<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO. 333-24939
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
THE FONDA GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2656, 2676 13-3220732
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
21 LOWER NEWTON STREET
ST. ALBANS, VERMONT 05478
(802) 524-5966
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------
MICHAEL S. NELSON, ESQ.
KRAMER, LEVIN, NAFTALIS & FRANKEL
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
(212) 715-9100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the registration statement becomes effective and all
other conditions to the exchange offer (the "Exchange Offer") pursuant to the
registration rights agreement (the "Registration Rights Agreement") described
in the enclosed Prospectus have been satisfied or waived.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This preliminary prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws
of any such State.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 19, 1997
THE FONDA GROUP, INC.
OFFER TO EXCHANGE ITS 9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR
ANY AND ALL OF ITS OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
($120,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1997 (AS SUCH DATE MAY BE EXTENDED, THE
"EXPIRATION DATE").
The Fonda Group, Inc. (the "Company") hereby offers (the "Exchange
Offer"), upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal"), to exchange an aggregate of up to $120,000,000 principal
amount of 9 1/2% Series B Senior Subordinated Notes due 2007 (the "New
Notes") for an identical face amount of the outstanding 9 1/2% Series A
Senior Subordinated Notes due 2007 (the "Old Notes" and, with the New Notes,
the "Notes"). The terms of the New Notes are identical in all material
respects to the terms of the Old Notes except that the registration and other
rights relating to the exchange of Old Notes for New Notes and the
restrictions on transfer set forth on the Old Notes will not appear on the
New Notes. See "The Exchange Offer." The New Notes are being offered
hereunder in order to satisfy certain obligations of the Company under a
Registration Rights Agreement dated as of February 27, 1997 (the
"Registration Rights Agreement") among the Company, Bear, Stearns & Co., Inc.
and Dillon, Read Co. Inc. (the "Initial Purchasers"). Based on an
interpretation by the staff of the Securities and Exchange Commission (the
"Commission") set forth in no-action letters issued to third parties
unrelated to the Company, New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act of
1933, as amended (the "Securities Act")), without compliance with the
registration and the prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement with any person to
participate in or is engaged in or is planning to be engaged in the
distribution of such New Notes.
The New Notes will bear interest at a rate of 9 1/2% per annum, payable
semi-annually in arrears on March 1 and September 1 of each year, commencing
September 1, 1997. The Company will not be required to make any mandatory
redemption or sinking fund payment with respect to the New Notes prior to
maturity. The New Notes will be redeemable at the option of the Company, in
whole or in part, at any time after March 1, 2002 at the redemption prices
set forth herein. In addition, at the option of the Company, up to one-third
of the Notes may be redeemed prior to March 1, 2000 at the redemption price
set forth herein with the net proceeds of a public offering of common stock
of the Company; provided that at least two-thirds of the aggregate principal
amount of the New Notes originally issued under the Indenture (as defined
herein) remain outstanding following such redemption. In addition, upon the
occurrence of a Change of Control (as defined herein) prior to March 1, 2002,
the Company, at its option, may redeem all, but not less than all, of the
outstanding New Notes as a redemption price equal to 100% of the principal
amount thereof plus the applicable Make-Whole Premium (as defined herein).
Upon the occurrence of a Change of Control at any time, the Company will be
required to make an offer to repurchase each holder's New Notes at a price
equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. There can be no assurance
that the Company will have the financial resources necessary or the ability
to repurchase the New Notes upon a Change of Control. The New Notes will be
general unsecured obligations of the Company and will be subordinate in right
of payment to all existing and future Senior Debt (as defined herein) and
will be senior or pari passu in right of payment to all existing and future
subordinated indebtedness of the Company. As of April 27, 1997, the Company
had $3.1 million of Senior Debt outstanding. See "Description of New Notes"
and "Description of Certain Indebtedness."
<PAGE>
The Company will accept for exchange from an Eligible Holder any and all
Old Notes that are validly tendered prior to 5:00 p.m., New York City time,
on the Expiration Date. For purposes of the Exchange Offer, "Eligible Holder"
shall mean the registered owner of any Old Notes that remain Transfer
Restricted Securities, as reflected on the records of The Bank of New York,
as registrar for the Old Notes (in such capacity, the "Registrar"), or any
person whose Old Notes are held of record by the depository of the Old Notes.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. For purposes of the Exchange Offer,
"Transfer Restricted Securities" means each Old Note until the earliest to
occur of (i) the date on which such Old Note is exchanged in this Exchange
Offer and entitled to be resold to the public by the holder thereof without
complying with the prospectus delivery provisions of the Securities Act, (ii)
the date on which such Old Note is registered under the Securities Act and is
disposed of in a shelf registration statement, if applicable, or (iii) the
date on which such Old Note has been distributed to the public pursuant to
Rule 144 under the Securities Act or by a broker-dealer pursuant to the plan
of distribution described herein. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. If the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes,
it will promptly return the Old Notes to the holders thereof. See "The
Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. Any broker-dealer that acquired Old
Notes directly from the Company and not as a result of market-making
activities or other trading activities, in the absence of an exemption from
the registration requirements of the Securities Act, must comply with such
registration requirements and the prospectus delivery requirements of the
Securities Act in connection with any secondary resales of New Notes received
in exchange for such Old Notes. The Company has agreed that, for a period of
270 days after the effective date hereof, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale.
See "The Exchange Offer" and "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the
Notes. To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. If a market for the New Notes should develop, the New Notes could
trade at a discount from their principal amount. The Company does not
currently intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system. There can be
no assurance that an active public market for the New Notes will develop.
The Exchange Agent for the Exchange Offer is The Bank of New York.
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE
EXCHANGE OFFER.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form S-4 under the Securities
Act with respect to the securities offered by this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, to which reference is hereby made. Each
statement made in this Prospectus referring to a document filed as an exhibit
or schedule to the Registration Statement is qualified in its entirety by
reference to the exhibit or schedule for a complete statement of its terms
and conditions, although all of the material terms of the Company's contracts
and agreements that would be material to an investor have been summarized in
this Prospectus. In addition, upon the effectiveness of the Registration
Statement filed with the Commission, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith the Company will file
periodic reports and other information with the Commission relating to its
business, financial statements and other matters. Any interested parties may
inspect and/or copy the Registration Statement, its schedules and exhibits,
and the periodic reports and other information filed in connection therewith,
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's regional offices located at Citicorp Center, 500 W. Madison
Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials can be obtained at
prescribed rates by addressing written requests for such copies to the Public
Reference Section of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants. The
Commission's Web site can be accessed on the World Wide Web at
http://www.sec.gov. The obligations of the Company under the Exchange Act to
file periodic reports and other information with the Commission may be
suspended, under certain circumstances, if the New Notes are held of record
by fewer than 300 holders at the beginning of any fiscal year and are not
listed on a national securities exchange. The Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding it will
furnish to the holders of the Notes, and if required by the Exchange Act,
file with the Commission all annual, quarterly and current reports that the
Company is or would be required to file with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act. In addition, for so long as any
of the Old Notes remain outstanding, the Company has agreed to make available
to any prospective purchaser of the Old Notes or beneficial owner of the Old
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENT
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS FILED BY THE
COMPANY, INCLUDING EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE TO ANY
REGISTERED HOLDER OR BENEFICIAL OWNER OF THE OLD NOTES UPON WRITTEN OR ORAL
REQUEST AND WITHOUT CHARGE FROM THE FONDA GROUP, INC., 21 LOWER NEWTON
STREET, ST. ALBANS, VERMONT 05478, ATTENTION: CHIEF FINANCIAL OFFICER.
TELEPHONE REQUESTS MAY BE DIRECTED TO THE COMPANY AT (802) 524-5966. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE
BY , 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR SOLICITATION WITH RESPECT TO ANY SECURITY OTHER THAN THE SECURITIES
OFFERED HEREBY OR AN OFFER TO OR SOLICITATION OF ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN
OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. The Company's fiscal year ends on the last
Sunday in July, and references to particular fiscal years of the Company
refer to the 52 weeks (or 53 weeks for Fiscal 1994) ended on the last Sunday
of July of the year indicated. Portions of this Prospectus may constitute
forward-looking statements. See "Risk Factors--Forward-Looking Statements."
All capitalized terms used in this Prospectus without definition are defined
as set forth below under the caption "Description of New Notes--Certain
Definitions."
THE COMPANY
The Company believes it is a leading converter and marketer of a broad
line of disposable paper food service products. The Company sells its
products under both branded and private labels to the consumer and
institutional markets and participates at all major price points. The Company
believes it is a market leader in the sale of premium white, colored and
custom-printed napkins, placemats, tablecovers and food trays and in the sale
of private label consumer paper plates, bowls and cups. The Company's
Sensations, Splash(Registered Trademark) and Party Creations(Registered
Trademark) brands are well recognized in the consumer markets and its
Hoffmaster(Registered Trademark) brand is well recognized in the
institutional markets.
During the past two years, the Company has grown rapidly, principally
through the completion of four acquisitions (the "Acquisitions"). As the
Company completes the integration of the Acquisitions, it expects to continue
to improve manufacturing efficiencies, achieve further cost savings and
increase profitability. As evidence of the Company's rapid growth, its net
sales, net income and EBITDA (as defined herein) increased from $61.8
million, $0.3 million and $3.0 million, respectively, in Fiscal 1994 to
$204.9 million, $3.4 million and $17.3 million, respectively, in Fiscal 1996.
For Fiscal 1996, after giving pro forma effect to the three acquisitions
consummated during Fiscal 1996 (collectively, the "Fiscal 1996
Acquisitions"), the Company would have had net sales of $262.5 million, net
income of $4.3 million and EBITDA of $24.2 million.
The Company offers a broad range of products, enabling it to offer its
customers "one-stop" shopping for their disposable food service product
needs. The Company's principal products include (i) paperboard products, such
as white, colored and printed paper plates and bowls (approximately 31% of
gross sales), paper cups for both hot and cold drinks (approximately 10%),
handled food pails for take-out food and food trays (approximately 6%); (ii)
tissue products, such as printed and solid napkins (approximately 21%) and
printed and solid paper tablecovers and crepe paper (approximately 9%); (iii)
specialty products, such as placemats (approximately 9%), doilies, tray
covers and fluted products including baking cups (approximately 8%); and (iv)
products for resale, such as plastic cutlery, coasters, plastic cups and
plastic toothpicks (approximately 6%). See "Business--Products." The Company
is principally a converter and marketer of paperboard and tissue products,
the prices of which typically follow the general movement in the costs of
such principal raw materials. The Company believes it is generally able to
maintain relatively stable margins between its selling prices and its raw
materials costs.
According to the Pulp & Paper Fact Book published by Miller Freeman
(1996), growth in unit production of disposable paper food service products
has been relatively stable during the past decade and tracks the growth of
end-users of these products. The Company believes recent growth in the
disposable paper food service products industry has been and will continue to
be influenced principally by increased away-from-home dining, take-out
convenience and sanitary considerations. In addition, management believes
that the industry has experienced consolidation in recent years and will
further consolidate over the next several years as smaller local and regional
competitors experience greater difficulty competing with larger national
competitors. The Company believes that it is well positioned to take
advantage of and benefit from this consolidation.
The Company sells its products to more than 2,500 consumer and
institutional customers located throughout the United States and has
developed and maintained long-term relationships with many of
3
<PAGE>
these customers. The Company's consumer customers include (i) supermarkets,
(ii) mass merchandisers and (iii) warehouse clubs and other retailers. The
Company's institutional customers include major food service distributors as
well as restaurants, schools, hospitals and other major institutions with
dining facilities.
BUSINESS AND GROWTH STRATEGY
The Company believes that it can maintain and improve its position in the
disposable paper food service products industry by (i) selectively pursuing
and successfully integrating strategic acquisitions, (ii) continuing to
provide value-added products and services, (iii) continuing to be responsive
to customer demands and (iv) increasing its production of specialty and
deep-tone colored tissue. The Company will pursue its growth strategy
through:
o Strategic Acquisitions. The Company targets acquisitions for their
ability to complement and broaden existing product lines, penetrate
additional end-use markets, strengthen existing market positions,
expand the Company's geographic scope and provide manufacturing, sales
and marketing economies. When integrating acquisitions, the Company
seeks to (i) reduce manufacturing and production costs through the
elimination of redundant facilities, the consolidation of overhead and
the more efficient use of its manufacturing equipment; (ii) achieve
sales and marketing economies of scale through consolidation; (iii)
reduce procurement costs by leveraging its purchasing power; (iv)
improve customer service through geographic diversification; and (v)
increase net sales by cross-marketing the Company's products to an
expanded customer base.
o Value-Added Products and Services. The Company has focused and expects
to continue to focus on higher margin, value-added products where it
has a competitive advantage while continuing to produce high volume
commodity-oriented product lines. These niche value-added products
include print-to-the-edge napkins and premium table top products, which
are not the principal focus of the Company's larger competitors. In
addition, the Company believes its processing of custom orders
differentiates it from its competitors. The Company also intends to
continue to provide value-added services, such as Electronic Data
Interchange ("EDI") capabilities, automatic shipment notification to
customers, sales training for distributors, promotional support,
brochures and catalogs, state-of-the-art graphics services,
merchandising programs, prompt delivery of products and information
systems that provide detailed sales data to customers.
In order to better serve its customers, the Company is focusing on
the development of new product designs, increasing brand awareness and
channel marketing. Management believes that new product designs provide
customers recognized value by offering alternatives in color and style.
In addition, the Company believes that its brand names are associated
with high quality products. The Company supports its brand identity and
private label program through enhanced packaging and promotion.
Products and programs will be developed for specific distribution
channels. Additionally, the Company seeks, through its direct sales
force, to create "pull-through" demand by marketing directly to
end-users in order to create additional demand from institutional
distributors for the Company's products.
o Natural Dam Expansion. The Company expects to complete the installation
of an existing second paper machine at the Company's Natural Dam mill
by the end of 1997 which will produce specialty and deep-tone colored
tissue paper, the primary raw material used in the conversion of
colored napkins and tablecovers. This expansion is expected to (i)
double the mill's production capacity; (ii) significantly lower its
unit cost of production; and (iii) provide the Company with greater
operating flexibility to source tissue paper for its own converting
operations as well as sell specialty tissue to third parties.
The Company's principal executive offices are located at 21 Lower Newton
Street, St. Albans, Vermont 05478, and its telephone number is (802)
524-5966.
4
<PAGE>
ISSUANCE OF THE OLD NOTES
The outstanding $120.0 million principal amount of 9 1/2% Series A Senior
Subordinated Notes due 2007 (the "Old Notes") were sold by the Company to
Bear, Stearns & Co. Inc. and Dillon, Read & Co. Inc. (the "Initial
Purchasers") on February 27, 1997 (the "Closing Date") pursuant to a Purchase
Agreement, dated as of February 24, 1997 (the "Purchase Agreement"), among
the Company and the Initial Purchasers. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A under the Securities Act and
other available exemptions under the Securities Act on or about February 27,
1997. The Company and the Initial Purchasers also entered into a Registration
Rights Agreement, dated as of February 27, 1997 (the "Registration Rights
Agreement"), among the Company and the Initial Purchasers, pursuant to which
the Company granted certain registration rights for the benefit of the
holders of the Old Notes. The Exchange Offer is intended to satisfy certain
of the Company's obligations under the Registration Rights Agreement with
respect to the Old Notes. See "The Exchange Offer--Purpose and Effects."
The Old Notes were issued under an indenture, dated as of February 27,
1997 (the "Indenture"), between the Company and The Bank of New York as
trustee (in such capacity, the "Trustee"). The New Notes are also being
issued under the Indenture and are entitled to the benefits of the Indenture.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of New Notes will not
be entitled to the liquidated damages otherwise payable under the terms of
the Registration Rights Agreement in respect of Old Notes constituting
Transfer Restricted Securities held by such holders during any period in
which a Registration Default (as defined) is continuing (the "Liquidated
Damages") and (iii) holders of New Notes will not be, and upon the
consummation of the Exchange Offer, Eligible Holders of Old Notes will no
longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities. The Exchange Offer shall
be deemed consummated upon the delivery of the Company to the Exchange Agent
under the Indenture of New Notes in the same aggregate principal amount as
the aggregate principal amount of Old Notes that are validly tendered by
holders thereof pursuant to the Exchange Offer. See "The Exchange
Offer--Termination of Certain Rights" and "--Procedures for Tendering" and
"Description of New Notes--Registration Rights; Liquidated Damages."
The proceeds received by the Company from the issuance of the Old Notes
were used to repay certain existing indebtedness of the Company, for capital
expenditures, to pay certain fees and expenses associated with the issuance
of the Old Notes and for general corporate purposes. A maximum of up to $10.0
million from the net proceeds from the issuance of the Old Notes may be used
to repurchase up to 74,000 shares of common stock of the Company at $135.00
per share from the Company's stockholders pursuant to a pro rata offer made
to them by the Company (the "Stock Repurchase"). Any proceeds from the
issuance of the Old Notes not used for the Stock Repurchase may be used for
general corporate purposes. There will be no proceeds to the Company from any
exchange pursuant to the Exchange Offer.
5
<PAGE>
THE EXCHANGE OFFER
THE EXCHANGE OFFER ............ The Company is offering, upon the terms and
subject to the conditions set forth herein
and in the accompanying letter of
transmittal (the "Letter of Transmittal"),
to exchange its 9 1/2% Series B Senior
Subordinated Notes due 2007 (the "New
Notes," and, with the Old Notes, the
"Notes") for an identical face amount of the
outstanding Old Notes (the "Exchange
Offer"). As of the date of this Prospectus,
$120.0 million in aggregate principal amount
of the Old Notes is outstanding, the maximum
amount authorized by the Indenture for all
Notes. As of , 1997, there was one
registered holder of the Old Notes, Cede &
Co. ("Cede"), which held $120.0 million of
aggregate principal amount of the Old Notes.
See "The Exchange Offer--Terms of the
Exchange Offer."
EXPIRATION DATE ............... 5:00 p.m., New York City time, on ,
1997, as the same may be extended. See "The
Exchange Offer--Expiration Date; Extension;
Termination; Amendments."
CONDITIONS OF THE EXCHANGE
OFFER ........................ The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes
being tendered for exchange. However, the
Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange
Offer--Conditions of the Exchange Offer."
ACCRUED INTEREST ON THE OLD
NOTES ........................ The New Notes will bear interest at a rate
equal to 9 1/2% per annum from and including
their date of issuance. Eligible Holders
whose Old Notes are accepted for exchange
will have the right to receive interest
accrued thereon from the date of original
issuance of the Old Notes or the last
Interest Payment Date, as applicable, to,
but not including, the date of issuance of
the New Notes, such interest to be payable
with the first interest payment on the New
Notes. Interest on the Old Notes accepted
for exchange, which accrues at the rate of 9
1/2% per annum, will cease to accrue on the
day prior to the issuance of the New Notes.
PROCEDURES FOR TENDERING OLD
NOTES ........................ Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. Old Notes may be physically
delivered, but physical delivery is not
required if a confirmation of a book-entry
of such Old Notes to the Exchange Agent's
account at The Depositary Trust Company
("DTC" or the "Depositary") is delivered in
a timely fashion. By executing the Letter of
Transmittal, each holder will represent to
the Company that, among other things, the
New Notes acquired pursuant to the Exchange
Offer are being
6
<PAGE>
obtained in the ordinary course of business
of the person receiving such New Notes,
whether or not such person is the holder,
that neither the holder nor any such other
person is engaged in, or intends to engage
in, or has an arrangement or understanding
with any person to participate in, the
distribution of such New Notes and that
neither the holder nor any such other person
is an "affiliate," as defined under Rule 405
of the Securities Act, of the Company. Each
broker or dealer that receives New Notes for
its own account in exchange for Old Notes,
where such Old Notes were acquired by such
broker or dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer--Procedures for Tendering" and "Plan
of Distribution."
GUARANTEED DELIVERY
PROCEDURES ................... Eligible Holders of Old Notes who wish to
tender their Old Notes and (i) whose Old
Notes are not immediately available or (ii)
who cannot deliver their Old Notes or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a
timely basis), may tender their Old Notes
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange
Offer--Guaranteed Delivery Procedures."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES ........ Upon satisfaction or waiver of all
conditions of the Exchange Offer, the
Company will accept any and all Old Notes
that are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will
be delivered promptly after acceptance of
the Old Notes. See "The Exchange
Offer--Procedures for Tendering."
WITHDRAWAL RIGHTS ............. Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date. See "The Exchange
Offer--Withdrawal of Tenders."
THE EXCHANGE AGENT ............ The Bank of New York is the exchange agent
(in such capacity, the "Exchange Agent").
The address and telephone number of the
Exchange Agent are set forth in "The
Exchange Offer--Exchange Agent."
FEES AND EXPENSES ............. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company. The
Company will also pay certain transfer taxes
applicable to the Exchange Offer. See "The
Exchange Offer--Fees and Expenses."
7
<PAGE>
RESALES OF THE NEW NOTES ...... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company
believes that New Notes issued pursuant to
the Exchange Offer to an Eligible Holder in
exchange for Old Notes may be offered for
resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a
broker-dealer who purchased the Old Notes
directly from the Company for resale
pursuant to Rule 144A under the Securities
Act or any other available exemption under
the Securities Act, or (ii) a person that is
an affiliate of the Company within the
meaning of Rule 405 under the Securities
Act), without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that the Eligible Holder is acquiring the
New Notes in the ordinary course of business
and is not participating, and has no
arrangement or understanding with any person
to participate, in a distribution of the New
Notes. Each broker-dealer that receives New
Notes for its own account in exchange for
Old Notes, where such Old Notes were
acquired by such broker as a result of
market-making or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. See "The Exchange
Offer--Purpose and Effects" and "Plan of
Distribution."
8
<PAGE>
DESCRIPTION OF NEW NOTES
The Exchange Offer applies to $120.0 million aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects
to the Old Notes, except for certain transfer restrictions and registration
and other rights relating to the exchange of the Old Notes for New Notes. The
New Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture under which both the Old Notes were, and the
New Notes will be, issued. See "Description of New Notes."
SECURITIES OFFERED ............ $120.0 million in aggregate principal amount
of 9 1/2% Series B Senior Subordinated Notes
due 2007.
MATURITY ...................... March 1, 2007.
INTEREST ...................... The New Notes will bear interest at the rate
of 9 1/2% per annum, payable semi-annually
in arrears on March 1 and September 1 of
each year, commencing September 1, 1997.
RANKING ....................... The New Notes will be general unsecured
obligations of the Company and will be
subordinate in right of payment to all
existing and future Senior Debt, and will be
senior or pari passu in right of payment to
all existing and future subordinated
indebtedness of the Company. As of April 27,
1997, the Company had $3.1 million of Senior
Debt and no indebtedness ranking pari passu
with the New Notes outstanding.
REDEMPTION .................... Except as set forth below, the New Notes
will not be redeemable at the option of the
Company prior to March 1, 2002. Thereafter,
the New Notes will be subject to redemption,
at the option of the Company, in whole or in
part, at the redemption prices set forth
herein plus accrued and unpaid interest, if
any, to the applicable redemption date.
Notwithstanding the foregoing, at any time
prior to March 1, 2000, the Company may
redeem up to one-third in aggregate
principal amount of the New Notes at a
redemption price of 109.5% of the principal
amount thereof, plus accrued and unpaid
interest, if any, to the redemption date,
with the net proceeds of a public offering
of common stock of the Company; provided
that at least two-thirds in aggregate
principal amount of the New Notes originally
issued under the Indenture remain
outstanding immediately after the occurrence
of such redemption; and provided, further,
that such redemption shall occur within 60
days following the date of the closing of
such public offering of common stock of the
Company. In addition, upon the occurrence of
a Change of Control prior to March 1, 2002,
the Company, at its option, may redeem all,
but not less than all, of the outstanding
New Notes at a redemption price equal to
100% of the principal amount thereof plus
the applicable Make-Whole Premium. See
"Description of New Notes--Optional
Redemption."
9
<PAGE>
CHANGE OF CONTROL ............. Upon the occurrence of a Change of Control
at any time, the Company will be required to
make an offer to repurchase each Holder's
New Notes at a price equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest, if any, to the
date of purchase. There can be no assurance
that the Company will have the financial
resources to repurchase the New Notes upon a
Change of Control. See "Description of New
Notes--Repurchase at the Option of Holders."
COVENANTS ..................... The indenture pursuant to which the New
Notes will be issued (the "Indenture") will
contain certain covenants that, among other
things, limit the ability of the Company to
incur additional indebtedness, issue
preferred stock, pay dividends or make other
distributions, repurchase Equity Interests
(as defined herein), repay subordinated
indebtedness or make other Restricted
Payments (as defined herein), create certain
liens, enter into certain transactions with
affiliates, sell assets, issue or sell
Equity Interests of the Company's Restricted
Subsidiaries (as defined herein) or enter
into certain mergers and consolidations.
Subject to certain exceptions, pursuant to
the Indenture, the Company may incur certain
Indebtedness if the Fixed Charge Coverage
Ratio (as defined in "Description of New
Notes--Certain Definitions") for the
Company's most recently ended four full
fiscal quarters would be at least 2.0 to 1,
determined on a pro forma basis, as if the
additional Indebtedness had been incurred at
the beginning of such four-quarter period.
In addition, the Indenture requires the
Company to repurchase the Notes upon a
Change of Control or an Event of Default.
There can be no assurance that the Company
will be able to obtain the necessary
financing to repurchase the Notes upon any
such event. In addition, the requirement to
repurchase the Notes upon a Change of
Control may discourage persons from making a
tender offer for or a bid to acquire the
Company or its Subsidiaries. Conversely,
because the Indenture limits the ability of
the Company to engage in certain
transactions except under certain
circumstances, the Company may be prohibited
from entering into transactions that could
be beneficial to the Company. See
"Description of New Notes--Certain
Covenants."
USE OF PROCEEDS ............... There will be no proceeds to the Company
from any exchange pursuant to the Exchange
Offer. The net proceeds from the issuance of
the Old Notes were used to repay certain
existing indebtedness of the Company, for
capital expenditures, to pay certain fees
and expenses associated with the issuance of
the Old Notes and for general corporate
purposes. A maximum of up to $10.0 million
from the net proceeds of the issuance of the
Old Notes may be used for the Stock
Repurchase; any proceeds from the issuance
of the Old Notes not used for the Stock
Repurchase may be used for general corporate
purposes.
10
<PAGE>
ABSENCE OF A PUBLIC MARKET FOR
THE NEW NOTES ................ The New Notes are a new issue of securities
with no established market, and the Company
does not expect that an active trading
market in the Notes will develop.
Accordingly, there can be no assurance as to
the development or liquidity of any market
for the New Notes. The Initial Purchasers
have advised the Company that they currently
make a market in the Notes. The Company does
not currently intend to apply for listing of
the New Notes on any securities exchange.
RISK FACTORS
See "Risk Factors" for a discussion of factors that should be considered
by Eligible Holders evaluating the Exchange Offer.
11
<PAGE>
SUMMARY FINANCIAL DATA (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY(2) NINE MONTHS ENDED APRIL
------------------------------------------ --------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 (3) 1996 1997 1997 (3)
---- ---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ..................... $61,839 $ 97,074 $204,903 $262,459 $138,546 $189,227 $189,227
------- -------- -------- -------- -------- -------- --------
Cost of goods sold ............ 51,643 76,252 161,304 208,055 110,202 149,165 148,953
------- -------- -------- -------- -------- -------- --------
Gross profit .................. 10,196 20,822 43,599 54,404 28,344 40,062 40,274
Selling, general and
administrative expenses ..... 8,438 14,112 29,735 34,576 21,291 28,466 28,466
------- -------- -------- -------- -------- -------- --------
Income from operations ........ 1,758 6,710 13,864 19,828 7,053 11,596 11,808
Interest expense, net ......... 1,268 2,943 7,934 12,464 4,538 6,798 9,183
------- -------- -------- -------- -------- -------- --------
Income before taxes and
extraordinary expense ........ 490 3,767 5,930 7,364 2,515 4,798 2,625
Income taxes .................. 239 1,585 2,500 3,103 1,056 2,015 1,102
------- -------- -------- -------- -------- -------- --------
Income before extraordinary
expense ...................... 251 2,182 3,430 4,261 1,459 2,783 1,523
Extraordinary expense, net
(11).......................... -- -- -- -- -- 3,495 3,619
Net income (loss).............. $ 251 $ 2,182 $ 3,430 $ 4,261 $ 1,459 $ (712) $ (2,096)
======= ======== ======== ======== ======== ======== ========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities (5) .... $ 140 $ (4,774) $ 17,673 $ 14,767 $ 403
Net cash (used in) investing
activities ................... (1,272) (29,593) (46,532) (38,356) (9,485)
Net cash provided by financing
activities ................... 992 34,262 30,206 23,899 31,749
Cash interest expense, net ... 1,268 2,383 6,748 $ 12,034 3,794 5,924 $ 9,066
Capital expenditures (6) ..... 1,272 1,608 1,314 2,435 978 3,469 3,469
Depreciation and amortization . 1,246 1,669 3,450 4,386 3,085 3,475 3,263
Ratio of earnings to fixed
charges (7) .................. 1.3x 2.1x 1.7x 1.6x 1.5x 1.7x 1.3x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (4) .................... $ 3,004 $ 8,379 $ 17,314 $ 24,214 $ 10,138 $ 15,071 $ 15,071
Ratio of EBITDA to cash
interest expense, net (8) .... 2.4x 3.5x 2.6x 2.0x 2.7x 2.5x 1.7x
Ratio of EBITDA less capital
expenditures to cash interest
expense, net.................. 1.4x 2.8x 2.4x 1.8x 2.4x 2.0x 1.3x
Ratio of total indebtedness to
EBITDA (9) ................... 4.2x 5.7x 5.1x 5.1x N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF APRIL 27, 1997
-------------------
<S> <C>
BALANCE SHEET DATA:
Cash................................ $ 24,134
Working capital .................... 75,515
Property, plant and equipment, net 46,310
Total assets ....................... 172,368
Total indebtedness (9) ............. 123,143
Redeemable common stock (10) ...... 2,229
Total stockholders' equity ......... 11,112
</TABLE>
12
<PAGE>
- --------------
(1) The summary statement of operations and other financial data include
the results of operations of the Company and each of the Acquisitions
since their respective dates of acquisition as follows: Hoffmaster as
of March 31, 1995; Maspeth as of November 30, 1995; Chesapeake as of
December 29, 1995; and James River California/Natural Dam as of May
5, 1996. See "The Company," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--General" and Note 3 of
the Notes to the Financial Statements of the Company.
(2) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53
weeks.
(3) Gives pro forma effect to the Fiscal 1996 Acquisitions and the
issuance of the Old Notes and the use of proceeds therefrom as if
such transactions had occurred on July 31, 1995. See "Unaudited Pro
Forma Condensed Financial Data."
(4) EBITDA represents income from operations before interest expense,
provision for income taxes and depreciation and amortization. EBITDA
is generally accepted as providing information regarding a company's
ability to service debt. EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operations, or
other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's
profitability or liquidity. In addition, although the EBITDA measure
of performance is not recognized under generally accepted accounting
principles, it is widely used by companies as a measure of operating
performance because it assists in comparing performance on a
relatively consistent basis across companies without regard to
depreciation and amortization, which can vary significantly depending
on accounting methods (particularly where acquisitions are involved)
or non-operating factors such as historical cost bases. Because
EBITDA is not calculated identically by all companies, the
presentation herein may not be comparable to other similarly titled
measures of other companies.
(5) Material differences between EBITDA and net cash provided by or used
in operating activities may occur because of the inherent differences
in each such calculation including (a) the change in operating assets
and liabilities between the beginning and end of each period, as well
as certain non-cash items which are considered when presenting net
cash provided by or used in operating activities but are not used
when calculating EBITDA and (b) interest expense and provision for
income taxes which are included when presenting net cash provided by
or used in operating activities but are not included in the
calculation of EBITDA.
(6) Excludes the costs of the Acquisitions.
(7) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes and
extraordinary items plus fixed charges. Fixed charges consist of
interest expense (including the amortization of debt issuance costs)
plus that portion of rental payments on operating leases deemed
representative of the interest factor.
(8) Cash interest expense, net excludes (i) the amortization of debt
issuance costs of $560, $1,021, $430, $744, $672 and $323 for Fiscal
1995, Fiscal 1996, pro forma Fiscal 1996, the nine month April 1996
period, the nine month April 1997 period and the pro forma nine month
April 1997 period, respectively, and (ii) pay-in-kind interest
expense of $165 and $408 for Fiscal 1996 and the nine month April
1997 period, respectively.
(9) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
(10) See "Description of Capital Stock."
(11) The Company incurred extraordinary expenses in connection with the
repayment of debt consisting of the write-off of unamortized debt
issuance costs related to the debt being repaid, elimination of the
unamortized discount on debt being repaid, and prepayment penalties
on early retirement of debt totalling approximately $6.0 million. The
after-tax effect of this extraordinary item was $3.5 million.
13
<PAGE>
RISK FACTORS
Holders of the Old Notes should carefully consider the following matters,
as well as the other information contained in this Prospectus, before
deciding to tender their Old Notes in the Exchange Offer.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
Since the issuance of the Old Notes, the Company has become highly
leveraged. As of April 27, 1997, the Company had $123.1 million of
indebtedness outstanding and $50.0 million of borrowing capacity under the
New Credit Facility (as defined herein), subject to borrowing base
limitations. See "Capitalization." For the nine months ended April 27, 1997,
the Company's ratio of earnings to fixed charges was 1.3x.
The significant indebtedness incurred as a result of the issuance of the
Old Notes will have several important consequences to the Holders of the New
Notes, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to
service the Company's indebtedness, and the failure of the Company to
generate sufficient cash flow to service such indebtedness could result in a
default under such indebtedness, including under the New Notes; (ii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or for other purposes may be
impaired; (iii) the Company's flexibility to expand, make capital
expenditures and respond to changes in the industry and economic conditions
generally may be limited; (iv) the New Credit Facility and the Indenture will
contain, and future agreements relating to the Company's indebtedness may
contain, numerous financial and other restrictive covenants, including, among
other things, limitations on the ability of the Company to incur additional
indebtedness, to create liens and other encumbrances, to make certain
payments and investments, to sell or otherwise dispose of assets, or to merge
or consolidate with another entity, the failure to comply with which may
result in an event of default, which, if not cured or waived, could have a
material adverse effect on the Company; and (v) the ability of the Company to
satisfy its obligations pursuant to such indebtedness, including pursuant to
the New Notes and the Indenture, will be dependent upon the Company's future
performance which, in turn, will be subject to management, financial,
business, regulatory and other factors affecting the business and operations
of the Company, some of which are not in the Company's control. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
If the Company is unable to generate sufficient cash flow to meet its debt
obligations, the Company may be required to renegotiate the payment terms or
to refinance all or a portion of the indebtedness under the New Credit
Facility or the New Notes, to sell assets or to obtain additional financing.
If the Company could not satisfy its obligations related to such
indebtedness, substantially all of the Company's long-term debt could be in
default and could be declared immediately due and payable.
SUBORDINATION OF NEW NOTES
The New Notes are not secured by any of the assets of the Company. In
addition, the payment of principal and accrued and unpaid interest, if any,
with respect to the New Notes will be subordinated, as set forth in the
Indenture, to the prior payment in full of all present and future Senior
Debt. Therefore, in the event of the liquidation, dissolution or
reorganization of, or any similar proceeding relating to, the Company, the
assets of the Company will not be available to pay the obligations on the New
Notes until the holders of the Senior Debt have been paid in full. In that
event, it is possible that the assets of the Company will be insufficient to
pay all or a portion of the obligations on the New Notes. In addition, the
Company may not pay principal and accrued and unpaid interest, if any, with
respect to the New Notes, or defease, purchase, redeem or otherwise acquire
any New Notes, under the circumstances described under "Description of New
Notes--Subordination."
NEW CREDIT FACILITY AND INDENTURE RESTRICTIONS
The New Credit Facility and the Indenture will contain numerous
restrictive covenants including, among other things, limitations on the
ability of the Company to incur additional indebtedness, to create liens and
other encumbrances, to make certain payments and investments, to sell or
otherwise dispose of
14
<PAGE>
assets, or to merge or consolidate with another entity. The New Credit
Facility will also require the Company to meet certain financial tests. The
Company's failure to comply with its obligations under the New Credit
Facility or the Indenture, or in agreements relating to indebtedness incurred
in the future, could result in an event of default under such agreements,
which could permit acceleration of the related indebtedness and acceleration
of indebtedness under other financing arrangements that may contain
cross-acceleration or cross-default provisions.
In addition, the Indenture requires the Company to repurchase the Notes
upon a Change of Control or an Event of Default. There can be no assurance
that the Company will be able to obtain the necessary financing to repurchase
the Notes upon any such event. In addition, the requirement to repurchase the
Notes upon a Change of Control may discourage persons from making a tender
offer for or a bid to acquire the Company. Conversely, because the Indenture
limits the ability of the Company to engage in certain transactions except
under certain circumstances, the Company may be prohibited from entering into
transactions that could be beneficial to the Company. See "Description of New
Notes--Certain Covenants."
DEPENDENCE ON CERTAIN CUSTOMERS
The Company has a number of large national accounts which account for a
significant portion of its revenue. In Fiscal 1996, the five largest
customers represented 21.0% of the Company's net sales. During Fiscal 1996,
the Company had net sales to one customer, Sysco Corporation, which accounted
for 11.0% of net sales and less than 10.0% of net sales after giving pro
forma effect to the Fiscal 1996 Acquisitions. The loss of one or more large
national customers could adversely affect the Company's operating results.
Although the Company does not currently expect to lose any of its large
national customers, there can be no assurance that this will not occur. See
"Business--Marketing and Sales."
SUPPLY AND PRICING OF RAW MATERIALS
The Company purchases solid bleached sulfate paperboard and paper tissue
stock, among other raw materials, for the production of its products.
Although the Company believes that current sources of supply for its raw
materials are adequate to meet its requirements, occasional periods of short
supply of certain raw materials may occur. Some of the Company's competitors
own or control sources of supply, and may therefore have better access to
such raw materials during periods of short supply. In addition, prices for
the Company's raw materials fluctuate. When raw materials prices decrease,
the Company's selling prices have historically decreased. Conversely, when
raw materials prices increase, the Company's selling prices have historically
increased. The actual impact on the Company of raw materials price changes is
affected by a number of factors including the level of inventories at the
time of a price change, the specific timing and frequency of price changes,
and the lead and lag time that generally accompanies the implementation of
both raw materials and subsequent selling price changes. Accordingly, if the
Company has excess inventory at the time a raw materials price change is
announced, the Company may suffer margin erosion on the sale of such
inventory. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
BUSINESS PLAN AND FUTURE ACQUISITIONS
The integration of acquired businesses could be affected by a number of
factors, some of which are not in the Company's control, including the
ability of the Company's existing management and systems infrastructure to
absorb the increased operations, the response of competition and general
economic conditions. While growth through acquisitions is part of the
Company's business strategy, there can be no assurance that suitable
additional acquisitions will be available to the Company, that future
acquisitions will be advantageous to the Company or that anticipated benefits
of such acquisitions will be realized. See "The Company" and
"Business--General."
SEASONALITY
Prior to March 1995, the Company's business was highly seasonal with over
30% of its net sales and 50% of its cash flow realized in the fourth quarter
of its fiscal year. As a result of the Acquisitions, its
15
<PAGE>
business has become less seasonal and the Company anticipates a continued
reduction in the seasonality of its business. Nevertheless, collections of
receivables will be greatest during the first and second quarters of the
fiscal year. Additionally, the Company will continue its practice of building
inventory at the Fonda division throughout the second and third quarters of
each fiscal year to satisfy the high seasonal demands of the summer months
when outdoor and away-from-home consumption increases. In the event the
Company's cash flow from operations during the second and third quarters of a
fiscal year are insufficient to provide working capital necessary to fund
production requirements during these quarters, the Company will need to
resort to borrowings under the New Credit Facility or other sources of
capital. Although the Company believes that funds available under the New
Credit Facility together with cash generated from operations will be adequate
to provide for the Company's cash requirements, there can be no assurance
that such capital resources will be sufficient in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Introduction" and "-- Liquidity and Capital Resources."
HIGHLY COMPETITIVE INDUSTRY
The disposable food service products industry is fragmented and highly
competitive. The Company's competitors include large, vertically integrated,
multinational companies as well as regional manufacturers. The Company's
competitors also include manufacturers of products made from plastics and
foam. Some of the Company's competitors have greater financial and other
resources than the Company. See "Business--Competition."
CONTROL BY PRINCIPAL STOCKHOLDER
Dennis Mehiel, the Chairman of the Board of Directors and Chief Executive
Officer of the Company, currently owns approximately 88.3% of the outstanding
shares of the Company's common stock on a fully diluted basis. Mr. Mehiel
will continue to own approximately 81.6% of the outstanding shares of the
Company's common stock on a fully diluted basis, after giving effect to the
Stock Repurchase and assuming that Mr. Mehiel sells to the Company the
maximum number of shares covered by the Stock Repurchase. See "Principal
Stockholders." As a result, Mr. Mehiel controls, and will continue to
control, the Company and has the power, and will continue to have the power,
to elect its entire board of directors, appoint new management and approve
any other action requiring the approval of the holders of the Company's
stock, including adopting certain amendments to the Company's articles of
incorporation and approving mergers or sales of all of the Company's assets.
See "Principal Stockholders."
In the event of the Spousal Repurchase (as defined herein), Mr. Mehiel
will continue to own approximately 66.5% of the outstanding shares of the
Company's common stock on a fully diluted basis, assuming the maximum number
of shares are repurchased pursuant thereto. In the event the Spousal
Repurchase is not consummated and Mr. Mehiel transfers shares of his common
stock to any person, including his spouse, whether at his option or by
operation of law, and by such transfer his voting power with respect to the
Company's voting stock is reduced to less than the voting power held by any
other beneficial owner of the Company's voting stock, then a Change of
Control would be deemed to have occurred under the Indenture. See "--Change
of Control Provisions" and "Principal Stockholders."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the retention of, and continued performance
by, its senior management, including Dennis Mehiel, its Chairman and Chief
Executive Officer, and Thomas Uleau, its President and Chief Operating
Officer. The Company believes that the loss of the services of any of its
senior management could have a material adverse effect on the Company. The
Company does not have employment contracts with any of its senior management
and has not obtained disability or life insurance policies covering such
executive officers. In addition, Dennis Mehiel is also Chairman and Chief
Executive Officer of Four M Corporation ("Four M") and an executive officer
of other affiliates of the Company, and Thomas Uleau is also an executive
officer of certain affiliates of the Company. Mr. Mehiel devotes only a
portion of his time to Company business. The unavailability of Messrs. Mehiel
or Uleau as a result of other business commitments could have a material
adverse effect on the Company. See "Management."
16
<PAGE>
LABOR MATTERS
As of April 27, 1997, approximately 98% of the Company's hourly employees
were covered by collective bargaining agreements. The collective bargaining
agreements at three of the Company's facilities will expire in the second
half of 1997; the collective bargaining agreements at two of the Company's
facilities have expired. There can be no assurance that the Company will be
successful in renegotiating such agreements or that the Company will not
incur increased costs as a result of such negotiations. In addition, an
extended interruption of operations at these facilities could have a material
adverse effect on the Company's financial condition and results of
operations. The Company experienced a one-month work stoppage at its Three
Rivers facility in August 1996. See "Business--Employees."
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and frequently
changing Federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water, and the
disposal of hazardous wastes. The Company is subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at properties that it owns or operates
and at other properties where the Company or its predecessors have arranged
for the disposal of hazardous substances. As a result, the Company is
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. The Company believes there are
currently no pending investigations at the Company's plants and sites
relating to environmental matters. However, there can be no assurance that
the Company will not be involved in any such proceeding in the future and
that the aggregate amount of future clean up costs and other environmental
liabilities will not be material. See "Business--Environmental Matters."
The Company cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations
will be administered or interpreted or what environmental conditions may be
found to exist. Enactment of more stringent laws or regulations or more
strict interpretation of existing laws and regulations could require
additional expenditures by the Company, some of which could be material.
ABSENCE OF PUBLIC MARKET
Prior to this Prospectus, there has been no public market for the New
Notes, and there can be no assurance that such a market will develop. In
addition, the New Notes will not be listed on any national securities
exchange. If a market for the New Notes should develop, the New Notes may
trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, the Company's
performance and other factors. The Initial Purchasers have made a market in
the Notes as permitted by applicable law and regulation; however, the Initial
Purchasers are not obligated to do so and any such market-making activities
may be discontinued at any time without notice. In addition, such
market-making activities may be limited during the Exchange Offer. Therefore,
there can be no assurance that an active market for any of the New Notes will
develop after the Company's performance of its obligations under the
Registration Rights Agreement.
CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control at any time, the Company will
be required to offer to repurchase each Holder's New Notes at a price equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase. There can be no assurance that the
Company will have the financial resources necessary to repurchase the New
Notes upon a Change of Control. In addition, the requirement to repurchase
the New Notes upon a Change of Control may discourage persons from making a
tender offer for or a bid to acquire the Company. See "Description of New
Notes--Repurchase at the Option of Holders--Change of Control." In addition,
a Change of Control may constitute a default under the New Credit Facility.
See "Description of Certain Indebtedness."
17
<PAGE>
FRAUDULENT TRANSFER STATUTES
Under Federal or state fraudulent transfer laws, the Notes may be
subordinated to existing or future indebtedness of the Company or found not
to be enforceable in accordance with their terms. Under such statutes, if a
court were to find that, at the time the Notes were issued, the Company was
insolvent, or was rendered insolvent by the issuance of the Notes, and the
substantially concurrent use of the proceeds therefrom, was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital, intended to incur, or believed that
it would incur, debts beyond its ability to pay such debts as they matured,
or intended to hinder, delay or defraud its creditors, such court could void
the Company's obligations under the Notes, or subordinate the Notes to all
other indebtedness of the Company. In such event, there can be no assurance
that any repayment of the Notes could ever be recovered by Holders of the
Notes.
For purposes of the foregoing, the measure of insolvency varies depending
upon the law of the jurisdiction which is being applied. Generally, however,
the Company would be considered to have been insolvent at the time the Notes
were issued if the sum of its debts was, at that time, greater than the sum
of the value of all of its property at a fair valuation, or if the then fair
saleable value of its assets was less than the amount that was then required
to pay its probable liability on its existing debts as they became absolute
and matured. There can be no assurance as to what standard a court would
apply in order to determine whether the Company was insolvent as of the date
the Notes were issued, or that, regardless of the method of valuation, a
court would not determine that the Company was insolvent on that date, or
that, regardless of whether the Company was insolvent on the date the Notes
were issued, that the issuances constituted fraudulent transfers on another
of the grounds summarized above.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements, and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from
future results, performance or achievements expressed or implied by such
forward looking statements. Important factors that could cause the actual
results, performance or achievements of the Company to differ materially from
the Company's expectations are disclosed in this Prospectus ("Cautionary
Statements"), including, without limitation, those statements made in
conjunction with the forward-looking statements included under "Risk Factors"
and otherwise herein. All written forward looking statements attributable to
the Company are expressly qualified in their entirety by the Cautionary
Statements.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold or otherwise transferred by Holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act provided that such New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states that, by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales
18
<PAGE>
of New Notes received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period 270 days
after the effective date of the Exchange Offer Registration Statement (as
defined herein), it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
However, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Old Notes will be
adversely affected.
USE OF PROCEEDS
There will be no proceeds to the Company from the exchange pursuant to the
Exchange Offer. The net proceeds from the issuance of the Old Notes were used
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Old Notes......................................................... $120,000
========
USES OF FUNDS:
Repayment of Old Credit Facility(1) .............................. $ 34,812
Repayment of Term Loans(1)........................................ 26,824
Repayment of Old Subordinated Notes(2) ........................... 17,640
Payments relating to the James River (defined herein)
transactions.................................................... 8,237
Working capital................................................... 28,187
Fees and expenses................................................. 4,300
--------
TOTAL........................................................... $120,000
========
</TABLE>
- --------------
(1) The Company was a party to a revolving credit, term loan and security
agreement with IBJ Schroder Bank and Trust Company ("IBJS"), as
agent, which, as of February 27, 1997, consisted of a (i) term loan
facility in the amount of $22.3 million (the "Term A Loan Facility");
(ii) term loan facility in the amount of $4.5 million (the "Term B Loan
Facility" and together with the Term A Loan Facility, the "Term
Loans"); and (iii) revolving credit facility in the amount of up to
$50.0 million (the "Old Credit Facility"). On February 27, 1997, the
Company repaid the Term Loans and the Old Credit Facility from the
net proceeds of the issuance of the Old Notes and entered into an
amended and restated revolving credit facility (the "New Credit
Facility") with IBJS, as agent, in the amount of up to $50.0 million
subject to certain borrowing base limitations. See "Description of
Certain Indebtedness."
(2) In 1995, the Company issued two senior subordinated notes (the "Old
Subordinated Notes") which matured in 2002 and bore interest at 14.0%
per annum. On February 27, 1997, the Company repaid the Old
Subordinated Notes from the net proceeds of the issuance of the Old
Notes.
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<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Old Notes were sold by the Company on February 27, 1997 to the Initial
Purchasers, who resold the Old Notes to "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) and other institutional
"accredited investors" (as defined in Rule 501(a) under the Securities Act).
In connection with the sale of the Old Notes, the Company and the Initial
Purchasers entered into a Registration Rights Agreement dated as of February
27, 1997 (the "Registration Rights Agreement") pursuant to which the Company
agreed to file with the Commission a registration statement (the "Exchange
Offer Registration Statement") with respect to an offer to exchange the Old
Notes for New Notes within 45 days following the closing date of the Old
Notes. In addition, the Company agreed to use its best efforts to cause the
Exchange Offer Registration Statement to become effective under the
Securities Act and to issue the New Notes pursuant to the Exchange Offer. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Exchange Offer Registration Statement.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement to satisfy the Company's obligations thereunder. For purposes of
the Exchange Offer, the term "Eligible Holder" shall mean the registered
owner of any Old Notes that remain Transfer Restricted Securities, as
reflected on the records of The Bank of New York as registrar for the Old
Notes (in such capacity, the "Registrar"), or any person whose Old Notes are
held of record by the depository of the Old Notes. The Company is not
required to include any securities other than the New Notes in the Exchange
Offer Registration Statement. Holders of Old Notes who do not tender their
Old Notes or whose Old Notes are tendered but not accepted would have to rely
on exemptions from registration requirements under the securities laws,
including the Securities Act, if they wish to sell their Old Notes.
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties unrelated to the Company, the
Company believes that the New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by any holder of such New Notes (other than a person that is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and except as set forth in the next paragraph) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holder is not participating and
does not intend to participate, and has no arrangement or understanding with
any person to participate, in the distribution of such New Notes.
If any person were to be participating in the Exchange Offer for the
purpose of distributing securities in a manner not permitted by the
Commission's interpretation, (i) the position of the staff of the Commission
enunciated in interpretive letters would be inapplicable to such person and
(ii) such person would be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in
which the Exchange Offer or the acceptance thereof would not be in compliance
with the securities or blue sky laws of such jurisdiction. Prior to the
Exchange Offer, however, the Company will use its best efforts to register or
qualify the New Notes for offer and sale under the securities or blue sky
laws of such jurisdictions as is necessary to permit consummation of the
Exchange Offer and do any and all other acts or things necessary or advisable
to enable the offer and sale in such jurisdictions of the New Notes.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any
and all Old Notes validly tendered prior to 5:00 p.m.,
20
<PAGE>
New York City time, on the Expiration Date (as defined below). The Company
will issue up to $120,000,000 aggregate principal amount of New Notes in
exchange for a like principal amount of outstanding Old Notes which are
validly tendered and accepted in the Exchange Offer. Subject to the
conditions of the Exchange Offer described below, the Company will accept any
and all Old Notes which are so tendered. Holders may tender some or all of
their Old Notes pursuant to the Exchange Offer; however, the Old Notes may be
tendered only in multiples of $1,000. See "Description of New Notes."
The form and terms of the New Notes will be the same in all material
respects as the form and terms of the Old Notes, except that (i) the New
Notes will be registered under the Securities Act and hence will not bear
legends restricting the transfer thereof, (ii) because the New Notes will be
registered, holders of the New Notes will not be entitled to Liquidated
Damages which would have been payable under the terms of the Registration
Rights Agreement in respect of Old Notes constituting Transfer Restricted
Securities held by such holders during any period in which a Registration
Default was continuing and (iii) because the New Notes will be registered,
holders of New Notes will not be, and upon the consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to certain
rights under the Registration Rights Agreement intended for the holders of
unregistered securities.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the provisions of the Registration Rights
Agreement. Old Notes which are not tendered for exchange or are tendered but
not accepted in the Exchange Offer will remain outstanding and be entitled to
the benefits of the Indenture, but will not be entitled to any registration
rights under the Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent for the Exchange Offer. The Exchange Agent will act as agent
for the tendering holders for the purposes of receiving the New Notes from
the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Eligible Holders who tender Old Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 p.m., New York City time, on ,
1997, subject to extension by the Company by notice to the Exchange Agent as
herein provided. The Company reserves the right to so extend the Exchange
Offer at its discretion, in which event the term "Expiration Date" shall mean
the time and date on which the Exchange Offer as so extended shall expire.
The Company will notify the Exchange Agent of any extension by oral or
written notice and will make a public announcement thereof, each prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Company reserves the right (i) to delay accepting for exchange any Old
Notes for any New Notes or to extend or terminate the Exchange Offer and not
accept for exchange any Old Notes for any New Notes if any of the events set
forth below under the caption "Conditions of the Exchange Offer" shall have
occurred and shall not have been waived by the Company by giving oral or
written notice of such delay or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance for exchange, extension or amendment will be followed as promptly
as practicable by public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such
21
<PAGE>
amendment in a manner reasonably calculated to inform the holders of Old
Notes of such amendment, and the Company will extend the Exchange Offer for a
minimum of five business days, depending upon the significance of the
amendment and the manner of disclosure to the holders of Old Notes, if the
Exchange Offer would otherwise expire during such five business-day period.
The rights reserved by the Company in this paragraph are in addition to the
Company's rights set forth below under the caption "Conditions of the
Exchange Offer."
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default, Eligible Holders of Old
Notes are entitled to receive Liquidated Damages in an amount equal to 50
basis points per annum for each successive 90-day period, or any portion
thereof, during which such Registration Default continues, up to a maximum
amount of 200 basis points per annum of the principal amount of the Old
Notes. For purposes of the Exchange Offer, a "Registration Default" shall
occur if (i) the Company fails to file any of the Registration Statements
required by the Registration Rights Agreement on or before the date specified
for such filing; (ii) any such Registration Statement is not declared
effective by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"); (iii) the Company fails to
consummate the Exchange Offer within 30 days of the Effectiveness Target Date
with respect to the Exchange Offer Registration Statement; or (iv) the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with the resales of the New
Notes without being succeeded immediately by a post-effective amendment to
the Exchange Offer Registration Statement that cures such failure and is
immediately declared effective. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, Eligible Holders of Old Notes will no longer be, entitled to (i) the
right to receive Liquidated Damages or (ii) certain other rights under the
Registration Rights Agreement intended for holders of Transfer Restricted
Securities. The Exchange Offer shall be deemed consummated upon the
occurrence of the delivery by the Company to the Registrar under the
Indenture of New Notes in the same aggregate principal amount as the
aggregate principal amount of Old Notes that are tendered by holders thereof
pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING
Only an Eligible Holder of Old Notes may tender such Old Notes in the
Exchange Offer. To tender in the Exchange Offer, an Eligible Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile, together with the Old Notes (unless such tender is being effected
pursuant to the procedure for book-entry transfer described below) and any
other required documents, to the Exchange Agent prior to 5:00 p.m., New York
City time, on the Expiration Date.
Any financial institution that is a participant in the Depositary's
Book-Entry Transfer Facility System may make book-entry delivery of the Old
Notes by causing the Depositary to transfer such Old Notes into the Exchange
Agent's account in accordance with the Depositary's procedure for such
transfer. Although delivery of Old Notes may be effected through book-entry
transfer into the Exchange Agent's account at the Depositary, the Letter of
Transmittal (or facsimile thereof), with any required signature guarantees
and any other required documents, must, in any case, be transmitted to and
received or confirmed by the Exchange Agent at its addresses as set forth
under the caption "Exchange Agent" below prior to 5:00 p.m., New York City
time, on the Expiration Date. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by an Eligible Holder of Old Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject
to the conditions set forth herein and in the Letter of Transmittal.
22
<PAGE>
The method of delivery of Old Notes and the Letter of Transmittal and all
other required documents to the Exchange Agent is at the election and risk of
the Eligible Holders. Instead of delivery by mail, it is recommended that
Eligible Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent on
or before the Expiration Date. No Letter of Transmittal or Old Notes should
be sent to the Company. Eligible Holders may request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect the
tenders for such holders.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal, or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a
member of a signature guarantee program within the meaning of Rule 17Ad-15
under the Exchange Act (an "Eligible Institution").
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance and withdrawal of tendered Old Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered or any Old Notes the Company's acceptance
of which might, in the judgment of the Company or its counsel, be unlawful.
The Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Old Notes must be cured within such times as the Company in its sole
discretion shall determine. Although the Company intends to request the
Exchange Agent to notify holders of defects or irregularities with respect to
tenders of Old Notes, neither the Company, the Exchange Agent nor any other
person shall incur any liability for failure to give such notification.
Tenders of Old Notes will not be deemed to have been made until such defects
or irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion
(subject to limitations contained in the Indenture) (i) to purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date and (ii) to the extent permitted by applicable law, to purchase Old
Notes in privately negotiated transactions or otherwise. The terms of any
such purchases or offers could differ from the terms of the Exchange Offer.
By tendering, each Eligible Holder will represent to the Company that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business by the person receiving
such New Notes, whether or not such person is the holder and that neither the
Eligible Holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes and that
neither the Eligible Holder nor any such other person is an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the holder
is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, such holder by tendering will
acknowledge that it will deliver a prospectus in connection with any resale
of such New Notes.
23
<PAGE>
GUARANTEED DELIVERY PROCEDURES
Eligible Holders who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old
Notes and other required documents to the Exchange Agent or cannot complete
the procedure for book-entry transfer prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Eligible Holder, the certificate
number(s) of such Old Notes (if available) and the principal amount of Old
Notes tendered together with a duly executed Letter of Transmittal (or a
facsimile thereof), stating that the tender is being made thereby and
guaranteeing that, within three business days after the Expiration Date, the
certificate(s) representing the Old Notes to be tendered in proper form for
transfer (or a confirmation of a book entry transfer into the Exchange
Agent's account at the Depositary of Old Notes delivered electronically) and
any other documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and
(c) Such certificate(s) representing all tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer into the
Exchange Agent's account at the Depositary of Old Notes delivered
electronically) and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three business days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will
be sent to Eligible Holders who wish to tender their Old Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date, and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the
Depositor in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient
to have the Trustee with respect to the Old Notes register the transfer of
such Old Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such withdrawal notices will
be determined by the Company in its sole discretion, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer,
and no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly re-tendered. Any Old Notes which have been tendered but
which are not accepted for exchange or which are withdrawn will be returned
to the holder thereof without cost to such holder as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be re-tendered by following one of the
procedures described above under "Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
In addition, and notwithstanding any other term of the Exchange Offer, the
Company will not be required to accept for exchange any Old Notes tendered
for any New Notes and may terminate or amend the Exchange Offer as provided
herein before the acceptance of such Old Notes, if any of the following
conditions exist:
24
<PAGE>
(a) Any action or proceeding is instituted or threatened in any court or
by or before any governmental agency or regulatory authority with respect to
the Exchange Offer which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(b) There shall have occurred any change, or any development involving a
prospective change, in the business or financial affairs of the Company,
which in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(c) There shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(d) There shall have occurred (i) any general suspension of, shortening
of hours for, or limitation on prices for, trading in securities on the New
York Stock Exchange (whether or not mandatory), (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
Federal or state authorities in the United States (whether or not
mandatory), (iii) a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States, (iv) any limitation (whether or not mandatory) by any governmental
authority on, or other event having a reasonable likelihood of affecting,
the extension of credit by banks or other lending institutions in the United
States, or (v) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offer, a material acceleration or worsening
thereof.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to
such conditions or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. If the Company waives or
amends the foregoing conditions, the Company will, if required by applicable
law, extend the Exchange Offer for a minimum of five business days from the
date that the Company first gives notice, by public announcement or
otherwise, of such waiver or amendment, if the Exchange Offer would otherwise
expire within such five business-day period. Any determination by the Company
concerning the events described above will be final and binding upon all
parties.
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitation may be
made by telecopy, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by
them in forwarding copies of this Prospectus, Letters of Transmittal and
related documents to the beneficial owners of the Old Notes and in handling
or forwarding tenders for exchange. The Company will pay the other expenses
to be incurred in connection with the Exchange Offer, including fees and
expenses of the Trustee, accounting and legal fees and printing costs.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax
is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the
25
<PAGE>
amount of any such transfer taxes (whether imposed on the registered holder
or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Counsel to the Company has advised the Company that the exchange of the
Old Notes for the New Notes in the Exchange Offer should not constitute an
exchange for federal income purposes. Consequently, (i) no gain or loss
should be realized by a U.S. Holder upon receipt of a New Note; (ii) the
holding period of the New Note should include the holding period of the Old
Note exchanged therefor and (iii) the adjusted tax basis of the New Note
should be the same as the adjusted tax basis of the Old Note exchanged
therefor immediately before the exchange. Even if the exchange of an Old Note
for a New Note were treated as an exchange, however, such an exchange should
constitute a tax-free recapitalization for federal income tax purposes.
Accordingly, a New Note should have the same issue price as an Old Note and a
U.S. Holder should have the same adjusted basis and holding period in the New
Note as it had in an Old Note immediately before the exchange. As used
herein, the term "U.S. Holder" means a person who is, for United States
federal income tax purposes, (i) a citizen or resident of the United States;
(ii) a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof; or
(iii) an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Generally, Eligible Holders (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer may
offer such New Notes for resale, resell such New Notes, and otherwise
transfer such New Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided such New Notes
are acquired in the ordinary course of the holders' business, and such
holders have no arrangement with any person to participate in a distribution
of such New Notes. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To comply with
the securities laws of certain jurisdictions, it may be necessary to qualify
for sale or register the New Notes prior to offering or selling such New
Notes. Upon request by Eligible Holders prior to the Exchange Offer, the
Company will register or qualify the New Notes in certain jurisdictions
subject to the conditions in the Registration Rights Agreement. If an
Eligible Holder does not exchange such Old Notes for New Notes pursuant to
the Exchange Offer, such Old Notes will continue to be subject to the
restrictions on transfer contained in the legend thereon and will not have
the benefit of any covenant regarding registration under the Securities Act.
In general, the Old Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected.
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept the Exchange Offer and tender their Old
Notes. Holders of Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company upon the consummation of the Exchange Offer. The
expenses of the Exchange Offer will be amortized by the Company over the term
of the New Notes.
26
<PAGE>
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. All correspondence in connection with the Exchange Offer and the
Letter of Transmittal should be addressed to the Exchange Agent, as follows:
BY HAND OR OVERNIGHT COURIER: BY MAIL:
(REGISTERED OR CERTIFED
RECOMMENDED)
The Bank of New York
101 Barclay Street
Corporate Trust Services Window The Bank of New York
Ground Level 101 Barclay Street 7E
New York, New York 10286 New York, New York 10286
Attn: Reorganization Section Attn: Reorganization Section
Facsimile Number (for Eligible Institutions Only and Withdrawal Notices Only):
(212) 571-3080
Confirm Receipt of Notice of Guaranteed Delivery by Telephone:
(212) 815-3687
For Information Call:
(212) 515-3687
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
27
<PAGE>
THE COMPANY
The Company believes it is a leading converter and marketer of a broad
line of disposable paper food service products. The Company sells its
products under both branded and private labels to the consumer and
institutional markets and participates at all major price points. The Company
believes it is a market leader in the sale of premium white, colored and
custom-printed napkins, placemats, tablecovers and food trays and in the sale
of private label consumer paper plates, bowls and cups. The Company's
Sensations, Splash(Registered Trademark) and Party Creations(Registered
Trademark) brands are well recognized in the consumer market and its
Hoffmaster(Registered Trademark) brand is well recognized in the
institutional market. During the past two years, the Company has completed
four acquisitions which have enabled it to grow rapidly. Each acquisition was
targeted for its ability to complement and broaden existing product lines,
penetrate additional markets, improve existing market position, expand the
Company's geographic scope and provide sales and marketing economies.
The Company was founded in 1915. Prior to the Acquisitions, the Company's
business consisted of the Fonda division which manufactures paper plates,
bowls, cups, trays and handled food pails for both the institutional and
consumer markets. The Fonda division is a leading producer of private label
paper plates and cups to the consumer market.
In March 1995, the Company purchased its Oshkosh, Wisconsin operations
("Hoffmaster") from Scott Paper Company. The Hoffmaster line of premium
napkins is a recognized industry leader in the institutional market for high
quality napkins. This acquisition enabled the Company to substantially
increase its position in the institutional market and become an industry
leader in colored and custom-printed napkins and placemats. This acquisition
also provided the Company with access to fall and winter seasonal product
lines which complement its summer seasonal paper plate business. In addition,
Hoffmaster's printing capabilities have allowed the Company to meet the
increasing demand of restaurants and institutional food servers for
disposable tableware printed with the end-users' logos or personalized
colored designs.
In November 1995, the Company acquired its Maspeth, New York operations
("Maspeth") from private owners. Production at Maspeth augments the Company's
production of paper plates and cups for both the institutional and consumer
markets. In addition, this acquisition provided the Company entry into the
mass merchandise markets, access to seasonal product lines and enhanced
printing capabilities.
In December 1995, the Company expanded its product line of disposable
tableware products through the acquisition of its Appleton, Wisconsin
operations ("Chesapeake") from Chesapeake Corporation, a leading manufacturer
of design-intensive and solid-colored premium napkins, tablecovers and crepe
paper. This acquisition (i) enabled the Company to enter the specialty
consumer products business, complementing the Hoffmaster line, (ii) provided
the Company with sales and marketing economies and (iii) expanded the
Company's printing capabilities as the Company became one of a small number
of manufacturers with the capability to produce graphic-intensive
print-to-the-edge napkins for the premium party goods sector.
In order to increase the manufacturing capacity for its rapidly expanding
product line, in May 1996 the Company acquired the operations of the
Specialty Operations Division of James River Corporation ("James River"),
which included the Rancho Dominguez, California facility ("James River
California") and a tissue mill located in Gouverneur, New York ("Natural
Dam"). The James River California facility, which manufactures tissue-based
products, expanded the Company's geographic scope to the West Coast which
enabled the Company to improve its service levels in a ten-state region, open
new markets and expand the Company's customer base. The Natural Dam tissue
mill is one of only three mills in the United States currently producing
specialty and deep-tone colored tissue paper. The Natural Dam acquisition
provides the Company flexibility to vertically integrate its tissue-based
products and the opportunity to participate in a number of specialty markets
that historically have been served by Natural Dam.
28
<PAGE>
The Company is continually evaluating acquisition opportunities that may
meet its strategic objectives. On June 2, 1997, the Company completed the
acquisition of all of the outstanding capital stock of Heartland Mfg. Corp. a
privately owned manufacturer of paper plates, for a purchase price of $12.7
million. On June 16, 1997, the Company completed the acquisition of certain
assets of Tenneco, Inc. relating to the manufacture of placemats and other
disposable tabletop products for a purchase price of $7.0 million, subject to
working capital adjustment. There can be no assurance that suitable
additional acquisitions will be available to the Company, that these
acquisitions or any future acquisitions will be advantageous to the Company
or that anticipated benefits of such acquisitions will be realized.
29
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 27, 1997 which reflects the issuance of the Old Notes and the use of
proceeds therefrom. This table should be read in conjunction with the other
financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 27, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt:
Current portion of long-term debt ......................................................... $ 454
========
Long-term debt:
New Credit Facility ....................................................................... --
9 1/2% Senior Subordinated Notes due 2007 ................................................. $120,000
Other long-term debt(1) ................................................................... 2,689
Total long-term debt ..................................................................... 122,689
Redeemable common stock, $.01 par value, 7,000 shares issued and outstanding ............. 2,229
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000 shares authorized, no shares issued; Preferred
Stock Class B, $.01 par value, 100,000 shares authorized, no shares issued .............. --
Common Stock Class A, $.01 par value, 400,000 shares authorized, 184,000 shares issued and
outstanding; Common Stock Class B, $.01 par value, 20,000 shares authorized, 3,666 shares
issued and outstanding and Common Stock Class C, $.01 par value, 200,000 shares
authorized, no shares issued ............................................................. 2
Additional paid-in capital ............................................................... 3,500
Retained earnings ........................................................................ 7,610
Total stockholders' equity .............................................................. 11,112
--------
Total capitalization.................................................................... $136,030
========
</TABLE>
- --------------
(1) Consists principally of (i) a $1.7 million 9.75% promissory note due
November 2000 issued in connection with the Maspeth acquisition and
(ii) $1.0 million of other debt and capital lease obligations. See
"Description of Certain Indebtedness."
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA (1)
The following selected historical financial data have been derived from
the financial statements of the Company. The data as of and for the years
ended July 30, 1995 and July 28, 1996 are derived from the financial
statements of the Company audited by Deloitte & Touche LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The data for the year ended July 31, 1994 are derived from the
financial statements of the Company audited by BDO Seidman, LLP, independent
auditors, whose report with respect thereto is included elsewhere in this
Prospectus. The data as of July 25, 1993 and July 31, 1994 and for the years
ended July 26, 1992 and July 25, 1993 are derived from the financial
statements of the Company audited by BDO Seidman, LLP, independent auditors,
and are not included herein. The data as of July 26, 1992 are derived from
the Company's unaudited financial statements. The data as of April 27, 1997
and for the nine months ended April 28, 1996 and April 27, 1997 are derived
from the Company's unaudited financial statements included elsewhere in this
Prospectus. In the opinion of management, the unaudited financial statements
include all adjustments (consisting of only normal recurring adjustments)
necessary for a fair presentation of the information set forth therein. The
results of operations for the nine months ended April 27, 1997 are not
necessarily indicative of the results that may be expected for any other
interim period or the entire year. The following data should be read in
conjunction with the Company's financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the other financial information included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED JULY (2) ENDED APRIL
--------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................... $64,063 $61,079 $61,839 $ 97,074 $204,903 $138,546 $189,227
------- ------- ------- -------- -------- -------- --------
Cost of goods sold ................. 53,383 49,776 51,643 76,252 161,304 110,202 149,165
------- ------- ------- -------- -------- -------- --------
Gross profit ....................... 10,680 11,303 10,196 20,822 43,599 28,344 40,062
Selling, general and administrative
expenses .......................... 8,317 8,686 8,438 14,112 29,735 21,291 28,466
------- ------- ------- -------- -------- -------- --------
Income from operations ............. 2,363 2,617 1,758 6,710 13,864 7,053 11,596
Interest expense, net .............. 1,531 1,201 1,268 2,943 7,934 4,538 6,798
------- ------- ------- -------- -------- -------- --------
Income before taxes and
extraordinary expense ............. 832 1,416 490 3,767 5,930 2,515 4,798
Income taxes ....................... 301 478 239 1,585 2,500 1,056 2,015
------- ------- ------- -------- -------- -------- --------
Income before extraordinary expense 531 938 251 2,182 3,430 1,459 2,783
Extraordinary expense, net (9) .... -- -- -- -- -- -- 3,495
Net income (loss)................... $ 531 $ 938 $ 251 $ 2,182 $ 3,430 $ 1,459 $ (712)
======= ======= ======= ======== ======== ======== ========
OTHER GAAP FINANCIAL DATA:
Net cash provided by (used in)
operating activities (4)........... $ 2,129 $ 2,797 $ 140 $ (4,774) $ 17,673 $ 14,767 $ 403
Net cash (used in) investing
activities......................... (577) (1,027) (1,272) (29,593) (46,532) (38,356) (9,485)
Net cash provided by financing ..... (1,713) (1,742) 992 34,262 30,206 23,899 31,749
Capital expenditures (5) ........... 577 1,027 1,272 1,608 1,314 978 3,469
Depreciation and amortization ..... 1,256 1,248 1,246 1,669 3,450 3,085 3,475
Ratio of earnings to fixed
charges (6) ....................... 1.4x 1.9x 1.3x 2.1x 1.7x 1.5x 1.7x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (3).......................... $ 3,619 $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 10,138 $ 15,071
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AS OF
AS OF JULY APRIL
--------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................... $ 337 $ 365 $ 225 $ 120 $ 1,467 $ 430 $ 24,134
Working capital ................... 2,094 1,738 2,731 28,079 38,931 33,744 75,515
Property, plant and equipment,
net............................... 7,649 7,428 7,454 26,933 46,350 41,096 46,310
Total assets ...................... 25,129 24,676 24,668 79,725 136,168 122,252 172,368
Total indebtedness (7) ............ 13,783 11,589 12,581 48,165 87,763 74,910 123,143
Redeemable common stock (8) ...... -- -- -- 2,115 2,179 2,163 2,229
Stockholders' equity............... 4,788 5,726 5,977 7,205 11,873 8,432 11,112
</TABLE>
- --------------
(1) The selected historical statement of operations and other financial
data include the results of operations of the Company and each of the
Acquisitions since their respective dates of acquisition as follows:
Hoffmaster as of March 31, 1995; Maspeth as of November 30, 1995;
Chesapeake as of December 29, 1995; and James River California/Natural
Dam as of May 5, 1996. See "The Company," "Management's Discussion and
Analysis of Financial Condition and Results of Operations--General" and
Note 3 of the Notes to the Financial Statements of the Company.
(2) All fiscal years are 52 weeks, except for Fiscal 1994 which is 53
weeks.
(3) EBITDA represents income from operations before interest expense,
provision for income taxes and depreciation and amortization. EBITDA is
generally accepted as providing information regarding a company's
ability to service debt. EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operations, or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is
widely used by companies as a measure of operating performance because
it assists in comparing performance on a relatively consistent basis
across companies without regard to depreciation and amortization, which
can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as
historical cost bases. Because EBITDA is not calculated identically by
all companies, the presentation herein may not be comparable to other
similarly titled measures of other companies.
(4) Material differences between EBITDA and net cash provided by or used in
operating activities may occur because of the inherent differences in
each such calculation including (a) the change in operating assets and
liabilities between the beginning and end of each period, as well as
certain non-cash items which are considered when presenting net cash
provided by or used in operating activities but are not used when
calculating EBITDA and (b) interest expense and provision for income
taxes which are included when presenting net cash provided by or used
in operating activities but are not included in the calculation of
EBITDA.
(5) Excludes the costs of the Acquisitions.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before provision for income taxes plus fixed
charges. Fixed charges consist of interest expense (including the
amortization of debt issuance costs) plus that portion of rental
payments on operating leases deemed representative of the interest
factor.
(7) Includes short-term and long-term borrowings and current maturities of
long-term debt.
(8) See "Description of Capital Stock."
(9) The Company incurred extraordinary expenses in connection with the
repayment of debt consisting of the write-off of unamortized debt
issuance costs related to the debt being repaid, elimination of the
unamortized discount on debt being repaid, and prepayment penalties on
early retirement of debt totalling approximately $6.0 million. The
after-tax effect of this extraordinary item was $3.5 million.
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Set forth below are the unaudited pro forma condensed statements of
operations of the Company for the year ended July 28, 1996 and the nine
months ended April 27, 1997. The unaudited pro forma condensed statements of
operations include the historical results of the Company and give effect to
the Fiscal 1996 Acquisitions and to the issuance of the Old Notes and the use
of proceeds therefrom as if they had occurred as of July 31, 1995. The pro
forma financial data do not purport to be indicative of the Company's
financial position or results of operations that would actually have been
obtained had the Fiscal 1996 Acquisitions and the issuance of the Old Notes
and the use of proceeds therefrom been completed as of the date or for the
periods presented, or to project the Company's financial position or results
of operations at any future date or for any future period. The unaudited pro
forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable. The Company does not
believe that any variations from such assumptions and the following pro forma
adjustments would be material.
On November 30, 1995, pursuant to an Asset Purchase Agreement, the Company
purchased Maspeth from private owners. The aggregate purchase price for all
of the assets acquired was $10.0 million, comprised of $7.75 million in cash
and a $2.25 million promissory note of the Company. The Maspeth acquisition
was accounted for under the purchase method of accounting. The cash portion
of the purchase price was financed by borrowings. The aggregate purchase
price for Maspeth of $10 million has been allocated to the assets and
liabilities of the acquired business based upon the Company's estimates of
their fair value. The excess of the fair value of the net assets acquired
over the purchase price was $122,000 and has been allocated to long-term
assets.
On December 29, 1995, pursuant to a Stock Purchase Agreement, the Company
purchased Chesapeake from Chesapeake Corporation. The aggregate purchase
price for all of the assets acquired was $29.0 million. The Chesapeake
acquisition was accounted for under the purchase method of accounting. The
purchase price was financed by borrowings. The aggregate purchase price for
Chesapeake of $29 million has been allocated to the assets and liabilities of
the acquired business based upon the Company's estimates of their fair value.
The excess of the purchase price over the fair value of the net assets
acquired was $4.6 million and has been recorded as goodwill.
On May 5, 1996, pursuant to an Asset Purchase Agreement, the Company
purchased James River California and Natural Dam from James River. The
aggregate purchase price for all of the assets acquired was $15.0 million,
comprised of $8 million in cash and a $7 million promissory note of the
Company. On February 27, 1997, the purchase price was increased by $3.4
million pursuant to post-closing adjustment provisions and the promissory
note owed to James River was retired early for $2.2 million. The James River
acquisition was accounted for under the purchase method of accounting. The
cash portion of the purchase price was financed by borrowings. The initial
purchase price for James River California and Natural Dam of $15.0 million
has been allocated to the assets and liabilities of the acquired businesses
based upon the Company's estimates of their fair value. The excess of the
fair value of the net assets acquired over the purchase price (prior to the
adjustments noted below) was $5.5 million and has been allocated to long-term
assets. The $3.4 million purchase price adjustment and $5.3 million of gain
(including accrued interest) on the retirement of the James River note has
been allocated to long-term assets.
On February 27, 1997, the Company issued and sold $120.0 million principal
amount of Old Notes to the Initial Purchasers. The Old Notes bear interest at
a rate of 9 1/2% per annum, payable semi-annually in arrears on March 1 and
September 1 of each year beginning September 1, 1997. The Old Notes will
mature on March 1, 2007. Pursuant to the Registration Rights Agreement, the
Company agreed to file with the Commission a registration statement with
respect to an offer to exchange the Old Notes for New Notes. The form and
terms of the New Notes will be identical in all material respects to the form
and terms of the Old Notes except that the registration and other rights
relating to the exchange of Old Notes for New Notes and the restriction on
transfer of the Old Notes will not apply to the New Notes. See "Prospectus
Summary--Issuance of the Old Notes" and "Description of New Notes."
The unaudited pro forma financial statements should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical financial statements
of the Company, Scott Foodservice Division of Scott Paper Company and
Chesapeake Consumer Products Company and the notes thereto included elsewhere
in this Prospectus.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (a)
<TABLE>
<CAPTION>
YEAR ENDED JULY 28, 1996
----------------------------------------------------------------------------------------------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA PRO FORMA
HISTORICAL MASPETH ADJUSTMENTS CHESAPEAKE ADJUSTMENTS JAMES ADJUSTMENTS INTERCOMPANY PRO FORMA
COMPANY (C) MASPETH (C) CHESAPEAKE RIVER (C) JAMES RIVER ELIMINATIONS HISTORICAL
---------- ---------- ----------- ---------- ----------- ---------- ----------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................ $204,903 $8,897 $24,908 $27,862 $(4,111) $262,459
Cost of goods sold....... 161,304 7,681 $ (8)(e) 19,541 $(279)(f) 24,356 $ (429)(e) (4,111) 208,055
-------- ------ ----- ------- ----- ------- ------ ------- --------
Gross profit............. 43,599 1,216 8 5,367 279 3,506 429 54,404
Selling, general and
administrative expenses. 29,735 173 3,720 (43)(d) 991 34,576
-------- ------ ----- ------- ----- ------- ------ ------- --------
Income from operations .. 13,864 1,043 8 1,647 322 2,515 429 19,828
Interest expense, net ... 7,934 88 252 (g) 481 730 (g) 1,121(g) 10,606
-------- ------ ----- ------- ----- ------- ------ ------- --------
Income (loss) before
taxes................... 5,930 955 (244) 1,166 (408) 2,515 (692) 9,222
Income taxes (benefit)
(i)..................... 2,500 401 (102) 502 (184) 1,057 (291) 3,883
-------- ------ ----- ------- ----- ------- ------ ------- --------
Net income (loss)........ $ 3,430 $ 554 $(142) $ 664 $(224) $ 1,458 $ (401) $ 0 $ 5,339
======== ====== ===== ======= ===== ======= ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
OTHER GAAP FINANCIAL DATA:
Cash interest expense, net. $ 6,748
Capital expenditures....... 1,314
Depreciation and
amortization (k).......... 3,450
Ratio of earnings to fixed
charges (l)............... 1.7x
OTHER NON-GAAP
FINANCIAL DATA:
EBITDA(j) ................. $ 17,314
Ratio of EBITDA to cash
interest expense, net .... 2.6x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statements of Operations.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS (a)
<TABLE>
<CAPTION>
YEAR ENDED JULY 28, 1996 NINE MONTHS ENDED APRIL 27, 1997
----------------------------------------- --------------------------------------
ADJUSTMENTS
PRO FORMA FOR ISSUANCE OF PRO
HISTORICAL OLD NOTES PRO-FORMA(B) HISTORICAL ADJUSTMENTS FORMA(K)
---------- --------- ------------ ---------- ----------- --------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .................................... $262,459 $ -- $262,459 $189,227 $ -- $189,227
Cost of goods sold ........................... 208,055 -- 208,055 149,165 (212)(e) 148,953
-------- ------- -------- -------- ------- --------
Gross profit ................................. 54,404 -- 54,404 40,062 212 40,274
Selling, general and administrative expenses 34,576 -- 34,576 28,466 -- 28,466
-------- ------- -------- -------- ------- --------
Income from operations ....................... 19,828 -- 19,828 11,596 212 11,808
Interest expense, net ........................ 10,606 1,858(h) 12,464 6,798 2,385(h) 9,183
-------- ------- -------- -------- ------- --------
Income before taxes and extraordinary expense 9,222 (1,858) 7,364 4,798 (2,173) 2,625
Income taxes (benefit) (i) ................... 3,883 (780) 3,103 2,015 (913) 1,102
-------- ------- -------- -------- ------- --------
Income before extraordinary expense ......... 5,339 (1,078) 4,261 2,783 1,260 1,523
Extraordinary expense, net (m) ............... -- -- -- 3,495 124 3,619
Net income (loss) ............................ $ 5,339 $(1,078) $ 4,261 $ (712) $(1,384) $ (2,096)
======== ======= ======== ======== ======= =========
OTHER GAAP FINANCIAL DATA:
Cash interest expense, net ................... $ 12,034 $ 5,924 $ 9,066
Capital expenditures.......................... 2,435 3,469 3,469
Depreciation and amortization (k)............. 4,386 3,475 3,263
Ratio of earnings to fixed charges (l) ....... 1.6x 1.7x 1.3x
OTHER NON-GAAP FINANCIAL DATA:
EBITDA (j).................................... $ 24,214 $ 15,071 $ 15,071
Ratio of EBITDA to cash interest
expense, net ................................ 2.0x 2.5x 1.7x
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statements of Operations.
35
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
(a) Reflects those adjustments to record the Fiscal 1996 Acquisitions and
the issuance of the Old Notes and the transactions contemplated thereby
as if they had occurred on July 31, 1995.
(b) The unaudited pro forma condensed statements of operations for Fiscal
1996 do not include the charge of $2.2 million which resulted from the
write-off of unamortized debt issuance costs, elimination of $2.1
million unamortized discount that resulted from the repayment of the
Old Subordinated Notes, and $1.6 million which resulted from prepayment
penalties incurred from early retirement of existing debt. These items
were accounted for as extraordinary items in the fiscal quarter ended
April 27, 1997, the fiscal quarter in which such debt was repaid.
(c) Reflects the historical results of operations of the Fiscal 1996
Acquisitions as if they had occurred on July 31, 1995 until their
respective dates of acquisition.
(d) Reflects the net decrease in amortization expense relating to
Chesapeake goodwill ($4.6 million) as follows:
<TABLE>
<CAPTION>
<S> <C>
Amortization expense resulting from goodwill created by the excess of the
purchase price over the fair market value of net assets acquired amortized over
a twenty-year period............................................................. $ 96
Removal of goodwill amortization expense previously recorded on historical
financial statements............................................................. (139)
-----
Net decrease in amortization expense.............................................. $ (43)
=====
</TABLE>
(e) Reflects a decrease in depreciation expense of long-term assets created
by the excess of the fair market value of the net assets acquired over
the purchase price. For Maspeth, the excess of the fair market value of
the net assets acquired over the purchase price of $122,000 was
allocated to property, plant and equipment which are being amortized
over a three to 12 year period. For James River, the excess of the fair
market value of the net assets acquired over the purchase price of $7.4
million (including the final purchase price adjustment of $3.4 million
and the gain on the retirement of the note payable to James River of
$5.3 million) was allocated to property, plant and equipment and other
assets which are being amortized over a three to 40 year period and a
42 year period, respectively.
(f) Reflects a decrease in depreciation expense primarily as a result of
the change in the valuation of property, plant and equipment based upon
appraised values as compared to their historical carrying value. Such
property, plant and equipment is being depreciated over a three to 40
year period.
(g) Reflects additional interest expense related to the Fiscal 1996
Acquisitions as if they had occurred on July 31, 1995 until their
respective dates of acquisition. In connection with the Maspeth
acquisition, the Company incurred $10 million of debt under the Old
Credit Facility, the Old Subordinated Notes and a promissory note to
the seller at interest rates ranging from 8.5% to 14%. In connection
with the Chesapeake acquisition, the Company incurred $29 million of
debt under the Old Credit Facility, the Term Loans and the Old
Subordinated Notes at interest rates ranging from 8.5% to 14%. In
connection with the James River acquisition, the Company incurred $15
million of debt under the Old Credit Facility, the Term Loans and a
promissory note to the seller at interest rates ranging from 8.5% to
10.75%.
(h) The pro forma adjustments to interest exense, net consist of the
following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
NINE MONTHS
YEAR ENDED ENDED
JULY 28, 1996 APRIL 27, 1997
------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical interest expense............................ $ 7,934 $ 6,798
======= =======
Elimination of interest expense related to:
Old Credit Facility, Term Loans and Old Subordinated
Notes................................................. $(6,346) $(5,816)
Amortization of deferred debt issuance costs on
retired debt ......................................... (1,021) (672)
------- -------
Decrease in interest expense........................... (7,367) (6,488)
------- -------
Interest expense on new indebtedness:
9 1/2% Senior Subordinated Notes due 2007 ............. 11,400 8,550
Acquisition debt(1) ................................... 67 --
Amortization of costs on new debt(2) .................. 430 323
------- -------
Increase in interest expense........................... 11,897 8,873
------- -------
Net increase in interest expense ...................... 4,530 2,385
Less: Fiscal 1996 Acquisitions interest expense(3) (2,672) --
------- -------
Adjustment to interest expense related to the
issuance of the Old Notes............................. $ 1,858 $ 2,385
======= =======
</TABLE>
36
<PAGE>
- --------------
(1) Represents additional interest expense on indebtedness incurred to
fund the Maspeth acquisition as if such acquisition occurred on
July 31, 1995.
(2) Debt issuance costs related to the Notes will be amortized over
their 10-year life.
(3) Represents the increase in historical interest expense reflected
in Notes (c) and (g) hereto as if the Fiscal 1996 Acquisitions had
occurred on July 31, 1995 until their respective dates of
acquisition.
(i) For pro forma purposes, the income tax provision was calculated at 42%
based on enacted statutory tax rates applied to pro forma pre-tax
income and the provisions of SFAS No. 109.
(j) EBITDA represents income from operations before interest expense,
provision for income taxes, and depreciation and amortization. EBITDA
is generally accepted as providing information regarding a company's
ability to service debt. EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operations, or other
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is
widely used by companies as a measure of operating performance because
it assists in comparing performance on a relatively consistent basis
across companies without regard to depreciation and amortization, which
can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as
historical cost bases. Because EBITDA is not calculated identically by
all companies, the presentation herein may not be comparable to other
similarly titled measures of other companies.
(k) Depreciation and amortization excludes amortization of debt issuance
costs which is classified as interest expense in the Statements of
Operations.
(l) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of earnings before provision for income taxes plus
fixed charges. Fixed charges consist of interest expense plus that
portion of rental payments on operating leases deemed representative of
the interest factor.
(m) The Company incurred extraordinary expenses in connection with the
repayment of debt consisting of the write-off of unamortized debt
issuance costs related to the debt being repaid, elimination of the
unamortized discount on debt being repaid, and prepayment penalties on
early retirement of debt totalling approximately $6.0 million. The
after-tax effect of this extraordinary item was $3.5 million. The
adjustment during the nine months ended April 27, 1997 reflects the
amortization expense of the debt issuance costs and debt discount
during the nine months ended April 27, 1997, net of taxes.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion of results of operations for Fiscal 1994, 1995
and 1996 and for the nine month periods ended April 27, 1997 and April 28,
1996 is based on the historical results of operations of the Company. Since
the Acquisitions were consummated from time to time during such fiscal years,
the financial information contained herein with respect to periods prior to
the Acquisitions does not reflect the results of operations of the businesses
acquired; thus, this financial information is not necessarily indicative of
the results of operations that would have been achieved had the Acquisitions
been consummated by the Company at the beginning of the periods presented
herein or which may be achieved in the future, nor does it reflect the
operations of such acquired businesses under the Company's management for a
significant period of time.
Prior to March 1995, the Company's business was highly seasonal with over
30% of its net sales and 50% of its cash flow realized in the fourth quarter
of its fiscal year. As a result of the Acquisitions, its business has become
less seasonal and the Company anticipates a continued reduction in the
seasonality of its business. Nevertheless, collections of receivables will be
greatest during the first and second quarters of the fiscal year.
Additionally, the Company will continue its practice of building inventory at
the Fonda division throughout the second and third quarters of each fiscal
year to satisfy the high seasonal demands of the summer months when outdoor
and away-from-home consumption increases. In the event the Company's cash
flow from operations during the second and third quarters of a fiscal year
are insufficient to provide working capital necessary to fund production
requirements during these quarters, the Company will need to resort to
borrowings under the New Credit Facility or other sources of capital.
Although the Company believes that funds available under the New Credit
Facility together with cash generated from operations will be adequate to
provide for the Company's cash requirements, there can be no assurance that
such capital resources will be sufficient in the future.
GENERAL
The Company is a converter and marketer of paperboard and tissue products,
the selling prices of which typically follow the general movement in the cost
of such principal raw materials. This is particularly true with respect to
commodity products, such as coated and uncoated white paper plates. When raw
materials and selling prices increase, operating margins tend to improve.
Conversely, when raw materials prices decrease, selling prices generally also
decline. Operating margins may also decline as the Company's fixed selling,
general and administrative costs remain relatively constant. The actual
impact on the Company of raw materials price changes is affected by a number
of factors including the level of inventories at the time of a price change,
the specific timing and frequency of price changes, and the lead and lag time
that generally accompanies the implementation of both raw materials and
subsequent selling price changes. However, over time the Company believes it
is able to maintain relatively stable margins between its selling prices and
raw material costs. The Company's business and growth strategy is intended,
in part, to enable the Company to maintain a lower cost structure as a result
of improved purchasing power, improved fixed overhead costs absorption and
consolidation and elimination of costs as it integrates its strategic
acquisitions. Furthermore, the Company believes it has been able to mitigate
the effect of changing raw materials prices by diversifying into higher
margin, value-added products, such as those produced by the Hoffmaster
division. See "Business--Raw Materials and Suppliers."
38
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY NINE MONTHS ENDED APRIL
------------------------------------------------------------ --------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------ ------------------ ------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ................ $61.8 100.0% $97.1 100.0% $204.9 100.0% $138.5 100.0% $189.2 100.0%
Cost of goods sold ....... 51.6 83.5 76.3 78.6 161.3 78.7 110.2 79.5 149.2 78.8
----- ----- ----- ----- ------ ----- ------ ----- ------ -----
Gross profit ............. 10.2 16.5 20.8 21.4 43.6 21.3 28.3 20.5 40.0 21.2
Selling, general and
administrative expenses . 8.4 13.7 14.1 14.5 29.7 14.5 21.3 15.4 28.4 15.1
----- ----- ----- ----- ------ ----- ------ ----- ------ -----
Income from operations .. 1.8 2.8 6.7 6.9 13.9 6.8 7.0 5.1 11.6 6.1
Interest expense ......... 1.3 2.1 2.9 3.0 8.0 3.9 4.5 3.3 6.8 3.6
----- ----- ----- ----- ------ ----- ------ ----- ------ -----
Income before taxes and
extraordinary expense .. 0.5 0.7 3.8 3.9 5.9 2.9 2.5 1.8 4.8 2.5
Taxes on income .......... 0.2 0.3 1.6 1.6 2.5 1.2 1.0 0.7 2.0 1.1
----- ----- ----- ----- ------ ----- ------ ----- ------ -----
Income before
extraordinary expense .. 0.3 0.4 2.2 2.2 3.4 1.7 1.5 1.1 2.8 1.4
Extraordinary expense,
net...................... -- -- -- -- -- -- -- -- 3.5 1.8
Net income ............... $ 0.3 0.4% $ 2.2 2.2% $ 3.4 1.7% $ 1.5 1.1 $ (0.7) (0.4)%
===== ===== ===== ===== ====== ===== ====== ===== ====== =====
Other Non-GAAP Financial
Data:
EBITDA ................... $ 3.0 4.9% $ 8.4 8.6% $ 17.3 8.4% $ 10.1 7.3% $ 15.1 8.0%
</TABLE>
NINE MONTHS ENDED APRIL 27, 1997 COMPARED TO NINE MONTHS ENDED APRIL 28, 1996
The Company's net sales increased $50.7 million, or 36.6%, to $189.2
million in the nine months ended April 27, 1997 compared to $138.5 million in
the nine months ended April 28, 1996. Approximately 90% of the increase
reflects nine months of results of operations for the Chesapeake and James
River acquisitions during the 1997 period versus four months of results of
operations of Chesapeake during the 1996 period. The Company did not own the
James River acquisition during the 1996 period. During the nine months ended
April 27, 1997, average selling prices declined approximately 10% and 18% in
the consumer and institutional markets, respectively, reflecting competitive
market conditions and lower average raw materials costs.
Cost of goods sold increased $39.0 million, or 35.4%, to $149.2 million in
the nine months ended April 27, 1997 compared to $110.2 million in the nine
months ended April 28, 1996. Approximately 90% of the increase reflects nine
months of results of operations for the Chesapeake and James River
acquisitions during the 1997 period versus four months of results of operations
of Chesapeake during the 1996 period. The Company did not own the James River
acquisition during the 1996 period. Cost of goods sold as a percentage of
net sales decreased slightly from 79.5% in the nine months ended April 28,
1996 to 78.8% in the nine months ended April 27, 1997. This decrease was due
to improved fixed overhead costs absorption, particularly at the Fonda
division, and lower average raw materials costs which declined about 10%
during the period. The higher sales levels and lower cost of goods sold as a
percentage of net sales contributed to the increase in gross profit of $11.7
million, or 41.3%, to $40.1 million in the nine months ended April 27, 1997
compared to $28.3 million in the nine months ended April 28, 1996. As a
percentage of net sales, gross profit improved from 20.5% in the nine months
ended April 28, 1996 to 21.2% in the nine months ended April 27, 1997.
Selling, general and administrative expenses increased $7.2 million, or
33.7%, to $28.5 million in the nine months ended April 27, 1997 compared to
$21.3 million in the nine months ended April 28, 1996. This increase was due
primarily to the incurrence of additional expenses and corporate overhead
assumed in connection with the acquisitions completed during Fiscal 1996. As
a percentage of net sales, selling, general and administrative expenses
decreased from 15.4% in the nine months ended April 28, 1996 to 15.0% during
the nine months ended April 27, 1997.
Operating income increased $4.5 million, or 64.4%, to $11.6 million in the
nine months ended April 27, 1997 compared to $7.0 million in the nine months
ended April 28, 1996. As a percentage of net
39
<PAGE>
sales, operating income increased from 5.1% in the nine months ended April
28, 1996 to 6.1% during the nine months ended January 27, 1997. This increase
reflects the decrease in cost of goods sold and selling, general and
administrative expenses as a percentage of net sales.
Interest expense increased $2.3 million, or 49.8%, to $6.8 million in the
nine months ended April 27, 1997 compared to $4.5 million in the nine months
ended April 28, 1996. This increase was due primarily to higher borrowings
related to the acquisitions made during Fiscal 1996 and the issuance of the
Old Notes.
Income before income taxes and extraordinary expenses increased to $4.8
million in the nine months ended April 27, 1997 from $2.5 million in the nine
months ended April 28, 1996. This increase was due principally to increased
operating income arising from the acquisitions made during Fiscal 1996. The
Company's provision for income taxes remained unchanged at 42% of income
before income taxes.
The Company incurred extraordinary expenses in connection with the
repayment of debt consisting of the write-off of unamortized debt issuance
costs related to the debt being repaid, elimination of unamortized discount
on debt being repaid, and prepayment penalties on early retirement of debt
totaling approximately $6.0 million. The after tax effect of this
extraordinary item was $3.5 million. The extraordinary item resulted in a net
loss of $0.7 million during the nine months ended April 27, 1997 compared to
net income of $1.5 million during the nine months period ended April 28,
1996.
FISCAL 1996 COMPARED TO FISCAL 1995
The Company's net sales increased $107.8 million, or 111.1%, to $204.9
million in Fiscal 1996 compared to $97.1 million in Fiscal 1995.
Approximately 70% of this increase reflects a full year's results of
operations for the Hoffmaster division, which also includes seven months of
results of operations for the Chesapeake acquisition. Approximately 7% of
this increase is attributable to about three months of results of operations
of the James River California and Natural Dam businesses, which were acquired
by the Company in May 1996. Sales growth was also driven by a 13% increase in
shipments by the Fonda division, which is primarily due to improved
integration and marketing efforts, and a 5% increase in selling prices.
Cost of goods sold increased by $85.0 million, or 111.5%, to $161.3
million in Fiscal 1996 from $76.3 million in Fiscal 1995. Approximately 70%
of this increase reflects a full year's results of operations for the
Hoffmaster division, which also includes seven months of results of
operations for the Chesapeake acquisition. Cost of goods sold as a percentage
of net sales remained constant from Fiscal 1995 to Fiscal 1996 at
approximately 78.6%. The inclusion of the Hoffmaster division results offset
an increase in cost of goods sold as a percentage of sales at the Fonda
division. In the first half of Fiscal 1996, the Company experienced increased
raw material costs as a result of continuous price increases during 1995,
which affected the Fonda division. Raw material costs stabilized and began to
decline in the latter part of Fiscal 1996 but nevertheless increased
approximately 15% during the year. The Company's gross profit increased $22.8
million, or 109.4%, to $43.6 million in Fiscal 1996 from $20.8 million in
Fiscal 1995. Gross profit as a percentage of net sales during Fiscal 1996
remained relatively constant at approximately 21.4% as compared with Fiscal
1995.
Selling, general and administrative expenses increased $15.6 million, or
110.7%, to $29.7 million in Fiscal 1996 compared to $14.1 million in Fiscal
1995 primarily as a result of the incurrence of additional expenses assumed
in connection with the acquisitions of Chesapeake and Maspeth, as well as a
full year's results for the Hoffmaster division. As a percentage of net
sales, however, selling, general and administrative expenses remained
relatively constant at approximately 14.5%.
Operating income increased $7.2 million, or 106.6%, to $13.9 million in
Fiscal 1996 from $6.7 million in Fiscal 1995. As a percentage of net sales,
operating income remained unchanged at 6.9%. Costs of integrating the
Chesapeake and Maspeth acquisitions and slightly lower selling prices were
offset by cost savings achieved in overhead reduction, improved fixed cost
absorption and lower procurement costs.
EBITDA increased $8.9 million, or 106.6%, to $17.3 million in Fiscal 1996
from $8.4 million in Fiscal 1995 for the reasons stated above. Depreciation
and amortization increased from $1.7 million in Fiscal 1995 to $3.5 million
in Fiscal 1996 primarily as a result of the Acquisitions.
40
<PAGE>
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales increased $35.3 million, or 57.0%, to $97.1
million in Fiscal 1995 from $61.8 million in Fiscal 1994. Approximately 70%
of the increase was due to the acquisition of Hoffmaster on March 31, 1995
and the inclusion of four months of results of operations in Fiscal 1995. At
the Fonda division, a 30% increase in average selling prices was offset by a
9% volume decline. The decline in volume reflects the Company's goal of
eliminating lower margin business.
Cost of goods sold increased $24.7 million, or 47.7%, to $76.3 million in
Fiscal 1995 from $51.6 million in Fiscal 1994. The Hoffmaster acquisition
represented about 72% of such increase. Average raw material costs at the
Fonda division, which increased approximately 32% during the year, also
contributed to the increase in cost of goods sold. Selling prices at the
Fonda division rose about 30% in response to higher raw material costs. Cost
of goods sold as a percentage of net sales decreased from 83.5% in Fiscal
1994 to 78.6% in Fiscal 1995. The primary reason for the decline was the
higher margin business contributed by Hoffmaster during the fiscal year.
Gross profit increased $10.6 million, or 104.2%, to $20.8 million in Fiscal
1995 compared to $10.2 million in Fiscal 1994. Gross profit as a percentage
of net sales increased to 21.4% in Fiscal 1995 from 16.5% in Fiscal 1994.
This improvement was primarily due to the Hoffmaster acquisition and was
positively affected by improved operating margins at the Fonda division.
Selling, general and administrative expenses increased $5.7 million, or
67.2%, to $14.1 million in Fiscal 1995 from $8.4 million in Fiscal 1994.
Selling, general and administrative expenses as a percentage of net sales
increased to 14.5% in Fiscal 1995 from 13.7% in Fiscal 1994. This increase
was primarily due to the inclusion of Hoffmaster selling expenses. In
addition, Hoffmaster sells higher value-added products which require
increased selling efforts.
Operating income increased $4.9 million, or 281.7%, to $6.7 million in
Fiscal 1995 compared to $1.8 million in Fiscal 1994. As a percentage of net
sales, operating income increased to 6.9% in Fiscal 1995 from 2.8% in Fiscal
1994. This improvement was primarily due to a combination of higher volumes
and margins at the Fonda division and the inclusion of four months of
Hoffmaster results.
EBITDA increased $5.4 million, or 178.9%, to $8.4 million in Fiscal 1995
from $3.0 million in Fiscal 1994 for the reasons stated above. Depreciation
and amortization increased from $1.2 million in Fiscal 1994 to $1.7 million
in Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has relied on cash flows from operations and
borrowings to finance its working capital requirements, capital expenditures
and acquisitions.
Net cash provided by operating activities for the nine months ended April
27, 1997 was $0.4 million compared to net cash provided by operating
activities of $14.8 million for the nine months ended April 28, 1996. The
higher level of net cash provided by operating activities during the nine
months ended April 28, 1996 reflects the consolidation of the working capital
assets acquired prior to such period. Net cash provided by operating
activities for Fiscal 1996 was $17.7 million compared to $4.8 million net
cash used in operating activities for Fiscal 1995. This increase was
primarily due to an increase in net income and a reduction in the level of
accounts receivable and an increase in accounts payable and accrued expenses.
Net cash used in investing activities for the nine months ended April 27,
1997 was $9.5 million compared to net cash used in investing activities of
$38.4 million for the nine months ended April 28, 1996. The higher level of
net cash used in investing activities during the nine months ended April 28,
1996 was due primarily to payments made by the Company in connection with the
Fiscal 1996 Acquisitions. Net cash used in investing activities for Fiscal
1996 was $46.5 million compared to $29.6 million for Fiscal 1995. This
increase is primarily a result of the payment for the Fiscal 1996
Acquisitions.
Capital expenditures for the nine months ended April 27, 1997 were $3.5
million as compared to $1.0 million for the nine months ended April 28, 1996.
The capital expenditures made in such periods were used primarily for routine
capital improvements. Capital expenditures for Fiscal 1996 were $1.3 million
compared to $1.6 million for Fiscal 1995. Estimated capital expenditures for
Fiscal 1997 will be approximately $14.3 million, approximately $10.0 million
of which is expected to be used to complete the
41
<PAGE>
installation of an existing paper machine at Natural Dam. The paper machine
was partially installed by James River prior to the Company's acquisition of
Natural Dam. When such machine is operational the Natural Dam mill's
production capacity is expected to double, providing the Company flexibility
to vertically integrate its tissue-based products and the opportunity to
participate in a number of specialty markets that historically have been
served by Natural Dam. Estimated capital expenditures for Fiscal 1997 will be
financed by a portion of the net proceeds of the offering of the Old Notes.
Net cash provided by financing activities for the nine months ended April
27, 1997 was $31.7 million compared to net cash provided by financing
activities of $23.9 million for the nine months ended April 28, 1996. The net
cash provided by financing activities during the nine months ended April 27,
1997 was primarily the result of the proceeds from the issuance of the Old
Notes exceeding the amount of debt repaid, while the net cash provided
financing activities during the nine months ended April 28, 1996 primarily
reflected borrowings to fund two of the acquisitions that the Company
consummated in fiscal 1996. Net cash provided by financing activities for
Fiscal 1996 was $30.2 million compared to $34.3 million for Fiscal 1995. This
increase primarily reflected borrowings to fund the Acquisitions and related
working capital needs.
In connection with the consummation of the Company's issuance and sale of
the Old Notes, on February 27, 1997, the Company repaid the Term Loans and
the Old Credit Facility and entered into the New Credit Facility which
provides a total borrowing capacity of up to $50.0 million through a
revolving credit facility, subject to borrowing base limitations, to finance
the Company's working capital needs and acquisitions. The New Credit Facility
will mature in March 2000. Pursuant to the New Credit Facility, the Company
is subject to certain affirmative and negative covenants customarily
contained in agreements of this type, including, without limitation,
covenants that restrict, subject to specified exceptions (i) mergers,
consolidations, asset sales or changes in capital structure, (ii) creation or
acquisition of subsidiaries, (iii) purchase or redemption of the Company's
capital stock or declaration or payment of dividends or distributions on such
capital stock, (iv) incurrence of additional indebtedness, (v) investment
activities, (vi) granting or incurrence of liens to secure other
indebtedness, (vii) prepayment or modification of the terms of subordinated
indebtedness and (viii) engaging in transactions with affiliates. In
addition, the New Credit Facility requires that the Company satisfy certain
financial covenants similar to those in the Indenture and maintain an
interest coverage ratio of not less than 1.75 to 1.0 for the first fiscal
year following the issuance of the Old Notes and 2.0 to 1.0 for each year
thereafter. The New Credit Facility also provides for customary events of
default. See "Description of Certain Indebtedness." The New Credit Facility
is expected to be undrawn as of the consummation of the Exchange Offer.
On February 27, 1997, the Company issued $120 million aggregate principal
amount of Old Notes. The Old Notes bear interest at a rate of 9 1/2% per
annum, payable semi-annually in arrears on March 1 and September 1 of each
year beginning September 1, 1997. The Old Notes will mature on March 1, 2007.
See "Prospectus Summary--Issuance of the Old Notes."
During Fiscal 1996, the Company did not incur material costs for
compliance with environmental laws and regulations.
Following the issuance of the Old Notes, the Company believes that cash
generated by operations, combined with amounts available under the New Credit
Facility, will be sufficient to meet its capital expenditure needs, debt
service requirements and working capital needs for the foreseeable future.
The Company may need to obtain additional financing to pursue additional
acquisitions; however, there can be no assurance that the Company will be
able to obtain such financing or on terms favorable to the Company.
42
<PAGE>
BUSINESS
GENERAL
The Company believes it is a leading converter and marketer of a broad
line of disposable paper food service products. The Company sells its
products under both branded and private labels to the consumer and
institutional markets and participates at all major price points. The Company
believes it is a market leader in the sale of premium white, colored and
custom-printed napkins, placemats, tablecovers and food trays and in the sale
of private label consumer paper plates, bowls and cups. The Company's
Sensations, Splash(Registered Trademark) and Party Creations(Registered
Trademark) brands are well recognized in the consumer markets and its
Hoffmaster(Registered Trademark) brand is well recognized in the
institutional markets.
During the past two years, the Company has grown rapidly, principally
through the completion of the Acquisitions. As the Company completes the
integration of the Acquisitions, it expects to continue to improve
manufacturing efficiencies, achieve further cost savings and increase
profitability. As evidence of the Company's rapid growth, its net sales, net
income and EBITDA increased from $61.8 million, $0.3 million and $3.0
million, respectively, in Fiscal 1994 to $204.9 million, $3.4 million and
$17.3 million, respectively, in Fiscal 1996. For Fiscal 1996, after giving
pro forma effect to the Fiscal 1996 Acquisitions, the Company would have had
net sales of $262.5 million, net income of $4.3 million and EBITDA of $24.2
million.
The Company offers a broad range of products, enabling it to offer its
customers "one-stop" shopping for their disposable food service product
needs. The Company's principal products include (i) paperboard products, such
as white, colored and printed paper plates and bowls (approximately 31% of
gross sales), paper cups for both hot and cold drinks (approximately 10%),
handled food pails for take-out food and food trays (approximately 6%); (ii)
tissue products, such as printed and solid napkins (approximately 21%) and
printed and solid paper tablecovers and crepe paper (approximately 9%); (iii)
specialty products, such as placemats (approximately 9%), doilies, tray
covers and fluted products including baking cups (approximately 8%); and (iv)
products for resale, such as plastic cutlery, coasters, plastic cups and
plastic toothpicks (approximately 6%). See "--Products." The Company is
principally a converter and marketer of paperboard and tissue products, the
prices of which typically follow the general movement in the costs of such
principal raw materials. The Company believes it is generally able to
maintain relatively stable margins between its selling prices and its raw
materials costs.
According to the Pulp & Paper Fact Book published by Miller Freeman
(1996), growth in unit production of disposable paper food service products
has been relatively stable during the past decade and tracks the growth of
end-users of these products. The Company believes recent growth in the
disposable paper food service products industry has been and will continue to
be influenced principally by increased away-from-home dining, take-out
convenience and sanitary considerations. In addition, management believes
that the industry has experienced consolidation in recent years and will
further consolidate over the next several years as smaller local and regional
competitors experience greater difficulty competing with larger national
competitors. The Company believes that it is well positioned to take
advantage of and benefit from this consolidation.
The Company sells its products to more than 2,500 consumer and
institutional customers located throughout the United States and has
developed and maintained long-term relationships with many of these
customers. The Company's consumer customers include (i) supermarkets, (ii)
mass merchandisers, and (iii) warehouse clubs and other retailers. The
Company's institutional customers include major food service distributors, as
well as restaurants, schools, hospitals and other major institutions with
dining facilities.
COMPETITIVE STRENGTHS
Management believes the Company has a leading competitive position in the
disposable paper food service products industry for the following reasons:
o Broad Product Offering. The Company believes that its product
offering is one of the broadest
43
<PAGE>
in the industry, competing across all major price points of the
markets it serves and that it is the only company that offers a
full selection of premium products as well as a full line of
private label products. The Company offers its products in a wide
range of colors, designs and graphics which are often printed to
the customer's specifications. The Company owns and operates one of
only three mills in the United States currently producing specialty
and deep-tone colored tissue.
The Company's diverse and expansive product offering allows it to
better serve its customers with "one-stop" shopping and enables
both the Company and its customers to differentiate themselves from
their respective competitors. As the industry continues to
experience greater customer concentration resulting from a
consolidation of distributors and retail outlets, as well as an
increase in sales to the mass merchandiser and discount retailer
distribution channels, the Company believes that its broad product
offering and the benefits it provides are a competitive advantage.
In addition, the Company believes that its broad product offering
enables it to increase shelf space with its customers.
o Extensive Distribution Network and Strong Focus on Customer
Service. The Company has an extensive network of distributors,
brokers and direct sales accounts in both the institutional and
consumer markets. Because of the Company's multiple distribution
channels, it can adapt its distribution capabilities to meet each
customer's individual needs and preferences. The Company also has
established long-term relationships, some as long as 25 years, with
some of the food service industry's leading companies as a result
of consistently providing high quality products and services. As a
result of the Company's recent Acquisitions, the Company has
increased its manufacturing, distribution and warehouse facilities
from four locations primarily in the eastern United States to nine
locations throughout the United States. This provides the Company
with the ability to be more responsive and otherwise provide better
service to its customers, particularly national and regional
accounts.
o Experienced Management Team. The Company's top four senior
operating managers average over 15 years of experience in the food
service industry. The Company's management has developed long-term
relationships with its customers and suppliers and has a proven
track record in identifying, completing and integrating strategic
acquisitions.
BUSINESS AND GROWTH STRATEGY
The Company believes that it can maintain and improve its position in the
disposable paper food service products industry by (i) selectively pursuing
and successfully integrating strategic acquisitions, (ii) continuing to
provide value-added products and services, (iii) continuing to be responsive
to customer demands and (iv) increasing its production of specialty and
deep-tone colored tissue. The Company will pursue its growth strategy
through:
o Strategic Acquisitions. The Company targets acquisitions for their
ability to complement and broaden existing product lines, penetrate
additional end-use markets, strengthen existing market positions,
expand the Company's geographic scope and provide manufacturing,
sales and marketing economies. When integrating acquisitions, the
Company seeks to (i) reduce manufacturing and production costs
through the elimination of redundant facilities, the consolidation
of overhead and the more efficient use of its manufacturing
equipment; (ii) achieve sales and marketing economies of scale
through consolidation; (iii) reduce procurement costs by leveraging
its purchasing power; (iv) improve customer service through
geographic diversification; and (v) increase net sales by
cross-marketing the Company's products to an expanded customer
base.
o Value-Added Products and Services. The Company has focused and
expects to continue to focus on higher margin, value-added products
where it has a competitive advantage while continuing to produce
high volume commodity-oriented product lines. These niche
value-added products include print-to-the-edge napkins and premium
table top products, which are not the principal focus of the
Company's larger competitors. In addition, the Company believes its
processing of custom orders differentiates it from its competitors.
The Company also intends to continue to provide value-added
services, such as EDI capabilities, automatic shipment notification
to
44
<PAGE>
customers, sales training for distributors, promotional support,
brochures and catalogs, state-of-the-art graphics services,
merchandising programs, prompt delivery of products and information
systems that provide detailed sales data to customers.
In order to better serve its customers, the Company is focusing on
the development of new product designs, increasing brand awareness
and channel marketing. Management believes that new product designs
provide customers recognized value by offering alternatives in
color and style. In addition, the Company believes that its brand
names are associated with high quality products. The Company
supports its brand identity and private label program through
enhanced packaging and promotion. Products and programs will be
developed for specific distribution channels. Additionally, the
Company seeks, through its direct sales force, to create
"pull-through" demand by marketing directly to end-users in order
to create additional demand from institutional distributors for the
Company's products.
o Natural Dam Expansion. The Company expects to complete the
installation of an existing second paper machine at the Company's
Natural Dam mill by the end of 1997 which will produce specialty
and deep-tone colored tissue paper, the primary raw material used
in the conversion of colored napkins and tablecovers. This
expansion is expected to (i) double the mill's production capacity;
(ii) significantly lower its unit cost of production; and (iii)
provide the Company with greater operating flexibility to source
tissue paper for its own converting operations as well as sell
specialty tissue to third parties.
PRODUCTS
General. The Company classifies its products into four categories: (i)
paperboard products, such as white, colored and printed paper plates and
bowls, paper cups for both hot and cold drinks, handled food pails for
take-out food and food trays; (ii) tissue products, such as printed and solid
napkins, printed and solid paper tablecovers and crepe paper; (iii) specialty
products, such as placemats, doilies, tray covers and fluted products
including baking cups; and (iv) products for resale, such as plastic cutlery,
coasters, plastic cups and plastic toothpicks. The Company's premium products
include colored and custom printed napkins and placemats. The Company
currently has over 8,000 SKUs. The Company believes it holds one of the top
three market positions in white paper plates, decorated plates, bowls and
cups in the consumer market, as well as in food pails, trays and premium
napkins in the institutional market. These products are sold nationwide to
supermarkets, restaurants franchises, discount store chains and major food
distributors.
45
<PAGE>
The following table illustrates the Company's growth and diversification
of product lines from Fiscal 1994, prior to the Acquisitions, to Fiscal 1996:
<TABLE>
<CAPTION>
FISCAL 1994 FISCAL 1996(1)
----------- --------------
(DOLLARS IN MILLIONS)
PRODUCT CATEGORY GROSS SALES % OF TOTAL GROSS SALES % OF TOTAL
- ---------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
PAPERBOARD
Plates and bowls .. $37.6 58.2% $ 68.9 31.6%
Paper cups ........ 15.3 23.7 20.9 9.6
Trays ............. 4.9 7.6 7.3 3.3
Pails ............. 6.1 9.4 5.1 2.3
Cans .............. 0.7 1.1 0.6 0.3
TISSUE
Napkins ........... -- -- 45.2 20.7
Tablecovers ....... -- -- 12.6 5.8
Crepe Rolls ....... -- -- 1.1 0.5
Tissue Parent Rolls -- -- 4.7 2.2
Crepe Parent Rolls -- -- 1.0 0.4
SPECIALTY
Placemats ......... -- -- 19.4 8.9
Doilies ........... -- -- 4.5 2.1
Portion cups/fluted -- -- 13.4 6.2
RESALE AND OTHER
Cutlery ........... -- -- 1.3 0.6
Other ............. -- -- 11.9 5.5
----- ----- ------ -----
TOTAL............. $64.6 100.0% $217.9 100.0%
===== ===== ====== =====
</TABLE>
- --------------
(1) Does not give pro forma effect to the Fiscal 1996 Acquisitions prior to
their respective acquisition dates.
PAPERBOARD PRODUCTS
Paper Plates and Bowls. Paper plates and bowls, which represent the
largest portion of the Company's sales, are sold primarily to the consumer
market. These products include coated and uncoated white plates, decorated
plates and bowls. The plates range in size from a four inch square to a 10
1/4 inch diameter round. The bowls include seven ounce and 12 ounce sizes.
Uncoated and coated paper plates are considered commodity items and are
generally purchased by cost-conscious consumers for everyday use. Printed and
decorated plates and bowls, which are typically in lower count packages, are
sold for everyday use as well as for parties and seasonal celebrations, such
as Halloween and Christmas.
Paper Cups. Paper cups, which range in size from three ounces to 46
ounces, are sold to both the consumer and institutional markets. The Company
offers a number of attractive cup and lid combinations for both hot and cold
beverages. Cups for the consumption of cold beverages are generally wax
coated for superior rigidity, while cups for the consumption of hot beverages
are made from paper which is poly-coated on one side to provide a barrier to
heat transfer. Printed cups are often used as promotional items by the
Company's customers.
Take-Out Containers. Trays, which range in size from four ounces to 10
pounds, are sold to the institutional markets customers and are used
primarily for the take-out of fast foods. Food pails, which range in size
from eight ounces to 64 ounces, are sold exclusively to the institutional
market and are used primarily by restaurants for take-out meals.
TISSUE PRODUCTS
Napkins. Napkins represent the second largest portion of the Company's
sales. Napkins are sold under the Company's Hoffmaster(Registered Trademark),
Fonda, Sensations, Splash(Registered Trademark) and Party
Creations(Registered Trademark) brand names, as well
46
<PAGE>
as under national distributor brand names. The Company believes its brand
names are well established and are widely considered to be among the leading
brands in the consumer and institutional food service markets. Napkin
products range from decorated-colored, multi-ply napkins and simple custom
printed napkins featuring an end-user's name or logo to fully printed,
graphic-intensive napkins for the premium paper goods sector. Hoffmaster is a
line of premium quality one-, two-, three-, and four-ply napkins that
coordinate with printed and solid paper placemats, paper plates, paper cups,
paper and plastic tablecovers, plastic cutlery and crepe paper.
Tablecovers. Tablecovers represent one of the Company's fastest growing
product segments, ranging from economy to premium product lines. Tablecovers
are sold under the Hoffmaster(Registered Trademark), Linen-Like,
Windsor(Registered Trademark), Sensations, Splash(Registered Trademark) and
Party Creations(Registered Trademark) brand names. The Company has a broad
selection of tablecovers in one-, two-, and three-ply configurations.
Tablecovers, in rolled and folded package formats, are produced in white,
solid color and one-to-four-colored printed products. These tablecovers are
matched in color and design with the Company's napkins, placements, cups,
plates, plastic cutlery and crepe paper. Linen-Like is a premium line of
tablecovers, currently sold to institutional customers as a linen
replacement.
Crepe. Rolled crepe paper complements the Company's offering of disposable
tableware products. Originally sold only in the consumer market, the Company
has expanded crepe products to the Company's institutional seasonal product
lines. The Company is vertically integrated in crepe products and uses the
beater-dyed process, at its Natural Dam mill, which makes colored crepe
products bleed-resistant to moisture. Crepe products are sold under the
Hoffmaster(Registered Trademark), Splash(Registered Trademark) and Party
Creations(Registered Trademark) brand names. In addition to solid color
crepe paper products, the Company produces printed crepe paper in seasonal
and themed product offerings. The Company believes it can produce higher
quality crepe products than its competitors because it controls all parts
of the crepe production process, from paper making to converting and packaging.
SPECIALTY PRODUCTS
Placemats. Placemats and traycovers are available in a variety of shapes
and sizes. The Company owns 30 different die shapes which create unique
decorated placemats in shapes such as flags, pumpkins, fish, seashells and
farm animals. These unusual shapes attract interest because they allow
customers to individualize their placemats by focusing on a particular theme,
season or holiday. In addition to placemats, the Company uses a proprietary
technology to produce non-skid traycovers that serve the particular needs of
the airline and healthcare industries. These traycovers, made from both
recycled and virgin paper, can be printed with up to four colors and
coordinated with printed or solid napkins.
Specialty Tissue. Natural Dam manufactures unconverted deep-tone,
multi-ply tissue, a primary raw material used in the conversion of napkins
and tablecovers by the Hoffmaster division. Approximately 55% of the
production from Natural Dam is sold to converters of specialty tabletop
products, of which approximately 20% is sold to Hoffmaster and Chesapeake.
Prior to their acquisition by the Company, Hoffmaster and Chesapeake were and
continue to be Natural Dam's largest customers. The remaining 45% of
production is customized specialty products sold to converters of disposable
products used in the medical, hygienic, industrial and other markets.
Products such as electrical insulating tissue, filter media, waxing tissue
base, surgical face mask and blood wadding, as well as other products, are
also manufactured at Natural Dam.
Doilies. Paper doilies are used as decorative items by the food service
industry. The Company offers numerous different styles of paper lace doilies
that are used primarily to enhance the visual appeal of foods, fine china and
glassware in upscale restaurants and hotels.
Portion Cups and Fluted Products. Portion cups and fluted products are
offered in a variety of sizes and shapes. Portion cups range in size from 0.5
to 5.5 ounces and are pleated and wax-coated for extra strength. Portion cups
are typically used for dispensing condiments, medicines, liquids and other
items where portion control is important. Fluted products also come in a
variety of sizes and are used as baking cups for muffins and as trays for
fast-foods.
47
<PAGE>
PRODUCTS FOR RESALE
In an effort to offer its customers the convenience of "one-stop"
shopping, the Company purchases products which it does not manufacture, and
offers such products for resale. These products round out the Company's
complete product line and include plastic cutlery, coasters, plastic cups,
plastic plates, wooden and plastic sandwich picks, special occasion
invitations and paravors. The Company believes that it has lowered the costs
of these purchased items by leveraging its buying power as a result of the
Acquisitions.
MARKETING AND SALES
Marketing. The Company's marketing efforts are principally focused on (i)
providing value-added services, including EDI capabilities, automatic
shipment notification to customers, sales training for distributors,
promotional support, brochures and catalogs, state-of-the-art graphics
services, merchandising programs, prompt delivery of products and information
systems that provide detailed sales data to customers; (ii) category
expansion by cross marketing products between the consumer and institutional
markets; (iii) development of new graphic designs which the Company believes
will offer consumers recognized value; and (iv) increasing brand awareness
through enhanced packaging and promotion. The marketing group, together with
its customers, conducts product trial tests to gather consumer feedback and
improve product salability. The seasonal product marketing programs promote
the Company's sophisticated graphic art capabilities and encourage customers
to supplement their regular purchases with premium-quality seasonal items.
The marketing group coordinates the projects of 14 artists and designers
in the Company's art department. The art department has state-of-the-art
graphic capabilities, including computer-aided design systems and lithograph
plate making capabilities, which allow the Company to compete effectively in
the custom printed napkin market. The Company also benefits from its
extensive design library.
The Company sells its products through a 50-person sales organization and
independent brokers. The Company believes that its experienced sales team and
its ability to provide high levels of customer service enhances the Company's
long-term relationships with its customers. The Company sells to more than
2,500 institutional and consumer customers located throughout the United
States.
Institutional Market. Restaurants, schools, hospitals and other major
institutions comprise the institutional market. This market represented
approximately 55% of the Company's net sales in Fiscal 1996. The
institutional market is serviced by dedicated field service representatives
located throughout the United States under the direction of five dedicated
sales managers. The field sales force works directly with these national and
regional distributors to service the needs of the various segments of the
food service industry. The field sales force serves four primary functions:
(i) to work with distributors' own sales representatives to increase demand
for the Company's products; (ii) to make direct sales calls with
distributors; (iii) to keep distributors' sales representatives knowledgeable
about the Company's new products; and (iv) to demonstrate to end-users the
value added by the Company's customized color printing capabilities for table
top products. These functions also help to create "pull-through" demand for
the Company's products.
Consumer Market. Supermarkets, discount chains and other retail stores
comprise the consumer market. This market represented approximately 45% of
the Company's net sales in Fiscal 1996. The Company's consumer market is
classified into four distribution channels: (i) the grocery channel, which is
serviced through a national and regional network of brokers, (ii) the retail
mass merchant channel, which is serviced directly by field service
representatives, (iii) the specialty (party) channel, a new channel of
distribution, which is serviced through both national and regional networks
of brokers and directly by field service representatives and (iv) the
warehouse club channel, also a new channel of distribution, which is serviced
through both national and regional networks of brokers and directly by field
service representatives. Each channel is managed by a Sales Director who is
responsible for all product sales in that channel. The Company's broker
relationships are managed by eight regional managers who have an average of
20 years of experience selling service products.
As a result of the Acquisitions, the Company has experienced an increase
in sales to existing customers and additional product opportunities in
markets in which it historically had limited penetration.
48
<PAGE>
For example, the Maspeth acquisition provided the Company with access to the
mass merchandising market. In addition, the Company's consumer customer base
has extended into additional channels as a result of product line
enhancements. In this regard, the James River California acquisition afforded
the Company three customers in the warehouse club channel. In order to
eliminate duplicate sales representation with certain customers in connection
with the Acquisitions, the Company has also reorganized its consumer sales
and marketing efforts to be more responsive to the marketplace.
In Fiscal 1996, the Company's five largest customers represented
approximately 21.0% of net sales. During Fiscal 1996, the Company had net
sales to one customer, Sysco Corporation, which accounted for 11.0% of net
sales and less than 10.0% of net sales after giving pro forma effect to the
Fiscal 1996 Acquisitions. The Company sells its products to approximately 60
separate entities owned by Sysco Corporation. Management believes that each
of these entities independently contracts with its suppliers.
DISTRIBUTION
The Company believes that as a result of the Acquisitions, it will be able
to distribute its products more efficiently and cost effectively given the
broader geographic scope of its operations. Each of the Company's
manufacturing facilities includes sufficient warehouse space to store such
facility's raw materials and finished goods. In addition, the Company's
approximately 951,900 total square feet of warehouse space allows for each
warehouse to store products from all of the Company's other manufacturing
facilities. Shipments of finished goods are made from each facility via
common carrier. Raw materials are received (i) by rail or truck in Vermont
and Michigan and (ii) by truck in Florida, Pennsylvania, Wisconsin, New York
and California.
COMPETITION
The disposable food service products industry is highly competitive. The
Company believes that competition is principally based on product quality,
customer service, price and graphics capability. Competitors include large
multinational companies as well as regional and local manufacturers. The
marketplace for these products is fragmented and includes participants that
compete across the full line of products, as well as those that compete with
a limited number of products. Some of the Company's major competitors are
significantly larger than the Company, are vertically integrated and have
greater access to financial and other resources. Consequently, such
competitors may be able to more effectively compete by offering a broader
range of products to customers.
The Company's primary competitors in the paper plate and cup categories
include Imperial Bondware (a division of International Paper Co.), James
River, AJM Packaging Corp., Temple-Inland Inc., Fold-Pak Corp., Solo Cup Co.
and Sweetheart Cup Co., Inc. Major competitors in the napkin, tablecover,
tray and doily categories include Brooklyn Lace Paper Works, Inc., Duni
Corp., Erving Paper Products Inc., Fort Howard Corp., James River and
Wisconsin Tissue Mills Inc. (a subsidiary of Chesapeake Corporation). The
Company's competitors also include manufacturers of products made from
plastics and foam.
RAW MATERIALS AND SUPPLIERS
Raw materials are a significant component of the Company's cost structure.
Principal raw materials for the Company's paperboard and tissue operations
include solid bleached sulfate paperboard, napkin tissue, bond paper and
waxed bond obtained from major domestic manufacturers. Pulp is the principal
raw material for the Natural Dam facility and is obtained from a number of
suppliers. Other material components include corrugated boxes, poly bags, wax
adhesives, coating and inks. Paperboard, napkin tissue, bond paper and waxed
bond paper is purchased in "jumbo" rolls which may either be slit for in-line
printing and processing, printed and processed or printed and blanked for
processing into final products. The primary supplier of tissue to the
Company, in addition to the Company's Natural Dam mill, is Lincoln Pulp and
Paper Co., Inc. Pursuant to a contract with Lincoln Pulp and Paper Co., Inc.,
as amended, the Company is required to purchase color and white tissue at the
lower of a formula-based price or market price through December 31, 1999.
Primary suppliers of paperboard stock are Georgia-Pacific Corp.,
49
<PAGE>
Temple-Inland Inc., and Gilman Paper Co. The Company has a number of
suppliers for substantially all of its raw materials and believes that
current sources of supply for its raw materials are adequate to meet its
requirements. The Company has reduced raw materials costs by leveraging its
purchasing power as a result of the Acquisitions. The Company purchases the
bulk of its solid bleached sulfate paperboard under long-term contracts.
FACILITIES
The Company has nine converting facilities, which are located in St.
Albans, Vermont; Three Rivers, Michigan; Williamsburg, Pennsylvania;
Jacksonville, Florida; Maspeth, New York; Oshkosh, Wisconsin; Appleton,
Wisconsin; Rancho Dominguez, California; and Gouverneur, New York. During
Fiscal 1996, the converting facilities operated at approximately 70% of total
production capacity. The Company also operates a specialty and deep-tone
colored tissue mill in Gouverneur, New York.
The table below provides summary information regarding the principal
properties owned or leased by the Company.
<TABLE>
<CAPTION>
SIZE
TYPE OF (APPROXIMATE OWNED/
LOCATION FACILITY SQUARE FEET) LEASED PRODUCTS
- -------- -------- ------------ ------ --------
<S> <C> <C> <C> <C>
St. Albans, Vermont ........ Manufacturing 112,500 O Plates,
Warehouse 182,000 L pails,
Office 7,000 O bowls,
trays
Three Rivers, Michigan .... Manufacturing 70,500 O Plates
Warehouse 39,900 O
Office 10,000 O
Williamsburg, Pennsylvania Manufacturing 66,000 O(1) Plates,
Warehouse 71,000 O(1) cups
Office 9,000 O(1)
Jacksonville, Florida(2) .. Manufacturing 57,500 L Plates,
Warehouse 10,100 L pails
Office 2,400 L
Maspeth, New York .......... Manufacturing 55,000 L Plates,
Warehouse 70,000 L cups,
Office 5,000 L
Oshkosh, Wisconsin.......... Manufacturing 234,000 O Napkins,
Warehouse 218,000 O placemats,
Office 32,000 O tablecovers,
doilies,
portion
cups/ fluted
Appleton, Wisconsin......... Manufacturing 90,300 O Napkins,
Warehouse 168,900 O crepe,
Office 8,500 O tablecovers
Rancho Dominguez,
California.................. Manufacturing 47,400 L Napkins,
Warehouse 49,000 L placemats
Office 7,300 L
Gouverneur, New York........ Manufacturing 88,000 O Tissue,
Warehouse 143,000 O crepe
Office 3,800 O
</TABLE>
- --------------
(1) Subject to capital lease.
(2) Owned by Dennis Mehiel. See "Certain Relationships and Related
Transactions."
50
<PAGE>
The Company hosts a co-generation facility on its property in Gouverneur,
New York which produces steam for internal use at the Natural Dam mill and
which is expected to provide significant cost savings to the Company. The
Company will receive all of its steam energy requirements at 50% of
historical cost in 1997 and at no cost for the next 40 years thereafter, and
the Company will receive land lease payments from the operator of the land
occupied by the co-generation facility.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and frequently
changing Federal, state, local and foreign environmental and occupational
health and safety laws and regulations, including laws and regulations
governing emissions of air pollutants, discharges of waste and storm water,
and the disposal of hazardous wastes. The Company is subject to liability for
the investigation and remediation of environmental contamination (including
contamination caused by other parties) at properties that it owns or operates
and at other properties where the Company or its predecessors have arranged
for the disposal of hazardous substances. As a result, the Company is
involved from time to time in administrative and judicial proceedings and
inquiries relating to environmental matters. The Company believes that there
are currently no pending investigations at the Company's plants and sites
relating to environmental matters. However, there can be no assurance that
the Company will not be involved in any such proceeding in the future and
that any amount of future clean up costs and other environmental liabilities
will not be material.
The Company cannot predict what environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations
will be administered or interpreted or what environmental conditions may be
found to exist. Enactment of more stringent laws or regulations or more
strict interpretation of existing laws and regulations may require additional
expenditures by the Company some of which could be material.
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company maintains
insurance coverage against claims in an amount which it believes to be
adequate. The Company believes that it is not presently a party to any
litigation, the outcome of which could reasonably be expected to have a
material adverse effect on its financial condition or results of operations.
In connection with the Company's acquisition of Hoffmaster, the Company
brought a civil action in the United States District Court for the Eastern
District of Pennsylvania against the Foodservice Division of Scott Paper
Company ("Scott") alleging, among other things, breach of warranty, fraud and
negligent misrepresentation for Scott's alleged failure to disclose certain
raw material pricing information. In September 1996, a jury awarded the
Company compensatory damages of $3.3 million, punitive damages of $750,000
and pre-judgment interest of $436,123. Scott has appealed the award. The
appeal is currently pending in the United States Court of Appeals for the
Third Circuit. There can be no assurance that such award will be upheld or
that the Company will receive all or any portion of such judgment.
EMPLOYEES
As of January 26, 1997, the Company employed 1,550 persons consisting of
1,209 hourly and 341 salaried workers. Approximately 98% of the Company's
hourly employees are represented by the United Paperworkers International
Union. The current labor agreements expire on January 31, 1998 at St. Albans;
August 31, 1997 at Three Rivers; March 31, 1999 at Appleton; November 30,
1997 at Maspeth; October 31, 1997 at Rancho Dominguez; and November 28, 1998
at Gouverneur. The labor agreements at Williamsburg and Oshkosh expired on
June 7, 1997 and May 31, 1997, respectively. At both locations, the employees
are continuing to work under the terms of the expired agreements and are
expected to do so until new agreements are executed or specifically
terminated. There can be no assurance that the Company will be successful in
renegotiating such agreements. The facility in Jacksonville, Florida is not
covered by a labor agreement. Since 1989, the Company has not experienced any
work stoppages or
51
<PAGE>
curtailment of operations due to a labor dispute, other than a one-month work
stoppage at the Three Rivers facility in August 1996. Operations were
maintained during the time of the walkout, and the Company negotiated a
one-year extension until August 31, 1997 that gives the Company the
flexibility to close this facility. The Company has not finally decided
whether to close its Three Rivers facility. The Company believes, however,
that such a closing or any further work stoppages at this facility would not
have a material adverse effect on the financial condition or results of
operations of the Company. The Company considers its relationship with its
employees to be good.
52
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following is a table setting forth certain information with respect to
the individuals who are the directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis Mehiel ......... 55 Chairman and Chief Executive Officer
Thomas Uleau .......... 52 President, Chief Operating Officer and Director
Hans Heinsen .......... 44 Senior Vice President, Chief Financial Officer
and Treasurer
Michael Hastings ...... 50 Senior Vice President and President, Fonda
Division
Robert Korzenski ...... 42 Senior Vice President and President, Hoffmaster
Division
Harvey L. Friedman ... 55 Secretary and General Counsel
Alfred B. DelBello ... 62 Vice Chairman
Gail Blanke ........... 49 Director
John A. Catsimitidis . 48 Director
Chris Mehiel .......... 57 Director
Jerome T. Muldowney .. 51 Director
G. William Seawright .. 55 Director
Lowell P. Weicker, Jr.. 65 Director
</TABLE>
DENNIS MEHIEL has been the Chairman and Chief Executive Officer of the
Company since it was purchased in 1988. Since 1966 he has been the Chairman
of Four M, a converter and seller of interior packaging, corrugated sheets
and corrugated containers which he co-founded, and since 1977 (except during
a leave of absence from April 1994 through July 1995) he has been the Chief
Executive Officer of Four M. Mr. Mehiel is also the Chairman of MannKraft
Corporation ("MannKraft"), a manufacturer of corrugated containers, and Chief
Executive Officer and Chairman of CEG.
THOMAS ULEAU has been the President of the Company since January 9, 1997,
the Chief Operating Officer of the Company since 1994 and a Director of the
Company since 1988. Mr. Uleau was Executive Vice President of the Company
from 1994 to 1996 and from 1988 to 1989. He has been Executive Vice President
of CEG since 1996. He served as Executive Vice President and Chief Financial
Officer of Four M from 1989 through 1993 and Chief Operating Officer in 1994.
He is also currently a director of Four M, CEG and MannKraft. Mr. Uleau was
President of Cardinal Container Corporation (which was acquired by Four M in
1985) from 1983 to 1987. He started his career as an accountant at Haskins
and Sells from 1969 to 1971, after which he spent several years in various
capacities at IU International Corp., a transportation and paper products
conglomerate.
HANS HEINSEN has been Senior Vice President and Treasurer since January 9,
1997 and Vice President Finance and Chief Financial Officer of the Company
since May 1996. Prior to joining the Company, Mr. Heinsen spent 21 years in a
variety of corporate finance positions with The Chase Manhattan Bank, N.A.
His experience includes private placements, mergers and acquisitions,
syndications, project finance and leveraged finance.
MICHAEL HASTINGS has been Senior Vice President since January 9, 1997 and
President of the Fonda division since joining the Company in May 1995. From
December 1990 to April 1995, Mr. Hastings served as Vice President of Sales
and Marketing and as a member of the Board of Directors of Anchor Packaging
Company, a manufacturer of institutional films and thermoformed plastic
packaging. Mr. Hastings had previously worked in a variety of positions,
including sales, marketing and plant operations management, at Scott Paper
Company and Thomson Industries CSF S.A.
ROBERT KORZENSKI has been Senior Vice President since January 9, 1997 and
President of the Hoffmaster division since its acquisition by the Company on
March 30, 1995. From October 1988 to March 30, 1995, he served as Vice
President of Operations and Vice President of Sales of Scott Institutional, a
division of Scott Paper Company. Prior to that, he was Director of National
Sales at Thompson Industries.
53
<PAGE>
HARVEY L. FRIEDMAN has been Secretary and General Counsel since May 1996.
He was a Director of the Company from 1985 to January 9, 1997. Mr. Friedman
is also the Secretary and General Counsel of CEG, Four M and MannKraft and is
a Director of CEG. He was formerly a partner in Kramer, Levin, Naftalis &
Frankel, a New York City law firm.
ALFRED B. DELBELLO has served as a Vice Chairman of the Company since
January 9, 1997 and Director of the Company since 1990. Since July 1995, Mr.
DelBello has been a partner at the law firm of DelBello, Donnellan &
Weingarten & Tartaglia, LLP. From September 1992 to July 1995 he was a
partner at the law firm of Worby DelBello Donnellan & Weingarten. Prior
thereto, he had been the President of DelBello Associates, a consulting firm,
since 1985. Mr. DelBello served as Lieutenant Governor of New York State from
1983 to 1985.
GAIL BLANKE has served as a Director of the Company since January 9, 1997.
She has been President of Avon Lifedesigns, a division of Avon Products, Inc.
("Avon"), since March 1995. She also has been Corporate Senior Vice President
of Avon since August 1991. Prior thereto, she held a number of management
positions at CBS, Inc. and served as Manager of Player Promotion for the New
York Yankees. Ms. Blanke is President of the New York Women's Forum and
Chairman of the Board of the Fashion Group International. She is also a
director of the Trickle Up Program and the New York Women's Agenda.
JOHN A. CATSIMITIDIS has served as a Director of the Company since January
9, 1997. He has been Chairman and Chief Executive Officer of the Red Apple
Group, Inc., a company with diversified holdings that include oil refining,
supermarkets, real estate, aviation and newspapers, since 1969. Mr.
Catsimitidis serves as a director of Sloan's Supermarket, Inc. and New's
Communications, Inc. He also serves on the board of trustees of New York
Hospital, St. Vincent Home for Children, New York University Business School,
Athens College, Independent Refiners Coalition and New York State Food
Merchant's Association.
CHRIS MEHIEL, the brother of Dennis Mehiel, has been a Director of the
Company since January 9, 1997. Mr. Mehiel is a co-founder of Four M and has
been Executive Vice President, Chief Operating Officer and a Director of Four
M since September 1995. Mr. Mehiel was President of Fibre Marketing Group,
Inc., a waste paper recovery business which he co-founded, from 1994 to
January 1996. He is the President of the managing member of Fibre Marketing
Group, LLC, the successor to Fibre Marketing Group, Inc. From 1993 to 1994,
Mr. Mehiel served as President and Chief Operating Officer of MannKraft. From
1982 to 1992, Mr. Mehiel served as the President and Chief Operating Officer
of Specialty Industries, Inc., a waste paper processing and container
manufacturing company.
JEROME T. MULDOWNEY has served as a Director of the Company since 1990.
Since January 1996, Mr. Muldowney has been a Managing Director of AIG Global
Investment Corp. and since March 1995 he has been a Senior Vice President of
AIG Domestic Life Companies ("AIG Life"). Prior thereto, he had been a Vice
President of AIG Life since 1982. In addition, from 1986 to 1996, he served
as President of AIG Investment Advisors, Inc. He is currently a director of
AIG Life and AIG Equity Sales Corp.
G. WILLIAM SEAWRIGHT has served as a Director of the Company since January
9, 1997. He has been President and Chief Executive Officer of Stanhome Inc.,
a manufacturer and distributor of giftwares and collectibles, since 1993.
Prior thereto, he was President and Chief Executive Officer of Paddington,
Inc., an importer of distilled spirits, since 1990. From 1986 to 1990, he was
President of Heublein International, Inc., where he was primarily responsible
for marketing Smirnoff vodka worldwide. He is also a director of Stanhome
Inc.
LOWELL P. WEICKER, JR. has served as a Director of the Company since
January 9, 1997. Mr. Weicker served as Governor of Connecticut from January
1991 through January 1995. From 1962 to 1989, Mr. Weicker served in the U.S.
Congress. Mr. Weicker presently teaches at the University of Virginia. In
1992, Mr. Weicker earned the Profiles in Courage Award from the John F.
Kennedy Library Foundation.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, whether paid or
deferred, to the Company's Chief Executive Officer and its other four most
highly compensated executive officers during Fiscal 1996 (collectively, the
"Named Officers") for services rendered in all capacities to the Company
during such fiscal year.
54
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
OTHER ANNUAL SECURITIES
NAME AND PRINCIPAL COMPENSATION UNDERLYING ALL OTHER COMPENSATION
POSITION SALARY($) BONUS($) ($)(1) SARS(#) ($)(2)
-------- --------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
Dennis Mehiel................. $150,000 $60,000 $-- -- $ --
Chairman and Chief
Executive Officer
Thomas Uleau.................. 185,000 60,000 -- 1,950 5,108
President and Chief
Operating Officer
Hans Heinsen.................. 26,153(3) -- -- 1,950 285
Senior Vice President, Chief
Financial Officer and
Treasurer
Michael Hastings.............. 150,000 38,250 -- 1,950 3,849
Senior Vice President and
President, Fonda division
Robert Korzenski.............. 150,000 47,250 -- 1,950 5,453
Senior Vice President and
President, Hoffmaster
division
</TABLE>
- --------------
(1) The Company has concluded that the aggregate amount of perquisites and
other personal benefits paid to each of the Named Officers did not
exceed the lesser of (i) 10% of such officer's total annual salary and
bonus for Fiscal 1996 and (ii) $50,000. Thus, such amounts are not
reflected in the table.
(2) Reflects matching contributions by the Company under the Company's
401(k) Plan and life insurance premiums paid by the Company.
(3) Consists of salary for employment commencing June 1996.
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive annual compensation
of (i) $12,000, (ii) $1,000 for each Board meeting attended, (iii) $1,000 for
each committee meeting attended which is not held on the date of a Board
meeting and (iv) 30 SARs. Directors who are employees of the Company do not
receive any compensation or fees for service on the Board of Directors or any
committee thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During Fiscal 1996, both Messrs. Mehiel and Uleau participated in
deliberations of the Company's Board of Directors concerning executive
officer compensation. In addition, Messrs. Mehiel and Uleau are both members
of the Board of Directors of Four M and CEG and Dennis Mehiel is the Chairman
and Chief Executive Officer of Four M and CEG and Mr. Uleau is Executive Vice
President of CEG.
STOCK APPRECIATION RIGHTS
The following table provides information on grants of stock appreciation
rights ("SARs") made during Fiscal 1996 to the Named Officers.
55
<PAGE>
SAR GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
% OF TOTAL
NUMBER OF SECURITIES SARS GRANTED TO EXERCISE OR BASE
UNDERLYING SARS EMPLOYEES IN PRICE PER EXPIRATION
NAME GRANTED FISCAL YEAR SHARE DATE(1)
- ---- ------- ----------- ----- -------
<S> <C> <C> <C> <C>
Thomas Uleau ... 1,950 21.6% $30.06 --
Hans Heinsen ... 1,950 21.6 45.33 --
Michael
Hastings........ 1,950 21.6 30.06 --
Robert
Korzenski....... 1,950 21.6 30.06 --
</TABLE>
- --------------
(1) Unless otherwise determined by the non-employee directors of the
Company and the Chief Executive Officer of the Company, awards of SARs
will vest on each anniversary of their grant at the rate of 20.0% per
year commencing on the first anniversary date. However, in the event
that at the time of any grant of SARs the grantee has not been
continuously employed by the Company for at least five years, such
vesting will be subject to the completion of such five-year period.
Upon voluntary termination of employment, involuntary termination
without cause or termination due to death, disability or retirement at
age 60 or above, all unvested SARs will be forfeited and vested SARs
not previously redeemed will be redeemed automatically by the Company
as of the date of termination.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of April 27, 1997,
with respect to the shares of common stock of the Company beneficially owned
by each person or group that is known by the Company to be a beneficial owner
of more than 5% of the outstanding common stock and all directors and
officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
--------------------------
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF
BENEFICIAL OWNER SHARES OWNERSHIP(1)(2)
- ---------------- ------ ---------------
<S> <C> <C>
Dennis Mehiel
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595............ 180,000 88.3%
All executive officers and directors
as a group (12 persons) ............ 184,000 90.1%
</TABLE>
- --------------
(1) Includes warrants to purchase 9,176 shares of Class B Common Stock
which are currently exercisable. See "Description of Capital
Stock--Warrants."
(2) A maximum of $10.0 million of the proceeds of the issuance of the Old
Notes are being used for the Stock Repurchase. The Stock Repurchase is
expected to be consummated no later than 180 days following the
issuance of the Old Notes. Mr. Mehiel will continue to own
approximately 81.6% of the outstanding shares of the Company's common
stock on a fully diluted basis, after giving effect to the Stock
Repurchase and assuming that Mr. Mehiel sells to the Company the
maximum number of shares being offered for repurchase by the Company.
Pursuant to a proposed separation agreement currently being negotiated
between Mr. Mehiel and his spouse, Mr. Mehiel intends to transfer 50% of his
common stock interest (90,000 shares) to his spouse, who would thereafter
sell to the Company up to 69,000 shares as part of the Stock Repurchase, but
in no event less than 61,865 shares. In addition, Mr. Mehiel would sell up to
3,625 shares and other stockholders of the Company would have the right to
sell to the Company a pro rata number of shares. The foregoing transactions
are collectively referred to herein as the "Spousal Repurchase." If the
Spousal Repurchase is consummated, Mr. Mehiel would continue to own
approximately 66.5% of the outstanding shares of the Company's Common Stock
on a fully diluted basis, after giving effect to the Spousal Repurchase and
assuming the maximum number of shares are repurchased pursuant thereto.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its Jacksonville facility from Dennis Mehiel on terms
that the Company believes are no less favorable than could be negotiated with
an independent third party on an arm's-length basis. Pursuant to the lease,
which has a term expiring December 31, 2014, the Company currently pays base
rent of approximately $167,000 per year, subject to escalations indexed to
the Consumer Price Index ("CPI"). In addition, from and after January 1, 1998
until July 31, 2006, Mr. Mehiel may require the Company to purchase the
facility for $1.5 million, subject to a CPI-based escalation. The purchase
price would be paid $350,000 in cash and the balance in a seven-year note
secured by a lien covering the facility and under which the regular monthly
payments would be no greater than the monthly lease payments payable to Mr.
Mehiel immediately prior to the sale date, with interest payable at a rate of
prime plus 2% and the remaining principal amount payable at maturity.
In Fiscal 1996, the Company had net sales to CEG in the amount of $1.9
million. CEG manufactures party goods such as decorated plates, cups,
napkins, tablecovers, tableware and other related products. Mr. Mehiel, the
97% owner of CEG, acquired this company as part of the acquisition of certain
operations of The Specialty Operations of James River. The Company believes
that the terms upon which it sold products to CEG are at least as favorable
as those which it could otherwise have obtained from unrelated third parties
and that such terms were negotiated on an arm's-length basis. The Company
believes that it will sell a greater amount of its products to CEG in the
future given the potential benefits to both of these companies.
On February 27, 1997, upon the issuance of the Old Notes, the Company lent
CEG $2.6 million for five years at an interest rate of 10% per annum to
facilitate CEG's satisfaction of certain of its obligations to James River.
The Company believes that the terms of such loan are no more favorable to CEG
than those that CEG could otherwise have obtained from unrelated third
parties and such terms were negotiated on an arm's-length basis.
From August 1, 1996 to April 27, 1997, the Company purchased $585,664 of
corrugated containers from Four M. Management believes that the terms on
which it purchased such containers were at least as favorable as those which
it could otherwise have obtained from unrelated third parties and such terms
were negotiated on an arm's-length basis.
The Company was formed in 1915. In early 1988 under prior ownership, the
Company filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In
April 1988, Four M took over management of the Company, and in October 1988,
Four M acquired the Company. In March 1995, Four M transferred all of the
capital stock of the Company to Dennis Mehiel, the sole shareholder of Four
M, and a creditor of Four M.
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to the Indenture between the Company
and The Bank of New York, as trustee (the "Trustee"). The terms of the New
Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The New Notes are subject to all such terms, and
holders of New Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. The following summary of certain provisions of
the Indenture does not purport to be complete and is qualified in its
entirety by reference to the Indenture, including the definitions therein of
certain terms used below. A copy of the proposed form of Indenture and
Registration Rights Agreement is available as set forth under "Available
Information." The definitions of certain terms used in the following summary
are set forth below under "--Certain Definitions."
Although the Company currently has no Subsidiaries, any future
Subsidiaries created or acquired by the Company may be designated by the
Company as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to the restrictive covenants set forth in the Indenture. See
"--Certain Covenants."
57
<PAGE>
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $120.0
million and will mature on March 1, 2007. Interest on the New Notes will
accrue at the rate of 9 1/2% per annum and will be payable semi-annually in
arrears on March 1 and September 1 of each year, commencing on September 1,
1997 to holders of record (the "Holders") on the immediately preceding
February 15 and August 15. Interest on the New Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the date of issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. Principal of, premium and
interest, if any, on the New Notes will be payable at the office or agency of
the Company maintained for such purpose or, at the option of the Company,
payment of interest may be made by check mailed to the Holders of the New
Notes at their respective addresses set forth in the register of Holders of
New Notes; provided that all payments with respect to New Notes, the Holders
of which have given wire transfer instructions to the Company, will be
required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency will be the office of the Trustee
maintained for such purpose. The New Notes will be issued in denominations of
$1,000 and integral multiples thereof.
SUBORDINATION
The payment of principal of and premium and interest, if any, on the New
Notes will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Debt of the Company,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property,
an assignment for the benefit of creditors or any marshalling of the
Company's assets and liabilities, the holders of Senior Debt of the Company
will be entitled to receive payment in full in cash of all Obligations due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt) before
the Holders of New Notes will be entitled to receive any payment with respect
to the New Notes, and until all Obligations with respect to Senior Debt of
the Company are paid in full in cash, any distribution to which the Holders
of New Notes would be entitled shall be made to the holders of such Senior
Debt (except that Holders of New Notes may receive securities that are
subordinated at least to the same extent as the New Notes to Senior Debt and
any securities issued in exchange for Senior Debt and payments made from the
trust described under "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the New
Notes (except in such subordinated securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of or premium or interest on Designated Senior Debt
of the Company occurs and is continuing beyond any applicable period of grace
or (ii) any other default occurs and is continuing with respect to Designated
Senior Debt of the Company that permits holders of the Designated Senior Debt
as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
holders of any Designated Senior Debt. Payments on the New Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received, unless the maturity of any Designated Senior Debt of the Company
has been accelerated. No new period of payment blockage may be commenced
unless and until (i) 360 days have elapsed since the first day of the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal of and premium and interest, if any, on the
New Notes that have come due have been paid in full in cash. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice.
The Indenture will further require that the Company promptly notify
holders of Senior Debt of the Company if payment of the New Notes is
accelerated because of an Event of Default.
58
<PAGE>
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of New Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. As of January
26, 1997, after giving pro forma effect to the issuance of the Old Notes and
the use of proceeds therefrom, $2.6 million of Senior Debt would have been
outstanding. The Indenture will limit the amount of additional Indebtedness,
including Senior Debt, that the Company and its Restricted Subsidiaries can
incur. See "--Certain Covenants--Limitations on Incurrence of Indebtedness."
OPTIONAL REDEMPTION
The New Notes will not be redeemable at the Company's option prior to
March 1, 2002. Thereafter, the New Notes will be subject to redemption at the
option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below, plus accrued and unpaid interest, if any,
thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2002 ............................................................ 104.750%
2003 ............................................................ 103.166%
2004 ............................................................ 101.583%
2005 and thereafter ............................................. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to March 1, 2000, the
Company may redeem up to one-third in aggregate principal amount of the New
Notes at a redemption price of 109.5% of the principal amount thereof, in
each case plus accrued and unpaid interest, if any, to the redemption date,
with the net proceeds of a Public Offering of common stock of the Company;
provided that at least two-thirds in aggregate principal amount of the New
Notes originally issued under the Indenture remain outstanding immediately
after the occurrence of such redemption; and provided, further, that such
redemption shall occur within 60 days following the date of the closing of
such Public Offering.
In addition, upon the occurrence of a Change of Control prior to March 1,
2002, the Company, at its option, may redeem all, but not less than all, of
the outstanding New Notes at a redemption price equal to 100% of the
principal amount thereof plus the applicable Make-Whole Premium (a "Change of
Control Redemption"). The Company shall give not less than 30 nor more than
60 days' notice of such redemption within 30 days following a Change of
Control.
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time,
selection of New Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which the New Notes are listed, or, if the New Notes are
not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided that no New Notes of $1,000 or less
shall be redeemed in part. Notices of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date
to each Holder of New Notes to be redeemed at its registered address. If any
New Note is to be redeemed in part only, the notice of redemption that
relates to such New Note shall state the portion of the principal amount
thereof to be redeemed. A new New Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original New Note. On and after the redemption date,
interest shall cease to accrue on New Notes or portions thereof called for
redemption.
MANDATORY REDEMPTION
Except as set forth below under "--Repurchase at the Option of Holders, --
Change of Control" and "-- Asset Sales," the Company is not required to make
mandatory redemption or sinking fund payments with respect to the New Notes.
59
<PAGE>
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required
to make an offer (a "Change of Control Offer") to repurchase all or any part
(equal to $1,000 or an integral multiple thereof) of each Holder's New Notes
at an offer price in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, thereon to the date of
repurchase (the "Change of Control Payment"). Within ten days following any
Change of Control, the Company will mail a notice to each Holder describing
the transaction that constitutes the Change of Control and offering to
repurchase New Notes pursuant to the procedures required by the Indenture and
described in such notice; provided that, prior to complying with the
provisions of this covenant, but in any event within 90 days following a
Change of Control, the Company will either repay all outstanding Senior Debt
or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of New Notes required by
this covenant. The Company will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the New Notes as a result of a Change of
Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (ii) deposit with the
Paying Agent an amount equal to the Change of Control Payment in respect of
all New Notes or portions thereof so tendered and (iii) deliver or cause to
be delivered to the Trustee the New Notes so accepted together with an
Officers' Certificate stating the aggregate principal amount of New Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of New Notes so tendered the Change of Control
Payment for such New Notes, and the Trustee will promptly authenticate and
mail (or cause to be transferred by book entry) to each Holder a new New Note
equal in principal amount to any unpurchased portion of the New Notes
surrendered, if any; provided that each such new New Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the New
Notes to require that the Company repurchase or redeem the New Notes in the
event of a takeover, recapitalization or similar transaction.
The occurrence of a Change of Control could result in a default under the
Senior Debt of the Company. In addition, the Senior Debt could restrict the
Company's ability to repurchase New Notes upon a Change of Control. In the
event a Change of Control occurs at a time when the Company is prohibited
from repurchasing New Notes, the Company could seek the consent of its
lenders to the repurchase of New Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
a consent or repay such borrowings, the Company will remain prohibited from
repurchasing New Notes. In such case, the Company's failure to make a Change
of Control Offer or to repurchase the New Notes tendered in a Change of
Control Offer would constitute an Event of Default under the Indenture, which
could, in turn, constitute a default under the Senior Debt. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payments to the Holders of New Notes. See "--Subordination."
Finally, the Company's ability to repurchase the New Notes upon a Change of
Control may be limited by the Company's then existing financial resources.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all New Notes validly tendered and not withdrawn under
such Change of Control Offer.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case
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may be, receives consideration at the time of such Asset Sale at least equal
to the fair market value (evidenced by a resolution of the Board of Directors
set forth in an Officers' Certificate delivered to the Trustee) of the assets
or Equity Interests issued or sold or otherwise disposed of and (ii) at least
85% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of cash; provided that the amount of (a) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are by their terms subordinated
to the New Notes) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (b) any notes or other
obligations received by the Company or such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received) shall be deemed to
be cash for purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary may apply such Net Proceeds (i) to
permanently reduce Senior Debt of the Company or such Restricted Subsidiary
(and to correspondingly reduce commitments with respect thereto) or (ii) to
make capital expenditures or acquire long-term assets in the same line of
business as the Company was engaged immediately prior to such Asset Sale or,
in the case of a sale of accounts receivable in connection with any accounts
receivable financing, for working capital purposes. Pending the final
application of any such Net Proceeds, the Company may temporarily reduce
Senior Debt or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will
be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $5.0 million, the Company will be required to make an
offer to all Holders of New Notes (an "Asset Sale Offer") to purchase the
maximum principal amount of New Notes that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, thereon
to the date of purchase, in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate amount of New Notes tendered
pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company
may use any remaining Excess Proceeds for general corporate purposes (subject
to the restrictions of the Indenture). If the aggregate principal amount of
New Notes surrendered by Holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the New Notes to be purchased on a pro
rata basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
LIMITATIONS ON RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to any
direct or indirect holder of the Company's Equity Interests in its capacity
as such, other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company; (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company, other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary of the Company; (iii) make any principal
payment on, or purchase, redeem, defease or otherwise acquire or retire for
value, prior to a scheduled mandatory sinking fund payment date or final
maturity date, any Indebtedness that is subordinated to the New Notes; or
(iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to
such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
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(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such Restricted Payment, to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the covenant described below under the caption
"--Limitations on Incurrence of Indebtedness;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries on
or after the date of the Indenture, is less than the sum of (1) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from February 1, 1997 to the end of the Company's most
recently ended fiscal quarter for which financial statements are available
at the time of such Restricted Payment (or, if such Consolidated Net Income
for such period is a deficit, less 100% of such deficit), plus (2) 100% of
the aggregate net cash proceeds received by the Company as capital
contributions or from the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (3) to the extent that any Restricted
Investment is sold for cash or otherwise liquidated or repaid for cash, 100%
of the net cash proceeds thereof (less the cost of disposition) (but only to
the extent not included in subclause (1) of this clause (c)).
The foregoing provisions will not apply to (i) the payments and
applications of the proceeds to be received by the Company from the issuance
of the New Notes under the Indenture; (ii) the repurchase, redemption or
other acquisition or retirement for value of any Equity Interests held by any
member of the Company's (or any of its Restricted Subsidiaries') management
pursuant to any management equity subscription agreement, stock option or
similar employee incentive arrangement; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any twelve-month period plus the aggregate
cash proceeds received by the Company (or any of its Restricted Subsidiaries)
during any such twelve-month period from any issuance of Equity Interests by
the Company (or any of its Restricted Subsidiaries) to members of management
of the Company (or any of its Restricted Subsidiaries) (provided that such
proceeds are excluded from clause (c) of the preceding paragraph; and
provided, further, that such repurchase, redemption or other acquisition or
retirement may not include any Equity Interests owned, directly or
indirectly, by the Principals; (iii) the payment of any dividend or other
distribution within 60 days after the date of declaration thereof, if at said
date of declaration such payment would have complied with the provisions of
the Indenture; (iv) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of other Equity Interests of the Company (other
than any Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase, retirement or
other acquisition shall be excluded from clause (c) of the preceding
paragraph; and (v) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Debt or the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (c) of the preceding paragraph.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments at
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (i) the net book value of such Investments at the
time of such designation, (ii) the fair market value
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of such Investments at the time of such designation and (iii) the original
fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the Trustee) on the date of the
Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Subsidiary, as the case may be, pursuant to the Restricted Payment.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness
(including Acquired Debt); provided, however, that, so long as no Default or
Event of Default has occurred and is continuing, the Company and its
Restricted Subsidiaries may incur Indebtedness (including Acquired Debt) if
the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred would
have been at least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred at the beginning of such four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness pursuant to the Bank Credit Facility in an aggregate principal
amount not to exceed $50 million at any one time outstanding less any Net
Proceeds of Asset Sales applied to permanently reduce the Bank Credit
Facility pursuant to the provisions of the Indenture described under
"Repurchase at the Option of Holders--Asset Sales;"
(ii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the New Notes, the Guarantees thereof by any
Restricted Subsidiary as described under "--Subsidiary Guarantees" and the
Indenture;
(iv) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
(v) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness in connection with the acquisition of assets or a new
Restricted Subsidiary; provided that such Indebtedness was incurred by the
prior owner of such assets or such Restricted Subsidiary prior to such
acquisition by the Company or one of its Restricted Subsidiaries and was not
incurred in connection with, or in contemplation of, such acquisition by the
Company or one of its Restricted Subsidiaries; and provided, further, that
the principal amount (or accreted value, as applicable) of such
Indebtedness, together with any other outstanding Indebtedness incurred
pursuant to this clause (v), does not exceed $5.0 million;
(vi) the incurrence of intercompany Indebtedness between or among the
Company and any of its Wholly Owned Restricted Subsidiaries; provided that
any subsequent issuance or transfer of
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Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company, or any sale or other transfer of any such Indebtedness to a Person
that is neither the Company nor a Wholly Owned Restricted Subsidiary of the
Company, shall be deemed to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Debt in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund Indebtedness that was permitted by the Indenture to be incurred;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided that if, and to the extent that, any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary,
such event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate indebtedness
that is permitted by the terms of the Indenture to be outstanding; and
(x) the incurrence by the Company and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $7.5 million at
any one time outstanding.
LIMITATIONS ON LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien on any asset now owned or hereafter
acquired, or any income or profits therefrom, or assign or convey any right
to receive income therefrom, except Permitted Liens.
LIMITATIONS ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (i)(a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries on its (1) Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, or (b) pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries,
(ii) make loans or advances to the Company or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to the Company
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (a) Existing Indebtedness as in
effect on the date of the Indenture, (b) the Bank Credit Facility as in
effect as of the date of the Indenture, and any amendments, modifications,
restatements, renewals, increase, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increase, supplements, refundings, replacements or
refinancings are no more restrictive with respect to such dividend and other
payment restrictions than those contained in the Bank Credit Facility in
effect on the date of the Indenture, (c) the Indenture and the New Notes, (d)
applicable law, (e) any instrument governing Indebtedness or Capital Stock of
a Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, (f) by reason of customary
non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices, (g) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired and (h) restrictions relating to a Restricted Subsidiary formed for
the sole purpose of engaging in accounts receivable financing.
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LIMITATIONS ON MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity, unless (i) the Company is the
surviving entity or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment,
transfer, lease, conveyance or other disposition shall have been made assumes
all the obligations of the Company under the New Notes and the Indenture
pursuant to a supplemental indenture in a form reasonably satisfactory to the
Trustee; (iii) immediately after such transaction, no Default or Event of
Default exists; and (iv) except in the case of a merger of the Company with
or into a Wholly Owned Restricted Subsidiary of the Company, the Company or
the entity or Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (a) will have
Consolidated Net Worth immediately after the transaction equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (b) will, at the time of such transaction and after giving
pro forma effect thereto as if such transaction had occurred at the beginning
of the applicable four-quarter period, be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under the
caption "--Limitations on Incurrence of Indebtedness."
LIMITATIONS ON TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, make any payment
to, or sell, lease, transfer or otherwise dispose of any of its properties or
assets to, or purchase any property or assets from, or enter into or make or
amend any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an
"Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms
that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction with an unrelated Person and (ii) the Company delivers to the
Trustee (a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $1.0
million, a resolution of the Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause
(i) above and that such Affiliate Transaction has been approved by a majority
of the disinterested members of the Board of Directors and (b) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $5.0 million, an opinion as to
the fairness to the Holders of such Affiliate Transaction from a financial
point of view issued by an investment banking firm of national standing with
total assets in excess of $1.0 billion, except with respect to transactions
in the ordinary course of business and consistent with past practice between
the Company or any of its Restricted Subsidiaries and Four M, CEG or any of
their respective subsidiaries; provided that (1) the Indenture of Lease dated
as of January 1, 1995, between Dennis Mehiel and the Company relating to the
Jacksonville Facility except for any purchases of property by the Company
that may arise thereunder; (2) any employment agreement entered into between
any Person and the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary in an amount not to exceed $500,000 per
annum; (3) transactions between or among the Company and its Restricted
Subsidiaries and (4) Restricted Payments and Permitted Investments that are
permitted by the provisions of the Indenture described under the caption
"Restricted Payments," in each case shall not be deemed Affiliate
Transactions.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any of its Restricted Subsidiaries to, transfer, convey, sell or otherwise
dispose of any Capital Stock of any Restricted
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Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale or other disposition is of all of the Capital Stock of such
Restricted Subsidiary owned by the Company and its Restricted Subsidiaries
and (b) such transaction is conducted in accordance with the covenant
described above under the caption "--Asset Sales" and (ii) will not permit
any Restricted Subsidiary of the Company to issue any of its Equity Interests
(other than, if required by law, shares of its Capital Stock constituting
directors' qualifying shares) to any Person other than to the Company or a
Wholly Owned Restricted Subsidiary of the Company.
LIMITATION ON OTHER SENIOR SUBORDINATED DEBT
The Indenture provides that neither the Company nor any of its Restricted
Subsidiaries will incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment
to any Senior Debt of the Company or such Restricted Subsidiary, as the case
may be, and senior in any respect in right of payment to the New Notes or
such Restricted Subsidiary's Guarantee.
SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Restricted
Subsidiaries shall acquire or create a Subsidiary after the date of the
Indenture, then such newly acquired or created Subsidiary shall execute a
Guarantee (a "Subsidiary Guarantee") and deliver an opinion of counsel in
accordance with the terms of the Indenture; provided that this covenant shall
not apply to (i) a Restricted Subsidiary formed for the sole purpose of
engaging in accounts receivable financings; and (ii) any Subsidiary that has
been properly designated as an Unrestricted Subsidiary in accordance with the
Indenture for so long as it continues to constitute an Unrestricted
Subsidiary.
The Obligations of each Guarantor of the New Notes under its Subsidiary
Guarantee will be subordinated in right of payment to all Senior Debt of such
Guarantor pursuant to subordination provisions substantially similar to those
described above under "--Subordination".
PAYMENTS FOR CONSENT
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries or Affiliates to, directly or indirectly, pay or cause to
be paid any consideration, whether by way of interest, fee or otherwise, to
any Holder of any New Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the New Notes
unless such consideration is offered to be paid or is paid to all Holders of
the New Notes that consent, waive or agree to an amendment in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that describes the financial condition
and results of operations of the Company and its Restricted Subsidiaries and,
with respect to the annual information only, a report thereon by the
Company's certified independent accountants and (ii) all current reports that
would be required to be filed with the Commission on Form 8-K if the Company
were required to file such reports. In addition, whether or not required by
the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the
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Company has agreed that, for so long as any New Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered
pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
New Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or premium,
if any, on the New Notes (whether or not prohibited by the subordination
provisions of the Indenture); (iii) failure by the Company to comply with the
provisions described under the captions "--Repurchase at the Option of
Holders--Change of Control," "--Repurchase at the Option of Holders--Asset
Sales," "--Certain Covenants--Limitations on Restricted Payments" or
"--Certain Covenants--Limitations on Incurrence of Indebtedness;" (iv) failure
by the Company for 30 days after notice to comply with any of its other
agreements in the Indenture or the New Notes; (v) default under any mortgage,
indenture or instrument under which there may be issued or by which there
may be secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (a) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in respect of such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to
its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million and either (a) any creditor commences
enforcement proceedings upon any such judgment or (b) such judgments are not
paid, discharged or stayed for a period of 45 days; and (vii) certain events
of bankruptcy or insolvency with respect to the Company or any of its
Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising
from certain events of bankruptcy or insolvency with respect to the Company,
any Significant Subsidiary of the Company or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a
Significant Subsidiary of the Company, all outstanding New Notes will become
due and payable without further action or notice. Holders of the New Notes
may not enforce the Indenture or the New Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding New Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
New Notes notice of any continuing Default or Event of Default (except a
Default or Event of Default relating to the payment of principal or interest)
if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the New Notes pursuant
to the optional redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted
by law upon the acceleration of the New Notes. If an Event of Default occurs
prior to March 1, 2002 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention of avoiding
the prohibition on redemption of the New Notes prior to such date, then the
premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the New
Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of
Default in the payment of the principal of or premium or interest, if any, on
the New Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee
a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any Obligations of the Company
under the New Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such Obligations or their creation. Each Holder of New
Notes by accepting a New Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the New
Notes. Such waiver may not be effective to waive liabilities under the
Federal securities laws, and it is the view of the Commission that such a
waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding New Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding New Notes to
receive payments in respect of the principal of and premium and interest, if
any, on the New Notes when such payments are due from the trust referred to
below, (ii) the Company's obligations with respect to the New Notes
concerning issuing temporary New Notes, registration of New Notes, mutilated,
destroyed, lost or stolen New Notes and the maintenance of an office or
agency for payment and money for security payments held in trust, (iii) the
rights, powers, trusts, duties and immunities of the Trustee, and the
Company's obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture. In addition, the Company may, at its option and
at any time, elect to have the obligations of the Company released with
respect to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations
shall not constitute a Default or Event of Default with respect to the New
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment, bankruptcy, receivership and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with
respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the New Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of and premium and interest, if any,
on the outstanding New Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Company must specify whether the
New Notes are being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (a) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (b) since the
date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders of the outstanding New
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the
Trustee confirming that the Holders of the outstanding New Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance
or Covenant Defeasance will not result in a
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breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors of the
Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others; and (viii) the Company shall have
delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or
exchange any New Note selected for redemption. Also, the Company is not
required to transfer or exchange any New Note for a period of 15 days before
a selection of New Notes to be redeemed.
The registered Holder of a New Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the New Notes may be amended or supplemented with the consent of the Holders
of at least a majority in principal amount of the New Notes then outstanding
(including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, New Notes), and any
existing default or compliance with any provision of the Indenture or the New
Notes may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding New Notes (including, without
limitation, consents obtained in connection with a purchase of, or tender
offer or exchange offer for New Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any New Notes held by a non-consenting Holder): (i)
reduce the principal amount of New Notes whose Holders must consent to an
amendment, supplement or waiver, (ii) reduce the principal of or change the
fixed maturity of any New Note or alter the provisions with respect to the
redemption of the New Notes (other than provisions relating to the covenants
described above under the caption "--Repurchase at the Option of Holders"),
(iii) reduce the rate of or change the time for payment of interest on any
New Note, (iv) waive a Default or Event of Default in the payment of
principal of or premium and interest, if any, on the New Notes (except a
rescission of acceleration of the New Notes by the Holders of at least a
majority in aggregate principal amount of the New Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any New Note
payable in money other than that stated in the New Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of Holders of New Notes to receive payments of
principal of or premium or interest, if any, on the New Notes, (vii) waive a
redemption payment with respect to any New Note (other than a payment
required by one of the covenants described above under the caption
"--Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination)
will require the consent of the Holders of at least 75% in aggregate
principal amount of the New Notes then outstanding if such amendment would
adversely affect the rights of Holders of the New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company and the Trustee may amend or supplement the Indenture or
the New Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated New Notes in addition to or in place of certificated New
Notes, to provide for the assumption of the Company's obligations to Holders
of New Notes in the case of a
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merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of New Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding New
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder of New Notes, unless such Holder shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the New Notes to be resold as
set forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing
of the sale of the New Notes offered hereby (the "Closing Date") with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in
the name of Cede & Co., as nominee of the Depositary (such nominee being
referred to herein as the "Global Note Holder").
New Notes that are issued as described below under "--Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated
Securities, such Certificated Securities may, unless the Global Note has
previously been exchanged for Certificated Securities, be exchanged for an
interest in the Global Note representing the principal amount of New Notes
being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the
"Participants" or the "Depositary's Participants") and to facilitate the
clearance and settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies,
clearing corporations and certain other organizations. Access to the
Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit
the accounts of Participants designated by the Initial Purchaser with
portions of the principal amount of the Global Note and (ii) ownership of the
New Notes evidenced by the Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depositary (with respect to the interests of the Depositary's Participants),
the Depositary's Participants and the Depositary's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer New Notes evidenced by the
Global Note will be limited to such extent.
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So long as the Global Note Holder is the registered owner of any New
Notes, the Global Note Holder will be considered the sole Holder under the
Indenture of any New Notes evidenced by the Global Note. Beneficial owners of
New Notes evidenced by the Global Note will not be considered the owners or
Holders thereof under the Indenture for any purpose, including with respect
to the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility
or liability for any aspect of the records of the Depositary or for
maintaining, supervising or reviewing any records of the Depositary relating
to the New Notes.
Payments in respect of the principal of and premium and interest, if any,
on any New Notes registered in the name of the Global Note Holder on the
applicable record date will be payable by the Trustee to or at the direction
of the Global Note Holder in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names New Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of New Notes. The Company believes, however, that it is currently the
policy of the Depositary to immediately credit the accounts of the relevant
Participants with such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as shown on the
records of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of New Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons
(or the nominee of any thereof). In addition, if (i) the Company notifies the
Trustee in writing that the Depositary is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (ii) the Company, at its option, notifies the Trustee in writing
that it elects to cause the issuance of New Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the Global Note
Holder of its Global Note, New Notes in such form will be issued to each
person that the Global Note Holder and the Depositary identify as being the
beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
New Notes and the Company and the Trustee may conclusively rely on, and will
be protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the New Notes
represented by the Global Note (including principal and premium and interest,
if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Securities, the Company will make all payments of principal, premium and
interest, if any, by wire transfer of immediately available funds to the
accounts specified by the Holders thereof or, if no such account is
specified, by mailing a check to each such Holder's registered address. The
New Notes represented by the Global Note are expected to be eligible to trade
in the Depositary's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such New Notes will, therefore, be
required by the Depositary to be settled in immediately available funds. The
Company expect that secondary trading in the Certificated Securities will
also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration
Rights Agreement dated as of February 27, 1997. Pursuant to the Registration
Rights Agreement, the Company agreed to file with the
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Commission the Exchange Offer Registration Statement on the appropriate form
under the Securities Act with respect to the New Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the Holders of Transfer Restricted Securities pursuant to the
Exchange Offer who are able to make certain representations the opportunity
to exchange their Transfer Restricted Securities for New Notes. If the
Company does not meet its obligations under the Registration Rights
Agreement, it may be required to pay to each Holder of Old Notes Liquidated
Damages in an amount equal to 50 basis points per annum for each successive
90-day period, or any portion thereof, during which such Registration Default
continues, up to a maximum amount of 200 basis points per annum of the
principal amount of the Old Notes.
Holders of New Notes are not entitled to any registration rights with
respect to the New Notes. The Company agrees for a period of 270 days from
the effective date of this Prospectus to make available a prospectus meeting
the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any New Notes. The Registration Statement of
which this Prospectus is a part constitutes the registration statement for
the Exchange Offer which is the subject of the Registration Rights Agreement.
Upon the closing of the Exchange Offer, subject to certain limited
exceptions, Holders of untendered Old Notes will not retain any rights under
the Registration Rights Agreement.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Restricted Subsidiary of such specified
Person, including, without limitation, Indebtedness incurred in connection
with, or in contemplation of, such other Person merging with or into or
becoming a Subsidiary of such specified Person, and (ii) Indebtedness secured
by a Lien encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of such Person,
whether through the ownership of voting securities, by agreement or
otherwise; provided that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback),
other than sales of inventory in the ordinary course of business consistent
with past practices (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Restricted Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the caption "--Repurchase at the Option
of Holders--Change of Control" and/or the provisions described above under
the caption "--Certain Covenants--Limitations on Merger, Consolidation or Sale
of Assets" and not by the provisions of the Asset Sale covenant), and (ii)
the issue or sale by the Company or any of its Restricted Subsidiaries of
Equity Interests of any of the Company's Restricted Subsidiaries, whether in
a single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of
$1.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary and (ii) a Restricted Payment that is permitted by the covenant
described above under the caption "--Certain Covenants--Limitations on
Restricted Payments" will not be deemed to be Asset Sales. The term "all or
substantially all" as used in this definition has not been interpreted under
New York law (which is the governing law of the Indenture) to represent a
specific quantitative test. As a consequence, in the event the holders of
the Notes elected to exercise their rights under the Indenture and the
Company elected to contest such election, there could be no assurance as
to how a court interpreting New York law would interpret the phrase.
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"Bank Credit Facility" means (i) the New Credit Facility, (ii) each
instrument pursuant to which the Obligations under the agreement described in
clause (i) above are amended, deferred, extended, renewed, replaced, refunded
or refinanced, in whole or in part, and (iii) each instrument now or
hereafter evidencing, governing, guaranteeing or securing any Indebtedness
under any agreements described in clause (i) or (ii) above, in each case, as
modified, amended, restated or supplemented from time to time.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government
or any agency or instrumentality thereof having maturities of not more than
six months from the date of acquisition, (iii) certificates of deposit and
Eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses
(ii) and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper
having the highest rating obtainable from Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group and in each case maturing within one year
after the date of acquisition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any "person" or "group" (as such terms are
used in Section 13(d)(3) and Section 14(d)(2) of the Exchange Act) other than
the Principals, (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of
which is that any person or group (as defined above), other than the
Principals, becomes the "beneficial owner" (as defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly, of more of the voting
power of the voting stock of the Company than at that time is beneficially
owned by the Principals; or (iv) the first day on which more than a majority
of the members of the board of directors of the Company are not Continuing
Directors. For purposes of this definition, any transfer of an equity
interest of an entity that was formed for the purpose of acquiring voting
stock of the Company will be deemed to be a transfer of such portion of such
voting stock as corresponds to the portion of the equity of such entity that
has been so transferred.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries
for such period plus, without duplication, to the extent deducted in
computing Consolidated Net Income, (i) an amount equal to any extraordinary
loss plus any net loss realized in connection with an Asset Sale, (ii)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (iii) consolidated interest expense
of such Person and its Restricted Subsidiaries for such period, whether paid
or accrued and whether or not capitalized (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations) and (iv) depreciation and amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) of
such Person and its Restricted Subsidiaries for such period, in each case, on
a
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consolidated basis and determined in accordance with GAAP. Notwithstanding
the foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization of, a Subsidiary of the referent Person shall
be added to Consolidated Net Income to compute Consolidated Cash Flow only to
the extent (and in same proportion) that the Net Income of such Subsidiary
was included in calculating the Consolidated Net Income of such Person and
only if a corresponding amount would be permitted at the date of
determination to be dividended, directly or indirectly, to the Company by
such Subsidiary without prior governmental approval (that has not been
obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in
accordance with GAAP; provided that (i) the Net Income (but not loss) of any
Person that is not a Subsidiary or that is accounted for by the equity method
of accounting shall be included only to the extent of the amount of dividends
or distributions paid in cash to the referent Person or a Wholly Owned
Restricted Subsidiary thereof, (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of such Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded (iv) the
cumulative effect of a change in accounting principles shall be excluded and
(v) the Net Income of any Unrestricted Subsidiary shall be excluded, whether
or not distributed to the Company or one of its Restricted Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common equity holders of such
Person and its Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (a) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (b) all investments as of such date
in unconsolidated Subsidiaries and in Persons that are not Subsidiaries
(except, in each case, Permitted Investments), and (c) all unamortized debt
discount and expense and unamortized deferred charges as of such date, all of
the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (i) was a member of the board of
directors on the date of the Indenture or (ii) was nominated for election to
the board of directors with the approval of at least a majority of the
Continuing Directors who were members of the board of directors at the time
of such nomination or election.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Debt" of any Person means such Person's Obligations
under the Bank Credit Facility and any other Senior Debt of such Person
permitted to be incurred by such Person under the terms of the Indenture, the
principal amount of which is $10.0 million or more and that has been
designated by the board of directors of such Person as "Designated Senior
Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof, in whole or in part, on or prior to the
date that is 91 days after the date on which the New Notes mature.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such amounts
are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or accrued
(including, without limitation, amortization of original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, commissions, discounts and other fees and charges incurred
in respect of letter of credit or bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period and (iii) any interest expense on Indebtedness
of another Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called
upon) and (iv) the product of (a) all dividend payments on any series of
preferred stock of such Person, other than dividend payments on preferred
stock of the Company paid solely in additional shares of such preferred stock
times (b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the Company or any of its Restricted Subsidiaries incurs, assumes, Guarantees
or redeems any Indebtedness (other than revolving credit borrowings) or
issues or redeems preferred stock subsequent to the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related
financing transactions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall
be calculated without giving effect to clause (iii) of the proviso set forth
in the definition of Consolidated Net Income, and (ii) the Consolidated Cash
Flow attributable to discontinued operations (as determined in accordance
with GAAP) and operations or businesses disposed of prior to the Calculation
Date shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations (as determined in accordance with GAAP) and
operations or businesses disposed of prior to the Calculation Date shall be
excluded, but only to the extent that the obligations giving rise to such
Fixed Charges will not be obligations of the referent Person or any of its
Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant
segment of the accounting profession, which are in effect on the date of the
Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Guarantors" means any Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest and currency rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against
fluctuations in interest or currency exchange rates.
"Indebtedness" means, with respect to any Person, (i) any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or bankers'
acceptances or representing Capital Lease Obligations or the balance deferred
and unpaid of the purchase price of any property or representing any Hedging
Obligations, except any such balance that constitutes an accrued expense or
trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability
upon a balance sheet of such Person prepared in accordance with GAAP, (ii)
all indebtedness of others secured by a Lien on any asset of such Person
(whether or not such indebtedness is assumed by such Person) in which case
the amount of such Indebtedness shall be deemed to be the lesser of (a) the
amount of such Indebtedness and (b) the fair market value of the asset that
secures such Indebtedness, (iii) Disqualified Stock of such Person, (iv)
preferred stock of any Restricted Subsidiary of such Person (other than
Preferred Stock held by such Person or any of its Wholly Owned Restricted
Subsidiaries) and (v) to the extent not otherwise included, the Guarantee by
such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with
GAAP; provided that an acquisition of assets, Equity Interests or other
securities by the Company or any of its Restricted Subsidiaries for
consideration consisting of common equity securities of the Company shall not
be deemed to be an Investment.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
asset, whether or not filed, recorded or otherwise perfected under applicable
law (including any conditional sale or other title retention agreement, any
lease in the nature thereof, any option or other agreement to sell or give a
security interest in and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Make-Whole Premium" with respect to a New Note means an amount equal to
the greater of (i) 104.750% of the outstanding principal amount of such New
Note and (ii) the excess of (a) the present value of the remaining interest,
premium and principal payments due on such New Note as if such New Note were
redeemed on March 1, 2002, computed using a discount rate equal to the
Treasury Rate plus 50 basis points, over (b) the outstanding principal amount
of such New Note.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with
GAAP and before any reduction in respect of preferred stock dividends,
excluding, however, (i) any gain (but not loss), together with any related
provision for taxes on such gain (but not loss), realized in connection with
(a) any Asset Sale (including, without limitation, dispositions pursuant to
sale and leaseback transactions) or (b) the disposition of any securities by
such Person or any of its Restricted Subsidiaries or the extinguishment of
any Indebtedness of such Person or any of its Restricted Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but
not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale
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or other disposition of any non-cash consideration received in any Asset
Sale), net of the direct costs relating to such Asset Sale (including,
without limitation, legal, accounting and investment banking fees, and sales
commissions), any relocation expenses incurred as a result thereof, any taxes
paid or payable by the Company or any of its Restricted Subsidiaries as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied
to the repayment of Indebtedness secured by a Lien on the asset or assets
that were the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any
kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable (as a
guarantor or otherwise), or (c) constitutes the lender, (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness
(other than the New Notes being offered hereby) of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity and (iii) as to which the lenders have been notified in writing that
they will not have any recourse to the stock or assets of the Company or any
of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (i) any Investment in the Company or in a
Wholly Owned Restricted Subsidiary of the Company; (ii) any Investment in
Cash Equivalents; (iii) any Investment by the Company or any of its
Restricted Subsidiaries in a Person if, as a result of such Investment, (a)
such Person becomes a Wholly Owned Restricted Subsidiary of the Company or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Wholly Owned Restricted Subsidiary of the Company;
(iv) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales;" and (v) a $2.6 million loan to CEG, as in effect on
the date of the Indenture, as such loan may be amended or refinanced in a
manner not adverse to the Company or the Holders of the New Notes.
"Permitted Liens" means (i) Liens securing Senior Debt of the Company and
its Restricted Subsidiaries; (ii) Liens in favor of the Company or any of its
Restricted Subsidiaries; (iii) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any of
its Restricted Subsidiaries, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or any such Restricted Subsidiary; (iv) Liens on property existing at
the time of acquisition thereof by the Company or any of its Restricted
Subsidiaries, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business;
(vi) Liens to secure Indebtedness permitted by clause (iv) (including Capital
Lease Obligations) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness" covering only the assets acquired with such
Indebtedness; (vii) Liens existing on the date of the Indenture excluding
Liens on Indebtedness to be repaid with the proceeds of the issuance of the
Old Notes; (viii) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (ix) Liens incurred in
the ordinary course of business of the Company or any of its Restricted
Subsidiaries with respect to obligations that do not exceed $2.0 million at
any one time outstanding and that (a) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than trade
credit in the ordinary course of business) and (b) do not in the aggregate
materially detract from the value of the property or materially impair the
use thereof in the operation of business by the Company or any such
Restricted
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Subsidiary; (x) renewals or refundings of any Liens referred to in clauses
(iii) through (ix) above provided that any such renewal or refunding does not
extend to any assets or secure any Indebtedness not securing or secured by
the Liens being renewed or refinanced; and (xi) Liens on assets of
Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Debt" means any Indebtedness of the Company or any
of its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any such Restricted Subsidiary; provided that:
(i) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Debt does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of reasonable expenses incurred in
connection therewith); (ii) such Permitted Refinancing Debt has a final
maturity date no earlier than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life
to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right
of payment to the New Notes, such Permitted Refinancing Debt has a final
maturity date no earlier than the final maturity date of, and is subordinated
in right of payment to, the New Notes on terms at least as favorable to the
Holders of New Notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Indebtedness is incurred only by the Company or the
Restricted Subsidiary that is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Principals" mean Dennis Mehiel, his lineal descendants and any trust,
corporation, partnership, association, limited liability company or other
entity in which Dennis Mehiel and/or his lineal descendants hold at least 80%
of the total, combined outstanding voting power or similar controlling
interest.
"Public Offering" means an underwritten public offering of common stock
(other than Disqualified Stock) of the Company registered under Securities
Act (other than a public offering registered on Form S-8 under the Securities
Act) that results in net proceeds of at least $35 million to the Company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary.
"Senior Debt" of any Person means (i) any Indebtedness of such Person
incurred under the Bank Credit Facility, (ii) Indebtedness of a Restricted
Subsidiary formed for the sole purpose of engaging in accounts receivable
financings and (iii) any other Indebtedness permitted to be incurred by such
Person under the terms of the Indenture, unless the instrument under which
such Indebtedness is incurred expressly provides that it is subordinated in
right of payment to any Senior Debt of such Person. Notwithstanding anything
to the contrary in the foregoing, Senior Debt will not include (a) any
liability for federal, state, local or other taxes owed or owing by such
Person, (b) any Indebtedness of such Person to any of its Subsidiaries or
other Affiliates, (c) any trade payables or (d) any Indebtedness that is
incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Act, as such Regulation is in effect on the
date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of such
Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
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"Treasury Rate" means the yield to maturity at the time of the computation
of United States Treasury securities with a constant maturity (as compiled by
and published in the most recent Federal Reserve Statistical Release
H.15(519)), which has become publicly available at least two business days
prior to the date fixed for prepayment (or, if such Statistical Release is no
longer published, any publicly available source of similar market data) most
nearly equal to the then remaining average life of the series of the Notes
for which a Make-Whole Premium is being calculated; provided, however, that
if the average life of such note is not equal to the constant maturity of the
United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that if
the average life of such Notes is less than one year, the weekly average
yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution, but only to the extent that such Subsidiary (i) has no
Indebtedness other than Non-Recourse Debt; (ii) is not party to any
agreement, contract, arrangement or understanding with the Company or any of
its Restricted Subsidiaries unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company, (iii) is a Person with respect
to which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (a) to subscribe for additional Equity
Interests or (b) to maintain or preserve such Person's financial condition or
to cause such Person to achieve any specified levels of operating results,
(iv) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of the Company or any of its Restricted
Subsidiaries and (v) has at least one member of its board of directors who is
not a director or executive officer of the Company or any of its Restricted
Subsidiaries and has at least one executive officer who is not a director or
executive officer of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "Restricted Payments." If, at any
time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be
an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness
of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary
of the Company as of such date (and, if such Indebtedness is not permitted to
be incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness," the Company shall be in default of such
covenant). The Board of Directors may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary, provided that such designation
shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation shall only be permitted if (i)
such Indebtedness is permitted under the covenant described under the caption
"Incurrence of Indebtedness" and (ii) no Default or Event of Default would be
in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment, by (ii)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
General. On February 27, 1997, the Company repaid the Term Loans and the
Old Credit Facility from the net proceeds of the issuance of the Old Notes
and entered into an amended and restated revolving credit and security
agreement (the "New Credit Facility") with IBJS, as agent, which provided for
a revolving credit facility in the amount of up to $50.0 million, subject to
certain borrowing base limitations. Borrowings under the New Credit Facility
will have a final maturity date of March 31, 2000 (the "Maturity Date"). As
of April 27, 1997, there were no borrowings under the New Credit Facility.
Interest Rate. Borrowings under the New Credit Facility will bear
interest, at the Company's election, at a rate per annum equal to (i) LIBOR
plus 2.25% or (ii) an Alternate Base Rate (being the higher of the (a) Base
Rate publicly announced by the Agent and (b) Federal Funds Rate in effect on
such day plus 0.5%) plus 0.25%.
Prepayments. Prior to March 30, 1998, the Company will have the right,
without penalty or premium, to permanently reduce borrowings under the New
Credit Facility, in minimum amounts of $1.0 million, up to $3.0 million. If
termination of the New Credit Facility occurs from March 31, 1997 to March
30, 1998, the Company will pay 1.0% of the Maximum Loan Amount.
Covenants. The obligation of the Agent to advance funds is subject to
certain conditions customary for facilities of similar size and nature. In
addition, the Company is subject to certain affirmative and negative
covenants customarily contained in agreements of this type, including,
without limitation, covenants that restrict, subject to specified exceptions
(i) mergers, consolidations, assets sales or changes in capital structure,
(ii) creation or acquisition of subsidiaries, (iii) purchase or redemption of
the Company's capital stock or declaration or payment of dividends or
distributions on such capital stock, (iv) incurrence of additional
indebtedness, (v) investment activities, (vi) granting or incurrence of liens
to secure other indebtedness, (vii) prepayment or modification of the terms
of subordinated indebtedness and (viii) engaging in transactions with
affiliates.
In addition, the New Credit Facility requires the Company to satisfy
certain financial covenants similar to those in the Indenture and the
maintenance of an interest coverage ratio of not less than 1.75 to 1.0 for
the first fiscal year following the issuance of the Old Notes and 2.0 to 1.0
for each year thereafter. The New Credit Facility also provides for customary
events of default.
Security. The New Credit Facility is secured by accounts receivable,
inventory, certain general intangibles and the proceeds on the sale of
accounts receivable and inventory.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue an aggregate of 620,000 shares of
common stock, par value $.01 per share, consisting of 400,000 shares of Class
A Common Stock, 20,000 shares of Class B Common Stock and 200,000 shares of
Class C Common Stock. There are currently 191,000 shares of Class A Common
Stock (7,000 shares of which are redeemable (the "Redeemable Common Stock")),
3,665.98 shares of Class B Common Stock, and no shares of Class C Common
Stock issued and outstanding. The shares of Class A Common Stock are held by
five stockholders of record and the shares of Class B Common Stock are held
by one stockholder of record which also holds a warrant to purchase 9,176.08
shares of Class B Common Stock. Each share of Class B Common Stock is
convertible into a share of Class A Common Stock (i) at the option of any
holder thereof, other than a "Non-Converting Holder" (as defined), or (ii) at
the option of any Non-Converting Holder concurrently with a sale or other
transfer of such shares of Class B Common Stock to any person other than a
Non-Converting Holder.
Each share of Class A Common Stock is entitled to one vote per share on
all matters to be voted upon by stockholders and does not have cumulative
voting rights in the election of directors. The holders of Class B Common
Stock and Class C Common Stock are not entitled to any vote whatsoever,
except to the extent otherwise provided by law.
The holders of Common Stock are entitled, among other things, (i) to share
ratably in dividends if, when and as declared by the Board of Directors out
of funds legally available therefor, and (ii) in the event of liquidation,
distribution or sale of assets, dissolution or winding-up of the Company, to
share ratably in the distribution of assets legally available therefor. The
holders of Common Stock have no preemptive rights to subscribe for additional
shares of the Company. All currently outstanding shares of the Common Stock
are fully paid and nonassessable.
The Company has an agreement with the holder of 7,000 shares of the Class
A Common Stock whereby such stockholder can require the Company to repurchase
such shares at the earlier of March 31, 2007 or the date of a merger or
consolidation of the Company in which the Company is not the surviving
corporation. The repurchase price is $3.0 million at March 31, 2007
discounted back to the repurchase date at a rate of 3% per annum. The Company
may also require the stockholder to redeem such shares after March 31, 2000
at the redemption price stated above.
PREFERRED STOCK
The Company is authorized to issue an aggregate of 101,000 shares of
preferred stock, par value $.01 per share, consisting of 1,000 shares of
Preferred Stock (the "Preferred") and 100,000 shares of Class B Preferred
Stock (the "Class B Preferred"). There are no shares of Preferred or Class B
Preferred issued and outstanding.
Preferred. The holders of Preferred are entitled to one vote per share on
all matters to be voted upon by the stockholders, and the Preferred and the
Common Stock vote together on all such matters as one class. The Preferred is
not entitled to receive any dividends.
Shares of Preferred may be called for redemption, in whole or in part, at
any time and from time to time, upon the order of the Board of Directors at a
price per share equal to the Redemption Price (as defined below). In case
less than all of the Preferred outstanding is to be redeemed, the shares to
be redeemed shall be selected by lot or in such other equitable manner as the
Board of Directors may determine. Written notice of an election by the
Company for redemption of Preferred (the "Notice") will be mailed at least 30
days prior to the redemption date.
The term "Redemption Price" means (i) $1,750 per share if the Notice is
given on or before the fifth anniversary of the date of issuance of the
Preferred (the "Date of Issuance"), (ii) $2,000 per share if the Notice is
given between the fifth and sixth anniversary of the Date of Issuance, (iii)
$2,250 per share if the Notice is given between the sixth and the seventh
anniversary of the Date of Issuance, and (iv) $2,500 per share if the Notice
is given after the seventh anniversary of the Date of Issuance.
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If any shares of Preferred remain outstanding 30 days after the seventh
anniversary of the Date of Issuance thereof, such shares of Preferred shall
automatically be converted into shares of Class A Common Stock on the basis
of one share of Class A Common Stock for each outstanding share of Preferred.
In the event of liquidation, dissolution or winding-up of the Company,
holders of Preferred are entitled to be paid the applicable Redemption Price
prior to the distribution of any assets to the holders of Class B Preferred
or Common Stock.
The Company has no present plans to issue any shares of Preferred.
Class B Preferred. The Board of Directors is authorized to issue shares of
Class B Preferred, from time to time, in one or more series, and to
determine, among other things, with respect to each such series, (i) the
dividend rate and conditions and the dividend preferences, if any; (ii)
whether dividends would be cumulative; (iii) whether, and to what extent, the
holders of such series would enjoy voting rights, if any, in addition to
those prescribed by law; (iv) whether, and upon what terms, such series would
be convertible into or exchangeable for shares of any other class of capital
stock; (v) whether, and upon what terms, such series would be redeemable;
(vi) whether or not a sinking fund or redemption or purchase account would be
provided for such series and, if so, the terms and conditions thereof; and
(vii) the preference, if any, to which such series would be entitled in the
event of voluntary or involuntary liquidation, distribution or sale of
assets, dissolution or winding up of the Company.
Issuance of Class B Preferred, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could
make it more difficult for a third party to acquire a majority of the
outstanding voting stock. Accordingly, the issuance of Class B Preferred may
be used as an "anti-takeover" device without further action on the part of
the stockholders of the Company. The Company has no present plans to issue
any shares of Class B Preferred.
WARRANTS
In connection with the issuance of the Old Subordinated Notes, the Company
issued 9,176.08 warrants to purchase Class B Common Stock. The warrants are
exercisable at a price of $.01 per share, expire in May 2003 and are subject
to standard anti-dilution protection.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer to an Eligible Holder in exchange
for Old Notes may be offered for resale, resold and otherwise transferred by
such Eligible Holder (other than (i) a broker-dealer who purchased the Old
Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act, or
(ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the
Eligible Holder is acquiring the New Notes in the ordinary course of business
and is not participating, and has no arrangement or understanding with any
person to participate, in a distribution of the New Notes.
Each broker-dealer that holds Old Notes which were acquired for its own
account as a result of market-making activities or other trading activities
(other than Old Notes acquired directly from the Company or an affiliate of
the Company), may exchange the Old Notes for New Notes in the Exchange Offer.
However, such broker-dealer may be deemed an "underwriter" within the meaning
of the Securities Act and, therefore, must deliver a prospectus in connection
with any resales of the New Notes received by such broker-dealer in the
Exchange Offer. This prospectus delivery requirement may be satisfied by
delivery of this Prospectus, as it may be amended or supplemented from time
to time. The Company has agreed that it will provide sufficient copies of the
latest version of the Prospectus to broker-dealers promptly upon request at
any time during the 270 day period following the effective date of this
Prospectus to facilitate such resales.
82
<PAGE>
The Company will not receive any proceeds from any sale of the New Notes
by broker-dealers. New Notes received by broker-dealers for their own
accounts pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices at the time of
resale, at prices related to such prevailing market prices or negotiated
prices. Any such resales may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
By acceptance of the Exchange Offer, each broker-dealer and Holder that
receives New Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer
of New Notes, and each broker-dealer and Holder agrees that upon receipt of
any notice from the Company of the existence of any fact or the happening of
any event that makes any statement of a material fact in the Prospectus, or
any amendment or supplement hereto, or any document incorporated herein by
reference untrue or requires the making of any additions or changes in the
Prospectus (the "Notice"), such broker-dealer or Holder will forthwith
discontinue the disposition of the New Notes until such broker-dealer or
Holder (i) receives copies of a supplemental prospectus or (ii) is advised in
writing by the Company that the use of the Prospectus may be resumed and has
received copies of any additional or supplemental filings that are
incorporated herein by reference. Upon the Company's request and at its
expense, each Holder will deliver to the Company all copies, other than
permanent file copies in such Holder's possession, of the Prospectus covering
such New Notes that was current at the time of receipt of such Notice.
LEGAL MATTERS
The legality of the New Notes being issued in connection with the Exchange
Offer will be passed upon for the Company by Kramer, Levin, Naftalis &
Frankel, New York, New York.
EXPERTS
The financial statements of the Company as of and for the years ended July
30, 1995 and July 28, 1996 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of the Company for the year ended July 31, 1994
included in this Prospectus have been audited by BDO Seidman, LLP,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The statements of operations and cash flows of Scott Foodservice Division
of Scott Paper Company for the years ended December 31, 1994 and 1993 and the
three months ended March 30, 1995 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The statements of operations and cash flows of Chesapeake Consumer
Products Company for the year ended December 29, 1995 included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report appearing herein, and have been so included in
reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
83
<PAGE>
CHANGE IN CERTIFYING ACCOUNTANTS
In 1995, the Company changed its certifying accountants from BDO Seidman,
LLP (the "Former Accountants") to Deloitte & Touche LLP. The Company's Board
of Directors recommended and approved the appointment of Deloitte & Touche
LLP as its certifying accountants.
During the year ended July 31, 1994 and the subsequent interim period
preceding the hiring of Deloitte & Touche LLP, there were no disagreements
with the Former Accountants on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of the Former
Accountants, would have caused them to make reference to the subject matter
of the disagreement in their report. The Former Accountants' report on the
Company's financial statements for the year ended July 31, 1994 did not
contain an adverse opinion or disclaimer of opinion, nor was it modified as
to uncertainty, audit scope, or accounting principles.
84
<PAGE>
THE FONDA GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
THE FONDA GROUP, INC.:
Independent Auditors' Report ............................................ F-2
Independent Auditors' Report ............................................ F-3
Balance Sheets as of July 30, 1995 and July 28, 1996 and (unaudited)
April 27, 1997 ........................................................ F-4
Statements of Operations for the Years Ended July 31, 1994,
July 30, 1995 and July 28, 1996 and (unaudited) the Nine Months Ended
April 28, 1996 and April 27, 1997 ...................................... F-5
Statements of Cash Flows for the Years Ended July 31, 1994,
July 30, 1995 and July 28, 1996 and (unaudited) the Nine Months
April 28, 1996 and April 27, 1997 ...................................... F-6
Notes to Financial Statements ........................................... F-7
SCOTT FOODSERVICE DIVISION OF SCOTT PAPER COMPANY ("HOFFMASTER"):
Independent Auditors' Report ............................................ F-17
Statements of Operations for the Years Ended December 31, 1994 and 1993
and the Three Months Ended March 30, 1995 .............................. F-18
Statements of Cash Flows for the Years Ended December 31, 1994 and 1993
and the Three Months Ended March 30, 1995 .............................. F-19
Notes to Financial Statements............................................ F-20
CHESAPEAKE CONSUMER PRODUCTS COMPANY:
Independent Auditors' Report ............................................ F-22
Statement of Operations for the Year Ended December 29, 1995 ............ F-23
Statement of Cash Flows for the Year Ended December 29, 1995 ............ F-24
Notes to Financial Statements ........................................... F-25
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying balance sheets of The Fonda Group, Inc.
as of July 28, 1996 and July 30, 1995 and the related statements of
operations 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 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, such financial statements present fairly, in all material
respects, the financial position of The Fonda Group, Inc. as of July 28, 1996
and July 30, 1995 and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
October 25, 1996
(June 16, 1997 as to Note 15)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying statements of income and cash flows of
The Fonda Group, Inc. for the year ended July 31, 1994. 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 audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of The
Fonda Group, Inc. for the year ended July 31, 1994 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Valhalla, New York
January 19, 1995
F-3
<PAGE>
THE FONDA GROUP, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 120 $ 1,467 $ 24,134
Accounts receivable, less allowance for doubtful
accounts of $401, $549, and $683, respectively . 20,350 27,173 31,047
Due from affiliate............................... -- 994 --
Inventories...................................... 25,483 37,467 40,598
Deferred income taxes............................ 2,255 5,435 7,445
Refundable income taxes.......................... -- 822 2,143
Other current assets............................. 755 1,160 797
------- -------- --------
Total current assets............................ 48,963 74,518 106,164
Property, plant and equipment, net................ 26,933 46,350 46,310
Note receivable from affiliate.................... -- -- 2,600
Other assets, net................................. 3,829 15,300 17,294
------- -------- --------
TOTAL ASSETS...................................... $79,725 $136,168 $172,368
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 6,038 $ 14,671 $ 14,179
Accrued expenses................................. 10,532 14,893 16,016
Income taxes payable............................. 3,029 -- --
Current maturities of long-term debt............. 1,285 6,023 454
------- -------- --------
Total current liabilities....................... 20,884 35,587 30,649
Long-term debt.................................... 46,880 81,740 122,689
Other liabilities................................. 2,641 2,345 2,145
Deferred income taxes............................. -- 2,444 3,544
------- -------- --------
Total liabilities............................... 70,405 122,116 159,027
Redeemable common stock, $.01 par value, issued
and outstanding 7,000 shares .................... 2,115 2,179 2,229
Stockholders' equity.............................. 7,205 11,873 11,112
------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $79,725 $136,168 $172,368
======= ======== ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------ --------------------
JULY 31, JULY 30, JULY 28, APRIL 28, APRIL 27,
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $61,839 $97,074 $204,903 $138,546 $189,227
Cost of goods sold........... 51,643 76,252 161,304 110,202 149,165
------- ------- -------- -------- --------
Gross profit............... 10,196 20,822 43,599 28,344 40,062
------- ------- -------- -------- --------
Operating expenses:
Selling .................... 5,757 8,576 17,181 11,974 14,862
General and administrative 2,239 4,992 12,554 9,317 13,604
Management fee.............. 442 544 -- -- --
------- ------- -------- -------- --------
Total operating expenses .. 8,438 14,112 29,735 21,291 28,466
------- ------- -------- -------- --------
Income from operations....... 1,758 6,710 13,864 7,053 11,596
Interest expense, net........ 1,268 2,943 7,934 4,538 6,798
------- ------- -------- -------- --------
Income before income taxes
and extraordinary expense .. 490 3,767 5,930 2,515 4,798
Provision for income taxes .. 239 1,585 2,500 1,056 2,015
------- ------- -------- -------- --------
Income before extraordinary
expense .................... 251 2,182 3,430 1,459 2,783
Extraordinary expense, net .. -- -- -- -- 3,495
------- ------- -------- -------- --------
Net income (loss)............ $ 251 $ 2,182 $ 3,430 $ 1,459 $ (712)
======= ======= ======== ======== ========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------ --------------------
JULY 31, JULY 30, JULY 28, APRIL 28, APRIL 27,
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss).................... $ 251 $ 2,182 $ 3,430 $ 1,459 $ (712)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ..... 1,246 1,669 3,450 3,085 3,475
Amortization and write-off of
debt issuance costs............... -- 560 1,021 336 2,634
Elimination of unamortized debt
discount.......................... -- -- -- -- 2,108
Provision (benefit) for doubtful
accounts.......................... 25 184 148 96 99
Deferred income taxes.............. 162 (1,690) 533 (988) (910)
Interest capitalized on debt ...... -- -- 165 -- 408
Changes in assets and liabilities
(net of business acquisitions):
Accounts receivable............... (970) (6,543) 6,826 6,059 (3,973)
Inventories....................... 1,425 (6,648) (299) (2,049) (3,131)
Due from affiliate................ (1,742) 464 (994) (66) 994
Other current assets.............. 107 (309) (26) 263 160
Other assets...................... (414) (1,200) (1,244) (2,303) 305
Accounts payable and accrued
expenses......................... 50 3,840 8,782 11,826 466
Income taxes payable
(refundable)..................... -- 3,029 (3,644) (2,042) (1,320)
Other liabilities................. -- (312) (475) (909) (200)
------- -------- -------- -------- --------
Net cash provided by
(used in) operating activities ... 140 (4,774) 17,673 14,767 403
------- -------- -------- -------- --------
Investing activities:
Capital expenditures................. (1,272) (1,608) (1,314) (978) (3,469)
Payments for business acquisitions .. -- (27,985) (45,218) (37,378) (3,416)
Note receivable from affiliate ...... -- -- -- -- (2,600)
------- -------- -------- -------- --------
Net cash used in investing
activities........................ (1,272) (29,593) (46,532) (38,356) (9,485)
------- -------- -------- -------- --------
Financing activities:
Net increase (decrease) in revolving
credit agreement.................... 13 (7,225) 14,745 11,113 (32,842)
Proceeds from long-term debt......... 2,029 47,520 18,803 14,499 120,000
Repayments of long-term debt......... (1,050) (3,638) (2,499) (1,126) (50,713)
Financing costs...................... -- (2,395) (843) (587) (4,696)
------- -------- -------- -------- --------
Net cash provided by financing
activities........................ 992 34,262 30,206 23,899 31,749
------- -------- -------- -------- --------
Net increase (decrease) in cash ...... (140) (105) 1,347 310 22,667
Cash, beginning of period............. 365 225 120 120 1,467
------- -------- -------- -------- --------
Cash, end of period................... $ 225 $ 120 $ 1,467 $ 430 $ 24,134
======= ======== ======== ======== ========
Cash paid during the period for:
Interest............................. $ 1,076 $ 2,114 $ 6,029 $ 1,069 $ 4,685
Income taxes......................... 247 -- 5,611 -- 1,630
Businesses acquired:
Fair value of assets acquired ....... $ 37,777 $ 59,090 $ 42,821 $ 3,416
Cash paid............................ 27,985 45,218 37,378 3,416
-------- -------- -------- --------
Liabilities assumed (including notes
payable to sellers of $9,250 during
Fiscal 1996)........................ $ 9,792 $ 13,872 $ 5,443 $ 0
======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-6
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND ORGANIZATION
The Fonda Group, Inc. (the "Company") is a leading converter and marketer
of a broad line of disposable paper food service products. Prior to March 30,
1995, the Company was a wholly-owned subsidiary of Four M Corporation ("Four
M"). On March 30, 1995, Four M distributed approximately 96% of the Company's
common stock to Four M's sole stockholder with the remaining 4% distributed
to American International Life Insurance Company of New York ("AIG").
2. SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES -- Inventories are valued at the lower of cost (first-in,
first-out method) or market.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated
at cost or fair market value for business acquisitions. Depreciation is
computed by use of the straight-line method over the estimated useful lives
of the assets.
INCOME TAXES -- Deferred income taxes are provided on the differences
between the basis of assets and liabilities for financial reporting and
income tax purposes using presently enacted tax rates.
DEBT ISSUANCE COSTS -- Included in other assets are debt issuance costs of
$2,395,000 and $843,000 incurred in connection with the business acquisitions
during the years ended July 30, 1995 and July 28, 1996, respectively, which
have been capitalized and are being amortized over the terms of the
respective borrowing agreements.
REVERSE STOCK SPLIT -- On October 16, 1996, the Company effected a 1 for
50 reverse split of its common stock. All references in the accompanying
financial statements to the number of common shares have been retroactively
restated to reflect the reverse stock split.
FISCAL YEAR -- The Company's fiscal year is the fifty-two or fifty-three
week period which ends on the last Sunday in July. The 1994 fiscal year was
the fifty-three week period ended July 31. The 1995 and 1996 fiscal years
were fifty-two week periods ended July 30 and July 28, respectively.
RECLASSIFICATIONS -- Certain reclassifications were made to the prior
years' financial statements to conform to the current year's presentation.
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
INTERIM FINANCIAL STATEMENTS -- The accompanying balance sheet as of April
27, 1997 and the statements of operations and cash flows for the nine months
ended April 28, 1996 and April 27, 1997 are unaudited but, in the opinion of
management, include all adjustments (consisting of normal, recurring
adjustments) necessary for a fair presentation of results for these interim
periods. Results for interim periods are not necessarily indicative of
results for the entire year.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying value of financial
instruments including cash, accounts receivable and account payable
approximate fair value because of the relatively short maturities of these
instruments. The carrying value of long-term debt, including the current
portion and subordinated debt, approximate fair value based upon market rates
for similar instruments.
3. BUSINESS ACQUISITIONS
HOFFMASTER
Effective March 31, 1995, the Company acquired the net assets and business
of the Scott Foodservice Division ("Hoffmaster") from Scott Paper Company
("Scott") for $28 million, including acquisition costs.
F-7
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BUSINESS ACQUISITIONS--(CONTINUED)
Hoffmaster produces colored and custom-printed napkins and placemats. The
excess of the purchase price over the fair value of the net assets as of July
28, 1996 was $800,000, based upon the Company's final evaluation of the fair
value of the net assets acquired and has been recorded as goodwill.
In connection with the Company's acquisition of Hoffmaster, the Company
brought a civil action against Scott alleging, among other things, breach of
warranty, fraud and negligent misrepresentation for Scott's failure to
disclose certain raw material pricing information. In September 1996, a jury
awarded the Company compensatory damages of $3.3 million, punitive damages of
$750,000 and pre-judgment interest of $436,123. Scott has appealed the award.
The appeal is currently pending. There can be no assurance that such award
will be upheld or that the Company will receive all or any portion of such
judgment. No recognition of the jury award has been included in the
accompanying financial statements. In the event that the Company does receive
all or a portion of the jury award, such award will be recognized as current
income. The Company estimates the failure of Scott to properly disclose the
above-mentioned raw material pricing information adversely affected the
post-acquisition results of Hoffmaster in an amount not less than $3.3
million.
MASPETH
Effective November 30, 1995, the Company acquired the net assets and
business of Alfred Bleyer & Co., Inc. ("Maspeth") for $10 million, including
acquisition costs. The purchase price consisted of cash and a promissory note
for $2.25 million to the seller. See Note 8. Maspeth produces paper plates
and cups. The excess of the fair value of the net assets over the purchase
price was $122,000, based upon the Company's evaluation of the fair value of
the net assets acquired and has been allocated to the long-term assets.
CHESAPEAKE
Effective December 29, 1995, the Company acquired the Chesapeake Consumer
Products Company ("Chesapeake") from Chesapeake Corporation for $29 million,
including acquisition costs. Chesapeake produces design-intensive and
solid-colored premium napkins, tablecovers and crepe paper. The excess of the
purchase price over the fair value of the net assets acquired was $4.6
million, based upon the Company's evaluation of the fair value of the net
assets and has been recorded as goodwill.
JAMES RIVER SPECIALTIES OPERATIONS DIVISION
Effective May 5, 1996, the Company acquired certain net assets and
business of two divisions of the Specialties Operations Division (the
"Division") of James River Paper Corporation ("James River") for $15 million
(prior to a final purchase price adjustment, which was consummated on
February 27, 1997, see Note 15), including acquisition costs. The purchase
price consisted of cash and a promissory note for $7 million to the seller.
See Note 8. The James River California facility produces tissue-based
products. The Natural Dam facility produces specialty and deep-toned colored
tissue paper. Natural Dam hosts a co-generation facility on its property
which produces steam for internal use and which is expected to provide
significant cost savings to the Company. The Company will receive all of its
steam energy requirements at 50% of historical cost in 1997 and at no cost
for the next 40 years thereafter, and the Company will receive land lease
payments from the operator of the land occupied by the co-generation
facility. The excess of the fair value of the net assets acquired (including
$10 million in benefits from the co-generation facility) over the purchase
price (prior to a final purchase price adjustment, which was consummated on
February 27, 1997, see Note 15) was $5.5 million, based upon the Company's
evaluation of the fair value of the net assets acquired and has been
allocated to the long-term assets. The remaining net assets and business of
the Division were acquired by Creative Expressions Group, Inc. ("CEG"), a
company under common ownership with the Company, in a separate transaction.
The above acquisitions have been accounted for under the purchase method.
Included in other assets is goodwill of $216,000 and $5,400,000 at July 30,
1995 and July 28, 1996, respectively, from the Hoffmaster
F-8
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. BUSINESS ACQUISITIONS--(CONTINUED)
and Chesapeake acquisitions, which is being amortized over 20 years.
Amortization expense was $3,000 and $223,000 during the years ended July 30,
1995 and July 28, 1996, respectively. The Company periodically evaluates the
recoverability of goodwill for each business acquisition by assessing whether
the unamortized intangible asset can be recovered through cash flows. The
results of operations of the business acquisitions have been included in the
statements of income since the respective dates of the acquisitions.
The following summarized, unaudited pro forma results of operations for
the years ended July 30, 1995 and July 28, 1996, assume the business
acquisitions occurred as of the beginning of the respective years (in
thousands).
<TABLE>
<CAPTION>
YEARS ENDED
-------------------
JULY 30, JULY 28,
1995 1996
-------- --------
<S> <C> <C>
Net sales............................................... $238,645 $262,459
Net income ............................................. $ 1,764 $ 5,339
</TABLE>
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials ............................ $16,124 $17,015 $16,817
Work-in-process .......................... 188 339 415
Finished goods ........................... 8,270 19,126 22,087
Other..................................... 901 987 1,279
------- ------- -------
$25,483 $37,467 $40,598
======= ======= =======
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
LIVES IN JULY 30, JULY 28, APRIL 27,
YEARS 1995 1996 1997
-------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and buildings............. 20-40 $ 13,735 $ 17,675 $ 19,202
Machinery and equipment........ 3-12 24,553 42,492 39,726
Leasehold improvements......... 5-10 732 950 951
Construction in progress ...... 144 767 4,543
-------- -------- --------
39,164 61,884 64,422
Less: accumulated
depreciation.................. (12,231) (15,534) (18,112)
-------- -------- --------
$ 26,933 $ 46,350 $ 46,310
======== ======== ========
</TABLE>
Property, plant and equipment includes property and equipment under
capital lease as follows (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Building ................................ $2,217 $2,217 $2,217
Equipment................................ 350 350 350
Less: accumulated
depreciation............................ (756) (830) (885)
------ ------ ------
$1,811 $1,737 $1,682
====== ====== ======
</TABLE>
Depreciation expense was $1,246,000, $1,666,000 and $3,187,000 during the
years ended July 31, 1994, July 30, 1995 and July 28, 1996, respectively.
F-9
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising the Company's customer base,
and their dispersion across many different geographical regions. During the
year ended July 28, 1996, the Company had sales to one customer representing
approximately 11% of net sales.
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Accrued
compensation........ $ 2,240 $ 4,367 $ 4,954
Accrued promotion ... 1,963 2,310 2,359
Other................ 6,329 8,216 8,703
------- ------- -------
$10,532 $14,893 $16,016
======= ======= =======
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit agreement ................................... $18,097 $32,842 $ --
9 1/2% Series A Senior Subordinated Notes due 2007
(see Note 15) ............................................... -- -- 120,000
Subordinated notes payable.................................... 8,827 13,796 --
Subordinated note payable to James River (see Note 3), plus
capitalized interest of $165,000 and $350,000, due May 2007,
bearing interest at 10% (see Note 15) ....................... -- 7,165 --
Term loan payable to a bank, with interest payable monthly at
LIBOR plus 2.5%, principal payable in monthly installments
of $416,000 beginning on March 31, 1996 through March 31,
2000; collateralized by machinery and equipment and certain
real estate.................................................. 15,100 25,236 --
Term loan payable to a bank, due March 31, 2000, with
interest payable monthly at 2.50% above the prime rate,
collaterized by machinery and equipment and certain real
estate....................................................... 3,500 4,500 --
Promissory note payable bearing interest at 11%, payable in
monthly installments of $6,250 plus interest through
December 31, 1996 with the principal balance of $606,250 due
on January 1, 1997........................................... 706 631 --
Promissory note payable bearing interest at 6%, payable in
monthly installments of $7,314 including interest through
January 1999................................................. 296 217 156
Promissory note payable to Alfred Bleyer & Co., Inc. (see
Note 3) bearing interest at 9.75%, payable in quarterly
installments of $89,295 plus interest through November 2000 . -- 1,982 1,714
Promissory note payable bearing interest at 11%, payable in
monthly installments of $6,899 including interest through
September 1996............................................... 90 -- --
Capital lease obligations..................................... 1,549 1,394 1,273
------- ------- --------
48,165 87,763 123,143
Less amounts due within one year.............................. 1,285 6,023 454
------- ------- --------
$46,880 $81,740 $122,689
======= ======= ========
</TABLE>
F-10
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. LONG-TERM DEBT--(CONTINUED)
In connection with the business acquisitions, the Company obtained a
revolving credit agreement with a bank. The revolving credit agreement is
collateralized by the Company's eligible accounts receivable, inventories and
certain real property. The maximum advance available based upon eligible
accounts receivable and inventory at July 30, 1995 was $23,000,000. The
revolving credit agreement was amended during 1996 to increase the maximum
advance available to $27,000,000 as of November 30, 1995 and to $50,000,000
as of December 29, 1995. The term of the agreement is through March 31, 2000
at which time full payment of the amount outstanding is due. A facility fee
is charged at a rate of .375% per annum on the amount by which the maximum
advance amount exceeds such average daily balance. Interest is charged
monthly at selected variable rates. At July 28, 1996, $4,842,000 and
$28,000,000 of the total revolving credit outstanding was at the prime rate
plus .25% and at LIBOR plus 2.25%, respectively. At July 28, 1996, the prime
rate was 8.25% and LIBOR was 5.875%.
On May 24, 1995, the Company issued subordinated notes in the amount of
$10,000,000 to The Equitable Life Assurance Society of the United States (the
"Equitable"). The notes bear interest at 14% and are due May 24, 2002. In
connection with the issuance of the subordinated notes, the Company granted
warrants, which expire in May 2003, to the Equitable to purchase 9,176 shares
of Class B common stock of the Company for $.01 per share. The fair value of
the warrants ($1,200,000) at the date of issuance was recorded as paid-in
capital with a corresponding reduction to the subordinated notes' balance.
The discount on the subordinated notes is being amortized as additional
interest expense over the term of the notes. Such amount was $127,000 and
$163,000 during the years ended July 30, 1995 and July 28, 1996,
respectively. On December 29, 1995, the Company issued additional
subordinated notes in the amount of $6,000,000 to the Equitable. The
subordinated notes bear interest at 14% and are due December 30, 2002. In
connection with the issuance of the subordinated notes, the Company issued
3,666 shares of Class B common stock to the Equitable. The fair value of the
common stock ($1,300,000) at the date of issuance was recorded as common
stock and paid-in capital with a corresponding reduction in the subordinated
notes' balance. The discount on the subordinated notes is being amortized as
additional interest expense over the term of the subordinated notes. Such
amortization was $106,000 during the year ended July 28, 1996.
The revolving credit agreement and subordinated notes contain certain
restrictive covenants with respect to, among others, (i) mergers and
acquisitions, (ii) capital expenditures, (iii) dividends, and (iv) additional
indebtedness.
Aggregate annual principal payments required under terms of the long-term
debt agreements are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JULY,
-----
<S> <C>
1997.......................................................... $ 6,023
1998.......................................................... 5,213
1999.......................................................... 5,175
2000.......................................................... 47,743
2001.......................................................... 342
Thereafter.................................................... 23,267
--------
$87,763
========
</TABLE>
F-11
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following (in thousands, except share
data):
<TABLE>
<CAPTION>
JULY 30, JULY 28, APRIL 27,
1995 1996 1997
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Preferred Stock, $.01 par value, 1,000 shares
authorized, no shares issued........................... $ -- $ -- $ --
Preferred Stock Class B, $.01 par value,
100,000 shares authorized, no shares issued............ -- -- --
Common Stock Class A, $.01 par value,
400,000 shares authorized, 184,000 shares issued and
outstanding............................................ 2 2 2
Common Stock Class B, $.01 par value, 20,000 shares
authorized, 3,666 shares issued and outstanding ....... -- -- --
Common Stock Class C, $.01 par value, 200,000 shares
authorized, no shares issued........................... -- -- --
Additional paid-in capital.............................. 2,198 3,500 3,500
Retained earnings....................................... 5,005 8,371 7,610
------ ------- -------
$7,205 $11,873 $11,112
====== ======= =======
</TABLE>
On May 8, 1995, the Company adopted an Amended and Restated Certificate of
Incorporation authorizing the issuance of up to 1,000; 100,000; and 620,000
shares of Preferred Stock, Preferred Stock Class B, and Common Stock Classes
A, B, and C, respectively. Existing common stock outstanding at that date was
reissued proportionately to the existing stockholders. During 1995 the
Company redeemed the outstanding Preferred Stock for $39,000. Such repurchase
was charged to additional paid-in capital.
In connection with the March 30, 1995 distribution of the Company's common
stock by Four M, 7,000 shares of the Company's Class A Common Stock were
distributed to AIG (the "AIG Shares") in partial satisfaction of a
subordinated note dated January 8, 1990 made by Four M in favor of AIG in the
original principal amount of $4 million. Concurrent with the distribution,
the Company and AIG entered into the redemption agreement, whereby AIG can
require the Company to repurchase all of the AIG Shares at the earlier of
March 31, 2007 or the date of a merger or consolidation of the Company with
another entity in which the Company is not the surviving corporation. The
repurchase price is $3,000,000 at March 31, 2007 discounted back to the
repurchase date at a rate of 3% per annum. The agreement also contains
redemption rights whereby the Company can require AIG to redeem the AIG
Shares after March 31, 2000 on the same terms specified above.
The AIG shares have been shown at the present value of their $3,000,000
liquidation value on the accompanying balance sheets. The transfer of the
present value of the liquidation value of the redeemable common stock and the
accretion to liquidation value has been charged to retained earnings.
The changes in retained earnings consists of the following (in thousands):
<TABLE>
<CAPTION>
NINE
YEARS ENDED MONTHS
------------------------------ ENDED
JULY 31, JULY 30, JULY 28, APRIL 27,
1994 1995 1996 1997
---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period................ $4,687 $ 4,938 $5,005 $8,371
Net income (loss) ......................... 251 2,182 3,430 (712)
Transfer of liquidation value of
redeemable common stock................... -- (2,094) -- --
Accretion of redeemable common stock ...... -- (21) (64) (49)
------ ------- ------ ------
Balance, end of period...................... $4,938 $ 5,005 $8,371 $7,610
====== ======= ====== ======
</TABLE>
F-12
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. STOCKHOLDERS' EQUITY--(CONTINUED)
In connection with the CEG business acquisition (see Note 3), CEG issued
$8 million of preferred stock, subject to adjustment of the purchase price in
accordance with the purchase agreement, to James River. James River, at its
option, may exchange the preferred stock of CEG into common stock of the
Company if, prior to the redemption of the preferred stock, the Company
consummates an initial public offering (see Note 15).
Effective August 1, 1995, the Company adopted The Fonda Group, Inc. Stock
Appreciation Unit Plan (the "Plan"). The Plan provides for the granting of up
to 200,000 units to key executives of the Company. A grantee is entitled to
the appreciation in a unit's value from the date of the grant to the date of
its redemption. Unit value is based upon a formula consisting of net income
and book value criteria. Grants vest over a five year period. Effective for
the years ended July 30, 1995 and July 28, 1996, the Company granted 5,850
and 9,500 stock appreciation rights, respectively, at a value of $176,000 and
$341,000, respectively, on the dates of grant. During the year ended July 28,
1996, the Company recorded compensation expense of $100,000.
10. INCOME TAXES
The provision (benefit) for income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------
JULY 31, JULY 30, JULY 28,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal . $ 48 $ 2,577 $1,526
State ... 29 698 441
---- ------- ------
77 3,275 1,967
---- ------- ------
Deferred:
Federal . 128 (1,381) 423
State ... 34 (309) 110
---- ------- ------
162 (1,690) 533
---- ------- ------
$239 $ 1,585 $2,500
==== ======= ======
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting and income tax purposes. Deferred tax assets (liabilities) result
from temporary differences as follows (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28,
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Capitalized inventory costs ........................... $ 523 $ 881
Allowance for doubtful accounts receivable ............ 164 180
Accruals for health insurance and other employee
benefits .............................................. 583 1,824
Inventory and sales related reserves .................. 748 662
Pension reserve ....................................... 678 1,158
Other ................................................. 819 1,495
------- -------
3,515 6,200
Deferred tax liabilities:
Depreciation .......................................... (1,010) (3,209)
------- -------
$ 2,505 $ 2,991
======= =======
</TABLE>
F-13
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
10. INCOME TAXES--(CONTINUED)
A reconciliation of the income tax provision to the amount computed using
the Federal statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
JULY 31, JULY 30, JULY 28,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Income tax at statutory rate ................ $167 $1,281 $2,076
State income taxes (net of Federal benefit) 58 232 365
Other ....................................... 14 72 59
---- ------ ------
$239 $1,585 $2,500
==== ====== ======
</TABLE>
11. LEASES
The Company leases facilities and equipment under operating leases. Future
minimum payments under noncancellable operating leases with remaining terms
of one year or more are (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JULY,
-----
<S> <C>
1997........................................................... $ 2,099
1998........................................................... 1,209
1999........................................................... 925
2000........................................................... 861
2001........................................................... 825
Thereafter..................................................... 4,513
-------
$10,432
=======
</TABLE>
Rent expense was $1,114,000, $1,150,000 and $1,775,000 during the years
ended July 31, 1994, July 30, 1995 and July 28, 1996, respectively.
12. RELATED PARTY TRANSACTIONS
The Company subleased a portion of a building in Jacksonville, Florida
from Four M prior to January 1, 1995. Effective January 1, 1995, the Company
leases the entire building from its majority stockholder. Annual payments
under the lease are approximately $167,000 plus annual increases based on
changes in the consumer price index, through December 31, 2014. A portion of
the premises is subleased to Four M. Net rent expense was $167,000, $108,000
and $115,000 during the years ended July 31, 1994, July 30, 1995 and July 28,
1996, respectively.
Included in net sales for the year ended July 28, 1996 is $1,944,000 of
sales to CEG.
During the period that the Company was owned by Four M, the Company was
charged a management fee by Four M for certain general and administrative
services. Management fees were $442,000 and $544,000 during the years ended
July 31, 1994 and July 30, 1995, respectively. These fees were based on the
following: (i) the time allocated by certain Four M corporate personnel to
Company matters and (ii) a pro rata amount for various expenses such as
insurance, directors' fees, and other miscellaneous expenses. At any point in
time there were seven to ten Four M individuals who performed various
functions on behalf of the Company, each allocating between 25% and 75% of
their time to the Company. The Company believes that the allocation methods
used for Four M's charges are reasonable and include all expenses that Four M
incurred on the Company's behalf.
F-14
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
13. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN -- The Company provides two 401(k) savings and
investment plans for the benefit of certain employees. Employee contributions
are matched at the discretion of the Company. Contributions to these plans
were $0, $41,000 and $380,000 during the years ended July 31, 1994, July 30,
1995 and July 28, 1996, respectively.
PENSION PLANS -- The Company makes contributions, at a defined rate per
hour worked, to pension plans for its union employees. Contributions to these
plans were $326,000, $862,000 and $1,309,000 during the years ended July 31,
1994, July 30, 1995 and July 28, 1996, respectively.
The Company provides its eligible employees with retirement and disability
income benefits under insured defined benefit pension plans. Plans are
maintained for union and non-union employees. Pension costs are based upon
the actuarially determined normal costs plus interest on and amortization of
the unfunded liabilities. The Company's policy is to fund annually the
minimum contributions required by applicable regulations.
The net pension cost is computed as follows for the years ended July 30,
1995 and July 28, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Service cost.......... $ 188 $ 81 $ 464 $ 267
Interest cost......... 119 85 264 191
Return on plan
assets............... (54) (69) (129) (184)
----- ---- ----- -----
Net pension cost...... $ 253 $ 97 $ 599 $ 274
===== ==== ===== =====
</TABLE>
The funded status of the plans at July 30, 1995 and July 28, 1996 is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1996
------------------------------ ------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS EXCEED ACCUMULATED BENEFITS EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Accumulated benefit
obligation:
Vested...................... $ 935 $2,102 $1,307 $2,964
Non-vested.................. 24 6 35 33
------ ------ ------ ------
Total........................ $ 959 $2,108 $1,342 $2,997
====== ====== ====== ======
Projected benefit
obligation.................. $3,047 $2,108 $4,011 $2,997
Plan assets at fair value,
primarily common stocks and
government obligations...... 1,178 1,468 1,523 1,916
------ ------ ------ ------
Projected benefit obligation
in excess of plan assets ... $1,869 $ 640 $2,488 $1,081
====== ====== ====== ======
</TABLE>
The actuarial present values of benefits shown above as accumulated
benefit obligation and projected benefit obligation were determined using a
discount rate of 8% for pre-retirement and post-retirement benefits and an
assumed rate of increase in compensation levels of 6%. The expected rate of
return is assumed to be 8%.
F-15
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
14. COMMITMENTS
In connection with the Hoffmaster business acquisition (see Note 3), the
Company assumed an annual commitment to purchase 15,500, 10,500, and 10,500
tons of tissue paper in 1997, 1998 and 1999, respectively. This commitment is
in excess of the Company's projected requirements. The price per ton will be
based on market rates, less applicable rebates. As such, the Company has
recorded a reserve of $3,890,000 as part of purchase accounting. $313,000 and
$2,077,000 of this reserve was utilized during the years ended July 30, 1995
and July 28, 1996, respectively.
The Company also has commitments to purchase paperboard inventory from
three major vendors. The total annual commitment is for the purchase of
49,200 tons of inventory through April 2001. The price per ton will be based
on market rates, less applicable rebates.
15. SUBSEQUENT EVENTS
On January 31, 1997, the Company entered into an agreement with James
River which provides for the early retirement of debt owed to James River in
connection with the James River Specialties Operations Division Acquisition
(see Notes 3 and 8). This agreement provides for the Company to retire the
outstanding subordinated note held by James River for $2.2 million. The
Company and James River also finalized the purchase price adjustment
requiring a final payment of $3.4 million by the Company. The gain on the
retirement of the James River note ($5.3 million, including accrued interest)
and the purchase price adjustment will be allocated to long-term assets. The
retirement of the James River note and the purchase price adjustment were
consummated on February 27, 1997. In addition, on February 27, 1997, the
Company loaned to its affiliate, CEG, $2.6 million for five years at an
interest rate of 10% to enable it to extinguish its outstanding debt and
preferred stock with James River.
On February 27, 1997, the Company issued $120 million aggregate principal
amount of 9 1/2% Senior Subordinated Notes due 2007 (the "Notes"). Interest
is payable semi-annually in arrears on March 1 and September 1 of each year
beginning September 1, 1997. Proceeds from the issuance of the Notes were
primarily used to retire existing indebtedness of the Company. The Company
incurred extraordinary expenses in connection with the repayment of debt
consisting of the write-off of unamortized debt issuance costs related to the
debt being repaid, elimination of the unamortized discount on debt being
repaid, and prepayment penalties on early retirement of debt totalling
approximately $6.0 million. The after-tax effect of this extraordinary item
was $3.5 million (net income taxes of $2.5 million).
On June 2, 1997, the Company completed the acquisition of all of the
outstanding capital stock of Heartland Mfg. Corp., a privately owned
manufacturer of paper plates, for a purchase price of $12.7 million.
On June 16, 1997, the Company completed the acquisition of certain assets
of Tenneco, Inc. relating to the manufacture of placements and other
disposable tabletop products for a purchase price of $7.0 million, subject to
working capital adjustment.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying statements of operations and cash flows
of Scott Foodservice Division of Scott Paper Company ("Hoffmaster") (see Note
1) for the years ended December 31, 1994 and 1993 and for the three months
ended March 30, 1995. 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 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, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Hoffmaster for the
years ended December 31, 1994 and 1993 and for the three months ended March
30, 1995 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
June 4, 1997
F-17
<PAGE>
HOFFMASTER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 30, 1995 DECEMBER 31,
------------------ ---------------------------
1994 1993
------------- -------------
<S> <C> <C> <C>
Net sales......................................... $13,363,000 $62,896,000 $63,386,000
Cost of goods sold ............................... 10,270,000 44,175,000 46,793,000
----------- ----------- -----------
Gross profit.................................... 3,093,000 18,721,000 16,593,000
----------- ----------- -----------
Operating expenses:
Selling.......................................... 2,284,000 10,633,000 10,674,000
General and administrative....................... 1,058,000 5,205,000 5,606,000
----------- ----------- -----------
Total operating expenses........................ 3,342,000 15,838,000 16,280,000
----------- ----------- -----------
(Loss) income from operations..................... $ (249,000) $ 2,883,000 $ 313,000
=========== =========== ===========
Pro Forma Disclosure of Net (Loss) Income:
Loss (income) before income tax (benefit)
expense.......................................... $ (249,000) $ 2,883,000 $ 313,000
Pro forma income tax (benefit) expense............ (100,000) 1,153,000 125,000
----------- ----------- -----------
Net (loss) income ................................ $ (149,000) $ 1,730,000 $ 188,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-18
<PAGE>
HOFFMASTER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 30, 1995 DECEMBER 31,
------------------ ---------------------------
1994 1993
------------- -------------
<S> <C> <C> <C>
Operating activities:
(Loss) income from operations................ $ (249,000) $ 2,883,000 $ 313,000
Adjustments to reconcile (loss) income from
operations to net cash provided by (used
in) operating activities:
Loss on disposal of assets................. -- 11,000 700,000
Depreciation .............................. 271,000 1,085,000 1,218,000
Changes in assets and liabilities:
Accounts receivable....................... (2,973,000) (104,000) 1,778,000
Inventories............................... (592,000) 1,623,000 (74,000)
Other current assets...................... (1,000) (2,000) 124,000
Accounts payable and accrued expenses .... 871,000 202,000 810,000
Other liabilities......................... (693,000) 195,000 (302,000)
----------- ----------- -----------
Net cash provided by (used in) operating
activities............................... (3,366,000) 5,893,000 4,567,000
----------- ----------- -----------
Investing activities:
Capital expenditures......................... -- (45,000) (270,000)
----------- ----------- -----------
Financing activities:
Net advances (payments) from Parent ......... 3,366,000 (6,166,000) (4,009,000)
----------- ----------- -----------
Net increase (decrease) in cash............... 0 (268,000) 268,000
Cash, beginning of period..................... 0 268,000 0
----------- ----------- -----------
Cash, end of period........................... $ 0 $ 0 $ 268,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-19
<PAGE>
HOFFMASTER
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND ORGANIZATION
Hoffmaster (the "Company") is a manufacturer of a wide range of specialty
tabletop products for the food service market. The Company was a division of
Scott Paper Company (the "Parent") until March 30, 1995 (see Note 6).
The accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of
the conditions that would have existed if the Company had been operated as an
unaffiliated entity.
2. SIGNIFICANT ACCOUNTING POLICIES
DEPRECIATION -- Depreciation is computed by use of the straight-line
method over the estimated useful lives of the assets.
PRO FORMA INCOME TAXES -- As a division of the Parent, the Company was not
allocated a portion of the Parent's provision for income taxes. Pro forma
income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" using currently
enacted statutory rates to estimate the tax effects.
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. LEASES
The Company leases equipment under operating leases. Future minimum
payments under noncancellable operating leases with remaining terms of one
year or more are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER,
- -----------
<S> <C>
1995.............................................................. $385,000
1996.............................................................. 277,000
1997.............................................................. 175,000
--------
$837,000
========
</TABLE>
Rent expense was $83,000, $251,000 and $347,000 for the three months ended
March 30, 1995 and for the years ended December 31, 1994 and 1993,
respectively.
F-20
<PAGE>
3. RELATED PARTY TRANSACTIONS
The Parent charges the Company fees for certain corporate services. These
charges are recorded within operating expenses as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER 31,
MARCH 30, 1995 1994 1993
-------------- ---- ----
<S> <C> <C> <C>
Net sales................... $ (1,000) $ (9,000) $ (563,000)
Cost of sales............... -- 64,000 278,000
Selling:
Field Sales payroll........ 757,000 3,254,000 3,837,000
Marketing.................. -- 5,000 187,000
Other...................... 236,000 1,615,000 1,027,000
General and administrative:
Distribution............... 2,000 1,000 5,000
Administration............. 280,000 1,643,000 2,034,000
---------- ---------- ----------
$1,274,000 $6,573,000 $6,805,000
========== =========== ==========
</TABLE>
All charges, with the exception of administration charges, are direct
charges allocated by the Parent based upon a specific identification method.
Administration charges primarily represent information system charges
allocated by the Parent based upon usage time and employee benefits that are
allocated based on salary and headcount. The Company believes that the
allocation methods for Parent charges are reasonable and include all the
expenses that the Parent incurred on the Company's behalf.
In addition, the Company purchased raw materials, at cost, from an
affiliate of $97,000, $458,000 and $969,000 in for the three months ended
March 30, 1995 and for the years ended December 31, 1994 and 1993,
respectively.
4. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN -- The Company provides a 401(k) savings and
investment plan for the benefit of certain employees. Employee contributions
are matched at the discretion of the Company. Contributions to these plans
were $34,000, $210,000 and $169,000 for the three months ended March 30, 1995
and for the years ended December 31, 1994 and 1993, respectively.
PENSION PLANS -- The Company makes contributions, at a defined rate per
hour worked, to pension plans for its union employees. Contributions to these
plans were $322,000, $1,504,000 and $1,367,000 for the three months ended
March 30, 1995 and for the years ended December 31, 1994 and 1993,
respectively.
5. COMMITMENTS
The Company has a commitment to purchase specified quantities of raw
materials in excess of the Company's projected requirements through 1999.
Such commitment was assumed as part of the acquisition of the Company (see
Note 6).
6. SUBSEQUENT EVENTS
On March 31, 1995, the Company was acquired by The Fonda Group, Inc.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Fonda Group, Inc.
We have audited the accompanying statements of operations and cash flows
of Chesapeake Consumer Products Company (see Note 1) for the year ended
December 29, 1995. 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 audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Chesapeake Consumer
Products Company for the year ended December 29, 1995 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 17, 1997
F-22
<PAGE>
CHESAPEAKE CONSUMER PRODUCTS COMPANY
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29,
1995
------------
<S> <C>
Net sales ...................... $48,418,000
Cost of goods sold ............. 38,553,000
-----------
Gross profit .................. 9,865,000
-----------
Operating expenses:
Selling ....................... 7,057,000
General and administrative ... 2,089,000
Management fee ................ 373,000
-----------
Total operating expenses ..... 9,519,000
-----------
Income from operations ......... 346,000
INTEREST--PARENT:
Income ........................ (151,000)
Expense ....................... 1,998,000
-----------
Loss before income tax benefit (1,501,000)
Income tax benefit ............. 515,000
-----------
Net loss ....................... $ (986,000)
===========
</TABLE>
See notes to financial statements.
F-23
<PAGE>
CHESAPEAKE CONSUMER PRODUCTS COMPANY
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29,
1995
------------
<S> <C>
Operating activities:
Net loss ...................................................................... $ (986,000)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation .............................................................. 1,362,000
Gain on disposal of assets ................................................ (4,000)
Provision for doubtful accounts ........................................... 38,000
Deferred income taxes ..................................................... 187,000
Changes in assets and liabilities:
Accounts receivable ..................................................... 599,000
Inventories ............................................................. (669,000)
Due from Parent ......................................................... (632,000)
Other current assets .................................................... 135,000
Accounts payable ........................................................ 309,000
Accrued payroll and related taxes ....................................... (172,000)
Other accrued expenses .................................................. (193,000)
Other liabilities ....................................................... 52,000
-----------
Net cash provided by operating activities .............................. 26,000
-----------
Investing activities:
Capital expenditures .......................................................... (2,053,000)
Proceeds from disposal of assets .............................................. 21,000
-----------
Net cash used in investing activities ................................. (2,032,000)
-----------
Financing activities--
Net advances from Parent ...................................................... 2,000,000
-----------
Net decrease in cash ........................................................... (6,000)
Cash, beginning of year ........................................................ 69,000
-----------
Cash, end of year .............................................................. $ 63,000
===========
</TABLE>
See notes to financial statements.
F-24
<PAGE>
CHESAPEAKE CONSUMER PRODUCTS COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION AND ORGANIZATION
Chesapeake Consumer Products Company (the "Company") is a manufacturer,
distributor and decorative marketer of specialty disposable table top
products, primarily for the North American institutional and retail markets.
The Company was a wholly-owned subsidiary of Chesapeake Corporation (the
"Parent") until December 30, 1995 (see Note 8).
The accompanying financial statements have been prepared from the separate
records maintained by the Company and are not necessarily indicative of the
conditions that would have existed if the Company had been operated as an
unaffiliated entity.
2. SIGNIFICANT ACCOUNTING POLICIES
DEPRECIATION -- Depreciation is computed by use of the straight-line
method over the estimated useful lives of the assets.
INCOME TAXES -- Deferred income taxes are provided on the differences
between the basis of assets and liabilities for financial reporting and
income tax purposes using presently enacted tax rates. The operating results
of the Company are included in the consolidated federal income tax return of
the Parent. In accordance with a tax sharing arrangement between the Company
and the Parent, the Company's allocated current federal income tax benefit is
determined on a stand alone basis. The Company files separate state income
tax returns.
MANAGEMENT ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR - The 1995 fiscal year is a fifty-two week period ended
December 29. The 1995 fiscal year ended on December 29 due to the acquisition
of the Company (see Note 8).
3. CONCENTRATION OF CREDIT RISK
Sales to one customer amounted to 11.3% of net sales.
4. INCOME TAXES
The Company's operations are included in the consolidated federal tax
filings of the Parent. Therefore, the Company's provision for income taxes is
based on an allocation from the Parent. The provision (benefit) for income
taxes is as follows:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal ..................................................... $(697,000)
State ....................................................... (5,000)
---------
(702,000)
Deferred--Federal ............................................. 187,000
---------
$(515,000)
=========
</TABLE>
F-25
<PAGE>
5. LEASES
The Company leases certain facilities and equipment under operating
leases. Future minimum payments under noncancellable operating leases with
remaining terms of one year or more are:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER,
- -----------
<S> <C>
1996 .......................................................... $215,000
1997 .......................................................... 143,000
1998 .......................................................... 4,000
--------
$362,000
========
</TABLE>
Rent expense was $280,000.
6. RELATED PARTY TRANSACTIONS
The Parent charges the Company fees for certain corporate services. These
charges are recorded within operating expenses as follows:
<TABLE>
<CAPTION>
<S> <C>
Management fee................................................. $ 373,000
Employee benefits ............................................. 183,000
Employer share of health, dental and other employee insurances 175,000
General and other insurances .................................. 112,000
Workers compensation insurance ................................ 112,000
Legal, audit and bank fees .................................... 76,000
Contributions ................................................. 30,000
Other ......................................................... 23,000
----------
$1,084,000
==========
</TABLE>
Management fees were charged by the Parent to the Company based on a
percentage of sales of the Company. Employee benefits and related insurance
costs were charged by the Parent based upon premiums and claims experience
and general insurance (primarily business interruption) was allocated based
on a percentage of sales. The Company believes that the allocation methods
used for Parent charges are reasonable and include all the expenses that the
Parent incurred on the Company's behalf.
In addition, the Company purchased inventory, at cost plus 23%, from an
affiliate in the amount of $945,000 in 1995. Inventory purchased consisted
primarily of goods produced by the affiliate for sale by the Company. The
Company also sold inventory to this affiliate, at cost, in the amount of
$118,000 in 1995. This inventory consisted primarily of raw materials used by
the affiliate to produce a portion of those goods that are purchased by the
Company.
The Parent provides all of the Company's cash requirements, and cash
receipts are transferred to the Parent. The Parent paid the Company $151,000
in interest in 1995 on the intercompany balance due from Parent.
7. EMPLOYEE BENEFIT PLANS
RETIREMENT SAVINGS PLAN -- The Parent provides a 401(k) savings and
investment plan for the benefit of certain employees of the Company. Employee
contributions are matched at the discretion of the Parent. Contributions to
these plans were $53,000 in 1995.
PENSION PLANS -- The Parent provides a defined benefit plan for the union
employees of the Company. Benefits are calculated as stipulated in the union
contract and vest after five years of service. Contributions to the plan are
made by the Parent. Hourly pension expense was $102,000 in 1995.
F-26
<PAGE>
In addition, the Parent provides a defined benefit plan for the salaried
employees of the Company. Benefits are determined based on an employee's
average earnings and years of service as stipulated in the Plan.
Contributions to the plan are made by the Parent. Salaried pension expense
was $0 in 1995.
OTHER PLANS -- The Parent provides a stock purchase plan for its employees
and matches employee contributions to the plan at a percentage rate specified
in the plan. Contributions to the stock purchase plan were $6,000 in 1995.
The Parent sponsors a plan which includes Company employees and provides
post-retirement benefits to certain former employees of the Company. The
amount of the accrued post-retirement benefit, as allocated to the Company by
the Parent, was $144,000 in 1995.
For all of the above plans and benefits, contributions were made by the
Parent and allocated to the Company and are included in the amounts disclosed
in Note 6.
The Company provides incentive and gain sharing programs for its
employees. Contributions to these plans was $212,000 in 1995.
8. SUBSEQUENT EVENT
Effective December 29, 1995, all of the common stock of the Company was
purchased by The Fonda Group, Inc.
F-27
<PAGE>
===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR THAT ANY INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information ................... 2
Prospectus Summary ...................... 3
Risk Factors ............................ 14
Use of Proceeds ......................... 19
The Exchange Offer ...................... 20
The Company ............................. 28
Capitalization .......................... 30
Selected Historical Financial Data ..... 31
Unaudited Pro Forma Condensed Financial
Data ................................... 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations .......................... 38
Business ................................ 43
Management .............................. 53
Principal Stockholders .................. 56
Certain Relationships and Related
Transactions ........................... 57
Description of New Notes ................ 57
Description of Certain Indebtedness .... 80
Description of Capital Stock ............ 81
Plan of Distribution .................... 82
Legal Matters ........................... 83
Experts ................................. 83
Change in Certifying Accountants ....... 84
Index to Financial Statements ........... F-1
</TABLE>
===============================================================================
===============================================================================
THE FONDA GROUP, INC.
OFFER TO EXCHANGE ITS
9 1/2% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT
FOR ANY AND ALL OF ITS
OUTSTANDING
9 1/2% SERIES A SENIOR
SUBORDINATED NOTES DUE 2007
------------
PROSPECTUS
------------
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides that the Company
shall, to the fullest extent permitted by the laws of the State of Delaware,
indemnify any and all persons whom it shall have power to indemnify under
such laws to the extent that such indemnification is permitted under such
laws, as such laws may from time to time be in effect. Section 145 of the
Delaware General Corporation Law ("DGCL") permits the Company to indemnify
and hold harmless any director, officer, employee or agent of the Company and
any person serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise (including an employee benefit plan) against expenses
(including attorneys' fees), judgments, fines (including excise taxes
assessed on a person with respect to an employee benefit plan), and amounts
paid in settlement that may be imposed upon or incurred by him or her in
connection with, or as a result of, any proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the Company), in which he or she may become involved, as a party or
otherwise, by reason of the fact that he or she is or was such a director,
officer, employee or agent of the Company or is or was serving at the request
of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including
an employee benefit plan). The indemnification provided by the Certificate of
Incorporation shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any by-law, any agreement, by vote of
directors or stockholders or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty or loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived any improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, subject to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of The Fonda Group, Inc. (the
"Company").*
3.2 Amended and Restated By-laws of the Company.
II-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
4.1 Indenture, dated as of February 27, 1997, between the Company and
The Bank of New York (the "Trustee").*
4.2 Form of 9 1/2% Series A and Series B Senior Subordinated Notes,
dated as of February 27, 1997 (incorporated by reference to Exhibit
4.1).*
4.3 Registration Rights Agreement, dated as of February 27, 1997, among
the Company, Bear, Stearns & Co. Inc. and Dillon, Read & Co. Inc.
(the "Initial Purchasers").*
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.
10.1 Second Amended and Restated Revolving Credit and Security
Agreement, dated as of February 27, 1997, among the Company, the
financial institutions party thereto and IBJ Schroder Bank & Trust
Company, as agent.*
10.2 Stock Purchase Agreement, dated as of October 13, 1995, between the
Company and Chesapeake Corporation.
10.3 Asset Purchase Agreement, dated as of October 13, 1995, between the
Company and Alfred Bleyer & Co., Inc.
10.4 Asset Purchase Agreement, dated as of March 22, 1996, among James
River Paper Company, Inc., the Company and Newco (the "James River
Agreement").
10.5 First Amendment to the James River Agreement, dated as of May 6,
1996, among James River, the Company and Newco.
10.6 Indenture of Lease between Dennis Mehiel and the Company dated as
of January 1, 1995.
12.1 Statement re computation of ratio of earnings to fixed charges.*
16.1 Letter of BDO Seidman, LLP regarding a change in certifying
accountants.*
23.1 Consent of Deloitte & Touche LLP and Report on Schedule.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of BDO Seidman, LLP.
23.5 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in
the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (incorporated by reference in the signature
pages).*
25.1 Form T-1 Statement of Eligibility and Qualification of The Bank of
New York, as trustee.*
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------------
* Previously filed.
(b) The Financial Statement Schedule filed as part of this Registration
Statement is as follows:
II-2
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Information required by other schedules is not applicable or the required
information is included in the Financial Statements or Notes thereto.
ITEM 22. UNDERTAKING.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of the Exchange Offer
Registration Statement through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means to a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Exchange Offer Registration Statement when it became
effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this registration statement or amendment to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of New York,
New York, on June 19, 1997.
THE FONDA GROUP, INC.
By: /s/ DENNIS MEHIEL
-------------------------------
Dennis Mehiel
Chairman of the Board and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or amendment has been signed by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ DENNIS MEHIEL Chairman of the Board and Chief Executive June 19, 1997
- --------------------------- Officer (Principal Executive Officer)
Dennis Mehiel
/s/ THOMAS ULEAU President, Chief Operating Officer and June 19, 1997
- --------------------------- Director
Thomas Uleau
/s/ HANS H. HEINSEN Senior Vice President, Chief Financial June 19, 1997
- --------------------------- Officer and Treasurer (Principal
Hans H. Heinsen Accounting Officer)
/s/ ALFRED B. DELBELLO Vice Chairman June 19, 1997
- ---------------------------
Alfred B. DelBello
/s/ GAIL BLANKE Director June 19, 1997
- ---------------------------
Gail Blanke
/s/ JOHN A. CATSIMITIDIS Director June 19, 1997
- ---------------------------
John A. Catsimitidis
/s/ CHRIS MEHIEL Director June 19, 1997
- ---------------------------
Chris Mehiel
/s/ JEROME T. MULDOWNEY Director June 19, 1997
- ---------------------------
Jerome T. Muldowney
/s/ G. WILLIAM SEAWRIGHT Director June 19, 1997
- ---------------------------
G. William Seawright
/s/ LOWELL P. WEICKER, JR. Director June 19, 1997
- ---------------------------
Lowell P. Weicker, Jr.
</TABLE>
II-4
<PAGE>
INDEPENDENT AUDITORS' REPORT RELATING TO SCHEDULE
Board of Directors
The Fonda Group, Inc.
The audit referred to in our report to The Fonda Group, Inc. dated January
19, 1995 which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the Schedule listed under Item
21(b) for the year ended July 31, 1994. This Financial Statement Schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this Financial Statement Schedule based on our audit.
In our opinion, such Schedule presents fairly, in all material respects,
the information set forth therein for the year ended July 31, 1994.
BDO Seidman, LLP
Valhalla, New York
January 19, 1995
S-1
<PAGE>
SCHEDULE II
THE FONDA GROUP, INC.
SCHEDULE II -VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------ -------------- ---------------------------- ------------------- -----------------
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COST AND OTHER ACCOUNTS- BALANCE AT END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE DEDUCTIONS-DESCRIBE PERIOD
- ------------------------ -------------- ------------ --------------- ------------------- -----------------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1994
Allowance for doubtful
accounts................ $217 $ 25 $ -- $ 68(1) $174
Year ended July 30, 1995
Allowance for doubtful
accounts................ $174 $184 $ 50(2) $ 7(1) $401
Year ended July 28, 1996
Allowance for doubtful
accounts................ $401 $148 $100(2) $100(1) $549
</TABLE>
- --------------
(1) Amounts written off.
(2) Additions related to acquisitions.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C>
3.1 Certificate of Incorporation of The Fonda Group, Inc. (the
"Company").*
3.2 Amended and Restated By-laws of the Company.
4.1 Indenture, dated as of February 27, 1997, between the Company and
The Bank of New York (the "Trustee").*
4.2 Form of 9 1/2% Series A and Series B Senior Subordinated Notes,
dated as of February 27, 1997 (incorporated by reference to Exhibit
4.1).*
4.3 Registration Rights Agreement, dated as of February 27, 1997, among
the Company, Bear, Stearns & Co. Inc. and Dillon, Read & Co. Inc.
(the "Initial Purchasers").*
5.1 Opinion of Kramer, Levin, Naftalis & Frankel.
10.1 Second Amended and Restated Revolving Credit and Security
Agreement, dated as of February 27, 1997, among the Company, the
financial institutions party thereto and IBJ Schroder Bank & Trust
Company, as agent.*
10.2 Stock Purchase Agreement, dated as of October 13, 1995, between the
Company and Chesapeake Corporation.
10.3 Asset Purchase Agreement, dated as of October 13, 1995, between the
Company and Alfred Bleyer & Co., Inc.
10.4 Asset Purchase Agreement, dated as of March 22, 1996, among James
River Paper Company, Inc., the Company and Newco (the "James River
Agreement").
10.5 First Amendment to the James River Agreement, dated as of May 6,
1996, among James River, the Company and Newco.
10.6 Indenture of Lease between Dennis Mehiel and the Company dated as
of January 1, 1995.
12.1 Statement re computation of ratio of earnings to fixed charges.*
16.1 Letter of BDO Seidman, LLP regarding a change in certifying
accountants.*
23.1 Consent of Deloitte & Touche LLP and Report on Schedule.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Deloitte & Touche LLP.
23.4 Consent of BDO Seidman, LLP.
23.5 Consent of Kramer, Levin, Naftalis & Frankel (to be contained in
the opinion filed as Exhibit 5.1).
24.1 Power of Attorney (incorporated by reference in the signature
pages).*
25.1 Form T-1 Statement of Eligibility and Qualification of The Bank of
New York, as trustee.*
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
- --------------
* Previously filed.
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
THE FONDA GROUP, INC.
(A DELAWARE CORPORATION)
ARTICLE I
SHAREHOLDERS
------------
Section 1. Place of Meetings. Meetings of shareholders shall be held
at such place, either within or without the State of Delaware, as shall be
designated from time to time by the Board of Directors. Whenever the directors
shall fail to fix such place, meetings shall be held at the registered office
of the Corporation in the State of New York.
Section 2. Annual Meetings. Annual meetings of shareholders shall be
held on such date of each year and at such place and time as shall be
designated from time to time by the Board of Directors. At each annual meeting,
the shareholders shall elect a Board of Directors by plurality vote and
transact such other business as may be properly bought before the meeting.
Section 3. Special Meetings. Special meetings of the shareholders may
be called by the Board of Directors or the Chairman of the Board.
Section 4. Notice of Meetings. Written notice of each meeting of the
shareholders stating the place, date and hour of such meeting shall be given by
or at the direction of the Board of Directors to each shareholder entitled to
vote at such meeting at least ten, but not more than sixty, days prior to the
meeting. Notice of any special meeting shall state in general terms the purpose
or purposes for which the meeting is called.
Notice is given to a shareholder when it is personally delivered to
him, left at his residence or usual place of business, or mailed to him by
first class mail at his address as it appears on the records of the
Corporation. If mailed, notice shall be deemed to be given when deposited in
the mail, postage prepaid, directed to the shareholder at his address as it
appears on the records of the Corporation.
Section 5. Waiver of Notice. Whenever notice is required to be given
either by statute, the Certificate of Incorporation or these By-Laws, a written
waiver, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed the equivalent to notice. Attendance at a
meeting, whether by person or proxy, shall
<PAGE>
constitute a waiver of notice of such meeting, except when the meeting is
attended for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called
or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting need to be specified in any written waiver of
notice.
Section 6. Quorum; Adjournments of Meetings. A majority of shares
entitled to vote, present in person or represented by proxy, shall constitute a
quorum at a meeting of shareholders. If there be less than a quorum, the
holders of a majority of the stock so present or represented may adjourn the
meeting to another time or place, from time to time, until a quorum shall be
present, whereupon the meeting may be held, as adjourned, without further
notice, except as required by law, and any business may be transacted thereat
which might have been transacted at the meeting as originally called.
Section 7. Voting. At any meeting of the shareholders, every
registered owner of shares entitled to vote may vote in person or by proxy and,
except as otherwise provided by statute, in the Certificate of Incorporation or
these By-Laws, shall have one vote for each share standing in his name on the
books of the Corporation. All matters, other than the election of directors,
brought before any meeting of the shareholders shall be decided by a vote of a
majority in interest of the shareholders of the Corporation present in person
or by proxy at such meeting and voting thereon, a quorum being present.
Directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors.
Section 8. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or express consent or dissent without a meeting may authorize
another person to act for him by proxy. Every proxy must be signed by the
shareholder or his attorney-in-fact. No proxy shall be valid after expiration
of eleven months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the shareholder executing it,
except as otherwise provided by law.
Section 9. Inspectors of Election. The Board of Directors or, if the
Board shall not have made the appointment, the chairman presiding at any
meeting of shareholders shall have power to appoint one or more persons to act
as inspectors of election at the meeting or any adjournment thereof, but no
candidate for the office of directors shall be appointed as an inspector at any
meeting for the election of directors.
Section 10. Conduct of Meetings. The Chairman of the Board or, in his
absence, the Vice Chairman of the Board shall preside at all meetings of the
shareholders. In the absence of both the Chairman of the Board and the Vice
Chairman of the Board, the President shall preside. In the absence of the
Chairman of the Board, the Vice Chairman of the Board and the President, a
majority of the members of the Board of Directors present in person at such
meeting may appoint any other officer or director to act as chairman of the
meeting.
- 2 -
<PAGE>
The Secretary of the Corporation shall act as secretary of all
meetings of the shareholders. In the absence of the Secretary, the chairman of
the meeting shall appoint any other person to act as secretary of the meeting.
Section 11. Shareholders' Action Without Meetings. Any action required
or permitted to be taken at any meeting of the shareholders may be taken
without a meeting, without prior notice and without a vote, if a written
consent or consents thereto, setting forth the action so taken, are signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to take or authorize such action at a meeting at
which all shares entitled to vote thereon were present and voted, and such
written consent or consents are delivered to the Corporation and filed with the
minutes or proceedings of the shareholders.
Section 12. Fixing the Record Date. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than fifty days prior to any other
action.
If no record date is fixed: (1) the record date for determining the
shareholders entitled to notice or to vote at a meeting of shareholders shall
be at the close of business on the day next preceding the day on which notice
is given, or, if no notice is given, the day on which the meeting is held; and
(2) the record date for determining shareholders for any other purpose shall be
the close of business on the day on which the resolution of the Board relating
thereto is adopted.
Section 13. Shareholder List. The Secretary shall prepare, at least
ten days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each shareholder and the number of shares registered
in the name of each shareholder. Such list shall be open to the examination of
any shareholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city were the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any shareholder who is present. The stock ledger shall be the only
evidence as to who are the shareholders entitled to examine the stock ledger,
the list of shareholders or the books of the Corporation, or to vote in person
or by proxy at any meeting of shareholders.
- 3 -
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
------------------
Section 1. Function of Directors. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors of
the Corporation.
Section 2. Number of Directors. The Board of Directors shall consist
of not less than three (3) nor more than fifteen (15) members, as such number
may be determined from time to time by the Board of Directors.
Section 3. Qualifications. Each director shall be a natural person
being at least eighteen years of age. A director need not be a shareholder or
officer of the Corporation, a citizen of the United States or a resident of the
state in which the Corporation is incorporated.
Section 4. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board for any reason except the removal of directors
without cause may be filled by a vote of a majority of the directors then in
office, although less than a quorum exists, or by the shareholders. Vacancies
created by the removal of directors without cause shall be filled by the
shareholders. A director elected to fill a vacancy caused by resignation, death
or removal shall be elected to hold office for the unexpired term of his
predecessor.
Section 5. Regular Meetings. Following the annual meetings of the
shareholders, a regular annual meeting of the Board of Directors shall be held
as soon as practicable. Any other regular meeting of the Board of Directors may
be held without notice at such times and places as the Board of Directors may
from time to time determine.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by order of the Chairman of the Board, the President or
any two directors. Notice of the time and place of each special meeting shall
be given by or at the direction of the person or persons calling the meeting by
mailing the same at least three days before the meeting or by telephoning,
telegraphing, faxing or delivering personally the same to each director at
least twenty-four hours before the meeting. Except as otherwise specified in
the notice thereof, or as required by statute, the Certificate of Incorporation
or these By-Laws, any and all business may be transacted at any special
meeting.
Section 7. Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
- 4 -
<PAGE>
Section 8. Organization. Every meeting of the Board of Directors shall
be presided over by the Chairman of the Board or, in his absence, the Vice
Chairman of the Board. In the absence of the Chairman of the Board and the Vice
Chairman of the Board, the President shall preside. In the absence of the
Chairman of the Board, the Vice Chairman of the Board and the President, a
presiding officer shall be chosen by a majority of the directors present. The
Secretary of the Corporation shall act as secretary of the meeting, but, in his
absence, the presiding officer may appoint any person to act as secretary of
the meeting.
Section 9. Quorum; Vote. A majority of the directors then in office
(but in no event less than one-third of the total number of directors) shall
constitute a quorum for the transaction of business, but less than a quorum may
adjourn any meeting to another time or place from time to time until a quorum
shall be present, whereupon the meeting may be held, as adjourned, without
further notice. Except as otherwise required by statute, the Certificate of
Incorporation or these By-Laws, all matters coming before any meeting of the
Board of Directors shall be decided by the vote of a majority of the directors
present at the meeting, a quorum being present.
Section 10. Removal of Directors. Any or more of the directors shall
be subject to removal with or without cause at any time by the shareholders.
Section 11. Resignation. A director may resign at any time by giving
written notice to the Board of Directors, the Chairman of the Board, the
President or the Secretary of the Corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the Board
of Directors or such officer, and the acceptance of the resignation shall not
be necessary to make it effective.
Section 12. Committees. The Board of Directors may designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation with the exception of any authority the delegation of which is
prohibited by statute, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
Section 13. Directors' Action Without Meetings. Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board
of Directors or such committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or such committee.
- 5 -
<PAGE>
ARTICLE III
OFFICERS
--------
Section 1. General. The Board of Directors shall elect the officers of
the Corporation, which shall include a Chief Executive Officer, a President, a
Secretary, a Chief Financial Officer and a Treasurer and such other or
additional officers (including, without limitation, a Chairman of the Board,
one or more Vice-Chairmen of the Board, Vice-Presidents, Senior Vice
Presidents, Executive Vice-Presidents, Assistant Secretaries and Assistant
Treasurers) as the Board of Directors may designate. A person may hold more
than one office at the same time. All such officers need not be occupied at all
times.
Section 2. Term of Office; Removal and Vacancy. The officers of the
Corporation shall be elected annually by the Board of Directors after each
annual meeting of the shareholders. Each officer shall hold his office until
his successor is elected and qualified or until his earlier resignation or
removal. Any officer or agent shall be subject to removal with or without cause
at any time by the Board of Directors. Vacancies in any office, whether
occurring by death, resignation, removal or otherwise, may be filled by the
Board of Directors.
Section 3. Power of Duties. Each of the officers of the Corporation
shall, unless otherwise directed by the Board of Directors, have such powers
and duties as generally pertain to his respective office as well as such powers
and duties as from time to time may be conferred upon him by the Board of
Directors. Unless otherwise order by the Board of Directors after the adoption
of these By-Laws, the Chairman of the Board or, when the office of Chairman of
the Board is vacant, the President shall be the Chief Executive Officer of the
Corporation.
Section 4. Power to Vote Stock. Unless otherwise directed by the Board
of Directors, the Chairman of the Board and the President each shall have full
power and authority on behalf of the Corporation to attend and to vote at any
meeting of shareholders of any Corporation in which the Corporation may hold
stock, and may exercise on behalf of the Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting and
shall have power and authority to execute and deliver proxies, waivers and
consents on behalf of the Corporation in connection with the exercise by the
Corporation of the rights and powers incident to the ownership of such stock.
The Board of Directors, from time to time, may confer like powers upon any
other person or persons.
Section 5. Chairman of the Board. The Chairman of the Board, if one be
elected, shall preside at all meetings of the Board of Directors and of the
shareholders at which he shall be present. He shall have general charge and
supervision of the assets and affairs of the Corporation; he may sign and
execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation; and, in general, he shall have and may exercise such
powers as are, from time to time, assigned to him by the Board of Directors.
- 6 -
<PAGE>
Section 6. Vice Chairman of the Board. In the absence of the Chairman
of the Board, the Vice Chairman shall preside at all meetings of the
shareholders and of the Board of Directors at which he shall be present. He
shall also perform such other duties as may from time to time be assigned to
him by the Chairman of the Board or the Board of Directors.
Section 7. Chief Executive Officer. The Chief Executive Officer shall
have general charge and supervision of the assets and affairs of the
Corporation, and he may sign and execute, in the name of the Corporation, all
authorized deeds, mortgages, bonds, contracts or other instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation.
Section 8. President. In the absence of the Chairman of the Board and
the Vice Chairman of the Board, the President shall preside at all meetings of
the shareholders and of the Board of Directors at which he shall be present. If
no Chairman of the Board be elected and acting, he shall have general charge
and supervision of the assets and affairs of the Corporation, and he may sign
and execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation. If a Chairman of the Board be elected and acting, the
President shall perform all duties incident to the office of a president of a
corporation, and such other duties as may from time to time be assigned to him
by the Chairman of the Board of the Board of Directors.
Section 9. Chief Financial Officer. The Chief Financial Officer shall
have general charge and supervision of the financial affairs and reports of the
Corporation, and he may sign and execute, in the name of the Corporation, all
authorized credit agreements, indentures, notes, leases and other instruments
similar or related thereto, except in cases in which the signing and execution
thereof shall have been expressly delegated to some other officer or agent of
the Corporation.
Section 10. Vice-Presidents. The Vice-President or Vice-Presidents, of
whom one or more may be designated as Senior Vice Presidents, Executive Vice
Presidents or otherwise, at the request of the Chief Executive Officer or in
his absence or during his inability to act, shall perform the duties and
exercise the functions of the Chief Executive Officer, and when so acting shall
have the powers of the Chief Executive Officer. If there be more than one
Vice-President, the Board of Directors may determine which one or more of the
Vice-Presidents shall perform any of such duties or exercise any of such
functions, or if such determination is not made by the Board of Directors, the
Chief Executive Officer may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise any of such
functions. The Vice-President or Vice-Presidents shall have such other powers
and perform such other duties, and have such additional descriptive
designations in their titles (if any), as may be assigned by the Board of
Directors or the Chief Executive Officer.
- 7 -
<PAGE>
Section 11. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he shall see that all notices are duly given
in accordance with the provisions of the By-Laws or as required by law; he
shall be custodian of the records of the Corporation; he shall witness all
documents on behalf of the Corporation, the execution of which is duly
authorized, see that the corporate seal is affixed where such document is
required to be under its seal, and, when so affixed, may attest the same; and,
in general, he shall perform all duties incident to the office of a secretary
of a corporation, and such other duties as may from time to time be assigned to
him by the Board of Directors or the Chief Executive Officer.
Section 12. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be elected by the
Board of Directors; he shall render to the Chief Executive Officer and to the
Board of Directors, whenever requested, an account of the financial condition
of the Corporation; in general, he shall perform all the duties incident to the
office of a treasurer of a Corporation, and such other duties as may from time
to time be assigned to him by the Board of Directors or the Chief Executive
Officer.
Section 13. Compensation. The Board of Directors shall have the power
to fix the salaries and other compensation and remuneration, of whatever kind,
of all officers of the Corporation.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Certificate for Stock. Each shareholder is entitled to one
or more certificates which represent and certify the shares of stock he holds
in the Corporation. Each stock certificate shall include on its face the name
of the Corporation, the name of the shareholder and the class of stock and
number of shares represented by the certificate and be in such form, not
consistent with law or with the Certificate of Incorporation, as shall be
approved by the Board of Directors. Each stock certificate shall be signed by
the Chairman of the Board, the President or a Vice-President and countersigned
by the Secretary, an Assistant Secretary, the Treasurer or an Assistant
Treasurer. Each certificate may be sealed with the actual corporate seal or a
facsimile of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or not
an officer who signed it is still an offer when it is issued.
Section 2. Transfers. The Board of Directors shall have the power and
authority to make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock; and
may appoint transfer agents and registrars thereof. The duties of transfer
agent and registrar may be combined.
- 8 -
<PAGE>
Section 3. Stock Ledger. The Corporation shall maintain a stock ledger
which contains the name and address of each shareholder and the number of
shares of stock of each class which the shareholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual inspection. The original or a
duplicate of the stock ledger shall be kept at the principal executive officers
of the Corporation.
Section 4. Lost Stock Certificates. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificates save upon court order.
ARTICLE V
MISCELLANEOUS
-------------
Section 1. Corporate Seal. The seal of the Corporation shall be
circular in form and shall contain the name of the Corporation and the year and
State of incorporation.
Section 2. Fiscal Year. The Board of Directors shall have power to
fix, and from time to time to change, the fiscal year of the Corporation.
Section 3. Statement of Affairs. The Corporation shall furnish to the
shareholders annual financial statements, including at least a balance sheet as
of the end of the each fiscal year and a statement of income and expenses for
the fiscal year.
ARTICLE VI
AMENDMENT
---------
The Board of Directors shall have the power to make, alter or repeal
the ByLaws of the Corporation subject to the power of the shareholders to alter
or repeal the ByLaws made or altered by the Board of Directors.
ARTICLE VII
INDEMNIFICATION
---------------
Section 1. Rights to Indemnification. The Corporation shall indemnify
and hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may
- 9 -
<PAGE>
hereafter be amended, any person who was or is made or is threatened to be made
a party or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "proceeding"), by reason by
the fact that he, or a person for whom he is the legal representative, is or
was a director of the Corporation or is or was serving at the request of the
Corporation as a director of another corporation and may indemnify and hold
harmless, to the extent authorized by the Board of Directors consistent with
applicable law, any person who was or is made or is threatened to be made a
party or is otherwise involved in a proceeding by reason of the fact that he,
or a person for whom he is the legal representative, is or was an officer,
employee or agent of the Corporation or is or was serving at the request of the
Corporation as an officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or non-profit entity, including
service with respect to employee benefit plans, in each case against all
liability and loss suffered and expenses reasonably incurred by such person.
The Corporation shall be required to indemnify a director in connection with a
proceeding initiated by such director only if the proceeding was authorized by
the Board of Directors of the Corporation.
Section 2. Prepayment of Expenses. The Corporation shall pay the
expenses incurred by any person entitled to indemnification in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expense incurred by a person in advance of the final disposition of
the proceeding shall be made only upon receipt of an undertaking by the person
to repay all amounts advanced if it should be ultimately determined that the
person is not entitled to be indemnified under this Article or otherwise.
Section 3. Claims. If a claim for indemnification or payment of
expenses by any person entitled to indemnification under this Article VII is
not paid in full within sixty days after a written claim therefor has been
received by the Corporation, the claimant may file suit to recover the unpaid
amount of such claim and, if successful in whole or in part, shall be entitled
to be paid the expense of prosecuting such claim.
Section 4. Non-Exclusivity of Rights. The rights conferred on any
person by this Article VII shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, the Certificate of
Incorporation, these By-Laws, agreement, vote or shareholders or disinterested
directors or otherwise.
Section 5. Other Indemnification. The Corporation's obligations, if
any, to indemnify any person who was or is serving as its request as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, enterprise or non-profit entity shall be reduced by any amount
such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or non-profit enterprise.
Section 6. Amendment of Repeal. Any repeal or modification of the
foregoing provisions of this Article VII shall not adversely affect any right
or protection hereunder of any person in respect of any act or omission
occurring prior to the time of such repeal or modification.
- 10 -
<PAGE>
[KRAMER, LEVIN, NAFTALIS & FRANKEL LETTERHEAD]
KRAMER, LEVIN, NAFTALIS & FRANKEL
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
FAX
(212) 715-8000
------
WRITER'S DIRECT NUMBER
(212) 715-9100
June 19, 1997
The Fonda Group, Inc.
21 Lower Newton Street
St. Albans, Vermont 05478
Ladies and Gentlemen:
We have acted as counsel for The Fonda Group, Inc. (the
"Company") in connection with the registration statement on Form S-4 (Reg. No.
333-24939), as amended by Amendment Nos. 1 through 2 thereto (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") relating to the proposed offer by the Company of $120,000,000
aggregate principal amount of 9 1/2% Series B Senior Subordinated Notes due 2007
(the "New Notes") of the Company for a like amount of privately placed 9 1/2%
Series A Senior Subordinated Notes due 2007 (the "Old Notes") (the "Exchange
Offer"). The New Notes will be issued pursuant to the Indenture (the
"Indenture") dated February 27, 1997 between the Company and The Bank of New
York, as trustee. All capitalized terms not otherwise defined herein have the
same meanings given to such terms in the Indenture.
In connection with the foregoing, we have examined, among
other things, (i) the Registration Statement, (ii) the Indenture, (iii) the form
of New Notes to be issued pursuant to the Indenture and (iv) originals,
photocopies or conformed copies of all such corporate records, agreements,
instruments and documents of the Company, certificates of public officials and
other certificates and opinions, and have made such other investigations as we
have deemed necessary for the purpose of rendering the opinion set forth herein.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all
<PAGE>
KRAMER, LEVIN, NAFTALIS & FRANKEL
The Fonda Group, Inc.
June 19, 1997
Page 2
documents submitted to us as originals, and the conformity to originals of all
documents submitted to us as photocopies or conformed copies, and the
authenticity of the originals of such latter documents. We have relied, to the
extent we deem such reliance proper, upon representations, statements or
certificates of public officials and officers and representatives of the
Company.
Based upon and subject to the foregoing, we are of the opinion
that:
The New Notes have been duly authorized by the Company and,
when issued and delivered in exchange for the Old Notes in the manner
set forth in the Registration Statement and executed and authenticated
in accordance with the terms and conditions of the Indenture (and
assuming the due authorization, execution and delivery of the Indenture
by each of the parties thereto), will constitute legal, valid and
binding obligations of the Company.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the prospectus that forms a part thereof.
We are delivering this opinion to the Company, and no person
other than the Company and its securityholders may rely upon it.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
CHESAPEAKE CORPORATION
AND
THE FONDA GROUP, INC.
OCTOBER 13, 1995
<PAGE>
TABLE OF CONTENTS
Page
RECITALS.................................................................. 1
ARTICLE I
---------
DEFINITIONS
-----------
1.1 Accounts........................................................... 1
1.2 Affiliate.......................................................... 2
1.3 Agreement.......................................................... 2
1.4 April Balance Sheet................................................ 2
1.5 April Net Investment............................................... 2
1.6 Bank Accounts...................................................... 2
1.7 Buyer.............................................................. 2
1.8 Buyer's Closing Certificate........................................ 3
1.9 C&L................................................................ 3
1.10 Closing............................................................ 3
1.11 Closing Date....................................................... 3
1.12 COBRA.............................................................. 3
1.13 Code............................................................... 3
1.14 Company ...................................................... 3
1.15 Contracts.......................................................... 3
1.16 D&T................................................................ 4
1.17 Effective Time of Closing.......................................... 4
1.18 Employee Benefit Plans............................................. 4
1.19 Equipment.......................................................... 4
1.20 ERISA.............................................................. 4
1.21 ERISA Affiliate.................................................... 4
1.22 ERISA Affiliate Plan............................................... 4
1.23 Estimated Balance Sheet............................................ 5
1.24 Estimated Net Investment........................................... 5
1.25 Final Balance Sheet................................................ 5
1.26 Final Net Investment............................................... 5
1.27 Final Purchase Price............................................... 5
1.28 HSR Act............................................................ 5
1.29 Initial Purchase Price............................................. 6
1.30 Intangibles........................................................ 6
1.31 Intercompany....................................................... 6
1.32 Inventory.......................................................... 7
1.33 IRS................................................................ 7
1.34 Knowledge of Seller................................................ 7
1.35 Law................................................................ 7
1.36 Multiemployer Plan................................................. 7
1.37 Opinion of Buyer's Counsel......................................... 7
1.38 Opinion of Seller's Counsel........................................ 7
1.39 PBGC............................................................... 7
1.40 Pension Plans...................................................... 8
1.41 Permits............................................................ 8
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<PAGE>
1.42 Permitted Liens.................................................... 8
1.43 Real Property...................................................... 8
1.44 Scheduled Employees................................................ 8
1.45 Seller............................................................. 8
1.46 Seller's Closing Certificate....................................... 9
1.47 Stock.............................................................. 9
1.48 WARN............................................................... 9
1.49 Welfare Plans...................................................... 9
ARTICLE II
----------
PURCHASE AND SALE
-----------------
2.1 Purchase and Sale.................................................. 9
2.2 Deposit; Estimated Balance Sheet; Payment
of the Initial Purchase Price...................................... 9
2.3 Final Balance Sheet; Settlement of Final
Purchase Price..................................................... 11
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
3.1 Organization of Seller............................................. 13
3.2 Authorization; Enforceability...................................... 13
3.3 No Violation or Conflict by Seller................................. 14
3.4 Title to Stock..................................................... 14
3.5 Organization and Authority of Company.............................. 15
3.6 Capitalization..................................................... 15
3.7 No Violation or Conflict by Company................................ 16
3.8 Title to Assets.................................................... 16
3.9 Real Property...................................................... 17
3.10 Bank Accounts...................................................... 18
3.11 No Litigation...................................................... 19
3.12 Condition of Equipment............................................. 19
3.13 Inventory.......................................................... 19
3.14 Intangibles........................................................ 20
3.15 Books and Records.................................................. 20
3.16 Contracts.......................................................... 20
3.17 Accounts........................................................... 21
3.18 Financial Statements............................................... 21
3.19 No Adverse Change.................................................. 23
3.20 Taxes.............................................................. 23
3.21 Employee Benefit Plans............................................. 24
3.22 Compliance with Law................................................ 28
3.23 Transactions With Affiliates....................................... 28
3.24 No Broker.......................................................... 29
3.25 Subsidiaries....................................................... 30
3.26 Environmental Matter............................................... 30
3.27 Insurance.......................................................... 34
3.28 Labor Matters...................................................... 34
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<PAGE>
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTS OF BUYER
-------------------------------------
4.1 Organization....................................................... 36
4.2 Authorization; Enforceability...................................... 36
4.3 No Violation or Conflict........................................... 36
4.4 No Broker.......................................................... 37
4.5 Purchase for Investment............................................ 37
ARTICLE V
---------
CERTAIN MATTERS PENDING THE CLOSING
-----------------------------------
5.1 Carry on in Regular Course......................................... 38
5.2 Indebtedness....................................................... 38
5.3 Issuance of Stock.................................................. 38
5.4 Compensation....................................................... 39
5.5 Compliance with Law................................................ 39
5.6 Access............................................................. 40
5.7 Cooperation........................................................ 40
5.8 Publicity.......................................................... 41
5.9 Confidentiality.................................................... 41
5.10 Articles and Bylaws................................................ 41
5.11 Exclusivity........................................................ 42
5.12 Undated Financial Information...................................... 42
ARTICLE VI
----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
------------------------------------------------
6.1 Compliance with Agreement.......................................... 43
6.2 Proceedings and Instruments Satisfactory........................... 43
6.3 No Litigation...................................................... 43
6.4 Representations and Warranties..................................... 44
6.5 Material Damage to Assets.......................................... 44
6.6 Deliveries at Closing.............................................. 44
6.7 Hart-Scott-Rodino Filings.......................................... 44
6.8 Lien Waivers and Estoppel Certificates............................. 45
6.9 Title Insurance.................................................... 45
6.10 Financing.......................................................... 45
6.11 Non-Competition Agreement.......................................... 45
ARTICLE VII
-----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
-------------------------------------------------
7.1 Compliance with Agreement.......................................... 46
7.2 Proceedings and Instruments Satisfactory........................... 46
7.3 No Litigation...................................................... 46
7.4 Representations and Warranties..................................... 47
7.5 Deliveries at Closing.............................................. 47
7.6 Hart-Scott-Rodino Filings.......................................... 47
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<PAGE>
ARTICLE VIII
------------
INDEMNITIES AND ADDITIONAL COVENANTS
------------------------------------
8.1 Seller's Indemnity................................................. 48
8.2 Buyer's Indemnity.................................................. 50
8.3 Employee Benefit Matters........................................... 53
8.4 Income Tax Matters................................................. 64
8.5 Indemnity Amounts to be Computed
on After-Tax Basis................................................. 72
8.6 Records............................................................ 73
8.7 No Use of Name..................................................... 74
ARTICLE IX
----------
TERMINATION
-----------
9.1 Termination........................................................ 74
9.2 Rights on Termination; Deposit; Waiver............................. 75
ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Entire Agreement; Amendment........................................ 77
10.2 Expenses........................................................... 77
10.3 Governing Law...................................................... 78
10.4 Assignment......................................................... 78
10.5 Notices............................................................ 78
10.6 Counterparts; Headings............................................. 79
10.7 Interpretation..................................................... 79
10.8 Severability....................................................... 80
10.9 Specific Performance............................................... 80
10.10 No Reliance........................................................ 80
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<PAGE>
EXHIBITS
Exhibit 1.4 April Financial Statements
Exhibit 1.6 Bank Accounts
Exhibit 1.8 Buyer's Closing Certificate
Exhibit 1.30 Intangibles
Exhibit 1.37 Opinion of Buyer's Counsel
Exhibit 1.38 Opinion of Seller's Counsel
Exhibit 1.41 Permits
Exhibit 1.42 Permitted Liens
Exhibit 1.43 Real Property
Exhibit 1.44 Scheduled Employees
Exhibit 1.46 Seller's Closing Certificate
Exhibit 2.2 Permitted Deviations from GAAP Presentation of
Financial Statements
Exhibit 3.5 Foreign Qualifications
Exhibit 3.7 Required Consents
Exhibit 3.11 Litigation
Exhibit 3.16 Contracts
Exhibit 3.19 Adverse Changes
Exhibit 3.20 Taxes
Exhibit 3.21 Employee Benefit Plans
Exhibit 3.23 Transactions with Affiliates
Exhibit 3.25 Subsidiaries and Partnerships
Exhibit 3.26 Environmental Matters
Exhibit 3.27 Insurance
Exhibit 3.28 Labor Matters
Exhibit 6.11 Form of Non-Competition Agreement
Exhibit 8.1 Pending Claims
Exhibit 8.3A Salaried Plan -- Actuarial Assumptions and Methods
Exhibit 8.3B Spinoff Amount -- Actuarial Assumptions and
Methods
Exhibit 8.3C Hourly Plan -- Actuarial Assumptions and Methods
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<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT, made as of the 13th day of October, 1995, by
and between CHESAPEAKE CORPORATION, a Virginia corporation, and THE FONDA
GROUP, INC., a Delaware corporation.
RECITALS
--------
WHEREAS, Seller owns the Stock, which constitutes all of the issued
and outstanding capital stock of the Company; and
WHEREAS, Seller desires to sell the Stock to Buyer and Buyer desires
to purchase the Stock from Seller.
NOW, THEREFORE, in consideration of the Recitals and of the mutual
covenants, conditions and agreements set forth herein and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, it hereby is agreed that:
ARTICLE I
---------
DEFINITIONS
-----------
When used in this Agreement, the following terms shall have the
meanings specified:
1.1 Accounts. "Accounts" shall mean all accounts receiv- able, notes
receivable and associated rights owned by the Company.
<PAGE>
1.2 Affiliate. "Affiliate" shall mean, with respect to any person,
firm or corporation, any other person, firm or corporation that directly or
indirectly controls, is controlled by or is under common control with such
person, firm or corporation.
1.3 Agreement. "Agreement" shall mean this Stock Purchase Agreement,
together with the Exhibits attached hereto, as the same may be amended from
time to time in accordance with the terms hereof.
1.4 April Balance Sheet. "April Balance Sheet" shall mean the
unaudited summary balance sheet of the Company as of April 30, 1995, attached
as Exhibit 1.4 hereto.
1.5 April Net Investment. "April Net Investment" shall mean the amount
reflected as "Total Shareholder's Equity" on the April Balance Sheet.
1.6 Bank Accounts. "Bank Accounts" shall mean the checking accounts,
savings accounts, custodial accounts, certificates of deposit, safe deposit
boxes and other bank accounts maintained by the Company, all of such Bank
Accounts being listed on Exhibit 1.6 attached hereto.
1.7 Buyer. "Buyer" shall mean The Fonda Group, Inc., a Delaware
corporation.
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<PAGE>
1.8 Buyer's Closing Certificate. "Buyer's Closing Certificate" shall
mean the certificate of Buyer in the form of Exhibit 1.8 attached hereto.
1.9 C&L. "C&L" shall mean Coopers & Lybrand L.L.P., independent
auditors for Seller and the Company.
1.10 Closing. "Closing" shall mean the conference held at 10:00 a.m.,
local time, on the Closing Date, at the offices of Hunton & Williams,
Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia.
1.11 Closing Date. "Closing Date" shall mean December 29, 1995, or
such other date as the parties may mutually agree in writing, on which date the
Closing shall occur.
1.12 COBRA. "COBRA" shall mean the Consolidated omnibus Budget
Reconciliation Act of 1985.
1.13 Code. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
1.14 Company. "Company" shall mean Chesapeake Consumer Products
Company, a Virginia corporation.
1.15 Contracts. "Contracts" shall mean all contracts, agreements,
leases, relationships and commitments, written or oral, to which the Company is
a party or by which the Company is bound.
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<PAGE>
1.16 D&T. "D&T" shall mean Deloitte & Touche L.L.P., independent
auditors for Buyer.
1.17 Effective Time of Closing. "Effective Time of Closing" shall mean
11:59 p.m., local time, on the Closing Date, being the close of the Company's
business on such date.
1.18 Employee Benefit Plans. "Employee Benefit Plans" shall have the
meaning given in Section 3.21 hereof.
1.19 Equipment. "Equipment" shall mean all machinery, vehicles,
equipment, furniture, fixtures, furnishings, parts, tools, engineering drawings
and other items of tangible personal property that are used in the Company's
business.
1.20 ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
1.21 ERISA Affiliate. "ERISA Affiliate" shall mean Seller and any
trade or business (whether or not incorporated) which is or has ever been under
common control, or which is or has ever been treated as a single employer, with
Seller under Section 414(b), (c), (m) or (o) of the Code.
1.22 ERISA Affiliate Plan. "ERISA Affiliate Plan" shall mean all
"employee pension plans," as defined in Section 3(2) of ERISA or Section 412 of
the Code, maintained by Seller or any ERISA Affiliate, or to which Seller or
any ERISA Affiliate has
-4-
<PAGE>
contributed or has ever been obligated to contribute, other than any Qualified
Plan.
1.23 Estimated Balance Sheet. "Estimated Balance Sheet" shall mean the
unaudited summary estimated balance sheet of the Company as of the Effective
Time of Closing, to be delivered by Seller to Buyer pursuant to Section 2.2
hereof.
1.24 Estimated Net Investment. "Estimated Net Investment" shall mean
the amount reflected as "Total Shareholder's Equity" on the Estimated Balance
Sheet.
1.25 Final Balance Sheet. "Final Balance Sheet" shall mean the audited
balance sheet of the Company as of the Effective Time of Closing, to be
prepared and delivered in accordance with Section 2.3 hereof.
1.26 Final Net Investment. "Final Net Investment" shall mean the
amount reflected as "Total Shareholder's Equity" on the Final Balance Sheet.
1.27 Final Purchase Price. "Final Purchase Price" shall mean the
Initial Purchase Price as adjusted pursuant to Section 2.3 hereof (exclusive of
the interest on such adjustment as contemplated in such Section 2.3).
1.28 HSR Act. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (15 U.S.C. ss. 18a), as amended.
-5-
<PAGE>
1.29 Initial Purchase Price. "Initial Purchase Price" shall be $25.5
million, increased to the extent the Estimated Net Investment exceeds the April
Net Investment or decreased to the extent the April Net Investment exceeds the
Estimated Net Investment, as the case may be. The parties hereto understand
that the Company's Intercompany debt for money borrowed, which was included in
shareholder's equity for purposes of the April Balance Sheet, will be reflected
as debt on the Estimated and Final Balance Sheets, and that such
reclassification will reduce the Initial and Final Purchase Prices,
respectively, dollar-for-dollar for the amount of debt so reclassified;
provided that such reclassification shall in no event result in the Estimated
or Final Purchase Price being less than zero.
1.30 Intangibles. "Intangibles" shall mean all of those trade names,
trademarks, service marks, trademark and service mark registrations, patents
and trademark, service mark and patent applications owned or used by the
Company, all of such names, marks, registrations and applications being listed
on Exhibit 1.30 attached hereto.
1.31 Intercompany. "Intercompany" shall mean a transaction, obligation
or account between the Company, on the one hand, and any of Seller or any
Affiliate of Seller, on the other hand.
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<PAGE>
1.32 Inventory. "Inventory" shall mean all inventories of raw
materials, stores, supplies, work in process, semi-finished goods and finished
goods owned by the Company.
1.33 IRS. "IRS" shall mean the Internal Revenue Service.
1.34 Knowledge of Seller. "Knowledge of Seller" shall mean actual
knowledge of an executive officer of Seller, after due inquiry of the Scheduled
Employees of the Company.
1.35 Law. "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations and orders
promulgated thereunder.
1.36 Multiemployer Plan. "Multiemployer Plan" shall have the meaning
given in Section 3.21 hereof.
1.37 Opinion of Buyer's Counsel. "Opinion of Buyer's Counsel" shall
mean the opinion of Harvey L. Friedman, Esq., counsel to Buyer, in the form of
Exhibit 1.37 attached hereto.
1.38 Opinion of Seller's Counsel. "Opinion of Seller's Counsel" shall
mean the opinion of Hunton & Williams, counsel to Seller, in the form of
Exhibit 1.38 attached hereto.
1.39 PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation,
or any entity succeeding to any or all of its functions.
-7-
<PAGE>
1.40 Pension Plans. "Pension Plans" shall have the meaning given in
Section 3.21 hereof.
1.41 Permits. "Permits" shall mean all permits, licenses and
governmental authorizations, registrations and approvals required in the
conduct of the Company's business including, but not limited to, those Permits
listed on Exhibit 1.41 attached hereto.
1.42 Permitted Liens. "Permitted Liens" shall mean those liens,
encumbrances, mortgages, charges, claims, restrictions, pledges, security
interests, impositions and other matters affecting the Company or the assets of
the Company that are listed on Exhibit 1.42 attached hereto.
1.43 Real Property. "Real Property" shall mean the real property
described in Exhibit 1.43 attached hereto, together with the improvements and
fixtures located thereon, including all appurtenant rights, claims and
interests, and subject to the Permitted Liens.
1.44 Scheduled Employees. "Scheduled Employees" shall mean certain
salaried employees of the Company whose names are listed on Exhibit 1.44
hereto.
1.45 Seller. "Seller" shall mean Chesapeake Corporation, a Virginia
corporation.
-8-
<PAGE>
1.46 Seller's Closing Certificate. "Seller's Closing Certificate"
shall mean the certificate of Seller in the form of Exhibit 1.46 attached
hereto.
1.47 Stock. "Stock" shall mean all of the issued and outstanding
capital stock of the Company, consisting of 100 shares of common stock, $1.00
par value.
1.48 WARN. "WARN" shall mean the Worker's Adjustment and Retraining
Notification Act and any similar state or local "plant closing" Law.
1.49 Welfare Plans. "Welfare Plans" shall have the meaning given in
Section 3.21 hereof.
ARTICLE II
----------
PURCHASE AND SALE
-----------------
2.1 Purchase and Sale. At the Closing, and upon all of the terms and
subject to all of the conditions of this Agreement, Seller hereby agrees to
transfer, assign and convey to Buyer, and Buyer agrees to purchase and accept
from Seller, the Stock.
2.2 Deposit; Estimated Balance Sheet; Payment of the Initial Purchase
Price. (a) No later than December 1, 1995, Buyer shall deliver $1.0 million in
immediately available funds to Seller (together with accrued interest thereon,
calculated at the rate of 6% per annum, the "Deposit"), which Deposit shall be
held by Seller. The Deposit shall either be (i) credited towards
-9-
<PAGE>
the Initial Purchase Price at Closing, or (ii) upon any termination of this
Agreement, shall be paid to Seller or Buyer in accordance with Section 2.1
hereof.
(b) At least five (5) days prior to the Closing Date, Seller shall
deliver the Estimated Balance Sheet to Buyer. The Estimated Balance Sheet will
represent Seller's good faith estimate of the financial condition of the
Company as it will be at the Effective Time of Closing and will be prepared (a)
except as set forth in Exhibit 2.2 attached hereto, in accordance with
generally accepted accounting principles applied on a basis consistent with the
Company's past practice, and (b) in a manner consistent with the April Balance
Sheet.
(c) At the Closing, Buyer: (i) shall pay the Initial Purchase
Price (less the Deposit) to Seller by wire transfer of immediately available
funds; and (ii) cause the Company to repay by wire transfer of immediately
available funds all Intercompany debt for money borrowed (which debt shall be
reflected as a liability on the Estimated Balance Sheet and the Final Balance
Sheet). By way of illustration, if no differences exist between the April
Balance Sheet and the Estimated Balance Sheet except the reclassification of
Intercompany debt for money borrowed from shareholder's equity to debt, then
the sum of the Initial Purchase Price plus Intercompany debt for money borrowed
repaid pursuant to the foregoing sentence will equal $25.5 million.
-10-
<PAGE>
2.3 Final Balance Sheet; Settlement of Final Purchase Price.
(a) Within thirty (30) days after the Closing Date, C&L shall
prepare and deliver to Buyer a draft Final Balance Sheet, which shall be
prepared (i) except as set forth in Exhibit 2.2 attached hereto, in accordance
with generally accepted accounting principles applied on a basis consistent
with the Company's past practice, and (ii) in a manner consistent with the
April Balance Sheet.
(b) If Buyer has no objections to the draft Final Balance Sheet,
such draft shall be certified by C&L and shall constitute the Final Balance
Sheet. If Buyer has any objections to the draft Final Balance Sheet, it will
deliver a detailed statement describing its objections to C&L and Seller within
ten (10) days after receiving the draft Final Balance Sheet. Buyer, C&L and
Seller will use their reasonable best efforts to resolve any such objections.
If a final resolution is not obtained within thirty (30) days after C&L and
Seller have received the statement of objections, Buyer and Seller will select
a nationally-recognized accounting firm mutually acceptable to them to resolve
any remaining objections. If Buyer and Seller are unable to agree on the choice
of an accounting firm, they will select a nationally-recognized accounting firm
by lot (after excluding C&L and D&T).
-11-
<PAGE>
(c) C&L will revise the draft Final Balance Sheet as appropriate
to reflect the resolution of Buyer's objections (as agreed upon by Buyer, C&L
and Seller or as determined by such selected accounting firm) and deliver it to
Buyer and Seller within ten (10) days after the resolution of such objections.
Such revised balance sheet shall be certified by C&L and shall constitute the
Final Balance Sheet.
(d) To the extent that the Final Balance Sheet, as certified by
C&L, shows that the Final Net Investment is less than the Estimated Net
Investment, Seller shall pay such difference to Buyer in immediately available
funds within two (2) business days of C&L's delivery of such Final Balance
Sheet. To the extent that the Final Balance Sheet, as certified by C&L, shows
that the Final Net Investment is greater than the Estimated Net Investment,
Buyer shall pay such excess to Seller in immediately available funds within two
(2) business days of C&L's delivery of such Final Balance Sheet. All payments
pursuant to this Section 2.3(d) shall be accompanied by accrued interest
thereon from the Closing Date at the prevailing prime rate as announced by
Crestar Bank in Richmond, Virginia, from time to time.
(e) If any unresolved objections are submitted to an accounting
firm for resolution as provided above, Buyer and Seller will share equally the
fees and expenses of such accounting firm.
-12-
<PAGE>
(f) C&L will make the work papers used in preparing the draft
Final Balance Sheet and the Final Balance Sheet available to Buyer and its
representatives at reasonable times and upon reasonable notice at any time
during the preparation by C&L of the draft Final Balance Sheet and the
resolution of any objections with respect thereto.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF SELLER
----------------------------------------
Seller hereby represents and warrants to Buyer that:
3.1 Organization of Seller. Seller is a corporation duly incorporated,
validly existing and in good standing under the laws of Virginia and has full
corporate power to enter into this Agreement and to perform its obligations
hereunder.
3.2 Authorization; Enforceability. The execution, delivery and
performance by Seller of this Agreement and of all of the documents and
instruments required hereby from Seller are within the corporate power of
Seller and have been duly authorized by all necessary corporate action of
Seller. This Agreement is, and the other documents and instruments required
hereby will be, when executed and delivered by the parties hereto, the valid
and binding obligations of Seller, enforceable against Seller in accordance
with their respective terms.
-13-
<PAGE>
3.3 No Violation or Conflict by Seller. The execution, delivery and
performance of this Agreement by Seller (a) do not and will not conflict with
or violate any Law, judgment, order or decree binding on Seller or the Articles
of Incorporation or Bylaws of Seller or any contract or agreement to which
Seller is a party or by which it is bound, the breach of which could have a
material adverse effect on Seller's ability to consummate the transactions
contemplated hereby, or on the business, financial condition or results of
operations of the Company, and (b) will not require the consent or approval of
any other party or, except as set forth in Exhibit 3.7 attached hereto, give
any party to any Contract any right of termination, cancellation, acceleration
or modification thereunder. No notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or is required to be made or obtained by
Seller in connection with the execution and delivery of this Agreement by
Seller or the consummation by Seller of the transactions contemplated hereby;
provided, however, that consummation of the transactions contemplated by this
Agreement is subject to the requirements of the HSR Act.
3.4 Title to Stock. Seller owns good, valid and marketable title to
the Stock, free and clear of any and all mortgages, liens, encumbrances,
charges, claims, restrictions, pledges, security interests or impositions and,
upon delivery of the Stock to Buyer at the Closing and upon Buyer's payment of
the Initial
-14-
<PAGE>
Purchase Price therefor, good and valid title to the Stock, free and clear of
all mortgages, liens, encumbrances, charges, claims, restrictions, pledges,
security interests or impositions, will pass to Buyer.
3.5 Organization and Authority of Company. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Virginia. The Company has full corporate power to
carry on its business as it is now being conducted and to own, operate and hold
under lease its assets and properties as, and in the places where, such
properties and assets now are owned, operated or held. The Company is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the failure to be so qualified would have a material
adverse effect on the business, financial condition or results of operations of
the Company, all of such jurisdictions being set forth on Exhibit 3.5 attached
hereto.
3.6 Capitalization. The Stock represents all of the issued and
outstanding capital stock of the Company, has been duly and validly issued and
is fully paid and non-assessable. There are no options, warrants or other
rights to subscribe for or purchase any capital stock of the Company or
securities convertible into or exchangeable for, or which otherwise confer on
the holder any right to acquire, any capital stock of the Company, nor is the
-15-
<PAGE>
Company or Seller committed to issue any such option, warrant or other right.
3.7 No Violation or Conflict by Company. The execution, delivery and
performance of this Agreement do not and will not conflict with or violate any
Law, judgment, order or decree binding on the Company, or the Articles of
Incorporation or Bylaws of the Company or, except as set forth in Exhibit 3.7
attached hereto, any Contract to which the Company is a party or by which it is
bound. No notice to, filing or registration with, or authorization, consent or
approval of, any governmental, regulatory or self-regulatory agency is
necessary or is required to be made or obtained by the Company in connection
with the consummation of the transactions contemplated in this Agreement.
3.8 Title to Assets. The Company owns good and marketable title to all
assets and properties, real or personal, tangible or intangible, (a) that are
used in the Company's business, or (b) that were reflected in the April Balance
Sheet (except as disposed of in the ordinary course of business since the date
thereof) or that will be reflected in the Final Balance Sheet, free and clear
of any and all mortgages, liens, encumbrances, charges, claims, restrictions,
pledges, security interests or impositions, except the Permitted Liens and
except for assets and properties leased or licensed by the Company pursuant to
Contracts.
-16-
<PAGE>
3.9 Real Property. Exhibit 1.43 attached hereto is a true and correct
list of all real property owned or leased by the Company. Such real property
constitutes all of the real property that is used in the Company's business.
With respect to each such parcel of Real Property, except as set forth on
Exhibit 1.43:
(a) there are no pending or, to the Knowledge of Seller,
threatened condemnation proceedings, lawsuits or administrative
actions relating to the parcel;
(b) there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties
the right of use or occupancy of any portion of the parcel;
(c) with respect to owned parcels of Real Estate, there are no
outstanding options or rights of first refusal to purchase the parcel,
or any portion thereof or interest therein;
(d) there are no parties (other than the Company) in possession
of the parcel, other than tenants under any leases or subleases
disclosed in Exhibit 1.43, who are in possession of space to which
they are entitled; and
(e) to the Knowledge of Seller, no zoning Law or other similar
ordinance or regulation or code is violated by the
-17-
<PAGE>
continued use and operation of the improvements located on the parcel
(or their replacement with assets of like kind and function).
Seller will promptly deliver to Buyer true and correct copies of: (i) each deed
by which the Company acquired title to the owned Real Property described on
Exhibit 1.43; (ii) each policy of title insurance in effect and any title
report in the Company's possession with respect to the owned Real Property
described on Exhibit 1.43; (iii) the most recent survey or surveys in the
Company's possession with respect to the Real Property described in Exhibil
1.43; and (iv) all certificates of occupancy and building permits in the
Company's possession for the improvements located on the Real Property
described in Exhibit 1.43. The Permitted Liens, individually and in the
aggregate, do not materially impair the value of, or materially interfere with
the present or continued use in accordance with the Company's past practice of,
any material parcel of Real Property subject thereto or affected thereby, nor
are any Permitted Liens violated in any material respect by any existing
buildings or improvements located on the Real Property.
3.10 Bank Accounts. The Bank Accounts constitute all checking
accounts, savings accounts, custodial accounts, certificates of deposit, safe
deposit boxes or other similar accounts maintained by the Company.
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3.11 No Litigation. Except as listed in Exhibit 3.11, there is no
litigation, arbitration proceeding or governmental or administrative
investigation, complaint, charge, citation or claim of any kind pending or, to
the Knowledge of Seller, proposed or threatened, against the Company or
relating to the business, assets or properties of the Company.
3.12 Condition of Equipment. The Equipment, taken as a whole, is in
good operating condition and repair, subject to ordinary wear and tear, and is
substantially fit for the purposes for which it currently is being utilized.
Seller will promptly provide Buyer with true and correct copies of the most
recent inspection reports of any governmental agencies (including OSHA) in
Seller's or the Company's possession relating to the condition of the
Equipment.
3.13 Inventory. The Inventory is useable or saleable in the ordinary
course of the business of the Company as heretofore conducted subject, as of
the respective dates of the April Balance Sheet and the Final Balance Sheet, to
the reserves and accruals established with respect thereto on such balance
sheets (which reserves and accruals are, and shall be, established in
accordance with generally accepted accounting principles consistently applied),
and is valued at the lower of cost or market value. Cost of Inventory is
calculated on the average cost method, which is consistent with the Company's
past practice.
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3.14 Intangibles. Except for those Intangibles that are owned by
Seller and that are the subject of Section 8.7 hereof, the Company owns the
entire right, title and interest in and to the Intangibles, subject only to the
Permitted Liens. There are no claims, demands or proceedings pending or, to the
Knowledge of Seller, threatened by any third party pertaining to or challenging
the Company's rights to use any of the Intangibles, and there is no trademark,
trade name, patent or copyright owned by a third party (other than Seller)
which the Company is using without a license to do so. Neither Seller nor the
Company owns any patents or patent applications that relate to products sold by
the Company or processes employed by the Company.
3.15 Books and Records. The books and records of the Company are
complete and correct in all material respects.
3.16 Contracts. Exhibit 3.16 attached hereto is a true and complete
list of: (a) all of the written Contracts that constitute: (i) a lease of any
real or personal property with (A) aggregate annual rental payments in excess
of $25,000, or (B) a remaining term in excess of one year and which is
non-cancellable without penalty on notice of 90 days or less; (ii) an agreement
to purchase or sell a capital asset for a price in excess of $25,000; (iii) an
employment agreement that will remain in effect after the Effective Time of
Closing; or (iv) any other agreement involving an amount in excess of $25,000;
and (b) all
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material oral Contracts. The Company has performed each material term, covenant
and condition of each of the Contracts which is to be performed by the Company
at or before the date hereof. No event has occurred that would, with the
passage of time or compliance with any applicable notice requirements,
constitute a default by the Company or, to the Knowledge of Seller, any other
party under any of the Contracts, and, to the Knowledge of Seller, no party to
any of the Contracts intends to cancel, terminate or exercise any option under
any of the Contracts, the result of which would have a material adverse effect
on the business, financial condition or results of operations of the
Company. Except as set forth in Exhibit 3.16 attached hereto, the performance
of the Company's obligations under any of the Contracts has not, directly or
indirectly, been guaranteed by Seller or any Affiliate of Seller.
3.17 Accounts. To the Knowledge of Seller: the Accounts all have
arisen from bona fide transactions in the ordinary course of business; the
Accounts are collectible in accordance with normal trade practice, net of any
reserves for uncollectible accounts reflected on the books of the Company
therefor; and there are no offsets or credits which may be applied against the
Accounts, other than as reflected on the books of the Company.
3.18 Financial Statements. The April Balance Sheet, including the
notes thereto, a copy of which is included in Exhibit 1.4 attached hereto, is
true and correct in all material
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respects, presents fairly the financial condition of the Company as of April
30, 1995, and was prepared, except as set forth in Exhibit 2.2, in accordance
with generally accepted accounting principles applied on a basis consistent
with the Company's past practice. The Company's unaudited income statement for
the year-to-date ended April 30, 1995, which is included in Exhibit 1.4
attached hereto, is true and correct in all material respects, presents fairly
the results of operations for such period, and was prepared, except as set
forth in Exhibit 2.2, in accordance with generally accepted accounting
principles applied on a basis consistent with the Company's past practice. The
Final Balance Sheet, including notes thereto, will be true and correct in all
material respects, will present fairly the financial condition of the Company
at the Effective Time of Closing and will be prepared (i) except as set forth
in Exhibit 2.2, in accordance with generally accepted accounting principles
applied on a basis consistent with the Company's past practice, and (ii) in a
manner consistent with the April Balance Sheet. As of the date of the Final
Balance Sheet, the Company will not be subject to any liability or obligation
of a nature that would be reflected or reserved against on a balance sheet
prepared in accordance with generally accepted accounting principles as of such
date (or in the notes thereto) that is not reflected thereon (or in such notes)
as so required.
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3.19 No Adverse Change. Except as set forth in Exhibit 3.19 attached
hereto, since April 30, 1995, the Company has carried on its business only in
the ordinary course and substantially in the same manner as heretofore carried
on and there has not been: (a) any material adverse change in the business,
financial condition or results of operations of the Company; (b) any loss,
damage, condemnation or destruction to the properties of the Company materially
adversely affecting the Company's business or properties; (c) to the Knowledge
of Seller, any labor dispute or disturbance, litigation or any event or
condition of any character that could materially adversely affect the Company's
business; (d) any borrowings by the Company, other than trade payables arising
in the ordinary course of business and advances from Seller and its Affiliates;
(e) any mortgage, pledge, lien or encumbrance made on any of the properties or
assets of the Company, except for Permitted Liens; or (f) any sale, transfer or
other disposition of assets of the Company other than in the ordinary course of
business.
3.20 Taxes. Except as set forth on Exhibit 3.20 attached hereto:
(a) the Company is a member of the affiliated group, within the
meaning of Section 1504(a) of the Code, of which Seller is the common parent,
and such affiliated group files a consolidated federal income tax return;
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(b) the Company has timely filed or caused to be filed all tax
returns required to have been filed by or for it, and all information set forth
in such tax returns is accurate and complete in all material respects;
(c) the Company has paid or made adequate provision on its books
and records in accordance with generally accepted accounting principles for all
taxes covered by such tax returns; and
(d) the Company has not granted (nor is subject to) any waiver,
which is currently in effect, of the period of limitations for the assessment
of any tax; no unpaid tax deficiency has been assessed or asserted against or
with respect to the Company by any governmental authority; there are no
currently pending administrative or judicial proceedings, or any deficiency or
refund litigation, with respect to taxes of the Company, the adverse outcome of
which would have a material adverse effect on the business or financial
condition of the Company; and any such assertion, assessment, proceeding or
litigation disclosed on Exhibit 3.20 attached hereto is being contested in good
faith through appropriate measures, and its status is described in Exhibit 3.20
attached hereto.
3.21 Employee Benefit Plans. (a) Attached hereto as Exhibit 3.21 is a
true and complete list of all "employee benefit plans" (as defined in Section
3(3) of ERISA) and all other
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employee benefit arrangements or payroll practices, including each severance
pay, bonus, deferred compensation, incentive compensation, stock purchase,
stock option, hospitalization or other medical, life, disability or other
insurance, pension, profit-sharing or retirement program covering present and
former employees of the Company pursuant to which the Company has continuing
obligations (the "Employee Benefit Plans"). Exhibit 3.21 identifies (i) each
"pension plan" (as defined in Section 3(2) of ERISA) (the "Pension Plans"), and
denotes those Pension Plans intended to be qualified under Section 401(a) of
the Code (the "Qualified Plans"), (ii) each Employee Benefit Plan which is a
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) (a
"Multiemployer Plan") and (iii) each "welfare plan" (as defined in Section 3(l)
of ERISA) (the "Welfare Plans"), maintained for the benefit of employees of the
Company or to which the Company contributes on behalf of its employees. True,
correct and complete copies of the following documents, with respect to each of
the Employee Benefit Plans, have been made available or delivered to Buyer by
Seller: (i) any plans and related trust documents, and all amendments thereto;
(ii) the most recent Forms 5500 and all schedules thereto; (iii) the last IRS
determination letter; and (iv) summary plan descriptions. To the Knowledge of
Seller, each Employee Benefit Plan is enforceable in accordance with its terms.
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(b) To the Knowledge of Seller, each Qualified Plan complies in
all material respects with applicable Law as of the date hereof, and the IRS
has issued favorable determination letters to the effect that the forms of
Qualified Plans (or predecessor plans) satisfy the requirements of Section
401(a) and related Sections of the Code. To the Knowledge of Seller, there are
no facts or circumstances that would jeopardize or adversely affect in any
material respect the qualification under Code Section 401(a) of any Qualified
Plan.
(c) As of the Closing Date, full payment will be made to each
Employee Benefit Plan of all contributions (including all employer
contributions and employee salary reduction contributions) that are required
under the terms thereof and under ERISA or the Code to be made on or prior to
that date, or any such liabilities will be reflected on the Final Balance
Sheet. No "accumulated funding deficiency" (as defined in ERISA Section 302 or
Code Section 412), whether or not waived, exists with respect to any Pension
Plan. None of Seller, the Company, any ERISA Affiliate or any organization to
which Seller is a successor or parent corporation, within the meaning of
Section 4069(b) of ERISA, has engaged in any transaction, within the meaning of
Section 4069 of ERISA.
(d) To the Knowledge of Seller, each Employee Benefit Plan has
been administered substantially in accordance with its terms. In addition, to
the Knowledge of Seller, each Employee
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Benefit Plan complies, and has been administered substantially in accordance
with, any applicable provisions of ERISA and the rulings and regulations
promulgated thereunder (including the continuation coverage requirements of
group health plans under COBRA), and all other applicable Laws, and all
reports, returns and other documentation that are required to have been filed
with the IRS, the Department of Labor, the PBGC or any other governmental
agency (federal, state or local) have been filed on a timely basis, in each
instance in which the failure to file such reports, returns and other documents
would result in any material liability or obligation to Seller or the Company.
No lawsuits or complaints to or by any person or governmental authority have
been filed or, to the Knowledge of Seller, are contemplated or threatened, with
respect to any Employee Benefit Plan.
(e) Except as described on Exhibit 3.21 attached hereto, neither
the Company nor Seller nor any ERISA Affiliate has received a notice of, or
incurred, any withdrawal liability with respect to a "multiemployer plan" (as
defined in ERISA Section 3(37)).
(f) The Company has not incurred any material liability with
respect to any Welfare Plan or for "welfare benefits" (as defined in Code
Section 419) that was not fully reflected in the April Balance Sheet or that
will not be fully reflected in the Final Balance Sheet. Except as set forth in
Exhibit 3.21 attached hereto, or as required under COBRA or the
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terms of any Pension Plan, the Company is not obligated to provide or to pay
any benefits to former employees or to their dependents or beneficiaries.
3.22 Compliance with Law. To the Knowledge of Seller, the conduct of
the Company's business and its use of its assets does not violate or conflict
with any Law, which violation or conflict would cause a material adverse change
in the business, financial condition or results of operations of the Company.
To the Knowledge of Seller, all Permits required by the Company to conduct its
business have been obtained, are in full force and effect and are being
complied with in all material respects. Except as set forth in Exhibit 1.41
attached hereto, consummation of the transactions contemplated by this
Agreement will not, with respect to any Permit, require the consent or approval
of, or any filing with, any governmental, regulatory or self-regulatory agency,
and all such Permits will continue in full force and effect thereafter in
accordance with their terms.
3.23 Transactions With Affiliates. Except as set forth in Exhibit 3.23
attached hereto, since April 30, 1995, the Company has not, in the ordinary
course of business or otherwise, purchased, leased or otherwise acquired any
material property or assets or obtained any material services from, or sold,
leased or otherwise disposed of any material property or assets or provided any
material services to (except with respect to remuneration for services rendered
as a director, officer or employee of the
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Company), Seller, any employee of the Company or Seller or any Affiliate of the
Company or Seller. Exhibit 3.23 also describes the nature of all transactions
of the type that are the subject of the immediately preceding sentence which
are reflected in the April 30, 1995, financial statements attached hereto as
Exhibit l.4. Except as set forth in Exhibit 3.23, (a) the Contracts do not
include any obligation or commitment between the Company and any Affiliate, (b)
the assets of the Company do not include any receivable or other obligation or
commitment from an Affiliate to the Company and (c) all transactions between
the Company and Affiliates reflected in the April 30, 1995, financial
statements attached hereto as Exhibit 1.4 or effected since the date thereof
were on arms' length terms comparable to those that would have been agreed to
with unaffiliated third parties in similar transactions.
3.24 No Broker. The Company has not had any dealings, negotiations or
communications with any broker or other intermediary in connection with the
transactions contemplated by this Agreement and is not committed to any
liability for any brokers' or finders' fees or any similar fees in connection
with the conveyance of the Stock. Seller has retained no broker or other
intermediary to act on its behalf in connection with the transactions
contemplated by this Agreement except The Toronto-Dominion Bank
("Toronto-Dominion"), and Seller will pay all fees
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due to Toronto-Dominion in connection with the transactions contemplated by
this Agreement.
3.25 Subsidiaries. Except as set forth in Exhibit 3.25 attached
hereto, the Company does not own any capital stock of any corporation or any
interest in any partnership, joint venture, limited liability company or other
business, nor does the Company have the right or obligation to acquire any
ownership interest in any corporation, partnership, joint venture, limited
liability company or other business.
3.26 Environmental Matters. (a) Definitions. When used in this Section
3.26:
(i) "Environmental Laws" shall mean any and all Laws
regulating, relating to or imposing liability or standards of
conduct concerning any Hazardous Materials or Petroleum Products
or environmental protection as in effect at the Effective Time of
Closing or at any time in the past;
(ii) "Governmental Authority" shall mean any federal, state,
municipal or other governmental department, commission, board,
bureau, agency or instrumentality, or any court, in each case
whether of the United States or foreign;
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(iii) "Hazardous Materials" shall mean any hazardous
material, hazardous waste, infectious medical waste, hazardous or
toxic substance defined or regulated as such in or under any
Environmental Law, including, without limitation, materials
exhibiting the characteristics of ignitability, corrosivity,
reactivity or extraction procedure toxicity, as such terms are
defined in connection with hazardous materials or hazardous
wastes or hazardous or toxic substances in any Environmental Law;
and
(iv) "Petroleum Products" shall mean gasoline, diesel fuel,
motor oil, waste or used oil, heating oil, kerosene and any other
petroleum products.
(b) Except as set forth in Exhibit 3.26 attached hereto: (i) the
Company has not used, stored, treated, transported, manufactured,
refined, handled, produced or disposed of any Hazardous Materials or
Petroleum Products on, under, at, from or in any way affecting any of
its properties or assets (including, without limitation, any
properties or assets now or previously owned or operated by the
Company), in any manner which constituted or constitutes a violation
of any Environmental Law governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials or Petroleum Products, and (ii) to the
Knowledge of Seller, no
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prior owner of such property or asset or any tenant, subtenant, prior
tenant or prior subtenant thereof has used Hazardous Materials or
Petroleum Products on, under, at, from or in any way affecting any
such property or asset, in any manner which constituted or constitutes
a violation of any Environmental Law governing the use, storage,
treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials or Petroleum Products.
(c) Except as set forth in Exhibit 3.26 attached hereto, the
Company has no obligations or liabilities, whether absolute or
contingent, accrued or unaccrued, asserted or unasserted, or
otherwise, that could have a material adverse effect on the
properties, business, financial condition or results of operations of
the Company, and no pending claims have been made against the Company
and no presently outstanding citations or notices have been issued
against the Company, that could have a material adverse effect on the
properties, business, financial condition or results of operations of
the Company and that, in the case of any of the foregoing, have been
or are imposed by reason of or based upon any provision of any
Environmental Laws, including, without limitation, any such
obligations or liabilities relating to or arising out of or
attributable, in whole or in part, to the manufacture,
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processing, distribution, use, treatment, storage, release, disposal,
arranging for disposal, transport or handling of any Hazardous
Materials or Petroleum Products by the Company or, to the Knowledge of
the Company, by any predecessors in interest in connection with or in
any way arising from or relating to the Company or any of its
properties, or relating to or arising from or attributable, in whole
or in part, to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of any such
substance by any other person on, under, at, from or in any way
affecting any of the properties or assets owned or used by the
Company.
(d) Except as set forth in Exhibit 3.26 attached hereto, the
Company has obtained all Permits as may be required of it under
applicable Environmental Laws to conduct its business, and the Company
is in compliance in all material respects with the terms and
conditions of all such Permits. The company has not received any
notices or claims that it is a potentially responsible party in
connection with any claim or notice asserted pursuant to 42 U.S.C.
Section 9601 et seq., or any state superfund law.
(e) No underground storage tanks are present on any of the Real
Property that is owned by the Company in fee, and no asbestos
containing materials remain in place on any of the Real Property that
is owned by the Company in fee.
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3.27 Insurance. Exhibit 3.27 lists all policies of fire, liability,
workers' compensation and other forms of insurance coverage to or for the
benefit of the Company. All of such insurance coverage shall remain in full
force until the Effective Time of Closing but, except as set forth in Exhibit
3.27, shall terminate as of such time. Notwithstanding any such termination,
the Company shall be entitled to receive, and Seller shall pay to the Company,
the proceeds of all insurance claims for damage to property of the Company
occurring prior to the Effective Time of Closing plus the amount of any related
deductible to the extent that such proceeds and deductible have not been
applied to the cost of repairing the damages giving rise to such claims, and
such proceeds shall not be taken into account in calculating the Initial or
Final Purchase Price.
3.28 Labor Matters.
(a) Except as set forth on Exhibit 3.28 attached hereto, the
Company is not party to any labor or collective bargaining agreement with any
labor union or organization pertaining to employees of the Company and, except
as set forth in the collective bargaining agreements listed on Exhibit 3.28,
the Company has not recognized any labor union or organization as the
collective bargaining representative of its employees. To the Knowledge of
Seller, (i) no labor organization has made a pending demand to the Company for
recognition as the bargaining
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representative of any employees of the Company, (ii) there are no
representation petitions pending before the National Labor Relations Board with
respect to employees of the Company and (iii) no union organizing activities
are in progress with respect to employees of the Company. True and complete
copies of all collective bargaining agreements pertaining to employees of the
Company, including any amendments or material side letters thereto, have been
made available or delivered to Buyer by Seller.
(b) Except as set forth on Exhibit 3.28 attached hereto, to the
Knowledge of Seller (i) there are no pending strikes or lockouts involving
employees of the Company, and (ii) there are no pending arbitrations, grievance
proceedings or unfair labor practice charges by or on behalf of any employee or
group of employees of the Company which, if individually or collectively
resolved against the Company, could result in a material liability.
(c) With respect to the Company, there has been no "mass layoff"
or "plant closing," as defined by WARN, within the six months prior to the
Closing Date.
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ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
Buyer hereby represents and warrants to Seller that:
4.1 Organization. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and has
full corporate power to enter into this Agreement and to perform its
obligations hereunder.
4.2 Authorization; Enforceability. The execution, delivery and
performance by Buyer of this Agreement and of all of the documents and
instruments required hereby from Buyer are within the corporate power of Buyer
and have been duly authorized by all necessary corporate action of Buyer. This
Agreement is, and the other documents and instruments required hereby will be,
when executed and delivered by the parties hereto, the valid and binding
obligations of Buyer, enforceable against Buyer in accordance with their
respective terms.
4.3 No Violation or Conflict. The execution, delivery and performance
of this Agreement by Buyer do not and will not conflict with or violate any
Law, judgment, order or decree binding on Buyer or the Certificate of
Incorporation or Bylaws of Buyer or any contract or agreement to which Buyer is
a party or by which it is bound, the breach of which could have a material
adverse effect on Buyer's ability to consummate the transactions
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contemplated hereby, or on the business, financial condition or results of
operations of Buyer. No notice to, filing or registration with, or
authorization, consent or approval of, any governmental, regulatory or
self-regulatory agency is necessary or is required to be made or obtained by
Buyer in connection with the execution and delivery of this Agreement by Buyer
or the consummation by Buyer of the transactions contemplated hereby; provided,
however, that the consummation of the transactions contemplated by this
Agreement is subject to the requirements of the HSR Act.
4.4 No Broker. Buyer has not had any dealings, negotiations or
communications with any broker or other intermediary in connection with the
transactions contemplated by this Agreement except Toronto-Dominion, as
representative of Seller.
4.5 Purchase for Investment. Buyer acknowledges that the offer and
sale of the Stock contemplated herein has not been registered under the
Securities Act of 1933, as amended, or under any state securities laws. Buyer
represents that it is purchasing the Stock for investment and not with a view
for the distribution thereof except in accordance with applicable securities
laws.
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ARTICLE V
---------
CERTAIN MATTERS PENDING THE CLOSING
-----------------------------------
Seller and Buyer covenant and agree that from and after the date of
this Agreement and until the Closing Date:
5.1 Carry on in Regular Course. Seller shall cause the Company to
carry on its business, including transactions with its Affiliates, in the
ordinary course and substantially in the same manner as heretofore carried on
and to use its reasonable best efforts to preserve its properties, business and
relationships with its suppliers and customers. Seller will advise Buyer
promptly in writing of any material adverse change in the Company's business,
financial condition or results of operations.
5.2 Indebtedness. Seller shall not permit the Company to (a) create,
incur or assume any indebtedness for borrowed money, except for Intercompany
advances consistent with the Company's past practice, (b) mortgage, pledge or
otherwise encumber any of its properties or assets, except for Permitted Liens
or (c) create or assume any other indebtedness except accounts payable and
other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. Seller shall not permit the Company to issue
any shares of capital stock of any class or grant any warrants, options or
rights to subscribe for any shares of capital stock of any class or securities
convertible into or
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exchangeable for, or which otherwise confer on the holder any right to acquire,
any shares of capital stock of any class.
5.4 Compensation. Seller shall not permit the Company to grant any
increases, except for increases in the ordinary course of the Company's
business, in the rate of pay of any of its employees (including, without
limitation, the Scheduled Employees). Without the prior written consent of
Buyer, Seller shall not permit the Company to institute any new Employee
Benefit Plan, amend, alter or terminate, partially or completely, any Employee
Benefit Plan or assume, enter into, amend, alter or terminate any labor or
collective bargaining agreement to which the Company is a party or by which the
Company is affected, except in any such case as required by Law, the terms of
any existing Employee Benefit Plan or as otherwise expressly contemplated by
this Agreement.
5.5 Compliance with Law. Seller shall cause the Company to comply in
all material respects with all applicable Laws, non-compliance with which could
have a material adverse effect upon the business, financial position or results
of operations of the Company, and with all orders of any court or of any
federal, state, municipal or other governmental department binding upon the
Company (except for any such orders which are being contested by the Company in
good faith by appropriate proceedings).
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5.6 Access. At Buyer's expense, Buyer and its authorized agents,
officers and representatives shall have reasonable access to the employees,
properties, books, records, contracts, information and documents of the Company
to conduct such examinations and investigations of the Company as Buyer deems
necessary; provided, however, that such examinations and investigations: (a)
shall be conducted only in the presence of a designated representative of
Seller; (b) shall be conducted during the Company's normal business hours; and
(c) shall not unreasonably interfere with the Company's operations and
activities. Seller shall cause the Company and the Company's employees,
counsel, independent auditors and financial advisors to cooperate in all
reasonable respects with Buyer's examinations and investigations and shall
afford Buyer, upon Buyer's request, joint access (with a representative of
Seller or the Company) to the Company's suppliers, distributors and customers.
5.7 Cooperation. Buyer and Seller will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
securing the permission, approval, determination, consent or waiver of any
governmental authority required by Law in connection with the transfer of the
Stock from Seller to Buyer including, without limitation, the filing of
premerger notification and report forms under the HSR Act. Buyer and Seller
hereby agree to share equally the filing fees associated with such filings
under the HSR Act.
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5.8 Publicity. All general notices, releases, statements and
communications to employees, suppliers, distributors and customers of the
Company and to the general public and the press relating to the transactions
covered by this Agreement shall be made only at such times and in such manner
as may be mutually agreed upon by Buyer and Seller; provided, however, that
either Seller or Buyer shall be entitled to make a public announcement of the
proposed transaction if, in the opinion of its legal counsel, such announcement
is required to comply with Law or the rules and regulations of the New York
Stock Exchange.
5.9 Confidentiality. Notwithstanding any other provision of this
Agreement to the contrary, Buyer agrees that, unless and until the transactions
contemplated herein are consummated, Buyer shall remain subject to all of the
terms and conditions of the Confidentiality Agreement, dated June 23, 1995,
between Toronto-Dominion, as representative of Seller, and Buyer, the terms of
which Confidentiality Agreement are incorporated herein by reference, except
that such Confidentiality Agreement is hereby modified to include all of
Buyer's potential financing sources in the group of persons to whom Buyer may
furnish the "Evaluation Material" pursuant to the terms of such Confidentiality
Agreement.
5.10 Articles and Bylaws. Seller shall not permit the Company to amend
its articles of incorporation or bylaws or merge or consolidate with or into
any other corporation.
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5.11 Exclusivity. Seller will not, and will not permit the Company,
any Affiliate of Seller or the Company or any officer, director, investment
banker or other representative of Seller or the Company to, solicit, initiate
or encourage the submission of any proposal or offer from any person, firm or
corporation, or negotiate or accept any unsolicited offer or proposal, relating
to any (a) merger or consolidation involving the Company, (b) acquisition or
purchase of securities or of all or substantially all of the assets of the
Company or (c) similar transaction or business combination involving the
Company. Seller will promptly notify Buyer if any person, firm or corporation
makes any proposal or offer with respect to any of the foregoing.
5.12 Undated Financial Information. Seller will promptly provide Buyer
with all interim (monthly, quarterly and other) financial statements of the
Company prepared in the ordinary course of business for periods subsequent to
April 30, 1995, and prior to the Closing. All such interim financial statements
shall be prepared on a basis consistent with the Company's past practice.
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ARTICLE VI
----------
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
------------------------------------------------
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing, or waiver by
Buyer, of the following express conditions precedent, and Seller agrees to use
its reasonable best efforts to cause the conditions set forth in Sections 6.1,
6.2, 6.4, 6.6, 6.7, 6.8 and 6.11 to be timely satisfied:
6.1 Compliance with Agreement. Seller and the Company shall have
performed and complied in all material respects with all of their obligations
under this Agreement which are to be performed or complied with by them prior
to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken by Seller in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Buyer, and Seller and the
Company shall have made available to Buyer for examination the originals or
true and correct copies of all documents which Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding
shall be pending before any court or governmental
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agency that seeks restraint, prohibition, damages or other relief in connection
with this Agreement or the consummation of the transactions contemplated
hereby.
6.4 Representations and Warranties. The representations and warranties
made by Seller in this Agreement shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date.
6.5 Material Damage to Assets. Between the date of this Agreement and
the Closing Date, the assets and properties of the Company shall not have been
materially and adversely affected by reason of any loss, taking, condemnation,
destruction or physical damage, whether or not insured against.
6.6 Deliveries at Closing. Seller shall have delivered to Buyer the
following documents, each properly executed and dated as of the Closing Date:
(a) the Opinion of Seller's Counsel; (b) executed resignations of those
officers and directors of the Company who are designated by Buyer; (c) Seller's
Closing certificate; and (d) the certificate representing the Stock together
with a duly executed stock power therefor to convey the Stock to Buyer.
6.7 Hart-Scott-Rodino Filings. In the reasonable opinion of Buyer, all
necessary requirements of the HSR Act and the regulations promulgated
thereunder shall have been complied with,
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and any "waiting periods" applicable to this transaction which are imposed by
such statute or regulations shall have expired prior to the Closing Date or
shall have been terminated by the appropriate agency.
6.8 Lien Waivers and Estoppel Certificates. Seller shall have caused
the Company to use its best efforts to deliver to Buyer: (a) waivers of any
statutory landlord or lessor liens with respect to any material parcel of
leased Real Property and any material item of leased Equipment; and (b)
estoppel certificates, reasonably satisfactory in form and substance to Buyer,
from the landlord of each parcel of leased Real Property and the lessor of each
material item of leased Equipment.
6.9 Title Insurance. Buyer shall have obtained a commitment for title
insurance insuring the Company's title to all owned Real Property subject only
to the applicable Permitted Liens and on a non-attribution basis.
6.10 Financing. Buyer shall have obtained the financing it requires to
pay the Initial Purchase Price.
6.11 Non-Competition Agreement. Seller shall have executed and
delivered to Buyer a non-competition agreement substantially in the form of
Exhibit 6.11 attached hereto.
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ARTICLE VII
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CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
-------------------------------------------------
Each and every obligation of Seller to be performed on the Closing
Date shall be subject to the satisfaction prior to or at the Closing, or waiver
by Seller, of the following express conditions precedent, and Buyer agrees to
use its reasonable best efforts to cause the conditions set forth in Sections
6.9, 6.10, 7.1, 7.2, 7.4, 7.5 and 7.6 to be timely satisfied:
7.1 Compliance with Agreement. Buyer shall have performed and complied
in all material respects with all of its obligations under this Agreement which
are to be performed or complied with by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All proceedings,
corporate or other, to be taken by Buyer in connection with the transactions
contemplated by this Agreement, and all documents incident thereto, shall be
reasonably satisfactory in form and substance to Seller, and Buyer shall have
made available to Seller for examination the originals or true and correct
copies of all documents which Seller may reasonably request in connection with
the transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding
shall be pending before any court or governmental agency that seeks restraint,
prohibition, damages or other relief
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in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.4 Representations and Warranties. The representations and warranties
made by Buyer in this Agreement shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date.
7.5 Deliveries at Closing. Buyer shall have delivered to Seller the
following documents, each properly executed and dated as of the Closing Date:
(a) the Opinion of Buyer's Counsel; and (b) Buyer's Closing Certificate. Buyer
shall also have paid the Initial Purchase Price to Seller by wire transfer of
immediately available funds in accordance with Section 2.2(c) hereof.
7.6 Hart-Scott-Rodino Filings. In the reasonable opinion of Seller,
all necessary requirements of the HSR Act and the regulations promulgated
thereunder shall have been complied with, and any "waiting periods" applicable
to this transaction which are imposed by such statute or regulations shall have
expired prior to the Closing Date or shall have been terminated by the
appropriate agency.
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ARTICLE VIII
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INDEMNITIES AND ADDITIONAL COVENANTS
------------------------------------
8.1 Seller's Indemnity. (a) Seller hereby agrees to indemnify and hold
the Company and Buyer harmless from and against, and agrees to defend promptly
the Company and Buyer from and to reimburse the Company and Buyer for, any and
all losses, damages, costs, expenses, liabilities, obligations and claims of
any kind, including, without limitation, reasonable attorneys' fees and other
legal costs and expenses (hereinafter referred to collectively as "Losses"),
that either Buyer or the Company may at any time suffer or incur, or become
subject to, as a result of or in connection with (i) any breach or inaccuracy
of any of the representations and warranties made by Seller in or pursuant to
this Agreement, (ii) any failure by Seller to perform any of its covenants and
obligations set forth in this Agreement or in any document or instrument
delivered pursuant hereto and (iii) those matters set forth in Exhibit 8.1
attached hereto, to the extent such matters are not reserved against on the
Final Balance Sheet; provided, however, that Seller shall not be required to
indemnify Buyer or the Company pursuant to Section 8.1(a)(i) hereof in respect
of the representations and warranties made by Seller unless such right is
asserted (whether or not such Losses have actually been incurred) by notice to
Seller within two years of the Closing Date (or, in the case of the
representations and warranties set forth (x) in Section 3.4 hereof, without
time
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limitation, (y) in Sections 3.20 and 3.21 hereof, the applicable statute of
limitations with respect to such tax and ERISA matters or (z) in Section 3.26
hereof, within five years of the Closing Date) describing with specificity the
facts giving rise to the asserted right; and provided, further, that Seller
shall not be required to indemnify Buyer or the Company pursuant to Section
8.1(a)(1) in respect of the representations and warranties made by Seller
unless and until the amount of all Losses for which indemnification is sought
hereunder first exceeds $250,000, in which event all Losses shall be subject to
indemnification. Seller's aggregate obligations pursuant to this Section 8.1(a)
shall in no event exceed the Final Purchase Price.
(b) The amounts for which Seller shall be liable under Section
8.ll(a) of this Agreement shall be net of any insurance proceeds received by
Buyer or the Company in connection with the facts giving rise to the right of
indemnification. The amounts for which Seller shall be liable under Section
8.1(a) shall also include all costs and expenses incurred by Buyer or the
Company in enforcing its rights to indemnification hereunder.
(c) In the event a claim against Buyer or the Company arises that
is covered by the indemnity provisions of Section 8.1(a) of this Agreement,
notice shall be promptly given by Buyer or the Company to Seller. Provided that
Seller admits in writing to the party seeking indemnification that such claim
is covered by the indemnity provisions of Section 8.1(a) hereof, Seller
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shall have the right to contest and defend by all appropriate legal proceedings
such claim and to control all settlements (unless Buyer agrees to assume the
cost of settlement and to forgo such indemnity) and to select lead counsel to
defend any and all such claims at the sole cost and expense of Seller;
provided, however, that Seller may not effect any settlement that could result
in any cost, expense or liability to Buyer or the Company or subject Buyer or
the Company to other than monetary damages unless such party consents in
writing to such settlement and Seller agrees to indemnify such party therefor.
Buyer may select counsel to participate in any defense, in which event Buyer's
counsel shall be at the sole cost and expense of Buyer. In connection with any
such claim, action or proceeding, the parties shall cooperate with each other
and provide each other with access to relevant books and records in their
possession.
(d) Except as set forth in Sections 8.3 and 8.4 hereof, this
Section 8.1 shall be the sole remedy of Buyer and the Company against Seller
for any claim arising in connection with the transactions contemplated herein.
Seller's representations and warranties made herein shall survive the Closing,
but only to the extent and for such time as is necessary to enable Buyer to
enforce its rights to indemnification under this Section.
8.2 Buyer's Indemnity. (a) Buyer hereby agrees to indemnify and hold
Seller harmless from and against, and agrees to
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defend promptly Seller from and to reimburse Seller for, any and all Losses
that Seller may at any time suffer or incur, or become subject to, as a result
of or in connection with (i) any breach or inaccuracy of any of the
representations and warranties made by Buyer in or pursuant to this Agreement,
and (ii) any failure by Buyer to perform any of its covenants and obligations
set forth in this Agreement or in any document or instrument delivered pursuant
hereto; provided, however, that Seller shall have no right to be indemnified,
held harmless from, defended or reimbursed pursuant to Section 8.2(a)(i) hereof
in respect of the representations and warranties made by Buyer unless such
right is asserted (whether or not such Losses have actually been incurred) by
notice to Buyer within two years of the Closing Date describing with
specificity the facts giving rise to the asserted right; and provided, further,
that Buyer shall not be required to indemnify Seller under Section 8.2(a)(i)
hereof in respect of the representations and warranties made by Buyer unless
and until the amount of all Losses for which such indemnification is sought
hereunder first exceeds $250,000, in which event all Losses shall be subject to
indemnification.
(b) The amounts for which Buyer shall be liable under Section
8.2(a) of this Agreement shall be net of any insurance proceeds received by
Seller in connection with the facts giving rise to the right of
indemnification. The amounts for which Buyer shall be liable under Section
8.2(a) shall also include all
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costs and expenses incurred by Seller in enforcing its rights to
indemnification hereunder.
(c) In the event a claim against Seller arises that is covered by
the indemnity provisions of Section 8.2(a) of this Agreement, notice shall be
promptly given by Seller to Buyer. Provided that Buyer admits in writing to
Seller that such claim is covered by the indemnity provisions of Section 8.2(a)
hereof, Buyer shall have the right to contest and defend by all appropriate
legal proceedings such claim and to control all settlements (unless Seller
agrees to assume the cost of settlement and to forgo such indemnity) and to
select lead counsel to defend any and all such claims at the sole cost and
expense of Buyer; provided, however, that Buyer may not effect any settlement
that could result in any cost, expense or liability to Seller or subject Seller
to other than monetary damages unless Seller consents in writing to such
settlement and Buyer agrees to indemnify Seller therefor. Seller may select
counsel to participate in any defense, in which event such counsel shall be at
the sole cost and expense of Seller. In connection with any such claim, action
or proceeding, the parties shall cooperate with each other and provide each
other with access to relevant books and records in their possession.
(d) Except as provided in Sections 8.3. 8.4 and 8.7 hereof, this
Section 8.2 shall be the sole remedy of Seller against Buyer for any claim
arising in connection with the
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transactions contemplated herein. Buyer's representations and warranties made
herein shall survive the Closing, but only to the extent and for such time as
is necessary to enable Seller to enforce its rights to indemnification under
this Section.
8.3 Employee Benefit Matters.
(a) Seller and Buyer agree that the obligations of the Company
with respect to the following Employee Benefit Plans and the participation of
its employees and their dependents and beneficiaries therein shall cease at or
prior to the Effective Time of Closing and no employee or former employee,
dependent or beneficiary shall have any claim against the Company arising out
of such plans after the Effective Time of Closing:
(1) Chesapeake corporation 401(k) Savings Plan for Salaried
Employees;
(2) Chesapeake Corporation Retirement Plan for Salaried Employees;
(3) Employee Stock Ownership Plan of Chesapeake Corporation;
(4) Chesapeake Corporation Salaried Employees' Stock Purchase
Plan;
(5) Chesapeake Corporation Group Life, Medical and Dependent Life
Plan for Salaried Employees;
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(6) Chesapeake Corporation Flex Plan for Salaried Employees;
(7) Chesapeake Corporation Travel Accident Plan for Salaried
Employees;
(8) Chesapeake Corporation 1993 Incentive Plan;
(9) Long-Term Disability Plan for Salaried Employees of Chesapeake
Corporation and Designated Subsidiaries; and
(10) any other Employee Benefit Plan of the Company in force as of
the Effective Time of Closing which Seller has failed to list on
Exhibit 3.21.
Buyer (and the Company after the Effective Time of Closing) shall have no
liability, duties or obligations with respect to the above-listed plans to
Seller or to any employee, former employee or beneficiary, dependent other
party enforcing the same or having or claiming an interest thereunder,
including governmental agencies. The parties agree that any liability for the
above-listed plans that is removed from the books of the Company prior to the
Closing Date shall be disregarded for the purpose of determining the Estimated
and Final Purchase Prices under this Agreement.
(b) When used in this Section 8.3, the following terms shall have
the meanings specified;
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(i) "Buyer's Plan" means a defined benefit pension plan that is
qualified under Code Section 401(a) and that is adopted or designated by Buyer
to receive the Spinoff Amount.
(ii) "Continuing Employee" means an individual employed by the
Company at and after the Effective Time of closing.
(iii) "Hourly Employee" means each hourly paid employee of the
Company who is in the active hourly employment of the Company at the Effective
Time of Closing.
(iv) "Salaried Employee" means each salaried employee of the
Company who is in the active salaried employment of the Company at the
Effective Time of Closing.
(v) "Salaried Plan" means the Chesapeake Corporation Retirement
Plan for Salaried Employees.
(vi) "Salaried Plan Benefit" means the total of the present value
of the accrued benefits (whether or not vested) of each Salaried Employee who
is employed by the Company on the day after the Closing Date under the Salaried
Plan, computed as of the Closing Date in accordance with the actuarial
assumptions and methods specified in Exhibit 8.3A attached hereto.
(vii) "Spinoff Amount" means the present value of accrued benefits
(whether or not vested) of all Salaried Employees who are employed by the
Company on the day after the Closing Date, computed as of the Closing Date in
accordance with
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the actuarial assumptions and methods specified in Exhibit 8.3B attached hereto.
(c) (i) Buyer agrees to adopt and maintain welfare benefit plans
(as defined in ERISA section 3(l)) (the "Buyer's Welfare Plans") that, for at
least one year after the Closing Date, provide benefits to Continuing
Employees, to Continuing Employees who retire after the Closing Date and to
their beneficiaries and dependents that, taken as a whole, are comparable to
such benefits provided to such persons under the Welfare Plans immediately
prior to the Closing Date. With respect to the Continuing Employees and their
beneficiaries and dependents, Buyer's Welfare Plans shall not include a waiting
or eligibility period (except to the extent any such Continuing Employees,
beneficiaries or dependents are subject to a waiting or eligibility period
under the Welfare Plans) or a preexisting condition restriction or limitation
and, to the extent that such Continuing Employees or their dependents or
beneficiaries have satisfied any internal limits, deductibles or copayment
requirements of Seller's Welfare Plans for the year that includes the Closing
Date, such amounts will be credited toward the satisfaction of any such
requirements under Buyer's Welfare Plans.
(ii) (1) Seller and the Welfare Plans will remain responsible for
administering and paying claims incurred by employees of the Company prior to
the Effective Time of Closing.
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Seller and the Welfare Plans also will remain responsible for administering and
paying claims incurred by Continuing Employees who are unable to perform
employment duties on the Closing Date by reason of a medical condition or on
account of a medical restriction; provided that such claims are incurred before
the Continuing Employee returns to work for the Company, Buyer or one of
Buyer's Affiliates.
(2) Seller and the Welfare Plans will remain responsible for
claims incurred by the dependents and beneficiaries of employees of the Company
prior to the Effective Time of Closing. If the dependent or beneficiary of a
Continuing Employee is hospitalized on the Closing Date, Seller and the Welfare
Plans will remain responsible for claims incurred by such dependent or
beneficiary after the Effective Time of Closing and before such beneficiary or
dependent is discharged from the hospital.
(3) Seller and the Welfare Plans will remain responsible for
claims incurred by employees of the Company who retire before the Closing Date.
(4) Seller and the Welfare Plans shall be responsible for
any continuation coverage obligations under COBRA with respect to a qualifying
beneficiary (as defined in Code Section 4980B(g)) who has a qualifying event
(as defined in Code Section 4980B(f)) before the Closing Date.
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(iii) (1) Buyer and Buyer's Welfare Plans will be responsible for
administering and paying claims incurred from and after the Effective Time of
Closing by Continuing Employees of the Company who are at work for the Company,
Buyer or an Affiliate of Buyer on the Closing Date. Buyer and Buyer's Welfare
Plans will be responsible for administering and paying claims incurred by
Continuing Employees of the Company who are unable to perform employment duties
on the Closing Date on account of a medical condition or on account of a
medical restriction only with respect to claims incurred on or after the
Continuing Employee returns to work for the Company, Buyer or one of Buyer's
Affiliates.
(2) Buyer and Buyer's Welfare Plans will be responsible for
claims incurred by the dependents and beneficiaries of Continuing Employees
after the Effective Time of Closing. If the dependent or beneficiary of a
Continuing Employee is hospitalized on the Closing Date, Buyer and Buyer's
Welfare Plans will not be responsible for claims incurred by such dependent or
beneficiary after the Effective Time of Closing and before such beneficiary or
dependent is discharged from the hospital.
(3) Buyer and Buyer's Welfare Plans will be responsible for
claims incurred by Continuing Employees of the Company who retire after the
Closing Date.
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(4) Buyer and Buyer's Welfare Plans shall be responsible for
any continuation coverage obligations under COBRA with respect to each
Continuing Employee and each qualifying beneficiary (as defined in Code Section
4980B(g)) of a Continuing Employee who has a qualifying event (as defined in
Code Section 4980B(f)) after the Effective Time of Closing.
(d) (i) Buyer agrees that the Salaried Employees of the
Company shall be eligible to participate in the Buyer's Plan commencing as of
the Closing Date, based on the terms and conditions of the Buyer's Plan.
Employment with the Company, the Seller and Affiliates of the Seller prior to
the Closing Date shall count for eligibility and vesting purposes under the
Buyer's Plan to the extent such service is recognized for such purposes under
the Salaried Plan as of the Closing Date.
(ii) Buyer agrees to cause Buyer's Plan to assume liability for
the Salaried Plan Benefits which accrued prior to the Closing Date and which
commence to be paid to Salaried Employees (or their surviving spouse,
beneficiary or alternate payee) on or after the Closing Date; provided,
however, that the receipt by Buyer's Plan of the Spinoff Amount shall be a
condition precedent to the assumption of such liability. Buyer and Seller agree
to comply with all rules and procedures established by the IRS and the PBGC
with respect to the assumption of such liability.
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(iii) Seller agrees to cause the trust of the Salaried Plan to
transfer assets to Buyer's Plan equal to the Spinoff Amount. Such transfer
shall be made as soon as practicable after the Closing Date and shall include
interest on the Spinoff Amount at the rate of six percent per annum from the
Closing Date until the date of transfer. Buyer and Seller agree to comply with
all rules and procedures established by the IRS and the PBGC with respect to
such transfer. Buyer warrants that as of the date of transfer Buyer's Plan will
be qualified, and its concomitant trust exempt from tax, under Code Sections
401(a) and 501(a), respectively.
If the Spinoff Amount exceeds the Salaried Plan Benefit, then Buyer
shall pay to Seller an amount equal to such excess. If the Spinoff Amount is
less than the Salaried Plan Benefit, then Seller shall pay to Buyer an amount
equal to such deficiency. Any such payments between Buyer and Seller shall be
made in immediately available funds within 10 days of such determination and
shall bear interest at the rate of six percent per annum from the Closing Date
to the date of payment.
(iv) (1) Buyer agrees that as of the Effective Time of Closing,
Buyer shall assume sponsorship of the Chesapeake Consumer Products Company
Retirement Plan for Hourly Employees (the "Hourly Plan"). The Hourly Plan shall
continue to recognize, with respect to any Continuing Employee, service for all
purposes with the Company and its Affiliates prior to the
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Closing Date to the same extent that such service is recognized under the
Hourly Plan as in effect on such date. The Hourly Plan and Buyer shall be
responsible for all liabilities and obligations of the Hourly Plan, including,
without limitation, benefits accrued prior to the Closing Date and benefits
payable to any Hourly Plan participants who retired or separated from service
prior to the Closing Date.
(2) No later than the Effective Time of Closing, Buyer agrees
to establish or designate a trust that is exempt from tax under Section 501(a)
of the Code to receive the assets of the Hourly Plan. Seller agrees to transfer
the Hourly Plan assets to such trust as soon as practicable after the Closing
Date and after the establishment or designation of such trust. To the extent
the assets transferred to Buyer's trust are less than the total of the present
value of the accrued benefits (whether or not vested) of each hourly employee
who is employed by the Company on the day after the Closing Date under the
Hourly Plan, computed as of the Closing Date in accordance with the actuarial
assumptions set forth in Exhibit 8.3C attached hereto, Seller shall pay to
Buyer an amount equal to such deficiency, with interest as provided above.
(v) As soon as practicable after the Closing Date, but in no event
later than 90 days after the Closing Date, Seller shall prepare and deliver to
Buyer the following
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information with respect to each Continuing Employee as of the Closing Date:
(1) name;
(2) Social Security number;
(3) accrued normal retirement benefit amount, payable as a
single life annuity under the Salaried or Hourly Plan;
(4) years (and fractions) of service recognized for benefit
accrual purposes under the Salaried or Hourly Plan; and
(5) years (and fractions) of service recognized for vesting
purposes under the Salaried or Hourly Plan.
(vi) From time to time after the Closing Date, Seller and Buyer
may require information with respect to one or more employees. Seller and Buyer
agree to furnish such information to the other, if available, within thirty
(30) days after receipt of any reasonable and lawful written request from the
other.
(e) Buyer agrees that it will credit (or cause the Company to
credit) Continuing Employees with vacation time that is earned under the terms
of the Company's vacation policy in effect prior to the Effective Time of
Closing but is unused as of the Closing Date, and that Buyer will recognize
(and cause the
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Company to recognize) service with Seller, the Company and their respective
Affiliates for purposes of earning vacation time from and after the Effective
Time of Closing, but only to the extent such vacation time is accrued as a
liability on the Final Balance Sheet.
(f) Buyer agrees to pay or cause the Company to pay severance pay
and other benefits to Continuing Employees under the Company's severance
benefit programs listed on Exhibit 3.21 attached hereto, in accordance with the
terms of such programs as of the Effective Time of Closing.
(g) Seller hereby agrees to indemnify and hold the Company and
Buyer harmless from and against, and agrees to defend promptly the Company and
Buyer from and to reimburse the Company and Buyer for, any Losses resulting
from or relating to each of the following: (i) any ERISA Affiliate Plan; (ii)
any multi-employer plan (within the meaning of Section 4001(a)(3) of ERISA)
which is not an Employee Benefit Plan; and (iii) any "welfare plan" (within the
meaning of Section 3(l) of ERISA) which is not an Employee Benefit Plan with
respect to noncompliance with the notice and benefit continuation requirements
of COBRA.
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8.4 Income Tax Matters.
(a) Federal Income Taxes in General. The income and other tax
items of the Company for periods ending on or before the Closing Date shall be
included in the consolidated federal income tax return of the affiliated group,
within the meaning of Section 1504(a) of the Code, of which Seller is a member.
Except as otherwise provided in this Section 8.4, Seller shall be responsible
for and shall hold Buyer and the Company harmless from any federal income taxes
of the Company not heretofore paid and shall be entitled to any reductions in
taxes or refunds (including interest) not heretofore received for taxable
periods ending on or before the Closing Date. If Buyer or the Company receives
any such refund, Buyer shall promptly pay (or cause the Company to pay) the
entire amount of the refund (including interest) to Seller.
Buyer and the Company shall be responsible for and shall hold
Seller harmless from all federal income taxes of the Company for any taxable
period beginning after the Closing Date and, with respect to prior taxable
periods, for all federal income taxes resulting from any action taken without
Seller's written consent by Buyer or the Company after the Closing (including,
without limitation, actions taken outside the ordinary course of business and
occurring on the Closing Date but excluding operations within the ordinary
course of business on
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the Closing Date). Buyer and the Company shall be entitled to all refunds of
such taxes (including interest).
(b) State Income Taxes in General. For purposes of this Agreement,
the term "state income tax" means any tax, imposed by a state in the United
States, that is based on or measured by net income. Seller shall be responsible
for preparing and filing the state income tax returns of the Company for
taxable periods ending on or before the Closing Date. Except as otherwise
provided in this Section 8.4, Seller shall hold Buyer and the Company harmless
from any state income taxes not heretofore paid and shall be entitled to any
reductions in taxes or refunds (including interest) not heretofore received for
such taxable periods. If Buyer or the Company receives any such refund, Buyer
shall promptly pay (or cause the Company to pay) the entire amount of such
refund (including interest) to Seller.
Buyer and the Company shall be responsible for and shall hold
Seller harmless from all state income taxes of the Company for any taxable
period beginning after the Closing Date and, with respect to prior taxable
periods, for all state income taxes resulting from any action taken without
Seller's written consent by Buyer or the Company after the Closing (including,
without limitation, actions taken outside the ordinary course of business and
occurring on the Closing Date but excluding operations within the ordinary
course of business on the Closing
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Date). Buyer and the Company shall be entitled to all refunds of such taxes
(including interest).
If the Company is required to file any state income tax return for
a taxable period covering days before and after the Closing Date, Buyer shall
cause such return to be filed and shall be responsible for the payment of any
tax for such period. However, Seller shall pay to Buyer, as an adjustment to
the Final Purchase Price, the amount by which the state income tax attributable
to the period through the Closing Date exceeds the sum of the amount of such
tax paid on or before the Closing Date plus the amount of such tax reflected on
the Final Balance Sheet. The tax attributable to the period through the Closing
Date shall be determined (i) as if that period were a separate taxable year,
and (ii) except as otherwise required by Law, by using the tax accounting
methods and tax elections used by the Company before the Effective Time of
Closing. Seller shall compute the amount of the Company's tax attributable to
the period through the Closing Date and shall notify Buyer of such amount in
writing no later than 90 days after the Closing Date. Within 45 days after the
date of such notification, Seller shall pay to Buyer the excess of (i) the
amount of tax determined by Seller as attributable to the portion of the period
through the Closing Date, over (ii) the sum of the amount of the tax for the
taxable period paid on or before the Closing Date plus the amount of such tax
reflected on the Final Balance Sheet, unless, within 30 days
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after such date, Buyer notifies Seller in writing that Buyer disagrees with the
computation of any such amount. In that case, Seller and Buyer shall proceed in
good faith to determine the correct amount, and Seller's payment to Buyer shall
be due the later of (i) the time specified in the immediately preceding
sentence, and (ii) 10 days after Seller and Buyer agree to the amount payable.
(c) Taxes Resulting From Section 338 Elections. An election shall
be made by Buyer and Seller under Section 338(h)(10) of the Code with respect
to the Company. Seller shall prepare and file the returns for, be responsible
for the payment of, indemnify and hold Buyer and the Company harmless from, and
be entitled to any refund of any federal and state income taxes resulting from
that election (and any corresponding election under state law). Buyer and
Seller shall execute IRS Form 8023-A (or any applicable successor form) prior
to or at Closing. Seller shall retain custody of such form, and all required
attachments thereto, and shall file such form with the appropriate office(s) of
the IRS. Promptly after such filing, Seller shall provide a photocopy of the
form (including all attachments) as filed to Buyer. The parties acknowledge
that the effect of such election will be to cause the Company to be treated as
two corporations for federal income tax purposes: (i) an "old" corporation,
which shall be treated (a) as having sold all of its assets in a taxable
transaction as of the Effective
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Time of Closing on the Closing Date while a member of the Seller's affiliated
group, and (b) as having completely liquidated pursuant to Sections 332 and 337
of the Code by distributing the Final Purchase Price to Seller; and (ii) a
"new" corporation, which shall be treated as having purchased (as of the
beginning of the day after the Closing Date) the assets deemed sold by the old
corporation. The parties intend for such election to be effective, if possible,
for state (as well as federal) income tax purposes, and they shall timely
execute and file any documents that may be required under any applicable state
law, rule or regulation for such election (or any corresponding election under
state law, rule or regulation) to be effective for state income tax purposes.
Buyer and Seller shall cooperate as provided herein in determining
the deemed sales prices of the assets of the Company for purposes of Section
338(a)(1) of the Code in accordance with all applicable Treasury Regulations
promulgated under Section 338 of the Code. Buyer initially shall determine such
deemed sales prices and shall notify Seller in writing of the prices so
determined ("Buyer's Deemed Sales Price Notice") within 90 days after the
Closing Date. Seller shall be deemed to have accepted such determination
unless, within 60 days after the date of Buyer's Deemed Sales Price Notice,
Seller notifies Buyer in writing of (i) each proposed deemed sales price with
which Seller disagrees, and (ii) for each such price, the amount that Seller
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proposes as the deemed sales price. If Seller provides such notice to Buyer,
the parties shall proceed in good faith to determine mutually the deemed sales
prices in dispute. Neither Buyer nor Seller shall take, nor shall they permit
any affiliated corporation (including, without limitation, the Company) to
take, any position for income tax purposes that is inconsistent with the deemed
sales prices as finally determined hereunder; provided, however, that the
deemed purchase prices of the assets shall differ from the deemed sales prices
to the extent necessary to reflect the inclusion in the total deemed purchase
price of items (for example, Buyer's capitalized acquisition costs in addition
to the Final Purchase Price) not included in the total deemed sales price.
(d) Cooperation. Buyer agrees to cooperate and to cause the
Company to cooperate with Seller to the extent reasonably required after the
Closing Date in connection with (i) the filing, amendment, preparation and
execution of all federal and state income tax returns and documents with
respect to any taxable period of the Company ending on or before the Closing
Date, (ii) contests concerning the federal or state income tax due for any such
period and (iii) audits and other proceedings conducted by income tax
authorities with respect to any such period. Within a reasonable time (but not
more than 10 days) after Buyer or the Company receives official notice of any
such contest, audit or other proceeding, Buyer shall notify or cause
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the Company to notify Seller in writing of such contest, audit or other
proceeding. In any case where the Company is responsible under applicable Law
for the defense of such contest, audit or other proceeding, Seller shall have
the right to conduct the defense at its expense, whether such contest, audit or
other proceeding commenced before or commences after the Closing.
Notwithstanding Seller's obligations under the preceding provisions of this
Section 8.4, Seller shall have no obligation to pay or to indemnify or hold
Buyer or the Company harmless from any tax imposed or assessed as a result of
(i) the failure of Buyer or the Company to notify Seller as required by this
paragraph, if such failure adversely affects Seller's ability to respond
adequately in a timely manner to the notice of contest, audit or other
proceeding, or (ii) any action taken by Buyer or the Company with respect to
any contest, audit or other proceeding without Seller's written consent. The
amount of any income tax indemnification otherwise payable by Seller under this
Agreement shall be reduced by the amount or, in the case of a tax benefit to be
realized subsequently, the then-present value of any federal or state income
tax benefit to Buyer or the Company resulting from any adjustment to or change
in any tax item relating to the Company for any taxable period ending before or
including the Closing Date. Such present value shall be based on a discount
rate of six percent per annum.
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Seller agrees to make available to Buyer and the Company records
in the custody of Seller or of any member of the Seller's affiliated group, to
furnish other information and otherwise to cooperate to the extent reasonably
required for the filing of federal and state income tax returns and other
documents relating to the Company for any taxable period ending after the
Closing Date. However, no loss, credit or other item of the Company may be
carried back without Seller's written consent, which Seller may withhold in its
sole and absolute discretion, to a taxable period for which the Company and
Seller or any corporation affiliated with Seller filed a consolidated, unitary
or combined return.
Seller agrees to cooperate with Buyer, and Buyer agrees to
cooperate (and cause the Company to cooperate) with Seller, to the extent
necessary in connection with the filing of any information return or similar
document relating to the Buyer's acquisition of the Company.
(d) Payment of Accrued Income Taxes. Seller has the right to
receive from the Company accrued but unpaid federal and state income taxes for
taxable periods ending on or before the Closing Date. If funds for any such
taxes have not been paid by the Company to Seller before Closing, such funds
shall be payable (and Buyer shall cause such funds to be paid) upon Seller's
demand to the extent such taxes are reflected as a liability on the Final
Balance Sheet.
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(e) Taxes to Include Interest, Etc. For purposes of this Section
8.4, the term "tax" or "taxes" includes any addition to tax, interest and
penalty imposed with respect to the tax or taxes. Thus, for example, any
obligation to hold a party harmless from federal income tax for a taxable
period includes the obligation to hold the party harmless from any addition to
tax, interest or penalty imposed with respect to such federal income tax.
(f) Termination of Tax-Sharing Agreement. After the Closing, this
Section 8.4 shall supersede any and all tax-sharing or similar agreements to
which (i) the Company, and (ii) Seller or any corporation affiliated with
Seller are parties. Neither the Company, Seller nor any such affiliated
corporation shall have any obligation or right with respect to each other under
any such prior agreement after the Closing.
(g) Relationship of Section 8.4 to Sections 8.1 and 8.2. Any
conditions or limitations set forth in Section 8.1 or 8.2 with respect to
amount of claims or liability shall not apply to any claim or liability to
which this Section 8.4 applies or relating to any breach of any obligation
under this Section 8.4. In the event of any inconsistency between provisions of
Section 8.1 or 8.2 and Section 8.4, this Section 8.4 shall control.
8.5 Indemnity Amounts to be Computed on After-Tax Basis. The amount of
any indemnification payable under any of the
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provisions of this Article VIII shall be (i) net of any federal or state income
tax benefit realized or the then-present value (based on a discount rate of six
percent) of any such income tax benefit to be realized by the indemnified party
(or, where Buyer is the indemnified party, the Company) by reason of the facts
and circumstances giving rise to the indemnification, and (ii) increased by the
amount of any federal or state income tax required to be paid by the
indemnified party on the accrual or receipt of the indemnification payment. For
purposes of the preceding sentence, the amount of any state income tax benefit
or cost shall take into account the federal income tax effect of such benefit
or cost.
8.6 Records. Buyer shall cause the Company to preserve and keep, free
of charge, all original books, papers and records of the Company relating to
periods prior to the Closing Date for a period of no less than seven years
following the Closing Date. Buyer agrees to permit Seller and its attorneys,
accountants, agents and designees access to such books, papers and records from
and after the Closing Date for all reasonable purposes. Any such examination
shall be at the expense of Seller, shall be performed at the place where such
books, papers and records are regularly maintained and shall not interfere
unreasonably with Buyer's normal business activities. Buyer shall notify Seller
at any time that it intends to destroy any or all of such books, papers and
records, and Seller shall have the right to review and
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remove at Seller's expense any of such books, papers and records. The foregoing
provisions of this Section 8.6 shall apply as well to books, papers and records
of Seller to the extent they relate to periods prior to the Closing Date and
are needed by Buyer or the Company in connection with tax returns of Buyer or
the Company.
8.7 No Use of Name. Buyer agrees that without Seller's consent, it
will not, nor will it permit the Company after the Closing Date to, make any
use of the names "Chesapeake Corporation" or "Chesapeake Consumer Products
Company", the word "Chesapeake" or the "rolling C" logo, or any variation
thereof in any manner; provided, that for up to one year following the Closing
Date, the Company may sell in the ordinary course of its business any Inventory
bearing any of such marks as of the Effective Time of Closing; and provided
further, that Buyer and the Company shall indemnify and hold Seller harmless
for any Losses suffered by Seller that are directly attributable to such use.
ARTICLE IX
----------
TERMINATION
-----------
9.1 Termination. Time is of the essence of this Agreement. This
Agreement may be terminated and the transactions contemplated hereby may be
abandoned as follows: (a) at any time prior to the Closing Date by mutual
written agreement of Seller and
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Buyer; or (b) by Buyer on the Closing Date if any of the conditions set forth
in Article VI of this Agreement shall not have been fulfilled by the Closing
Date; or (c) by Seller at any time on or after December 1, 1995, if Buyer has
not provided Seller with assurances, in form satisfactory to Seller in its sole
discretion, from reputable financial institutions to provide the financing
contemplated in Section 6.10 hereof (subject only to customary, commercially
reasonable conditions to closing), or if Buyer has not made the Deposit
contemplated by Section 2.2(a) hereof; or (d) by Seller on the Closing Date if
any of the conditions set forth in Article VII of this Agreement shall not have
been fulfilled by the Closing Date; or (e) by Seller or Buyer on December 31,
1995, if by that date, despite substantial adherence to the terms of this
Agreement by Seller and Buyer, substantial progress toward Closing has not been
made.
9.2 Rights on Termination; Deposit; Waiver. (a) If this Agreement is
terminated pursuant to Section 9.1, all further obligations of the parties
under or pursuant to this Agreement shall terminate without further liability
of either party to the other, except as otherwise provided in Section 9.2(b)
hereof; provided, that Buyer's obligations contained in Section 5.9 of this
Agreement shall survive any such termination.
(b) In the event this Agreement is terminated as a result of (i)
the failure to satisfy the conditions precedent to Closing set forth in Article
VII of this Agreement (excluding
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Sections 7.3 and 7.6 thereof), or (ii) Buyer's failure to obtain the financing
referred to in Section 6.10 hereof, if such failure is attributable to (A) a
material adverse change in the business, financial condition, results of
operations or prospects of Buyer or its Affiliates, or (B) Buyer's
unwillingness to close such financing notwithstanding the lender(s) willingness
to close, then Seller shall be entitled to retain the Deposit as liquidated
damages (it being understood that the parties have agreed that the actual
damages suffered by Seller upon any such termination of the Agreement would be
difficult or impossible to ascertain, and that the amount of the Deposit is a
reasonable approximation thereof in light of the circumstances). In the event
this Agreement is terminated for any other reason, Seller shall promptly repay
the Deposit to Buyer.
(c) If any of the conditions set forth in Article VI of this
Agreement have not been satisfied, Buyer may nevertheless elect to waive such
conditions and proceed with the consummation of the transactions contemplated
hereby. If any of the conditions set forth in Article VII of this Agreement
have not been satisfied, Seller may nevertheless elect to waive such conditions
and proceed with the consummation of the transactions contemplated hereby.
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ARTICLE X
---------
MISCELLANEOUS
-------------
10.1 Entire Agreement; Amendment. Except as set forth in Section 5.9
hereof, this Agreement and the documents referred to herein and to be delivered
pursuant hereto constitute the entire agreement between the parties pertaining
to the subject matter hereof, and supersede all prior and contemporaneous
agreements, understandings, negotiations and discussions of the parties,
whether oral or written, and there are no warranties, representations or other
agreements between the parties in connection with the subject matter hereof,
except as specifically set forth herein or therein. No amendment, supplement,
modification, waiver or termination of, and no election under, this Agreement
shall be binding unless executed in writing by the party to be bound thereby.
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision of this Agreement, whether or not
similar, nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided. The representations and warranties of each party hereto
shall be deemed to be material and to have been relied upon by the other party,
notwithstanding any investigation heretofore or hereafter made by the other
party.
10.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of their respective
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counsel, accountants and other experts and the other expenses incident to the
negotiation and preparation of this Agreement and consummation of the
transactions contemplated hereby.
10.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Virginia, without regard to the
conflicts of law rules thereof.
10.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
10.5 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or by messenger or by overnight delivery
service, or three days after the date when mailed by registered or certified
United States mail, postage prepaid, return receipt requested, or when received
via telecopy, telex or other electronic transmission, in all cases addressed to
the person for whom it is intended at his address set forth below or to such
other address as a party shall have designated by notice in writing to the
other party in the manner provided by this Section:
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If to Seller: Chesapeake Corporation
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: J. Carter Fox, Chairman &
Chief Executive Officer
With a copy to: Chesapeake Corporation
2 James Center, 22nd Floor
1021 East Cary Street
P.O. Box 2350
Richmond, Virginia 23218-2350
Attention: J.P. Causey Jr., Esq.,
Senior Vice President,
Secretary & General Counsel
If to Buyer: The Fonda Group, Inc.
21 Lower Newton Street
St. Albans, Vermont 05478
Attention: Thomas Uleau
Executive Vice President
With a copy to: The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: Harvey Friedman, Esq.
General Counsel
10.6 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
10.7 Interpretation. Unless the context requires otherwise, all words
used in this Agreement in the singular
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number shall extend to and include the plural, all words in the plural number
shall extend to and include the singular and all words in any gender shall
extend to and include all genders. All references to contracts, agreements,
leases, Employee Benefit Plans or other understandings or arrangements shall
refer to oral as well as written matters.
10.8 Severability. If any provision, clause or part of this Agreement,
or the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
10.9 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any of the prov s ons of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
10.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement. Buyer
and Seller assume no liability to any third party because of any reliance on
the representations, warranties and agreements of Buyer and Seller contained in
this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Stock Purchase
Agreement to be duly executed as of the day and year first above written.
CHESAPEAKE CORPORATION
By: /s/
-------------------------------
Its: Group VP & CFO
------------------------------
THE FONDA GROUP, INC.
By: /s/ Thomas Uleau
-------------------------------
Its: Exec. VP, COO
------------------------------
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AGREEMENT made this 13th day of October, 1995, by and between ALFRED
BLEYER & CO., INC., a New York corporation ("Seller") and THE FONDA GROUP,
INC., a Delaware corporation ("Buyer").
W I T N E S S E T H:
--------------------
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller certain of the assets of Seller constituting the operating business
of Seller (the "Seller's Business"), subject to and upon, the following terms,
covenants and conditions:
ARTICLE I
---------
Sale of Assets
--------------
1.1 Assets To Be Sold. Subject to the terms and conditions of this
Agreement, on the Closing Date (as defined in Section 6.1), Seller shall sell,
transfer and assign to Buyer, subject only to the liens, encumbrances and
charges hereinafter set forth, all of Seller's right, title and interest in and
to the following assets and properties (collectively the "Assets"):
(a) All inventories of raw materials, supplies, work in progress and
finished goods used or held in connection with the Seller's Business or its
products as of the Closing [as hereinafter defined] (collectively the
"Inventory");
(b) All furnishings, vehicles, fixtures, spare parts, tools, machinery
and equipment, computer equipment, office equipment and packing and packaging
materials wherever located, used or held in connection with Seller's Business;
(c) All accounts receivable held by Seller as of the Closing (the
"Accounts Receivable");
(d) The Assumed Liabilities (as hereinafter defined);
(e) Any patents, trademarks and trade names, trademark and trade name
registrations, service marks and service mark registrations, copyrights and
copyright registrations, the applications therefor and the licenses and
franchises with respect thereto, together with the goodwill and the business
appurtenant thereto; and all trade secrets, technology (including technology
with respect to which Seller is a sublicensee, in such case only insofar as
permitted under the applicable sublicense agreement), processes, inventions,
designs, drawings, blueprints, specifications, patterns, royalties, privileges,
permits and all other similar intangible personal property, in each case, used
or held in connection with Seller's Business, as limited by the provisions of
Schedule 1.1(e);
<PAGE>
(f) All papers, documents, instruments, books and records, files,
agreements, books of account and other records pertaining to the Assets or
Seller's Business (including without limitation customer invoices, customer
lists, vendor and supplier lists, drafts and other documents and materials
relating to customer transactions), other than those that pertain primarily to
the Excluded Assets (as hereinafter defined) and are not reasonably necessary
for the operation of Seller's Business and other than the Warehouse Sublease
and Long Island Railroad documents (each as hereinafter defined); and
(g) All other assets and rights of every kind and nature, personal,
tangible or intangible, that are owned and used by Seller in connection with
Seller's Business, including the Lease and the Warehouse Sublease, except for
assets and rights specifically excluded pursuant to Section 1.2.
1.2 Assets Excluded From Sale: The following assets and properties are
specifically excluded from the Assets (collectively the "Excluded Assets") of
Seller to be sold to Buyer:
(a) Seller's Real Properties and the improvements thereon;
(b) Seller's cash and cash equivalents;
(c) Seller's marketable securities, if any;
(d) Life insurance policies owned by Seller, including their cash
surrender value;
(e) Seller's prepaid expenses;
(f) Seller's deferred pension and finance costs;
(g) Deferred income taxes;
(h) Security deposit under the Warehouse Lease; and
(i) Any receipts with respect to customers whose accounts receivable
were previously written off and not included in the Accounts Receivable.
ARTICLE II
----------
Assumption of Liabilities
-------------------------
2.1 Assumption of Certain Liabilities by Buyer. At the Closing, Buyer
shall assume and agree to pay and perform all obligations to be paid and
performed by Seller pursuant to the leases, contracts and other agreements and
arrangements to which Seller is then a party or is bound (i) disclosed on
Schedule 7.6 hereto; or (ii) in writing and not required to be disclosed on
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Schedule 7.6 hereof; provided, however, that the same shall have been entered
into or incurred in the ordinary course of Seller's Business (the "Assumed
Liabilities").
2.2 Liabilities Not Assumed by Buyer. Buyer shall not assume or be
responsible for any of the following liabilities or obligations (the "Excluded
Liabilities"):
(a) Seller's accounts payable;
(b) Any liabilities or obligations relating to the Excluded Assets;
(c) Any liabilities or obligations of the Company arising prior to the
Closing, including, without limitation, any of Seller's tax liabilities arising
out of the transactions contemplated by this Agreement; except, however, that
Buyer shall be responsible for its share of sales and use taxes payable in
connection with the purchase and sale of the Assets, if any;
(d) Any liabilities or obligations arising solely out of any action,
suit or proceeding based upon an event occurring or a claim arising prior to
the Closing Date, all of which shall be the sole responsibility of Seller.
ARTICLE III
-----------
Purchase Price.
---------------
3.1 The purchase Price for the Assets (the "Purchase Price") shall be
Four Million Seven Hundred Fifty Thousand Dollars ($4,750,000) plus the
Inventory Value determined under Section 3.2 plus the total Accounts Receivable
at Closing determined under Section 3.3.
3.2 Inventory Value.
(a) "Inventory Value" shall mean the value of the Inventory as of the
Closing Date, determined in accordance with Generally Accepted Accounting
Principles, ("GAAP"), on the first in, first-out (FIFO) method, consistently
applied and consistent with the February 28, 1995 audited FIFO inventory in
Seller's financial statements, based upon the actual cost of the materials
(such cost to be determined by reference to invoice cost when it can be
specifically identified to such materials, less all available trade and payment
discounts, plus, in the case of items of Inventory which have been manufactured
by Seller, the direct labor costs and manufacturing overhead (such allocation
to be consistent with the past practices of Seller).
(b) A physical Inventory count will be taken by Buyer and Seller at
the close of business on the day preceding the Closing Date. The Inventory
count and valuations will be recorded on an inventory sheet, a copy of which,
when approved by Buyer,
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will be signed by authorized representatives of each of Seller and Buyer. Where
there is a dispute as to Inventory Value, Seller and Buyer will use their best
efforts to come to a reasonable resolution of the dispute, but if they cannot
resolve the dispute within thirty (30) business days after completion of the
physical Inventory count, they will submit the dispute to binding arbitration
in accordance with the rules of the American Arbitration Association, in New
York, New York, before a single arbitrator.
(c) The out-of-pocket costs of any arbitration will be borne one-half
(1/2) by Buyer and one-half (1/2) by Seller but neither Seller nor Buyer will
be entitled to reimbursement for their or their respective employees' time or
their counsels' or accountants' fees in connection therewith.
3.3 Accounts Receivable.
(a) "Accounts Receivable" shall mean the aggregate of Seller's trade
accounts receivable, all of which shall be purchased by Buyer and transferred
and assigned to it by Seller at the Closing.
(b) At the election of Buyer, Seller shall repurchase any Accounts
Receivable not collected within ninety (90) days after the Closing Date;
provided, however, that Buyer shall have used its best efforts to collect such
Accounts Receivable consistent with Seller's ordinary course of business.
Seller shall be entitled to a credit against such repurchase equal to the
amount of the reserves for cash and normal trade allowances and bad debts
deducted by Buyer under Section 4.1(d) hereof, or if the amount of such
reserves shall exceed the amount of such repurchase, such excess shall be paid
by Buyer to Seller. If Buyer and Seller shall have made sales of Seller's
products to the respective customer, all payments made by such customer shall
be applied by Buyer to the respective customer's indebtedness in the order in
which the same was incurred unless otherwise specified by the respective
customer in writing. If Seller shall receive directly any payments respecting
any Account Receivable, it shall remit such payments to Buyer.
ARTICLE IV
----------
Payment of Purchase Price.
--------------------------
4.1 Buyer shall pay the Purchase Price to Seller as follows:
(a) Seventy-Five Thousand ($75,000) Dollars concurrently herewith, to
be held in escrow pending the Closing or sooner termination of this Agreement
by Seller's attorneys, Steckler, Gutman, Morrissey & Murray, (the "Escrow
Agent").
(b) Two Million Four Hundred Twenty-Five Thousand ($2,425,000) Dollars
in immediate funds at Closing.
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(c) The Inventory Value shall be paid in immediate funds at Closing;
provided, however, that to the extent, if any, that the Inventory Value shall
be in dispute, such portion of the Inventory Value shall be so paid within five
(5) business days following resolution of such dispute.
(d) The total amount of the Accounts Receivable less reserves for cash
and normal trade allowances and bad debt shall be paid in immediate funds at
Closing.
(e) Two Million Two Hundred Fifty Thousand ($2,250,000) Dollars shall
be paid by delivery to Seller of Buyer's Promissory Note in the form of Exhibit
4.1(e) annexed hereto.
ARTICLE V
---------
Leases
------
5.1 Seller is the owner of premises known as 58-77 57th Street,
Maspeth, New York and 58-97 57th Street, Maspeth, New York, in which it
presently conducts Seller's Business. Both properties are herein called
"Seller's Real Properties."
5.2 Seller and Buyer shall execute and deliver at Closing a two-year
(2) lease for Seller's Real Properties in the form of Exhibit 5.2 annexed
hereto at a rental of Three Hundred Ninety Thousand ($390,000) Dollars per
annum, payable in equal monthly installments on a net, net, net basis except
for (a) roof and other structural and outside repairs; (b) violations of any
Federal, State or local law, code or ordinance or any administrative rule or
regulation except to the extent, if any, relating to Buyer's use of Seller's
Real Properties; (c) damage by fire or other event to be covered by the
insurance policies required to be maintained in respect of Seller's Real
Properties; and (d) conditions existing as of the Closing Date, all of which
shall be Seller's obligations; granting Buyer a right to extend the term of the
lease for three (3) successive periods of one (1) year each; and further
granting Buyer the option to purchase Seller's Real Properties at a purchase
price and on terms to be determined in the manner provided in the Lease, such
option to be exercised at least six (6) months prior to the expiration of the
lease term.
5.3 Seller is the lessee of a warehouse facility at 57-48 49th Street,
Maspeth, New York (the "Warehouse") owned by J&J Farms Creamery, Inc. which
obtained financing from the New York City Industrial Development Agency and the
New York City Financial Services Corporation. Seller and Buyer shall execute
and deliver at Closing, a sublease for the Warehouse in the form of Exhibit 5.3
annexed hereto. Seller will not be required to obtain the consent of the New
York City Industrial Development Agency or the New York City Financial Services
Corporation or the landlord to the sublease; provided, however, that Seller, in
addition to any other indemnification obligations contained in this Agreement,
will indemnify, defend and hold Buyer harmless with respect to any
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damages, liabilities, claims, losses and expenses, including reasonable legal
fees and court costs and any rent amounts which Buyer must pay in excess of the
rent payments due under the sublease during the specified term thereof, which
may be incurred by Buyer as a result of the parties' entering into and
implementing the sublease without any required consents. Seller has furnished
Buyer with a copy of the Warehouse Lease and the extensions thereof for a term
now expiring on April 30, 1996.
ARTICLE VI
----------
Closing
-------
6.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of the Escrow Agent,
at 10:00 A.M. on November 30, 1995 (the "Closing Date"). If any of the
conditions precedent to Seller's or Buyer's obligation to close this
transaction set forth below are not satisfied on the scheduled Closing Date and
the respective party does not wish to waive such condition, such party may, at
its sole discretion, on notice to the other of at least three (3) business
days, reschedule the Closing for another date (which must be a business day)
not later than .
6.2 Actions to be Taken at the Closing. At the Closing, the parties
shall take the following actions and deliver the following documents:
(a) Seller shall execute and deliver to Buyer a Bill of Sale in the
form of Exhibit 6.2(a) annexed hereto covering the Assets described in Sections
1.1(a), 1.1(b) and 1.1(c) of this Agreement.
(b) Seller and Buyer shall execute and deliver an Assignment and
Assumption Agreement covering the assets described in Sections 1.1(d), 1.1(e)
and 1.1(f) of this Agreement.
(c) Seller shall deliver to Buyer corporate resolutions of Seller's
Board of Directors and shareholders authorizing the delivery, execution and
consummation of this Agreement, certified by an officer of Seller as being
valid and effective.
(d) Buyer shall deliver to Seller corporate resolutions of Buyer's
Board of Directors and shareholders authorizing the delivery, execution and
consummation of this Agreement, certified by an officer of Buyer as being valid
and effective.
(e) Seller shall deliver a Certificate executed by an officer of
Seller, dated as of the Closing Date and in form and substance reasonably
acceptable to Buyer, certifying as to Seller's full compliance with each of its
representations, warranties and covenants under this Agreement.
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(f) Buyer shall deliver a Certificate executed by an officer of Buyer,
dated as of the Closing Date and in form and substance reasonably acceptable to
Buyer, certifying as to Buyer's full compliance with each of its
representations, warranties and covenants under this Agreement.
(g) Seller shall deliver to Buyer an amendment to Seller's corporate
charter (in form ready for immediate filing with the New York Department of
State) changing Seller's corporate name to a name which is (i) wholly
dissimilar from "Alfred Bleyer & Company, Inc." and (ii) available for use in
the State of New York; Buyer shall file this amendment immediately after the
Closing and deliver the filing receipt thereof, or a copy, to Seller.
(h) Buyer and Seller shall execute and deliver the lease for Seller's
Real Properties.
(i) Seller and Buyer shall execute and deliver the Sublease for the
Warehouse.
(j) Seller and Buyer shall deliver the Opinion Letters of their
respective attorneys described in Sections 12.1(c) and 12.2(c) of this
Agreement.
(k) Buyer shall make the payments required by Sections 4(b) through
4(d) and deliver its Promissory Note required by Section 4(e).
(l) Seller and Buyer shall execute and deliver such other documents
and Certificates as are required by the terms of this Agreement or as may be
reasonably requested by the other party.
6.3 Prorations. At the Closing, all payments respecting the Assumed
Liabilities and all service and utility charges shall be prorated as of the
Closing Date.
ARTICLE VII
-----------
Representations and Warranties to Buyer
---------------------------------------
7. Seller represents and warrants to Buyer as follows:
7.1 Organization; Power and Authority. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York, and has the corporate power and authority to (a) own, operate and
lease the properties it now owns, operates and leases, (b) carry on the
Seller's Business as it is now being conducted, (c) enter into this Agreement
and (d) consummate the transactions contemplated by this Agreement. Seller owns
Seller's Real Properties and has full power and authority to enter into and to
consummate the transactions contemplated by the lease to Buyer of Seller's Real
Properties.
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7.2 Authorization; Due Execution, No Conflicts.
(a) This Agreement has been duly authorized by all necessary action on
the part of Seller and its shareholders. Upon the execution and delivery of
this Agreement, this Agreement will constitute the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its terms.
(b) Seller's execution, delivery and performance of this Agreement
will not (i) constitute a breach or violation of (A) Seller's corporate charter
or By-Laws, (B) any law, rule or regulation, or (C) any material agreement,
indenture, deed of trust, mortgage, loan agreement or other material instrument
to which Seller is a party or by which Seller is bound, including any Assumed
Liabilities other than with respect to the loan documents for loans to Seller
from National Westminster Bank (U.S.A.) which loans will be repaid to Seller in
full, with interest, at the Closing; (ii) constitute a violation of any order,
judgment or decree to which Seller is a party or by which Seller's assets or
properties are bound or affected; (iii) result in the acceleration of any
material debt owed by Seller; or (iv) result in the creation of any lien,
charge or encumbrance upon any of the Assets.
7.3 Title to and Condition of the Assets.
(a) At the Closing, Buyer will receive good and marketable title to
all of the Assets, free and clear of all security interests, mortgages, liens,
pledges, charges or encumbrances of any nature and that the present mortgages
and liens held by National Westminster Bank (U.S.A.) on certain of Seller's
assets shall be satisfied and discharged at the Closing and Seller shall
deliver to Buyer at Closing such instruments as may be necessary to discharge
the same of record.
(b) To the best of Seller's knowledge, all of Seller's Real
Properties, machinery and equipment are in good operating condition, subject
only to ordinary wear and tear, and fit for their intended purpose, except to
the extent described in Schedule 7.3(b) to this Agreement.
(c) All of the Assets are owned by Seller and, except as set forth on
Schedule 7.3(c) to this Agreement, Seller is not leasing nor holding on
consignment, any of the Assets.
(d) All Assets which comprise Inventory have been purchased and/or
manufactured for sale or use by Seller in the ordinary course of Seller's
Business.
7.4 Claims; Litigation; Compliance With Laws.
(a) To the best of Seller's knowledge, there are no persons holding
any claims of any nature against Seller, including claims arising out of, or in
connection with, the operation of Seller's Business or of any of the Assets,
except for such claims
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arising from goods sold or services rendered to Seller in the ordinary course
of Seller's Business which do not exceed in the aggregate $20,000. No such
claims or liabilities, if any, shall be assumed by Buyer.
(b) Except as disclosed in Schedule 7.4(b) to this Agreement, Seller
is not: (i) a party to any litigation, proceeding or administrative
investigation, and to Seller's knowledge none is pending or threatened against
it, relating to Seller, Seller's Business or the Assets or in connection with
the transactions contemplated by this Agreement or (ii) subject to any
outstanding order, writ, injunction or decree of any court, government or
governmental authority against or affecting Seller, the Assets or Seller's
business.
(c) To the best of Seller's knowledge, Seller is not in violation of,
and Seller's actions in the consummation of the transactions contemplated by
this Agreement do not violate or infringe on, any federal, state or local law
or ordinance or any administrative rule or regulation. To the best of Seller's
knowledge, Seller has maintained all licenses and permits and has filed all
registrations, reports and other documents required by local, state and federal
authorities and regulating bodies in connection with the Assets or Seller's
Business.
7.5 Accounts Receivable. Schedule 7.5 to this Agreement initialed by
the parties for identification sets forth the total amount of all accounts
receivable held by Seller as of October 9, 1995. The amounts shown on Schedule
7.5 are accurate in all material respects and determined in accordance with
GAAP, consistently applied. The Accounts Receivable arose from bona fide
transactions, and no further goods or services are required to be provided in
order to entitle Seller or its assignee to collect the Accounts Receivable in
full (it being understood, however, that Seller makes no representation or
warranty with respect to the callectibility of the Accounts Receivable). None
of the Accounts Receivable has been assigned or pledged to any other person,
corporation or other entity and, to the knowledge of Seller, no defense or
set-off has been asserted by any account obligor, except as set forth on
Schedule 7.5.
7.6 List of Leases, Contracts and Other Data. Annexed hereto as
Schedule 7.6 is a list setting forth with respect to the operations of Seller's
Business, as of the dates specified on such Schedule, the following:
(a) All real property owned by Seller and all leases of real or
personal property involving payments in excess of $20,000 per annum to which
Seller is a party, either as lessee or lessor, with a brief description of the
property to which each such lease relates and the significant rental terms
(including rents, termination dates and renewal conditions);
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(b) All collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred compensation
agreements, employee pension plans or retirement plans, employee profit sharing
plans, employee stock purchase and stock option plans, group life insurance,
hospitalization insurance or other plans or arrangements providing for benefits
to employees of Seller engaged in Seller's Business;
(c) Any patents, trademarks and trade names, trademark and trade name
registrations, service marks and service mark registrations, copyrights and
copyright registrations that are unexpired on the date hereof and relate to
Seller's Business, all applications therefor and all licenses and sublicenses
with respect thereto;
(d) To the best of Seller's knowledge, all contracts, understandings
and commitments (including without limitation powers of attorney, mortgages,
indentures and loan agreements or obligations for borrowed money including,
without limitation, guarantees) to which Seller is a party or to which Seller
or any of the Assets are subject and which are not specifically referred to in
(a), (b) or (c) above, and which (A) is a contract or group of related
contracts which involve payments exceeding $25,000 per annum in amount, (B) is
a sales contract of an open-ended or blanket nature or provides for prepaid
commissions or rebates, (C) contains warranties by Seller in excess of those
customary in Seller's conduct of Seller's Business, (D) contains penalty
provisions for late delivery or completion, or (E) contains a prohibition on
the assignment thereof without the consent of the other party thereto; and
(e) The names and current annual compensation rates of all employees
of Seller engaged in Seller's Business earning in excess of $70,000 per annum.
True and complete copies of all documents referred to in Schedule 7.6 hereto
have been provided or made available to Buyer or its Counsel. Except as
disclosed in said Schedule, to the knowledge of Seller, no claim has been
asserted that any lease or other contract referred to in the Schedule is not
valid and enforceable in accordance with its terms for the periods stated
therein, and Seller has not been notified of any claims that there is under any
such lease or other contract any existing default or any condition, event or
act that, with notice or lapses of time or both would constitute such a
default, nor would consummation of the transactions contemplated hereby result
in a default or any such condition, event or act, which in any such case, would
have a material adverse effect on Seller's Business, the Assets or the
financial condition of Seller's Business from and after the Closing Date.
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7.7 Employees; Employee Benefits.
(a) Except as set forth in Schedule 7.7(a)(1), to this Agreement none
of Seller's employees has any understanding or agreement (written or
otherwise), with Seller. Except as set forth in Schedule 7.7(a)(2), Seller does
not have any collective bargaining or union contracts or agreements. There have
not been any unfair labor practice complaints, labor difficulties or work
stoppages, or threats thereof, affecting any of Seller's activities. Seller
knows of no union campaign presently being conducted to solicit employees to
authorize a union to request a national labor relations board certification
election with respect to any of Seller's employees.
(b) Except as set forth on Schedule 7.7(b) to this Agreement, Seller
is not a party to and has no liability (contingent or otherwise) under, any
pension, disability, group life insurance, hospitalization insurance, profit
sharing, retirement or other employee benefit plan or arrangement or for
funding of past services of employees.
(c) Schedule 7.7(c) to this Agreement is a true and complete list of
all notes and receivables due to Seller from its officers, employees, directors
and shareholders and all other transactions involving Seller and any of its
officers, employees, directors and shareholders.
7.8 Environmental and Occupational Matters.
(a) To the best of Seller's knowledge, all federal, state and local
permits, licenses and authorizations required for, or used in, the
construction, occupancy, use and operation of Seller's Real Properties have
been obtained and are presently valid and in full force and effect. A complete
list of all such permits, licenses and authorizations is attached as Schedule
7.8(a) to this Agreement. To the best of Seller's knowledge, no permits,
licenses or authorizations are necessary, or required for the construction,
occupancy, use and operation of Seller's Real Properties or any other aspect of
the conduct of Seller's Business.
(b) To the best of Seller's knowledge, none of Seller's Real
Properties nor any property of its predecessors has been used to handle, treat,
store or dispose of any chemical, hazardous or toxic waste or substance
including air, atmosphere, all soils, ground water and surface waters located
on, in, over or under Seller's Real Properties, are not contaminated with any
chemical, hazardous or toxic waste or substance or other substances or
pollutants which contamination may give rise to any obligation under any
currently existing federal, state or local law (statutory or common), rule,
regulation or ordinance. To the best of Seller's knowledge, no real or personal
property or air or atmosphere of any sort or description, wherever situated,
has, by reason of the handling, storage, transportation, treatment, disposal or
emission of any chemical, hazardous or toxic, waste or material or other
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substance or pollutant by Seller (its employees, agents or contractors) been
contaminated or adversely affected with or by such wastes, substances,
materials or other substances or pollutants which contamination or adverse
effect has or may give rise to any liability or expense under or by reason of
any currently existing federal, state or local law, rule, regulation or
ordinance, the common law or any claim.
(c) The previously used underground tank on Seller's Real Properties
has been rendered inoperable as shown by Exhibit 7,8(c) to this Agreement, and
Seller shall be and remain responsible for any required removal of such tank
and for any remediation associated therewith if required by applicable law.
(d) Seller has not received notice of any outstanding violations of,
or any consent decrees pending or entered against Seller, regarding
environmental, occupational (meaning worker or workplace related), safety or
land use matters, including matters affecting the emission of air pollutants,
the discharge of water pollutants, the management of hazardous or toxic
substances or wastes or noise.
(e) To the best of Seller's knowledge, there are no threatened
violations affecting Seller or its predecessors or their properties with
respect to any federal, state or local environmental, occupational or safety
law, rule, regulation, ordinance, permit, license or authorization, and there
are no present discussions with any federal, state or local governmental agency
concerning any alleged violation of environmental, occupational or safety laws,
rules, regulations, ordinances, permits, licenses or authorizations.
(f) Seller has not received notice of any pending threatened claims,
lawsuits or administrative proceedings against Seller regarding environmental,
occupational or safety compliance, control or liability.
7.9 Gross Sales. Seller's monthly gross sales from March 1, 1995
through August 31, 1995 are set forth on Schedule 7.9 to this Agreement.
Buyer's representatives will have the right, during business hours and upon at
least two (2) business days' notice, to examine Seller's books and records to
verify gross sales after August 31, 1995.
7.10 Financial Statements. Seller has delivered to Buyer complete
copies of its financial statements for the five (5) fiscal years ended February
28, 1991, February 29, 1992, February 28, 1993, 1994 and 1995, respectively,
with the corresponding accountants' reports, including balance sheets and
accompanying statements of profit and loss and related schedules of costs and
expenses for the covered periods (collectively the "Financial Statements").
Each of the Financial Statements truly and completely reflects the financial
condition, results of operations and related costs and expenses of Seller as of
such dates and for
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the period then ended, and all of such statements were prepared in accordance
with GAAP, consistently applied.
7.11 Undisclosed Liabilities. Seller does not know of any liability or
obligation not reflected on the Financial Statements. Seller knows of no basis
for the assertion of any claim or liability against Seller which is not fully
reserved against in the Financial Statements.
7.12 Taxes. Except for the returns and reports listed on Schedule 7.12
to this Agreement for which extensions of the time to file have been obtained,
Seller has prepared and timely filed all federal, state and local tax returns
and reports as are and have been required to be filed, and such returns were
prepared accurately and are on a basis consistent with Seller's financial
records and all taxes shown thereon to be due have been timely paid in full.
Seller is current in its payment of all federal, state and local income,
unemployment, withholding, social security and other taxes and no claims have
been made, threatened or asserted against Seller by the United States
Government or by any state or local government for any such taxes. Seller will
promptly discharge any and all tax deficiencies asserted against it. Seller's
U.S. Corporation Income Tax Return for the fiscal year ended February 28, 1994
has been selected for audit by the Internal Revenue Service.
7.13 Absence of Changes or Events. Except as disclosed on Schedule
7.13 to this Agreement or as disclosed in the Financial Statements, Seller has
operated its business only in the ordinary course and there has not been, since
February 28, 1995: (i) any material adverse change in the financial condition
or results of operation of Seller; (ii) any damage, destruction or loss,
regardless of whether covered by insurance, which materially and adversely
affected Seller's Business or the Assets; or (iii) any commitment to a
transaction material to Seller's Business with a related party or not in the
regular course of Seller's Business.
7.14 Creditors. Schedule 7.14 to this Agreement is a true and complete
list of all of Seller's creditors as of August 31, 1995.
7.15 Disclosure. No statement, representation or warranty made by
Seller in this Agreement, any other documents or statement relating to Seller,
or Seller's Business and provided to Buyer contains any untrue statement of any
material fact or omits a material fact necessary to make the statements
contained in this Agreement or such schedules or exhibits in light of the
circumstances in which they were made, not misleading.
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ARTICLE VIII
------------
Buyer's Representations and Warranties
--------------------------------------
8.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement and to enter into
the lease of Seller's Real Properties.
8.2 Authorization; Due Execution; No Conflicts.
(a) This Agreement has been duly authorized by all necessary corporate
action on the part of Buyer. Upon the execution and delivery by Buyer of this
Agreement and the lease of Seller's Real Properties will each constitute the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms.
(b) Buyer's execution, delivery and performance of this Agreement will
not (i) constitute a breach of violation of (A) Buyer's Articles of
Incorporation or By-Laws, (B) any law, rule or regulation, or (C) any material
agreement, indenture, deed of trust, mortgage, loan agreement or other material
instrument to which Buyer is a party or by which Buyer is bound; or (ii)
constitute a violation of any order, judgment or decree to which Buyer is a
party or by which any of Buyer's assets are bound or affected.
8.3 Disclosure. No statement, representation or warranty made by Buyer
in this Agreement, any other document or statement relating to Buyer and
provided to Seller contains any untrue statement of any material fact or omits
a material fact necessary to make the statements contained in this Agreement or
any statement of Buyer's financial condition, in light of the circumstances in
which they were made, not misleading.
ARTICLE IX
----------
Brokers
-------
9.1 Seller acknowledges that it used Private Corporate Advisors, Inc.
as a broker in connection with the transactions contemplated by this Agreement.
Seller shall be solely responsible for any and all fees, commissions or other
expenses which are owed to Private Corporate Advisors, Inc. Buyer and Seller
each represents and warrants to the other that it has not employed any broker
or finder (other than Private Corporate Advisors, Inc.) in connection with the
transactions contemplated by this Agreement.
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ARTICLE X
---------
Survival of Obligations,
Representations and Warranties
------------------------------
10.1 The provisions of this Agreement (including Seller's and Buyer's
representations and warranties) shall survive for three (3) years after the
Closing; provided, however, that the indemnities of Buyer with respect to
Assumed Liabilities and of Seller with respect to the Excluded Liabilities
shall survive without limitation.
ARTICLE XI
Covenants Pending Closing
-------------------------
11.1 Conduct of Seller's Business Through The Closing Date. Prior to
the Closing Date, Seller shall (except as otherwise consented to in writing by
Buyer):
(a) Operate Seller's Business in the ordinary course as historically
conducted (including with respect to buying, production and sales).
(b) Reorder Inventory in the ordinary course as historically
conducted.
(c) Not enter into any transaction, take any action or fail to take
any action which would result in, or could reasonably be expected to result in
any of Seller's representations, warranties, disclosures or agreements in this
Agreement or the exhibits or schedules to this Agreement, or in connection with
the consummation of the transactions contemplated by this Agreement to not be
true and complete immediately after the occurrence of such transaction. Seller
shall: (i) maintain its assets in good operating condition, subject to ordinary
wear and tear; (ii) maintain Seller's present insurance in force; and (iii)
comply with the provisions of all agreements, leases, laws and regulations
applicable to Seller or Seller's Business.
(d) Not enter into any agreements, contracts, purchases or sales other
than in the ordinary course of business without the written consent of Buyer,
including any agreements which would dispose of or encumber any of the Assets.
(e) Use its best efforts to preserve Seller's present business
organization and goodwill intact, including the present business relationships
and goodwill with customers, suppliers and employees and others having business
dealings with Seller.
(f) Pay all undisputed costs, expenses, liabilities and obligations of
Seller in the ordinary course when due, regardless of whether any such items
are to be reimbursed by Buyer under this Agreement.
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11.2 Approvals, Consents and Renewals. Seller and Buyer, if required,
shall obtain, in writing, all necessary governmental and third-party approvals
and consents required in order to authorize and approve this Agreement and the
sale of the Assets to Buyer. With respect to the automobile and truck leases
identified on Schedule 11.2(a) to this Agreement, at Buyer's reasonable
request, Seller will attempt to have any or all of such leases assigned to
Buyer. Obligations under any leases which are not so assigned will be retained
by Seller, and, in such cases, Buyer will either make timely payments directly
to the lessors or timely pay Seller, which will in turn make payments to the
lessors (including insurance payments in connection therewith).
11.3 List of Creditors. Seller shall provide Buyer with a complete
list of Seller's creditors, including amounts owed to each creditor, signed and
sworn to by an authorized officer of Seller, not later than the last day of the
month preceding the Closing. If the Closing Date is delayed and, in Buyer's
reasonable discretion, the list of Seller's creditors needs to be updated,
Seller will provide to Buyer such an updated list, prepared in accordance with
the immediately preceding sentence, not less than twenty (20) days prior to the
new date proposed by Buyer as the Closing Date.
11.4 Advice of Changes. Between the date of this Agreement and the
Closing Date, Seller shall promptly notify Buyer in writing of any fact which,
if existing or known at the date of this Agreement, would have been required to
be set forth in this Agreement or disclosed pursuant to this Agreement or which
would materially affect or change any of the information set forth in the
exhibits or schedules of this Agreement.
11.5 Notice of Litigation. Buyer, on the one hand, and Seller, on the
other hand, shall promptly notify the other in writing if either receives any
notice, or otherwise becomes aware, of any action or proceeding instituted or
threatening before any court or governmental agency by any third party to
restrain or prohibit, or obtain substantial damages in respect of, this
Agreement or the consummation of the transactions contemplated by this
Agreement.
11.6 Access to Properties and Records; Inspection. From the date of
this Agreement through the Closing Date, Buyer and its employees, counsel,
accountants and other representatives will be given full access during normal
business hours to all of the financial and operating data, books, tax returns,
contracts, commitments and records of Seller, including such access as is
needed to conduct a physical inspection of the Real Properties and the
Warehouse.
11.7 Other Actions. Buyer and Seller will take any and all such other
and further actions, consistent with this Agreement, as the other may
reasonably request.
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ARTICLE XII
Conditions Precedent To The Parties' Obligation To Close
--------------------------------------------------------
12.1 Buyer's Conditions Precedent. Buyer's obligations under this
Agreement are subject to the satisfaction at or before the Closing Date of each
of the following conditions, the fulfillment of any of which may be waived in
writing by Buyer:
(a) All terms, covenants and conditions of this Agreement to be
complied with or performed by Seller prior to or on the Closing Date will have
been fully complied with and performed by Seller in all material respects.
(b) All representations, warranties, disclosures and statements of
Seller contained in this Agreement and the other documents and statements
furnished to Buyer will be true and complete in all material respects as of the
date of this Agreement and the Closing Date. Any amendments to the exhibits and
schedules to this Agreement which are proposed to be delivered from and after
the date of this Agreement must be reasonably satisfactory to Buyer.
(c) Seller shall have furnished to Buyer an opinion of Seller's
counsel, dated as of the Closing Date, in form and in substance reasonably
satisfactory to Buyer and its counsel, to the effect that:
(1) Seller is a corporation duly organized and validly existing and in
good standing under the laws of this State of New York, with corporate
power and authority to enter into this Agreement and to transfer the Assets
as contemplated in this Agreement and to otherwise perform its obligations
under this Agreement.
(2) Seller has the power and authority to enter into the lease of the
Seller's Real Properties and to perform its obligations under such lease.
(3) This Agreement has been duly authorized, executed and delivered by
Seller and each constitutes the legal, valid and binding obligation of
Seller enforceable in accordance with its terms, except as may be limited
by bankruptcy, insolvency or other similar laws affecting the enforcement
of creditors' rights generally and subject to general principles of equity.
(4) The execution, delivery and performance by Seller of its
obligations under this Agreement will not violate any provision of Seller's
corporate charter, By-Laws or applicable law.
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Such opinion may expressly rely as to matters of fact upon Certificates
furnished by Seller and appropriate officers and directors of Seller and by
public officials.
(d) There will not have been any material adverse change in the
financial condition or the business of Seller, or in the condition of the
Seller's Real Properties.
(e) There will have been no material damage, from the date of the
execution of this Agreement through the Closing Date, to the Assets or Seller's
Real Properties.
12.2 Seller's Conditions Precedent. Seller's obligations under this
Agreement are subject to the satisfaction at, or prior to, the Closing Date of
the following conditions precedent (the fulfillment of any of which may be
waived in writing by Seller):
(a) All terms, covenants and conditions of this Agreement to be
complied with or performed by Buyer prior to or on the Closing Date will have
been fully complied with and performed by Buyer in all material respects,
including Buyer's timely taking of all actions and delivery of all documents
required to be taken and delivered by it under this Agreement.
(b) The representations, warranties, disclosures and statements of
Buyer contained in this Agreement and the other documents and statements
furnished to Seller shall be true and complete in all material respects as of
the date of this Agreement and on the Closing Date.
(c) Buyer will have furnished to Seller an opinion of Buyer's Counsel
dated the Closing Date, in form and substance reasonably satisfactory to Seller
and its Counsel, to the effect that:
(1) Buyer is a corporation duly organized and validly existing under
the laws of the State of Delaware, with corporate power and authority to
purchase the Assets and assume the liabilities and obligations under this
Agreement and otherwise perform its obligations under this Agreement.
(2) This Agreement has been duly authorized, executed and delivered by
Buyer and constitute legal, valid and binding obligations of Buyer,
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of equity.
(3) The execution, delivery and performance by Buyer of its
obligations under this Agreement will not violate any provision of Buyer's
Articles of Incorporation, By-Laws or applicable law.
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Such opinion may expressly rely as to matters of fact upon Certificates
furnished by appropriate officers and directors of Buyer and by public
officials.
(d) Buyer and Seller shall have entered into the lease of Seller's
Real Properties and the sublease of the Warehouse.
12.3 Mutual Condition Precedent. Unless waived in writing by each
party, it will be a further condition to the consummation of this transaction
that no litigation will have been commenced or threatened to challenge the
right of any party to consummate the transactions contemplated under this
Agreement; except, however, that the foregoing shall not apply with respect to
any such litigation arising out of the sublease of the Warehouse.
ARTICLE XIII
------------
Default; Termination of Agreement
---------------------------------
13.1 Default. Buyer's, on the one hand, and Seller's, on the other
hand, obligations under this Agreement are of a special and unique character
and Buyer's or Seller's failure to perform its obligations will cause
irreparable injury to the other party, the amount of which would be extremely
difficult, if not impossible, to estimate or determine and which may not be
adequately compensable by monetary damages alone. Therefore, the injured party
will be entitled, as a matter of course, to an injunction, restraining order,
writ of mandamus or other equitable relief from the U.S. District Court,
Eastern District of New York, including specific performance, restraining any
violation or threatened violation of any term of this Agreement, or requiring
compliance with or performance of any obligation under this Agreement, by the
violating party or parties, or such other persons as the court may order.
Buyer's and Seller's rights under this Section 13.1 are cumulative and are in
addition to the rights and remedies otherwise available to them under Section
13.2 below and any other agreement or applicable law.
13.2 Termination. This Agreement may be terminated at any time before
the Closing as follows:
(a) At the election of Buyer, by notice to Seller at any time if any
of Buyer's conditions precedent to Closing, as specified in Sections 12.1 or
12.3 above, has not been satisfied as of the Closing Date or has at any time
become incapable of being satisfied by the Closing Date.
(b) At the election of Seller, by notice to Buyer, if any of Seller's
conditions precedent to Closing, as specified in Sections 12.2 or 12.3 above,
has not been satisfied as of the Closing Date or has at any time become
incapable of being satisfied by the Closing Date.
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(c) If this Agreement terminates in accordance with this Section 13.2,
the Seventy-Five Thousand ($75,000.00) Dollar payment made by Buyer
concurrently herewith shall be returned to Buyer and this Agreement will be
null and void and have no further force or effect; provided, however, that in
the event Seller terminates this Agreement pursuant to Section 13.2(b), said
Seventy-Five Thousand ($75,000.00) Dollar payment shall be released by the
Escrow Agent and paid to Seller. The parties' rights under this Section 13.2
are cumulative and are in addition to the other rights and remedies available
to them under Section 13.1 above, or under applicable law.
ARTICLE XIV
-----------
Indemnification
---------------
14.1 Indemnification by Seller. Seller will indemnify and hold Buyer
harmless with respect to any damages, liabilities, claims, losses and expenses
(including reasonable legal fees, costs and court costs) which may be incurred
by Buyer arising out of:
(a) Any breach by Seller of any of its representations, warranties,
covenants or agreements made in this Agreement or in any document or statement
furnished by it to Buyer or in the enforcement of the foregoing indemnity.
(b) Any attempt (regardless of whether successful and regardless of
whether litigation is commenced) by any person or entity to cause or require
Buyer to pay or discharge any actual or claimed debt, obligation, liability or
commitment of or associated with Seller which is not expressly assumed by Buyer
under this Agreement, including all Excluded Liabilities.
(c) Any action, suit, proceeding, investigation, assessment or
judgment relating to any of the matters indemnified against in this Section
14.1, including reasonable fees and disbursements of counsel (whether prior to
or at trial or in appellate proceedings).
14.2 Indemnification by Buyer. Buyer will indemnify and hold Seller
harmless with respect to any and all damages, liabilities, claims, losses and
expenses (including reasonable legal fees, costs and court costs) which may be
incurred by Seller arising out of:
(a) Any breach by Buyer of any of Buyer's representations, warranties,
covenants or agreements made in this Agreement or in any document or statement
furnished by it to Seller or in the enforcement of the foregoing indemnity.
(b) Any attempt (regardless of whether successful and regardless of
whether litigation is commenced) by any person or entity to cause or require
Seller to pay or discharge any debt,
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obligation, liability or commitment expressly assumed by Buyer under this
Agreement including all Assumed Liabilities.
(c) Any action, suit, proceeding, assessment or judgment relating to
any of the matters indemnified against in this Section 14.2, including
reasonable fees and disbursements of counsel (whether prior to or at trial or
in appellate proceedings).
14.3 Claims for Indemnification.
(a) Whenever any claim is made for indemnification under Sections 14.1
or 14.2 or Section 5.3, the person claiming such indemnification (the
"Indemnified Party") will promptly notify in writing the party against whom
indemnification is sought (the "Indemnitor"), by certified or registered U.S.
Mail, postage prepaid, after the Indemnified Party has actual knowledge of any
event which might give rise to a claim for indemnification under this
Agreement; provided that if the Indemnified Party receives a complaint,
petition or any other pleading in connection with a claim which requires the
filing of an answer or other responsive pleading, it will furnish the
Indemnitor with a copy of such pleading as soon as possible after receipt.
(b) The failure by the Indemnified Party to give notice of a claim as
required in Section 14.3(a) above or a delay in giving such notice will not
affect the validity or amount of such claim and the indemnification obligations
of the Indemnitor will remain in effect as to such claim, except to the extent
that the Indemnitor has been prejudiced or adversely affected thereby.
14.4 Notice of and Defense Against Claims of Third Parties. Promptly
after receipt by the Indemnified Party of a claim or demand or notice of the
commencement of any action by a third party which would give rise to the right
of indemnification under Sections 14.1, 14.2 or 5.3, the Indemnified Party
shall, if a claim in respect thereof is to be made against the Indemnitor, send
notice of the commencement thereof to the Indemnitor. In case any such action
shall be brought against the Indemnified Party and it shall notify the
Indemnitor of the commencement thereof, the Indemnitor shall be entitled to
participate in, and, to the extent that it shall wish to assume the defense
thereof, and after notice from the Indemnitor to such Indemnified Party of its
election so to assume the defense thereof, the Indemnitor shall not be liable
to the Indemnified Party under such action for any legal or other expenses
subsequently incurred by the Indemnified Party after the date such notice is
given to such Indemnified Party in connection with the defense thereof. The
Indemnitor shall not be liable for any settlement of any claim or action
pursuant to this Article XIV effected by or on behalf of the Indemnified Party
without its prior written consent.
14.5 Limitations on Indemnification. Seller will not be obligated to
indemnify Buyer under Section 14.1 above unless and until the aggregate amount
of all claims to which the Buyer is
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entitled to indemnification under such Section exceeds Twenty-Five Thousand
($25,000.00) Dollars; provided, however, that such limitation shall not apply
to claims arising under Section 2.1 (as to Excluded Liabilities), 9.1, 15.2 or
15.4. Neither Buyer nor Seller shall be liable for any claim which is brought
after expiration of the three-year (3) period.
ARTICLE XV
----------
Other Covenants
---------------
15.1 Further Assurances. If at any time after the execution of this
Agreement, Buyer or Seller reasonably considers or is advised that any further
actions, assignments or assurances on its part are necessary or desirable to
carry out the intent and accomplish the purposes of this Agreement, it will
take such actions, execute and make all such instruments and do all things
necessary or appropriate to carry out the intent and accomplish the purposes of
this Agreement, or otherwise consummate the transactions contemplated by this
Agreement.
15.2 Employees.
(a) If Buyer shall hire any of Seller's employees, Buyer will assume
no past or future obligations of Seller to such employees, including any
obligations to pay severance pay, vacation pay or other benefits to such
employees as of or preceding the Closing Date; and such obligations will be and
remain obligations of Seller, as will any similar obligations to any employees
of Seller who are not hired by Buyer. Buyer shall not refuse to hire employees
covered by the union contracts referred to in Schedule 7.7(a)(2) except as
provided by their respective terms.
(b) The Non-Union employees of Seller who shall be hired by Buyer
shall, to the extent possible, receive uninterrupted fringe benefits, taking
into account the differences between the employee benefits conferred by Seller
and those conferred by Buyer. If a switchover is required to another plan such
as a health and/or hospital plan, any waiting period required for eligibility
shall be waived. Vacation pay which shall be payable to Seller's employees as
of the Closing Date shall be paid to Buyer and Buyer shall pay the same to the
employee. To the extent of any such payment of vacation pay made for the
respective employee, Buyer shall hold Seller harmless from and indemnify Seller
against any claim by the respective employee for vacation pay which may be made
against Seller. Such employees shall be entitled to the same length of vacation
as they received while employed by Seller, which does not exceed three (3)
weeks.
(c) Buyer will assume all of Seller's obligations under both union
contracts referred to in Schedule 7.7(a)(2) (to the extent such obligations are
set forth in the actual written contracts delivered to Buyer), arising from and
after the Closing Date with respect to employees hired by Buyer and Seller will
pay
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to its employees or their respective union all amounts payable under such
contracts as of the Closing Date, including, without limitation, accrued
vacation pay.
15.3 Receipt of Mail. From and after the Closing Date, each party will
have the sole and exclusive right to receipt of all mail addressed to it and
each party will promptly deliver to the other party any such mail received by
it on or after the Closing Date.
15.4 Payment of Creditors. Seller will maintain sufficient assets to
pay, and will pay, all known undisputed amounts owing its creditors when due
(other than in respect of obligations or liabilities assumed by Buyer under
this Agreement).
15.5 Books and Records. Buyer shall preserve the books and records of
Seller delivered to Buyer for a period of five (5) years after the Closing
Date, or the applicable statute of limitations, if longer. Buyer shall not
cause or permit their destruction or disposal without first offering to
surrender such books and records to Seller. Where there is a legitimate
purpose, including without limitation a Third-Party Claim, or an audit or
notice of deficiency or inquiry of Seller by any taxing authority having
jurisdiction, Buyer shall allow Seller and its representatives access to such
books and records relating to the business of Seller during regular business
hours on reasonable notice and shall permit Seller or its representatives to
make photocopies of any portion or portions of said books and records.
ARTICLE XVI
-----------
Non-Competitive Agreements
--------------------------
16.1 Non-Competition. In order to induce Buyer to enter into this
Agreement and to consummate the transactions contemplated hereby, each of
Seller and L. Donald Jaffin ("Jaffin"), Seller's President and the owner of six
and one-third (6.33%) per cent of the issued and outstanding capital stock of
Seller, hereby covenants and agrees that, for a period of three (3) years
following the Closing, neither it nor any of its affiliates nor Jaffin shall,
directly or indirectly, as a partner, shareholder, employee, officer, director,
manager, broker, agent, associate or otherwise, sell, manufacture or distribute
from or within a radius of three hundred (300) miles of Seller's Real
Properties, any products that compete directly with the products sold,
manufactured or distributed by Seller as of the Closing Date. Nothing in this
Section 16.1 contained shall prohibit Seller or Jaffin from owning one (1%)
percent or less of the securities of a publicly-held company which sells such
products.
16.2 Remedy. Seller and Jaffin acknowledge that Buyer would be
irreparably harmed by any breach of this Section 16.1, and that there would be
no adequate remedy at law or in damages to compensate Buyer for any such
breach.
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ARTICLE XVII
------------
Miscellaneous
-------------
17.1 Successors and Assigns. This Agreement shall bind and enure to
the benefit of the parties and their respective successors and assigns;
provided, however, that Buyer shall not assign its rights hereunder without
Seller's written consent, except to a wholly-owned subsidiary of or other
entity under common control with Buyer, in which case Buyer shall guarantee the
performance by such subsidiary or other entity of Buyer's obligations under
this Agreement and under the lease of Seller's Real Properties, if applicable.
No such assignment shall relieve Buyer of its obligations under this Agreement.
17.2 Notices. Any notice, consent, approval, election, or other
communication required or permitted to be given under this Agreement shall be
effective only if in writing and sent by certified or registered mail, return
receipt requested, postage prepaid, as follows:
(a) To Buyer: The Fonda Group, Inc.
c/o Thomas Uleau
Executive Vice President
21 Lower Newton Street
St. Albans, Vermont 05478
With a copy to: Harvey L. Friedman, Esq.
115 Stevens Avenue
Valhalla, New York 10595
(b) To Seller: Alfred Bleyer & Co., Inc.
c/o L. Donald Jaffin
575 Park Avenue
Manhasset, New York 11030
With a copy to: Steckler, Gutman, Morrissey &
Murray, Esqs.
60 East 42nd Street
New York, New York 10165
Attn: Eugene Morrissey, Esq.
Such notices shall count from the date of receipt thereof.
Any of the above addresses may be changed upon notice sent to the
other addressees by certified or registered mail, return receipt requested,
postage prepaid, and shall become effective ten (10) days thereafter.
17.3 No Waiver. No waiver of any breach of any provision of this
Agreement shall be deemed a waiver of any preceding or succeeding breach of
such provision or of any other provision of this Agreement. No extension of
time for performance
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of any obligations or acts shall be deemed an extension of the time for
performance of any other obligations or acts.
17.4 Paragraph Headings. The paragraph headings herein have been
inserted for convenience of reference only and shall in no way be deemed to
modify or restrict any of the terms or provisions hereof.
17.5 Severability. The provisions of this Agreement will be deemed
severable, and if any provision or part of this Agreement is held illegal, void
or invalid under applicable law, such provision or part may be changed to the
extent reasonably necessary to make the provision or part, as so changed,
legal, valid and binding. If any provision of this Agreement is held illegal,
void or invalid in its entirety, the remaining provisions of this Agreement
shall not in any way be affected or impaired but shall remain binding in
accordance with their terms.
17.6 Entire Agreement; Amendment. This Agreement and the schedules and
the exhibits attached to this Agreement contain the entire agreement of the
parties with respect to the purchase and sale of the Assets and the other
transactions contemplated in this Agreement and no representations heretofore
or hereafter made by either party shall have any force or effect unless set
forth in this Agreement. This Agreement may be amended or modified only by an
instrument in writing, duly executed by Buyer and Seller.
17.7 Counterparts. This Agreement may be executed in counterparts,
which together will be deemed an original of this Agreement.
17.8 Applicable Law. This Agreement will be construed in accordance
with and governed by the laws of the State of New York.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
ALFRED BLEYER & CO., INC.
By: /s/ L. Donald Jaffin
--------------------------------
L. DONALD JAFFIN, President
THE FONDA GROUP, INC.
By: /s/ Thomas Uleau
--------------------------------
THOMAS ULEAU, Executive
Vice President
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Agreed to this 13th day of
October, 1995 by
L. Donald Jaffin as to
ARTICLE XVI.
/s/ L. Donald Jaffin
- ----------------------------------
L. DONALD JAFFIN
Agreed to this 13th day of
October, 1995 by
STECKLER, GUTMAN, MORRISSEY & MURRAY,
as Escrow Agent:
By: /s/ Eugene Morrissey
-------------------------------
EUGENE MORRISSEY, Partner
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ABC WITH FONDA
--------------
Schedule 1.1(e) Trademarks, etc.
Exhibit 4.1(e) Promissory Note
Exhibit 5.2 Lease
Landlord's Waiver
Exhibit 5.3 Sublease
Exhibit 6.2(a) Bill of Sale
Schedule 7.3(b) Machine Not in Operating Condition
Schedule 7.3(c) Leases of Personal Property
Schedule 7.4(b) Litigation
Schedule 7.5 Accounts Receivable
Schedule 7.6 Real Property Owned and Leased, Personal
Property Leased, Agreements and Arrangements,
Service Contracts
Schedule 7.7(a)(1) Employee Benefits
Schedule 7.7(a)(2) Union Contracts
Schedule 7.7(b) Non-Union Employee Benefits, Including
Pension, Insurance Plans, etc.
Schedule 7.7(c) Loans to Employees, etc.
Schedule 7.8(a) Permits, Licenses, etc.
Schedule 7.8(c) Underground Tank
Schedule 7.9 Gross Sales
Schedule 7.12 Tax Extensions
Schedule 7.13 Adverse Changes, etc.
Schedule 7.14 List of Creditors
Schedule 11.2(a) Automobile and Truck Leases
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of March 22,
1996, is made by and between JAMES RIVER PAPER COMPANY, INC., a Virginia
corporation ("Seller") and THE FONDA GROUP, INC., a Delaware corporation
("Fonda") and NEWCO, a Delaware corporation ("Newco").
W I T N E S S E T H :
WHEREAS, Seller's "Specialties Operations Division" ("Specialties
Operations Division") is engaged in the production and distribution of tissue,
paper plates, napkins, tablecovers, Party Goods, and related accessories; and
WHEREAS, Seller desires to sell, convey, assign, transfer and deliver
to Fonda and Newco, respectively, and Fonda intends to purchase and acquire the
assets and business of the Natural Dam and Long Beach Businesses and to assume
the Assumed Liabilities relating thereto and Newco intends to purchase and
acquire the assets and the business of the CEG Business and to assume the
Assumed Liabilities relating thereto, collectively comprising substantially all
of the assets of the Specialties Operations Division, upon the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, and agreements herein contained, the parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"ACCOUNTS PAYABLE" means all current liabilities of Seller relating to
the Business outstanding as of the Closing Date, other than the Excluded
Liabilities, to the extent that such liabilities are included in the
determination of Closing Net Book Assets.
"ACCOUNTS RECEIVABLE" means all accounts receivable relating to the
Business existing as of the Closing Date, other than Intercompany Accounts
Receivable and the Long Beach Accounts Receivable.
<PAGE>
"AFFILIATE" of a Person means a Person who, directly or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, such Person.
"ASSUMED LIABILITIES" has the meaning set forth in Section 3.01
hereof.
"ASSUMED TAXES" means all Taxes allocated or apportioned to Buyer
under Section 8.06 hereof.
"AUDITED FINANCIAL STATEMENTS" has the meaning set forth in Section
8.16 hereof.
"BILL OF SALE" means one or more Bills of Sale in substantially the
form attached hereto as EXHIBIT A.
"BUSINESS" means the business as conducted by Seller and/or James
River California Sub at the following locations: (i) Gouverneur, New York (the
"Natural Dam Business"); (ii) Long Beach, California (the "Long Beach
Business"); and (iii) Indianapolis, Indiana (the "CEG Business"); provided,
however, that the term Business shall not include the Club Business nor the
Commercial Business with the exception of custom print.
"BUYER" means (i) Fonda solely with respect to all matters under this
Agreement relating to the Natural Dam Business and the Long Beach Business and
the related Purchased Assets; and (ii) Newco solely with respect to all matters
under this Agreement relating to the CEG Business and the related Purchased
Assets.
"BUYER'S FSA" has the meaning set forth in Section 9.07 hereof.
"CALIFORNIA ASSETS" has the meaning set forth in Section 8.19 hereof.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CLOSING" has the meaning set forth in Section 12.01 hereof.
"CLOSING DATE" has the meaning set forth in Section 12.01 hereof.
"CLOSING INVENTORY SCHEDULE" has the meaning set forth in Section 4.04
hereof.
"CLOSING NET BOOK ASSETS" means (i) the Purchased Assets minus (ii)
the Assumed Liabilities, to the extent included in the determination of the
Closing Net Book Assets and subject to the Purchase Price Adjustment and the
EBITDA Purchase Price Adjustment.
"CLOSING NET BOOK ASSETS STATEMENT" has the meaning set forth in
Section 4.03 hereof.
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"CLUB BUSINESS" means sales by Seller to so-called "Warehouse Clubs"
(i.e. Sams, Price/Costco and similar merchants).
"CLUB SUPPLY AGREEMENT" has the meaning set forth in Section 5.01
hereof.
"COLLECTIVE BARGAINING AGREEMENT" has the meaning set forth in Section
6.13 hereof.
"COMMERCIAL BUSINESS" means the sales of products manufactured at the
Long Beach Facility for resale/use by away from home businesses or institutions
as opposed to individual retail customers.
"CUP SUPPLY AGREEMENT" has the meaning set forth in Section 5.01
hereof.
"DAMAGES" has the meaning set forth in Section 13.01 hereof.
"DEPOSIT" has the meaning set forth in Section 4.02 hereof.
"EBITDA" has the meaning set forth in Section 4.06 hereof.
"EBITDA AMOUNT" has the meaning set forth in Section 4.06 hereof.
"EBITDA PURCHASE PRICE ADJUSTMENT" has the meaning set forth in
Section 4.06 hereof.
"EBITDA REVIEWING ACCOUNTANT" has the meaning set forth in Section
4.07 hereof.
"ENVIRONMENTAL CONDITIONS" means any and all acts, omissions, events,
circumstances, and conditions, including any pollution, contamination,
degradation, damage, or injury caused by, related to, or arising from or in
connection with the generation, use, handling, treatment storage, disposal
discharge, emission or release of Hazardous Materials.
"ENVIRONMENTAL EVENT" has the meaning set forth in Section 6.05
hereof.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 6.05 hereof.
"ENVIRONMENTAL LIABILITIES" means any and all liabilities,
responsibilities, claims, suits, losses, costs (including remedial, removal,
response, abatement, clean-up, investigative and/or monitoring costs and any
other related costs and expenses), other causes of action recognized now or at
any later time, damages, settlements, expenses, charges, assessments, liens,
penalties, fines, pre-judgment and post-judgment interest, attorneys' fees and
other legal costs incurred or imposed (i) pursuant to any agreement, order,
notice of responsibility, directive (including directives embodied in
Environmental Laws), injunction, judgment or similar documents (including
settlements) arising out of, in connection with, or under Environmental Laws,
or (ii)
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pursuant to any claim by a Governmental Entity or other Person for personal
injury, property damage, damage to natural resources, remediation, or payment
or reimbursement of response costs incurred or expended by such Governmental
Entity or Person pursuant to common law or statute, as a result of
Environmental Conditions.
"ENVIRONMENTAL PERMITS" means federal, state and local governmental
licenses, permits, and other authorizations and approvals, whether foreign or
domestic, that relate to the environment or to public health and safety or
worker health and safety as they may be affected by the environment.
"EQUIPMENT" means all machinery, equipment, furniture, fixtures,
vehicles (whether or not certificated), tools, supplies, spare parts and other
tangible personal property (other than to the extent constituting an Excluded
Asset), (a) located on the Real Property as of the date hereof and/or (b)
listed on Schedule 2.01(iii) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any person, firm or entity (whether or not
incorporated) which, by reason of its relationship with Seller or any Affiliate
of Seller, is required to be aggregated with Seller or any Affiliate under
Sections 414(b), (c) or (m) of the Code or which, together with Seller or any
such Affiliate, is a member of a controlled group within the meaning of Section
4001 (a) of ERISA.
"EVALUATION MATERIAL" has the meaning set forth in Section 8.05
hereof.
"EXCHANGE ACT" means the Securities Act of 1933, as amended.
"EXCHANGE NOTES" has the meaning set forth in the Certificate of
Incorporation of Newco.
"EXCLUDED ASSETS" has the meaning set forth in Section 2.02 hereof.
"EXCLUDED INVENTORY" has the meaning set forth in the definition of
Inventory.
"EXCLUDED LIABILITIES" has the meaning set forth in Section 3.01(b)
hereof.
"FACILITIES" mean Seller's and/or James River California Sub's
facilities at Gouverneur, New York, Long Beach, California and Indianapolis,
Indiana.
"FIXTURES AND IMPROVEMENTS" means the buildings and other improvements
referred to in the definition of Real Property.
"GAAP" means generally accepted accounting principles, consistently
applied.
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"GOVERNMENTAL ENTITY" has the meaning set forth in Section 6.05
hereof.
"GROUP" means a Person and such Person's Affiliates and their
respective directors, officers, employees, representatives, consultants,
stockholders, controlling persons and agents and each of the heirs, executors,
successors and assigns of any of the foregoing.
"HAZARDOUS MATERIALS" means any (i) petroleum or petroleum products,
(ii) hazardous substances as defined by ss. 101(14) of CERCLA and (iii) any
other chemical, substance or waste that is regulated by any Governmental Entity
under any Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFIED PARTY" has the meaning set forth in Section 13.03 hereof.
"INDEMNIFYING PARTY" has the meaning set forth in Section 13.03
hereof.
"INSURANCE CLAIMS" has the meaning set forth in Section 2.01 hereof.
"INTELLECTUAL PROPERTY" means all patents, patent applications,
service marks, trademarks, trademark registrations, trademark applications,
copyrights, industrial design registrations, utility models, trade names,
whether or not registered (or by whatever name or designation), used by Seller
primarily in connection with the Business, and all proprietary data, and
technical or manufacturing know-how or information (and materials embodying
such information) so used by Seller, including inventions and trade secrets and
documentation thereof in whatever form.
"INTELLECTUAL PROPERTY INSTRUMENTS" means, collectively, Assignments
and License Agreements in the respective forms attached hereto as EXHIBIT B.
"INTERCOMPANY" means a transaction, obligation or account between
Seller, any Seller Affiliate, or any other Affiliate of Seller or their
divisions, on the one hand, and any of Seller, any Seller Affiliate or any
other Affiliate of Seller or their divisions, on the other hand, arising from
the conduct of the Business.
"INTERCOMPANY PAYABLES" means all Intercompany payables and other
Intercompany liabilities of the Business of whatever nature and regardless of
whether such liabilities would be treated as short-term or long-term on a
balance sheet prepared in accordance with GAAP.
"INTERCOMPANY ACCOUNTS RECEIVABLE" means all Intercompany receivables
of the Business of whatever nature.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
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"INVENTORY" means all the stores, packing and packaging materials,
supplies, raw materials, work in progress, and material held for resale, and
other inventories, including without limitation, all as are owned by Seller for
use in the Business and all as are located at, used in connection with,
acquired for, produced for, contained in or in transit to, through or from the
Real Property including, without limitation, those in warehouses or other
storage facilities outside the Real Property. Notwithstanding the foregoing the
term Inventory shall not include in respect of the Long Beach Business, (i) raw
materials, work-in-progress and finished goods relating to Commercial Business
products; or (ii) finished goods relating to Club Business products the
("Excluded Inventory").
"JAMES RIVER CALIFORNIA SUB" has the meaning set forth in Section 8.19
hereof.
"LEASES" has the meaning set forth in Section 6.11 hereof.
"LIEN" means any mortgage, lien, pledge, charge, security interest,
encumbrance or restriction of any kind.
"LICENSES AND PERMITS" means federal, state and local governmental
licenses, permits, approvals and authorizations, whether foreign or domestic,
other than Environmental Permit.
"LONG BEACH ACCOUNTS RECEIVABLE" means Accounts Receivables relating
to the Long Beach Business.
"LONG BEACH BAG MACHINES" means machinery and equipment used for
production of paper bags at the Long Beach Facility and spare parts for such
machinery and equipment.
"MATERIAL CONTRACTS" has the meaning set forth in Section 6.12 hereof.
"MULTIEMPLOYER PLAN" means each Benefit Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"PARTY CHANNEL" has the meaning set forth in Section 8.17 hereof.
"PARTY GOODS" means plates, cups, napkins, tablecovers, and other
paper and plastic favors and decorations which are decorated with thematic or
artistic graphics and which are sold in the Party Channel.
"PERMITS" means all franchises, licenses, authorizations, approvals,
permits (including Environmental Permits), consents or other rights granted by
Federal, state or local governmental authorities and all certificates of
convenience or necessity, immunities, privileges, licenses, consents, grants,
ordinances and other rights, of every character whatsoever, which are required
in the conduct of the Business.
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"PERMITTED EXCEPTIONS" has the meaning set forth in Section 6.10
hereof.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
governmental or political subdivision or an agency of instrumentality thereof.
"PLATE TECHNOLOGY LICENSE OPTION" has the meaning set forth in Section
5.01 hereof.
"PREFERRED SHARES" has the meaning set forth in Section 4.02 hereof.
"PREFERRED SUPPLY AGREEMENT" has the meaning set forth in Section 5.01
hereof.
"PURCHASED ASSETS" has the meaning set forth in Section 2.01 hereof.
"PURCHASE PRICE" has the meaning set forth in Section 4.01 hereof.
"PURCHASE PRICE ADJUSTMENT" has the meaning set forth in Section 4.03
hereof.
"REAL PROPERTY" means the real property listed and/or described by
metes and bounds in Schedule 2.01(ii) hereto, together with the buildings,
fixtures and other improvements thereon and the easements, rights and other
appurtenances thereto belonging.
"REGULATORY APPROVALS" has the meaning set forth in Section 6.03
hereof.
"REVIEWING ACCOUNTANT" has the meaning set forth in Section 4.05
hereof.
"RELATED AGREEMENTS" has the meaning set forth in Article 5.01 hereof.
"SECTION 338(H)(10) ELECTION" means an election for federal income tax
purposes described in Section 338(h)(10) of the Internal Revenue Code with
respect to the stock of the James River California Sub described in this
Agreement, including any elections required under Section 338(g) of the
Internal Revenue Code that are required to be made under applicable law when
making the Section 338(h)(10) Election.
"SECTION 338 FORMS" means all returns, documents, statements, and
other forms that are required to be submitted to any federal, state, county or
other governmental authority in connection with the Section 338(h)(10)
Election, including U.S. Internal Revenue Service Form 8023-A (together with
any schedules or attachments thereto that are required pursuant to Treasury
Regulations, including Section 1.338(h)(10)-l), and any comparable or similar
state, local or other governmental submissions.
"SELLER'S FSA" has the meaning set forth in Section 9.07 hereof.
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"SELLER'S PLANS" has the meaning set forth in Section 6.14 hereof.
"SHORT RUN" has the meaning set forth in Section 8.17 hereof.
"SPECIALTY OPERATIONS DIVISION" has the meaning set forth in the
recitals.
"TAXES" means all taxes, charges, fees, levies or other assessments,
including, without limitation, income, gross receipts, alternative minimum,
excise, property, real estate, sales, purchase, use, payroll (including
required withholdings), unemployment, and franchise taxes, imposed by any
Governmental Entity with respect to the Business or the Acquired Assets, but
excluding Transfer Taxes. Such term shall include any interest, penalties or
additions payable in connection with such taxes, charges, fees, levies or other
assessments and "Tax" shall mean one of the foregoing Taxes.
"TAX RETURNS" means all returns, declarations, reports, statements and
other documents required to be filed with any Governmental Entity in respect of
any Tax and "Tax Return" shall mean one of the foregoing Tax Returns.
"TITLE COMPANY" has the meaning set forth in Section 8.04 hereof.
"TRANSFERRED EMPLOYEES" has the meaning set forth in Section 9.01
hereof.
"TRANSFER TAXES" means all sales, transfer, use, gross receipts, value
added, registration, stamp and similar taxes or fees (excluding recording fees)
imposed by any Governmental Entity in connection with the, transfers by Seller
to Buyer of any of the Purchased Assets pursuant to this Agreement.
"TRANSITION SERVICES AGREEMENT" has the meaning set forth in Section
5.01 hereof.
ARTICLE II
PURCHASE AND SALE OF ASSETS
2.01 PURCHASE AND SALE OF ASSETS. On the terms and subject to the
conditions hereinafter set forth, on the Closing Date, Seller shall sell,
convey, transfer, assign and deliver to Buyer and Buyer shall purchase from
Seller, for the Purchase Price, the Business and all Seller's right, title and
interest to and in all the assets and properties of Seller used primarily in
connection with the Business, tangible and intangible, real and personal, fixed
or contingent, wherever located, as the same shall exist on the Closing Date
(said assets and properties so to be sold, conveyed, transferred, assigned and
delivered being hereinafter collectively referred to as the "Purchased
Assets"), including, without limitation:
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(i) the Accounts Receivable;
(ii) the Real Property;
(iii) the Equipment;
(iv) the Inventory;
(v) the Leases;
(vi) all catalogues, brochures, sales literature, promotional
material and other selling materials pertaining primarily to
the Business;
(vii) copies of all papers, documents, instruments, books and
records, files, agreements, books of account and other records
directly pertaining to the Assets or the Business (including,
without limitation, customer invoices, customer lists, vendor
and supplier lists, drafts and other documents and materials
relating to customer transactions);
(viii) the Environmental Permits held by Seller that are assignable
and that relate solely to the Purchased Assets;
(ix) the Licenses and Permits held by Seller that are assignable
and that relate solely to the Purchased Assets;
(x) all rights and interests of Seller in, to and under any
contract, agreement, license, sales order, purchase order or
other commitment that is (a) a Material Contract or (b) in
writing and not required to be disclosed on Schedule 6.12
hereto, which Buyer has agreed to assume pursuant to paragraph
3.01(a) hereof (subject, however, to the provisions of
paragraph 3.01(b) hereof);
(xi) all Intellectual Property and the licenses and franchises with
respect thereto listed on Schedule 2.01(xi) hereto, together
with the goodwill and the business appurtenant thereto; and
all trade secrets, technology (including technology with
respect to which Seller is a sublicensee, in such case only
insofar as permitted under the applicable sublicense
agreement), processes, inventions, designs, drawings,
blueprints, specifications, patterns, royalties, privileges,
permits and all other similar intangible personal property, in
each case, pertaining primarily to the Business; subject,
however, to appropriate reservations and re-licenses from
Buyer to Seller regarding the Intellectual Property so
identified on Schedule 2.01(xi) hereto;
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(xii) cash in an amount equal to all condemnation proceeds and all
property and casualty insurance proceeds and claims (excluding
business interruption insurance), ("Insurance Claims"), plus
an amount equal to any deductible, with respect to the loss,
damage, destruction or condemnation of any of the tangible
Purchased Assets other than Inventories occurring between the
date of this Agreement and the Closing Date, but only to the
extent not applied by Seller to the repair, restoration or
replacement thereof on or prior to the Closing Date; provided,
however, that the Purchase Price shall not otherwise have been
adjusted by the parties to reflect any such condemnation or
casualty loss;
(xiii) all other assets and rights of every kind and nature, real or
personal, tangible or intangible, that are used by Seller
primarily in connection with the Business, including, without
limitation, all deposits, notes receivable, deferred charges
and prepaid expenses, bonds, claims, and causes of action,
except for assets and rights specifically excluded pursuant to
Section 2.02 hereof, and
(xiv) the stock of the James River California Sub, should Seller
exercise the option to establish such James River California
Sub, pursuant to Section 8.19 hereof.
2.02 EXCLUDED ASSETS. The following assets (collectively the "Excluded
Assets") are not included in the Purchased Assets:
(i) except as expressly provided in Section 2.01(xii) hereof, all
cash and cash equivalents, including cash on hand or in bank
accounts, certificates of deposit, commercial paper and
securities belonging to Seller;
(ii) all Intercompany Accounts Receivable;
(iii) all Long Beach Accounts Receivable;
(iv) the Long Beach Bag Machines;
(v) all Licenses and Permits that are not assignable or that do
not relate solely to the Purchased Assets;
(vi) the rights and interests of Seller in all Intellectual
Property unless listed on Schedule 2.01(xi) hereto;
(vii) goodwill appearing on Seller's books and records; and
(viii) the Excluded Inventory.
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ARTICLE III
ASSUMED AND EXCLUDED LIABILITIES
3.01 ASSUMED AND EXCLUDED LIABILITIES. (a) Except (i) with respect to
matters set forth in paragraph 3.01(b) hereof; or (ii) to the extent that Buyer
is entitled to indemnification in respect thereof pursuant to Article XIII
hereof, in which case, for purposes of said Article XIII, such liabilities and
obligations shall be deemed not to be assumed by Buyer hereunder, at the
Closing, Buyer will assume only the following liabilities and obligations which
relate to the Purchased Assets and are not paid or discharged at or before the
Closing:
(i) liabilities reflected on the Audited Financial Statements, minus
any such liabilities or obligations that have been, or are, paid
or discharged by Seller between December 31, 1995 and the Closing
Date, and liabilities or obligations incurred after December 31,
1995 and prior to the Closing Date to the extent included in the
determination of the Closing Net Book Assets;
(ii) liabilities and obligations of Seller relating to the Purchased
Assets to be performed after the Closing arising from the
Material Contracts, the Leases or any other lease, contract or
agreement relating to the Purchased Assets and not required to be
disclosed on Schedule 6.11 or Schedule 6.12 hereto other than
liabilities and obligations arising from breaches thereof prior
to the Closing; and
(iii) liabilities and obligations of Seller relating to Transferred
Employees including, without limitation, employee benefits
relating to Transferred Employees, to the extent included in the
determination of the Closing Net Book Assets.
The liabilities and obligations hereinabove listed, and to be assumed
by Buyer, are hereinafter referred to collectively as the "Assumed
Liabilities".
(b) Notwithstanding the provisions of paragraph 3.01(a), there are
expressly excluded from the Assumed Liabilities, and Buyer is not assuming, and
shall not be deemed to have assumed, and the determination of the Closing Net
Book Assets shall not reflect, any of the following liabilities and
obligations:
(i) liabilities for Taxes incurred by Seller in connection with the
operation of the Purchased Assets prior to and up to and
including the Closing Date or incurred by Seller with respect to
any of the transactions contemplated hereby, except to the extent
included in the determination of the Closing Net Book Assets;
(ii) liabilities and obligations of Seller arising from a breach by
Seller before the Closing of any contract or agreement relating
to the Purchased Assets, including, without limitation, the
Material Contracts and the Leases;
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(iii) liabilities and obligations arising under any contract or
agreement, including, without limitation, the Material Contracts
and the Leases, if the rights of Seller are, for any reason, not
transferred to, or the benefits thereunder are not otherwise made
available to, Buyer at the Closing. The provisions of this clause
(iii) shall not limit Seller's liability for the failure to
transfer any of the Material Contracts or the Leases as required
herein;
(iv) any liability or obligation, under the Collective Bargaining
Agreements or otherwise, in respect of severance or separation
pay or allowances for employees of Seller whose employment with
Seller was terminated on or prior to the Closing Date; and
(v) liabilities and obligations arising out of any action, suit or
proceeding based upon an event occurring, or a claim arising, up
to and including the Closing Date.
The liabilities and obligations hereinabove listed are to be retained
by Seller, and are hereinafter referred to collectively as the "Excluded
Liabilities".
ARTICLE IV
PURCHASE PRICE
4.01 PURCHASE PRICE. The aggregate purchase price for the Purchased
Assets shall be an amount equal to (a) the Closing Net Book Assets; minus, (b)
(i) $2,000,000; and (ii) any amounts attributable to goodwill as a result of
Seller's purchase price being greater than fair market value of assets acquired
(estimated by Seller to be approximately $100,000), subject to adjustment as
provided in Section 4.03 and Section 4.06 hereof (the "Purchase Price").
4.02 PAYMENT OF PURCHASE PRICE. (a) Simultaneously with the execution
of this Agreement, Buyer has paid to Seller, the sum of $1,000,000 (said sum,
together with interest accrued thereon, the "Deposit") by wire transfer of
immediately available funds. The Deposit shall be promptly deposited and
maintained in an interest bearing account during the term of this Agreement. In
the event that this Agreement is terminated by Buyer pursuant to Section
14.01(a) hereof, Seller shall promptly return the Deposit to an account
designated by Buyer. Upon the Closing or sooner termination of this Agreement,
the Deposit shall become the non-refundable property of Seller; subject,
however, to the foregoing sentence.
(b) On the Closing Date, in full consideration for the sale,
conveyance, transfer, assignment and delivery to Buyer of the Purchased Assets,
(subject, however, to the assumption of the Assumed Liabilities and adjustment
to the Purchase Price as provided in Section 4.03 and Section 4.06 hereof),
Buyer shall pay to Seller, the Purchase Price as follows:
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(i) $4,000,000 pursuant to a Senior Subordinated Note in the form of
EXHIBIT C annexed hereto and made a part hereof executed and
delivered by Fonda;
(ii) $5,000,000 pursuant to a Senior Subordinated Note in the form of
EXHIBIT D annexed hereto and made a part hereof executed and
delivered by Newco;
(iii) $8,000,000, subject to adjustment pursuant to Section 4.06
hereof, by delivery of shares of preferred stock of Newco (the
"Preferred Shares"; provided, however, that if the Preferred
Shares shall be exchanged for Exchange Notes pursuant to Section
4(b) of Part A of Article FIFTH of Newco's Certificate of
Incorporation, such term shall include the Exchange Notes) having
an aggregate liquidation preference in such amount; and
(iv) an amount which when added to the Deposit and the payments to be
made pursuant to clauses (i), (ii) and (iii) above shall equal
(x) the aggregate amount of shareholders equity reflected on the
balance sheets included in the Audited Financial Statements, as
adjusted to reflect (1) Excluded Assets and Excluded Liabilities
and operations relating thereto; and (2) the substitution of the
book carrying value of the Inventory of the CEG Business as of
the Closing Date, as reasonably estimated by Seller, for the book
carrying value of the Inventory of the CEG Business shown on the
balance sheets included in the Audited Financial Statements minus
(y) $2,000,000, by wire transfer of immediately available funds
to one or more accounts designated by Seller.
(c) If Newco shall, at any time prior to the redemption of the
Preferred Shares, merge with and into Fonda (i) all obligations of Newco under
the Senior Subordinated Note of Newco referred to in Section 4.02(b)(ii) hereof
will be assumed by Fonda and (ii) the Preferred Shares will be converted into
an equivalent amount of preferred shares of Fonda having identical terms (the
"Fonda Preferred Shares"). Upon such exchange all references in this Agreement
to the Preferred Shares shall mean the Fonda Preferred Shares.
(d) If Fonda, at any time prior to the redemption of the Preferred
Shares, effects an initial public offering (an "IPO") of its common stock
pursuant to the applicable provisions of the Exchange Act, Seller shall have
the option (the "Exchange Option") to exchange the Preferred Shares in whole
for common stock of Fonda upon and subject to the following terms and
conditions. Fonda shall give Seller notice (the "Exchange Notice") of its
intention to effect the IPO not less than sixty (60) days prior to the filing
of a Registration Statement with the Securities and Exchange Commission,
together with a copy of Fonda's most recent audited financial statement. Seller
shall have the right to exercise the Exchange Option only by giving Fonda
notice thereof within fifteen (15) days following the date of the Exchange
Notice, time being of the essence. Unless timely exercised, the Exchange Option
shall automatically terminate and be of no further force or effect. If the
Exchange Option is timely exercised and the IPO shall be consummated, the
Preferred Shares shall be exchanged on the thirtieth (30th)
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day following the closing date of the IPO for common stock of Fonda having an
aggregate value equal to the Redemption Price, based upon the average closing
price for the initial twenty (20)-day period during which such shares shall be
publicly traded; provided, however, that such common stock shall be restricted
from being traded for a period of twenty-four (24) months following the date of
exchange. If the IPO shall not be successfully consummated, the exercise of the
Exchange Option, if timely exercised, shall be deemed rescinded and the
Exchange Option shall remain in full force and effect. Dennis Mehiel, the
holder of not less than eighty-five (85%) percent of the issued and outstanding
shares of the capital stock of each of Newco and Fonda, hereby agrees to cause
Fonda to comply with its obligations under this paragraph. Dennis Mehiel has
executed this Agreement in his individual capacity solely with respect to his
agreement in the preceding sentence.
4.03 PURCHASE PRICE ADJUSTMENT. After the Closing, the Purchase Price
shall be increased or decreased, as the case may be, by the amount, if any, by
which the Closing Net Book Assets shall be greater or less than the aggregate
amount of shareholders equity reflected on the balance sheets included in the
Audited Financial Statements as adjusted to reflect Excluded Assets and
Excluded Liabilities and operations relating thereto (the "Purchase Price
Adjustment").
Seller shall provide Buyer with a statement of the Closing Net Book
Assets (the "Closing Net Book Assets Statement") within sixty (60) days after
the Closing, together with a letter of Seller's independent certified public
accountants stating that such Statement has been prepared in accordance with
GAAP and fairly presents the Closing Net Book Assets. If the Purchase Price
Adjustment is a negative number, Seller shall, on or before fifteen (15) days
after the Purchase Price Adjustment becomes final pursuant to Section 4.05
hereof, make payment by wire transfer to one or more accounts designated by
Buyer in immediately available funds for the amount of the Purchase Price
Adjustment. If the Purchase Price Adjustment is a positive number, Buyer shall,
on or before fifteen (15) days after the Purchase Price Adjustment becomes
final pursuant to Section 4.05 hereof, make payment by wire transfer to Seller
in immediately available funds for the amount of the Purchase Price Adjustment.
If the Purchase Price Adjustment shall be paid by or to Fonda or Newco, as the
case may be, on the basis of the elements of the Purchase Price Adjustment
allocable to the Purchased Assets acquired by Fonda or Newco, respectively. All
payments of the Purchase Price Adjustment shall also include interest thereon
at the prime rate announced from time to time by The Chase Manhattan Bank N.A.
from the Closing Date through and including the date the Purchase Price
Adjustment is paid.
4.04 COUNT OF INVENTORY, MISC. (a) Seller and Buyer shall conduct a
joint physical count as of the Closing Date, to be reviewed or observed by
their respective independent certified public accounts, of the Inventory, or
employ such other procedures as Seller and Buyer may agree upon, in order to
determine the quantity, and the book carrying value. Based upon such joint
physical count, Seller shall prepare and deliver to Buyer as part of the
Closing Net Book Assets Statement, a statement, by item and quantity, of
Inventory (the "Closing Inventory
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Schedule") accompanied by a letter of agreed upon procedures of Seller's
independent certified public accountants to the effect that the Closing
Inventory Schedule has been prepared, in all material respects, in accordance
with this Section.
(b) The book carrying value of Inventories will be determined using
the FIFO valuation approach as consistently applied in prior periods.
4.05 RESOLUTION OF CLOSING NET BOOK ASSETS. Seller shall make
available to Buyer and, if Buyer elects, Buyer's independent certified public
accountants, at no expense, such of the facilities, books, records and
personnel of Seller related to the Business and such of the work papers of
Seller's independent certified public accountants as are reasonably requested
by Buyer to enable it to review and verify Seller's Closing Net Book Assets
calculation, including, without limitation, the Closing Inventory Schedule. In
the event that Buyer disputes Seller's calculations, it shall, within thirty
(30) days after delivery of the information requested pursuant to the preceding
sentence, deliver a notice to Seller (the "Dispute Notice") setting forth in
reasonable detail, including an estimated dollar amount, the basis of such
dispute; provided, however, that Buyer shall not have the right to dispute the
book carrying value of the Inventory of the CEG Business as of the Closing Date
except to the extent, if any, that the disputed amount of said book carrying
value exceeds $200,000. If the Dispute Notice is not delivered within such
thirty (30)-day period, then the Purchase Price Adjustment, as determined by
Seller, shall be final. In the event that the Dispute Notice is so delivered,
the parties shall negotiate to attempt to resolve the portion which is in
dispute and the portion which is not in dispute, together with interest accrued
thereon, shall be promptly paid by the party owing same. If the parties fail to
resolve any such dispute within thirty (30) days after receipt by Seller of the
Dispute Notice, the parties shall select a firm of independent certified public
accountants of national standing (the "Reviewing Accountant") to review the
portions of Seller's calculation which are subject to dispute or, if the
parties fail to agree upon a Reviewing Accountant within forty-five (45) days
after receipt by Seller of the Dispute Notice, such firm shall be selected by
lot from among all so-called "Big Six" firms not having (and not having
announced a pending combination with another firm having) a disqualifying
interest with respect to either party. The performance of any such firm as the
Reviewing Accountant under this or any other provision of this Agreement shall
not constitute a disqualifying interest. The parties shall make available to
the Reviewing Accountant all work papers and all other information and material
in their possession relating to the matters asserted in the Dispute Notice. The
Reviewing Accountant shall be instructed by the parties to use its best efforts
to deliver to the parties its determination within thirty (30) days after the
date of such submission of the dispute to the Reviewing Accountant. The
determination of the Reviewing Accountant shall be final and binding on the
parties. Each party shall bear its own expenses and the fees and expenses of
its own representatives and experts, including its independent accountant, in
connection with the preparation, review, dispute (if any) and final
determination of the Purchase Price Adjustment. The parties shall share equally
in the costs, expenses and fees of the Reviewing Accountant.
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4.06 EBITDA PURCHASE PRICE ADJUSTMENT. (a) After the Closing, in
addition to any adjustment to the Purchase Price pursuant to Section 4.03
hereof, the Purchase Price shall be (i) reduced by the amount by which the
product of 6 multiplied by the EBITDA Amount, shall be less than $36,000,000;
provided, however, that in no event shall such reduction exceed $6,000,000; and
(ii) increased by 20% of the amount by which the product of 6 multiplied by the
EBITDA Amount shall be greater than $36,000,000; provided, however, that in no
event shall such increase exceed $4,000,000 (the "EBITDA Purchase Price
Adjustment").
(b) Newco shall, on or before October 31, 1997, provide Seller with a
statement of earnings before interest, taxes, depreciation and amortization
("EBITDA") in respect of the operations of the CEG Business for the fiscal year
ending July 31, 1997 (the "EBITDA Amount"), together with (i) Newco's
uncombined income statement for the 12-month period ending July 31, 1997 and
balance sheet as of such date in the form required by Section 8.18(ii) hereof,
(ii) a schedule setting forth the calculation of the EBITDA Amount utilizing
accounting methods consistent with those utilized in preparation of the Audited
Financial Statements; and (iii) such other financial information as Seller may
reasonably request to verify the calculation of the EBITDA Amount.
Notwithstanding the foregoing, in the event that Newco (1) shall not install a
pre-press system included as contributing to Seller's 1996 and 1997 EBITDA
computations, the EBITDA Amount shall be increased by $650,000; and/or (2)
shall install profit-adding capital equipment not included as contributing to
Seller's 1996 and 1997 EBITDA computations, the EBITDA Amount shall be reduced
to the extent if any, that such equipment has a measurable effect on the EBITDA
Amount. If the EBITDA Purchase Price Adjustment is a negative number, Seller
shall, on or before fifteen (15) days after the EBITDA Purchase Price
Adjustment becomes final pursuant to Section 4.07 hereof make payment by
surrendering, transferring and assigning to Newco, Preferred Shares having a
liquidation preference equal to the EBITDA Purchase Price Adjustment, free and
clear of all Liens. If the EBITDA Purchase Price Adjustment is a positive
number, Newco shall, on or before fifteen (15) days after the EBITDA Purchase
Price Adjustment becomes final pursuant to Section 4.07 hereof, make payment by
issuing to Seller additional Preferred Shares having a liquidation preference
equal to the EBITDA Purchase Price Adjustment. Notwithstanding the foregoing,
(A) if Seller shall have exchanged the Preferred Shares for common stock of
Fonda in accordance with the provisions of paragraph 4.06(c) hereof, then
Seller or Newco, as the case may be, shall make a wire transfer in immediately
available funds to an account designated by the other, for the amount of the
EBITDA Purchase Price Adjustment; and (B) if the Preferred Shares shall have
been redeemed on or before December 31, 1996, then, (i) if Newco shall be
entitled to receive the EBITDA Purchase Price Adjustment, payment thereof shall
be effected by crediting the amount thereof against the outstanding principal
balance of the Senior Subordinated Note referred to in Section 4.02(b)(ii)
hereof, and (ii) the Purchase Price shall not be subject to increase as a
result of the EBITDA Purchase Price Adjustment. The EBITDA Purchase Price
Adjustment shall be deemed made as of November 1, 1997 notwithstanding the date
on which it becomes final pursuant to Section 4.07 hereof.
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4.07 RESOLUTION OF EBITDA AMOUNT. In the event that Seller disputes
Newco's calculations of the EBITDA Amount, Seller shall, within thirty (30)
days of delivery thereof, deliver a notice to Newco (the "EBITDA Dispute
Notice") setting forth in reasonable detail including an estimated dollar
amount, the basis of such dispute. If the EBITDA Dispute Notice is not
delivered within such thirty (30)-day period, then the EBITDA Purchase Price
Adjustment as determined by Newco, shall be final. In the event that the EBITDA
Dispute Notice is so delivered, the parties shall negotiate to attempt to
resolve the portion which is in dispute. If the parties fail to resolve any
such dispute within thirty (30) days after receipt by Newco of the EBITDA
Dispute Notice, the parties shall select a firm of independent certified public
accountants of national standing (the "EBITDA Reviewing Accountant") to review
the portions of Newco's calculation which are subject to dispute or, if the
parties fail to agree upon a EBITDA Reviewing Accountant within forty-five (45)
days after receipt by Newco of the EBITDA Dispute Notice, such firm shall be
selected by lot from among all so-called "Big Six" firms not having (and not
having announced a pending combination with another firm having) a
disqualifying interest with respect to either party. The performance of any
such firm as the Reviewing Accountant or the EBITDA Reviewing Accountant under
this or any other provision of this Agreement shall not constitute a
disqualifying interest. The parties shall make available to the EBITDA
Reviewing Accountant and to each other, all work papers and all other
information and material in their possession relating to the matters asserted
in the EBITDA Dispute Notice. The EBITDA Reviewing Accountant shall be
instructed by the parties to use its best efforts to deliver to the parties its
determination within thirty (30) days after the date of such submission of the
dispute to the EBITDA Reviewing Accountant. The determination of the EBITDA
Reviewing Accountant shall be final and binding on the parties. Each party
shall bear its own expenses and the fees and expenses of its own
representatives and experts, including its independent accountant, in
connection with the preparation, review, dispute (if any) and final
determination of the EBITDA Purchase Price Adjustment. The parties shall share
equally in the costs, expenses and fees of the EBITDA Reviewing Accountant.
ARTICLE V
RELATED AGREEMENTS
5.01 RELATED AGREEMENTS. In connection with the consummation of the
transaction contemplated by this Agreement Seller and Buyer shall, at the
Closing, enter into (a) a Supply Agreement (the "Club Supply Agreement")
substantially in the form of EXHIBIT E hereto; and (b) the Transition Services
Agreement (the "Transition Services Agreement") substantially in the form of
EXHIBIT F hereto; (c) a Cup Supply Agreement (the "Cup Supply Agreement")
substantially in the form of EXHIBIT K hereto; (d) a Plate Technology License
Option (the "Plate Technology License Option") substantially in the form of
EXHIBIT L hereto; and (e) a Preferred Supply Agreement (the "Supply Agreement")
substantially in the form of EXHIBIT M hereto. The foregoing Agreements are
hereinafter referred to collectively as the "Related Agreements".
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ARTICLE VI
REPRESENTATIONS AND WARRANTEES OF SELLER
Seller represents and warrants to Buyer the following:
6.01 ORGANIZATION; QUALIFICATION. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia and has corporate power and authority to own all of
its properties and assets and carry on its business as it is presently being
conducted. Seller is duly qualified and in good standing to do business in each
jurisdiction in which the Business makes such qualification necessary except in
those jurisdictions where the failure to be duly qualified and in good standing
would not have a material adverse effect on the Purchased Assets or the
operation thereof. If Seller exercises the election available to it pursuant to
Section 8.19 hereof, on the Closing Date James River California Sub will be a
corporation duly organized, validly existing and in good standing under the
laws of Virginia.
6.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Seller has the corporate
power and authority to execute and deliver this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Related Agreements and the
consummation by Seller of the transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of Seller and no other corporate
proceedings on the part of Seller are necessary with respect thereto. Assuming
that Buyer has duly authorized the execution and delivery of this Agreement and
the Related Agreements, this Agreement constitutes, and the Related Agreements
when executed and delivered by Seller will constitute, valid and binding
obligations of Seller, enforceable in accordance with their terms except as the
same may be limited by (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors, rights generally
or (ii) general principles of equity, whether considered in a proceeding in
equity or at law.
6.03 CONSENTS AND APPROVALS. Except (i) for filings with the Federal
Trade Commission and the United States Department of Justice under the HSR Act;
and (ii) as set forth in Schedule 6.03 hereto, there is no requirement
applicable to Seller to make any filing with or to obtain any permit,
authorization, consent or approval of any Governmental Entity ("Regulatory
Approvals") as a condition to the lawful consummation of the transactions
contemplated by this Agreement (other than as may be required by any applicable
"bulk sales" laws). Except as set forth in Schedule 6.03 hereto, there is no
requirement that any party to any Material Contract or Lease, or other
agreement to which Seller is a party or by which it is bound, consent to the
execution of this Agreement by Seller or the consummation of the transactions
contemplated by this Agreement, including, if Seller exercises the election
available to it pursuant to Section 8.19 hereof, the contribution to James
River California Sub of certain tangible personal property and the sale of the
stock of such subsidiary to Buyer.
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6.04 NON-CONTRAVENTION. The execution and delivery by Seller of this
Agreement and the Related Agreements and consummation of the transactions
contemplated hereby and thereby, including, if Seller exercises the election
available to it pursuant to Section 8.19 hereof the contribution to James River
California Sub of certain tangible personal property and the sale of the stock
of such subsidiary to Buyer do not and will not (i) violate or result in a
breach of any provision of the Articles of Incorporation or Bylaws of Seller,
(ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement, lease or other instrument
or obligation to which Seller is a party or by which Seller or any of the
Purchased Assets may be bound, including, without limitation, the Material
Contracts and the Leases or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Seller, the Business or any of the
Purchased Assets (other than any applicable "bulk sales" laws), excluding from
the foregoing clauses (ii) and (iii) such defaults and violations which would
not have a material adverse effect on the Purchased Assets or the Business.
6.05 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 6.05
hereto, (a) Seller is, and conducts the Business, in material compliance with
the requirements of any laws, regulations, policies, guidelines, orders,
judgments or decrees of any federal, state, local or foreign court or
governmental authority applicable to or having jurisdiction over the Purchased
Assets (a "Governmental Entity") which relate to the environment or to public
health and safety or worker health and safety as they may be affected by the
environment ("Environmental Laws"); (b) Seller has not received written notice
of any claim, action, suit, proceeding, hearing or investigation, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste (collectively, an "Environmental Event")
relating to the Business, and (c) to Seller's knowledge, no notice of any
Environmental Event has been given to any Person that occupied the Real
Property prior to the date the Real Property was occupied by or used in the
Business. Except as set forth in Schedule 6.05 hereto, there are no facts,
events or conditions presently known to Seller which relate to the Business or
the Purchased Assets and which constitute an Environmental Condition or, with
the passage of time, could give rise to Environmental Liabilities or cause
Seller or Buyer to be obligated to clean up, remedy or otherwise restore to a
former condition, by itself or jointly with others, any contaminated surface
water, groundwater, soil or any natural resources associated therewith. Except
as set forth as Schedule 6.05 hereto and without limiting the generality of the
foregoing, Seller has not disposed of on or in the Premises any Hazardous
Materials.
6.06 LICENSES AND PERMITS. Except as set forth in Schedule 6.06
hereto, and except for those Licenses and Permits the failure to maintain which
would not have a material adverse effect upon the ownership or operation of the
Business or the Purchased Assets, Seller has all Licenses and Permits required
to own and operate the Business and the Purchased Assets as they are presently
being operated by Seller. If Seller exercises the election available to it
pursuant to Section 8.19 hereof on the Closing Date James River California Sub
will have all licenses
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and permits required to own and operate the portion of the Long Beach Business
conducted by it and the California Assets. Schedule 6.06 hereto contains a
complete and correct list of all such Licenses and Permits, all of which are in
full force and effect. No notice of a material violation of any such License or
Permit has been received by Seller or, to the knowledge of Seller, recorded or
published, and no proceeding is pending or, to the knowledge of Seller
threatened, to revoke or limit any of them.
6.07 COMPLIANCE WITH LAWS. Except as set forth in Schedule 6.07
hereto, and excluding those matters referred to in Section 6.05 hereof relating
to environmental matters and those contained in Section 6.06 hereof relating to
Licenses and Permits, Seller has not received any notice alleging noncompliance
with any laws, regulations, policies, guidelines, orders, judgements or decrees
of any Governmental Entity applicable to the Purchased Assets including,
without limitation, those related to antitrust and trade matters, civil rights,
zoning and building codes, public health and safety, worker health and safety
and labor and nondiscrimination, which non-compliance could reasonably be
expected to affect, materially and adversely, the Purchased Assets.
6.08 LITIGATION. Except as set forth in Schedule 6.08 hereto, there
are no actions, suits, claims, investigations or proceedings (legal,
administrative or arbitrative) pending or, to the knowledge of Seller,
threatened against Seller, whether at law or in equity and whether civil or
criminal in nature, before any Governmental Entity or arbitrator, nor are there
any judgments, decrees or orders of any Governmental Entity or arbitrator
outstanding against Seller which have, or, if adversely determined, could
reasonably be expected to have a material adverse effect on the Purchased
Assets or which seek specifically to prevent, restrict or delay consummation of
the transactions contemplated hereby or fulfillment of any of the conditions of
this Agreement.
6.09 ABSENCE OF CHANGES. (a) Except as set forth in Schedule 6.09
hereto, since December 31, 1995, there has not been:
(i) any damage, destruction or loss (whether or not covered by
insurance) which affects the Purchased Assets;
(ii) a material change in the operation of the Purchased Assets other
than in the ordinary course of business; or
(iii) any sale or removal of any of the Purchased Assets other than in
the ordinary course of business.
(b) Except as otherwise set forth on Schedule 6.09 hereto, since
December 31, 1995, Seller has not with respect to the Business, other than in
the ordinary course of business:
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(i) incurred any material obligation or liability (whether fixed,
absolute, accrued, contingent, known or unknown, or otherwise, of
any kind or nature whatsoever);
(ii) mortgaged, pledged or subjected to any lien, security interest or
other encumbrance any of the Purchased Assets (other than
mechanic's, materialman's and similar statutory liens arising as
a matter of law and purchase money security interests);
(iii) transferred, leased or otherwise disposed of any Purchased
Assets or acquired any assets or properties to be used solely by
or in connection with the activities of the Business;
(iv) canceled or compromised any debt or claim related to the
Business;
(v) waived or released any rights of material value related to the
Business;
(vi) transferred or granted any rights under any concessions, leases,
licenses, sublicenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with
respect to any know-how related to the Business;
(vii) made or granted any wage, salary or benefit increase or paid any
bonus applicable to any group or classification of employees
generally (except for bonuses which may be granted by Seller to
certain key employees in connection with the consummation of the
transaction contemplated by this Agreement and which shall be
payable by Seller), entered into or amended the terms of any
employment contract with, or made any loan to, or entered into or
amended the terms of any material transaction of any other nature
with, any officer or employee engaged in the operations of the
Business;
(viii) entered into any agreement or commitment to take any action
described in paragraphs (i) - (vii) of this paragraph 6.09(b); or
(ix) in any event suffered any change which would materially and
adversely affect the Purchased Assets or the Business, taken as a
whole.
6.10 TITLE TO PROPERTIES. (a) Except for Permitted Exceptions, Seller
has good and marketable title to all of the Real Property free and clear of any
liens, charges, pledges, security interests or other encumbrances. The term
"Permitted Exceptions" as used in this Agreement means only (i) statutory liens
for current taxes or assessments not yet due and payable; (ii) mechanics',
carriers', workers', repairers' and other similar liens arising or incurred in
the ordinary course of business relating to obligations as to which there is no
default on the part of Seller not in excess of $100,000 in the aggregate;
(iii) exceptions that would be shown on current surveys of the Real Property;
provided, however, that the same do not render title
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unmarketable; (iv) the Leases that affect the Real Property; and (v) the
conditions of title identified on Schedule 6.10 hereto; provided, however, that
the same are not violated by the buildings and improvements on the Real
Property and do not adversely and materially affect the value or the continued
use of the Real Property for the conduct of the Business.
(b) Seller has good title to all of the personal property, tangible
and intangible, which is a part of the Purchased Assets, free and clear of all
Liens.
6.11 LEASES. Schedule 6.11 hereto sets forth a complete list of each
agreement to lease into which Seller has entered, whether as lessor or lessee,
in connection with the ownership or operation of the Real Property or the
Equipment which relates to either real or personal property other than written
leases of real or personal property which may be canceled upon not more than
sixty (60) days notice and require the payment of not more than $1,000 per
month. If Seller exercises the election available to it pursuant to Section
8.19 hereof, on the Closing Date James River California Sub will have all
Leases relating to the Long Beach Business. The agreements listed in Schedule
6.11 hereto and leases, if any, referred to in the preceding sentence and not
required to be set forth on said Schedule, are referred to herein as "Leases."
Except as set forth in Schedule 6.11 hereto, neither Seller nor any other party
thereto has breached any Lease and, to the knowledge of Seller, no event has
occurred which, with the giving of notice or the passage of time, or both, will
cause a default under, or permit the termination, modification or acceleration
of any Lease by any party thereto.
6.12 MATERIAL CONTRACTS. Schedule 6.12 hereto sets forth a complete
and correct list of each contract, agreement or commitment of Seller, other
than the Leases:
(i) upon which the Business or the ownership or operation of any
substantial part of the Purchased Assets is dependent or which,
if breached, could reasonably be expected to affect, materially
and adversely, the Business or the Purchased Assets;
(ii) which relates to the Business or the Purchased Assets and extends
for more than one year from the Closing Date except for any such
contract, agreement or commitment which may be canceled upon not
more than sixty (60) days notice and requires the payment of not
more than $10,000; or
(iii) which provides for the sale, after the Closing Date and other
than in the ordinary course of business, of any of the Purchased
Assets.
Each of the foregoing is referred to in this Agreement as a "Material
Contract." Except as set forth in Schedule 6.12 hereto, all of the Material
Contracts are in full force and effect, no Material Contract has been breached
and to the knowledge of Seller no event has occurred which, with or without the
giving of notice or the passage of time or both, would constitute a default by
any party thereto. If Seller exercises the election available to it pursuant to
Section
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8.19 hereof, on the Closing Date James River California Sub will have all
Material Contracts relating to the Long Beach Business.
6.13 LABOR MATTERS. Schedule 6.13 hereto sets forth a complete and
correct list of each collective bargaining agreement (each a "Collective
Bargaining Agreement") covering employees of Seller employed in connection with
the ownership and operation of the Purchased Assets. Except as set forth on
Schedule 6.13 hereto:
(i) there are no controversies pending, or to the knowledge of
Seller, threatened between Seller and any of its employees which
affect, or can reasonably be expected to affect, materially and
adversely, the ownership or operation of the Purchased Assets or
the financial condition of the Business from and after the
Closing Date or relate to any specific effort to prevent,
restrict or delay consummation of the transactions contemplated
by this Agreement;
(ii) there are no unresolved third step labor union grievances or
unfair labor practice or labor arbitration proceedings pending
or, to the knowledge of Seller, threatened with respect to the
Business which affect, or can reasonably be expected to affect,
materially and adversely, the ownership or operation of the
Purchased Assets or the financial condition of the Business from
and after the Closing Date or relate to any specific effort to
prevent, restrict or delay consummation of the transactions
contemplated by this Agreement; and
(iii) to the knowledge of Seller, there are no organizational efforts
currently being made or threatened involving any employee of
Seller engaged in the Business.
6.14 EMPLOYEE BENEFIT PLANS. (a) Schedule 6.14 hereto lists all of the
employee benefit plans and programs including, without limitation, all
retirement, savings and other pension plans, all health, severance, insurance,
disability and other employee welfare plans and all incentive, vacation and
other similar plans that are maintained by Seller with respect to employees of
Seller engaged in the Business ("Seller's Plans").
(b) Seller has complied and currently is in compliance, both as to
form and operation, with the applicable provisions of ERISA and the Internal
Revenue Code, respectively, with respect to each employee benefit plan within
the meaning of Section 3(3) ERISA, maintained by Seller or to which Seller
contributes or is required to contribute in respect of employees of Seller
engaged in the Business or in which any employee of Seller engaged in the
Business participates.
(c) Each of the Seller Plans that is intended to qualify under Section
401 (a) of the Internal Revenue Code does so qualify and is exempt from
taxation pursuant to Section 501(a) of the Internal Revenue Code, and Seller
has received favorable and unrevoked determination letters from the Internal
Revenue Service to that effect.
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(d) Except as set forth on Schedule 6.14 hereto, (i) Seller has not,
with respect to the Business, maintained contributed to or been required to
contribute to, nor do any of its employees engaged in the Business participate
in, a "multiemployer plan" (as defined in Section 3(37) of ERISA); (ii) no
amount is due or owing from Seller on account of any multiemployer plan or on
account of any withdrawal therefrom with respect to the Business or such
employees; and (iii) no withdrawal liability would result with respect to the
Business if there were a partial or complete withdrawal from any such
multiemployer plan as of the Closing Date.
(e) Except as set forth on Schedule 6.14 hereto and as may be required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended,
Seller does not maintain any post-retirement health and life insurance plans on
behalf of employees engaged in the Business.
6.15 FINDERS. Except as set forth on Schedule 6.15 hereof, no broker,
finder or investment banker is entitled to any fee or commission from Seller
for services rendered on behalf of Seller in connection with the transactions
contemplated by this Agreement.
6.16 FINANCIAL STATEMENTS. Schedule 6.16 hereto contains the combining
and combined unaudited financial statements, consisting of a balance sheet
(excluding Excluded Assets and Excluded Liabilities), income statement and
statement of cash flows (excluding operations relating to the Excluded Assets),
for each Business for the year ended December 31, 1995. Such financial
statements present fairly the financial position and results of operations of
each Business as of the date and for the period indicated in accordance with
GAAP.
6.17 USE OF REAL PROPERTY. The Real Property is used and operated in
compliance and conformity with all applicable Leases, Material Contracts,
Licenses and Permits, except for such noncompliance or nonconformity as would
not, individually or in the aggregate, have a material adverse effect on the
operations or financial condition of the Business from and after the Closing
Date. Seller has not received notice of any material violation of any
applicable zoning or building regulation, ordinance or other law, order,
regulation or requirement relating to the conduct of the Business or to the
Real Property.
6.18 CONDITION OF ASSETS. The Real Property and Equipment used in the
ordinary course of business are in a reasonable state of repair and operating
condition (ordinary wear and tear excepted).
6.19 ACCOUNTS RECEIVABLE. The Accounts Receivable reflected on the
unaudited financial statements of the Business referred to in Section 6.16
hereof arose from bona fide transactions, and no further goods or services are
required to be provided in order to entitle Seller or its assignee to collect
such Accounts Receivable in full. Such Accounts Receivable have not been
assigned or pledged to any other person, corporation or other entity and, to
the knowledge of Seller, no defense or set-off has been asserted by any account
obligor.
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6.20 INSURANCE. Seller represents that the Real Property and
improvements thereto and the contents thereof, including, without limitation,
the Equipment and Inventory, whether covered directly or as the assets of a
corporation acquired by Seller by stock transfer, are insured as of the date
hereof for replacement value under all risk property insurance, Seller
retaining $200,000 of each loss (other than Yankee dryers and turbines over
10,000 watts which have a $1,000,000 retention). All such policies will remain
in force between the date hereof and the Closing Date. All premiums have been
paid, and no notice of cancellation or termination has been received with
respect to any such policy.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
OF FONDA AND NEWCO
Fonda and Newco severally, represent and warrant to Seller the
following:
7.01 ORGANIZATION; QUALIFICATION. Fonda is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and Fonda has the corporate power and authority to own all of its
properties and assets and to carry on the business contemplated by the
transactions described in this Agreement. Fonda is duly qualified and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary except in those jurisdictions where the failure to
be duly qualified and in good standing would not have a material adverse effect
on Fonda or the business conducted by Fonda. Fonda has heretofore delivered to
Seller complete and correct copies of its Articles of Incorporation and Bylaws,
as currently in effect.
7.02 AUTHORITY RELATIVE TO THIS AGREEMENT. Fonda has the corporate
power and authority to execute and deliver this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Fonda of this Agreement and the Related
Agreements and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of Fonda and no
other corporate proceedings on the part of Fonda are necessary with respect
thereto. Assuming that Seller has duly authorized the execution and delivery of
this Agreement and the Related Agreements, this Agreement constitutes, and the
Related Agreements when executed and delivered by Fonda will constitute, valid
and binding obligations of Fonda, enforceable in accordance with their terms
except as the same may be limited by (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
or (ii) general principles of equity, whether considered in a proceeding in
equity or at law.
7.03 CONSENTS AND APPROVALS. Except for filings with the Federal Trade
Commission and the United States Department of Justice under the HSR Act, there
is no requirement
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applicable to Fonda to make any filing with, or to obtain any permit,
authorization, consent or approval of, any Governmental Entity as a condition
to the lawful consummation of the transactions contemplated by this Agreement
There is no requirement that any party to any agreement to which Fonda is a
party or by which it is bound consent to the consummation of the transactions
contemplated by this Agreement.
7.04 NON-CONTRAVENTION. The execution and delivery by Fonda of this
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) violate or result in a
breach of any provision of the Articles of Incorporation or Bylaws of Fonda,
(ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement, lease or other instrument
or obligation to which Fonda is a party, or by which Fonda or the business
conducted by Fonda may be bound, or (iii) violate any order, writ injunction,
decree, statute, rule or regulation applicable to Fonda, or to the businesses
conducted by Fonda, excluding from the foregoing causes (ii) and (iii) such
defaults and violations which would not have a material adverse effect on the
business or properties of Fonda.
7.05 LITIGATION. Except as set forth in Schedule 7.05 hereto, there
are no actions, suits, claims, investigations or proceedings (legal,
administrative or arbitrative) pending or, to the knowledge of Fonda,
threatened against Fonda, whether at law or in equity and whether civil or
criminal in nature, before any Governmental Entity or arbitrator, nor are there
any judgments, decrees or orders of any Governmental Entity or arbitrator
outstanding against Fonda which have, or if adversely determined, could
reasonably be expected to have a material adverse effect on the earnings,
assets, financial condition or operations of the business conducted by Fonda,
or which seek specifically to prevent, restrict or delay consummation of the
transactions contemplated hereby or fulfillment of any of the conditions of
this Agreement.
7.06 FINANCIAL STATEMENTS. Fonda has heretofore delivered to Seller a
copy of Fonda's Financial Statements for the years ended July 30, 1995 and July
31, 1994 and Independent Auditors Report. There has not been any material
adverse change since the date of such Financial Statements in the business,
condition, properties or assets of Fonda.
7.07 TAXES. Fonda has filed all Tax Returns and reports required by it
to be filed and paid and discharged all taxes, assessments and governmental
charges levied upon it or its income, profits and properties except those which
are not delinquent or which are being contested in good faith by appropriate
proceedings and for the payment of which adequate reserves have been provided.
7.08 FINDERS. No broker, finder or investment banker is entitled to
any fee or commission from Fonda in connection with the transactions
contemplated by this Agreement.
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7.09 ORGANIZATION; QUALIFICATION. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and Newco has the corporate power and authority to own all of its
properties and assets and to carry on the business contemplated by the
transactions described in this Agreement. Newco is duly qualified and in good
standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary except in those jurisdictions where the failure to
be duly qualified and in good standing would not have a material adverse effect
on Newco or the business conducted by Newco. True and complete copies of
Newco's Certificate of Incorporation and Bylaws are annexed hereto as EXHIBIT J
and made a part hereof.
7.10 AUTHORITY RELATIVE TO THIS AGREEMENT. Newco has the corporate
power and authority to execute and deliver this Agreement and the Related
Agreements and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Newco of this Agreement and the Related
Agreements and the consummation by it of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of Newco and no
other corporate proceedings on the part of Newco are necessary with respect
thereto. Assuming that Seller has duly authorized the execution and delivery of
this Agreement and the Related Agreements, this Agreement constitutes, and the
Related Agreements when executed and delivered by Newco win constitute, valid
and binding obligations of Newco, enforceable in accordance with their terms
except as the same may be limited by (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
or (ii) general principles of equity, whether considered in a proceeding in
equity or at law.
7.11 CONSENTS AND APPROVALS. Except for filings with the Federal Trade
Commission and the United States Department of Justice under the HSR Act, there
is no requirement applicable to Newco to make any filing with, or to obtain any
permit, authorization, consent or approval of, any Governmental Entity as a
condition to the lawful consummation of the transactions contemplated by this
Agreement. There is no requirement that any party to any agreement to which
Newco is a party or by which it is bound consent to the consummation of the
transactions contemplated by this Agreement.
7.12 NON-CONTRAVENTION. The execution and delivery by Newco of this
Agreement and the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) violate or result in a
breach of any provision of the Articles of Incorporation or Bylaws of Newco,
(ii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, agreement lease or other instrument
or obligation to which Newco is a party, or by which Newco or the business
conducted by Newco may be bound, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Newco, or to the businesses
conducted by Newco, excluding from the foregoing causes (ii) and (iii) such
defaults and violations which would not have a material adverse effect on the
business or properties of Newco.
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7.13 LITIGATION. There are no actions, suits, claims, investigations
or proceedings (legal, administrative or arbitrative) pending or, to the
knowledge of Newco, threatened against Newco, whether at law or in equity and
whether civil or criminal in nature, before any Governmental Entity or
arbitrator, nor are there any judgments, decrees or orders of any Governmental
Entity or arbitrator outstanding against Newco which have, or if adversely
determined, could reasonably be expected to have a material adverse effect on
the earnings, assets, financial condition or operations of the business
conducted by Newco, or which seek specifically to prevent, restrict or delay
consummation of the transactions contemplated hereby or fulfillment of any of
the conditions of this Agreement.
7.14 FINDERS. No broker, finder or investment banker is entitled to
any fee or commission from Newco in connection with the transactions
contemplated by this Agreement.
7.15 401(K) ROLLOVER. Buyer's 401(K) plans permit or will permit
rollover contributions within the meaning of Section 402(c) of the Internal
Revenue Code.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 MANAGEMENT OF PURCHASED ASSETS. From the date hereof until the
Closing, Seller shall: (a) operate and maintain the Real Property and Equipment
in the ordinary course of business as historically conducted; (b) manage the
amounts of Purchased Assets constituting assets and Assumed Liabilities
constituting liabilities in the ordinary and usual course of business and in a
manner consistent with past practices such that the amounts of such assets and
liabilities acquired or assumed by Buyer hereunder are substantially equal to
the amounts thereof on December 31, 1995; (c) operate the Business only in the
usual, regular and ordinary manner and, to the extent consistent with such
operations, use its best efforts to preserve the current business organization
of the Business intact, keep available the services of those officers and
employees currently engaged in the operations of the Business and preserve its
present relationships with customers of, and all other persons having business
dealings with, the Business; (d) maintain its books of account and records in
the usual, regular and ordinary manner, on a basis consistent with past
practice, and use its best efforts to comply with all laws applicable to it and
to the conduct of the Business and perform all its material obligations without
default; and (e) with Buyer's assistance and cooperation, but at the expense of
Seller, promptly apply for or otherwise seek and use commercially reasonable
efforts to obtain all authorizations, consents, waivers and approvals as may be
required in connection with the assignment of the Material Contracts and the
Leases.
8.02 FORBEARANCES BY SELLER. Except as contemplated by this Agreement,
Seller will not, from the date hereof until the Closing, without the prior
consent of Buyer: (a) sell, dispose of or transfer any of the Purchased Assets
except in the ordinary course of business; (b) amend,
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modify or cancel any Material Contract or Lease; or (c) enter into any
agreement to do any of the things described in clauses (a) or (b).
8.03 INVESTIGATION OF PURCHASED ASSETS. From and after the date hereof
until the Closing, and subject to the provisions of Section 8.05 hereof, Seller
will afford Buyer and its attorneys, accountants, financial advisors and other
representatives access at all reasonable times to its officers, employees,
properties, contracts, books and records to the extent relating to the
Purchased Assets. In addition Seller will furnish Buyer with such data as Buyer
may reasonably request concerning the Purchased Assets.
8.04 TITLE AND SURVEY. Buyer shall, at its own expense, proceed
promptly to order and obtain current title insurance policies or commitments
with respect to the Real Property. Buyer shall deliver copies of each title
commitment from Commonwealth Land Title Insurance Company (the "Title Company")
to Seller within ten (10) days after receipt thereof by Buyer. Seller shall, at
its own expense, provide Buyer with current surveys of the Real Property not
less than ten (10) days prior to the Closing.
8.05 CONFIDENTIALITY. Pursuant to the provisions of this Agreement,
Seller has supplied and will supply Buyer with certain documents and
information for use in investigating the ownership and operation of the
Purchased Assets. Such material is hereinafter referred to as 'Evaluation
Material". Buyer agrees to hold in confidence any Evaluation Material it has
received or will receive and not to disclose all or any part of such material
to anyone except its financial advisors, investment bankers, officers,
directors, employees or other representatives who need such information to
perform their respective duties and who have been informed of the confidential
nature of such material and directed to treat it confidentially. If this
Agreement is terminated, Seller and Buyer will return to the other, or cause to
be destroyed and will not retain or permit any person to whom it has given
copies thereof to retain, the originals or any copies of any documents
constituting a part of the Evaluation Material furnished to it or any notes or
memoranda prepared using such Evaluation Material and after termination both
Seller and Buyer will continue to honor the confidentiality agreements
contained herein, and will not use or disclose, directly or indirectly, any
information obtained from the Evaluation Material. Notwithstanding the
foregoing, Buyer may use and disclose any such information to the extent that
(i) it had acquired such information on a non-confidential basis prior to
receipt thereof from Seller, (ii) such information has become generally
available to the public, (iii) such information is provided to Buyer by a third
party who has obtained such information other than as a result of a breach of
this Agreement. Furthermore, Buyer may disclose such information to the extent
that it is required to do so in order to comply with a governmental or judicial
order or decree or as reasonably necessary to secure financing for the
operation of the Purchased Assets, but upon receiving notice that any such
order or decree is being sought, it will promptly notify Seller and will, at
Seller's expense, cooperate with the Seller's efforts, if any, to contest the
issuance of such order or decree.
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8.06 TAXES AND RECORDING FEES. All property taxes and special
assessments payable in respect of any of the Real Property transferred in
connection with the transactions contemplated hereby shall be prorated between
the parties on the basis of actual days elapsed between the commencement of the
current fiscal tax year and the Closing, based on a 365-day year and as so
reflected on the Closing Net Book Assets Statement. All recording fees
associated with the transfer of the Real Property contemplated hereby will be
borne by Buyer. All other sales and Transfer Taxes and fees (including filing
fees, if any) incurred in connection with this Agreement and the transactions
contemplated hereby will be borne by Seller, including, without limitation, any
such Transfer Taxes and fees payable in connection with the sale of the stock
of the James River California Sub to Buyer. Additionally, Seller shall pay all
Taxes resulting from the making of the Section 338(h)(10) Election (and any
comparable election under state or local tax law). Buyer and Seller will file
all necessary tax returns and other documents required to be filed with respect
to all such taxes and filing fees. Buyer and Seller will cooperate with each
other to the extent necessary to enable each to make such filings and join in
the execution of any tax returns or other documents as may be necessary to
enable Buyer and Seller to comply with the provisions of this Section.
8.07 PRORATION OF LEASE PAYMENTS, UTILITY CHARGES AND OTHER PAYMENTS.
Any installment of rent due on any of the Leases and any utility or similar
charge payable with respect to the period in which the Closing occurs shall be
prorated between the parties hereto on the basis of the actual number of days
applicable to pre-Closing and post-Closing occupancy or use and as so included
in the determination of the Closing Net Book Assets. On or before the date that
is sixty (60) days after the Closing Date, Seller will deliver to Buyer a
schedule showing the proration of such amounts and Buyer shall pay Seller the
amounts shown due on such schedule within sixty (60) days of receipt of such
schedule.
8.08 ALLOCATION OF PURCHASE PRICE. The Purchase Price has been agreed
upon by the parties and the values assigned to the various assets which
constitute the Purchased Assets are listed in Schedule 8.08 hereto. Seller and
Buyer agree that the values reflected in Schedule 8.08 hereto were separately
established as a result of good faith bargaining and that in reporting the
transactions contemplated by this Agreement to the Internal Revenue Service, as
is required by Section 1060 of the Internal Revenue Code, they will use such
prices and cooperate with each other in meeting the requirements of the
Internal Revenue Code and the regulations promulgated thereunder. Each of Buyer
and Seller shall timely complete and file a Form 8593 Asset Acquisition
Statement of Allocation consistent with such allocation, shall provide a copy
of such form to the other party hereto and shall file a copy of such form with
its federal income tax return for the period that includes the Closing Date.
Each of Buyer and Seller further agrees not to take any position inconsistent
with such allocation for any tax or financial accounting or reporting purpose.
8.09 BULK SALES LAWS. Seller will indemnify and hold harmless Buyer
from any and all claim relating to provisions of the "bulk sales laws" of any
state or other jurisdiction which
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may be applicable to the transactions contemplated hereby and from all costs
(including reasonable attorneys' fees) incurred in the defense of any claims
made under such laws.
8.10 MATERIALS RECEIVED AFTER CLOSING. Following the Closing Buyer may
open all mail, telegrams and other communications and packages it receives
which are addressed to Seller and deal with the contents thereof in its
discretion to the extent that the contents thereof relate to the Purchased
Assets or the Assumed Liabilities. Buyer agrees to deliver to Seller all other
such material it receives which is addressed to Seller and does not relate to
such assets or liabilities.
8.11 RETENTION OF BOOKS AND RECORDS. (a) On and after the Closing
Date, Buyer will permit Seller or its representatives and agents at reasonable
times during business hours to inspect all the files, books, records and
accounts of the Business held by Buyer, as well as provide Seller with access
to, and the cooperation of, any employee having knowledge of the information
therein contained, if such inspection, access and cooperation are reasonably
necessary (i) to respond to a governmental investigation or for the defense by
Seller of any litigation relating to the Business prior to the Closing Date or
(ii) for accounting reviews or audits or for judicial or administrative
proceedings or determinations relating to the liability of Seller for Taxes for
periods prior to the Closing Date.
(b) Buyer shall retain and maintain substantially in the condition in
which the same shall exist on the Closing Date, and shall not dispose of, any
business records of the Business transferred to Buyer pursuant to this
Agreement (including all machine sensible records, such as computer tapes,
disks, diskettes, etc., which are considered books and records within the
meaning of Internal Revenue Code Section 6001, in accordance with Internal
Revenue Procedure 91-59 or such amending or superseding guidance as issued by
the Internal Revenue Service) until the later to occur of (i) the expiration of
the applicable tax statute of limitations, including extensions thereof, and
(ii) the seventh (7th) anniversary of the Closing Date; provided, however,
that, after such date, Buyer shall give Seller written notice of its intention
to dispose of any part thereof, specifying the items to be disposed of in
reasonable detail. Seller may, within a period of sixty (60) days from receipt
of any such notice, notify Buyer of its desire to retain one or more of the
items to be disposed of. Buyer shall, upon receipt of such a notice from
Seller, deliver to Seller, at Seller's expense, the items specified therein.
8.12 EXPENSES. Except as otherwise provided in this Agreement all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such costs
and expenses.
8.13 PUBLIC ANNOUNCEMENTS. The parties will consult with one another
before issuing any press releases or otherwise making any public statements
with respect to this Agreement and the transactions contemplated hereby and
will not issue any such press release or make any such public statement without
the consent of the other unless such action is required by law or by the New
York Stock Exchange.
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8.14 EFFORTS TO CONSUMMATE. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its reasonable best efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate, as promptly as
practicable, the transactions contemplated hereby, including but not limited
to, the obtaining of all necessary consents, waivers, authorizations, orders
and approvals of third parties, whether private or governmental, required of it
to enable it to comply with the conditions precedent to consummating the
transactions contemplated by this Agreement. Each party agrees to cooperate
fully with each of the other parties in assisting them to comply with the
provisions of this Section. Notwithstanding the foregoing, no party hereto
shall be required to initiate any litigation, make any substantial payment or
incur any material economic burden, except for a payment otherwise then
required of it to obtain any consent, waiver, authorization, order or approval.
8.15 FURTHER ASSURANCES. Seller will use its reasonable best efforts
to implement the provisions of this Agreement, and for such purpose, at the
request of Buyer will, at or after the Closing, without further consideration,
promptly execute and deliver such additional documents as Buyer may reasonably
deem necessary or desirable in order to consummate more effectively the
transactions contemplated hereby and to vest in Buyer title to the Purchased
Assets free and clear of any Liens other than the Permitted Exceptions.
8.16 ADDITIONAL FINANCIAL STATEMENTS. Seller, at its sole cost and
expense, will deliver to Buyer (i) on or before March 15, 1996, the audited
combined financial statements for the Natural Dam and Long Beach Businesses and
audited financial statements for the CEG Business (excluding Excluded Assets
and Excluded Liabilities and operations relating thereto), consisting of a
balance sheet, income statement and statement of cash flows and footnotes to
such financial statements as of and for the year ended December 31, 1995
prepared by Seller's independent certified public accountants (the "Audited
Financial Statements"), together with comparable unaudited combining financial
statements for the Natural Dam and Long Beach Businesses as of and for the year
ended December 31, 1995, prepared in accordance with GAAP and certified by
Seller's chief financial officer; (ii) on or before May 15, 1996, comparable
audited financial statements and footnotes thereto for the CEG Business as of
and for the year ended December 31, 1994; and (iii) if Fonda shall give Seller
notice of its intention to effect an initial public offering of its common
stock pursuant to the applicable provisions of the Exchange Act, on or before
the date which shall be sixty (60) days following the date of such notice,
comparable audited combined financial statements and footnotes thereto for the
Natural Dam and Long Beach Businesses, together with comparable unaudited
combining financial statements as of and for the year ended December 31, 1994,
prepared in accordance with GAAP and certified by Seller's chief financial
officer; provided, however, that such Financial Statements are reasonably
required for such offering. Any delay in providing the Audited Financial
Statements shall allow Buyer the right to extend the dates set forth in Section
12.01 hereof by the number of days following March 15, 1996 that such Audited
Financial Statements are delivered.
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8.17 NON-COMPETITION. (a) Seller hereby agrees that for a period of
three (3) years following the Closing Date, neither Seller nor any of its
Affiliates, shall directly or indirectly, manufacture or sell in the United
States (i) through the so-called "Party Channel" (defined as retail outlets
selling primarily paper and plastic decorative products for special occasions),
Party Goods which compete with the CEG Business, except any such direct sales
to Hallmark Cards, Inc.; (ii) Short Run custom imprint placemats or napkins
which compete with the Long Beach Business; or (iii) parent roll deep-tone
tissue, or otherwise compete with the Natural Dam Business with respect to any
customer of the Natural Dam Business as of or within the period of twelve (12)
months preceding, the Closing Date. The restrictions contained in clauses (i)
and (ii) of this Section shall not apply to any business acquired by Seller or
any Affiliate of Seller following the Closing Date; provided, however, that the
aggregate revenues of such business relating to such restricted activities
shall not be in excess of ten (10%) percent of the aggregate revenues of such
business. The term "Short Run" means 150,000 for customers of Seller as of the
date of this Agreement and 200,000 for customers or business opened or created
following the date of this Agreement.
(b) Seller acknowledges that Buyer would be irreparably harmed by any
breach of this Section, and that there would be no adequate remedy at law or in
damages to compensate Buyer for any such breach.
8.18 FINANCIAL REPORTS. Fonda, for so long as the Preferred Shares or
either of the Senior Subordinated Notes referred to in Sections 12.03(ii) or
12.03(iii) hereof shall remain outstanding, and Newco, for so long as the
Preferred Shares or the Senior Subordinated Note referred to in Section 12.03
(iii) hereof shall remain outstanding, shall each provide to Seller the
following financial reports:
(i) As soon as practicable, and in any event no later than sixty (60)
days after the end of each quarterly period (commencing October
31, 1996) other than the last quarterly period, a balance sheet
of such company (consolidated with subsidiaries, if any), as of
the end of such quarterly period, income statement and statement
of cash flows, of such company from the beginning of the fiscal
year to the end of the quarterly period, (consolidated with
subsidiaries, if any), setting forth in comparative format with
the corresponding period in the preceding fiscal year, prepared
in accordance with GAAP and certified by the chief financial
officer of such company; and
(ii) As soon as practicable, and in any event not later than ninety
(90) days after the end of each fiscal year, a balance sheet of
such company (consolidated with subsidiaries, if any), income
statement and statement of cash flows as of the end of the fiscal
year, in a comparative format with the preceding fiscal year,
prepared in accordance with GAAP, together with a report thereon
by independent public accountants of recognized standing selected
by such company.
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8.19 JAMES RIVER CALIFORNIA SUB. Prior to the Closing, Seller may, at
its sole election, establish a newly-formed wholly-owned subsidiary (the "James
River California Sub") and contribute to the James River California Sub any or
all of the tangible personal property owned by Seller and used exclusively in
connection with the Long Beach Business (the "California Assets"). Seller shall
not transfer to the James River California Sub, or permit the James River
California Sub to incur or assume, any liability except for liabilities that
would be Assumed Liabilities had the James River California Sub not been
created. If Seller determines to establish the James River California Sub under
this Section, Seller shall contribute the California Assets to the James River
California Sub immediately prior to the Closing. Buyer shall cause the name of
James River California Sub to be changed immediately following the Closing so
as to remove the words James River therefrom.
8.20 SECTION 338(H)(10) ELECTION. The provisions of this Section shall
only apply if James River determines to form the James River California Sub.
(a) Buyer and Seller agree to make timely, effective and irrevocable
Section 338(h)(10) Elections with respect to the James River California Sub as
set forth in this Agreement, as well as any Section 338(h)(10) Elections (or
corresponding or similar elections) for state or local purposes, and to file
such elections in accordance with applicable regulations. The provisions of
this Agreement shall apply to any such elections that Buyer makes for state or
local purposes.
(b) Seller shall file a consolidated federal income tax return with
the James River California Sub for the tax year beginning on January 1, 1996
and ending on and including the date of the Closing. Seller is eligible to make
an election under Section 338(h)(10) of the Internal Revenue Code (and any
comparable election under state or local tax law) with respect to the James
River California Sub. Buyer and Seller shall make or cause to be made the
Section 338(h)(10) Elections (and any comparable election under state or local
tax law) and shall take no position contrary thereto unless required to do so
pursuant to a final determination by any taxing authority or judicial
proceeding.
(c) Seller shall be responsible for preparing and filing all Section
338 Forms in accordance with the terms of this Agreement. Seller shall furnish
copies of the Section 338 Forms to Buyer for Buyer's approval at least 25
business days before the date such Section 338 Forms are required to be filed.
Buyer shall execute and deliver to Seller such documents or forms as Seller
reasonably requests to complete the Section 338 Forms, properly and in a timely
fashion.
(d) Buyer and Seller agree that the deemed sale price of the
California Assets determined in accordance with Treasury Regulation Section
1.338(h)(10)-l(f) will be determined within 120 days after the Closing and the
parties will file the forms required under the Internal Revenue Code and the
regulations thereunder in a manner substantially consistent with the allocation
of values pursuant to such Section.
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8.21 TAX MATTERS. (a) Any agreement between Seller and the James River
California Sub regarding the allocation of payment of taxes or amounts in lieu
of taxes shall be deemed terminated at and as of the Closing.
(b) Buyer will be responsible for the preparation and filing of all
federal, state and local franchise, property, payroll, and other non-income tax
returns, and all income tax returns of the James River California Sub arising
for all periods as to which such tax returns are due after the Closing. Buyer
will make all payments required with respect to any such tax returns and Seller
will reimburse Buyer for all such payments to the extent that they relate to
periods ending on or before the Closing Date and are not reflected on the
Closing Net Book Assets Statement.
ARTICLE IX
EMPLOYEES AND EMPLOYEE MATTERS
9.01 TRANSFERRED EMPLOYEES. Attached hereto as Schedule 9.01 is a list
of the employees who are employed by Seller engaged in the operations of the
Business and current annual compensation rates, as of the most recent date for
which such information is available. As of the Closing, Buyer shall offer (i)
employment with Buyer to all union employees who are employed by Seller in
connection with the operations of the Business immediately before the Closing;
and (ii) employment with Buyer to such non-union employees who are employed by
Seller in connection with the operations of the Business as Buyer shall so
elect in its sole discretion. Buyer shall, not less than twenty (20) days prior
to the Closing Date, provide Seller with a list of non-union employees to whom
Buyer intends to offer employment with Buyer. Such employees who become
employees of Buyer are hereinafter referred to as "Transferred Employees" and
shall be deemed to have become employees of Buyer as of the time the Closing
becomes effective; provided, however, that any employee employed by Seller in
connection with the operations of the Business who becomes employed by Buyer
pursuant to this Section 9.01 and who is inactive as of the Closing, shall
become a Transferred Employee as of the date such employee commences employment
with Buyer. Seller hereby agrees that for a period of three (3) years following
the Closing Date, neither Seller nor any Affiliate of Seller shall employ nor
solicit to employ any Transferred Employee. Notwithstanding the foregoing,
Seller shall have the right to, prior to the Closing, offer employment to those
employees of Seller engaged in the operation of the Business on the date hereof
listed on Schedule 9.01 hereto.
9.02 COLLECTIVE BARGAINING AGREEMENTS. Seller acknowledges that (a)
Local 687 of the United Paperworkers International Union (the "UPI") has been
recognized as the exclusive collective bargaining representative of the
bargaining unit of hourly employees engaged in the Natural Dam Business; (b)
Local 388M of the Graphic Communications Union, District Council No. 2 Union
(the "GC Union") has been recognized as the exclusive
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collective bargaining representative of the bargaining unit of hourly employees
engaged in the Long Beach Business; and (c) Local 1105 of the UPI, AFL-CIO-CLC
Union (the "UPI-AFL Union") has been recognized as the exclusive collective
bargaining representative of the bargaining unit of hourly employees engaged in
the CEG Business. Buyer hereby agrees to attempt in good faith to enter into an
agreement with each Union, subject to and effective upon the Closing, under
which: (i) Buyer shall assume the applicable Collective Bargaining Agreement
between Seller and such Union listed on Schedule 9.02 hereto, subject to the
following changes: (a) the substitution of a Buyer-sponsored defined
contribution savings plan for the Seller-sponsored pension and savings plans
provided for in such Collective Bargaining Agreement, and (b) the substitution
of Buyer-sponsored welfare benefit plans reasonably equivalent for the
Seller-sponsored welfare benefit plans provided for in such Collective
Bargaining Agreement.
9.03 EMPLOYEE BENEFIT PLANS. (a) Except as otherwise provided in
Section 9.02 hereof, Buyer shall provide the Transferred Employees with
employee benefit plans, programs and arrangements which are substantially
similar to those provided to similarly situated employees of Buyer, and such
employees will cease participating in any Seller Plans as of the Closing (or
such later date for Transferred Employees who are inactive as of the Closing).
Other than as provided in Section 9.03(d) hereof Buyer shall recognize the
service with Seller before the Closing Date of both hourly and salaried
Transferred Employees as if such service had been with Buyer, for the purposes
of seniority rights, eligibility for benefits, or level of benefits, including
but not limited to vacation and severance rights.
(b) Buyer shall not assume any obligation under or with respect to any
Seller Plan, and all benefits under any Seller Plan shall be paid by Seller
pursuant to the terms of such Plan.
(c) Buyer, except for any pension plan maintained by Buyer, shall
treat service of hourly Transferred Employees with Seller, before the Closing,
as if such service had been with Buyer for purposes of seniority rights and
benefits under the Collective Bargaining Agreement covering such Transferred
Employees.
(d) Credited Service. Seller shall cause each Seller Plan which is a
"pension plan" within the meaning of Section 3(2) of ERISA, or any successor
plan thereto, to be amended to provide credit for Transferred Employees for
purposes of vesting only with respect to benefits accrued prior to the Closing
for their years of service with Buyer or any of its Affiliates on or after the
Closing. Buyer or any of its Affiliates shall recognize prior service with
Seller to the extent recognized under Seller's corresponding plans for such
Transferred Employees prior to the Closing as service with Buyer or any of its
Affiliates in connection with (i) any welfare benefit plan for purposes of any
waiting period and eligibility purposes only and (ii) any pension plan for
purposes of eligibility and vesting only in which such Transferred Employees
elect to participate and which is available by Buyer or any of its Affiliates
following the Closing.
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9.04 PENSION PLANS. (a) No assets or liabilities with respect to
Transferred Employees shall be transferred, as a result of this Agreement, from
Seller's hourly or salaried pension plans to any pension plan maintained or
established by Buyer. Seller shall retain the obligation under the terms of
Seller's pension plans to provide benefits accrued by Transferred Employees
prior to the Closing.
(b) Buyer shall be solely responsible for any benefits accrued by
Transferred Employees after the Closing Date under any pension plan maintained
by Buyer with respect to such employees.
9.05 WELFARE BENEFIT PLANS. (a) Buyer shall be liable for welfare
benefit claims incurred by Transferred Employees under Buyer's welfare benefit
plans after the Closing Date. Seller shall retain liability for welfare benefit
claims incurred by Transferred Employees under Seller's welfare benefit plans
on or prior to the Closing Date. For purposes of this Section, a medical
benefit claim shall be considered to be incurred at the time the medical
service to which the claim relates is rendered.
(b) Buyer will maintain its welfare benefit plans as a continuation of
Seller's welfare benefit plans, so that Buyer will give Transferred Employees
credit under its plans for payments made under Seller's welfare benefit plans
for purposes of deductibles and maximum out-of-pocket limits.
9.06 SEVERANCE. Buyer or one of its Affiliates shall provide payments
upon termination of employment to any non-union Transferred Employee terminated
by Buyer or one of its Affiliates without cause which are at least equal to the
severance pay that such employee would have received under the terms of the
James River Salary Continuation Plan for non-union Employees with respect to
such Transferred Employee's periods of employment or salary grade with Seller
and, in addition, in accordance with Buyer's severance policy with respect to
such Transferred Employee's period of employment with Buyer.
9.07 FLEX PLANS. Effective as of the Closing, Buyer will establish or
provide a Code Section 125 flexible benefits program ("Buyer's FSA") providing
benefits that are the same as those available under the James River Flexible
Benefits Program ("Seller's FSA"). Effective as of the Closing, Buyer shall
assume all obligations to pay all unpaid claim of the Transferred Employees
participating in Seller's FSA as of the Closing. Each Transferred Employee
shall be credited as of the Closing Date under Buyer's FSA with the remaining
amounts available for reimbursement for each elected benefit equal to such
remaining amounts as were credited under Seller's FSA with respect to such
person immediately prior to the Closing. Buyer shall give effect under Buyer's
FSA to calendar year 1996 salary reduction elections made by Transferred
Employees with respect to Seller's FSA and no new benefit elections for 1996
will be allowed to the Transferred Employees except as otherwise provided by
Buyer's FSA in the event of a change in family status.
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9.08 WORKER'S COMPENSATION. Seller will retain liability for all
worker's compensation claims that arise from events that occurred before the
Closing. Buyer will assume liability for all worker's compensation claims made
by Transferred Employees that arise from events that occur on or after the
Closing.
9.09 RETENTION OF LIABILITIES. Seller shall retain all liability and
be responsible for any direct and indirect costs, claims, liabilities or losses
with respect to (i) the Seller Plans, including any post-employment or
post-retirement health or welfare benefits provided under any such Plan, (ii)
any employee or former employee of Seller who is not a Transferred Employee,
and (iii) liability arising in connection with the termination of employment on
or prior to the Closing of any employee of Seller, including, without
limitation, costs arising under or with respect to WARN.
9.10 ADMINISTRATION. Buyer and Seller will each make its appropriate
employees available to the other at such reasonable times as may be necessary
for the proper administration by the other of any and all matters relating to
employee benefits and worker's compensation claims affecting Transferred
Employees.
9.11 NO THIRD PARTY BENEFICIARIES. No provision contained in this
Article shall create any third party beneficiary or other rights in any
employee or former employee of Seller (or any corrective bargaining
representative, beneficiary or dependent thereof) in respect of continued
employment or to resume employment with either Buyer or the Business and no
such provision shall create any such rights in any such persons in respect of
any benefits that may be provided under any employee benefit plan or
arrangement that may be established by Buyer.
9.12 401(K) ROLLOVER. Transferred Employees will have the opportunity
to rollover their total account balance in Seller's 401(k) Plans, to Buyer's
401(k) Plans, based on the provisions of Buyer's Plans. Apart from the portion
of those accounts subject to outstanding loans, the rollover shall be made in
cash. Any outstanding plan loans to Transferred Employees under Seller's 401(k)
Plans shall be transferred in kind with the underlying accounts. The account
balances of Transferred Employees shall be valued as of the date on which the
transfer is made. The account balances of Transferred Employees in Seller's
Stock Plus Plan shall share in the earnings, appreciation and depreciation of
the investment funds in which the accounts are invested for the period between
the Closing and the date on which the transfer is made.
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ARTICLE X
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject, to the extent not waived, to the following
conditions.
10.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Seller contained in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing as
though made at and as of such date, and Seller shall have delivered to Buyer a
certificate to that effect signed by an executive officer of Seller.
10.02 PERFORMANCE OF THIS AGREEMENT. Seller shall have performed in
all material respects all obligations and complied in au material respects with
all conditions required of it by this Agreement and shall have delivered to
Buyer a certificate to that effect signed by an executive officer of Seller.
10.03 CORPORATE AUTHORIZATION. All corporate action required to be
taken by Seller in connection with the transactions contemplated by this
Agreement shall have been taken, all documents incident thereto shall be
reasonably satisfactory in substance and form to Buyer and Buyer shall have
received such originals or copies of such documents as it may reasonably
request.
10.04 CONSENTS AND APPROVALS. All consents, authorizations, orders or
approvals of governmental or regulatory authorities and of individuals or
business entities which Seller is required to obtain in order to be able to
convey, assign, transfer and deliver the Purchased Assets to Buyer shall have
been obtained and all waiting periods specified by law with respect thereto
have passed, including, without limitation, the applicable waiting period under
the HSR Act.
10.05 INJUNCTION, LITIGATION, ETC. No order of any court or
governmental agency shall be in effect which restrains or prohibits the
consummation of the transactions contemplated by this Agreement, or which would
materially limit or affect the ability of Buyer to own or control the Purchased
Assets, and there shall not have been threatened, nor shall there be pending,
any action or proceeding by or before any such court or governmental agency
seeking to prohibit or delay or challenging the validity of the transactions
contemplated by this Agreement.
10.06 LEGISLATION. No statute, rule or regulation shall have been
proposed or enacted which prohibits or might prohibit, restrict or delay the
consummation of the transactions contemplated by this Agreement.
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10.07 TITLE INSURANCE; SURVEY. Buyer shall have diligently pursued and
received ALTA Form 1990 Owner's Policies of Title insurance, or commitments to
issue the same, updated to the Closing Date, issued by the Title Company in
policy amounts reasonably acceptable to Buyer insuring or committing to insure
at regular rates that Buyer or its designated Affiliate will upon Closing have
good and marketable title to the Real Property, subject only to the Permitted
Exceptions.
10.08 OPINION OF COUNSEL FOR SELLER. Buyer shall have received an
opinion from General Counsel for Seller, in substantially the form attached
hereto as EXHIBIT I.
10.09 CONSENTS AND AGREEMENTS. Buyer shall have been furnished with
the written consents and permits in forms acceptable to Buyer of any and all
persons, including, without limitation, Governmental Entities required to be
obtained prior to the consummation of the transactions contemplated hereby.
10.10 LANDLORD ESTOPPEL CERTIFICATES AND LANDLORD WAIVERS. Buyer shall
have been furnished with Landlord Estoppel Certificates, or such other
certificates or statements acceptable to Buyer, and Landlord Waivers
substantially in the respective forms attached hereto as EXHIBIT H hereto,
executed in respect of each of the Leases and dated not more than fifteen (15)
days prior to the Closing Date.
10.11 CHANGES. The amount of the shareholders equity reflected on the
balance sheet of each Business included in the Audited Financial Statements
shall not be less than ninety (90%) percent of the amount of the shareholders
equity reflected on the balance sheet of such Business included in the
unaudited financial statements referred to in Section 6.16 hereof.
ARTICLE XI
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject, to the extent not waived, to the following
conditions.
11.01 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Buyer contained in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and as of the Closing,
as though made as of and at such date, and Buyer shall have delivered to Seller
a certificate to that effect signed by an executive officer of Buyer.
11.02 PERFORMANCE OF THIS AGREEMENT. Buyer shall have performed in all
material respects all obligations and complied in all material respects with
all conditions required of
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Buyer by this Agreement and shall have delivered to Seller a certificate to
that effect signed by an executive officer of Buyer.
11.03 CORPORATE AUTHORIZATION. All corporate action required to be
taken by Buyer in connection with the transactions contemplated by this
Agreement shall have been taken, all documents incident thereto shall be
reasonably satisfactory in substance and form to Seller, and Seller shall have
received all such originals or copies of such documents as it may reasonably
request.
11.04 CONSENTS AND APPROVALS. All consents, authorizations, orders or
approvals of governmental or regulatory authorities and of individuals or
business entities which Seller is required to obtain in order to consummate the
transactions contemplated by this Agreement shall have been obtained by Seller
and all waiting periods specified by law with respect thereto shall have
passed, including, without limitation, the applicable waiting period under the
HRS Act.
11.05 INJUNCTION, LITIGATION, ETC. No order of any court or
governmental agency shall be in effect which restrains or prohibits the
consummation of the transactions contemplated by this Agreement and there shall
not have been threatened, nor shall there be pending, any action or proceeding
by or before any such court or governmental agency seeking to prohibit or delay
or challenging the validity of the transactions contemplated by this Agreement.
11.06 LEGISLATION. No statute, rule or regulation shall have been
proposed or enacted which does, prohibits or might prohibit, restrict or delay
the consummation of the transactions contemplated by this Agreement.
11.07 OPINION OF COUNSEL FOR BUYER. Seller shall have received an
opinion from Harvey L. Friedman, counsel for Buyer, substantially in the form
attached hereto as EXHIBIT G.
ARTICLE XII
CLOSING AND DELIVERIES
12.01 TIME AND PLACE OF CLOSING. The closing (the "Closing") shall
take place at the offices of Seller in Richmond, Virginia at 10:00 am. local
time on April 29, 1996, subject, however, to (i) Buyer's right to adjourn the
Closing to a date not later than May 17, 1996; and (ii) the provisions of
Section 8.16 hereof (the date on which the Closing takes place being
hereinafter referred to as the "Closing Date"). If the Closing takes place, the
Closing and all of the transactions contemplated by this Agreement, shall be
deemed to have occurred simultaneously and become effective as of 11:59 p.m. on
the day preceding the Closing Date.
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12.02 DELIVERIES BY SELLER. At the Closing, Seller shall deliver to
Buyer, in executed form, the following:
(i) special warranty deeds duly executed and in recordable form
conveying to Buyer good and marketable title to the Real
Property, subject only to the Permitted Exceptions;
(ii) bills of sale and assignments and such other documents (in form
satisfactory to Buyer and suitable for filing, registration or
recording, if applicable) as may be necessary to transfer to
Buyer the remainder of the Purchased Assets;
(iii) the Related Agreements;
(iv) the Certificates required by Sections 10.01 and 10.02 hereof;
(v) evidence that the corporate action described in Section 10.03
hereof has been taken and copies of the consents required by
Sections 10.04 and 10.09 hereof,
(vi) the opinion of counsel required by Section 10.08 hereof;
(vii) the Landlord Estoppel Certificates or other statements
acceptable to Buyer, and Landlord Waivers described in Section
10.10 hereof;
(viii) a letter, in form and content reasonably satisfactory to Buyer,
from Seller's independent certified public accountants preparing
the Audited Financial Statements and the additional audited
financial statements referred to in Section 8.16 hereof,
consenting to the inclusion of such audited financial statements
in each offering memorandum or registration statement relating to
one or more private placements or public offerings of debt and/or
equity of Buyer or any Affiliate of Buyer; subject, however, to
review of such documents as is reasonable and customary in the
public accounting profession;
(ix) an instrument, in form and content reasonably satisfactory to
Newco, pursuant to which Seller shall grant Newco, its successors
and assigns, immunity from suit under United States Patent
Numbers 4,721,500 issued 1/26/1988; 4,609,140 issued 9/21/1986;
4,721,499 issued 1/26/1988 and 4,606,496 issued 8/19/1986 as to
the plate forming apparatus currently in operation at the
Indianapolis, Indiana Facility; provided, however, that
modifications to such apparatus which substantially increase the
strength of the plates produced at such Facility and which
infringe upon the foregoing Patents, will not be within the scope
of such Immunity From Suit; and
(x) such additional documents as Buyer may reasonably require.
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12.03 DELIVERIES BY BUYER. At the Closing Buyer shall deliver to
Seller the following:
(i) the payment on account of the Purchase Price described in Section
4.02(b)(iv) hereof,
(ii) the Senior Subordinated Note in the form of EXHIBIT C required by
Section 4.02(b)(i) hereof,
(iii) the Senior Subordinated Note in the form of EXHIBIT D required
by Section 4.02(b)(ii) hereof,
(iv) the Preferred Shares;
(v) an executed instrument of assumption of liabilities pursuant to
which Buyer shall assume all of the Assumed Liabilities;
(vi) the certificates required by Sections 11.01 and 11.02 hereof;
(vii) executed Related Agreements;
(viii) evidence that the corporate action described in Section 11.03
hereof has been taken;
(ix) copies of the consents required by Section 11.04 hereof.
(x) a certificate from the Secretary of State of Delaware as to the
good standing of Buyer in the states of Delaware, Vermont and
Wisconsin (and other applicable jurisdictions) as of the most
recent date obtainable;
(xi) the opinion of counsel required by Section 11.07 hereof; and
(xii) such additional documents as Seller may reasonably request.
ARTICLE XIII
SURVIVAL OF REPRESENTATIONS,
INDEMNIFICATION
13.01 INDEMNIFICATION BY SELLER. Subject to the limitations contained
in this Article III, Seller will indemnify and hold Buyer harmless from any
damage, loss, liability or expense
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(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees) ("Damages") arising out of:
(a) any misrepresentation contained in, omission from or breach of a
representation and warranty made by Seller in this Agreement;
(b) any Environmental Liabilities related to pre-Closing Environmental
Conditions including, without limitation, Environmental Liabilities related to
the matters identified on Schedule 6.05 hereto;
(c) the breach of any agreement of Seller contained in this Agreement
(but not the Related Agreements which shall stand on their own); and
(d) any liability or obligation of Seller not specifically assumed by
Buyer pursuant to this Agreement including, without limitation, any liability
relating to the actions and proceedings identified on Schedule 6.08 hereto.
13.02 INDEMNIFICATION BY BUYER. Subject to the limitations contained
in this Article XIII, Buyer will indemnify and hold Seller harmless from any
Damages arising out of:
(i) any misrepresentation contained in, omission from or breach of a
representation and warranty made by Buyer in this Agreement;
(ii) the breach of any agreement of Buyer contained this Agreement
(but not the Related Agreements, which will stand on their own);
and
(iii) the failure of Buyer to perform any obligation specifically
assumed by it pursuant to the terms of this Agreement.
13.03 CONDITIONS OF INDEMNIFICATION. The respective obligations and
liabilities of Seller and Buyer (the "Indemnifying Party"), from one to the
other (the "Indemnified Party") under Section 13.01 and Section 13.02 hereof
with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) within twenty (20) days after receipt of notice of commencement of
any action or the assertion in writing of any claim by a third party, the
Indemnified Party shall give the Indemnifying Party notice thereof together
with a copy of such claim, process or other legal pleading, and the
Indemnifying Party shall have the right to undertake the defense thereof by
representatives of its own choosing;
(b) in the event that the Indemnifying Party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the tenth day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting
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such claim), does not elect to defend such claim, the Indemnified Party will
(upon further notice to the Indemnifying Party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the
account and risk of the Indemnifying Party, subject to the right of the
Indemnifying Party to assume the defense of such claim at any time prior to
settlement, compromise or final determination thereof, provided that the
Indemnifying Party shall be given at least fifteen (15) days' prior notice of
the effectiveness of any such proposed settlement or compromise;
(c) anything in this Section 13.03 to the contrary notwithstanding (i)
if there is a reasonable probability that a claim may materially and adversely
affect the Indemnifying Party other than as a result of money damages or other
money payments, the Indemnifying Party shall have the right, at its own cost
and expense, to compromise or settle such claim, but (ii) the Indemnifying
Party shall not without the prior consent of the Indemnified Party, settle or
compromise any claim or consent to the entry of any judgment (i) which imposes
any restrictions of any nature on the Indemnified Party; or (ii) which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such claim; and
(d) in connection with any such indemnification, the Indemnified Party
will cooperate in all reasonable requests of the Indemnifying Party.
13.04 CONDITIONS OF SELLER'S INDEMNIFICATION. Notwithstanding anything
in this Article XIII to the contrary, Seller shall not be obligated to
indemnify and hold harmless Buyer (i) for breaches of any of the
representations and warranties contained in Article VI hereof, other than those
contained in Section 6.05 hereof, unless the aggregate amount of Damages to
Buyer with respect thereto shall exceed $200,000, in which case Seller shall be
responsible for the full amount of such Damages, and (ii) in the case of a
breach of the representations and warranties contained in Section 6.05 hereof,
unless the aggregate amount of Damages with respect thereto shall exceed
$200,000, in which case Seller shall be responsible for the amount by which
such Damages exceed $200,000. For purposes of calculating the Damages set forth
in clauses (i) and (ii) above, Damages of less than $10,000 with respect to any
single claim and $50,000 in the aggregate with respect to all such claims, as
to clause (i) and Damages of less than $20,000 with respect to any single claim
and $50,000 in the aggregate with respect to all such claims, as to clause (ii)
shall not be counted toward the $200,000 thresholds described therein.
Notwithstanding the foregoing, the exclusions and limitations contained in this
Section 13.04 shall not apply to Damages arising in connection with Sections
3.01(b), 4.03, 4.05, 4.06, 4.07, 6.05 (with respect to the matters identified
on Schedule 6.05 hereto), 6.08 (with respect to the actions and proceedings
identified on Schedule 6.08 hereto), 6.14, 6.15, 8.06, 8.07, 8.17, 8.21, 9.04,
9.05, 9.09, 9.11, 15.01 and 15.03 hereof. The maximum liability of Seller under
this Article XIII shall not exceed the Purchase Price.
13.05 SURVIVAL OF REPRESENTATIONS. Subject as set forth below, all
representations and warranties and indemnities made by any party hereto in this
Agreement or pursuant hereto shall
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survive for a period of fifteen (15) calendar months following the Closing
Date; provided, however, that the representations and warranties of Seller
contained in (a) Section 6.05 hereof and the indemnities with respect thereto
shall survive for a period of five (5) years following the Closing Date; and
(b) Sections 8.06 and 8.21 hereof and the indemnities with respect thereto
shall survive until the expiration of the applicable tax statute of
limitations, including extensions thereof.
ARTICLE XIV
TERMINATION
14.01 TERMINATION. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by Buyer, if the conditions set forth in Article X hereof shall
not have been complied with or performed in any material respect through no
fault of Buyer, and such noncompliance or nonperformance shall not have been
waived by Buyer or, cured or eliminated (or by its nature cannot be cured or
eliminated) by Seller on or before April 30, 1996.
(b) by Seller, if the conditions set forth in Article XI hereof shall
not have been complied with or performed in any material respect through no
fault of Seller, and such noncompliance or nonperformance shall not have been
waived by Seller or, cured or eliminated (or by its nature cannot be cured or
eliminated) by Buyer on or before April 30, 1996; subject, however, to the
provisions of Section 8.16 hereof; or
(c) by Buyer or Seller, in the event the Closing Date has not occurred
on or prior to the close of business on April 30, 1996; subject, however, to
the provisions of Section 8.16 hereof, or such later date as the parties hereto
may agree in writing (unless such event has been caused by the breach of this
Agreement by the party seeking such termination).
14.02 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 14.01 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
any other party hereto or its stockholders or directors or officers in respect
thereof except as provided in Sections 4.02(a) and 8.05 hereof. Notwithstanding
the foregoing, nothing herein shall relieve any party from liability for any
willful breach hereof; provided, however, that Seller's sole remedy for any
willful breach hereof by Buyer shall be limited to the termination of this
Agreement and receipt of the Deposit as liquidated damages, and not as a
penalty.
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ARTICLE XV
MISCELLANEOUS
15.01 BULK TRANSFER LAWS. Subject to the provisions of Section 13.01
hereof Buyer hereby waives compliance by Seller with any applicable "bulk
transfer" laws, including, without limitation, the bulk transfer provisions of
the Uniform Commercial Code of any state, or any similar statute, with respect
to the transactions contemplated hereby.
15.02 EXPENSES, ETC. Whether or not the transactions contemplated by
this Agreement are consummated, Seller, on the one hand, and Buyer, on the
other hand, shall not have any obligation to pay any of the fees and expenses
of the other party incident to the negotiation, preparation and execution of
this Agreement, including the fees and expenses of counsel, accountants,
investment bankers and other experts. Seller, on the one hand, and Buyer, on
the other hand, will indemnify the other and hold the other harmless from and
against any claims for finders fees or brokerage commissions in relation to or
in connection with such transactions as a result of any agreement or
understanding between such indemnifying party and any third party.
15.03 RISK OF LOSS. Prior to the Closing, the risk of loss or damage
to, or destruction of, any of the property utilized in the Business, including
the Purchased Assets, shall remain with Seller, and the legal doctrine of
equitable conversion shall not be applicable to this Agreement or to any of the
transactions contemplated hereby. Seller covenants and agrees that, in the
event of damage or destruction to any of the Purchased Assets by fire or other
casualty between the date hereof and the Closing Date, Seller shall, at its
election, (i) restore such Purchased Assets to an operating condition at least
equal to that as of the date hereof or (ii) assign to Buyer any and all
proceeds of insurance policies in respect of such damage or destruction
(whether for property damage or otherwise) and pay to Buyer the aggregate
amount of any deductibles in respect of such insurance policies (which payment
shall be made by set-off against the amount otherwise payable by Buyer to
Seller pursuant to Section 4.02(b)(iv) hereof).
15.04 EXECUTION IN COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
15.05 NOTICES. All notices, consents, elections and approvals that are
required or may be given pursuant to the term of this Agreement shall be
effective only if in writing and shall be sufficient in all respects if (i)
delivered personally, (ii) or mailed by registered or certified mail postage
prepaid, (iii) sent via a nationally recognized overnight courier or (iv) sent
via facsimile confirmed in writing to the recipient, in each case as follows:
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If to Seller, to it at: James River Corporation
120 Tredegar Street
Richmond, Virginia 23219
Attention: Lud H. Kimbrough, III
Vice President
Fax: 804/649-4281
with a copy to: James River Corporation
120 Tredegar Street
Richmond, Virginia 23219
Attention: Frederick W. Christie
Associate General Counsel
Fax: 804/649-4488
If to Buyer, to it at: The Fonda Group, Inc.
2920 No. Main Street
Oshkosh, Wisconsin 54901
Attention: Thomas Uleau
Chief Financial Officer
Fax: 414/235-7912
with a copy to: Harvey L. Friedman, Esq.
Box USA
115 Stevens Avenue
Valhalla, New York 10595
Fax: 914/747-9062
or to such other address or addresses as Seller, on the one hand, or Buyer, on
the other hand, shall have designated by like notice to the other.
15.06 WAIVERS. Seller, on the one hand, and Buyer, on the other hand,
may, by notice to the other, (i) extend the time for the performance of any of
the obligations or other actions of the other under this Agreement; (ii) waive
any inaccuracies in the representations or warranties of the other contained in
this Agreement or in any document delivered pursuant to this Agreement; (iii)
waive compliance with any of the conditions or covenants of the other contained
in this Agreement; or (iv) waive performance of any of the obligations of the
other under this Agreement. Except as provided in the preceding sentence, no
action taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of Seller, on the one hand, and Buyer, on the
other hand, shall be deemed to constitute a waiver by the party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by Seller, on the one hand,
and Buyer, on the other
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hand, of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
15.07 AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement may be
amended or supplemented by such additional agreements, articles or certificates
as may be determined by the parties hereto to be necessary, desirable or
expedient to further the purposes of this Agreement, or to clarify the
intention of the parties hereto, or to add to or modify the covenants, terms or
conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all parties.
15.08 ENTIRE AGREEMENT. This Agreement and its Exhibits and Schedules,
the Related Agreements and the documents executed on the Closing Date in
connection herewith, constitute the entire agreement among the parties hereto
with respect to the subject matter hereof and supersede all prior agreements
and understandings, oral and written, between the parties hereto with respect
to the subject matter hereof. No representation, warranty, promise, inducement
or statement of intention has been made by any party that is not embodied in
this Agreement or such other documents, and neither Seller, on the one hand,
nor Buyer and Parent, on the other hand, shall be bound by, or be liable for,
any alleged representation, warranty, promise, inducement or statement of
intention not embodied herein or therein.
15.09 AVAILABLE LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York (to the extent not
preempted by federal law).
15.10 PUBLICITY. The parties hereto agree to cooperate in issuing any
press release or other public announcement concerning this Agreement or the
transactions contemplated hereby. Each party shall furnish to the other drafts
of all such press releases or announcements prior to their release. Nothing
contained herein shall prevent any party at any time from furnishing any
information required by law or by any Governmental Entity.
15.11 BINDING EFFECT; BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, nothing in this Agreement, expressed or implied, is
intended to confer on any person other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement
15.12 ASSIGNABILITV. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by any party hereto without the prior
written consent of the other party hereto. Notwithstanding the foregoing, Buyer
shall have the right to assign all or any of its rights hereunder to one or
more Affiliates of Buyer.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
JAMES RIVER CORPORATION
By: /s/ Lud H. Kimbrough, III
------------------------------
Name: Lud H. Kimbrough, III
Title: Vice President
THE FONDA GROUP., INC. NEWCO
By: /s/ Thomas Uleau By /s/ Dennis Mehiel
------------------------------- -------------------------------
Name: Thomas Uleau Name: Dennis Mehiel
Title: Chief Financial Officer Title: Chief Executive Officer
Dennis Mehiel, solely with respect
to the agreement expressed by him
in Section 4.02(d) hereof
/s/ Dennis Mehiel
- ----------------------------------
Dennis Mehiel
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FIRST AMENDMENT TO THE
ASSET PURCHASE AGREEMENT
BETWEEN JAMES RIVER PAPER COMPANY, INC.
AND THE FONDA GROUP, INC. AND NEWCO DATED MARCH 22, 1996
This First Amendment ("First Amendment") to the Asset Purchase Agreement
between James River Paper Company, Inc. and The Fonda Group, Inc. and Newco
dated March 22, 1996 (the "Agreement"), dated May 6, 1996, is agreed between
the James River Paper Company, Inc. ("James River"), The Fonda Group, Inc.
("Fonda") and Creative Expressions Group, Inc., formerly known as Creative
Expressions, Inc. and referred to in the Agreement as Newco ("Creative
Expressions") and sets forth modifications to the Agreement intended by the
parties, and other than as expressly set forth herein, the Agreement is hereby
ratified and confirmed and shall remain unchanged in all other respects.
The parties hereto agree as follows:
1. Article 1.01 shall be modified by the insertion of new definitions as
follows:
"Deferred Licensed Inventory" shall have the meaning set forth in Article
4.02(e)."
"Deferred Real Property" shall have the meaning set forth in Article 4.02(f)."
"Long Beach Lease" shall mean a lease dated January 29, 1988 between James
River-Norwalk, Inc. as Lessee, predecessor in interest to James River Paper
Company, inc. and Richard A. McDonald as Lessor, for property and plant located
at 18554 Susana Road, Rancho Dominguez, California, as amended from time to
time in which is located the Long Beach Business."
2. The definition of "Inventory" shall be modified by the revision of the
second sentence in such definition as follows:
"Notwithstanding the foregoing, the term Inventory shall not include in respect
of the Long Beach Business (i) roll stock and work in progress at Long Beach
held for production of, and finished, colored napkins and (ii) finished goods
and work in progress relating to the Club Business products (the "Excluded
Inventory")."
3. Article 3.01(a)(ii) shall be modified by the insertion after the words "any
other lease", a parenthetical as follows:
<PAGE>
"(other than the Long Beach Lease)"
4. Article 4.02(b) (i) is modified to provide for a $7,000,000 Senior
Subordinated Note in the form of Exhibit C. Exhibit C is modified to provide
for an interest rate of 10 percent per annum and to permit deferral of interest
payments for four years instead of five.
5. Article 4.02 (b) (ii) is modified to provide for a $2,000,000 Senior
Subordinated Note in the form of Exhibit D.
6. Article 4.02(b)(iv)(x) is modified by the insertion of the following words
after "Audited Financial Statements":
"less the book value of the Deferred Real Property"
7. Article 4.02(b)(iv)(x)(2) is modified by the insertion of the following
language after the words "Audited Financial Statements":
"less the total value of the Deferred Licensed Inventory"
8. Article 4.02 is modified by the insertion of a new subarticle (e) as
follows:
"(e) There shall be deducted from the amount called for in Article 4.02(b)(iv)
an amount (the "Deferred License Inventory Amount") equal to Seller's book
value of the CEG Inventory on the Closing Date of those products for which
Seller has been unable as of the Closing Date to provide a licensor's written
consent ("Licensor Consent") to the assignment to Buyer of the applicable
License Agreement identified on Schedule 6.12 to this Agreement (the "Deferred
Licensed Inventory"). These amounts, listed specifically by licensor on
Schedule 4.02(e), shall be paid by Buyer to Seller in immediately available
funds thirty days after Seller produces to Buyer the respective Licensor's
Consent. Seller shall diligently pursue the assignments of such licenses and
Buyer shall do nothing to interfere with the Seller's efforts, and shall
cooperate in any reasonable manner in such pursuit. Seller shall have no
authority to commit Buyer to any changes in the terms of any such license. No
action by the Buyer, such as discontinuance of the designs in question,
disposal of such Deferred Licensed Inventory, or other decision which Buyer may
make in regards to the Deferred Licensed Inventory shall diminish the payments
called for herein. Any Deferred Licensed Inventory for which Seller is unable
to produce a Licensor's Consent during the term of the respective license shall
be deducted from the Purchase Price."
2
<PAGE>
9. Article 4.02 is further modified by the insertion of a new Sub Article (f)
as follows:
"(f) As called for in Article 4.02(b)(iv)(x), on the Closing Date there shall
be deducted from the Purchase Price the sum of Six Hundred Thirty Thousand
Dollars and No Cents ($630,000.00) which is Seller's book value of Parcels II,
III, IV and V shown on the Survey of property located in Indianapolis, Indiana
prepared by Arthur F. Haufler, Inc. (the "Deferred Real Property") delivered
pursuant to this Agreement by Seller to Buyer. Buyer hereby agrees to accept a
Special Warranty Deed in the form attached hereto as Exhibit S conveying the
Deferred Real Property and to pay to Seller the sum of Five Hundred Thousand
Dollars and No Cents ($500,000.00) in immediately available funds within thirty
days after Seller has provided to Buyer reasonable evidence that it has
complied with the obligations undertaken by Seller in Article 6.05(b). This
obligation shall survive this Agreement indefinitely."
10. Intentionally omitted.
11. Article 5.01 is amended to insert after the last word of the first sentence
in such Article:
" a Sandwich Bag Supply Agreement ("Sandwich Bag Agreement") substantially in
the form of Exhibit N hereto; a Consigned Inventory Agreement ("Consigned
Inventory Agreement") substantially in the form of Exhibit O hereto; a Printed
Plate Stock Supply Agreement ("Plate Agreement") substantially in the form of
Exhibit P hereto; an Immunity From Suit statement from James River Paper
Company, Inc. to Creative Expressions substantially in the form of Exhibit Q
hereto"; a Napkin Supply Agreement ("Napkin Agreement") substantially in the
form of Exhibit R hereto; a deed to the Deferred Real Property ("Deferred
Property Deed") substantially in the form of Exhibit S hereto; and a Lease for
the Deferred Real Property in the form of Exhibit T hereto."
12. Article 6.05 is amended to redesignate the existing Article 6.05 as Article
6.05(a) and to insert a new Article 6.05(b) as follows:
"Seller hereby agrees to remove from the Deferred Real Property three gasoline
tanks and one heating fuel oil tank as described in an ENSR Report to Seller
and to remediate soil and/or water contamination associated with those tanks
and the "stained soil" north and east of the auto body shop and east of The
Gold Warehouse in said report to reasonable compliance with Environmental Laws
("Completion"). Such removal and remediation shall be commenced within sixty
days of the Closing and shall be conducted diligently by the Seller until
3
<PAGE>
Completion. Seller shall bear all costs and expenses and Environmental
Liabilities arising from the activities set forth in this Article 6.05(b)."
13. Article 8.22 is added as an amendment to Article 8 as follows:
"8.22 Use of James River Names (a) On or before 180 days following the Closing,
Buyer (i) remove all names, logos or marks which include the words "James
River", "James River Corporation", "Dixie" "JR", or "JRC" (the "Designations")
from or render the same illegible on all dyes, molds and printing plates used
by Buyer or their successors or assigns, and shall discontinue production of
any asset or any material bearing those Designations. Buyer shall be permitted
to use the Designations with respect to packaging, Inventory or
work-in-progress or finished goods on which such Designations are imprinted or
affixed up to and including the day preceding the second anniversary of the
Closing. Buyer shall use reasonable efforts to sell such Inventory within
twenty-four months of the Closing. At the end of the twenty-four month period,
an executive officer of Buyer shall notify Seller that the obligations set
forth herein regarding the Designations have been met. Except as expressly
permitted in this Article 8.22, neither Buyer nor any of its affiliates shall
use the Designations or any confusingly similar mark or name; (b) the license
granted herein shall be royalty-free and non-exclusive and shall be limited to
those products which bear or upon which production equipment prints the
Designations as of the Closing; (c) Seller shall have the right to control the
quality of all the products with which the either licensee uses each mark and
both licensees agree that the standard of quality for such products shall equal
or exceed the standard of quality for such products at the date of the Closing;
(d) Seller shall have the right to make reasonable inspections of the processes
and materials of manufacture used by either licensee from time to time to
assure the consistent level of quality required hereby; (e) Buyer hereby agrees
that nothing herein shall grant to Buyer any right, title or interest in the
trademarks and designations subject to this license and that any goodwill
resulting from or relating to use of the marks shall inure to the benefit of
Seller; (f) if, in its reasonable judgment, Seller determines that Buyer or its
successors or permitted assigns have failed to maintain the quality standards
called for herein, Seller shall give Buyer notice of breach, and if within
thirty days the breach has not been cured, Seller may terminate the license
granted herein without further notice; (g) the licenses granted herein shall
not be assigned, transferred or sublicensed without the express prior written
approval of Seller, which may be withheld in its sole discretion; provided,
however, that Seller hereby consents to the assignment of the licenses granted
hereby to each of The CIT Group/Credit Finance, Inc. and the IBJ Schroder Bank
& Trust Company, as Agent, and on the condition that such assignees, and any of
their respective further assignees (which further assignments shall be subject
to Seller's prior written approval) shall agree in writing to be bound by the
terms set forth herein."
4
<PAGE>
14. Article 9.01 is revised to read:
"9.01 Transferred Employees. Attached hereto as Schedule 9.01(a) is a list of
employees who are employed by Seller engaged in the operations of the Business,
as of the most recent date preceding this Agreement. As of the Closing, Buyer
shall offer (i) employment with Buyer to all union employees who are employed
by Seller in connection with the operations of the Business immediately before
the Closing; and (ii) employment with Buyer to such non-union employees who are
employed by Seller in connection with the operations of the Business as Buyer
shall elect in its sole discretion. Prior to the Closing, Buyer shall provide
to Seller a list of inactive union employee and active non-union employees to
whom Buyer does not intend to offer employment, and such list shall be attached
hereto as Schedule 9.01(b). Seller shall provide to Buyer a list of all union
and non-union employees engaged in the operations of the Business as of the
Closing and delete therefrom those employees set forth on Schedule 9.01(b), and
the resulting list shall be attached hereto as Schedule 9.01(c). The employees
who appear on Schedule 9.01(c) shall become employees of Buyer as of the
Closing and are hereinafter referred to as "Transferred Employees". Any
employee engaged in the operations of the Business who is inactive as of the
Closing shall become a Transferred Employee as of the date such employee
commences active employment with Buyer, which decision shall be and in all
respects is within the discretion of Buyer. Seller hereby agrees that for a
period of three (3) years following the Closing Date, neither Seller nor any
Affiliate of Seller shall employ any Transferred Employee. Notwithstanding the
foregoing, Seller shall have the right to employ any non-union employee who is
not set forth on Schedule 9.01(C).
15. Article 9.05 (b) is revised by the insertion of a new sentence as follows:
"Buyer shall not impose on Transferred Employees pre-existing condition
provisions, proof of insurability requirements, or any similar conditions or
requirements which would delay commencement of Transferred Employees'
participation in or limit Transferred Employees' level of coverage under any of
Buyer's welfare benefit plans (within the meaning of Article 3 (1) of ERISA)."
16. Article 12.03 shall be modified by the addition of a new sub Article
12.03(xiii) as follows:
"(xiii) an executed lease in the form attached herto as Exhibit T"
17. All references in Article 14.01 to April 30, 1996 shall be changed to May
31, 1996.
5
<PAGE>
18. The parties acknowledge that Creative Expressions have only recently
changes its corporate name from Creative Expressions, Inc. to Creative
Expressions Group, Inc. and agree that all documents making reference to, or
executed by, "Creative Expressions, Inc." shall equally refer to, and be deemed
to have been executed in the name of, "Creative Expressions Group, Inc.".
19. The name James River Corporation appearing in the signature block on the
signature page of the Asset Purchase Agreement is intended to mean and to refer
to James River Paper Company, Inc. and is hereby replaced by the name James
River Paper Company, Inc."
20. The Closing shall be deemed to have occurred as of 11:59 P.M. eastern
daylight savings time on, and the Closing Date shall be deemed to be, May 5,
1996.
In all other respects, the Asset Purchase Agreement is ratified and confirmed
and remains unchanged.
The Fonda Group, Inc. James River Paper Company, Inc.
By /s/ Thomas Uleau By /s/ Lud H. Kimbrough, III
-------------------------------- --------------------------------
Thomas Uleau Lud H. Kimbrough, III
Title: Executive Vice President Title: Vice President
Creative Expressions Group, Inc.
By /s/ Thomas Uleau
--------------------------------
Thomas Uleau
Title: Executive Vice President
6
<PAGE>
INDENTURE OF LEASE
between
DENNIS MEHIEL
- and -
THE FONDA GROUP, INC.
---------------------------------
Dated as of January 1, 1995
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 PREMISES AND TERM OF LEASE.................................. 1
ARTICLE 2 POSSESSION AND CONDITION OF PREMISES........................ 2
ARTICLE 3 RENT........................................................ 2
ARTICLE 4 IMPOSITIONS AND UTILITIES................................... 3
ARTICLE 5 INSURANCE.................................................... 6
ARTICLE 6 DAMAGE OR DESTRUCTION AND
USE OF CASUALTY INSURANCE PROCEEDS........................... 9
ARTICLE 7 CONDEMNATION................................................ 10
ARTICLE 8 ASSIGNMENT AND SUBLETTING................................... 12
ARTICLE 9 REPAIRS AND MAINTENANCE..................................... 13
ARTICLE 10 CHANGES, ALTERATIONS AND ADDITIONS.......................... 13
ARTICLE 11 GOVERNMENTAL REQUIREMENTS
AND INSURANCE REQUIREMENTS.................................. 14
ARTICLE 12 DISCHARGE OF LIENS; BONDS................................... 15
ARTICLE 13 REPRESENTATIONS............................................. 16
ARTICLE 14 INDEMNIFICATION OF LANDLORD................................. 16
ARTICLE 15 RIGHT OF ACCESS............................................. 17
ARTICLE 16 SELF-HELP................................................... 18
ARTICLE 17 PERMITTED USE; NO UNLAWFUL OCCUPANCY........................ 19
ARTICLE 18 EVENTS OF DEFAULT, CONDITIONAL LIMITATIONS,
REMEDIES, ETC............................................... 19
ARTICLE 19 NOTICES..................................................... 25
ARTICLE 20 SUBORDINATION............................................... 26
ARTICLE 21 SALE OPTION................................................. 27
ARTICLE 22 CERTIFICATE BY TENANT AND LANDLORD.......................... 28
-i-
<PAGE>
ARTICLE 23 CONSENTS AND APPROVALS...................................... 28
ARTICLE 24 SURRENDER AT END OF TERM.................................... 29
ARTICLE 25 QUIET ENJOYMENT............................................. 29
ARTICLE 26 INVALIDITY OF CERTAIN PROVISIONS............................ 29
ARTICLE 27 RECORDING OF MEMORANDUM..................................... 30
ARTICLE 28 WAIVER OF TRIAL BY JURY..................................... 30
ARTICLE 29 BROKER...................................................... 30
ARTICLE 30 MISCELLANEOUS............................................... 31
ACKNOWLEDGMENTS
EXHIBIT A
EXHIBIT B
-ii-
<PAGE>
THIS INDENTURE OF LEASE made as of the 1st day of January, 1995,
between DENNIS MEHIEL ("Landlord"), having an office c/o Four M Corporation,
115 Stevens Avenue, Valhalla, New York 10595, and THE FONDA GROUP, INC.
("Tenant"), a Delaware corporation, having an office at 15-29 Lower Newton
Street, St. Albans, Vermont 05478.
W I T N E S S E T H:
ARTICLE 1
---------
PREMISES AND TERM OF LEASE
--------------------------
SECTION 1.01. Landlord, for and in consideration of the rentals to be
paid and all of the terms, covenants and agreements hereinafter set forth, to
be kept, observed and performed by Tenant, does hereby demise and lease to
Tenant and Tenant does hereby hire and take from Landlord, subject to the
terms, covenants, conditions and reservations hereof, and the Exhibits annexed
hereto and made a part hereof:
All that certain lot, piece or parcel of land, with the buildings
and improvements thereon, situate, lying and being in the City of
Jacksonville, County of Duval and State of Florida bounded and
described as set forth in Exhibit A annexed hereto and made a
part hereof.
TOGETHER WITH fixtures, appurtenant to, attached to or used in
connection with the operation of said premises; and
TOGETHER WITH all easements, appurtenances and other rights and
privileges now or hereafter belonging or appertaining to said premises. All of
the foregoing property leased to Tenant pursuant to this Section 1.01 is here
called the "Premises".
SUBJECT ONLY TO the encumbrances and conditions of title set forth on
Exhibit B annexed hereto and made a part hereof (the "Permitted Exceptions").
TO HAVE AND TO HOLD the Premises unto Tenant, for a term of twenty
(20) years (the "Term") (or until such Term shall sooner cease and expire as
hereinafter provided) commencing on January 1, 1995 (the "Commencement Date")
and expiring on December 31, 2014 both dates inclusive, unless sooner
terminated in accordance with the terms of this Lease.
<PAGE>
ARTICLE 2
---------
POSSESSION AND
CONDITION OF PREMISES
---------------------
Tenant acknowledges and represents to Landlord that it has inspected
and examined, or caused to be inspected and examined, the Premises and that it
is familiar with the physical condition and state of repair thereof, and Tenant
does hereby agree to accept same in its existing condition and state of repair
and Landlord shall have no obligation to do any work or make any installation,
repair or alteration of any kind to or in respect thereof. Tenant acknowledges
and agrees that, except as otherwise expressly set forth in this Lease, no
representations, statements, or warranties, express or implied, as to
condition, fitness for a particular use or otherwise, have been made by or on
behalf of Landlord.
ARTICLE 3
---------
RENT
----
SECTION 3.01. Tenant shall pay rent at the net rent per annum (herein
sometimes called the "Base Rent") of One Hundred Sixty-Six Thousand Eight
Hundred ($166,800) Dollars commencing on the lst day of January, 1995, and
continuing through and including December 31, 2014, in equal monthly
installments of Thirteen Thousand Nine Hundred ($13,900) Dollars, as increased
pursuant to Section 3.02 below. Tenant agrees to pay the Base Rent in lawful
money of the United States which shall be legal tender in payment of all debts
and dues, public and private, at the time of payment, in equal monthly
installments aforesaid in advance on the first day of each month during the
Term, at the office of Landlord or such other place as Landlord may designate
by notice, without any set-off or deduction whatsoever.
SECTION 3.02.
(a) Commencing on the first day of January, 1996, and as of the first
day of each year thereafter for the remainder of the Term (said date and each
anniversary thereof being herein called an "Adjustment Date"), the Base Rent
shall be increased automatically by an amount (the "Increase") equal to the
product derived by multiplying the Base Rent in effect on the day preceding
such Adjustment Date by the percentage (the "Current CPI Percentage") by which
the Consumer Price Index in effect on each such Adjustment Date shall exceed
the Consumer Price Index in effect on the first day of the year immediately
preceding such Adjustment Date (the Current CPI Percentage being equal to the
fraction, the numerator of which shall be the Consumer Price Index on the
relevant Adjustment Date less the Consumer Price Index on the first day of
2
<PAGE>
the year immediately preceding such Adjustment Date, as the case may be, and
the denominator of which shall be the Consumer Price Index on the first day of
the year immediately preceding Adjustment Date, as the case may be).
(b) As used herein, "Consumer Price Index" shall mean the Consumer
Price Index published by the Bureau of Labor Statistics of the United States
Department of Labor for All Urban Consumers, the Northeastern United States
Area, or any successor index thereto, all items (1982-84=100). In the event
that the Consumer Price Index is converted to a different standard reference
base or otherwise revised in the terms or number or kind of items contained
therein or otherwise, the determination of the increased Base Rent shall be
made with the use of such conversion factor, formula or table for converting
the Consumer Price Index as may be published by the Bureau of Labor Statistics
or, if said bureau shall not publish the same, then with the use of such
conversion factor, formula or table as may be published by Prentice Hall, Inc.
or any other nationally recognized publisher of similar statistical
information, or if a conversion factor, formula or table is unavailable,
Landlord shall use any other method to adjust the Consumer Price Index, or any
successor thereto, to the figure that would have been arrived at had the manner
of computing the Consumer Price Index in effect on the Commencement Date not
been altered. If the Consumer Price Index ceases to be published on a monthly
basis, then the shortest period for which the Consumer Price Index is published
which includes the relevant months shall be used. If the Consumer Price Index
ceases to be published, and there is no successor thereto, such other index as
Landlord and Tenant shall agree upon in writing shall be substituted for the
Consumer Price Index. If Landlord and Tenant cannot agree on an index within
sixty (60) days after the Consumer Price Index ceases to be published then the
increases contemplated herein shall be established by arbitration.
ARTICLE 4
---------
IMPOSITIONS AND UTILITIES
-------------------------
SECTION 4.01.
(a) Tenant covenants and agrees to bear, pay and discharge, as
additional rent hereunder, any and all of the following items (collectively,
"Impositions"):
(i) real estate taxes and assessments; (ii) personal property
taxes, if any; (iii) occupancy and rent taxes; (iv) water, water
meter and sewer rents, rates, and charges; (v) license and
3
<PAGE>
permit fees; (vi) any fines, penalties, and other similar or like
governmental charges applicable to the foregoing, together with
any interest or costs with respect to the foregoing incurred by
reason of Tenant's failure to comply with the terms hereof; and
(vii) any other governmental levies, fees, rents, assessments, or
taxes and charges, general and special, ordinary and
extraordinary, foreseen and unforeseen, of any kind and nature
whatsoever;
which at any time during the Term are (A) assessed, levied, confirmed or
imposed upon the Premises or any part thereof, and/or any personal property,
equipment or other facility used in the operation thereof; or (B) imposed upon
Tenant by the terms of this Lease. Each such Imposition, or installment
thereof, during the Term to be paid shall be paid directly to the taxing
authority not later than the date on which any fine, penalty, interest, or cost
may be added thereto or imposed by law for the nonpayment thereof; provided,
however, that if by law any Imposition, at the option of the taxpayer, may be
paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Tenant may exercise the option to pay the same in
such installments, in which event Tenant shall pay only such installment
payments as shall become due prior to the date herein definitely fixed for the
expiration of the Term, unless this Lease is terminated by reason of Tenant's
default in which event all such installment payments, including those which
otherwise would be payable by Tenant subsequent to the termination of this
Lease shall be paid by Tenant to Landlord prior to such date, and such
obligation shall survive the termination of the Term.
(b) Nothing herein contained shall require Tenant to pay any
municipal, state or federal income or franchise taxes imposed upon Landlord,
whether based upon the income or capital of Landlord, or any municipal, state,
or federal succession, transfer or gift taxes of Landlord; provided,
nevertheless, that if at any time during the Term the present method of
taxation or assessment shall be changed so that in substitution for, or in lieu
of an addition to, the whole or any part of the taxes, assessments or other
charges now levied, assessed or imposed on real estate or the improvements
thereon, there shall be levied assessed or imposed wholly or partially a
franchise tax, capital levy or other tax on real estate as such, or on the use
and occupancy thereof, or if any such tax or charge, or any part thereof,
howsoever called, shall be measured by or based on the Premises, then all such
taxes, assessments, levies or charges or the part thereof so measured or based
shall be deemed to be included within the definition of the term "Impositions"
for the purpose of this Lease.
4
<PAGE>
SECTION 4.02. Any Imposition which Tenant is required to bear, pay or
discharge under this Lease, relating to a fiscal period of a taxing authority,
a part of which period is included within the Term and a part of which is
included in a period of time after the expiration of the term shall (whether or
not such Imposition shall be assessed, levied, confirmed, imposed upon or in
respect of or become a lien upon the Premises, or shall become payable, during
the Term) be apportioned between Landlord and Tenant as of the expiration of
the Term, so that Tenant shall pay that portion of such Imposition which is
attributable to that part of such fiscal period included in the Term and
Landlord shall pay or cause to be discharged the remainder thereof; provided,
however, that if a termination of this Lease results from any default by
Tenant, Tenant shall not be entitled to any such apportionment.
SECTION 4.03. Tenant, after prior notice to Landlord in each instance,
shall have the right, at its sole cost and expense and free of any expense to
Landlord, to contest the amount or validity, in whole or in part, of any
Imposition which Tenant is required to bear, pay or discharge under this Lease
by appropriate proceedings, instituted promptly and in good faith and conducted
diligently; provided, however, that:
(a) neither the Premises nor any part thereof, would, by reason of
such postponement or nonpayment, in the reasonable judgment of Landlord, be in
danger of being forfeited or lost; and
(b) Tenant continues to prosecute such proceeding diligently to final
adjudication. Upon the termination of such proceedings, it shall be the
obligation of Tenant to pay the amount of such Imposition or the part thereof
as finally determined in such proceedings, the payment of which may have been
deferred during the prosecution of such proceedings, together with interest,
penalties or other liabilities in connection therewith.
SECTION 4.04. Any certificate, advice or bill issued by the
appropriate official designated by law to make or issue the same or to receive
payment of any Imposition, of non-payment of such Imposition, shall be prima
facie evidence that such Imposition is due and unpaid at the time or date
stated therein. Landlord, upon request of Tenant, shall furnish Tenant with a
copy of any such certificate, advice or bill.
SECTION 4.05. Tenant covenants and agrees to pay or cause to be paid
directly to the respective utility company(ies), as additional rent hereunder,
as and when same shall become due and payable, all charges for utilities,
including, without limitation, air conditioning, heat, gas, steam, hot water,
electricity, light and power furnished to the Premises, Tenant, or any other
occupant of the Premises.
5
<PAGE>
ARTICLE 5
---------
INSURANCE
---------
SECTION 5.01.
(a) Throughout the Term, Tenant, at its sole cost and expense, shall
provide and maintain in force or cause to be provided and maintained in force
in respect of the Premises, all of the following:
(i) Insurance against loss or damage or injury or destruction to
or of any building(s) now or hereafter erected on the Premises
resulting from fire or from any hazard included in the so-called
standard extended coverage endorsement, in an amount not less
than the full replacement value of the building(s) and other
improvements at the Premises, which policies shall provide that
the loss, if any, be payable to Landlord, except as otherwise
provided herein;
(ii) General liability insurance against liability for bodily
injury and property damage in amounts not less than $1,000,000
per occurrence, $3,000,000 annual aggregate, and such policies
shall name Landlord as an additional insured;
(iii) If and when the Premises contain a boiler, boiler insurance
in an amount not less than $500,000 and such policy or policies
shall insure both Landlord and Tenant, as their interests may
appear, except as otherwise provided herein; and
(iv) Rental insurance utilizing "all risk" coverage to cover
liability for continuing rental payments hereunder in an amount
necessary to provide full coverage for not less than one year of
Base Rent and Impositions hereunder, and naming Landlord as an
additional insured.
(b) Prior to the commencement of any Material Improvement (as
hereinafter defined), and until completion thereof, Tenant shall provide and
maintain in force or cause to be provided and maintained in force, in addition
to the insurance coverages described in subsection (a) of this Section 5.01:
6
<PAGE>
(i) Owner's and Contractor's Protective Liability insurance
naming Tenant as an insured and Landlord, and the general
contractor, if any, as additional insureds, for a combined single
limit of not less than $1,000,000 for bodily injury, personal
injury and property damage; and
(ii) Builder's Risk Insurance (standard "all risk" or equivalent
coverage) written on a completed value (non-reporting) basis,
naming Tenant as an insured, and Landlord and the general
contractor, if any, and all subcontractors employed by Tenant or
the general contractor, if any, as additional insureds, as their
respective interests may appear.
(c) Landlord may require that, in the case of property insurance set
forth in Sections 5.01(a) and (b), the holder(s) ("Fee Mortgagee") of any
mortgage(s) now or hereafter covering the Premises be named as mortgagee under
a mortgagee endorsement, as its interest may appear, under such policies.
(d) Upon any failure of Tenant to procure and deliver to Landlord any
of the policies of insurance or, in lieu thereof, certificates evidencing same,
required hereunder, at least ten (10) days before the expiration of the prior
insurance policies, if any, or to pay the premiums therefor, Landlord may
procure such insurance and pay the premiums therefor, and any sums paid by
Landlord shall be and become and are hereby declared to be additional rent
under this Lease and Tenant shall pay Landlord the annual premiums therefor
within five (5) days after delivery of Landlord's statement setting forth the
amount due.
(e) The term "Material Improvement" shall mean the making of an
Improvement (as defined in Section 10.01) the estimated cost of which, as
determined by a reputable contractor, or as set forth in a construction
agreement with a reputable contractor, will exceed $250,000.
SECTION 5.02.
(a) All insurance required by any provision of this Lease shall be
issued by responsible insurance companies licensed to do business in the State
of Florida. All policies referred to in this Lease shall be procured, or caused
to be procured, for periods of not less than one (1) year. Certificates of
insurance evidencing the insurance required to be maintained pursuant to this
Lease
7
<PAGE>
shall be delivered to Landlord on or before the Commencement Date, and
certificates of insurance evidencing new or renewal policies replacing any
policies expiring during the Term shall be delivered to Landlord at least ten
(10) days before the date of expiration of any policy.
(b) Tenant and Landlord shall cooperate in connection with the
collection of any insurance proceeds that may be due in the event of loss and
Tenant and Landlord shall execute and deliver such proofs of loss and other
instruments which may be required for the purpose of obtaining the recovery of
any such insurance proceeds.
(c) All adjustments of claims with insurers under the property and
casualty insurance policies which are required to be carried hereunder by
Tenant shall be made by Tenant.
(d) Tenant shall not violate or permit to be violated any of the
conditions or provisions of any such policies procured by it and Tenant shall
timely perform and satisfy or cause to be performed and satisfied the written
requirements of the companies writing such policies so that at all times
companies of good standing shall be willing to write and/or continue such
insurance.
(e) Every policy of insurance required to be obtained by Tenant
hereunder shall provide, to the extent obtainable, that no cancellation shall
be effective until at least ten (10) days after written notice thereof to
Landlord and any Fee Mortgagee(s).
(f) Each property and casualty insurance policy and every policy
insuring an economic loss resulting from any risks covered by any such property
and casualty insurance (whether or not required to be carried hereunder), shall
contain a clause or endorsement, if obtainable (whether or not additional
premium shall be charged therefor), whereby the insurance company waives all
rights of subrogation against Landlord and Tenant, or consents to the release
of liability among all such parties. The parties hereby release each other from
any and all liability for loss or damage covered by such insurance under a
policy containing such a clause or endorsement to the extent of any proceeds
paid thereunder.
(g) Any insurance required by this Article 5 may be effected by
policies of blanket insurance which may cover other property not included, as
well as property included, in the Premises, provided that the amount of the
total insurance allocated to the Premises shall be specified either in any such
policy or in a written statement from the insurer or its agent, and, provided
further, that in all other respects any such policy shall substantially comply
with the other provisions of this Article.
8
<PAGE>
ARTICLE 6
---------
DAMAGE OR DESTRUCTION AND
USE OF CASUALTY INSURANCE PROCEEDS
----------------------------------
SECTION 6.01.
(a) If all or any part of the Premises shall be damaged or destroyed
in whole or in part by fire or other casualty of any kind or nature, ordinary
or extraordinary, foreseen or unforeseen, Tenant shall give Landlord immediate
notice thereof, and Tenant shall promptly repair, restore, replace and rebuild
(collectively "Restore"), or cause to be restored, the damaged or destroyed
Premises at least to the extent of the value, quality and condition existing
immediately prior to such occurrence, or with such changes or alterations
thereto as may be made at Tenant's election in conformity with and subject to
the terms and conditions of Article 10 or as may be required by any
governmental authorities.
(b) If all or substantially all of the Premises are damaged or
destroyed or rendered wholly unusable by fire or other casualty, then, in any
such event, Landlord may elect to terminate this Lease by notice ("Landlord's
Notice") to Tenant given within sixty (60) days after the occurrence of such
fire or casualty specifying a date for the termination of the Term, which date
shall not be more than sixty (60) days after the giving of Landlord's Notice,
and upon the date specified in Landlord's Notice, this Lease and the Term shall
terminate and expire and the rental payable by Tenant hereunder shall be
apportioned and paid to the date of such termination. If Landlord elects to
terminate this Lease and the Term pursuant hereto, (i) the insurance proceeds
under the insurance policies required by any provision of this Lease insuring
against damage to or destruction of the Premises by fire or other casualty
shall be paid to Landlord, subject to the rights of the holder(s) of the Fee
Mortgage(s), and Tenant hereby waives, releases and relinquishes any and all
rights or claims to such proceeds, and (ii) Tenant shall have no obligation to
Restore.
SECTION 6.02.
(a) Provided no Event of Default shall exist hereunder, and subject to
the rights of any Fee Mortgagee(s), Landlord shall pay over to Tenant in a
single installment, promptly after receipt by Landlord, any insurance proceeds
received by Landlord in connection with damage and destruction to the Premises
from insurance maintained or caused to be maintained by Tenant (other than
rental insurance proceeds), but in no event to any extent or in any sum
exceeding the amount actually received or collected by Landlord in connection
with such damage or destruction of the Premises; provided, however, that before
paying such proceeds over to Tenant, Landlord shall first be entitled to
reimburse itself therefrom to
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the extent, if any, of the reasonable expenses (including reasonable attorneys'
fees and disbursements) paid or incurred by Landlord in the collection of such
proceeds. The insurance proceeds paid over to Tenant shall be held and applied
to Restoration to the extent required therefor, any excess to be retained by
Tenant for its own account.
(b) If the insurance proceeds shall be insufficient for the purpose of
paying for any Restoration, Tenant shall nevertheless be required to make the
Restoration and pay any additional sums required to complete the same in the
manner prescribed by this Article 6.
SECTION 6.03. Tenant shall perform such Restoration or cause the same
to be performed in accordance with all Governmental and Insurance Requirements
(as hereinafter defined) applicable thereto.
SECTION 6.04. Except as provided in subsection (b) of Section 6.01,
this Lease shall not terminate, be forfeited or otherwise affected in any
manner, and, except to the extent of the proceeds of rent insurance payable to
Landlord, there shall be no reduction or abatement of the rental payable
hereunder, by reason of damage to or destruction of the Premises or any part
thereof or otherwise. It is the intention of Landlord and Tenant that the
foregoing is an "express agreement to the contrary" as provided in the
applicable laws, if any, of the State of Florida and shall govern and control
in lieu thereof.
ARTICLE 7
---------
CONDEMNATION
------------
SECTION 7.01.
(a) If at any time during the Term, the whole or substantially all of
the Premises shall be taken for any public or quasi-public purpose by any
lawful power or authority by the exercise of the right of condemnation or
eminent domain or by agreement between Landlord and those authorized to
exercise such right, this Lease and the Term shall terminate on the date of
taking (as hereinafter defined) and the rental payable by Tenant hereunder
shall be apportioned and paid to the date of taking.
(b) If the whole or substantially all of the Premises shall be taken
or condemned as provided in this Article, the aggregate of all awards and/or
damages (collectively, the "award") in respect of such taking (other than any
separate awards made to Tenant for loss of trade fixtures and/or relocation
expenses) shall be paid out and distributed to Landlord.
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(c) In case of any taking and whether or not this Lease shall
terminate by reason thereof, each of the parties agrees to execute any and all
documents that may be required in order to effect and facilitate the collection
of the award for the taking.
SECTION 7.02. For purposes of this Article 7, the following terms
shall have the following meanings:
(a) "substantially all of the Premises" shall be deemed to mean such
portion of the Premises as, when so taken, would, in the judgment of Tenant
reasonably exercised, leave remaining a portion of the Premises which, due
either to the area so taken or the location of the part so taken in relation to
the part remaining, would not, under economic conditions or under zoning or
other applicable laws or building regulations then existing or prevailing, and
after performance of all covenants, agreements, terms and provisions herein to
be performed by Tenant, accommodate a new or reconstructed building of a
character, type and size which could be used for the uses hereunder at the date
of such taking.
(b) "date of taking" shall be deemed to be the date on which the whole
or substantially all of the Premises, or a part thereof, as the case may be,
shall have vested in any lawful condemning authority, or the date on which
actual possession thereof is acquired, whichever shall be earlier.
SECTION 7.03.
(a) If less than substantially all of the Premises shall be taken,
this Lease and the Term shall continue (except that this Lease shall terminate
in respect of the portion of the Premises taken and the Base Rent shall be
reduced proportionately). Tenant shall proceed diligently to Restore any
remaining part of the building on the Premises not so taken so that the same
shall be a complete, self-contained architectural unit and, to the extent
practicable, of a size and condition substantially similar to the size and
condition existing immediately prior to such taking, in good condition and
repair.
(b) In the event of any taking of less than substantially all of the
Premises that results in Restoration of the Premises being required of Tenant
hereunder, then the award in respect of such taking shall be paid out and
distributed promptly after receipt by Landlord as follows:
(i) there shall first be paid to Tenant in a single installment
an amount equal to the estimated cost of such Restoration as may
be required hereunder, to be held and applied by Tenant for such
purpose; and
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(ii) next, subject to the rights of the Fee Mortgagee(s) there
shall be paid to Landlord the remainder of the award, if any.
(c) Such Restoration shall be performed in accordance with and subject
to the provisions of Articles 6 and 11.
(d) Each of the parties agrees to execute any and all documents that
may be required in order to effect and facilitate collection of the award.
SECTION 7.04. In case of any governmental action, not resulting in the
taking or condemnation of any portion of the Premises but creating a right to
compensation therefor, such as the change of grade or widening of any street
upon which the Premises abut, this Lease shall continue in full force and
effect without reduction or abatement of rental and the entire award therefor
shall belong to Landlord. Tenant hereby waives any and all claims, and releases
and relinquishes all of its interest in and to any award, damages or other
compensation of any kind resulting from or predicated upon a change of grade or
street widening (except any separate award made to Tenant for loss of trade
fixtures and/or relocation expenses).
SECTION 7.05. It is the intention of Landlord and Tenant that the
provisions of this Article 7 shall constitute an "express agreement to the
contrary" as provided in the applicable laws, if any, of the State of Florida
and shall govern and control in lieu thereof.
ARTICLE 8
---------
ASSIGNMENT AND SUBLETTING
-------------------------
SECTION 8.01. Tenant, with the consent of Landlord which shall not be
unreasonably withheld or delayed, may at any time and from time to time, sublet
the Premises or any part thereof. If the Premises are sublet, Tenant shall
deliver to Landlord a duplicate original of said agreement of subletting.
Tenant, with the consent of Landlord which shall not be unreasonably withheld
or delayed, upon complying with the provisions of this Section, may, at any
time assign this Lease or Tenant's interest in the Premises. Such assignment of
lease by Tenant shall be ineffective unless Tenant delivers to Landlord, within
five (5) days after the execution and delivery of such assignment, a duplicate
original of said assignment in recordable form and an instrument executed by
the assignee providing that the assignee assumes and agrees to perform each and
every provision of this Lease on the part of Tenant to be performed with the
same force and effect as if the assignee in said
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assignment was named as the original Tenant hereunder. Each and every
subsequent assignment of this Lease by Tenant shall comply with the provisions
of this Section. Notwithstanding the foregoing, Tenant, without the consent of
Landlord but otherwise upon complying with the provisions of this Section, may,
at any time and from time to time, sublet the Premises or any part thereof or
assign this Lease or Tenant's interest in the Premises to an Affiliate. An
"Affiliate" shall mean, for the purposes hereof, any person or entity, which,
directly or indirectly, controls, or is controlled by or is under common
control with, Tenant or any principal of Tenant (or any permitted successor of
Tenant or any principal of such successor). The words "control," "controlled
by," or "under common control with" shall mean, for purposes hereof, the
possession of the power to direct or cause the direction of the management and
policy of such entity, whether through the ownership of voting interests or
securities or contract. An affiliate shall also mean any person who is a
principal of Tenant.
ARTICLE 9
---------
REPAIRS AND MAINTENANCE
-----------------------
Throughout the Term, Tenant, at its sole cost and expense, covenants
and agrees to take good care of the Premises, and fixtures and other equipment
therein or serving the same and the appurtenances thereto, and all grounds,
facilities, curbs and other paved walkways and areas, and Tenant agrees to put,
keep and maintain all of the foregoing in a safe, sound and lawful order and
condition, and make all repairs thereto and therein, interior and exterior,
ordinary and extraordinary, foreseen and unforeseen, as shall be necessary to
keep and maintain the same in such safe and sound order and condition and in
compliance with all Governmental and Insurance Requirements. Tenant shall not
commit or suffer, and shall use reasonable precaution to prevent waste, damage
or injury to the Premises or any part thereof.
ARTICLE 10
----------
CHANGES, ALTERATIONS AND ADDITIONS
----------------------------------
SECTION 10.01. Tenant, with the consent of Landlord which shall not be
unreasonably withheld or delayed, may at any time or times during the Term, at
its own cost and expense, make any alterations, rebuildings, replacements,
changes, additions and improvements in, to or at the Premises and to the
buildings from time to time thereon (singly or collectively, the
"Improvement"), provided that any Improvement shall be performed in compliance
with the requirements set forth below:
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(a) Any Improvement shall be made and completed promptly (unavoidable
delays excepted), in a good and workmanlike manner, in substantial compliance
with all applicable permits and authorizations and all Governmental and
Insurance Requirements. Upon completion of any such Improvement, Tenant shall
furnish or cause to be furnished to Landlord, promptly following the issuance
thereof, copies of any approvals of any applicable governmental authority
and/or Board of Fire Underwriters or Insurance Services Office, if normally
issued, evidencing that the same has been performed and completed substantially
in accordance with all Governmental Requirements and Insurance Requirements.
(b) The cost of any Improvement shall be paid so that the Premises
shall at all times be free of liens for labor and materials supplied or claimed
to have been supplied to the Premises, and if any such lien shall at any time
be filed, Tenant shall cause the same to be vacated or discharged in accordance
with the provisions of Article 15.
SECTION 10.02. Notwithstanding the foregoing, Tenant, without the
consent of Landlord but otherwise in compliance with Section 10.01, may at any
time or times during the Term make (i) Improvements the cost of which is not in
excess of $50,000 or (ii) Improvements in connection with any maintenance and
repair pursuant to Article 9 or any Restoration.
SECTION 10.03. Title to all additions, alterations, improvements and
replacements made by Tenant to the Premises, including without limitation, the
Improvements, shall forthwith vest in Landlord, without any obligation by
Landlord to pay any compensation therefor to Tenant or those claiming by,
through or under Tenant.
ARTICLE 11
----------
GOVERNMENTAL REQUIREMENTS
AND INSURANCE REQUIREMENTS
--------------------------
SECTION 11.01. Tenant, at Tenant's sole cost and expense, shall comply
with (i) any and all present and future laws, rules, orders, ordinances
(including zoning ordinances), regulations and requirements applicable to the
Premises, or any part thereof, now or hereafter enacted or promulgated by any
Federal, state or municipal governmental authority having jurisdiction over the
Premises (collectively, "Governmental Requirements"), and (ii) all requirements
of insurance authorities or companies and the Board of Fire Underwriters or
Insurance Services Office affecting the Premises or any parts thereof
(collectively, "Insurance Requirements").
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SECTION 11.02. Notwithstanding anything to the contrary contained in
this Lease, Tenant shall have the right to contest the validity or
applicability of any Governmental Requirements or Insurance Requirements
affecting the Premises by appropriate legal or administrative proceedings and
Tenant shall be entitled to postpone compliance with the obligation being
contested so long as (i) no Event of Default shall have occurred and is
continuing hereunder; (ii) Tenant shall give Landlord prior written notice of
the commencement of such contest; (iii) noncompliance shall not subject
Landlord to any criminal penalty or to prosecution for a crime; and (iv) the
Premises shall not be in danger of being sold, forfeited or lost and the
Certificate of Occupancy shall not be in danger of being suspended by reason of
such contest.
ARTICLE 12
----------
DISCHARGE OF LIENS; BONDS
-------------------------
SECTION 12.01. Tenant shall not create, suffer or permit to be created
or to remain, any mechanic's, laborer's, materialman's lien upon the Premises.
SECTION 12.02. If any mechanic's, laborer's or materialman's lien at
any time shall be filed or permitted to exist against the Premises or any part
thereof, by reason of any work, labor or services performed or materials
furnished, or claimed to have been performed or furnished to or on behalf of
Tenant or those claiming under Tenant, Tenant, within twenty (20) days after
receipt of notice of filing thereof, shall cause the same to be vacated or
discharged of record by payment, deposit, bond, order of a court of competent
jurisdiction or otherwise. If Tenant shall fail to cause such lien to be
vacated or discharged within the period aforementioned, Landlord, in addition
to any other right or remedy of Landlord hereunder, may, upon ten (10) days'
prior notice to Tenant, but shall not be obligated to, discharge the same
either by paying the amount claimed to be due or by procuring the discharge of
such lien by deposit or by bonding proceedings, and in any such event, Landlord
shall be entitled, if it shall so elect, to compel the prosecution of an action
for the foreclosure of such lien by the lienor and to pay the amount of the
judgment in favor of the lienor with interest, costs and allowances. Any amount
so paid by Landlord, and all reasonable costs and expenses, including, but not
limited to, reasonable attorneys' fees and disbursements, incurred by Landlord
in connection therewith, shall constitute additional rent payable by Tenant
under this Lease and shall be paid by Tenant to Landlord on demand.
SECTION 12.03. Nothing contained in this Lease shall be deemed or
construed in any way as constituting the consent or request of Landlord,
express or implied, by inference or other-
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wise, to any contractor, subcontractor, laborer or materialman for the
performance of any labor or services or the furnishing of any materials for any
specific improvement, alteration to or repair of the Premises or any part
thereof, nor as giving Tenant any right, power or authority to contract for or
permit the rendering of any labor or services or the furnishing of materials
that would give rise to the filing of any lien against the estate or interest
of Landlord in the Premises. Notice is hereby given, and Tenant shall cause all
construction agreements to which it is a party to provide, that Landlord shall
not be liable for any work or other services performed or to be performed at
the Premises for Tenant or for any materials furnished or to be furnished at
the Premises to Tenant, that the contractor performing any work or services
and/or furnishing any materials to the Premises for or on behalf of Tenant
shall not look to Landlord for the payment therefor, and that no mechanic's or
other lien for such work, services or materials shall attach to or affect the
estate or interest of Landlord in and to the Premises.
ARTICLE 13
----------
REPRESENTATIONS
---------------
SECTION 13.01. Landlord represents that it owns the Premises and that
the execution and delivery of this Lease have been duly authorized by all
necessary and proper action on the part of Landlord.
SECTION 13.02. Tenant represents that the execution and delivery of
this Lease have been duly authorized by all necessary and proper action on the
part of Tenant.
ARTICLE 14
----------
INDEMNIFICATION OF LANDLORD
---------------------------
SECTION 14.01. Tenant, subject to the provisions of Section 7.02(f),
agrees to indemnify and save Landlord harmless from and against any and all
claims, obligations, liabilities, suits, actions, proceedings, judgments,
damages, costs, charges and expenses, including, without limitation, reasonable
attorneys' fees and disbursements, imposed upon or incurred by Landlord by
reason of any of the following occurring during the Term, unless resulting from
any act, omission or negligence of Landlord, or Landlord's agents or employees:
(a) any use, non-use, possession, occupation, repair, alteration,
condition, operation, maintenance or management of the
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Premises or any part thereof, or the streets and sidewalks abutting
the same by Tenant, or its agents or employees;
(b) any act, omission or negligence on the part of Tenant or its
agents;
(c) any accident, injury (including death) or damage to any person or
property occurring in, on or about the Premises or any part thereof or the
streets or sidewalks abutting the same; or
(d) any lien or claim which may be asserted against the Premises or
any part thereof, arising from any failure by Tenant to perform its obligations
under this Lease.
SECTION 14.02. The obligations of Tenant under this Article 14 shall
not be limited or affected in any way by the limits of insurance required to be
carried or caused to be carried by Tenant hereunder or by the absence in any
case of covering insurance or by the failure or refusal of any insurance
carrier to perform any obligation on its part under insurance policies
affecting the Premises, or any parts thereof.
SECTION 14.03. If any claim, action or proceeding is made or brought
against Landlord by reason of any event with respect to which Tenant has
indemnified Landlord hereunder, then, Landlord shall promptly notify Tenant and
Tenant, at its sole cost and expense, shall resist or defend such claim, action
or proceeding, in Landlord's name if necessary, by the attorneys for Tenant's
insurance carrier (if such claim, action or proceeding is covered by insurance)
or otherwise by such attorneys as Tenant shall select and Landlord shall
approve, which approval shall not be unreasonably withheld or delayed. Nothing
herein contained shall prohibit Landlord, at its own expense, from
participation in such claim, action or proceeding with counsel of its own
choice.
SECTION 14.04. The provisions of this Article 14 shall survive the
termination or expiration of the Term in respect of any occurrence prior to the
termination or expiration of the Term.
ARTICLE 15
----------
RIGHT OF ACCESS
---------------
Upon reasonable notice to Tenant, Tenant shall permit Landlord and its
agents and representatives to enter the Premises at all reasonable times (or at
any time and without notice in the case of an emergency) for the purpose of (a)
inspecting the same, and (b) making any necessary repairs thereto and
performing any other work therein pursuant to Article 16.
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ARTICLE 16
----------
SELF-HELP
---------
SECTION 16.01. If at any time Tenant shall fail to pay, in accordance
with the provisions hereof, any Imposition for which it is obligated hereunder,
or to take out, pay for, maintain or deliver any of the insurance policies
required of it herein or certificates evidencing same, or to perform any other
act on its part to be made or performed under this Lease, then Landlord,
without waiving or releasing Tenant from any obligation contained in this Lease
and in addition to any and all other remedies Landlord may have hereunder, may
(but shall be under no obligation to), upon the giving of notice to Tenant of
such failure and the continuance of such failure by Tenant for fifteen (15)
days after the giving of such notice (except that shorter notice, to the extent
feasible, or no notice, need be given in the case of an emergency, or in cases
when any insurance policy described in Article 7 would lapse in less than ten
(10) days) or if such failure cannot be cured within said fifteen (15) days,
the failure of Tenant to commence to cure within said fifteen (15) days or to
diligently and continuously thereafter prosecute such cure:
(a) pay or cause to be paid any Imposition required to be paid by
Tenant pursuant to the provisions hereof; or
(b) take out, pay for and maintain any of the insurance policies
provided for herein; or
(c) pay any other sums, costs, expenses, charges, payments or deposits
payable by Tenant hereunder, or perform any other act on Tenant's part to be
made or performed as in this Lease set forth, and Landlord may enter upon the
Premises for such purpose and take all such action thereon as may be necessary
therefor.
SECTION 16.02. All sums paid by Landlord and all reasonable costs and
expenses incurred by Landlord in connection with the performance of any act
permitted by Section 16.01 shall be paid by Tenant to Landlord as additional
rent on demand. Any payment or performance by Landlord pursuant to the
foregoing provisions of this Article 16 shall not be nor be deemed to be a
waiver or release of the breach or default of Tenant with respect thereto or of
the right of Landlord to terminate this Lease, institute summary proceedings
and/or take such other action as may be permissible hereunder or otherwise if
an Event of Default by Tenant shall have occurred.
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<PAGE>
ARTICLE 17
----------
PERMITTED USE; NO UNLAWFUL OCCUPANCY
------------------------------------
SECTION 16.01. During the Term, Tenant may use and occupy the Premises
for light manufacturing, warehouse and distribution purposes or any other
lawful purpose.
SECTION 16.02. Tenant shall not use or occupy, nor permit or suffer
the Premises or any part thereof, to be used or occupied for any unlawful
purpose.
ARTICLE 18
----------
EVENTS OF DEFAULT,
CONDITIONAL LIMITATIONS, REMEDIES, ETC.
---------------------------------------
SECTION 18.01. The occurrence at any time during the Term of any one
or more of the events set forth in subsections (a), (b) or (c) of this Section
18.01 shall constitute an "Event of Default" hereunder:
(a) if Tenant shall fail to pay in full any installment of Base Rent,
any item of additional rent, or any other payment required to be paid by Tenant
under this Lease, when the same shall become due and payable hereunder, and
such default shall continue for a period of ten (10) days after notice thereof
from Landlord to Tenant; or
(b) (i) if Tenant shall abandon the Premises in its entirety and such
default shall continue for a period of thirty (30) days after
notice; or
(ii) if Tenant shall fail to keep, observe or perform any of the
other terms, covenants, conditions or agreements of this Lease on
Tenant's part to be kept, observed or performed, and such default
shall continue for a period of thirty (30) days after notice
thereof by Landlord to Tenant specifying such default (unless
such default requires work to be performed, acts to be done or
conditions to be removed which cannot by their nature reasonably
be performed, done or removed, as the case may be, within such
thirty (30) day period, then if Tenant shall not have commenced
curing the same within such thirty (30) day period or shall
thereafter fail diligently and continuously to prosecute the same
to completion); or
(c) (i) if Tenant is generally not paying its debts as such debts
become due, within the meaning of such
19
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phrase under Title 11 of the United States Code, or shall admit
in writing that it is unable to pay its debts as such debts
become due; or
(ii) if Tenant shall make an assignment for the benefit of
creditors; or
(iii) if Tenant shall file a voluntary petition under Title 11 of
the United States Code, as the same may be amended, or if such a
petition is filed against Tenant and an order is entered as a
result of such petition, or if Tenant shall file any petition or
answer seeking, consenting to or acquiescing in any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future federal bankruptcy code or any other present or future
applicable federal or state or other statute or law, or shall
seek or consent to or acquiesce in the appointment of any
custodian, trustee, receiver, sequestrator, liquidator or other
similar official of Tenant or of all or any substantial part of
its property or of the Premises or any interest of Tenant
therein, or if Tenant shall take any action in furtherance of any
action described in subdivisions (i), (ii) or (iii) of this
Section 18.01(c); or
(iv) if within ninety (90) days after the commencement of any
proceeding against Tenant seeking any reorganization,
arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future federal bankruptcy
code or any other present or future applicable federal or state
statute or law, such proceeding shall not have been dismissed, or
if within ninety (90) days after the appointment, without the
consent or acquiescence of Tenant, of any custodian, trustee,
receiver, assignee, sequestrator, liquidator or any other similar
official of Tenant or of all or any substantial part of its
properties or of the Premises or any interest of Tenant therein,
such appointment shall not have been vacated or stayed on appeal
or otherwise, or if within sixty (60) days after the expiration
of any such stay, such appointment shall not have been vacated.
SECTION 18.02.
(a) Upon the occurrence of any of the Events of Default set forth in
Section 18.01(c), Landlord may at any time thereafter serve upon Tenant a ten
(10)-day notice of termination of this
20
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Lease and upon the expiration of such ten (10)-day period, this Lease and the
Term shall cease, terminate and expire as fully and completely as if the
expiration of such ten (10)-day period were the date herein definitely fixed
for the end and expiration of the Lease and the Term, and Tenant immediately
shall quit and surrender the Premises; or if such termination shall be
proscribed by any law applicable to the proceeding or stayed by order of any
court having jurisdiction over the proceeding, then, following the expiration
of any stay, or if the trustee appointed in any such proceeding, Tenant or
Tenant as debtor-in-possession shall fail to assume this Lease in its entirety
and all of the covenants thereof within the period prescribed therefor by law
or as may be allowed by the court, and/or said trustee, Tenant or Tenant as
debtor-in-possession shall fail to provide adequate protection of Landlord's
right, title and interest in and to the Premises and adequate assurances of the
complete and continuous future performance of Tenant's obligations under this
Lease, Landlord, to the extent permitted by law or by leave of the court having
jurisdiction over the proceeding, shall have the right, at its election, to
terminate this Lease on ten (10) days' notice to Tenant, Tenant as debtor-in-
possession or said trustee, and upon the expiration of said ten (10)-day period
this Lease shall cease and expire as fully and completely as if such date were
the date herein definitely fixed for the end and expiration of this Lease and
the Term, and thereupon neither Tenant nor any subtenant or other person
claiming through or under Tenant or by virtue of any statute or order of any
court shall be entitled to the possession of the Premises, or any part thereof,
and Landlord, in addition to the other rights and remedies given pursuant to
this Article, or by virtue of any other provision in this Lease contained, or
by virtue of any statute or rule of law, may retain or receive as partial
liquidated damages any rental, or other moneys received by it from Tenant or
others on behalf of Tenant.
(b) If this Lease shall terminate and expire pursuant to the
provisions of Section 18.02(a) Landlord shall be entitled to prove and recover
in any such bankruptcy, insolvency, receivership, reorganization or dissolution
proceeding all arrears in rental and, in addition thereto as liquidated damages
an amount equal to the maximum allowed by statute or rule of law in effect at
the time when and governing the proceedings in which such damages are to be
proved, whether or not such amount be greater or less than the amount referred
to in subsection (a) of this Section 18.02.
SECTION 18.03.
(a) Upon the occurrence of any of the Events of Default set forth in
Section 18.01(b), Landlord may at any time thereafter and during the
continuance of any such Event of Default serve upon Tenant a ten (10)-day
notice of termination of this Lease and upon the expiration of such ten
(10)-day period, this Lease and the Term
21
<PAGE>
shall cease, end and expire as fully and completely as if the expiration of
such ten (10)-day period were the date herein definitely fixed for the end and
expiration of this Lease and the Term, and thereupon Tenant and any subtenant
or other person claiming through or under Tenant shall quit and surrender the
Premises to Landlord, but Tenant shall remain liable as hereinafter provided.
(b) If the notice provided for in Section 18.03(a) shall have been
given, and the Term shall have expired as aforesaid, or if any of the Events of
Default set forth in Section 18.01(a) shall occur, then and in any of such
events Landlord may, without further notice, re-enter and repossess the
Premises, using such force for that purpose as may be lawful and necessary
without being liable to indictment, prosecution or damages therefor, and may
dispossess Tenant and any subtenant or other person claiming through or under
Tenant by summary proceedings or otherwise and remove their effects and hold
the Premises as of Landlord's former estate as if this Lease had not been made,
and Tenant hereby waives the service of notice of intention to reenter or to
institute legal proceedings to that end.
SECTION 18.04. If this Lease and the Term shall have terminated and
expired as provided in Section 18.03(a), or if Landlord shall have re-entered
the Premises and/or shall have dispossessed Tenant by summary proceedings or
otherwise as provided in Section 18.03(b):
(a) Tenant shall pay to Landlord all rental payable under this Lease
to the date upon which this Lease and the Term shall have terminated, expired
and come to an end or to the date of re-entry upon the Premises by Landlord, as
the case may be;
(b) Landlord may repair, renovate, remodel and/or alter the Premises
or any part thereof in such manner as Landlord may reasonably deem necessary or
advisable to relet the Premises without thereby relieving Tenant of any
liability under this Lease or otherwise affecting any such liability, and/or
Landlord may let or relet the Premises or any parts thereof for the whole or
any part of the remainder of the Term or for a longer period, in Landlord's
name or as agent of Tenant, at such rental and upon such terms and conditions
as Landlord shall deem reasonable, to any tenant it may deem suitable and for
any use or purpose it may deem appropriate, and out of any rent and other sums
collected or received as a result of such reletting Landlord shall: first, pay
to itself all reasonable costs and expenses of terminating this Lease,
re-entering, retaking, repossessing and repairing the Premises, the reasonable
costs and expenses of such renovations, remodeling and/or alterations of the
Premises or any part thereof as reasonably required to prepare the Premises for
reletting, and the reasonable cost and expense of removing all persons and
22
<PAGE>
property therefrom, including in such costs reasonable attorneys' fees and
disbursements; second, pay to itself the reasonable costs and expenses
sustained in securing any new tenants and other occupants, including in such
costs, brokerage commissions, reasonable attorneys' fees and disbursements and
other expenses of preparing the Premises or any part thereof for reletting and,
if Landlord shall maintain and operate the Premises, the reasonable cost and
expense of operating and maintaining the Premises, and third, pay to itself any
balance remaining on account of amounts due and owing from Tenant to Landlord
hereunder. Any rents or other sums received by Landlord on a reletting in
excess of the rental reserved in this Lease shall belong solely to Landlord.
Nothing in this Article shall in any way affect Landlord's duty, hereby
confirmed, to mitigate damages by using reasonable efforts to re-let the
Premises at the fair market value.
(c) Tenant shall be liable for and shall pay to Landlord, as damages,
any deficiency (the "Deficiency") between the Base Rent reserved in this Lease
for the period which otherwise would have constituted the unexpired portion of
the Term and the net amount, if any, of rents collected under any reletting
effected pursuant to Section 18.04(b) for any part of such period (after first
deducting from the rents collected under any such reletting all of the payments
to Landlord described in Section 18.04(b)); any such Deficiency shall be paid
by Tenant in installments on the days specified in this Lease for the payment
of installments of Base Rent, and Landlord shall be entitled to recover from
Tenant such Deficiency installment(s) as the same shall arise, and no suits or
actions to collect the amount or amounts of any Deficiency for any period shall
prejudice Landlord's right to collect the Deficiency for any subsequent period
by a similar suit or action.
SECTION 18.05. No termination of this Lease pursuant to Section
21.03(a), and no re-entry or taking of possession by Landlord and/or reletting
of the Premises or any part thereof pursuant to Sections 18.03(b) and 18.04(b),
shall relieve Tenant of its liabilities and obligations under this Article 18,
all of which shall survive such expiration, termination, re-entry, repossession
or reletting.
SECTION 18.06. Suit or suits for the recovery of damages, or for a sum
equal to any installment or installments of rental payable hereunder or any
Deficiency or other sums payable by Tenant to Landlord pursuant to this Lease,
may be brought by Landlord from time to time at Landlord's election, and
nothing herein contained shall be deemed to require Landlord to await the date
whereon this Lease and the Term would have expired by limitation had there been
no Event of Default by Tenant, re-entry or termination.
SECTION 18.07. Tenant waives any and all right of redemption provided
by any law or statute now in force or hereafter enacted or
23
<PAGE>
otherwise, or re-entry or repossession or to restore the operation of this
Lease in case Tenant shall be dispossessed by a judgment or by warrant of any
court or judge or in case of reentry or repossession by Landlord or in case of
any expiration or termination of this Lease. The terms "enter," "re enter,"
"entry" or "re-entry," as used in this Lease are not restricted to their
technical legal meaning.
SECTION 18.08. No failure by Landlord to insist upon the strict
performance of any agreement, term, covenant or condition of this Lease or to
exercise any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial rental during the continuance of any such breach,
shall constitute a waiver of any such breach or of such agreement, term,
covenant or condition. No agreement, term, covenant or condition of this Lease
to be performed or complied with by Tenant, and no breach thereof, shall be or
be deemed to be waived, altered or modified except by a written instrument
executed by Landlord. No waiver of any breach shall affect or alter this Lease,
but each and every agreement, term, covenant and condition of this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent breach thereof.
SECTION 18.09. Each right and remedy of Landlord provided for in this
Lease, shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease or now or hereafter existing at law or in
equity or by statute or otherwise, and the exercise or beginning of the
exercise by Landlord of any one or more of the rights or remedies provided for
in this Lease, or now or hereafter existing at law or in equity or by statute
or otherwise shall not preclude the simultaneous or later exercise by Landlord
of any or all other such rights or remedies.
SECTION 18.10.
(a) Tenant shall pay to Landlord all reasonable costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
incurred by Landlord in any action or proceeding to which Landlord may be made
a party by reason of any act or omission of Tenant, provided that such act or
omission does not result from any act or omission of Landlord.
(b) Tenant shall also pay to Landlord all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, incurred by Landlord in enforcing any of the covenants and
provisions of this Lease or incurred in any action or proceeding brought by
Landlord against Tenant on account of the provisions hereof, provided Landlord
shall prevail in such action or proceeding, and all such costs, expenses and
reasonable attorneys' fees and disbursements may be included in and form a
24
<PAGE>
part of any judgment entered in any action or proceeding brought by Landlord
against Tenant on or under this Lease.
ARTICLE 19
----------
NOTICES
-------
SECTION 19.01. Whenever it is provided herein or prescribed by law
that notice, demand, request, consent, approval or other communication shall or
may be given to or served upon either of the parties hereto such notice,
demand, request, consent, approval or other communication shall be in writing
and, unless otherwise prescribed by law or governmental regulation, shall be
effective for any purpose only if delivered personally against receipt therefor
or sent by registered or certified mail, postage prepaid, return receipt
requested, to the parties at the respective addresses set forth below, or to
such other addresses as either party may from time to time designate by like
notice given to the other.
(a) If to Tenant:
THE FONDA GROUP, INC.
15-29 Lower Newton Street
St. Albans, Vermont 05478
Attn: President
(b) If the Landlord:
C/O FOUR M CORPORATION
115 Stevens Avenue
Valhalla, New York 10595
SECTION 19.02. Every notice, demand, request, consent, approval or
other communication hereunder shall be deemed to have been given or served on
the date personally delivered or three (3) business days after the date that
the same shall have been deposited in the United States mails postage prepaid,
in the manner aforesaid, except that a notice of change of address shall be
deemed to have been given only when received by the addressee.
25
<PAGE>
ARTICLE 20
----------
SUBORDINATION
-------------
SECTION 20.01. This Lease, the leasehold estate of Tenant created
hereby and all rights of Tenant hereunder shall be subject and subordinate to
any and all Fee Mortgage(s) which may now or hereafter cover all or any part of
the Premises and to all renewals, modifications, consolidations, replacements
and extensions thereof. Tenant agrees that the Fee Mortgagee(s), shall have no
duty, liability or obligation to perform any of the obligations of Landlord
under this Lease, but in the event of Landlord's default with respect to any
such obligation, Tenant will give any Fee Mortgagee(s) whose name and address
have been furnished Tenant in writing for such purpose notice of Landlord's
default and allow such Fee Mortgagee(s) thirty (30) days following receipt of
such notice for the cure of said default before invoking any remedies Tenant
may have by reason thereof. If any Fee Mortgagee(s) shall elect to have this
Lease superior to the lien of its Fee Mortgage and shall give written notice
thereof to Landlord and Tenant, this Lease shall be deemed prior to such Fee
Mortgage, notwithstanding the relative dates of the documentation or
recordation thereof.
SECTION 20.02. Subject to the non-disturbance provisions of paragraph
20.03, Tenant agrees to attorn to any Fee Mortgagee(s) or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Fee
Mortgage, and that in the event of such foreclosure, such new owner shall: (i)
be liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership, (ii) be subject to any offsets or
defenses which Tenant may have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
SECTION 20.03. With respect to any Fee Mortgage entered into by
Landlord after the execution of this Lease, Tenant's subordination of this
Lease shall be subject to receiving assurance (a "non-disturbance agreement")
from the Fee Mortgagee(s) that Tenant's possession of the Premises and this
Lease, will not be disturbed so long as Tenant is not in default thereof and
attorns to the record owner of the Premises.
SECTION 20.04. The agreements contained in this paragraph 20 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Landlord or a Fee Mortgagee(s) in connection
with a sale, financing or refinancing of the Premises, Tenant and Landlord
shall execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or
nondisturbance agreement as is provided for herein.
26
<PAGE>
ARTICLE 21
SALE OPTION
Tenant hereby grants Landlord the option (the "Sale Option") to sell
and convey the Premises to Tenant for a purchase price (the "Purchase Price")
of One Million Five Hundred Thousand ($1,500,000) Dollars; provided, however,
that the Purchase Price shall be increased in proportion to the increase, if
any, by which the Base Rent shall have increased from the Commencement Date to
the Closing Date (as hereinafter defined). The Sale Option shall be exercisable
only by Landlord's giving Tenant notice thereof from and after January 1, 1998
and on or before July 31, 2006, time being of the essence. The closing of title
(the "Closing") shall take place at 115 Stevens Avenue, Valhalla, New York, at
10:00 a.m. on the date which shall be forty-five (45) days following the date
of Landlord's notice or if said date shall not be a business day, the first
business day thereafter (the date on which the Closing takes place being called
the "Closing Date"), or at such other time and place as shall be agreed to by
Landlord and Tenant. Title to the Premises shall be conveyed by Landlord to
Tenant by special warranty deed free and clear of all liens and encumbrances
other than the Permitted Exceptions. The Purchase Price shall be payable upon
the Closing as follows:
(a) Three Hundred Fifty Thousand ($350,000) Dollars shall be payable
by unendorsed certified or bank check drawn to the order of Landlord or
Landlord's designee(s), or by wire transfer to account(s) designated by
Landlord;
(b) if on the Closing Date, the Premises shall be encumbered by a Fee
Mortgage(s), at Landlord's election, an amount equal to the outstanding
principal balance secured thereby, shall be payable by Tenant's accepting title
to the Premises subject thereto and assuming the payment and performance of all
obligations to be performed thereunder, and under the promissory note(s)
secured thereby (collectively, the "Assumed Fee Mortgage"), from and after the
Closing Date; and
(c) the balance of the Purchase Price shall be payable by Tenant's
Promissory Note in such amount. Tenant's Promissory Note shall (i) be for a
term of seven (7) years following the Closing Date; (ii) be repayable in
eighty-four (84) equal monthly installments in an amount not to exceed the
monthly installment of Base Rent in effect on the day preceding the Closing
Date, commencing on the first day of the month following the Closing Date and
on the first day of each succeeding month, applied first to the payment of
interest calculated on the outstanding principal balance thereof at the rate
per annum equal to two (2) percentage points above the prime rate in effect as
of the Closing Date, as published in the New York Times, and then in reduction
of principal.
27
<PAGE>
Notwithstanding the foregoing, if such payments shall not be sufficient to
fully satisfy such Promissory Note, the eighty-fourth (84th) and final
installment shall be in an amount equal to the outstanding principal balance of
such Promissory Note, together with interest accrued thereon; (iii) be secured
by a Mortgage or Deed of Trust covering the Premises, subject only to the
Permitted Exceptions and the Assumed Fee Mortgage, if applicable; (iv) if
applicable, Landlord shall have the right to incorporate the outstanding
principal balance of Tenant's Promissory Note in the Assumed Fee Mortgage; and
(v) subject to the foregoing, be in form and content reasonably satisfactory to
Landlord and Tenant.
ARTICLE 22
----------
CERTIFICATES BY TENANT AND LANDLORD
-----------------------------------
Tenant and Landlord agree, at any time and from time to time upon not
less than ten (10) days' prior notice by the other, to execute, acknowledge and
deliver to the other (or any other parties specified by the other) a statement
certifying (i) that this Lease is unmodified and in full force and effect (or
if there have been any modifications, or supplements that the same, as modified
and/or supplemented, is in full force and effect and stating the modifications
and/or supplements), (ii) the date(s) to which the Base Rent has been paid,
(iii) whether to the best knowledge of the person executing such certificate
there is then any existing default in the performance of the other party's
obligations under this Lease and, if so, specifying each such default, and (iv)
whether to the best knowledge of the person executing such certificate there
then exist any set-offs or defenses to the enforcement of this Lease by
Landlord or any claims by Tenant against Landlord, and it being intended that
any such statement may be relied upon by the other party and/or such third
parties as the other party shall have designated.
ARTICLE 23
----------
CONSENTS AND APPROVALS
----------------------
All consents and approvals which may be given under this Lease shall,
as a condition of their effectiveness, be in writing. The granting of any
consent or approval by Landlord to the performance of any act by Tenant
requiring the consent or approval of Landlord, under any of the terms or
provisions of this Lease shall relate only to the specified act or acts thereby
consented to or approved and, unless otherwise specified, shall not be deemed a
waiver of the necessity for such consent or approval for the same or any
similar act in the future, and/or the failure on the part of Landlord to object
to any such action taken by Tenant without the
28
<PAGE>
consent or approval of Landlord, shall not be deemed a waiver of its right to
require such consent or approval for any further similar act. Whenever the
consent of Landlord is required hereunder, Landlord agrees not to unreasonably
withhold or delay such consent.
ARTICLE 24
----------
SURRENDER AT END OF TERM
------------------------
SECTION 24.01. On the last day of the Term or upon any sooner
termination of this Lease, or upon a re-entry by Landlord upon the Premises
pursuant to Article 18 hereof, Tenant agrees that it shall well and truly
surrender and deliver up to Landlord the Premises, together with all additions,
alterations and improvements thereto, in good order, and in the condition and
state of repair in which Tenant is obligated to maintain the same pursuant to
Article 9, reasonable wear and tear excepted, free and clear of all subleases,
occupancies, liens and encumbrances.
SECTION 24.02. Nothing in this Lease shall be construed to give
Landlord title to or to prevent Tenant's removal of trade fixtures and moveable
furniture, furnishings and equipment installed in the Premises by Tenant.
ARTICLE 25
----------
QUIET ENJOYMENT
---------------
Landlord covenants that, if and so long as no Event of Default shall
have occurred and be continuing hereunder, Tenant shall and may (subject,
however, to the terms and conditions of this Lease), peaceably and quietly
have, hold and enjoy the Premises during the Term without molestation or
disturbance by or from Landlord or any person claiming by, through or under
Landlord.
ARTICLE 26
----------
INVALIDITY OF CERTAIN PROVISIONS
--------------------------------
If any term or provision of this Lease, or the application thereof to
any person or circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of
this Lease shall be valid and be enforced to the fullest extent permitted by
law.
29
<PAGE>
ARTICLE 27
----------
RECORDING OF MEMORANDUM
-----------------------
Landlord and Tenant, upon the written request of the other, shall join
in the execution of a Memorandum of this Lease and of any amendments or
supplements to this Lease in proper form for recording, setting forth such
provisions, other than the rental terms, as shall be required by law or
requested by either party to give notice of the existence of this Lease, such
amendment or supplement and the provisions thereof. Either party may cause such
Memorandum to be recorded, and the party causing such Memorandum to be recorded
shall pay and discharge all costs and fees in connection therewith.
ARTICLE 28
----------
WAIVER OF TRIAL BY JURY
-----------------------
To the fullest extent permitted by law, Landlord and Tenant do hereby
waive and will waive all rights to trial by jury on any cause of action,
proceeding or counterclaim directly or indirectly arising out of or in any way
connected with this Lease, the Premises, Tenant's use and occupancy of the
Premises or any matters whatsoever arising out of or in any way connected with
this Lease. The provisions of this Lease relating to waiver of a jury trial
shall survive the expiration of the Term.
ARTICLE 29
----------
BROKER
------
Tenant and Landlord acknowledge, represent and warrant to each other
that it has not dealt with any broker in respect of this Lease or the Premises.
As a special inducement for the execution and delivery of this Lease by the
other, Landlord and Tenant hereby covenant and agree forever to defend,
indemnify and hold the other and its successors and assigns harmless from and
against any and all claims, demands or judgments (and for all expenses,
including, but not limited to, reasonable counsel fees and expenses incurred by
the other in connection therewith) for any commissions, fees or other
compensation of any kind by or in favor of any broker or other party, claiming
to have brought the availability of the Premises to the attention of the
indemnifying party and/or claiming to have dealt with the indemnifying party in
connection with this Lease.
30
<PAGE>
ARTICLE 30
----------
MISCELLANEOUS
-------------
SECTION 30.01. The captions of this Lease are for convenience of
reference only and in no way define, limit or describe the scope or intent of
this Lease or in any way affect this Lease.
SECTION 30.02. The Table of Contents is for convenience of reference
only and is not to be deemed or construed in any way as part of this Lease or
as supplemental thereto or amendatory thereof. All references herein to
Articles, Sections, subsections or subdivisions, shall, unless the context
shall clearly evidence a contrary intention, refer to the Articles, Sections,
subsections and subdivisions of this Lease.
SECTION 30.03. Any reference herein to any one gender, masculine,
feminine or neuter, includes the other two, and the singular includes the
plural and vice versa, unless the context requires otherwise. The use herein of
the words "successors and assigns" or "successors or assigns" of Landlord or
Tenant shall be deemed to include the heirs, legal representatives and assigns
of any individual Landlord or Tenant.
SECTION 30.04. If more than one party is named as or becomes Landlord
or Tenant hereunder, Landlord or Tenant, as the case may be, may require the
signatures of all such other parties in connection with any notice to be given
or action to be taken by the other party hereunder, unless such other parties
designate otherwise in form satisfactory to the relying party. Each person or
entity named as Landlord or Tenant shall be jointly and severally liable for
all obligations of such party hereunder. Any notice by Landlord to any party
named as Tenant or by Tenant to any party named as Landlord shall be sufficient
and shall have the same force and effect as though given to all parties named
as Tenant or Landlord, as the case may be.
SECTION 30.05. The term "Landlord" on the date as of which this Lease
is delivered, shall mean Dennis Mehiel, but thereafter "Landlord" shall mean
the holder of landlord's interest in this Lease at the time in question so that
if Dennis Mehiel, or any successor to its interest hereunder ceases to have any
interest in the Premises or there is any transfer or transfers of Landlord's
interest in the Premises, the transferor shall be and hereby is entirely freed
and relieved of all agreements, covenants and obligations of Landlord hereunder
to be performed on or after the date of such transfer, and it shall be deemed
and construed without further agreement between the parties or their successors
in interest or between the parties and the person who acquires Landlord's
interest in this Lease that such person has assumed and agreed to carry out any
and all agreements, covenants and
31
<PAGE>
obligations of Landlord hereunder accruing from and after the date of such
transfer.
SECTION 30.06. This Lease or any of its provisions may not be waived,
changed, modified or terminated orally, but only by a written instrument of
waiver, change, modification or termination executed by the party against whom
enforcement of any such waiver, change, modification or termination is sought.
SECTION 30.07. This Lease shall be governed by and construed in
accordance with the internal laws of the State of Florida without giving effect
to any principles of conflict of laws.
SECTION 30.08. The agreements, terms, covenants and conditions herein
contained shall be binding upon, and shall inure to the benefit of, Landlord
and Tenant and their respective successors and assigns.
SECTION 30.09. This Lease contains the entire agreement between the
parties and supersedes all prior written and oral agreements and understandings
with respect hereto between Landlord and Tenant.
SECTION 30.10. This Lease may be executed in multiple counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.
32
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease of
the day and year first above written.
/s/ Dennis Mehiel
------------------------------
Dennis Mehiel
THE FONDA GROUP, INC.
By: /s/ C.G. Ames
---------------------------
C.G. Ames
Chief Executive Officer
33
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF WESTCHESTER )
On the 17 day of March, 1995, before me personally came Dennis Mehiel
to me known to be the individual described in and who executed the foregoing
instrument, and acknowledged that he executed the same.
/s/ Lurline Arco
-------------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF WESTCHESTER )
On the 17 day of March, 1995, before me personally came C.G. Ames, to
me known, who, being by me duly sworn, did depose and say that he resides at
No. 25 Magnolia Trace, Point Clear, Alabama 36564, that he is the Chief
Executive Officer of The Fonda Group, Inc., the corporation described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation,
and that he signed his name thereto by like order.
/s/ Lurline Arco
-------------------------
Notary Public
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
Board of Directors
The Fonda Group, Inc.
We consent to the use in this Registration Statement of The Fonda Group,
Inc. on Form S-4 of our report dated October 25, 1996 (June 16, 1997 as to
Note 15) on the financial statements of The Fonda Group, Inc., appearing in
the Prospectus, which is part of the Registration Statement, and to the
references to us under the headings "Selected Historical Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the 1996 and 1995 financial statement schedule of The
Fonda Group, Inc., listed in Item 21(b). This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Stamford, Connecticut
June 19, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
Board of Directors
The Fonda Group, Inc.
We consent to the use in this Registration Statement of The Fonda Group,
Inc. on Form S-4 of our report dated June 4, 1997 on the financial statements
of Scott Foodservice Division of Scott Paper Company, appearing in the
Prospectus, which is part of the Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
June 19, 1997
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
Board of Directors
The Fonda Group, Inc.
We consent to the use in this Registration Statement of The Fonda Group,
Inc. on Form S-4 of our report dated January 17, 1997 on the financial
statements of Chesapeake Consumer Products Company, appearing in the
Prospectus, which is part of the Registration Statement, and to the reference
to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
June 19, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
The Fonda Group, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated January 19, 1995, relating to the
financial statements of The Fonda Group, Inc., which is contained in that
Prospectus, and of our report dated January 19, 1995 relating to the
Schedule, which is contained in Part II of the Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical Financial Data" and "Experts" in the Prospectus.
BDO Seidman, LLP
Valhalla, New York
June 19, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> JUL-28-1996 JUL-27-1997
<PERIOD-START> JUL-31-1995 JUL-29-1996
<PERIOD-END> JUL-28-1996 APR-27-1997
<CASH> 1,467 24,134
<SECURITIES> 0 0
<RECEIVABLES> 27,173 31,047
<ALLOWANCES> 549 683
<INVENTORY> 37,467 40,598
<CURRENT-ASSETS> 74,518 106,164
<PP&E> 68,584 64,422
<DEPRECIATION> 15,574 18,112
<TOTAL-ASSETS> 136,168 172,368
<CURRENT-LIABILITIES> 35,587 30,649
<BONDS> 81,740 122,689
0 0
0 0
<COMMON> 2,181 2,231
<OTHER-SE> 11,871 11,110
<TOTAL-LIABILITY-AND-EQUITY> 136,168 172,368
<SALES> 204,903 189,227
<TOTAL-REVENUES> 204,903 189,227
<CGS> 161,304 149,165
<TOTAL-COSTS> 29,735 28,466
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 148 99
<INTEREST-EXPENSE> 7,934 6,798
<INCOME-PRETAX> 5,930 4,798
<INCOME-TAX> 2,500 2,015
<INCOME-CONTINUING> 3,430 2,783
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 3,495
<CHANGES> 0 0
<NET-INCOME> 3,430 (712)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
THE FONDA GROUP, INC.
Offer For All Of Its Outstanding
9 1/2% Series A Senior Subordinated Notes due 2007
in Exchange for
9 1/2% Series B Senior Subordinated Notes due 2007
Which Have Been Registered Under The Securities Act Of 1933
Pursuant to the Prospectus dated , 1997
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 1997, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE WITHDRAWN
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand or Overnight Delivery: Facsimile Transactions: By Registered Or Certified Mail:
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street (212) 571-3080 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization Section
Attention: Reorganization Section or for Information Call: George Johnson
George Johnson (212) 815-3687
</TABLE>
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of this letter of transmittal via facsimile to a
number other than as set forth above does not constitute a valid delivery.
The undersigned acknowledges that he or she has received the
Prospectus, dated _________, 1997 (the "Prospectus"), of The Fonda Group, Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal, which
together constitute the Company's offer (the "Exchange Offer") to exchange its
9 1/2% Series B Senior Subordinated Notes due 2007, which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), (the
"Exchange Notes") for any and all of its outstanding 9 1/2% Series A Senior
Subordinated Notes due 2007 (the "Old Notes") at the rate of $1,000 principal
amount of the Exchange Notes for each $1,000 principal amount of the Old Notes.
<PAGE>
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed by holders of Old Notes
either if Old Notes are to be forwarded herewith or if tenders of Old Notes are
to be made by book-entry transfer to an account maintained by The Bank of New
York (the "Exchange Agent") at The Depository Trust Company (the "Book-Entry
Transfer Facility" or "DTC") pursuant to the procedures set forth in "The
Exchange Offer--Procedures for Tendering" in the Prospectus.
Holders of Old Notes whose certificates (the "Certificates") for such
Old Notes are not immediately available or who cannot deliver their
Certificates and all other required documents to the Exchange Agent on or prior
to the Expiration Date (as defined in the Prospectus) or who cannot complete
the procedures for book-entry transfer on a timely basis, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
The undersigned has completed the appropriate boxes below and signed
this Letter of Transmittal to indicate the action the undersigned desires to
take with respect to the Exchange Offer.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES 1 2 3
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGGREGATE PRINCIPAL
PRINCIPAL AMOUNT OF
Name(s) and Address(es) of Registered Holder(s): CERTIFICATE AMOUNT OF OLD NOTES
(Please fill in, if blank) NUMBER(S)* NOTES TENDERED**
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Total
- -----------------------------------------------------------------------------------------------------------------------------
* Need not be completed if Old Notes are being tendered by book-entry holders.
** Unless otherwise indicated in the column, a holder will be deemed to have
tendered the entire aggregate principal amount represented by the Old
Notes indicated in Column 2. See Instruction 4. Old Notes may be tendered
in whole or in part in integral multiples of $1,000 in excess thereof. See
Instruction 4.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
--------------------------------------
Account Number
-----------------------------------------------------
Transaction Code Number
--------------------------------------------
|_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF
GUARANTEED DELIVERY IF TENDERED OLD NOTES ARE BEING
DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY
- 3 -
<PAGE>
PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Registered Holder(s)
------------------------------------------
Window Ticket Number (if any)
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------
Name of Institution which Guaranteed Delivery
-------------------------
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution
-----------------------------------------
Account Number
--------------------------------------------------------
Transaction Code Number
-----------------------------------------------
|_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-
EXCHANGED OLD NOTES ARE TO BE RETURNED BY CREDITING THE
BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER SET FORTH
ABOVE.
|_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
--------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer,
the undersigned hereby tenders to the Company, the above described aggregate
principal amount of the Old Notes in exchange for a like aggregate principal
amount of the Exchange Notes which have been registered under the Securities
Act upon the terms and subject to the conditions set forth in the Prospectus
dated , 1997 (as the same may be amended or supplemented from time to time, the
"Prospectus"), receipt of which is acknowledged, and in this Letter of
Transmittal (which, together with the Prospectus, constitute the "Exchange
Offer").
- 4 -
<PAGE>
Subject to and effective upon the acceptance for exchange of all or
any portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with
the Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the Exchange Notes to be issued in exchange for such
Old Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED
HAS FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OLD NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE,
THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE
AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE
OLD NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED
HEREBY, AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE
REGISTRATION RIGHTS AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF
THE TERMS OF THE EXCHANGE OFFER.
The name(s) and address(es) of the registered holder(s) of the Old
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the Certificates representing such Old Notes.
The Certificate number(s) and the Old Notes that the undersigned wishes to
tender should be indicated in the appropriate boxes above.
If any tendered Old Notes are not exchanged pursuant to the Exchange
Offer for any reason, or if Certificates are submitted for more Old Notes than
are tendered or accepted for exchange, Certificates for such nonexchanged or
nontendered Old Notes will be returned (or, in the case of Old Notes tendered
by book-entry transfer, such Old Notes will be credited to an account
maintained at DTC), without expense to the tendering holder, promptly following
the expiration or termination of the Exchange Offer.
- 5 -
<PAGE>
The undersigned understands that tenders of Notes pursuant to any one
of the procedures described in "The Exchange Offer--Procedures for Tendering"
in the Prospectus and in the instruction, attached hereto will, upon the
Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer. The undersigned recognizes
that, under certain circumstances set forth in the Prospectus, the Company may
not be required to accept for exchange any of the Old Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special
Issuance Instructions" below, the undersigned hereby directs that the Exchange
Notes be issued in the name(s) of the undersigned or, in the case of a
book-entry transfer of Old Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Old Notes not exchanged or not accepted for exchange
will be issued to the undersigned or, in the case of a book-entry transfer of
Old Notes, will be credited to the account indicated above maintained at DTC.
Similarly, unless otherwise indicated under "Special Delivery Instructions,"
please deliver Exchange Notes to the undersigned at the address shown below the
undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (I) THE UNDERSIGNED IS NOT AN
"AFFILIATE" OF THE COMPANY, (II) ANY EXCHANGE NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III)
THE UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF
EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER, AND (IV) IF THE
UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES
NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES
ACT) OF SUCH EXCHANGE NOTES. BY TENDERING OLD NOTES PURSUANT TO THE EXCHANGE
OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES WHICH IS
A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN INTERPRETIVE
LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE
SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (A) SUCH OLD NOTES
HELD BY THE BROKER-DEALER ARE HELD ONLY AS A NOMINEE, OR (B) SUCH OLD NOTES
WERE ACQUIRED BY SUCH BROKER-DEALER FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE
PROSPECTUS (AS AMENDED OR SUPPLEMENTED FROM TIME TO TIME) MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH
EXCHANGE NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING A
PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN
"UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES ACT).
- 6 -
<PAGE>
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, THE PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM
TIME TO TIME, MAY BE USED BY A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW)
IN CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE FOR OLD
NOTES, WHERE SUCH OLD NOTES WERE ACQUIRED BY SUCH PARTICIPATING BROKERDEALER
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES, FOR A PERIOD ENDING 90 DAYS AFTER THE EXPIRATION DATE (SUBJECT TO
EXTENSION UNDER CERTAIN LIMITED CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR,
IF EARLIER, WHEN ALL SUCH EXCHANGE NOTES HAVE BEEN DISPOSED OF BY SUCH
PARTICIPATING BROKER-DEALER. IN THAT REGARD, EACH BROKER-DEALER WHO ACQUIRED
OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH OLD NOTES AND
EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM
THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH
MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS
UNTRUE IN ANY MATERIAL RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE
A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH
THEY WERE MADE, NOT MISLEADING OR OF THE OCCURRENCE OF CERTAIN OTHER EVENTS
SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH PARTICIPATING
BROKER-DEALER WILL SUSPEND THE SALE OF EXCHANGE NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF THE AMENDED
OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKERDEALER OR THE COMPANY HAS
GIVEN NOTICE THAT THE SALE OF THE EXCHANGE NOTES MAY BE RESUMED, AS THE CASE
MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE EXCHANGE
NOTES, THEY SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF EXCHANGE CAPITAL SECURITIES BY THE NUMBER OF DAYS DURING THE
PERIOD FROM AND INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND
INCLUDING THE DATE WHEN PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES
OF THE SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE
EXCHANGE NOTES OR TO AND INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN
NOTICE THAT THE SALE OF EXCHANGE NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Old Notes whose Old Notes are accepted for exchange will
not receive accrued interest on such Old Notes for any period from and after
the last Interest Payment Date to which interest has been paid or duly provided
for on such Old Notes prior to the
- 7 -
<PAGE>
original issue date of the Exchange Notes or, if no such interest has been paid
or duly provided for, will not receive any accrued interest on such Old Notes,
and the undersigned waives the right to receive any interest on such Old Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after , 1997.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
herein conferred or agreed to be conferred in this Letter of Transmittal shall
survive the death or incapacity of the undersigned and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned. Except as stated in
the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX.
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON PAGE 7)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY
INSTRUCTION 2)
Must be signed by registered holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on the register of holders
maintained by the Company, or by any person(s) authorized to become the
registered holder(s) by endorsements and documents transmitted herewith
(including such opinions of counsel, certifications and other information as
may be required by the Company or the Trustee for the Old Notes to comply with
the restrictions on transfer applicable to the Old Notes). If signature is by
an attorney-in-fact, executor, administrator, trustee, guardian, officer of a
corporation or another acting in a fiduciary capacity or representative
capacity, please set forth the signer's full title. See Instruction 5.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- 8 -
<PAGE>
(SIGNATURE(S) OF HOLDER(S))
Date: , 199_
------------------------
Name(s)
------------------------------------------------------------------------
------------------------------------------------------------------------
(PLEASE PRINT)
Capacity (full title)
----------------------------------------------------------
Address
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 2 AND 5)
- -------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
Date: , 199_
--------------------
Name of Firm
-------------------------------------------------------------------
Capacity (full title)
-------------------------------------------------
(PLEASE PRINT)
- 9 -
<PAGE>
Address
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and Telephone Number
-------------------------------------------------
- 10 -
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the Exchange Notes or Old Notes not tendered are to be
issued in the name of someone other than the registered holder of the Old Notes
whose name(s) appear(s) above.
Issue
[ ] Old Notes not tendered to:
[ ] Exchange Notes, to:
Name(s)
------------------------------------------------------------------------
Address
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone Number
---------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if Exchange Notes or Old Notes not tendered are to be sent
to someone other than the registered holder of the Old Notes whose name(s)
appear(s) above, or such registered holder(s) at an address other than that
shown above.
Mail
[ ] Old Notes not tendered to:
[ ] Exchange Notes, to:
Name(s)
------------------------------------------------------------------------
- 11 -
<PAGE>
Address
------------------------------------------------------------------------
------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Area Code and
Telephone Number
---------------------------------------------------------------
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER(S))
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED
DELIVERY PROCEDURES. This Letter of Transmittal is to be completed either if
(a) Certificates are to be forwarded herewith or (b) tenders are to be made
pursuant to the procedures for tender by book-entry transfer set forth in "The
Exchange Offer-Procedures for Tendering" in the Prospectus. Certificates, or
timely confirmation of a book-entry transfer of such Old Notes into the
Exchange Agent's account at DTC, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein on or prior to the Expiration Date. Old Notes may be tendered in whole
or in part in integral multiples of $1,000.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent on
or prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes
by properly completing and duly executing a Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Procedures for Tendering" in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution
(as defined below); (ii) a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form made available by the Company,
must be received by the Exchange Agent on or prior to the Expiration Date; and
(iii) the Certificates (or a book-entry confirmation (as defined in the
Prospectus)) representing all tendered Old Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent within five New York Stock Exchange, Inc. trading days after the
date of execution of such Notice of Guaranteed
- 12 -
<PAGE>
Delivery, all as provided in "The Exchange Offer--Procedures for Tendering" in
the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile or mail to the Exchange Agent, and must include a
guarantee by an Eligible Institution in the form set forth in such Notice. For
Old Notes to be properly tendered pursuant to the guaranteed delivery
procedure, the Exchange Agent must receive a Notice of Guaranteed Delivery on
or prior to the Expiration Date. As used herein and in the Prospectus,
"Eligible Institution" means a firm or other entity identified in Rule 17Ad-15
under the Exchange Act as "an eligible guarantor institution," including (as
such terms are defined therein) (i) a bank; (ii) a broker, dealer, municipal
securities broker or dealer or government securities broker or dealer; (iii) a
credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this
Letter of Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered holder
(which term, for purposes of this document, shall include any
participant in DTC whose name appears on the register of
holders maintained by the Trust as the owner of the Old
Notes) of Old Notes tendered herewith, unless such holder(s)
has completed either the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is
an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal
- 13 -
<PAGE>
amount of Old Notes and any other required information should be listed on a
separate signed schedule which is attached to this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted only in integral multiples of $1,000. If less than all the Old Notes
evidenced by any Certificate submitted are to be tendered, fill in the
principal amount of Old Notes which are to be tendered in the box entitled
"Principal Amount of Old Notes Tendered (if less than all)." In such case, new
Certificate(s) for the remainder of the Old Notes that were evidenced by the
old Certificate(s) will only be sent to the holder of the Old Notes, promptly
after the Expiration Date. All Old Notes represented by Certificates delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in
the Prospectus on or prior to the Expiration Date. Any such notice of
withdrawal must specify the name of the person who tendered the Old Notes to be
withdrawn, the aggregate principal amount of Old Notes to be withdrawn, and (if
Certificates for Old Notes have been tendered) the name of the registered
holder of the Old Notes as set forth on the Certificate for the Old Notes, if
different from that of the person who tendered such Old Notes. If Certificates
for the Old Notes have been delivered or otherwise identified to the Exchange
Agent, then prior to the physical release of such Certificates for the Old
Notes, the tendering holder must submit the serial numbers shown on the
particular Certificates for the Old Notes to be withdrawn and the signature on
the notice of withdrawal must be guaranteed by an Eligible Institution, except
in the case of Old Notes tendered for the account of an Eligible Institution.
If Old Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer-Procedures for
Tendering," the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of Old Notes, in which case a
notice of withdrawal will be effective if delivered to the Exchange Agent by
written, telegraphic, telex or facsimile transmission. Withdrawals of tenders
of Old Notes may not be rescinded. Old Notes properly withdrawn will not be
deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described in the Prospectus under "The Exchange
Offer--Procedures for Tendering."
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in
their sole discretion, whose determination shall be final and binding on all
parties. None of the Company, any affiliates or assigns of the Company, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or incur any
liability for failure to give any such notification. Any Old Notes which have
been tendered but which are withdrawn will be returned to the holder thereof
without cost to such holder promptly after withdrawal.
- 14 -
<PAGE>
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the
name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company's, in its sole discretion, of each such
person's authority so to act.
When this Letter of Transmittal is signed by the registered owner(s)
of the Old Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a person other than the registered holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Old Notes listed, the Certificates must be endorsed
or accompanied by appropriate bond powers, signed exactly as the name or names
of the registered owner(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Old Notes may require in accordance with
the restrictions on transfer applicable to the Old Notes. Signatures on such
Certificates or bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are
to be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Old Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole
discretion, all questions as to the form of documents, validity, eligibility
(including time of receipt) and acceptance for exchange of any tender of Old
Notes, which determination shall be final and binding on all parties. The
Company reserves the absolute right to reject any and all tenders determined by
either of them not to be in proper form or the acceptance of which, or
- 15 -
<PAGE>
exchange for which, may, in the view of counsel to the Company, be unlawful.
The Company also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the Exchange Offer set forth in the Prospectus
under "The Exchange Offer-Certain Conditions to the Exchange Offer" or any
conditions or irregularity in any tender of Old Notes of any particular holder
whether or not similar conditions or irregularities are waived in the case of
other holders. The Company's interpretation of the terms and conditions of the
Exchange Offer (including this Letter of Transmittal and the instructions
hereto) will be final and binding. No tender of Old Notes will be deemed to
have been validly made until all irregularities with respect to such tender
have been cured or waived. The Company, any affiliates or assigns of the
Company, the Exchange Agent or any other person shall not be under any duty to
give notification of any irregularities in tenders or incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL
COPIES. Questions and requests for assistance may be directed to the Exchange
Agent at its address and telephone number set forth on the front of this Letter
of Transmittal. Additional copies of the Prospectus, the Notice of Guaranteed
Delivery and the Letter of Transmittal may be obtained from the Exchange Agent
or from your broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the holder or other payee to a $50 penalty. In addition,
payments to such holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60 day period following the date of the Substitute Form
W-9. If the holder furnishes the Exchange Agent with its TIN within 60 days
after the date of the Substitute Form W-9, the amounts retained during the 60
day period will be remitted to the holder and no further amounts shall be
retained or withheld from payments made to the holder thereafter. If, however,
the holder has not provided the Exchange Agent with its TIN within such 60 day
period, amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
- 16 -
<PAGE>
The holder is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the registered
owner of the Old Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Old Notes. If the Old Notes are registered in
more than one name or are not in the name of the actual owner, consult the
enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute
right to waive satisfaction of any or all conditions enumerated in the
Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional,
irregular or contingent tenders will be accepted. All tendering holders of Old
Notes, by execution of this Letter of Transmittal, shall waive any right to
receive notice of the acceptance of their Old Notes for exchanges.
Neither the Company, the Exchange Agent nor any other person
is obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the holder should
promptly notify the Exchange Agent. The holder will then be instructed as to
the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes
for exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Exchange Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the Old
Notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes in connection with the
- 17 -
<PAGE>
Exchange Offer, then the amount of any such transfer tax (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
- 18 -
<PAGE>
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF) AND
ALL OTHER REQUIRED DOCUMENTS MUST BE RECEIVED BY THE EXCHANGE
AGENT ON OR PRIOR TO THE EXPIRATION DATE.
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TIN TIN:______________________________
ON THE LINE AT RIGHT AND CERTIFY Social Security Number or
BY SIGNING AND DATING BELOW Employer Identification Number
--------------------------------------------------------------------------------------
PART 2--TIN Applied For [ ]
--------------------------------------------------------------------------------------
SUBSTITUTE CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
Form W-9 (1) the number shown on this form is my correct taxpayer
Department of the Treasury identification number (or I am waiting for a number to be issued to me),
Internal Revenue Service
(2) I am not subject to backup withholding either because (i) I am exempt from backup
Payor's Request For withholding, (ii) I have not been notified by the Internal Revenue Service ("IRS") that
Taxpayer Identification Number I am subject to backup withholding as a result of a failure to report all interest
("TIN") and Certification or dividends, or (iii) the IRS has notified me that I am no longer subject to backup
withholding, and
(3) any other information provided on this form is true and correct.
Signature_____________________________ Date_____________, 1997
- ----------------------------------------------------------------------------------------------------------------------
You must cross out item (iii) in Part (2) above if you have been notified by
the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE
EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- 19 -
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the Exchange Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I
do not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature Date , 1997
------------------------------- ----------------------
- -------------------------------------------------------------------------------
- 20 -
<PAGE>
NOTICE OF GUARANTEED DELIVERY
THE FONDA GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS
9 1/2% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ALL OF ITS OUTSTANDING
9 1/2% SERIES A SENIOR SUBORDINATED NOTES DUE 2007
This Notice of Guaranteed Delivery, or one substantially
equivalent to this form, must be used to accept the Exchange Offer (as defined
below) if (i) certificates for the Company's (as defined below) 9 1/2% Series A
Senior Subordinated Notes due 2007 (the "Old Notes") are not immediately
available, (ii) Old Notes, the Letter of Transmittal and all other required
documents cannot be delivered to The Bank of New York (the "Exchange Agent") on
or prior to 5:00 P.M. New York City time, on the Expiration Date (as defined in
the Prospectus referred to below) or (iii) the procedures for delivery by
book-entry transfer cannot be completed on a timely basis. This Notice of
Guaranteed Delivery may be delivered by hand, overnight courier or mail, or
transmitted by facsimile transmission, to the Exchange Agent. See "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus. In addition, in order
to utilize the guaranteed delivery procedure to tender Old Notes pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal relating to
the Old Notes (or facsimile thereof must also be received by the Exchange Agent
prior to 5:00 P.M. New York City time, on the Expiration Date. Capitalized terms
not defined herein have the meanings assigned to them in the Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank Of New York
<TABLE>
<CAPTION>
<S> <C> <C>
By Registered or Certified Mail Facsimile Transmissions: By Hand Or Overnight Delivery
(Eligible Institutions Only)
The Bank of New York The Bank of New York
101 Barclay Street, 7E (212) 571-3080 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Reorganization Section Confirm By Telephone: Ground Level
George Johnson (212) 815-3687 New York, New York 10286
Attn: Reorganization Section,
For Information Call: George Johnson
(212) 815-3687
</TABLE>
<PAGE>
Delivery of this Notice of Guaranteed Delivery to an address
other than as set forth above or transmission of this Notice of Guaranteed
Delivery via facsimile to a number other than as set forth above will not
constitute a valid delivery.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
Ladies and Gentlemen:
The undersigned hereby tenders to The Fonda Group, Inc., a Delaware corporation
(the "Company"), upon the terms and subject to the conditions set forth in the
Prospectus dated _____, 1997 (as the same may be amended or supplemented from
time to time, the "Prospectus"), and the related Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which is hereby
acknowledged, the aggregate principal amount of Old Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Prospectus under
the caption "The Exchange Offer-Guaranteed Delivery Procedures."
Principal Amount of Old Notes Name(s) of Registered Holder(s):
Tendered for Exchange: $______________ ________________________________
Old Note Certificate No.(s)
(if available):________________________
If Old Notes will be tendered by book-entry transfer, provide the following
information:___________________________
DTC Account Number:____________________
Date:__________________________________
- 2 -
<PAGE>
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE
X
------------------------------------ ---------------
X
------------------------------------ ---------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
Must be signed by the holder(s) of the Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
Please print name(s) and address(es)
Name(s):
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------
Address(e):
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
- 3 -
<PAGE>
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker, or government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
loaning agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depositary
Trust Company ("DTC"), pursuant to the procedures for book-entry transfer set
forth in the Prospectus, in either case together with one or more properly
completed and duly executed Letter(s) of Transmittal (or facsimile thereof and
any other required documents within five business days after the date of
execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
- -------------------------------- --------------------------------
Name of Firm Authorized Signature
- -------------------------------- --------------------------------
Address Title
- -------------------------------- --------------------------------
Zip Code (Please Type or Print)
- -------------------------------- --------------------------------
Area Code and Telephone No. Dated:
------------ ----------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM.
CERTIFICATES FOR OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
- 4 -
<PAGE>
________________, 1997
EXCHANGE AGENT AGREEMENT
The Bank of New York
Corporate Trust Trustee Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
The Fonda Group, Inc. (the "Company") proposes to make an
offer (the "Exchange Offer") to exchange its 9 1/2% Series A Senior Subordinated
Notes due 2007 (the "Old Securities") for its 9 1/2% Series B Senior
Subordinated Notes due 2007 (the "New Securities"). The terms and conditions of
the Exchange Offer as currently contemplated are set forth in a prospectus,
dated _____________ , 1997 (the "Prospectus"), proposed to be distributed to all
record holders of the Old Securities. The Old Securities and the New Securities
are collectively referred to herein as the "Securities".
The Company hereby appoints The Bank of New York to act as
exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
References hereinafter to "you" shall refer to The Bank of New York.
The Exchange Offer is expected to be commenced by the Company
on or about _____________, 1997. The Letter of Transmittal accompanying the
Prospectus (or in the case of book entry securities, the ATOP system) is to be
used by the holders of the Old Securities to accept the Exchange Offer and
contains instructions with respect to the delivery of certificates for Old
Securities tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New York City
time, on ____________, 1997 or on such later date or time to which the Company
may extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
to extend the Exchange Offer from time to time and may extend the Exchange Offer
by giving oral (confirmed in writing) or written notice to you before 9:00 A.M.,
New York City time, on the business day following the previously scheduled
Expiration Date.
The Company expressly reserves the right to amend or terminate
the Exchange Offer, and not to accept for exchange any Old Securities not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer
<PAGE>
specified in the Prospectus under the caption "The Exchange Offer -- Conditions
of the Exchange Offer." The Company will give oral (confirmed in writing) or
written notice of any amendment, termination or nonacceptance to you as promptly
as practicable.
In carrying out your duties as Exchange Agent, you are to act
in accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" or as specifically set forth herein; provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You will establish an account with respect to the Old
Securities at The Depository Trust Company (the "Book-Entry Transfer Facility")
for purposes of the Exchange Offer within two business days after the date of
the Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's systems may make book-entry delivery of the Old
Securities by causing the Book-Entry Transfer Facility to transfer such Old
Securities into your account in accordance with the Book-Entry Transfer
Facility's procedure for such transfer.
3. You are to examine each of the Letters of Transmittal and
certificates for Old Securities (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility) and any other documents
delivered or mailed to you by or for holders of the Old Securities to ascertain
whether: (i) the Letters of Transmittal and any such other documents are duly
executed and properly completed in accordance with instructions set forth
therein and (ii) the Old Securities have otherwise been properly tendered. In
each case where the Letter of Transmittal or any other document has been
improperly completed or executed or any of the certificates for Old Securities
are not in proper form for transfer or some other irregularity in connection
with the acceptance of the Exchange Offer exists, you will endeavor to inform
the presenters of the need for fulfillment of all requirements and to take any
other action as may be necessary or advisable to cause such irregularity to be
corrected.
4. With the approval of the President, Senior Vice President,
Executive Vice President, or any Vice President of the Company (such approval,
if given orally, to be confirmed in writing) or any other party designated by
such an officer in writing, you are authorized to waive any irregularities in
connection with any tender of Old Securities pursuant to the Exchange Offer.
- 2 -
<PAGE>
5. Tenders of Old Securities may be made only as set forth in
the Letter of Transmittal and in the section of the Prospectus captioned "The
Exchange Offer -- Procedures for Tendering", and Old Securities shall be
considered properly tendered to you only when tendered in accordance with the
procedures set forth therein.
Notwithstanding the provisions of this paragraph 5, Old
Securities which the President, Senior Vice President, Executive Vice
President, or any Vice President of the Company shall approve as having
been properly tendered shall be considered to be properly tendered (such
approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Old
Securities received subsequent to the Expiration Date and accept its
instructions with respect to disposition of such Old Securities.
7. You shall accept tenders:
(a) in cases where the Old Securities are
registered in two or more names only if signed by all named hold-
ers;
(b) in cases where the signing person (as
indicated on the Letter of Transmittal) is acting in a fiduciary
or a representative capacity only when proper evidence of his or
her authority so to act is submitted; and
(c) from persons other than the registered
holder of Old Securities provided that customary transfer requirements,
including any applicable transfer taxes, are fulfilled.
You shall accept partial tenders of Old Securities where so
indicated and as permitted in the Letter of Transmittal and deliver
certificates for Old Securities to the transfer agent for split-up and return
any untendered Old Securities to the holder (or such other person as may be
designated in the Letter of Transmittal) as promptly as practicable after
expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the conditions to
the Exchange Offer, the Company will notify you (such notice if given orally,
to be confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Old Securities properly tendered and you, on behalf of the
Company, will exchange such Old Securities for New Securities and cause such
Old Securities to be cancelled. Delivery of New Securities will be made on
behalf of the Company by you at the rate of $1,000 principal amount of New
Securities for each $1,000
- 3 -
<PAGE>
principal amount of the corresponding series of Old Securities tendered promptly
after notice (such notice if given orally, to be confirmed in writing) of
acceptance of said Old Securities by the Company; provided, however, that in all
cases, Old Securities tendered pursuant to the Exchange Offer will be exchanged
only after timely receipt by you of certificates for such Old Securities (or
confirmation of book-entry transfer into your account at the Book-Entry Transfer
Facility), a properly completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and any other required
documents. You shall issue New Securities only in denominations of $1,000 or any
integral multiple thereof.
9. Tenders pursuant to the Exchange Offer are irrevocable,
except that, subject to the terms and upon the conditions set forth in the
Prospectus and the Letter of Transmittal, Old Securities tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
10. The Company shall not be required to exchange any Old
Securities tendered if any of the conditions set forth in the Exchange Offer are
not met. Notice of any decision by the Company not to exchange any Old
Securities tendered shall be given (and confirmed in writing) by the Company to
you.
11. If, pursuant to the Exchange Offer, the Company does not
accept for exchange all or part of the Old Securities tendered because of an
invalid tender, the occurrence of certain other events set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions of the Exchange
Offer", or otherwise, you shall as soon as practicable after the expiration or
termination of the Exchange Offer return those certificates for unaccepted Old
Securities (or effect appropriate book-entry transfer), together with any
related required documents and the Letters of Transmittal relating thereto that
are in your possession, to the persons who deposited them.
12. All certificates for reissued Old Securities, unaccepted
Old Securities or for New Securities shall be forwarded by (a) first-class
certified mail, return receipt requested under a blanket surety bond protecting
you and the Company from loss or liability arising out of the non-receipt or
non-delivery of such certificates or (b) by registered mail insured separately
for the replacement value of each of such certificates.
13. You are not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, bank or
other persons or to engage or utilize any person to solicit tenders.
- 4 -
<PAGE>
14. As Exchange Agent hereunder you:
(a) shall have no duties or obligations other
than those specifically set forth herein or as may be subse-
quently agreed to in writing by you and the Company;
(b) will be regarded as making no
representations and having no responsibilities as to the validity, sufficiency,
value or genuineness of any of the certificates or the Old Securities
represented thereby deposited with you pursuant to the Exchange Offer, and
will not be required to and will make no representation as to the validity,
value or genuineness of the Exchange Offer;
(c) shall not be obligated to take any legal
action hereunder which might in your reasonable judgment involve any expense or
liability, unless you shall have been furnished with reasonable indemnity;
(d) may reasonably rely on and shall be
protected in acting in reliance upon any certificate, instrument, opinion,
notice, letter, telegram or other document or security delivered to you and
reasonably believed by you to be genuine and to have been signed by the
proper party or parties;
(e) may reasonably act upon any tender, state-
ment, request, comment, agreement or other instrument whatsoever not only as to
its due execution and validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained therein, which you shall
in good faith believe to be genuine or to have been signed or represented by a
proper person or persons;
(f) may rely on and shall be protected in acting
upon written or oral instructions from any officer of the
Company;
(g) may consult with your counsel with respect
to any questions relating to your duties and responsibilities and the advice
or opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken
by you hereunder in good faith and in accordance with the advice or opinion
of such counsel; and
(h) shall not advise any person tendering Old
Securities pursuant to the Exchange Offer as to the wisdom of making such tender
or as to the market value or decline or appreciation in market value of any Old
Securities.
15. You shall take such action as may from time to
time be requested by the Company or its counsel (and such other
- 5 -
<PAGE>
action as you may reasonably deem appropriate) to furnish copies of the
Prospectus, Letter of Transmittal and the Notice of Guaranteed Delivery (as
defined in the Prospectus) or such other forms as may be approved from time to
time by the Company, to all persons requesting such documents and to accept and
comply with telephone requests for information relating to the Exchange Offer,
provided that such information shall relate only to the procedures for accepting
(or withdrawing from) the Exchange Offer. The Company will furnish you with
copies of such documents at your request. All other requests for information
relating to the Exchange Offer shall be directed to the Company, Attention:
Harvey L. Friedman, Esq., Telephone No. (914) 749- 3202, Facsimile No. (914)
749-3280.
16. You shall advise by facsimile transmission or telephone,
and promptly thereafter confirm in writing to of the Company and such other
person or persons as it may request, daily (and more frequently during the week
immediately preceding the Expiration Date and if otherwise requested) up to and
including the Expiration Date, as to the number of Old Securities which have
been tendered pursuant to the Exchange Offer and the items received by you
pursuant to this Agreement, separately reporting and giving cumulative totals as
to items properly received and items improperly received. In addition, you will
also inform, and cooperate in making available to, the Company or any such other
person or persons upon oral request made from time to time prior to the
Expiration Date of such other information as it or he or she reasonably
requests. Such cooperation shall include, without limitation, the granting by
you to the Company and such person as the Company may request of access to those
persons on your staff who are responsible for receiving tenders, in order to
ensure that immediately prior to the Expiration Date the Company shall have
received information in sufficient detail to enable it to decide whether to
extend the Exchange Offer. You shall prepare a final list of all persons whose
tenders were accepted, the aggregate principal amount of Old Securities
tendered, the aggregate principal amount of Old Securities accepted and deliver
said list to the Company.
17. Letters of Transmittal and Notices of Guaranteed Delivery
shall be stamped by you as to the date and the time of receipt thereof and shall
be preserved by you for a period of time at least equal to the period of time
you preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
18. You hereby expressly waive any lien, encumbrance or right
of set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of
- 6 -
<PAGE>
its subsidiaries or affiliates pursuant to any loan or credit agreement with you
or for compensation owed to you hereunder.
19. For services rendered as Exchange Agent hereunder,
you shall be entitled to such compensation as set forth on
Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospectus and the
Letter of Transmittal and further acknowledge that you have examined each of
them. Any inconsistency between this Agreement, on the one hand, and the
Prospectus and the Letter of Transmittal (as they may be amended from time to
time), on the other hand, shall be resolved in favor of the latter two
documents, except with respect to the duties, liabilities and indemnification of
you as Exchange Agent, which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify and hold you
harmless in your capacity as Exchange Agent hereunder against any loss,
liability, cost or expense, including attorneys' fees and expenses, arising out
of or in connection with any act, omission, delay or refusal made by you in
reliance upon any signature, endorsement, assignment, certificate, order,
request, notice, instruction or other instrument or document reasonably believed
by you to be valid, genuine and sufficient and in accepting any tender or
effecting any transfer of Old Securities reasonably believed by you in good
faith to be authorized, and in delaying or refusing in good faith to accept any
tenders or effect any transfer of Old Securities; provided, however, that the
Company shall not be liable for indemnification or otherwise for any loss,
liability, cost or expense to the extent arising out of your gross negligence or
willful misconduct. In no case shall the Company be liable under this indemnity
with respect to any claim against you unless the Company shall be notified by
you, by letter or cable or by facsimile confirmed by letter, of the written
assertion of a claim against you or of any other action commenced against you,
promptly after you shall have received any such written assertion or notice of
commencement of action. The Company shall be entitled to participate at its own
expense in the defense of any such claim or other action, and, if the Company so
elects, the Company shall assume the defense of any suit brought to enforce any
such claim. In the event that the Company shall assume the defense of any such
suit, the Company shall not be liable for the fees and expenses of any
additional counsel thereafter retained by you so long as the Company shall
retain counsel satisfactory to you to defend such suit.
22. You shall arrange to comply with all requirements
under the tax laws of the United States, including those relating
to missing Tax Identification Numbers, and shall file any
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appropriate reports with the Internal Revenue Service. The Company understands
that you are required to deduct 31% on payments to holders who have not supplied
their correct Taxpayer Identification Number or required certification. Such
funds will be turned over to the Internal Revenue Service in accordance with
applicable regulations.
23. You shall deliver or cause to be delivered, in a timely
manner to each governmental authority to which any transfer taxes are payable in
respect of the exchange of Old Securities, your check in the amount of all
transfer taxes so payable, and the Company shall reimburse you for the amount of
any and all transfer taxes payable in respect of the exchange of Old Securities;
provided, however, that you shall reimburse the Company for amounts refunded to
you in respect of your payment of any such transfer taxes, at such time as such
refund is received by you.
24. This Agreement and your appointment as Exchange Agent
hereunder shall be construed and enforced in accordance with the laws of the
State of New York applicable to agreements made and to be performed entirely
within such state, and without regard to conflicts of law principles, and shall
inure to the benefit of, and the obligations created hereby shall be binding
upon, the successors and assigns of each of the parties hereto.
25. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
26. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
27. This Agreement shall not be deemed or construed to
be modified, amended, rescinded, cancelled or waived, in whole or
in part, except by a written instrument signed by a duly
authorized representative of the party to be charged. This
Agreement may not be modified orally.
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28. Unless otherwise provided herein, all notices, requests
and other communications to any party hereunder shall be in writing (including
facsimile or similar writing) and shall be given to such party, addressed to it,
at its address or telecopy number set forth below:
If to the Company:
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Facsimile: (914) 749-3285
Attention: Harvey L. Friedman, Esq.
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust Trustee
Administration
29. Unless terminated earlier by the parties hereto, this
Agreement shall terminate 90 days following the Expiration Date. Notwithstanding
the foregoing, Paragraphs 19, 21 and 23 shall survive the termination of this
Agreement. Upon any termination of this Agreement, you shall promptly deliver to
the Company any certificates for Securities, funds or property then held by you
as Exchange Agent under this Agreement.
30. This Agreement shall be binding and effective as
of the date hereof.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
THE FONDA GROUP, INC.
By: ________________________________
Name:
Title:
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Accepted as of the date first above written:
THE BANK OF NEW YORK, as Exchange Agent
By: _________________________________
Name:
Title:
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SCHEDULE I
FEES
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