acres of heavily-
stocked timberland.
Manufacturing Operations. Recent capital projects at the Company's two
sawmills have expanded both production capacity and product mix. Future projects
are expected to continue to increase production levels, add value to existing
production, expand secondary manufacturing operations, improve lumber recovery,
and decrease manufacturing costs. The Company plans to increase lumber
production to 210 million board feet in 1999, an increase of 32 percent over the
1998 level.
8
<PAGE>
The Company's 50 percent interest in Del-Tin Fiber will enable it to expand
its business into the engineered wood products market. Del-Tin Fiber is a joint
venture to manufacture and market MDF. The plant is located near El Dorado,
Arkansas. The construction cost of the facility was approximately $100 million.
Construction commenced in mid-1996 and initial production began on April 29,
1998. The plant is designed to have an annual production capacity of 150 million
square feet, 3/4" basis, making it one of the largest of its type in the world.
MDF, which is used in the furniture, flooring, and molding industries, is
manufactured from sawmill residuals such as chips, shavings, and sawdust held
together by an adhesive bond. Although the technology has existed for decades,
recent improvements in the manufacture of MDF have increased both the quality
and consistency of the product. MDF, with its "real wood" appearance and ability
to be finely milled and accept a variety of finishes, competes primarily against
lumber. In addition to providing an entry into the MDF market, the Del-Tin Fiber
project will provide an outlet for a significant portion of the Company's wood
chips. Pursuant to a fiber supply agreement, the Company has agreed to sell, and
Del-Tin Fiber to buy, all residual wood chips from the Waldo Mill. In addition,
Del-Tin Fiber has an option to purchase residual wood chips from the Ola Mill
and pulpwood chips, shavings, and sawdust from the Waldo Mill.
RAW MATERIALS
Logs processed by the Company's two sawmills in 1998 totaled 795,700 tons,
and were obtained from either the timberlands or purchased from public and
private landowners. Of the 431,600 tons of pine sawtimber harvested from the
timberlands in 1998, 203,500 tons, 47 percent, were processed in the Company's
two sawmills.
Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by U.S. government agencies. Because of this reduced availability of
federal timber for harvesting, the Company believes that its supply of timber
from the timberlands is a significant competitive advantage. Deltic has
historically supplied a significant portion of the timber processed in the
sawmills from its timberlands.
In order to operate its sawmills economically, the Company relies on
purchases of timber from third parties to supplement its own timber harvests
from the timberlands. The Company has an active timber procurement department
for each of its sawmills. As of December 31, 1998, the Company had under
contract approximately 469,900 tons of timber on land owned by other parties,
including the U.S. Forest Service, which is expected to be harvested over the
next four years. During 1998, the Company harvested third-party stumpage and
purchased logs from third parties totaling 583,100 tons. Of this volume,
purchases from the U.S. Forest Service during this period represented 12
percent. The balance of such purchases was acquired from private lands.
As a result of the reduced availability of federal timber, demand for
privately-owned timber has increased, along with prices; and the Company has
increased and foresees further increases in its harvesting and purchasing
activities from private timberlands. Due to this increased demand and higher
timber prices, private timber sources have been prompted to sell their timber
commercially. As a result, Deltic's sources of private timber are many and
diverse. The key factors in a landowner's determination of whether to sell
timber to the Company are price, the Company's relationships with logging
contractors, and the ability of the Company to demonstrate the quality of its
logging practices to landowners. As a result, a landowner will be more likely to
sell timber to a forest products company whose own land has been responsibly
managed and harvested. There is a substantial amount of other private timber
acreage in proximity to each of Deltic's sawmills.
9
<PAGE>
PRODUCTS AND COMPETITION
The Company's principal forest products are timber; lumber products,
primarily finished lumber; and residual wood products.
Timber. Timber harvested from the timberlands is utilized by the Company's
sawmills or sold to third parties. The Company's timber sales to third parties
accounted for approximately 12 percent, 14 percent, and 16 percent of
consolidated net sales in 1996, 1997, and 1998, respectively.
The Company competes in the domestic timber market with numerous private
industrial and non-industrial land and timber owners. Competitive factors with
respect to the domestic timber market generally include price, species and
grade, proximity to wood consuming facilities, and the ability to meet delivery
requirements.
Lumber Products. The Company's sawmills produce a wide variety of
products, including dimension lumber, boards, timbers, decking, and secondary
manufacturing products such as finger-jointed studs. Lumber is sold primarily to
wholesalers and treaters in the South and Midwest and is used in residential
construction, roof trusses, laminated beams, and remanufactured items. During
1996, 1997, and 1998, lumber sales as a percentage of consolidated net sales
were approximately 55 percent, 57 percent, and 52 percent, respectively.
The forest products market is highly competitive with respect to price and
quality of products. In particular, competition in the commodity-grade lumber
market in which the Company competes is primarily based on price. Deltic
competes with other publicly-held forest products companies operating in
Arkansas, many of which have significantly greater financial resources than the
Company, as well as privately-held lumber producers. In addition, Deltic's
management expects the Company's products to experience increased competition
from engineered wood products and other substitute products. Due to the
geographic location of Deltic's timberlands and its high-quality timber, in
addition to the Company's active timber management program, strategically
located and efficient sawmill operations, and highly motivated workforce; Deltic
has been able to compete effectively.
Chips. The Company's sawmills produce wood chips as by-products of the
applicable conversion process. Chips are typically sold to Del-Tin Fiber or to
paper mills. During 1998, Deltic's sawmills produced 289,400 tons of wood chips.
During 1996, 1997, and 1998, sales of wood chips and other by-products of the
Company's sawmills accounted for 11 percent, eight percent, and nine percent,
respectively, of Deltic's consolidated net sales. In the future, the Company
expects to continue to sell a significant portion of certain of its residual
wood products to Del-Tin Fiber for the production of MDF. (See "Growth
Strategy".)
REAL ESTATE OPERATIONS
Deltic's Real Estate operations in Chenal Valley were started in 1985 to
add value to former timberland strategically located in the growth corridor of
west Little Rock, Arkansas. Since that time the Company has been developing a
4,800-acre premier upscale planned community, Chenal Valley, centered around a
Robert Trent Jones, Jr. designed golf course. The golf course was completed in
1990. The property has been developed in stages and real estate sales to date
have consisted primarily of residential lots, with commercial development
beginning in 1996.
In connection with its Chenal Valley development, the Company developed
Chenal Country Club, consisting of the above-described golf course, a clubhouse,
and related facilities for use by club members; and the club membership agreed
to purchase Chenal Country Club with payments to be made on specified terms
through 1999. During 1997, the agreement was restructured in order to return
ownership of Chenal Country Club to the Company with the club members making
ongoing membership
10
<PAGE>
fee payments. In connection with the restructuring, Deltic agreed to undertake
substantial remodeling and expansion of the clubhouse. (For additional
information, see Note 4 to the consolidated financial statements in Item 8,
"Financial Statements and Supplementary Data", of Part II of this report.)
Commercial development began in 1996 with the construction of a Deltic-
owned, 50,000 square-foot office building, approximately one-half of which is
leased to a national, financial servicing company. During 1997, commercial sales
activity increased, with more than 26 acres sold for multi-family development.
However, during 1998, commercial acres sold was approximately eight acres. Site
work for a Deltic-owned retail center began in 1997, and in 1998, Deltic began
construction of the 35,000-square-foot center which will offer retail space for
lease and will be completed during 1999. Construction of Rahling Road, a major
connector street that provides access to Chenal Valley's commercial core, began
in 1997 and was completed in early 1998. Commercial sites along this street,
increased residential development, and additional infrastructure investment are
expected to result in increased commercial activity.
Infrastructure and other improvements to support the development and sale
of residential and commercial property are funded directly by the Company and/or
through real property improvement districts. Such properties are developed only
when sufficient demand exists and all infrastructure is completed. Future
infrastructure investments are necessary only for the development and sale of
additional property.
A number of factors have added significant value to the undeveloped portion
of the Company's property. Such factors include: the overall success of Chenal
Valley as a residential development and its image as one of the premier
developments in central Arkansas, the continued westward growth of Little Rock,
the Company's investment in infrastructure in the area, and the established
residential base which is now large enough to support commercial development.
Management expects the undeveloped portion of Chenal Valley to provide growth
and development opportunities in the future.
When fully developed, Chenal Valley will include approximately 4,700
residential homesites. To date, 1,350 homesites have been developed and 994 lots
sold, with about 850 residences constructed or under construction. Of its 635
total commercial acres, Chenal will offer acreage for office tracts, multi-
family development, and retail locations. The development plan supports the
area's growing demand for corporate and service-oriented products.
In addition to Chenal Valley, Deltic is developing Chenal Downs, a 400-acre
equestrian development located outside of Chenal Valley being sold in estate-
sized lots of approximately five acres each, and Red Oak Ridge, Deltic's first
real estate development outside of the Little Rock/Pulaski County area. The
first phase of lot sales in Chenal Downs was offered in December, 1997, with 25
of the 44 lots offered sold as of the end of 1998. Red Oak Ridge, located at
Hot Springs, Arkansas, is an 800-acre, upscale community designed for
residential, resort, or retirement living. The first two neighborhoods in this
development, offering a choice of either estate-sized homesites, with many
overlooking one of two lakes, or lots in a garden-home neighborhood, were
offered for sale in late 1998.
AGRICULTURE OPERATIONS
Deltic owns 37,000 acres of farmland in northeast Louisiana. Approximately
26,000 acres of the total are farmed by Deltic, while the majority of the
remaining 11,000 acres are rented to third parties. Crops grown on Company-
farmed acreage in 1998, and planned for 1999, were soybeans and corn.
The installation of two continuous-flow drying systems in 1997 allowed more
than 55 percent of Deltic's 1998 corn production to be dried before delivery to
local markets, which meant lower harvest losses and reduced drying charges from
grain elevator operators. The purchase of additional new
11
<PAGE>
combines allowed Deltic to continue to harvest crops at optimum grain moisture
and field conditions, rather than having to rely on the availability of custom
harvesters.
SEASONALITY
The Company's operating segments are subject to variances in financial
results due to several seasonal factors. The majority of timber sales are
typically generated in the first half of the year due primarily to weather
conditions and stronger timber prices. Increased housing starts during the
spring usually push lumber prices up and, in turn, can result in higher timber
prices. Forestry operations generally incur expenses related to silvicultural
treatments which are applied during the fall season to achieve maximum
effectiveness. Farming operations generally do not generate significant sales
and operating income until crops are harvested and sold in the second half of
the year.
BUSINESS SEGMENT DATA
Information concerning net sales, operating income, and identifiable assets
attributable to each of the Company's business segments is set forth in Item 7,
"Management's Discussion and Analysis"; and Note 20 to the consolidated
financial statements in Item 8, "Financial Statements and Supplementary Data",
of Part II of this report.
DECLINE IN AVAILABILITY OF FEDERAL TIMBER
Various factors, including environmental and endangered species concerns,
have limited, and will likely continue to limit, the amount of timber offered
for sale by certain U.S. government agencies, which historically have been major
suppliers of timber to the U.S. forest products industry. During 1998, the
Company acquired approximately 20 percent of its timber supply for its Ola Mill
from federal sources, primarily the Ouachita and Ozark National Forests. Any
future decline in the availability of timber from federally-owned lands will
require that the Company, in order to supply the Ola Mill, rely more heavily on
harvests from the Company's timberlands, including harvests from timberlands
acquired in the future to the extent that suitable opportunities arise, and on
the acquisition of timber from other sources, such as private timber owners. The
Company's Waldo Mill does not currently process any timber acquired from federal
sources.
ENVIRONMENTAL MATTERS
The Company is subject to extensive and changing federal, state, and local
environmental laws and regulations relating to the protection of human health
and the environment, including laws relating to air and water emissions, the use
of pesticides and herbicides on the farm and timberlands, regulation of
"wetlands", and the protection of endangered species. Environmental legislation
and regulations, and the interpretation and enforcement thereof, are expected to
become increasingly stringent. The Company has made, and will continue to make,
expenditures to comply with such requirements in the ordinary course of its
operations. Historically, these expenditures have not been material and the
Company expects that this will continue to be the case. Liability under certain
environmental regulations may be imposed without regard to fault or the legality
of the original actions, and may be joint and several with other responsible
parties. As a result, in addition to ongoing compliance costs, the Company may
be subject to liability for activities undertaken on its properties prior to its
ownership or operation and by third parties, including tenants. The Company
currently leases the rights to drill for oil and gas on some of its lands to
third parties. Pursuant to these leases, the lessee indemnifies the Company from
environmental liability relating to the lessee's operations. Based on its
present knowledge, including the fact that the Company is not currently aware of
any facts that indicate that the Company will be required to incur any material
costs relating to environmental matters, and currently applicable laws and
regulations, the Company believes that environmental matters are not likely to
have a material adverse effect on the Company's financial condition, results of
operations, or liquidity.
12
<PAGE>
In addition, the federal "Endangered Species Act" protects species
threatened with possible extinction and restricts timber harvesting activities
on private and federal lands. Certain of the Company's timberlands are subject
to such restrictions due to the presence on the lands of the Red Cockaded
Woodpecker, a species protected under the Act. There can be no assurance that
the presence of this species or the discovery of other protected species will
not subject the Company to future harvesting restrictions. However, based on the
Company's knowledge of its timberlands, the Company does not believe that its
ability to harvest its timberlands will be materially adversely effected by the
protection of endangered species.
EMPLOYEES
As of February 28, 1999, the Company had 500 employees.
ITEM 2. PROPERTIES
The Company's properties, primarily located in Arkansas and north
Louisiana, consist principally of fee timber and timberlands, purchased stumpage
inventory, two sawmills, land held for residential and commercial development
and sale, and farmland. As of December 31, 1998, the Company's gross investment
in timber and timberlands, gross property, plant, and equipment, and investment
in real estate held for development and sale consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars)
<S> <C>
Timberlands $ 54,710
Fee timber and logging facilities 129,852
Purchased stumpage inventory 13,210
Real estate held for development and sale 27,295
Land and land improvements 8,471
Buildings and structures 8,573
Machinery and equipment 62,949
--------
$305,060
========
</TABLE>
"Timberlands" consist of the historical cost of land on which fee timber is
grown and related land acquisitions stated at acquisition cost. "Fee timber"
consists of the historical cost of company standing timber inventory, including
capitalized reforestation costs, and related timber acquisitions stated at
acquisition cost. "Logging facilities" consist primarily of the costs of roads
constructed and other land improvements. "Purchased stumpage inventory" consists
of the purchase price paid for unharvested third party timber. "Real estate held
for development and sale" consist primarily of the unamortized costs, including
amenities, incurred to develop the real estate for sale. "Land and land
improvements" consist primarily of the farmland. "Buildings and structures" and
"Machinery and equipment" primarily consist of the sawmill buildings and
equipment, farming structures and equipment, and a commercial office building
held for lease.
The Company owns all of the properties discussed above. Other than
approximately $.4 million of timber notes payable for certain investments in
timber and $1.4 million of owner-financed acquisitions of real estate acreage
and timberland, the Company's properties are not subject to mortgages or other
forms of debt financing. (For further information on the location and type of
the Company's properties, see the descriptions of the Company's operations in
Item 1.)
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation incidental to its
business. Currently, there are no material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The age (at January 1, 1999), present corporate office, and length of
service in office of each of the Company's executive officers and persons chosen
to become officers are reported in the following listing. Executive officers
are elected annually but may be removed from office at any time by the Board of
Directors.
Robert C. Nolan - Age 57; Chairman of the Board effective December 17,
1996. For the past 27 years, Mr. Nolan has been Managing Partner of Munoco
Company, an Arkansas partnership principally engaged in the exploration for and
production of oil and gas. In addition, Mr. Nolan has over 26 years experience
in timberland management.
Ron L. Pearce - Age 57; President and Chief Executive Officer and a
director of the Company effective December 17, 1996. From June 1993 to December
1996, Mr. Pearce was President of Deltic Farm & Timber Co., Inc. ("Deltic Farm &
Timber"), the predecessor corporation of the Company. Prior to such time, Mr.
Pearce was Manager of Operations and Planning for Deltic Farm & Timber, a
position he held beginning in February, 1991.
Emily R. Evers - Age 48; Controller effective December 31, 1996. From 1989
to December 1996, Ms. Evers was Controller of Deltic Farm & Timber.
W. Bayless Rowe - Age 46; General Counsel and Secretary effective December
31, 1996. From 1988 to December 1996, Mr. Rowe was Secretary and General
Attorney of Murphy Oil Corporation ("Murphy Oil").
Clefton D. Vaughan - Age 57; Vice President, Finance and Administration and
Treasurer effective December 31, 1996. From October 1994 to December 1996, Mr.
Vaughan was Vice President of Murphy Oil, a position he also held from 1989
through October 1992. From October 1992 to October 1994, Mr. Vaughan was Vice
President of Murphy Exploration & Production Company.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Common Stock of Deltic Timber Corporation is traded on the New York Stock
Exchange under the symbol DEL. The following table sets forth the high, low,
and ending prices, along with the quarterly dividends declared, for each of the
quarters indicated:
<TABLE>
<CAPTION>
Sales Prices/1/ Dividend per
---------------------------------------
High Low Close/2/ Common Share
--------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
1998
First Quarter $ 30-1/16 26-1/4 29-5/16 .0625
Second Quarter $ 30-1/16 25 25-1/16 .0625
Third Quarter $ 25 18 18 .0625
Fourth Quarter $ 24-15/16 18 20-3/8 .0625
1997
First Quarter $ 28-1/2 22-1/4 28-3/8 .0625
Second Quarter $ 29-5/16 25 29-5/16 .0625
Third Quarter $ 32-7/8 24-15/16 32-11/16 .0625
Fourth Quarter $ 32-1/2 26-15/16 27-3/8 .0625
</TABLE>
/1/ Daily closing price.
/2/ At period end.
Common stock dividends were declared for each quarter during 1998 and 1997.
As of February 28, 1999, there were approximately 3,181 stockholders of record
of Deltic's Common Stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents certain selected consolidated financial data
for each of the years in the five-year period ended December 31, 1998:
<TABLE>
<CAPTION>
(Thousands of dollars, except per share amounts) 1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Net sales....................................... $ 106,957 104,208 86,498 80,662 92,457
Operating income................................ $ 18,278 25,609 17,940 13,343 28,375
Income before income taxes...................... $ 13,777 27,252 21,933 15,894 30,576
Net income...................................... $ 8,474 16,574 13,161 10,016 18,142
Earnings per Common share*
Basic.......................................... $ .48 1.29 1.03 N/A N/A
Assuming dilution.............................. $ .48 1.29 1.03 N/A N/A
Cash dividends declared per Common share........ $ .25 .25 N/A N/A N/A
Net cash provided/(required) by
Operating activities........................... $ 26,987 23,917 21,731 16,865 23,894
Investing activities........................... $ (85,517) (37,804) (6,108) (16,134) (23,875)
Financing activities........................... $ 35,645 26,090 (419) (1,644) (101)
Percentage return on
Average stockholders' equity................... 4.7 9.6 7.8 6.1 12.0
Average borrowed and invested capital.......... 4.3 9.5 7.9 6.2 12.0
Average total assets........................... 3.5 8.7 7.2 5.7 11.3
CAPITAL EXPENDITURES FOR THE YEAR
Woodlands...................................... $ 59,839 16,380 2,754 563 171
Mills.......................................... 7,918 11,506 2,927 2,149 7,051
Real Estate.................................... 11,531 6,378 6,669 4,638 3,849
Agriculture.................................... 721 1,000 272 245 266
Corporate...................................... 524 574 1,512 1,538 66
---------------------------------------------------------
$ 80,533 35,838 14,134 9,133 11,403
=========================================================
FINANCIAL CONDITION AT YEAR-END
Working capital................................ $ 16,539 37,971 25,758 6,822 11,314
Current ratio.................................. 3.5 to 1 5.9 to 1 5.3 to 1 1.9 to 1 3.4 to 1
Total assets................................... $ 272,544 225,375 180,078 185,247 169,373
Long-term debt................................. $ 45,198 1,093 2,685 2,817 163
Redeemable preferred stock..................... $ 30,000 30,000 - - -
Stockholders' equity........................... $ 183,134 179,996 166,708 170,289 160,273
Long-term debt to stockholders' equity ratio... .247 to 1 .006 to 1 .016 to 1 .017 to 1 .001 to 1
</TABLE>
* 1996 amounts are presented on a pro forma basis. The distribution of the
Company's Common Stock did not occur until December 31, 1996.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Deltic Timber Corporation ("Deltic" or the "Company") is a natural
resources company engaged primarily in the growing and harvesting of timber and
the manufacture and marketing of lumber. The Company owns approximately 397,000
acres of timberland in Arkansas and north Louisiana. The Company's sawmill
operations are located at Ola in central Arkansas (the "Ola Mill") and at Waldo
in south Arkansas (the "Waldo Mill"). In addition to its timber and lumber
operations, the Company is engaged in real estate development in central
Arkansas and owns approximately 37,000 acres of farmland in northeast Louisiana.
The Company also holds a 50 percent interest in Del-Tin Fiber L.L.C. ("Del-Tin
Fiber"), a joint venture to manufacture and market medium density fiberboard,
which began production in April 1998.
On November 11, 1996, the Board of Directors of Murphy Oil Corporation
("Murphy Oil") declared a dividend payable to holders of record of Murphy Common
Stock at the close of business on December 2, 1996 (the "Record Date") of one
share of Deltic Common Stock for every 3.5 shares of Murphy Common Stock owned
of record on the Record Date. As a result, 100 percent of the outstanding shares
of Company Common Stock was distributed to Murphy Oil shareholders on December
31, 1996 (the "Distribution Date"). Prior to the Distribution Date, the Company
was operated as part of Murphy Oil. The financial information for the year of
1996, presented herein, reflects a period during which the Company did not
operate as an independent company. Such information, therefore, may not
necessarily reflect the results of operations or the financial condition of the
Company which would have resulted had the Company been an independent, public
company during that reporting period, and are not necessarily indicative of the
Company's future operating results or financial condition.
The Company's results of operations are affected primarily by the cyclical
supply and demand factors of the forest products industry. Despite strong
economic conditions and housing starts in the U.S., the downturn in Asian
markets caused the North American lumber market to be oversupplied for much of
1998. Lumber that was normally exported from North America to Asia was
redirected to U.S. markets, causing supply to outpace demand and depressing
prices. However, demand for timber, as well as timber prices, remained
relatively strong during 1998. While beneficial to the Company's Woodlands
segment, strong timber prices combined with depressed lumber prices negatively
impacted the performance of the Mills segment. Other factors impacting operating
results of the Company include interest rates, commodity prices, adverse
weather, and general economic conditions.
RESULTS OF OPERATIONS
Consolidated net income for 1998 was $8.5 million, $.48 a share, compared
to $16.6 million, $1.29 a share, for 1997. The decrease was primarily the
result of lower operating income from the Company's Mills and Agriculture
segments combined with a $4.6 million loss for the Company's share of equity in
Del-Tin Fiber's plant start-up costs incurred to-date and operating losses
reported since initial production commenced in late April 1998. In 1996, the
Company earned $13.2 million, $1.03 a share on a pro forma basis.
Operating income for 1998 decreased $7.3 million to $18.3 million. The
Woodlands segment increased $2.5 million due primarily to a 21 percent increase
in pine sawtimber harvest levels, partially offset by a four percent decrease in
the average price for pine sawtimber sold. The Company's Mills segment
operating results decreased $10.2 million as the result of a $53 per thousand
board feet ("MBF") drop in the average lumber sales price and a five percent
higher cost of production per MBF
17
<PAGE>
sold, which caused a negative margin per MBF. Real Estate operations increased
$1.8 million and benefited from a 55 percent increase in the number of
residential lots sold. The Agriculture segment decreased $2 million as the
result of reduced sales prices for soybeans and corn in 1998, combined with 1997
benefiting from the timing of sales of soybeans grown during 1996.
In 1997, operating income increased $7.6 million to $25.6 million. The
Company's Woodlands operations increased $5.5 million as the result of a 20
percent rise in the average price for pine sawtimber sold coupled with a 21
percent increase in harvest levels of pine sawtimber. The Mills segment results
increased $4 million due primarily to an 18 percent increase in average finished
lumber sales price. Real Estate operating income increased $1.6 million due
primarily to increased commercial sales. The Agriculture segment results were
virtually unchanged from 1996. The cost of corporate functions increased $2.9
million.
In the following table, the Company's net sales and results of operations
for the three years ended December 31, 1998 are presented by segment. A review
of the information follows the table.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
(Millions of dollars) 1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Net sales
Woodlands $ 26.6 22.6 16.4
Mills 65.8 67.7 57.9
Real Estate 15.9 11.6 6.3
Agriculture 6.5 9.5 10.6
Eliminations (7.8) (7.2) (4.7)
------ ----- ----
Net sales $107.0 104.2 86.5
====== ===== ====
Operating income and net income
Woodlands $ 20.5 18.0 12.5
Mills (2.8) 7.4 3.4
Real Estate 5.0 3.2 1.6
Agriculture .8 2.8 2.8
Corporate (5.0) (5.2) (2.3)
Eliminations (.2) (.6) -
------ ----- ----
Operating income 18.3 25.6 18.0
Equity in loss of Del-Tin Fiber (4.6) - -
Interest income 1.1 .7 3.1
Interest expense (1.4) (.4) (.3)
Other income/(expense) .4 1.4 1.2
Income tax expense (5.3) (10.7) (8.8)
------ ----- ----
Net income $ 8.5 16.6 13.2
====== ===== ====
</TABLE>
Woodlands
Net sales for the Company's Woodlands segment totaled $26.6 million in
1998, $22.6 million in 1997, and $16.4 million in 1996. Operating income for
this segment was $20.5 million in 1998, $18 million in 1997, and $12.5 million
in 1996.
During 1998, net sales increased $4 million, 18 percent, to $26.6 million.
Pine sawtimber sales increased $3.2 million in 1998 which reflects the impact of
a $3.8 million increase attributable to higher sales volume, partially offset by
a $.7 million decrease due to lower average sales price. The Company
18
<PAGE>
harvested 431,600 tons of pine sawtimber in 1998, an increase of 21 percent when
compared to 356,500 tons in 1997. The acquisition program, which began during
1996, has added approximately 58,600 acres of timberland and facilitated the
increased harvest level. Average sales price for Deltic's pine sawtimber was $51
per ton in 1998 versus $53 per ton in 1997, a decrease of four percent. Pine
pulpwood sales increased $.9 million due to increased harvest levels as the
Company thinned its maturing pine plantations. Sales of hardwood sawtimber
decreased $.3 million from $1.4 million primarily as the result of a decrease in
sales price. Other net sales for Woodlands increased slightly.
Net sales in 1997 increased $6.2 million, 38 percent, to $22.6 million.
Sales of pine sawtimber increased $5.9 million over 1996 which reflects an
increase of $3.3 million attributable to higher sales volume coupled with a $2.6
million increase due to higher average sales price. The Company increased
harvest levels of pine sawtimber from 294,100 tons in 1996 to 356,500 tons in
1997, an increase of 21 percent. Deltic's average sales price for pine sawtimber
increased 20 percent, $53 per ton in 1997 compared to $44 per ton in 1996. The
increase in the price of pine sawtimber was the result of strong demand caused
by the high level of regional lumber production. Pine pulpwood and hardwood
sales increased $.5 million in 1997 due to higher volume and sales price. Other
net sales decreased $.2 million in 1997.
Operating income of $20.5 million for 1998 was $2.5 million more than in
1997 due primarily to the increase in net sales discussed above. The cost of
fee timber harvested increased $.8 million in 1998 due to an increase in timber
harvested and to higher depletion rates which are the result of acquiring
timberland. An increase in cull timber release expense of $.3 million resulted
from the increase in the Company's timberland acreage.
In 1997, operating income increased $5.5 million to $18 million as the
result of increased net sales, partially offset by an increase of $.3 million in
the cost of fee timber harvested and a $.3 million increase in cull timber
release expense.
Mills
Net sales for the Company's Mills segment were $65.8 million in 1998,
compared to $67.7 million in 1997 and $57.9 million in 1996. An operating loss
of $2.8 million was recorded in 1998, while operating income was $7.4 million in
1997 and $3.4 million in 1996.
In 1998, net sales decreased $1.9 million to $65.8 million. Although
finished lumber sales volume increased nine percent to 162.2 million board feet
("MMBF") in 1998, a $53 per MBF decrease in average sales price to $343 per MBF
caused a decrease in net sales of $3.5 million. Sawmill residual product sales
increased $1.1 million in 1998. During 1998, the Company recorded a $.5 million
settlement of the business interruption claim filed as a result of a fire at the
Ola Mill during 1997.
During 1997, net sales for this segment totaled $67.7 million, an increase
of $9.8 million. Finished lumber sales increased $11.2 million due to an $8.8
million increase which resulted from higher average sales price and a $2.4
million increase from greater sales volume. In 1997, average sales price for
finished lumber was $396 per MBF, an 18 percent increase when compared to $335
per MBF in 1996. The Company's sawmills experienced a four percent increase in
finished lumber sales volume, from 143.4 MMBF in 1996 to 149.4 MMBF in 1997.
Residual product sales declined by $1.4 million.
A loss from operations of $2.8 million during 1998 compared to operating
income of $7.4 million in 1997. The decrease was primarily the result of the
drop in net sales combined with a five percent increase in the cost of
production per MBF sold, partially offset by the previously mentioned business
interruption claim settled during 1998. The increase in the cost of lumber
produced resulted from increases in log cost and depreciation expense.
19
<PAGE>
Operating income of $7.4 million for 1997 was $4 million more than for
1996, primarily attributable to a $61 per MBF increase in sales price to $396
per MBF coupled with a four percent increase in finished lumber sales volume,
partially offset by a 17 percent increase in the cost of logs used in the
Company's sawmills.
Real Estate
The Company's Real Estate operations generated net sales of $15.9 million
in 1998, $11.6 million in 1997, and $6.3 million in 1996. Operating income for
this segment totaled $5 million in 1998, $3.2 million in 1997, and $1.6 million
in 1996.
Net sales in 1998 increased $4.3 million, 37 percent, from $11.6 million in
1997. Residential lot sales increased by 62 lots to 175, with the average sales
price up six percent over 1997, from $52,400 per lot to $55,600. During 1998,
325 lots were developed and offered for sale in Chenal Valley in west Little
Rock, Arkansas, and in Red Oak Ridge near Hot Springs, Arkansas. Sales of
approximately 96 acres of undeveloped real estate acreage for $.6 million in
1998 compares to the sale of 9.5 acres for $.2 million during 1997. Commercial
sales revenue decreased $1.1 million due to the sale of approximately 26 acres
at an average price per acre of $90,900 in 1997, which compares to sales of
about eight acres for $158,000 per acre in 1998. Net sales from the Company's
Chenal Country Club operation were $3.3 million for 1998 versus $2.3 million for
the eight months of 1997 following the acquisition of the Club by Deltic.
Operating income for the Real Estate segment increased $1.8 million to $5
million due primarily to a $1.9 million increase in the margin realized on sales
of real estate in 1998.
In 1997, Real Estate operations generated net sales of $11.6 million, $5.3
million more than in 1996. Sales of residential and commercial property
increased $2.6 million. The sale of residential lots increased 19 percent, from
95 lots in 1996 to 113 lots in 1997, with a slight decrease in average sales
price from $55,400 to $52,400. During 1997, 149 lots were developed and offered
for sale in Bayonne Place; DuQuesne Place, Chenal Valley's newest neighborhood
which was priced to enter a new segment of the market; and Chenal Downs, a 400-
acre equestrian development located outside of Chenal Valley. Two commercial
sites were sold in 1997 for multi-family developments and totaled 26.4 acres at
an average price per acre of $90,900, which compares to a 2.1-acre tract for
$199,500 per acre in 1996. On May 1, 1997, the Company acquired Chenal Country
Club, Inc., a newly-formed entity that operates the Club amenity around which
Chenal Valley is centered. The acquisition was accomplished by exchanging a $5.6
million interest-bearing receivable from the club membership, which was
previously held by Deltic, for an investment in the newly-formed subsidiary.
Chenal Country Club, Inc.'s financial results included net sales of $2.3 million
and cost of sales totaling $2.1 million. The cost of the clubhouse and golf
course facilities acquired is being accounted for as an additional amenity for
the Chenal Valley development. Real Estate operating income of $3.2 million for
1997 increased $1.6 million when compared to 1996, due primarily to the same
factors impacting net sales.
Agriculture
Deltic's Agriculture segment recorded net sales of $6.5 million during
1998, compared to $9.5 million in 1997 and $10.6 million in 1996. Operating
income totaled $.8 million in 1998, and $2.8 million in both 1997 and 1996.
During 1998, net sales of $6.5 million decreased $3 million from 1997. The
decrease was the result of lower commodity prices and soybean yields, combined
with the prior year benefiting from the sale of products which were grown during
1996. Operating income of $.8 million was down $2 million from 1997 and was
negatively impacted by an increase in harvesting costs for corn due to an
outbreak of Aflatoxin, a toxin-producing fungus, in addition to lower net sales
discussed earlier. In 1998, soybean
20
<PAGE>
yields per acre decreased nine percent and the sales price was 19 percent lower
than in 1997. Although corn yields per acre increased four percent, sales prices
were down ten percent in 1998.
Agriculture operations contributed $9.5 million in net sales during 1997,
down $1.1 million from 1996. This decrease was primarily due to a 43 percent
reduction in cotton production volume in 1997 compared to 1996, which resulted
from diverting about 2,000 acres from cotton production to other crops. Although
revenue decreased in 1997, a corresponding reduction in crop costs was achieved.
Operating income of $2.8 million in 1997 was essentially unchanged from 1996. In
1997, crop yields per acre for cotton and wheat increased 19 percent and 25
percent, respectively, while per acre yields for soybeans and corn decreased
nine percent and four percent.
Corporate
Corporate operating expense was $5 million in 1998, $5.2 million in 1997,
and $2.3 million in 1996. During 1998, the Company's general and administrative
expenses decreased $.4 million. These expenses increased $2.7 million in 1997
due to higher expenses incurred as an independent, public company. The cost of
certain administrative and financial services provided by Murphy Oil, Deltic's
parent prior to spin-off, was included in general and administrative expenses
and totaled $.5 million in 1997 and $1.3 million in 1996. These services were
provided by Murphy Oil through June 30, 1997.
Equity in Del-Tin Fiber
In 1998, the Company recorded equity in the loss of Del-Tin Fiber totaling
$4.6 million, which included plant start-up costs incurred to-date and operating
losses reported since initial production began in late April 1998.
Interest Income/Expense
Interest income during 1998 was $1.1 million, compared to $.7 million in
1997 and $3.1 million in 1996. The $2.4 million decrease in 1997 was due
primarily to settlement of an interest-bearing receivable from Murphy Oil.
Deltic's interest income from this receivable was $2.4 million in 1996. In
1998, interest expense was $1.4 million, versus $.4 million in 1997 and $.3
million in 1996. The increase of $1 million during 1998 was due primarily to
increased borrowings required for Deltic's land acquisition program.
Other Income
Other income was $.4 million in 1998, $1.4 million in 1997, and $1.2
million in 1996. During 1997, the Company realized a $1.2 million gain on
settlement of a physical damage insurance claim which was the result of a fire
that destroyed the Ola Mill lumber planer. A $.7 million gain on the sale of
approximately 3,200 acres of Arkansas farmland was recorded during 1996.
Income Tax Expense
The Company's income tax expense was $5.3 million for 1998, $10.7 million
for 1997, and $8.8 million for 1996. The effective income tax rate was 38
percent, 39 percent, and 40 percent in 1998, 1997, and 1996, respectively. The
Company's income tax expense declined $5.4 million, from $10.7 million in 1997,
primarily due to lower pretax earnings. The increase in income tax expense of
$1.9 million in 1997 was due to similar increases in pretax earnings.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows and Capital Expenditures
Net cash provided by operating activities was $27 million in 1998, compared
to $23.9 million in 1997 and $21.7 million in 1996. Changes in operating working
capital, other than cash and cash equivalents, required cash of $.2 million in
1998 and $.5 million in 1997, but provided cash of $.6 million in 1996. The
Company's accompanying Consolidated Statements of Cash Flows identify other
differences between net income and cash provided by operating activities for
each of those years.
Capital expenditures required cash of $80.1 million in 1998, $35.7 million
in 1997, and $14.1 million in 1996. Other owner-financed capital expenditures,
not requiring cash, included timberland acquisitions of $.4 million in 1998 and
$.1 million in 1997. Total capital expenditures are presented by segment in the
following table for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
(Millions of dollars) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Woodlands $59.9 16.4 2.7
Mills 7.9 11.5 2.9
Real Estate 11.5 6.4 6.7
Agriculture .7 1.0 .3
Corporate .5 .5 1.5
----- ---- ----
Total capital expenditures 80.5 35.8 14.1
Owner-financed expenditures (.4) (.1) -
----- ---- ----
Expenditures requiring cash $80.1 35.7 14.1
===== ==== ====
</TABLE>
Woodlands capital expenditures included timberland acquisitions of
approximately 30,400 acres at a cost of $59.1 million in 1998, approximately
25,100 acres at a cost of $15.9 million in 1997, and approximately 3,100 acres
at a cost of $2.5 million in 1996. Reforestation site preparation and planting
required expenditures of $.4 million in 1998, $.2 million in 1997, and $.1
million in 1996.
During 1998, $3.5 million was expended for the Ola Mill's planer upgrade.
The installation of a new boiler system and an additional kiln, which will
increase drying capacity by 30 million board feet annually, required
expenditures of $1.6 million in 1998 and $3 million in 1997. A small log
processing deck, which has enabled the mill to extract small diameter logs from
pulpwood to facilitate log supply and reduce log cost, required expenditures of
$.4 million in 1998 and $1.4 million in 1997. In 1996, $.7 million was expended
to expand the lumber sorting system. At the Waldo Mill, $.5 million was expended
in 1998 and $1.6 million in 1997 to install a new secondary manufacturing
operation, which has expanded the Mill's product mix to include products such as
finger-jointed studs. The Waldo Mill's planer upgrade required capital
expenditures of $4.1 million in 1997 and $1.4 million in 1996.
Capital expenditures for Real Estate operations related to cost of lot
development were $5.1 million in 1998, $2.1 million in 1997, and $.4 million in
1996. Commercial development expenditures included $.4 million in 1998 for site
work for outparcel sites adjacent to the Company's 35,000-square-foot retail
center for which construction is planned to be completed during 1999, $.6
million in 1997 for site work for the retail center, and $4.5 million in 1996
for construction of a 50,000-square-foot office building which the Company
offers for lease. In 1998, infrastructure construction totaled $.8 million,
compared to $1.3 million in 1997 and $.4 million in 1996. An expansion of the
clubhouse at Chenal Country Club required capital expenditures of $3 million in
1998 and $.6 million in 1997. Other expenditures were primarily for various
amenity improvements.
22
<PAGE>
Agriculture expenditures included $.4 million in both 1998 and 1997 for
purchase of harvesting combines. In 1997, two continuous-flow drying systems
were installed for $.4 million. Other capital requirements were mainly for
replacement of various machinery and equipment.
Corporate operations had capital expenditures for purchases of additional
investment in a consolidated entity of $.4 million in 1998 and $.9 million in
1996. Expenditures for 1997 of $.5 million were primarily for the purchase of
office furniture and computer equipment, including software, required when the
Company's offices were relocated after being spun off from Murphy Oil.
At December 31, 1998, the Company had commitments of $12.3 million for
capital projects in progress, including $3.7 million for improvements at the Ola
Mill and $7.9 million related to residential lot and commercial development,
infrastructure construction, and amenity improvements at the Company's real
estate developments. The Ola Mill's commitments consisted of $1.9 million for
an edger and edger optimizer, $1.3 million for completion of a planer upgrade,
and $.5 million for sawmill building improvements.
The net change in purchased stumpage inventory required cash of $2.7
million in 1998 and $2.9 million in 1997, and provided cash of $2.8 million in
1996. Proceeds from the sales of assets provided $.4 million in 1998; $1.4
million in 1997, due primarily to the involuntary conversion of the Ola Mill's
planer which was destroyed by fire; and $2.9 million in 1996, primarily from the
sale of approximately 3,200 acres of Arkansas farmland. In 1996, as part of the
spin-off of the Company by Murphy Oil, the Company received a $17.2 million cash
payment from Murphy Oil in partial settlement of its receivable from Murphy Oil.
Prior to the spin-off, the Company remitted to Murphy Oil cash funds generated
in excess of its daily requirements. As a result, the receivable had increased
by $7.9 million in 1996. Also, in connection with the spin-off, the Company
recorded an $18.8 million noncash dividend to Murphy Oil which reduced the
outstanding balance of the receivable. (Refer to Note 2 to the consolidated
financial statements.) The Company advanced to Del-Tin Fiber $9.6 million, $1
million, and $6.8 million in 1998, 1997, and 1996, respectively. In December
1998, Del-Tin Fiber repaid $5.6 million of previous advances when project
financing for the facility was obtained. In conjunction with this repayment, the
remaining outstanding advances receivable amount was deemed to be a capital
contribution to the joint venture.
During 1998, the Company borrowed $48 million under its revolving credit
facility, primarily to finance timberland acquisitions. (Refer to Note 9 to the
consolidated financial statements.) Upon issuance of $40 million of privately-
placed, fixed-interest rate, long-term senior notes with a financial institution
on December 18, 1998, the Company used the proceeds, net of $1.3 million in
prepaid interest and debt issuance costs, to make repayment against its
revolving facility. In addition, $3 million of the repayment received from Del-
Tin Fiber was applied to the revolving facility commitment. During 1997, the
Company issued 600,000 shares of Redeemable Preferred Stock, proceeds of which
were $29.6 million, net of issuance costs. (Refer to Note 10 to the consolidated
financial statements.) In addition, borrowings under Deltic's revolving facility
in 1997 provided $3 million, which were also repaid during the year. Cash
required to repay long-term debt arising from installment payments on notes used
to finance a portion of the Company's timber requirements amounted to $1.8
million in both 1998 and 1997, and $.4 million in 1996. The Company paid
dividends on Common Stock of $3.2 million in both 1998 and 1997. During 1998,
cash required to pay Preferred Stock dividends totaled $2.3 million.
Financial Condition
Year-end working capital totaled $16.5 million in 1998 and $38 million in
1997. Cash and cash equivalents at the end of 1998 were $8.2 million, compared
to $31 million at the end of 1997. The reduction for 1998 was primarily
attributable to the amount by which capital expenditures for the year exceeded
net borrowings during the year. During 1998, indebtedness of the Company
increased
23
<PAGE>
$43.5 million. The Company's working capital ratio at December 31, 1998, was 3.5
to 1, compared to 5.9 to 1 at the end of 1997.
Liquidity
The primary sources of the Company's liquidity are internally generated
funds, access to outside financing, and working capital. The Company's current
strategy for growth continues to emphasize a significant timberland acquisition
program, which has facilitated an increase in harvest levels, as it is expanding
lumber production and entering the engineered wood products market through its
interest in Del-Tin Fiber.
To facilitate these growth plans, the Company has an agreement with a group
of banks which provides a revolving credit facility totaling $100 million. The
agreement will expire on December 31, 2001. As of December 31, 1998, $95
million was available under this facility. Current financing arrangements are
set forth in Note 9 to the consolidated financial statements. Due to the amount
available under its credit facility, combined with successfully obtaining $40
million of privately-placed debt at terms acceptable to the Company, Deltic does
not currently anticipate filing the Common Stock shelf registration with the
Securities and Exchange Commission which was mentioned in the Company's 1997
Form 10-K.
On January 14, 1999, the Company's Board of Directors authorized a stock
repurchase program through which the Company's management has approval to
purchase up to $10 million of Common Stock, initially. Under the program, the
Company can purchase shares through the open market and privately negotiated
transactions at prices deemed appropriate by management, utilizing cash provided
by operations and/or from its credit facility.
Deltic's management believes that the remaining amount available under its
credit facility will be sufficient to meet its expected cash needs and planned
expenditures, including those of the Company's continued timberland acquisition
and authorized Common Stock repurchase programs, for the foreseeable future.
OTHER MATTERS
Impact of Inflation
General inflation has not had a significant effect on the Company's
operating results during the three years ended December 31, 1998. The Company's
timber operations are more significantly impacted by the forces of supply and
demand in the southern United States than by changes in inflation. Lumber
manufacturing operations are affected by the supply of lumber available in the
North American market and by the demand for lumber by both the North American
and foreign export markets. Sales of real estate are affected by changes in the
general economy and long-term interest rates.
Market Risk
Market risk represents the potential loss resulting from adverse changes in
the value of financial instruments, either derivative or non-derivative, caused
by fluctuations in interest rates, foreign exchange rates, commodity prices, and
equity security prices. The Company handles market risks in accordance with its
established policies; however, Deltic does not enter into derivatives or other
financial instruments for trading or speculative purposes. The Company does
enter into financial instruments to manage and reduce the impact of changes in
interest rates. The counterparties in these financial instruments are normally
major financial institutions. Deltic held various financial instruments at
December 31, 1998 and 1997, consisting of financial assets and liabilities
reported in the Company's
24
<PAGE>
Consolidated Balance Sheets and off-balance sheet exposures resulting from
letters of credit issued by Deltic, primarily in connection with its purchased
stumpage procurement and real estate operations. (For additional information
regarding these financial instruments, refer to Note 13 to the consolidated
financial statements.)
Interest Rate Risk - The Company is subject to interest rate risk from
the utilization of financial instruments, such as term debt and other
borrowings. The fair market value of long-term, fixed-interest rate debt is
subject to interest rate risk. Generally, the fair value of fixed-interest rate
debt will increase as interest rates fall and will decrease as interest rates
rise. Conversely, for floating rate debt, interest rate changes generally do
not affect the instruments' fair value, but do impact future earnings and cash
flows, assuming other factors are held constant. The estimated fair values of
the Company's long-term debt, including current maturities; Redeemable Preferred
Stock; and letters of credit at December 31, 1998, were $46.2 million, $31.2
million, and $3.5 million, respectively.
A one percentage-point increase in prevailing interest rates would result
in decreases in the estimated fair value of long-term debt of $4 million and
Redeemable Preferred Stock of $1.2 million, while the fair value of the
Company's letters of credit would be unchanged. Initial fair values were
determined using the current rates at which the Company could enter into
comparable financial instruments with similar remaining maturities. The
estimated earnings and cash flows impact for 1999 resulting from a one
percentage-point increase in interest rates would be approximately $35 thousand,
holding other variables constant.
Foreign-Exchange Rate Risk - The Company currently has no exposure to
foreign-exchange rate risk because all of its financial instruments are
denominated in U.S. dollars.
Commodity Price Risk - The Company has no financial instruments subject
to commodity price risk.
Equity Security Price Risk - None of the Company's financial instruments
have potential exposure to equity security price risk.
The preceding discussion of the Company's estimated fair value of its
financial instruments and the sensitivity analyses resulting from hypothetical
changes in interest rates are "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such statements reflect
the Company's current expectations and involve uncertainties. These forward-
looking market risk disclosures are selective in nature and only address the
potential impact from financial instruments. They do not include other potential
effects which could impact Deltic's business as a result of changes in interest
rates, foreign-exchange rates, commodity prices, or equity security prices.
Impact of Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 133, Accounting for Derivative
Instruments and Hedging Activities. This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 133
is effective for all fiscal quarters for fiscal years beginning after June 15,
1999 and will not require retroactive restatement of prior period financial
statements. This statement requires the recognition of all derivative
instruments as either assets or liabilities, measured at fair value, in the
statement of financial position. Generally, increases or decreases in the fair
value of derivative instruments will be recognized as gains or losses in
earnings in the period of change. If certain conditions are met, where the
derivative instrument has been designated as a fair value hedge, the hedged item
may also be marked to market through earnings, thus creating an offset. If the
derivative is designated and qualifies as a cash flow hedge, the changes in fair
value of the derivative instrument may be recorded in comprehensive income,
25
<PAGE>
as defined by SFAS 130, Reporting Comprehensive Income. The impact of SFAS 133
on the Company's financial statements when adopted, if any, will depend on a
variety of factors, including future interpretive guidance from the FASB, the
level of utilization of derivative instruments, the types of hedging instruments
used, and the effectiveness of any such instruments. However, the Company's
management does not believe the effect of adopting SFAS 133 will be material to
its financial position or results of operations, based on the Company's current
level of derivative and hedging activities.
Year 2000 Issue
The Year 2000 issue is the known inability of a significant percentage of
the world's computers, application software, and embedded semiconductor chips to
cope with the change of the year from 1999 to 2000. As a result, some systems
could fail to operate or produce incorrect results.
The Year 2000 problem, if not corrected, would affect computers, software,
and other equipment used by the Company, as well as those used by its suppliers,
customers, banks, etc. Accordingly, Deltic has assessed the potential impact
of, and the costs of remediating, the Year 2000 problem for its internal systems
and operational facilities' systems and equipment.
The Company's business is substantially dependent upon the operation of
computer systems, and as such, Deltic has established a Year 2000 Committee
which is made up of managers from its corporate and operational areas. The
Committee was created pursuant to the direction of the Company's Board of
Directors and has the involvement of executive management, with top priority
given to its objectives.
The Company has essentially completed the process of identifying the
computers, application software, and related equipment that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption of
its business. The Company has commenced the process of modifying or upgrading
systems which have been assessed as affected by the Year 2000 problem. For
critical internal computerized systems, the Company expects to complete this
process by the end of the first quarter of 1999. For remaining major systems and
equipment, including those at operational facilities, the Company anticipates
the completion of any modifications or upgrades required no later than the third
quarter of 1999. To-date, the Company has not incurred significant costs for
these modifications since most have been provided by the supplier at no or
minimal cost to Deltic. Therefore, the cost related to the Year 2000 Issue
incurred by the Company for its internal systems and facilities is not expected
to be material.
In addition to computers and related equipment, the Year 2000 Committee has
completed the assessment of the potential impact of the Year 2000 problem for
its equipment such as fax machines, copiers, telephone and security systems, and
other common devices potentially impacted by the Year 2000 problem. As of
December 31, 1998, all of this equipment has been determined to be Year 2000
compliant.
The Company has initiated communications with third-party suppliers of the
major computers, software, and other equipment used, operated, or maintained by
the Company, including those at its operational facilities, to identify and, to
the extent possible, resolve issues involving the Year 2000 problem. Since the
Company has limited or no control over the actions of these suppliers, there can
be no assurance that these suppliers will resolve all Year 2000 problems,
whether currently known or not, or that the Company will be able to obtain
replacement suppliers, before the occurrence of a material disruption to the
business of the Company.
26
<PAGE>
In addition, the Company has issued written communication to all of its
suppliers and significant customers in order to attempt to obtain the status of
their Year 2000 compliance. To-date, the majority of these suppliers and
customers have responded to such communications and have indicated that they
have either already achieved Year 2000 compliance or expect to be able to do so
prior to December 31, 1999. However, the Company can give no assurance that its
suppliers or customers will not be materially impacted by the Year 2000 issue.
In addition, the Company can give no assurance that failure by its suppliers and
customers to achieve Year 2000 compliance will not have a significant impact on
the Company's business. However, Deltic intends to continue follow-up
communications with critical suppliers and customers.
At this time, the Company is currently developing a contingency plan which
would be implemented in the event that efforts to identify and correct Year 2000
problems are not effective. As the Company's assessment of its Year 2000
compliance is nearer to completion, the Company's Year 2000 Committee currently
plans to finalize contingency plans for any systems or facilities for which Year
2000 compliance is not reasonably certain.
The discussion of the Company's efforts, and management's expectations,
relating to Year 2000 compliance are "forward-looking statements" within the
meaning of the federal securities laws. Such statements reflect the Company's
current expectations and involve risks and uncertainties. Actual results could
differ materially from those included in such forward-looking statements. The
Company's ability to achieve Year 2000 compliance and the level of incremental
costs associated therewith, could be adversely impacted by, among other things,
the availability and cost of programming and testing resources, suppliers'
ability to modify proprietary software, and unanticipated problems identified in
the ongoing compliance review.
Environmental Matters
Deltic is committed to protecting the environment and has certain
obligations based on federal, state, and local laws for the protection of the
environment. Costs of compliance through 1998 have not been material and the
Company's management currently has no reason to believe that such costs will
become material for the foreseeable future.
OUTLOOK
Pine sawtimber harvested from the Company's fee lands is projected to
increase annually through 2000, depending on the Company's ability to increase
timber inventory through growth and timberland acquisitions. Lumber production
is also projected to increase over this period, as the Company continues to
increase the capacity of its manufacturing facilities. Based on continued
growth in west Little Rock, Arkansas, the Company expects the number of
residential lots and commercial acres sold to increase, barring declines in
economic growth or housing starts in central Arkansas. Agriculture operations
intend to plant soybeans and corn in 1999, with results subject to a number of
factors including weather conditions, insect infestation, crop disease, and
price fluctuations. The Company expects medium density fiberboard production
and sales at Del-Tin Fiber to increase significantly in 1999, as capacity
utilization increases following the plant's start-up in April 1998.
The Company's capital expenditure budget for the year of 1999 was prepared
during the fall of 1998 and provides for expenditures of $38.6 million. The
Woodlands capital budget includes $12.2 million for timberland acquisitions,
which will be dependent on the availability of acreage at prices which meet the
Company's criterion for timber stocking, growth potential, site index, and
location. Sawmill projects are expected to require $9 million during 1999. The
Ola Mill will complete installation of an edger system and planermill in early
1999. At the Company's Waldo Mill, the existing log deck system will be
optimized, which allows scanning of an entire log prior to cutting to length.
This project is
27
<PAGE>
expected to improve recovery and increase mill output by five million board feet
annually. Depending on market conditions, expenditures for residential lot
developments in the amount of $3.2 million are projected to add over 130 lots to
available inventory. Commercial real estate development and infrastructure
construction is estimated at $5.1 million and includes construction of a retail
center in "The Village at Rahling Road", located in Chenal Valley. Golf course
and clubhouse expansion projects are estimated to require capital expenditures
of $2.8 million. Replacements of machinery and equipment for the Agriculture
segment are anticipated to require $.5 million. Capital and other expenditures
are under constant review, and these budgeted amounts may be adjusted to reflect
changes in the Company's estimated cash flows from operations, borrowings under
credit facilities, or general economic conditions.
Certain statements contained in this report that are not historical in
nature constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "expects",
"anticipates", "intends", "plans", "estimates", or variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements reflect the Company's current expectations and involve certain
risks and uncertainties, including those disclosed elsewhere in this report.
Therefore, actual results could differ materially from those included in such
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information with respect to quantitative and qualitative disclosures about
market risk of the Company is set forth under the caption "Other Matters -
Market Risk" in Item 7 of Part II of this report.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
---------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1998 1997
---------- -------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 8,160 31,045
Trade accounts receivable - net 3,995 3,772
Other receivables 1,328 297
Inventories 5,851 8,595
Prepaid expenses and other current assets 3,882 2,060
-------- -------
Total current assets 23,216 45,769
Investment in real estate held for development and sale 27,295 20,365
Investment in and advances to Del-Tin Fiber 6,699 7,383
Timber and timberlands - net 166,588 108,206
Property, plant, and equipment - net 44,104 39,646
Deferred charges and other assets 4,642 4,006
-------- -------
Total assets $272,544 225,375
======== =======
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 990 1,801
Notes payable 387 192
Trade accounts payable 2,164 2,542
Accrued taxes other than income taxes 1,025 979
Bank overdraft 817 1,479
Other accrued liabilities 1,294 805
-------- -------
Total current liabilities 6,677 7,798
Long-term debt 45,198 1,093
Deferred credits and other noncurrent liabilities 7,535 6,488
Redeemable preferred stock 30,000 30,000
Stockholders' equity
Preferred stock - -
Common stock 128 128
Capital in excess of par value 68,808 68,372
Retained earnings 114,498 111,496
Unamortized restricted stock awards (300) -
-------- -------
Total stockholders' equity 183,134 179,996
-------- -------
Total liabilities and stockholders' equity $272,544 225,375
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
For the Years Ended December 31, 1998, 1997, and 1996
-----------------------------------------------------
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Net sales $106,957 104,208 86,498
-------- ------- ------
Costs and expenses
Cost of sales 75,656 67,625 61,076
Depreciation, amortization, and
cost of fee timber harvested 7,331 4,912 4,109
General and administrative expenses 5,692 6,062 3,373
-------- ------- ------
Total costs and expenses 88,679 78,599 68,558
-------- ------- ------
Operating income 18,278 25,609 17,940
Equity in loss of Del-Tin Fiber (4,657) - -
Interest income 1,122 646 3,070
Interest expense (1,387) (370) (284)
Other income/(expense) 421 1,367 1,207
-------- ------- ------
Income before income taxes 13,777 27,252 21,933
Income taxes (5,303) (10,678) (8,772)
-------- ------- ------
Net income $ 8,474 16,574 13,161
======== ======= ======
Earnings per Common share*
Basic $ .48 1.29 1.03
======== ======= ======
Assuming dilution $ .48 1.29 1.03
======== ======= ======
Dividends declared per Common share $ .25 .25 N/A
======== ======= ======
Average Common shares outstanding (thousands)* 12,812 12,798 12,798
======== ======= ======
</TABLE>
* 1996 amounts are presented on a pro forma basis. The distribution of the
Company's Common Stock did not occur until December 31, 1996.
See accompanying notes to consolidated financial statements.
30
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998, 1997, and 1996
-----------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Operating activities
Net income $ 8,474 16,574 13,161
Adjustments to reconcile above income to
net cash provided/(required) by operating activities
Depreciation, amortization, and cost of
fee timber harvested 7,331 4,912 4,109
Deferred and noncurrent income taxes 1,255 (65) 52
(Gains)/losses from sales of assets (77) (1,449) (844)
Real estate costs recovered upon sale 4,993 3,732 2,942
Equity in loss of Del-Tin Fiber 4,657 - -
(Increase)/decrease in operating working
capital other than cash and cash equivalents (184) (503) 610
Other 538 716 1,701
-------- -------- --------
Net cash provided/(required) by operating activities 26,987 23,917 21,731
-------- -------- --------
Investing activities
Capital expenditures requiring cash (80,124) (35,729) (14,134)
Net change in purchased stumpage inventory (2,665) (2,924) 2,781
Proceeds from sales of assets 374 1,359 2,850
Net (additions)/reductions to noncurrent receivable
from Murphy Oil - - 10,938
Investment in and advances to Del-Tin Fiber - net (3,860) (299) (6,811)
Other - net 758 469 (205)
-------- -------- --------
Net cash provided/(required) by investing activities (85,517) (37,124) (4,581)
-------- -------- --------
Financing activities
Proceeds from issuance of Redeemable Preferred
Stock, net of issuance cost of $395 - 29,605 -
Proceeds from long-term borrowings 88,072 3,000 -
Repayments of long-term debt (44,993) (4,794) (419)
Prepaid interest and debt issuance costs -
long-term borrowings (1,307) - -
Increase/(decrease) in bank overdraft (662) 1,479 -
Preferred Stock dividends paid (2,262) - -
Common Stock dividends paid (3,203) (3,200) -
-------- ------- --------
Net cash provided/(required) by financing activities 35,645 26,090 (419)
-------- ------- --------
Net increase/(decrease) in cash and cash equivalents (22,885) 12,883 16,731
Cash and cash equivalents at beginning of year 31,045 18,162 1,431
-------- ------- --------
Cash and cash equivalents at end of year $ 8,160 31,045 18,162
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998, 1997, and 1996
-----------------------------------------------------
(Thousands of dollars)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Cumulative Preferred Stock - $.01 par, authorized
20,000,000 shares, 600,000 shares issued as
Redeemable Preferred Stock at end of year
(See Note 10 - Redeemable Preferred Stock) $ - - -
-------- ------- -------
Common Stock - $.01 par, authorized 50,000,000
shares; 12,813,879, 12,798,323, and 12,798,323
shares issued at end of 1998, 1997, and 1996,
respectively 128 128 128
-------- ------- -------
Capital in excess of par value
Balance at beginning of year 68,372 68,372 66,301
Capital contributions by Murphy Oil for administrative
and financial services, net of tax - - 384
Transfer of prepaid retirement and accrued
postretirement benefit obligation from Murphy Oil
at spin-off, net of tax - - 1,687
Exercise of stock options 58 - -
Restricted stock awards 378 - -
-------- ------- -------
Balance at end of year 68,808 68,372 68,372
-------- ------- -------
Retained earnings
Balance at beginning of year 111,496 98,208 103,860
Net income 8,474 16,574 13,161
Preferred Stock dividends accrued (2,269) (86) -
Common Stock dividends declared, $.25 per share (3,203) (3,200) -
Noncash dividends to Murphy Oil - - (18,813)
-------- ------- -------
Balance at end of year 114,498 111,496 98,208
-------- ------- -------
Unamortized restricted stock awards
Balance at beginning of year - - -
Stock awards (378) - -
Amortization to expense 78 - -
-------- ------- -------
Balance at end of year (300) - -
-------- ------- -------
Total stockholders' equity $183,134 179,996 166,708
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements include
the accounts of Deltic and all majority-owned subsidiaries after
elimination of significant intercompany transactions and accounts.
Use of Estimates -- In the preparation of financial statements of the
Company in conformity with generally accepted accounting principles,
management has made a number of estimates and assumptions related to the
reporting of assets and liabilities and the disclosure of contingent
assets and liabilities. Actual results may differ from those estimates.
Cash Equivalents -- Cash equivalents include U. S. government securities
that have a maturity of three months or less from the date of purchase.
Allowance for Doubtful Accounts -- The Company provides an allowance for
doubtful accounts based on a review of the specific receivables
outstanding. At December 31, 1998 and 1997, the balance in the allowance
account was $189,000 and $95,000, respectively.
Inventories -- Inventories of logs, lumber, agricultural products, and
supplies are stated at the lower of cost or market, primarily using the
average cost method. Log costs include harvest and transportation cost
as appropriate. Lumber costs include materials, labor, and production
overhead.
Investment in Real Estate Held for Development and Sale -- Real estate
held for development and sale is stated at the lower of cost or net
realizable value, and includes direct costs of land and land development
and indirect costs, including amenities, less amounts charged to cost
of sales. These costs are allocated to individual lots or acreage sold
based on relative sales value. Direct costs are allocated on a specific
neighborhood basis, while indirect costs for the Company's three
development areas, Chenal Valley, Chenal Downs, and Red Oak Ridge, are
allocated to neighborhoods over the entire respective development area.
Investment in Del-Tin Fiber -- Investment in Del-Tin Fiber L.L.C. ("Del-Tin
Fiber"), the 50 percent- owned limited liability company, is carried at
cost and is being adjusted for the Company's proportionate share of its
undistributed earnings or losses.
Timber and Timberlands -- Timber and timberlands, which includes
purchased stumpage inventory and logging facilities, is stated at
acquisition cost less cost of fee timber harvested and accumulated
depreciation of logging facilities. The cost of fee timber harvested is
based on the volume of timber harvested in relation to the estimated
volume of timber recoverable. Logging facilities, which consist
primarily of the cost of roads constructed and other land improvements,
are depreciated by using the straight-line method over a ten-year
estimated life. The Company estimates its fee timber inventory using
statistical information and data obtained from physical measurements and
other information gathering techniques. The cost of timber and
timberland purchased and reforestation costs are capitalized. Fee
timber carrying costs are expensed as incurred.
33
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Property, Plant, and Equipment -- Property, plant, and equipment is stated
at cost less accumulated depreciation. Depreciation of buildings,
equipment, and other depreciable assets is primarily determined by using
the straight-line method. Property, plant, and equipment assets are
evaluated for possible impairment on a specific asset basis or in groups
of similar assets, as applicable. Expenditures that substantially improve
and/or increase the useful life of facilities and equipment are
capitalized. Maintenance and repair costs are expensed as incurred. Gains
and losses on disposals or retirements are included in income as they
occur.
Revenue Recognition -- Revenue from the sale of lumber, wood by-products,
and agricultural commodities is generally recorded at the time of
shipment. Revenue from the sale of timber-cutting rights to third parties
is recorded when legal title passes to the purchaser. Revenue from
intersegment timber sales is recorded when the timber is harvested; such
intersegment sales, which are made at market prices, are eliminated in
the consolidated financial statements. Revenue from real estate sales is
recorded when the sale is closed and legal title is transferred.
Income Taxes -- The Company uses the asset and liability method of
accounting for income taxes. Under this method, the provision for income
taxes includes amounts currently payable and amounts deferred as tax
assets and liabilities, based on differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities, and is measured using the enacted tax rates that are assumed
will be in effect when the differences reverse.
The Company was included in the consolidated federal tax return of Murphy
Oil Corporation ("Murphy Oil"), Deltic's parent prior to its spin-off,
for the 1996 period for which income statements are presented; however,
for financial accounting purposes, federal income tax has been computed
and recorded as if the Company filed a separate federal income tax
return. Deltic filed its initial separate federal income tax return for
the year of 1997.
Pensions and Other Postretirement Benefits -- Effective December 31, 1998,
the Company adopted Statement of Financial Accounting Standards ("SFAS")
132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. The provisions of SFAS 132 revise employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of these plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable. (For details of required disclosures, see Note 15 - Employee
and Retiree Benefits.)
Stock-Based Compensation -- The Company applies the accounting measurement
provisions of Accounting Principles Board Opinion ("APB") 25 to account
for stock-based compensation. Cost of options granted are accrued over
applicable vesting periods and adjusted for subsequent changes in the
market value per share of the Company's Common Stock.
Capital Expenditures -- Capital expenditures include additions to Investment
in Real Estate Held for Development and Sale; Timber and Timberlands; and
Property, Plant, and Equipment.
Net Change in Purchased Stumpage Inventory -- Purchased stumpage inventory
consists of timber-cutting rights purchased from third parties
specifically for use in the Company's sawmills. Depending on the timing
of acquisition and usage of this acquired stumpage inventory, the net
change in
34
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
inventory can either be a source or use of funds in the Company's
Consolidated Statements of Cash Flows.
Earnings per Common Share -- Earnings per share ("EPS") amounts presented
were calculated under the provisions of SFAS 128, Earnings per Share.
Basic earnings per share is computed based on earnings available to
Common shareholders (net income less accrued preferred dividends) and the
weighted average number of Common shares outstanding. The earnings per
share assuming dilution amounts presented are computed based on earnings
available to Common shareholders and the weighted average number of
Common shares outstanding, including shares assumed to be issued under
the Company's stock option plan. (For a reconciliation of amounts used in
per share computations, see Note 18 - Earnings per Share.)
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the 1998 presentation format.
NOTE 2 - SPIN-OFF FROM MURPHY OIL CORPORATION
On December 31, 1996, Deltic Timber Corporation became an independent,
public company when Murphy Oil, the Company's former parent, surrendered 100
percent of the outstanding shares of Deltic Common Stock, which were
distributed to Murphy Oil's shareholders as a dividend. Through December 10,
1996, the Company operated under Murphy Oil's consolidated cash management
policy. Under this policy, Deltic remitted cash funds generated in excess of
its daily operating and capital requirements to Murphy Oil. Such remitted
funds gave rise to an interest-bearing receivable that was due on demand.
Settlement of this receivable was accomplished by recording noncash
dividends from Deltic to Murphy Oil, in the amount of $18,813,000, and a
cash repayment by Murphy Oil to the Company of $17,200,000, leaving a net
receivable of $1,858,000 at December 31, 1996, with no amount due at
December 31, 1998 and 1997. Deltic realized interest income from Murphy Oil,
related to this receivable, of $2,374,000 in 1996.
Murphy Oil personnel historically performed certain administrative and
financial services on behalf of the Company. These services included, among
others, cash management and consultation related to certain personnel,
employee benefit, and income tax matters. During 1997, Murphy Oil continued
to provide, or caused to be provided, certain specified services for a
transitional period ending June 30, 1997. Deltic personnel have assumed
responsibility for all functions previously provided by Murphy Oil. The
Company recorded charges of $427,000 in 1997 and $1,250,000 in 1996 for
these services. Of the total amount expensed for services during 1996,
$630,000 ($384,000 net of tax) was a capital contribution (recorded as an
adjustment to Capital in Excess of Par Value) by Murphy Oil since payment
was not required. The cost for each year was included in General and
Administrative Expenses in the Consolidated Statements of Income for the
respective years.
In addition, during 1996, capital contributions by Murphy Oil were recorded
as a result of the transfer of $1,177,000 for prepaid retirement cost and
$1,419,000 for accrued postretirement obligations from Murphy Oil to Deltic
for employees and retirees transferred between the two companies. These
capital contributions ($1,687,000 net of income taxes) are recorded as
adjustments to Capital in Excess of Par Value.
35
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 3 - INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
----- -----
<S> <C> <C>
Logs $ 1,942 3,278
Finished products 3,616 5,058
Materials and supplies 293 259
------- ------
$ 5,851 8,595
======= ======
</TABLE>
NOTE 4 - ACQUISITION OF CHENAL COUNTRY CLUB, INC.
During 1997, the Company acquired the net assets of Chenal Country Club, the
entity that had operated the club amenity around which Deltic's Chenal
Valley real estate development is centered. The cost of the clubhouse and
golf course facilities acquired is being accounted for as an additional
amenity for the Chenal Valley development. The acquisition was accomplished
by exchanging an interest-bearing receivable from the club membership, which
had been previously held by Deltic, in the amount of $5,600,000, for the
clubhouse and golf course facilities and an investment in 100 percent of the
stock of Chenal Country Club, Inc., a wholly-owned subsidiary formed, at the
time of the acquisition, to continue the daily operating activities of the
club. The operating assets of the former Chenal Country Club, excluding the
clubhouse and golf course facilities, were transferred to this subsidiary.
Deltic had previously constructed the clubhouse and golf course and
purchased the original operational assets of the club amenity and sold them
to the club membership in exchange for the original interest-bearing
receivable. Chenal Country Club, Inc. continued to operate the club for the
remainder of 1997 and the entire year of 1998. The results of operations of
Chenal Country Club, Inc., since the date of the acquisition, are included
in the accompanying financial statements. However, upon the exchange of the
interest-bearing receivable for the acquisition, Deltic ceased to earn
interest income related to the receivable as of April 30, 1997.
The acquisition was recorded using the purchase method of accounting for
business combinations. Operating income of Chenal Country Club, Inc.
included in the amounts reported in the Consolidated Statement of Income for
1997 was $104,000, and was comprised of net sales of $2,277,000, cost of
sales of $2,065,000, and depreciation expense of $108,000. Due to the
approximately break-even level for operating income of Chenal Country Club,
Inc., Deltic's financial statements would not be materially impacted had the
operations of this new subsidiary been included for 1996 and the entire year
of 1997. Interest income on the receivable from the club membership prior to
the acquisition was $173,000 in 1997 and $542,000 in 1996.
NOTE 5 - INVESTMENT IN DEL-TIN FIBER
Deltic owns 50 percent of the membership interest of Del-Tin Fiber, which
completed construction of a medium density fiberboard ("MDF") plant near El
Dorado, Arkansas, in April 1998. The cost to construct the plant was
approximately $100,000,000. Each of Del-Tin Fiber's two owners recorded an
initial investment of approximately $12,000,000, with the remainder financed
by Del-Tin Fiber with a combination of borrowings and issuance of
interest-bearing bonds. Separate project financing for the plant was
finalized during 1998.
36
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Each owner has agreed to a contingent equity contribution agreement with
Del-Tin Fiber and the group of banks from whom the project financing was
obtained. Under this agreement, each owner has agreed to fund any deficiency
in contributions to either Del-Tin Fiber's bond sinking fund or debt service
reserve, if any, up to $17,500,000. Del-Tin Fiber's project financing
agreement does not require sinking fund or debt reserve contributions until
2000. In addition, each owner has committed to a production support
agreement, under which each owner has agreed to make support obligation
payments to Del-Tin Fiber to provide, on the occurrence of certain events,
additional funds for payment of debt service if the plant is unable to
successfully complete a minimum production test, planned for the summer of
1999. Both owners of Del-Tin Fiber have also pledged their respective
membership interest in the joint venture as collateral under the project
financing agreement.
Under the operating agreement, Del-Tin Fiber's employees operate the plant.
Deltic has committed to provide a portion of the plant's fiber and wood fuel
supply at market prices. During 1998, Deltic sold approximately $2,126,000
of these lumber manufacturing by-products to Del-Tin Fiber. The plant
commenced production operations on April 29, 1998.
The results of operations for years ended December 31 and financial position
at December 31 for Del-Tin Fiber consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
-------- --------
<S> <C> <C>
Condensed Balance Sheet Information
Current assets $ 10,427 9,712
Property, plant, and equipment - net 98,147 82,589
Other noncurrent assets 4,962 9,940
-------- --------
Total assets $113,536 102,241
======== ========
Current liabilities $ 10,805 51,512
Long-term debt 89,000 51,000
Members' capital/(deficit) 13,731 (271)
-------- --------
Total liabilities and members' capital/(deficit) $113,536 102,241
======== ========
Condensed Income Statement Information
Net sales $ 7,365 -
-------- --------
Costs and expenses
Cost of sales 11,223 -
Depreciation 1,473 -
General and administrative expenses 2,388 279
-------- --------
Total costs and expenses 15,084 279
-------- --------
Operating income/(loss) (7,719) (279)
Interest income 105 -
Interest expense (2,564) -
Other income/(expense) - 4
-------- --------
Net income/(loss) $(10,178) (275)
======== ========
</TABLE>
37
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
At December 31, 1998 and 1997, the Company's share of the underlying net
assets of Del-Tin Fiber exceeded its investment by $167,000 and $577,000,
respectively. The excess relates primarily to interest received by the
Company from Del-Tin Fiber prior to plant start-up, which was capitalized by
Deltic as a reduction of its investment, and is being amortized into income
using the straight-line method over a 60-month period.
The Company accounts for its investment in Del-Tin Fiber under the equity
method. Accordingly, the investment in Del-Tin Fiber is carried at cost,
adjusted for the Company's proportionate share of earnings or losses
recorded on a one-month lag basis.
NOTE 6 - TIMBER AND TIMBERLANDS
Timber and timberlands at December 31 consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
--------- ---------
<S> <C> <C>
Purchased stumpage inventory $ 13,210 10,545
Timberlands 54,710 44,846
Fee timber 128,242 80,534
Logging facilities 1,610 1,592
--------- ---------
197,772 137,517
Less accumulated cost of fee timber harvested
and facilities depreciation (31,184) (29,311)
--------- ---------
$ 166,588 108,206
========= =========
</TABLE>
Cost of fee timber harvested amounted to $1,800,000 in 1998, $1,404,000 in
1997, and $1,060,000 in 1996. Depreciation of logging facilities was
$73,000, $84,000, and $94,000 for the years 1998, 1997, and 1996,
respectively.
The Company obtains a portion of its sawmill log requirements by acquiring
purchased stumpage inventory through cutting contracts with various private
and governmental landowners. These contracts have terms ranging from a few
months to several years. At December 31, 1998, the Company's total
commitment under such contracts amounted to approximately $8,196,000. Based
on lumber prices at December 31, 1998, management estimated the fair value
of stumpage under such contracts to be approximately $6,262,000. Depending
on the market value of this stumpage at time of harvest, the Company's
sawmills may experience favorable or unfavorable log supply costs. By
February 5, 1999, the lumber market had improved to the point that the
estimated fair value of timber under these contracts had increased to
approximately $7,250,000.
38
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 7 - PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
Range of
(Thousands of dollars) Useful Lives 1998 1997
------------ -------- --------
<S> <C> <C> <C>
Land N/A $ 4,425 4,158
Land improvements 10-20 years 4,046 3,294
Buildings and structures 10-20 years 8,573 7,966
Machinery and equipment 3-15 years 62,949 58,138
-------- --------
79,993 73,556
Less accumulated depreciation (35,889) (33,910)
-------- --------
$ 44,104 39,646
======== ========
</TABLE>
Gains/(losses) on disposals or retirements included in income were $77,000
in 1998, $1,449,000 in 1997 ($1,196,000 for involuntary conversion of Ola
planermill due to fire and $186,000 from the sale of 9.5 acres of
undeveloped real estate acreage), and $844,000 in 1996 ($787,000 from the
sale of Arkansas farmland).
NOTE 8 - INDEBTEDNESS
The Company's indebtedness at December 31 consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
------- -------
<S> <C> <C>
Short-term notes, 4.5%* $ 387 192
Installment timber notes payable, 4.1%*,
due 1999-2000 394 2,114
Note payable, 8%, due 1999 750 750
Note payable, 6.6%, due 2001 5,000 -
Senior notes payable, 6.7%, due 2008 40,000 -
Other notes payable, 6.9%*, due 1999-2000 44 30
-------- --------
46,575 3,086
Less: Short-term notes (387) (192)
Current maturities of long-term debt (990) (1,801)
-------- --------
Long-term debt at December 31 $ 45,198 1,093
======== ========
</TABLE>
*Weighted average interest rate at December 31, 1998.
On December 18, 1998, the Company successfully completed negotiation of the
private placement of $40,000,000 of senior notes with Pacific Coast Farm
Credit Services, ACA. These unsecured notes have a fixed stated interest
rate of 6.7 percent and mature on December 18, 2008. No installment payments
are required, but the terms allow for prepayments at the option of the
Company. The agreement contains certain restrictive financial covenants,
including a minimum consolidated tangible net worth of the sum of
$135,000,000, plus 25 percent of cumulative consolidated adjusted net income
39
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
from October 1, 1998, and a maximum funded debt/capitalization ratio of .6
to 1. The Company incurred $226,000 of costs related to the issuance of
these notes, which was deferred and is being amortized as additional
interest expense over the term of the underlying debt.
In anticipation of issuance of these notes, the Company entered into and
settled an interest rate hedge contract. Upon settlement of this contract in
December 1998, the Company paid $1,081,000, which was deferred and is being
amortized as additional interest expense over the term of the underlying
debt, resulting in an effective interest rate for these notes of
approximately 6.9 percent.
The scheduled maturities of long-term debt for the next five years are
$990,000 in 1999, $198,000 in 2000, and $5,000,000 in 2001. (For additional
information regarding financial instruments, see Note 13 - Fair Value of
Financial Instruments.)
NOTE 9 - CREDIT FACILITIES
In 1996, Deltic entered into an agreement with NationsBank, N.A. and other
domestic banks which provides an unsecured, committed revolving credit
facility totaling $100,000,000. The agreement will expire on December 31,
2001. As of December 31, 1998, $95,000,000 of committed credit was available
in excess of all borrowings outstanding under or supported by the facility.
Borrowings under the agreement bear interest based upon prime or other
various cost of funds options. Fees associated with this revolving credit
facility include a commitment fee of .15 to .35 percent per annum on the
unused portion of the commitment balance. The revolving credit agreement
contains certain restrictive financial covenants, including a maximum funded
debt/capitalization ratio of .5 to 1, which is to be maintained throughout
the term of the credit agreement.
The Company may also borrow up to $5,000,000 under a short-term credit
facility with First National Bank of El Dorado. The agreement expires May 8,
1999, with renewal annually. The amount available to the Company under this
facility is reduced by any outstanding letters of credit issued by Deltic.
As of December 31, 1998, letters of credit amounting to $950,000 were
committed, resulting in $4,050,000 available to the Company. Borrowings bear
interest based upon the New York Prime and the facility carries a commitment
fee of .1 percent per annum on the unused amount of the facility.
In addition, Deltic entered into an agreement with First Commercial Bank of
Little Rock which provides a $2,555,000 credit facility used primarily to
support letters of credit issued in connection with the Company's purchased
stumpage procurement and real estate development operations. The agreement,
which is renewable annually, carries no facility fees and borrowings bear
interest based upon prime. Amounts available to Deltic under the facility
are reduced by any outstanding letters of credit, which amounted to the
entire balance of the facility at December 31, 1998, leaving none available
to the Company. (For additional information regarding these financial
instruments, see Note 13 - Fair Value of Financial Instruments.)
40
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 10 - REDEEMABLE PREFERRED STOCK
During 1997, the Company issued 600,000 shares of its authorized Preferred
Stock having a par value of $.01 per share. Redemption of these shares,
designated as Cumulative Mandatory Redeemable Preferred Stock, 7.54% Series
("Redeemable Preferred Stock"), by the Company is mandatory on December 31,
2002 ("Mandatory Redemption Date"). These Redeemable Preferred shares have
no voting rights, except if at any time, cumulative dividends payable for
these shares become in arrears for an amount equal to dividends payable for
six quarterly dividends or the shares are not redeemed in full on the
Mandatory Redemption Date. If either occurs, the holders of the Redeemable
Preferred shares shall have the right to elect a director to the Board of
Directors, which would be in addition to the current number of directors.
This right shall continue until such time that all cumulative unpaid
dividends have been paid or the Redeemable Preferred shares are redeemed.
NOTE 11 - INCOME TAXES
The components of income tax expense/(benefit) for the three years ended
December 31, 1998, 1997, and 1996 consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
<S> ------- ------- -------
Federal <C> <C> <C>
Current $ 3,388 9,143 7,270
Deferred and noncurrent 1,255 (65) 52
------- ------- -------
4,643 9,078 7,322
State
Current 660 1,600 1,450
------- ------- -------
Total $ 5,303 10,678 8,772
======= ======= =======
</TABLE>
A reconciliation of the U. S. statutory income tax rate to the Company's
effective rates on income before income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Statutory income tax rate 35% 35% 35%
State income taxes, net of federal income tax benefit 4 4 4
Other (1) - 1
------- ------ -------
Effective income tax rate 38% 39% 40%
======= ====== =======
</TABLE>
41
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
An analysis of the Company's deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1997, showing the tax effects of
significant temporary differences, consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
-------- --------
<S> <C> <C>
Deferred tax assets
Investment in real estate held for development and sale $ 2,803 2,638
Postretirement and other employee benefits 260 277
Other deferred tax assets 704 422
--------- ---------
Total deferred tax assets 3,767 3,337
--------- ---------
Deferred tax liabilities
Investment in Del-Tin Fiber (344) -
Timber and timberlands (217) (244)
Property, plant, and equipment (4,367) (2,997)
Other deferred tax liabilities (158) (158)
--------- ---------
Total deferred tax liabilities (5,086) (3,399)
--------- ---------
Net deferred tax assets/(liabilities) $ (1,319) (62)
========= =========
</TABLE>
Net noncurrent deferred tax liabilities of $1,701,000 at December 31, 1998,
and $440,000 at December 31, 1997, are included in the Consolidated Balance
Sheets in Deferred Credits and Other Liabilities for the respective years.
In addition, current deferred tax assets of $382,000 at December 31, 1998,
and $378,000 at December 31, 1997, are included in the Consolidated Balance
Sheets in Prepaid Expenses and Other Current Assets for the respective
years.
In management's judgment, the Company's deferred tax assets at December 31,
1998, will more likely than not be realized as reductions of future taxable
income or by utilizing available tax planning strategies. There were no
valuation allowances for deferred tax assets at the end of each year in the
three years ended December 31, 1998.
NOTE 12- STOCKHOLDERS RIGHTS PLAN
The Company has a Stockholders Rights Plan, which provides for each eligible
Common shareholder to receive a dividend of one Preferred Stock purchase
right ("Right") for each outstanding share of the Company's Common Stock
held. The Rights will expire on December 31, 2006, unless earlier exchanged
or redeemed. The Rights will detach from the Common Stock and become
exercisable: (1) following a specified period of time after the date of the
first public announcement that a person or group of affiliated or associated
persons ("Acquiring Person"), other than certain persons, has become the
beneficial owner of 15 percent or more of the Company's Common Stock or (2)
following a specified amount of time of the commencement of a tender or
exchange offer by any Acquiring Person, other than certain persons, which
would, if consummated, result in such persons becoming the beneficial owner
of 15 percent or more of the Company's Common Stock. In either case, the
detachment of the Rights from the Common Stock is subject to extension by a
majority of the directors of the Company. The Rights have certain
antitakeover effects and will cause substantial dilution to any Acquiring
Person that attempts to acquire the Company without conditioning the offer
on a substantial number of Rights being acquired. The Rights are not
intended to prevent a takeover, but rather are designed to enhance the
ability of the Board of Directors of the Company to negotiate with an
acquiror on behalf of all shareholders. Other terms of the Rights are set
forth in, and the foregoing description is qualified in its entirety by, the
Rights Agreement between the Company and Harris Trust and Savings Bank, as
Rights Agent.
42
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of financial instruments held by the Company at December 31, 1998 and 1997.
The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The table excludes cash and cash equivalents, trade accounts
receivable, notes payable, trade accounts payable, and accrued liabilities,
all of which had fair values approximating carrying values.
<TABLE>
<CAPTION>
1998 1997
---------------------------- -----------------------------
Carrying or Estimated Carrying or Estimated
Notional Fair Notional Fair
(Thousands of dollars) Amount Value Amount Value
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Financial liabilities
Long-term debt, including
current maturities $ (46,188) (46,218) (2,894) (2,912)
Redeemable preferred stock $ (30,000) (31,224) (30,000) (30,000)
Off-balance sheet exposures
Letters of credit $ (3,505) (3,505) (2,536) (2,536)
</TABLE>
Long-term debt, including current maturities -- The fair value is estimated
based on current rates at which the Company could borrow funds with
similar remaining maturities.
Redeemable preferred stock -- The fair value is based on the redemption
amount for the stock, discounted using the Company's estimated borrowing
rate for debt instruments with similar remaining maturities.
Letters of credit -- The fair value is based on the estimated cost to settle
these obligations.
NOTE 14 - CONCENTRATION OF CREDIT RISKS
Financial instruments which potentially subject the Company to credit risk
are trade accounts receivable. These receivables normally arise from the
sale of wood products, primarily finished lumber. Concentration of credit
with respect to these trade accounts receivable is limited due to the large
number of customers comprising the Company's customer base. No single
customer accounted for a significant amount of the Company's sales of timber
or wood products. At December 31, 1998, one timber sale customer's
receivable accounted for approximately 12 percent of the Company's
consolidated trade accounts receivable amount.
Within the Agriculture segment, the Company is exposed to a minimal level of
credit risk in that the majority of farm crops grown are delivered to a
small number of grain elevators and these elevators are limited to the
geographic area in which the Company's agriculture operations are located.
However, receipt of payment from these elevators usually occurs at the time
of delivery. At December 31, 1998, the Company had no significant accounts
receivable outstanding in this area.
43
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 15 - EMPLOYEE AND RETIREE BENEFITS
The Company provides a retirement plan and other postretirement benefits to
its employees. Reconciliations of benefit obligations, plan assets, and
funded status of the plans consisted of the following:
<TABLE>
<CAPTION>
Other
Retirement Postretirement
Plan Benefits
-------------------- --------------------
(Thousands of dollars) 1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at January 1 $ 6,558 5,187 2,602 2,123
Service cost 428 354 155 131
Interest cost 481 389 190 159
Participant contributions - - 7 1
Actuarial (gain)/loss 1,150 628 403 189
Benefits paid (18) - (35) (1)
------- ------- ------- -------
Benefit obligation at December 31 $ 8,599 6,558 3,322 2,602
======= ======= ======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at January 1 $ 9,884 8,146 - -
Actual return on plan assets 632 1,738 - -
Employer contributions/1/ - - 28 119
Participant contributions/1/ - - 7 858
Benefits paid/1/ (18) - (35) (977)
------- ------- ------- -------
Fair value of plan assets at
December 31/2/ $ 10,498 9,884 - -
======= ======= ======= =======
RECONCILIATION OF FUNDED STATUS OF
PLANS
Funded status of plans $ 1,899 3,326 (3,322) (2,602)
Unrecognized actuarial (gain)/loss 591 (766) 533 125
Unrecognized net asset from transition
to SFAS 87/3/ (233) (282) - -
Unrecognized prior service cost 216 241 - -
------- ------- ------- -------
Prepaid/(accrued) benefit cost/4/ $ 2,473 2,519 (2,789) (2,477)
======= ======= ======= =======
ASSUMPTIONS
Weighted average discount rate 6.5% 7.0% 6.5% 7.0%
Expected return on plan assets 8.5% 8.5% N/A N/A
Rate of compensation increase 4.6% 4.6% N/A N/A
</TABLE>
/1/1997 amounts reflect the transfer from Murphy Oil of the Company's
portion of respective plans as of January 1, 1997.
/2/Primarily includes listed stocks and bonds, government securities, and
U.S. agency bonds.
/3/Being amortized over a period of 15 years.
/4/Included in the Consolidated Balance Sheets in Deferred Charges and Other
Assets/Deferred Credits and Other Noncurrent Liabilities.
44
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Components of net periodic retirement expense/(expense reduction) and other
postretirement benefits expense consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
RETIREMENT PLAN
Service cost $ 428 354 337
Interest cost 481 389 686
Expected return on plan assets (839) (692) (956)
Amortization of prior service cost 25 25 7
Amortization of transitional asset (49) (49) (143)
------- ------- -------
Net retirement expense/(expense reduction) $ 46 27 (69)
======= ======= =======
OTHER POSTRETIREMENT BENEFITS
Service cost $ 156 132 136
Interest cost 190 159 296
Recognized actuarial (gain)/loss 1 - 1
------- ------- -------
Other postretirement benefits expense $ 347 291 433
======= ======= =======
</TABLE>
Through December 31, 1996, Deltic employees were participants in the
employee and retiree benefit plans of Murphy Oil. Amounts presented for 1996
reflect the Company's portion of these respective plans. Effective January
1, 1997, separate plans were implemented for active Deltic employees. Any
vesting in the plans of Murphy Oil was retained by employees for Deltic's
plans; and plans implemented by the Company were similar, in all aspects, to
those of Murphy Oil.
Retirement Plan -- The Company has a noncontributory, defined benefit
retirement plan that covers substantially all employees. Benefits are
based on years of service, including those with Murphy Oil, and final
career-average-pay formulas as defined by the plan.
Thrift Plan -- Employees of the Company may participate in its thrift plan
by allotting up to a specific percentage of their base pay. The Company
matches contributions at a stated percentage of each employee's
allotment, based on length of participation in the plan. Company
contributions to this plan were $371,000 in 1998, $279,000 in 1997, and
$190,000 in 1996.
Postretirement Benefits -- The Company sponsors a plan that provides
Comprehensive health care benefits (supplementing Medicare benefits for
those eligible) and life insurance benefits for retired employees. Costs
are accrued for this plan during the service lives of covered employees.
Retirees contribute a portion of the self-funded cost of health care
benefits; the Company contributes the remainder. The Company pays
premiums for life insurance coverage, arranged through an insurance
company. The health care plan is funded on a pay-as-you-go basis. The
Company retains the right to modify or terminate the benefits and/or cost
sharing provisions.
45
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
In determining the accumulated benefit obligation for health care, at
December 31, 1998 and 1997, health care inflation cost was assumed to
increase at an annual rate of 7.5 percent, decreasing one percent per year
to 4.5 percent in 2002 and thereafter. A one percentage-point increase in
the assumed health care cost trend rate would increase the aggregate service
and interest cost components of periodic benefit cost for 1998 by $42,000
and the benefit obligation by $364,000, while a one percentage-point
decrease in the assumed rate would decrease the 1998 cost components by
$39,000 and the benefit obligation by $338,000.
NOTE 16 - INCENTIVE PLANS
STOCK INCENTIVE PLAN
The Company's 1996 Stock Incentive Plan ("the Plan") permits annual awards
of shares of the Company's Common Stock to executives and other key
employees. Under the Plan, the Executive Compensation Committee ("the
Committee") is authorized to grant: (1) stock options, nonqualified or
incentive; (2) stock appreciation rights; and (3) restricted stock awards.
Total annual options granted, excluding any replacement options issued due
to the spin-off from Murphy Oil, may not exceed .5 percent of Common shares
issued and outstanding as of the date of issuance of the options. In
subsequent years, the Committee may award up to .5 percent of Common shares
issued and outstanding at the end of the preceding year; any allowed shares
not granted may be available for grant in subsequent years. The Company
applies APB 25 to account for stock-based compensation plans. Cost of
options are accrued over the vesting periods and adjusted for subsequent
changes in fair market value of the shares.
Stock Options -- For each option granted under the Plan, the Committee fixes
the option price at no less than fair market value on the date of the
grant and the option term, not to exceed 10 years from date of grant.
Replacement options granted were for 10 years from original grant date
and nonqualified. Options granted in 1998 and 1997 were for 10 years and
primarily incentive. All options have an option price no less than the
fair market value on the grant date, with a range in option prices of
$9.90 to $28.03 per share, and each grantee is permitted to surrender
options for equivalent value of stock at the date of surrender. For
options granted in 1998, one half may be exercised or surrendered after
one year and the remainder after three years. For options granted in
1997, exclusive of replacement options, one half may be exercised or
surrendered after two years and the remainder after three years.
46
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Changes in options outstanding, including replacement options, consisted
of the following:
<TABLE>
<CAPTION>
Number Average
of Exercise
Options Price
------- --------
<S> <C> <C>
Outstanding at January 1, 1997 - N/A
Granted 103,355 $ 20.38
Surrendered - N/A
-------
Outstanding at December 31, 1997 103,355 $ 20.38
Granted 50,950 $ 28.03
Surrendered (6,250) $ 13.01
-------
Outstanding at December 31, 1998 148,055 $ 23.33
=======
Exercisable at December 31, 1997 9,375 $ 12.78
=======
Exercisable at December 31, 1998 17,875 $ 13.01
=======
</TABLE>
Additional information about stock options outstanding at December 31,
1998, consisted of the following:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ------------------------
Range of Number Average Average Number Average
Exercise of Life Exercise of Exercise
Prices Options in Years Price Options Price
----------------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 9.90 to $13.90 25,875 6.5 $12.82 17,875 $13.01
$23.19 to $28.03 122,180 8.5 $25.56 - N/A
------- ------
$ 9.90 to $28.03 148,055 8.1 $23.33 17,875 $13.01
======= ======
</TABLE>
Stock Appreciation Rights -- Stock appreciation rights may be granted in
conjunction with, or independent of, stock options. The Committee
determines when these rights may be exercised and the price. No stock
appreciation rights have been granted.
Restricted Stock -- The Committee may award restricted stock to selected
employees, with conditions to vesting for each grant established by the
Committee. During the vesting period, the grantee may vote and receive
dividends on the shares, but shares are subject to transfer restrictions
and are all, or partially, forfeited if a grantee terminates, depending
on the reason. The grantee may be reimbursed by the Company for personal
income tax liability on the value of stock awarded.
During 1998, initial grants of 13,500 shares of restricted stock were
awarded by the Committee. The fair value per share of restricted stock
granted was $28.03. Unearned compensation was charged for the market
value of the restricted shares. The unearned compensation is shown as a
reduction of shareholders' equity in the Consolidated Balance Sheet at
December 31, 1998, as Unamortized Restricted Stock Awards, and is being
amortized to expense over the four-year restricted period.
47
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Stock-based compensation reflected in income was a benefit of $163,000 in
1998 and a charge of $491,000 in 1997. Had cost of the Company's stock-based
compensation plans been determined based on the fair value of the
instruments at the grant dates using the provisions of SFAS 123, the
Company's net income and earnings per share would be the following pro forma
amounts.
<TABLE>
<CAPTION>
(Thousands of dollars, except per share amounts) 1998 1997
------- -------
<S> <C> <C>
Net income
As reported $ 8,474 16,574
Pro forma 7,833 16,378
Basic earnings per share
As reported $ .48 1.29
Pro forma .43 1.27
Dilutive earnings per share
As reported $ .48 1.29
Pro forma .43 1.27
</TABLE>
For the pro forma net income calculation in the preceding table, the fair
value of each option on the date of grant was estimated using the
Black-Scholes option-pricing model and the following assumptions for awards
in 1998 and 1997, respectively: dividend yields of .70 percent and .90
percent; expected volatility of 25.22 percent and 26.39 percent; risk-free
interest rates of 5.74 percent and 6.38 percent; and expected lives of five
years. Using these assumptions, the weighted average grant-date fair value
per share of options granted in 1998 and 1997 were $8.62 and $6.65,
respectively.
INCENTIVE COMPENSATION PLAN
Cash Awards -- The Company has an Incentive Compensation Plan that provides
for annual cash awards to officers, directors, and key employees based on
actual results for a year compared to objectives established by the
Executive Compensation Committee, which administers the Plan, at the
beginning of that year. Initial awards under the Plan were granted in
1998, based on 1997 results of operations. Provisions for cash incentive
awards of $270,000 and $425,000 were recorded in 1998 and 1997,
respectively; no provisions were recorded in the 1996 Consolidated
Statement of Income presented.
48
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 17 - SUPPLEMENTAL CASH FLOWS DISCLOSURES
Income taxes paid, net of refunds, were $5,753,000, $11,159,000, and
$1,016,000 in 1998, 1997, and 1996, respectively. Federal income taxes for
1996 were included in Murphy Oil's consolidated tax returns and were settled
through intercompany accounts. Interest paid, net of amounts capitalized,
was $1,285,000, $449,000, and $110,000 in 1998, 1997, and 1996,
respectively.
Noncash investing and financing activities excluded from the Consolidated
Statements of Cash Flows were: (1) assumptions of owner-financed debt in the
amount of $410,000 in 1998 and $496,000 in 1997 related to acquisitions of
land and timber-cutting rights and (2) addition of $1,656,000 during 1996 to
the noncurrent receivable from Murphy Oil as a result of recording the
transfer of all mineral leases previously acquired by Deltic.
(Increases)/decreases in operating working capital, other than cash and cash
equivalents, for each of the three years ended December 31 consisted of the
following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Trade accounts receivable $ (224) (137) 378
Other receivables (1,031) 2,532 (676)
Inventories 2,744 (2,998) 2,102
Prepaid expenses and other current assets (1,822) 342 (297)
Trade accounts payable (377) 413 (1,868)
Accrued liabilities 526 (655) 971
-------- ------- -------
$ (184) (503) 610
======== ======= =======
</TABLE>
NOTE 18 - EARNINGS PER SHARE
The amounts used in computing earnings per share and the effect on income
and weighted average number of shares outstanding of dilutive potential
Common Stock consisted of the following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997
------- -------
<S> <C> <C>
Net income $ 8,474 16,574
Less Preferred dividends (2,269) (86)
------- -------
Income available to Common shareholders $ 6,205 16,488
======= =======
Weighted average number of Common shares
used in basic EPS 12,812 12,798
Effect of dilutive stock options 18 27
------- -------
Weighted average number of Common shares
and dilutive potential Common Stock used in
EPS assuming dilution 12,830 12,825
======= =======
Earnings per Common share
Basic $ .48 1.29
======= ====
Assuming dilution $ .48 1.29
======= ====
</TABLE>
49
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
Options on 122,180 shares of Common Stock were not included in computing
dilutive EPS for 1998 because their effects were antidilutive.
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Commitments -- Commitments for capital expenditures at December 31, 1998,
were approximately $205,000 for timber and timberlands; $4,091,000 for
property, plant, and equipment; and $7,965,000 for investment in real
estate held for development and sale.
Contingencies -- The Company is involved in litigation incidental to its
business from time to time. Currently, there are no material legal
proceedings outstanding.
NOTE 20 - BUSINESS SEGMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
Disclosures about Segments of an Enterprise and Related Information. SFAS
131 supersedes and/or amends the business segment disclosures required under
various preceding pronouncements, effective for fiscal years beginning after
December 15, 1997, with earlier application encouraged. This new standard
defines additional information to be disclosed for each reportable segment
and requires that each operating segment for which an enterprise's chief
operating decision maker regularly assesses performance be disclosed as a
reportable segment. As a result, the Company has determined that its
previous Forest Products segment should be divided into two separate
reporting segments, Woodlands and Mills. Deltic elected to adopt SFAS 131
effective for the first quarter of 1998. All 1997 and 1996 business segment
information has been restated for comparative purposes.
The Company's five reporting segments consist of Deltic's four operating
business units and its corporate function. Each reporting entity has a
separate management team and infrastructure that offers different products
and/or services.
Woodlands operations manage the Company's 397,000 acres of Southern Pine
timberland located in Arkansas and north Louisiana and derive revenue from
the harvest of timber from the timberlands, in accordance with its harvest
plans, and either sells timber to third parties in the domestic market or to
the Company's Mills segment for conversion into lumber.
The Mills segment consists of Deltic's two sawmills which employ modern
technology to convert timber, purchased from third parties or the Company's
Woodlands segment, into finished lumber. These mills produce a variety of
products, including dimension lumber, boards, timbers, decking, and
secondary manufacturing products, such as finger-jointed studs. These
products are sold primarily to wholesalers and lumber treaters in the South
and Midwest and used in residential construction, roof trusses, laminated
beams, and remanufactured items.
Real Estate operations, which currently include three separate real estate
developments, add value to former timberland by developing it into upscale,
planned residential and commercial developments. These developments, each of
which is, or will be, centered around a core amenity, are being developed in
stages. To-date, real estate sales have consisted primarily of residential
lots sold to builders or individuals and commercial site sales. In addition,
this segment currently leases office space to third parties in a building
constructed by the Company in one of its developments and is in
50
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
the process of constructing a retail center in which space will be leased to
third-party retailers. This segment also manages a real estate brokerage
subsidiary which currently generates commission revenue by reselling
existing homesites in one of the Company developments.
The Agriculture segment operates 37,000 acres of farmland in northeast
Louisiana. Approximately 26,000 acres of the total are farmed by Deltic,
while the majority of the remaining 11,000 acres are rented to third
parties. Crops grown on Company-farmed acreage in 1998 were soybeans and
corn. This business unit derives the majority of its revenues from sales of
farm crops grown to grain elevators and from rents received from third-party
farmland renters.
Corporate operations consist primarily of the planning, accounting,
information systems, human resources, treasury, income tax, and legal staff
functions that provide support services to the operating business units. The
Company currently does not allocate the cost of maintaining these support
functions to its operating units.
The accounting policies of the reportable segments are the same as those
described in Note 1 - Significant Accounting Policies. The Company evaluates
the performance of its segments based on operating income before equity in
the results of Del-Tin Fiber, an equity method investee; interest income and
expense; other nonoperating income or expense; and income taxes.
Intersegment revenues consist primarily of timber sales from the Woodlands
segment to the Mills operations.
Information about the Company's business segments consisted of the
following:
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales
Woodlands $ 26,569 22,579 16,353
Mills 65,857 67,688 57,933
Real Estate 15,879 11,550 6,346
Agriculture 6,484 9,509 10,585
Eliminations/1/ (7,832) (7,118) (4,719)
-------- ------- --------
$106,957 104,208 86,498
Income before income taxes
Operating income
Woodlands $ 20,447 17,995 12,500
Mills (2,784) 7,381 3,370
Real Estate 5,032 3,266 1,578
Agriculture 758 2,778 2,760
Corporate (5,004) (5,231) (2,268)
Eliminations (171) (580) -
-------- ------- --------
Operating income 18,278 25,609 17,940
Equity in loss of Del-Tin Fiber (4,657) - -
Interest income 1,122 646 3,070
Interest expense (1,387) (370) (284)
Other income/(expense) 421 1,367 1,207
-------- ------- --------
$ 13,777 27,252 21,933
======== ======= ========
</TABLE>
51
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
<TABLE>
<CAPTION>
(Thousands of dollars) 1998 1997 1996
-------- -------- --------
<S> <C>
Total assets at year-end
Woodlands $167,364 109,167 92,915
Mills 36,996 38,212 24,603
Real Estate 34,223 27,278 25,516
Agriculture 12,397 11,517 11,697
Corporate/2/ 21,564 39,201 25,347
-------- -------- --------
$272,544 225,375 180,078
======== ======== ========
Depreciation, amortization, and
cost of fee timber harvested
Woodlands $ 2,481 1,598 1,243
Mills 3,673 2,369 2,313
Real Estate 420 365 120
Agriculture 514 468 515
Corporate 243 112 (82)
-------- -------- --------
$ 7,331 4,912 4,109
======== ======== ========
Capital expenditures
Woodlands $ 59,839 16,380 2,754
Mills 7,918 11,506 2,927
Real Estate 11,531 6,378 6,669
Agriculture 721 1,000 272
Corporate 524 574 1,512
-------- -------- --------
$ 80,533 35,838 14,134
======== ======== ========
</TABLE>
/1/ Intersegment sales of timber from Woodlands to Mills.
/2/ Includes investment in Del-Tin Fiber, an equity method investee, of
$6,699,000 and $7,383,000 at December 31, 1998 and 1997, respectively.
52
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 21 - FINANCIAL RESULTS BY QUARTER (UNAUDITED)
(Thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 27,008 26,211 29,088 24,650 106,957
Operating income $ 6,389 3,919 2,987 4,983 18,278
Net income $ 3,806 2,077 936 1,655 8,474
Earnings per Common share
Basic $ .25 .12 .03 .09 .48
Assuming dilution $ .25 .12 .03 .09 .48
Dividends per Common share $ .0625 .0625 .0625 .0625 .25
Market price per Common share
High $30-1/16 30-1/16 25 24-15/16 30-1/16
Low $ 26-1/4 25 18 18 18
Close, at period end $29-5/16 25-1/16 18 20-3/8 20-3/8
<CAPTION>
1997
----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $ 24,364 26,581 28,992 24,271 104,208
Operating income $ 7,815 7,199 6,523 4,072 25,609
Net income $ 4,865 4,544 3,881 3,284 16,574
Earnings per Common share*
Basic $ .38 .36 .30 .25 1.29
Assuming dilution $ .38 .35 .30 .25 1.29
Dividends per Common share $ .0625 .0625 .0625 .0625 .25
Market price per Common share
High $ 28-1/2 29-5/16 32-7/8 32-1/2 32-7/8
Low $ 22-1/4 25 24-15/16 26-15/16 22-1/4
Close, at period end $ 28-3/8 29-5/16 32-11/16 27-3/8 27-3/8
</TABLE>
* Interim period EPS amounts for each of the first three quarters of 1997 have
been restated as specified in SFAS 128. Amounts for basic earnings per share
presented here are unchanged from primary EPS amounts as previously reported
under the provisions of APB 15. The per share amounts assuming dilution have
been added as required by SFAS 128; the Company was not previously required
to present fully diluted EPS amounts under APB 15.
53
<PAGE>
DELTIC TIMBER CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
NOTE 22 - SUBSEQUENT EVENT
On January 14, 1999, the Company announced that its Board of Directors had
authorized the repurchase, initially, of up to $10,000,000 of its Common
Stock. Under the program, the Company can purchase shares through the open
market and privately negotiated transactions at prices deemed appropriate by
management, utilizing cash provided by operations and/or from Deltic's
credit facility.
54
<PAGE>
REPORT OF MANAGEMENT
--------------------
The Shareholders
Deltic Timber Corporation:
The management of Deltic Timber Corporation has prepared and is responsible for
the Company's consolidated financial statements. The statements are prepared in
conformity with generally accepted accounting principles appropriate in the
circumstances. In preparing the financial statements, management has, when
necessary, made judgments and estimates with consideration given to materiality.
The Company maintains internal control systems and related policies and
procedures designed to provide reasonable assurance that assets are safeguarded
against loss or unauthorized use, that the accounting records accurately reflect
business transactions, and that the transactions are in accordance with
management's authorization. The design, monitoring, and revision of the systems
of internal control involve, among other things, our judgment with respect to
the relative cost and expected benefits of specific control measures. The
Company has engaged an outside accounting firm to provide internal audit
services in order to monitor the effectiveness of the controls, while
independently and systematically evaluating and formally reporting on the
adequacy and effectiveness of components of the system.
The Company's consolidated financial statements have been audited by KPMG LLP,
independent certified public accountants, who have expressed their opinion with
respect to the fairness of the consolidated financial statements. Their audit
was conducted in accordance with generally accepted auditing standards, which
include the consideration of the Company's internal controls to the extent
necessary to form an independent opinion on the consolidated financial
statements prepared by management. The Board of Directors appoints the
independent auditors; ratification of the appointment is solicited annually from
the shareholders.
The Audit Committee of the Board of Directors is composed of directors who are
not officers or employees of the Company. The Committee meets periodically with
the independent certified public accountants, the firm providing internal audit
services, and representatives of management to review the Company's internal
controls, the quality of its financial reporting, and the scope and results of
audits. The independent auditors have unrestricted access to the Committee,
without management's presence, to discuss audit findings and other financial
matters.
Clefton D. Vaughan
Vice President and Chief Financial Officer
February 5, 1999
55
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Deltic Timber Corporation:
We have audited the accompanying consolidated balance sheets of Deltic Timber
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
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 that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Deltic Timber
Corporation and Subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Shreveport, Louisiana
February 5, 1999
56
<PAGE>
AUDIT COMMITTEE CHAIRMAN'S LETTER
---------------------------------
The Shareholders
Deltic Timber Corporation:
The members of the Company's Audit Committee ("the Committee") are selected by
the Board of Directors. The Committee consists of five outside directors and met
twice during 1998.
The Audit Committee oversees the financial reporting process on behalf of the
Board of Directors. As part of that responsibility, the Committee recommended to
the Board of Directors, subject to shareholder approval, the selection of the
Company's independent auditors. The Committee discussed the overall scope and
specific plans for annual audits with the outside accounting firm that provides
the Company's internal audit services and with KPMG LLP, the Company's
independent auditors. The Committee also discussed the Company's annual
consolidated financial statements and the adequacy of internal controls
currently in place. In addition, the Committee met with the internal auditors
and KPMG LLP, without management present, to discuss the results of their
respective audits, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. The meetings were also
designed to facilitate any private communication with the Committee desired by
the internal audit firm or the Company's independent auditors.
John C. Shealy
Chairman, Audit Committee
February 18, 1999
57
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
58
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The sections entitled "Nominees For Election as Directors" and "Directors
Whose Term of Office Continues" appearing in the Registrant's proxy statement
for the annual meeting of shareholders to be held on April 29, 1999, sets forth
certain information with respect to the directors of the registrant and is
incorporated herein by reference. Certain information with respect to persons
who are or may be deemed to be executive officers of the Registrant is set forth
under the caption "Executive Officers of the Registrant" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 17,
1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 17,
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference to the
definitive form of the Proxy Statement which was filed with the SEC on March 17,
1999.
59
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Financial Statement Schedules and Exhibits.
1. Consolidated Financial Statements.
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income for the Years Ended December
31, 1998, 1997,and 1996.
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996.
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31,1998, 1997, and 1996.
Notes to Consolidated Financial Statements, including
Consolidated Quarterly Income Information (unaudited).
Independent Auditors' Report on Consolidated Financial
Statements.
2. Financial Statement Schedules.
Financial Statements of Del-Tin Fiber L.L.C., an affiliate
accounted for by the equity method, which constituted a
significant subsidiary for the year ended December 31, 1998.
All other financial statement schedules are omitted because
either they are not applicable or the required information is
included in the consolidated financial statements or notes
thereto.
3. Exhibits.
3 Articles of Incorporation and Bylaws.
3.1 Amended and Restated Certificate of Incorporation of
Deltic Timber Corporation as of December 17, 1996
(incorporated by reference to Exhibit 3.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996).
3.2 Amended and Restated Bylaws of Deltic Timber Corporation
(incorporated by
reference to Exhibit 3.2 to Registrant's Annual Report on Form
10-K for the year ended December 31, 1996).
4 Instruments Defining the Rights of Security Holders.
4.1 Rights Agreement dated as of December 11, 1996 between
Deltic Timber Corporation and Harris Trust and Savings Bank,
as Rights Agent (incorporated by reference to Exhibit 4 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
60
<PAGE>
10 Material contracts.
10.1 Deltic Timber Corporation 1996 Stock Incentive Plan
(incorporated by reference to Exhibit 10.1 to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996).
10.2 Distribution Agreement (incorporated by reference to Exhibit
10.2 to Registrant's Annual Report on Form 10-K for the year
ended December 31,1996).
10.3 Tax Sharing Agreement (incorporated by reference to Exhibit
10.3 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.4 Credit facility dated December 19, 1996 (incorporated by
reference to Exhibit 10.4 to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997).
10.5 Certificate of Designation of the Cumulative Redeemable
Preferred Stock, 7.54% Series ($.01 Par Value), of Deltic
Timber Corporation (incorporated by reference to Exhibit 10.5
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.6 Fiber Supply Agreement dated February 21, 1995 with Del-Tin
Fiber L.L.C. (incorporated by reference to Exhibit 10.2 to
Registrant's Registration of Securities Report on Form 10).
10.7 Note Purchase Agreement dated December 18, 1998, included
elsewhere herein.
10.8 Selective Sections of Del-Tin Fiber L.L.C.'s Project Credit
Agreement dated November 23, 1998, included elsewhere herein.
21 Subsidiaries of the Registrant, included elsewhere herein.
23 Independent Auditors' Consent, included elsewhere herein.
27 Financial Data Schedule for 1998 (electronic filing only),
included elsewhere herein.
99 Form 11-K, Annual Report for the fiscal year ended December 31,
1998,covering Thrift Plan of Deltic Timber Corporation. To
be filed as an amendment of this Annual Report on Form 10-K,
not later than 180 days after December 31, 1998.
Exhibits other than those listed above have been omitted since they
either are not required or are not applicable.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
61
<PAGE>
SIGNATURES
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.
DELTIC TIMBER CORPORATION
By: /s/ Ron L. Pearce Date: March 25, 1999
------------------------------------- --------------------------
Ron L. Pearce, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 25, 1999 by the following persons on behalf of
the registrant and in the capacities indicated.
/s/ Robert C. Nolan /s/ William L. Rosoff
- ---------------------------------------- --------------------------------
Robert C. Nolan, Chairman and Director William L. Rosoff, Director
/s/ Ron L. Pearce /s/ O. H. Darling, Jr.
- ---------------------------------------- --------------------------------
Ron L. Pearce, President and Chief O. H. Darling, Jr., Director
Executive Officer and Director
(Principal Executive Officer)
/s/ R. Madison Murphy /s/ John C. Shealy
- ---------------------------------------- --------------------------------
R. Madison Murphy, Director John C. Shealy, Director
/s/ Eric M. Heiner /s/ Clefton D. Vaughan
- ---------------------------------------- --------------------------------
Eric M. Heiner, Director Clefton D. Vaughan, Vice President,
Finance and Administration
(Principal Financial Officer)
/s/ Christoph Keller, III /s/ Emily R. Evers
- ---------------------------------------- --------------------------------
Christoph Keller, III, Director Emily R. Evers, Controller
(Principal Accounting Officer)
/s/ Alex R. Lieblong
- ----------------------------------------
Alex R. Lieblong, Director
62
<PAGE>
FINANCIAL STATEMENT SCHEDULE
PURSUANT TO ITEM 14(a)2
DEL-TIN FIBER L.L.C.
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Managers
Del-Tin Fiber L.L.C.:
We have audited the accompanying balance sheets of Del-Tin Fiber L.L.C. as of
December 31, 1998 and 1997, and the related statements of operations, members'
capital, and cash flows for the years then ended. 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 that 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 financial position of Del-Tin Fiber L.L.C. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
KPMG LLP
Shreveport, Louisiana
January 29, 1999
<PAGE>
DEL-TIN FIBER L.L.C.
Balance Sheets
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 47,494 9,172,126
Trade accounts receivable 1,049,667 -
Other receivables 1,474,628 173,312
Inventories 3,597,488 366,560
Prepaid expenses and other current assets 73,897 -
------------ -----------
Total current assets 6,243,174 9,711,998
Debt service reserve funds 4,183,957 -
Funds held by trustee 3,323,059 9,940,181
Property, plant, and equipment - net 98,146,794 82,589,303
Deferred debt costs 1,638,722 -
------------ -----------
Total assets $113,535,706 102,241,482
============ ===========
Liabilities and Members' Capital/(Deficit)
Current liabilities
Accounts payable $ 5,280,305 12,376,137
Retainage payable - 684,610
Accrued expenses and other 524,088 251,311
Note payable - bank 5,000,000 30,100,000
Note payable - Deltic Timber Corporation - 8,100,000
------------ -----------
Total current liabilities 10,804,393 51,512,058
Long-term debt 89,000,000 51,000,000
------------ -----------
Total liabilities 99,804,393 102,512,058
Members' capital/(deficit) 13,731,313 (270,576)
------------ -----------
Total liabilities and members' capital/(deficit) $113,535,706 102,241,482
============ ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
DEL-TIN FIBER L.L.C.
Statements of Operations
For the years ended December 31, 1998 and 1997
1998 1997
------------ --------
Net sales $ 7,364,998 -
------------ --------
Costs and expenses
Cost of sales 11,223,319 -
Depreciation 1,473,448 10,508
General and administrative expenses 2,387,481 269,085
------------ --------
Total costs and expenses 15,084,248 279,593
------------ --------
Loss from operations (7,719,250) (279,593)
Other income/(expense)
Interest income 105,221 -
Interest expense (2,563,676) -
Gain on disposition of assets - 4,337
------------ --------
Net loss $(10,177,705) (275,256)
============ ========
See accompanying notes to financial statements.
3
<PAGE>
DEL-TIN FIBER L.L.C.
Statements of Cash Flows
For the years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(10,177,705) (275,256)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation expense 1,473,448 10,508
(Gains)/losses on dispositions of assets - (4,337)
Changes in current assets and liabilities
Increase in trade accounts receivable (1,049,667) -
Increase in other receivables (1,301,316) (173,312)
Increase in inventories (3,230,928) (366,560)
Increase in prepaid assets and other
current assets (73,897) -
Increase in accounts payable 1,231,894 -
Decrease in retainage payable (17,832) -
Increase/(decrease) in accrued expenses
and other 290,609 251,311
------------ -----------
Net cash used in operating activities (12,855,394) (557,646)
------------ -----------
Cash flows from investing activities
Capital expenditures requiring cash (26,043,275) (69,545,831)
Proceeds from dispositions of assets - 11,104
Net (increase)/decrease in funds held by trustee 6,617,122 (9,940,181)
------------ -----------
Net cash used in investing activities (19,426,153) (79,474,908)
------------ -----------
Cash flows from financing activities
Proceeds from issuance of debt 13,000,000 52,100,000
Proceeds from issuance of bonds 60,000,000 29,000,000
Advances from Deltic Timber Corporation 2,000,000 8,100,000
Repayments of debt (60,100,000) -
Repayments of advances from Deltic Timber
Corporation (5,600,000) -
Net (increase)/decrease in debt service reserve funds (4,183,957) -
Payment of debt costs (459,128) -
Capital contributions by members 18,500,000 4,680
------------ -----------
Net cash provided by financing activities 23,156,915 89,204,680
------------ -----------
Net increase/(decrease) in cash and cash
equivalents (9,124,632) 9,172,126
Cash and cash equivalents at beginning of period 9,172,126 -
------------ -----------
Cash and cash equivalents at the end of period $ 47,494 9,172,126
============ ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
DEL-TIN FIBER L.L.C.
Statements of Members' Capital
For the years ended December 31, 1998 and 1997
Balance at January 1, 1997 $ -
Capital contributions 4,680
Net loss (275,256)
------------
Balance at December 31, 1997 (270,576)
Net loss (10,177,705)
Capital contributions 24,179,594
------------
Balance at December 31, 1998 $ 13,731,313
============
See accompanying notes to financial statements.
5
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies
Description of Business
Del-Tin Fiber L.L.C. ("Del-Tin" or the "Company") is an Arkansas limited
liability company organized in February 1995 and is equally owned by
Temple-Inland Forest Products Corporation ("Temple-Inland"), a Delaware
corporation, and Deltic Timber Corporation ("Deltic"), a Delaware
corporation. Del-Tin is to exist until December 31, 2024 unless the Company
is earlier dissolved in accordance with either the provisions of the
Operating Agreement or the Arkansas Small Business Entity Tax Pass Through
Act. The business of the Company is to manufacture, distribute, and sell
medium density fiberboard ("MDF") under the trade name "Solidium." Within
the United States, MDF is sold primarily to manufacturers and distributors
of laminated flooring, furniture, cabinets, fixtures, and molding.
Under the terms of a separate Fiber Supply Agreement, Deltic will be the
preferred supplier of wood fiber, consisting of sawdust, shavings, and
chips. Del-Tin will purchase the majority of residual chips produced by
Deltic's Waldo, Arkansas sawmill, at a delivered price that approximates
the weighted average delivered price of like-kind residual chips available
to Del-Tin from third parties in the area. Del-Tin will also have first
call on residual chips from Deltic's sawmill in Ola, Arkansas.
Under the terms of a separate MDF Marketing Agreement, Temple-Inland will
serve as the exclusive marketing agent for all MDF produced at the facility
for a period of five years from the first day of production of MDF. The MDF
Marketing Agreement shall be automatically extended for successive five
year periods unless either party elects not to extend.
The Company was considered to be a development stage enterprise for the
year ended December 31, 1997. No substantial operations occurred prior to
January 1, 1997.
Cash and Cash Equivalents
The Company considers short-term investments with a remaining maturity of
three months or less at the date of purchase to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average method for all inventories, other than spare
parts for which the specific identification method is used to determine
cost.
6
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Debt Service Reserve Funds
Debt service reserve funds consists of cash account balances, restricted
under the Company's permanent credit facility, to be used solely to pay
debt service to the extent sufficient funds are not available for such
scheduled debt service payments in the Company operating account.
Property, Plant, and Equipment
Property, plant, and equipment is stated at cost less accumulated
depreciation. Depreciation of buildings, equipment, and other depreciable
assets is calculated over the estimated useful lives of the assets by using
the units of production method for machinery and equipment and the
straight-line method for all other depreciable assets. The estimated useful
lives for property, plant, and equipment are as follows:
Buildings 40 years
Land improvements 20 years
Machinery and equipment 15 years
Vehicles 3 to 5 years
Routine maintenance and repairs are charged to operating expense, while
costs of equipment upgrades and replacements are capitalized. When an asset
is retired or sold, its cost and related accumulated depreciation are
removed from the accounts and the difference between the net book value of
the asset and proceeds from disposition is recognized as a gain or loss.
Long-lived assets are accounted for under Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of, and accordingly the
Company will record impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the estimated undiscounted cash flows to be generated by those
assets are less than the carrying amounts of those assets. The Company
recorded no such impairment in 1998 or 1997.
Deferred Debt Costs
Deferred debt costs consists of various costs related to obtaining the
permanent credit facility, the issuance of the Union County, Arkansas
Taxable Industrial Development Bonds (Del-Tin Fiber Project) 1998 Series
(the "Taxable Bonds"), and the substitution of the letters of credit
supporting the Union County, Arkansas Solid Waste Disposal Revenue Bonds
(Del-Tin Fiber Project) 1997 Series A & B (the "Tax Exempt Bonds"). (The
Taxable Bonds and the Tax Exempt Bonds are collectively called the
"Bonds".) Such costs are stated on the 1998 Balance Sheet at original
issuance cost, net of amortization on a straight-line basis over the life
of the Bonds. (For additional information regarding the Company's financing
arrangements, see Note 4 - Long-Term Debt Financing Arrangements.)
7
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Start-up Costs
For 1998 and 1997, the Company expensed all costs related to the start-up
of the Company.
Income Taxes
Because the Company is a limited liability company, it has the option of
being taxed as a partnership or a corporation. The Company elected to be
taxed as a partnership and as such is not subject to income taxes at the
Company level. All taxes are recognized by the members of the Company.
Use of Estimates
Management of the Company has made a number of estimates and assumptions,
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities, to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
Reclassifications
Certain 1997 amounts have been reclassified to conform with the 1998
presentation.
Note 2 - Inventories
Inventories at December 31, 1998 and 1997 consisted of the following:
1998 1997
---------- ----------
Raw materials $ 286,802 -
Spare parts 1,714,698 366,560
Work in progress/finished goods 1,595,988 -
---------- ----------
$ 3,597,488 366,560
========== ==========
Note 3 - Property, Plant, and Equipment
Property, plant, and equipment at December 31, 1998 and 1997 consisted of
the following:
1998 1997
---------- ---------
Land $ 331,789 331,789
Buildings 7,420,798 -
Land improvements 2,667,676 -
Machinery and equipment 89,188,955 -
Vehicles 11,024 -
Construction-in-progress - 82,257,514
---------- ----------
99,620,242 82,589,303
Less accumulated depreciation (1,473,448) -
---------- ----------
$ 98,146,794 82,589,303
========== ==========
8
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Depreciation expense totaled $1,473,448 for 1998.
During the construction period of the Company's primary plant facility,
applicable interest expense was capitalized, net of interest income on
invested debt proceeds. Such amounts capitalized were $4,863,715 in 1998
and $2,500,000 in 1997.
Note 4 - Long-Term Debt and Financing Arrangements
Long-term debt at December 31, 1998 and 1997 consisted of the following:
1998 1997
------------- ----------
Union County, Arkansas Taxable Industrial
Development Revenue Bonds
(Del-Tin Fiber Project) 1998 Series,
due October 1, 2027 $ 60,000,000 -
Union County, Arkansas Solid Waste
Disposal Revenue Bonds
(Del-Tin Fiber Project) 1997 Series A,
due October 1, 2027 14,500,000 14,500,000
Union County, Arkansas Solid Waste
Disposal Revenue Bonds
(Del-Tin Fiber Project) 1997 Series B,
due October 1, 2027 14,500,000 14,500,000
Note payable to banks - 22,000,000
---------- ----------
89,000,000 51,000,000
Less current maturities of long-term debt - -
---------- ----------
Long-term debt, excluding current
installments $ 89,000,000 51,000,000
========== ==========
The scheduled maturities of required debt sinking fund deposits for the
next five years are $1,045,750 in 2001, $4,972,875 in 2002, and $7,676,250
in 2003. (For additional information regarding financial instruments, see
Note 6 - Fair Value of Financial Instruments.)
The Permanent Credit Facility
In 1998, the Company entered into a permanent credit facility (the "Credit
Facility") with several major banking institutions (the "Lenders") having a
stated maturity of December 17, 2005 (the "Stated Maturity Date"). The
Credit Facility provides a working capital commitment of $10,000,000 (the
"Working Capital Commitment Amount") and a letter of credit commitment of
$91,225,000 (the "Letter of Credit Commitment Amount") for a total
commitment of $101,225,000. Both the working capital and the letter of
credit
9
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
commitments terminate on December 17, 2001 (the "Termination Date"), but
the Termination Date for either or both commitments may be annually
extended if the Company so requests and all the Lenders agree. In any case,
the Termination Date may not be extended beyond the Stated Maturity Date.
In connection with the Credit Facility, and with the issuance of the Bonds,
the Company incurred approximately $1,638,000 in related costs. Such costs
are included in the 1998 Balance Sheet in Deferred Debt Costs and are being
amortized on a straight-line basis over the life of the Bonds.
The Working Capital Commitment -- The Company may from time to time
receiveworking capital loans from the Lenders, and the amount so
loaned may be borrowed, repaid, and reborrowed at the Company's
discretion. However, the aggregate amount of working capital loans
outstanding must not be more than (1) the Working Capital Commitment
Amount at any time; (2) $5 million for 30 consecutive days during
1999; and (3) zero ($0) for 30 consecutive days in each following year
of the working capital commitment. Any unpaid principal and interest
on working capital loans is due and payable at the termination of the
working capital loan commitment. At December 31, 1998, there was one
working capital loan outstanding in the amount of $5,000,000, bearing
interest at a rate of 6.955 percent.
The Letter of Credit Commitment -- Three letters of credit have been
issued pursuantto the Credit Facility in the aggregate stated amount
of $89,824,657 as of December 31, 1998. The letters of credit have a
stated expiration of December 17, 2001. Under the Credit Facility, the
letters of credit may be extended to the extent that the Termination
Date of the letter of credit commitment is extended. If the letters of
credit expire before the Stated Maturity Date and are not renewed or
replaced, the Lenders will make loans to the Company to purchase the
Bonds. Any such loans would be finally due and payable at the Stated
Maturity Date.
The three letters of credit provide a payment mechanism for the Bonds
and security for the Bondholders. Two of the letters of credit were
issued to replace letters of credit supporting the Tax Exempt Bonds
previously issued under the Interim Credit Facilities (described
below) and the third was issued to provide initial letter of credit
support for the Taxable Bonds. On December 31, 1998, the maximum
amount available to be drawn was $14,639,041 under each of the two
letters of credit supporting the Tax Exempt Bonds and $60,546,575
under the letter of credit supporting the Taxable Bonds. The maximum
amount available to be drawn under the letters of credit cover the
principal amount of the relevant Bonds, plus an additional amount to
cover interest.
Security for the Permanent Credit Facility --Substantially all of the
Company's assetsare pledged to the Lenders as security for the Credit
Facility. The Credit Facility requires the Company to maintain debt
service reserve funds in an amount equal to six months' debt service.
The debt service to be reserved against includes all required payments
for principal (other than for working capital loans), interest, and
fees under
10
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
both the Credit Facility and the Bonds. The funds in the debt service
reserve bank accounts may be withdrawn solely to pay debt service to
the extent sufficient funds are not available in the Company's
operating account. The total amount in the debt service reserve funds
as of December 31, 1998 was $4,183,957 and has been classified as
noncurrent on the 1998 Balance Sheet due to the restriction placed on
the funds.
The Credit Facility requires the Company to make quarterly deposits
into two sinking funds beginning in December of 2001. Failure to make
such deposits is a default under the Credit Facility. The amount of
the required deposits increases over the term of the Credit Facility,
from $1,045,750 per quarter in December 2001, to $3,115,000 per
quarter beginning in December 2005. In September 2006, the Company
must deposit $49,662,000 into the sinking funds. The Company may not
withdraw amounts deposited in the sinking funds during the term of the
Credit Facility.
As further security for the Credit Facility, each member has agreed
(1) to provide to the Company up to $17,500,000 (for a combined total
of $35,000,000) in the form of additional cash equity contributions or
subordinated loans, if and to the extent, that the Company is in
default under the Credit Facility; or a deficiency exists in the
Credit Facility debt service reserve funds or sinking funds; and (2)
to pay to the Company in the form of additional cash equity
contributions or subordinated loans, the member's prorata portion of
the difference between the Company's projected operating cash flow at
90 percent of rated capacity, and the Company's projected operating
cash flow at the production rate actually achieved by the Company (the
"Operating Cash Flow Variance"), if, and to the extent that, the
Company still does not have sufficient funds to pay debt service. The
members will no longer be obligated to pay the Operating Cash Flow
Variance once the plant successfully completes a minimum production
test, planned for the summer of 1999.
The Bonds
The Bonds were issued by Union County, Arkansas, to finance the
completion of the construction of the Company's MDF plant, as well as
the acquisition, construction, and improvement of certain sewage and
solid waste disposal facilities related to the Company's MDF plant.
Neither the State of Arkansas nor Union County, Arkansas have any
liability under the Bonds. The Bonds are payable solely from the
proceeds of the letters of credit issued to support the respective Bonds
and from Company payments under the Loan Agreement and the Lease
Agreement (both described below) with Union County, Arkansas. The
Company has also unconditionally guaranteed the payment of all amounts
owing under the Bonds to the bondholders. The Company's indebtedness has
been presented in these financial statements as though the Company was
directly liable for the Bonds.
The Bonds currently bear interest at a variable rate determined weekly
by the remarketing agent of the respective Bonds. Interest is due on the
first business day of the month, and all unpaid interest and all
principal is due on October 1, 2027. The maximum interest rate for the
Tax Exempt Bonds is ten percent and 9.5 percent for
11
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
the Taxable Bonds. The interest rate on the Tax Exempt Bonds at December
31, 1998 and 1997 was 4.2 percent and 3.8 percent, respectively. The
interest rate on the Taxable Bonds at December 31, 1998 was 5.7 percent.
The Company has the right to convert the interest rate payable on the
Bonds to either a flexible daily, term, or fixed rate, as defined in the
trust indentures for the respective Bonds.
Union County issued the Tax Exempt Bonds in October 1997 which were
issued in two series, Series A and Series B, each in the amount of
$14,500,000. In conjunction with this bond issuance, the Company and
Union County entered into a loan agreement (the "Loan Agreement") which
obligates the Company to make loan payments in the amount required to
pay the debt service on the Tax Exempt Bonds. The Tax Exempt Bonds were
originally supported by letters of credit (the "Interim Letters of
Credit") issued pursuant to the Interim Credit Facilities. As described
above, two letters of credit were issued in December 1998 pursuant to
the Credit Facility, which replaced the Interim Letters of Credit. The
Interim Letters of Credit were canceled prior to December 31, 1998.
In December 1998, Union County issued the Taxable Bonds, in the amount
of $60,000,000. The Company and Union County contemporaneously entered
into a lease agreement (the "Lease Agreement") that obligates the
Company to make lease payments in an amount necessary to fund the debt
service on the Taxable Bonds. As described above, a letter of credit was
issued under the Credit Facility to support the Taxable Bonds.
The Interim Credit Facilities
Prior to the funding of the Credit Facility, the Company was a party to
three interim credit facilities (the "Interim Credit Facilities"). The
payment terms and fees and interest payable under each interim credit
facility were identical. Borrowings bore interest based upon prime or
other various cost of funds options. Facility fees accrued at .05
percent per annum for the unused commitment balances and .20 percent per
annum for letters of credit and were payable quarterly. As of December
31, 1998, no amounts were outstanding, and no letters of credit were
issued, against any Interim Credit Facility.
The Company is party with a group of major banks to an Interim Credit
Facility totaling $40,000,000. At December 31, 1998, there were no
amounts outstanding under either the letters of credit or line of credit
portion of this Interim Credit Facility. At December 31, 1997, there
were $14,639,000 in letters of credit outstanding under this agreement
and $22,000,000 outstanding under the revolving line of credit. This
Interim Credit Facility is supported by an unconditional guarantee of
Deltic and expires December 31, 2001. The Company intends to terminate
this facility during 1999.
12
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
During 1997 and 1998, the Company was a party with a bank to an Interim
Credit Facility totaling $65,000,000. At December 31, 1998, this Interim
Credit Facility had been terminated. At December 31, 1997, there was
$14,639,000 in letters of credit outstanding under this agreement and
$30,100,000 outstanding under the term loan. The $30,100,000 is included
in current liabilities in the 1997 Balance Sheet. This Interim Credit
Facility was supported by unconditional guaranties of Temple-Inland
Forest Products Corporation. The obligations of Temple-Inland Forest
Products Corporation under its guarantee are guaranteed by Temple-
Inland, Inc.
During 1997 and 1998, the Company was a party with Deltic to an Interim
Credit Facility. At December 31, 1998, this Interim Credit Facility had
been terminated. At December 31, 1997, there was $8,100,000 outstanding
under this revolving line of credit Interim Credit Facility.
Note 5 - Funds Held by Trustee
At December 31, 1998 and 1997, the Company had funds held by the trustee
related to the Union County, Arkansas Solid Waste Disposal Bonds Project
1997 Series A and B that were restricted for construction purposes and can
be released for payment upon the submission of qualified construction
expenditures. At December 31, 1998 and 1997, the funds consisted of money
market funds totaling $23,059 and $140,181, respectively, and investments
in New York City municipal bonds totaling $3,300,000 and $9,800,000,
respectively. The bonds are variable rate and reset weekly, with a maturity
date of February 15, 2016. The balance has been classified as noncurrent
due to the restriction placed on the funds. At December 31, 1998, the bonds
were priced at par, which approximates fair value.
13
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Note 6 - Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1998 and 1997. The
fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 47,494 47,494 9,172,126 9,172,126
Trade accounts receivable $ 1,049,667 1,049,667 - -
Other receivables $ 1,474,628 1,474,628 173,212 173,212
Debt service reserve funds $ 4,183,957 4,183,957 - -
Funds held by trustee $ 3,323,059 3,323,059 9,940,181 9,940,181
Financial liabilities
Accounts payable $ 5,280,305 5,280,305 12,376,137 12,376,137
Accrued expenses and other $ 524,088 524,088 251,311 251,311
Notes payable to bank
Retainage payable $ - - 684,610 684,610
Note payable - Deltic
Timber Corporation $ - - 8,100,000 8,100,000
Long-term debt $ 89,000,000 89,000,000 51,000,000 51,000,000
Off balance sheet financial
instruments
Letters of credit $ - - 29,278,000 29,278,000
</TABLE>
The carrying amounts shown in the table are included in the Balance Sheets
under the indicated captions.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
. Cash and Cash Equivalents, Trade Accounts Receivable, Other
Receivables, Accounts Payable, Retainage Payable, Accrued Expenses and
Other, and Note Payable - Deltic Timber Corporation -- The carrying
amounts approximate fair value because of the short maturity of these
instruments.
. Debt Service Reserve Funds -- The carrying amount approximates fair
value since the interest earned on these deposits fluctuates with
changes in current market rates.
. Funds Held by Trustee -- The balance at December 31, 1998, consisted
of money market funds and New York City municipal bonds. The money
market funds are cash equivalents and the carrying amount approximates
fair value. The fair value of the bonds is based on quoted market
prices and at December 31, 1998 and 1997, the bonds are recorded at
fair value.
14
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
. Long-term debt, including current maturities -- The carrying amount
approximates fair value based on either the short-term maturity of the
instrument or variable rates offered that approximate current market
rates.
. Letters of credit -- The fair value approximates the notional amount,
which is based on the estimated cost to settle these obligations.
Note 7 - Lease Commitments
The Company is obligated under noncancelable operating leases for various
equipment.
As of December 31, 1998, future minimum lease commitments under
noncancelable operating leases consisted of the following:
1999 $ 187,846
2000 $ 187,846
2001 $ 85,771
2002 $ 22,566
Rent expense for all operating leases was $195,430 for 1998.
Note 8 - Related-Party Transactions
The Company is assessed a fee for marketing services by Temple-Inland. This
expense amounted to $227,036 for the year ended December 31, 1998, and is
included in Cost of Sales in the accompanying Statements of Operations. The
Company is also assessed a fee for computer services by Temple-Inland. This
fee amounted to $62,500 in 1998 and is included in General and
Administrative Expenses in the accompanying Statements of Operations. As of
December 31, 1998, the Company's balance due Temple-Inland for these
services totaled $40,154.
The Company purchases raw materials from Deltic. Total purchases of bark
and chips amounted to $2,126,000 for the year ended December 31, 1998. In
relation to these purchases, the Company had an outstanding balance payable
to Deltic of $70,742 at December 31, 1998.
The Company had sales of MDF to Temple-Inland totaling $49,567 for the year
ended December 31, 1998, which is included in Net Sales in the accompanying
Statements of Operations. In relation to these sales, Del-Tin had a
receivable of $49,567 from Temple-Inland at December 31, 1998.
15
<PAGE>
DEL-TIN FIBER L.L.C.
Notes to Financial Statements
December 31, 1998 and 1997
Note 9 - Supplemental Cash Flows Disclosures
Interest paid, net of amounts capitalized, was $2,548,434 in 1998. Noncash
investing and financing activities, excluded from the Statements of Cash
Flows, were: (1) assumptions of accounts payable of $4,048,411 in 1998 and
$13,060,741 in 1997 related to capital expenditures for additions of
property, plant, and equipment and (2) non-cash capital contributions by
the members during 1998 for payment of debt amounting to $4,500,000 and for
debt costs paid on behalf of the Company of $1,179,594.
Note 10 - Year 2000
In 1998, the Company initiated a plan ("Plan") to identify, assess, and
remediate Year 2000 issues within each of its significant computer programs
and certain equipment which contain micro-processors. The Plan is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000, if a program
or chip uses only two digits rather than four to define the applicable
year. Systems which have been determined not to be Year 2000 compliant are
being either replaced or reprogrammed, and thereafter tested for Year 2000
compliance.
The Company is in the process of identifying and contacting critical
suppliers and customers whose computerized systems interface with the
Company's systems, regarding their plans and progress in addressing their
Year 2000 issues. The Company has received varying information from such
third parties on the state of compliance or expected compliance.
Contingency plans are being developed in the event that any critical
supplier or customer is not compliant.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's operations, liquidity, and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting in part
from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the
Company's operations, liquidity, or financial condition.
16
<PAGE>
EXHIBIT 10.7
================================================================================
DELTIC TIMBER CORPORATION
DATED AS OF DECEMBER 18, 1998
____________________
NOTE PURCHASE AGREEMENT
_____________________
$40,000,000 6.66% SENIOR NOTES DUE DECEMBER 18, 2008
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. AUTHORIZATION OF NOTES................................................................... 1
2. SALE AND PURCHASE OF NOTES............................................................... 1
3. CLOSING.................................................................................. 1
4. CONDITIONS TO CLOSING.................................................................... 2
4.1 Representations and Warranties.................................................. 2
4.2 Performance; No Default......................................................... 2
4.3 Compliance Certificates......................................................... 2
4.4 Opinions of Counsel............................................................. 3
4.5 Purchase Permitted By Applicable Law, etc....................................... 3
4.6 Subsidiary Guarantee............................................................ 3
4.7 Payment of Special Counsel Fees................................................. 3
4.8 Private Placement Number........................................................ 4
4.9 Changes in Corporate Structure.................................................. 4
4.10 Proceedings and Documents....................................................... 4
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................ 4
5.1 Organization; Power and Authority............................................... 4
5.2 Authorization, etc.............................................................. 4
5.3 Disclosure...................................................................... 5
5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates................ 5
5.5 Financial Statements............................................................ 6
5.6 Compliance with Laws, Other Instruments, etc.................................... 6
5.7 Governmental Authorizations, etc................................................ 7
5.8 Litigation; Observance of Agreements, Statutes and Orders....................... 7
5.9 Taxes........................................................................... 7
5.10 Title to Property; Leases....................................................... 8
5.11 Licenses, Permits, etc.......................................................... 8
5.12 Compliance with ERISA........................................................... 8
5.13 Private Offering by the Company................................................. 9
5.14 Use of Proceeds; Margin Regulations............................................. 9
5.15 Existing Debt; Future Liens..................................................... 10
5.16 Foreign Assets Control Regulations, etc......................................... 10
5.17 Status under Certain Statutes................................................... 10
5.18 Environmental Matters........................................................... 10
5.19 Year 2000 Compliance............................................................ 11
6. REPRESENTATIONS OF THE PURCHASER......................................................... 11
6.1 Purchase for Investment......................................................... 11
6.2 Source of Funds................................................................. 12
</TABLE>
i
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
PAGE
<S> <C>
7. INFORMATION AS TO COMPANY................................................................ 13
7.1 Financial and Business Information.............................................. 13
7.2 Officer's Certificate........................................................... 16
7.3 Inspection...................................................................... 16
8. PAYMENT OF THE NOTES..................................................................... 17
8.1 Required Prepayment; Payment at Maturity........................................ 17
8.2 Optional Prepayments with Make-Whole Amount..................................... 17
8.3 Allocation of Partial Prepayments............................................... 17
8.4 Maturity; Surrender, etc........................................................ 17
8.5 No Other Optional Prepayments or Purchase of Notes.............................. 18
8.6 Offer to Prepay upon Change in Control, etc..................................... 18
8.7 Make-Whole Amount............................................................... 20
9. AFFIRMATIVE COVENANTS.................................................................... 21
9.1 Compliance with Law............................................................. 21
9.2 Insurance....................................................................... 22
9.3 Maintenance of Properties....................................................... 22
9.4 Payment of Taxes and Claims..................................................... 22
9.5 Corporate Existence, etc........................................................ 22
10. NEGATIVE COVENANTS....................................................................... 23
10.1 Transactions with Affiliates.................................................... 23
10.2 Merger, Consolidation, etc...................................................... 23
10.3 Consolidated Tangible Net Worth................................................. 24
10.4 Limitation on Current Debt...................................................... 24
10.5 Limitation on Debt.............................................................. 24
10.6 Fixed Charge Coverage........................................................... 25
10.7 Restricted Payments; Restricted Investments..................................... 25
10.8 Liens........................................................................... 25
10.9 Sale of Assets, etc............................................................. 28
10.10 Line of Business................................................................ 30
10.11 PariPassu....................................................................... 30
10.12 Restrictions on Dividends of Subsidiaries, Etc.................................. 30
10.13 Maintenance of Guarantees of Subsidiaries....................................... 31
11. EVENTS OF DEFAULT........................................................................ 32
12. REMEDIES ON DEFAULT, ETC................................................................. 35
12.1 Acceleration.................................................................... 35
12.2 Other Remedies.................................................................. 35
12.3 Rescission...................................................................... 35
12.4 No Waivers or Election of Remedies, Expenses, etc............................... 36
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES............................................ 36
13.1 Registration of Notes........................................................... 36
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (cont.)
<TABLE>
<CAPTION>
PAGE
<S> <C>
13.2 Transfer and Exchange of Notes.................................................. 36
13.3 Replacement of Notes............................................................ 37
14. PAYMENTS ON NOTES........................................................................ 37
14.1 Place of Payment................................................................ 37
14.2 Home Office Payment............................................................. 37
15. EXPENSES, ETC............................................................................ 38
15.1 Transaction Expenses............................................................ 38
15.2 Survival........................................................................ 38
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT................................................................................ 38
17. AMENDMENT AND WAIVER..................................................................... 39
17.1 Requirements.................................................................... 39
17.2 Solicitation of Holders of Notes................................................ 39
17.3 Binding Effect, etc............................................................. 40
17.4 Notes held by Company, etc...................................................... 40
18. NOTICES.................................................................................. 40
19. REPRODUCTION OF DOCUMENTS................................................................ 41
20. CONFIDENTIAL INFORMATION................................................................. 41
21. SUBSTITUTION OF PURCHASER................................................................ 42
22. MISCELLANEOUS............................................................................ 43
22.1 Successors and Assigns.......................................................... 43
22.2 Payments Due on Non-Business Days............................................... 43
22.3 Severability.................................................................... 43
22.4 Construction.................................................................... 43
22.5 Counterparts.................................................................... 43
22.6 Governing Law................................................................... 44
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (cont.)
SCHEDULE A -- Information Relating to Purchaser
SCHEDULE B -- Defined Terms
SCHEDULE 3 -- Payment Instructions
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and Ownership of Subsidiary
Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.12 -- ERISA Affiliates
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Debt and Liens
SCHEDULE B-C -- Competitors
SCHEDULE B-CVT -- Description of Property Comprising Chenal Valley Transfer
iv
<PAGE>
TABLE OF CONTENTS (cont.)
Exhibit 1 -- Form of 6.66% Senior Note due December
18, 2008
Exhibit 4.4(a) -- Form of Opinion of General Counsel of
the Company
Exhibit 4.4(b) -- Form of Opinion of Special New York
Counsel for the Company and Special
Counsel to the Purchaser
Exhibit B(SG) -- Form of Subsidiary Guarantee
Exhibit B(SGAA) -- Form of Subsidiary Guarantor Accession
Agreement
v
<PAGE>
DELTIC TIMBER CORPORATION
210 East Elm Street
El Dorado, Arkansas 71731
$40,000,000 6.66% SENIOR NOTES DUE DECEMBER 18, 2008
Dated as of December 18, 1998
To the Purchaser Named on
the Signature Page Hereto
Ladies and Gentlemen:
DELTIC TIMBER CORPORATION, a Delaware corporation (together with its
successors and assigns, the "COMPANY"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $40,000,000 aggregate
principal amount of its 6.66% Senior Notes due December 18, 2008 (the "NOTES",
such term to include any such notes issued in substitution therefor pursuant to
Section 13 of this Agreement). The Notes shall be substantially in the form set
out in Exhibit 1, with such changes therefrom, if any, as may be approved by you
and the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement. The payment
by the Company of the principal of, Make Whole Amount, if any, and interest on
the Notes shall be unconditionally guaranteed, as provided in Section 10.13, by
the Subsidiary Guarantors pursuant to a Subsidiary Guarantee substantially in
the form of Exhibit B(SG) hereto.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified below your
name in Schedule A at the purchase price of 100% of the principal amount
thereof.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you shall occur
at the offices of Hebb & Gitlin, One State Street, Hartford, Connecticut 06103,
at 10:00 a.m., local time, at a closing (the "CLOSING") on December 18, 1998 or
on such other Business Day as may be agreed upon in writing by the Company and
you. At the Closing the Company will deliver to you the Notes to be purchased by
you in the form of a single Note (or such greater number of Notes in
denominations of at least $1,000,000 as you may request), dated the date of the
Closing, and registered in your name (or in the name of your nominee) as
indicated in Schedule A, against payment by federal funds wire transfer in
immediately available funds of the amount of the purchase price therefor as
directed by the Company in Schedule 3. If at the Closing the Company shall fail
to tender such Notes to you as provided above in this Section 3, or any of the
<PAGE>
conditions specified in Section 4 shall not have been fulfilled to your
reasonable satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your reasonable satisfaction, prior
to or at the Closing, of the following conditions:
4.2 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
4.4 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
Section 10.1 had such Section applied since such date.
4.6 COMPLIANCE CERTIFICATES.
(B) OFFICER'S CERTIFICATE. The Company shall have delivered
to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.9
have been fulfilled.
(D) SECRETARY'S CERTIFICATE. The Company shall have delivered
to you a certificate of its Secretary or one of its Assistant
Secretaries, dated the date of the Closing, certifying as to the
resolutions attached thereto and other corporate proceedings relating
to the authorization, execution and delivery of the Notes and this
Agreement.
(E) SUBSIDIARY GUARANTOR SECRETARY'S CERTIFICATE. Each
Subsidiary Guarantor shall have delivered to you a certificate
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of
the Subsidiary Guarantee, and certifying to such other matters as you
may reasonably request.
4.8 OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing, from
(a) W. Bayless Rowe, Esq., General Counsel of the Company and
each of the Subsidiary Guarantors, substantially in the form set out in
Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your
2
<PAGE>
counsel may reasonably request (and the Company hereby instructs such
counsel to deliver such opinion to you), and
(b) Hebb & Gitlin, special New York counsel for the Company
and each of the Subsidiary Guarantors, and, with the Company's and the
Purchaser's consent, special counsel to the Purchaser, substantially in
the form set out in Exhibit 4.4(b) and covering such other matters
incident to the transactions contemplated hereby as you or your counsel
may reasonably request (and the Company hereby instructs such counsel
to deliver such opinion to you).
4.9 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (a) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (b) not
violate any applicable law or regulation (including, without limitation,
Regulation T, U or X of the Board of Governors of the Federal Reserve System)
and (c) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
4.11 SUBSIDIARY GUARANTEE.
Each of Deltic Timber Purchasers, Inc., an Arkansas corporation, and
Chenal Properties, Inc., an Arkansas corporation, shall have executed and
delivered to you the Subsidiary Guarantee.
4.13 PAYMENT OF SPECIAL COUNSEL FEES.
Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4(b) to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the date of the Closing.
4.15 PRIVATE PLACEMENT NUMBER.
A Private Placement Number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
4.17 CHANGES IN CORPORATE STRUCTURE.
Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent financial
statements referred to in Schedule 5.5.
3
<PAGE>
4.19 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be reasonably satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you, as of the date of the
Closing, that:
5.2 ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the Notes and to perform the provisions hereof and thereof.
5.3 AUTHORIZATION, ETC.
(a) This Agreement and the Notes have been duly authorized by
all necessary corporate action on the part of the Company, and this
Agreement constitutes, and upon execution and delivery thereof each
Note will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b)
general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(b) The Subsidiary Guarantee has been duly authorized by all
necessary corporate action on the part of each Subsidiary Guarantor
and, upon execution and delivery thereof, the Subsidiary Guarantee will
constitute, a legal, valid and binding obligation of each Subsidiary
Guarantor, enforceable against each such Subsidiary Guarantor in
accordance with its terms, except as such enforceability may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or at law)
and public policy.
5.5 DISCLOSURE.
The Company, through the Placement Agent, has delivered to you a copy
of a Private Placement Memorandum, dated November 1998 (the "MEMORANDUM"),
relating to the transactions contemplated hereby. The Memorandum fairly
describes, in all material respects, the general nature of the business and
principal properties of the Company and its Subsidiaries.
4
<PAGE>
Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the
documents, certificates or other writings delivered to you by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings delivered to you by or on behalf of the Company
in connection with the transactions contemplated hereby, or in the financial
statements listed in Schedule 5.5, since December 31, 1997, there has been no
change in the financial condition, operations, business, properties or prospects
of the Company or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.
5.7 ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES;
AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists of (i) the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name thereof, the jurisdiction of its
organization, the percentage of shares of each class of its capital
stock or similar equity interests outstanding owned by the Company and
each other Subsidiary and whether such Subsidiary is a Subsidiary
Guarantor as of the date of the Closing, and (ii) the Company's
Affiliates, other than Subsidiaries.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another
Subsidiary free and clear of any Lien (except as otherwise disclosed in
Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact. Each Subsidiary Guarantor has the
corporate power and authority to execute and deliver the Subsidiary
Guarantee and to perform the provisions thereof.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed in Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions of
profits to the Company or any of its Subsidiaries that owns outstanding
shares of capital stock or similar equity interests of such Subsidiary.
5
<PAGE>
5.9 FINANCIAL STATEMENTS.
The Company has delivered to you copies of the consolidated financial
statements of the Company and its Subsidiaries listed in Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
5.10 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
Neither the execution, delivery and performance by the Company of this
Agreement and the Notes nor the execution, delivery and performance of the
Subsidiary Guarantee by the Subsidiary Guarantors will
(a) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Company or any Subsidiary under, any indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to
which the Company or any Subsidiary is bound or by which the Company or
any Subsidiary or any of their respective properties may be bound or
affected
(b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary, or
(c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or
any Subsidiary.
5.11 GOVERNMENTAL AUTHORIZATIONS, ETC.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes. No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by each Subsidiary Guarantor of the
Subsidiary Guarantee.
5.13 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.8, there are no
actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary
or any property of the Company or any Subsidiary in any court or before
any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect.
6
<PAGE>
(b) Neither the Company nor any Subsidiary is in default
under any term of any agreement or instrument to which it is a party or
by which it is bound, or any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including, without
limitation, Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
5.15 TAXES.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (a) the amount of which is not
individually or in the aggregate Material or (b) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes (and in respect of any payment pursuant to any tax sharing
agreement) for all fiscal periods are adequate.
5.17 TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.
5.18 LICENSES, PERMITS, ETC.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product of the
Company or any Subsidiary infringes in any material respect any
license, permit, franchise, authorization, patent, copyright, service
mark, trademark, trade name or other right owned by any other Person;
and
(c) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any of
its Subsidiaries with respect to any
7
<PAGE>
patent, copyright, service mark, trademark, trade name or other right owned or
used by the Company or any of its Subsidiaries.
5.20 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could
not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability
pursuant to Title I or IV of ERISA in the nature of a penalty or excise
tax or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could
reasonably be expected to result in the incurrence of any such
liability by the Company or any ERISA Affiliate, or in the imposition
of any Lien on any of the rights, properties or assets of the Company
or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to section 401
(a)(29) or 412 of the Code, other than such liabilities or Liens as
would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans subject to Title IV of ERISA (other than
Multiemployer Plans), determined as of the end of each such Plan's most
recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the
assets of such Plan allocable to such benefit liabilities. The term
"BENEFIT LIABILITIES" has the meaning specified in section 4001 of
ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the
meaning specified in section 3 of ERISA.
(c) The Company and the ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation
(determined as of the last day of the Company's most recently ended
fiscal year in accordance with Financial Accounting Standards Board
Statement No. 106, without regard to liabilities attributable to
continuation coverage mandated by section 4980B of the Code) of the
Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
first sentence of this Section 5.12(e) is made in reliance upon and
subject to the accuracy of your representation in Section 6.2 as to the
Sources used to pay the purchase price of the Notes to be purchased by
you.
(f) Schedule 5.12 sets forth all ERISA Affiliates and all
"employee benefit plans" maintained by the Company (or any "affiliate"
thereof) or in respect of which the Notes could constitute an "employer
security" ("EMPLOYEE BENEFIT PLAN" has the meaning
8
<PAGE>
specified in section 3 of ERISA, "AFFILIATE" has the meaning specified
in section 407(d) of ERISA and section V of the Department of Labor
Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and
"EMPLOYER SECURITY" has the meaning specified in section 407(d) of
ERISA)
5.22 PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you, an Institutional Investor who was offered the Notes
at a private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of section 5 of the
Securities Act.
5.24 USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.
5.26 EXISTING DEBT; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Debt of the Company and
its Subsidiaries as of October 31, 1998 (and specifying, as to each
such Debt, the collateral, if any, securing such Debt), since which
date there has been no Material change in the amounts, interest rates,
sinking funds, instalment payments or maturities of the Debt of the
Company or its Subsidiaries. Neither the Company nor any Subsidiary is
in default and no waiver of default is currently in effect, in the
payment of any principal or interest on any Debt of the Company or such
Subsidiary and no event or condition exists with respect to any Debt of
the Company or any Subsidiary that would permit (or that with notice or
the lapse of time, or both, would permit) one or more Persons to cause
such Debt to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a
Lien not permitted by Section 10.8(a).
5.27 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
9
<PAGE>
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.29 STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as
amended, or the Federal Power Act, as amended.
5.31 ENVIRONMENTAL MATTERS.
Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as disclosed in Schedule
5.18
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them or disposed of any Hazardous
Materials in a manner contrary to any Environmental Laws in each case
in any manner that could reasonably be expected to result in a Material
Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
5.33 YEAR 2000 COMPLIANCE.
The Company has reviewed the areas within the business and operations
of the Company and each Subsidiary that could be adversely affected by, and has
developed or is developing programs to address on a timely basis, the "Year 2000
Problem" (that is, the risk that computer applications, as well as embedded
microchips in non-computing devices, used by the Company or any Subsidiary may
be unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31,1999). Based on such
review and program, the Company reasonably believes that the "Year 2000 Problem"
will not result in a Material Adverse Effect. At the request of any holder of
Notes, the Company agrees
10
<PAGE>
to provide such holder with copies of all filings and other disclosures made by
the Company pursuant to the Exchange Act and the regulations promulgated
thereunder with respect to the "Year 2000 Problem."
6. REPRESENTATIONS OF THE PURCHASER.
6.2 PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.4 SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" as
defined in United States Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect
thereof you represent that there is no "employee benefit plan" (as
defined in section 3(3) of ERISA and section 4975(e)(1) of the Code,
treating as a single plan all plans maintained by the same employer or
employee organization or affiliate thereof) with respect to which the
amount of the general account reserves and liabilities of all contracts
held by or on behalf of such plan exceeds 10% of the total reserves and
liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the National Association of
Insurance Commissioners' Annual Statement filed with your state of
domicile and that such acquisition is eligible for and satisfies the
other requirements of such exemption; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January
29,1990), or (ii) a bank collective investment fund, within the meaning
of the PTE 91-38 (issued July 12, 1991) and, except as you have
disclosed to the Company in writing pursuant to this paragraph (c), no
employee benefit plan or group of plans maintained by the same employer
or employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
11
<PAGE>
(d) the Source constitutes assets of an "investment fund"
(within the meaning of part V of PTE 84-14 (the "QPAM EXEMPTION"))
managed by a "qualified professional asset manager" or "QPAM" (within
the meaning of part V of the OPAM Exemption), no employee benefit
plan's assets that are included in such investment fund, when combined
with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning
of section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of part 1(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and
(i) the identity of such QPAM and
(ii) the names of all employee benefit plans whose
assets are included in such investment fund
have been disclosed to the Company in writing pursuant to this
paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (f); or
(g) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN" and "SEPARATE ACCOUNT" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.2 FINANCIAL AND BUSINESS INFORMATION..
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(B) QUARTERLY STATEMENTS -- within 60 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of,
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, stockholders
equity and cash flows of the Company and its Subsidiaries, for
such quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending with such
quarter,
12
<PAGE>
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly financial
statements generally, and certified by a Senior Financial Officer as fairly
presenting, in all material respects, the consolidated financial position
of the companies being reported on and their consolidated results of
operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above
of copies of the Company's Quarterly Report on Form 10-Q prepared in
compliance with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements of this
Section 7.1(a);
(d) ANNUAL STATEMENTS-- within 120 days after the end of each fiscal
year of the Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(ii) consolidated statements of income, stockholders equity and
cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP,
and accompanied by
(A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the consolidated financial position of the
companies being reported upon and their consolidated results of
operations and cash flows and have been prepared in conformity
with GAAP, and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for such opinion in the
circumstances, and
(B) a certificate of such accountants stating that they
have reviewed this Agreement and stating further whether, in
making their audit, they have become aware of any condition or
event that then constitutes a Default or an Event of Default,
and, if they are aware that any such condition or event then
exists, specifying the nature and period of the existence thereof
(it being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did not make such
an audit);
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with
the Company's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this Section 7.1(b);
13
<PAGE>
(F) SEC AND OTHER REPORTS -- promptly upon their becoming available,
one copy of (i) each financial statement, report, notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder),
and each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or
any Subsidiary to the public concerning developments that are Material;
(H) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to
a claimed default of the type referred to in Section 11(f), a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
(J) ERISA MATTERS -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event, as defined
in section 4043(c) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the date of the Closing; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;
(I) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in any event
within 30 days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably
be expected to have a Material Adverse Effect; and
14
<PAGE>
(N) REQUESTED INFORMATION -- with reasonable promptness, such other
data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.
7.4 OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(B) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.3 through 10.9, inclusive,
during the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where applicable,
the calculations of the maximum or minimum amount, ratio or percentage, as
the case may be, permissible under the terms of such Sections, and the
calculation of the amount, ratio or percentage then in existence); and
(D) EVENT OF DEFAULT -- a statement that such officer has reviewed
the relevant terms hereof and has made, or caused to be made, under his or
her supervision, a review of the transactions and conditions of the Company
and its Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the
certificate and that such review has not disclosed the existence during
such period of any condition or event that constitutes a Default or an
Event of Default or, if any such condition or event existed or exists
(including, without limitation, any such event or condition resulting from
the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with
respect thereto.
7.6 INSPECTION.
The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:
(B) No Default -- if no Default or Event of Default then exists, at
the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants, and
(with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and
(D) DEFAULT -- if a Default or Event of Default then exists, at the
expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other
15
<PAGE>
papers, to make copies and extracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective officers
and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts
of the Company and its Subsidiaries), all at such times and as often as may
be requested.
8. PAYMENT OF THE NOTES.
8.2 REQUIRED PREPAYMENT; PAYMENT AT MATURITY.
There shall be no scheduled principal prepayments on account of the Notes.
The unpaid principal amount of each Note, together with accrued unpaid interest
thereon, shall be due and payable on December 18, 2008.
8.4 OPTIONAL PREPAYMENTS WITH MAKE-WHOLE AMOUNT.
The Company may, at its option, upon notice as provided below, prepay at
any time all, or from time to time any part of, the Notes, on a pro rota basis
in respect of all Notes outstanding at such time, in an amount not less than 5%
of the aggregate principal amount of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid and accrued
interest thereon to the date of prepayment, plus the Make-Whole Amount, if any,
determined for the prepayment date with respect to the principal amount of Notes
being so prepaid. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such prepayment date, the aggregate principal amount of the Notes
to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount, if any, due in connection with
such prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount, if any, as of the specified prepayment date.
8.6 ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the principal amount
of the Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment. All partial
prepayments made pursuant to Section 8.6 with respect to a Change in Control
shall be applied as provided for in Section 8.4.
8.7 MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make-
16
<PAGE>
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
Any prepayment of Notes in respect of a Change in Control under Section 8.6
shall be on terms as set forth in said Section 8.6, provided that only those
holders who shall have accepted the offer under said Section 8.6 shall have
their Notes prepaid in whole in connection therewith. Any Debt Prepayment
Application shall be on terms as set forth in Section 8.2 and this Section 8.4.
8.9 NO OTHER OPTIONAL PREPAYMENTS OR PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase, redeem,
prepay or otherwise acquire, directly or indirectly, any of the outstanding
Notes except upon the payment or prepayment of the Notes in accordance with the
terms of this Agreement and the Notes. The Company will promptly cancel all
Notes acquired by it or any Affiliate pursuant to any payment, prepayment or
purchase of Notes pursuant to any provision of this Agreement and no Notes may
be issued in substitution or exchange for any such Notes.
8.10 OFFER TO PREPAY UPON CHANGE IN CONTROL, ETC.
(A) NOTICE AND OFFER. In the event of either
(i) a Change in Control, or
(ii) the obtaining of actual knowledge of a Control Event by a
Senior Financial Officer,
the Company will, within five Business Days of the occurrence of either of
such events, give written notice of such Change in Control or Control Event
to each holder of Notes by facsimile transmission and, simultaneously with
the sending of such facsimile notice, send a copy of such notice to each
such holder via an overnight courier of national reputation. Such written
notice shall contain, and such written notice shall constitute, an
irrevocable offer to prepay all, but not less than all, the Notes held by
such holder on a date specified in such notice (the "CONTROL PREPAYMENT
DATE") that is not less than 60 days and not more than 90 days after the
date of such notice, provided that, in the case of a Control Event that
does not give rise to a Change in Control, such notice shall be null and
void and in the case of a Control Event that does give rise to a Change in
Control which shall occur more than 90 days following the date the written
notice required by this Section 8.6(a) must be given, the Control
Prepayment Date may be delayed by the Company to a date not later than the
date on which the Change in Control arising from such Control Event shall
actually be consummated or finalized. If the Control Prepayment Date shall
not be specified in such notice, the Control Prepayment Date shall be the
60th day after the date of such notice; it being understood by the parties
hereto, for purposes of the avoidance of doubt, that any such notice shall
be dated the date on which it is first given to the holders of Notes and
that all notices to all holders of Notes shall bear the same date.
If the Company shall not have received a written response to such
written notice from any holder of Notes within 10 days after the date of
the facsimile transmission of
17
<PAGE>
such notice to such holder, the Company shall use its best efforts to send
a second written notice via an overnight courier of national reputation to
such holder of Notes but shall be under no obligation to do so.
(B) ACCEPTANCE AND PAYMENT; ACCEPTANCE.
(i) ACCEPTANCE AND PAYMENT. To accept or reject such offered
prepayment, a holder of Notes shall cause a notice of such acceptance
or rejection to be delivered to the Company not later than 30 days
after the date of the notice constituting such offered prepayment
(which, if there shall have been two written notices, shall be deemed
to be the first written notice). If so accepted, such offered
prepayment in respect of such principal amount of such Notes shall be
due and payable on the Control Prepayment Date. Such offered
prepayment shall be made at 100% of the principal amount of the Notes
held by holders having accepted such offer, together with interest on
the Notes then being prepaid accrued to the Control Prepayment Date
and the applicable Make-Whole Amount, if any.
(ii) REJECTION. A failure by any holder of Notes to respond
in writing to all written offers of prepayment referred to in Section
8.6(b) by the deadlines set forth therein shall be deemed to
constitute a rejection of such offer by such holder.
(C) OFFICER'S CERTIFICATE. Each offer to prepay the Notes pursuant
to this Section 8.6 shall be accompanied by a certificate, executed by a
Senior Financial Officer and dated the date of such offer, specifying:
(i) the Control Prepayment Date;
(ii) that such offer is being made pursuant to this Section
8.6 and that failure by a holder to respond to such offer by the
deadlines as established by this Section 8.6 shall result in such
offer to such holder being deemed rejected;
(iii) the interest that would be due on each such Note offered
to be prepaid, accrued to the date fixed for payment;
(iv) a calculation of the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of
such computation;
(v) that the conditions of this Section 8.6 have been
fulfilled; and
(vi) in reasonable detail, a description of the nature and
date or proposed date of the Change in Control.
(D) CALCULATION OF MAKE-WHOLE AMOUNT. Two Business Days prior to
the Control Prepayment Date, the Company shall deliver to each holder of
Notes that has accepted an offer of prepayment under this Section 8.6 a
certificate of a Senior Financial Officer specifying the calculation of
such Make-Whole Amount, if any, as of the Control Prepayment Date.
18
<PAGE>
(E) CANCELLATION OF NOTES. Any Note acquired by the Company under
this Section 8.6 shall be cancelled and shall not be reissued.
8.11 MAKE-WHOLE AMOUNT.
The term "MAKE-WHOLE AMOUNT" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make-Whole Amount may in no event be
less than zero. For the purposes of determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or Section 8.6, or
has become or is declared to be immediately due and payable pursuant to
Section 12.2, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, the sum of (a) 0.50% per annum plus (b) the yield to maturity
implied by (i) the yields reported, as of 10:00 a.m. (New York City time)
on the second Business Day preceding the Settlement Date with respect to
such Called Principal, on the display designated as "Page U.S.D." of the
Bloomberg Financial Markets Services Screen (or, if not available, any
other nationally recognized trading screen reporting on-line intraday
trading in the U.S. Treasury securities) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such time are not
ascertainable (including by interpolation), the Treasury Constant Maturity
Series Yields reported, for the latest day for which such yields have been
so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication) for actively
traded U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement Date.
Such implied yield will be determined, if necessary, by (1) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (2) interpolating linearly between (A) the
actively traded U.S. Treasury security with the maturity closest to and
greater than the Remaining Average Life and (B) the actively traded U.S.
Treasury security with the maturity closest to and less than the Remaining
Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing
(i) such Called Principal into
(ii) the sum of the products obtained by multiplying
19
<PAGE>
(a) the principal component of each Remaining Scheduled
Payment with respect to such Called Principal by
(b) the number of years (calculated to the nearest one-
twelfth year) that will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of
such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a date
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2,
Section 8.6 or Section 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or Section 8.6 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.2 COMPLIANCE WITH LAW.
The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4 INSURANCE.
The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
20
<PAGE>
9.6 MAINTENANCE OF PROPERTIES.
The Company will and will cause each of its Subsidiaries to maintain and
keep, or cause to be maintained and kept, their respective properties in good
repair, working order and condition (other than ordinary wear and tear), so that
the business carried on in connection therewith may be properly conducted at all
times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
9.8 PAYMENT OF TAXES AND CLAIMS.
The Company will and will cause each of its Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes, assessments,
charges or levies have become due and payable and before they have become
delinquent and all claims for which sums have become due and payable that have
or might become a Lien on properties or assets of the Company or any Subsidiary,
provided that neither the Company nor any Subsidiary need pay any such tax or
assessment or claims if (a) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (b) the nonpayment of all such taxes, assessments, charges
and levies in the aggregate could not reasonably be expected to have a Material
Adverse Effect.
9.9 CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.2, and 10.9, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of its Subsidiaries (unless merged into the Company or a
Wholly-Owned Subsidiary) and all rights and franchises of the Company and its
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate, have
a Material Adverse Effect.
21
<PAGE>
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.2 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Subsidiary to, enter into
directly or indirectly any Material transaction or Material group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary), except in the ordinary
course and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable arm's-
length transaction with a Person not an Affiliate.
10.3 MERGER, CONSOLIDATION, ETC.
The Company will not and will not permit any of its Subsidiaries to
consolidate or merge with or into any other Person or convey, transfer or lease
all or substantially all of its assets in a single transaction or series of
transactions to any Person (except that (x) any Subsidiary may consolidate or
merge with or into, or convey, transfer or lease all or substantially all of its
assets in a single transaction or series of transactions to, the Company or any
Wholly-Owned Subsidiary (provided, if such Subsidiary is a Subsidiary Guarantor,
then such successor or transferee shall also be (or concurrently with such
event, become) a Subsidiary Guarantor) and (y) any Subsidiary may transfer or
lease all or substantially all of its assets if permitted pursuant to Section
10.9(d)), provided that the foregoing restrictions do not apply to the
consolidation or merger of the Company with or into, or the conveyance, transfer
or lease of all or substantially all of the assets of the Company in a single
transaction or series of transactions to, any Person so long as:
(i) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or lease
all or substantially all of the assets of the Company as an entirety, as
the case may be (the "SUCCESSOR COMPANY"'), shall be a solvent corporation
organized and existing under the laws of the United States of America or
any State thereof (including, without limitation, the District of
Columbia);
(ii) if the Company is not the Successor Company, such Successor
Company shall have executed and delivered to each holder of any Notes its
assumption of the due and punctual payment of the principal of and premium,
if any, and interest on all of the Notes, according to their tenor, and the
due and punctual performance and observance of each covenant and condition
of this Agreement and the Notes and shall have caused to be delivered to
each holder of any Notes an opinion of independent counsel reasonably
satisfactory to the Required Holders, to the effect that all agreements or
instruments effecting such assumption have been duly authorized, executed
and delivered and are enforceable in accordance with their terms and comply
with the terms hereof;
(iii) each Subsidiary Guarantor shall have confirmed, in writing, its
obligations under the Subsidiary Guarantee; and
(iv) immediately before and after giving effect to such transaction
no Default or Event of Default would exist.
22
<PAGE>
No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor Company
from its liability under this Agreement or the Notes, and no such conveyance,
transfer or lease of all or substantially all of the assets of any Subsidiary
Guarantor shall have the effect of releasing such Subsidiary Guarantor from its
liability under the Subsidiary Guarantee except as provided in Section 10.13(c).
10.4 CONSOLIDATED TANGIBLE NET WORTH.
The Company will not, at any time, permit Consolidated Tangible Net Worth
to be less than the sum of
(i) $135,000,000, plus
(ii) an aggregate amount equal to 25% of Consolidated Adjusted Net
Income (but only if a positive number) for each completed fiscal quarter of
the Company beginning with the fiscal quarter ending December 31, 1998.
10.5 LIMITATION ON CURRENT DEBT.
The Company will not, and will not allow any Subsidiary to, have any
Current Debt outstanding on any date after the date of the Closing unless, for
any period of 30 consecutive days during the fiscal year of the Company most
recently ended prior to such time, the aggregate principal amount of
Consolidated Current Debt outstanding on each day during such 30 day period did
not exceed the amount of additional Consolidated Funded Debt which the Company
would have been permitted to incur on such day pursuant to Section 10.5(b).
10.6 LIMITATION ON DEBT.
(A) SUBSIDIARY DEBT. The Company will not permit any of its
Subsidiaries to directly or indirectly create, incur, assume, guarantee, or
otherwise become liable in respect of any Debt after the date of the
Closing, unless, after giving effect to the incurrence of such Debt and the
application of the proceeds thereof,
(i) no Default or Event of Default would exist and
(ii) the aggregate principal amount (without duplication) of
(A) all Debt of the Company then outstanding secured by
Liens permitted pursuant to clause (k) of Section 10.8
(excluding, in any case, any such Debt owing to a Subsidiary)
and
(B) all Adjusted Consolidated Subsidiary Debt then
outstanding
does not exceed 15% of Consolidated Tangible Net Worth, determined at
such time.
For the avoidance of doubt, this Section 10.5(a) shall have no
application to the creation, incurrence, assumption or guarantee of any
Debt of a Subsidiary owing to the Company or a Wholly-Owned Subsidiary, any
Debt of a Person existing at the time such
23
<PAGE>
Person becomes a Subsidiary (unless such Debt was created in anticipation
of, or in connection with, such Person becoming a Subsidiary), any Debt
owing by any Subsidiary that is a Subsidiary Guarantor and any Debt
expressly permitted under clause (f), (h), (i) or (j) of Section 10.8.
(B) LIMITATION ON FUNDED DEBT. The Company will not, at any time,
permit the ratio of Consolidated Funded Debt determined at such time to
Consolidated Net Capitalization determined as of the last day of the most
recently ended fiscal quarter of the Company to exceed 0.60:1.00.
10.7 FIXED CHARGE COVERAGE.
The Company will not at any time permit the ratio of
(a) Consolidated Net Income Available for Fixed Charges for the
period of 4 consecutive fiscal quarters of the Company then most recently
ended to
(b) Consolidated Fixed Charges for such period to be less than
1.75 to 1.0.
10.9 RESTRICTED PAYMENTS; RESTRICTED INVESTMENTS.
(B) RESTRICTED PAYMENTS. The Company will not, nor will it permit any
Subsidiary to, at any time, declare or make or incur any liability to
declare or make any Restricted Payment unless immediately after giving
effect to the proposed Restricted Payment no Default or Event of Default
would exist.
(D) AUTHORIZATION OF RESTRICTED PAYMENT. The Company will not, nor
will it permit any Subsidiary to, authorize a Restricted Payment that is
not payable within 60 days of authorization.
(F) RESTRICTED INVESTMENTS. The Company will not, nor will it permit
any Subsidiary to, at any time, make any Restricted Investment.
10.10 LIENS.
The Company will not and will not permit any of its Subsidiaries to
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or such Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom or assign or otherwise convey any right to receive such income or
profits, unless it makes, or causes to be made, effective provision whereby the
Notes will be equally and ratably secured with any and all other obligations
thereby secured, such security to be pursuant to an agreement reasonably
satisfactory to the Required Holders and, in any such case, the Notes shall have
the benefit, to the fullest extent that, and with such priority as, the holders
of the Notes may be entitled under applicable law, of an equitable Lien on such
property, provided that the foregoing restrictions and limitations shall not
apply to:
24
<PAGE>
(a) Liens for taxes, assessments or other governmental charges the
payment of which is not at the time required by Section 9.4, and
(b) Liens
(i) arising from judicial attachments and judgments,
(ii) securing appeal bonds or supersedeas bonds, or
(iii) arising in connection with court proceedings (including,
without limitation, surety bonds and letters of credit or any other
instrument serving a similar purpose),
provided that (1) the execution or other enforcement of such Liens is
effectively stayed, (2) the claims secured thereby are being actively
contested in good faith and by appropriate proceedings and (3) adequate
book reserves shall have been established and maintained with respect
thereto in accordance with GAAP;
(c) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen, inventory suppliers and other similar Liens, in
each case, incurred in the ordinary course of business for sums not yet due
or the payment of which is not at the time required by Section 9.4;
(d) leases or subleases granted to others, licenses, easements,
rights-of-way, restrictions, zoning restrictions, governmental restrictions
in respect of any property or property right or franchise of the Company or
any Subsidiary and other similar charges or encumbrances, in each case
incidental to, and not interfering with, the ordinary conduct of the
business of the Company and the Subsidiaries, taken as a whole, provided
that such charges and encumbrances do not, in the aggregate, materially
detract from the value of such property;
(e) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement benefits, or
(ii) to secure (or to obtain letters of credit that secure) the performance
of tenders, statutory obligations, surety bonds, appeal bonds, bids, leases
(other than Capital Leases), performance bonds, purchase, construction or
sales contracts, leases and other similar obligations, in each case not
incurred or made in connection with the borrowing of money, the obtaining
of advances or credit or the payment of the deferred purchase price of
property, and which Liens do not, in the aggregate, materially impair the
use of the property subject thereto in the operation of the business of the
Company and the Subsidiaries or the value of such property for the purposes
of such business;
(f) Liens (i) existing on the date of the Closing and referred to in
Schedule 5.15 and (ii) on the Company's membership interest in Del-Tin
Fiber L.L.C., an Arkansas limited liability company, to secure Debt of such
entity or any Guaranty of such Debt;
(g) Liens on property or assets of the Company or any Subsidiary
securing Debt owing to the Company or any Wholly-Owned Subsidiary;
25
<PAGE>
(h) Liens created to secure all or any part of the purchase price, or
to secure Debt incurred or assumed to pay all or any part of the purchase
price or cost of construction, of property (or any improvement thereon)
acquired or constructed by the Company or any Subsidiary, provided that all
of the following conditions are satisfied:
(i) any such Lien shall extend solely to the item or items of
such property (or improvement thereon) or proceeds thereof so acquired
or constructed and, if required by the terms of the instrument
originally creating such Lien, other property which is an improvement
to or is acquired for specific use in connection with such acquired or
constructed property (or improvement thereon) or which is real
property being improved by such acquired or constructed property (or
improvement thereon),
(ii) the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to the lesser of (A) the cost
to such person of the property (or improvement thereon) so acquired or
constructed and (B) the Fair Market Value (as determined in good faith
by the Board of Directors of the Company) of such property (or
improvement thereon) at the time of such acquisition or construction,
and
(iii) any such Lien shall be created contemporaneously with, or
within 180 days after, the acquisition or construction of such
property;
(i) Liens existing on property of a Person immediately prior to its
being consolidated or merged into the Company or any Subsidiary or its
becoming a Subsidiary, or any Lien existing on any property acquired by the
Company or any Subsidiary at the time such property is so acquired (whether
or not the Debt secured thereby shall have been assumed), provided that
(i) no such Lien shall have been created or assumed in
contemplation of such consolidation or merger or such Person's
becoming a Subsidiary or such acquisition of property,
(ii) each such Lien shall extend solely to the item or items of
property so acquired and proceeds thereof and, if required by the
terms of the instrument originally creating such Lien, other property
which is an improvement to or is acquired for specific use in
connection with such acquired property,
(iii) the principal amount of the Debt secured by any such Lien
shall at no time exceed an amount equal to the Fair Market Value (as
determined in good faith by the Board of Directors of the Company) of
such property at the time of such consolidation, merger, becoming a
Subsidiary or acquisition; and
(j) Liens renewing, extending or replacing Liens permitted by clauses
(a) through (i) above, provided that all of the following conditions are
satisfied:
(i) no such new Lien shall extend to any property of the
Company or any Subsidiary other than property already encumbered by
the existing Lien being so renewed, extended or replaced,
26
<PAGE>
(ii) the principal amount of the underlying obligation secured
by such existing Lien outstanding at the time of such renewal,
extension or replacement shall not be increased in connection with
such renewal, extension or replacement and the average life thereof
shall not be reduced, and
(iii) immediately after such renewal, extension or refunding no
Default or Event of Default shall exist;
(k) any Lien (other than a Lien permitted under clause (a) through
clause (j) above) securing any Debt of the Company or any Subsidiary, which
Debt, as of the date of the creation of such Lien, does not exceed the
remainder of
(i) 15% of Consolidated Tangible Net Worth, determined as of
the end of the most recently ended fiscal quarter of the Company,
minus
(ii) the sum (without duplication) of (A) the aggregate
principal amount of all Adjusted Consolidated Subsidiary Debt
outstanding as of the date of creation of such Lien plus (B) the total
amount of Debt of the Company outstanding as of the date of creation
of such Lien secured by Liens pursuant to this clause (k).
For the purposes of this Section 10.8, any Person becoming a Subsidiary
after the date of the Closing shall be deemed, at the time it becomes a
Subsidiary, to have incurred all of its then existing Liens securing outstanding
Debt.
10.11 SALE OF ASSETS, ETC.
Neither the Company nor any Subsidiary will make any Transfer, provided
that the foregoing restriction does not apply to a Transfer:
(a) if the asset that is the subject of such Transfer constitutes
either (i) inventory held for sale or (ii) equipment, fixtures, supplies or
materials no longer required in the operation of the business of the
Company or any Subsidiary or that is obsolete, and, in each case, such
Transfer is in the ordinary course of business;
(b) if such Transfer is from the Company or any Subsidiary to any
Wholly-Owned Subsidiary or any Subsidiary to the Company or to any Wholly-
Owned Subsidiary;
(c) if such Transfer is subject to Section 10.2 and satisfies the
requirements thereof;
(d) if such Transfer is not a Transfer described in clause (a)
through clause (c) above (each Transfer not described in clause (a) through
clause (c) above is referred to as a "BASKET TRANSFER"'), and all of the
following conditions shall have been satisfied with respect to such
Transfer:
(i) the Transfer is in exchange for consideration with a Fair
Market Value (determined in good faith by a Responsible Officer) at
least equal to that of the asset exchanged,
27
<PAGE>
(ii) immediately after giving effect to such transaction no
Default or Event of Default would exist, and
(iii) immediately after giving effect to such Transfer:
(A) if such asset so Transferred consists of Timberland
Assets, the Fair Market Value of all Timberland Assets that were
the subject of Basket Transfers after the date of the Closing
occurring during the period of 365 days immediately preceding
such time would not exceed 10% of Consolidated Total Assets
determined as of the last day of the then most recently ended
fiscal quarter of the Company;
(B) if such asset so Transferred is not a Timberland
Asset, the net book value of all assets other than Timberland
Assets that were the subject of Basket Transfers after the date
of the Closing occurring during the period of 365 days
immediately preceding such time would not exceed 15% of
Consolidated Total Assets determined as of the last day of the
then most recently ended fiscal quarter of the Company; and
(C) the sum of
(I) the Fair Market Value of all Timberland Assets
that were the subject of each Basket Transfer after the
date of the Closing occurring during the period of 365
days immediately preceding such time plus
(II) the net book value of all property other than
Timberland Assets that was the subject of each Basket
Transfer after the date of the Closing occurring during
the period of 365 days immediately preceding such time
would not exceed 15% of Consolidated Total Assets determined as
of the last day of the then most recently ended fiscal quarter
of the Company.
If the Net Proceeds Amount, or any portion thereof, with respect to
any Basket Transfer is applied to a Debt Prepayment Application and/or is
applied to, or committed in writing to, a Property Reinvestment
Application, in each case within 365 days (or, in the case of the Chenal
Valley Transfer, within 730 days) after the consummation of such Transfer
(and, in the case of any such commitment, such Property Reinvestment
Application is actually consummated within 30 days after the expiration of
such 365-day period, or such 730-day period, as the case may be), then such
Basket Transfer (or, in the case of a partial application or partial
commitment of such Net Proceeds Amount, a ratable portion of such Basket
Transfer) shall be excluded from any calculations set forth above in
subclause (iii) of this clause (d).
For purposes of determining the book value of any asset that is the
subject of a Transfer, such book value shall be the net book value of such asset
as determined in accordance with GAAP, at the time of the consummation of such
Transfer, provided that, in the case of a Transfer of any capital stock or other
equity interests of a Subsidiary, the book value thereof shall be deemed to be
an amount equal to
28
<PAGE>
(A) the remainder (determined after eliminating all inter-company
transactions, assets and liabilities in accordance with GAAP) of
(1) the book value of the total net assets of such Subsidiary
less
(2) the liabilities of such Subsidiary times
(B) a percentage that is equal to the percentage of total equity
interests of such Subsidiary attributable to the capital stock or other
equity interest being so Transferred.
10.12 LINE OF BUSINESS.
The Company will not and will not permit any Subsidiary to engage in any
business if, as a result, the general nature of the businesses in which the
Company and the Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the businesses of the Company
and the Subsidiaries as described in the Memorandum.
10.13 PAN PASSU OBLIGATIONS.
The Company covenants that its obligations under the Notes and under
this Agreement do and will rank at least pan passu in right of payment with all
of its other present and future unsecured and unsubordinated Debt except for
those obligations that are mandatorily preferred by law.
10.15 RESTRICTIONS ON DIVIDENDS OF SUBSIDIARIES, ETC.
Except as provided for in this Agreement, the Company will not, and
will not permit any of its Subsidiaries to, enter into any agreement with a
Person other than the Company or another Subsidiary which would restrict any
such Subsidiary's ability or right to pay dividends to, or make advances to or
Investments in, the Company or, if such Subsidiary is not directly owned by the
Company, the "parent" Subsidiary of such Subsidiary.
10.16 MAINTENANCE OF GUARANTEES OF SUBSIDIARIES.
(A) ADDITIONAL SUBSIDIARY GUARANTORS -- Conformity to Certain Other
Agreements. No Subsidiary will be or become a guarantor, obligor or co-
obligor in respect of any bank credit facility of the Company unless such
Subsidiary is already a party to, and a guarantor under, the Subsidiary
Guarantee or unless such Subsidiary shall contemporaneously therewith
become a party to, and a guarantor under, the Subsidiary Guarantee.
(b) DELIVERY OF SUBSIDIARY GUARANTEE. In connection with any
Subsidiary becoming a Subsidiary Guarantor under clause (a) of this Section
10.13, (i) if the Subsidiary Guarantee is not outstanding and in effect at
such time, then the Company shall cause such Subsidiary to execute and
deliver to each holder of Notes (x) the Subsidiary Guarantee, substantially
in the form thereof set forth in Exhibit B(SG), and (y) each of the
documents, certificates and opinions described on Annex 3 to the Subsidiary
Guarantor Accession Agreement (defined below) prepared with respect to such
Subsidiary, and until the Subsidiary Guarantee and each of such documents,
certificates
29
<PAGE>
and opinions is delivered to each of the holders of Notes, such Subsidiary
shall not be deemed to be a Subsidiary Guarantor hereunder and (ii) if the
Subsidiary Guarantee is outstanding and in effect at such time, then the
Company shall cause such Subsidiary to execute and deliver to each holder
of Notes a Subsidiary Guarantor Accession Agreement, substantially in the
form thereof set forth in Exhibit B(SGAA) (together with each of the
documents, certificates and opinions set forth on the schedules thereto, a
("SUBSIDIARY GUARANTOR ACCESSION AGREEMENT"), and until such Subsidiary
Guarantor Accession Agreement is delivered to each of the holders of
Notes, such Subsidiary shall not be deemed to be a Subsidiary Guarantor
hereunder.
(c) RELEASE OF SUBSIDIARY GUARANTEE OF SUBSIDIARY GUARANTORS. If,
with respect to any Subsidiary that is a Subsidiary Guarantor,
(i) all, or substantially all, of the assets of such Subsidiary
Guarantor are Transferred in accordance with the requirements of
Sections 10.2 and 10.9 and such Subsidiary Guarantor is wound-up and
terminated in accordance with the requirements of Section 9.5 or is
deemed, in the good faith opinion of a Senior Financial Officer, to
not have material assets,
(ii) all of the Company's and any Subsidiary's capital shares or
other equity ownership interests in such subsidiary Guarantor is
Transferred in accordance with the requirements of Section 10.9, or
(iii) such Subsidiary Guarantor is not required to be maintained
as a Subsidiary Guarantor in order for the Company to remain in
compliance with Section 10.13(a),
then the Company may elect to cause the withdrawal of such Subsidiary
Guarantor from the Subsidiary Guarantee and such Subsidiary Guarantor will
thereby be deemed to be fully discharged from the Subsidiary Guarantee.
Such election shall be exercised by a Senior Financial Officer (A)
informing, in writing, each holder of Notes of such election, (B)
certifying that the requirements of this Section 10.13(c) have been
satisfied, (C) certifying that the requirements of Section 10.13(a) will
be satisfied immediately after giving effect to the withdrawal and
cessation of the Subsidiary Guarantor with respect to the Subsidiary
Guarantee and (D) certifying that no Default or Event of Default exists.
Thereafter, such Subsidiary Guarantor shall be discharged from the
Subsidiary Guarantee and, at the Company's election and expense and upon
the Company's reasonable request, the holders of the Notes will provide
written confirmation of each such discharge. Any Subsidiary Guarantor that
has been discharged is nonetheless available to again become a "Subsidiary
Guarantor" in accordance with Section 10.13(a).
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
30
<PAGE>
(b) the Company defaults in the payment of any interest on any Note
for more than 5 Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in Section 10 or Section 7.1(d); or
(d) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) and such default is not remedied within 30
days after the earlier of (i) a Responsible Officer obtaining actual
knowledge of such default and (ii) the Company receiving written notice of
such default from any holder of a Note; or
(e) any representation or warranty made in writing by or on behalf of
the Company or any Subsidiary Guarantor or by any officer of the Company
or any Subsidiary Guarantor in this Agreement or in any writing furnished
in connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which
made; or
(f) (i) the Company or any Subsidiary is in default (as principal or
as guarantor or other surety) in the payment of any principal of or
premium or make-whole amount or interest on any Debt (other than Debt
under this Agreement, the Subsidiary Guarantee and the Notes) beyond
any period of grace provided with respect thereto, that individually
or together with such other Debt as to which any such failure exists
has an aggregate outstanding principal amount of at least $5,000,000,
or
(ii) the Company or any Subsidiary is in default in the
performance of or compliance with any term of any evidence of any Debt
(other than Debt under this Agreement, the Subsidiary Guarantee and the
Notes), that individually or together with such other Debt as to which
any such failure exists has an aggregate outstanding principal amount
of at least $5,000,000, or of compliance with any mortgage, indenture
or other agreement relating thereto or any other condition exists, and
as a consequence of such default or condition such Debt has become, or
has been declared (or one or more Persons are entitled to declare such
Debt to be), due and payable before its stated maturity or before its
regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the
holder of Debt to convert such Debt into equity interests),
(A) the Company or any Subsidiary has become obligated
(other than at its election) to purchase or repay Debt before
its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of at least
$5,000,000 or
(B) one or more Persons have the right to require the
Company or any Subsidiary to purchase or repay Debt in an
aggregate outstanding principal amount of at least $5,000,000 and
have exercised such right; or
31
<PAGE>
(g) the Company or any Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due, (ii)
files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition
in bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (iii) makes an assignment for the benefit of its creditors,
(iv) consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of the
foregoing; or
(h) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any
Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to the Company or any Subsidiary or with respect to any
substantial part of the property of the Company or any Subsidiary, or
constituting an order for relief or approving a petition for relief or
reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any
Subsidiary, or any such petition shall be filed against the Company or any
Subsidiary and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of the
Company and any Subsidiary and which judgments are not, within 60 days
after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code,
(ii) a notice of intent to terminate any Plan shall have been
or is reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed
$5,000,000,
(iv) the Company or any ERISA Affiliate shall have incurred
or is reasonably expected to incur any liability in the nature of a
penalty, excise tax or fine pursuant to Title I of ERISA, any
liability under Title IV of ERISA or any liability under penalty or
excise tax provisions of the Code relating to employee benefit plans,
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or
32
<PAGE>
(vi) the Company or any Subsidiary establishes or amends any
employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company
or any Subsidiary thereunder;
and any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect; or
(I) the Subsidiary Guarantee in respect of any Subsidiary
Guarantor or any provision thereof shall cease to be in full force or
effect except as otherwise provided herein, or any Subsidiary Guarantor or
any Person acting by or on behalf of such Subsidiary Guarantor shall deny
or disaffirm such Subsidiary Guarantor's obligations under the Subsidiary
Guarantee, or any Subsidiary Guarantor shall default in the due performance
or observance of any term, covenant or agreement on its part to be
performed pursuant to the Subsidiary Guarantee.
As used in Section 11 (j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
33
<PAGE>
12. REMEDIES ON DEFAULT, ETC.
12.2 ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or paragraph (h) of Section 11 (other than
an Event of Default described in clause (i) of paragraph (g) or
described in clause (vi) of paragraph (g) by virtue of the fact that
such clause encompasses clause (i) of paragraph (g)) has occurred, all
the Notes then outstanding shall automatically become immediately due
and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 33 and 1/3% in principal
amount of the Notes at the time outstanding may at any time at its or
their option, by notice or notices to the Company, declare all the
Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.4 OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.6 RESCISSION.
At any time after any Notes have been declared due and payable pursuant
to clause (b) or clause (c) of Section 12.1, the holders of not less than 67% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (i)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, due and payable on any Notes other than by reason of
such
34
<PAGE>
declaration, and all interest on such overdue principal and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (ii) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (iii) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
12.7 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.2 REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.
13.4 TRANSFER AND EXCHANGE OF NOTES.
Except as set forth in the last sentence of this Section 13.2, upon
surrender of any Note at the principal executive office of the Company for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Note or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the holder thereof) in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1. Each such new Note shall be dated and
bear interest from the date to which interest shall have been paid on the
surrendered Note or dated the date of the surrendered Note if no interest shall
have been paid thereon. The Company may require payment of a sum sufficient to
cover any stamp tax or governmental
35
<PAGE>
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $1,000,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $1,000,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2. Notwithstanding anything to the contrary contained herein, no Note
shall be transferred to a Competitor.
13.6 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note
is, or is a nominee for, an original Purchaser or another holder of a
Note with a minimum net worth of at least $100,000,000, such Person's
own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.2 PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if any,
and interest becoming due and payable on the Notes shall be made in El Dorado,
Arkansas at the principal office of First National Bank of El Dorado, Arkansas
in such jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of payment
shall be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
14.4 HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in writing for such purpose, without the presentation or surrender
of such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the
36
<PAGE>
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.2 TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated, the
Company will pay all costs and expenses (including reasonable attorneys' fees of
one special counsel and, if reasonably required, one local counsel) incurred
jointly by you and each other holder of a Note in connection with such
transactions and in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Notes (whether or not such amendment, waiver
or consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement or the Notes or in responding
to any subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the Notes, or by reason of being a holder
of any Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary Guarantor or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
15.4 SURVIVAL.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
37
<PAGE>
17.2 REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of any of Sections 1, 2, 3, 4, 5, 6 and 21, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in
writing, (b) no such amendment or waiver may, without the written consent of the
holder of each Note at the time outstanding affected thereby, (i) subject to the
provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes and (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver and (c) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby
amend any of Sections 8,11(a), 11(b), 12, 17 and 20.
17.4 SOLICITATION OF HOLDERS OF NOTES.
(B) SOLICITATION. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is
required, to enable such holder to make an informed and considered decision
with respect to any proposed amendment, waiver or consent in respect of any
of the provisions hereof or of the Notes. The Company will deliver executed
or true and correct copies of each amendment, waiver or consent effected
pursuant to the provisions of this Section 17 to each holder of outstanding
Notes promptly following the date on which it is executed and delivered by,
or receives the consent or approval of, the requisite holders of Notes.
(D) PAYMENT. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder
of Notes as consideration for or as an inducement to the entering into by
any holder of Notes of any waiver or amendment of any of the terms and
provisions hereof unless such remuneration is concurrently paid, or
security is concurrently granted, on the same terms, ratably to each holder
of Notes then outstanding even if such holder did not consent to such
waiver or amendment.
(C) CONSENT IN CONTEMPLATION OF TRANSFER. Any consent made
pursuant to this Section 17 by a holder of Notes that has transferred or
has agreed to transfer its Notes to the Company, any Subsidiary or any
Affiliate of the Company and has provided or has agreed to provide such
written consent as a condition to such transfer shall be void and of no
force or effect except solely as to such holder, and any amendments
effected or waivers granted or to be effected or granted that would not
have been or would not be so effected or granted but for such consent (and
the consents of all other holders of Notes that were acquired under the
same or similar conditions) shall be void and of no force or effect except
solely as to such holder.
17.5 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 17 applies
equally to all holders of Notes and is binding upon them and upon each future
holder of any Note and upon
38
<PAGE>
the Company without regard to whether such Note has been marked to indicate such
amendment or waiver. No such amendment or waiver will extend to or affect any
obligation, covenant, agreement, Default or Event of Default not expressly
amended or waived or impair any right consequent thereon. No course of dealing
between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
17.6 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the requisite
percentage of the aggregate principal amount of Notes then outstanding approved
or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other address
as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of Clefton D. Vaughan, telecopier:
(870) 881-6457, or at such other address as the Company shall have
specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the
39
<PAGE>
original is in existence and whether or not such reproduction was made by you in
the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 19 shall not prohibit the Company or any other holder of Notes from
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement, provided that such term does not include information that
(a) was publicly known or otherwise known to you prior to the
time of such disclosure,
(b) subsequently becomes publicly known through no act or
omission by you or any person acting on your behalf,
(c) otherwise becomes known to you other than through
disclosure by the Company or any Subsidiary, or
(d) constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available.
You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to:
(i) your directors, officers, trustees, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates
to the administration of the investment represented by your Notes),
(ii) your financial advisors and other professional advisors who
agree to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 20,
(iii) any other holder of any Note,
(iv) any Institutional Investor to which you sell or offer to sell
such Note or any part thereof or any participation therein (if such Person
has agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 20),
(v) any Person from which you offer to purchase any security of
the Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section
20),
(vi) any federal or state regulatory authority having jurisdiction
over you,
40
<PAGE>
(vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires
access to information about your investment portfolio or
(viii) any other Person to which such delivery or disclosure may be
necessary or appropriate
(A) to effect compliance with any law, rule, regulation or
order applicable to you,
(B) in response to any subpoena or other legal process,
(C) in connection with any litigation to which you are a
party, or
(D) if an Event of Default has occurred and is continuing,
to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies under your Notes and this
Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
22. MISCELLANEOUS.
22.2 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
41
<PAGE>
22.4 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary notwithstanding,
any payment of principal of or Make-Whole Amount or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation of
the interest payable on such next succeeding Business Day.
22.6 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.8 CONSTRUCTION.
Each covenant contained herein shall be construed (absent express provision
to the contrary) as being independent of each other covenant contained herein,
so that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.
22.10 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.12 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
[Remainder of page intentionally blank. Next page is signature page.]
42
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
DELTIC TIMBER CORPORATION
By____________________________
Name:
Title:
The foregoing is hereby
agreed to as of the
date thereof.
[PURCHASER]
By______________________________
Name:
Title:
<PAGE>
SCHEDULE A
INFORMATION RELATING TO PURCHASER
<TABLE>
<CAPTION>
=================================================================================================================================
<S> <C>
PURCHASER NAME PACIFIC COAST FARM CREDIT SERVICES, ACA
- ---------------------------------------------------------------------------------------------------------------------------------
Name in Which Note is Registered Pacific coast Farm credit Services, ACA
- ---------------------------------------------------------------------------------------------------------------------------------
Note Registration Number; Principal R-1; $40,000,000
Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Payment on Account of Note
Federal Funds Wire Transfer
Bank of America
Method 10 Santa Rosa Avenue
Santa Rosa, CA 95405
Account Information ABA No. 121000358
For the Account of: Pacific coast Farm credit Services, ACA
Account No. 14984-00266
- ---------------------------------------------------------------------------------------------------------------------------------
Accompanying Information Name of company: DELTIC TIMBER CORPORATION
Description of
Security: 6.66% Senior Notes due December 18, 2008
PPN: 247850 A*1
Due Date and Application (as among
principal, Make-Whole Amount and
interest) of the payment being made:
- ---------------------------------------------------------------------------------------------------------------------------------
Address for Notices Related to Tina Anaya
Payments P.O. Box 1120
Santa Rosa, CA 95402
Tel: (707) 545-1200
Fax: (707) 545-4446
- ---------------------------------------------------------------------------------------------------------------------------------
Katherine Wheelock
P.O. Box 398
Address for all other Notices Fields Landing, CA 95537
or: 5560 South Broadway
Eureka, CA 95503
- ---------------------------------------------------------------------------------------------------------------------------------
Instructions re Delivery of Notes Law Department of Purchaser
Tax IdentifIcation Number 94-1160795
=================================================================================================================================
</TABLE>
Schedule A-1
<PAGE>
SCHEDULE B
DEFINED TERMS
-------------
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"ADJUSTED CONSOLIDATED SUBSIDIARY DEBT" means, as of any date of
determination, the total of all Debt of all Subsidiaries outstanding, in each
case, on such date, after eliminating (without duplicative effect):
(a) any such Debt owing by any Subsidiary to the Company or any
other Wholly-Owned Subsidiary;
(b) any such Debt owing by any Subsidiary that is a Subsidiary
Guarantor; and
(c) any such Debt secured by Liens expressly permitted under
clause (f), (h), (i) or (j) of Section 10.8.
"AFFILIATE" means at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly
through one or more intermediaries Controls, or is Controlled by, or
is under common Control with, such first Person, and
(b) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of
the Company or any Subsidiary or any corporation of which the Company
and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 10% or more of any class of voting or equity
interests.
As used in this definition, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
"AGREEMENT, THIS" is defined in Section 17.3.
"BUSINESS DAY" means (a) for the purposes of Section 8.7 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in El Dorado, Arkansas are required or authorized
to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to the Company or any
of its Subsidiaries and a Capital Lease, the amount of the obligation of such
Person as the lessee
Schedule B-1
<PAGE>
under such Capital Lease which would, in accordance with GAAP, appear as a
liability on a balance sheet of such Person.
"CAPITAL STOCK" means any class of capital stock, share capital or
similar equity interest of a Person.
"CHANGE IN CONTROL" means, at any time, the acquisition by any person
(as such term is used in section 13(d) and section 14(d)(2) of the Exchange
Act) or related persons constituting a group (as such term is used in Rule 13d-5
under the Exchange Act), directly or indirectly, of the beneficial ownership and
control of more than 50% of the total voting power of all of the then issued and
outstanding Voting Stock of the Company or any Successor Company.
"CHENAL VALLEY TRANSFER" means the Transfer of all or substantially
all of the property identified on Schedule B-CVT.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"COMPANY" is defined in the introductory sentence of this Agreement.
"COMPETITOR" means each Person identified on Schedule B-C (and each of
the majority-owned affiliates thereof) and each other Person identified in
writing to the holders of Notes at such time (and each of the majority-owned
affiliates of such Person) as having been determined in good faith by the
Company to be a competitor of the Company or any Subsidiary in a line of
business that is described in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31,1997 and in which the Company and its Subsidiaries
are involved to a Material extent.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED ADJUSTED NET INCOME" shall mean (without duplication)
for any period consolidated net income (or loss) of the Company and its
Subsidiaries, as determined in accordance with GAAP, after excluding the sum of
(i) net earnings (or losses) of any Subsidiary accrued prior
to the date it becomes a Subsidiary or is merged with or consolidated
into the Company or any Subsidiary;
(ii) the net earnings (or losses) of any Person (other than a
Subsidiary) in which the Company or a Subsidiary has an ownership
interest that has not been received in the form of cash;
(iii) the undistributed earnings of any Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Subsidiary;
Schedule B-2
<PAGE>
(iv) any restoration to income of any contingency reserve
(other than reserves established in the normal course of business,
such as allowances for uncollectible accounts), except to the extent
that such reserve was established during such period;
(v) any gain on the sale or disposition of Investments or
fixed or capital assets, including any tax effect;
(vi) any gains resulting from any write-up of assets;
(vii) any net gain from the proceeds of any life insurance
policy;
(viii) any gain arising from the acquisition of any securities
of the Company or Subsidiary;
(ix) any net income or gain resulting from changes in GAAP,
any extraordinary items, or any discontinued operations;
(x) any deferred or other credit representing the excess of
the equity in any Subsidiary over the cost of the investment at the
acquisition date;
(xi) in the case of a successor to the Company by
consolidation or merger, any earnings of the successor corporation
prior to such consolidation or merger; and
(xii) any income not freely convertible into U.S. Dollars.
"CONSOLIDATED CURRENT DEBT" means, at any time, the total of all
Current Debt of the Company and its Subsidiaries outstanding on such date,
determined on a consolidated basis at such time in accordance with GAAP.
"CONSOLIDATED CURRENT LIABILITIES" means, at any time, the amount of
current liabilities of the Company and its Subsidiaries, determined on a
consolidated basis at such time in accordance with GAAP.
"CONSOLIDATED DEBT" means, at any time, the total of all Debt of the
Company and its Subsidiaries outstanding on such date, determined on a
consolidated basis at such time in accordance with GAAP.
"CONSOLIDATED FIXED CHARGES" shall mean with respect to any period, the
sum of (i) Interest Expense and (ii) Lease Rentals, in each case for the Company
and its Subsidiaries for such period, determined on a consolidated basis at such
time in accordance with GAAP.
"CONSOLIDATED FUNDED DEBT" means, at any time, the total of all Funded
Debt of the Company and its Subsidiaries outstanding on such date, determined on
a consolidated basis at such time in accordance with GAAP.
"CONSOLIDATED INTANGIBLE ASSETS" means, at any time, the aggregate
amount of the following assets to the extent included in determining
Consolidated Total Assets at such time: debt discount and expense, goodwill (to
the extent, but only to the extent, such goodwill was recorded on the books of
the Company and its Subsidiaries after the date of the Closing), trademarks,
trade names, patents, deferred assets (other than prepaid insurance and prepaid
Schedule B-3
<PAGE>
taxes), copyrights, franchises, experimental expense and other similar
intangible assets of the Company and its Subsidiaries, determined on a
consolidated basis at such time in accordance with GAAP and after netting
therefrom all amortization or depreciation, if any, in respect thereof.
"CONSOLIDATED NET CAPITALIZATION" means, at any time, Consolidated Net
Tangible Assets at such time minus Consolidated Current Liabilities determined
at such time.
"CONSOLIDATED NET INCOME AVAILABLE FOR FIXED CHARGES" shall mean for
any period the sum of (i) Consolidated Adjusted Net Income for such period, (ii)
income tax expense to the extent included in the determination of Consolidated
Adjusted Net Income for such period and (iii) Consolidated Fixed Charges for
such period.
"CONSOLIDATED NET TANGIBLE ASSETS" means, at any time, Consolidated
Total Assets at such time minus Consolidated Intangible Assets at such time.
"CONSOLIDATED TANGIBLE NET WORTH" means, at any time, Consolidated Net
Capitalization minus Consolidated Funded Debt, in each case determined at such
time.
"CONSOLIDATED TOTAL ASSETS" means, at any time, the total assets of
the Company and its Subsidiaries determined on a consolidated basis at such time
in accordance with GAAP, after deducting related depreciation, obsolescence,
amortization, valuation and other proper reserves and excluding any amount on
account of write-ups of assets subsequent to the date of the Closing.
"CONTROL EVENT" means:
(a) the execution by the Company or an Affiliate of the
Company of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events
which, individually or in the aggregate, may reasonably be expected to
result in a Change in Control,
(b) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control,
or
(c) the making of any written offer by any person (as such
term is used in section 13(d) and section 14(d)(2) of the Exchange
Act) or related persons constituting a group (as such term is used in
Rule 13d-5 under the Exchange Act) to the holders of the Voting Stock
of the Company, which offer, if accepted by the requisite number of
holders, would result in a Change in Control.
"CONTROL PREPAYMENT DATE" is defined in Section 8.6.
"CURRENT DEBT" -- means at any time, with respect to any Person, all
Debt of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures on demand or within one year from the date of
the creation thereof and is not directly or indirectly renewable or extendible
at the option of the obligor in respect thereof to a date one year or more from
such date, provided that (a) Debt outstanding under a revolving credit or
similar agreement which obligates the lender or lenders to extend credit over a
period of one year or more shall constitute Funded Debt and not Current Debt,
even though such Debt by its terms matures on
Schedule B-4
<PAGE>
demand or within one year from such date, and (b) Current Maturities of Funded
Debt shall be deemed to constitute "Current Debt."
"CURRENT MATURITIES OF FUNDED DEBT" means, at any time and with
respect to any item of Funded Debt of any Person, the portion of such Funded
Debt outstanding at such time which by the terms of such Funded Debt or the
terms of any instrument or agreement relating thereto is due on demand or within
one year from such time (whether by sinking fund, other required prepayment or
final payment at maturity) and is not directly or indirectly renewable,
extendible or refundable at the option of the obligor under an agreement or firm
commitment in effect at such time to a date one year or more from such time.
"DEBT" means, with respect to the Company or any of its Subsidiaries,
without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising
in the ordinary course of business, but including, without limitation,
all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) all reimbursement obligations in respect of any letter of
credit issued for the account of such Person other than (i) commercial
letters of credit issued in the ordinary course of such Person's
business (and not as a substitute for direct borrowing or Guaranties
thereof) and (ii) letters of credit issued in the ordinary course of
such Person's business that act as the functional equivalent of a
surety bond or performance bond for such Person;
(f) such Person's obligations in respect of any Mandatorily
Redeemable Preferred Stock, in each case taken at the greatest of (i)
its voluntary liquidation or redemption price, (ii) its involuntary
liquidation or redemption price and (iii) its stated par value, in
each case as determined at such time;
(g) Swaps of such Person; and
(h) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (g) hereof.
For the purposes of the avoidance of doubt, "Debt" shall not include
any benefit liability or funding obligation of the Company or any of its
Subsidiaries in respect of any Plan. For purposes of determining "Debt," no
amount listed above shall be included more than once in such determination, and
all obligations of any Person of the character described in clauses (a) through
(h) above shall be included in such determination if such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
have been extinguished under
Schedule B-5
<PAGE>
GAAP (provided that any assets that have been derecognized by GAAP with respect
to such extinguishment are counted as "assets" for purposes of any GAAP
determinations under this Agreement).
"DEBT PREPAYMENT APPLICATION" means, with respect to any Transfer of
property, the prepayment by the Company or any Subsidiary Guarantor of any
Senior Debt (other than Senior Debt owing to any Affiliate and other than Senior
Debt in respect of any revolving credit or similar credit facility providing the
Company or a Subsidiary Guarantor with the right to obtain loans or other
extensions of credit from time to time, except to the extent that in connection
with such payment of Senior Debt the availability of credit under such credit
facility is permanently reduced by an amount not less than the amount of such
proceeds applied to the payment of such Senior Debt), together with any interest
and premium in respect thereof, in cash and in an amount not exceeding the Net
Proceeds Amount with respect to such Transfer.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means the lesser of
(a) the maximum rate of interest allowed by applicable law,
and
(b) the greater of (i) 8.66% per annum and (ii) 2% per annum
over the rate of interest publicly announced from time to time by
Morgan Guaranty Trust Company of New York (or its successors) in New
York, New York as its "base" or "prime" rate.
"DISTRIBUTION" means, in respect of any corporation, association or
other business entity:
(a) dividends or other distributions or payments on capital
stock or other equity interest of such corporation, association or
other business entity (except distributions in such stock or other
equity interest); and
(b) the redemption or acquisition of such stock or other
equity interests or of warrants, rights or other options to purchase
such stock or other equity interests (except when solely in exchange
for such stock or other equity interests).
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
Schedule B-6
<PAGE>
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.
"FAIR MARKET VALUE" means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).
"FUNDED DEBT" means, with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures, or which is otherwise payable or unpaid, one year or
more from, or is directly or indirectly renewable or extendible at the option of
the obligor in respect thereof to a date one year or more (including, without
limitation, an option of such obligor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more) from, the date of the creation thereof. For the avoidance of
doubt, Debt that is not Current Debt shall be deemed to be Funded Debt.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any state or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or that
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
indebtedness, dividend or other obligation of any other Person in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment
of such indebtedness or obligation, or (ii) to maintain any working
capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make
available funds for the purchase or payment of such indebtedness or
obligation;
Schedule B-7
<PAGE>
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness
or obligation of the ability of any other Person to make payment of
the indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or
obligation against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor under
any Guaranty, the indebtedness or other obligations that are the subject of such
Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"INTEREST EXPENSE" means, with respect to any period, the sum (without
duplication) of the following (in each case, eliminating all offsetting debits
and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP): (a) all interest in respect of Debt of the Company and its Subsidiaries
(including imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Adjusted Net Income for such period, and (b) all debt
discount and expense amortized or required to be amortized in the determination
of Consolidated Adjusted Net Income for such period. For the avoidance of doubt,
Distributions in respect of Mandatorily Redeemable Preferred Stock of the
Company shall not be included in the calculation of Interest Expense.
"INVESTMENT" means any investment, made in cash or by delivery of
property, by the Company or any of its Subsidiaries (a) in any Person, whether
by acquisition of stock, indebtedness or other obligation or Security, or by
loan, Guaranty, advance, capital contribution or otherwise, or (ii) in any
property.
"LEASE RENTALS" means, with respect to any period, the sum of the
minimum amount of rental and other obligations required to be paid during such
period by the Company or any Subsidiary as lessee under all leases of real or
personal property (other than Capital Leases), excluding any amounts required to
be paid by the lessee (whether or not therein designated as rental or additional
rental) (a) which are on account of maintenance and repairs, insurance, taxes,
assessments, water rates and similar charges, or (b) which are based on profits,
revenues
Schedule B-8
<PAGE>
or sales realized by the lessee from the leased property or otherwise based on
the performance of the lessee.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MAKE-WHOLE AMOUNT" is defined in Section 8.7.
"MANDATORILY REDEEMABLE PREFERRED STOCK" -- means, with respect to any
Person, such Person's Preferred Stock to the extent that it is required to be
redeemed, purchased or otherwise retired or extinguished, or is convertible into
Debt of, such Person.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Notes, or (c) the
validity or enforceability of this Agreement or the Notes.
"MEMORANDUM" is defined in Section 5.3.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001 (a)(3) of ERISA).
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLACEMENT AGENT" means NationsBanc Montgomery Securities LLC and any
of its affiliates.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
Schedule B-9
<PAGE>
"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PROPERTY OR PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.
"PROPERTY REINVESTMENT APPLICATION" means, with respect to any
Transfer of property, the application of part or all of the Net Proceeds Amount
with respect to such Transfer to the acquisition by the Company or a Subsidiary
of property of a similar utility or a business (or an interest therein)
reasonably related to the business of the Company and the Subsidiaries, taken as
a whole (as determined by the Board of Directors in good faith).
"PTE" is defined in Section 6.2(a).
"QPAM EXEMPTION" is defined in Section 6.2(d).
"REQUIRED HOLDERS" means, at any time, the holder or holders of at
least 51% in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"RESTRICTED INVESTMENTS" means all Investments except the following:
(a) Investments in property to be used in the ordinary course
of business of the Company and its Subsidiaries;
(b) Investments in inventory, receivables and other current
assets arising from the sale of goods and services in the ordinary
course of business of the Company and its Subsidiaries;
(c) Investments in receivables arising from the sale of land
in the ordinary course of business of the Company and its
Subsidiaries;
(d) Investments in one or more Subsidiaries or any Person that
concurrently with such Investment becomes a Subsidiary;
(e) Investments existing on the date of the Closing
(including, without limitation, any increase in the value thereof as a
result of the application of the equity method of accounting in
respect thereof);
(f) Investments in United States Governmental Securities,
provided that such obligations mature within 365 days from the date of
acquisition thereof;
(g) Investments in certificates of deposit or banker's
acceptances issued by an Acceptable Bank, provided that such
obligations mature within 365 days from the date of acquisition
thereof;
Schedule B-10
<PAGE>
(h) Investments in commercial paper rated at least A-I by S&P
or P-I by Moody's and maturing not more than 270 days from the date of
creation thereof; and
(i) Investments in addition to those permitted by the
foregoing clauses (a) through (h), provided that, with respect to, and
immediately after giving effect to, any Investment then being made
pursuant to this clause (i), (x) no Default or Event of Default shall
exist and (y) the aggregate amount of such Investment and all
Investments previously made pursuant to this clause (i) and
outstanding at such time (valued as set forth below as of the date of
any determination under this clause (i)) shall not exceed 20% of
Consolidated Tangible Net Worth, determined as at the date of any
determination under this clause (i).
As of any date of determination, each Restricted Investment shall be valued at
the greater of:
(x) the amount at which such Restricted Investment is shown on
the books of the Company or any of its Subsidiaries (or zero if such
Restricted Investment is not shown on any such books); and
(y) either
(i) in the case of any Guaranty of the obligation of any
Person, the amount which the Company or any of its
Subsidiaries has paid on account of such obligation less any
recoupment by the Company or such Subsidiary of any such
payments, or
(ii) in the case of any other Restricted Investment, the
excess of (x) the greater of (A) the amount originally entered
on the books of the Company or any of its Subsidiaries with
respect thereto and (B) the cost thereof to the Company or its
Subsidiary over (y) any return of capital (after income taxes
applicable thereto) upon such Restricted Investment through
the sale or other liquidation thereof or part thereof or
otherwise.
As used in this definition of "Restricted Investments":
"Acceptable Bank" means any bank or trust company (i) which is
organized under the laws of the United States of America or any State
thereof, (ii) which has capital, surplus and undivided profits
aggregating at least $200,000,000, and (iii) whose long-term unsecured
debt obligations (or the long-term unsecured debt obligations of the
bank holding company owning all of the capital stock of such bank or
trust company) shall have been given a rating of "A-" or better by
S&P, "A3" or better by Moody's or an equivalent rating by any other
credit rating agency of recognized national standing.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc.
"United States Governmental Security" means any direct
obligation of, or obligation guaranteed by, the United States of
America, or any agency controlled or supervised by or acting as an
instrumentality of the United States of America pursuant to authority
granted by the Congress of the United States of America, so long as
such
Schedule B-11
<PAGE>
obligation or guarantee shall have the benefit of the full faith and
credit of the United States of America which shall have been pledged
pursuant to authority granted by the Congress of the United States of
America.
"RESTRICTED PAYMENT" means any Distribution in respect of the Company
or any Subsidiary of the Company (other than on account of (a) capital stock or
other equity interests of a Subsidiary owned legally and beneficially by the
Company or another Subsidiary and (b) in respect of Mandatorily Redeemable
Preferred Stock of the Company), including, without limitation, any Distribution
resulting in the acquisition by the Company of Securities which would constitute
treasury stock.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time.
"SENIOR DEBT" means any unsecured Debt of the Company or any
Subsidiary Guarantor that is not in any manner subordinated in right of payment
to the Notes or to any other Debt of such Person.
"SENIOR FINANCIAL OFFICER" means the chief financial officer,
principal accounting officer, treasurer, manager of treasury or controller of
the Company.
"SOURCE" is defined in Section 6.2.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership or joint venture can and does ordinarily
take major business actions without the prior approval of such Person or one or
more of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"SUBSIDIARY GUARANTEE" means the Subsidiary Guarantee in the form of
Exhibit B(SG) as executed and delivered by a Subsidiary Guarantor. "Subsidiary
Guarantee" shall also include the Subsidiary Guarantee after any one or more
Subsidiaries have acceded thereto and/or been discharged therefrom, all as
provided for in Section 10.13.
"SUBSIDIARY GUARANTOR" means, at any time, a Subsidiary that has
become a party to, and a guarantor under, the Subsidiary Guarantee pursuant to
Section 10.13, provided that any Subsidiary Guarantor that has been discharged
from the Subsidiary Guarantee pursuant to Section 10.13(c) and shall not have a
Subsidiary Guarantor Accession Agreement in effect at such time shall not be a
Subsidiary Guarantor.
"SUBSIDIARY GUARANTOR ACCESSION AGREEMENT" is defined in Section
10.13.
"SUCCESSOR COMPANY" is defined in Section 10.2.
"SWAPS" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments,
Schedule B-12
<PAGE>
whether periodically or upon the happening of a contingency. For the purposes of
this Agreement, the amount of the obligation under any Swap shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount so determined. For
purposes of this Agreement, any such interest rate swap, currency swap or other
similar obligation shall not be deemed to be a "Swap" for purposes of this
definition if such interest rate swap, currency swap or other similar obligation
is entered into either (a) to hedge interest rate and/or currency risk of such
Person with respect to Debt incurred by such Person in the ordinary course of
its business and pursuant to prudent and reasonable business practices that are
consistent with the business practices of other companies similarly situated to
such Person or (b) to hedge currency risk with respect to any cash payments
expected to be received by such Person from a contract entered into by such
Person in the ordinary course of business of such Person and pursuant to prudent
and reasonable business practices that are consistent with the business
practices of other companies similarly situated to such Person.
"TIMBERLAND ASSET" means real property consisting substantially of
timberland.
"TRANSFER" means, with respect to the Company or any Subsidiary, any
transaction in which such Person sells, conveys, transfers or leases (as lessor)
any of its property. The verb "Transfer" has the meaning correlative to the
meaning of the noun.
"VOTING STOCK" shall mean Securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary 100% of
all of the equity interests (except directors' qualifying shares) and voting
interests of which are owned by any one or more of the Company and the Company's
other Wholly-Owned Subsidiaries at such time.
Schedule B-13
<PAGE>
SCHEDULE 3
WIRE PAYMENT INSTRUCTIONS AT THE CLOSING
FIRST NATIONAL BANK OF EL DORADO, ARKANSAS
ABA NO.: #082 900 911
FOR THE ACCOUNT OF: DELTIC TIMBER CORPORATION
ACCOUNT NO.: 70-578-0
ATTN: CLEFTON D. VAUGHAN
FAX: (870) 881-6457
Schedule C-1
<PAGE>
DISCLOSURE SCHEDULES
TO NOTE PURCHASE AGREEMENT
Disclosures - 1
<PAGE>
EXHIBIT 1
[FORM OF NOTE]
Exhibit 1-1
<PAGE>
EXHIBIT 4.4(A)
[FORM OF OPINION OF GENERAL COUNSEL OF THE COMPANY]
Exhibit 4.4(a)-1
<PAGE>
EXHIBIT 4.4(B)
[FORM OF OPINION OF SPECIAL NEW YORK COUNSEL TO THE COMPANY
AND SPECIAL COUNSEL TO THE PURCHASER]
Exhibit 4.4(b)-1
<PAGE>
EXHIBIT B(SG)
[FORM OF] SUBSIDIARY GUARANTEE
THIS SUBSIDIARY GUARANTEE (as amended, modified or restated from time to
time, this "GUARANTEE") is made as of December 18, 1998 by ________ (the
"GUARANTOR" and, together with its successors and assigns, and each other Person
executing and delivering a "Subsidiary Guarantor Accession Agreement" (as
defined in the Note Purchase Agreement), collectively referred to herein as the
"SUBSIDIARY GUARANTORS").
RECITALS:
(A) Deltic Timber Corporation, a Delaware corporation (the "COMPANY"), has
authorized the issuance of its 6.66% Senior Notes due December 18, 2008 in the
original aggregate principal amount of $40,000,000 (as amended, restated or
otherwise modified from time to time, collectively, the "NOTES"), pursuant to
that certain Note Purchase Agreement (as amended, modified or restated from time
to time, the "NOTE PURCHASE AGREEMENT"), dated as of December 18, 1998, between
the Company and the purchaser of the Notes named on Schedule A thereto (the
"PURCHASER").
(B) Each Subsidiary Guarantor has determined that it is in its own best
interest and in pursuance of its purposes that it enter into this Guarantee.
(C) Each Subsidiary Guarantor has agreed upon the terms and subject to the
conditions hereof to guarantee, jointly and severally with all other Subsidiary
Guarantors from time to time and with all other guarantors who have executed or
may from time to time execute this Guarantee (by means of a Subsidiary Guarantor
Accession Agreement or otherwise), to the Purchaser and each of the other
holders, from time to time, of the Notes the due and punctual payment by the
Company of sums from time to time due under the Notes and the Note Purchase
Agreement.
AGREEMENT:
1. DEFINITIONS
Capitalized terms used herein and defined in the Note Purchase Agreement
shall have the meanings ascribed thereto in the Note Purchase Agreement unless
the context otherwise requires.
2. GUARANTEE.
2.1 GUARANTEED OBLIGATIONS.
In consideration for the purchase by the Purchaser of the Notes and for
other valuable consideration, each of the Subsidiary Guarantors hereby
irrevocably, unconditionally, absolutely, jointly and severally guarantees to
each holder of Notes, as and for each such Subsidiary Guarantor's own debt,
until final and indefeasible payment has been made:
(a) the due and punctual payment by the Company of the principal of,
and interest (including default interest), Make-Whole Amount (if any) on,
the Notes at any time
Exhibit B(SG)-1
<PAGE>
outstanding and the due and punctual payment of all other amounts payable,
and all other indebtedness owing, by the Company to the holders of the
Notes under the Note Purchase Agreement and the Notes (all such obligations
so guaranteed are herein collectively referred to as the "GUARANTEED
OBLIGATIONS"), in each case when and as the same shall become due and
payable, whether at maturity, pursuant to mandatory or optional prepayment,
by acceleration or otherwise, all in accordance with the terms and
provisions hereof and thereof; it being the intent of each of the
Subsidiary Guarantors that this Guarantee be a guarantee of payment and not
a guarantee of collection; and
(b) the punctual and faithful performance, keeping, observance, and
fulfillment by the Company of all duties, agreements, covenants and
obligations of the Company contained in the Note Purchase Agreement and the
Notes.
2.2 PERFORMANCE UNDER THE NOTE PURCHASE AGREEMENT.
In the event the Company fails to make, on or before the due date thereof,
any payment of the Guaranteed Obligations, or if the Company shall fail to
perform, keep, observe, or fulfill any other obligation referred to in clause
(a) or clause (b) of Section 2.1 in the manner provided in the Note Purchase
Agreement or the Notes after in each case giving effect to any applicable grace
periods or cure provisions or waivers or amendments, each Subsidiary Guarantor
shall cause forthwith to be paid the moneys, or to be performed, kept, observed,
or fulfilled each of such obligations, in respect of which such failure has
occurred in accordance with the terms and provisions of the Note Purchase
Agreement and the Notes.
2.3 WAIVERS.
To the fullest extent permitted by law, each Subsidiary Guarantor does
hereby waive:
(a) notice of acceptance of the Guarantee;
(b) notice of any purchase of the Notes under the Note Purchase
Agreement or the creation, existence or acquisition of any of the
Guaranteed Obligations, subject to such Subsidiary Guarantor's right to
make inquiry of each holder of Notes to ascertain the amount of the
Guaranteed Obligations at any reasonable time;
(c) notice of the amount of the Guaranteed Obligations, subject to
such Subsidiary Guarantor's right to make inquiry of each holder of Notes
to ascertain the amount of the Guaranteed Obligations at any reasonable
time;
(d) notice of adverse change in the financial condition of the
Company, any other Subsidiary Guarantor or any Subsidiary or any other fact
that might increase or expand such Subsidiary Guarantor's risk hereunder;
(e) notice of presentment for payment, demand, protest, and notice
thereof as to the Notes or any other instrument;
(f) notice of any Default or Event of Default (except if such notice
or demand is specifically otherwise required to be given to such Subsidiary
Guarantor pursuant to the terms of the Note Purchase Agreement);
Exhibit B(SG)-2
<PAGE>
(g) all other notices and demands to which such Subsidiary Guarantor
might otherwise be entitled (except if such notice or demand is
specifically otherwise required to be given to such Subsidiary Guarantor
pursuant to the terms of the Note Purchase Agreement);
(h) the right by statute or otherwise to require any holder of Notes
to institute suit against the Company or any other Subsidiary Guarantor or
to exhaust its rights and remedies against the Company or any other
Subsidiary Guarantor, such Subsidiary Guarantor being bound to the payment
of each and all Guaranteed Obligations, whether now existing or hereafter
accruing, as fully as if such Guaranteed Obligations were directly owing to
the holders of Notes by such Subsidiary Guarantor;
(i) any defense of the Company under the Note Purchase Agreement and
the Notes other than the full and timely performance thereof;
(j) any defense relating to the validity or enforceability (or
absence or failure thereof) of any term of the Note Purchase Agreement and
the Notes;
(k) any defense arising by reason of any disability or other defense
(other than the defense that the Guaranteed Obligations shall have been
fully and finally performed and indefeasibly paid) of the Company or by
reason of the cessation from any cause whatsoever of the liability of the
Company in respect thereof, and any other defense that such Subsidiary
Guarantor may otherwise have against the Company or any holder of Notes;
(l) any stay (except in connection with a pending appeal), valuation,
appraisal, redemption or extension law now or at any time hereafter in
force which, but for this waiver, might be applicable to any sale of
property of such Subsidiary Guarantor made under any judgment, order or
decree based on this Guarantee, and such Subsidiary Guarantor covenants
that it will not at any time insist upon or plead, or in any manner claim
or take the benefit or advantage of such law; and
(m) any other defense which a Subsidiary Guarantor may have to the
full and complete performance of its obligations hereunder.
2.4 CERTAIN WAIVERS OF SUBROGATION, REIMBURSEMENT AND INDEMNITY.
Until all of the Guaranteed Obligations shall have been fully and finally
paid, no Subsidiary Guarantor shall have any right of subrogation, reimbursement
or indemnity whatsoever and no right of recourse to or with respect to any
assets or property of the Company. Nothing shall discharge or satisfy the
liability of any of the Subsidiary Guarantors hereunder except the full and
final performance and indefeasible payment of the Guaranteed Obligations.
2.5 RELEASES.
Each of the Subsidiary Guarantors consents and agrees that, without notice
to or by such Subsidiary Guarantor and without impairing, releasing, abating,
deferring, suspending, reducing, terminating or otherwise affecting the
obligations of such Subsidiary Guarantor hereunder, each holder of Notes, in the
manner provided in the Note Purchase Agreement, by action or inaction, may:
Exhibit B(SG)-3
<PAGE>
(a) compromise or settle, renew or extend the period of duration or
the time for the payment, or discharge the performance of, or may refuse
to, or otherwise not, enforce, or may, by action or inaction, release all
or any one or more parties to, any one or more of the Note Purchase
Agreement or the Notes;
(b) assign, sell or transfer, or otherwise dispose of, any one or
more of the Notes;
(c) grant waivers, extensions, consents and other indulgences to the
Company, any other Subsidiary Guarantor or any other guarantor in respect
of any one or more of the Note Purchase Agreement or the Notes;
(d) amend, modify or supplement in any manner and at any time (or
from time to time) any one or more of the Note Purchase Agreement and the
Notes;
(e) release or substitute any one or more of the endorsers or
guarantors of the Guaranteed Obligations whether parties hereto or not;
(f) sell, exchange, release or surrender any property at any time
pledged or granted as security in respect of the Guaranteed Obligations,
whether so pledged or granted by such Subsidiary Guarantor or another
guarantor of the Company's obligations under the Note Purchase Agreement
and the Notes; and
(g) exchange, enforce, waive, or release, by action or inaction, any
security for the Guaranteed Obligations or any other guarantee of any of
the Notes.
2.6 MARSHALING.
Each Subsidiary Guarantor consents and agrees that:
(a) each holder of Notes shall be under no obligation to marshal any
assets in favor of such Subsidiary Guarantor or against or in payment of
any or all of the Guaranteed Obligations; and
(b) to the extent the Company, another Subsidiary Guarantor or
another guarantor makes a payment or payments to any holder of Notes, which
payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside, or required, for any
of the foregoing reasons or for any other reason, to be repaid or paid over
to a custodian, trustee, receiver, or any other party under any bankruptcy
law, common law, or equitable cause, then to the extent of such payment or
repayment, the obligation or part thereof intended to be satisfied thereby
shall be revived and continued in full force and effect as if said payment
or payments had not been made and such Subsidiary Guarantor shall be
primarily liable for such obligation.
2.7 LIABILITY.
Each Subsidiary Guarantor agrees that the liability of such Subsidiary
Guarantor in respect of this Guarantee shall be immediate and shall not be
contingent upon the exercise or enforcement by any holder of Notes of whatever
remedies such holder may have against the
Exhibit B(SG)-4
<PAGE>
Company, any other Subsidiary Guarantor or any other guarantor or the
enforcement of any Lien or realization upon any security such holder may at any
time possess.
2.8 CHARACTER OF OBLIGATION.
The Guarantee set forth herein is a primary and original obligation of each
Subsidiary Guarantor and is an absolute, unconditional, continuing and
irrevocable guarantee of payment and performance (and not of collectibility) and
shall remain in full force and effect until the full, final and indefeasible
payment of the Guaranteed Obligations without respect to future changes in
conditions.
The obligations of the Subsidiary Guarantors hereunder, to the extent that
there is more than one Subsidiary Guarantor, are joint and several. The
obligations of each Subsidiary Guarantor under this Guarantee and the rights of
the holders of Notes to enforce such obligations by any proceedings, whether by
action at law, suit in equity or otherwise, shall not be subject to any
reduction, limitation, impairment or termination, whether by reason of any claim
of any character whatsoever or otherwise, including, without limitation, claims
of waiver, release, surrender, alteration or compromise, and shall not be
subject to any defense, set-off, counterclaim, recoupment or termination
whatsoever.
Without limiting the generality of the foregoing, the obligations of each
Subsidiary Guarantor hereunder shall not be discharged or impaired or otherwise
affected by:
(a) any default, failure or delay, willful or otherwise, in the
performance by the Company of any obligations of any kind or character
whatsoever of the Company (including, without limitation, the obligations
and undertakings of the Company under the Note Purchase Agreement);
(b) any creditors' rights, bankruptcy, receivership or other
insolvency proceeding of the Company or any other Person or in respect of
the property of the Company or any other Person or any merger,
consolidation, reorganization, dissolution, liquidation or winding up of
the Company or any other Person;
(c) impossibility or illegality of performance on the part of the
Company of its obligations under the Note Purchase Agreement or under the
Notes;
(d) the validity or enforceability of the Note Purchase Agreement or
the Notes;
(e) in respect of the Company or any other Person, any change of
circumstances, whether or not foreseen or foreseeable, whether or not
imputable to the Company or any other Person, or other impossibility of
performance through fire, explosion, accident, labor disturbance, floods,
droughts, embargoes, wars (whether or not declared), civil commotions, acts
of God or the public enemy, delays or failure of suppliers or carriers,
inability to obtain materials, action of any regulatory body or agency,
change of law or any other causes affecting performance, or any other force
majeure, whether or not beyond the control of the Company or any other
Person and whether or not of the kind hereinbefore specified;
(f) any order, judgment, decree, law, ruling or regulation (whether
or not valid) of any court of any nation or of any political subdivision
thereof or any body, agency,
Exhibit B(SG)-5
<PAGE>
department, official or administrative or regulatory agency of any thereof
or any other action, happening, event or reason whatsoever which shall
delay, interfere with, hinder or prevent, or in any way adversely affect,
the performance by any party of its respective obligations under any
instruments; or
(g) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Subsidiary Guarantor in respect of the
obligations of such Subsidiary Guarantor under this Guarantee.
2.9 NO ELECTION.
Each holder of Notes shall have the right to seek recourse against each
Subsidiary Guarantor to the fullest extent provided for in this Guarantee and
against the Company to the fullest extent provided for in the Note Purchase
Agreement and the Notes. No election to proceed in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of the right of such holder of Notes to proceed in any other form of
action or proceeding or against other parties unless such holder of Notes has
expressly waived such right in writing. Specifically, but without limiting the
generality of the foregoing, no action or proceeding by any holder of Notes
against the Company or any Subsidiary Guarantor under any document or instrument
evidencing obligations of the Company or such Subsidiary Guarantor to such
holder of Notes shall serve to diminish the liability of any Subsidiary
Guarantor under this Guarantee except to the extent that such holder of Notes
finally and unconditionally shall have realized payment by such action or
proceeding, notwithstanding the effect of any such action or proceeding upon
such Subsidiary Guarantor's right of subrogation against the Company.
2.10 OTHER ENFORCEMENT RIGHTS.
Each holder of Notes may proceed to protect and enforce this Guarantee by
suit or suits or proceedings in equity, at law or in bankruptcy, and whether for
the specific performance of any covenant or agreement contained herein or in
execution or aid of any power herein granted or for the recovery of judgment for
or in respect of the Guaranteed Obligations or for the enforcement of any other
proper, legal or equitable remedy available under applicable law.
2.11 DELAY OR OMISSION; NO WAIVER.
No course of dealing on the part of any holder of Notes and no delay or
failure on the part of such holder to exercise any right under the Note Purchase
Agreement, the Notes or this Guarantee shall impair such right or operate as a
waiver of such right or otherwise prejudice such holder's rights, powers and
remedies hereunder. Every right and remedy given in or by this Guarantee or by
law to any holder of Notes may be exercised from time to time as often as may be
deemed expedient by such Person.
2.12 RESTORATION OF RIGHTS AND REMEDIES.
If any holder of Notes shall have instituted any proceeding to enforce any
right or remedy contained in this Guarantee, under the Note Purchase Agreement
or under any Note held by such holder and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to such holder, then and in every such case each such holder, the
Company and each Subsidiary Guarantor shall, except as may be limited or
affected by any determination in such proceeding, be restored severally and
respectively to its respective
Exhibit B(SG)-6
<PAGE>
former positions hereunder and thereunder, and thereafter the rights and
remedies of such holder shall continue as though no such proceeding had been
instituted.
2.13 CUMULATIVE REMEDIES.
No remedy under this Guarantee, the Note Purchase Agreement or the Notes is
intended to be exclusive of any other remedy, but each and every remedy shall be
cumulative and in addition to any and every other remedy given pursuant to this
Guarantee, the Note Purchase Agreement or the Notes.
2.14 SURVIVAL.
So long as the Guaranteed Obligations shall not have been fully and finally
performed and indefeasibly paid, the obligations of each Subsidiary Guarantor
under this Guarantee shall survive the transfer and payment of any Note and the
payment in full of all the Notes.
2.15 MISCELLANEOUS.
If an Event of Default (as defined in the Note Purchase Agreement) exists,
then the holders of Notes (as provided in and subject to Section 12 of the Note
Purchase Agreement) shall have the right to declare all of the Guaranteed
Obligations to be, and such Guaranteed Obligations shall thereupon become,
forthwith due and payable, without any presentment, demand, protest or other
notice of any kind, all of which have been expressly waived by the Company and
the Subsidiary Guarantors, and notwithstanding any stay, injunction or other
prohibition preventing such declaration (or such Guaranteed Obligations from
becoming automatically due and payable) as against the Company. In any such
event, the holders of Notes shall have immediate recourse to each of the
Subsidiary Guarantors to the fullest extent set forth herein.
Notwithstanding any provision in this Guarantee or the Note Purchase
Agreement to the contrary, each Subsidiary Guarantor agrees that any
indebtedness of a Subsidiary Guarantor owing to the Company or another
Subsidiary Guarantor shall be subordinated in right of payment to the Guaranteed
Obligations of such Subsidiary Guarantor under this Guarantee owing to the
holders of Notes.
2.16 TERMINATION.
If the Company shall at any time be entitled to discharge any Subsidiary
Guarantor pursuant to the provisions of Section 10.13 of the Note Purchase
Agreement, and shall have delivered the notices to the holders of the Notes
required pursuant thereto, then such Subsidiary Guarantor shall be discharged
from this Guarantee.
3. MISCELLANEOUS
3.1 CERTAIN REPRESENTATIONS AND WARRANTIES.
The Guarantor hereby confirms that each of the warranties and
representations contained in Section 5 of the Note Purchase Agreement is,
insofar as it refers to a Subsidiary specifically, or to the Subsidiaries
generally, true and correct with respect to the Guarantor. In addition to the
foregoing, the Guarantor represents and warrants that
Exhibit B(SG)-7
<PAGE>
(a) this Guarantee has been duly authorized by all necessary
corporate action on the part of the Guarantor and constitutes a legal,
valid and binding obligation of the Guarantor, enforceable against it in
accordance with its terms, except as such enforceability may be limited by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and
public policy;
(b) the Guarantor has the corporate power and authority to execute
and deliver this Guarantee and to perform the provisions hereof; and
(c) the execution, delivery and performance by the Guarantor of this
Guarantee will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Guarantor under, any Material indenture, mortgage, deed of
trust, loan, purchase or credit agreement or lease, or the memorandum and
articles of association, corporate charter or bylaws of the Guarantor, or
any other Material agreement or instrument to which the Guarantor is party
or by which such Guarantor or any of its properties may be bound or
affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any
court, arbitrator or Governmental Authority applicable to the Guarantor or
(iii) violate any provision of any statute or other rule or regulation of
any Governmental Authority applicable to the Guarantor.
3.2 NO WAIVER.
No failure to exercise and no delay in exercising on the part of the
holders of Notes or any of them of any right, power or privilege under this
Guarantee shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege preclude any other or further exercise
thereof, or the exercise of any other right, power or privilege. No waiver by
the holders of Notes, or any of them, shall be effective unless it is in writing
and any such waiver shall affect only the rights of that party under this
Guarantee.
3.3 GOVERNING LAW.
THIS GUARANTEE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE
RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK,
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
[Remainder of page intentionally blank; next page is signature page]
Exhibit B(SG)-8
<PAGE>
IN WITNESS of which this document has been executed and delivered as a deed
the day and year first before written.
[GUARANTOR]
By__________________________________
Name:
Title:
Exhibit B(SG)-9
<PAGE>
EXHIBIT B(SGAA)
[FORM OF] SUBSIDIARY GUARANTOR
ACCESSION AGREEMENT
[TO BE ADDRESSED TO ALL OF THE HOLDERS OF NOTES]
Date: ___________
Reference is made to
(a) the Note Purchase Agreement, dated as of December 18, 1998 (as
amended from time to time, the "NOTE PURCHASE AGREEMENT"), between Deltic
Timber Corporation, a Delaware corporation (the "COMPANY"), and the
purchaser listed on Schedule A attached thereto (the "PURCHASER"),
pursuant to which the Company sold, and the Purchaser bought, the
Company's 6.66% Senior Notes due December 18, 2008 in the original
aggregate principal amount of $40,000,000 (as amended, restated or
otherwise modified from time to time, collectively, the "NOTES");
(b) the Subsidiary Guarantee (as amended from time to time, the
"SUBSIDIARY GUARANTEE") in the form attached to the Note Purchase
Agreement as Exhibit B(SG), executed and delivered by one or more persons
on or after the date of the Closing (as defined in the Note Purchase
Agreement) and identified on Part A of Annex 1 hereto; and
(c) the Subsidiary guarantor accession agreements identified on Part
B of Annex 1 hereto, if any, pursuant to which the persons identified on
said Part B of Annex 1, prior to the execution and delivery of this
Subsidiary Guarantor Accession Agreement, joined and were made joint and
several Subsidiary Guarantors under the Subsidiary Guarantee (such persons
and the persons identified on Part A of Annex 1 hereto (other than any
such persons which shall have been discharged from the Subsidiary
Guarantee pursuant to Section 10.13 of the Note Purchase Agreement) are
herein referred to, collectively, as the "SUBSIDIARY GUARANTORS").
Capitalized terms used herein and not otherwise defined herein have the meanings
specified in the Note Purchase Agreement.
1. ACCESSION OF ADDITIONAL SUBSIDIARY.
In accordance with the terms of Section 10.13 of the Note Purchase
Agreement, _________,a company organized under the laws of _________ (the
"ADDITIONAL SUBSIDIARY GUARANTOR"), by the execution and delivery of this
Subsidiary Guarantor Accession Agreement, does hereby agree to become, and does
hereby become, (a) a party to the Subsidiary Guarantee and (b) bound by the
terms and conditions of the Subsidiary Guarantee, including, without limitation,
becoming jointly and severally liable with the Subsidiary Guarantors for the
Guaranteed Obligations (as defined in the Subsidiary Guarantee) and for the due
and punctual performance
Exhibit B(SGAA)-1
<PAGE>
and observance of all the covenants in the Notes and the Note Purchase Agreement
to be performed or observed by the Company, all as more particularly provided
for in Section 2 of the Subsidiary Guarantee. The Subsidiary Guarantee is
hereby, without any further action, amended to add the Additional Subsidiary
Guarantor as a "Subsidiary Guarantor" and signatory to the Subsidiary Guarantee.
2. REPRESENTATIONS AND WARRANTIES OF THE ADDITIONAL SUBSIDIARY GUARANTOR.
The Additional Subsidiary Guarantor hereby makes, as of the date hereof and
only as to itself in its capacity as a Subsidiary Guarantor under the Subsidiary
Guarantee and/or as a Subsidiary, each of the representations and warranties set
forth in Section 5 to the Note Purchase Agreement that are applicable to a
Subsidiary and each of the representations and warranties set forth in Section
4.1 of the Subsidiary Guarantee as applicable to it (in place of the Guarantor
thereunder), subject only to the exceptions in respect thereof set forth on
Annex 2 hereto.
3. DELIVERIES BY ADDITIONAL SUBSIDIARY GUARANTOR.
The Additional Subsidiary Guarantor hereby delivers to each of the holders
of Notes, contemporaneously with the delivery of this Subsidiary Guarantor
Accession Agreement, each of the documents and certificates set forth on Annex 3
hereto.
4. MISCELLANEOUS.
4.1 EFFECTIVE DATE.
This Subsidiary Guarantor Accession Agreement shall become effective on the
date on which this agreement and each of the documents or certificates set forth
on Annex 3 are sent to the holders of Notes at the addresses and by a means
stipulated in Section 18 of the Note Purchase Agreement.
4.2 EXPENSES.
The Additional Subsidiary Guarantor agrees that it will pay, on the date
this Guarantee Accession Agreement becomes effective, the statement for the
reasonable fees and the disbursements of a single special counsel of the holders
of Notes presented on or prior to such date.
4.3 SECTION HEADINGS, ETC.
The titles of the Sections appear as a matter of convenience only, do not
constitute a part hereof and shall not affect the construction hereof. The words
"herein," "hereof," "hereunder" and "hereto" refer to this Subsidiary Guarantor
Accession Agreement as a whole and not to any particular Section or other
subdivision.
Exhibit B(SGAA)-2
<PAGE>
4.4 GOVERNING LAW.
This Subsidiary Guarantor Accession Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
4.5 SUCCESSORS AND ASSIGNS.
This Subsidiary Guarantor Accession Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the Additional Subsidiary
Guarantor.
[Remainder of page intentionally blank; next page is signature page]
Exhibit B(SGAA)-3
<PAGE>
IN WITNESS WHEREOF, the Additional Subsidiary Guarantor has caused this
Subsidiary Guarantor Accession Agreement to be executed on its behalf by a duly
authorized officer or agent thereof as of the date first above written.
Very truly yours,
[ADDITIONAL SUBSIDIARY GUARANTOR]
By_________________________________
Name:
Title:
[Seal]
Exhibit B(SGAA)-4
<PAGE>
ANNEX I
EXISTING SUBSIDIARY GUARANTOR ACCESSION AGREEMENTS AND GUARANTEES
Exhibit B(SGAA)-5
<PAGE>
ANNEX 2
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
Exhibit B(SGAA)-6
<PAGE>
ANNEX 3
ADDITIONAL DOCUMENTS AND INSTRUMENTS
(a) A certified copy of the resolution of the board of directors of the
Additional Subsidiary Guarantor approving the execution and delivery of this
Subsidiary Guarantor Accession Agreement and the accession of the Additional
Subsidiary Guarantor to the Subsidiary Guarantee and the performance of its
obligations thereunder and authorizing the person or persons signing this
Subsidiary Guarantor Accession Agreement and any other documents to be delivered
pursuant hereto to sign the same on behalf of the Additional Subsidiary
Guarantor.
(b) Authenticated signatures of the person or persons specified in the
board resolutions referred to in clause (a) above.
(c) The articles of incorporation or other organic formation documents of
the Additional Subsidiary Guarantor, certified as being up to date by the
secretary of the Additional Subsidiary Guarantor (including, if relevant, copies
of all amending resolutions or other amendments).
(d) A copy of the Additional Subsidiary Guarantor's latest audited
financial statements (including balance sheet and income statement).
(e) An opinion or opinions of counsel (which may be counsel employed by
the Company or such Additional Subsidiary Guarantor as inside counsel)
confirming that (i) such Additional Subsidiary Guarantor's obligations hereunder
and under the Subsidiary Guarantee are legal, valid, binding and enforceable
against such Additional Subsidiary Guarantor, (ii) the execution, delivery and
performance of this Subsidiary Guarantor Accession Agreement will not violate
any law in the jurisdiction of incorporation and (iii) no government approvals,
consents, registrations or filings are required in the jurisdiction of
incorporation by such Additional Subsidiary Guarantor in connection with the
execution, delivery and performance of its obligations hereunder and under the
Subsidiary Guarantee, provided that such opinion or opinions shall be subject to
customary exceptions and qualifications.
Exhibit B(SGAA)-7
<PAGE>
EXHIBIT 10.8
PROJECT CREDIT AGREEMENT
dated as of November 23, 1998
among
DEL-TIN FIBER L.L.C.,
as Company,
CERTAIN FINANCIAL INSTITUTIONS,
as Lenders,
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent
and
THE BANK OF NOVA SCOTIA,
as Co-Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 DEFINITIONS AND INTERPRETATION...................................... 1
SECTION 1.1 Defined Terms............................................. 1
SECTION 1.2 Interpretation............................................ 1
SECTION 1.3 Accounting Terms and Financial Determinations............. 2
SECTION 1.4 Legal Representation of Parties........................... 2
SECTION 1.5 Conflict in Credit Documents.............................. 2
SECTION 2 AMOUNT AND TERMS OF THE LETTERS OF CREDIT........................... 2
SECTION 2.1 Letters of Credit......................................... 2
SECTION 2.2 Issuance and Extension of Letters of Credit............... 3
SECTION 2.3 Risk Participations, Drawings and Reimbursements.......... 5
SECTION 2.4 Role of the Agent as Issuer............................... 6
SECTION 2.5 Obligations Absolute...................................... 7
SECTION 2.6 Uniform Customs and Practice.............................. 9
SECTION 2.7 L/C Loans................................................. 9
SECTION 2.8 Interest Provisions....................................... 9
SECTION 2.9 Conversions or Continuations of L/C Loans................. 10
SECTION 2.10 Payments of L/C Loans; Repayments upon Remarketing........ 10
SECTION 2.11 Extension of the L/C Commitment Termination Date.......... 11
SECTION 3 WORKING CAPITAL..................................................... 13
SECTION 3.1 Commitments............................................... 13
SECTION 3.2 Borrowings................................................ 13
SECTION 3.3 Changes of Commitments.................................... 13
SECTION 3.4 Several Obligations....................................... 14
SECTION 3.5 Repayment of Loans........................................ 14
SECTION 3.6 Interest Provisions....................................... 14
SECTION 3.7 Conversions or Continuations of W/C Loans................. 15
SECTION 3.8 Extension of the W/C Commitment Termination Date.......... 15
SECTION 4 PAYMENTS; PRO RATA TREATMENT; ETC................................... 16
SECTION 4.1 Payments.................................................. 16
SECTION 4.2 Loan Records.............................................. 17
SECTION 4.3 Pro Rata Treatment........................................ 17
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 4.4 Computations.............................................. 18
SECTION 4.5 Minimum Amounts........................................... 18
SECTION 4.6 Certain Notices........................................... 18
SECTION 4.7 Booking Offices........................................... 19
SECTION 4.8 Non-Receipt of Funds by the Agent......................... 19
SECTION 4.9 Setoff.................................................... 20
SECTION 4.10 Ratable Payments.......................................... 20
SECTION 5 YIELD PROTECTION; CHANGE IN CIRCUMSTANCES........................... 20
SECTION 5.1 Yield Protection.......................................... 20
SECTION 5.2 Changes in Capital Adequacy Regulations................... 21
SECTION 5.3 Availability of Types of Loans............................ 22
SECTION 5.4 Funding Indemnification................................... 22
SECTION 5.5 Taxes..................................................... 22
SECTION 5.6 Lender Statements; Survival of Indemnity.................. 23
SECTION 6 FEES................................................................ 24
SECTION 6.1 Letter of Credit Fees..................................... 24
SECTION 6.2 Commitment Fees........................................... 24
SECTION 6.3 Agent's Fees.............................................. 24
SECTION 6.4 Fees Nonrefundable........................................ 24
SECTION 7 CONDITIONS PRECEDENT................................................ 25
SECTION 7.1 Effectiveness of Credit Agreement......................... 25
SECTION 7.2 Initial Funding Date...................................... 28
SECTION 7.3 Conditions Precedent to Each Loan......................... 31
SECTION 8 REPRESENTATIONS AND WARRANTIES...................................... 32
SECTION 8.1 (a) Existence and Authority, etc......................... 32
SECTION 8.2 No Violation.............................................. 33
SECTION 8.3 Permits................................................... 33
SECTION 8.4 Financial Condition....................................... 34
SECTION 8.5 Title; Security Documents................................. 34
SECTION 8.6 Litigation................................................ 35
SECTION 8.7 Subsidiaries; Business; Debt; Contracts................... 35
SECTION 8.8 Material Agreements and Licenses.......................... 35
SECTION 8.9 No Default................................................ 35
SECTION 8.10 Taxes..................................................... 35
SECTION 8.11 Delivery of LLC Agreement and Credit Documents............ 36
SECTION 8.12 Disclosure................................................ 36
SECTION 8.13 ERISA..................................................... 36
SECTION 8.14 Absence of Regulation..................................... 37
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 8.15 Collateral Not in Flood Zone.............................. 37
SECTION 8.16 Environmental Matters..................................... 38
SECTION 8.17 Description of Property................................... 38
SECTION 8.18 Sufficiency of Project Documents.......................... 38
SECTION 8.19 Principal Place of Business, etc.......................... 39
SECTION 8.20 Year 2000................................................. 39
SECTION 9 COVENANTS........................................................... 39
SECTION 9.1 Information............................................... 39
SECTION 9.2 Maintenance of Existence.................................. 41
SECTION 9.3 Compliance with Governmental Rules........................ 41
SECTION 9.4 Insurance................................................. 42
SECTION 9.5 Federal Reserve Regulations............................... 43
SECTION 9.6 Taxes..................................................... 43
SECTION 9.7 Books and Records; Inspections............................ 44
SECTION 9.8 Operation and Maintenance of the Project.................. 44
SECTION 9.9 Maintenance of Title and Lien of the
Security Documents....................................... 45
SECTION 9.10 Amendments to Project Contracts........................... 45
SECTION 9.11 Use of Proceeds........................................... 46
SECTION 9.12 Debt Service Reserve Accounts............................. 46
SECTION 9.13 Sinking Fund Accounts..................................... 47
SECTION 9.14 Liens..................................................... 47
SECTION 9.15 Consolidation; Sale and Transfer of Assets;
Purchase of Assets....................................... 48
SECTION 9.16 Nature of Business........................................ 48
SECTION 9.17 Permitted Investments..................................... 48
SECTION 9.18 Debt...................................................... 48
SECTION 9.19 Guarantees................................................ 49
SECTION 9.20 Fiscal Year............................................... 49
SECTION 9.21 Transactions with Affiliates and Others................... 49
SECTION 9.22 Change of Office.......................................... 50
SECTION 9.23 Change of Name............................................ 50
SECTION 9.24 Plans..................................................... 50
SECTION 9.25 Operating Budget.......................................... 50
SECTION 9.26 Cash and Permitted Investments............................ 50
SECTION 9.27 Use of Insurance and Condemnation Proceeds................ 50
SECTION 9.28 Application of Revenues................................... 53
SECTION 9.29 Environmental Matters..................................... 55
SECTION 9.30 Opinion................................................... 55
SECTION 9.31 Year 2000................................................. 55
SECTION 10 DEFAULTS AND REMEDIES.............................................. 55
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
SECTION 10.1 Defaults.................................................. 55
SECTION 10.2 Remedies.................................................. 58
SECTION 11 LIMITATIONS ON RECOURSE............................................ 59
SECTION 11.1 Nonrecourse Obligations................................... 59
SECTION 11.2 Exceptions................................................ 60
SECTION 11.3 Survival.................................................. 60
SECTION 12 THE AGENT.......................................................... 61
SECTION 12.1 Appointment............................................... 61
SECTION 12.2 Powers.................................................... 61
SECTION 12.3 General Immunity.......................................... 61
SECTION 12.4 No Responsibility for Loans, Recitals, etc................ 61
SECTION 12.5 Action on Instructions of Lenders......................... 61
SECTION 12.6 Employment of Agents and Counsel.......................... 61
SECTION 12.7 Reliance on Documents; Counsel............................ 62
SECTION 12.8 Reimbursement and Indemnification......................... 62
SECTION 12.9 Rights as a Lender........................................ 62
SECTION 12.10 Lender Credit Decision.................................... 62
SECTION 12.11 Successor Agent........................................... 63
SECTION 12.12 Documents................................................. 63
SECTION 13 BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS.................. 63
SECTION 13.1 Successors and Assigns.................................... 63
SECTION 13.2 Participations............................................ 64
SECTION 13.3 Assignments............................................... 65
SECTION 13.4 Dissemination of Information.............................. 65
SECTION 14 GENERAL PROVISIONS................................................. 66
SECTION 14.1 Amendments. Etc........................................... 66
SECTION 14.2 Survival.................................................. 67
SECTION 14.3 No Third Party Beneficiaries.............................. 67
SECTION 14.4 Preservation of Rights.................................... 67
SECTION 14.5 Survival of Representations............................... 67
SECTION 14.6 Governmental Regulation................................... 68
SECTION 14.7 Headings.................................................. 68
SECTION 14.8 Entire Agreement.......................................... 68
SECTION 14.9 Expenses; Indemnification................................. 68
SECTION 14.10 Severability of Provisions................................ 69
SECTION 14.11 Nonliability of Lenders................................... 69
SECTION 14.12 CHOICE OF LAW............................................. 69
SECTION 14.13 CONSENT TO JURISDICTION, VENUE, ETC....................... 69
SECTION 14.14 WAIVER OF JURY TRIAL...................................... 70
</TABLE>
-iv-
<PAGE>
<TABLE>
<S> <C>
SECTION 14.15 Giving Notice............................................. 70
SECTION 14.16 Counterparts.............................................. 70
</TABLE>
-v-
<PAGE>
<TABLE>
<S> <C>
Appendix I - Definitions
Schedule 1 - Sinking Fund Requirements
Schedule 2 - Required Permits
Schedule 3 - Permits To Be Obtained
Schedule 4 - Project Pro Forma
Schedule 5 - Insurance Requirements
Schedule 6 - Disclosure Schedule
Schedule 7 - Existing Debt
Schedule 8 - Existing Mechanics' and Materialmen's Liens
Schedule 9 - Operating Leases
Exhibit A-1 - Form of Tax-Exempt Bond Letter of Credit
Exhibit A-2 - Form of Taxable Bond Letter of Credit
Exhibit B - Form of Drawdown Request
Exhibit C - Form of Compliance Certificate
Exhibit D - Form of Security Agreement
Exhibit E - Form of Project Mortgage
Exhibit F - Form of Lender's Assignment Agreement
Exhibit G - Form of Quarterly Operating Report
Exhibit H-1 - Form of Temple-Inland Contingent Equity Contribution Agreement
Exhibit H-2 - Form of Deltic Equity Contribution Agreement
Exhibit I - Form of Sinking Fund Letter of Credit
Exhibit J - Form of Pledge Agreement
Exhibit K - Subordination Provisions
Exhibit L - Agent's Standard Form Letter of Credit Application
Exhibit M - Form of Production Support Agreement
Exhibit N - Form of Surveyor's Certificate
Exhibit O - Form of Bond Pledge Agreement
Exhibit P - Performance Test Requirements
Exhibit Q - Form of Control Agreement
</TABLE>
-vi-
<PAGE>
PROJECT CREDIT AGREEMENT
PROJECT CREDIT AGREEMENT, dated as of November 23, 1998, is entered
into by and among DEL-TIN FIBER L.L.C., an Arkansas limited liability company
(the "Company"), each of the financial institutions which is a party hereto as a
-------
"Lender" or which, pursuant to Section 15.3, shall become a "Lender" hereunder
------------
(collectively, the "Lenders"), and THE FIRST NATIONAL BANK OF CHICAGO ("First
-----
Chicago"), as agent for the Lenders (in such capacity, the "Agent").
- ------- -----
R E C I T A L S:
- - - - - - - -
1. The Company has requested the Lenders to make working capital
loans in an aggregate principal amount of $10,000,000 to, and to issue (or
participate in) letters of credit for the account of, the Company in an
aggregate principal and stated amount of $91,225,000 for the purposes set forth
herein;
2. The Lenders are willing to make such loans to, and issue (or
participate in) such letters of credit for the account of, the Company on the
terms and conditions, and for the purposes, set forth herein.
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Defined Terms. Unless otherwise expressly provided in
-------------
this Agreement, all capitalized terms used in this Agreement which are defined
in Appendix I shall have their respective meanings set forth in Appendix I.
---------- ----------
SECTION 1.2 Interpretation. In each Credit Document, unless
--------------
otherwise specified: (i) references to any Section, Appendix, Schedule or
Exhibit are references to such Section, Appendix, Schedule or Exhibit of such
Credit Document; (ii) the singular includes the plural and the plural includes
the singular; (iii) each reference to any Governmental Rule includes all
amendments, modifications, supplements or replacements of such Governmental
Rule; (iv) the words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; (v) each reference to any agreement
or other contractual instrument includes all amendments, modifications and
supplements made to such agreement or instrument which are not prohibited by the
Credit
<PAGE>
Documents; (vi) each reference to a Person includes such Person's respective
permitted successors and assigns, and each reference to a Governmental Authority
includes any successor to or replacement of such Governmental Authority; and
(vii) "herein", "hereof", "hereto" and "hereunder" and similar terms refer to
such Credit Document as a whole.
SECTION 1.3 Accounting Terms and Financial Determinations. Unless
---------------------------------------------
otherwise specified herein, all accounting terms used in any Credit Document
shall be interpreted, all accounting determinations and computations under any
Credit Document shall be made, and all financial statements required to be
delivered under any Credit Document shall be prepared in accordance with GAAP.
SECTION 1.4 Legal Representation of Parties. This Agreement and the
-------------------------------
other Credit Documents were negotiated by the parties with the benefit of legal
representation and any rule of construction or interpretation otherwise
requiring this Agreement or any other Credit Document to be construed or
interpreted against any party shall not apply to any construction or
interpretation hereof or thereof.
SECTION 1.5 Conflict in Credit Documents. If there is any conflict
----------------------------
between this Agreement and any other Credit Document, this Agreement and such
other Credit Document shall be interpreted and construed, if possible, so as to
avoid or minimize such conflict but, to the extent (and only to the extent) of
such conflict, this Agreement shall prevail and control.
SECTION 2
AMOUNT AND TERMS OF THE LETTERS OF CREDIT
SECTION 2.1 Letters of Credit.
-----------------
(a) (i) For and on behalf of the Lenders, the Agent agrees, on
the terms and subject to the conditions of this Agreement, to issue one
or more Letters of Credit for the account of the Company in favor of
the applicable Trustee in Dollars at any time and from time to time
during the period from (and including) the Initial Funding Date to (but
excluding) the L/C Commitment Termination Date, and to honor drafts
duly presented under the Letters of Credit in accordance with the terms
thereof; and (ii) the Lenders severally agree to participate in Letters
of Credit issued by the Agent for the account of the Company.
(b) The Agent is under no obligation to issue any Letter of Credit if:
(i) after giving effect thereto, the Aggregate L/C Outstandings
would exceed $91,225,000, the aggregate Tax-Exempt L/C
Outstandings would exceed
2
<PAGE>
$29,725,000, or the aggregate Taxable L/C Outstandings would exceed
$61,500,000.
(ii) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain the Agent from issuing such Letter of Credit, or any
applicable law or any request or directive (whether or not having the
force of law) from any Governmental Authority with jurisdiction over
the Agent shall prohibit, or request that the Agent refrain from, the
issuance of letters of credit generally or such Letter of Credit in
particular;
(iii) the Agent has received written notice from any Lender or
the Company, on or prior to the Business Day prior to the requested
date of issuance of such Letter of Credit, that one or more of the
applicable conditions contained in Section 7 is not then satisfied;
---------
(iv) the expiry date of any requested Letter of Credit is after
the L/C Commitment Termination Date ;
(v) any requested Letter of Credit is not substantially in the
form of Exhibit A-1 or Exhibit A-2, as applicable, or otherwise in form
and substance acceptable to the Agent; or
(vi) any requested Letter of Credit is for the purpose of
supporting any obligation other than the Issuer's obligations under the
Bonds.
SECTION 2.2 Issuance and Extension of Letters of Credit.
-------------------------------------------
(a) Each Letter of Credit shall be issued upon the irrevocable written
request of the Company received by the Agent at least one Business Day (or such
shorter time as the Agent may agree in a particular instance in its sole
discretion) prior to the proposed date of issuance. Each such request for
issuance of a Letter of Credit shall be by facsimile, confirmed promptly in an
original writing, in the form of an Application, and shall specify in form and
detail satisfactory to the Agent: (i) the face amount of the requested Letter of
Credit; (ii) the expiry date of such Letter of Credit; (iii) the name and
address of the beneficiary thereof; (iv) the documents to be presented by the
beneficiary of such Letter of Credit in case of any drawing thereunder; (v) the
full text of any certificate to be presented by the beneficiary in case of any
drawing thereunder; and (vi) such other matters as the Agent may require;
provided that the Credit Agreement shall prevail to the extent of any
- --------
inconsistency between the Credit Agreement and any Application.
(b) Unless the Agent has actual knowledge that, or has received notice
prior to issuing a requested Letter of Credit from any Lender that one or more
conditions specified in Section 7 are not then satisfied, then, subject to the
---------
terms and conditions hereof, the
3
<PAGE>
Agent, on the requested date, shall issue a Letter of Credit for the account of
the Company in accordance with the Agent's usual and customary business
practices therefor.
(c) The Agent and the Lenders agree that, upon extension of the L/C
Commitment Termination Date in accordance with Section 2.11, the Agent shall
------------
extend the expiry date of any Letter of Credit issued by it for a period equal
to the shorter of (i) one year from the then current expiry date and (ii) the
period ending on the L/C Commitment Termination Date (after giving effect to
such extension). Notwithstanding the foregoing, in no event shall any Letter of
Credit be renewed such that its revised expiry date would extend beyond the
Stated Maturity Date.
(d) The Agent may, at its election (or shall at the direction of the
Required Lenders), deliver any notices of termination or other communications to
any Letter of Credit beneficiary or transferee, and take any other action as
necessary or appropriate, at any time and from time to time, in order to cause
the expiry date of such Letter of Credit to be a date not later than the L/C
Commitment Termination Date.
SECTION 2.3 Risk Participations, Drawings and Reimbursements.
------------------------------------------------
(a) Immediately upon the issuance of each Letter of Credit, each Lender
(other than the Agent) shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Agent a participation in such
Letter of Credit and each drawing thereunder in an amount equal to the product
of (i) the Percentage of such Lender, times (ii) the maximum amount available to
be drawn under such Letter of Credit and the amount of such drawing,
respectively.
(b) In the event of any request for a drawing under a Letter of Credit
by the beneficiary or transferee thereof, the Agent will promptly notify the
Company. The Company shall reimburse the Agent prior to 10:00 a.m. (Chicago
time) on each date that any amount is paid by the Agent under any Letter of
Credit (each such date, an "Honor Date"), in an amount equal to the amount so
----------
paid by the Agent. In the event the Company fails to reimburse the Agent for the
full amount of any drawing under any Letter of Credit by 10:00 a.m. (Chicago
time) on the Honor Date, the Agent will promptly notify each Lender thereof,
which notice shall be conclusive and binding on the Lenders. Any notice given by
the Agent pursuant to this Section 2.3(b) may be oral if immediately confirmed
--------------
in writing (including by facsimile); provided, that the lack of such an
--------
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.
(c) Each Lender (other than the Agent) shall upon any notice pursuant
to Section 2.3(b) make available to the Agent for its account an amount in
--------------
Dollars and in immediately available funds equal to its Percentage of the amount
of the drawing. If any Lender so notified on or before 11:00 a.m. (Chicago time)
fails to make available to the Agent for its account the amount of such Lender's
Percentage of the amount of the drawing by no later
4
<PAGE>
than 1:00 p.m. (Chicago time) on the Honor Date (or if so notified after 11:00
a.m. (Chicago time) on or before 10:00 a.m. (Chicago time) on the next following
Business Day), then interest shall accrue on such Lender's obligation to make
such payment, from the Honor Date to the date such Lender makes such payment, at
a rate per annum equal to the Federal Funds Rate in effect from time to time
during such period. The Agent will promptly give notice of the occurrence of the
Honor Date, but failure of the Agent to give any such notice on the Honor Date
or in sufficient time to enable any Lender to effect such payment on such date
shall not relieve such Lender from its obligation to provide such Lender's
Percentage amount of such drawing under this Section 2.3.
-----------
(d) With respect to any drawing not reimbursed under Section 2.3(b) and
not constituting an L/C Loan under Section 2.7, the Reimbursement Obligation
(together with interest) shall be due and payable on demand and shall bear
interest at a rate per annum equal to the Past-Due Rate, and each Lender's
payment to the Agent pursuant to Section 2.3(c) shall be deemed payment in
-------------
respect of its participation in such Reimbursement Obligation in satisfaction of
its participation obligation under this Section 2.3.
-----------
(e) Each Lender's obligation in accordance with this Agreement to make
the funds available to the Agent, as contemplated by this Section 2.3, as a
-----------
result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Agent and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Agent, the Company or any
other Person for any reason whatsoever; (ii) the occurrence or continuance of a
Default, an Unmatured Default or an event which could reasonably be expected to
have a Material Adverse Effect; or (iii) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing.
SECTION 2.4 Role of the Agent as Issuer.
---------------------------
(a) Each Lender and the Company agree that, in paying any drawing under
a Letter of Credit, the Agent shall not have any responsibility to obtain any
document (other than any sight draft and certificates expressly required by the
Letter of Credit) or to ascertain or inquire as to the validity or accuracy of
any such document or the authority of the Person executing or delivering any
such document.
(b) The Agent shall, promptly following its receipt thereof, examine
all documents purporting to represent a demand for payment by the Trustee under
any Letter of Credit to ascertain that the same appear on their face to be in
conformity with the terms of and covered by such Letter of Credit. If, after
examination, the Agent shall have determined that a demand for payment under
such Letter of Credit does not conform to the terms and conditions of such
Letter of Credit, then the Agent shall, as soon as reasonably practicable, give
notice to the Trustee to the effect that negotiation was not in accordance with
the terms and conditions of the Letter of Credit, stating the reasons therefor
and that
5
<PAGE>
the relevant documents are being held at the disposal of the Trustee or are
being returned to the Trustee, as the Agent may elect. The Trustee may attempt
to correct any such nonconforming demand for payment under such Letter of Credit
if, and to the extent that, the Trustee is entitled (without regard to the
provisions of this sentence) and able to do so. If the Agent determines that a
demand for payment under such Letter of Credit conforms to the terms and
conditions of such Letter of Credit, then the Agent shall make payment to the
Trustee in accordance with the terms of such Letter of Credit. The Agent shall
have the right, provided it is not then in default under such Letter of Credit
by reason of its having wrongfully failed to honor a demand for payment
previously made by the Trustee under such Letter of Credit, to require the
Trustee to surrender such Letter of Credit to the Agent on the L/C Commitment
Termination Date after honoring any draws rightfully made by the Trustee under
such Letter of Credit on that date. The Company agrees, if necessary, to use its
best efforts to cause the Trustee so to surrender such Letter of Credit.
(c) No Agent-Related Person nor any of the respective correspondents,
participants or assignees of the Agent shall be liable to any Lender for: (i)
any action taken or omitted in connection herewith at the request or with the
approval of all of the Lenders or the Required Lenders, as applicable; (ii) any
action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
(d) The Company hereby assumes all risks of the acts or omissions of
any beneficiary or transferee with respect to its use of any Letter of Credit;
provided, that such assumption is not intended to, and shall not, preclude the
- --------
Company's pursuing such rights and remedies as it may have against the
beneficiary or transferee at law or under any other agreement. No Agent-Related
Person, nor any of the respective correspondents, participants or assignees of
the Agent, shall be liable or responsible for any of the matters described in
clauses (i) through (vii) of Section 2.5; provided, anything in such clauses to
- ---------- --- ----------- --------
the contrary notwithstanding, that the Company may have a claim against the
Agent, and the Agent may be liable to the Company, to the extent, but only to
the extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Company which the Company proves were caused by the Agent's
willful misconduct or gross negligence or the Agent's willful failure to pay
under any Letter of Credit after the presentation to it by the beneficiary of a
sight draft and certificate(s) strictly complying with the terms and conditions
of a Letter of Credit. In furtherance and not in limitation of the foregoing:
(i) the Agent may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Agent shall not be responsible for the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
6
<PAGE>
SECTION 2.5 Obligations Absolute. The obligations of the Company
--------------------
under this Agreement and any L/C-Related Document to reimburse the Agent for a
drawing under a Letter of Credit, and to repay any Reimbursement Obligation and
any drawing under a Letter of Credit converted into L/C Loans, shall be
unconditional and irrevocable, and shall be paid strictly in accordance with the
terms of this Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement or
any L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of the Company in
respect of any Letter of Credit or any other amendment or waiver of or
any consent to departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other right
that the Company may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Agent or any
other Person, whether in connection with this Agreement, the
transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect; or any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any
Letter of Credit;
(v) any payment by the Agent under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply
with the terms of any Letter of Credit; or any payment made by the
Agent under any Letter of Credit to any Person purporting to be a
trustee in bankruptcy, debtor-in-possession, assignee for the benefit
of creditors, liquidator, receiver or other representative of or
successor to any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any Insolvency Proceeding,
unless such payment in on the part of the Agent;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the obligations
of the Company in respect of any Letter of Credit; or
7
<PAGE>
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other
circumstance that might otherwise constitute a defense available to, or
a discharge of, the Company or a guarantor.
SECTION 2.6 Uniform Customs and Practice. Except as otherwise
----------------------------
expressly provided therein the Uniform Customs and Practice for Documentary
Credits as published by the International Chamber of Commerce most recently at
the time of issuance of any Letter of Credit shall apply to such Letter of
Credit.
SECTION 2.7 L/C Loans. If the Agent shall make any payment under
---------
any Letter of Credit pursuant to a Tender Draft and the conditions precedent in
Section 7.3 shall have been fulfilled, such payment shall constitute an advance
- -----------
made by the Lenders to the Company on the date and in the amount of such
payment, each such advance being an "L/C Loan". The Company shall repay the
--------
unpaid principal amount of each L/C Loan on or before the earlier of (i) the
Stated Maturity Date or (ii) on the same date on which the Bonds, with respect
to which payment against such Tender Draft was made, are sold as a result of a
remarketing (which payment shall be made in accordance with Section 2.10(b) with
---------------
any deficiency in the amount due paid by the Company).
SECTION 2.8 Interest Provisions.
-------------------
(a) Interest Rates. The Company will pay interest on the unpaid
--------------
principal amount of each L/C Loan for the period from (and including) the date
of such L/C Loan to (but excluding) the date such L/C Loan shall be paid in
full, at the following rates per annum:
(i) during each period such L/C Loan is an ABR Loan, the ABR
Rate from time to time in effect; and
(ii) during each Interest Period such L/C Loan is a LIBOR Loan,
the LIBOR Rate for such Interest Period plus the Applicable Margin.
----
Each LIBOR Loan shall bear interest from (and including) the first day of the
applicable Interest Period to (but excluding) the last day of such Interest
Period at the interest rate determined as applicable to such LIBOR Loan.
Promptly after the determination of any interest rate provided for in this
Section 2.8(a) or any change therein, the Agent shall give notice thereof to the
- --------------
Lenders to which such interest is payable and to the Company.
(b) Other Interest Provisions. Notwithstanding the foregoing
-------------------------
provisions of this Section 2.8, (i) the Company hereby promises to pay to the
-----------
Agent for the account of each Lender interest at the applicable Past-Due Rate on
any principal of any L/C Loan made by such Lender and on any other amount
payable by the Company hereunder which shall
8
<PAGE>
not be paid in full when due (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise), for the period from (and including) the due
date thereof to (but excluding) the date the same is paid in full and (ii) in
addition (without duplication), during any period in which a Default shall have
occurred and be continuing, the Company hereby promises to pay to the Agent for
the account of each Lender interest on any principal of any L/C Loan made by
such Lender and on any other amount payable by the Company hereunder at a rate
per annum equal to 2% above the rates (including any Applicable Margin)
otherwise applicable hereunder to such principal and such other amount,
respectively. Accrued interest on each L/C Loan shall be payable (i) in the case
of an ABR Loan, quarterly on the last day of each March, June, September and
December, (ii) in the case of a LIBOR Loan, on the last day of each Interest
Period therefor and, if any such Interest Period is longer than three months, at
three-month intervals following the first day of such Interest Period, (iii) in
the case of any L/C Loan, upon the payment or prepayment thereof (but only on
the principal amount so paid or prepaid), (iv) in the case of any L/C Loan, on
the Stated Maturity Date, and (v) in the case of any L/C Loan, upon the
Conversion of such L/C Loan to an L/C Loan of the other Type (but only on the
principal amount so Converted). Interest payable on Reimbursement Obligations or
pursuant to clause (i) of the first sentence of this Section 2.8(b) shall be
---------- --------------
payable from time to time on demand.
(c) Maximum Rate. Anything in this Agreement to the contrary
------------
notwithstanding, in the event that the interest rate chargeable on any of the
L/C Loans or Reimbursement Obligations pursuant to the terms of this Agreement
shall exceed the highest lawful rate that may be charged under applicable law,
the interest rate shall be deemed to be equal to the highest lawful rate.
SECTION 2.9 Conversions or Continuations of L/C Loans. Subject to
-----------------------------------------
Sections 4.5 and 5.5, the Company shall have the right to Convert L/C Loans of
- ------------ ---
one Type into L/C Loans of the other Type or to Continue LIBOR Loans, at any
time or from time to time; provided, that the Company shall give the Agent
--------
notice of each such Conversion or Continuation as provided in Section 4.6.
-----------
Notwithstanding the foregoing, and without limiting the rights and remedies of
any of the Lenders and the Agent under Section 10, in the event that any Default
----------
or Unmatured Default shall have occurred and be continuing, the Agent may (and
at the request of the Required Lenders shall) suspend the right of the Company
to Convert any ABR Loan into a LIBOR Loan, or to Continue any LIBOR Loan, in
which event all LIBOR Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) into ABR Loans.
SECTION 2.10 Payments of L/C Loans; Repayments upon Remarketing.
--------------------------------------------------
(a) Optional Prepayments. The Company may, upon at least one Business
--------------------
Day's prior notice to the Agent, prepay the outstanding amount of any borrowing
in respect for an L/C Loan in whole or in part with accrued interest to the date
of such prepayment
9
<PAGE>
on the amount prepaid; provided, that no notice shall be required and no
--------
interest shall accrue with respect to any such borrowing which is prepaid by the
Company on the date on which such amount is drawn under any Letter of Credit;
and provided, further, that the Company shall not be entitled to prepay any
-------- -------
LIBOR Loan (other than on the last day of the applicable Interest Period) unless
such prepayment (including, without limitation, any such payment made in
accordance with Section 2.10(b)) shall be accompanied by an additional payment,
---------------
in accordance with Section 5.3, of an amount sufficient to compensate the
-----------
Lenders for any loss (including loss of anticipated profits), cost or expense
incurred by it by reason of such prepayment. L/C Loans prepaid after the L/C
Commitment Termination Date may not be reborrowed.
(b) Mandatory Repayments.
(i) Simultaneously with the resale of Bonds acquired by the
Trustee with the proceeds of one or more drawings pursuant to a Tender
Draft under any Letter of Credit, the Company shall cause the Trustee
on behalf of the Company to prepay the then outstanding borrowings in
respect of L/C Loans (in the order in which they were incurred) by
paying to the Agent for the account of the Lenders an amount equal to
the sum of (x) the aggregate principal amount of the Bonds resold plus
(y) the aggregate amount of accrued and unpaid interest on the L/C
Loans and Reimbursement Obligations incurred with respect to such
Bonds. Such payments when accompanied by a certificate completed and
signed by the Trustee in substantially the form of Exhibit A, B or C,
as applicable, of such Letter of Credit shall be applied by the Agent
for the account of the Lenders in reimbursement of such drawings (and
as prepayment of L/C Loans and Reimbursement Obligations resulting from
such drawings in the manner described in Section 2.7); and the Company
-----------
irrevocably authorizes the Agent on behalf of the Lenders to rely on
such certificate and to reinstate such Letter of Credit in accordance
therewith, and the Lenders agree in such event to so reinstate such
Letter of Credit in accordance with the terms hereof and of such Letter
of Credit.
(ii) Any L/C Loans outstanding on the L/C Commitment Termination
Date shall be due and payable on the Stated Maturity Date provided no
Default or Unmatured Default shall have occurred and be continuing.
SECTION 2.11 Extension of the L/C Commitment Termination Date.
------------------------------------------------
Unless the L/C Commitment Termination Date shall have theretofore occurred, the
Company may, not less than 120 days before the second anniversary of the Initial
Funding Date or 120 days before each anniversary thereafter, request in writing
(each such request being irrevocable and binding) that the Lenders extend the
then scheduled L/C Commitment Termination Date for an additional one-year period
of time; provided that, in no event may the L/C Commitment Termination Date be
--------
extended beyond the Stated Maturity Date. No later than 30 days from the date on
which the Agent shall have received notice from the
10
<PAGE>
Company pursuant to the preceding sentence, the Agent shall notify the Company
in writing (with a copy of such notice to the Trustee) whether or not the
Lenders consent to such request. No extension of the then scheduled L/C
Commitment Termination Date shall occur without the express written consent of
each of the Lenders. The Company acknowledges and agrees that the granting of
any such consent shall be in the sole and absolute discretion of the Lenders,
and if the Agent on behalf of the Lenders shall not notify the Company of such
consent within 30 days from the date on which the Agent shall have received
notice from the Company pursuant to the first sentence of this Section 2.11, the
------------
Lenders shall be deemed not to have consented to such request.
11
<PAGE>
SECTION 3
WORKING CAPITAL FACILITY
SECTION 3.1 Commitments. Each Lender severally agrees, on the terms
-----------
and subject to the conditions of this Agreement, to make working-capital loans
(individually, a "W/C Loan" and collectively, the "W/C Loans") to the Company in
-------- ---------
Dollars during the period from (and including) the Initial Funding Date to (but
excluding) the W/C Commitment Termination Date in an aggregate principal amount
at any one time outstanding up to (but not exceeding) the amount of the W/C
Commitment of each Lender as in effect from time to time; provided, that in no
--------
event shall the aggregate principal amount of all W/C Loans exceed the amount of
the Aggregate W/C Commitments as in effect from time to time. Subject to the
terms of this Agreement, during such period the Company may borrow the amount of
the Aggregate W/C Commitments by means of ABR Loans and LIBOR Loans. Subject to
the terms of this Agreement, W/C Loans may be repaid or prepaid and reborrowed.
SECTION 3.2 Borrowings. The Company shall give the Agent notice of
----------
each borrowing made under Section 3.1 as provided in Section 4.6. Not later than
----------- -----------
12:00 noon (Chicago time) on the date specified for such borrowing, each Lender
shall make available the amount of the W/C Loan to be made by it on such date to
the Agent, at the Agent's Payment Office, in immediately available funds.
Subject to the terms and conditions of this Agreement, the amount of W/C Loans
made pursuant to Section 3.1 so received by the Agent shall be deposited into
-----------
the Operating Account on such date.
SECTION 3.3 Changes of Commitments.
----------- ----------------------
(a) Optional Changes of Unused Commitments. The Company shall have the
--------------------------------------
right at any time to reduce in whole or in part the aggregate unused amount of
the Aggregate W/C Commitments; provided, that (i) the Company shall give notice
--------
of such reduction as provided in Section 4.6, and (ii) each partial reduction
-----------
shall be in an integral multiple of $500,000; and (iii) the W/C Commitments
shall not be reduced unless the Required Lenders shall have consented in writing
to such reduction which consent shall not be unreasonably withheld or delayed.
(b) Mandatory Changes in Unused Commitments. The aggregate amount of
---------------------------------------
each W/C Commitment shall be automatically reduced to zero at the close of
business at the Agent's Payment Office on the Commitment Termination Date.
(c) No Reinstatement. The Aggregate W/C Commitments once terminated or
----------------
reduced may not be reinstated.
12
<PAGE>
SECTION 3.4 Several Obligations. The failure of any Lender to make
-------------------
any W/C Loan to be made by it on the date specified therefor shall not relieve
such Lender or any other Lender of its obligation to make its W/C Loan on such
date, but neither any Lender nor the Agent shall be responsible for the failure
of any other Lender to make a W/C Loan to be made by such other Lender.
SECTION 3.5 Repayment of Loans. The Company hereby promises to pay
------------------
to the Agent for the account of each Lender of W/C Loans the principal amount of
such Lender's outstanding W/C Loans in full on the W/C Commitment Termination
Date. For a minimum of 30 consecutive Business Days in each calendar year during
which the Aggregate W/C Commitments remain in effect, the aggregate principal
amount of outstanding W/C Loans shall not exceed $5,000,000 during the first 365
days following the Initial Funding Date and thereafter shall not exceed $0 in
any calendar year.
SECTION 3.6 Interest Provisions.
-------------------
(a) Interest Rates. The Company will pay interest on the unpaid
--------------
principal amount of each W/C Loan for the period from (and including) the date
of such W/C Loan to (but excluding) the date such W/C Loan shall be paid in
full, at the following rates per annum:
(i) during each period such W/C Loan is an ABR Loan, the ABR
Rate from time to time in effect; and
(ii) during each Interest Period such W/C Loan is a LIBOR Loan,
the LIBOR Rate for such Interest Period plus the Applicable Margin.
Each LIBOR Loan shall bear interest from (and including) the first day of the
applicable Interest Period to (but excluding) the last day of such Interest
Period at the interest rate determined as applicable to such LIBOR Loan.
Promptly after the determination of any interest rate provided for in this
Section 3.6(a) or any change therein, the Agent shall give notice thereof to the
- --------------
Lenders to which such interest is payable and to the Company.
(b) Other Interest Provisions. Notwithstanding the foregoing
-------------------------
provisions of this Section 3.6, (i) the Company hereby promises to pay to the
-----------
Agent for the account of each Lender interest at the applicable Past-Due Rate on
any principal of any W/C Loan made by such Lender and on any other amount
payable by the Company hereunder which shall not be paid in full when due
(whether at stated maturity, by acceleration, by mandatory prepayment or
otherwise), for the period from (and including) the due date thereof to (but
excluding) the date the same is paid in full and (ii) in addition (without
duplication), during any period in which a Default shall have occurred and be
continuing, the Company hereby promises to pay to the Agent for the account of
each Lender interest on any principal of any W/C Loan made by such Lender and on
any other amount payable by the Company
13
<PAGE>
hereunder at a rate per annum equal to 2% above the rates (including any
Applicable Margin) otherwise applicable hereunder to such principal and such
other amount, respectively. Accrued interest on each W/C Loan shall be payable
(i) in the case of an ABR Loan, quarterly on the last day of each March, June,
September and December, (ii) in the case of a LIBOR Loan, on the last day of
each Interest Period therefor and, if any such Interest Period is longer than
three months, at three-month intervals following the first day of such Interest
Period, (iii) in the case of any W/C Loan, upon the payment or prepayment
thereof (but only on the principal amount so paid or prepaid), and (iv) in the
case of any W/C Loan, upon the Conversion of such W/C Loan to a W/C Loan of the
other Type (but only on the principal amount so Converted), except that interest
------
payable at the Past-Due Rate pursuant to clause (i) of the first sentence of
----------
this Section 3.6(b) shall be payable from time to time on demand.
--------------
(c) Maximum Rate. Anything in this Agreement to the contrary
-------------
notwithstanding, in the event that the interest rate chargeable on any of the
W/C Loans pursuant to the terms of this Agreement shall exceed the highest
lawful rate that may be charged under applicable law, the interest rate shall be
deemed to be equal to the highest lawful rate.
SECTION 3.7 Conversions or Continuations of W/C Loans. Subject to
-----------------------------------------
Sections 4.5 and 5.3, the Company shall have the right to Convert W/C Loans of
- ------------ ---
one Type into W/C Loans of the other Type or to Continue LIBOR Loans, at any
time or from time to time; provided, that the Company shall give the Agent
--------
notice of each such Conversion or Continuation as provided in Section 4.6.
-----------
Notwithstanding the foregoing, and without limiting the rights and remedies of
any of the Lenders and the Agent under Section 10, in the event that any Default
----------
or Unmatured Default shall have occurred and be continuing, the Agent may (and
at the request of the Required Lenders shall) suspend the right of the Company
to Convert any ABR Loan into a LIBOR Loan, or to Continue any LIBOR Loan, in
which event all LIBOR Loans shall be Converted (on the last day(s) of the
respective Interest Periods therefor) into ABR Loans.
SECTION 3.8 Extension of the W/C Commitment Termination Date.
------------------------------------------------
Unless the W/C Commitment Termination Date shall have theretofore occurred, the
Company may, not less than 120 days before the second anniversary of the Initial
Funding Date or 120 days before each anniversary thereafter, request in writing
(each such request being irrevocable and binding) that the Lenders extend the
then scheduled W/C Commitment Termination Date for an additional one-year period
of time; provided that, in no event may the W/C Commitment Termination Date be
--------
extended beyond the seventh anniversary of the Initial Funding Date. No later
than 30 days from the date on which the Agent shall have received notice from
the Company pursuant to the preceding sentence, the Agent shall notify the
Company in writing whether or not the Lenders consent to such request. No
extension of the then scheduled W/C Commitment Termination Date shall occur
without the express written consent of each of the Lenders. The Company
acknowledges and agrees that the granting of any such consent shall be in the
sole and absolute discretion
14
<PAGE>
of the Lenders, and if the Agent on behalf of the Lenders shall not notify the
Company of such consent within 30 days from the date on which the Agent shall
have received notice from the Company pursuant to the first sentence of this
Section 3.8, the Lenders shall be deemed not to have consented to such request.
SECTION 4
PAYMENTS; PRO RATA TREATMENT; ETC.
SECTION 4.1 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
Reimbursement Obligations, principal, interest and other amounts to be made by
the Company under this Agreement shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the Agent at the
Agent's Payment Office (or at such other office as the Agent may specify in a
writing delivered to the Company), not later than 12:00 noon (Chicago time) on
the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day).
(b) Each payment received by the Agent under this Agreement on any date
not later than 12:00 noon (Chicago time) as provided in Section 4.1(a) and for
--------------
the account of any Lender shall be paid by the Agent to such Lender, in same day
funds, for the account of such Lender's Booking Office for the obligation in
respect of which such payment is made (each such payment received by the Agent
after noon (Chicago time) on any date to be deemed for purposes of this Section
-------
4.1(b) to have been received on the next succeeding Business Day). In the event
- ------
that the Agent shall fail timely to make any payment to any Lender as provided
in the preceding sentence, the Agent shall pay such Lender interest on the
unpaid amount for each day from (and including) the payment date to (but
excluding) the date such amount is received by such Lender at the Federal Funds
Rate.
(c) At any time following the occurrence of a Default which has not
been remedied or waived, the Agent may charge the Operating Account (in
accordance with the Security Agreement) for each payment of principal, interest,
fees or any other amount due and payable hereunder.
(d) Except as otherwise provided in the definition of "Interest
Period", if the due date of any payment under this Agreement would otherwise
fall on a day which is not a Business Day such date shall be extended to the
next succeeding Business Day (and interest shall be payable for any principal so
extended for the period of such extension).
15
<PAGE>
(e) If the Agent is required at any time to return to the Company, or
to a trustee, receiver, liquidator, custodian, or any official in any Insolvency
Proceeding, any portion of the payments made by the Company to the Agent for its
account pursuant to Section 4.1(a) in reimbursement of a payment made under any
--------------
Letter of Credit, any Loan or interest or fee thereon, each Lender shall, on
demand of the Agent, forthwith return to the Agent the amount of its Percentage
of any amounts so returned by the Agent plus interest thereon, from the date
such demand is made to the date such amounts are returned by such Lender to the
Agent, at a rate per annum equal to the Federal Funds Rate in effect from time
to time.
SECTION 4.2 Loan Records. The date, amount, Type (if applicable),
------------
interest rate and duration of Interest Period (if applicable) of each
Reimbursement Obligation incurred and each borrowing made in respect of L/C
Loans or W/C Loans from time to time hereunder, and each payment made on account
of the principal thereof, shall be recorded by the Agent and each Lender on its
books; provided, that neither the failure of the Agent nor any Lender to make
--------
any such recordation nor any error in such recordation shall affect the
obligations of the Company to make a payment when due in respect of each such
Reimbursement Obligation and borrowing and other unpaid amounts owing under this
Agreement; provided, further, that in no event shall the failure by the Agent or
-------- -------
any Lender to make any such recordation nor any error therein obligate the
Company to pay any amounts in excess of amounts otherwise payable hereunder; and
further provided that, in the event of any discrepancy between the books of the
- ------- --------
Agent and the books of any Lender, for the purposes hereof the Company may rely
upon the books of such Lender to the extent of such discrepancy, absent manifest
error.
SECTION 4.3 Pro Rata Treatment. Except to the extent otherwise
------------------
provided herein:
(a) each participation in a drawing under any Letter of Credit
and each borrowing of Loans from the Lenders under Section 2.3 or 3.2
----------- ---
shall be made from the Lenders pro rata in accordance with their
respective Commitments;
(b) the making, Conversion and Continuation of Loans of a
particular Type shall be made pro rata among the Lenders according to
the amounts of their respective Commitments (in the case of making of
Loans) or Loans (in the case of Conversions and Continuations of Loans)
and the then current Interest Period for each Loan of such Type shall
be coterminous;
(c) each payment or prepayment of any Reimbursement Obligations
or principal of Loans by the Company shall be made for the account of
the Lenders pro rata in accordance with the respective unpaid
Reimbursement Obligation or principal amounts of such Loans held by
them;
16
<PAGE>
(d) each payment of interest on any Reimbursement Obligations
or Loans by the Company shall be made for the account of the Lenders
pro rata in accordance with the respective amounts of interest on such
Reimbursement Obligations or Loans then due and payable to the Lenders;
and
(e) each payment of costs, expenses and indemnities by the
Company shall be made for the account of the Agent and the Lenders pro
rata in accordance with the respective amounts of costs, expenses and
indemnities then due and payable to the Agent and the Lenders.
SECTION 4.4 Computations. Interest shall be calculated, (a) in case
------------
of a LIBOR Loan for actual days elapsed on the basis of a 360-day year, and (b)
in the case of an ABR Loan or Reimbursement Obligation, for actual days elapsed
on the basis of a 365-, or when appropriate 366-, day year. Fees payable under
Sections 6.1 and 6.2 shall be computed on the basis of a year of 360 days and
- ------------ ---
actual days elapsed (including the first day but excluding the last day)
occurring in the period for which payable.
SECTION 4.5 Minimum Amounts. Each borrowing, Conversion and
---------------
prepayment of principal of Loans shall be in an amount at least equal to
$500,000 and integral multiples of $100,000 in excess thereof (a borrowing,
Conversion or prepayment of Loans of the same Type at the same time hereunder
shall be a separate borrowing, Conversion or prepayment for the purposes of this
Section 4.5, except that a borrowing, Conversion or prepayment of LIBOR Loans
- ----------- ------
having the same Interest Period and at the same time hereunder shall be a
separate borrowing, Conversion or prepayment for such purposes).
SECTION 4.6 Certain Notices.
---------------
(a) Certain Notices. Notices by the Company to the Agent of
---------------
terminations or reductions of the Commitments, of borrowings, Conversions,
Continuations and optional prepayments of Loans, and of Types of Loans and of
the duration of Interest Periods shall be irrevocable and shall be effective
only if received by the Agent not later than noon (Chicago time) on the number
of Business Days prior to the date of the relevant termination, reduction,
borrowing, Conversion, Continuation or prepayment or the first day of such
Interest Period specified below:
<TABLE>
<CAPTION>
Number of
Notice Business Days Prior
------ -------------------
<S> <C>
Termination or reduction of the Commitments 5
Borrowing of, or Conversion into, or Prepayment
of ABR Loans 1
</TABLE>
17
<PAGE>
Borrowing of, Conversions into, Continuations as, and
duration of Interest Period for, LIBOR Loans 2
Each such notice of termination or reduction shall specify the amount and type
of the Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
-------
4.5) and Type of each Loan to be borrowed, Converted, Continued or prepaid (and,
- ---
in the case of a Conversion, the Type of Loan to result from such Conversion)
and the date of borrowing, Conversion, Continuation or optional prepayment
(which shall be a Business Day). Each such notice of the duration of an Interest
Period shall specify the Loans to which such Interest Period is to relate. The
Agent shall promptly notify the Lenders of the contents of each such notice. In
the event that the Company fails to select the Type (if applicable) of Loan, or
the duration of any Interest Period for any LIBOR Loan, within the time period
and otherwise as provided in this Section 4.6), such Loan (if outstanding as a
-----------
LIBOR Loan) will be automatically Converted into an ABR Loan on the last day of
the then current Interest Period for such Loan or (if outstanding as an ABR
Loan) will remain as, or (if not then outstanding) will be made as, an ABR Loan.
At no time shall there be more than six different Interest Periods applicable to
LIBOR Loans outstanding.
(b) Telephonic Notices. The Company hereby authorizes the Agent to
effect Interest Period selections and to select the Type of Loans based on
telephonic notices made by any Person or Persons whom the Agent in good faith
believes to be acting on behalf of the Company. The Company agrees to deliver
promptly to the Agent a written confirmation, if such confirmation is requested
by the Agent, of each telephonic notice signed by an Authorized Representative.
If the written confirmation differs in any material respect from the action
taken by the Agent, the records of the Agent shall govern absent manifest error.
SECTION 4.7 Booking Offices. Each Lender may book its Loans at any
---------------
Booking Office selected by such Lender and may change its Booking Office from
time to time. All terms of this Agreement shall apply to any such Booking
Office. Subject to Section 5.5, each Lender may, by written or telex notice to
-----------
the Agent and the Company, designate a Booking Office through which Loans will
be made by it and for whose account payments are to be made on its Loans.
SECTION 4.8 Non-Receipt of Funds by the Agent. Unless the Company
---------------------------------
or a Lender, as the case may be, notifies the Agent prior to the date on which
it is scheduled to make payment to the Agent of (a) in the case of a Lender, the
participation in a Letter of Credit or proceeds of a Loan, or (b) in the case of
the Company, a payment of principal, interest or fees to the Agent for the
account of the Lenders, that it does not intend to make such payment, the Agent
may assume that such payment has been made. The Agent may,
18
<PAGE>
but shall not be obligated to, make the amount of such payment available to the
intended recipient in reliance upon such assumption. If such Lender or the
Company, as the case may be, has not in fact made such payment to the Agent, the
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to (i) in the case of payment by a Lender, the Federal Funds Rate for such
day or (ii) in the case of payment by the Company, the interest rate applicable
to the relevant Loan or Reimbursement Obligation.
SECTION 4.9 Setoff. In addition to, and without limitation of, any
------
rights of the Lenders under applicable law, if the Company becomes insolvent,
however evidenced, or a Default occurs, any indebtedness from any Lender to the
Company (including all account balances, whether provisional or final and
whether or not collected or available) may, subject to Section 4.10, be offset
------------
and applied toward the payment of the Secured Obligations owing to such Lender,
whether or not the Secured Obligations, or any part of them, shall then be due.
SECTION 4.10 Ratable Payments. If any Lender, whether by setoff or
----------------
otherwise, has payment made to it upon its Loans or Reimbursement Obligations
(other than payments received pursuant to Sections 5.1, or 5.3) in a greater
------------ ---
proportion than that received by any other Lender, such Lender agrees, promptly
upon demand, to purchase a portion of the Loans or Reimbursement Obligations
held by the other Lenders so that after such purchase each Lender will hold its
ratable proportion of Loans or Reimbursement Obligations. If any Lender, whether
in connection with setoff or amounts which might be subject to setoff or
otherwise, receives Collateral or other protection for its Secured Obligations
or such amounts which may be subject to setoff, such Lender agrees, promptly
upon demand, to take such action as may be necessary such that all Lenders share
in the benefits of such Collateral ratably in proportion to their Loans or
Reimbursement Obligations. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.
SECTION 5
YIELD PROTECTION; CHANGE IN CIRCUMSTANCES
SECTION 5.1 Yield Protection. If any law or any Governmental or
----------------
quasi-Governmental Rule (whether or not having the force of law), or any
interpretation thereof, or the compliance of any Lender therewith,
(i) subjects any Lender or any applicable Booking Office to any
tax, duty, charge or withholding on or from payments due from the
Company (excluding federal taxation of the overall net income of any
Lender or applicable Booking
19
<PAGE>
Office), or changes the basis of taxation of payments to any Lender in
respect of its Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Lender or any applicable Booking Office (other than
reserves and assessments taken into account in determining the interest
rate applicable to LIBOR Loans), or
(iii) imposes any other condition the result of which is to
increase the cost to any Lender or any applicable Booking Office of
making, funding or maintaining loans or reduces any amount receivable
by any Lender or any applicable Booking Office in connection with loans
or letters of credit, or requires any Lender or any applicable Booking
Office to make any payment calculated by reference to the amount of
loans held, letters of credit issued or interest received by it, by an
amount deemed material by such Lender,
then, within 15 days of demand by such Lender, the Company shall pay such Lender
- ----
that portion of such increased expense incurred or reduction in an amount
received which such Lender determines is attributable to making, funding and
maintaining its Loans, provided, however, that the Company shall not be required
to pay such costs with respect to any such change in circumstances occurring
more than ninety days preceding the foregoing demand from such Lender.
SECTION 5.2 Changes in Capital Adequacy Regulations. If a Lender
---------------------------------------
determines the amount of capital required or expected to be maintained by such
Lender, any Booking Office of such Lender or any corporation controlling such
Lender is increased as a result of a Change, then, within 15 days of demand by
----
such Lender, the Company shall pay such Lender the amount necessary to
compensate for any shortfall in the rate of return on the portion of such
increased capital which such Lender determines is attributable to the Credit
Agreement, its Loans, any Letters of Credit issued or participated in by it or
its obligation hereunder to make any Loans or issue or make advances pursuant to
any Letter of Credit (after taking into account such Lender's policies as to
capital adequacy), provided, however, that the Company shall not be required to
--------
pay such costs with respect to any such Change occurring more than ninety days
preceding the foregoing demand from such Lender. "Change" means (i) any change
------
after the Closing Date in the Risk-Based Capital Guidelines or (ii) any adoption
of or change in any other law, Governmental of quasi-Governmental Rule (whether
or not having the force of law), after the Closing Date which affects the amount
of capital required or expected to be maintained by any Lender or any Booking
Office or any corporation controlling any Lender. "Risk-Based Capital
------------------
Guidelines" means (a) the risk- based capital guidelines in effect in the United
- ----------
States on the Closing Date, including transition rules, and (b) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States
20
<PAGE>
implementing the July 1988 report of the Base Committee on Banking Regulation
and Supervisory Practices entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of the Credit
Agreement.
SECTION 5.3 Availability of Types of Loans. If any Lender
------------------------------
determines that maintenance of its LIBOR Loans at a suitable Booking Office
would violate any applicable Governmental Rule, whether or not having the force
of law, or if the Required Lenders determine that (a) deposits of a type and
maturity appropriate to match fund LIBOR Loans are not available or (b) the
interest rate applicable to a LIBOR Loan does not accurately reflect the cost of
making or maintaining such Loan, then the Agent shall suspend the availability
of LIBOR Loans and require any outstanding LIBOR Loans, at the option of the
Company, to be repaid or converted into ABR Loans, in each case subject to
Section 5.4.
- -----------
SECTION 5.4 Funding Indemnification. If any payment of a LIBOR Loan
-----------------------
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or if any Loan is not
made or Converted or Continued on the date specified by the Company for any
reason other than default by the Lenders, then the Company will indemnify each
Lender for any loss or cost incurred by it resulting therefrom, including,
without limitation, any loss or cost in liquidating or employing deposits
acquired to fund or maintain such Loan.
SECTION 5.5 Taxes.
-----
(a) All payments made by the Company under this Agreement to the Agent,
and the Lenders shall be made free and clear of, and without reduction or
withholding for or on account of, any future income, franchise, property,
excise, sales, stamp or other taxes, levies, imposts, duties, charges, fees,
deductions or withholdings, hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority of the United States or any political
subdivision thereof, excluding, in the case of the Agent, and each Lender, net
income and franchise taxes imposed on the Agent or such Lender, as the case may
be, by the jurisdiction under the laws of which the Agent or such Lender, as the
case may be, is organized or any political subdivision or taxing authority
thereof or therein, or by any jurisdiction in which the Agent or such Lender or
its Booking Office, as the case may be, is located or any political subdivision
or taxing authority thereof or therein (all such non-excluded taxes, levies,
imposts, deductions, charges or withholdings being hereinafter called "Taxes").
If any Taxes are required to be withheld from any amounts payable to the Agent
or any Lender hereunder the amounts so payable to the Agent or such Lender, as
the case may be, shall be increased to the extent necessary to yield (after
payment of all Taxes) to the Agent or such Lender, as the case may be, interest
or any such other amounts payable hereunder at the rates or in the amounts
specified in this Agreement. Each Lender will designate a different Booking
Office if such designation would avoid the need for, or, if unavoidable, reduce
the amount of, such increase and would not, in the sole
21
<PAGE>
opinion of such Lender, be disadvantageous to such Lender. Whenever any Taxes
are payable by the Company, as promptly as possible thereafter, the Company
shall send to the Agent for its own account or for the account of such Lender, a
certified copy of any original official receipt received by the Company showing
payment thereof. The Company shall indemnify the Agent, and the Lenders for any
incremental taxes, interest or penalizes that may become payable by the Agent or
any such Lender as a result of any failure by the Company to pay any Taxes when
due to the appropriate taxing authority or to remit to the Agent the required
receipts or other required documentary evidence.
(b) Upon becoming a party to this Agreement, each Lender that is not
incorporated under the laws of the United States, or a state thereof, agrees
that it will deliver to the Agent two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 (or applicable successor form),
certifying in either case that such Lender is entitled to receive payments under
this Agreement and its Notes without deduction or withholding, to the extent
provided for in such forms, of any United States federal income taxes. Each
Lender which so delivers a Form 1001 or 4224 (or applicable successor form)
further undertakes to deliver to the Agent two additional copies of each such
form on or before the date that such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Agent, in each case certifying in the case
of a Form 1001 or 4224 (or applicable successor form) that such Lender is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, unless an event
(including any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender advises the
Company and the Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax such Loan.
SECTION 5.6 Lender Statements; Survival of Indemnity. To the extent
----------------------------------------
reasonably possible, each Lender shall designate an alternate Booking Office
with respect to its LIBOR Loans to reduce any liability of the Company to such
Lender under Sections 5.1 and 5.3 or to avoid the unavailability of LIBOR Loans
------------ ---
under Section 5.3, so long as such designation is not disadvantageous to such
-----------
Lender in its sole determination. Each Lender shall deliver a written statement
of such Lender to the Company (with a copy to the Agent) as to the amount due,
if any, under Section 5.1, 5.2, 5.4 or 5.5. Such written statement shall set
----------- --- --- ---
forth in reasonable detail the calculations upon which such Lender determined
such amount and shall be final, conclusive and binding on the Company in the
absence of manifest error. Determination of amounts payable under such Sections
in connection with a LIBOR Loan shall be calculated as though each Lender funded
its LIBOR Loan through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in determining the LIBOR Rate
applicable to such LIBOR
22
<PAGE>
Loan, whether in fact that is the case or not. Unless otherwise provided herein,
the amount specified in the written statement of any Lender shall be payable
within 15 days of receipt by the Company of such written statement. The
obligations of the Company under Sections 5.1, 5.2, 5.4 and 5.5 shall survive
------------ --- --- ---
payment or prepayment of the Credit Obligations and the termination of the
Credit Agreement.
23
<PAGE>
SECTION 6
FEES
SECTION 6.1 Letter of Credit Fees. The Company agrees to pay to the
---------------------
Agent (without prior notification thereof):
(a) a letter of credit fronting fee equal to 0.125% per annum on the
daily average maximum drawable amount under each Letter of Credit, for the
period commencing on and including the Initial Funding Date and ending on (and
including) the L/C Commitment Termination Date, payable to the Agent, as issuer,
for its own account on the last day of each March, June, September and December
and on the L/C Commitment Termination Date;
(b) a letter of credit fee equal to the Applicable Margin on the daily
average maximum drawable amount under each Letter of Credit for the period
commencing on and including the Initial Funding Date and ending on (and
including) the L/C Commitment Termination Date, payable to the Agent on the last
day of each March, June, September and December and on the L/C Commitment
Termination Date for the ratable benefit of the Lenders; and
(c) such drawing, transfer, administration and cancellation fees in
respect of the Letters of Credit as have been agreed upon by the Company and the
Agent.
SECTION 6.2 Commitment Fees. The Company agrees to pay a commitment fee
---------------
equal to 0.20% per annum on the daily undrawn portion of the W/C Commitments,
for the period commencing on and including the Closing Date and ending on (and
including) the L/C Commitment Termination Date, payable to the Agent for the
ratable benefit of the Lenders.
SECTION 6.3 Agent's Fees. The Company agrees to pay to the Agent for
------------
its own account the fees specified in a letter agreement between the Company and
First Chicago regarding this Agreement. Thereafter, for so long as First Chicago
is the Agent, the Company will from time to time pay to the Agent for its own
account on the last day of each calendar year and on the L/C Commitment
Termination Date the annual agency fees provided for in a letter agreement
between the Company and First Chicago regarding this Agreement.
SECTION 6.4 Fees Nonrefundable. All payment of fees by the Company
------------------
pursuant to this Section 6 shall be final when made and shall be non-refundable.
---------
24
<PAGE>
SECTION 7
CONDITIONS PRECEDENT
SECTION 7.1 Effectiveness of Credit Agreement. The effectiveness of the
---------------------------------
Credit Agreement shall be subject to the condition precedent that the Agent
shall have received each of the following documents (each of which, except as
otherwise provided in this Section 7.1, shall be in form and substance
-----------
satisfactory to the Agent) and that each of the other conditions set forth below
shall have been satisfied (except as otherwise provided in this Section 7.1, in
-----------
form and substance satisfactory to the Agent), unless receipt of any of such
documents or satisfaction of any of such other conditions shall be waived in
writing by the Agent:
(a) Proof of Authorization Action. (i) Certified copies of (x) the LLC
-----------------------------
Agreement and (y) the resolutions of the board of directors (or equivalent body)
of the Company and each Member authorizing the execution, delivery and
performance of each Project Document to which such Person is or is intended to
be a party and of all documents evidencing other necessary corporate or
partnership action with respect thereto; and (ii) certificates signed by an
Authorized Representative or by the Secretary or an Assistant Secretary of each
such Person certifying the name, incumbency and signature of each individual
authorized to execute the Project Documents to which such Person is a party and
the other documents or certificates to be delivered pursuant hereto or thereto.
(b) Permits. Originals (or copies certified by an Authorized
-------
Representative of the Company to be true copies) of the Air and Water Permits
and such other Permits as the Agent may reasonably request.
(c) Credit Documents. Evidence that each Credit Document, other than
----------------
the LC-Related Documents, has been duly executed and delivered by each Person
that is or is intended to be a party thereto and is in full force and effect;
and receipt by the Agent of (i) an original, executed counterpart of each such
Credit Document to which the Agent or any Lender is a party and (ii) a true and
correct copy of each such Credit Document to which neither the Agent nor any
Lender is a party.
(d) No Legal Proceeding. On the Closing Date, there shall be (i) no
-------------------
injunction, writ, preliminary restraining order or any order of any nature from
any arbitrator, court or other Governmental Authority issued and in effect
directing that any Loan, Letter of Credit or Commitment not be made available to
the Company as provided for herein, and (ii) no litigation, investigation or
proceeding of or before any arbitrator, court or other Governmental Authority
pending or threatened with respect to or affecting any Project Document or any
of the transactions contemplated thereby which has, or in the event of an
adverse outcome could reasonably be expected to have, a Material Adverse Effect.
25
<PAGE>
(e) Report of Consultants. A report from each of the Consultants.
---------------------
(f) Security Interests. (i) Acknowledgment copies of all financing
------------------
statements under the UCC (and copies of the UCC search reports with respect to
the Company) in each jurisdiction in which such financing statements are
necessary or, in the opinion of counsel to the Agent, desirable to establish,
preserve and perfect the security interests created by the Security Documents,
and all other instruments to be recorded or filed or delivered in connection
with any Security Document, and (ii) evidence satisfactory to the Agent that the
Project Mortgage has been duly recorded and filed in all places wherein such
recording and filing are necessary to perfect the interest of the Agent in and
to the Collateral covered thereby assuming the Agent has taken all actions
within its sole power necessary to perfect such interest.
(g) Opinions of Counsel. The legal opinions, dated the Closing Date,
-------------------
of:
(i) W. Bayless Rowe, special counsel to the Company and certain of
its Affiliates; and
(ii) counsel to each Person party to a Credit Document.
(h) Financial Projections. Receipt of the Project Pro Forma
---------------------
satisfactory to the Independent Engineer and the Agent.
(i) Other Insurance. A certified copy of the binders evidencing the
---------------
insurance policies required by Section 9.4(a), such binders and policies to be
--------------
in form and substance and issued by companies in compliance with the
requirements of Section 9.4(a), and a certificate of the Company's insurance
--------------
advisor certifying that insurance complying with Section 9.4(a), covering the
--------------
risks and in the amounts referred to therein, has been obtained and is in full
force and effect and that all premiums theretofore due have been paid; and a
satisfactory written report of the Lenders' insurance advisor.
(j) Financial Condition. The Agent shall have received (i) unaudited
-------------------
financial statements of the Company as at and for the financial quarter ended
June 30, 1998, and for each Member as at and for the most recently ended
financial quarter, in each case certified by an Authorized Representative of the
Company or such Member, as the case may be, and (ii) audited financial
statements of the Company and each Member as at and for the period ended
December 31, 1997 (or January 3, 1998, in the case of Temple-Inland Forest
Products Corporation) certified by an Authorized Representative of the Company
or such Member, as the case may be.
(k) The Company's Representations, Etc. The representations and
----------------------------------
warranties of the Company contained in Section 8 (with the exception of Section
--------- -------
8.4, the representations and warranties contained in which shall be treated for
- ---
the purposes of this
26
<PAGE>
subsection (l) as having been made (i) as regards the Company, with respect to
- --------------
the most recent audited financial statements provided to the Agent by the
Company and (ii) as regards any of the Members, with respect to the most recent
audited financial statements provided to the Agent by such Member) shall be true
and correct on and as of such date as if made on and as of such date (or, if
stated to have been made solely as of an earlier date, were true and correct as
of such date); and no Default or Unmatured Default hereunder and no default by
the Company, and, to the best knowledge of the Company, by any other Person,
under any of the Credit Documents shall have occurred and be continuing on such
date, and the Agent shall have received a certificate of the Company signed by
an Authorized Representative, dated as of the Closing Date, to such effect.
(l) Year 2000 Program. Information reasonably satisfactory to the Agent
-----------------
regarding the Company's Year 2000 Program.
(m) Other Documents. Such other statements, certificates, documents and
---------------
information with respect to the Project or matters contemplated by this
Agreement as any Lender may reasonably request through the Agent.
SECTION 7.2 Initial Funding Date. The obligation of the Lenders to make
--------------------
the initial W/C Loans or of the Agent to issue the initial Letters of Credit,
whichever is earlier, shall be subject to the condition precedent that the Agent
shall have received each of the following documents (each of which documents,
except as otherwise provided in this Section 7.2, shall be in form and substance
-----------
satisfactory to the Agent) and that each of the other conditions set forth below
shall have been satisfied (except as otherwise provided in this Section 7.2, in
-----------
form and substance satisfactory to the Agent), unless receipt of any of such
documents or satisfaction of any of such other conditions shall be waived in
writing by the Agent; provided that, to the extent the Company certifies to the
--------
Agent that any such document delivered pursuant to Section 7.1 is still valid
-----------
and remains truthful, accurate and in full force and effect as of the Initial
Funding Date, such document need not be delivered pursuant to this Section 7.2:
-----------
(a) Proof of Authorization Action. (i) Certified copies of (x) the LLC
-----------------------------
Agreement and (y) the resolutions of the board of directors (or equivalent body)
of each Member authorizing the execution, delivery and performance of each
Project Document to which such Person is or is intended to be a party and of all
documents evidencing other necessary corporate or partnership action with
respect thereto; and (ii) certificates signed by an Authorized Representative or
by the Secretary or an Assistant Secretary of each such Person certifying the
name, incumbency and signature of each individual authorized to execute the
Project Documents to which such Person is a party and the other documents or
certificates to be delivered pursuant hereto or thereto.
(b) Permits. Originals (or copies certified by an Authorized
-------
Representative of the Company to be true copies) of all Permits referred to in
Section 8.3 and such other
- -----------
27
<PAGE>
Permits as the Agent may reasonably request and which, in the opinion of counsel
to the Agent, are necessary or desirable under applicable Governmental Rules in
connection with the transactions contemplated by the Project Documents, other
than those listed on Schedule 3.
----------
(c) Project Documents. Evidence that each Project Document has been
-----------------
duly executed and delivered by each Person that is or is intended to be a party
thereto and is in full force and effect; and receipt by the Agent of (i) an
original, executed counterpart of each such Project Document to which the Agent
or any Lender is a party, (ii) a true and correct copy of each such Project
Document to which neither the Agent nor any Lender is a party and (iii) a true
and correct copy of all offering material relating to the Bonds certified by an
Authorized Representative of the Company.
(d) No Legal Proceeding. On the Initial Funding Date, there shall be
-------------------
(i) no injunction, writ, preliminary restraining order or any order of any
nature from any arbitrator, court or other Governmental Authority issued and in
effect directing that any Loan, Letter of Credit or Commitment not be made
available to the Company as provided for herein, and (ii) no litigation,
investigation or proceeding of or before any arbitrator, court or other
Governmental Authority pending or threatened with respect to or affecting any
Project Document or any of the transactions contemplated thereby which has, or
in the event of an adverse outcome may have, a Material Adverse Effect.
(e) Security Interests. (i) Acknowledgment copies of all financing
------------------
statements under the UCC (and copies of the UCC search reports with respect to
the Company) in each jurisdiction in which such financing statements are
necessary or, in the opinion of counsel to the Agent, desirable to establish,
preserve and perfect the security interests created by the Security Documents,
and all other instruments to be recorded or filed or delivered in connection
with any Security Document, and (ii) evidence satisfactory to the Agent that the
Project Mortgage has been duly recorded and filed in all places wherein such
recording and filing are necessary to perfect the interest of the Agent in and
to the Collateral covered thereby assuming the Agent has taken all actions
within its sole power necessary to perfect such interest.
(f) Interest Rate Hedge. The Company shall have executed a Hedge
-------------------
Agreement, upon terms satisfactory to the Agent, covering the interest on at
least 50% of the outstanding principal amount of the Bonds.
(g) Title Insurance; Survey. (i) A policy or policies of title
-----------------------
insurance, together with evidence of the payment of all premiums due thereon, on
forms of and issued by a title company satisfactory to the Agent (the "Title
-----
Company"), in form and substance satisfactory to the Agent, (A) insuring the
- -------
Agent for the benefit of the Secured Parties in the amount of $101,225,000 that
the Project Mortgage constitutes a valid first mortgage Lien on the Site and the
Facility subject only to Permitted Liens (other than those referred
28
<PAGE>
to in clause (B) below), (B) providing full coverage against all mechanics' and
----------
materialmen's Liens (including unfiled Liens), which coverage may be by
endorsement to such policy in form and substance satisfactory to the Agent, and
(C) containing all endorsements reasonably required by the Agent, including a
comprehensive endorsement covering restrictions, a contiguity endorsement (if
required by the nature of the legal description) and an endorsement insuring
access to duly open public roads (specifying such roads); and (ii) a current
survey and certification of surveyor reasonably satisfactory to the Agent,
including a certificate substantially in the form attached hereto as Exhibit N.
---------
(h) Other Insurance. A certified copy of the binders evidencing the
---------------
insurance policies required by Section 9.4(a), such binders and policies to be
--------------
in form and substance and issued by companies in compliance with the
requirements of Section 9.4(a), and a certificate of the Company's insurance
--------------
advisor certifying that insurance complying with Section 9.4(a), covering the
--------------
risks and in the amounts referred to therein, has been obtained and is in full
force and effect and that all premiums theretofore due have been paid; and a
satisfactory written report of the Lenders' insurance advisor.
(i) The Company's Representations, Etc. The representations and
----------------------------------
warranties of the Company contained in Section 8 (with the exception of Section
---------
8.4, the representations and warranties contained in which shall be treated for
the purposes of this subsection (i) as having been made (i) as regards the
Company, with respect to the most recent audited financial statements provided
to the Agent by the Company, and (ii) as regards any of the Members, with
respect to the most recent audited financial statements provided to the Agent by
such Member) shall be true and correct on and as of such date as if made on and
as of such date (or, if stated to have been made solely as of an earlier date,
were true and correct as of such date); and no Default or Unmatured Default
hereunder and no default by the Company, and, to the best knowledge of the
Company, by any other Person, under any of the Project Documents shall have
occurred and be continuing on such date, and the Agent shall have received a
certificate of the Company signed by an Authorized Representative, dated as of
the Initial Funding Date, to such effect.
(j) Financial Condition. The Agent shall have received (i) unaudited
-------------------
financial statements of the Company and each Member as at and for the most
recently ended financial quarter certified by an Authorized Representative of
the Company or such Member, as the case may be, and (ii) audited financial
statements of the Company and each Member as at and for the period ended
December 31, 1997 (or January 3, 1998, in the case of Temple-Inland Forest
Products Corporation) certified by an Authorized Representative of the Company
or such Member, as the case may be.
(k) Report of Consultants. A report from each of the Consultants.
---------------------
(l) Opinions of Counsel. The legal opinions, dated the Initial Funding
-------------------
Date, of:
29
<PAGE>
(i) W. Bayless Rowe, special counsel to the Company and
certain of its Affiliates; and
(ii) counsel to each Person party to a Project Contract.
(m) Ratings. Evidence that upon issuance the Taxable Bonds shall be
-------
rated P-1 by Moody's or A-1 by S&P.
(n) Equity Contributions. The Company shall have received cash equity
--------------------
contributions from the Members in an aggregate amount not less than $15,000,000.
(o) Financial Projections. Receipt of Project financial projections
---------------------
that are consistent with the form of the Project Pro Forma and satisfactory to
the Independent Engineer and the Agent; and the Agent shall have received a
certificate from the Company stating that (i) such projections were prepared in
good faith; (ii) the Company believes that the assumptions on the basis of which
such projections were prepared were (when made) and are (as of the Initial
Funding Date) reasonable; (iii) the Company believes that based on such
assumptions, such projections set forth all material facts as of the Initial
Funding Date necessary in order to fairly present the information contained
therein; and (iv) such projections reflect good faith estimates by the Company
as to the matters contained therein based on business assumptions which the
Company believes to be reasonable as of the Initial Funding Date. Such
certificate may be qualified by the following: "All financial information and
strategies contained in these projections are based on a number of assumptions
that may not prove to be correct and are subject to significant uncertainties
and contingencies, many of which are beyond the Company's control. There can be
no assurance that the assumptions will prove to be accurate or that the amounts
included in the projections will be realized or transactions currently
contemplated in strategies will be completed, and actual future results may be
materially higher or lower than those included therein."
(p) Debt Service Reserve. The Debt Service Reserve Accounts shall be
--------------------
fully funded, which funding may be made with the proceeds of W/C Loans.
(q) Year 2000 Program. Information reasonably satisfactory to the Agent
-----------------
regarding the Borrower's Year 2000 Program.
(r) Drawdown Request. The Agent shall have received a Drawdown Request,
----------------
dated at least 10 (but not more than 30) days prior to the proposed funding or
issuance date, duly executed and otherwise completed.
30
<PAGE>
(s) Other Documents. Such other statements, certificates, documents and
---------------
information with respect to the Project or matters contemplated by this
Agreement as any Lender may reasonably request through the Agent.
SECTION 7.3 Conditions Precedent to Each Loan. The obligation of the
---------------------------------
Lenders to make W/C Loans, to convert a Reimbursement Obligation into an L/C
Loan, or to make an advance under Section 2.7 hereunder shall be subject to the
satisfaction of the conditions precedent set forth below (in form and substance
satisfactory to the Agent):
(a) The representations and warranties contained in Section 8 (with the
---------
exception of Section 8.4, the representations and warranties contained in which
-----------
shall be treated for the purposes of this subsection (a) as having been made (i)
--------------
as regards the Company, with respect to the audited financial statements
provided to the Agent by the Company immediately prior to the most recent such
statements so provided and (ii) as regards any of the Members, with respect to
the most recent audited financial statements provided to the Agent by such
Member) are correct on and as of the date of such Loan (and after giving effect
thereto) as though made on and as of such date (or, if stated to have been made
solely as of an earlier date, were true and correct as of such date);
(b) No event has occurred and is continuing, or would result from such
Loan, which constitutes a Default or an Unmatured Default; and
(c) In the case of W/C Loans only, the Agent shall have received a
Drawdown Request, dated at least 10 (but not more than 30) days prior to the
proposed funding date, duly executed and otherwise completed.
Unless the Company shall have previously advised the Agent in writing that one
or more of the above statements is no longer true, the Company shall be deemed
to have represented and warranted, on the date on which each Loan is made or
each Letter of Credit is issued or amended that the above statements made by
such party are true as of such date.
SECTION 8
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Lenders as of the Closing
Date and, to the extent provided in Sections 7.2 and 7.3, on the date or dates
------------ ---
referred to therein, as follows:
SECTION 8.1 (a) Existence and Authority, etc. The Company is a
----------------------------
limited liability company duly organized, validly existing and in good standing
under the laws of
31
<PAGE>
the State of Arkansas. As of the Closing Date, the Sponsors are the only Members
of the Company.
(b) No filing, recording, publishing or other act is necessary in
connection with the existence of the Company or the conduct of its business,
except for those that have been made or done or, with respect to the conduct of
its business, that are not yet require.
(c) The Company has full company power and authority to incur its
obligations under the Project Documents to which the Company is a party and to
perform the terms thereof. The Project Documents to which the Company is a party
have been duly authorized, executed and delivered by the Company and constitute
the legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms except as enforcement may be
limited by bankruptcy, insolvency, moratorium and similar laws affecting the
rights of creditors generally and by general equitable principles.
SECTION 8.2 No Violation. (a) The execution, delivery and performance
----------- ------------
by the Company of each of the Project Documents to which it is a party do not
and will not (i) as of the Initial Funding Date, require any consent or approval
of its Members that has not been obtained or violate any provision of the LLC
Agreement, and, as of any other date, require any consent or approval of the
Members that has not been obtained or violate any provision of the LLC
Agreement, other than any such consent or approval the failure of which to be
obtained, or any such violation the occurrence of which has not, or could not
reasonably be expected to have, a Material Adverse Effect, (ii) result in a
breach of or constitute a default by the Company under any indenture, deed of
trust or loan or credit agreement or any other material agreement, lease or
instrument to which the Company is a party or by which the Company or any of its
properties may be bound or affected (other than a Project Document as to which
the representation set forth in Section 8.9 shall apply) which has, or could
reasonably be expected to have, a Material Adverse Effect, or (iii) result in or
create any Lien (other than a Permitted Lien) upon or with respect to any of the
properties now owned or hereafter acquired by the Company.
(b) The execution and delivery by the Company of each Project Document
to which it is a party do not, and the performance by the Company of its
obligations thereunder will not, violate any provision of any Governmental Rule,
or result in a breach of or constitute a default under any order, writ,
judgment, decree, determination or award of any Governmental Authority,
applicable to the Company or the Project (as in effect on each date on which
this representation and warranty shall be made or deemed made by the Company),
which violation, breach or default has, or could reasonably be expected to have,
a Material Adverse Effect.
SECTION 8.3 Permits. All Permits necessary in connection with (i) the
-------
due execution and delivery of, and performance by the Company of its obligations
and the
32
<PAGE>
exercise of its rights under, the Project Documents and (ii) the grant of the
Liens created pursuant to the Security Documents and the validity,
enforceability and perfection thereof and the exercise by the Agent of its
rights and remedies thereunder, which are currently required to be obtained
under applicable Governmental Rules by the Company, have been duly obtained or
made and are in full force and effect, except as otherwise set forth in Schedule
--------
3. All of the Permits required to be obtained by the Company in connection with
- -
the construction, use, ownership, operation or maintenance of the Project, and
all of the Permits required to be obtained by any other party to any of the
Project Contracts in order to enable such party to perform its obligations
thereunder (other than any Permits as may be required in connection with such
party's general legal status or other contracts or business activities), are set
forth in Schedule 2 and, except as otherwise indicated in Schedule 3, have been
---------- ----------
duly obtained, were validly issued and are in full force and effect and not
subject to appeal. Except as described in Schedule 6, (a) there is no action,
----------
suit or similar proceeding pending or, to the best knowledge of the Company,
threatened against or affecting the Company, any Member, or the Project, that
could reasonably be expected to rescind, terminate, modify (in a manner
materially adverse to the interest of the Company, the Agent or the Lenders) or
suspend any such Permit, and (b) to the best knowledge of the Company, there is
no investigation pending or threatened against or affecting the Company, any
Member, or the Project that could reasonably be expected to rescind, terminate,
modify (in a manner materially adverse to the interest of the Company, the Agent
or the Lenders) or suspend any such Permit. The Company has no information that
leads it to believe that any Permits that have not been obtained by the Company
as of the date of this Agreement, but which will be required in the future, will
not be obtained in due course and in accordance with applicable Governmental
Rules.
SECTION 8.4 Financial Condition. The audited financial statements of
-------------------
the Company and the Members as at and for the period ended December 31, 1997 (or
January 3, 1998, in the case of Temple-Inland Forest Products Corporation), and
the unaudited financial statements of the Company and the Members as at and for
the period ended June 30, 1998 (or July 4, 1998, in the case of Temple-Inland
Forest Products Corporation), heretofore furnished to the Agent, fairly present
the financial condition of the Company and the Members as at said date in
conformity with GAAP applied on a consistent basis. Except for its liabilities
and commitments under the Project Documents, neither Member nor the Company on
said date had any contingent liabilities, liabilities for taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments in a material amount individually or in the aggregate
that are not reflected or provided for in or disclosed in the notes to said
balance sheet as at said date. Since the date of such audited financial
statements of the Company, there has been no material adverse change in the
financial condition, operations, properties or business prospects of the
Company. Since the date of such audited financial statements of the Members,
there has been no material adverse change in the financial condition, operations
or properties of any Member.
33
<PAGE>
SECTION 8.5 Title; Security Documents. The Company has a valid
-------------------------
leasehold interest in the Site and owns and has good title to all of the other
Collateral free and clear of all Liens other than Permitted Liens and as
anticipated by the Project Documents. The provisions of the Security Agreement
are effective to create, in favor of the Agent for the benefit of the Secured
Parties, a legal, valid and enforceable lien on or security interest in all of
the Collateral described therein, the provisions of the Project Mortgage are
effective to make, in favor of the Agent for the benefit of the Secured Parties,
a legal, valid and enforceable Lien on and security interest in all of the
Collateral described therein, and, assuming the Agent has taken all necessary
actions in its sole power to perfect the security interest, all necessary and
appropriate recordings and filings have been made in all necessary and
appropriate public offices so that the Security Documents constitute perfected
Liens on or security interests in all right, title, estate and interest of the
Company in the existing Collateral covered thereby, prior and superior to all
other Liens other than Permitted Liens described in Section 9.14(a), (b) or (c).
--------------- --- ---
No mortgage or financing statement or other instrument or recordation covering
all or any part of the Collateral is on file in any recording office, except (i)
------
such as evidence Liens described in clause (g) of the definition of "Immaterial
----------
Liens" set forth in Appendix I, or (ii) such as evidence Liens described in
----------
Section 9.14(b), (c), or (d).
- --------------- --- ---
SECTION 8.6 Litigation. Except as disclosed on Schedule 6, there is no
---------- ----------
action, suit or similar proceeding at law or in equity or by or before any
Governmental Authority now pending (or, to the best knowledge of the Company,
threatened) against or, to the best knowledge of the Company, affecting, the
Company or any of its properties, or the Project, or any such action, suit or
similar proceeding against, or to the best knowledge of the Company, affecting
the Members or their properties that could reasonably be expected to have a
Material Adverse Effect.
SECTION 8.7 Subsidiaries; Business; Debt; Contracts. The Company has no
---------------------------------------
Subsidiaries. The Company has not conducted any business other than to enter
into the Project Documents and otherwise to conduct such business as is
necessary or appropriate to the development, construction, use, ownership,
operation and maintenance of the Project. The Company has no Debt other than
Debt permitted by Section 9.18. The Company is not a party to or bound by any
------------
indenture, loan agreement, credit agreement, contract, lease or instrument other
than the Project Documents to which it is a party, such agreements as are
permitted under Section 9.10, the Debt permitted by Section 9.18 or the
------------ ------------
operating leases set forth on Schedule 9.
----------
SECTION 8.8 Material Agreements and Licenses. No licenses, trademarks,
--------------------------------
patents or agreements with respect to the usage of technology or other permits
that have not been obtained (other than those constituting Permits referred to
in Section 8.3) are necessary for the construction, use, ownership, operation
-----------
and maintenance of the Project.
34
<PAGE>
SECTION 8.9 No Default. The Company is not in default in any material
----------
respect under or with respect to any of the Project Documents. To the best
knowledge of the Company, no other party to any Project Document is in default
under any covenant or obligation set forth therein which default could
reasonably be expected to have a Material Adverse Effect. No Default or
Unmatured Default has occurred and is continuing.
SECTION 8.10 Taxes. The Company has filed or caused to be filed all tax
-----
returns that to its knowledge after due inquiry are required to be filed, and
has paid all taxes shown to be due and payable on said returns or on any
assessments made against the Company or any of its properties and all other
taxes, fees or other charges imposed on the Company by any Governmental
Authority (other than taxes and assessments the payment of which is being
contested in good faith by the Company and for the payment of which adequate
reserves have been set aside or appropriate bonding arrangements have been
made).
SECTION 8.11 Delivery of LLC Agreement and Credit Documents. The Agent
----------------------------------------------
has received a true and complete copy of the LLC Agreement and each Credit
Document (including all exhibits and schedules referred to therein or delivered
pursuant thereto, if any). Except as permitted pursuant to Section 9.10, neither
------------
the LLC Agreement nor any of the Credit Documents has been amended, modified or
terminated, and the LLC Agreement and all the Credit Documents are in full force
and effect in the form delivered to the Agent on the Closing Date.
SECTION 8.12 Disclosure. Unless otherwise disclosed to the Lenders
----------
prior to the execution and delivery of this Agreement, no information furnished
by the Company or any Member to the Agent or any Lender and no statement made or
information furnished by the Company or any Member in this Agreement or in any
schedule or exhibit attached hereto or in any Security Document contains any
untrue statement of a material fact or fails to state any material fact
necessary (as of the date made or furnished) to make the statements herein or
therein not misleading in light of the circumstances in which they were made.
The Project Pro Forma was prepared in good faith, and the Company believes that
the assumptions on the basis of which the Project Pro Forma was prepared were
(when made) and are (as of the Closing Date) reasonable. The Company believes
that based on such assumptions, the Project Pro Forma sets forth all material
facts as of the Closing Date necessary in order to fairly present the
information contained therein. The Project Pro Forma reflects good faith
estimates by the Company as to the matters contained therein based on business
assumptions which the Company believes to be reasonable as of the Closing Date.
All financial information and strategies contained in the Project Pro Forma are
based on a number of assumptions that may not prove to be correct and are
subject to significant uncertainties and contingencies, many of which are beyond
the Company's control. There can be no assurance that the assumptions will prove
to be accurate or that the amounts included in the projections will be realized
or
35
<PAGE>
transactions currently contemplated in strategies will be completed, and actual
future results may be materially higher or lower than those included therein.
SECTION 8.13 ERISA. The Company has not established or maintained any
-----
Plan and has not made or agreed to make any contribution to any Multiemployer
Plan. The Company is not a member of a controlled group of corporations (within
the meaning of Section 414(b) of the Code) with a member that maintains a Plan
or has agreed to make any contribution to a Multiemployer Plan, and is not under
common control (within the meaning of Section 414(c) of the Code) with another
trade or business that maintains a Plan or has agreed to make any contribution
to a Multiemployer Plan and is not a member of an affiliated service group
(within the meaning of Section 414(m) of the Code) that maintains a Plan or has
agreed to make any contribution to a Multiemployer Plan.
SECTION 8.14 Absence of Regulation. Neither the Company nor any Member
---------------------
is an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, or an "investment
advisor" within the meaning of the Investment Company Act of 1940.
SECTION 8.15 Collateral Not in Flood Zone. The Collateral does not
----------------------------
include any improved real property that is located within an area that has been
identified by the Director of the Federal Emergency Management Agency as an area
having special flood hazards and for which flood insurance has been made
available under the National Flood Insurance Act of 1968.
SECTION 8.16 Environmental Matters. (a) To the best knowledge of the
---------------------
Company, the Site does not contain, and has not previously contained, any
hazardous or toxic waste or substance or underground storage tanks to the extent
that such presence could reasonably be expected to have a Material Adverse
Effect, and is in compliance in all material respects with all Environmental
Laws applicable thereto.
(b) The Company has conducted or supervised the conduct of a reasonable
investigation of the environmental conditions at the Site and, based upon such
investigation, there are no environmental conditions known to the Company which
could reasonably be expected to materially and adversely interfere with the
construction or operation of the Facility.
(c) The Company has not received any notice of violation or advisory
action by any Governmental Authority regarding environmental control matters or
permit compliance that could reasonably be expected to have a Material Adverse
Effect, other than any notice that may be received after the Closing Date with
respect to (i) alleged violations that have been disproved, (ii) violations that
have been cured or are being cured in accordance with such notice or action, or
(iii) violations which are not continuing and as to which no liabilities are
outstanding.
36
<PAGE>
(d) There is no governmental administrative action or judicial
proceeding pending or, to the Company's knowledge, threatened under any
Environmental Law to which the Company or the Project is a party or, to the
Company's knowledge, specifically relating to the presence, generation, storage,
handling or release of any Hazardous Material, on, under, at or from the Site
that has, or could reasonably be expected to have, a Material Adverse Effect,
and, as of the Closing Date, there is no such action or proceeding pending, or
to the best knowledge of the Company threatened.
SECTION 8.17 Description of Property. The descriptions of the Site and
-----------------------
the Facility set forth in the Security Documents are true and accurate in all
material respects and are adequate for the purpose of establishing, preserving,
protecting and perfecting the interests and rights, and the Liens, intended to
be created and provided in and on such property by the Security Documents.
SECTION 8.18 Sufficiency of Project Documents. The services to be
--------------------------------
performed for the Company, the materials to be supplied to the Company and the
real property interests, easements and other rights granted to the Company, all
pursuant to the Project Documents (i) comprise substantially all of the
services, materials and real property interests reasonably expected to be
required for the acquisition, development, construction, installation,
completion, use, operation and maintenance of the Project in accordance with all
requirements of applicable Governmental Rules and the Project Documents, except
------
for such services and materials that can readily be obtained as necessary in the
ordinary course of business, and (ii) provide adequate ingress and egress from
the Site for any reasonable purpose and provide adequate power, water, sewer and
rainwater discharge services, in each case in connection with the construction,
operation and maintenance of the Facility.
SECTION 8.19 Principal Place of Business, etc. The principal place of
--------------------------------
business of the Company and the office where the Company keeps its records
concerning the Project and all contracts relating thereto is located at 757
Newell Road, El Dorado, Arkansas 71730. The Project is located at 757 Newell
Road, El Dorado, Arkansas 71730.
SECTION 8.20 Year 2000. The Borrower has used its best efforts to make
---------
a full and complete assessment of the Year 2000 Issues and has a program for
remediating the Year 2000 Issues on a timely basis (the "Year 2000 Program").
-----------------
Based on such assessment and on the Year 2000 Program the Borrower does not
reasonably anticipate that Year 2000 Issues will have a Material Adverse Effect.
SECTION 9
COVENANTS
37
<PAGE>
So long as the Agent or any Lender shall be obligated hereunder to make
any advance pursuant to any Letter of Credit or any Loan and until payment in
full of the Loans and all other Secured Obligations:
SECTION 9.1 Information. The Company shall deliver to the Agent (with
-----------
sufficient copies for each Lender):
(a) as soon as available, and in any event within 60 days after the end
of each of the first three fiscal quarters of each fiscal year of the Company,
the balance sheet of the Company as at the end of such period and the related
statements of income, of members' capital and of cash flow of the Company for
such period, setting forth in comparative form the corresponding figures for the
corresponding period in the preceding fiscal year (if any), accompanied by a
certificate of the chief financial officer, treasurer or assistant treasurer of
the Company stating that (i) said financial statements fairly present the
financial condition and results of operations of the Company in accordance with
GAAP as at the end of, and for, such period (subject to normal year-end audit
adjustments), and (ii) except as otherwise specifically described therein, the
Company has no knowledge of any Default or Unmatured Default;
(b) as soon as available, and in any event within 120 days after the
end of each fiscal year of the Company, the balance sheet of the Company as at
the end of such fiscal year and the related statements of income, of members'
capital and of cash flows of the Company for such year, setting forth in each
case in comparative form the corresponding figures for the preceding fiscal year
(if any), and accompanied by (i) an opinion thereon of independent certified
public accountants of recognized national standing selected by the Company,
which opinion shall state that said financial statements fairly present the
financial condition and results of operations of the Company as at the end of,
and for, such fiscal year, and (ii) a certificate of the chief financial
officer, treasurer or assistant treasurer of the Company, which certificate
shall state that, except as otherwise specifically described therein, such
officer has no knowledge of any Default or Unmatured Default;
(c) concurrently with the delivery of the financial statements required
to be delivered pursuant to clauses (a) and (b) above, a certificate (a
----------- ---
"Compliance Certificate") of the chief financial officer, treasurer or assistant
----------------------
treasurer of the Company in substantially the form of Exhibit C with appropriate
---------
insertions;
(d) promptly after the Company knows that any Default or Unmatured
Default or any default or event of force majeure under any Project Contract has
occurred, a notice of such Default, Unmatured Default or such default or event,
describing the same in reasonable detail and, as soon thereafter as practicable,
a notice indicating what action the Company has taken, or intends to take, to
cure, or cause the cure of, such Default, Unmatured Default or such default or
event;
38
<PAGE>
(e) promptly after the Company knows that it has failed to comply with
any Governmental Rule, or to obtain or maintain in full force and effect, or to
comply with, any Permit referred to in Section 9.3, to the extent that any such
-----------
failure could reasonably be expected to have a Material Adverse Effect, a notice
of such failure, describing the same in reasonable detail and, as soon
thereafter as practicable, a notice indicating what action the Company has
taken, or intends to take, to comply with such Governmental Rule, or to obtain,
maintain or comply with such Permit, as the case may be;
(f) promptly upon the Company's receipt of any Permit, an extract of
such Permit containing such portions of the Permit at least sufficient to
identify it, to show its effective dates, and to demonstrate that it has been
duly issued; and promptly upon the Agent's reasonable request, a copy of any
Permit so requested;
(g) copies of Operating Budget as required in accordance with Section
-------
9.25;
- ----
(h) from time to time as required pursuant to Section 9.4, a certified
-----------
duplicate of any insurance policy or renewal policy in effect pursuant to
Section 9.4;
- -----------
(i) promptly upon receipt thereof, copies of each Permit;
(j) promptly upon obtaining knowledge thereof, notice of (i) all legal,
administrative or arbitral proceedings to which the Company or any of the
Members is a party or any other similar proceeding which has, or could
reasonably be expected to have, a Material Adverse Effect or any legal,
administrative or arbitral proceeding which has, or could reasonably be expected
to have, a Material Adverse Effect on the Company or the Members, and (ii) the
commencement of any proceeding by or before any Governmental Authority having
jurisdiction over any Permit necessary for the execution, delivery or
performance by the Company or any of the Members of its obligations under the
Project Documents, or for the construction or operation of the Project as
contemplated by the Project Documents, for the purpose of revoking, terminating,
withdrawing, suspending, modifying (materially and adversely) or withholding any
such Permit;
(k) within 60 days after the last day of each calendar quarter
commencing from and after the Substantial Completion Date, a quarterly operating
report substantially in the form of Exhibit G;
---------
(l) promptly upon obtaining knowledge thereof, notice of (i) any
material adverse change in the properties, business, operations or financial
condition of the Company, any Member or the Project, (ii) any change in any
Governmental Rule which has or could reasonably be expected to have a Material
Adverse Effect, (iii) any loss or damage to the Collateral in excess of
$1,000,000, and (iv) any developments with respect to Year 2000 Issues which
could reasonably be expected to have a Material Adverse Effect;
39
<PAGE>
(m) promptly upon obtaining knowledge thereof, notice of (i) any
failure of the Company to obtain any consent or approval of the Members required
in connection with the execution, delivery or performance of any Project
Document to which the Company is a party or any violation of the LLC Agreement
resulting from the execution, delivery or performance of any Project Document,
or (ii) any breach or default by the Company under any other indenture, deed of
trust or loan or credit agreement or any other material agreement, lease or
instrument to which the Company is a party or by which the Company or any of its
properties may be bound or affected; and
(n) from time to time such other information regarding the business,
affairs or financial condition of the Company as any Lender may reasonably
request of the Company through the Agent.
SECTION 9.2 Maintenance of Existence. The Company shall preserve and
------------------------
maintain its legal existence and all of its rights, privileges and franchises
necessary for the proper construction, use, operation and maintenance of the
Project.
SECTION 9.3 Compliance with Governmental Rules. The Company shall
----------------------------------
comply in all respects with all applicable Governmental Rules, including
Environmental Laws, unless such noncompliance could not reasonably be expected
to result in a Material Adverse Effect, and shall as and when necessary obtain
and maintain in full force and effect, and shall comply in all respects with,
all Permits as shall now or hereafter be necessary under applicable Governmental
Rules in connection with the construction, operation or maintenance of the
Project or the entering into and performance by the Company of any of its
obligations under the Project Documents to which it is a party, unless such
noncompliance could not reasonably be expected to result in a Material Adverse
Effect.
SECTION 9.4 Insurance. (a) The Company shall at all times effect,
---------
maintain and keep in force, or cause to be effected, maintained and kept in
force, insurance of the types, in the amounts and subject to such terms and
conditions as are specified on Schedule 5.
----------
(b) The Company shall also effect, maintain and keep in force, or cause
to be effected, maintained and kept in force, such additional types or forms of
insurance and/or increases in the amounts of the insurance set forth on Schedule
--------
5 as may from time to time be reasonably requested by the Required Lenders;
- -
provided, that each type of such additional insurance and/or additional amounts
- --------
of insurance is at the time of any request for such coverage (i) consistent with
the insurance usually carried by the owners or operators of manufacturing plants
similar to the Facility, and (ii) available on commercially reasonable terms (as
determined by the Agent).
40
<PAGE>
(c) In addition, the Company shall at all times maintain the insurance
coverage required under the terms of the Project Contracts.
(d) All policies of insurance required to be maintained pursuant to
Section 9.4(a) which cover risks of physical loss, damage or destruction of the
- --------------
Project or any of the Company's other property (including policies providing
business interruption insurance): (i) shall contain an endorsement by the
insurer that any loss shall be payable in accordance with the terms of such
policy notwithstanding any foreclosure relating to the Project or any change in
ownership of all or any part of the Project or any breach or violation by the
Company of warranties, declarations or conditions contained in such policies or
any act or negligence of the Company which might otherwise give rise to a
defense by the insurer to its payment for such loss; (ii) shall contain a waiver
by the insurer of all rights of subrogation in favor of the Agent and the other
Secured Parties and of all rights of setoff, counterclaim or deduction against
the insureds other than the Company; (iii) shall provide that none of the Agent
or the other Secured Parties shall be liable for the payment of any premiums,
commissions, assessments or calls in connection with such insurance; and (iv)
shall be maintained on a "no co-insurance" basis and the Company shall not take
out separate insurance concurrent in form or contributing in the event of loss
with that required by this Agreement.
(e) All policies of insurance required to be maintained pursuant to
Section 9.4(a) which cover liability for bodily injury or property damage shall
- --------------
provide that all provisions of such insurance, except the limits of liability
------
(which shall be applicable to all insureds as a group) and liability for
premiums (which shall be solely a liability of the Company), shall operate in
the same manner as if there were a separate policy covering each such insured,
without right of contribution from any other insurance which may be carried by
an insured.
(f) All policies required to be maintained pursuant to Section 9.4(a)
--------------
covering risks of physical loss, damage or destruction of the Project or any of
the Company's other property shall provide that the proceeds of any loss, damage
or destruction shall be payable to the Agent as their interests may appear.
(g) In the event the Company fails to take out or maintain the full
insurance coverage required by this Agreement or any Project Contract, or fails
to comply with the terms of any insurance policy, the Agent, upon 30 days'
written notice (unless the aforementioned insurance would lapse within such
period or another event which could lessen the security for the Secured
Obligations shall occur, in which event notice shall be given as soon as
reasonably possible) to the Company of any such failure on its part, may (but
shall not be obligated to) take out the required policies of insurance and pay
the premiums on the same and comply with all terms of the insurance policies.
All amounts so advanced therefor by the Agent shall become an additional Secured
Obligation of the Company to the Lenders secured under the Security Documents,
and the Company will
41
<PAGE>
forthwith pay such amount to the Agent, together with interest thereon at a rate
per annum equal to the ABR Rate plus 2%.
(h) Promptly upon receipt thereof after the Closing Date, and
thereafter on or prior to the expiration date of any policy then in effect
pursuant to Section 9.4(a), the Company shall deliver to the Agent (x) a copy of
--------------
the original binder, certified by responsible insurance carriers authorized to
do business in the State of New Jersey with a Best's Key Rating Guide rating of
"A+/IX" or by other insurance carriers or brokers acceptable to the Required
Lenders, and (y) a certificate of the Company's insurance advisor certifying
that the insurance then carried and/or to be renewed complies with Section
-------
9.4(a) and all premiums theretofore due have been paid.
- ------
SECTION 9.5 Federal Reserve Regulations. No part of the proceeds of any
---------------------------
Loan will be used to purchase any "margin stock" (as defined in Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R. Part 207)) or to
extend credit to others for such purpose.
SECTION 9.6 Taxes. The Company shall pay and discharge all taxes and
-----
other governmental assessments, charges or levies imposed on the Company or on
its income or profits or on the Project or any of its other property prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, would result in the creation of a Lien upon the Project or any other
property of the Company; provided, that the foregoing is acknowledged not to
--------
preclude the Company's right to contest in good faith by appropriate proceedings
the validity or amount of any such tax, assessment, charge, levy or claim by
proper proceedings timely instituted, during which contest such tax, assessment,
charge, levy or claim so contested may remain unpaid, if: (i) the Company
diligently prosecutes such contest, (ii) adequate reserves or appropriate
bonding arrangements have been established by the Company, and (iii) during the
period of such contest the enforcement of such contested item is effectively
stayed.
SECTION 9.7 Books and Records; Inspections.
------------------------------
(a) The Company shall keep proper books of record in accordance with
GAAP and allow a maximum of four (4) representatives of the Agent to visit and
inspect its properties, and during normal business hours and at reasonable
intervals to examine its books of record and account and to discuss its affairs,
finances and accounts with its principal officers, engineers and independent
accountants; provided that the Company shall pay the travel and lodging expenses
--------
of employees of the Agent, and the travel and lodging expenses and fees of the
independent consultants of the Agent, incurred by the Agent in connection with
such inspections; provided further that, so long as no Default shall have
-------- -------
occurred and be continuing, such inspections shall be no more frequent than
twice in any calendar year, and if a Default has occurred and is continuing
there shall be no limit on the frequency of inspections.
42
<PAGE>
(b) Prior to the Final Completion Date, the Company shall permit the
Independent Engineer (at the request of the Agent) to visit and inspect (at the
Company's expense) the Company's properties and to discuss the progress of the
construction of the Project, the operation of the Facility and any damage that
may have been suffered by any part of the Project with principal officers,
engineers, staff or representatives, of the Company, all at such times during
normal business hours and at reasonable intervals as the Independent Engineer
may desire. Following the Final Completion Date, the Company shall permit the
Independent Engineer (at the request of the Agent) to visit during normal
business hours and inspect (at the Company's expense) at any time during a
continuing Unmatured Default or Default or at any time following any material
loss or damage to the Project, the Company's properties, to review operating
reports relating to the Project, to witness and verify operation and maintenance
of the Project (including any tests), to examine the Company's maintenance
programs, and to discuss the operations of the Facility and any damage that may
have been suffered by any part of the Project with principal officers,
engineers, staff or representatives of the Company.
(c) In addition, the Company shall at all times commencing as soon as
practicable after the Final Completion Date maintain and preserve a complete set
of the Company's original as-built plans and specifications (and all supplements
thereto) relating to the Project at the Facility and upon reasonable prior
notice shall make them available for inspection by any Lender, the Agent at such
reasonable times during business hours and at such reasonable intervals as any
Lender or the Agent may desire.
SECTION 9.8 Operation and Maintenance of the Project. The Company shall
----------------------------------------
take or cause to be taken all action required to maintain and preserve the
Project and all of its other properties necessary in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted;
shall maintain at the Site all equipment and inventories necessary for the
proper operation and maintenance of the Project, with appropriate spare parts,
inventories and redundancies; and shall restore, replace or rebuild its property
or any part thereof (other than any such part that is unnecessary for the
operation or maintenance of the Project) that is damaged or destroyed by any
casualty (whether or not insured against or insurable); provided, that the
--------
proceeds of any insurance received as a result of such casualty have been made
available in accordance with Section 9.27. The Company shall own, operate, use
------------
and maintain (or cause to be owned, operated, used and maintained) the Project
in a safe, prudent, dependable, efficient, orderly, skillful and workmanlike
manner in accordance with the requirements of the Project Contracts.
SECTION 9.9 Maintenance of Title and Lien of the Security Documents.
-------------------------------------------------------
The Company shall take or cause to be taken or where such action is being taken
by the Agent or its agents, upon the Agent's reasonable request, assist the
Agent in taking or causing to be taken all action required to maintain and
preserve the Company's right, title and
43
<PAGE>
interest in and to the Collateral and to maintain and perfect the Liens in favor
of the Agent for the benefit of the Secured Parties created by the Security
Documents and the priority thereof. The Company shall from time to time execute
any and all further instruments (including financing statements and similar
statements and amendments thereto with respect to the Security Documents)
reasonably requested by the Agent for such purposes.
SECTION 9.10 Amendments to Project Contracts. (a) The Company shall
-------------------------------
perform and observe in all material respects its covenants and agreements
contained in each Project Contract and Project Contract Consent.
(b) The Company shall not take any Restricted Action. "Restricted
----------
Action" shall mean any of the following actions:
- ------
(i) cancel or terminate any Project Contract to which it is
a party or consent to or accept any cancellation or termination of any
Project Contract except (x) upon the expiration of the stated term
thereof or (y) for cancellations and terminations which the Agent
reasonably determines will not have a material adverse effect on (A)
the business, property, condition (financial or otherwise), results of
operations, or prospects of the Company or any Member, (B) the ability
of the Company or any Obligor to perform its obligations under the
Project Documents, or (C) the validity or enforceability of any of the
Project Documents or rights or remedies of the Agent or the Lenders
thereunder;
(ii) sell, assign or otherwise dispose of any part of its
interest in any Project Contract;
(iii) to the extent that any of the following could reasonably
be expected to have a Material Adverse Effect, (A) fail to enforce each
covenant or obligation of each other party to any Project Contract in
accordance with its terms, (B) affirmatively waive any default under or
breach of any Project Contract or affirmatively waive, forgive or
release, or fail to enforce (to the extent enforceable by the Company)
any right, interest or entitlement, howsoever arising, under or in
respect of any Project Contract or Project Contract Consent or (C) vary
or agree to any variation in the performance of any obligation of any
other Person under any Project Contract or Project Contract Consent;
(iv) petition, request or take any other legal or
administrative action that seeks, or could reasonably be expected, to
rescind, terminate or suspend any Project Document or amend or modify
any thereof, in such manner or with such result as could reasonably be
expected to have a Material Adverse Effect; and
(v) amend, supplement or modify any Project Contract to
which it is a party (in each case, as in effect on the date hereof),
except for amendments,
44
<PAGE>
supplements and modifications which the Agent reasonably determines
will not have a material adverse effect on (A) the business, property,
condition (financial or otherwise), results of operations, or prospects
of the Company or any Obligor and its subsidiaries taken as a whole,
(B) the ability of the Company or any Obligor to perform its
obligations under the Project Documents, or (C) the validity or
enforceability of any of the Project Documents or the rights or
remedies of the Agent or the Lenders thereunder.
SECTION 9.11 Use of Proceeds. The Company shall use the proceeds of the
---------------
L/C Loans solely to pay for Tender Drafts. The Company shall use the proceeds of
the W/C Loan for working capital purposes and not to make Distributions.
SECTION 9.12 Debt Service Reserve Accounts. (a) Commencing on the
-----------------------------
Initial Funding Date, to the extent that a Debt Service Reserve Deficiency
exists, revenues of the Project shall be applied, in the priority set forth in
Section 9.28, to the Debt Service Reserve Accounts pro rata until such time as
- ------------
there is no Debt Service Reserve Deficiency. In the event that, as a result of
payments made pursuant to Section 10(b) of the Security Agreement or otherwise,
a Debt Service Reserve Deficiency arises, then the Company shall be obligated to
deposit funds into the Debt Service Reserve Accounts pro rata in accordance with
Section 9.28(b) until such time as no Debt Service Reserve Deficiency exists. If
- ---------------
a Debt Service Reserve Deficiency arises and is not cured by the end of the
immediately following Calculation Period, then the Company shall make a call
pursuant to the Contingent Equity Contribution Agreement to the extent of such
Debt Service Reserve Deficiency.
(b) Funds in the Tax-Exempt Bond Debt Service Account (i) shall not be
invested at a yield which is materially higher, within the meaning of Section
148 of the Code and taking into account yield reduction payments to the United
States permitted under Treasury Regulation Section 1.148-5(c) or any similar
regulation then in effect, than the yield of the Tax-Exempt Bonds, and (ii)
shall be invested in investments traded on an established securities market for
which the market price is paid, or shall be invested in obligations of the
United States Treasury Department that are purchased directly from the United
States Treasury; provided, however, that the foregoing limitations shall not be
--------
applicable to funds invested in obligations the interest on which is excludable
from gross income for federal income tax purposes. Funds in the Taxable Bond
Debt Service Account may be invested without yield limitation.
SECTION 9.13 Sinking Fund Accounts. (a) To the extent that a Sinking
---------------------
Fund Deficiency exists, revenues of the Project shall be applied, in the
priority set forth in Section 9.28, to the Sinking Fund Accounts pro rata until
------------
such time as there is no Sinking Fund Deficiency. In the event that, as a result
of payments made pursuant to Section 13(b) of the Security Agreement or
otherwise, a Sinking Fund Deficiency arises, then the Company shall:
45
<PAGE>
(i) deposit funds into the Sinking Fund Accounts pro rata in
accordance with Section 9.28(b); and/or
---------------
(ii) request a transfer from the Debt Service Reserve Accounts
pro rata; and/or
(iii) make a call pursuant to the Contingent Equity Contribution
Agreement to the extent of such Sinking Fund Deficiency,
until such time as no Sinking Fund Deficiency exists.
(b) Funds in the Tax-Exempt Bond Sinking Fund Account (i) shall not
be invested at a yield which is materially higher, within the meaning of Section
148 of the Code and taking into account yield reduction payments to the United
States permitted under Treasury Regulation Section 1.148-5(c) or any similar
regulation then in effect, than the yield of the Tax-Exempt Bonds, and (ii)
shall be invested in in investments traded on an established securities market
for which the market price is paid, or shall be invested in obligations of the
United States Treasury Department that are purchased directly from the United
States Treasury; provided, however, that the foregoing limitations shall not be
--------
applicable to funds invested in obligations the interest on which is excludable
from gross income for federal income tax purposes. Funds in the Taxable Bond
Sinking Fund Account may be invested without yield limitation.
SECTION 9.14 Liens. The Company shall not create or suffer to exist any
-----
Lien on any of the Collateral, other than the following, which collectively
shall constitute "Permitted Liens":
(a) Immaterial Liens;
(b) Liens created pursuant to the Security Documents;
(c) Liens covering property leased by the Company pursuant to leases
which do not constitute Debt of the Company; and
(d) Mechanics' and materialmens' Liens which (i) exist on the Closing
Date as set forth on Schedule 8 or (ii) are created after the Closing Date in a
----------
maximum aggregate amount of $1,000,000, the existence of which is disclosed to
the Agent promptly after the Company obtains knowledge or notice thereof, and
which the Company has commenced and diligently continues to take all reasonable
steps to satisfy.
SECTION 9.15 Consolidation; Sale and Transfer of Assets; Purchase of
-------------------------------------------------------
Assets. The Company shall not consolidate with any other Person or sell, lease
- ------
or transfer
46
<PAGE>
any portion of its properties or any of its right, title or interest in the
Project to another Person, or otherwise dispose of any of such properties or
right, title or interest therein, other than (i) sales of assets in the ordinary
course of the Company's business (provided that, to the extent each such asset
--------
remains necessary for the operation or maintenance of the Project, the Company
replaces such asset with an asset of at least substantially equivalent utility);
(ii) sales of Permitted Investments; (iii) transfer of assets made with the
prior written consent of all of the Lenders; (iv) as contemplated by the Project
Mortgage, the sale of the Premises (as defined in the Project Mortgage) to the
Issuer subject to the simultaneous execution and delivery of the Bond Lease; and
(v) as otherwise contemplated by the Credit Documents. The Company shall not
purchase or acquire any assets other than (A) purchases of assets reasonably
required for the completion of the Project, (B) purchases and leases of assets
in the ordinary course of business reasonably required in connection with the
operation of the Project and not in violation of Section 9.19, and (C) purchases
------------
of Permitted Investments.
SECTION 9.16 Nature of Business. The Company shall not conduct or
------------------
engage in any business other than the construction, operation and maintenance of
the Project and the undertaking of any activities reasonably related thereto.
SECTION 9.17 Permitted Investments. The Company shall not make any
---------------------
investments (whether by purchase of stock, bonds, notes or other securities, or
by loan, advance or otherwise) other than Permitted Investments, except that
------
this Section 9.17 shall not apply to the cash and investments thereof on deposit
------------
with a local bank as described in and within the limits of Section 9.26.
------------
SECTION 9.18 Debt. The Company shall not directly or indirectly create,
----
incur, assume, suffer to exist or otherwise become liable with respect to any
Debt except:
------
(a) Debt incurred under the Credit Documents;
(b) accounts payable pursuant to the Project Contracts;
(c) Debt permitted under Section 9.19;
------------
(d) Subordinated Loans; or
(e) Debt existing on the Closing Date and set forth on Schedule 7.
----------
SECTION 9.19 Guarantees. The Company will not agree, contingently or
----------
otherwise, to purchase or repurchase the Debt of, or assume, guaranty (directly
or indirectly or by instrument having the effect of assuring another's payment
or performance of any obligation or capability of so doing or otherwise),
endorse or otherwise become or
47
<PAGE>
remain liable, directly or indirectly, in connection with the obligations, stock
or dividends of any Person, except:
------
(a) by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business;
(b) indemnities with respect to unfiled vendor's, mechanic's,
worker's, employee's or other like Liens arising in the course of construction
or in the ordinary course of operations or maintenance of the Project;
(c) indemnities to federal, state or local governmental agencies or
authorities relating to any expenses incurred that are incidental to obtaining
easements for the benefit of the Project;
(d) indemnities set forth in the Project Documents; and
(e) indemnities with respect to contested taxes, governmental
assessments. charges, levies and claims which are being contested pursuant to
Section 10.6.
- ------------
SECTION 9.20 Fiscal Year. The Company shall not change the last day of
-----------
its fiscal year to a date other than December 31 or the Saturday falling closest
to December 31.
SECTION 9.21 Transactions with Affiliates and Others. The Company shall
---------------------------------------
not, directly or indirectly, purchase, acquire, exchange or lease any property
from, or sell, transfer or lease any property to, or borrow any money from, or
enter into any management or similar arrangement with, any of its Affiliates or
any officer, director or employee of the Company or any Member, except for (i)
------
transactions with Affiliates specifically provided for in the Project Documents,
and (ii) arm's length transactions with or among its Affiliates if payments in
connection with any such transaction do not reduce in any period the amount of
cash available for payment of the items referred to in Sections 9.28(b).
----------------
SECTION 9.22 Change of Office. Except in an emergency situation, the
----------------
Company shall not change the location of its chief executive office or principal
place of business or the office where it keeps its records concerning the
Project and all contracts relating thereto from that existing on the date of
this Agreement unless the Company shall have given the Agent at least 30 days'
prior written notice thereof and all action necessary or advisable in the
reasonable opinion of the Agent to maintain and preserve the Company's right,
title, if any, and interest in and to the Project and the other Collateral and
to maintain and perfect the Liens created by the Security Documents with respect
thereto and the priority thereof shall have been taken.
48
<PAGE>
SECTION 9.23 Change of Name. The Company shall not change its name
--------------
unless the Company shall have given the Agent at least 30 days' prior written
notice thereof and all action necessary or advisable in the Agent's reasonable
opinion to maintain and preserve the Company's right, title and interest in and
to the Collateral and to maintain and perfect the Liens created by the Security
Documents with respect thereto and the priority thereof shall have been taken.
SECTION 9.24 Plans. The Company shall not (i) establish, sponsor or
-----
maintain any Plan or Multiemployer Plan, or (ii) make, or agree to make, any
contribution to any Multiemployer Plan.
SECTION 9.25 Operating Budget. No later than 45 days after the
----------------
Substantial Completion Date, the Company shall deliver to the Agent for review
the Operating Budget for the remainder of the calendar year in which the
Substantial Completion Date occurs and the two succeeding calendar years.
Commencing with the first full calendar year after the year in which the
Substantial Completion Date occurs, no fewer than 60 days prior to the beginning
of each succeeding calendar year, the Company will deliver to the Agent for
review an Operating Budget for each of the two ensuing calendar years.
SECTION 9.26 Cash and Permitted Investments. The Company shall at all
------------------------------
times maintain all of its cash and Permitted Investments in the Accounts in
accordance with the Security Agreement except that on any date the Company may
------
have up to $2,000,000 on deposit with a bank in or near El Dorado, Arkansas.
SECTION 9.27 Use of Insurance and Condemnation Proceeds. (a) (i) All
------------------------------------------
insurance proceeds, condemnation awards or other compensation paid as a result
of a Casualty Event shall be deposited by the Agent into the Insurance Account,
provided, that proceeds of business interruption insurance and other payments
- --------
received for interruption of operations shall be deposited by the Agent into the
Operating Account. (ii) If the Company (or any Affiliate thereof), the Agent or
any Lender receives any of the proceeds, awards, compensation or other payments
referred to in the preceding sentence (such proceeds, awards, compensation or
other payments, collectively, "Casualty Proceeds"), the Company (or such
-----------------
Affiliate), the Agent or such Lender, as the case may be, shall promptly deliver
such Casualty Proceeds to the Agent for deposit into the Insurance Account or
the Operating Account (as provided in the preceding sentence); provided, that,
--------
the foregoing sentence shall not apply to any Casualty Proceeds remitted to the
Company pursuant to Section 9.27(c). (iii) The Agent shall be entitled to deduct
---------------
from any amount of Casualty Proceeds received by the Agent the reasonable cost,
if any, to the Agent of recovering and of paying out such Casualty Proceeds
(including attorney's fees and costs allocable to determining whether or not the
conditions to remittance of such Casualty Proceeds as provided in Section
-------
9.27(c) have been satisfied).
- -------
49
<PAGE>
(b) Casualty Proceeds not in excess of $1,000,000 with respect to any
single loss shall be paid to the Company for application to the repair,
restoration or rebuilding of the Project. All Casualty Proceeds in excess of
$1,000,000 shall, at the option of the Required Lenders either be applied as
payment on the Secured Obligations or be applied to repair, restoration or
rebuilding of the Project. In the event the Required Lenders agree that the
Casualty Proceeds shall be applied to the repair, restoration or rebuilding of
the Project, such Casualty Proceeds shall be remitted to the Company from time
to time as the Repair Work (as defined below) progresses and shall when remitted
to the Company be applied by the Company to the payment of the cost of
repairing, restoring or rebuilding the portion or portions of the Project
affected by the physical loss, destruction, damage or Taking (the "Repair
------
Work"), each such remittance to be subject to the following conditions and the
- ----
terms and provisions of the Security Agreement.
(c) If the Repair Work is structural or if the cost of such work, as
estimated by the Company and approved by the Agent in consultation with the
Independent Engineer, will exceed $1,000,000, the Repair Work shall be in the
charge of an architect or engineer (who may be an employee of the Company) and,
before the Company commences any such Repair Work, other than temporary Repair
Work to protect property or to prevent interference with business, the Required
Lenders in consultation with the Independent Engineer shall have approved the
plans and specifications for such work, which approval shall not be unreasonably
withheld or delayed, it being nevertheless understood that said plans and
specifications shall provide that the value and general utility of the Project
following completion of the Repair Work shall be comparable in all material
respects to the Project prior to the Casualty Event.
(d) Each request for payment shall be made on 10 days' prior notice to
the Agent and payment shall be subject to the satisfaction of the following
conditions:
(i) each request shall be accompanied by a certificate to be made
by such architect or engineer, if one is required under Section
-------
9.27(c), otherwise by an Authorized Officer of the Company, stating (A)
-------
that all of the Repair Work completed has been done in compliance in
all material respects with the approved plans and specifications, if
any are required under Section 9.27(c), (B) that the sum requested is
---------------
required to pay, or to reimburse the Company, for the cost incurred in
connection with such Repair Work (giving a brief description of the
services and materials provided in connection with such Repair Work),
(C) that the sum requested, when added to all Casualty Proceeds
previously paid out by the Agent, does not exceed the value of the
Repair Work done as of the date of such certificate, and (D) that the
amount of such proceeds remaining in the hands of the Agent, together
with other amounts available (in the reasonable opinion of the Required
Lenders) to the Company, will be sufficient on completion of the Repair
Work to pay for the same in full (giving in such reasonable detail as
the Agent may require an estimate of the cost of such completion) and
to pay all Debt Service
50
<PAGE>
during the period from the date of such request until such completion,
and the Independent Engineer shall have confirmed to the Agent the
accuracy and sufficiency of such certificate with respect to technical
matters;
(ii) each request shall be accompanied by waivers of Liens
(conditional as to the current request and unconditional as to prior
requests) reasonably satisfactory to the Agent covering that part of
the Repair Work for which payment or reimbursement is being requested
and by evidence reasonably satisfactory to the Agent that there has not
been filed with respect to the Project or any part thereof any
mechanics' or other Lien or instrument for the retention of title in
respect of any part of the Repair Work not discharged of record (other
than Permitted Liens);
(iii) no Permit necessary for the proper construction or
operation of the Project shall have been canceled, or contain any still
exercisable right to cancel, due to such Casualty Event;
(iv) no Default or Unmatured Default (other than a Default or
Unmatured Default relating directly or indirectly to such Casualty
Event) shall have occurred and be continuing;
(v) the request for any payment after the Repair Work has been
completed shall be accompanied by a copy of any certificate or
certificates required by law to render occupancy of the Facility legal;
and
(vi) the buildings, equipment or other improvements or fixtures
covered by the Repair Work shall be subject to the Liens of the
Security Documents.
(e) (i) If Casualty Proceeds are not remitted, or are not permitted
to be remitted, to the Company pursuant to Section 9.27(b), or the Company shall
---------------
not have commenced the Repair Work, in either case, within 90 days after the
receipt by the Agent of such Casualty Proceeds, or (ii) if, after the Repair
Work shall have commenced, the Company shall fail to diligently pursue
completion of such Repair Work or the Company shall fail to satisfy any of the
conditions set forth in Section 9.27(d) within a reasonable period of time (as
---------------
determined by the Required Lenders), such Casualty Proceeds on deposit in the
Insurance Account shall (upon direction of the Required Lenders) be applied to
the prepayment of the Loans and to cash collateralize any Letters of Credit.
Notwithstanding anything to the contrary in this Section 9.27, if a Default
------------
shall have occurred, the Agent may apply any Casualty Proceeds in its possession
as specified in Section 19(c) of the Security Agreement.
SECTION 9.28 Application of Revenues. (a) Subject to Section 9.28(d),
----------------------- ---------------
in the ordinary course of business the Company shall pay when due all costs
(other than payments described in Section 9.28(b) and (c)) incurred for the
--------------- ---
operation, repair,
51
<PAGE>
maintenance, management, or administration of the Project (including payments
pursuant to the Fiber Supply Agreement and the MDF Marketing Agreement in
accordance with the terms thereof, Bond Lease Payments, fresh water supply,
waste water disposal, chemicals, utilities, insurance, taxes (other than income
taxes), professional fees and costs incurred by the Company in connection with
scheduled major maintenance).
(b) The Company shall pay to the Agent when due all amounts owing to
the Agent or to the Lenders under the Credit Documents or required to be
deposited under the Credit Documents. Subject to Section 9.28(a) and (d), any
-----------------------
payments which the Agent receives from the Company pursuant to the preceding
sentence shall be applied in the following order of priority:
(i) any amount then due and owing to the Agent under any Credit
Document (in its capacity as Agent only);
(ii) interest then due and owing to the Lenders on the Loans;
(iii) principal then due and owing on the Loans and Hedge
Agreement fees and breakage costs owing to any Hedge Counterparty;
(iv) fees, expenses and prepayment premiums then due and owing
to the Lenders under the Credit Agreement and any other Secured
Obligation the payment of which is not otherwise provided for in this
Section 9.28(b);
---------------
(v) required deposits, if any, to be made into the Sinking Fund
Accounts pursuant to Section 9.13; and
------------
(vi) required deposits, if any, to be made into the Debt Service
Reserve Accounts pursuant to Section 9.12.
------------
(c) Subject to Section 9.28(a), (b) and (d), the Company may pay to
----------------------------
its Members:
(i) not more often than quarterly, Distributions; and
(ii) when due, interest and principal on Subordinated Loans;
provided that, upon such payment to the Members, such Distributions and interest
- --------
and principal on Subordinated Loans shall be free and clear of any Liens arising
under the Security Documents and subject only to the terms of the Contingent
Equity Contribution Agreements.
(d) The Company shall not make any payment pursuant to Section
-------
9.28(c) unless, at the time of such payment:
- -------
52
<PAGE>
(i) the most recent Calculation Period ended at least fifteen
(15) days prior to such payment;
(ii) the Company delivered the Compliance Certificate required
by Section 9.1(c) with respect to such Calculation Period at least four
--------------
(4) days prior to such payment;
(iii) the Debt Coverage Ratio is greater than or equal to
1.25:1.00;
(iv) no Debt Service Reserve Deficiency or Sinking Fund
Deficiency exists;
(v) the Final Completion Date has occurred;
(vi) if a Casualty Event has occurred, either:
(A) the portion of the Facility affected by such
Casualty Event has been repaired, restored, or rebuilt to
a condition which allows the Company to satisfy its
obligations under the Project Documents to which it is a
party (including its obligations under Section 9.8); or
------------
(B) if applicable, the Company has satisfied its
obligations under Section 9.27(e) with respect to such
---------------
Casualty Event;
(vii) no Default or Unmatured Default has occurred and is
continuing; and
(viii) the Company has delivered to the Agent a Certificate
executed by an Authorized Representative of the Company stating that
the conditions set forth in this Section 9.28 have been satisfied;
------------
provided that the Company shall not be required to submit such
--------
Certificate if the Company notifies the Agent in writing of its
intention to make, and makes, such payment within 8 days after
delivering a Compliance Certificate pursuant to Sections 9.1(c) and
---------------
9.28(d)(ii).
-----------
(e) Nothing in this Section 9.28 shall postpone, delay, or otherwise
------------
change the respective dates on which payments of principal, interest, and other
Secured Obligations become due and payable to the Secured Parties under this
Agreement, any Hedge Agreement, or any other Credit Document.
SECTION 9.29 Environmental Matters. In the event the Agent or any
---------------------
Lender sustains any liability, loss, cost, damage or expense (including
attorneys' and consultant's fees and expenses) arising out of the presence,
release or threatened release of Hazardous Material on or from the Site or
otherwise affecting the Collateral, the Agent
53
<PAGE>
may, if so directed by the Required Lenders, take any action reasonably
necessary in its judgment to respond to such presence, release or threatened
release affecting the Collateral following a failure of the Company to take, or
cause to be taken, any such action, and the cost of such response action shall
be added to the Secured Obligations secured by the Security Documents.
SECTION 9.30 Opinion. At least three months (but not more than six
-------
months) prior to each date by which any UCC continuation statement must be filed
in any jurisdiction in order to maintain the priority established by any UCC
financing statement filed in connection with the Security Documents (each such
date, a "Refile Date"), the Company shall deliver to the Agent an opinion of
-----------
counsel in form and substance reasonably satisfactory to the Agent stating (i)
the Security Documents are effective to create and maintain, in favor of the
Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens
on and security interests in all of the Collateral, (ii) that each of the
Security Documents has been duly filed and/or recorded and/or registered, and
all other filings, or recordings or other actions have been made or taken, in
all places as may be required or necessary to establish and perfect such Liens
and security interests, subject to such exceptions and qualifications as are
reasonably acceptable to counsel to the Agent, including assumptions that the
Agent has taken all actions within its sole power necessary to perfect the
security interest, and (iii) what action must be taken on or prior to the second
succeeding Refile Date in order to maintain the priority of such Liens and
security interests.
SECTION 9.31 Year 2000. The Borrower will use its best efforts to take
---------
all such actions as are reasonably necessary to successfully implement the Year
2000 Program and to assure that Year 2000 Issues will not have a Material
Adverse Effect. At the request of the Agent, the Borrower will provide a
description of the Year 2000 Program, together with any updates or progress
reports with respect thereto.
SECTION 10
DEFAULTS AND REMEDIES
SECTION 10.1 Defaults. The occurrence of any one or more of the
--------
following events shall constitute a Default:
(a) the Company shall default in the payment when due of (x) any
principal of any Loan (including any principal payable under Section 9.27(j)) or
---------------
(y) any Reimbursement Obligation which has not been converted into an L/C Loan
pursuant to Section 2.7; or
-----------
(b) the Company shall default in the payment when due of interest, fees
or any other amount payable by it to the Agent or the Lenders under this
Agreement and such default shall remain unremedied for a period of five Business
Days after the Company
54
<PAGE>
shall have received written notice of such default from the Agent or any Lender
(acting through the Agent); or
(c) the Company shall default in the payment when due, whether by
acceleration or otherwise, of any amount payable in respect of any Hedge
Agreement and such default shall continue beyond the applicable grace period, if
any, allowed under such Hedge Agreement; or
(d) the Company shall default in the performance of any of its
obligations under Section 9.1, 9.2, 9.4, 9.5, 9.9, 9.10, 9.11, 9.13, 9.15, 9.18
----------- --- --- --- --- ---- ---- ---- ---- ----
through 9.20 or 9.24; or
---- ----
(e) any funds shall be disbursed from the Operating Account in
violation of Section 9.28; or
------------
(f) the Company shall default in the performance of any of its other
obligations or covenants under this Agreement (other than constituting a default
under another provision of this Section 10) and such default shall continue
----------
unremedied for a period of 30 days after the earlier of knowledge or notice
thereof from the Agent of any Lender; or
(g) any representation or warranty made or deemed made by the Company
or any Member herein or in the Security Documents, or any representation,
warranty or statement made by the Company in any certificate delivered by the
Company or any Member to the Agent pursuant to this Agreement or the Security
Documents, shall prove to have been false or misleading in any material respect
as of the time made or deemed made; or
(h) the Company or any Member shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property, (ii)
admit in writing its inability, or be generally unable, to pay its Debts as such
Debts become due, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary Insolvency Proceeding, (vi) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary Insolvency Proceeding, (vii) engage
in any winding-up or liquidation of its business or assets, or (viii) take any
company or corporate action for the purpose of effecting any of the foregoing;
or
(i) any Insolvency Proceeding shall be commenced without the
application or consent of the Company, any Member or any trustee, receiver,
custodian, liquidator or the like shall be appointed for such Person under any
Governmental Rule relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of Debts, or a warrant of attachment,
execution or similar process shall be issued against property of such Person
having a value in excess of $1,000,000 and such proceeding, case, warrant or
process shall continue undismissed, or any order, judgment or decree
55
<PAGE>
approving or ordering any of the foregoing shall be entered and Continue
unstayed and in effect, for a period of 60 days, or any order for relief against
such Person shall be entered in an involuntary Insolvency Proceeding and shall
not be vacated or overruled within 60 days; or
(j) a judgment or judgments for the payment of money in excess of
$1,000,000 shall be rendered against the Company or any Member and the same
shall continue in effect, unpaid and unstayed for a period of 30 consecutive
days; or
(k) the Company shall default in the payment when due, at stated
maturity, by acceleration or otherwise, of any amount in respect of any Debt of
the Company in an aggregate principal amount in excess of $500,000 and such
default continues beyond the applicable grace period, if any, specified in the
note, agreement or other instrument relating to such Debt; or
(l) any event shall occur under any note, agreement or other instrument
by which any Debt of the Company in an aggregate principal amount in excess of
$1,000,000 is evidenced or under which any such Debt is created which entitles
the holder or holders of such Debt (or an agent or trustee on its or their
behalf) to cause such Debt to become due prior to its stated maturity or payment
date; or
(m) any material provision of any Project Contract shall at any time
for any reason cease to be valid and binding or in full force and effect, or any
material provision of any Project Contract shall be declared to be null and void
by any Governmental Authority of competent jurisdiction, or any party (other
than the Company, the Agent or any Lender) to any Project Contract shall default
in the observance or performance of any of the material covenants or agreements
contained in any such Project Contract beyond the applicable grace period;
provided that there shall be no Default in the case of cancellations or
- --------
terminations to which Section 9.10(b)(i)(y) applies; or
---------------------
(n) the Company shall fail to own good leasehold title to the Site or
good title to the other real estate rights and physical assets constituting a
part of the Collateral or shall fail to keep the Collateral free and clear of
all Liens other than Permitted Liens; or any of the Security Documents shall
cease to be valid and binding or in full force and effect or be effective to
grant perfected Liens to the Agent, for the benefit of the Secured Parties, on
the Collateral described therein, subject to no equal, prior or junior Lien
other than Permitted Liens and such failure is not cured within 10 days after
the earlier of the Company's obtaining knowledge or notice of such failure; or
(o) the Company or any Member shall fail to comply with or perform any
applicable provision of any Security Document beyond the applicable grace period
or shall contest in any manner the legality, validity, binding effect or
enforceability thereof in any manner; or
56
<PAGE>
(p) an ERISA Event shall occur or exist with respect to any Plan or
Multiemployer Plan and, as a result of such ERISA Event, together with all other
such ERISA Events, the Company shall incur or, in the reasonable opinion of the
Required Lenders, shall be reasonably likely to incur a liability to a Plan, a
Multiemployer Plan or the PBGC (or any combination of the foregoing), where the
incurrence of such liability could reasonably be expected to have a Material
Adverse Effect; or
(q) the Company shall have abandoned the Project; or
(r) a Company Change of Control or Member Change of Control shall
occur; or
(s) (A)(i) a Total Loss shall occur, or (ii) a material portion of the
Project shall be condemned, confiscated, requisitioned, damaged or destroyed as
a result of a Casualty Event and such condemnation, confiscation, requisition,
damage or destruction could reasonably be expected to have a Material Adverse
Effect, and (B) the Company shall not be entitled to receive Casualty Proceeds
in accordance with Section 9.27(c) in order to repair, restore or rebuild the
---------------
Project (or shall have elected not to repair, restore or rebuild the Project);
or
(t) any of the Permits required in connection with the execution,
delivery or performance of any of the Project Documents or the transactions
contemplated thereby shall be rejected or otherwise denied or shall expire
(without being timely renewed) or be revoked, rescinded, suspended, held invalid
or otherwise limited in effect, and such rejection, denial, expiration,
revocation, recision, suspension, holding or other limiting action has continued
for a 30-day period or, in the case of any such limiting action which is not
discontinued within 30 days, provided the Company has commenced and is
diligently continuing to take reasonable steps to obtain such discontinuance,
such longer period (not to exceed an additional 60 days) as may be necessary to
obtain such discontinuance.
SECTION 10.2 Remedies. At any time following the occurrence of a
--------
Default which has not been remedied or waived, the Agent shall, if so requested
by the Required Lenders, upon giving written notice to the Company with respect
thereto, take (at the same or one or more different times) one or more of the
following actions: (i) terminate any and all Commitments; and/or (ii) declare
the unpaid principal amount of and interest due under or with respect to the
Loans and all other amounts payable by the Company under the Credit Documents to
be forthwith due and payable, and/or declare the stated amount of all
outstanding Letters of Credit to have been drawn in accordance with the terms
thereof (whether or not such stated amount shall have in fact been so drawn) and
such stated amount to be forthwith due and payable, whereupon all such amounts
shall become forthwith due and payable, both as to principal and interest,
without further presentment, demand, protest or other notice of any kind, all of
which are hereby expressly waived, anything contained herein or in any of the
Credit Documents to the contrary
57
<PAGE>
notwithstanding and whereupon the Agent may apply any insurance proceeds,
condemnation settlement or any other funds to the payment of interest,
principal, fees, premiums or other amounts constituting Secured Obligations as
provided in the Security Agreement; and/or (iii) pursue any other rights and
remedies available to the Agent or any Lender under or with respect to any of
the Security Documents or any of the other Project Documents or otherwise
available to the Agent or any Lender at law or in equity which are not in
conflict with the terms and conditions of the Credit Documents; provided, that
--------
upon the occurrence of any Default relating to the Company pursuant to Section
-------
10.1(h) or 10.1(i), the terminations and accelerations specified in clauses (i)
- ------- ------- -----------
and (ii) above shall be deemed to have been made automatically upon the
----
occurrence of such Default without notice to the Company from the Agent;
provided, that the Required Lenders, in their sole discretion, may waive such
- --------
automatic and immediate termination and acceleration upon the occurrence of such
Default. Simultaneously with its giving of any notice to the Company under this
Section 10.2 or the declaration of any termination or acceleration pursuant to
- ------------
clause (i) or (ii) above, the Agent shall notify each Lender of such action. All
- ---------- ----
amounts paid by the Company hereunder with respect to outstanding Letters of
Credit shall be held by the Agent in the Collateral Account and shall be applied
to repay any draws under such outstanding Letters of Credit. In the event all
outstanding Letters of Credit have been drawn, and been repaid, expired or
canceled and any amounts remain in the Collateral Account with respect to the
same, the Agent shall return such amounts to the Company or such other person as
may be entitled thereto.
SECTION 11
LIMITATIONS ON RECOURSE
SECTION 11.1 Nonrecourse Obligations. Each Lender and the Agent
-----------------------
(collectively, the "Creditors") hereby acknowledge and agree that, except as set
---------
forth in Section 11.2, no member, and no Affiliate of the Company, and no
------------
present or future officer, employee, servant, controlling person, manager,
agent, Authorized Representative or Member of the Company, any member or any
Affiliate of either the Company or a Member (collectively, the "Nonrecourse
-----------
Persons"), shall have any liability to all or any of the Creditors (such
- -------
liability, including such as may arise by operation of law, being hereby waived)
for the payment of any sums now or hereafter owing by the Company under this
Agreement or any other Credit Document or for the performance of any of the
obligations of the Company contained herein or therein or shall otherwise be
liable or responsible with respect thereto. Without limiting the foregoing, (i)
dividends or other distributions made by the Company in accordance with Section
-------
9.28, shall not be deemed to be Collateral in which the Creditors have any
- ----
security interest or other interest and the Lien of any security interest or any
other Lien granted by the Company to any of the Creditors under the Project
Mortgage or the Security Agreement shall not extend to any amounts that have
been distributed, by dividend or otherwise, by the Company to any of its Members
in accordance with Section 9.28. If any Default or Unmatured Default shall
------------
exist or if any
58
<PAGE>
claim of the Creditors against the Company or alleged liability of the Company
to the Creditors shall be asserted under this Agreement or any other Credit
Document, then the Creditors agree that, except as set forth in Section 11.2,
------------
they shall not have the right to proceed directly or indirectly against the
Nonrecourse Persons or against their respective properties and assets for the
satisfaction of any Secured Obligations or for any deficiency judgment (except
------
to the extent enforceable out of the Collateral as to which such Nonrecourse
Person has an interest) in respect of the Secured Obligations.
SECTION 11.2 Exceptions. Notwithstanding the provisions of Section
---------- -------
11.1, it is understood and agreed that nothing contained in said Section 11.1
- ---- ------------
shall in any manner or any way (i) with respect to any Person other than a
Nonrecourse Person, constitute or be deemed to be a release of the Secured
Obligations (ii) impair the Liens and security interests and possessory rights
created by or arising from this Agreement, the Security Agreement and, the
Project Mortgage or any other Security Document or restrict the remedies
available to the Creditors to realize upon the Collateral, (iii) affect or
diminish any obligation, covenant or agreement of any Nonrecourse Person under
any Project Document (including the Contingent Equity Contribution Agreement) or
any other instrument or agreement to which such Nonrecourse Person is a party,
or (iii) affect or diminish any rights of any Person against any other Person
arising from such other Person's gross negligence or willful misconduct,
including misappropriation of funds. Notwithstanding the provisions of Section
-------
11.1, it is understood and agreed that any Creditor shall be entitled to bring
- ----
suit against (1) any Member under the Pledge Agreement or for the purpose of
obtaining jurisdiction over the Company, (2) each Member for the purpose of
enforcing the Contingent Equity Contribution Agreement, (3) any Nonrecourse
Person for the purpose of enforcing any Consent and Agreement to which such
Nonrecourse Person is a party, and (4) any Person (including any Nonrecourse
Person) if such suit is based on a good faith allegation that fraud was
committed by such Person (or, if such Person is a Member, if such suit is based
on a good faith allegation that fraud was committed by such Member or any of its
Affiliates).
SECTION 11.3 Survival. The acknowledgments, agreements and waivers
--------
contained in this Section 11 shall survive the termination of this Agreement and
----------
shall be enforceable by the Company and any Nonrecourse Person.
SECTION 12
THE AGENT
SECTION 12.1 Appointment. The Lenders hereby appoint First Chicago as
-----------
Agent hereunder and under or with respect to each other Credit Document. The
Agent agrees to act as such upon the express conditions contained in this
Section 12. The Agent shall not have a fiduciary relationship in respect of any
- ----------
Lender by reason of this Agreement or any of the other Credit Documents.
59
<PAGE>
SECTION 12.2 Powers. The Agent shall have and may exercise such powers
------
under the Credit Documents as are specifically delegated to the Agent by the
terms of each thereof, together with such powers as are reasonably incidental
thereto. The Agent shall not have any implied duties to the Lenders or any
obligation to the Lenders to take any action thereunder, except any action
specifically provided by the Credit Documents to be taken by the Agent.
SECTION 12.3 General Immunity. Neither the Agent nor any of its
----------------
directors, officers, agents or employees shall be liable to the Company or any
Lender for any action taken or omitted to be taken by it or them hereunder or
under any other Credit Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct.
SECTION 12.4 No Responsibility for Loans, Recitals, etc. Neither the
------------------------------------------
Agent nor any of its directors, officers, agents or employees shall be
responsible to any Lender for, or have any duty to ascertain, inquire into or
verify, (i) any statement, warranty or representation made in connection with
any Credit Document or any borrowing hereunder; (ii) the performance or
observance of any of the covenants or agreements of any Person obligated under
or with respect to any Credit Document; (iii) in the case of the Agent, the
satisfaction of any condition specified in Section 7 except receipt of items
---------
required to be delivered to the Agent; or (iv) the validity, effectiveness or
genuineness of any Project Document or any other instrument or writing furnished
in connection therewith.
SECTION 12.5 Action on Instructions of Lenders. The Agent shall in all
---------------------------------
cases be fully protected in acting, or in refraining from acting, hereunder and
under any other Credit Document in accordance with written instructions signed
by the Required Lenders, and such instructions and any action taken or failure
to act pursuant thereto shall be binding on all of the Lenders.
SECTION 12.6 Employment of Agents and Counsel. The Agent may execute
--------------------------------
any of its duties as Agent hereunder and under any other Credit Document by or
through employees, agents, and attorneys-in-fact and shall not be answerable to
the Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Credit Document.
SECTION 12.7 Reliance on Documents; Counsel. The Agent shall be
------------------------------
entitled to rely upon any notice, consent, certificate, affidavit, letter,
telegram, statement, paper or document believed by it in good faith and without
gross negligence or willful misconduct on its part to be genuine and correct and
to have been signed or sent by the proper Person
60
<PAGE>
or Persons, and, in respect to legal matters, upon the opinion of counsel
selected by the Agent which counsel may be employees of the Agent.
SECTION 12.8 Reimbursement and Indemnification. The Lenders agree to
---------------------------------
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Credit Documents,
(ii) for any other expenses incurred by the Agent on behalf of the Lenders in
connection with the preparation, execution, delivery, administration and
enforcement of the Credit Documents, and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, reasonable costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against the Agent in any way relating to or arising
out of the Credit Documents or any other document delivered in connection
therewith or the transactions contemplated thereby, or the enforcement of any of
the terms thereof or of any such other documents, provided that no Lender shall
be liable to the Agent for any of the foregoing to the extent they arise from
the gross negligence or willful misconduct of the Agent.
SECTION 12.9 Rights as a Lender. With respect to its Commitment and
------------------
Loans made by it, First Chicago shall have the same rights and powers hereunder
and under any other Credit Document as any Lender and may exercise the same as
though it were not the Agent, and the term "Lender" or "Lenders" shall, unless
the context otherwise indicates, include First Chicago in its individual
capacity. First Chicago may accept deposits from, lend money to, and generally
engage in any kind of banking or trust business with the Company or any
Subsidiary or Affiliate of the Company as if it were not the Agent.
SECTION 12.10 Lender Credit Decision. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon the Agent or any other Lender and
based on the financial statements prepared by the Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Credit
Documents. Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Credit Documents.
SECTION 12.11 Successor Agent. The Agent may resign at any time by
---------------
giving written notice thereof to the Lenders and the Company, and the Agent may
be removed at any time with or without cause by written notice received by the
Agent from the Required Lenders. Upon any such resignation or removal, the
Required Lenders shall have the right to appoint, on behalf of the Company and
the Lenders, a successor Agent from among the Lenders (which successor Agent,
prior to the occurrence of a Default, shall be reasonably
61
<PAGE>
satisfactory to the Company). If no successor Agent shall have been so appointed
by the Required Lenders and shall have accepted such appointment within thirty
days after the retiring Agent's giving notice of resignation, then the retiring
Agent may appoint, on behalf of the Company and the Lenders, a successor Agent
having a combined capital and surplus of not less than $2,000,000,000. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations thereafter to be
performed by the Agent hereunder and under the other Credit Documents. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Section
-------
12 shall continue in effect for its benefit in respect of any actions taken or
- --
omitted to be taken by it while it was acting as the Agent hereunder and under
the other Credit Documents.
SECTION 12.12 Documents. The Agent shall forward promptly to each
---------
Lender a copy of each document furnished to the Agent by the Company hereunder
to the extent the Company is not obligated to deliver such document to each
Lender.
SECTION 13
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
SECTION 13.1 Successors and Assigns. The terms and provisions of the
----------------------
Credit Documents shall be binding upon and inure to the benefit of the Company
and the Lenders and their respective successors and assigns, except that the
------
Company shall not have the right to assign its rights or obligations under any
of the Credit Documents and any assignment by any Lender must be made in
compliance with Section 13.3. Any assignee of rights and obligations under the
------------
Credit Documents agrees by acceptance thereof to be bound by all the terms and
provisions of the Credit Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is a party to any of the Credit Documents, shall be conclusive and
binding on any subsequent assignee of such Person's rights and obligations under
the Credit Documents.
SECTION 13.2 Participations.
(a) Permitted Participants; Effect. Any Lender may, in the ordinary
------------------------------
course of its business and in accordance with applicable law, at any time sell
to one or more banks or other entities (as used in this Section 13,
----------
"Participants"), participating interests in any Loan owing to such Lender, the
------------
Commitment of such Lender, or any other interest of such Lender under this
Agreement or the other Project Documents; provided that, so long as no Default
--------
shall have occurred or be continuing, no Lender may sell any such interests to
any entity which is engaged in business in the forest products industry, unless
such Lender obtains the prior consent of the Company to such sale, which consent
shall not be
62
<PAGE>
unreasonably withheld; provided, further, that each participating interest shall
-------- -------
be in an aggregate amount of $5,000,000 or more. In the event of any such sale
by a Lender of participating interests to a Participant, such Lender's
obligations under the Credit Documents shall remain unchanged, such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations, all amounts payable by the Company under this Agreement shall
be determined as if such Lender had not sold such participating interests, and
the Company and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under the Credit
Documents.
(b) Voting Rights. Each Lender agrees, for the benefit of the Company,
-------------
that such Lender shall, in connection with any participation pursuant to Section
-------
13.2(a), retain the sole right to approve, without the consent of any
- -------
Participant, any amendment, modification or waiver of any provision of the
Credit Documents other than any amendment, modification or waiver with respect
to any Loan or Commitment in which such Participant has an interest which
forgives principal, interest or fees or reduces the interest rate or fees
payable with respect to any such Loan or Commitment, postpones any date fixed
for any regularly-scheduled payment of principal of, or interest or fees on, any
such Loan or Commitment or releases any guarantor of any such Loan or releases
(other than as provided for in a Credit Document) any substantial portion of the
Collateral, if any, securing any such Loan.
(c) Benefit of Setoff. The Company agrees that each Participant shall
-----------------
be deemed to have the right of setoff provided in Section 4.9 in respect of its
-----------
participating interest in amounts owing under the Credit Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Credit Documents, provided that each Lender shall also
--------
retain the right of setoff provided in Section 4.9 with respect to the amount of
-----------
participating interests sold to each Participant provided that no such setoff by
any Lender and its Participants shall result in a double-counting (in whole or
in part) of any indebtedness of the Company as to which such setoff relates. The
Lenders agree to share with each Participant, and each Participant, by
exercising the right of setoff provided in Section 4.9, agrees to share with
-----------
each Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 4.9 as if each
-----------
Participant were a Lender.
SECTION 13.3 Assignments.
-----------
(a) Permitted Assignments. Any Lender may, in accordance with
---------------------
applicable law and with the prior written consent of the Company (at all times
other than during the existence of a Default) and the Agent, at any time assign
to one or more banks or any other entities, (as used in this Section 13,
----------
"Purchasers"), all or any part of its rights and obligations under this
----------
Agreement and the other Credit Documents; provided that, so long as no Default
--------
shall have occurred or be continuing, no Lender may assign any such rights
63
<PAGE>
or obligations to any entity which is engaged in business in the forest products
industry, unless such Lender obtains the prior consent of the Company to such
assignment, which consent shall not be unreasonably withheld; provided, further,
-------- -------
that each such assignment shall be of a pro rata portion of all of assigning
Lender's rights and obligations under this Agreement and the other Credit
Documents and shall be in a minimum aggregate amount of $5,000,000. Each
assignment pursuant to this Section 14.3 shall be substantially in the form of
------------
the Lender's Assignment Agreement attached as Exhibit F. In addition, without
---------
the consent of the Company and the Agent, any Lender shall be permitted to
create a security interest in favor of any Federal Reserve Bank in all or any of
such Lender's rights under the Credit Documents in order to comply with
Regulation A of the Board of Governors of the Federal Reserve System.
Notwithstanding the foregoing provisions of this Section 13.3(a), no Lender
---------------
shall at any time assign all or any portion of its Loans to any Member or any
Affiliate of any Member without the prior written consent of all of the other
Lenders.
(b) Effect; Effective Date. Upon delivery to the Agent and the Company
----------------------
of a notice of assignment, substantially in the form attached as Exhibit I to
---------
Exhibit F hereto (as used in this Section 13.3, a "Notice of Assignment") and
- --------- ------------ --------------------
payment to the Agent of a processing fee of $3,500, such assignment shall become
effective on the effective date specified in such Notice of Assignment. On and
after the effective date of such assignment, such Purchaser shall for all
purposes be a Lender party to this Agreement and any other Credit Document
executed by the Lenders and shall have all the rights and obligations of a
Lender under the Credit Documents, to the same extent as if it were an original
party hereto, and no further consent or action by the Company, the Lenders or
the Agent shall be required to release the transferor Lender with respect to, in
the case of the Lenders, the percentage of the Loans and the Commitment assigned
to such Purchaser.
SECTION 13.4 Dissemination of Information. Each Lender agrees to use
----------------------------
its best efforts to hold in confidence and not disclose any information relating
to the transactions contemplated hereby (other than information (A) which was
publicly known or otherwise known to such Lender at the time of disclosure, (B)
which subsequently becomes publicly known through no act or omission of such
Lender or (C) which otherwise becomes known to such Lender, other than through
disclosure by the Company, any Member or any Affiliate of a Member) delivered or
made available by or on behalf of the Company, the Members or any Affiliate of
the Members to such Lender in connection with or pursuant to this Agreement
which has been delivered to such Lender on or before the Closing Date or which
is proprietary in nature and clearly marked or labeled as being confidential
information; provided, that nothing herein shall prevent any Lender from
--------
delivering copies of any financial statements and other documents delivered to
such Lender, and disclose any other information disclosed to such Lender, by or
on behalf of the Company or any Members in connection with or pursuant to this
Agreement to (i) such Lender's directors, officers and employees, (ii) such
Lender=s agents and professional consultants who need to know such information
in connection with the transactions contemplated hereby, (iii) any other Lender,
(iv) any Purchaser or any Person to which
64
<PAGE>
such Lender offers to sell any participating interest, (v) any Participant or
any Person to which such Lender sells or offers to sell any participating
interest, (vi) any Person from which such Lender offers to purchase any security
of the Company, (vii) any Governmental Authority having jurisdiction over such
Lender, (viii) the National Association of Insurance Commissioners or any
similar organization or (ix) any other Person to which such delivery or
disclosure may be necessary or appropriate (a) in compliance with any
Governmental Rule applicable to such Lender, (b) in response to any subpoena or
other legal process or informal investigative demand or (c) in connection with
any litigation to which such Lender is a party, provided that prior to
--------
disclosure to any Person referred to in clauses (iv), (v) or (vi) above, such
------------ --- ----
Person shall have agreed with the Company in writing to be bound by the
provisions of this Section 13.4 (such writing otherwise to be in form and
------------
substance satisfactory to the disclosing Lender); provided, further, that, prior
--------
to disclosure pursuant to clause (ix), the Company shall be given prompt notice
thereof and, to the extent practicable, the opportunity to seek an order
restraining the disclosure of such information.
SECTION 14
GENERAL PROVISIONS
SECTION 14.1 Amendments. Etc. Except as otherwise expressly provided in
---------------
this Section 14.1, any provision of this Agreement may be amended, modified or
------------
waived only by an instrument in writing signed by the Company and the Required
Lenders; provided, that no amendment, modification or waiver shall, unless by an
--------
instrument signed by all of the Lenders: (a) increase or extend the term, or
extend the time or waive any requirement for the reduction or termination, of
the Commitments, (b) extend the date fixed for the payment of principal of or
interest on any Loan or any fee hereunder, (c) reduce the amount of any such
payment of principal, (d) reduce the rate at which interest is payable thereon
or any fee is payable hereunder, (e) alter the rights or obligations of the
Company to prepay Loans, (f) alter the terms of this Section 14.1, (g) amend the
------------
definition of the term "Required Lenders" or (h) waive any of the conditions
precedent set forth in Section 7; and provided, further, that any amendment,
--------- -------- -------
modification, supplement or waiver affecting the rights or obligations of the
Agent shall require the consent of the Agent. No amendment, modification or
waiver of any provision of any Security Document purporting to release any
Collateral shall be made without the written consent of all of the Lenders.
SECTION 14.2 Survival. Without prejudice to the survival of any other
--------
agreement of the Company hereunder, the agreements and obligations of the
Company contained in Sections 5.1, 5.2, 5.4, 5.5 and 14.9 shall survive the
------------ --- --- --- ----
payment in full of the Secured Obligations and the termination of this
Agreement.
SECTION 14.3 No Third Party Beneficiaries. The agreement of the Lenders
----------------------------
to make the Loans on the terms and conditions set forth herein, are solely for
the benefit of the Company, and no other Person (including all of the other
parties to the Credit
65
<PAGE>
Documents and all of the contractors, subcontractors, suppliers, vendors and
materialmen furnishing supplies, goods or services to or for the benefit of the
Project) shall have any rights hereunder or, as against the Agent or any Lender,
with respect to any of the Loans or the proceeds thereof.
SECTION 14.4 Preservation of Rights. No delay or omission of the
----------------------
Lenders or the Agent to exercise any right under this Agreement or any of the
other Credit Documents shall impair such right or be construed to be a waiver of
any Default or an acquiescence therein, and the making of any Loan
notwithstanding the existence of a Default or the inability of the Company to
satisfy any condition precedent set forth in Section 7 without the Lenders or
---------
the Required Lenders, as the case may be, having given a written waiver of such
condition precedent in accordance with the terms of Section 14.1 shall not
------------
constitute any waiver of or acquiescence to such Default and shall not
subsequently prevent the Agent and the Lenders from requiring satisfaction of
such condition precedent. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of this Agreement or any of the other Credit Documents to which any
of the Agent or the Lenders is a party shall be valid unless made in accordance
with Section 14.1, and then only to the extent in such writing specifically set
------------
forth. All remedies contained in this Agreement and the other Credit Documents
or by law afforded shall be cumulative and all shall be available to the Agent
and the Lenders until the Secured Obligations have been paid in full and all of
the Commitments have expired or been terminated in accordance with the terms of
this Agreement.
SECTION 14.5 Survival of Representations. All representations and
---------------------------
warranties of the Company contained in this Agreement and the other Credit
Documents shall survive the issuance of the Letters of Credit and the making of
the Loans herein contemplated.
SECTION 14.6 Governmental Regulation. Anything contained in this
-----------------------
Agreement to the contrary notwithstanding, no Lender shall be obligated to
extend credit to the Company in violation of any limitation or prohibition
provided by any applicable statute or regulation.
SECTION 14.7 Headings. Section headings in this Agreement are for
--------
convenience of reference only, and shall not govern the interpretation of any of
the provisions of this Agreement.
SECTION 14.8 Entire Agreement. This Agreement and the other Credit
----------------
Documents to which the Lenders and the Agent are parties embody the entire
agreement and understanding among the Company, the Agent and the Lenders and
supersede all prior agreements and understandings (other than the letter
agreements referred to in
66
<PAGE>
Section 6) among the Company, the Agent and the Lenders relating to the subject
- ---------
matter thereof.
SECTION 14.9 Expenses; Indemnification. The Company shall (a) reimburse
-------------------------
the Agent for all reasonable costs, internal charges and out-of-pocket expenses
paid or incurred by the Agent in connection with the preparation, review,
execution, delivery, amendment, modification, administration, collection and
enforcement of this Agreement and the other Credit Documents (such costs,
charges and expenses including (i) the time charges and expenses of attorneys
for the Agent which are employees of the Agent, (ii) the fees and expenses of
Mayer, Brown & Platt, special counsel to the Agent, and of Friday, Eldredge &
Clark, special Arkansas counsel to the Agent, and (iii) the fees and expenses of
the Consultants), (b) reimburse the Agent for any and all reasonable expenses,
including the reasonable fees and expenses of counsel and of any experts and
agents, which the Agent may incur following the occurrence of and during the
continuance of a Default in connection with the custody or preservation of, or
the collection from or other realization upon, any of the Collateral covered by
the Security Documents, and (c) reimburse each Lender for all reasonable costs,
internal charges and out-of-pocket expenses (including attorneys' fees) paid or
incurred by such Lender in connection with the negotiation, execution, delivery,
administration, amendment, modification, waiver, consent, collection and
enforcement of or in connection with or relating to this Agreement and the other
Credit Documents. The Company further agrees to indemnify each Agent-Related
Person and each Lender, its directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and expenses
(including all expenses of litigation or preparation therefor whether or not any
Agent-Related Person or any Lender is a party thereto, but excluding any such
losses, claims, damages, penalties, judgments, liabilities or expenses resulting
from willful misconduct or failure to follow customary banking procedures on the
part of, the Person claiming indemnity under this sentence) which any of them
may pay or incur arising out of or relating to (i) this Agreement, (ii) the
other Credit Documents, (iii) the Collateral, (iv) the transactions contemplated
hereby, (v) the direct or indirect application or proposed application of the
proceeds of any Loan, (vi) any violation of any law, ordinance, order, rule or
regulation including any such violation in respect of hazardous or toxic wastes
or substances, (vii) the past or present disposal, release or threatened release
of any hazardous or toxic waste or substance on the Site, or (viii) any personal
injury (including wrongful death, or property damage arising out of or related
to any hazardous or toxic waste or substance on the Site. Any Person claiming
indemnity under the immediately preceding sentence shall give the Company prompt
notice of any loss, claim, damage, penalty, judgment, liability or expense
covered by the indemnity set forth in the immediately preceding sentence and
shall give the Company the opportunity to assume the defense of such Person
against any such loss, claim, damage, penalty, judgment, liability or expense;
provided that (x) if the Company assumes such defense, it shall select counsel
- --------
reasonably acceptable to such Person to conduct such defense and shall
diligently defend against or settle the loss, claim, damage, penalty, judgment,
liability or expense, (y) if such Person joins in any such defense, the Company
67
<PAGE>
shall have full authority, in consultation with such Person, to determine all
action to be taken with respect thereto, and (z) the Company shall not consent
to a settlement of, or the entry of any monetary judgment arising from, the
loss, claim, damage, penalty, judgment, liability or expense being defended
against, without the prior written consent of such Person which shall not be
unreasonably withheld or delayed.
SECTION 14.10 Severability of Provisions. Any provision in this
--------------------------
Agreement or any other Credit Document that is held to be inoperative,
unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be
inoperative, unenforceable, or invalid without affecting the remaining
provisions in that jurisdiction or the operation, enforceability, or validity of
that provision in any other jurisdiction, and to this end the provisions of this
Agreement and the other Credit Documents are declared to be severable.
SECTION 14.11 Nonliability of Lenders. The relationship between the
-----------------------
Company and the Lenders and the Agent shall be solely that of borrower and
lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to the Company. Neither the Agent nor any Lender undertakes any
responsibility to the Company to review or inform the Company of any matter in
connection with any phase of the Company's business or operations.
SECTION 14.12 CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
SECTION 14.13 CONSENT TO JURISDICTION, VENUE, ETC. EACH PARTY HERETO
-----------------------------------
HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
CREDIT DOCUMENTS AND EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT
OR THAT SUCH COURT IS AN INCONVENIENT FORUM. SUCH SERVICE MAY BE MADE BY MAILING
OR DELIVERING A COPY OF SUCH PROCESS TO THE COMPANY AT ITS ADDRESS.
SECTION 14.14 WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT AND EACH
--------------------
LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY
OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN
ANY WAY ARISING OUT OF,
68
<PAGE>
RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE OTHER CREDIT
DOCUMENTS OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
SECTION 14.15 Giving Notice. Except as provided in Section 4.6(b), all
------ ------ --------------
notices and other communications provided to any party hereto under this
Agreement or any other Credit Document shall be in writing or by facsimile and
addressed or delivered to such party at its address set forth below its name on
the signature pages hereof or at such other address as may be designated by such
party in a notice to the other parties. Any notice shall be deemed given when
received within normal business hours.
SECTION 14.16 Counterparts. This Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart. This Agreement shall be effective when it has been
executed by the Company, the Agent and the Lenders.
69
<PAGE>
IN WITNESS WHEREOF, the Company, the Agent, and the Lenders have
executed this Agreement as of the date first above written.
DEL-TIN FIBER, L.L.C.
By:________________________________
Title:_____________________________
Address for Notices:
Del-Tin Fiber L.L.C.
c/o Temple-Inland Inc.
1300 MoPac Expressway South
Austin, Texas 78746
Attention: David W. Turpin,
Assistant Treasurer
Telephone: (512) 434-8705
Facsimile: (512) 434-8710
With a copy to:
Del-Tin Fiber L.L.C.
c/o Deltic Timber Corporation
210 East Elm Street
El Dorado, Arkansas 71730
Attention: Clefton D. Vaughan,
Assistant Treasurer
Telephone: (870) 881-6407
Facsimile: (870) 881-6457
70
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as Lender and as Agent
By:____________________________________
Title:_________________________________
Address for Notices:
One First National Plaza
Mail Suite 0324
Chicago, Illinois 60670
Attention: Jennifer Gilpin
Telephone: (312) 732-5867
Facsimile: (312) 732-5296
71
<PAGE>
THE BANK OF NOVA SCOTIA, as Lender
and as Co-Agent
By:_________________________________
Title:_______________________________
Address for Notices:
600 Peachtree
Suite 2700
Atlanta, Georgia 30308
Attention: F.C.H. Ashby
Telephone: (404) 877-1500
Facsimile: (404) 888-8998
with a copy to:
1100 Louisiana Street
Suite 3000
Houston, Texas 77002
Attention: Gregory George
Telephone: (713) 752-3430
Facsimile: (713) 752-2425
72
<PAGE>
HIBERNIA NATIONAL BANK, as Lender
By:_________________________________
Title:______________________________
Address for Notices:
333 Travis Street
3rd Floor
Shreveport, Louisiana 71101
Attention: David Holden
Telephone: (318) 677-5122
Facsimile: (318) 674-3758
73
<PAGE>
Schedule 1
----------
Sinking Fund Requirements
-------------------------
Quarter $ Amount Required Balance
------- -------- ----------------
First Year, first quarter 0 0
First Year, second quarter 0 0
First Year, third quarter 0 0
First Year, fourth quarter 0 0
Second Year, first quarter 0 0
Second Year, second quarter 0 0
Second Year, third quarter 0 0
Second Year, fourth quarter 0 0
Third Year, first quarter 1,045,750 1,045,750
Third Year, second quarter 1,045,750 2,091,500
Third Year, third quarter 1,045,750 3,137,250
Third Year, fourth quarter 1,045,750 4,183,000
Fourth Year, first quarter 1,835,625 6,018,625
Fourth Year, second quarter 1,835,625 7,854,250
Fourth Year, third quarter 1,835,625 9,689,875
Fourth Year, fourth quarter 1,835,625 11,525,500
Fifth Year, first quarter 2,169,375 13,694,875
Fifth Year, second quarter 2,169,375 15,864,250
Fifth Year, third quarter 2,169,375 18,033,625
Fifth Year, fourth quarter 2,169,375 20,203,000
Sixth Year, first quarter 2,447,500 22,650,500
Sixth Year, second quarter 2,447,500 25,098,000
Sixth Year, third quarter 2,447,500 27,545,550
Sixth Year, fourth quarter 2,447,500 29,993,000
Seventh Year, first quarter 3,115,000 33,108,000
Seventh Year, second quarter 3,115,000 36,223,000
Seventh Year, third quarter 3,115,000 39,338,000
Seventh Year, fourth quarter 49,662,000 89,000,000
74
<PAGE>
Schedule 2
----------
Required Permits
----------------
75
<PAGE>
Schedule 3
Permits To Be Obtained
----------------------
None
76
<PAGE>
Schedule 4
Project Pro Forma
-----------------
77
<PAGE>
Schedule 5
----------
Insurance Requirements /1/
----------------------
A. GENERAL PROVISIONS APPLICABLE TO ALL INSURANCE
1. The Company shall provide required evidence of insurance to the
Agent not less than one week prior to the Initial Funding Date in
order to facilitate the Agent's review and approval.
2. The Agent will accept for purposes of the Initial Funding Date a
copy, certified by the insurer or a nationally recognized
insurance broker, of a signed temporary insurance Binder. Such
Binder must contain sufficient details so that the Agent can
identify the insurer, term of Binder, Binder number, coverage
provided, limits/amounts of the insurer's liability, and
protection of the Agent's interest. Such Binder must be replaced
with other evidence of insurance acceptable to the Agent as soon
as possible.
3. Every insurance company shall have at least a minimum
Policyholder's Rating of "A" and a Financial Size Rating of X in
the current edition of Best's Insurance Reports or shall
otherwise be acceptable to the Required Lenders.
4. All Insurance Policies, Certificates of Insurance and Binders
shall contain a written proviso that insurance will not be
canceled or contain a material change without at least sixty (60)
days prior written notice to the Agent.
5. Each Insurance Policy, Certificate of Insurance, Binder, and all
notices shall be addressed to:
_______________________
/1/ FOR PURPOSES OF THIS SCHEDULE 5, "MATERIAL CHANGE" SHALL NOT
----------
INCLUDE CHANGES AFFECTING (I) PROPERTY OTHER THAN THAT REQUIRED TO BE
INSURED BY THE CREDIT AGREEMENT OR ANY PROJECT CONTRACT (WHICH INCLUDES ALL
OF THE PROJECT AND ALL OF THE COMPANY'S ASSETS) AND (II) INSUREDS OTHER
THAN THE COMPANY, THE SECURED PARTIES AND ALL OTHER PERSONS REQUIRED TO BE
INSURED BY THE CREDIT AGREEMENT OR ANY PROJECT CONTRACT.
1
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
Attention: Jennifer Gilpin
Phone No.: (312) 732-5867
6. Evidence of all insurance shall consist of the following documents:
a. an original policy, or
b. a certified duplicate policy with all forms and endorsements
attached.
B. LIABILITY RELATED COVERAGES
1. The Company shall carry Commercial General Liability insurance
covering, at a minimum, legal liability for Bodily Injury and Property
Damage arising out of the premises and operations performed by
independent contractors, under an "ISO" Commercial General Liability
form or its equivalent. The amount of such insurance shall not be less
than $10,000,000 per occurrence, including Umbrella/Excess form of
liability coverage. When the Company utilizes its own work force,
Automobile Liability coverage (including coverage for liability
assumed under any contract), Workers' Compensation (as required by
law), disability benefits insurance (as required by law), and
Employers' Liability coverage shall be carried under the appropriate
policies. As respects Automobile Liability and Employers Liability,
the insurance shall be not less than $10,000,000 per occurrence,
including umbrellas/excess form of liability coverage. All policies
(except for Workers' Compensation, disability benefits and Employers'
Liability insurance) shall include the Agent, the Agent and the other
Secured Parties as Additional Insureds. Any aggregate limits of
liability, other than an aggregate applying to products or completed
operations, if written under a policy covering more than the Project,
shall apply specifically to claims occurring with respect to the
facility.
2. The Company shall carry commercial general liability insurance
covering claims arising out of: operations, independent contractors,
products/completed operations with broad form property damage,
liability assumed under contract on a broad form blanket basis, and
underground, collapse and explosion hazards, when appropriate, under
an "ISO" Commercial General Liability form or its equivalent. The
total amount of such insurance shall not be less than
2
<PAGE>
$10,000,000 per occurrence including Umbrella/Excess Liability
coverage. Automobile Liability coverage (including coverage for
liability assumed under any contract), Workers' Compensation (as
required by law), disability benefits insurance (as required by law)
and Employers' Liability coverage shall be carried under the
appropriate policies. As respects Automobile Liability and Employers
Liability, the insurance shall be not less than $10,000,000 per
occurrence including umbrella/excess form of liability coverage. All
policies shall include the interest of the Company and the Agent, the
Agent and the other Secured Parties as Additional Insureds except with
respect to Workers' Compensation, disability benefits and Employers'
Liability insurance. If the foregoing insurance is written under
policies covering more than the Project, separate aggregate limits, if
any, shall apply specifically to claims occurring with respect to the
facility."
C. PROPERTY COVERAGES AFTER COMPLETION
1. The Property insurance shall be on an "All Risk" form of blanket
insurance covering all real and personal property underwritten on a
Replacement Cost basis and shall include the following:
a. an Agreed Amount Clause or Waiver of Coinsurance;
b. a Standard Mortgage Clause or equivalent and Loss Payable Clause
naming the Agent as Mortgagee and protecting the Secured Parties'
interests.
2. Such insurance shall cover:
a. the full insurable replacement cost of the Facility, including
steam and electrical transmission lines along with related
equipment for which the Company has an insurable interest
(including foundations below the surface of the ground), in an
amount not less than $95,000,000;
b. "All Risk" form of Loss of Income (Business Interruption)
insurance, as appropriate, covering the greater of (1) loss of
gross earnings on an actual loss sustained basis or (2) the
actual amount of fixed expenses and Debt Service for at least 12
months; such insurance shall also cover Contingent Business
Interruption arising from an insured loss or
3
<PAGE>
occurrence at the premises of the electric utility, steam buyer
or any gas supplier or transporter for a period of three months;
c. flood and earthquake/land movement up to sublimits of $25,000,000
in the aggregate;
d. Boiler & Machinery coverage on a blanket or comprehensive basis
(if the boiler and machinery insurer is different from the
property insurer, a joint loss agreement is required);
e. expenses following a covered loss related to the reconstruction
of the Project but not limited to Permit fees, attorney fees and
engineering and consulting cost for an amount of $100,000;
f. sub-limits applicable to certain coverages are acceptable as
follows:
(i) Debris removal - at least 5% of the total gross loss;
(ii) Offsite and newly-acquired locations - $500,000 minimum;
(iii) Transit - $500,000 minimum;
g. deductibles shall be no greater than:
(i) Up to $100,000 per occurrence for property loss perils
other than losses to turbines from Boiler & Machinery
perils;
(ii) Up to $250,000 per occurrence for property loss to
turbines from Boiler & Machinery perils;
(iii) Up to 30 days, or an equivalent dollar deductible, for
business interruption and 15 days, or an equivalent
dollar deductible, for contingent business interruption;
h. any loss shall not reduce the amount of the policy except for
aggregate limits in flood and earthquake/land movement perils
specific for the Project;
4
<PAGE>
i. increased cost of construction, debris removal, and loss to
undamaged property as the result of enforcement of building laws
or ordinances.
5
<PAGE>
Schedule 6
----------
Disclosure Schedule
-------------------
On October 23, 1998, the Borrower received a letter and Proposed
Consent Administrative Order (CSN: 70-0480) dated October 6, 1998, from the
Arkansas Department of Pollution Control & Ecology alleging certain violations
of Permit No. 1714-AOP-RO. A copy of the letter, the Proposed Consent
Administrative Order, and the response of the Borrower dated November 13, 1998
have been previously provided to the Agent.
6
<PAGE>
Schedule 7
----------
Existing Debt
-------------
7
<PAGE>
Schedule 8
----------
Existing Mechanics' and Materialmen's Liens
-------------------------------------------
8
<PAGE>
Schedule 9
----------
Operating Leases
----------------
9
<PAGE>
APPENDIX I
As used in the Credit Documents (as defined below) and any other agreement
to which this Appendix I is attached, the following terms shall have the
----------
meanings indicated below. The definitions set forth below shall be interpreted
and governed by the Credit Agreement, including Sections 1.2 and 1.3 thereof.
------------ ---
"ABR Rate" shall mean a fluctuating rate of interest per annum equal to the
--------
higher of (a) the CBR in effect on such date, and (b) the Federal Funds Rate
most recently determined by the Agent plus 1/2% per annum. Each change in any
interest rate provided for in the Credit Agreement based upon the ABR Rate shall
take effect at the time of such change in the ABR Rate.
"ABR Loan" shall mean a Loan which bears interest at the ABR Rate.
--------
"Acceptable L/C Issuer" shall mean a bank acceptable to the Agent whose
---------------------
senior unsecured long-term deposit or debt obligations either (i) are rated "A"
by S&P and Moody's or (ii) have been rated as less than "A" by S&P and Moody's
for 10 days or less.
"Account" shall have the meaning assigned to such term in Section 8 of the
-------
Security Agreement.
"Additional Contract" shall mean any agreement or contract related to the
-------------------
construction, testing, maintenance, repair, operation or use of or supply to the
Project entered into by the Company after the Closing Date.
"Affiliate" shall mean, with respect to any Person, (a) a Person that,
---------
directly or indirectly, controls or is controlled by, or is under common control
with, such Person, and (b) any Person (including the family members of such
Person) that owns directly or indirectly more than 20% of the securities having
ordinary voting power for the election of directors or other governing body of
such Person if such Person is a corporation or more than 20% of the membership
or other ownership interests of such Person if such Person is not a corporation.
For the purposes of clause (a) of this definition, the concept of "control",
----------
when used with respect to any specified Person, shall signify the possession of
the power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities or membership or
other ownership interests, by contract or otherwise.
<PAGE>
"Agent" shall mean the Agent referred to in the Preamble to the Credit
-----
Agreement and any successor Agent appointed pursuant to Section 12.11 of the
-------------
Credit Agreement.
"Agent-Related Person" shall mean the Agent, the Arranger and each
--------------------
director, officer, employee or agent thereof.
"Agent's Fees" shall mean the fees payable pursuant to Section 6.3 of the
------------ -----------
Credit Agreement.
"Agent's Payment Office" shall mean One First National Plaza, Mail Suite
----------------------
0324, Chicago, Illinois 60670, attn: Jennifer Gilpin.
"Aggregate L/C Outstandings" shall mean the sum of (i) Tax-Exempt L/C
--------------------------
Outstandings and (ii) Taxable L/C Outstandings.
"Aggregate W/C Commitments" shall mean the aggregate amount of the W/C
-------------------------
Commitments of all Lenders.
Air and Water Permits" shall mean, collectively, air pollution control
---------------------
system Permit No. 1714-AOP-RO and water discharge Permit No. AR0048461 issued by
the State of Arkansas Department of Pollution Control and Ecology, as amended,
restated, supplemented, or superseded and in effect from time to time.
"Alternate Credit Date" shall mean the date the Company provides an
---------------------
Alternate Credit Facility (as such term is defined in the Indentures).
"Applicable Margin" shall mean:
-----------------
(a) with respect to W/C Loans, the Spread; and
(b) with respect to L/C Loans and Letters of Credit, the sum of:
(i) the Sinking Fund Ratio times 0.125%; plus
(ii) the product of one minus the Sinking Fund Ratio times the
Spread.
"Application" shall mean an application for a Letter of Credit on the
-----------
Agent's standard form therefor (as set forth in Exhibit L) duly completed.
---------
"Authorized Representative" shall mean (a) with respect to any Person that
-------------------------
is a corporation, the President, a Vice President, the Treasurer or the
Assistant Treasurer
-2-
<PAGE>
of such Person, (b) with respect to any Person that is a partnership, the
President, a Vice President, the Treasurer or the Assistant Treasurer of a
general partner of such Person, and (c) with respect to any Person that is a
limited liability company, the President, a Vice President, the Treasurer or the
Assistant Treasurer of such Person, in each case, whose name appears on a
certificate of incumbency of such Person delivered concurrently with the
execution of the Credit Agreement, and as such certificate of incumbency may be
amended from time to time.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978.
---------------
"Bond Documents" shall mean the Bond Lease, the Indentures, the Bond Pledge
--------------
Agreement, the Remarketing Agreements and the Land Transfer Document.
"Bond Lease" shall mean a Lease Agreement between the Company and the
----------
Issuer in form and substance satisfactory to the Agent.
"Bond Lease Payments" shall mean Lease Payments (as defined in the Bond
-------------------
Lease).
"Bond Pledge Agreement" shall mean a Bond Pledge Agreement between the
---------------------
Company and the Agent in form and substance satisfactory to the Agent.
"Bonds" shall mean the Tax-Exempt Bonds and the Taxable Bonds.
-----
"Booking Office" shall mean, for each Lender, the office of such Lender (or
--------------
of a majority-owned Affiliate of such Lender or the direct or indirect corporate
parent, if any, of such Lender), which such Lender may from time to time specify
to the Agent and the Company as the office by which its LIBOR Loans are to be
made and maintained.
"Business Day" shall mean (a) with respect to a borrowing of, a payment or
------------
prepayment of principal of or interest on, or a Conversion of or into, or an
Interest Period for, a LIBOR Rate Loan or a notice by the Company with respect
to any such borrowing, payment, prepayment, Conversion or Interest Period, a day
other than Saturday or Sunday on which commercial banks are open for business in
Chicago and on which dealings in United States dollars are carried on in the
London interbank market, and (b) for all other purposes, a day other than
Saturday or Sunday on which commercial banks are open for business in Chicago.
"Calculation Period" shall mean a fiscal quarter commencing after the
------------------
Initial Funding Date.
"Capital Lease" shall mean as applied to any Person, any lease of any
-------------
property (whether real, personal or mixed) by that Person as Lessee which, in
accordance with
-3-
<PAGE>
GAAP, is or should be accounted for as a capital lease on the balance sheet of
that Person.
"Cash Flow Available for Debt Service" shall mean, for any period, the
------------------------------------ ---
excess, if any, of:
- ------
(a) the sum (without duplication) of
--- --
(i) the cash receipts of the Company during such period from
the Project (other than (A) withdrawals from the Debt Service Reserve
----
Accounts and the Sinking Fund Accounts, (B) Casualty Proceeds, (C)
Subordinated Loans or (D) Member contributions with respect to their
membership interests or capital accounts); plus
----
(ii) the cash receipts of the Company in respect of Permitted
Investments during such period, plus
----
(iii) withdrawals from the Insurance Account pursuant to Section
11(b)(iii) of the Security Agreement
over
----
(b) the capital expenditures made and the operating expenses incurred
by the Company during such period, such expenses to include, without
duplication,
(i) repair, maintenance, labor, services, and expenses incurred
pursuant to the MDF Marketing Agreement,
(ii) expenses for fuel and other consumables and materials and
payments pursuant to the Fiber Supply Agreement,
(iii) rent for equipment leased under operating leases,
(iv) insurance premiums,
(v) property and other taxes (except income taxes),
(vi) water supply expense,
(vii) expenses incurred (other than Debt Service) pursuant to any
Project Document,
-4-
<PAGE>
(viii) expenses related to Repair Work, if and to the extent that
at the time such expenses are incurred, sufficient Casualty Proceeds
for the payment thereof are not available in accordance with Section
-------
9.27(b) of the Credit Agreement, and
-------------------------------
(ix) all other expenses that are necessary for the continued
operation of the Project;
this clause (b) excluding, however, Debt Service, depreciation and income
---------- --------- -------
taxes for any period, payments of principal or interest on Subordinated
Loans and Distributions.
"Casualty Event" shall mean any loss or destruction of, or damage to all or
--------------
any portion of the Project or any Taking.
"Casualty Proceeds" shall have the meaning assigned to such term in Section
----------------- -------
9.27(a) of the Credit Agreement.
- -------
"CBR" shall mean the corporate base rate of interest announced by the Agent
---
from time to time, changing when and as such corporate base rate changes.
"Change" is defined in Section 5.2 of the Credit Agreement.
------ -----------
"Change in Control" shall mean the acquisition by any Person, or two or
-----------------
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock
of the Borrower.
"Closing Date" shall mean the date on which the Credit Agreement is
------------
executed and delivered by the Company, the Agent and all of the Persons who are
Lenders as of the date upon which the Credit Agreement is executed and delivered
by the Company and the Agent.
"Code" shall mean the Internal Revenue Code of 1986.
----
"Collateral" shall mean all of the real property and all of the personal
----------
property (both tangible and intangible) of the Company or any of other Person at
any time now or hereafter subject to a Lien in favor of the Agent for the
benefit of the Lenders under any of the Security Documents.
"Collateral Account" shall have the meaning assigned to such term in
------------------
Section 8 of the Security Agreement.
-5-
<PAGE>
"Commitment" shall mean, for each Lender, the obligation of such Lender to
----------
issue and participate in Letters of Credit and to make Loans.
"Commitment Fees" shall mean the fees payable pursuant to Section 6.2 of
--------------- -----------
the Credit Agreement.
"Commitment Termination Event" shall mean each of (a) any date on which the
----------------------------
obligations of the Lenders to make Loans or the obligations of the Agent to
issue and the Lenders to participate in Letters of Credit is terminated pursuant
to Sections 3.3 or 10.1 of the Credit Agreement and (b) the Alternate Credit
------------ ----
Date.
"Company" shall mean Del-Tin Fiber L.L.C., an Arkansas limited liability
-------
company.
"Company Change of Control" shall mean the failure of either Sponsor to
-------------------------
own, directly or indirectly, 50% of the membership interests in the Company free
and clear of all Liens (other than the Lien of the Security Documents); provided
--------
that no Company Change of Control shall occur if a change in ownership
percentages occurs pursuant to the terms of the LLC Agreement and the Members
continue to own collectively 100 percent of the membership interests in the
Company.
"Compliance Certificate" shall have the meaning assigned to such term in
----------------------
Section 9.1(c) of the Credit Agreement.
- --------------
"Consent and Agreement" shall mean each of the Issuer Consent, the Fiber
---------------------
Supplier Consent, the MDF Marketing Agent Consent, each Hedge Consent and any
other consent and agreement as may from time to time be entered into by any
other Person which is a party to an agreement with the Company containing such
Person's consent to the collateral assignment by the Company of its rights under
such agreement to the Agent pursuant to the Security Agreement.
"Consultants" shall mean the Independent Engineer and the Insurance
-----------
Advisor.
"Contingent Equity Contribution Agreements" means, collectively, the Deltic
-----------------------------------------
Equity Contribution Agreement and the Temple-Inland Equity Contribution
Agreement.
"Continue", "Continuation" and "Continued" shall refer to the continuation
-------- ------------ ---------
pursuant to Section 3.3(a) of the Credit Agreement of a LIBOR Loan from one
--------------
Interest Period to a succeeding Interest Period of equal duration.
"Control Agreement" shall mean the Control Agreement, dated as of
-----------------
__________, 1998, among the Members, the Company and the Agent, substantially in
the form of Exhibit Q attached to the Credit Agreement.
---------
-6-
<PAGE>
"Convert", "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Sections 2.9 or 3.7 of the Credit Agreement of ABR Loans into LIBOR
-------------------
Loans, or of LIBOR Loans into ABR Loans.
"Credit Agreement" shall mean the Project Credit Agreement, dated as of
----------------
_______, 1998, among the Company, the Lenders and the Agent.
"Credit Documents" shall mean the Credit Agreement, the L/C-Related
----------------
Documents and the Security Documents.
"Credit Obligations" shall mean, collectively, all of the indebtedness,
------------------
obligations and liabilities of the Company to the Agent and the Lenders now or
in the future existing under or in connection with the Credit Agreement, the
Loans, the Letters of Credit, the Reimbursement Obligations, the Security
Agreement, the Project Mortgage or the other Security Documents (whether for
principal, interest, fees, indemnities, hedge breakage costs or otherwise).
"Creditors" is defined in Section 11.1 of the Credit Agreement.
--------- ------------
"Debt" shall mean (a) indebtedness for borrowed money (which shall not
----
include obligations under any Hedge Agreement) or the deferred purchase price of
property or services (excluding obligations under agreements for the purchase of
---------
goods and services in the ordinary course of business which either are not more
than 90 days past due or are being contested in good faith by appropriate
proceedings (unless by such contest (i) the Liens of any Security Document are
endangered or (ii) any portion of the Project would become subject to loss or
forfeiture), but including obligations under agreements relating to acceptance
financing), any obligations evidenced by bonds, debentures, notes or similar
interests, (b) obligations as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (c) all
indebtedness secured by any Lien on any property owned or held by such Person
subject thereto, whether or not the indebtedness secured thereby shall have been
assumed, (d) obligations under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others, (e) obligations under or with respect to any letter of
credit, and (f) obligations to reimburse any Person for such Person's
reimbursement obligations under any letter of credit and obligations (arising by
means of subrogation or otherwise) to reimburse any Person for such Person's
payment under any guaranty.
"Debt Coverage Ratio" shall mean, as at any date on or after the end of the
-------------------
fourth full Calculation Period ending after the Initial Funding Date, a ratio of
(i) the Cash Flow Available for Debt Service for the period covering the most
recently ended and
-7-
<PAGE>
prior three consecutive Calculation Periods, to (ii) the Debt Service for the
period covering the most recently ended and prior three consecutive Calculation
Periods.
"Debt Service" shall mean, for any period (taking into account the net
------------
effect of each Hedge Agreement), the sum of (a) the amounts of principal and
interest due and payable by the Company during such period on the outstanding
L/C Loans and the amounts of interest due and payable by the Company during such
period on the outstanding W/C Loans, plus (b) the Letter of Credit Fees, the
Commitment Fees and the Agent's Fees payable pursuant to Section 6 of the Credit
---------
Agreement, plus (c) all Bond Lease Payments and all payments constituting
principal and/or interest or the equivalent thereof under the Remarketing
Agreement due and payable by the Company during such period, plus (d) any
amounts required to be deposited in the Sinking Fund Accounts pursuant to
Section 9.13 of the Credit Agreement, plus (e) any amounts required to be
- ------------
deposited in the Debt Service Reserve Accounts pursuant to Section 9.12(a) of
---------------
the Credit Agreement, less (f) any amounts withdrawn from the Debt Service
Reserve Accounts pursuant to Section 10(b)(ii) of the Security Agreement.
"Debt Service Reserve Deficiency" shall exist if at any time the amount of
-------------------------------
funds on deposit in the Debt Service Reserve Accounts is less than an amount
equal to the sum of the projected aggregate Debt Service (including amounts
required to be deposited in the Sinking Fund Accounts and assuming that the
aggregate outstanding principal amount of W/C Loans will be (a) during the first
two Calculation Periods after the Initial Funding Date, $5,000,000 borrowed at
an interest rate of 6-1/2 per cent per annum and (b) thereafter, equal to the
average aggregate outstanding principal amount of W/C Loans for the immediately
preceding two Calculation Periods) for the next six months (using the applicable
interest rates in effect as of the date of calculation and assuming fees payable
under the Remarketing Agreement will be the amount of the most recent fees paid
thereunder).
"Debt Service Reserve Accounts" shall have the meaning assigned to such
-----------------------------
term in Section 8 of the Security Agreement.
"Default" shall mean an event described in Section 10.1 of the Credit
------- ------------
Agreement.
"Deltic" shall mean Deltic Timber Corporation.
------
"Deltic Equity Contribution Agreement" shall mean the Contingent Equity
------------------------------------
Contribution Agreement, dated ______________, 1998, among Deltic Timber
Corporation, the Company and the Agent, substantially in the form of Exhibit H
---------
attached to the Credit Agreement.
-8-
<PAGE>
"Distribution" shall mean the distribution of funds by the Company to its
------------
Members with respect to their membership interests or capital accounts (other
than funds distributed in accordance with Section 3.3 of the Production Support
Agreement); and "Distribute" shall have a corresponding meaning.
----------
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"Drawdown Request" shall mean a Drawdown Request in substantially the form
----------------
of Exhibit B attached to the Credit Agreement duly executed by an Authorized
---------
Representative of the Company.
"EBITDA" shall mean for any period, with respect to Deltic and its
------
Subsidiaries on a consolidated basis, the sum of (a) Net Income for such period
(excluding the effect of any extraordinary or other non-recurring gains or
losses outside of the ordinary course of business) plus (b) an amount which in
the determination of (a) above for such period, has been deducted for (i)
current Interest Expense, (ii) total Federal, state, foreign or other income
taxes and (iii) all Non-Cash Charges, all as determined in accordance with GAAP.
"Environmental Laws" shall mean any federal, State or local statute,
------------------
regulation or ordinance, whether currently existing or hereinafter promulgated,
or any judicial or administrative decree or decision with respect to Hazardous
Materials, potable water, ground water, solid waste, landfills and open dumps,
storage tanks, underground storage tanks, wastewater, biosolids disposal, storm
water run-off or emissions to the atmosphere (i.e., SO\\2\\, etc.). Without
limiting the generality of the foregoing, the term shall encompass each of the
following statutes, as amended, and all regulations promulgated thereunder: the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(Superfund or CERCLA) (codified in scattered sections of 26 U.S.C.; 33 U.S.C.;
42 U.S.C. and 42 U.S.C. (S) 9601 et seq.), the Clean Water Act of 1977 (33
-- ---
U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the
-- --- -- ---
Resource Conservation and Recovery Act of 1975 (the Solid Waste Disposal Act or
RCRA) (42 U.S.C. (S) 6901 et seq.), the Safe Drinking Water Act (21 U.S.C. (S)
-- ---
349; 42 U.S.C. (S)(S) 201 and 300f through 300j-9), the Toxic Substances Control
Act (15 U.S.C. (S) 2601 et seq.), and the Hazardous Materials Transportation
-- ---
Act, as amended (49 U.S.C. (S)(S) 1801-1812).
"ERISA" shall mean the Employee Retirement Income Security Act of 1974.
-----
"ERISA Event" shall mean the occurrence of any one or more of the
-----------
following:
(a) the occurrence with respect to any Plan or Multiemployer Plan of
any reportable event, as defined in Section 4043(b) of ERISA and the
regulations issued under such section other than a "reportable event" not
subject
-9-
<PAGE>
to the provision for 30-day notice to the PBGC under 29 C.F.R. 2615;
provided, that a failure to meet the minimum funding standard of Section
--------
412 of the Code or of Section 302 of ERISA, including the failure to make
on or before its due date a required installment under Section 412(m) of
the Code or Section 302(e) of ERISA, shall be a reportable event regardless
of the issuance of any waivers in accordance with Section 412(d) of the
Code.
(b) the filing under Section 4041 of ERISA of a notice of intent to
terminate any Plan or the termination of any Plan.
(c) the institution by the PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Company of a notice from a
Multiemployer Plan that such action has been taken by the PBGC with respect
to such Multiemployer Plan.
(d) the receipt by the Company of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 of
ERISA or that it intends to terminate or has terminated under Section 4041A
of ERISA.
(e) the adoption of an amendment to any Plan that pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA would result in the loss of
tax-exempt status of the trust of which such Plan is a part.
(f) any event or circumstances which could reasonably be expected to
constitute grounds for incurring liability under Title IV of ERISA pursuant
to Section 4069(a) or 4212(c) of ERISA.
"Facility" shall mean a medium density fiberboard manufacturing plant
--------
located on the Site at 757 Newell Road, El Dorado, Arkansas 71730.
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to (a) the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the preceding Business Day) by the
Federal Reserve Bank of New York; or (b) if such Rate is not so published for
any day which is a Business Day, the average of the quotations at approximately
10:00 a.m. (Chicago time) for such day on such transactions received by the
Agent from three federal funds brokers of recognized standing selected by it.
"Fiber Supplier" shall mean Deltic Timber Corporation.
--------------
-10-
<PAGE>
"Fiber Supplier Consent" shall mean a Consent and Agreement among the Fiber
----------------------
Supplier, the Company and the Agent, in form and substance satisfactory to the
Agent.
"Fiber Supply Agreement" shall mean the Fiber Supply Agreement dated as of
----------------------
February 21, 1995, between the Fiber Supplier and the Company.
"Final and Not Subject to Appeal" shall mean, with respect to any Permit at
-------------------------------
any particular time, that such Permit shall be in full force and effect and
shall not then be subject of a pending appeal, nor shall there then remain
unexpired any period specified in any law, regulation or order applicable to
such Permit within which the issuance of such Permit may as a matter of right be
appealed.
"Final Completion" shall mean (a) completion of all punch list items and
----------------
(b) satisfaction of all mechanics' and materialmens' Liens.
"Final Completion Date" shall mean the date, as determined by the Agent, on
---------------------
behalf of the Lenders, and the Independent Engineer, to be the date on which
all of the following requirements have been satisfied: (a) the Substantial
Completion Date has occurred, (b) Final Completion has occurred, (c) all Permits
required under Governmental Rules or any Project Document in order to own,
construct, maintain or operate the Facility have been obtained and are in full
force and effect and are Final and Not Subject to Appeal, to the extent that the
failure to obtain any such Permits would have a Material Adverse Effect, (d) all
Project Contracts are in full force and effect and no default has occurred
thereunder; and (e) the Lenders shall have received a satisfactory report from
the Independent Engineer with respect to the same.
"First Chicago" is defined in the Preamble to the Credit Agreement.
-------------
"Fixed Charge Coverage Ratio" shall mean as of the end of each fiscal
---------------------------
quarter of Deltic, for the twelve month period ending on such date, with respect
to Deltic on a consolidated basis, the ratio of (a) EBITDA for the applicable
period minus dividends paid for the applicable period minus current income taxes
for the applicable period to (b) the sum of (i) current Interest Expense for the
applicable period plus (ii) Scheduled Funded Debt Payments for the applicable
period.
"Funded Debt" shall mean without duplication, the sum of (a) all
-----------
indebtedness of Deltic and its Subsidiaries on a consolidated basis for borrowed
money, (b) all purchase money indebtedness of Deltic and its Subsidiaries, (c)
the principal portion of all obligations of Deltic and its Subsidiaries under
Capital Leases, (d) commercial letters of credit and the maximum amount of all
performance and standby letters of credit issued or bankers' acceptance
facilities created for the account of Deltic or its Subsidiaries, including,
without duplication, all unreimbursed draws thereunder, (e) all Guaranty
obligations of Deltic and its Subsidiaries with respect to Funded Debt of
-11-
<PAGE>
another Person, (f) all Funded Debt of any Person secured by a Lien on any
property of Deltic or any of its Subsidiaries whether or not such Funded Debt
has been assumed by Deltic or any of its Subsidiaries, (g) all Funded Debt of
any partnership or unincorporated joint venture to the extent that Deltic or any
of its Subsidiaries under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product to which
Deltic or any of its Subsidiaries is a party, when such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP.
"Funded Debt Capitalization Ratio" shall mean as of any date of
--------------------------------
determination, with respect to Deltic and its Subsidiaries on a consolidated
basis, the ratio of (a) Funded Debt on such date to (b) Funded Debt on such date
plus Net Worth on such date.
"GAAP" shall mean generally accepted accounting principles in the United
----
States applied on a consistent basis.
"Governmental Authority" shall mean any United States federal, state,
----------------------
provincial, county, city or other local government or other political entity or
any subdivision thereof (whether of an executive, legislative, judicial,
regulatory or administrative nature).
"Governmental Rule" shall mean any statute, law, regulation, ordinance,
-----------------
rule, judgment, order, decree, permit, concession, grant, franchise, license,
agreement, directive, requirement, or other governmental restriction or any
similar form of decision of or determination by, or any interpretation or
administration of any of the foregoing by, any Governmental Authority, at the
time in effect.
"Guaranty Obligations" shall mean with respect to any Person, without
--------------------
duplication, any obligation (other than endorsements in the ordinary course of
business of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any indebtedness, leases, dividends or other obligations
of any other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (a) to purchase
any such indebtedness or other obligation or any property constituting security
therefor, (b) to advance or provide funds or other support for the payment or
purchase of such indebtedness or obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person (including,
without limitation, maintenance agreements, comfort letters, take or pay
arrangements, put agreements or similar agreements or arrangements) for the
benefit of the holder of indebtedness of such other Person, (c) to lease or
purchase property, securities or services primarily for the purpose of assuring
the owner of such indebtedness or obligation, or (d) to otherwise assure or hold
harmless the owner of such indebtedness or obligation against loss in respect
thereof. The amount of any Guaranty Obligation hereunder shall (subject to any
limitations set forth therein) be
-12-
<PAGE>
deemed to be an amount equal to the outstanding principal amount (or maximum
principal amount, if larger) of the indebtedness in respect of which such
Guaranty Obligation is made.
"Hazardous Material" shall mean all pesticides, pollutants, contaminants,
------------------
chemicals, gasoline, petroleum products, asbestos, radioactive materials
(including by-product, source, and/or special nuclear materials),
ureaformaldehyde, flammable explosives, or other hazardous wastes or toxic
materials, now or hereafter subject to regulation as hazardous material under
any applicable Environmental Law.
"Hedge Agreement" shall mean an interest rate swap or exchange agreement
---------------
between the Company and a Hedge Counterparty which is in form and substance
reasonably satisfactory to the Required Lenders and fixes the interest rate for
a part or all of the Loans.
"Hedge Consent" shall mean each Consent and Agreement entered into by and
-------------
among each Hedge Counterparty, the Company and the Agent, in each case in form
and substance satisfactory to the Agent.
"Hedge Counterparty" shall mean the Person or Persons named as the
------------------
"Floating Rate Payer" under a Hedge Agreement.
"Honor Date" is defined in Section 2.3 of the Credit Agreement.
---------- -----------
"Immaterial Lien" shall mean (a) Liens in connection with worker's
---------------
compensation, unemployment insurance or other social security or old age pension
obligations; (b) Liens for taxes, assessments or governmental charges or levies
which are not yet due; (c) Liens arising in respect of taxes, assessments,
governmental charges or levies or claims that the Company is contesting in
accordance with the terms of Section 8.6 of the Credit Agreement; (d) legal or
-----------
equitable encumbrances deemed to exist by reason of the existence of any
litigation or other legal proceeding if the same is being contested in good
faith by appropriate proceedings (excluding any attachment prior to judgment,
judgment Lien or attachment in aid of execution on a judgment) unless by such
contest (i) the Liens of the Security Documents would be endangered or (ii) any
portion of the Project would become subject to loss or forfeiture; (e) vendor's,
mechanics', worker's, employee's or other like Liens arising in the ordinary
course of construction or in the ordinary course of business in respect of
obligations (i) which are not yet due, (ii) for which a bond in the full amount
thereof has been posted, or (iii) which are being contested in good faith by
appropriate proceedings (unless by such contest (1) the Liens of the Security
Documents would be endangered or (2) any portion of the Project would become
subject to loss or forfeiture); (f) minor defects, irregularities, encumbrances
and clouds on title and statutory Liens which do not materially impair the
property affected thereby and which do not individually or in the
-13-
<PAGE>
aggregate materially impair the value of the Collateral; and (g) those matters
listed as exceptions to title in the title policy delivered to the Agent by the
Company as contemplated by Section 7.2(h) of the Credit Agreement.
--------------
"Indentures" shall mean, collectively, the Taxable Bond Indenture and the
----------
Tax-Exempt Bond Indentures.
"Independent Engineer" shall mean C.P.M. Consultants (1992) Inc., or such
--------------------
other engineering consultant reasonably satisfactory to the Company as the Agent
may engage.
"Initial Funding Date" shall mean the first date on which any W/C Loan is
--------------------
made or any Letter of Credit is issued (which date must be within 90 days of the
Closing Date); provided that the Initial Funding Date shall not occur unless (a)
--------
the Closing Date shall have occurred, and (b) all of the conditions precedent
set forth in Section 7.2 of the Credit Agreement shall have been satisfied or
-----------
waived in writing by all of the Lenders.
"Insolvency Proceeding" shall mean, with respect to any Person, (a) any
---------------------
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding up or relief of debtors, or (b)
any general assignment for the benefit of creditors, composition, marshaling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors undertaking under any
Federal or state law, including the Bankruptcy Code.
"Insurance Account" shall have the meaning assigned to such term in Section
-----------------
8 of the Security Agreement.
"Insurance Advisor" shall mean J&H Marsh & McLennan, Inc.
-----------------
"Interest Coverage Ratio" shall mean as of the end of each fiscal quarter
-----------------------
of Deltic, for the twelve month period ending on such date, with respect to
Deltic and its Subsidiaries on a consolidated basis, the ratio of (a) EBITDA for
the applicable period to (b) current Interest Expense for the applicable period.
"Interest Expense" shall mean for any period, with respect to Deltic and
----------------
its Subsidiaries on a consolidated basis, all net interest expense, including
the interest component under Capital Leases, as determined in accordance with
GAAP; it being understood that Interest Expense shall, at the option of Deltic,
include the amortized cost of any interest rate protection agreements to the
extent permitted by GAAP.
-14-
<PAGE>
"Interest Period" shall mean, with respect to any LIBOR Loan, each period
---------------
commencing on the date such LIBOR Rate Loan is made or Converted from an ABR
Loan or the last day of the next preceding Interest Period for such LIBOR Rate
Loan and ending on the numerically corresponding day in the first, second, third
or sixth calendar month thereafter, as the Company may select as provided in
Section 4.6 of the Credit Agreement, except that each Interest Period which
- ----------- ------
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (i) no Interest Period may commence
before and end after the Stated Maturity Date, (ii) each Interest Period which
would otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (unless such next succeeding Business Day falls in the
next succeeding calendar month, in which case, such Interest Period shall end on
the next preceding Business Day) and (iv) notwithstanding clauses (i) or (ii)
----------- ----
above, no Interest Period shall have a duration of less than one month, and, if
the Interest Period for any LIBOR Loan would otherwise be a shorter period, such
Loan shall not be available under the Credit Agreement.
"Issuer" shall mean Union County, Arkansas.
"Issuer Consent" shall mean a Consent and Agreement among the Issuer, the
--------------
Company and the Agent, in form and substance satisfactory to the Agent.
"Land Transfer Document" shall mean a deed and bill of sale executed and
----------------------
delivered by the Company, providing for the transfer of title in the Project to
the Issuer, in form and substance satisfactory to the Agent.
"L/C Commitment Termination Date" shall mean the earlier of (i) the
-------------------------------
occurrence of a Commitment Termination Event and (ii) the third anniversary of
the Initial Funding Date as such date may be extended pursuant to Section 2.11
------------
of the Credit Agreement.
"L/C Loan" is defined in Section 2.7 of the Credit Agreement.
-------- -----------
"L/C-Related Document" shall mean an Application or a Letter of Credit.
--------------------
"Lender's Assignment Agreement" shall mean an assignment agreement,
-----------------------------
substantially in the form of Exhibit F to the Credit Agreement.
---------
"Lenders" is defined in the Preamble to the Credit Agreement.
-------
"Letter of Credit" is defined in Section 2.1 of the Credit Agreement.
---------------- -----------
-15-
<PAGE>
"Letter of Credit Fees" shall mean the fees payable pursuant to Section 6.1
--------------------- -----------
of the Credit Agreement.
"LIBOR Rate" shall mean, the applicable London interbank offered rate for
----------
deposits in U.S. dollars appearing on Dow Jones Markets (Telerate) Page 3750 as
of 11:00 a.m. (London time) two business days prior to the first day of the
applicable interest period, and having a maturity approximately equal to such
interest period, as adjusted for maximum statutory reserves. If no London
interbank offered rate of such maturity then appears on Dow Jones Markets
(Telerate) Page 3750, the LIBOR Rate shall be equal to the London interbank
offered rate for deposits in U.S. dollars maturing immediately before or
immediately after such maturity, whichever is higher, as determined by the Agent
from Dow Jones Markets (Telerate) Page 3750, as adjusted for maximum statutory
reserves. If Dow Jones Markets (Telerate) Page 3750 is not available, the
applicable LIBOR Rate for the relevant interest period shall be the arithmetic
average of the rates at which First Chicago and certain other representative
Lenders to be determined offer to place deposits in U.S. dollars with first-
class banks in the London interbank market at 11:00 a.m. (London time) two (2)
business days prior to the borrowing date in the approximate amount of, and for
a maturity corresponding to, First Chicago's portion of the loan, adjusted for
maximum statutory reserves.
"LIBOR Loan" shall mean a Loan which bears interest at the LIBOR Rate.
----------
"Lien" shall mean any lien (statutory or otherwise), as well as any
----
interest, encumbrance, preference, priority or charge of any kind, including
without limitation, any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, any financing or similar statement or
notice filed under the Uniform Commercial Code as adopted and in effect in the
relevant jurisdiction or other similar recording or notice statute, and any
lease in the nature thereof.
"LLC Agreement" shall mean the Articles of Organization of the Company and
-------------
the Operating Agreement dated February 21, 1995 of the Company.
"Loan" means an L/C Loan or a W/C Loan.
----
"Material Adverse Effect" shall mean, with respect to the Company or any of
-----------------------
the Members, as applicable, a material adverse effect on (a) the financial
condition of the Company or any of the Members, (b) the ability or authority of
the Company or any of the Members to carry out its obligations under the Project
Documents, (c) the Collateral, or (d) the validity, enforceability or perfection
of the Liens of the Security Documents.
"MDF Marketing Agent" shall mean Temple-Inland Forest Products Corporation.
-------------------
-16-
<PAGE>
"MDF Marketing Agent Consent" shall mean a Consent and Agreement among the
---------------------------
MDF Marketing Agent, the Company and the Agent, in form and substance
satisfactory to the Agent.
"MDF Marketing Agreement" shall mean the MDF Marketing Agreement dated as
-----------------------
of February 21, 1995, between the MDF Marketing Agent and the Company.
"Member" shall mean each Person with an ownership interest (beneficial or
------
otherwise) in the Company.
"Member Change of Control" shall mean, with respect to any Member, (i) any
------------------------
change in the composition of its stockholders as of the Closing Date shall occur
which would result in any stockholder or group acquiring 20% or more of the
combined voting power of the voting securities of such Member, or (ii) the Board
of Directors of such Member shall cease to consist of a majority of the
individuals who shall have become a member thereof subsequent to the Closing
Date after having been nominated, or otherwise approved in writing, by at least
a majority of individuals who constituted the Board of Directors of such Member
as of the Closing Date (or their replacements approved as herein required).
"Moody's" shall mean Moody's Investors Service, Inc.
-------
"Multiemployer Plan" shall mean a plan defined as such in Section 3(37) of
------------------
ERISA which is covered by Title IV of ERISA.
"Net Income" shall mean for any periods, the net income after taxes for
----------
such period of Deltic on a consolidated basis, as determined in accordance with
GAAP.
"Net Worth" shall mean as of any date, shareholders' equity of Deltic on a
---------
consolidated basis, as determined in accordance with GAAP.
"Non-Cash Charges" shall mean for any period, with respect to Deltic and
----------------
its Subsidiaries on a consolidated basis, all depreciation, amortization,
deferred tax provisions, employee benefit accruals (other than those that
require a trust fund contribution within twelve months) and other similar non-
cash charges.
"Nonrecourse Persons" shall have the meaning assigned to such term in
-------------------
Section 11.1 of the Credit Agreement.
- ------------
"Notice of Assignment" is defined in Section 13.3(b) of the Credit
-------------------- ---------------
Agreement.
"Obligor" shall mean each Sponsor, each Member and any other party to a
-------
Project Document (other than the Agent and the Lenders).
-17-
<PAGE>
"Offering Memorandum" shall mean the offering memorandum relating to the
-------------------
Project and dated May, 1998.
"Operating Account" shall have the meaning assigned to such term in Section
-----------------
8 of the Security Agreement.
"Operating Budget" shall mean, with respect to each operating year, a
----------------
budget prepared by the Company pursuant to Section 9.25 of the Credit Agreement
------------
and in a manner similar to the Project Pro Forma setting forth (a) the costs the
Company expects to incur in connection with the operation of the Project during
such period, including repair and maintenance expenses, expenditures for fuel
and the transportation thereof, expenditures for supplies, materials,
replacement parts and other consumables, expenditures for labor and services
(including all applicable taxes, payments to Governmental Authorities in lieu of
taxes, employee benefits and workers' compensation relating to such labor),
insurance premiums, taxes (other than taxes imposed on the overall net income of
the Company or its Members) and expenditures for water and other utilities, and
(b) a projection of revenues the Company expects to earn.
"Past-Due Rate" shall mean with respect to any amount payable by the
-------------
Company under any Loan Document, a rate per annum equal to 2% above the ABR Rate
as in effect from time to time (provided, that if the amount in default is
--------
principal of a LIBOR Rate Loan and the due date thereof is a day other than the
last day of an Interest Period therefor, the "Past-Due Rate" for such principal
shall be, for the period from (and including) the due date and to (but
excluding) the last day of such Interest Period, 2% above the rate for such Loan
as provided in Section 3.6(a)(ii) of the Credit Agreement and, thereafter, the
------------------
rate provided for above in this definition).
"pay in full", "paid in full" or "payment in full" shall mean, with respect
----------- ------------ ---------------
to any obligation or liability, or any portion thereof, as the context may
require, either (i) the payment thereof in full in cash in accordance with its
respective terms, (ii) such other satisfaction in full thereof to which the
holders thereof may agree or (iii) such other satisfaction or discharge in full
thereof which a court of competent jurisdiction, taking into account the rights
conferred upon the holders thereof under any agreement subordinating the payment
of any other obligation or liability to the payment thereof, may implement.
"Percentage" shall mean, for any Lender, such Lender's percentage as set
----------
forth against its signature to the Credit Agreement or, if such Lender is a
party to a Lender's Assignment Agreement, the percentage set forth therein
(after giving effect thereto) for such Lender.
-18-
<PAGE>
"Performance Test" shall mean the project performance tests set forth in
----------------
Exhibit P attached hereto.
- ---------
"Permit" shall mean any authorization, consent, approval, license, ruling,
------
permit, tariff, certification, exemption, filing or registration required to be
issued by, obtained from or made with any Governmental Authority for the
construction, use, ownership, operation or maintenance of the Project or the
execution, delivery or performance of any Project Document.
"Permitted Investments" shall mean:
---------------------
(a) direct obligations of the United States of America, or of any
agency thereof, or obligations guaranteed as to principal and interest by
the United States of America or any agency thereof;
(b) certificates of deposit issued by any Lender or any other bank or
trust company which is organized under the laws of the United States of
America or any state thereof, Canada, Japan or any Western European
country, has capital, surplus and undivided profits of at least
$1,000,000,000 in the aggregate and has outstanding unsecured indebtedness
which is rated (on the date of investment therein) A3 or better by Standard
& Poor's or A or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if neither
of such corporations is in the business of rating unsecured bank
indebtedness);
(c) commercial paper rated (on the date of investment therein) A-1 or
better by Standard & Poor's or P-1 or better by Moody's (or an equivalent
rating by another nationally recognized credit rating agency of similar
standing if neither of such corporations is then in the business of rating
commercial paper);
(d) eurodollar certificates of deposit issued by any Lender or any
other bank or trust company which is organized under the laws of the United
States of America or any state thereof, Canada, Japan or any Western
European country, has capital, surplus and undivided profits of at least
$1,000,000,000 in the aggregate and has outstanding unsecured indebtedness
which is rated (on the date of investment therein) A3 or better by Standard
& Poor's or A or better by Moody's (or an equivalent rating by another
nationally recognized credit rating agency of similar standing if neither
of such corporations is in the business of rating unsecured bank
indebtedness);
(e) tax-exempt short-term securities that are obligations of a city,
county, state, territory, or a possession of the United States of America,
or any political subdivision of any of the foregoing, rated (on the date of
investment
-19-
<PAGE>
therein) A-1 (short-term) or A or higher (long-term) by Standard & Poor's
or MIG-1, VMIG-1, or P-1 (short-term) or A2 or higher (long-term) by
Moody's (or an equivalent rating by another nationally recognized credit
rating agency of similar standing if neither of such corporations is then
in the business of rating such securities); and
(f) other investment-grade instruments to be mutually agreed upon by
the Agent and the Company.
"Permitted Liens" is defined in Section 9.14 of the Credit Agreement.
--------------- ------------
"Person" shall mean any individual, partnership, the Company, firm,
------
corporation, limited liability company, association, trust or other enterprise
(whether or not incorporated), or any Governmental Authority.
"Plan" shall mean an employee benefit or other plan (other than a
----
Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the
minimum funding standards under Section 412 of the Code.
"Pledge Agreement" shall mean the Pledge Agreement dated as of
----------------
____________, 1998 among the Members and the Agent, substantially in the form of
Exhibit J attached to the Credit Agreement.
- ---------
"Process Agent" is defined in Section 14.13 of the Credit Agreement.
------------- -------------
"Production Support Agreement" shall mean the Production Support Agreement,
----------------------------
dated _______, 1998, among the Company and the Sponsors, substantially in the
form of Exhibit M attached to the Credit Agreement.
---------
"Project" shall mean the development, construction, ownership, financing,
-------
operation and maintenance (as applicable) of the Facility and the Site.
"Project Contract Consent" shall mean each Consent and Agreement pertaining
------------------------
to the assignment of a Project Contract to the Agent pursuant to the Security
Agreement.
"Project Contracts" shall mean, collectively, (a) on and after the Closing
-----------------
Date, the Bond Documents, the Fiber Supply Agreement, the MDF Marketing
Agreement and each Project Contract Consent, (b) on and after the date on which
the first Hedge Agreement is executed and delivered, the Hedge Agreements, and
(c) when and if executed and delivered by the Company, any Additional Contract.
No Project Contract Consent, and no document or agreement referred to in clause
------
(b) or (c), of the first sentence of the definition of "Project Contracts", will
- --- ---
be included in such definition until
-20-
<PAGE>
such Project Contract Consent or document or agreement is actually executed and
delivered for the benefit of the Secured Parties.
"Project Documents" shall mean, collectively, (a) the Credit Documents, (b)
-----------------
the LLC Agreement and (c) the Project Contracts.
"Project Mortgage" shall mean the Freehold and Leasehold Mortgage,
----------------
Assignment of Leases and Rents, Security Agreement, Financing Statement and
Grant of Easement, dated as of ___________ ,1998 between the Company and the
Agent, substantially in the form of Exhibit E attached to the Credit Agreement.
---------
"Project Pro Forma" shall mean the financial projections for the operation
-----------------
of the Project attached to the Credit Agreement as Schedule 5.
----------
"Purchaser" is defined in Section 14.3(a) of the Credit Agreement.
--------- ---------------
"Regulation D" shall mean Regulation D of the Board of Governors of the
------------
Federal Reserve System and any other regulation or official interpretation of
said Board of Governors relating to reserve requirements applicable to member
banks of the Federal Reserve System.
"Reimbursement Obligations" shall mean any amounts made available pursuant
-------------------------
to a drawing under any Letter of Credit, and not either (i) reimbursed in
accordance with Section 2.3(b) of the Credit Agreement or (ii) converted into an
--------------
L/C Loan in accordance with Section 2.7 of the Credit Agreement.
-----------
"Remarketing Agreements" shall mean, collectively, (a) a Remarketing
----------------------
Agreement between the Company and Goldman Sachs & Co., as remarketing agent,
dated as of October 1, 1997 and (b) a Remarketing Agreement between the Company
and First Chicago Capital Markets, Inc., as remarketing agent, in form and
substance satisfactory to the Agent.
"Repair Work" shall have the meaning assigned to such term in Section
----------- -------
9.27(b) of the Credit Agreement.
- -------
"Required Equity Contribution" shall mean all amounts required to be paid
----------------------------
under the Contingent Equity Contribution Agreements.
"Required Lenders" shall mean, on any date, Lenders having Loans
----------------
outstanding and/or unused Aggregate Commitments aggregating at least 66-2/3% of
the total of the Loans outstanding and/or unused Aggregate Commitments.
-21-
<PAGE>
"Reserve Requirement" shall mean, with respect to an Interest Period, the
-------------------
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"Restricted Action" shall have the meaning assigned to such term in Section
----------------- -------
9.10(b) of the Credit Agreement.
- -------
"Revolving Committed Amount" shall mean One Hundred and One Million Two
--------------------------
Hundred and Fifty Thousand Dollars ($101,250,000).
"Risk-Based Capital Guidelines" is defined in Section 5.2 of the Credit
----------------------------- -----------
Agreement.
"Scheduled Funded Debt Payments" shall mean as of the end of each fiscal
------------------------------
quarter of Deltic, for Deltic and its Subsidiaries on a consolidated basis, the
sums of all scheduled payments of principal on Funded Debt for the applicable
period ending on such date (including the principal component of payments due on
Capital Leases during the applicable period ending on such date); it being
understood that Scheduled Funded Debt Payments shall not include voluntary
prepayments or the mandatory prepayments of the Revolving Commitment Amount.
"SEC" shall mean the Securities and Exchange Commission.
---
"Secured Obligations" shall mean, collectively, the Credit Obligations and
-------------------
all of the indebtedness, obligations and liabilities of the Company to the Hedge
Counterparties now or in the future existing under or in connection with any
Hedge Agreement.
"Secured Parties" shall mean, collectively, the Agent, the Lenders and each
---------------
Hedge Counterparty.
"Security Agreement" shall mean the Assignment and Security Agreement,
------------------
dated as of _____________, 1998, between the Company and the Agent,
substantially in the form of Exhibit D attached to the Credit Agreement.
---------
"Security Documents" shall mean, collectively, (a) the Security Agreement,
------------------
(b) the Project Mortgage, (c) the Pledge Agreement, (d) the Contingent Equity
Contribution Agreements, (e) the Production Support Agreement, (f) the Control
Agreement and (g) any other agreement or instrument hereafter entered into (if
any) by the Company or any other Person which secures any of the Secured
Obligations.
"Sinking Fund Accounts" shall have the meaning assigned to such term in
---------------------
Section 8 of the Security Agreement.
-22-
<PAGE>
"Sinking Fund Deficiency" shall exist if at any time the sum of (x) the
-----------------------
amount of funds on deposit in the Sinking Fund Accounts and (y) the aggregate
stated amount available to be drawn under the Sinking Fund Letters of Credit and
the amount of other Collateral acceptable to the Agent on any date set forth in
Column I of Schedule 1 of the Credit Agreement is less than the amount set forth
- -------- ----------
in Column III (Required Balance) of Schedule 1 of the Credit Agreement.
---------- ----------
"Sinking Fund Letters of Credit" shall mean letters of credit substantially
------------------------------
in the form of Exhibit I to the Credit Agreement issued by an Acceptable L/C
Issuer in favor of the Agent.
"Sinking Fund Ratio" shall mean the ratio (expressed as a decimal to 4
------------------
places) of:
(a) the aggregate balance in the Sinking Fund Accounts,
over
----
(b) the sum of:
(i) the unpaid principal amount of all L/C Loans, plus
(ii) the maximum amount available to be drawn under the outstanding
Letter of Credit.
"Site" shall mean the "Land" as such term is defined in the first recital
----
of the Project Mortgage.
"Sponsors" shall mean Deltic Timber Corporation and/or Temple-Inland Forest
--------
Products Corporation, as the context may require or allow.
"Spread" shall mean:
------
(a) before the third anniversary of the Initial Funding Date, 1.375%;
(b) from and after such third anniversary and before the sixth anniversary
of the Initial Funding Date, 1.625%; and
(c) from and after such sixth anniversary, 1.875%.
"Standard & Poor's" or "S&P" shall mean Standard & Poor's, a division of
----------------- ---
McGraw Hill Companies, Inc.
-23-
<PAGE>
"Stated Maturity Date" shall mean the seventh anniversary of the Initial
--------------------
Funding Date.
"Subordinated Loans" shall mean loans made pursuant to Section 2(b) and (c)
------------------
of a Contingent Equity Contribution Agreement which are subordinated on the
terms and conditions set forth in Exhibit K to the Credit Agreement in form and
---------
substance satisfactory to that Agent.
"Subsidiary" shall mean as to any Person, (a) any corporation more than 50%
----------
of whose stock of any class or classes having by the terms thereof ordinary
voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time, any class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time owned by such Person directly or indirectly
through Subsidiaries, and (b) any partnership, association, joint venture,
limited liability company or other entity in which such Person directly or
indirectly through Subsidiaries has more than a 50% equity interest at any time.
"Substantial Completion Date" shall mean the date, as determined by the
---------------------------
Lenders and the Independent Engineer, to be the date on which all of the
following requirements have been satisfied: (a) the Facility is substantially
complete except for punch list items not exceeding $100,000, (b) the Project has
completed the Performance Test to the mutual satisfaction of the Company and the
Agent and (c) all Permits required under Environmental Laws in order to own,
construct, maintain or operate the Facility have been obtained and are in full
force and effect and are Final and Not Subject to Appeal.
"Taking" shall mean (a) the exercise of any power of eminent domain,
------
including any changes of the grades of streets, with respect to the Site, or any
tenements, hereditaments, easements, rights of way and appurtenances thereunto
belonging or in anywise appertaining, or any streets, ways, sidewalks, alleys,
streams, rivers and areas adjacent thereto or used in connection therewith, and
(b) any other damage to the Site or the Facility or both for which compensation
shall be given by any Governmental Authority.
"Taxable Bond Debt Service Reserve Account" shall have the meaning assigned
-----------------------------------------
to that term in Section 8 of the Security Agreement.
"Taxable Bond Indenture" shall mean an Indenture of Trust between the
----------------------
Issuer and The First National Bank of Chicago, as trustee, in form and substance
satisfactory to the Agent.
"Taxable Bond Sinking Fund Account" shall have the meaning assigned to that
---------------------------------
term in Section 8 of the Security Agreement.
-24-
<PAGE>
"Taxable Bonds" shall mean the taxable bonds in the aggregate principal
-------------
amount of $60,000,000 to be issued by the Issuer pursuant to the Taxable Bond
Indenture.
"Taxable Bonds Letter of Credit" shall mean a Letter of Credit under which
------------------------------
drawings are made for the purposes of repaying principal or interest owing in
respect of the Taxable Bonds.
"Taxable L/C Outstandings" shall mean, as of any date, the sum of (i) the
------------------------
maximum amount available to be drawn under any Taxable Bonds Letter of Credit,
(ii) any Reimbursement Obligation in respect of any such Letter of Credit and
(iii) L/C Loans in respect of any such Letter of Credit.
"Tax-Exempt Bond Debt Service Reserve Account" shall have the meaning
--------------------------------------------
assigned to that term in Section 8 of the Security Agreement.
"Tax-Exempt Bond Indentures" shall mean, collectively, (a) the Indenture of
--------------------------
Trust, dated as of October 1, 1997, between the Issuer and The First National
Bank of Chicago, as trustee, providing for the issuance of aggregate principal
amount $14,500,000 1997 Series A Solid Waste Disposal Revenue Bonds (Del-Tin
Fiber L.L.C. Project) of the Issuer and (b) the Indenture of Trust, dated as of
October 1, 1997, between the Issuer and The First National Bank of Chicago, as
trustee, providing for the issuance of aggregate principal amount $14,500,000
1997 Series B Solid Waste Disposal Revenue Bonds (Del-Tin Fiber L.L.C. Project)
of the Issuer.
"Tax-Exempt Bond Sinking Fund Account" shall have the meaning assigned to
------------------------------------
that term in Section 8 of the Security Agreement.
"Tax-Exempt Bonds" shall mean the tax-exempt solid waste disposal revenue
----------------
bonds in the aggregate principal amount of $29,000,000 issued by the Issuer
pursuant to the Tax-Exempt Bond Indenture.
"Tax-Exempt Bonds Letter of Credit" shall mean a Letter of Credit under
---------------------------------
which drawings are made for the purposes of repaying principal or interest owing
in respect of the Tax-Exempt Bonds.
"Tax -Exempt L/C Outstandings" shall mean, as of any date, the sum of (i)
----------------------------
the maximum amount available to be drawn under any Tax-Exempt Bonds Letter of
Credit, (ii) any Reimbursement Obligation in respect of any such Letter of
Credit and (iii) L/C Loans in respect of such Letter of Credit.
"Temple-Inland Equity Contribution Agreement" shall mean the Contingent
-------------------------------------------
Equity Contribution Agreement, dated ________, 1998, among Temple-Inland Forest
-25-
<PAGE>
Products Corporation, the Company and the Agent, substantially in the form of
Exhibit H attached to the Credit Agreement.
- ---------
"Tender Draft" shall mean the tender for purchase of a Bond in accordance
------------
with any of Sections 2.06 through 2.10 of any of the Indentures.
"Title Company" is defined in Section 7.2(h) of the Credit Agreement.
------------- --------------
"Timber Ratio" shall mean as of the date of determination, with respect to
------------
Deltic and its Subsidiaries on a consolidated basis, the ratio of (a) the market
value of all timber owned by Deltic and its Subsidiaries to (b) the Revolving
Committed Amount.
"Total Loss" shall mean any Casualty Event which results in the loss of (i)
----------
either the Facility or the Site in its entirety, or (ii) a substantial portion
of the Facility or the Site such that the then remaining portion of the Project
cannot practically be utilized for the purposes intended, or (iii) all or a
substantial portion of the use of the Facility or the Site for a period
reasonably expected to extend for at least 24 consecutive months.
"Trustee" shall mean, as applicable, each of the trustee under the Tax-
-------
Exempt Bond Indentures and the trustee under the Taxable Bond Indenture.
"Type" shall refer to whether a Loan is an ABR Loan or a LIBOR Loan.
----
"UCC" shall mean the Uniform Commercial Code as adopted by the State of
---
Illinois.
"Unmatured Default" shall mean an event which but for the lapse of time or
-----------------
the giving of notice, or both, would constitute a Default.
"W/C Commitment" shall mean, for each Lender, such Lender's Percentage of
--------------
the W/C Commitment Amount.
"W/C Commitment Amount" shall mean $10,000,000 (or such lesser amount as
---------------------
reduced by the Company pursuant to Section 3.3 of the Credit Agreement).
-----------
"W/C Commitment Termination Date" shall mean the earlier of (i) the
-------------------------------
occurrence of a Commitment Termination Event and (ii) the third anniversary of
the Initial Funding Date as such date may be extended pursuant to Section 3.8 of
-----------
the Credit Agreement.
"W/C Loan" is defined in Section 3.1 of the Credit Agreement.
-------- -----------
"Year 2000 Issues" means anticipated costs, problems and uncertainties
----------------
associated with the inability of certain computer applications to effectively
handle data
-26-
<PAGE>
including dates on and after January 1, 2000, as such inability affects the
business, operations and financial condition of the Borrower and its
Subsidiaries and of the Borrower's and its Subsidiaries' material customers,
suppliers and vendors.
"Year 2000 Program" is defined in Section 8.20 of the Credit Agreement.
----------------- ------------
-27-
<PAGE>
PRODUCTION SUPPORT AGREEMENT
This PRODUCTION SUPPORT AGREEMENT (the "Agreement"), dated as of November
---------
23, 1998 (the "Effective Date"), is by and among TEMPLE-INLAND FOREST PRODUCTS
--------------
CORPORATION ("TIFPC"), a Delaware corporation, DELTIC TIMBER CORPORATION
-----
("Deltic" and, together with TIFPC, the "Sponsors"), a Delaware corporation, and
------ --------
DEL-TIN FIBER L.L.C. (the "Company"), an Arkansas limited liability company.
-------
1. Recitals
1.1. The Credit Agreement. The Company has entered into the Project Credit
--------------------
Agreement (as amended, restated, supplemented, or superseded and is so
in effect from time to time, the "Credit Agreement"), dated as of the
----------------
Effective Date, among the Company, certain financial institutions, The
First National Bank of Chicago ("First Chicago") as a lender and as
-------------
agent, and The Bank of Nova Scotia as a lender and as co-agent, dated
as of the Effective Date.
1.2. Purpose and Consideration. The Company and the Sponsors enter into
-------------------------
this Agreement to provide, on the occurrence of certain events,
additional funds for the payment of Debt Service under the Credit
Agreement, to establish certain procedures the Company shall follow
for the timely provision of such funds, and to fix the Sponsors'
respective obligations respecting the provision of such funds.
2. Production Support
2.1. Delivery of PSA Certificate. If an Additional Funds Need occurs before
---------------------------
the Substantial Completion Date, the Company shall promptly deliver to
each of the Sponsors and the Agent a PSA Certificate dated as of the
Determination Date.
2.2. Payment of Support Obligation. Each Sponsor shall pay to the Company,
-----------------------------
within five Business Days of the Sponsor's receipt of the PSA
Certificate, such Sponsor's Support Obligation.
2.3. Computation of Current Operating Cash Flow Variance. For purposes of
---------------------------------------------------
determining the Current Operating Cash Flow Variance for any
Projection
<PAGE>
Period ending with any of the first three Computation Periods of any
fiscal year,
2.3.1. the year-to-date Gross Production as of the end of the most recently
ended Calculation Period shall be:
2.3.1.1. divided by the number of Calculation Periods that have, as
of the Determination Date, ended in such year,
2.3.1.2. the resulting quotient multiplied by four, and
2.3.1.3. the resulting product input into the Cash Flow Model at
Actual for such year; and
2.3.2. the Operating Cash Flows shown for such year by both the Cash Flow
Model at Actual and the Cash Flow Model at 90% shall be:
2.3.2.1. divided by four, and
2.3.2.2. the resulting quotient multiplied by the number of
Calculation Periods that have, as of the Determination
Date, ended in such year.
3. Environmental Penalties And Costs
3.1. Payment of Environmental Penalties and Costs. During the term of this
--------------------------------------------
Agreement and subject to the other provisions of this Agreement, each
Sponsor shall pay to the Company an amount (without duplication as a
result of prior requests hereunder) equal to
3.1.1. the out of pocket Environmental Penalties and Costs the Company
has expended and for which the Company has not been reimbursed or
indemnified by any other person, times
3.1.2. such Sponsor's Membership Percentage.
3.2. Itemization. Payment under this Section 3 shall be made within five
----------- ---------
Business Days of the Sponsor's receipt of the Company's written
request accompanied by a schedule detailing the Environmental
Penalties and Costs and by copies of invoices and other supporting
documents respecting the items shown on such schedule.
-2-
<PAGE>
3.3. Repayment of Indemnified Amounts. To the extent that the Company
--------------------------------
receives from any other person reimbursement or indemnity for any
Environmental Penalties and Costs respecting which the Sponsors have
already paid the Company, the Company shall promptly pay the amount of
such reimbursement or indemnity so received to the Sponsors as a
distribution of capital in the amounts each Sponsor has so paid.
4. Payment
4.1. Treatment of Payments. All payments to the Company that the Sponsors
---------------------
make under this Agreement shall be treated as contributions of capital
unless a clear contrary intention appears or the context otherwise
requires.
4.2. Late Payments. If the Sponsors fail to pay timely any amount due
-------------
hereunder, then interest thereon from time to time shall accrue at a
rate per annum (calculated for the actual number of days elapsed over
the number of days in the year of such accrual) equal to the lesser of
(i) the ABR Rate or (ii) the maximum rate allowed by the law of the
State of Arkansas, from the payment due date until the date actual
payment is made.
5. Defined Terms
Unless a clear contrary intention appears or the context otherwise
requires, the capitalized terms used in this Agreement have the following
meanings:
5.1. ABR Rate, Agent, Calculation Period, Contingent Equity Contribution
-------- ----- ------------------ ------------------------------
Agreement, Debt Service, Initial Funding Date, Operating Account,
--------- ------------ -------------------- -----------------
Project, Stated Maturity Date, and Substantial Completion Date. The
------- -------------------- ---------------------------
respective meaning each such term has in the Credit Agreement.
5.2. Additional Funds Need. The simultaneous occurrence, as of the
---------------------
Determination Date, of the following:
5.2.1. the Support Obligation of either Sponsor is greater than zero;
and
5.2.2. the Equity Commitment Amount of both Sponsors is zero. Solely
for the purposes of this Section 5.2.2, the Applied Equity
-------------
Amount (as defined in the relevant Contingent Equity
Contribution Agreement) shall include past due and unpaid
payments required, under
-3-
<PAGE>
Section 2(a) of the relevant Contingent Equity Contribution
Agreement, from the relevant Sponsor.
5.3. Air and Water Permits. Air pollution control system Permit No. 1714-
---------------------
AOP-RO and water discharge Permit No. AR0048461 issued by the State of
Arkansas Department of Pollution Control and Ecology, as amended,
restated, supplemented, or superseded and in effect from time to time.
5.4. Cash Flow Model at Actual. The most current (as of the Effective Date)
-------------------------
version, except as modified solely in accordance with Section 2.3, of
-----------
Microsoft Excel workbook computer file named "Cash Flow Model at
Actual.xls", delivered to the parties and to First Chicago, a printout
of the screen display of which is attached as Exhibit C.
5.5. Cash Flow Model at 90%. The cash flow model spreadsheet attached as
----------------------
Exhibit B.
5.6. Current Operating Cash Flow Variance. The difference, if any, between:
------------------------------------
5.6.1. the Operating Cash Flow that the Cash Flow Model at 90%
projected the Project was to have generated during the Current
Projection Period, less
5.6.2. the Operating Cash Flow that the Cash Flow Model at Actual
computes the Project was to have generated during the Current
Projection Period, after the Gross Production of the Project is
input into the appropriate row of the Operating CF Analysis tab
of the Cash Flow Model at Actual in accordance with Section
-------
2.3.
----
5.7. Current Projection Period. As of the Determination Date, the period
-------------------------
(i) from the beginning of the first Calculation Period in the fiscal
year during which the Determination Date occurs, (ii) through the end
of the most recently ended Calculation Period.
5.8. Debt Payment Requirement. The positive difference, if any, between:
------------------------
5.8.1. the Debt Service then due and payable, less
5.8.2. the amount of funds in the Operating Account available to pay
the Debt Service then due and payable.
-4-
<PAGE>
5.9. Determination Date. The date of the relevant determination of Support
------------------
Obligation.
5.1. Environmental Penalties and Costs.
---------------------------------
5.10.1. Penalties, awards, damages, and costs (including but not
limited to agreed upon and/or stipulated penalties and costs
such as expert and attorneys fees) and any costs of
compliance (including but not limited to the cost of any
required pollution control or other capital equipment or any
required action)
5.10.2. that are caused by any condition, any operation or
maintenance of any equipment, or any business practice,
5.10.2.1. in effect at any time before the Substantial
Completion Date, and
5.10.2.2. which at such time constitutes or causes a
violation of the Air and Water Permits.
5.11. Equity Commitment Amount. The meaning such term has in the Contingent
------------------------
Equity Contribution Agreement executed by the Sponsor respecting whom
the Support Obligation is calculated.
5.12. Gross Production. The amount of actual gross production (before
----------------
culls) of the Project, computed according to standard industry
practices on a 3/4 inch basis, expressed in thousands of square feet.
5.13. LLC Agreement. The Company's Articles of Organization dated March 30,
-------------
1995 and the Company's Operating Agreement dated February 21, 1995,
both as amended or otherwise modified or superseded and in effect
from time to time.
5.14. Membership Percentage. With respect to any Sponsor, such Sponsor's
---------------------
percentage of membership interest in the Company, as stated in or
determined according to the LLC Agreement, for purposes of allocating
to such Sponsor the Company's profits, gains, losses, and assets.
5.15. Operating Cash Flow. The amount of the "Operating Cash Flow Available
-------------------
for Debt Service" for the relevant period, as shown on Row 38 of the
-5-
<PAGE>
Operating CF Analysis tab of, as the case may be, the Cash Flow Model
at 90% or the Cash Flow Model at Actual.
5.16. Operating Cash Flow Variance. The positive sum of:
----------------------------
5.16.1. the difference, if any, between:
5.16.1.1. the cumulative Operating Cash Flow that the Cash Flow
Model at 90% projected the Project was to have
generated during the Previous Projection Period, less
5.16.1.2. the cumulative Operating Cash Flow that the Cash Flow
Model at Actual computes the Project was to have
generated during the Previous Projection Period, after
the annual Gross Production of the Project for each
fiscal year of the Projection Period ending before the
Determination Date is input into the appropriate row of
the Operating CF Analysis tab of the Cash Flow Model at
Actual;
plus
----
5.16.2. the Current Operating Cash Flow Variance.
5.17. Previous Projection Period. As of the Determination Date, the
--------------------------
period (i) from the beginning of the first Calculation Period after
the Initial Funding Date, (ii) through the end of the most recently
ended fiscal year.
5.18. Production Support Amount. The lower of:
-------------------------
5.18.1. the Debt Payment Requirement, or
5.18.2. the Operating Cash Flow Variance.
5.19. PSA Certificate. The relevant certificate signed by an officer of the
---------------
Company substantially in the form of the Production Support Agreement
Certificate ("PSA Certificate") attached as Exhibit A, which
certificate shall be dated as of the Determination date, shall
certify the date of the occurrence of an Additional Funds Need, state
each Sponsor's Support Obligation, show the calculation of each such
Support Obligation and its components, and request from each Sponsor
payment to the Company of such Sponsor's Support Obligation.
-6-
<PAGE>
5.20. Support Obligation. With respect to any Sponsor, the product of the
------------------
Production Support Amount times such Sponsor's Membership Percentage,
less any amounts previously paid pursuant to Section 2.2 of this
-----------
Agreement by the Sponsor for whom the Support Obligation is being
determined.
6. Miscellaneous
6.1. Term. The term of this Agreement shall be from the Effective Date
----
through and including the Stated Maturity Date.
6.2. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties regarding its subject matter, and supersedes all prior
agreements and understandings, both written and oral, among the
parties, or any of them, with respect to its subject matter.
6.3. Amendment. This Agreement may be amended, modified or supplemented
---------
only by an instrument in writing executed by all the parties hereto;
provided that no such amendment, modification, or supplement shall be
permitted or be effective without the prior written consent of the
Agent; provided further that the Agent is an express, intended
beneficiary of, and shall have the right to enforce directly and in
its own name, the provisions of this Section 6.3. No failure or delay
------------
on the part of either party in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right,
power, or remedy. Any consent to any departure from the terms of any
provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which given. No notice to
or demand made upon either party in any case shall entitle the
recipient thereof to any other or further notice or demand in similar
or other circumstances except to the extent this Agreement otherwise
requires such notice or demand.
6.4. Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws
effective during the term hereof, then unless any party to this
Agreement would be deprived of the substantial benefit of its
bargain, (i) such provision shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid
or unenforceable provision never comprised a part hereof; (ii) the
remaining provisions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by
-7-
<PAGE>
such severance; and (iii) in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as part of
this Agreement a provision as similar in its terms to such illegal,
invalid or unenforceable provision as may be possible and be legal,
valid and enforceable.
6.5. Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE SUBSTANTIVE LAWS (BUT NOT THE RULES GOVERNING
CONFLICTS OF LAWS) OF THE STATE OF ARKANSAS. THE PARTIES AGREE THAT
THIS AGREEMENT SHALL BE PERFORMABLE IN UNION COUNTY, ARKANSAS.
6.6. Parties In Interest. No Third Party Beneficiaries. Except as otherwise
-------------------------------------------------
provided herein, the terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors
and assigns of the parties hereto to the extent such successors and
assigns are permitted by this Agreement. Subject to Section 6.3,
-----------
neither this Agreement nor any other agreement contemplated hereby
shall be deemed to confer any rights or remedies or to impose any
obligations upon any person not a party to such agreement.
6.7. Assignment. Neither this Agreement nor any right created hereby or in
----------
any agreement entered into in connection with the transactions
contemplated hereby shall be assignable by any party hereto, except
that the Company may assign, as security for an extension of credit to
the Company and to the extent permitted under the Credit Agreement,
its right to receive payments hereunder.
6.8. Choice of Forum. The parties hereto agree that should any legal suit,
---------------
action or proceeding arising out of this Agreement be instituted by
any party hereto (other than a suit, action or proceeding to enforce
or realize upon any final court judgment arising out of this
Agreement), such suit, action or proceeding shall be instituted only
in a state or federal court in Union County, Arkansas. Each of the
parties hereto consents to the in personam jurisdiction of any state
or federal court in Union County, Arkansas and waives any objection to
the venue of any such suit, action or proceeding. The parties hereto
recognize that courts outside in Union County, Arkansas may also have
jurisdiction over legal suits, actions or proceedings arising out of
this Agreement, and in the event that any party hereto shall institute
a proceeding involving this Agreement in a jurisdiction outside in
Union County, Arkansas, the party instituting such
-8-
<PAGE>
proceeding shall indemnify any other party hereto for any losses and
expenses of any kind or nature whatsoever that may result from the
breach of the foregoing covenant to institute such proceeding only in
a state or federal court in Union County, Arkansas, including without
limitation any additional expenses incurred as a result of litigating
in another jurisdiction, such as reasonable fees and expenses of
local counsel and travel and lodging expenses for parties, witnesses,
experts and support personnel.
6.9. Service of Process. Service of any and all process that may be served
------------------
on any party hereto in any suit, action or proceeding arising out of
this Agreement may be made in the manner described in Section 6.10
------------
and service thus made shall be taken and held to be valid personal
service upon such party by any party hereto on whose behalf such
service is made.
6.10. Confidentiality Publicity and Disclosures. Each party and its
-----------------------------------------
successors and assigns shall keep this Agreement and its terms
confidential, and shall make no press release or public disclosure,
either written or oral, regarding the transactions contemplated by
this Agreement without the prior knowledge and consent of the other
parties hereto; provided that the foregoing shall not prohibit any
disclosure (i) by press release, filing or otherwise that is required
by federal securities laws or the rules of the stock exchange on
which the securities of any party are traded, (ii) to attorneys,
accountants, or other agents of the parties assisting the parties in
connection with the transactions contemplated by this Agreement; or
(iii) by the Company to a lender in connection with obtaining an
extension of credit to the Company.
6.11. Notice. Any notice or communication hereunder or in any agreement
------
entered into in connection with the transactions contemplated hereby
must be in writing and given by depositing the same in the United
States mail, addressed to the party to be notified, postage prepaid
and registered or certified with return receipt requested, or by
delivering the same in person. Such notice shall be deemed received
on the date on which it is actually received, whether or not given in
the manner described in the previous sentence.
7. Interpretive Provisions
-9-
<PAGE>
7.1. Captions. The captions in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect any of the
terms or provisions hereof.
7.2. Gender and Number. When the context requires, the gender of all words
-----------------
used herein shall include the masculine, feminine and neuter and the
number of all words shall include the singular and plural.
7.3. Reference to Agreement. Use of the words "herein", "hereof",
----------------------
"hereinabove" and the like in this Agreement shall be construed as
references to this Agreement as a whole and not to any particular
Section or provision of this Agreement, unless otherwise noted.
7.4. No Limitation. The words "include", "includes", and "including" shall
-------------
be deemed to be followed by the words "without limitation".
7.5. Counterparts. This Agreement may be executed in multiple counterparts,
------------
each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
EXECUTED THIS 23rd DAY OF NOVEMBER, 1998.
DEL-TIN FIBER L.L.C.
By: ________________________________________
Name Printed: ______________________________
Title: _____________________________________
-10-
<PAGE>
TEMPLE-INLAND FOREST PRODUCTS CORPORATION
By: ________________________________________
Name Printed: ______________________________
Title: _____________________________________
-11-
<PAGE>
DELTIC TIMBER CORPORATION
By: ________________________________________
Name Printed: ______________________________
Title: _____________________________________
-12-
<PAGE>
EXHIBIT A
TO PRODUCTION SUPPORT AGREEMENT
FORM OF PSA CERTIFICATE
<PAGE>
EXHIBIT B
TO PRODUCTION SUPPORT AGREEMENT
CASH FLOW MODEL AT 90%
<PAGE>
EXHIBIT C
TO PRODUCTION SUPPORT AGREEMENT
CASH FLOW MODEL AT ACTUAL
<PAGE>
DEL-TIN FIBER L.L.C.
200 PEACH STREET
EL DORADO, ARKANSAS 71739
CONTROL AGREEMENT
To Perfect a Security in Limited Liability Company Memberships
November 23, 1998
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Project Finance
Ladies/Gentlemen:
Del-Tin Fiber L.L.C., an Arkansas limited liability company (the "Company")
is party to a Project Credit Agreement, dated as of November 23, 1998 (as
amended or modified and in effect from time to time, the "Credit Agreement"),
among the Company, the lenders named therein (the "Lenders") and, The First
National Bank of Chicago, as Agent (the "Agent"). Pursuant to the Credit
Agreement, Deltic Timber Corporation and Temple-Inland Forest Products
Corporation (each a "Pledgor" and collectively the "Pledgors") and the Agent
have entered into a Pledge Agreement dated as of November 23, 1998, pursuant to
which the Pledgors have granted to the Agent, for the benefit of the Lenders, a
security interest and assignment in certain assets, including without
limitation, the Pledgors' membership interest in the Company and all proceeds
and products thereof (collectively, the "Collateral"). The Pledgors hereby
request the Company to enter into this Control Agreement. The Company hereby
agrees as follows:
1. The Company agrees that it will comply with instructions from the
Agent with respect to the Collateral without further consent by the
Pledgors. Such instructions may include, without limitation, a direction to
re-register the Collateral in the name of the Agent or another party
designated by the Agent or, after an Event of Default, to make all
<PAGE>
The First National Bank of Chicago
Page 2
payments of member distributions and all other amounts paid in connection
with the Collateral directly to the Agent.
2. The Company hereby further agrees to register this pledge of the
membership interests of the Pledgors on its books and records.
3. The Pledgors may not amend or terminate this Control Agreement
without the Agent's prior written consent.
4. This Control Agreement is governed by the internal laws (and not
the law of conflicts) of the State of Illinois.
5. The Company covenants that it will not accept any notice of lien,
encumbrance, pledge with respect to the Collateral, will not accept any
notice of transfer unless such transfer does not result in a Company Change
of Control (as defined in the Credit Agreement) and will not enter into any
agreement to comply with instructions from any other party with respect to
the Collateral, except for any such agreement with the Agent, until the
Agent sends a notice to the Company that this Control Agreement has been
terminated.
6. The Company hereby represents and warrants that as of the date
hereof:
(a) each Pledgor is the registered owner of its respective
Collateral on the books and records of the membership, and the Company
has no knowledge of any lien, encumbrance, pledge or transfer of the
Collateral, has not registered any security interest in the Collateral
and has not entered into any agreement with any other party to comply
with instructions from such party with respect to the Collateral;
(b) none of the Collateral is evidenced by a certificate; and
<PAGE>
The First National Bank of Chicago
Page 3
(c) the Company has not specified the laws of a state other than
the state of its organization (as listed above) as governing the
issuance or transfer of the Collateral.
Very truly yours,
DEL-TIN FIBER L.L.C.
By:___________________________
Title:________________________
Agreed and Acknowledged:
DELTIC TIMBER CORPORATION THE FIRST NATIONAL BANK OF
CHICAGO, as Agent
By:_______________________ By:___________________________
Title:____________________ Title:________________________
TEMPLE-INLAND FOREST PRODUCTS
CORPORATION
By:_______________________
Title:____________________
<PAGE>
ASSIGNMENT AND SECURITY AGREEMENT
This ASSIGNMENT AND SECURITY AGREEMENT, dated as of November 23, 1998 (this
"Agreement"), between DEL-TIN FIBER L.L.C., an Arkansas limited liability
---------
company (the "Company"), THE FIRST NATIONAL BANK OF CHICAGO, in its capacity as
-------
Agent (in such capacity, the "Agent") for the benefit of the Secured Parties (as
-----
defined in Appendix I to the Credit Agreement referred to below).
----------
R E C I T A L S:
1. The Company is a party to a Project Credit Agreement, dated as of
November 23, 1998 (as amended, modified, restated or supplemented from time to
time, the "Credit Agreement"), with certain financial institutions, as lenders
----------------
(collectively, the "Lenders") and the Agent.
-------
2. The execution and delivery of this Agreement is a condition precedent
set forth in the Credit Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms; Interpretation. (a) Unless otherwise defined
-----------------------------
herein, capitalized terms used herein shall have their respective meanings set
forth in Appendix I to the Credit Agreement.
----------
(b) In this Agreement: (i) references to any Section, Appendix, Schedule
or Exhibit of any Credit Document are references to such Section, Appendix,
Schedule or Exhibit of such Credit Document; (ii) the singular includes the
plural and the plural includes the singular; (iii) each reference to any
Governmental Rule includes all amendments, modifications, supplements or
replacements of such Governmental Rule; (iv) the words "including", "includes"
and "include" shall be deemed to be followed by the words "without limitation";
(v) each reference to any agreement or other contractual instrument includes all
amendments, modifications and supplements made to such agreement or instrument;
(vi) each reference to a Person includes such Person's respective permitted
successors and assigns, and each reference to a Governmental Authority includes
any successor to or replacement of such Governmental Authority; and (vii)
"herein", "hereof", "hereto" and "hereunder" and similar terms refer to such
Credit Document as a whole.
<PAGE>
SECTION 2. Assignment and Grant of Security Interest. (a) As security
-----------------------------------------
for the due and punctual payment and performance of all of the Secured
Obligations now existing or hereafter arising, the Company hereby pledges,
assigns, transfers and grants to the Agent, for the benefit of the Secured
Parties, a lien on and continuing security interest in, all of the Company's
right, title and interest, whether now owned or held or hereafter acquired, in,
to and under the following wheresoever the same may now or hereafter be located
(the "Collateral"):
----------
(i) each agreement, instrument, document and contract described in
Schedule 1, any other contract or agreement to which the Company is a
----------
party, any acknowledgment delivered to the Company, any consent to
collateral assignment executed in connection with any such agreement,
instrument, document, contract, other contract or agreement or
acknowledgment, and any amendment, modification, restatement or supplement
executed in connection with any such agreement, instrument, document,
contract, other contract or agreement, acknowledgment or consent (each such
agreement, instrument, document, contract, other contract or agreement,
acknowledgment, consent, amendment, modification, restatement or supplement
referred to above in this paragraph (i), as amended, modified, restated or
-------------
supplemented from time to time, individually, an "Assigned Agreement", and,
------------------
collectively, the "Assigned Agreements"), including (1) all rights of the
-------------------
Company to receive moneys due and to become due under or pursuant to the
Assigned Agreements, (2) all rights of the Company to receive proceeds of
any insurance, indemnity, warranty or guaranty with respect to the Assigned
Agreements, (3) all claims of the Company for damages arising out of or for
breach of or default under the Assigned Agreements, (4) all rights of the
Company to terminate, amend, modify or supplement any of the Assigned
Agreements, to perform thereunder and to compel performance and otherwise
exercise all remedies thereunder, (5) all collateral, liens and security
interests now or hereafter granted to the Company pursuant to any of the
Assigned Agreements to secure any of the obligations of any Person (other
than the Company) under any of the Assigned Agreements, and (6) all rights
of the Company to foreclose on or otherwise exercise any remedies with
respect to any of such collateral, liens or security interests now or
hereafter securing any of the obligations of any Person (other than the
Company) under any of the Assigned Agreements;
(ii) all "Accounts" (as such term is defined in the UCC), including
all rights to receive payment for goods sold or leased or for services
rendered (collectively the "Accounts Receivable");
-------------------
(iii) all Permits now or hereafter held in the name of the Company or
for the benefit of the Project, including those listed on Schedule 2,
----------
except to the extent that the pledge, assignment, transfer or grant of a
------
lien on or security interest in any of such Permits is prohibited by
applicable law or would cause any of such Permits to become void, voidable,
terminable or revocable;
-2-
<PAGE>
(iv) all automobiles, trucks, tractors, trailers and other rolling
stock or moveable personal property, including rolling stock for which the
title thereto is evidenced by a certificate of title issued by the United
States or a state which permits or requires a lien thereon to be evidenced
upon such title, in which the Company now or at any time in the future may
have an interest (collectively, the "Rolling Stock");
-------------
(v) all "equipment" (as such term is defined in the UCC),
including machinery, apparatus, installation facilities and other tangible
personal property of the Company (including the medium density fiberboard
plant to be constructed on the Site and all Rolling Stock) (collectively,
the "Equipment");
---------
(vi) all "inventory" (as such term is defined in the UCC) in all of
its forms, wherever located (including (x) fuel, tires and other spare
parts inventory, consumable supplies inventory and maintenance materials
inventory and raw materials and work in progress therefor, finished goods
thereof, and materials used or consumed in the manufacture or production
thereof, (y) goods in which the Company has an interest in mass or a joint
or other interest or right of any kind, and (z) goods which are returned to
or repossessed by the Company), and all accessions thereto and products
thereof and documentation therefor (collectively, the "Inventory");
---------
(vii) all documents of title or other receipts of the Company
covering, evidencing or representing Inventory or Equipment (collectively,
the "Documents");
---------
(viii) all copyrights, copyright registrations and applications for
copyright registrations, including all renewals and extensions thereof, the
right to recover for all past, present and future infringements thereof,
and all other rights of any kind whatsoever accruing thereunder or
pertaining thereto (collectively, the "Copyrights");
----------
(ix) all patents and patent applications, including the inventions
and improvements described and claimed therein together with the reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, all income, royalties, damages and payments now or hereafter due
and/or payable under and with respect thereto, including damages and
payments for past or future infringements thereof, the right to sue for
past, present and future infringements thereof, and all rights
corresponding thereto throughout the world (collectively, the "Patents");
-------
(x) all trade names, trademarks and service marks, logos,
trademark and service mark registrations, and applications for trademark
and service mark registrations (including all renewals of trademark and
service mark registrations, and all rights corresponding thereto throughout
the world, but excluding any such registration that would be rendered
invalid, abandoned, void or unenforceable by reason of its being included
as part of the Collateral), the right to recover for all past, present and
future infringements thereof, all other rights of any kind whatsoever
accruing thereunder or
-3-
<PAGE>
pertaining thereto, together, in each case, with the product lines and
goodwill of the business connected with the use of, and symbolized by, each
such trade name, trademark and service mark (collectively, the
"Trademarks");
----------
(xi) all licenses or user or other agreements granted to the
Company with respect to any of the Copyrights, Patents or Trademarks, in
each case, whether now or hereafter owned or used, except to the extent
that the pledge, assignment, transfer or grant of a lien on or security
interest in any license or other agreement would cause the same to become
void, voidable, terminable or irrevocable;
(xii) all inventions, processes, production methods, proprietary
information, know-how and trade secrets used in or relating to the Project;
(xiii) the Accounts (as defined in Section 8), all balances therein
---------
and all Permitted Investments and other instruments, certificates and notes
held or maintained therein;
(xiv) all information, data, plans, blueprints, designs, recorded
knowledge, surveys, architectural, structural, mechanical and engineering
plans and specifications, studies, reports and drawings, test reports,
manuals, material standards, processing standards, performance standards,
catalogs, computer and automatic machinery software and programs, all
accounting information and all media in which or on which any information
or knowledge or data or records may be recorded or stored and all computer
programs used for the compilation or printout of such information,
knowledge, records or data, prepared by or on behalf of the Company for the
construction, acquisition, occupancy, use, operation, maintenance, repair
or restoration of the Project or any part thereof;
(xv) all rights, claims and benefits of the Company against any
Person arising out of, relating to or in connection with Inventory or
Equipment, including any such rights, claims or benefits against any Person
storing or transporting Inventory or Equipment;
(xvi) all Casualty Proceeds and other proceeds payable under any
insurance policies or indemnities in respect of the Project or any part
thereof including policies insuring against loss of revenues for reason of
interruption of the operation of the Project, and all eminent domain
proceeds;
(xvii) all other tangible and intangible property of the Company,
including accounts, vendor warranties, payment and/or performance bonds and
letters of credit running to the Company or assigned to the Company,
rights, interests, contract rights, tax refunds, chattel paper, securities
(including certificated and Uncertificated Securities, Securities
Accounts, and Security Entitlements, Commodity Accounts and Commodity
-4-
<PAGE>
Entitlements and other Investment Property) (as such terms are defined in
the U.C.C.), documents, instruments, general intangibles, fixtures, trade
fixtures, consumer goods and any indemnity, warranty or guaranty in respect
of the Project or of any of the foregoing; and
(xviii) to the extent not included in the foregoing, all proceeds,
products, accessions, rents, revenues, incomes, royalties, benefits,
additions, substitutions, replacements of and to any and all of the
foregoing Collateral.
(b) Except as may be permitted by the Credit Agreement, the Company shall
not cancel, terminate, assign, amend, supplement or otherwise modify any of the
Assigned Agreements. The Company shall comply with, maintain in full force and
effect and enforce the terms and provisions of each Assigned Agreement in
accordance with the Credit Agreement. Subject to the foregoing and to the other
provisions of this Agreement and the provisions of the other Credit Documents,
the Company may exercise all of its rights and privileges under, and with
respect to, the Collateral, including the Assigned Agreements, but such right
shall terminate automatically upon notice thereof from the Agent to the Company
following the occurrence of a Default relating to the Assigned Agreements or a
Default, provided that, upon the occurrence of a Default relating to the Company
pursuant to Sections 9.6 or 9.7 of the Credit Agreement, such notice shall be
deemed to have been given automatically upon the occurrence of such Default.
SECTION 3. Security for Obligations. This Agreement secures the payment
------------------------
and performance when due (by acceleration or otherwise) by the Company of all of
the Secured Obligations.
SECTION 4. The Company Remains Liable. Anything herein to the contrary
--------------------------
notwithstanding, prior to the date on which the Agent shall deliver notice to
the Company that the Company may no longer exercise rights and privileges under,
and with respect to, the Collateral pursuant to Section 2(b), the Company shall
------------
remain liable under the Assigned Agreements to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed. The exercise by the Agent of any of the rights assigned to it
hereunder shall not release the Company from any of its duties or obligations
under the Assigned Agreements or any other agreement included in the Collateral.
The Agent shall not have any obligation or liability under the Assigned
Agreements or any other agreement included in the Collateral by reason of having
entered into this Agreement, nor shall the Agent be obligated to perform any of
the obligations or duties of the Company thereunder or to take any action to
collect or enforce any claim for payment assigned hereunder.
SECTION 5. Representations and Warranties. The Company represents and
------------------------------
warrants that the principal place of business of the Company and the office
where the Company keeps its records concerning the Collateral are located at 757
Newell Road, El Dorado, Arkansas 71730.
-5-
<PAGE>
SECTION 6. Further Assurances. (a) The Company shall from time to time,
------------------
at the Company's expense promptly execute and deliver all further instruments
and documents, and take all further action that may be necessary, or that the
Agent may reasonably request, in order to perfect and protect the assignment and
security interest granted or purported to be granted hereby, or to enable the
Agent to exercise and enforce its rights and remedies hereunder with respect to
the Collateral. Without limiting the generality of the foregoing, the Company
shall: (i) if any Collateral shall be evidenced by a promissory note or other
instrument, deliver and pledge to the Agent hereunder such note or instrument
duly indorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance reasonably satisfactory to the Agent; (ii)
execute and file such financing statements, or amendments thereto, and such
other instruments, indorsement or notices as may be necessary, or as the Agent
may reasonably request, in order to perfect and preserve the assignment and
security interest granted or purported to be granted hereby; (iii) execute and
deliver to the Agent with respect to each Additional Contract and, upon the
Agent's request cause each other party to such Additional Contract to execute
and deliver or cause to be executed and delivered to the Agent, a consent; and
(iv) deliver to the Agent with respect to each Additional Contract and, upon the
Agent's reasonable request to the extent practicable, cause each other party to
such Additional Contract to deliver or cause to be delivered to the Agent, an
opinion of counsel in form and substance satisfactory to the Agent with respect
to such collateral assignment.
(b) The Company hereby authorizes the Agent to file one or more financing
or continuation statements, and amendments thereto, relating to all or any part
of the Collateral without the signature of the Company where permitted by law.
Copies of any such statement or amendment thereto shall promptly be delivered to
the Company.
SECTION 7. Notice of Change of Office. The Company shall comply with
--------------------------
Sections 9.22 and 9.23 of the Credit Agreement.
SECTION 8. Establishment of Accounts. The Company hereby establishes with
-------------------------
the Agent at its Principal Office the following accounts:
(a) The Company hereby establishes with the Agent at its Principal Office
the following accounts:
(i) an account entitled "Del-Tin Fiber Operating Account" (Account
No. 51-43160) (such account and all other accounts established by the Agent
and the Company to be part of the Operating Account as herein defined are
collectively called the "Operating Account");
-----------------
(ii) an account entitled "Del-Tin Fiber Debt Service Reserve Account"
(Account No. 51-43179) (such account and all other accounts established by
the Agent and the Company to be part of the Taxable Bond Debt Service
Reserve Account as herein defined are collectively called the Taxable Bond
Debt Service Reserve Account");
-6-
<PAGE>
(iii) an account entitled "Del-Tin Fiber Debt Service Reserve Tax-
Exempt" (Account No. 51-43187) (such account and all other accounts
established by the Agent and the Company to be part of the Tax Exempt Bond
Debt Service Reserve Account as herein defined are collectively called the
"Tax-Exempt Bond Debt Service Reserve Account", and, together with the
Taxable Bond Debt Service Reserve Account, the "Debt Service Reserve
--------------------
Accounts").
--------
(b) The Company shall establish with the Agent at its Principal Office
each of the following accounts, on or before the date any amount is to be
deposited in such account pursuant to this Agreement:
(i) an account or accounts entitled similar to "Del-Tin Fiber
Insurance Account" (such accounts established by the Agent and the Company
to be part of the Insurance Account as herein defined are collectively
called the "Insurance Account");
-----------------
(ii) an account or accounts entitled similar to "Del-Tin Fiber
Taxable Bond Sinking Fund Account" (such account and all other accounts
established by the Agent and the Company to be part of the Taxable Bond
Sinking Fund Account as herein defined are collectively called the "Taxable
-------
Bond Sinking Fund Account"); and
-------------------------
(iii) an account or accounts entitled similar to "Del-Tin Fiber Tax-
Exempt Bond Sinking Fund Account" such account and all other accounts
established by the Agent and the Company to be part of the Taxable Bond
Sinking Fund Account as herein defined are collectively called the "Tax-
Exempt Sinking Fund Account" and, together with the Taxable Bond Sinking
Fund Account, the "Sinking Fund Accounts").
---------------------
(c) For purposes hereof, the Operating Account, each of the Debt Service
Reserve Accounts, the Insurance Account, and each of the Sinking Fund Accounts
are sometimes referred to individually as an "Account" and collectively as the
-------
"Accounts").
- ---------
(d) The Agent shall establish an account at its principal office in
Chicago, Illinois (the "Collateral Account") for the purpose of managing the
------------------
receipt and application of funds as provided in Section 14 (or such other
----------
account as the Agent may from time to time specify to the Company). The Company
shall have no right, title or interest in the Collateral Account or the contents
thereof, except as otherwise provided herein.
(e) Subject to Sections 9.12(b) and 9.13(b) of the Credit Agreement, the
balance from time to time in each Account shall be invested by the Company in
Permitted Investments and the earnings from such investments shall be credited
to the Operating Account; provided, that if a Default shall have occurred and be
--------
continuing, the contents of each Account may be invested in such manner as the
Agent may determine or as the Agent shall direct. The Company shall select
Permitted Investments having such maturities as shall cause each Account to have
a cash balance as of any day sufficient to cover the transfers reasonably
expected to be made from such Account.
-7-
<PAGE>
(f) The balance of each Account shall constitute a part of the Collateral
and shall not constitute payment of the Secured Obligations until applied to the
payment of the Secured Obligations as provided in this Agreement and the Credit
Agreement.
(g) At any time that the Agent is authorized to debit any Account and
apply the proceeds thereof in accordance with the terms of this Agreement, the
Company hereby authorizes the Agent to liquidate any investments in such Account
to the extent necessary to realize proceeds sufficient to enable the Agent to
satisfy those obligations of the Company which are then due and payable even
though such liquidation may be prior to the maturity thereof and early
withdrawal penalties or similar charges or expenses may be incurred in
connection therewith, which penalties, charges or expenses may be charged to
such Account.
SECTION 9. Operating Account.
-----------------
(a) Deposits to Operating Account. The following amounts shall be
-----------------------------
deposited into the Operating Account:
(i) all amounts payable to the Company under the Assigned
Agreements (except any payment of any Required Contingent Equity
-------
Contribution payment pursuant to the Equity Contribution Agreement), and
all other Accounts Receivables or proceeds of Collateral;
(ii) the proceeds of business interruption insurance (other than
Casualty Proceeds to be deposited into the Insurance Account pursuant to
Section 11(a));
-------------
(iii) each amount withdrawn from the Debt Service Reserve Account and
transferred to the Operating Account pursuant to Section 10(b)(ii); and
-----------------
(iv) each amount withdrawn from the Insurance Account and
transferred to the Operating Account pursuant to Section 11(b)(ii) and
-----------------
(iii).
-----
(b) Withdrawals from Operating Account. Withdrawals from the Operating
----------------------------------
Account shall be made as follows:
(i) Prior to a Default, the Company may withdraw any amount from
the Operating Account for application as provided in Section 9.28 of the
Credit Agreement;
(ii) If a Default shall have occurred and be continuing, the Company
may request (in accordance with Section 28) permission to withdraw an
----------
amount for application as provided in Section 9.28 of the Credit Agreement;
and
-8-
<PAGE>
(iii) If a Default shall have occurred and be continuing the Agent
may withdraw all or any portion of the contents of the Operating Account
and transfer such contents to the Collateral Account or as otherwise
directed by the Required Lenders
SECTION 10. Debt Service Reserve Account.
----------------------------
(a) Deposits to Debt Service Reserve Account. The following amounts shall
----------------------------------------
be deposited into the Debt Service Reserve Account:
(i) Any amount required to be deposited by the Company into the
Debt Service Reserve Account pursuant to Section 9.12(a) of the Credit
Agreement; and
(ii) any payment required pursuant to Section 2(a)(iv) of the Equity
----------------
Contribution Agreement and payments pursuant to draws under any Equity
Letter of Credit in lieu thereof.
(b) Withdrawals from Debt Service Reserve Account. Withdrawals from the
---------------------------------------------
Debt Service Reserve Account shall be made as follows:
(i) The Company, to the extent sufficient funds are not in the
Operating Account, shall prior to a Default and the Agent may after a
Default, withdraw any amount from the Debt Service Reserve Account for the
payment of any Debt Service which is not paid in full when due; and
(ii) In the event the amount on deposit in the Debt Service Reserve
Account exceeds the amount required to be on deposit therein pursuant to
Section 9.12 of the Credit Agreement, the Company may, prior to a Default,
withdraw such excess amount from the Debt Service Reserve Account and
deposit such amount in the Operating Account.
(iii) After a Default, the Agent may, and upon the Required Lenders'
direction shall, withdraw amounts from the Debt Service Reserve Account in
the amount necessary to satisfy Secured Obligations and deposit such funds
in the Collateral Account.
SECTION 11. Insurance Account.
-----------------
(a) Deposits to Insurance Account. All Casualty Proceeds (other than the
-----------------------------
proceeds of business interruption insurance, which proceeds shall be deposited
into the Operating Account pursuant to Section 9(a)(ii)) shall be deposited into
----------------
the Insurance Account.
(b) Withdrawals from Insurance Account. Withdrawals from the Insurance
----------------------------------
Account shall be made as follows:
-9-
<PAGE>
(i) The Agent may withdraw, for its own account, amounts referred
to in Section 9.27(a)(iii) of the Credit Agreement;
(ii) Prior to a Default, the Company may withdraw and transfer to
the Operating Account an amount necessary to pay the cost of repairing,
restoring or rebuilding the Project in accordance with Section 9.27(a)(i)
and (ii) or Section 9.27(b) of the Credit Agreement;
---------------
(iii) Prior to a Default and subject to the other provisions of this
Section 11(b), the Company may withdraw and transfer to the Operating
-------------
Account of any Casualty Proceeds which remain on deposit in the Insurance
Account after all Repair Work in connection with any Casualty Event shall
have been completed in accordance with the Credit Agreement;
(iv) Casualty Proceeds to be applied to the prepayment of Loans
pursuant to Sections 9.27(e) and 9.28(d) of the Credit Agreement shall be
withdrawn and transferred to the Agent for application as provided in the
Credit Agreement and any excess funds remaining in the Insurance Account
shall be transferred to the Operating Account; and
(v) If a Default shall have occurred and be continuing, the Agent
may withdraw all or any portion of the contents of the Insurance Account
and transfer such amount to the Collateral Account.
SECTION 12. Debt Service Payment Priorities. If a Default shall have
-------------------------------
occurred and be continuing, at any time and from time to time the Agent may
withdraw funds from any Account in an aggregate amount sufficient to pay in full
all Debt Service then due and transfer any funds so withdrawn to the Collateral
Account.
SECTION 13. Sinking Fund Accounts.
---------------------
(a) Deposits to Sinking Fund Accounts. The following amounts shall be
---------------------------------
deposited into the Sinking Fund Accounts:
(i) Any amount required to be deposited by the Company into the
Sinking Fund Accounts pursuant to Section 9.13 of the Credit Agreement; and
(ii) any payment required pursuant to Section 2(a)(iii) of the
Equity Contribution Agreement and payments pursuant to draws under any
Equity Letter of Credit in lieu thereof.
(b) Withdrawals from the Sinking Fund Accounts. Withdrawals from the
------------------------------------------
Sinking Fund Accounts shall be made as follows:
-10-
<PAGE>
(i) Prior to a Default, no withdrawals may be made from the Sinking
Fund Accounts;
(ii) Subject to Section 12, after a Default the Agent may withdraw
----------
any amount from the Sinking Fund Accounts for the payment of any
liabilities which are not paid in full when due and transfer any such
amounts to the Collateral Account.
SECTION 14. Collateral Account.
------------------
(a) Deposits to Collateral Account. The following amounts shall be
------------------------------
deposited into the Collateral Account:
(i) any payment pursuant to Section 2(a)(i) of the Contingent Equity
Contribution Agreement and payments pursuant to draws under the Equity
Letters of Credit in lieu thereof; and
(ii) amounts transferred from any Account pursuant to the provisions
of Section 12 of this Agreement.
----------
(b) Withdrawals from the Collateral Account. Any amount deposited in the
---------------------------------------
Collateral Account shall be applied at the times and in the manner set forth in
Section 19.
- ----------
SECTION 15. Default. Notwithstanding anything to the contrary in this
-------
Agreement, at any time following the occurrence of a Default, the Agent may
withdraw and transfer all or any portion of the balance of any Account to the
Collateral Account; provided that the Agent in its discretion may, but shall not
--------
be required to, make demand for payment under any letters of credit assigned to
the Agent hereunder or delivered to the Agent under the Project Documents and/or
apply all or any of the then outstanding balance of any Account toward the
payment of the Secured Obligations then due in the order set forth in Section
-------
19. If, solely as a result of a transfer or withdrawal of funds as permitted in
this Section 15, the Company is unable to fulfill its obligations under the
----------
Credit Agreement (including, without limitation, the failure to maintain
adequate reserves in any Account), such failure shall not constitute a Default.
If the Agent has transferred funds pursuant to this Section 15, the
----------
Required Lenders shall not have exercised any rights under Section 10.2(i) or
------------------
(ii) of the Credit Agreement and Default shall be continuing, the Agent shall,
- ----------------------------
to the extent funds remain in the Collateral Account, redeposit such funds in
the Accounts from which such funds were transferred. In the event that there
are insufficient funds in the Collateral Account to redeposit such funds in the
Accounts from which such funds were transferred, the Agent shall deposit such
funds into the Operating Account for application pursuant to Section 9.28 of the
Credit Agreement; provided, however, that if a deposit into the Debt Service
-------- -------
Reserve Account or the Sinking Fund Accounts is required to be made pursuant to
the Credit Agreement on the date of such deposit, the Agent shall transfer to
each such Account or Accounts (in the order of priority set forth in Section
9.28 of the Credit
-11-
<PAGE>
Agreement), to the extent amounts are available therefor, the amount necessary
so that the amount on deposit therein is equal to the amount required to be on
deposit therein under the Credit Agreement.
SECTION 16. Agent and Appointed Attorney-in-Fact. The Company hereby
------------------------------------
irrevocably appoints the Agent as the Company's attorney-in-fact (which
appointment as attorney-in-fact is coupled with an interest), with full
authority in the place and stead of the Company and in the name of the Company,
effective upon the occurrence of a Default and from time to time thereafter in
the Agent's discretion to take any action and to execute any instrument which
the Agent may reasonably deem necessary or advisable to accomplish the purposes
of this Agreement, including to ask, demand, collect, sue for, recover and
receive moneys due and to become due under or in connection with the Collateral,
to receive, indorse and collect any drafts or other instruments, documents and
chattel paper in connection therewith and to file any claims or take any action
or institute any proceedings which the Agent, may reasonably deem necessary or
desirable for the collection thereof or to enforce compliance with the terms and
conditions of the Assigned Agreements or this Agreement. Notwithstanding the
foregoing, the Agent shall not be obligated to exercise any right or duty as
attorney-in-fact, and shall not have any duty to the Company in connection
therewith.
SECTION 17. Agent May Perform. Subject to provisions of any applicable
-----------------
Consent and Agreement, following a Default the Agent may, but shall not be
required to, perform, or cause performance of, any agreement contained herein or
in any of the Assigned Agreements and the expenses of the Agent incurred in
connection therewith shall be payable by the Company pursuant to Section 20(b).
-------------
Subject to the provisions of any applicable Consent and Agreement, if any
default by the Company under any Assigned Agreement shall occur, the Agent
shall, at its option, be permitted (but shall not be obligated) to remedy any
such default by giving written notice of such intent to the Company and to the
parties to such Assigned Agreement in default. The Agent shall have a
reasonable opportunity to cure such default. Any cure by the Agent of the
Company's default under any Assigned Agreement shall not be construed as an
assumption by the Agent of any obligations, covenants or agreements of the
Company under such Assigned Agreement, and the Agent shall not incur any
liability to the Company or any other Person as a result of any actions
undertaken by the Agent or in curing or attempting to cure any such default.
This Agreement shall not be deemed to release or to affect in any way the
obligations of the Company under the Assigned Agreements.
SECTION 18. The Agent's Duties. The powers conferred on the Agent
------------------
hereunder shall not impose any duty upon it to exercise any such powers. Except
for the safe custody of any Collateral in its possession and the accounting for
moneys actually received by it hereunder, the Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve any rights
pertaining to any Collateral.
SECTION 19. Rights and Remedies. (a) All payments received by the
-------------------
Company under or in connection with the Assigned Agreements or otherwise in
respect of the Collateral shall be
-12-
<PAGE>
received in trust to the extent of the Secured Obligations for the benefit of
the Secured Parties, and shall be deposited in the same form as so received
(with any necessary endorsement) in the Accounts as provided in this Agreement.
(b) If a Default shall have occurred, all payments made under or in
connection with the Assigned Agreements or in respect of the other Collateral
and held by the Agent in the Collateral Account in accordance with the
provisions of this Agreement may, subject to the provisions of this Agreement,
at any time thereafter be applied as follows:
First, to the payment of (A) all costs and expenses relating to the
-----
sale or other disposition of the Collateral or any part thereof and
collection of amounts owing hereunder, including reasonable attorneys' fees
and disbursements and the just compensation of the Agent for services
rendered in connection therewith or in connection with any proceeding to
sell if a sale is not completed, and (B) all reasonable charges, expenses
and advances incurred or made by the Agent in order to protect the lien and
security interest of this Agreement or the security afforded hereby,
together with interest accrued thereon at a rate per annum equal to the sum
of the ABR Rate plus 2%;
Second, to the payment of accrued interest on the Loans in such manner
------
as the Agent shall direct so that each of the Lenders shall have an
equivalent number of days with respect to which interest on the Loans shall
have accrued and be unpaid;
Third, to the payment in full of accrued interest on the Loans (to be
-----
paid to the Lenders pro rata in accordance with the respective unpaid
amounts of interest owed to them);
Fourth, to cash collateralize the Letters of Credit;
------
Fifth, pro rata to the payment of:
-----
(i) unpaid principal of the Loans then due and owing,
(ii) the Termination Amount then due and owing with respect to
the aggregate amount payable as a result of termination of the Hedge
Agreements
(payments under clause (i) to be made pro rata among the Lenders in
accordance with the amounts of principal owed to them, and payments
under clause (ii) to be made pro rata among the Hedge Counterparties);
For purposes of this paragraph Fifth, "Termination Amount" shall mean
------------------
an amount equal to the aggregate amount payable as a result of
termination of Hedge Agreements in connection with the Loans being
repaid under this paragraph Fifth or the cash collateralization of the
Letters of Credit under paragraph Fourth;
-13-
<PAGE>
Sixth, to the payment of all other Secured Obligations then due and
-----
owing to the Secured Parties (to be paid to the Secured Parties pro rata in
accordance with the respective aggregate outstanding amounts of such other
Secured Obligations owed to them); and
Seventh, provided all Secured Obligations owed (whether or not then
-------
due) to the Secured Parties have been paid in full, the balance, if any,
shall be paid to such other Person as shall be lawfully entitled to receive
any thereof, and finally, to the Company.
(c) If a Default shall have occurred, then, in addition to any other
rights and remedies provided for herein or which may otherwise be available, the
Agent shall, upon the direction of the Required Lenders, without any further
demand, advertisement or notice (except as expressly provided for below in this
------
Section 19(c) or as required by applicable law), exercise all the rights and
- -------------
remedies of a secured party under the UCC (whether or not the UCC applies to the
affected Collateral), and in addition may sell or otherwise dispose of the
Collateral, or any part thereof, as hereinafter provided. In connection
therewith, the Collateral may be sold in one or more sales, at public or private
sale, conducted by any officer or agent of, or auctioneer or attorney for, the
Agent, at the Agent's place of business or elsewhere, for cash, upon credit or
for other property, for immediate or future delivery, on such terms as the Agent
shall deem appropriate and at such price or prices as the Agent shall deem best.
The Agent and any other Secured Party may be the purchaser of any or all of the
Collateral so sold at a public sale, and the obligations of the Company to any
such purchaser may be applied as a credit against the purchase price. The Agent
may, in its sole discretion, at any such sale, restrict the prospective bidders
or purchasers as to the nature of their business, their experience and ability
with respect to the operation of medium density fiberboard plants similar to the
Facility and their ownership structure. Upon any such sale, the Agent shall have
the right to deliver, assign and transfer to the purchaser thereof the
Collateral so sold. Each purchaser (including the Agent and any other Secured
Party) at any such sale shall hold the Collateral so sold absolutely free from
any claim or right of the Company of whatsoever kind, including any equity or
right of redemption, and the Company hereby specifically waives, to the full
extent it may lawfully do so, all rights of redemption, stay or appraisal now
existing or hereafter adopted. The Agent shall give the Company at least 10
days' notice (which the Company agrees is reasonable notification within the
meaning of Section 9-504(3) of the UCC) of any such public or private sale. Such
notice, in case of public sale, shall state the time and place fixed for such
sale. Any such public sale shall be held at such time or times within ordinary
business hours as the Agent shall fix in the notice of such sale. At any such
sale, the Collateral may be sold in one lot as an entirety or in separate
parcels. The Agent shall not be obligated to make any sale pursuant to any such
notice. The Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for such sale, and any such sale may be made at any
time or place to which the same may be so adjourned without further notice or
publication. In case of any sale of all or any part of the Collateral on credit
or for future delivery, the Collateral so sold may be retained by the Agent
until the full selling price is paid by the purchaser thereof, but the Agent
shall not incur any liability in case of the failure of such purchaser to take
up and
-14-
<PAGE>
pay for the Collateral so sold, and, in case of any such failure, such
Collateral may again be sold pursuant to the provisions hereof.
(d) If a Default shall have occurred, instead of exercising the power of
sale provided in Section 19(c), the Agent shall, upon the direction of the
-------------
Required Lenders, proceed by a suit or suits at law or in equity to foreclose
the pledge and security interest under this Agreement and sell the Collateral or
any portion thereof under a judgment or decree of a court or courts of competent
jurisdiction.
(e) If a Default shall have occurred, the Agent, as attorney-in-fact
pursuant to Section 16, may, in the name and stead of the Company, make and
----------
execute all conveyances, assignments and transfers of the Collateral sold
pursuant to Section 19(c), and the Company hereby ratifies and confirms all that
-------------
the Agent, as said attorney-in-fact, shall do by virtue hereof. Nevertheless,
the Company shall, if so requested by the Agent, ratify and confirm any sale or
sales by executing and delivering to the Agent, or to such purchaser or
purchasers, all such instruments as may, in the judgment of the Agent, be
advisable for the purpose.
(f) The receipt of the Agent for the purchase money paid at any sale made
by it pursuant to Section 19(c) shall be a sufficient discharge to any purchaser
-------------
for the purchase price of the Collateral, or any portion thereof, sold as
aforesaid; and no such purchaser (or the representatives or assigns of such
purchaser), after paying such purchase money and receiving such receipt, shall
be bound to see to the application of such purchase money, or any part thereof,
or in any manner whatsoever be answerable for any loss, misapplication or
nonapplication of any such purchase money, or any part thereof, or be bound to
inquire as to the authorization, necessity, expediency or regularity of such
sale.
(g) The Agent shall not incur any liability as a result of the manner of
sale of the Collateral, or any part thereof, at any private sale conducted in a
commercially reasonable manner. The Company hereby waives, to the full extent
permitted by applicable law, any claims against the Agent or the Secured Parties
arising by reason of the fact that the price at which the Collateral, or any
part thereof, may have been sold at a private sale was less than the price which
might have been obtained at a public sale or was less than the aggregate amount
of the Secured Obligations, even if the Agent accepts the first offer received,
which the Agent in good faith deems to be commercially reasonable under the
circumstances and does not offer the Collateral to more than one offeree. To
the extent permitted by law, the Company shall have the burden of proving that
any such sale of the Collateral was conducted in a commercially unreasonable
manner.
(h) Each and every right and remedy of the Agent shall, to the extent
permitted by law, be cumulative and shall be in addition to any other remedy
given hereunder or under the Credit Agreement or any other Project Document or
now or hereafter existing at law or in equity or by statute.
-15-
<PAGE>
SECTION 20. Indemnity and Expenses. (a) The Company agrees to indemnify
----------------------
the Agent and each of the other Secured Parties from and against any and all
claims, losses and liabilities growing out of or resulting from (i) this
Agreement (including enforcement of this Agreement and any claims, losses and
liabilities resulting from the negligence of the Person claiming indemnity under
this Section 20(a), but excluding any such claims, losses or liabilities
-------------
resulting from the gross negligence, bad faith or willful misconduct of such
Person) or (ii) any refund or adjustment (other than any refund or adjustment
ordered or required as a result of the gross negligence, bad faith or willful
misconduct of any Secured Party) of any amount paid or payable to the Agent
under or in respect of any of the Assigned Agreements, or any interest thereon,
which may be ordered or otherwise required by any Person.
(b) The Company shall, upon demand, pay to the Agent the amount of any and
all reasonable expenses (together with interest thereon at a rate per annum
equal to the sum of the ABR Rate plus 2%), including the reasonable fees and
expenses of counsel and of any experts and agents, which the Agent may incur
following the occurrence and during the continuance of a Default in connection
with (i) the administration of this Agreement, (ii) the custody or preservation
of, or the collection from or other realization upon, any of the Collateral,
(iii) the exercise or enforcement of any of the rights of the Agent hereunder or
(iv) the failure by the Company to perform or observe any of the provisions
hereof.
(c) In any suit, proceeding or action brought by the Agent or any Secured
Party under any Assigned Agreement or for any sum owing thereunder, or to
enforce any provisions of such Assigned Agreement, the Company will save,
indemnify, and hold the Agent and the Secured Parties harmless from and against
any and all expenses, losses or damages suffered by reason of any defense, set-
off, counterclaim, recoupment or reduction of liability whatsoever of the other
party under such Assigned Agreement arising out of a breach by the Company of
any obligation to the other party under such Assigned Agreement or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such other party or successors from the Company, and all such
obligations of the Company shall be and remain enforceable against and only
against the Company and shall not be enforceable against the Agent or the
Secured Parties.
SECTION 21. Amendments; etc. No amendment, modification or waiver of any
----------------
provision of this Agreement nor consent to any departure by the Company herefrom
shall in any event be effective unless the same shall be in writing and signed
by the Company and the Agent, acting with the consent of the Required Lenders,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 22. Addresses for Notices. All notices and other communications
---------------------
provided for hereunder shall be given in the form and manner, shall be
addressed, and shall become effective as specified in Section 14.15 of the
Credit Agreement.
-16-
<PAGE>
SECTION 23. Continuing Assignment and Security Interest. (a) This
-------------------------------------------
Agreement shall create a continuing assignment of and security interest in the
Collateral and shall (i) remain in full force and effect until termination of
all of the Commitments and payment in full of the Secured Obligations, (ii) be
binding upon the Company, its successors and assigns and (iii) inure, together
with the rights and remedies of the Agent hereunder, to the equal and ratable
benefit of the Secured Parties and their respective successors and permitted
assigns.
(b) On the Termination Date (as defined in Section 23(c)), the security
-------------
interest granted hereby shall terminate, and all rights to the Collateral shall,
subject to any other security interest applicable thereto, revert to the
Company. Upon any such termination, the Agent will, at the Company's expense,
execute and deliver to the Company such documents as the Company shall
reasonably request to evidence such termination. Upon the occurrence of any
sale by the Company of any portion of the Collateral permitted by Section 9.10
or 9.15 of the Credit Agreement, the security interest granted hereby in such
portion of the Collateral shall terminate, and the Agent will, at the Company's
expense, execute and deliver to the Company such documents as the Company shall
reasonably request to evidence such termination.
(c) As used in Section 23(b), the term "Termination Date" shall mean the
------------- ----------------
first date hereafter on which all of the following shall have occurred:
(i) all of the Commitments shall have been terminated,
(ii) each Hedge Agreement shall have been terminated, and
(iii) all of the Secured Obligations shall have been paid in full.
SECTION 24. Assignment of Permits; etc. At any time following the
---------------------------
occurrence of a Default, the Company shall, at the request of the Agent, assign,
transfer or otherwise furnish to the Agent (to the extent so assignable or
transferable) or to any transferee of the interest of the Agent, all of the
Company's rights and interest in, to and under all Permits, offsets and similar
rights issued under or in connection with any Environmental Law, including
Permits respecting air emissions (including air emission reduction credits or
offsets), wastewater discharge, and solid or hazardous waste management, which
are required or advisable from time to time to permit the Project to be operated
in accordance with all applicable laws. The Company agrees to use its best
efforts to have renewed or extended in the name of the Agent (or other Person
operating the Project) or otherwise to obtain for the Agent (or such other
Person) the benefits of all of the Permits and other rights referred to in the
immediately preceding sentence.
SECTION 25. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
- ----------------------------------------------------------------------------
WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS, EXCEPT TO THE EXTENT THAT THE
- ------------------------------------------------------------------------------
VALIDITY OF PERFECTION OF THE SECURITY INTEREST HEREUNDER MAY BE GOVERNED BY THE
- --------------------------------------------------------------------------------
LAW OF A
- --------
-17-
<PAGE>
JURISDICTION OTHER THAN THE STATE OF ILLINOIS. THE COMPANY HEREBY ACKNOWLEDGES
- -------------------------------------------------------------------------------
AND AGREES THAT SECTIONS 14.13 (CONSENT TO JURISDICTION, VENUE, ETC.) AND 14.14
- -------------------------------------------------------------------------------
(WAIVER OF JURY TRIAL) OF THE CREDIT AGREEMENT APPLY BY THEIR TERMS TO THIS
- ---------------------------------------------------------------------------
AGREEMENT AND THAT SAID SECTIONS OF THE CREDIT AGREEMENT (AS THEY MAY BE
- ------------------------------------------------------------------------
AMENDED, MODIFIED OR SUPPLEMENTED AND IN EFFECT FROM TIME TO TIME) SHALL BE
- ---------------------------------------------------------------------------
DEEMED INCORPORATED BY REFERENCE IN THIS SECTION 25 AND THE COMPANY SHALL BE
- ----------------------------------------------------------------------------
BOUND THEREBY TO THE SAME EXTENT AS IF SAID SECTIONS WERE SET FORTH HEREIN IN
- -----------------------------------------------------------------------------
THEIR ENTIRETY.
- --------------
SECTION 26. Headings. Headings used in this Agreement are for convenience
--------
of reference only and do not constitute part of this Agreement for any purpose.
SECTION 27. Limitations on Recourse. The Agent hereby acknowledges and
-----------------------
agrees that Section 11 (Limitations on Recourse) of the Credit Agreement applies
by its terms to this Agreement and that said Section 11 of the Credit Agreement
(as the same may be amended, modified or supplemented and in effect from time to
time) shall be deemed incorporated by reference in this Section 27 and the Agent
----------
shall be bound thereby to the same extent as if said Section were set forth
herein in its entirety.
SECTION 28. Requisitions. (a) Each withdrawal of funds requested
------------
pursuant to Section 9(b)(ii) shall be made pursuant to a written requisition
----------------
executed and completed by the Company and delivered to the Agent as follows:
(1) such requisition shall be delivered to the Agent not fewer than 5
Business Days prior to the date such withdrawal of funds is to be made,
unless the Agent shall otherwise agree;
(2) such requisition shall cite the specific provision of this
Agreement with respect to which such requisition is presented; and
(3) such requisition shall contain a certification from an Authorized
Representative of the Company that the full amount which is to be withdrawn
in accordance with such requisition shall be applied exclusively for the
purpose specified under the provision with respect to which such
requisition is presented and in the case of any withdrawal requested under
Section 9(b)(ii), such requisition shall certify the particular obligation
----------------
to be paid with the proceeds of such withdrawal (and shall be supported by
invoices or other supporting data evidencing that such obligation is
properly due and payable).
(b) The Agent is entitled to assume that any requisition presented to the
Agent under this Agreement complies with the requirements of this Section 28 and
----------
the Agent shall have no
-18-
<PAGE>
duty to any Person to confirm whether such requisition does in fact so comply or
to investigate the actual application of funds received in connection with such
requisition.
SECTION 29. Acknowledgments.
---------------
(a) The Agent and the Company each represents and warrants that it has not
received any notice, writ, order or any form of legal process from any other
party asserting, claiming or exercising any other security interest or other
purported form of claim in or with respect to the Accounts or any Account or any
of the Collateral prior to its execution and delivery of this Agreement.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers duly authorized,
have caused this Agreement to be duly executed and delivered as of the date
first above written.
DEL-TIN FIBER L.L.C.
By:____________________________________
Title:_________________________________
THE FIRST NATIONAL BANK OF CHICAGO, as
Agent
By:____________________________________
Title:_________________________________
By:____________________________________
Title:_________________________________
S-1
<PAGE>
SCHEDULE 1
to
Assignment and Security Agreement
Capitalized terms set forth below shall have the respective meanings assigned to
them in Appendix I of the Credit Agreement.
----------
Certain Assigned Agreements
---------------------------
Land Transfer Document
Bond Lease
Bond Pledge Agreement
Each Remarketing Agreement
Production Support Agreement
Fiber Supply Agreement
Agreement for Electric Service, dated as of January 6, 1997, between the Company
and Entergy Arkansas, Inc., as amended
MDF Marketing Agreement
Each Project Contract Consent
Each Hedge Agreement
Each other Consent and Agreement
Each Additional Contract
Each other Project Document
<PAGE>
SCHEDULE 2
to
Assignment and Security Agreement
DESCRIPTION OF CERTAIN ASSIGNED GOVERNMENTAL APPROVALS
------------------------------------------------------
1. Air Permit: State of Arkansas Department of Pollution Control and Ecology
Permit No. 1714-AOP-RO, issued July 3, 1997.
2. Water Permit: State of Arkansas Department of Pollution Control and Ecology
Permit No. AR0048461, issued June 30, 1998.
3. Radioactive Material License: Arkansas Department of Health, Division of
Radiation Control & Emergency Management License No. ARK-874-BP-07-02,
expires July 1, 2002.
4. Pressure Vessels (9 in number): State of Arkansas, Department of Labor:
NB Number State Number Inspected Date Expiration Date
--------- ------------ -------------- ---------------
535991 AR61712 2/12/98 2/28/00
531776 AR61713 2/12/98 2/28/00
531137 AR61714 2/12/98 2/28/00
97294 AR61715 2/12/98 2/28/00
97296 AR61716 2/12/98 2/28/00
530601 AR61717 2/12/98 2/28/00
96017 AR61718 2/12/98 2/28/00
96018 AR61719 2/12/98 2/28/00
19327 AR62820 5/21/98 5/21/00
<PAGE>
EXHIBIT E
Document No. _____________
FREEHOLD AND LEASEHOLD MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FINANCING STATEMENT
AND GRANT OF EASEMENT
dated as of November 23, 1998
between
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent for certain financial institutions
having an address at:
One First National Plaza
Chicago, Illinois 60603
(the "Mortgagee")
and
Del-Tin Fiber L.L.C.,
an Arkansas limited liability company
having its address at:
757 Newell Road
El Dorado, Arkansas 71730
(the "Mortgagor")
Recording Area
- -------------------------------------
Instrument drafted by and
when recorded return to:
J. Paul Forrester, Esq.
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
- -------------------------------------
Parcel I.D. No. __________________
<PAGE>
FREEHOLD AND LEASEHOLD MORTGAGE,
ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FINANCING STATEMENT
AND GRANT OF EASEMENT
THIS FREEHOLD AND LEASEHOLD MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT, FINANCING STATEMENT and GRANT OF EASEMENT (herein sometimes
called the "Mortgage") is made as of November 23, 1998 by and between: DEL-TIN
FIBER L.L.C. (the "Mortgagor"), a limited liability company duly organized and
validly existing under the laws of the State of Arkansas and having its chief
executive office and principal place of business at 757 Newell Road, El Dorado,
Arkansas 71730, and THE FIRST NATIONAL BANK OF CHICAGO located at One First
National Plaza, Chicago, Illinois 60670, as Agent for itself and the Lenders
(defined below), (herein, in such capacity, together with its successors and
assigns, called the "Mortgagee").
R E C I T A L S:
A. Credit Agreement and Loan Amount; Sale and Lease-Back. The Mortgagor
-----------------------------------------------------
is well seized of the Premises (as defined herein), and of a good, indefeasible
freehold estate therein. The Mortgagor and the Mortgagee have entered into a
Project Credit Agreement (herein, as it may from time to time be amended,
supplemented or modified, referred to as the "Credit Agreement") bearing even
date herewith providing for the Mortgagor's performance of certain covenants,
satisfaction of certain conditions and making of certain representations and
warranties and for loans and advances to be made from time to time by the
Lenders (as defined in the Credit Agreement) and letters of credit to be issued
by the Mortgagee or participated in by the Lenders, to or for the account and
benefit of the Mortgagor pursuant to the terms and conditions set out therein,
in amounts not to exceed in the aggregate One Hundred and One Million Two
Hundred and Twenty-Five Thousand Dollars ($101,225,000) (such amount is herein
called the "Credit Amount"). Any term capitalized but not specifically defined
in this Mortgage, which is capitalized and defined in the Credit Agreement,
shall have the same meaning for purposes of this Mortgage as it has in and for
purposes of the Credit Agreement, and the provisions of the Credit Agreement are
hereby incorporated in this Mortgage as if set forth in their entirety. It is
contemplated that the Mortgagor will, subject to the Lien of this Mortgage,
sell, assign and transfer its freehold estate in the land (the "Land") described
on Exhibit A attached hereto to Union County, Arkansas (the "County") subject to
the simultaneous execution and delivery of the Bond Lease (as defined herein),
pursuant to which the Mortgagor will become the lessee of the Land.
B. Project Mortgage; Other Security Documents. Pursuant to the Credit
------------------------------------------
Agreement, the Mortgagor has executed and delivered to the Mortgagee this
Mortgage and other Security Documents (defined for purposes hereof as defined in
the Credit
<PAGE>
Agreement). This document, together with all amendments, modifications or
restatements hereto is the "Project Mortgage" identified in the Credit
Agreement.
C. The Liabilities. As used in this Mortgage, the term "Liabilities"
---------------
means and includes all of the following: (i) the principal of, interest on and
any and all other amounts which may at any time be or become due or owing under
the Credit Agreement; (ii) all of the Secured Obligations (each defined for
purposes hereof as defined in the Credit Agreement); (iii) all of the covenants,
obligations and agreements (and the truth of all representations and warranties)
of the Mortgagor in, under or pursuant to the Credit Agreement, the Letters of
Credit, this Mortgage, and all of the other Security Documents; (iv) any and all
advances, costs or expenses paid or incurred by the Mortgagee to protect any or
all of the Collateral (hereinafter defined), perform any obligation of the
Mortgagor hereunder or collect any amount owing to the Mortgagee which is
secured hereby; (v) any and all other liabilities, obligations and indebtedness,
howsoever created, arising or evidenced, direct or indirect, absolute or
contingent, now or hereafter existing or due or to become due, owing by the
Mortgagor to the Mortgagee under the Credit Documents (provided, however, that
the maximum amount included within the Liabilities on account of principal shall
not exceed the sum of an amount equal to two times the Credit Amount plus the
total amount of all advances made by the Mortgagee to protect the Collateral and
the security interest and lien created hereby); (vi) interest on all of the
foregoing; (vii) and all costs (including, without limitation, attorneys' fees
and expenses) of enforcement and collection of this Mortgage and the other
Security Documents, and the other documents, instruments, obligations and
liabilities described hereinabove. Any future advances under the Credit
Agreement, whether obligatory or made at the option of the Mortgagee, shall be
secured by this Mortgage, and shall be entitled to the same priority as if such
future advances were made on the date hereof.
D. The Collateral. For purposes of this Mortgage, the term "Collateral"
--------------
means and includes all of the following, whether now owned or hereafter acquired
by the Mortgagor:
(a) Real Estate. (i) The Mortgagor's right, title and interest (the
-----------
"Mortgagor's Interest") in and to all of the Land, together with the
Mortgagor's Interest in and to all and singular the tenements, rights,
easements, hereditaments, rights-of-way, privileges, liberties, appendages
and appurtenances now or hereafter belonging or in anywise appertaining to
the Land (including, without limitation, the Mortgagor's Interest in and to
all rights relating to storm and sanitary sewer, water, gas, electric,
railway and telephone services); (ii) the Mortgagor's Interest in and to
all development rights, air rights, water, water rights, water stock, gas,
oil, minerals, coal and other substances of any kind or character
underlying or relating to the Land; (iii) the Mortgagor's Interest in and
to all estate, claim, demand, right, title or interest of the Mortgagor in
and to any street, road, highway, or alley (vacated or otherwise) adjoining
the Land or any part thereof; (iv) the Mortgagor's
-3-
<PAGE>
Interest in and to all strips and gores belonging, adjacent or pertaining
to the Land; and (v) the Mortgagor's Interest in and to any after-acquired
title to any of the foregoing (all of the foregoing is herein referred to
collectively as the "Real Estate");
(b) Lease Agreement. The lessee's interest in, to and under that
---------------
certain lease agreement to be entered into between the Mortgagor, as
lessee, and the County, as lessor (as amended, modified or supplemented
from time to time, the "Bond Lease"), pursuant to which the Mortgagor will
own, operate and maintain on the Premises (as defined in the Bond Lease)
the Facility, including, without limitation, all privileges, rights of way
and easements under Section 4.02 of the Bond Lease.
(c) Improvements and Fixtures. All buildings, structures,
-------------------------
replacements, furnishings, fixtures, fittings and other improvements and
property of every kind and character now or hereafter located or erected on
the Real Estate, together with all building or construction materials,
equipment, appliances, machinery, plant equipment, fittings, apparati,
fixtures and other articles of any kind or nature whatsoever now or
hereafter found on, affixed to or attached to the Real Estate, including
(without limitation) all motors, boilers, engines and devices for the
operation of pumps, and all heating, electrical, lighting, power, plumbing,
air conditioning, refrigeration and ventilation equipment (all of the
foregoing is herein referred to collectively as the "Improvements").
(d) Personal Property. All building materials, goods, construction
-----------------
materials, appliances (including stoves, refrigerators, water fountains and
coolers, fans, heaters, incinerators, compactors, dishwashers, clothes
washers and dryers, water heaters and similar equipment), supplies, blinds,
window shades, carpeting, floor coverings, elevators, office equipment,
growing plants, fire sprinklers and alarms, control devices, equipment
(including motor vehicles and all window cleaning, building cleaning,
swimming pool, recreational, monitoring, garbage, air conditioning, pest
control and other equipment), tools, furnishings, furniture, light
fixtures, non-structural additions to the Premises (defined hereinafter),
and all other tangible property of any kind or character now or hereafter
owned by the Mortgagor and used or useful in connection with the Premises,
any construction undertaken in or on the Premises, any trade, business or
other activity (whether or not engaged in for profit) for which the
Premises is used, the maintenance of the Premises or the convenience of any
guests, licensees or invitees of the Mortgagor, all regardless of whether
located in or on the Premises or located elsewhere for purposes of
fabrication, storage or otherwise (all of the foregoing is herein referred
to collectively as the "Goods").
(e) Intangibles. All goodwill, trademarks, trade names, option
-----------
rights, purchase contracts, contract rights, books and records and general
intangibles of
-4-
<PAGE>
the Mortgagor relating to the Premises, and all accounts, contract rights,
instruments, chattel paper and other rights of the Mortgagor for payment of
money for property sold or lent, for services rendered, for money lent, or
for advances or deposits made, and any other intangible property of the
Mortgagor related to the Premises (all of the foregoing is herein referred
to collectively as the "Intangibles").
(f) Rents. All rents, issues, profits, royalties, avails, income and
-----
other benefits derived or owned by the Mortgagor directly or indirectly
from the Premises (all of the foregoing is herein collectively called the
"Rents").
(g) Leases. All rights of the Mortgagor under all leases, licenses,
------
occupancy agreements, concessions or other arrangements, whether written or
oral, whether now existing or entered into at any time hereafter, whereby
any person agrees to pay money or any consideration for the use, possession
or occupancy of, or any estate in, the Premises or any part thereof, and
all rents, income, profits, benefits, avails, advantages and claims against
guarantors under any thereof (all of the foregoing is herein referred to
collectively as the "Leases").
(h) Plans. All rights of the Mortgagor to plans and specifications,
-----
designs, drawings and other matters prepared for any construction or
improvements in or on the Premises (all of the foregoing is herein called
the "Plans").
(i) Contracts for Construction. All rights of the Mortgagor under any
--------------------------
contracts executed by the Mortgagor as lessee with any provider of goods or
services for or in connection with any construction undertaken on, or
services performed or to be performed in connection with, the Premises (all
of the foregoing is herein referred to collectively as the "Contracts for
Construction").
(j) Contracts for Sale or Financing. All rights of the Mortgagor as
-------------------------------
seller or borrower under any agreement, contract, understanding or
arrangement pursuant to which the Mortgagor has or may hereafter have, with
the consent of the Mortgagee, obtained the agreement of any person to pay
or disburse any money for the Mortgagor's sale (or borrowing on the
security) of the Collateral or any part thereof (all of the foregoing is
herein referred to collectively as the "Contracts for Sale").
(k) Project Contracts. All rights of the Mortgagor under any of the
-----------------
Project Contracts (as defined in the Credit Agreement).
(l) Other Property. All other property or rights of the Mortgagor of
--------------
any kind or character related to the Premises, and all proceeds (including,
without limitation, insurance and condemnation proceeds) and products of
any of the foregoing. (All of the Real Estate and the Improvements, and
any other property
-5-
<PAGE>
which is real estate under applicable law, is sometimes referred to
collectively herein as the "Premises".)
G R A N T
NOW THEREFORE, for and in consideration of the Mortgagee's executing and
delivering the Credit Agreement, and of the Mortgagee's making any loan, advance
or other financial accommodation at any time to or for the benefit of the
Mortgagor, and in consideration of the various agreements contained herein and
in the Credit Agreement and the Security Documents, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged by the Mortgagor, and in order to secure the full, timely and
proper payment and performance of each and every one of the Liabilities,
THE MORTGAGOR HEREBY GIVES, MORTGAGES, CONVEYS, GRANTS, BARGAINS, SELLS,
TRANSFERS, ASSIGNS AND WARRANTS TO THE MORTGAGEE AND ITS SUCCESSORS AND ASSIGNS
FOREVER, AND GRANTS TO THE MORTGAGEE A CONTINUING SECURITY INTEREST IN AND TO,
ALL OF THE COLLATERAL,
TO HAVE AND TO HOLD the Premises unto the Mortgagee and its successors and
assigns forever, hereby expressly waiving and releasing any and all right,
benefit, privilege, advantage or exemption under and by virtue of any and all
statutes and laws of the State or other jurisdiction in which the Real Estate is
located providing for the exemption of homesteads from sale on execution or
otherwise.
The Mortgagor hereby covenants with and warrants to the Mortgagee and with
the purchaser at any foreclosure sale: (i) that at the execution and delivery
hereof it is well seized of the Premises, and of a good, indefeasible freehold
estate therein; (ii) that the other Collateral is free from all encumbrances
whatsoever (and any claim of any other person thereto) other than the
encumbrances defined in the Credit Agreement as the "Permitted Liens"; (iii)
that it has good and lawful right to sell, mortgage and convey the Collateral;
and (iv) that it and its successors and assigns will forever warrant and defend
the Collateral against all claims and demands whatsoever.
I. C O V E N A N T S A N D A G R E E M E N T S
O F M O R T G A G O R
Further to secure the full, timely and proper payment and performance of
the Liabilities, the Mortgagor hereby covenants and agrees with, and warrants
to, the Mortgagee as follows:
-6-
<PAGE>
1. Payment of Liabilities. The Mortgagor agrees that it will pay, timely
----------------------
and in the manner required in the appropriate documents or instruments, the
principal of and interest on the Loans (which Loans, pursuant to the terms of
the Credit Agreement as in effect on the date hereof, are required to be repaid
in full no later than the earlier of (a) the seventh anniversary of the Initial
Funding Date or (b) March 31, 2006) and all other Liabilities (including fees
and charges).
2. Payment of Taxes. Except as otherwise provided in the Credit
----------------
Agreement, the Mortgagor will pay, before delinquent, all taxes and assessments,
general or special, and any and all levies, claims, charges, expenses and liens,
ordinary or extraordinary, governmental or non-governmental, statutory or
otherwise, due or to become delinquent, that may be levied, assessed, made,
imposed or charged on or against the Collateral or any property used in
connection therewith, and will pay before due any tax or other charge on the
interest or estate in lands created or represented by this Mortgage or by any of
the other Credit Documents, whether levied against the Mortgagor or the
Mortgagee or otherwise, and will submit to the Mortgagee upon request all
receipts showing payment of all of such taxes, assessments and charges.
3. Maintenance and Repair. Except as permitted by the Credit Agreement,
----------------------
the Mortgagor will: (i) not abandon the Premises; (ii) not do or suffer
anything to be done which would depreciate or impair the value of the Collateral
or the security of this Mortgage; (iii) not remove or demolish any of the
Improvements; (iv) pay promptly for all labor and materials for all
construction, repairs and improvements to or on the Premises; (v) not make any
changes, additions or alterations to the Premises or the Improvements except as
required by the Credit Agreement or any applicable governmental requirement or
as otherwise approved in writing by the Mortgagee; (vi) maintain, preserve and
keep the Goods and the Improvements in good, safe and insurable condition and
repair and promptly make any needful and proper repairs, replacements, renewals,
additions or substitutions required by wear, damage, obsolescence or
destruction; (vii) promptly restore and replace any of the Improvements or Goods
which are destroyed or damaged; (viii) not commit, suffer, or permit waste of
any part of the Premises; and (ix) maintain all grounds and abutting streets and
sidewalks in good and neat order and repair.
4. Sales; Liens. Except as permitted by the Credit Agreement, the
------------
Mortgagor will not: (i) sell, assign, transfer, convey, lease or otherwise
dispose of, or permit to be sold, assigned, transferred, conveyed, leased or
otherwise disposed of, the Collateral or any part thereof or any interest
(whether legal, beneficial or otherwise) or estate in any thereof; (ii) remove
any of the Collateral from the Premises or from the state in which the Real
Estate is located; or (iii) create, suffer or permit to be created or to exist
any mortgage, lien, claim, security interest, charge, encumbrance or other right
or claim of any kind whatsoever upon the Collateral or any part thereof, except
those of current taxes not delinquent and the Permitted Liens; provided that the
--------
Mortgagor may sell the Premises (subject to the Lien of this Mortgage) to the
County subject to the simultaneous execution
-7-
<PAGE>
and delivery of the Bond Lease; provided further that such sale to the County
-------- -------
shall not release the Mortgagor in any respect from its obligations hereunder.
5. Access by Mortgagee. The Mortgagor will at all times permit the
-------------------
Mortgagee and its agents and designees, at all reasonable times, to enter on and
inspect the Premises.
6. Stamp and Other Taxes. If the Federal, or any state, county, local,
---------------------
municipal or other, government or any subdivision of any thereof having
jurisdiction, shall levy, assess or charge any tax (excepting therefrom any
income tax on the Mortgagee's receipt of interest payments on the principal
portion of the indebtedness secured hereby), assessment or imposition upon this
Mortgage, the Liabilities or any of the other Credit Documents, the interest of
the Mortgagee in the Collateral, or any of the foregoing, or upon the Mortgagee
by reason of or as holder of any of the foregoing, or shall at any time or times
require revenue stamps to be affixed to this Mortgage, or any of the other
Credit Documents, the Mortgagor shall pay all such taxes and stamps to or for
the Mortgagee as they become due and payable in accordance with the Credit
Agreement. If any law or regulation is enacted or adopted permitting,
authorizing or requiring any such tax, assessment or imposition to be levied,
assessed or charged, which law or regulation prohibits the Mortgagor from paying
such tax, assessment, stamp, or imposition to or for the Mortgagee, then such
event shall constitute a Default hereunder and all sums hereby secured shall
become immediately due and payable at the option of the Mortgagee.
7. Insurance. The Mortgagor will at all times maintain (or caused to be
---------
maintained) on the Goods, the Improvements and on all other Collateral, all
insurance required at any time or from time to time by the Mortgagee or by the
provisions of the Credit Agreement and the Bond Lease and in any event fire and
extended coverage insurance for the benefit of the Mortgagee, to the full extent
of the Mortgagee's interest therein, against loss or damage (whether to such
Collateral or Improvements or by loss of rentals, business interruption, loss of
occupancy or other damage therefrom) from such hazards as may be required by the
Mortgagee pursuant to the Credit Agreement. The Mortgagor agrees that any loss
paid to the Mortgagee under any of such policies of property or casualty (but
not including business or rental interruption) insurance shall be applied in the
manner set forth in the Credit Agreement.
8. Eminent Domain. In case the Collateral, or any part or interest in
--------------
any thereof, is the subject of a Taking, all condemnation awards or other
compensation paid as a result thereof (all of which the Mortgagor hereby assigns
to the Mortgagee), shall be forthwith applied in the manner set forth in the
Credit Agreement.
9. Governmental Requirements. The Mortgagor will at all times fully
-------------------------
comply in all material respects with, and cause the Collateral and the use and
condition thereof fully to comply with, all federal, state, county, municipal,
local and other governmental statutes,
-8-
<PAGE>
ordinances, requirements, regulations, rules, orders and decrees of any kind
whatsoever that apply or relate to the Mortgagor or the Collateral or the use
thereof, and will observe and comply with all conditions and requirements
necessary to preserve and extend any and all rights, licenses, permits,
privileges, franchises and concessions (including, without limitation, those
relating to land use and development, landmark preservation, construction,
access, water rights and use, noise and pollution) which are applicable to the
Mortgagor or have been granted for the Collateral or the use thereof, all in
accordance with the Credit Agreement.
10. No Mechanics' Liens. The Mortgagor will use its best efforts not to
-------------------
do or permit to be done any act or thing whereby any mechanics' lien under the
laws of the State of Arkansas can arise against or attach to the Premises or any
part thereof unless such lien shall first be wholly waived as against this
Mortgage; provided that, if any such lien should be filed the Mortgagor will use
--------
its best efforts to have any such lien removed within 21 days after the date the
Mortgagor learns of such lien. In addition, it is further expressly made a
covenant and condition hereof that the lien of this Mortgage shall extend to any
and all improvements and fixtures now or hereafter on the Premises, prior to any
other lien thereon that may be claimed by any person, so that subsequently
accruing claims for lien on the Premises shall be junior and subordinate to this
Mortgage. TO THE EXTENT PROVIDED BY LAW, ALL CONTRACTORS, SUBCONTRACTORS, AND
OTHER PARTIES DEALING WITH THE PREMISES, OR WITH ANY PARTIES INTERESTED THEREIN,
ARE HEREBY REQUIRED TO TAKE NOTICE OF THE ABOVE PROVISIONS.
11. Continuing Priority. The Mortgagor will: (i) pay such fees, taxes and
-------------------
charges, execute and file (at the Mortgagor's expense) such financing
statements, obtain such acknowledgments or consents, notify such obligors or
providers of services and materials and do all such other acts and things as the
Mortgagee may from time to time request to establish and maintain a valid and
perfected first and prior lien on and security interest in the Collateral and to
provide for payment to the Mortgagee directly of all cash proceeds thereof, with
the Mortgagee in possession of the Collateral to the extent it requests; (ii)
maintain its executive office and principal place of business at all times at
the address shown above; (iii) keep all of its books and records relating to the
Collateral on the Premises or at such address; (iv) keep all tangible Collateral
on the Real Estate except as the Mortgagee may otherwise consent in writing; (v)
make notations on its books and records sufficient to enable the Mortgagee, as
well as third parties, to determine the interest of the Mortgagee hereunder; and
(vi) not collect any rents or the proceeds of any of the Leases or Intangibles
more than 30 days before the same shall be due and payable except as the
Mortgagee may otherwise consent in writing, all in accordance with the Credit
Documents.
12. Utilities. The Mortgagor will pay all utility charges incurred in
---------
connection with the Collateral and maintain all utility services available for
use at the Premises.
-9-
<PAGE>
13. Contract Maintenance; Other Agreements. The Mortgagor will, in
--------------------------------------
accordance with the Credit Agreement, for the benefit of the Mortgagee, fully
and promptly perform each obligation and satisfy each condition imposed on it
under the Bond Lease, any Contract for Sale, Contract for Construction, Project
Contract, Lease, Intangible or other agreement so that there will be no default
thereunder and so that the persons (other than the Mortgagor) obligated thereon
shall be and remain at all times obligated to perform for the benefit of the
Mortgagee; and the Mortgagor will not permit to exist any condition, event or
fact which could allow or serve as a basis or justification for any such person
to avoid such performance.
14. Agreements Affecting the Collateral. The Mortgagor shall keep,
-----------------------------------
observe, perform and comply with all covenants, conditions and restrictions
affecting the Premises, any operating agreements or other writings relating to
the Collateral, and all leases, instruments and documents relating thereto or
evidencing or securing any indebtedness secured thereby, all in accordance with
the Credit Agreement.
15. No Assignments; Future Leases; Assignment of Rents. Except as
--------------------------------------------------
permitted by the Credit Agreement, the Mortgagor will not cause or permit any
Rents, issues, profits, the Bond Lease, Leases, Contracts for Sale, or other
contracts relating to the Premises, or any interest in any thereof, to be
assigned, transferred, conveyed, pledged or disposed of, to any party other than
the Mortgagee without first obtaining the express written consent of the
Mortgagee thereto which consent may be granted or withheld in the sole
discretion of the Mortgagee. In addition, the Mortgagor shall not cause or
permit all or any portion of or interest in the Premises or the Improvements to
be leased (that word having the same meaning for purposes hereof as it does in
the law of landlord and tenant) directly or indirectly to any person, except
with the prior written consent of the Mortgagee, which consent may be granted or
withheld in the sole discretion of the Mortgagee.
The Mortgagor does hereby grant, bargain, sell, assign, transfer and set
over to the Mortgagee, all of the rents, income, proceeds and benefits under the
Leases; provided, however, that permission is hereby given to the Mortgagor,
unless a Default has occurred and is continuing and the Mortgagee has given
notice to the Mortgagor, to collect, receive, and apply the Rents, proceeds
thereof and other rents, income, proceeds and benefits as they become due and
payable, but not in advance thereof, and in accordance with all of the other
terms, conditions and provisions hereof, the Credit Documents and of the Leases,
contracts, agreements and other instruments with respect to which such payments
are made or such other benefits are conferred. Upon the occurrence of and
during the continuance of a Default, such permission shall terminate immediately
upon notice from the Mortgagee, and once so terminated shall not be reinstated
upon a cure of such Default without the express written consent of the
Mortgagee. Such assignment shall be fully effective without any further action
on the part of the Mortgagor or the Mortgagee and the Mortgagee shall be
entitled, in accordance with the Credit Documents, upon the occurrence of and
during the continuance of a Default hereunder, upon notice to the
-10-
<PAGE>
Mortgagor, to collect, receive and apply all Rents, Proceeds and all other
rents, income, proceeds and benefits from the Collateral, including all right,
title and interest of the Mortgagor in any escrowed sums or deposits or any
portion thereof or interest therein, whether or not the Mortgagee takes
possession of the Collateral or any part thereof.
16. Collections. Until such time as the Mortgagee shall notify the
-----------
Mortgagor of the revocation of such power and authority, the Mortgagor will, at
its own expense, endeavor to collect, as and when due, all amounts due with
respect to any of the Rents, Leases, Contracts for Sale, Intangibles and other
Collateral, including the taking of such action with respect to such collection
as the Mortgagee may reasonably request, or, in the absence of such request, as
the Mortgagor may deem advisable. The Mortgagee, however, may, at any time,
whether before or after any Default or any revocation of such power and
authority or the maturity of any of the Liabilities, notify any parties
obligated on any of the Rents, Leases, Contracts for Sale, Intangibles and other
Collateral to make payment to the Mortgagee of any amounts due or to become due
thereunder and enforce collection of any of the Rents, Leases, Contract for
Sale, Intangibles or other Collateral by suit or otherwise and surrender,
release or exchange all or any part thereof, or compromise or extend or renew
for any period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. Upon request of the Mortgagee, the Mortgagor
will, in accordance with the Credit Documents, at its own expense, notify any
parties obligated on any of the Rents, Leases, Contracts for Sale, Intangibles
or other Collateral to make payment to the Mortgagee of the amounts due or to
become due thereunder. Except as the Mortgagee may otherwise consent in
writing, the Mortgagor will, in accordance with the Credit Documents, forthwith,
upon receipt, transmit and deliver to the Mortgagee, in the form received, all
cash, checks, drafts, chattel paper and other instruments or writings for the
payment of money (properly endorsed, where required, so that such items may be
collected by the Mortgagee) which may be received by the Mortgagor at any time
in full or partial payment or otherwise as proceeds of any of the Collateral.
Any such items which may be received by the Mortgagor will not be commingled
with any other of its funds or property, but will be held separate and apart
from its own funds or property and upon express trust for the Mortgagee until
delivery is made to the Mortgagee. The Mortgagee is authorized to endorse, in
the name of the Mortgagor, any item, howsoever received by it, representing any
payment on or other proceeds of any of the Collateral and to endorse and
deliver, in the name of the Mortgagor, any instrument, chattel paper or other
item of Collateral held by the Mortgagee hereunder, in connection with the sale
or collection of Collateral, in accordance with the Credit Documents. The
Mortgagor hereby irrevocably appoints the Mortgagee as the Mortgagor's attorney-
in-fact to exercise and perform any or all of the foregoing rights and duties.
17. Mortgagee's Performance. If the Mortgagor fails to pay or perform any
-----------------------
of its obligations herein contained (including payment of expenses of
foreclosure and court costs), the Mortgagee may (but need not), as agent or
attorney-in-fact of the Mortgagor, after giving the Mortgagor notice of its
intention to do so (no such notice need be given
-11-
<PAGE>
after the occurrence of a Default), make any payment or perform (or cause to be
performed) any obligation of the Mortgagor hereunder, in any form and manner
deemed expedient by the Mortgagee, and any amount so paid or expended (plus
reasonable compensation to the Mortgagee for its out-of-pocket and other
expenses for each matter for which it acts under this Mortgage), with interest
thereon at the rate applicable after maturity as provided in the Credit
Agreement, shall be added to the principal debt hereby secured and shall be
repaid to the Mortgagee upon demand. By way of illustration and not in
limitation of the foregoing, the Mortgagee may (but need not) do all or any of
the following: (i) make payments of principal or interest or other amounts on
any lien, encumbrance or charge on any of the Collateral; (ii) make payments
under the Bond Lease; (iii) complete construction; (iv) make repairs; (v)
collect rents; (vi) prosecute collection of the Collateral or proceeds thereof;
(vii) purchase, discharge, compromise or settle any tax lien or any other lien,
encumbrance, suit, proceeding, title or claim thereof; (viii) contest any tax or
assessment; and (ix) redeem from any tax sale or forfeiture affecting the
Premises. In making any payment or securing any performance relating to any
obligation of the Mortgagor hereunder, the Mortgagee shall (as long as it acts
in good faith) be the sole judge of the legality, validity and amount of any
lien or encumbrance and of all other matters necessary to be determined in
satisfaction thereof. No such action of the Mortgagee shall ever be considered
as a waiver of any right accruing to it on account of the occurrence of any
matter which constitutes a Default (defined hereinafter).
18. Subrogation. To the extent that the Mortgagee, on or after the date
-----------
hereof, pays any sum due under any provision of law or any instrument or
document creating any lien prior or superior to the lien of this Mortgage, or
the Mortgagor or any other person pays any such sum with the proceeds of the
Loan, the Mortgagee shall have and be entitled to a lien on the Collateral equal
in priority to the lien discharged, and the Mortgagee shall be subrogated to,
and receive and enjoy all rights and liens possessed, held or enjoyed by, the
holder of such lien, which shall remain in existence and benefit the Mortgagee
in securing the Liabilities. Without limiting the generality of the foregoing,
and in addition thereto (rather than in limitation thereof), the Mortgagee shall
be subrogated to the liens of all other mortgages, trust deeds, superior titles,
vendors' liens, liens, charges, encumbrances, rights and equities on the
Premises, to the extent that either (i) any obligation under any thereof is paid
or discharged with proceeds of disbursements or advances under the Credit
Agreement or of other indebtedness secured hereby or (ii) the release thereof
was granted or delivered in complete or partial consideration for the granting
of this Mortgage.
19. Hazardous Materials. The Mortgagor hereby reaffirms all
-------------------
representations, warranties and covenants made by the Mortgagor with respect to
environmental matters in the Credit Agreement.
20. Mortgagor's Right to Contest. The Mortgagor may contest or object to
----------------------------
the legal validity or amount of any tax in accordance with the Credit Agreement
or any
-12-
<PAGE>
mechanics' or materialmen's lien on the Premises on and subject to the following
conditions: (i) After having given the Mortgagee at least five business days'
prior written notice of its intention to institute such proceedings, the
Mortgagor shall in good faith have instituted appropriate legal proceedings with
respect thereto, the pendency of which shall have the legal effect of staying
the effectiveness and enforcement of such taxes or lien (as the case may be) and
any and all other remedies relating thereto which may affect the Premises or the
title thereto, and the Mortgagor shall at all times thereafter prosecute such
proceedings diligently and in good faith to completion; (ii) the Mortgagor shall
either (A) have duly paid the full amount of the tax or lien under protest or
(B) have fully bonded over or title-insured over such tax or lien to the
Mortgagee's full satisfaction; and (iii) the Mortgagee shall have notified the
Mortgagor that the Mortgagee is satisfied that the validity, priority, value and
utility of its lien and security interest on and in the Collateral will not be
adversely affected by such contest, objection or proceedings.
II. D E F A U L T; R E M E D I E S
The Mortgagor and the Mortgagee hereby agree further as follows:
1. Defaults; Acceleration. The occurrence of an Event of Default under
----------------------
any of the Credit Documents shall constitute a "Default" hereunder. Upon the
occurrence of any Default, the entire indebtedness pursuant to the Credit
Agreement and all other Liabilities, together with interest thereon at the rate
applicable after maturity as provided in the Credit Agreement, shall become and
be immediately due and payable in accordance with the Credit Agreement.
2. Remedies Cumulative. No remedy or right of the Mortgagee hereunder or
-------------------
under the Credit Agreement or any other Security Documents or otherwise, or
available under applicable law, shall be exclusive of any other right or remedy,
but each such remedy or right shall be in addition to every other remedy or
right now or hereafter existing under any such document or under applicable law.
No delay in the exercise of, or omission to exercise, any remedy or right
accruing on any Default shall impair any such remedy or right or be construed to
be a waiver of any such Default or an acquiescence therein, nor shall it affect
any subsequent Default of the same or a different nature. Every such remedy or
right may be exercised concurrently or independently, and when and as often as
may be deemed expedient by the Mortgagee. All obligations of the Mortgagor, and
all rights, powers and remedies of the Mortgagee, expressed herein shall be in
addition to, and not in limitation of, those provided by law or in the Credit
Agreement or the Security Documents or any other written agreement or instrument
relating to any of the Liabilities or any security therefor.
-13-
<PAGE>
3. Possession of Premises; Remedies under Credit Agreement. The
-------------------------------------------------------
Mortgagor hereby waives all right to the possession, income, and rents of the
Premises from and after the occurrence of any Default, and, in accordance with
the Credit Agreement, the Mortgagee is hereby expressly authorized and
empowered, at and following any such occurrence, to enter into and upon and take
possession of the Premises or any part thereof, to complete any construction in
progress thereon at the expense of the Mortgagor, to lease the same, to collect
and receive all Rents and to apply the same, less the necessary or appropriate
expenses of collection thereof, either for the care, operation and preservation
of the Premises or, at the election of the Mortgagee in its sole and
unreviewable discretion, to a reduction of such of the Liabilities in such order
as the Mortgagee may elect. The Mortgagee, in addition to the rights provided
under the Credit Agreement, is also hereby granted full and complete authority
to enter upon the Premises, employ watchmen to protect the Goods and
Improvements from depredation or injury and to preserve and protect the
Collateral, and to continue any and all outstanding contracts for the
construction and completion of Improvements to the Premises, to make and enter
into any contracts and obligations wherever necessary in its own name, and to
pay and discharge all debts, obligations and liabilities incurred thereby, all
at the expense of the Mortgagor. All such expenditures by the Mortgagee shall
be Liabilities under this Mortgage for all purposes. Upon the occurrence of any
Default, the Mortgagee may also exercise any or all rights or remedies under the
Credit Agreement.
4. Foreclosure; Receiver. Upon the occurrence of any Default, the
---------------------
Mortgagee shall also have the right, in accordance with the Credit Agreement,
immediately or at any time thereafter (in the Mortgagee's sole discretion), to
foreclose this Mortgage. Upon the filing of any complaint for that purpose, the
court in which such complaint is filed shall, upon application of the Mortgagee
or at any time thereafter, either before or after foreclosure sale, and without
notice to the Mortgagor or to any person claiming under or through the Mortgagor
and without regard to the solvency or insolvency at the time of such application
of any person then liable for the payment of any of the Liabilities, without
regard to the then value of the Premises or whether the same shall then be
occupied, in whole or in part, as a homestead, by the owner of the equity of
redemption, and without regarding any bond from the complainant in such
proceedings, appoint a receiver for the benefit of the Mortgagee (and the
Mortgagor hereby irrevocably and unconditionally agrees and consents to the
appointment of any such receiver that the Mortgagee may designate or request or
that such court may appoint), with power to take possession, charge, and control
of the Premises, to lease the same, to keep the buildings thereon insured and in
good repair, and to collect all Rents during the pendency of such foreclosure
suit and during any period from the appointment of the receiver up to and
including the date of the confirmation of sale. The court may, from time to
time, authorize said receiver to apply the net amounts remaining in his hands,
after deducting reasonable compensation for the receiver and his counsel as
allowed by the court, in payment (in whole or in part) of any or all of the
Liabilities, including without limitation the following, in such order of
application as the Mortgagee in its sole and unreviewable discretion may
-14-
<PAGE>
elect: (i) amounts due upon the Loans and Letters of Credit, (ii) amounts due
upon any decree entered in any suit foreclosing this Mortgage, (iii) costs and
expenses (including, without limitation, attorneys' fees and expenses) of
foreclosure and litigation upon the Premises, (iv) insurance premiums, repairs,
taxes, special assessments, water charges and interest, penalties and costs, in
connection with the Premises, (v) any other lien or charge upon the Premises
that may be or become superior to the lien of this Mortgage, or of any decree
foreclosing the same and (vi) all moneys advanced by the Mortgagee to cure or
attempt to cure any default by the Mortgagor in the performance of any
obligation or condition contained in the Credit Agreement, the Security
Documents or this Mortgage or otherwise, to protect the security hereof provided
herein, in the Credit Agreement or in any of the Security Documents, with
interest on such advances at the interest rate applicable after maturity under
the Credit Agreement. The surplus of the proceeds of sale, if any, shall then
(to the fullest extent permitted by applicable law) be paid to the Mortgagor
(and, if not permitted by law to be paid to the Mortgagor, such surplus shall be
paid and applied as required by applicable law). This Mortgage may be foreclosed
once against all, or successively against any portion or portions, of the
Premises, as the Mortgagee may elect, until all of the Premises have been
foreclosed against and sold. In case of any foreclosure of this Mortgage (or the
commencement of or preparation therefor) in any court, all expenses of every
kind paid or incurred by the Mortgagee for the enforcement, protection or
collection of this security, including court costs, attorneys' fees,
stenographers' fees, costs of advertising, and costs of title insurance and any
other documentary evidence of title, shall be paid by the Mortgagor.
5. Assignment of Rents; Remedies for Leases and Rents. If any Default
--------------------------------------------------
occurs, then, whether before or after institution of legal proceedings to
foreclose the lien of this Mortgage or before or after the sale thereunder, the
Mortgagee shall be entitled, in its discretion in accordance with the Credit
Agreement, to do all or any of the following: (i) enter and take actual
possession of the Premises, the Rents, the Leases and other Collateral relating
thereto or any part thereof personally, or by its agents or attorneys, and
exclude the Mortgagor therefrom; (ii) with or without process of law, enter upon
and take and maintain possession of all of the documents, books, records, papers
and accounts of the Mortgagor relating thereto; (iii) as attorney-in-fact or
agent of the Mortgagor, or in its own name as mortgagee and under the powers
herein granted, hold, operate, manage and control the Premises, the Rents, the
Leases and other Collateral relating thereto and conduct the business, if any,
thereof either personally or by its agents, contractors or nominees, with full
power to use such measures, legal or equitable, as in its discretion or in the
discretion of its successors or assigns may be deemed proper or necessary to
enforce the payment of the Rents, the Leases and other Collateral relating
thereto (including actions for the recovery of rent, actions in forceable
detainer and actions in distress of rent); (iv) cancel or terminate any Lease or
sublease for any cause or on any ground which would entitle the Mortgagor to
cancel the same; (v) elect to disaffirm any Lease or sublease made subsequent
hereto or subordinated to the lien hereof; (vi) make all necessary or proper
repairs, decoration, renewals, replacements, alterations, additions,
-15-
<PAGE>
betterments and improvements to the Premises that, in its discretion, may seem
appropriate; (vii) insure and reinsure the Collateral for all risks incidental
to the Mortgagee's possession, operation and management thereof; and (viii)
receive all such Rents and proceeds, and perform such other acts in connection
with the management and operation of the Collateral, as the Mortgagee in its
discretion may deem proper, the Mortgagor hereby granting the Mortgagee full
power and authority to exercise each and every one of the rights, privileges and
powers contained herein at any and all times after any Default without notice to
the Mortgagor or any other person. The Mortgagee, in the exercise of the rights
and powers conferred upon it hereby, shall have full power to use and apply the
Rents to the payment of or on account of the following, in such order as it may
determine: (a) to the payment of the operating expenses of the Premises,
including the cost of management and leasing thereof (which shall include
reasonable compensation to the Mortgagee and its agents or contractors, if
management be delegated to agents or contractors, and it shall also include
lease commissions and other compensation and expenses of seeking and procuring
tenants and entering into Leases), established claims for damages, if any, and
premiums on insurance hereinabove authorized; (b) to the payment of taxes,
charges and special assessments, the costs of all repairs, decorating, renewals,
replacements, alterations, additions, betterments and improvements of the
Collateral, including the cost from time to time of installing, replacing or
repairing the Collateral, and of placing the Collateral in such condition as
will, in the judgment of the Mortgagee, make it readily rentable; and (c) to the
payment of any Liabilities.
6. Performance of Contracts. The Mortgagee may, in its sole discretion
------------------------
at any time after the occurrence of a Default in accordance with the Credit
Agreement, notify any person obligated to the Mortgagor under or with respect to
any Intangible, any Contract for Sale or any Contract for Construction of the
existence of a Default, require that performance be made directly to the
Mortgagee at the Mortgagor's expense, and advance such sums as are necessary or
appropriate to satisfy the Mortgagor's obligations thereunder; and the Mortgagor
agrees to cooperate with the Mortgagee in all ways reasonably requested by the
Mortgagee (including the giving of any notices requested by, or joining in any
notices given by, the Mortgagee) to accomplish the foregoing.
7. No Liability on Mortgagee. Notwithstanding anything contained in this
-------------------------
Mortgage, the Mortgagee shall not be obligated to perform or discharge, and does
not undertake to perform or discharge, any obligation, duty or liability of the
Mortgagor, whether under this Mortgage, under any of the Leases, under any
Intangible, under any Contract for Construction, under any Contract for Sale or
otherwise, and the Mortgagor shall and does hereby agree to indemnify against
and hold the Mortgagee harmless of and from: (i) any and all liabilities, losses
or damages which the Mortgagee may incur or pay under or with respect to any of
the Collateral or under or by reason of its exercise of rights hereunder; and
(ii) any and all claims and demands whatsoever which may be asserted against it
by reason of any alleged obligations or undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in any of the
Collateral
-16-
<PAGE>
or in any of the contracts, documents or instruments evidencing or creating any
of the Collateral, except for any liabilities, losses, damages, claims or
demands that arise from the Mortgagee's gross negligence or wilful misconduct.
The Mortgagee shall not have responsibility for the control, care, management or
repair of the Premises or be responsible or liable for any negligence in the
management, operation, upkeep, repair or control of the Premises resulting in
loss, injury or death to any tenant, licensee, employee, stranger or other
person. No liability shall be enforced or asserted against the Mortgagee in its
exercise of the powers herein granted to it, and the Mortgagor expressly waives
and releases any such liability. Should the Mortgagee incur any such liability,
loss or damage under any of the Leases or under or by reason hereof, or in the
defense of any claims or demands, the Mortgagor agrees to reimburse the
Mortgagee immediately upon demand for the full amount thereof, including costs,
expenses and attorneys' fees.
III G E N E R A L
1. Permitted Acts. The Mortgagor agrees that, without affecting or
--------------
diminishing in any way the liability of the Mortgagor or any other person
(except any person expressly released in writing by the Mortgagee) for the
payment or performance of any of the Liabilities or for the performance of any
obligation contained herein or affecting the lien hereof upon the Collateral or
any part thereof, the Mortgagee may at any time and from time to time, without
notice to or the consent of any person, do any or all of the following: (i)
release any person liable (whether directly or indirectly, primarily or
secondarily, or otherwise) for the payment or performance of any of the
Liabilities; (ii) extend the time for, or agree to alter the terms of payment
of, any indebtedness under the Credit Agreement or any of the Liabilities; (iii)
modify or waive any obligation or performance; (iv) subordinate, modify or
otherwise deal with the lien hereof; (v) accept additional security of any kind;
(vi) release any Collateral or other property securing any or all of the
Liabilities; (vii) make releases of any portion of the Premises; (viii) consent
to the making of any map or plan of the Premises; (ix) consent to the creation
of a condominium regime on all or any part of the Premises, or to the creation
of any easements on the Premises or of any covenants restricting the use or
occupancy thereof; or (x) exercise or refrain from exercising, or waive, any
right the Mortgagee may have.
2. Suits and Proceedings. The Mortgagor agrees to indemnify the
---------------------
Mortgagee, and hold the Mortgagee harmless, from and against any and all losses,
damages, costs, expenses and claims of any kind whatsoever (including, without
limitation, attorneys' fees) which the Mortgagee may pay or incur in connection
with any suit or proceeding in or to which the Mortgagee may be made or become a
party, which suit or proceeding does or may affect all or any portion of the
Collateral or the value, use or operation thereof or this Mortgage or the
validity, enforceability, lien or priority hereof or of any of the Liabilities
or indebtedness secured hereby.
-17-
<PAGE>
3. Credit Agreement; Construction Mortgage; Obligatory Future Advances.
-------------------------------------------------------------------
(a) The Mortgagor covenants that it will timely and fully perform and
satisfy all the terms, covenants and conditions of the Credit Agreement and
the Bond Lease in accordance with the terms thereof.
(b) This Mortgage is granted to secure future advances and loans,
including W/C Loans and LC Loans, from the Mortgagee and the Lenders to or
for the benefit of the Mortgagor or the Premises, as provided in the Credit
Agreement, regardless of whether, at the time or times of such advances,
the Mortgagor is then the owner of the Collateral or any interest in any
hereof, and costs and expenses of enforcing the Mortgagor's obligations
under this Mortgage, the Credit Documents and the Credit Agreement. All
advances, disbursements or other payments required by the Credit Agreement
are obligatory advances up to the credit limits established therein and
shall, to the fullest extent permitted by law, have priority over any and
all mechanics' liens and other liens and encumbrances arising after this
Mortgage is recorded and shall be secured by this Mortgage. Notice is
hereby given that the indebtedness and Liabilities secured hereby may
increase as a result of any defaults hereunder by the Mortgagor due to, for
example, and without limitation, unpaid interest or late charges, unpaid
taxes or insurance premiums which the Mortgagee elects to advance, defaults
under leases that the Mortgagee elects to cure, attorney fees or costs
incurred in enforcing the Loan Documents or other expenses incurred by the
Mortgagee in protecting the Collateral, the security of this Mortgage or
the Mortgagee's rights and interests.
4. Partial Releases. While not presently contemplated, it is possible
----------------
that the Mortgagee may from time to time consent in writing to one or more
partial releases of the lien of this Mortgage as it applies to one or more parts
of the Premises, but no such release (or any other release) shall affect the
lien of this Mortgage on the remainder of the Premises.
5. Security Agreement and Financing Statement. This Mortgage, to the
------------------------------------------
extent that it conveys, grants a security interest in, or otherwise deals with
personal property or with items of personal property which are or may become
fixtures, shall also be construed as a security agreement, and also as a
financing statement, under the Uniform Commercial Code as in effect in the State
of Arkansas, with the Mortgagor as Debtor (with its address as set forth above)
and with the Mortgagee as Secured Party (with its address as set forth above).
6. Defeasance. Upon full payment of all indebtedness secured hereby and
----------
full payment, performance and satisfaction of all the Liabilities in accordance
with their respective terms and at the time and in the manner provided, and when
the Mortgagee has no further obligation (whether contingent, conditional or
otherwise) to make any advance,
-18-
<PAGE>
disbursement or payment of any kind or to extend any credit under or with
respect to the Credit Agreement, this conveyance shall be null and void, and
thereafter, upon demand therefor, an appropriate instrument of quitclaim
reconveyance or release shall in due course be made by the Mortgagee to the
Mortgagor at the Mortgagee's expense.
7. Notices. Each notice, demand or other communication in connection
-------
with this Mortgage shall be in writing and shall be given and served upon the
addressee thereof in the manner set forth in the Credit Agreement.
8. Successors; The Mortgagor; Gender. All provisions hereof shall inure
---------------------------------
to and bind the parties and their respective successors, vendees and assigns;
provided, however, that the foregoing shall not in any way limit, restrict or
modify the provisions of Article I, Section 4 above. The word "Mortgagor" shall
include all persons claiming under or through the Mortgagor and all persons
liable for the payment or performance of any of the Liabilities whether or not
such persons shall have executed the Credit Agreement or this Mortgage. Wherever
used, the singular number shall include the plural, the plural the singular, and
the use of any gender shall be applicable to all genders.
9. Care by the Mortgagee. The Mortgagee shall be deemed to have
---------------------
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Mortgagor requests in writing, but failure of the Mortgagee to comply with any
such request shall not be deemed to be (or to be evidence of) a failure to
exercise reasonable care, and no failure of the Mortgagee to preserve or protect
any rights with respect to such Collateral against prior parties, or to do any
act with respect to the preservation of such Collateral not so requested by the
Mortgagor, shall be deemed a failure to exercise reasonable care in the custody
or preservation of such Collateral.
10. No Obligation on Mortgagee. This Mortgage is intended only as
--------------------------
security for the Liabilities. Anything herein to the contrary notwithstanding,
(i) the Mortgagor shall be and remain liable under and with respect to the
Collateral to perform all of the obligations assumed by it under or with respect
to each thereof, (ii) the Mortgagee shall have no obligation or liability under
or with respect to the Collateral by reason or arising out of this Mortgage and
(iii) the Mortgagee shall not be required or obligated in any manner to perform
or fulfill any of the obligations of the Mortgagor under, pursuant to or with
respect to any of the Collateral.
11. No Waiver by the Mortgagee; Writing. No delay on the part of the
-----------------------------------
Mortgagee in the exercise of any right or remedy shall operate as a waiver
thereof, and no single or partial exercise by the Mortgagee of any right or
remedy shall preclude other or further exercise thereof or the exercise of any
other right or remedy. No amendment, waiver or supplement in any way affecting
this Mortgage shall in any event be effective unless set out in a writing signed
by the Mortgagee.
-19-
<PAGE>
12. Governing Law; Severability; Section Headings. This Mortgage has been
---------------------------------------------
executed and delivered at Chicago, Illinois, where the Mortgagee maintains its
principal place of business, and shall be construed in accordance with and
governed by the laws of the State of Illinois except for the lien rights and
remedies pertaining thereto which must be governed by the laws of the state in
which the premises are situated, regarding which Arkansas law shall govern.
Whenever possible, each provision of this Mortgage shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Mortgage shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
only, without invalidating the remainder of such provision or the remaining
provisions of this Mortgage, it being the parties' intention that this Mortgage
and each provision hereof be effective and enforced to the fullest extent
permitted by applicable law. The Section headings used herein are for
convenience of reference only, and shall not be deemed to be a part of this
Mortgage or be considered in the interpretation, or construction thereof.
13. No Merger. It being the desire and intention of the parties hereto
---------
that this Mortgage and the lien hereof do not merge in fee simple title to the
Premises, it is hereby understood and agreed that should the Mortgagee acquire
an additional or other interests in or to the Premises or the ownership thereof,
then, unless a contrary intent is manifested by the Mortgagee as evidenced by an
express statement to that effect in an appropriate document duly recorded, this
Mortgage and the lien hereof shall not merge in the fee simple title, toward the
end that this Mortgage may be foreclosed as if owned by a stranger to the fee
simple title.
14. Mortgagee Not a Joint Venturer or Partner. The Mortgagor and the
-----------------------------------------
Mortgagee acknowledge and agree that in no event shall the Mortgagee be deemed
to be a partner or joint venturer with the Mortgagor. Without limitation of the
foregoing, the Mortgagee shall not be deemed to be such a partner or joint
venturer on account of its becoming a mortgagee in possession or exercising any
rights pursuant to this Mortgage or pursuant to any other instrument or document
evidencing or securing any of the Liabilities secured hereby, or otherwise.
15. Limited Recourse. The limitations on recourse set forth in Section 11
----------------
of the Credit Agreement are expressly incorporated herein by reference.
16. No Reliance by Others on the Premises. The Mortgagor covenants that
-------------------------------------
it will not cause or permit any land, building or other improvement, or other
property of any kind whatsoever which is not subject to the lien of this
Mortgage (regardless of whether such property is owned by the Mortgagor) to rely
on the Premises or any part thereof or any interest therein to fulfill any
municipal or governmental requirement of any kind whatsoever, and the Mortgagor
hereby assigns to the Mortgagee any and all rights to give or withhold consent
for all or any portion of the Premises or any interest therein to be so used.
The Mortgagor represents, warrants and covenants that no building or other
-20-
<PAGE>
improvement situated on or comprising part of the Premises does, or at any time
will, rely on any property not subject to the lien of this Mortgage to fulfill
any governmental or municipal requirement of any kind whatsoever. Any act or
omission by the Mortgagor which would result in a violation of any of the
provisions of this Section shall be void abinitio and of no force or effect for
--------
any purpose whatsoever.
17. No Property Manager's Lien. Any property management agreement for or
--------------------------
relating to all or any part of the Premises, whether now in effect or entered
into hereafter by the Mortgagor or any agent of the Mortgagor, with a property
manager shall contain a "no lien" provision whereby the property manager forever
and unconditionally waives and releases any and all mechanics' lien rights and
claims that it or anyone claiming through or under it may have at any time
pursuant to any statute or law. Such property management agreement or a short
form thereof including such waiver shall, at the Mortgagee's request, be
recorded with the Office of the Recorder of Deeds for the county in which the
Premises are located. In addition, the Mortgagor shall cause the property
manager to enter into a subordination agreement with the Mortgagee, in
recordable form, whereby the property manager subordinates its present and
future lien rights and those of any party claiming by, through or under it, to
the lien of this Mortgage. The Mortgagor's failure to cause any of the
foregoing to occur shall constitute a default under this Mortgage.
18. WAIVERS.
-------
THE MORTGAGOR, ON BEHALF OF ITSELF AND ALL PERSONS NOW OR HEREAFTER
INTERESTED IN THE PREMISES OR THE COLLATERAL, VOLUNTARILY AND KNOWINGLY HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL OTHER
RIGHTS TO REINSTATEMENT OR REDEMPTION AND ANY AND ALL OTHER RIGHTS AND BENEFITS
UNDER ALL PRESENT AND FUTURE APPRAISEMENT, HOMESTEAD, MORATORIUM, VALUATION,
EXEMPTION, STAY, EXTENSION, REDEMPTION AND MARSHALING STATUTES, LAWS OR EQUITIES
NOW OR HEREAFTER EXISTING, AND AGREES THAT NO DEFENSE, CLAIM OR RIGHT BASED ON
ANY THEREOF WILL BE ASSERTED, OR MAY BE ENFORCED, IN ANY ACTION ENFORCING OR
RELATING TO THIS MORTGAGE OR ANY OF THE COLLATERAL. WITHOUT LIMITING THE
GENERALITY OF THE PRECEDING SENTENCE, THE MORTGAGOR, ON ITS OWN BEHALF AND ON
BEHALF OF EACH AND EVERY PERSON ACQUIRING ANY INTEREST IN OR TITLE TO THE
PREMISES SUBSEQUENT TO THE DATE OF THIS MORTGAGE, HEREBY IRREVOCABLY WAIVES ANY
AND ALL RIGHTS OF REINSTATEMENT OR REDEMPTION FROM SALE OR FROM OR UNDER ANY
ORDER, JUDGMENT OR DECREE OF FORECLOSURE OF THIS MORTGAGE OR UNDER ANY POWER
CONTAINED HEREIN OR UNDER ANY SALE PURSUANT TO ANY STATUTE, ORDER, DECREE OR
JUDGMENT OF ANY COURT. WITHOUT LIMITING THE FOREGOING,
-21-
<PAGE>
MORTGAGOR EXPRESSLY WAIVES ANY RIGHT OF REDEMPTION AFFORDED BY THE ACT PASSED BY
THE ARKANSAS GENERAL ASSEMBLY ON MAY 8, 1899.
19. WAIVER OF JURY TRIAL. THE MORTGAGOR IRREVOCABLY WAIVES ALL RIGHTS TO
--------------------
A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON OR IN ANY WAY RELATED TO
(i) THE LOANS (DEFINED FOR PURPOSES HEREOF AS DEFINED IN THE CREDIT AGREEMENT),
(ii) ANY CONDUCT, ACT, STATEMENT OR OMISSION BY THE AGENT OR LENDERS WHICH IN
ANY WAY RELATED TO, OCCURRED IN CONNECTION WITH, OR CONCERNS THE LOANS OR THE
MORTGAGOR'S APPLICATION THEREFOR, THE CREDIT AGREEMENT, THE CREDIT DOCUMENTS, OR
THE PREMISES, OR (iii) THIS MORTGAGE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY,
AND VOLUNTARILY MADE BY THE MORTGAGOR, AND THE MORTGAGOR ACKNOWLEDGES THAT
NEITHER THE MORTGAGEE NOR ANY PERSON ACTING FOR OR ON BEHALF OF THE MORTGAGEE
HAS MADE ANY STATEMENT OR REPRESENTATION (i) TO INDUCE THE MORTGAGOR TO AGREE TO
THIS WAIVER OF TRIAL BY JURY OR (ii) IN ANY WAY TO MODIFY, LIMIT, RESTRICT, OR
NULLIFY IT. THE MORTGAGOR FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED AND
ADVISED BY INDEPENDENT LEGAL COUNSEL OF ITS OWN CHOICE IN THE SIGNING OF THIS
MORTGAGE AND IN THE MAKING OF THIS WAIVER, AND THAT IT HAS HAD THE OPPORTUNITY
TO DISCUSS THIS WAIVER WITH ITS LEGAL COUNSEL. THE MORTGAGOR FURTHER
ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE MEANING AND RAMIFICATIONS OF
THIS WAIVER AND AS EVIDENCE OF THIS FACT THE INITIALS OF ITS AUTHORIZED
REPRESENTATIVE ARE SIGNED HERE: ________________.
IV. E N V I R O N M E N T A L E A S E M E N T
1. Grant of Environmental Easement and Security Interest. In
-----------------------------------------------------
consideration of the premises and of the elements of consideration recited in
the granting clause (i.e., the first paragraph following the caption "Grant")
---
above, the Mortgagor hereby grants and conveys to the Mortgagee and its
successors and assigns until the Liabilities have been paid in full an easement
(the "Environmental Easement") to enter on, upon and within the Premises in
accordance with the Credit Agreement at any time and from time to time for the
purpose of making such tests, inspections, investigations and examinations
(including, without limitation, soil borings and tests and other subsurface
explorations, investigations, examinations and tests) as the Mortgagee, in its
discretion, deems necessary, convenient, or useful to enable it to determine (i)
whether any Hazardous Materials are or may be present on, under, upon or within
the Premises or any part thereof and (ii) whether the ownership, use, condition,
and operation of the Premises and the conduct of the activities engaged in
thereat are in compliance with federal, state, and local environmental laws,
rules, and regulations. The Mortgagor hereby irrevocably grants to the
Mortgagee and its agents, contractors and designees the right, in accordance
with the Credit Agreement, to
-22-
<PAGE>
inspect and copy all of the Mortgagor's records relating to environmental
matters and to enter all buildings, improvements, and facilities of the
Mortgagor for such purpose. The Mortgagor hereby grants to the Mortgagee a
continuing security interest in and to all of the Mortgagor's existing and
future records that relate in any way to any environmental matters, whether
located at the Premises or elsewhere, whether in the possession or control of
the Mortgagor or any other person (including any federal, state, or local agency
or instrumentality), and whether written, photographic, computerized, or in any
other form, state or condition, and the proceeds and products thereof. The
Mortgagee or its agent, contractor or designee may, in accordance with the
Credit Agreement, interview any or all of the Mortgagor's agents, employees, and
independent contractors and consultants regarding environmental matters,
including any consultants or experts retained by the Mortgagor, all of whom are
hereby irrevocably authorized and directed by the Mortgagor to discuss
environmental issues fully and openly with the Mortgagee and its agents,
contractors and designees and to provide to them such information as may be
requested by any of them. All reasonable costs and expenses paid or incurred by
the Mortgagee pursuant to this Section 1 of Article IV for or with respect to
the tests, inspections, investigations and examinations which the Mortgagee may
conduct, including (without limitation) the fees and expenses of the Mortgagee's
consultants, engineers, laboratories, and contractors, shall be paid by the
Mortgagor on demand by the Mortgagee. The Mortgagee may, but shall not be
required to, advance such costs and expenses on behalf of the Mortgagor. All
sums so advanced shall bear interest at the highest rate provided with respect
to the Loan, and all such advances shall be deemed indebtedness owing under the
Credit Agreement and secured by the Security Documents.
2. Duration and Defeasance. The Environmental Easement shall exist and
-----------------------
continue until such time as all of the Liabilities have been fully paid,
performed and satisfied, the Mortgagee has no further obligation to advance any
amounts to the Mortgagor under or with respect to the Credit Agreement or any of
the Credit Documents, and this Mortgage has been released of record. A release
of this Mortgage shall also be deemed to constitute and evidence a termination
of the Environmental Easement.
3. Enforcement. The Mortgagor (i) acknowledges that no adequate remedy
-----------
at law exists for a violation of the Environmental Easement or for the
Mortgagor's failure or refusal to provide to the Mortgagee any or all of the
access, rights or other benefits set out or described in any provision of this
Article IV, and (ii) agrees that the Mortgagee shall have the right to enforce
the Environmental Easement and all of the other provisions of this Article IV by
any and all equitable writs, decrees, remedies and relief (including, without
limitation, temporary and preliminary injunctive relief). The Mortgagor agrees
to pay all of the Mortgagee's costs and expenses of enforcement (including,
without limitation, court costs and attorneys' fees and expenses) of the
provisions of this Article IV.
4. Running with the Land; Assignability. The Environmental Easement is
------------------------------------
intended to be and shall be construed as an interest in the Premises and as an
easement
-23-
<PAGE>
in gross; it is not intended to be a personal right of the Mortgagee or a mere
license. The Environmental Easement, and all rights and benefits of the
Mortgagee as set out in this Article IV, shall run with and bind the Land and
the Premises, shall be binding upon all successor owners of any and every estate
and interest in the Premises, and shall be deemed to have been assigned to and
be enforceable by and inure to the benefit of whomever holds the indebtedness
secured by this Mortgage.
5. Revocability. The Environmental Easement is irrevocable.
------------
6. Mortgagee not Mortgagee in Possession. The exercise of the rights
-------------------------------------
granted hereunder shall not constitute the Mortgagee a mortgagee in possession
with respect to the Premises.
7. Mortgagor's Understanding. The Mortgagor acknowledges that it has
-------------------------
received a true, complete and accurate copy of this Mortgage at no charge to the
Mortgagor and understands the meaning of this Mortgage and the terms provided
herein.
-24-
<PAGE>
WITNESS the respective hand and seal of the Mortgagor at Chicago, Illinois,
on the day and year first above written, pursuant to proper authority duly
granted.
DEL-TIN FIBER, L.L.C.
an Arkansas limited liability company
By:___________________________________
Name:_________________________________
Title:________________________________
Common Address of Property: 757 Newell Road, El Dorado, Arkansas 71730.
STATE OF TEXAS )
) SS.
COUNTY OF TRAVIS )
I, __________________, a notary public in and for said County, in the State
aforesaid, DO HEREBY CERTIFY THAT ____________________, personally known to me
to be the _________________ of DEL-TIN FIBER, L.L.C., an Arkansas limited
liability company, and personally known to me to be the same person whose name
is subscribed to the foregoing instrument, appeared before me this day in person
and severally acknowledged that as such _______________ of said limited
liability company, he/she signed and delivered the said instrument pursuant to
proper authority duly given by the Board of Managers of said limited liability
company as aforesaid, as his/her free and voluntary act, as the free and
voluntary act, deed of said limited liability company for the uses and purposes
therein set forth.
GIVEN under my hand and notarial seal this __________ day of
______________, 19__.
__________________________________
Notary Public
My Commission expires:
[SEAL]
______________________
S-1
<PAGE>
EXHIBIT A
- ---------
THE LAND
--------
ALL THAT certain tract or tracts found in Sections 3 and 10, Township 18 South,
Range 16 West, lying and being in Union County, Arkansas, more particularly
described as follows:
All of the Southeast Quarter (SE/4) of Section 3, Township 18 South, Range 16
West; all of the Northeast Quarter (NE/4) of Section 10, Township 18 South,
Range 16 West; and the East Half of the Northwest Quarter (E/2 NW/4) of Section
10, Township 18 South, Range 16 West.
LESS AND EXCEPT: The South Half of the Southwest Quarter of the Southeast
Quarter of the Northwest Quarter (S/2 SW/4 SE/4 NW/4) of Section 10, Township 18
South, Range 16 West, containing 5 acres more or less.
All of the above containing 395 acres, more or less.
<PAGE>
================================================================================
CONTINGENT EQUITY CONTRIBUTION AGREEMENT
dated as of November 23, 1998
among
DEL-TIN FIBER L.L.C.
as Company,
DELTIC TIMBER CORPORATION
and as Equity Owner
and
THE FIRST NATIONAL BANK OF CHICAGO
as Agent
================================================================================
<PAGE>
CONTINGENT EQUITY CONTRIBUTION AGREEMENT
This CONTINGENT EQUITY CONTRIBUTION AGREEMENT, dated as of November 23,
1998 (this "Agreement"), is made by and among Del-Tin Fiber L.L.C., an Arkansas
---------
limited liability company (the "Company"), Deltic Timber Corporation, a Delaware
-------
corporation (the "Equity Owner"), and The First National Bank of Chicago, as
------------
Agent.
R E C I T A L S:
1. The Equity Owner and Temple-Inland Forest Products Corporation
("Temple-Inland") organized the Company to develop, finance, construct, own,
operate or otherwise have a possessory interest in the Facility, and to
manufacture and deliver medium-density fiberboard therefrom.
2. The Company, simultaneously herewith, is entering into a Credit
Agreement, pursuant to which it will, subject to the terms and conditions of the
Credit Agreement, and for the purposes set forth therein, including development
and construction of the Facility, borrow funds and otherwise obtain credit
accommodation from the Lenders.
3. The Equity Owner has agreed to provide cash equity in accordance with
the terms of the LLC Agreement and this Agreement.
4. The Equity Owner will benefit from the loans and other credit
accommodation made to the Company pursuant to the Credit Agreement.
5. It is a condition precedent to the Lenders and the Agent entering into
the Credit Agreement that the Equity Owner enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in order to induce the Lenders and the Agent to
enter into the Credit Agreement with the Company, the parties hereby agree as
follows:
1. Definitions. All capitalized terms used herein which are defined in
-----------
the Credit Agreement shall have their respective meanings as therein defined and
the terms set forth immediately below shall have the respective meanings
assigned thereto. All references to sections and exhibits are to sections and
exhibits in or to this Agreement unless otherwise specified. The words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
<PAGE>
"Applied Equity Amount" means, as of any date, all payments made by the
---------------------
Equity Owner pursuant to Section 2.
---------
"Credit Agreement" means the Project Credit Agreement, dated as of the date
----------------
hereof, among the Company, certain financial institutions as Lenders and The
First National Bank of Chicago, as Agent, as amended or otherwise modified and
in effect from time to time.
"Distributions" means, as of any date, the sum of (i) all payments made to
-------------
the Equity Owner on Permitted Subordinated Loans from the Closing Date plus (ii)
all distributions made to the Equity Owner from the Closing Date pursuant to
Section 9.28(c)(i) of the Credit Agreement.
"Equity Commitment Amount" means, as of any date, the lesser of (i)
------------------------
$17,500,000 and (ii) the positive difference of $17,500,000 minus Applied Equity
Amount plus Distributions made since the date of the first payment which the
Equity Owner makes pursuant to Section 2.
"LLC Agreement" means the Operating Agreement dated February 21, 1995
-------------
between the Members regarding the Company.
"Required Equity Contribution" shall mean that the Equity Owner has
----------------------------
satisfied in full its obligations to pay the entire Equity Commitment Amount
pursuant to the terms and conditions of this Agreement and the Credit Agreement.
2. Equity Funding.
--------------
(a) Equity Fundings. The Equity Owner will pay to the Agent on behalf of
---------------
the Company with respect to the Equity Commitment Amount from time to time as
follows:
(i) upon the occurrence and during a continuation of a Default,
within one Business Day of notice from the Agent, the Equity Owner shall
fund the entire Equity Commitment Amount; and
(ii) upon the occurrence and during the continuation of an Unmatured
Default, within three Business Days of notice from the Agent, the Equity
Owner shall fund the entire Equity Commitment Amount or such portion
thereof as is necessary to cure such Unmatured Default; and
(iii) if there is a Sinking Fund Deficiency at any time, the Equity
Owner shall fund an amount equal to the lesser of (x) the Equity Commitment
Amount or (y) such Sinking Fund Deficiency within one Business Day of
notice from the Agent or the Company; and
(iv) if there is a Debt Service Reserve Deficiency which has been
continuing for at least one fiscal quarter, the Equity Owner shall fund an
amount equal to the lesser of (x)
-2-
<PAGE>
the Equity Commitment Amount or (y) such Debt Reserve Deficiency on or
before the next payment date with respect to any Loans (the "Equity
Contribution Date") unless the Company has cured such Debt Service Reserve
Deficiency on or before the Equity Contribution Date.
The obligations of the Equity Owner under this Agreement shall continue until
the later of the following events: (i) all Secured Obligations have been paid in
full and all Letters of Credit have been terminated and (ii) the Required Equity
Contribution shall have been made.
(b) Voluntary Equity Fundings. The Equity Owner, from time to time, at
-------------------------
its option, may:
(i) voluntarily fund all or any portion of the Equity Commitment
Amount provided that the Equity Owner shall have given the Company and the
--------
Agent at least three Business Days' prior notice of such prepayment and the
amounts prepaid pursuant to this Section 2(b) (x) shall be paid on behalf
of the Company to the Agent and applied by the Agent as provided in Section
9.28(b) of the Credit Agreement, and (y) to the extent any such amounts are
then remaining, shall be deposited into the Sinking Fund; or
(ii) voluntarily make cash capital contributions or subordinated
loans to the Company, in addition to such contributions or loans as it may
make pursuant to Section 2(b)(i); provided that the Equity Commitment
--------------- --------
Amount shall not be reduced to the extent that such additional
contributions or loans exceed the Distributions; provided further that any
-------- -------
such loans shall be Permitted Subordinated Loans subject to the conditions
set forth in Section 2(c).
------------
(c) Permitted Subordinated Loans. Any funding of a payment under this
----------------------------
Section 2 shall be, at the election of the Equity Owner, either a capital
contribution by the Equity Owner to the Company pursuant to Section 2(a) or a
subordinated loan by the Equity Owners to the Company ("Permitted Subordinated
Loan"). Permitted Subordinated Loans shall, pursuant to a note executed by the
Company:
(i) be unsecured and subordinated to the Secured Obligations as
required by the Credit Agreement, on the terms and conditions set forth in
Exhibit L to the Credit Agreement;
(ii) provide that (A) principal be payable no earlier than one year
after the Stated Maturity Date, and (B) interest be payable not more
frequently than quarterly and accrue on the principal balance from time to
time outstanding at the rate of eight percent per annum or, if less, the
highest rate allowed by Applicable Law; and
(iii) be made in accordance with and subject to all applicable terms
and conditions of the Credit Agreement and the LLC Agreement.
-3-
<PAGE>
(d) Reinstatement, etc. The Equity Owner agrees that this Agreement shall
-------------------
continue to be effective or be reinstated, as the case may be, if at any time
any contribution or other payment (in whole or in part) under this Agreement is
rescinded or must otherwise be restored by the Company, the Agent or any Lender
upon the insolvency, bankruptcy or other reorganization of the Company or any
other Equity Owner or otherwise, all as though such contribution or other
payment had not been made.
3. Equity Funding Security.
-----------------------
(a) The Equity Owner, shall, as security for the performance of its
obligation to fund the Required Equity Contribution, furnish or cause to be
furnished, to the Agent, and thereafter maintain at all times, a letter of
credit (an "Equity Letter of Credit") in the form of Exhibit A hereto,
----------------------- ---------
appropriately completed, in the stated amount of no less than the Equity
Commitment Amount and otherwise in form and substance satisfactory to the Agent,
and issued by an Acceptable LC Issuer upon the occurrence of the following
event:
Deltic Timber Corporation shall furnish an Equity Letter of Credit in
the event that it fails to:
A. maintain an Interest Coverage Ratio, as of the end of any
fiscal quarter, equal to or greater than 5.0 to 1.0;
B. maintain a Fixed Charge Coverage Ratio, as of the end of any
fiscal quarter, equal to or greater than 2.0 to 1.0;
C. maintain of a Funded Debt/Capitalization Ratio, at all
times, equal to or less than .50 to 1.0;
D. maintain Net Worth, at all times, equal to greater than
$140,000,000; or
E. maintain a Timber Ratio, at all times, equal to or greater
than 2.0 to 1.0.
(Defined terms used in this Section 3(a) shall have the meanings set forth in
------------
Schedule 1 hereto)].
(b) The Equity Owner may, from time to time, provide the Agent with a
substitute letter of credit meeting the requirements of Section 3(a) in lieu of
------------
any Equity Letter of Credit then issued for the benefit of the Agent. The
Agent, upon receipt of such substitute letter of credit, shall return the Equity
Letter of Credit then held by it to the Equity Owner for cancellation.
4. Method of Payment; Overdue Interest.
-----------------------------------
-4-
<PAGE>
(a) Payment Instructions. All payments to be made to the Agent by any
--------------------
Equity Owner under this Agreement shall be made by such Equity Owner in cash in
immediately available funds and shall be payable directly to the Agent at The
First National Bank of Chicago, Chicago, Illinois, Account No. 481152860000; ABA
No. 071000013. All such payments shall be held and applied as provided in the
Credit Agreement. If any payment required hereunder is not paid when due, the
Agent shall have the right to draw under the Equity Letter of Credit for the
amount of such payment due.
(b) Interest. From the date any obligation by the Equity Owner shall
--------
become due and payable under this Agreement until the date such obligation has
been paid in full, interest shall accrue at the Past Due Rate on the amount of
such payment due, and shall be payable to the Company on demand. Interest paid
pursuant to this Section 4 shall not reduce the Equity Commitment Amount.
---------
5. No Setoff. The obligations of the Equity Owner hereunder shall be
---------
satisfied in all events at the times and in the amounts set forth herein without
offset, abatement, withholding or reduction of any kind.
6. Completion Undertaking. Payments by the Equity Owner pursuant to the
----------------------
Completion Undertaking shall not offset, abate or reduce the Equity Commitment
Amount or the obligations of the Equity Owner under this Agreement.
7. Nature of Obligations.
---------------------
(a) Unconditional Obligations. The obligations of the Equity Owner
-------------------------
hereunder are absolute and unconditional, without regard to any circumstance of
any nature whatsoever that constitutes or might constitute an equitable or legal
discharge of the Company, Deltic or any other Member of any of its respective
obligations under the Credit Documents, in bankruptcy or in any other instance.
To the extent permitted by applicable law, the Equity Owner hereby waives
diligence, presentment, protest, demand for payment and notice of default or
non-payment to or upon the Company or itself with respect to any amounts due
under the Credit Agreement or any other Credit Document. The Equity Owner shall
remain obligated hereunder notwithstanding that, without any reservation of
rights by or against the Equity Owner and without notice to or further assent by
or against the Equity Owner, any demand for payment of any amount due pursuant
to the Credit Agreement or the other Credit Documents may be rescinded by the
Secured Parties, or any of the loans or other extensions of credit thereunder
continued or such amounts, or the liability of any other Person upon or for any
part thereof, or any collateral security or guaranty therefor or right of offset
with respect thereto, may, from time to time, in whole or part, be renewed,
extended, amended, modified, accelerated, compromised, waived, surrendered or
released by the Secured Parties, or the Credit Agreement, the Temple-Inland
Equity Contribution Agreement or any other Credit Document or any other document
executed in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Secured Parties may deem advisable from
time to time, or any collateral security or
-5-
<PAGE>
guaranty or right of offset at any time held by the Secured Parties for the
payment of such amounts may be sold, exchanged, waived, surrendered or released;
provided, that no such amendment shall increase, accelerate, modify or otherwise
- --------
alter any obligations of the Equity Owner hereunder in any respect without the
Equity Owner's consent.
(b) Exercise of Remedies, etc. When pursuing its rights and remedies
-------------------------
hereunder against the Equity Owner, the Agent and the other Secured Parties may,
but shall be under no obligation to, pursue such rights and remedies as it may
have against any collateral security or right of offset with respect to any
amounts due under the Credit Agreement, the Temple-Inland Equity Contribution
Agreement or any other Credit Document, and any failure by the Secured Parties
to pursue such other rights or remedies or to collect any payments from the
Company or any such other Person or to realize upon any collateral security or
to exercise any right of offset, or to release the Company or any such other
Person or any collateral security or right of offset shall not relieve the
Equity Owner of any of its liability hereunder, and shall not impair or affect
the rights and remedies, whether express, implied or available as a matter of
law, of the Secured Parties against the Equity Owner. No delay on the part of
any Secured Party in the exercise of any right or remedy shall operate as a
waiver thereof, and no single or partial exercise by any Secured Party of any
right or remedy shall preclude any further exercise thereof. The failure of any
Secured Party at any time or times hereafter to require strict performance by
the Equity Owner of any of the provisions, warranties, terms and conditions
applicable to the Equity Owner contained in any agreement, guarantee, instrument
or document now or at any time or times hereafter executed by the Equity Owner
with respect to the Equity Owner's obligations hereunder and delivered to any
Secured Party shall not result in the waiver of or affect or diminish any right
of the Agent at any time or times thereafter to demand strict performance of the
obligations applicable to any hereunder and such right shall not be deemed to
have been waived by any act or knowledge of any Secured Party other than by a
specific written waiver by the appropriate Secured Parties. No waiver by any
Secured Parties of any default or failure to pay when due all or any portion of
the obligations applicable to the Equity Owner hereunder shall operate as a
waiver of any other default or failure or the same default or failure on a
future occasion. None of the Secured Parties shall have any liability for the
performance or observance of any of the obligations or duties of the Company
under the Credit Agreement or under any other Project Document and the Company's
failure to perform any such obligations or duties shall not impair the
obligations of the Equity Owner hereunder.
8. Representations and Warranties. The Equity Owner represents and
------------------------------
warrants to the Agent and the Secured Parties that:
(a) The Equity Owner is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; is duly
qualified to do business in each jurisdiction in which the character of the
properties owned or leased by it or in which the transaction of its business as
conducted or proposed to be conducted makes such qualification necessary or
desirable except where failure to qualify would not reasonably be expected to
result in a Material
-6-
<PAGE>
Adverse Effect; and has full corporate power and authority to own its property
and conduct its business as presently conducted by it.
(b) The execution and delivery by the Equity Owner of this Agreement and
each other Credit Document to which it is intended to be a party, and the
performance by the Equity Owner of its obligations under each Credit Document to
which it is intended to be a party are within the corporate powers of the Equity
Owner, have been duly authorized by all necessary corporate action on the part
of the Equity Owner (including any necessary shareholder action), have received
all necessary governmental approval (if any shall be required), and do not and
will not (i) violate any provision of law or any order, decree or judgment of
any court or other Government Authority which is binding on the Equity Owner to
the extent that any such violation could reasonably be expected to have a
Material Adverse Effect, (ii) contravene or conflict with, or result in a breach
of, any provision of the Certificate of Incorporation, by-laws or other
organizational documents of the Equity Owner or of any agreement, indenture,
instrument or other document, or any judgment, order or decree, which is binding
on the Equity Owner to the extent that any such contravention, conflict or
breach could reasonably be expected to have a Material Adverse Effect or (iii)
result in, or require, the creation or imposition of any Lien on any property of
the Equity Owner (other than pursuant to the Credit Documents) to the extent
that any such creation or imposition could reasonably be expected to have a
Material Adverse Effect.
(c) This Agreement is, and upon the execution and delivery thereof each
other Credit Document to which the Equity Owner is intended to be a party will
be, the legal, valid and binding obligation of the Equity Owner, enforceable
against the Equity Owner in accordance with its terms, except that
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
fraudulent transfer, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in equity or
at law).
(d) Since December 31, 1997, no event or events have occurred which
individually or in the aggregate has had or is reasonably likely to have a
Material Adverse Effect.
9. Covenants and Agreements. The Equity Owner hereby covenants and
------------------------
agrees, with regard to itself only, that it shall faithfully observe and
fulfill, and shall cause to be observed and fulfilled, each and all of the
following covenants until all Secured Obligations to be paid or performed by the
Company under the Credit Documents have been paid and performed in full.
(a) The Equity Owner shall at all times preserve and maintain in full
force and effect (i) its existence as a corporation under the laws of its state
of incorporation, (ii) its qualification to do business in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business as conducted or proposed to be conducted makes such
qualification necessary or desirable except where failure to qualify would not
reasonably be expected to result in a Material Adverse Effect and (iii) all of
its rights, powers, privileges and franchises necessary for the fulfillment of
its obligations under each of the Project Documents to
-7-
<PAGE>
which it is a party, except, in the case of this clause (iii), where the failure
to do so would not have a Material Adverse Effect on the financial condition,
business, operations or prospects of the Equity Owner or the Company.
(b) The Equity Owner shall not create, incur or permit to exist any Lien
(other than any Lien created pursuant to the Security Documents) on any of its
respective interests in the Company or transfer or assign any of its respective
interests in a manner which results in a Company Change of Control.
(c) The Equity Owner acknowledges and agrees that (i) the rights of the
Equity Owner to receive any Distributions, or arising out of or in connection
with such Equity Owner's interests in the Company or its rights under the LLC
Agreement, shall be payable by the Company only from funds properly available to
the Company upon distributions, payments or releases pursuant to Section 9.28 of
the Credit Agreement or any other provision of the Credit Agreement expressly
providing for distribution, payment or release of funds to the Company, as long
as such distribution, payment or release of funds is made in accordance with the
Credit Agreement, and (ii) any distributions, payments or releases made by the
Company to such Equity Owner that do not comply with the Credit Agreement shall
be restored to the Company by such Equity Owner by deposit into an account
designated by the Agent, promptly upon demand by the Agent or the Company.
(d) Deltic. The Equity Owner shall give the Agent prompt notice of any
------
default in any of the financial covenants set forth in Section 3(a).
------------
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. Enforcement. The Equity Owner hereby agrees that the Secured Parties
-----------
shall have the right to directly enforce the provisions hereof through the Agent
against the Equity Owner and such Equity Owner agrees to pay all reasonable
costs, including attorneys' fees, incurred with respect to the enforcement of
such Equity Owner's obligations under this Agreement against such Equity Owner.
Any amounts payable pursuant to this Section 11 shall not reduce the amount of
----------
the Required Equity Commitment Amount.
12. Giving Notice. All notices and other communications provided to any
-------------
party hereto under this Agreement or any other Project Document shall be in
writing or by facsimile and addressed or delivered to such party at its address
set forth below its name on the signature pages hereof or at such other address
as may be designated by such party in a notice to the other parties. Any notice
shall be deemed given when received within normal business hours.
13. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
-------------
THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
-8-
<PAGE>
14. CONSENT TO JURISDICTION, VENUE, ETC. EACH PARTY HERETO HEREBY
-----------------------------------
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
PROJECT DOCUMENTS AND EACH PARTY HERETO HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN
SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. SUCH SERVICE MAY BE
MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE EQUITY OWNER AT ITS
ADDRESS.
15. WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT, THE EQUITY OWNER AND
--------------------
EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
AGREEMENT OR ANY OF THE OTHER PROJECT DOCUMENTS OR THE RELATIONSHIP ESTABLISHED
THEREUNDER.
16. Amendments. No modification or waiver of any of the provisions of
----------
this Agreement shall be binding on the Agent or the Equity Owner or the Company
except as expressly set forth in a writing duly signed and delivered by the
Agent, the Company and the Equity Owner; provided that any amendment to this
--------
Agreement shall be accompanied by a corresponding amendment to the Temple-Inland
Equity Contribution Agreement.
17. Successors; Survival. The terms of this Agreement shall be binding
--------------------
upon, and inure to the benefit of, the parties hereto and their respective
permitted successors and assigns. All representations, warranties and
indemnities contained herein or made in writing by the Equity Owner in
connection herewith shall survive the execution and delivery of this Agreement
and the other Credit Documents until the indefeasible satisfaction of the
Secured Obligations.
18. Severability. Any provision of this Agreement which is prohibited,
------------
unenforceable or not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization, without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
19. Non-Business Day. Whenever any payment hereunder shall be due, or any
----------------
calculation shall be made, on a day which is not a Business Day, the date for
payment or calculation, as the case may be, shall be extended to the next
Business Day, and any interest on any payment shall be payable for such extended
time at the specified rate.
-9-
<PAGE>
20. Number and Gender. Whenever used in this Agreement, the singular
-----------------
number shall include the plural and the plural the singular, and the use of any
gender shall be applicable to all genders.
21. Captions. The captions, headings and table of contents used in this
--------
Agreement are for convenience only and do not or shall not be deemed to effect,
limit, amplify or modify the terms and provisions hereof.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement through
their duly authorized representatives as of the date hereof.
DEL-TIN FIBER L.L.C.
By:______________________________________
Name:____________________________________
Title:___________________________________
DELTIC TIMBER CORPORATION
By:______________________________________
Name:____________________________________
Title:___________________________________
S-1
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO, as
Agent
By:______________________________________
Name:____________________________________
Title:___________________________________
Address for Notices:
One First National Plaza
Mail Suite 0324, 10th Floor
Chicago, Illinois 60670
Attention: Jennifer Gilpin
Telephone: (312) 732-5867
Facsimile: (312) 732-5296
S-2
<PAGE>
EXHIBIT A
IRREVOCABLE TRANSFERABLE LETTER OF CREDIT
[date]
Beneficiary: The First National Bank of Chicago, as Agent
One First National Plaza
Chicago, Illinois 60670
Attention: [name]
[title]
Amount: U.S.$[amount in figures]
([amount in words] United States Dollars and no Cents)
Subject: Irrevocable Letter of Credit No. [number]
Ladies and Gentlemen:
We hereby issue in your favor this Irrevocable Letter of Credit No.
[number] (this "Letter of Credit") for the account of [account party] and in an
amount (the "Stated Amount") equal to U.S.$[amount in figures] (the "Maximum
Stated Amount"), as the same may be reduced from time to time by drawings under
and in accordance with this Letter of Credit (as so reduced, the "Available
Amount").
We understand that this Letter of Credit is being issued to you in
connection with that certain Equity Contribution Agreement (as amended, modified
or supplemented from time to time, the "Equity Contribution Agreement") dated as
of _________, 1998 between [name of member/account party] and The First National
Bank of Chicago, as Agent.
Prior to the Termination Date (hereafter defined) of this Letter of Credit,
you may draw under this Letter of Credit from time to time an amount not
exceeding the Available Amount on the conditions set forth herein against
presentation of: (1) this Letter of Credit, in the manner and for the purposes
provided herein; (2) your sight draft on us (marked "Draw under [issuing bank]
Irrevocable Letter of Credit No. [number]"); and (3) a signed Drawing
Certificate appropriately completed in the form attached as Annex A.
A-1
<PAGE>
Presentation of this Letter of Credit and such draft and certificate shall
be made at our office located at [issuing bank presentation address] either by
physical delivery of such documents or by facsimile transmission of such
documents to the office stated above. Upon such presentation, the payment of a
drawing shall be made in accordance with the terms set forth herein. In the
event of a presentation by facsimile transmission, such documents shall be sent
to our office by overnight courier for receipt by us within one Business Day of
the date of such facsimile transmission. Our only obligation with regard to a
drawing under this Letter of Credit shall be to examine the draft and
certificate and to pay in accordance with this Letter of Credit and such draft
and certificate, and we shall not be obligated to make any inquiry in connection
with the presentation of the draft or certificate.
If this Letter of Credit and the requisite draft and certificate are
presented to us at or prior to 12:00 noon (Chicago time) on a Business Day, and
provided that such drawing and the documents and other items presented in
connection therewith conform to the terms and conditions of this Letter of
Credit, payment of the amount specified shall be made to you in immediately
available funds on the next Business Day. If a drawing is made hereunder after
12:00 noon (Chicago time) on a Business Day, and provided that such drawing and
the documents and other items presented in connection therewith conform to the
terms and conditions of this Letter of Credit, payment of the amount specified
shall be made to you in immediately available funds, not later than 12:00 noon
(Chicago time), on the second succeeding Business Day. If a demand for payment
made hereunder does not, in any instance, conform to the terms and conditions of
this Letter of Credit, we shall give you prompt notice that the demand for
payment was not effected in accordance with the terms and conditions of this
Letter of Credit, stating the reasons therefor and that we will upon your
instructions hold the documents at your disposal or return the same to you.
Upon being notified that the demand for payment was not effected in conformity
with this Letter of Credit, you may attempt to correct any such nonconforming
demand if and to the extent that you are entitled and able to do so.
This Letter of Credit is effective immediately and, unless terminated early
in accordance with the provisions of this Letter of Credit, expires at the close
of business at our office in [issuing bank city, state], on [initial expiration
date] (as extended as provided herein, the "Stated Expiration Date"); provided,
that the Stated Expiration Date shall be automatically extended for a period of
one year effective upon the initial Stated Expiration Date and each annual
anniversary of the Stated Expiration Date, unless, at least sixty (60) days
prior to the Stated Expiration Date, we notify you, by registered mail or
similar overnight courier service at the above address, that this Letter of
Credit shall not be extended beyond the then effective Stated Expiration Date.
If (x) you are so notified by us that the Stated Expiration Date of this Letter
of Credit shall not be extended, (y) a renewal or replacement of this Letter of
Credit is required and (z) you have not been provided with a renewal or
replacement of this Letter of Credit at least thirty (30) days prior to the
Stated Expiration Date, you may on or before the Stated Expiration Date draw the
full Available Amount. Any drawing under this Letter of Credit will be paid
with our own funds and not out of funds or other assets of any other person or
entity.
A-2
<PAGE>
Only you may make a drawing under this Letter of Credit. Multiple drawings
may be made under this Letter of Credit. Upon the payment of a drawing, we
shall be fully discharged of any obligation under this Letter of Credit in
respect of any amount in excess of the Available Amount after giving effect to
such drawing, and we shall not thereafter be obligated to make any further
payments under this Letter of Credit in respect of any amount in excess of the
Available Amount after giving effect to such drawing.
Upon payment of any drawing under this Letter of Credit, if any amount
remains to be drawn under this Letter of Credit, the new Available Amount shall
be evidenced by an endorsement on the reverse side of the original Letter of
Credit and we shall promptly return such endorsed Letter of Credit by overnight
courier to you at the address specified herein.
Upon the earliest of (i) the close of business on the Stated Expiration
Date or (ii) the date we have paid the Maximum Stated Amount in the aggregate
under all drawings made hereunder (which earliest date of (i) or (ii) is
referred to herein as the "Termination Date"), this Letter of Credit shall
automatically terminate and expire and the original of this Letter of Credit
shall be immediately delivered to us for cancellation.
Communications with respect to this Letter of Credit shall be in writing
and shall be addressed to us at [issuing bank address], specifically referring
to this Letter of Credit by number.
The Letter of Credit is transferable in its entirety (but not in part) to a
successor Agent (as defined in the Equity Contribution Agreement) upon
presentation to us of this Letter of Credit accompanied by the transfer form
attached hereto as Annex B to the transferee specified therein.
As used herein (a) "Authorized Officer" means any of your Vice Presidents
and (b) "Business Day" means any day on which commercial banks in [issuing bank
city, state] are open for purpose of conducting commercial banking business.
This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein, except
only the certificates referred to herein, and any such reference shall not be
deemed to incorporate herein by reference any documents, instrument or agreement
except for such certificates.
A-3
<PAGE>
This Letter of Credit shall be subject to the provisions (to the extent
that such provisions are not inconsistent with this Letter of Credit) of the
Uniform Customs and Practice for Documentary Credits, 1993 Revision,
International Chamber of Commerce Publication No. 500 (the "UCP"). To the
extent that the provisions of this Letter of Credit are not covered by the UCP,
this Letter of Credit shall be governed by, and enforced and construed in
accordance with, the laws of the State of _________, including Article 5 of the
Uniform Commercial Code of the State of _________.
Very truly yours,
[ISSUING BANK]
By_______________________________________
Its______________________________________
[By______________________________________
Its_____________________________________]
A-4
<PAGE>
ANNEX A
[Form of Drawing Certificate]
Date:
To: [issuing bank name]
[issuing bank address]
Re: Irrevocable Letter of Credit No. [number] (the "Letter of Credit")
Ladies and Gentlemen:
The undersigned, duly authorized officer of The First National Bank of
Chicago, as Agent (the "Agent") pursuant to the Equity Contribution Agreement
(as defined in the Letter of Credit) hereby certifies to [issuing bank name], as
Letter of Credit Issuer (the "Issuer"), with reference to the Letter of Credit
as follows:
(1) (Check One)
__________ A required capital contribution has become due and payable by
[name of member/account party] in the amount of $[amount in
figures] pursuant to the Equity Contribution Agreement (as
defined in the Letter of Credit) and has not been made as
required thereby;
__________ Not less than thirty (30) days have passed since the Agent has
given written notice to [name of member/account party] that the
Issuer has been deemed not to be an Acceptable L/C Issuer (as
defined in the Equity Contribution Agreement), a replacement
letter of credit is required to be provided and no replacement
letter of credit has been provided; or
__________ The Letter of Credit will expire within thirty (30) days, you
have informed the Agent that the Stated Expiration Date (as
defined in the Letter of Credit) will not be extended, a
replacement letter of credit is required to be provided and no
replacement has been provided.
<PAGE>
(2) The amount of the sight draft accompanying this certificate
equals the amount due and payable as set forth above and does not
exceed the Available Amount (as defined in the Letter of Credit).
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO, as
Agent
By____________________________________________
Name:_________________________________________
Title:________________________________________
A-2
<PAGE>
ANNEX B
[Form of Transfer Certificate]
Date:
To: [issuing bank name]
[issuing bank address]
Re: Irrevocable Letter of Credit No. [number] (the "Letter of Credit")
Ladies and Gentlemen:
For value received, the undersigned, The First National Bank of Chicago, as
Agent, hereby irrevocably transfers to:
______________________________
[Name of Transferee]
______________________________
______________________________
[Address]
all rights of the undersigned as beneficiary under the Letter of Credit. The
transferee has succeeded the undersigned as Agent under the Equity Contribution
Agreement (as defined in the Letter of Credit).
By this transfer, all rights of the undersigned beneficiary in the Letter
of Credit are transferred to the transferee, and the transferee shall hereafter
have the sole rights as beneficiary thereof.
<PAGE>
The Letter of Credit is returned herewith and, in accordance therewith, we
ask that this transfer be effective and that you transfer the Letter of Credit
to our transferee or that, if so requested by the transferee, you issue a new
irrevocable Letter of Credit in favor of the transferee with provisions
consistent with the Letter of Credit.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO, as
Agent
By____________________________________________
Name:_________________________________________
Title:________________________________________
A-2
<PAGE>
SCHEDULE 1
TO CONTINGENT EQUITY CONTRIBUTION AGREEMENT
"Capital Lease" means, as applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Deltic" means Deltic Timber Corporation.
"Del-Tin" means Del-Tin Fiber, L.L.C.
"EBITDA means, for any period, with respect to Deltic and its Subsidiaries
on a consolidated basis, the sum of (a) Net Income for such period (excluding
the effect of any extraordinary or other non-recurring gains or losses outside
of the ordinary course of business) plus (b) an amount which in the
determination of (a) above for such period, has been deducted for (i) current
Interest Expense, (ii) total Federal, state, foreign or other income taxes and
(iii) all Non-Cash Charges, all as determined in accordance with GAAP.
"Fixed Charge Coverage Ratio" means, as of the end of each fiscal quarter
of Deltic, for the twelve month period ending on such date, with respect to
Deltic on a consolidated basis, the ratio of (a) EBITDA for the applicable
period minus dividends paid for the applicable period minus current income taxes
for the applicable period to (b) the sum of (i) current Interest Expense for the
applicable period plus (ii) Scheduled Funded Debt Payments for the applicable
period.
"Funded Debt" means, without duplication, the sum of (a) all indebtedness
of Deltic and its Subsidiaries on a consolidated basis for borrowed money, (b)
all purchase money indebtedness of Deltic and its Subsidiaries, (c) the
principal portion of all obligations of Deltic and its Subsidiaries under
Capital Leases, (d) commercial letters of credit and the maximum amount of all
performance and standby letters of credit issued or bankers' acceptance
facilities created for the account of Deltic or its Subsidiaries, including,
without duplication, all unreimbursed draws thereunder, (e) all Guaranty
Obligations of Deltic and its Subsidiaries with respect to Funded Debt of
another Person, (f) all Funded Debt of any Person secured by a Lien on any
property of Deltic or any of its Subsidiaries whether or not such Funded Debt
has been assumed by Deltic or any of its Subsidiaries, (g) all Funded Debt of
any partnership or unincorporated joint venture to the extent that Deltic or any
of its Subsidiaries under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product to which
Deltic or any of its Subsidiaries is a party, when such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP.
"Funded Debt/Capitalization Ratio" means, as of any date of determination,
with respect to Deltic and its Subsidiaries on a consolidated basis, the ratio
of (a) Funded Debt on such date to (b) Funded Debt on such date plus Net Worth
on such date.
A-1
<PAGE>
"GAAP" means generally accepted accounting principles in the United States
applied on a consistent basis.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligation (other than endorsements in the ordinary course of
business of negotiable instruments for deposit or collection) guaranteeing or
intended to guarantee any indebtedness, leases, dividends or other obligations
of any other Person in any manner, whether direct or indirect, and including
without limitation any obligation, whether or not contingent, (a) to purchase
any such indebtedness or other obligation or any property constituting security
therefor, (b) to advance or provide funds or other support for the payment or
purchase of such indebtedness or obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person (including,
without limitation, maintenance agreements, comfort letters, take or pay
arrangements, put agreements or similar agreements or arrangements) for the
benefit of the holder of indebtedness of such other Person, (c) to lease or
purchase property, securities or services primarily for the purpose of assuring
the owner of such indebtedness or obligation, or (d) to otherwise assure or hold
harmless the owner of such indebtedness or obligation against loss in respect
thereof. The amount of any Guaranty Obligation hereunder shall (subject to any
limitations set forth therein) be deemed to be an amount equal to the
outstanding principal amount (or maximum principal amount, if larger) of the
indebtedness in respect of which such Guaranty Obligation is made.
"Interest Coverage Ratio" means, as of the end of each fiscal quarter of
Deltic, for the twelve month period ending on such date, with respect to Deltic
and its Subsidiaries on a consolidated basis, the ratio of (a) EBITDA for the
applicable period to (b) current Interest Expense for the applicable period.
"Interest Expense" means, for any period, with respect to Deltic and its
Subsidiaries on a consolidated basis, all net interest expense, including the
interest component under Capital Leases, as determined in accordance with GAAP;
it being understood that Interest Expense shall, at the option of Deltic,
include the amortized cost of any interest rate protection agreements to the
extent permitted by GAAP.
"Lien" means, any lien (statutory or otherwise), as well as any interest,
encumbrance, preference, priority or charge of any kind, including without
limitation, any agreement to give any of the foregoing, any conditional sale or
other title retention agreement, any financing or similar statement or notice
filed under the Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction or other similar recording or notice statute, and any lease in the
nature thereof.
"Net Income" means, for any periods, the net income after taxes for such
period of Deltic on a consolidated basis, as determined in accordance with GAAP.
A-2
<PAGE>
"Net Worth" means as of any date, shareholders' equity of Deltic on a
consolidated basis, as determined in accordance with GAAP.
"Non-Cash Charges" means, for any period, with respect to Deltic and its
Subsidiaries on a consolidated basis, all depreciation, amortization, deferred
tax provisions, employee benefit accruals (other than those that require a trust
fund contribution within twelve months) and other similar non-cash charges.
"Person" means any individual, partnership, Del-Tin, firm, corporation,
limited liability company, association, trust or other enterprise (whether or
not incorporated), or any Governmental Authority.
"Revolving Committed Amount" means One Hundred Million Dollars
($100,000,000).
"Schedule Funded Debt Payments" means, as of the end of each fiscal quarter
of Deltic, for Deltic and its Subsidiaries on a consolidated basis, the sums of
all scheduled payments of principal on Funded Debt for the applicable period
ending on such date (including the principal component of payments due on
Capital Leases during the applicable period ending on such date); it being
understood that Scheduled Funded Debt Payments shall not include voluntary
prepayments or the mandatory prepayments of the Revolving Commitment Amount.
"Subsidiary" means as to any Person, (a) any corporation more than 50% of
whose stock of any class or classes having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation (irrespective of
whether or not at the time, any class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency) is at
the time owned by such Person directly or indirectly through Subsidiaries, and
(b) any partnership, association, joint venture, limited liability company or
other entity in which such Person directly or indirectly through Subsidiaries
has more than a 50% equity interest at any time.
"Timber Ratio" means as of the date of determination, with respect to
Deltic and its Subsidiaries on a consolidated basis, the ratio of (a) the market
value of all timber owned by Deltic and its Subsidiaries to (b) the Revolving
Committed Amount.
A-3
<PAGE>
FORM OF
PLEDGE AGREEMENT
This Pledge Agreement dated as of November 23 ,1998 (as it may from time to
time be amended, supplemented or otherwise modified, this "Pledge Agreement") is
----------------
made by Deltic Timber Corporation, a Delaware corporation, and Temple-Inland
Forest Products Corporation, a Delaware corporation (collectively, the
"Pledgors" and individually, a "Pledgor") to and in favor of the Agent (as
-------- -------
defined below), on behalf of and for the ratable benefit of the Secured Parties.
R E C I T A L S:
WHEREAS, Del-Tin Fiber L.L.C., an Arkansas limited liability company (the
"Company"), certain financial institutions as Lenders, and The First National
-------
Bank of Chicago, as Agent have entered into that certain Project Credit
Agreement of even date herewith (together with all amendments and other
modifications, if any, from time to time made thereto, the "Credit Agreement")
----------------
whereunder certain financial institutions agree to make certain loans to, and
issue (or participate in) letters of credit for the account of, the Company; and
WHEREAS, the Pledgors are the only members of the Company;
WHEREAS, as a condition precedent to the extension of credit under the
Credit Agreement, the Pledgors are required to execute and deliver this
Agreement;
NOW THEREFORE, in consideration of the foregoing, and other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Pledgor hereby agrees as follows:
1. DEFINITIONS.
As used in this Pledge Agreement:
"Additional Rights" means, with respect to any Pledgor, any membership
-----------------
interest, other ownership interest, dividend or other distribution and any
other right or property which such Pledgor shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in
substitution for or in
<PAGE>
exchange for any portion of the Membership Interest and any membership
interest, ownership interest or right to receive any membership interest,
ownership interest or dividend or distribution in which such Pledgor now
has or hereafter acquires any right, issued by the Company. It is expressly
acknowledged and agreed that payments made to any Pledgor pursuant to the
terms of the MDF Marketing Agreement or the Fiber Supply Agreement are not
Additional Rights.
"Agent" means The First National Bank of Chicago in its capacity as
-----
Agent pursuant to the Credit Agreement and its respective successors and
assigns in such capacity.
"Collateral" means, the Membership Interests and the Additional
----------
Rights, including any and all proceeds thereof.
"Company" is defined in the Recitals of this Pledge Agreement.
-------
"Indebtedness" means, with respect to any Pledgor, such Pledgor's (a)
------------
obligations for borrowed money, (b) obligations representing the deferred
purchase price of property other than accounts payable arising in
connection with the purchase of inventory on terms customary in the trade
and (c) obligations under leases which would be capitalized on a balance
sheet of such Pledgor prepared in accordance with generally accepted
accounting principles.
"Liabilities" means all obligations (monetary or otherwise) of the
-----------
Company, howsoever created, arising or evidenced, whether direct or
indirect, absolute or contingent, now or hereafter existing, or due or to
become due, which arise out of or in connection with the Credit Agreement,
the Letters of Credit, any other Credit Document or any other document or
instrument executed in connection therewith (including any Hedging
Agreement (as defined in the Credit Agreement) entered into with any person
who at the time such Hedging Agreement is entered into is a Lender or an
affiliate thereof) and all obligations of any Pledgor pursuant to this
Pledge Agreement.
"LLC Agreement" means the Operating Agreement dated as of February 21,
-------------
1995 between the Pledgors relating to the Company, as it may from time to
time be amended or otherwise modified.
"Membership Interest" means, with respect to any Pledgor, such
-------------------
Pledgor's entire membership interest in the Company including, without
limitation, all of such Pledgor's rights in and to all profits, proceeds
and distributions of every kind and nature whatsoever due to such Pledgor
pursuant to the terms of the LLC Agreement.
-2-
<PAGE>
"Pledgor" is defined in the Recitals to this Pledge Agreement.
-------
"Pledgor Default" shall mean the occurrence of any one or more of the
---------------
following events:
(a) Any representation or warranty made by a Pledgor to the Agent under or
in connection with this Pledge Agreement shall be materially false as of the
date on which made;
(b) The breach by the Pledgor of any of the terms or provisions of section
4.1(a), 4.1(d) or 4.2;
- ------ ------ ---
(c) The breach by a Pledgor (other than a breach which constitutes a
Pledgor Default under subsections (a) and (b) above) of any of the terms or
provisions of this Pledge Agreement which is not remedied within five days after
written notice from the Agent;
(d) The Secured Parties shall not have a first perfected security interest
in the Collateral, other than ordinary cash dividends and distributions which
the Pledgor is entitled to retain pursuant to sections 4.1(a) and 4.2(d).
--------------- ------
(e) Failure of a Pledgor to pay any Credit Obligation when due, or the
default by a Pledgor in the performance of any other term, provision or
condition contained in any agreement under which any such Credit Obligation was
created or is governed, the effect of which is to cause, or to permit the holder
or holders of such Credit Obligation to cause, such Credit Obligation to become
due prior to its stated maturity.
(f) Any "Default", as defined therein, shall occur under the Credit
Agreement.
"Section" means a numbered section of this Pledge Agreement, unless
-------
another document is specifically referenced.
"Unmatured Pledgor Default" means an event which but for the lapse of
-------------------------
time or the giving of notice, or both, would constitute a Pledgor Default.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. Unless the context otherwise requires,
capitalized terms used herein which are defined in Appendix I to the Credit
Agreement shall have their same defined meanings when used in this Pledge
Agreement.
2. GRANT OF SECURITY INTEREST.
-3-
<PAGE>
Each Pledgor hereby pledges, assigns and grants to the Agent, on behalf of
and for the ratable benefit of the Secured Parties, a security interest in all
of such Pledgor's right, title and interest in and to the Collateral to secure
the prompt and complete payment and performance of the Liabilities.
3. REPRESENTATIONS AND WARRANTIES.
Each Pledgor represents and warrants to the Secured Parties that:
3.1 Validity and Enforceability. The execution and delivery by such
---------------------------
Pledgor of this Pledge Agreement constitutes a legal, valid and binding
obligation of such Pledgor, creates a security interest that is enforceable
against such Pledgor in its Membership Interest and will create a security
interest enforceable against such Pledgor in the Additional Rights and the
proceeds of the Collateral at the time such Pledgor acquires any right therein.
3.2 Conflicting Laws and Contracts. Neither the execution and delivery by
------------------------------
such Pledgor of this Pledge Agreement, the creation and perfection of the
security interest in the Collateral granted hereunder, nor compliance with the
terms and provisions hereof will violate any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on such Pledgor or any indenture,
instrument or agreement to which such Pledgor is a party or is subject
(including, without limitation, the LLC Agreement), where violation of any such
indenture, instrument or agreement could reasonably be expected to have a
Material Adverse Effect, or by or which it, or its property, is bound, or
conflict with or constitute a default thereunder, or result in the creation or
imposition of any Lien pursuant to the terms of any such indenture, instrument
or agreement. No financing statement covering the Collateral which has not
lapsed or been terminated naming such Pledgor as debtor has been filed in any
jurisdiction except financing statements naming the Agent as secured party.
3.3 No Default. No Pledgor Default or Unmatured Pledgor Default exists.
----------
3.4 Ownership. Such Pledgor is the direct and beneficial owner of the
---------
entire membership interest represented by its Membership Interest, and the
Membership Interest represents the applicable percentage of the aggregate issued
and outstanding membership interests of the Company, in each case as set forth
on Schedule I. Such Pledgor owns no ownership interests in the Company other
----------
than those included in the Collateral.
3.5 Issuance of Company Interest. All of the membership interest
----------------------------
represented by the Membership Interest of such Pledgor have been duly and
validly issued, are fully paid and are owned by such Pledgor free and clear of
any Lien, other than the security interest created by this Pledge Agreement.
-4-
<PAGE>
4. COVENANTS.
From the date of this Pledge Agreement, and thereafter until this Pledge
Agreement is terminated pursuant to Section 7.7,
-----------
4.1 Each Pledgor will:
(a) Delivery of Certain Items. Hold in trust for the Secured Parties
-------------------------
upon receipt and immediately thereafter deliver to Agent, on behalf of the
Secured Parties, any certificate of ownership or other instrument or
document evidencing or constituting Collateral which may be issued after
the date hereof (except ordinary cash dividends and distributions paid with
respect to such Pledgor's Membership Interest and the Additional Rights, to
the extent expressly permitted by the Credit Agreement).
(b) Taxes. Pay before they become delinquent all taxes, assessments
-----
and governmental charges and levies upon the Collateral, except those which
are being contested in good faith by appropriate proceedings and with
respect to which no Lien exists.
(c) Notice of Default. Give prompt notice in writing to the Agent of
-----------------
the occurrence of any Pledgor Default or Unmatured Default.
(d) Financing Statements and Other Actions. Execute and deliver to
--------------------------------------
Agent, on behalf of the Secured Parties, all stock powers, financing
statements and other documents and do such other things from time to time
requested by the Agent in order to maintain a first perfected security
interest in the Collateral in favor of the Secured Parties and to effect a
transfer of the Collateral, or any part thereof.
(e) Reports. Furnish to the Secured Parties such reports relating to
-------
the Collateral as any Secured Party shall from time to time reasonably
request.
4.2 Each Pledgor will not:
(a) Liens. Create, incur, or suffer to exist any Lien on the
-----
Collateral except the security interest created by this Pledge Agreement.
(b) Disposition of Collateral. Sell or otherwise dispose of all or
-------------------------
any part of the Collateral if such sale or transfer would cause a Company
Change of Control (except ordinary cash dividends and distributions paid
with respect to the Membership Interest and the Additional Rights, to the
extent expressly permitted by the Credit Agreement).
-5-
<PAGE>
(c) Changes in Capital Structure of Company. (a) Permit or suffer
---------------------------------------
the Company to dissolve, liquidate, retire any of its ownership interests,
or merge or consolidate with any other entity or (b) vote any of the
Collateral in favor of any of the foregoing; provided that no violation of
this provision shall occur if a change in ownership percentages occurs
pursuant to the terms of the LLC Agreement and the Members continue to own
collectively 100 percent of the membership interests in the Company.
(d) Issuance of Additional Ownership Interests. Permit or suffer the
------------------------------------------
Company to issue any membership or other ownership interest, or any right
to receive any membership or other ownership interest, or any right to
receive earnings if such sale or transfer would cause a Company Change of
Control.
(e) Member Change of Control. Permit or suffer a Member Change of
------------------------
Control to occur.
5. REMEDIES.
5.1. Acceleration and Remedies. If any Pledgor Default occurs, the Agent
-------------------------
shall, if so requested by the Required Lenders, exercise any or all of the
rights and remedies provided in this Pledge Agreement or any other Credit
Document, in the Uniform Commercial Code as in effect in Illinois or by any
other applicable law. Without limiting the foregoing, whenever Pledgor Default
shall exist and be continuing the Agent (a) shall, if so requested by the
Required Lenders, to the fullest extent permitted by applicable law, without
notice, advertisement, hearing or process of law of any kind, (i) sell any or
all of the Collateral, free of all rights and claims of any Pledgor therein and
thereto, at any public or private sale or brokers' board and (ii) bid for and
purchase any or all of the Collateral at any such public sale; and (b) shall
have the right, for and in the name, place and stead of any Pledgor, to execute
endorsements, assignments, stock powers and other instruments of conveyance or
transfer with respect to all or any of the Collateral. Each Pledgor hereby
expressly waives, to the fullest extent permitted by applicable law, any and all
notices, advertisements, hearings or process of law in connection with the
exercise by the Agent of any of its rights and remedies during the continuance
of a Pledgor Default. If any notification of intended disposition of any of the
Collateral is required by law, such notification, if mailed, shall be deemed
reasonably and properly given if mailed by certified or registered mail at least
ten (10) days before such disposition, postage prepaid, addressed to any
Pledgor, either at the address of such Pledgor shown below, or at any other
address of such Pledgor appearing on the records of the Agent. Any proceeds of
any of the Collateral may be applied by the Agent to the payment of expenses in
connection with the Collateral, including, without limitation, reasonable
attorneys' fees and legal expenses, and any balance of such proceeds may be
applied by the Agent toward the payment of such of the Liabilities, and in such
order of application, as the Agent may
-6-
<PAGE>
from time to time elect (and, after payment in full of all Liabilities, any
excess shall be delivered to the applicable Pledgor or as a court of competent
jurisdiction shall direct).
The Agent is hereby authorized to comply with any limitation or restriction
in connection with any sale of Collateral as it may be advised by counsel is
necessary in order to (a) avoid any violation of applicable law (including,
without limitation, compliance with such procedures as may restrict the number
of prospective bidders and purchasers and/or further restrict such prospective
bidders or purchasers to persons or entities who will represent and agree that
they are purchasing for their own account for investment and not with a view to
the distribution or resale of such Collateral) or the loss of qualifying
facility status for the Facility or (b) obtain any required approval of the sale
or of the purchase by any governmental regulatory authority or official, and
each Pledgor agrees that such compliance shall not result in such sale being
considered or deemed not to have been made in a commercially reasonable manner
and that the Agent shall not be liable or accountable to such Pledgor for any
discount allowed by reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
5.2 Care of Collateral. The Agent shall be deemed to have exercised
------------------
reasonable care in the custody and preservation of the Collateral if it takes
such action for that purpose as any Pledgor shall request in writing, but
failure of the Agent to comply with any such request shall not of itself be
deemed a failure to exercise reasonable care, and no failure of the Agent to
preserve or protect any rights with respect to the Collateral against prior
parties, or to do any act with respect to preservation of the Collateral not so
requested by such Pledgor, shall be deemed of itself a failure to exercise
reasonable care in the custody or preservation of any Collateral.
5.3 Sharing of Collateral. The Secured Parties agree that the net
---------------------
proceeds of any sale or disposition of the Collateral after the occurrence of a
Pledgor Default shall be distributed among the Secured Parties as set forth in
the Security Agreement.
5.4 Registration of Collateral. At the option of the Agent, any
--------------------------
registerable Collateral may at any time be registered in the name of the Agent
or its nominee.
5.5 Exercise of Rights in Collateral. After the occurrence of a Pledgor
--------------------------------
Default, the Agent and/or the Secured Parties or their nominee may at any time
and from time to time, without notice, exercise all voting, corporate,
managerial and membership rights relating to the Collateral, including, without
limitation, rights to receive dividends and distributions, as well as exchange,
subscription or any other rights, privileges, or options pertaining to the
Membership Interests and the Additional Rights as if it were the absolute owner
thereof.
-7-
<PAGE>
6. WAIVERS, AMENDMENTS AND REMEDIES.
No delay or omission of the Agent or the Secured Parties to exercise any
right or remedy granted under this Pledge Agreement shall impair such right or
remedy or be construed to be a waiver of any Pledgor Default or an acquiescence
therein, and any single or partial exercise of any such right or remedy shall
not preclude other or further exercise thereof or the exercise of any other
right or remedy, and no waiver, amendment or other variation of the terms,
conditions or provisions of this Pledge Agreement whatsoever shall be valid
unless in writing signed by the Agent, and then only to the extent in such
writing specifically set forth. All rights and remedies contained in this
Pledge Agreement or by law afforded shall be cumulative and all shall be
available to the Agent and the Secured Parties until the Liabilities have been
paid in full and all commitments to lend under the Credit Agreement have been
terminated.
7. GENERAL PROVISIONS.
7.1 Specific Performance of Certain Covenants. Each Pledgor acknowledges
-----------------------------------------
and agrees that a breach of any of the covenants contained in Sections 4.1.(a),
-------
4.1.(d), 4.2.(b), 4.2.(c) and 4.2.(d), will cause irreparable injury to the
- ------- ------- ------- -------
Secured Parties, that the Secured Parties have no adequate remedy at law in
respect of such breaches and therefore agrees, without limiting the right of the
Agent and the Secured Parties to seek and obtain specific performance of other
obligations of such Pledgor contained in this Pledge Agreement, that the
covenants of such Pledgor contained in the Sections referred to in this Section
-------
7.1 shall be specifically enforceable against such Pledgor.
- ----
7.2 Unconditional Obligations. The obligations of the Pledgors hereunder
-------------------------
are absolute and unconditional, without regard to any circumstance of any nature
whatsoever that constitutes or might constitute an equitable or legal discharge
of the Company or any Pledgor of any of its respective obligations under the
Credit Documents, in bankruptcy or in any other instance. To the extent
permitted by applicable law, each Pledgor hereby waives diligence, presentment,
protest, demand for payment and notice of default or non-payment to or upon the
Company or itself with respect to any amounts due under the Credit Agreement or
any other Credit Document. Each Pledgor shall remain obligated hereunder
notwithstanding that, without any reservation of rights by or against such
Pledgor and without notice to or further assent by or against such Pledgor, any
demand for payment of any amount due pursuant to the Credit Agreement or the
other Credit Documents may be rescinded by the Secured Parties, or any of the
loans or other extensions of credit thereunder continued or such amounts, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guaranty therefor or right of offset with respect thereto, may, from
time to time, in whole or part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Secured
Parties, or the Credit Agreement, the Notes or any other Credit Documents or any
other document executed
-8-
<PAGE>
in connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as the Secured Parties may deem advisable from time to time,
or any collateral security or guaranty or right of offset at any time held by
the Secured Parties for the payment of such amounts may be sold, exchanged,
waived, surrendered or released; provided, that no such amendment shall
--------
increase, accelerate, modify or otherwise alter any obligations of any Pledgor
hereunder in any respect without such Pledgor's consent.
7.3 Benefit of Agreement. The terms and provisions of this Pledge
--------------------
Agreement shall be binding upon and inure to the benefit of each Pledgor, and
the Secured Parties and their respective successors and assigns, except that
such Pledgor shall not have the right to assign its rights under this Pledge
Agreement or any interest herein, without the prior written consent of the
Agent.
7.4 Survival of Representations. All representations and warranties of
---------------------------
the Pledgors contained in this Pledge Agreement shall survive the execution and
delivery of this Pledge Agreement.
7.5 Taxes and Expenses. Any taxes (excluding income taxes of any Secured
------------------
Party and taxes measured by the income of any Secured Party) payable or ruled
payable by Federal or State authority in respect of this Pledge Agreement shall
be paid by the Pledgor, together with interest and penalties, if any. Each
Pledgor shall reimburse the Secured Parties for any and all out-of-pocket
expenses and internal charges paid or incurred by any Secured Party in
connection with the collection and enforcement (including attorneys' fees and
reasonable time charges of attorneys who may be employees of any Secured Party)
of this Pledge Agreement.
7.6 Headings; UCC Definitions. The title of and section headings in this
-------------------------
Pledge Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Pledge Agreement.
Terms defined in the Illinois Uniform Commercial Code which are not otherwise
defined in this Pledge Agreement are used in this Pledge Agreement as defined in
the Illinois Uniform Commercial Code as in effect on the date hereof.
7.7 Termination. This Pledge Agreement shall continue in effect
-----------
(notwithstanding the fact that from time to time there may be no Liabilities or
commitments therefor outstanding) until all Liabilities, or commitments by any
Secured Party which could give rise to Liabilities, shall no longer be
outstanding.
7.8 Disclaimer. Beyond the exercise of reasonable care to assure the safe
----------
custody of the Collateral while held hereunder neither the Agent, neither the
Secured Parties nor their nominee shall have any duty or liability to collect
any sums due in respect thereof or to protect or preserve rights pertaining
thereto, and shall be relieved
-9-
<PAGE>
of all responsibility for the Collateral upon surrendering them to the Pledgor.
The Collateral is assigned and transferred to the Agent by way of collateral
security only and, accordingly, the Agent and the Secured Parties, by their
acceptance hereof, shall not be deemed to have assumed or become liable for any
of the obligations or liabilities of each Pledgor under the LLC Agreement,
whether provided for by the terms thereof, arising by operation of law or
otherwise, and the Pledgor hereby acknowledges and agrees that such Pledgor is
and remains liable thereunder to the same extent as though this Pledge Agreement
had not been made. Notwithstanding the foregoing, no Person shall be deemed to
have been relieved of any liability for its gross negligence or wilful
misconduct.
7.9 Agent Appointed Attorney-In-Fact. Each Pledgor hereby irrevocably
--------------------------------
appoints the Agent such Pledgor's attorney-in-fact, with full authority in the
place and stead of such Pledgor and in the name of such Pledgor or otherwise,
from time to time in the Agent's discretion reasonably exercised, to take any
action and to execute any instrument that the Agent deem reasonably necessary or
advisable to accomplish the purposes of this Pledge Agreement, including,
without limitation, to receive, indorse and collect all instruments made payable
to such Pledgor representing any distribution in respect of any of such
Pledgor's Membership Interest and to give full discharge for the same, when and
to the extent permitted by this Pledge Agreement. The power of attorney hereby
created is coupled with an interest and is irrevocable. The Company is hereby
irrevocably authorized to rely upon and comply with (and shall be fully
protected in so doing) any notice or demand by the Agent for the payment or
distribution to the Agent of any sums or any other assets of any kind or nature
whatsoever that may be or thereafter become due under the LLC Agreement or any
applicable corporate document (other than the MDF Marketing Agreement and the
Fiber Supply Agreement) to the owner thereof and shall have no right or duty to
inquire as to whether any Event of Default has actually occurred or is then
existing.
7.10 Entire Agreement. This Pledge Agreement embodies the entire
----------------
agreement and understanding between the Pledgors and the Secured Parties
relating to the Collateral and supersedes all prior agreements and
understandings between the Pledgors and the Secured Parties relating to the
Collateral.
7.11 CHOICE OF LAW. THIS PLEDGE AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
7.12 CONSENT TO JURISDICTION, VENUE, ETC. EACH PARTY HERETO HEREBY
-----------------------------------
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO, ILLINOIS IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT AND EACH PARTY
HERETO HEREBY
-10-
<PAGE>
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. SUCH SERVICE MAY BE MADE BY MAILING OR DELIVERING A COPY OF
SUCH PROCESS TO THE COMPANY AT ITS ADDRESS.
7.13 WAIVER OF JURY TRIAL. EACH PLEDGOR AND EACH SECURED PARTY HEREBY
--------------------
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS PLEDGE AGREEMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
7.14 Giving Notices. All notices and other communications provided to any
--------------
party under this Pledge Agreement shall be in writing or by facsimile and
addressed or delivered to such party at its address set forth below its name on
the signature pages hereof or at such other address at may be designated by such
party in a notice to the other parties. Any notice shall be deemed given when
received within normal business hours.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Pledge Agreement
as of the date first above written.
DELTIC TIMBER CORPORATION
By:____________________________________________
Title:_________________________________________
Address for Notices:
210 East Elm
P.O. Box 7200
El Dorado, Arkansas 71731
Attention: Mr. Clefton Vaughan
Treasurer
Telephone: (870) 881-6407
Facsimile: (870) 881-6457
TEMPLE-INLAND FOREST PRODUCTS
CORPORATION
By:____________________________________________
Title:_________________________________________
Address for Notices:
1300 South MoPac
Austin, Texas 78746
Attention: Mr. David Turpin
Vice President and
Assistant Treasurer
Telephone: (512) 434-8705
Facsimile: (512) 434-8710
S-1
<PAGE>
S-2
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO.
as Agent
By:____________________________________________
Title:_________________________________________
Address for Notices:
One First National Plaza
Mail Suite 0324
Chicago, Illinois 60670
Attention: Jennifer Gilpin
Telephone: (312) 732-5867
Facsimile: (312) 732-5296
S-3
<PAGE>
SCHEDULE I
to Pledge Agreement
Dated as of November 23, 1998
Pledgor Membership Interest Percentage
- ------- ------------------------------
Deltic Timber Corporation 50%
Temple-Inland Forest Products 50%
Corporation
-1-
<PAGE>
EXHIBIT 21
Deltic Timber Corporation
Subsidiaries of the Registrant
As of December 31, 1998
State of
Subsidiaries Incorporation
- --------------------------------------------------------------------------------
Deltic Timber Purchasers, Inc. Arkansas
Chenal Properties, Inc. Arkansas
Chenal Country Club, Inc. Arkansas
65
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Deltic Timber Corporation:
We consent to incorporation by reference in the Registration Statement (No. 333-
34317) on Form S-8 of Deltic Timber Corporation of our report dated February 5,
1999, relating to the consolidated balance sheets of Deltic Timber Corporation
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1998, which report appears in the
December 31, 1998 annual report on Form 10-K of Deltic Timber Corporation.
KPMG LLP
Shreveport, Louisiana
March 24, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 8,160 31,045
<SECURITIES> 0 0
<RECEIVABLES> 5,513 4,164
<ALLOWANCES> 190 95
<INVENTORY> 5,851 8,595
<CURRENT-ASSETS> 23,216 45,769
<PP&E> 79,993 73,556
<DEPRECIATION> 35,889 33,910
<TOTAL-ASSETS> 272,544 225,375
<CURRENT-LIABILITIES> 6,677 7,798
<BONDS> 0 0
30,000 30,000
0 0
<COMMON> 128 128
<OTHER-SE> 183,006 179,868
<TOTAL-LIABILITY-AND-EQUITY> 272,544 225,375
<SALES> 106,957 104,208
<TOTAL-REVENUES> 108,500 106,221
<CGS> 75,656 67,625
<TOTAL-COSTS> 82,987 72,537
<OTHER-EXPENSES> 4,657 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,387 370
<INCOME-PRETAX> 13,777 27,252
<INCOME-TAX> 5,303 10,678
<INCOME-CONTINUING> 8,474 16,574
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 8,474 16,574
<EPS-PRIMARY> 0.48 1.29
<EPS-DILUTED> 0.48 1.29
</TABLE>
