<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 10, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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>
<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
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. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER NOTE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
9 1/2% Series B Senior
Subordinated Notes due 2007 ... $120,000,000 100%(1) $120,000,000(1) $36,363.64
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(f)(2) under the Securities Act of 1933.
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 APRIL 10, 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 January 26, 1997, after
giving pro forma effect to the issuance of the Old Notes and the use of
proceeds therefrom, $3.3 million of Senior Debt would have been 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. 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 15 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 for purposes of the Securities Act and the
Exchange Act. 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 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 and EBITDA (as defined herein) increased from $61.8 million and $3.0
million, respectively, in Fiscal 1994 to $204.9 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 and EBITDA
of $262.5 million and $26.2 million, respectively.
The Company's product offerings are among the broadest in the industry,
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.
3
<PAGE>
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, such as
The Great Atlantic & Pacific Tea Company, Inc., The Kroger Co., The Stop &
Shop Companies, Inc., Super Valu Inc., Golub Corp. and C&S Wholesale Grocers,
Inc., (ii) mass merchandisers, such as Target Stores (a division of Dayton
Hudson Corp.), Wal-Mart Stores, Inc. and Kmart Corporation, and (iii)
warehouse clubs, such as Price-Costco, Inc., and other retailers. The
Company's institutional customers include major food service distributors,
such as Sysco Corporation, Rykoff-Sexton, Inc./U.S. Foodservice Inc., Sweet
Paper Sales Corp., Alliant Foodservice Inc. (formerly known as Kraft
Foodservice, Inc.) and Bunzl USA, Inc., 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 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.
4
<PAGE>
BUSINESS AND GROWTH STRATEGY
The Company believes that it can maintain and improve its leading 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.
5
<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--Purposes 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 offer 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.
6
<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
7
<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--The 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."
8
<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--Purposes and Effects" and "Plan of
Distribution."
9
<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 January
26, 1997, after giving pro forma effect to
the issuance of the Old Notes and the use of
proceeds therefrom, $3.3 million of Senior
Debt would have been 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."
10
<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 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.
11
<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.
12
<PAGE>
SUMMARY FINANCIAL DATA (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY(2) SIX MONTHS ENDED JANUARY
-------------------------------- ----------------------------------
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 $84,117 $126,638 $126,638
Cost of goods sold ............ 51,643 76,252 161,304 206,338 66,751 99,246 99,064
--------- --------- ---------- ----------- --------- ---------- -----------
Gross profit .................. 10,196 20,822 43,599 56,121 17,366 27,392 27,574
Selling, general and
administrative expenses ..... 8,438 14,112 29,735 34,300 12,427 19,520 19,520
--------- --------- ---------- ----------- --------- ---------- -----------
Income from operations ........ 1,758 6,710 13,864 21,821 4,939 7,872 8,054
Interest expense, net ......... 1,268 2,943 7,934 12,464 2,643 4,540 6,135
--------- --------- ---------- ----------- --------- ---------- -----------
Income before taxes ........... 490 3,767 5,930 9,357 2,296 3,332 1,919
Income taxes .................. 239 1,585 2,500 3,940 964 1,400 807
--------- --------- ---------- ----------- --------- ---------- -----------
Net income..................... $ 251 $ 2,182 $ 3,430 $ 5,417 $ 1,332 $ 1,932 $ 1,112
========= ========= ========== =========== ========= ========== ===========
OTHER FINANCIAL DATA:
EBITDA (4) .................... $ 3,004 $ 8,379 $ 17,314 $ 26,207 $ 6,738 $ 10,731 $ 10,731
Cash interest expense, net ... 1,268 2,383 6,748 12,034 2,203 3,750 5,920
Capital expenditures (5) ..... 1,272 1,608 1,314 2,435 2,621 2,074 2,074
Depreciation and amortization . 1,246 1,669 3,450 4,386 1,799 2,859 2,677
Ratio of earnings to fixed
charges (6) .................. 1.3x 2.1x 1.7x 1.7x 1.8x 1.7x 1.3x
Ratio of EBITDA to cash
interest expense, net (7) .... 2.4x 3.5x 2.6x 2.2x 3.1x 2.9x 1.8x
Ratio of EBITDA less capital
expenditures to cash interest
expense, net.................. 1.4x 2.8x 2.4x 2.0x 1.9x 2.3x 1.5x
Ratio of total indebtedness to
EBITDA (8) ................... 4.2x 5.7x 5.1x 4.8x N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 26, 1997
-----------------------
ACTUAL PRO FORMA(9)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................ $ 327 $ 10,893
Working capital .................... 39,466 58,572
Property, plant and equipment, net 51,720 58,842
Total assets ....................... 131,966 156,760
Total indebtedness (8) ............. 83,984 123,297
Redeemable common stock (10) ...... 2,211 2,211
Total stockholders' equity ......... 13,773 254
</TABLE>
- ------------
(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.
13
<PAGE>
(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.
(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) Cash interest expense, net excludes (i) the amortization of debt
issuance costs of $560, $1,021, $430, $440, $440 and $215 for Fiscal
1995, Fiscal 1996, pro forma Fiscal 1996, the six month January 1996
period, the six month January 1997 period and the pro forma six month
January 1997 period, respectively, and (ii) pay-in-kind interest
expense of $165 and $350 for Fiscal 1996 and the six month January
1997 period, respectively.
(8) Total indebtedness includes short-term and long-term borrowings and
current maturities of long-term debt.
(9) Gives pro forma effect to the issuance of the Old Notes and the use
of proceeds therefrom as if such transactions had occurred on January
26, 1997.
(10) See "Description of Capital Stock."
14
<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 January 26, 1997, after giving pro forma effect to the
issuance of the Old Notes and the use of proceeds therefrom, the Company
would have had $123.3 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 six
months ended January 26, 1997, after giving pro forma effect to the issuance
of the Old Notes and the use of proceeds therefrom, the Company's ratio of
earnings to fixed charges would have been 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 Results of Operations and Financial
Condition."
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
15
<PAGE>
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 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
16
<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; -- 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."
17
<PAGE>
LABOR MATTERS
As of January 26, 1997, approximately 98% of the Company's hourly
employees were covered by collective bargaining agreements. The collective
bargaining agreements at five of the Company's facilities expire in 1997.
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."
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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 for purposes of the Securities Act and the
Exchange Act, 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
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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. 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.
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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.,
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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
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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.
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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.
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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:
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(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
26
<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
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.
27
<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 The Bank of New York
101 Barclay Street 101 Barclay Street 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attn: Reorganization Section
New York, New York 10286
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) 815-2742
For Information Call:
(212) 515-6333
Requests for additional copies of this Prospectus or the Letter of
Transmittal should be directed to the Exchange Agent.
28
<PAGE>
THE COMPANY
The Company 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.
29
<PAGE>
The Company is continually evaluating acquisition opportunities that may
meet its strategic objectives. On January 31, 1997, the Company entered into
a letter of intent to purchase the operations of a manufacturer of placemats
and other disposable tabletop products for a purchase price of $7.5 million,
subject to adjustment. The consummation of this transaction is subject to
various conditions, including the negotiation and execution of a definitive
agreement. There can be no assurance that the Company will consummate this
transaction. There also 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.
30
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 26, 1997 on an actual basis and as adjusted to give effect to 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>
JANUARY 26, 1997
---------------------
ACTUAL AS ADJUSTED
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Current portion of long-term debt ........................................ $ 5,486 $ 494
========= ==========
Long-term debt:
Old Credit Facility(1) ................................................... $31,964 $ --
New Credit Facility(1) ................................................... -- --
Term Loans(1) ............................................................ 22,248 --
9 1/2% Senior Subordinated Notes due 2007 ................................ -- 120,000
Old Subordinated Notes(2) ................................................ 13,968 --
James River Note(3) ...................................................... 7,515 --
Other long-term debt(4) .................................................. 2,803 2,803
--------- ----------
Total long-term debt .................................................... 78,498 122,803
--------- ----------
Redeemable common stock, $.01 par value, 7,000 shares issued and
outstanding .............................................................. 2,211 2,211
--------- ----------
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 actual, 184,000 shares issued and 110,000
shares outstanding as adjusted(5); 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 2
Additional paid-in capital ............................................... 3,500 3,500
Retained earnings ........................................................ 10,271 6,752
Treasury stock, 74,000 shares ............................................ -- (10,000)
--------- ----------
Total stockholders' equity .............................................. 13,773 254
--------- ----------
Total capitalization.................................................... $94,482 $125,268
========= ==========
</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 January 26, 1997, consisted of a (i) term loan facility in
the amount of $22.7 million (the "Term A Loan Facility"); (ii) term
loan facility in the amount of $4.5 million (the "Term Loan B 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.
(3) In connection with the James River California/Natural Dam acquisition,
the Company issued to James River a 10% senior subordinated note due
May 2007 (the "James River Note"). On February 27, 1997, the Company
retired the James River Note for $2.2 million from the net proceeds of
the issuance of the Old Notes.
(4) Consists principally of (i) a $1.8 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."
(5) Class A shares outstanding as adjusted assumes that all 74,000 shares
were repurchased pursuant to the Stock Repurchase.
31
<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 January 26, 1997
and for the six months ended January 28, 1996 and January 26, 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 six months ended January 26, 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>
SIX MONTHS
FISCAL YEAR ENDED JULY (2) ENDED JANUARY
------------------------------------------------------ ---------------------
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 $84,117 $126,638
Cost of goods sold ................. 53,383 49,776 51,643 76,252 161,304 66,751 99,246
--------- --------- --------- --------- ---------- --------- ----------
Gross profit ....................... 10,680 11,303 10,196 20,822 43,599 17,366 27,392
Selling, general and administrative
expenses .......................... 8,317 8,686 8,438 14,112 29,735 12,427 19,520
--------- --------- --------- --------- ---------- --------- ----------
Income from operations ............. 2,363 2,617 1,758 6,710 13,864 4,939 7,872
Interest expense, net .............. 1,531 1,201 1,268 2,943 7,934 2,643 4,540
--------- --------- --------- --------- ---------- --------- ----------
Income before taxes ................ 832 1,416 490 3,767 5,930 2,296 3,332
Income taxes ....................... 301 478 239 1,585 2,500 964 1,400
--------- --------- --------- --------- ---------- --------- ----------
Net income.......................... $ 531 $ 938 $ 251 $ 2,182 $ 3,430 $ 1,332 $ 1,932
========= ========= ========= ========= ========== ========= ==========
OTHER FINANCIAL DATA:
EBITDA (3).......................... $ 3,619 $ 3,865 $ 3,004 $ 8,379 $ 17,314 $ 6,738 $ 10,731
Capital expenditures (4) ........... 577 1,027 1,272 1,608 1,314 2,621 2,074
Depreciation and amortization ..... 1,256 1,248 1,246 1,669 3,450 1,799 2,859
Ratio of earnings to fixed
charges (5) ....................... 1.4x 1.9x 1.3x 2.1x 1.7x 1.8x 1.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF JULY JANUARY
------------------------------------------------- --------------------
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 $ 340 $ 327
Working capital ................... 2,094 1,738 2,731 28,079 38,931 34,677 39,466
Property, plant and equipment, net. 7,649 7,428 7,454 26,933 53,010 43,810 51,720
Total assets ...................... 25,129 24,676 24,668 79,725 136,168 116,130 131,966
Total indebtedness (6) ............ 13,783 11,589 12,581 48,165 87,763 73,943 83,984
Redeemable common stock (7) ...... -- -- -- 2,115 2,179 2,147 2,211
Stockholders' equity............... 4,788 5,726 5,977 7,205 11,873 9,807 13,773
</TABLE>
32
<PAGE>
- ------------
(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.
(4) Excludes the costs of the Acquisitions.
(5) 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.
(6) Includes short-term and long-term borrowings and current maturities of
long-term debt.
(7) See "Description of Capital Stock."
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
Set forth below are the unaudited pro forma condensed statements of income
of the Company for the year ended July 28, 1996 and the six months ended
January 26, 1997 and the unaudited pro forma condensed balance sheet of the
Company at January 26, 1997. The unaudited pro forma condensed statements of
income 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 and as
supplementally adjusted for Fiscal 1996 for certain realized cost savings
related to such acquisitions. The unaudited pro forma condensed balance sheet
gives effect to the issuance of the Old Notes and the use of the proceeds
therefrom as if they had occurred as of January 26, 1997. 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 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.
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME (A)
<TABLE>
<CAPTION>
YEAR ENDED JULY 28, 1996
--------------------------------------------------------------------------------------------
ADJUSTMENTS TO
RECORD FISCAL ADJUSTMENTS
1996 PRO FORMA FOR ISSUANCE OF SUB-TOTAL SUPPLEMENTAL
HISTORICAL ACQUISITIONS HISTORICAL OLD NOTES PRO-FORMA(B) ADJUSTMENTS PRO FORMA
---------- -------------- ---------- --------------- ---------- ------------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ............. $204,903 $57,556(C) $262,459 $ -- $262,459 $ -- $262,459
Cost of goods sold ... 161,304 46,751(C) 208,055 -- 208,055 (1,717)(F) 206,338
---------- -------------- ---------- --------------- ---------- ------------ ---------
Gross profit .......... 43,599 10,805 54,404 -- 54,404 1,717 56,121
Selling, general and
administrative
expenses ............. 29,735 4,841(C) 34,576 -- 34,576 (276)(F) 34,300
---------- -------------- ---------- --------------- ---------- ------------ ---------
Income from
operations ........... 13,864 5,964 19,828 -- 19,828 1,993 21,821
Interest expense, net 7,934 2,672(D) 10,606 1,858(E) 12,464 -- 12,464
---------- -------------- ---------- --------------- ---------- ------------ ---------
Income before taxes .. 5,930 3,292 9,222 (1,858) 7,364 1,993 9,357
Income taxes (g) ...... 2,500 1,383 3,883 (780) 3,103 837 3,940
---------- -------------- ---------- --------------- ---------- ------------ ---------
Net income............. $ 3,430 $ 1,909 $ 5,339 $(1,078) $ 4,261 $ 1,156 $ 5,417
========== ============== ========== =============== ========== ============ =========
OTHER FINANCIAL DATA:
EBITDA (h)............. $ 17,314 $ 24,214 $ 26,207
Cash interest
expense, net ......... 6,748 12,034 12,034
Capital expenditures .. 1,314 2,435 2,435
Depreciation and
amortization(i)....... 3,450 4,386 4,386
Ratio of earnings to
fixed charges (j)..... 1.7X 1.6X 1.7X
Ratio of EBITDA to
cash interest
expense, net ......... 2.6X 2.0X 2.2X
<CAPTION>
SIX MONTHS ENDED JANUARY 26, 1997
--------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA(B)
---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ............. $126,638 $ -- $126,638
Cost of goods sold ... 99,246 (182)(C) 99,064
---------- ----------- ----------
Gross profit .......... 27,392 182 27,574
Selling, general and
administrative
expenses ............. 19,520 -- 19,520
---------- ----------- ----------
Income from
operations ........... 7,872 182 8,054
Interest expense, net 4,540 1,595(E) 6,135
---------- ----------- ----------
Income before taxes .. 3,332 (1,413) 1,919
Income taxes (g) ...... 1,400 (593) 807
---------- ----------- ----------
Net income............. $ 1,932 $ (820) $ 1,112
========== =========== ==========
<PAGE>
<CAPTION>
SIX MONTHS ENDED JANUARY 26, 1997
--------------------------------------
PRO
HISTORICAL ADJUSTMENTS FORMA(B)
---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA (h)............. $ 10,731 $ 10,731
Cash interest
expense, net ......... 3,750 5,920
Capital expenditures .. 2,074 2,074
Depreciation and
amortization(i)....... 2,859 2,677
Ratio of earnings to
fixed charges (j)..... 1.7X 1.3X
Ratio of EBITDA to
cash interest
expense, net ......... 2.9X 1.8X
</TABLE>
See Notes to Unaudited Pro Forma Condensed Statements of Income on the
following page.
34
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
(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 income do not include
the charge of $2.3 million which will result from the write-off of
unamortized debt issuance costs, elimination of $2.1 million
unamortized discount that will result from the repayment of the Old
Subordinated Notes, and $1.6 million which will result from prepayment
penalties incurred from early retirement of existing debt.
(c) Reflects the historical results of operations and purchase price
adjustments of the Fiscal 1996 Acquisitions as if they had occurred on
July 31, 1995 until their respective dates of acquisition.
(d) Reflects pro forma interest expense related to the Fiscal 1996
Acquisitions as if they had occurred on July 31, 1995 until their
respective dates of acquisition.
(e) The pro forma adjustments to interest exense, net consist of the
following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
---------------------------------
YEAR ENDED SIX MONTHS ENDED
JULY 28, 1996 JANUARY 26, 1997
--------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Historical interest expense..................... $ 7,934 $ 4,540
=============== ================
Elimination of interest expense related to:
Old Credit Facility, Term Loans and Old
Subordinated Notes............................. $(6,346) $(3,880)
Amortization of deferred debt issuance costs on
retired debt .................................. (1,021) (440)
--------------- ----------------
Decrease in interest expense.................... (7,367) (4,320)
--------------- ----------------
Interest expense on new indebtedness:
9 1/2% Senior Subordinated Notes due 2007 ..... 11,400 5,700
Acquisition debt(1) ............................ 67 --
Amortization of costs on new debt(2) ........... 430 215
--------------- ----------------
Increase in interest expense.................... 11,897 5,915
--------------- ----------------
Net increase in interest expense ............... 4,530 1,595
Less: Fiscal 1996 Acquisitions interest expense
(see note (d)) ................................ (2,672) --
--------------- ----------------
Adjustment to interest expense related to the
issuance of the Old Notes...................... $ 1,858 $ 1,595
=============== ================
</TABLE>
- ------------
(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.
(f) Reflects supplemental cost savings, as a result of the Fiscal 1996
Acquisitions, that were fully implemented during Fiscal 1996 and have a
continuing impact on the Company. Such supplemental cost savings
primarily consist of (i) reduction of duplicative employee headcount
($371,000), (ii) raw material procurement volume discounts pursuant to
existing agreements ($1,312,000), (iii) elimination of the outsourcing
of certain products ($166,000), and (iv) rationalization of certain
production ($144,000).
(g) For pro forma purposes, the income tax provision was calculated at 42%
of pre-tax income.
(h) 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.
(i) Depreciation and amortization excludes amortization of debt issuance
costs which is classified as interest expense in the Statements of
Income.
(j) 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.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JANUARY 26, 1997
----------------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash................................. $ 327 $ 10,566 (a) $ 10,893
Accounts receivable ................. 24,275 -- 24,275
Due from affiliate .................. 658 -- 658
Inventories ......................... 38,503 -- 38,503
Deferred income taxes ............... 5,598 -- 5,598
Refundable income taxes ............. 1,690 2,548 (b) 4,238
Other current assets ................ 1,044 -- 1,044
------------ ------------- -----------
Total current assets ............... 72,095 13,114 85,209
Property, plant and equipment, net .. 51,720 10,000 (c) 58,842
(2,878)(d)
Other assets, net .................... 8,151 2,563 (e) 12,709
1,995 (f)
------------ ------------- -----------
TOTAL ASSETS ......................... $131,966 $ 24,794 $156,760
============ ============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................... $ 14,703 $ -- $ 14,703
Accrued expenses .................... 12,440 (1,000)(d) 11,440
Current maturities of long-term debt 5,486 (4,992)(g) 494
------------ ------------- -----------
Total current liabilities .......... 32,629 (5,992) 26,637
Long-term debt ....................... 78,498 44,305 (g) 122,803
Other liabilities .................... 1,654 -- 1,654
Deferred income taxes ................ 3,201 -- 3,201
------------ ------------- -----------
Total liabilities ................... 115,982 38,313 154,295
Redeemable common stock .............. 2,211 -- 2,211
Stockholders' equity ................. 13,773 (13,519)(b) 254
------------ ------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY .............................. $131,966 $ 24,794 $156,760
============ ============= ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Balance Sheet on the following page.
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
(a) Represents available cash from the issuance of the Old Notes.
(b) Represents the following:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Elimination of unamortized debt issuance
costs related to the debt being repaid............... $ 2,305
Elimination of unamortized discount related
to Old Subordinated Notes............................ 2,122
Prepayment penalties on early retirement of the debt 1,640
--------------------
Net pre-tax costs ................................... 6,067
Income tax benefit @ 42%.............................. (2,548)
Acquisition of treasury stock......................... 10,000
--------------------
$13,519
====================
</TABLE>
(c) Represents estimated capital expenditures at the Company's Natural Dam
mill.
(d) Represents the final purchase price adjustment with James River.
(e) Represents loan to Creative Expressions Group, Inc. ("CEG"), an
affiliate of the Company.
(f) Represents the elimination of $2.3 million of unamortized debt issuance
costs related to debt that will be repaid and the addition of $4.3
million of debt issuance costs to be incurred in connection with the
issuance of the Old Notes and New Credit Facility.
(g) Represents the repayment of old debt and the issuance of the Old Notes
as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
CURRENT LONG-TERM
---------- -----------
<S> <C> <C>
Repayment of Old Credit Facility ..... $ -- $(31,964)
Repayment of Terms Loans ............. (4,992) (22,248)
Repayment of Old Subordinated Notes . -- (13,968)
Early retirement of James River Note -- (7,515)
Issuance of Old Notes ................ -- 120,000
---------- -----------
$(4,992) $ 44,305
========== ===========
</TABLE>
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 six month periods ended January 26, 1997 and January 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 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
----------------------------------------------------------------------
1994 1995 1996
---------------------- ---------------------- ----------------------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
-------- ------------ -------- ------------ -------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales .............. $61.8 100.0% $97.1 100.0% $204.9 100.0%
Cost of goods sold .... 51.6 83.5 76.3 78.6 161.3 78.7
-------- ------------ -------- ------------ -------- ------------
Gross profit ........... 10.2 16.5 20.8 21.4 43.6 21.3
Selling, general and
administrative
expenses............... 8.4 13.7 14.1 14.5 29.7 14.5
-------- ------------ -------- ------------ -------- ------------
Income from operations 1.8 2.8 6.7 6.9 13.9 6.8
Interest expense ....... 1.3 2.1 2.9 3.0 8.0 3.9
-------- ------------ -------- ------------ -------- ------------
Income before taxes ... 0.5 0.7 3.8 3.9 5.9 2.9
Taxes on income ........ 0.2 0.3 1.6 1.6 2.5 1.2
-------- ------------ -------- ------------ -------- ------------
Net income ............. $ 0.3 0.4% $ 2.2 2.2% $ 3.4 1.7%
======== ============ ======== ============ ======== ============
EBITDA ................. $ 3.0 4.9% $ 8.4 8.6% $ 17.3 8.4%
<CAPTION>
SIX MONTHS ENDED JANUARY
-------------------------------------------------
1996 1997
---------------------- -------------------------
PERCENT OF PERCENT OF
AMOUNT NET SALES AMOUNT NET SALES
-------- ------------ -------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales .............. $84.1 100.0% $126.6 100.0%
Cost of goods sold .... 66.8 79.4 99.2 78.4
-------- ------------ -------- ------------
Gross profit ........... 17.3 20.6 27.4 21.6
Selling, general and
administrative
expenses............... 12.4 14.8 19.5 15.4
-------- ------------ -------- ------------
Income from operations 4.9 5.9 7.9 6.2
Interest expense ....... 2.6 3.1 4.6 3.6
-------- ------------ -------- ------------
Income before taxes ... 2.3 2.7 3.3 2.6
Taxes on income ........ 1.0 1.1 1.4 1.1
-------- ------------ -------- ------------
Net income ............. $ 1.3 1.6% $ 1.9 1.5%
======== ============ ======== ============
EBITDA ................. $ 6.7 8.0% $ 10.7 8.5%
</TABLE>
SIX MONTHS ENDED JANUARY 26, 1997 COMPARED TO SIX MONTHS ENDED JANUARY 28,
1996
The Company's net sales increased $42.5 million, or 50.5%, to $126.6
million in the six months ended January 26, 1997 compared to $84.1 million in
the six months ended January 28, 1996 primarily as a result of the Fiscal
1996 Acquisitions and unit volume growth. This increase was partially offset
by lower average selling prices, in particular at the Hoffmaster division, as
a result of competitive market conditions.
Cost of goods sold increased $32.4 million, or 48.7%, to $99.2 million in
the six months ended January 26, 1997 compared to $66.8 million in the six
months ended January 28, 1996. This increase was primarily due to the Fiscal
1996 Acquisitions. Cost of goods sold as a percentage of net sales decreased
from 79.4% in the six months ended January 28, 1996 to 78.4% in the six
months ended January 26, 1997. This decrease was due to improved fixed
overhead costs absorption, particularly at the Fonda division, and lower
average raw materials costs. The higher sales levels and lower cost of goods
sold as a percentage of net sales contributed to the increase in gross profit
of $10.0 million, or 57.7%, to $27.4 million in the six months ended January
26, 1997 compared to $17.3 million in the six months ended January 28, 1996.
As a percentage of net sales, gross profit improved from 20.6% in the six
months ended January 28, 1996 to 21.6% in the six months ended January 26,
1997.
Selling, general and administrative expenses increased $7.1 million, or
57.1%, to $19.5 million in the six months ended January 26, 1997 compared to
$12.4 million in the six months ended January 28, 1996. This increase was due
primarily to the incurrence of additional expenses and additional corporate
overhead assumed in connection with the Fiscal 1996 Acquisitions. As a
percentage of net sales, selling, general and administrative expenses
increased from 14.8% in the six months ended January 28, 1996 to 15.4% during
the six months ended January 26, 1997.
Operating income increased $3.0 million, or 59.4%, to $7.9 million in the
six months ended January 28, 1997 compared to $4.9 million in the six months
ended January 28, 1996. As a percentage of net sales, operating income
increased from 5.9% in the six months ended January 28, 1996 to 6.2% during
the six months ended January 26, 1997. This increase reflects the decrease in
cost of goods sold as a percentage of net sales which was partially offset by
increased selling, general and administrative expenses as a percentage of net
sales.
Interest expense increased $2.0 million, or 71.8%, to $4.6 million in the
six months ended January 26, 1997 compared to $2.6 million in the six months
ended January 28, 1996. This increase was due primarily to higher borrowings
related to the Fiscal 1996 Acquisitions.
Net income increased to $1.9 million in the six months ended January 26,
1997 from $1.3 million in the six months ended January 28, 1996. This
increase was due principally to increased operating income from operations as
a result of the Fiscal 1996 Acquisitions. The Company's provision for income
taxes remained unchanged at 42% of income before income taxes.
39
<PAGE>
EBITDA increased $4.0 million, or 59.3%, to $10.7 million in the six
months ended January 26, 1997 compared to $6.7 million in the six months
ended January 28, 1996 for the reasons stated above. Depreciation and
amortization increased $1.1 million from $1.8 million in the six month
January 1996 period to $2.9 million in the six month January 1997 period as a
result of the Fiscal 1996 Acquisitions.
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. This
increase is primarily due to the acquisitions of Chesapeake (seven months of
results) and Maspeth (eight months of results), as well as a full year's
results for the Hoffmaster division. The sales increase also reflects three
months of results of the James River California and Natural Dam businesses
which were acquired by the Company in May 1996. Sales growth was also driven
by stronger unit volume, particularly at the Fonda division, which was
attributable to improved integration and marketing efforts, and slightly
higher selling prices as a result of higher raw materials 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. This increase was
due primarily to the acquisitions of Chesapeake and Maspeth as well as a full
year's results for the Hoffmaster division. Cost of goods sold as a
percentage of net sales remained constant from Fiscal 1995 to Fiscal 1996 at
approximately 78.6%. In the first half of Fiscal 1996, the Company
experienced increased raw materials costs as a result of continuous price
increases during 1995. However, raw materials costs stabilized and began to
decline in the latter part of Fiscal 1996. The higher average raw materials
costs were offset by manufacturing improvements enabling the Company to
maintain its cost of goods sold as a percentage of net sales. 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.
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. The increase was
due primarily to the acquisition of Hoffmaster on March 31, 1995 as well as
higher volumes attributable to improved market conditions and higher selling
prices as a result of higher raw materials costs at the Fonda division.
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. This increase was primarily
due to higher raw materials costs, which increased throughout Fiscal 1995, as
well as the inclusion of four months of Hoffmaster results. The effect of the
raw materials price increases and resulting higher selling prices positively
impacted manufacturing margins at the Fonda division. Cost of sales 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
40
<PAGE>
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 six months ended January
26, 1997 was $4.8 million compared to net cash provided by operating
activities of $16.0 million for the six months ended January 28, 1996. The
higher level of net cash provided by operating activities during the six
months ended January 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 six months ended January 26,
1997 was $2.1 million compared to net cash used in investing activities of
$42.2 million for the six months ended January 28, 1996. The higher level of
net cash used in investing activities during the six months ended January 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 $55.8 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 six months ended January 26, 1997 were $2.1
million as compared to $2.6 million for the six months ended January 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
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.
Net cash used in financing activities for the six months ended January 26,
1997 was $3.8 million compared to net cash provided by financing activities
of $26.5 million for the six months ended January 28, 1996. The net cash used
in financing activities during the six months ended January 26, 1997 was
primarily the result of the repayment of certain long-term indebtedness,
while the net cash provided financing activities during the six months ended
January 28, 1996 primarily reflected borrowings to fund
41
<PAGE>
two of the acquisitions that the Company consummated in fiscal 1996. Net cash
provided by financing activities for Fiscal 1996 was $39.5 million compared
to $34.3 million for Fiscal 1995. This increase primarily reflected
borrowings to fund the Acquisitions and related working capital needs.
The Company had a credit facility which, as of January 26, 1997, consisted
of a $22.7 million Term A Loan Facility, a $4.5 million Term Loan B Facility
and a $50.0 million revolving credit facility. As of January 26, 1996, the
Company had unused availability of approximately $1.4 million under the Old
Credit Facility. 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."
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 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 and
EBITDA increased from $61.8 million and $3.0 million, respectively, in Fiscal
1994 to $204.9 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 and EBITDA of $262.5 million and $26.2
million, respectively.
The Company's product offerings are among the broadest in the industry,
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, such as
The Great Atlantic & Pacific Tea Company, Inc., The Kroger Co., The Stop &
Shop Companies, Inc., Super Valu Inc., Golub Corp. and C&S Wholesale Grocers,
Inc., (ii) mass merchandisers, such as Target Stores (a division of Dayton
Hudson Corp.), Wal-Mart Stores, Inc. and Kmart Corporation, and (iii)
warehouse clubs, such as Price-Costco, Inc., and other retailers. The
Company's institutional customers include major food service distributors,
such as Sysco Corporation, Rykoff-Sexton, Inc./U.S. Foodservice Inc., Sweet
Paper Sales Corp., Alliant Foodservice Inc. (formerly known as Kraft
Foodservice, Inc.) and Bunzl USA, Inc., 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:
43
<PAGE>
o Broad Product Offering. The Company believes that its product
offering is one of the broadest 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 leading 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
44
<PAGE>
provide value-added services, such as 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.
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%
============= ============ ============= ============
<FN>
- ------------
(1) Does not give pro forma effect to the Fiscal 1996 Acquisitions prior to
their respective acquisition dates.
</TABLE>
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 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 Company's
predominant institutional customers of private label products include Sysco
Corporation, Rykoff-Sexton, Inc./U.S. Foodservice Inc. and Alliant
Foodservice Inc. Institutional customers of the Company's branded products
include Sweet Paper Sales Corp., Smart Food Distributors Incorporated, Bunzl
USA, Inc. and Lisanti Food Incorporated. 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 represen-
48
<PAGE>
tatives. 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. 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.
Customers of the Company's branded consumer products include Target Stores
(a division of Dayton Hudson Corp.), Wal-Mart Stores, Inc., Kmart
Corporation, The Great Atlantic & Pacific Tea Company, Inc., Super Value
Inc., Golub Corp., Weis Markets Inc. and C&S Wholesale Grocers, Inc. The
Company's primary private label customers in the consumer market include The
Kroger Co., The Great Atlantic & Pacific Tea Company, Inc., Super Value Inc.,
Topco Supermarkets, Inc., The Stop & Shop Companies, Inc., Wakefern Food
Corporation and Demoulas Super Markets, Inc.
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.
49
<PAGE>
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. Pursuant to a contract with Lincoln Pulp and Paper, 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., Temple-Inland Inc.,
James River 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.
50
<PAGE>
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, Manufacturing 47,400 L Napkins,
California.................. 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."
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
51
<PAGE>
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; June 7, 1997 at Williamsburg; May 31, 1997
at Oshkosh; March 31, 1999 at Appleton; November 30, 1997 at Maspeth; October
31, 1997 at Rancho Dominguez; and November 28, 1998 at Gouveneur. The
facility in Jacksonville, Florida is not covered by a labor agreement. Since
1989, the Company has not experienced any work stoppages or 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 February 23,
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 to offer 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 to be made to them by the
Company (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
56
<PAGE>
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.
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. Management 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. Management
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.
From August 1, 1996 to January 26, 1997, the Company purchased $377,967 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, -- 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
60
<PAGE>
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 "--Change of Control," "--Asset
Sales," "--Limitations on Restricted Payments" or "--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 "--Limitations on Restricted Payments" will
not be deemed to be Asset Sales.
"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
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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 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
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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.
"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).
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"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.
"Guarantors" means any Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the Indenture, and their respective
successors and assigns.
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"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 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
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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 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.
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"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).
"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
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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. 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 January 26, 1997, consisted of a (i) term loan facility
in the amount of $22.7 million (the "Term A Loan Facility"); (ii) term loan
facility in the amount of $4.5 million (the "Term Loan B Facility" and 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 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
March 30, 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.
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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
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, 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
<TABLE>
<CAPTION>
<S> <C>
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) January 26, 1997 .. F-4
Statements of Income for the Years Ended July 31, 1994,
July 30, 1995 and July 28, 1996 and (unaudited) the Six Months Ended
January 28, 1996 and January 26, 1997 .................................................. F-5
Statements of Cash Flows for the Years Ended July 31, 1994,
July 30, 1995 and July 28, 1996 and (unaudited) the Six Months
January 28, 1996 and January 26, 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 (unaudited) the Three Months Ended March 31, 1995 .................................. F-18
Statements of Cash Flows for the Years Ended December 31, 1994 and 1993
and (unaudited) 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
</TABLE>
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 income
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.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
October 25, 1996
(January 31, 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.
/s/ 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, JANUARY 26,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 120 $ 1,467 $ 327
Accounts receivable, less allowance for doubtful
accounts of $401, $549, and $670, respectively . 20,350 27,173 24,275
Due from affiliate............................... -- 994 658
Inventories...................................... 25,483 37,467 38,503
Deferred income taxes............................ 2,255 5,435 5,598
Refundable income taxes.......................... -- 822 1,690
Other current assets............................. 755 1,160 1,044
---------- ---------- -------------
Total current assets............................ 48,963 74,518 72,095
Property, plant and equipment, net................ 26,933 53,010 51,720
Other assets, net................................. 3,829 8,640 8,151
---------- ---------- -------------
TOTAL ASSETS...................................... $79,725 $136,168 $131,966
========== ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 6,038 $ 14,671 $ 14,703
Accrued expenses................................. 10,532 14,893 12,440
Income taxes payable............................. 3,029 -- --
Current maturities of long-term debt............. 1,285 6,023 5,486
--------- ---------- ---------
Total current liabilities....................... 20,884 35,587 32,629
Long-term debt.................................... 46,880 81,740 78,498
Other liabilities................................. 2,641 2,345 1,654
Deferred income taxes............................. -- 2,444 3,201
--------- ---------- ---------
Total liabilities............................... 70,405 122,116 115,982
Redeemable common stock, $.01 par value, issued
and outstanding 7,000 shares .................... 2,115 2,179 2,211
Stockholders' equity.............................. 7,205 11,873 13,773
--------- ---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $79,725 $136,168 $131,966
========= ========== =========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------
JULY 31, JULY 30, JULY 28, JANUARY 28, JANUARY 26,
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $61,839 $97,074 $204,903 $84,117 $126,638
Cost of goods sold........... 51,643 76,252 161,304 66,751 99,246
---------- ---------- ---------- ------------- -------------
Gross profit............... 10,196 20,822 43,599 17,366 27,392
---------- ---------- ---------- ------------- -------------
Operating expenses:
Selling .................... 5,757 8,576 17,181 7,076 10,161
General and administrative 2,239 4,992 12,554 5,351 9,359
Management fee.............. 442 544 -- -- --
---------- ---------- ---------- ------------- -------------
Total operating expenses .. 8,438 14,112 29,735 12,427 19,520
---------- ---------- ---------- ------------- -------------
Income from operations....... 1,758 6,710 13,864 4,939 7,872
Interest expense, net........ 1,268 2,943 7,934 2,643 4,540
---------- ---------- ---------- ------------- -------------
Income before income taxes .. 490 3,767 5,930 2,296 3,332
Provision for income taxes .. 239 1,585 2,500 964 1,400
---------- ---------- ---------- ------------- -------------
Net income................... $ 251 $ 2,182 $ 3,430 $ 1,332 $ 1,932
========== ========== ========== ============= =============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
THE FONDA GROUP, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
---------------------------------- ----------------------------
JULY 31, JULY 30, JULY 28, JANUARY 28, JANUARY 26,
1994 1995 1996 1996 1997
---------- ---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income........................... $ 251 $ 2,182 $ 3,430 $ 1,332 $ 1,932
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization ..... 1,246 1,669 3,450 1,799 2,859
Amortization of debt issuance costs -- 560 1,021 200 440
Provision (benefit) for doubtful
accounts.......................... 25 184 148 (24) 121
Deferred income taxes.............. 162 (1,690) 533 -- 594
Interest capitalized on debt ...... -- -- 165 -- 350
Changes in assets and liabilities
(net of business acquisitions):
Accounts receivable............... (970) (6,543) 6,826 9,294 2,777
Inventories....................... 1,425 (6,648) (299) 1,409 (1,036)
Due from affiliate................ (1,742) 464 (994) -- 336
Other current assets.............. 107 (309) (26) (1,237) 116
Other assets...................... (414) (1,200) (1,244) (1,932) (142)
Accounts payable and accrued
expenses......................... 50 3,840 8,782 4,606 (2,001)
Income taxes payable
(refundable)...................... -- 3,029 (3,644) (2,281) (868)
Other liabilities................... -- (312) (475) 2,812 (695)
---------- ---------- ---------- ------------- -------------
Net cash provided by
(used in) operating activities ... 140 (4,774) 17,673 15,978 4,783
---------- ---------- ---------- ------------- -------------
Investing activities:
Capital expenditures................. (1,272) (1,608) (1,314) (2,621) (2,074)
Payments for business acquisitions .. -- (27,985) (54,468) (39,628) --
---------- ---------- ---------- ------------- -------------
Net cash used in investing
activities........................ (1,272) (29,593) (55,782) (42,249) (2,074)
---------- ---------- ---------- ------------- -------------
Financing activities:
Net increase (decrease) in revolving
credit agreement.................... 13 (7,225) 14,745 10,586 (786)
Proceeds from long-term debt......... 2,029 47,520 28,053 16,749 --
Repayments of long-term debt......... (1,050) (3,638) (2,499) (257) (3,063)
Financing costs...................... -- (2,395) (843) (587) --
---------- ---------- ---------- ------------- -------------
Net cash provided by (used in)
financing activities.............. 992 34,262 39,456 26,491 (3,849)
---------- ---------- ---------- ------------- -------------
Net increase (decrease) in cash ...... (140) (105) 1,347 220 (1,140)
Cash, beginning of period............. 365 225 120 120 1,467
---------- ---------- ---------- ------------- -------------
Cash, end of period................... $ 225 $ 120 $ 1,467 $ 340 $ 327
========== ========== ========== ============= =============
Cash paid during the period for:
Interest............................. $ 1,076 $ 2,114 $ 6,029 $ 925 $ 3,383
Income taxes......................... 247 -- 5,611 -- 1,630
Businesses acquired:
Fair value of assets acquired ....... $ 37,777 $ 59,090 $ 42,821
Cash paid............................ 27,985 54,468 39,628
---------- ---------- -------------
Liabilities assumed.................. $ 9,792 $ 4,622 $ 3,193
========== ========== =============
</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
January 26, 1997 and the statements of income and cash flows for the six
months ended January 28, 1996 and January 26, 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 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 was
$800,000, based upon the Company's evaluation of the fair value of the net
assets acquired and has been recorded as goodwill.
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. 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 preliminary 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 preliminary 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
(subject to a final purchase price adjustment), including acquisition costs.
The James River California facility produces tissue-based products. The
Natural Dam facility produces specialty and deep-toned colored tissue paper.
The excess of the fair value of the net assets acquired over the purchase
price was $5.5 million, based upon the Company's preliminary evaluation of
the fair value of the net assets acquired and has been allocated to the
long-term assets (see Note 15). 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.
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 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 $ 4,988
</TABLE>
F-8
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, JANUARY 26,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials .. $16,124 $17,015 $17,672
Work-in-process 188 339 440
Finished goods . 8,270 19,126 19,182
Other........... 901 987 1,209
---------- ---------- -------------
$25,483 $37,467 $38,503
========== ========== =============
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
LIVES IN JULY 30, JULY 28, JANUARY 26,
YEARS 1995 1996 1997
---------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Land and buildings............. 20-40 $ 13,735 $ 17,675 $ 17,703
Machinery and equipment........ 3-12 24,553 49,192 48,641
Leasehold improvements......... 5-10 732 950 922
Construction in progress ...... 144 767 2,162
---------- ---------- -------------
39,164 68,584 69,428
Less: accumulated
depreciation.................. (12,231) (15,574) (17,708)
---------- ---------- -------------
$ 26,933 $ 53,010 $ 51,720
========== ========== =============
</TABLE>
Property, plant and equipment includes property and equipment under
capital lease as follows (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, JANUARY 26,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Building ...................... $2,217 $2,217 $2,217
Equipment...................... 350 350 350
Less: accumulated
depreciation.................. (756) (830) (867)
---------- ---------- -------------
$1,811 $1,737 $1,700
========== ========== =============
</TABLE>
Depreciation expense was $1,246,000, $1,666,000 and $3,227,000 during the
years ended July 31, 1994, July 30, 1995 and July 28, 1996, respectively.
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.
F-9
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
7. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, JANUARY 26,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued
compensation........ $ 2,240 $ 4,367 $ 4,991
Accrued promotion ... 1,963 2,310 2,232
Other................ 6,329 8,216 5,217
---------- ---------- -------------
$10,532 $14,893 $12,440
========== ========== =============
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 28, JANUARY 26,
1995 1996 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit agreement .......................... $18,097 $32,842 $31,964
Subordinated notes payable........................... 8,827 13,796 13,968
Subordinated note payable to James River (see
Note 3), plus capitalized interest of $165,000 and
$340,000, due May 2007, bearing interest at 10%
(see Note 15) ...................................... -- 7,165 7,515
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 22,740
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 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....................... 296 217 177
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 1,804
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 1,316
---------- ---------- -------------
48,165 87,763 83,984
Less amounts due within one year..................... 1,285 6,023 5,486
---------- ---------- -------------
$46,880 $81,740 $78,498
========== ========== =============
</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, JANUARY 26,
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 10,271
------------ ------------ ---------------
$7,205 $11,873 $13,773
============ ============ ===============
</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.
The Company has an agreement with AIG, owner of 7,000 shares of the
Company's Class A common stock (the "AIG Shares"), 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 accretion to
liquidation value has been charged to retained earnings.
The changes in retained earnings consists of the following (in thousands):
<TABLE>
<CAPTION>
SIX
YEARS ENDED MONTHS
---------------------------------- ENDED
JULY 31, JULY 30, JULY 28, JANUARY 26,
1994 1995 1996 1997
---------- ---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance, beginning of period......... $4,687 $ 4,938 $5,005 $ 8,371
Net income.......................... 251 2,182 3,430 1,932
Issuance of redeemable common
stock.............................. -- (2,094) -- --
Accretion of redeemable common
stock.............................. -- (21) (64) (32)
---------- ---------- ---------- -------------
Balance, end of period............... $4,938 $ 5,005 $8,371 $10,271
========== ========== ========== =============
</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. During the year
ended July 28, 1996, the Company recorded compensation expense of $100,000
applicable to that year.
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.
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.
F-14
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
13. EMPLOYEE BENEFIT PLANS--(CONTINUED)
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
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
TOTAL........................ $ 959 $2,108 $1,342 $2,997
=============== =============== =============== ===============
Projected benefit obligation. $3,047 $2,108 $4,011 $2,997
Plan assets at fair value ... 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. The
expected rate of return is assumed to be 8%.
14. COMMITMENTS
In connection with the Hoffmaster business acquisition (see Note 3), the
Company assumed a commitment to purchase specified quantities of raw
materials in excess of the Company's projected requirements through 1999. 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.
15. SUBSEQUENT EVENTS
On January 31, 1997, the Company entered into a letter of intent to
purchase the operations of a manufacturer of placemats and other tabletop
disposable products for a purchase price of $7.5 million,
F-15
<PAGE>
THE FONDA GROUP, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
15. SUBSEQUENT EVENTS--(CONTINUED)
subject to adjustment. The consummation of this transaction is subject to
various conditions, including the negotiation and execution of a definitive
agreement.
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 and the purchase price adjustment will be
allocated to long-term assets. In addition, the Company will lend 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.
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. 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 in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
January 17, 1997
F-17
<PAGE>
HOFFMASTER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 30, 1995 DECEMBER 31,
------------------ ----------------------------
(UNAUDITED) 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
================== ============= =============
</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,
------------------ -----------------------------
(UNAUDITED) 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 ......... 4,623,000 (7,826,000) (3,250,000)
------------------ -------------- -------------
Net increase (decrease) in cash............... 1,257,000 (1,978,000) 1,047,000
(Due to Parent) cash, beginning of period .... (1,710,000) 268,000 (779,000)
------------------ -------------- -------------
(Due to Parent) cash, end of period........... $ (453,000) $(1,710,000) $ 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.
INCOME TAXES -- As a division of the Parent, the Company was not allocated
a portion of the Parent's provision for income taxes. Accordingly, the
accompanying financial statements contain no such provision.
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.
INTERIM FINANCIAL STATEMENTS--The accompanying statements of operations
and cash flows for the three months ended March 30, 1995 are unaudited but,
in the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for this
interim period. Results for this interim period are not necessarily
indicative of results for the entire year.
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 $251,000 and $347,000 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>
1994 1993
------------ ------------
<S> <C> <C>
Net sales................... $ (9,000) $ (563,000)
Cost of sales............... 64,000 278,000
Selling:
Field Sales payroll........ 3,254,000 3,837,000
Marketing.................. 1,000 185,000
Marketing.................. 4,000 2,000
Other...................... 1,615,000 1,027,000
General and administrative:
Distribution............... 1,000 5,000
Administration............. 1,643,000 2,034,000
------------ ------------
$6,573,000 $6,805,000
============ ============
</TABLE>
In addition, the Company purchased raw materials, at cost, from an
affiliate of $458,000 and $969,000 in 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 $210,000 and $169,000 for 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 $1,504,000 and $1,367,000 for 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. Deferred income taxes
are recorded by the Company at the direction of the Parent.
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>
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.
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.
F-26
<PAGE>
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 ............................ 15
The Exchange Offer ...................... 21
The Company ............................. 29
Capitalization .......................... 31
Selected Historical Financial Data ..... 32
Unaudited Pro Forma Condensed Financial
Data ................................... 34
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>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- ----------------------
<S> <C>
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 March 22, 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>
- ------------
* Filed herewith.
** To be filed by amendment.
II-2
<PAGE>
(b) The Financial Statement Schedule filed as part of this Registration
Statement is as follows:
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 April 10, 1997.
THE FONDA GROUP, INC.
By: /s/ DENNIS MEHIEL
-------------------------------
Dennis Mehiel
Chairman of the Board and
Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Harvey L. Friedman, Michael S. Nelson
and Shari Krouner his true and lawful attorney-in-fact and agent, each acting
alone, with full powers of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this registration statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
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 April 10, 1997
- ------------------------------- Officer (Principal Executive Officer)
Dennis Mehiel
/s/ THOMAS ULEAU President, Chief Operating Officer and April 10, 1997
- ------------------------------- Director
Thomas Uleau
/s/ HANS H. HEINSEN Senior Vice President, Chief Financial April 10, 1997
- ------------------------------- Officer and Treasurer (Principal
Hans H. Heinsen Accounting Officer)
/s/ ALFRED B. DELBELLO Vice Chairman April 10, 1997
- -------------------------------
Alfred B. DelBello
/s/ GAIL BLANKE Director April 10, 1997
- -------------------------------
Gail Blanke
Director April , 1997
- -------------------------------
John A. Catsimitidis
/s/ CHRIS MEHIEL Director April 10, 1997
- -------------------------------
Chris Mehiel
/s/ JEROME T. MULDOWNEY Director April 10, 1997
- -------------------------------
Jerome T. Muldowney
/s/ G. WILLIAM SEAWRIGHT Director April 10, 1997
- -------------------------------
G. William Seawright
/s/ LOWELL P. WEICKER, JR. Director April 10, 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 March 22, 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>
- ------------
* Filed herewith.
** To be filed by amendment.
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "DMS ACQUISITION CORPORATION", FILED IN THIS OFFICE ON THE
NINTH DAY OF JANUARY, A.D. 1984, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333369
971050506 DATE: 02-14-97
<PAGE>
FILED
JAN 9 1984 9 AM
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
DMS ACQUISITION CORPORATION
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the Corporation is
DMS ACQUISITION CORPORATION.
SECOND: The registered office of the Corporation in the State of Delaware
is to be located at 306 South State Street, in the City of Dover, County of
Kent, State of Delaware. The name of its registered agent at that address is
United States Corporation Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock
without par value.
<PAGE>
FIFTH: The name and the mailing address of the sole incorporator is:
NAME MAILING ADDRESS
- -------------------- -------------------------------------
Bruce G. Pottash Proskauer Rose Goetz & Mendelsohn
300 Park Avenue
New York, New York 10022
SIXTH: Elections of directors need not be by ballot unless the by-laws of
the Corporation shall so provide.
SEVENTH: In furtherance and not in limitation of the powers conferred upon
the Board of Directors by law, the Board of Directors shall have power to
make, adopt, alter, amend and repeal from time to time by-laws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal by-laws made by the Board of Directors.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of this Corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this
Corporation under the provisions of section 291 of Title 8 of the Delaware
Code or on the application of trustees in dissolution or of any receiver
or receivers
-2 -
<PAGE>
appointed for this Corporation under the provisions of section 279
of Title 8 of the Delaware Code order a meeting of the creditors
or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders, directors and officers are granted subject to this reservation.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as the same may be amended
and supplemented,
-3 -
<PAGE>
indemnify any and all persons whom it shall have power to indemnify under
said section from and against any and all of the expenses, liabilities or
other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any
other rights to which those indemnified may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office, and 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 person.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of January,
1984.
/s/ Bruce G. Pottash
-----------------------
Bruce G. Pottash
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DMS ACQUISITION CORPORATION", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF JUNE, A.D. 1984, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333370
971050506 DATE: 02-14-97
<PAGE>
FILED
JUN 26 1984
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DMS ACQUISITION CORPORATION
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
Albert C. Lasher, being the Chairman of DMS Acquisition Corporation, a
corporation existing under the laws of the State of Delaware, does hereby
certify as follows:
FIRST: That the Certificate of Incorporation of said corporation has been
amended as follows:
By deleting Paragraph Fourth thereof and inserting in lieu thereof a new
Paragraph Fourth, reading in its entirety as follows:
FOURTH: The total number of shares
of stock which the Corporation shall
have authority to issue is Five Thousand
(5,000) shares of Common Stock without
par value.
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, we have signed this certificate as of this 7th day of
March, 1984.
DISPOSABLES MARKETING SERVICES CORPORATION
By /s/ Albert Lasher
-----------------------
Chairman
Albert Lasher
Attest:
/s/ Robert Nortillo
- ----------------------
Secretary
Robert Nortillo
2
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DMS ACQUISITION CORPORATION", CHANGING ITS NAME FROM "DMS
ACQUISITION CORPORATION" TO "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON
THE EIGHTEENTH DAY OF SEPTEMBER, A.D. 1984, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333371
971050506 DATE: 02-14-97
<PAGE>
FILED
SEP 15 1984 9 AM
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DMS ACQUISITION CORPORATION
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
Albert C. Lasher, being the Chairman of DMS Acquisition Corporation, a
corporation existing under the laws of the State of Delaware, does hereby
certify as follows:
FIRST: That the Certificate of Incorporation of said corporation has been
amended as follows:
By deleting Paragraph First thereof and inserting in lieu thereof of new
paragraph First, reading in its entirety as follows:
FIRST: The name of the Corporation is:
THE FONDA GROUP, INC.
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Section 242(b)(1) of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, this certificate has been
<PAGE>
executed as of the 17th day of September, 1984.
DISPOSABLES MARKETING SERVICES
CORPORATION
By: /s/ Albert Lasher
------------------------
Chairman
Albert Lasher
Attest:
/s/ Stephanie Lasher
- ----------------------
Assistant Secretary
Stephanie Lasher
2
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON THE ELEVENTH
DAY OF OCTOBER, A.D. 1984, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333372
971050506 DATE: 02-14-97
<PAGE>
CERTIFICATE OF CORRECTION
OF
THE FONDA GROUP, INC.
(UNDER SECTION 103(F) OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
ALBERT C. LASHER, being the Chairman of The Fonda Group, Inc., does hereby
certify as follows:
1. Certificate of Amendment to the Corporation's Certificate of
Incorporation filed with the Secretary of State of Delaware on June 26, 1984
containing defective signature lines.
2. The signature line of the Amendment which reads:
"DISPOSABLES MARKETING SERVICES CORPORATION" is hereby deleted.
IN WITNESS WHEREOF, this certificate has been executed this 9th day of
October, 1984.
/s/ Albert C. Lasher
---------------------
ALBERT C. LASHER
Chairman
ATTEST:
/s/ Stephanie Lasher
- -----------------------
Assistant Secretary
Stephanie Lasher
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON THE ELEVENTH
DAY OF OCTOBER, A.D. 1984, AT 9:01 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333373
971050506 DATE: 02-14-97
<PAGE>
FILED
OCT 11 1984 9 AM
SECRETARY OF STATE
CERTIFICATE OF CORRECTION
OF
THE FONDA GROUP, INC.
(UNDER SECTION 103(F) OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE)
ALBERT C. LASHER, being the Chairman of The Fonda Group, Inc., does hereby
certify as follows:
1. Certificate of Amendment to the Corporation's Certificate of
Incorporation was filed with the Secretary of State of Delaware on September
18, 1984 containing defective signature lines.
2. The signature line of the Amendment which reads:
"DISPOSABLES MARKETING SERVICES CORPORATION" is hereby deleted.
IN WITNESS WHEREOF, this certificate has been executed this 9th day of
October, 1984.
/s/ Albert Lasher
-------------------
ALBERT LASHER
Chairman
ATTEST:
/s/ Stephanie Lasher
- -----------------------
Assistant Secretary
Stephanie Lasher
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON THE TWENTIETH
DAY OF DECEMBER, A.D. 1984, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333374
971050506 DATE: 02-14-97
<PAGE>
FILED
DEC 20 1984 9 AM
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
ADOPTED IN ACCORDANCE WITH THE PROVISIONS
OF SECTION 242 OF THE GENERAL CORPORATION
LAW OF THE STATE OF DELAWARE
Albert C. Lasher, being the Chairman of The Fonda Group, Inc. a
corporation existing under the laws of the State of Delaware, does hereby
certify as follows:
FIRST: That the Certificate of Incorporation of said corporation has been
amended as follows:
By deleting Paragraph Fourth thereof and inserting in lieu thereof a new
paragraph Fourth, reading in its entirety as follows:
FOURTH: (a) The total number of shares of stock which the Corporation
shall have authority to issue is Five Thousand Five Hundred Fifty-Six
(5,556), without par value, of which 5,000 shares shall be designated
as Common Stock and 556 shares shall be designated as Class B Common
Stock. All shares of Common Stock and Class B Common Stock shall be
identical and shall entitle the holders thereof to the same rights and
privileges except with respect to voting rights, as expressly provided
in this Article FOURTH.
(b) Each share of Common Stock shall be entitled to
one vote on
<PAGE>
all matters submitted to the vote of the stockholders of
the Corporation. Except as may be required by law, Class
B Common Stock shall have no voting rights.
(c) Each share of Class B Common Stock shall, in the
event such Class B Common Stock shall have been duly
transferred on the books of the Corporation to a
transferee holder other than the original holder
thereof (hereinafter referred to as the "Transferee"),
be convertible by the Transferee into Common Stock, on
a share for share basis, at any time. The Class B
Common Stock shall be converted into Common Stock by
the Transferee's giving written notice to the
Corporation by certified mail, postage prepaid, return
receipt requested, addressed to the Corporation at its
principal office, or by personal delivery at said
office, setting forth the number of shares of Class B
Common Stock held by said Transferee and the number of
shares of Class B Common Stock to be converted. Upon
such notice being given, the shares of Class B Common
Stock to be converted shall be converted without
further action and the certificates that formerly
represented the shares of Class B Common Stock
converted shall thereafter represent the shares of
Common Stock into which the shares of Class B Common
Stock were converted. The Corporation shall exchange
such certificate for a new certificate for the same
number of shares of Common Stock upon the written
request of the Transferee. Anything herein to the
contrary notwithstanding, the Corporation, until the
transfer thereof on the books of the Corporation, may
treat the registered holders of Common Stock and Class
B Common Stock as the owners thereof for all purposes.
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
-2 -
<PAGE>
IN WITNESS WHEREOF, we have signed this certificate as of this 17th day of
December, 1994.
/s/ Albert C. Lasher
-----------------------------------
Albert C. Lasher,
Chairman, The Fonda Group, Inc.
[SEAL]
/s/ Robert Nortillo
- ---------------------
Robert Nortillo,
Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"KMI CONTINENTAL CONSUMER PRODUCTS, INC.", A DELAWARE CORPORATION,
WITH AND INTO "THE FONDA GROUP, INC." UNDER THE NAME OF "THE FONDA GROUP,
INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE NINETEENTH DAY OF
SEPTEMBER, A.D. 1985, AT 3:35 O'CLOCK P.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100M AUTHENTICATION: 8333375
971050506 DATE: 02-14-97
<PAGE>
FILED
SEP 19 1985 3:35 PM
SECRETARY OF STATE
CERTIFICATE OF OWNERSHIP AND MERGER
OF
KMI CONTINENTAL CONSUMER PRODUCTS, INC.
INTO
THE FONDA GROUP, INC.
PURSUANT TO SECTION 253 OF THE DELAWARE GENERAL CORPORATION LAW
We, the undersigned, ALBERT C. LASHER and ROBERT C. NORTILLO, being
respectively the Chairman of the Board and the Secretary of The Fonda Group,
Inc., a corporation organized and existing under and by virtue of the laws of
the State of Delaware, DO HEREBY CERTIFY as follows:
FIRST: That The Fonda Group, Inc. is the owner of all of the outstanding
shares of capital stock of KMI Continental Consumer Products, Inc., a
corporation organized and existing under and by virtue of the laws of the
State of Delaware.
SECOND: That said The Fonda Group, Inc. does hereby merge said KMI
Continental Consumer Products, Inc. into itself, effective as of the date
hereof, and does hereby, effective as of said date, assume all of the
obligations of said KMI Continental Consumer Products, Inc.
THIRD: That the following is a true, correct and complete copy of the
resolutions duly adopted by the Board of Directors of The Fonda Group, Inc.
on August 29, 1985, providing for the merger of said KMI Continental Consumer
Products, Inc. into The Fonda Group, Inc. and the assumption by The Fonda
Group, Inc.
<PAGE>
of all the obligations of said KMI Continental Consumer Products, Inc.:
WHEREAS, this Corporation will be acquiring all of the issued and
outstanding shares of capital stock of KMI Continental Consumer Products,
Inc., a Delaware corporation ("KMI") pursuant to a Purchase Agreement between
this Corporation and Federal Paper Board Company, Inc. and, in accordance
with Section 253 of the Delaware General Corporation Law has determined to
merge KMI into this Corporation as of the Effective Date, as hereinafter
defined;
NOW, THEREFORE, BE IT RESOLVED, that KMI be merged with and into this
Corporation effective as of the date of acquisition by this Corporation of
all the issued and outstanding shares of KMI from Federal Paper Board
Company, Inc. (the "Effective Date"), and that this Corporation succeed to
all of the assets and rights, and assume all of the liabilities and
obligations, of said Corporation as of such date; and
FURTHER RESOLVED, that the proper officers of this Corporation be, and
hereby are, authorized and directed to prepare and execute, in the name of
this Corporation and under its corporate seal, a Certificate of Ownership and
Merger of KMI, pursuant to Section 253 of the Delaware General Corporation
Law, setting forth a copy of these resolutions, and to cause the same to be
filed with the Secretary of State of the State of Delaware, and a certified
copy recorded in the Office of the Recorder of Deeds of New Castle County,
Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate as of
this day of September, 1985, and affirm, under the penalties of perjury,
that said certificate is the act and deed of said The Fonda Group, Inc. and
that the facts stated therein are true.
/s/ Albert C. Lasher
-----------------------------------
Albert C. Lasher, Chairman of the
Board of The Fonda Group, Inc.
[Corporate Seal]
ATTEST:
/s/ Robert C. Nortillo
-----------------------------------
Robert C. Nortillo
Secretary of The Fonda Group, Inc.
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF CHANGE
OF REGISTERED AGENT OF "THE FONDA GROUP, INC.," FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF JANUARY, A.D. 1986, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333376
971050506 DATE: 02-14-97
<PAGE>
FILED
JAN 24 1986 9 AM
SECRETARY OF STATE
CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE
AND OF REGISTERED AGENT
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
THE FONDA GROUP, INC.
2. The registered office of the corporation within the State of Delaware
is hereby changed to 229 South State Street, City of Dover 19901,
County of Kent.
3. The registered agent of the corporation within the State of Delaware
is hereby changed to The Prentice-Hall Corporation System, Inc., the
business office of which is identical with the registered office of
the corporation as hereby changed.
4. The corporation has authorized the changes hereinbefore set forth by
resolution of its Board of Directors.
Signed on December 4, 1985.
/s/ Albert C. Lasher
-----------------------------------
Chairman
Attest:
/s/ Stephanie Lasher
- ---------------------
Assistant Secretary
DEL.-C.A.-D
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "THE FONDA GROUP, INC.," FILED IN THIS OFFICE ON THE THIRTEENTH
DAY OF JANUARY, A.D. 1987, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100 AUTHENTICATION: 8333377
971050506 DATE: 02-14-97
<PAGE>
FILED
JAN 13 1987 9 AM
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
Adopted in accordance with the provisions
of Sections 228 and 242 of the General Corporation
Law of the State of Delaware
Albert C. Lasher, being the Chairman of The Fonda Group, Inc., a
corporation existing under the laws of the State of Delaware, does hereby
certify as follows:
FIRST: That the Certificate of Incorporation of said corporation has been
amended as follows:
By adding a new Article ELEVENTH, reading in its entirety as follows:
ELEVENTH: No director of the corporation shall be personally liable to
the corporation or its stockholders for monetary damages for breach of
fiduciary duty by such director as a director; provided, however, that
this Article ELEVENTH shall not eliminate or limit the liability of a
director to the extent provided by applicable law (i) for any breach of
the director's duty of loyalty to the corporation 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 General Corporation Law of the State of Delaware, or
(iv) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article
<PAGE>
ELEVENTH shall apply to or have any effect on the liability or alleged
liability of any director or the corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or
repeal.
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Sections 228 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, we have signed this certificate as of this 5th day of
December, 1986.
/s/ Albert C. Lasher
-----------------------------------
Albert C. Lasher,
Chairman,
The Fonda Group, Inc.
[SEAL]
ATTEST:
/s/ Robert Nortillo
- --------------------
Robert Nortillo,
Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "THE FONDA GROUP, INC", FILED IN THIS OFFICE ON THE TWENTIETH
DAY OF OCTOBER, A.D. 1988, AT 11 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2025367 8100 AUTHENTICATION: 8333378
971050506 DATE: 02-14-97
<PAGE>
FILED
OCT 20 1988 11 AM
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
Adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware
Dennis Mehiel, being the Chairman of the Board of The Fonda Group, Inc.,
a corporation existing under the laws of the State of Delaware, does hereby
certify as follows:
FIRST: That the Certificate of Incorporation of said corporation shall
be amended as follows:
By deleting Paragraph Fourth thereof and inserting in lieu thereof a new
Paragraph Fourth, reading in its entirety as follows:
"FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Twenty Thousand (20,000), with a par value of
$.01 per share, of which Nineteen Thousand (19,000) shares shall be
designated as Common Stock, and One Thousand (1,000) shares shall be
designated as Preferred Stock.
The designation, relative rights, preferences and limitations of shares
of each class shall be as follows:
(a) Each share of Common Stock and Preferred Stock shall be entitled to
one vote on all matters submitted to the vote of the stockholders of the
Corporation.
(b) Preferred Stock shall be subject to redemption as follows:
<PAGE>
(i) The outstanding Preferred Stock 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 hereinafter defined) then in effect. In case less than all
of the outstanding Preferred Stock 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.
(ii) Notice of an election by the Corporation for the redemption of
Preferred Stock (the "Notice") shall be made in writing and shall be
mailed not less than 30 days prior to the date upon which the
Preferred Stock is to be redeemed. Any such Notice to holders of
Preferred Stock shall be mailed to such holders at their address as
appears in the record of stockholders of the Corporation. If on or
before the redemption date specified in such Notice, the funds
necessary for such redemption shall have been set aside by the
Corporation so as to be available for payment on demand to the holders
of Preferred Stock to be redeemed, then, notwithstanding that any
certificate of the Preferred Stock to be redeemed shall not have been
surrendered for cancellation, all rights with respect to such
Preferred Stock so called for redemption shall forthwith after such
redemption date cease and terminate, except only the right of the
holder to receive the Redemption Price therefor.
(iii) The term Redemption Price shall mean (a) the sum of $1,750
per share if the Notice is given on or before the fifth anniversary of
the date of issuance of the Preferred Stock ("Date of Issuance"); (b)
the sum of $2,000 per share if the Notice is given after the fifth
anniversary and on or before the sixth anniversary of the Date of
Issuance; (c) the sum of $2,250 per share if the Notice is given after
the sixth anniversary and on or before the seventh anniversary of the
Date of Issuance; and (d) the sum of $2,500 per share if the Notice is
given after the seventh anniversary of the Date of Issuance.
-2-
<PAGE>
(c) If any shares of Preferred Stock remain outstanding 30 days after
the seventh anniversary of the Date of Issuance thereof, such shares of
Preferred Stock shall automatically be converted into shares of Common
Stock on the basis of one share of Common Stock for each outstanding share
of Preferred Stock.
(d) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, holders of
Preferred Stock shall be entitled, before any assets of the Corporation
shall be distributed among or paid over to the holders of Common Stock, to
be paid the Redemption Price per share then in effect at the time of such
liquidation, dissolution or winding up. After the payment or setting apart
for payment of the amount so payable to holders of Preferred Stock, the
remaining assets of the Corporation shall be available for distribution to
the holders of Common Stock according to their interests. If, upon such
liquidation, dissolution or winding up, the assets of the Corporation
distributable as aforesaid among the holders of the Preferred Stock shall
be insufficient to permit the payment to them of said amount, the entire
assets shall be distributed ratably among the holders of Preferred Stock.
(e) Common Stock shall be entitled to receive dividends when and as
declared by the Board of Directors of the Corporation out of funds legally
available therefor. Preferred Stock shall not be entitled to receive any
dividends."
SECOND: That such amendment has been duly adopted in accordance with the
provisions of Sections 242 and 228 of
<PAGE>
the General Corporation Law of the State of Delaware and that notice has been
given in accordance with such Section 228.
IN WITNESS WHEREOF, we have signed this certificate as of this 19th day
of October, 1988.
/s/ Dennis Mehiel
--------------------------------
Dennis Mehiel, Chairman of the
Board
Attest:
/s/ Thomas Uleau
- ---------------------------------
Thomas Uleau, Assistant Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"CHESAPEAKE CONSUMER PRODUCTS COMPANY", A VIRGINIA CORPORATION,
WITH AND INTO "THE FONDA GROUP, INC." UNDER THE NAME OF "THE FONDA GROUP,
INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-NINTH DAY OF
DECEMBER, A.D. 1995, AT 9:30 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100M AUTHENTICATION: 8333380
971050506 DATE: 02-14-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISIONS OF CORPORATIONS
FILED 09:30 AM 12/29/1995
950313114 - 2025367
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
CHESAPEAKE CONSUMER PRODUCTS COMPANY
INTO
THE FONDA GROUP, INC.
*****
The Fonda Group, Inc., a corporation organized and existing under the laws
of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That this corporation was incorporated on the ninth day of January,
1984, pursuant to the General Corporation Law of the State of Delaware.
SECOND: That this corporation owns all of the outstanding shares of the
stock of Chesapeake Consumer Products Company, a corporation incorporated on
the fifth day of May, 1989, pursuant to the Stock Corporation Act of the
Commonwealth of Virginia.
THIRD: That this corporation, by the following resolutions of its Board of
Directors, duly adopted at a meeting held on the 19th day of December, 1995,
determined to and did merge into itself said Chesapeake Consumer Products
Company.
RESOLVED, that The Fonda Group, Inc. merge, and it hereby does merge into
itself said Chesapeake Consumer Products Company and assumes all its
obligations; and
<PAGE>
FURTHER RESOLVED, that the proper officer of this corporation be and he is
hereby directed to make and execute a Certificate of Ownership and Merger
setting forth a copy of the resolutions to merge said Chesapeake Consumer
Products Company and assume its liabilities and obligations, and the date of
adoption thereof, and to cause the same to be filed with the Secretary of
State and to do all acts and things whatsoever, whether within or without the
State of Delaware, which may be in anywise necessary or proper to effect said
merger.
IN WITNESS WHEREOF, The Fonda Group, Inc. has caused this Certificate to
be signed by Thomas Uleau, its Executive Vice President, this 29th day of
December, 1995.
The Fonda Group, Inc.
By /s/ Thomas Uleau
-------------------------
Thomas Uleau
Executive Vice President
-2 -
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"JAMES RIVER -LONG BEACH, INC.", A VIRGINIA CORPORATION,
WITH AND INTO "THE FONDA GROUP, INC." UNDER THE NAME OF "THE FONDA GROUP,
INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE SEVENTH DAY OF MAY, A.D.
1996, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2025367 8100M AUTHENTICATION: 8333381
971050506 DATE: 02-14-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATION
FILED 09:00 AM 05/07/1996
960131526--2025367
CERTIFICATE OF OWNERSHIP AND MERGER
OF
JAMES RIVER -LONG BEACH, INC.
(A Virginia Corporation)
INTO
THE FONDA GROUP, INC.
(A Delaware Corporation)
--------------------------------
PURSUANT TO SECTION 253 OF THE
Delaware General Corporation Law
--------------------------------
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
JAMES RIVER -LONG BEACH, INC.
(A Virginia Corporation)
INTO
THE FONDA GROUP, INC.
(A Delaware Corporation)
--------------------------------
PURSUANT TO SECTION 253 OF THE
Delaware General Corporation Law
--------------------------------
The Fonda Group, Inc., a corporation formed under the laws of the State of
Delaware ("Fonda"), desiring to merge with and into itself James River -Long
Beach, Inc., a corporation formed under the laws of the State of Virginia
("JRLB"), pursuant to the provisions of Section 253 of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as follows:
FIRST: That Fonda was incorporated on the 9th day of January, 1984
pursuant to the General Corporation Law of the State of Delaware, and that
JRLB was incorporated on the 21st day of March, 1996, pursuant to the
Virginia Stock Corporation Act.
SECOND: That Fonda owns 100% of the outstanding shares of common stock of
JRLB, the only class of stock which JRLB is authorized to issue.
-1-
<PAGE>
THIRD: That the Board of Directors of Fonda being, the sole shareholder of
JRLB, determined to merge JRLB with and into itself and did duly adopt the
preambles and resolutions attached hereto as Exhibit A and made a part hereof
(the "Resolution of Merger") at a meeting of the Board of Directors held on
the 24th day of April, 1996.
FOURTH: That the proposed merger has been duly approved by Fonda, the
holder of all of the outstanding stock of JRLB entitled to vote thereon in
this merger.
FIFTH: This Certificate of Ownership and Merger shall be effective on the
date of filing with the Department of State of the State of Delaware.
IN WITNESS WHEREOF, Fonda, a Delaware corporation, has caused this
Certificate of Ownership and Merger to be executed by its officers thereunto
duly authorized this 7th day of May, 1996.
THE FONDA GROUP, INC.
a Delaware corporation
ATTEST:
/s/ Harvey L. Friedman /s/ Thomas Uleau
- ------------------------ -------------------------
By: Harvey L. Friedman By: Thomas Uleau
Title: Secretary Title: Executive Vice
President
-2-
<PAGE>
EXHIBIT A
UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
THE FONDA GROUP, INC.
A DELAWARE CORPORATION
We the undersigned, being all of the Directors of The Fonda Group, Inc., a
Delaware corporation ("Fonda"), do hereby unanimously consent pursuant to
Section 141(f) of the Delaware General Corporation Law to the adoption of the
following preambles and resolutions in lieu of a meeting of the Board of
Directors of Fonda.
WHEREAS, James River - Long Beach, Inc. ("JRLB") is a corporation duly
organized and existing under the laws of the State of Virginia with one class
of common stock, par value $.10 per share (the "JRLB Common Stock")
outstanding. There are 200 shares of JRLB Common Stock issued and outstanding
as of the date hereof.
WHEREAS, Fonda is a corporation duly organized and existing under the laws
of the State of Delaware.
WHEREAS, Fonda is the holder of record of 100% of the issued and
outstanding JRLB Common Stock.
WHEREAS, this Board of Directors deems it advisable and in the best
interests of JRLB and Fonda, and their respective stock-
<PAGE>
holders, that JRLB be merged with and into Fonda as provided herein
(the "Merger").
NOW, THEREFORE, BE IT:
RESOLVED, that the Merger is hereby approved, and that JRLB merge with and
into Fonda, on the following terms:
1. THE MERGER. On the date on which a Certificate of Ownership and
Merger, duly adopted and executed by Fonda, is filed with the Secretary of
State of the State of Delaware (the "Effective Date"), JRLB shall be
merged with and into Fonda and the separate corporate existence of JRLB
shall thereupon cease. Following the Merger, Fonda shall continue as the
surviving corporation (the "Surviving Corporation"), and the separate
corporate existence of JRLB shall cease, with effects provided in Section
259 of the General Corporation Law of the State of Delaware.
2. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation and
By-Laws of Fonda, in effect immediately prior to the Effective Date, shall
continue to be the Certificate of Incorporation and By-Laws of the
Surviving Corporation, unless and until amended or repealed as provided by
law.
RESOLVED, that the officers of Fonda hereby are, and each of them acting
alone hereby is, authorized, empowered and directed
-2-
<PAGE>
to take all actions and to execute all documents which may be necessary or
desirable in order to consummate the transactions contemplated by the
foregoing resolution, with such changes therein as such officer or officers may
deem necessary or desirable, their determination in that regard to be
conclusively evidenced by their taking of any such actions or their execution
of any such documents.
RESOLVED, that the authority and power given under the foregoing
resolutions shall be deemed retroactive and any and all acts authorized
thereunder performed prior to the adoption of these resolutions are, in all
respects, ratified, confirmed and approved.
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE
OF "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON THE SEVENTEENTH DAY OF
MAY, A.D. 1995, AT 9 O'CLOCK A.M.
[SEAL]
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
2025367 8100 AUTHENTICATION: 8333379
971050506 DATE: 02-14-97
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/17/1995
950108764 -2025367
RESTATED CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
THE FONDA GROUP, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
1. The present name of the Corporation is THE FONDA GROUP, INC. The name
under which the Corporation was originally incorporated is DMS ACQUISITION
CORPORATION. The original Certificate of Incorporation of the Corporation
(the "Certificate of Incorporation") was filed with the State of Delaware on
January 9, 1984.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, this Restated Certificate of Incorporation restates and
amends the provisions of the Certificate of Incorporation, and such
amendments have been duly adopted in accordance with the above-referenced
Sections.
3. The text of the Certificate of Incorporation is hereby restated and
amended to read in its entirety as set forth in Exhibit A attached hereto.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has been
duly executed this 8 day of May, 1995.
THE FONDA GROUP, INC.
By: /s/ Thomas Uleau
------------------------
Thomas Uleau
Executive Vice President
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
FIRST: The name of the Corporation is THE FONDA GROUP, INC.
SECOND: The registered office of the Corporation in the State of Delaware
is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite
L-100, Dover, DE 19904, County of Kent. The name of its registered agent at
such address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty-six million one thousand
(36,001,000) shares, consisting of
(a) one thousand (1,000) shares of Preferred Stock, par value $0.01 per
share (hereinafter referred to as "Preferred Stock");
(b) five million (5,000,000) shares of Class B Preferred Stock, par value
$.01 per share (hereinafter referred to as "Class B Preferred Stock"); and
(c) thirty-one million (31,000,000) shares of Common Stock, par value
$.01 per share (hereinafter referred to as "Common Stock").
The designations, relative rights, preferences and limitations of shares
of each class and the authority of the Board of Directors to fix the
designations, relative rights, preferences and limitations of shares of each
class not fixed hereby shall be as follows:
A. PREFERRED STOCK
1. Each share of Preferred Stock shall be entitled to one vote on all
matters submitted to the vote of the stockholders of the Corporation, and
each share of Common Stock and each share of Preferred Stock shall be voted
together on all such matters as a single class.
<PAGE>
2. Preferred Stock shall be subject to redemption as follows:
(a) The outstanding Preferred Stock 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
hereinafter defined) then in effect. In case less than all of the
outstanding Preferred Stock 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.
(b) Notice of an election by the Corporation for the redemption of
Preferred Stock (the "Notice") shall be made in writing and shall be
mailed not less than 30 days prior to the date upon which the Preferred
Stock is to be redeemed. Any such Notice to holders of the Preferred Stock
shall be mailed to such holders at their address as appears in the record
of stockholders of the Corporation. If on or before the redemption date
specified in such Notice, the funds necessary for such redemption shall
have been set aside by the Corporation so as to be available for payment
on demand to the holders of Preferred Stock to be redeemed, then,
notwithstanding that any certificate of the Preferred Stock to be redeemed
shall not have been surrendered for cancellation, all rights with respect
to such Preferred Stock so called for redemption shall forthwith after
such redemption date cease and terminate, except only the right of the
holder to receive the Redemption Price therefor.
(c) The term Redemption Price shall mean (i) the sum of $1,750 per share
if the Notice is given on or before the fifth anniversary of the date of
issuance of the Preferred Stock ("Date of Issuance"); (ii) the sum of
$2,000 per share if the Notice is given after the fifth anniversary and on
or before the sixth anniversary of the Date of Issuance; (iii) the sum of
$2,250 per share if the Notice is given after the sixth anniversary and on
or before the seventh anniversary of the Date of Issuance; and (iv) the
sum of $2,500 per share if the Notice is given after the seventh
anniversary of the Date of Issuance.
3. If any shares of Preferred Stock remain outstanding 30 days after the
seventh anniversary of the Date of Issuance thereof, such shares of Preferred
Stock 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 Stock.
4. In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or
-2-
<PAGE>
involuntary, holders of Preferred Stock shall be entitled, before any assets
of the Corporation shall be distributed among or paid over to the holders of
Class B Preferred Stock or the holders of Common Stock, to be paid the
Redemption Price per share then in effect at the time of such liquidation,
dissolution or winding up. After the payment or setting apart for payment of
the amount so payable to holders of Preferred Stock, the remaining assets of
the Corporation shall be available for distribution to the holders of Class B
Preferred Stock and the holders of Common Stock according to their interests.
If, upon such liquidation, dissolution or winding up, the assets of the
Corporation distributable as aforesaid among the holders of Preferred Stock
shall be insufficient to permit the payment to them of said amount, the
entire assets shall be distributed ratably among the holders of Preferred
Stock.
5. Preferred Stock shall not be entitled to receive any dividends.
B. CLASS B PREFERRED STOCK
Shares of Class B Preferred Stock may be issued from time to time in one
or more series, as may from time to time be determined by the Board of
Directors, each of said series to be distinctly designated. All shares of any
one series of Class B Preferred Stock shall be alike in every particular,
except that there may be different dates from which dividends, if any,
thereon shall be cumulative, if made cumulative. The voting rights, if any,
and the preferences and relative, participating, optional and other special
rights of each such series, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all other
series at any time outstanding; and, subject to the provisions of
subparagraph 2 of Paragraph D of this Article FOURTH, the Board of Directors
of the Corporation is hereby expressly granted authority to fix by resolution
or resolutions adopted prior to the issuance of any shares of a particular
series of Class B Preferred Stock, the voting rights, if any, and the
designations, preferences and relative, participating, optional and other
special rights, and the qualifications, limitations and restrictions of such
series, including, but without limiting the generality of the foregoing, the
following:
(a) The distinctive designation of, and the number of shares of
Class B Preferred Stock which shall constitute such series, which
number may be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of Directors;
-3-
<PAGE>
(b) The rate and times at which, and the terms and conditions on which,
dividends, if any, on Class B Preferred Stock of such series shall be
paid, the extent of the preference or relation, if any, of such dividends
to the dividends payable on any other class or classes or series of the
same or other classes of stock and whether such dividends shall be
cumulative or non-cumulative;
(c) The right, if any, of the holders of Class B Preferred Stock of such
series to convert the same into, or exchange the same for, shares of any
other class or classes or of any series of the same or any other class or
classes of stock of the Corporation and the terms and conditions of such
conversion or exchange;
(d) Whether or not Class B Preferred Stock of such series shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions on which, Class B Preferred
Stock of such series may be redeemed;
(e) Subject to the provisions of subparagraph 4 of Paragraph A of this
Article FOURTH, the rights, if any, of the holders of Class B Preferred
Stock of such series upon the voluntary or involuntary liquidation,
merger, consolidation, distribution or sale of assets, dissolution or
winding-up of the Corporation;
(f) The terms of the sinking fund or redemption or purchase account, if
any, to be provided for the Class B Preferred Stock of such series; and
(g) The voting powers, if any, of the holders of such series of Class B
Preferred Stock which may, without limiting the generality of the
foregoing, include the right, voting as a series by itself or together
with other series of Class B Preferred Stock or all series of Class B
Preferred Stock as a class, to vote on such matters or under such
circumstances and on such conditions as the Board of Directors may
determine.
C. COMMON STOCK
The Common Stock shall be divided into Twenty Million (20,000,000) shares
of Class A Common Stock, One Million (1,000,000) shares of Class B Common
Stock and Ten Million (10,000,000) shares of Class C Common Stock. The
powers, preferences and rights, and the qualifications, limitations and
restrictions, of the Class A Common Stock, Class B Common Stock and Class C
Common Stock are as follows:
-4 -
<PAGE>
1. Except to the extent expressly set forth in subparagraph 4 or
subparagraph 5 of this Paragraph C, none of the Class A Common Stock, the
Class B Common Stock or the Class C Common Stock has any preference over, or
with respect to, any other such class of Common Stock, and each share of
Class A Common Stock, Class B Common Stock and Class C Common Stock is vested
with all of the same rights and powers in all respects, including, without
limitation, dividend and liquidation rights.
2. After the requirements with respect to preferential dividends on the
Class B Preferred Stock (fixed in accordance with the provisions of Paragraph
B of this Article FOURTH), if any, shall have been met and after the
Corporation shall have complied with all the requirements, if any, with
respect to the setting aside of sums as sinking funds or redemption or
purchase accounts (fixed in accordance with the provisions of Paragraph B of
this Article FOURTH), and subject further to any other conditions which may
be fixed in accordance with the provisions of Paragraph B of this Article
FOURTH, then and not otherwise the holders of Common Stock shall be entitled
to receive such dividends as may be declared from time to time by the Board
of Directors out of funds legally available therefor. When and as dividends
are declared thereon, whether payable in cash, property or securities of the
Corporation, holders of Class A Common Stock, Class B Common Stock and Class
C Common Stock will be entitled to share in such dividends ratably according
to the number of shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock held by them. If dividends are declared which are
payable in shares of Class A Common Stock, Class B Common Stock or Class C
Common Stock, such dividends will be declared payable at the same rate on
each class of Common Stock, and the dividends payable in shares of Class A
Common Stock will be payable to the holders of Class A Common Stock, the
dividends payable in shares of Class B Common Stock will be payable to the
holders of Class B Common Stock and the dividends payable in shares of Class
C Common Stock will be payable to the holders of Class C Common Stock.
3. After distribution in full of the preferential amount (fixed in
accordance with the provisions of Paragraphs A and B of this Article FOURTH),
if any, to be distributed to the holders of Preferred Stock and to the
holders of Class B Preferred Stock in the event of voluntary or involuntary
liquidation, distribution or sale of assets, dissolution or winding-up of the
Corporation, the holders of Class A Common Stock, Class B Common Stock and
Class C Common Stock shall be entitled to share, ratably according to the
number of shares of Class A Common Stock, Class B Common Stock and/or Class C
Common Stock, respectively, held by them, in all the remaining assets of the
Corporation, tangible and intangible, of whatever kind available for
distribution to stockholders.
-5 -
<PAGE>
4. Except as may otherwise be required by law or by the provisions of such
resolution or resolutions as may be adopted by the Board of Directors
pursuant to Paragraph B of this Article FOURTH, each holder of Class A Common
Stock shall have one vote in respect of each share of Class A Common Stock
held by it on all matters voted upon by the stockholders, including the
election of directors, and shall vote together with the holders of Preferred
Stock as a single class. The holders of Class B Common Stock and the holders
of Class C Common Stock shall not be entitled to any vote whatsoever, except
to the extent otherwise provided by applicable law.
5. (a) Any share of Class B Common Stock may, at any time, be converted
into a fully paid and non-assessable share of Class A Common Stock (x) at
the option of any holder other than a "Non-Converting Holder" (as defined
below) or (y) 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, firm or corporation other than a Non-Converting Holder, subject to
the conditions hereinafter set forth. For the purpose of this subparagraph
5, the term "Non-Converting Holder" shall mean The Equitable Life
Assurance Society of the United States and any of its affiliates, or any
other person, firm or corporation that elects to be treated as a
"Non-Converting Holder" by written notice delivered to the Corporation on
or before the date of acquisition of shares of Class B Common Stock by
such person, firm or corporation, which notice refers to this sentence and
states that such person, firm or corporation is irrevocably electing to be
treated as a "Non-Converting Holder." Such written notice shall be filed
with the minutes of the proceedings of the Board of Directors of the
Corporation.
(b) Upon receipt by the Corporation from a record holder of shares of
Class B Common Stock of a written request to convert its shares of Class B
Common Stock, the shares of Class B Common Stock requested to be converted
shall be converted into shares of Class A Common Stock, on the basis of
one share of Class A Common Stock for each share of Class B Common Stock.
The conversion of shares hereunder shall be effective, subject to the
terms of this subparagraph 5, as of the close of business on the date of
the receipt by the Corporation of such request to convert, and the holder
entitled to receive the shares issuable upon such conversion shall be
treated for all purposes as the record holder of such shares on such date.
All shares of Class B Common Stock converted into shares of Class A Common
Stock as provided in this subparagraph 5 may be reissued by the
Corporation.
-6 -
<PAGE>
(c) Any conversion of shares of Class B Common Stock shall be exercised
by the surrender by the holder of the certificate or certificates
representing the shares being converted accompanied by a written notice of
conversion signed by such holder or its duly authorized agent, at the
principal office of the Corporation (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holder or holders of Class B Common Stock) at any time during its usual
business hours, stating therein the name or names in which such holder
wishes the certificate or certificates for Class A Common Stock to be
received upon conversion to be issued and the address to which such
certificate or certificates shall be delivered. In case such notice shall
specify a name or names other than that of the holder, such notice shall
be accompanied by payment of any and all transfer taxes payable upon the
issuance of the Class A Common Stock upon conversion and all instruments
of transfer appropriately completed to permit such issuance. Subject to
the foregoing, the issuance of certificates for shares of Class A Common
Stock upon conversion of shares of Class B Common Stock shall be made
without charge to the holder of such converted shares for any costs
incurred by the Corporation in connection with such conversion and related
issuance of shares. As soon as practicable after such surrender of such
certificate or certificdates, the Corporation shall issue and deliver at
such address as is specified by such holder a certificate or certificates
for the number of shares of Class A Common Stock to which such holder
shall be entitled as aforesaid.
(d) The Corporation shall at all times reserve and keep available, out of
its authorized and unissued shares, solely for the purpose of issue upon
the conversion of shares of Class B Common Stock as herein provided, such
number of shares of Class A Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Class B Common Stock. All
shares of Class A Common Stock issuable upon any conversion described
herein shall, when issued, be duly and validly issued and fully paid and
nonassessable. The Corporation will take such action as may be necessary
to assure that all such shares of Class A Common Stock may be so issued
without violation of any applicable requirements of any national stock
exchange upon which the shares of Common Stock of the Corporation may be
listed.
(e) If the Corporation in any manner subdivides or combines the
outstanding shares of any class of Common Stock, the outstanding shares of
the other classes will be proportionately subdivided or combined.
-7 -
<PAGE>
D. OTHER PROVISIONS
1. No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series
of stock or of other securities of the Corporation shall have any preemptive
right to purchase or subscribe for any unissued stock of any class or series
or any additional shares of any class or series to be issued by reason of any
increase of the authorized capital stock of the Corporation of any class or
series, or bonds, certificates of indebtedness, debentures or other
securities convertible into or exchangeable for stock of the Corporation of
any class or series, or carrying any right to purchase stock of any class or
series, but any such unissued stock, additional authorized issue of shares of
any class or series of stock or securities convertible into or exchangeable
for stock, or carrying any right to purchase stock, may be issued and
disposed of pursuant to resolution of the Board of Directors to such persons,
firms, corporations or associations, whether one or more of such holders or
others, and upon such terms as may be deemed advisable by the Board of
Directors.
2. The relative powers, preferences and rights of each series of Class B
Preferred Stock in relation to the powers, preferences and rights of each
other series of Class B Preferred Stock shall, in each case, be as fixed from
time to time by the Board of Directors in the resolution or resolutions
adopted pursuant to authority granted in Paragraph B of this Article FOURTH
and the consent, by class or series vote or otherwise, of the holders of
Preferred Stock or the holders of such of the series of Class B Preferred
Stock as are from time to time outstanding shall not be required for the
issuance by the Board of Directors of any other series of Class B Preferred
Stock, whether or not the powers, preferences and rights of such other series
shall be fixed by the Board of Directors as senior to, or on a parity with,
the powers, preferences and rights of such outstanding class or series, or
any of them; provided, however, that the Board of Directors may expressly
provide in the resolution or resolutions as to any series of Class B
Preferred Stock adopted pursuant to Paragraph B of this Article FOURTH that
the consent of the holders of a majority (or such greater proportion as shall
be therein fixed) of the outstanding shares of such series voting thereon
shall be required for the issuance of any or all other series of Class B
Preferred Stock.
3. Subject to the provisions of subparagraph 2 of this Paragraph D, shares
of any class or series of Preferred Stock, in an aggregate amount not
exceeding the total number of shares of Preferred Stock or Class B Preferred
Stock, as applicable, authorized in this Restated Certificate of
Incorporation, may be issued from time to time as the Board of Directors of
the Corpo-
-8-
<PAGE>
ration shall determine and on such terms and for such consideration as shall
be fixed by the Board of Directors.
4. Shares of Class A Common Stock, Class B Common Stock and Class C Common
Stock, in an aggregate amount not exceeding the respective total number of
shares of Class A Common Stock, Class B Common Stock and Class C Common Stock
authorized in this Restated Certificate of Incorporation, may be issued from
time to time as the Board of Directors of the Corporation shall determine and
on such terms and for such consideration as shall be fixed by the Board of
Directors.
5. The authorized amount of shares of Preferred Stock, Class B Preferred
Stock and Common Stock may, without a class or series vote, be increased or
decreased (but not below the number of such shares then outstanding) from
time to time by the affirmative vote of the holders of a majority of the
stock of the Corporation entitled to vote thereon.
FIFTH: Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
SIXTH: In furtherance and not in limitation of the powers conferred upon
the Board of Directors by law, the Board of Directors shall have power to
make, adopt, alter, amend and repeal from time to time by-laws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal by-laws made by the Board of Directors.
SEVENTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that, subject to the
immediately following sentence, this Article SEVENTH shall not eliminate or
limit the liability of a director to the extent provided by applicable law
(i) for any breach of the director's duty of loyalty to the Corporation 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 General Corporation Law of the State of Delaware, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of the Restated Certificate of Incorporation of which this
Article SEVENTH is a part to authorize corporate action eliminating or
further limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as
so amended. Subject to the immediately preceding sentence, no amendment to or
repeal of this Article
-9-
<PAGE>
SEVENTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts
or omissions of such director occurring prior to such amendment or repeal.
EIGHTH: The Corporation shall, to the fullest extent permitted from time
to time under the law of the State of Delaware, indemnify, and upon request
shall advance expenses to, any and all persons whom it shall have power to
indemnify under such law to the extent that such indemnification and
advancement of expenses is permitted under such law, as such law may from
time to time be in effect; provided, however, that the foregoing shall not
require the Corporation to indemnify or advance expenses to any person in
connection with any action, suit, proceeding, claim or counterclaim initiated
by or on behalf of such person. Such indemnification shall not be deemed
exclusive of other rights to which those indemnified may be entitled under
any by-law, agreement, vote of directors or stockholders or otherwise, both
as to action in his 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 person. To the extent permitted
by applicable law, any person seeking indemnification under this Article
EIGHTH shall be deemed to have met the standard of conduct required for such
indemnification unless the contrary shall be established. Any repeal or
modification of the foregoing provisions of this Article EIGHTH shall not
adversely affect any right or protection of a person with respect to any acts
or omissions of such person occurring prior to such repeal or modification.
NINTH: The books of the Corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by
the Board of Directors or in the by-laws of the Corporation.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Restated Certificate of
Incorporation, as such may from time to time be in effect, in the
manner now or hereafter prescribed by law, and all rights and powers
conferred herein are granted subject to this reservation.
-10-
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "THE FONDA GROUP, INC.", FILED IN THIS OFFICE ON THE SIXTEENTH
DAY OF OCTOBER, A.D. 1996, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 8333382
DATE: 02-14-97
2025367 8100
971050506
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF
CORPORATIONS
FILED 09:00 AM
10/16/1996
960299954 -2925367
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
THE FONDA GROUP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
The Fonda Group, Inc.
2. The Restated Certificate of Incorporation of the Corporation is hereby
amended by:
(i) striking out the first paragraph in Article FOURTH thereof and by
substituting in lieu of said paragraph the following new first paragraph:
"FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is seven hundred twenty one
thousand (721,000) shares, consisting of
(a) one thousand (1,000) shares of Preferred Stock, par value $.01
per share (hereinafter referred to as "Preferred Stock");
(b) one hundred thousand (100,000) shares of Class B Preferred Stock,
par value $.01 per share (hereinafter referred to as "Class B
Preferred Stock"); and
(c) six hundred and twenty thousand (620,000) shares of Common Stock,
par value $.01 per share (hereinafter referred to as "Common
Stock")."; and
(ii) striking out the first sentence in Article FOURTH, Paragraph C
thereof and by substituting in lieu of said sentence the following new first
sentence:
"The Common Stock shall be divided into Four Hundred Thousand (400,000)
shares of Class A Common Stock, Twenty Thousand (20,000) shares of Class B
Common Stock and Two Hundred Thousand (200,000) shares of Class C Common
Stock."
<PAGE>
3. The amendments to the Restated Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
Signed and attested to on August 30, 1996.
/s/ Dennis Mehiel
---------------------
Dennis Mehiel,
Chairman & CEO
-2-
<PAGE>
EXECUTION COPY
===============================================================================
THE FONDA GROUP, INC.
-----------------
SERIES A AND SERIES B
9 1/2% SENIOR SUBORDINATED NOTES DUE 2007
-----------------
INDENTURE
Dated as of February __, 1997
-----------------
-----------------
THE BANK OF NEW YORK
-----------------
Trustee
===============================================================================
<PAGE>
CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
310 (a)(1)................................................ 7.10
(a)(2)................................................ 7.10
(a)(3) ............................................... N.A.
(a)(4)................................................ N.A.
(a)(5)................................................ 7.10
(b) .................................................. 7.10
(c) .................................................. N.A.
311 (a) .................................................. 7.11
(b) .................................................. 7.11
(c) .................................................. N.A.
312 (a) .................................................. 2.05
(b) .................................................. 11.03
(c) .................................................. 11.03
313 (a) .................................................. 7.06
(b)(1) ............................................... N.A.
(b)(2) ............................................... 7.06; 7.07
(c) .................................................. 7.06; 11.02
(d) .................................................. 7.06
314 (a) .................................................. 4.03; 11.02
(b) .................................................. N.A.
(c)(1) ............................................... 11.04
(c)(2) ............................................... 11.04
(c)(3) ............................................... N.A.
(d) .................................................. N.A.
(e) .................................................. 11.05
(f) .................................................. N.A.
315 (a) .................................................. 7.01(b)
(b) .................................................. 7.05; 11.02
(c) .................................................. 7.01(a)
(d) .................................................. 7.01(c)
(e) .................................................. 6.11
316 (a)(last sentence) ................................... 2.09
(a)(1)(A)............................................. 6.05
(a)(1)(B) ............................................ 6.04
(a)(2) ............................................... N.A.
(b) .................................................. 6.07
(c) .................................................. N.A.
317 (a)(1) ............................................... 6.08
(a)(2)................................................ 6.09
(b) .................................................. 2.04
318 (a)................................................... N.A.
(b)................................................... N.A.
(c)................................................... 11.01
N.A. means not applicable.
* This Cross-Reference Table is not part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE......................................... 1
Section 1.01 Definitions........................................................... 1
Section 1.02. Other Definitions..................................................... 12
Section 1.03. Incorporation by Reference of Trust Indenture Act..................... 13
Section 1.04. Rules of Construction................................................. 13
ARTICLE 2 THE SENIOR SUBORDINATED NOTES...................................................... 14
Section 2.01. Form and Dating....................................................... 14
Section 2.02. Execution and Authentication.......................................... 14
Section 2.03. Registrar and Paying Agent............................................ 15
Section 2.04. Paying Agent to Hold Money in Trust................................... 15
Section 2.05. Holder Lists.......................................................... 16
Section 2.06. Transfer and Exchange................................................. 16
Section 2.07. Replacement Senior Subordinated Notes................................. 21
Section 2.08. Outstanding Senior Subordinated Notes................................. 22
Section 2.09. Treasury Senior Subordinated Notes.................................... 22
Section 2.10. Temporary Senior Subordinated Notes................................... 22
Section 2.11. Cancellation.......................................................... 23
Section 2.12. Defaulted Interest.................................................... 23
Section 2.13. CUSIP Number.......................................................... 23
ARTICLE 3 REDEMPTION AND PREPAYMENT.......................................................... 23
Section 3.01. Notices to Trustee.................................................... 23
Section 3.02. Selection of Senior Subordinated Notes to Be Redeemed................. 24
Section 3.03. Notice of Redemption.................................................. 24
Section 3.04. Effect of Notice of Redemption........................................ 25
Section 3.05. Deposit of Redemption Price........................................... 25
Section 3.06. Senior Subordinated Notes Redeemed in Part............................ 25
Section 3.07. Optional Redemption................................................... 25
Section 3.08. Mandatory Redemption.................................................. 26
Section 3.09. Repurchase Offers..................................................... 26
ARTICLE 4 COVENANTS.......................................................................... 28
Section 4.01. Payment of Senior Subordinated Notes.................................. 28
Section 4.02. Maintenance of Office or Agency....................................... 29
Section 4.03. Reports............................................................... 29
Section 4.04. Compliance Certificate................................................ 29
Section 4.05. Taxes................................................................. 30
Section 4.06. Stay, Extension and Usury Laws........................................ 30
Section 4.07. Restricted Payments................................................... 31
Section 4.08. Dividend and Other Payment Restrictions Affecting
Subsidiaries.......................................................... 32
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock............ 33
Section 4.10. Asset Sales........................................................... 34
Section 4.11. Transactions with Affiliates.......................................... 35
Section 4.12. Liens................................................................. 36
Section 4.13. Corporate Existence................................................... 36
Section 4.14. Offer to Repurchase Upon Change of Control............................ 36
<PAGE>
Section 4.15. Issuances and Sales of Capital Stock of Restricted
Subsidiaries.......................................................... 37
Section 4.16. Other Senior Subordinated Debt........................................ 38
Section 4.17. Subsidiary Guarantees................................................. 38
Section 4.18. Payments for Consent.................................................. 38
ARTICLE 5 SUCCESSORS......................................................................... 38
Section 5.01. Merger, Consolidation, or Sale of Assets.............................. 38
Section 5.02. Successor Corporation Substituted..................................... 39
ARTICLE 6 DEFAULTS AND REMEDIES ............................................................. 39
Section 6.01. Events of Default..................................................... 39
Section 6.02. Acceleration.......................................................... 40
Section 6.03. Other Remedies........................................................ 41
Section 6.04. Waiver of Past Defaults............................................... 42
Section 6.05. Control by Majority................................................... 42
Section 6.06. Limitation on Suits................................................... 42
Section 6.07. Rights of Holders of Senior Subordinated Notes to Receive
Payment............................................................... 43
Section 6.08. Collection Suit by Trustee............................................ 43
Section 6.09. Trustee May File Proofs of Claim...................................... 43
Section 6.10. Priorities............................................................ 43
Section 6.11. Undertaking for Costs................................................. 44
ARTICLE 7 TRUSTEE ........................................................................... 44
Section 7.01. Duties of Trustee..................................................... 44
Section 7.02. Rights of Trustee..................................................... 45
Section 7.03. Individual Rights of Trustee.......................................... 46
Section 7.04. Trustee's Disclaimer.................................................. 46
Section 7.05. Notice of Defaults.................................................... 47
Section 7.06. Reports by Trustee to Holders of the Senior Subordinated
Notes................................................................. 47
Section 7.07. Compensation and Indemnity............................................ 47
Section 7.08. Replacement of Trustee................................................ 48
Section 7.09. Successor Trustee by Merger, etc...................................... 49
Section 7.10. Eligibility; Disqualification......................................... 49
Section 7.11. Preferential Collection of Claims Against the Company................. 49
Section 7.12. May Hold Senior Subordinated Notes.................................... 49
Section 7.13. Trustee's Application for Instructions from the Company............... 49
ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE........................................... 50
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.............. 50
Section 8.02. Legal Defeasance and Discharge........................................ 50
Section 8.03. Covenant Defeasance................................................... 50
Section 8.04. Conditions to Legal or Covenant Defeasance............................ 51
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions................................. 52
Section 8.06. Repayment to Company.................................................. 53
Section 8.07. Reinstatement......................................................... 53
<PAGE>
ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER .................................................. 53
Section 9.01. Without Consent of Holders of Senior Subordinated Notes............... 53
Section 9.02. With Consent of Holders of Senior Subordinated Notes.................. 54
Section 9.03. Compliance with Trust Indenture Act................................... 55
Section 9.04. Revocation and Effect of Consents..................................... 55
Section 9.05. Notation on or Exchange of Senior Subordinated Notes.................. 56
Section 9.06. Trustee to Sign Amendments, etc....................................... 56
ARTICLE 10 SUBORDINATION...................................................................... 56
Section 10.01. Agreement to Subordinate.............................................. 56
Section 10.02. Certain Definitions................................................... 56
Section 10.03. Liquidation; Dissolution; Bankruptcy.................................. 57
Section 10.04. Default on Senior Debt................................................ 57
Section 10.05. Acceleration of Senior Subordinated Notes............................. 58
Section 10.06. When Distribution Must Be Paid Over................................... 58
Section 10.07. Notice................................................................ 59
Section 10.08. Subrogation........................................................... 59
Section 10.09. Relative Rights....................................................... 59
Section 10.10. Subordination May Not Be Impaired by Company.......................... 59
Section 10.11. Distribution or Notice to Representative.............................. 60
Section 10.12. Rights of Trustee and Paying Agent.................................... 60
Section 10.13. Authorization to Effect Subordination................................. 61
Section 10.14. Payment............................................................... 61
Section 10.15. Defeasance of this Article 10......................................... 61
Section 10.16. No Claims Against Subsidiaries........................................ 62
Section 10.17. Amendments............................................................ 62
Section 10.18. Trustee Not Fiduciary for Holders of Senior Debt...................... 62
Section 10.19. Rights of Trustee as Holder of Senior Debt; Preservation of
Trustee's Rights...................................................... 62
ARTICLE 11 MISCELLANEOUS...................................................................... 63
Section 11.01. Trust Indenture Act Controls.......................................... 63
Section 11.02. Notices............................................................... 63
Section 11.03. Communication by Holders of Senior Subordinated Notes with
Other Holders of Senior Subordinated Notes............................ 64
Section 11.04. Certificate and Opinion as to Conditions Precedent.................... 64
Section 11.05. Statements Required in Certificate or Opinion......................... 64
Section 11.06. Rules by Trustee and Agents........................................... 65
Section 11.07. "Trustee" To Include Paying Agent..................................... 65
Section 11.08. No Personal Liability of Directors, Officers, Employees and
Stockholders.......................................................... 65
Section 11.09. Governing Law......................................................... 65
Section 11.10. No Adverse Interpretation of Other Agreements......................... 65
Section 11.11. Successors............................................................ 65
Section 11.12. Severability.......................................................... 65
Section 11.13. Counterpart Originals................................................. 66
Section 11.14. Table of Contents, Headings, etc...................................... 66
<PAGE>
ARTICLE 12 GUARANTEE OF SENIOR SUBORDINATED NOTES............................................. 66
Section 12.01. Execution and Delivery of Subsidiary Guarantee........................ 66
Section 12.02. Subordination of Guarantee; Guarantors May Consolidate, etc.,
on Certain Terms...................................................... 66
</TABLE>
EXHIBITS
Exhibit A FORM OF SENIOR SUBORDINATED NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFEROR
Exhibit C FORM OF SUBSIDIARY GUARANTEE
Exhibit D FORM OF SUPPLEMENTAL INDENTURE AND
AMENDMENT SUBSIDIARY GUARANTEE
<PAGE>
INDENTURE, dated as of February 27, 1997, between The Fonda Group, Inc., a
Delaware corporation (the "Company"), and The Bank of New York, as trustee (the
"Trustee").
The Company and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 9 1/2% Series
A Senior Subordinated Notes due 2007 (the "Series A Senior Subordinated Notes")
and the 9 1/2% Series B Senior Subordinated Notes due 2007 (the "Series B
Senior Subordinated Notes" and, together with the Series A Senior Subordinated
Notes, the "Senior Subordinated Notes"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01 DEFINITIONS.
"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.
"Agent" means any Registrar or Paying Agent.
"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 Section 4.14
and 5.01 hereof and not by Section 4.10 hereof) 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 that have a fair market value in excess of $1.0
million or 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 Section 4.07 hereof, will not be deemed to be Asset Sales.
<PAGE>
"Bank Credit Facility" means (i) that certain Second Amended and
Restated Revolving Credit and Security Agreement dated as of February __, 1997,
among the Company, IBJ Schroder Bank & Trust Company, as agent and lender, and
the other lenders, and providing for up to $50 million of revolving credit
borrowing with a final maturity date of March 31, 2000, (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.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"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 Services, a division of McGraw-Hill 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 such term is 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
2
<PAGE>
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 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 equityholders 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
3
<PAGE>
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 (x) 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 this Indenture in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) 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 this Indenture or (ii) was nominated for
election or elected 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.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"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.
"Definitive Notes" means Senior Subordinated Notes that are in the
form of the Senior Subordinated Notes attached hereto as Exhibit A, that do not
include the information called for by footnotes 1 and 2 thereof.
"Depositary" means, with respect to the Senior Subordinated Notes
issuable or issued in whole or in part in global form, the Person specified in
Section 2.03 hereof as the Depositary with respect to the Senior Subordinated
Notes, until a successor shall have been appointed and become such pursuant to
the applicable provision of this Indenture, and, thereafter, "Depositary" shall
mean or include such successor.
"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 this 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 Senior Subordinated Notes
mature.
"Eligible Institution" means (a) the Trustee, (b) an affiliate of the
Trustee or (c) a commercial banking institution that is federally chartered,
has combined capital and surplus in excess of $500 million, conducts banking
operations in the State of New York and whose debt is rated "A" (or higher)
according to Standard & Poor's Ratings Group or Moody's Investors Service, Inc.
4
<PAGE>
"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).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Offer" means the offer that may be made by the Company
pursuant to the Registration Rights Agreement to exchange Series B Senior
Subordinated Notes for Series A Senior Subordinated Notes.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of this Indenture, until such amounts are
repaid.
"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.
"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
5
<PAGE>
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.
"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 this Indenture.
"Global Note" means a Senior Subordinated Note that contains the
paragraph referred to in footnote 1 and the additional schedule referred to in
footnote 2 to the form of the Senior Subordinated Note attached hereto as
Exhibit A.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"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.
"Guarantors" means any Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the provisions of this 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 rates.
"Holder" means a Person in whose name a Senior Subordinated Note is
registered.
"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.
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"Indenture" means this Indenture, as amended, modified or supplemented
from time to time, in accordance with the terms hereof.
"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 or such Restricted Subsidiary shall
not be deemed to be an Investment.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue
for the intervening period.
"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).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Make-Whole Premium" with respect to a Senior Subordinated Note means
an amount equal to the greater of (i) 104.75% of the outstanding principal
amount of such Senior Subordinated Note and (ii) the excess of (a) the present
value of the remaining interest, premium and principal payments due on such
Note as if such 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 Senior Subordinated 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 or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct
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costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions), and 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), (c) or 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 Senior Subordinated 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.
"Note Custodian" means the Trustee, as custodian with respect to the
Senior Subordinated Notes in global form, or any successor entity thereto.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the sale of the Company's 9 1/2% Series A Senior
Subordinated Notes including the Guarantee thereof, if any, pursuant to the
Purchase Agreement.
"Offering Memorandum" means the offering memorandum of the Company
dated February 24, 1997, with respect to the Series A Subordinated Notes.
"Officer" means, with respect to any Person, the Chief Executive
Officer, the President, the Chief Operating Officer, the Chief Financial
Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary
or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer, the treasurer or the
principal accounting officer of the Company, that meets the requirements of
Section 11.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
11.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"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, (x) such Person
becomes a Wholly Owned Restricted Subsidiary of the Company or (y) such Person
is merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is
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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 Section 4.10 hereof; and (v) a $2.6 million loan to Creative Expressions
Group, Inc., as in effect on the date of this Indenture, as such loan may be
amended or refinanced in a manner not adverse to the Company or the Holders of
the Senior Subordinated Notes.
"Permitted Liens" means (i) Liens securing the 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 Section 4.09 hereof, covering only the
assets acquired with such Indebtedness; (vii) Liens existing on the date of
this Indenture excluding Liens on Indebtedness to be repaid with the proceeds
of the Offering; (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
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 Senior Subordinated 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 Senior Subordinated Notes on terms at least as
favorable to the Holders of Senior Subordinated Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred
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only by the Company or by the Restricted Subsidiary that is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Principals" means Dennis Mehiel, his lineal descendants, and any
trust, corporation, partnership, limited liability company, association 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 the
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 of the
Company.
"Purchase Agreement" means the Purchase Agreement, dated as of
February 24, 1997, by and among the Company and the other parties named on the
signature pages thereof, with respect to the Offering.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date of this Indenture, by and among the Company and
the other parties named on the signature pages thereof, as such agreement may
be amended, modified or supplemented from time to time.
"Responsible Officer," when used with respect to the Trustee, means
any officer within the Corporate Trust Administration department of the Trustee
(or any successor group of the Trustee) or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of his
knowledge of, and familiarity with, the particular subject.
"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.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"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 this 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
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Person to any of its Subsidiaries or other Affiliates, (c) any trade payables
or (d) any Indebtedness that is incurred in violation of this 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 that 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).
"Subsidiary Guarantee" means the Guarantee in substantially the form
attached hereto as Exhibit C, executed by the Guarantors in accordance with
Section 12.01 hereof.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
[section][section] 77aaa-77bbbb), as in effect on the date on which this
Indenture is qualified under the TIA.
"Transfer Restricted Securities" means securities that bear or are
required to bear the legend set forth in Section 2.06 hereof.
"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 Senior
Subordinated 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 Senior Subordinated 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.
"Trustee" means the party named as "Trustee" in the first paragraph of
this Indenture until a successor replaces it in accordance with the applicable
provisions of this Indenture and, thereafter, means the successor serving
hereunder.
"Unrestricted Subsidiary" means any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a resolution
of the Board of Directors, but only to the extent that such Subsidiary (a) has
no Indebtedness other than Non-Recourse Debt; (b) 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; (c) is a Person with respect to
which neither the Company nor any
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of its Restricted Subsidiaries has any direct or indirect obligation (x) to
subscribe for additional Equity Interests or (y) to maintain or preserve such
Person's financial condition or to cause such Person to achieve any specified
levels of operating results; (d) has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of the Company or any
of its Restricted Subsidiaries and (e) 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 resolution of
the Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by Section 4.07 hereof. 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 this 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 Section 4.09 hereof, 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 Section 4.09 hereof 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.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction".............................. 4.11
"Asset Sale Offer"................................... 4.10
"Change of Control Offer"............................ 3.09
"Change of Control Payment".......................... 4.14
"Change of Control Redemption"....................... 3.07
"Covenant Defeasance"................................ 8.03
"Event of Default"................................... 6.01
"Excess Proceeds".................................... 4.10
"Excess Proceeds Offer Triggering Event"............. 4.10
"incur".............................................. 4.09
"Legal Defeasance" .................................. 8.02
"Offer Amount"....................................... 3.09
"Offer Period"....................................... 3.09
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"Paying Agent"....................................... 2.03
"Payment Default".................................... 6.01
"Purchase Date"...................................... 3.09
"Registrar".......................................... 2.03
"Repurchase Offer"................................... 3.09
"Restricted Payments"................................ 4.07
"Subsidiary Guarantee"............................... 12.01
"Supplemental Indenture"............................. 12.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Senior Subordinated Notes;
"indenture security holder" means a Holder of a Senior Subordinated
Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee;
"obligor" on the Senior Subordinated Notes means the Company, a
Guarantor, if any, on the Senior Subordinated Notes as provided for under
Section 12.01 hereof and any successor obligor upon the Senior Subordinated
Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings so assigned to them.
SECTION 1.04. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
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(6) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement of successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2
THE SENIOR SUBORDINATED NOTES
SECTION 2.01. FORM AND DATING.
The Senior Subordinated Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The
Senior Subordinated Notes may have notations, legends or endorsements required
by law, stock exchange rules or usage. Each Senior Subordinated Note shall be
dated the date of its authentication. The Senior Subordinated Notes shall be
issued initially in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Senior Subordinated Notes
shall constitute, and are hereby expressly made, a part of this Indenture and
the Company and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Senior Subordinated Notes issued in global form shall be substantially
in the form of Exhibit A attached hereto (including the text referred to in
footnotes 1 and 2 thereto). Senior Subordinated Notes issued in definitive form
shall be substantially in the form of Exhibit A attached hereto (but without
including the text referred to in footnotes 1 and 2 thereto). Each Global Note
shall represent such of the outstanding Senior Subordinated Notes as shall be
specified therein and each shall provide that it shall represent the aggregate
principal amount of outstanding Senior Subordinated Notes from time to time
endorsed thereon and that the aggregate principal amount of outstanding Senior
Subordinated Notes represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any
endorsement of a Global Note to reflect the amount of any increase or decrease
in the amount of outstanding Senior Subordinated Notes represented thereby
shall be made by the Trustee or the Note Custodian, at the direction of the
Trustee, in accordance with instructions given by the Holder thereof as
required by Section 2.06 hereof.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Senior Subordinated Notes for the Company
by manual or facsimile signature. The Company's seal shall be reproduced on the
Senior Subordinated Notes and may be in facsimile form.
If an Officer whose signature is on a Senior Subordinated Note no
longer holds that office at the time a Senior Subordinated Note is
authenticated, the Senior Subordinated Note shall nevertheless be valid.
A Senior Subordinated Note shall not be valid until authenticated by
the manual signature of the Trustee. The signature shall be conclusive evidence
that the Senior Subordinated Note has been authenticated under this Indenture.
The form of the Trustee's certificate of authentication to be borne by the
Senior Subordinated Notes shall be substantially as set forth in Exhibit A
attached hereto.
The Trustee shall, upon a written order of the Company signed by an
Officer and delivered to the Trustee, authenticate Senior Subordinated Notes
for original issue up to the aggregate principal
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amount stated in paragraph 4 of the Senior Subordinated Notes. The aggregate
principal amount of Senior Subordinated Notes outstanding at any time may not
exceed such amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Senior Subordinated Notes. An authenticating agent may
authenticate Senior Subordinated Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Senior
Subordinated Notes may be presented for registration of transfer or for
exchange ("Registrar") and an office or agency where Senior Subordinated Notes
may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Senior Subordinated Notes, the names and addresses of the
Holders and of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Registrar"
includes any co-registrar and the term "Paying Agent" includes any additional
paying agent. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company shall notify the Trustee in writing of the
name and address of any Agent not a party to this Indenture. If the Company
fails to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Company or any of its Subsidiaries may act as
Paying Agent or Registrar. The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture, which shall incorporate
the provisions of the TIA. Such agreement shall implement the provisions of
this Indenture that relate to such Agent. The Company shall notify the Trustee
of the name and address of such Agent. If the Company fails to maintain a
Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee
shall act as such, and shall be entitled to appropriate compensation in
accordance with Section 7.07 hereof.
The Company initially appoints The Depository Trust Company to act as
Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the Registrar and
Paying Agent and to act as Note Custodian with respect to the Global Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, interest on Liquidated Damages, if any, or other premiums, if
any, on the Senior Subordinated Notes, and such Paying Agent will notify the
Trustee of any default by the Company in making any such payment. At any time
during the continuance of any such default, the Trustee may require a Paying
Agent to pay all money held by it as Paying Agent to the Trustee and account
for any funds disbursed. The Company, at any time, may require a Paying Agent
to pay all money held by it as Paying Agent to the Trustee and account for any
funds disbursed. Upon payment over to the Trustee, the Paying Agent (if other
than the Company or a Subsidiary) shall have no further liability for the money
delivered to the Trustee. If the Company or a Subsidiary acts as Paying Agent,
it shall segregate and hold in a separate trust fund for the benefit of the
Holders all money held by it as
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Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the
Company, the Trustee shall serve as Paying Agent for the Senior Subordinated
Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA [section] 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee, at
least seven Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form and as of such
date as the Trustee may reasonably require of the names and addresses of the
Holders of Senior Subordinated Notes, including the aggregate principal amount
of Senior Subordinated Notes held by each thereof, and the Company shall
otherwise comply with TIA [section] 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Notes. When Definitive Notes
are presented by a Holder to the Registrar with a request:
(x) to register the transfer of the Definitive Notes; or
(y) to exchange such Definitive Notes for an equal principal
amount of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Notes presented or surrendered for register of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by such Holder or by his
attorney-in-fact, duly authorized in writing; and
(ii) in the case of a Definitive Note that is a Transfer
Restricted Security, such request shall be accompanied by
the following additional information and documents, as
applicable:
(A) if such Transfer Restricted Security is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification to that effect from such
Holder (in substantially the form of Exhibit B
attached hereto); or
(B) if such Transfer Restricted Security is being
transferred (1) to a "qualified institutional buyer"
(as defined in Rule 144A under the Securities Act)
in accordance with Rule 144A under the Securities
Act, (2) pursuant to an exemption from registration
in accordance with Rule 144 or Rule 904 under the
Securities Act (and based upon an Opinion of Counsel
if the Company or the Trustee so request) or (3)
pursuant to an effective registration statement
under the Securities Act, a certification to that
effect from such Holder (in substantially the form
of Exhibit B attached hereto); or
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(C) if such Transfer Restricted Security is being
transferred in reliance on another exemption from
the registration requirements of the Securities Act,
a certification to that effect from such Holder (in
substantially the form of Exhibit B attached hereto)
and an Opinion of Counsel from such Holder or the
transferee reasonably acceptable to the Company and
to the Registrar to the effect that such transfer is
in compliance with the Securities Act.
(b) Transfer of a Definitive Note for a Beneficial Interest in a
Global Note. A Definitive Note may not be exchanged for a beneficial interest
in a Global Note except upon satisfaction of the requirements set forth below.
Upon receipt by the Trustee of a Definitive Note, duly endorsed or accompanied
by appropriate instruments of transfer, in form satisfactory to the Trustee,
together with:
(i) if such Definitive Note is a Transfer Restricted Security, a
certification from the Holder thereof (in substantially the form
of Exhibit B attached hereto) to the effect that such Definitive
Note is being transferred by such Holder either (x) to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or (y) based upon an Opinion of Counsel from such
Holder to the transferee reasonably acceptable to the Company
and to the Registrar, pursuant to another exemption from the
registration requirements of the Securities Act; and
(ii) whether or not such Definitive Note is a Transfer Restricted
Security, written instructions from the Holder thereof directing
the Trustee to make, or to direct the Note Custodian to make, an
endorsement on the Global Note to reflect an increase in the
aggregate principal amount of the Senior Subordinated Notes
represented by the Global Note,
in which case the Trustee shall cancel such Definitive Note in accordance with
Section 2.11 hereof and cause, or direct the Note Custodian to cause, in
accordance with the standing instructions and procedures existing between the
Depositary and the Note Custodian, the aggregate principal amount of Senior
Subordinated Notes represented by the Global Note to be increased accordingly.
If no Global Notes are then outstanding, the Company shall issue and, upon
receipt of an authentication order in accordance with Section 2.02 hereof, the
Trustee shall authenticate and make available for delivery to the Note
Custodian a new Global Note in the appropriate aggregate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange
of Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture and the procedures of the
Depositary therefor, which shall include restrictions on transfer comparable to
those set forth herein to the extent required by the Securities Act.
(d) Transfer of a Beneficial Interest in a Global Note for a
Definitive Note.
(i) Any Person having a beneficial interest in a Global Note may
upon request exchange such beneficial interest for a Definitive
Note. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the
Depositary, from the Depositary or its nominee on behalf of any
Person having a beneficial interest in a Global Note, and, in
the case of a Transfer Restricted Security, the following
additional information and documents (all of which may be
submitted by facsimile):
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(A) if such beneficial interest is being transferred to the
Person designated by the Depositary as being the beneficial
owner, a certification to that effect from such Person (in
substantially the form of Exhibit B attached hereto); or
(B) if such beneficial interest is being transferred (1) to a
"qualified institutional buyer" (as defined in Rule 144A
under the Securities Act) in accordance with Rule 144A under
the Securities Act, (2) pursuant to an exemption from
registration in accordance with Rule 144 or Rule 904 under
the Securities Act (and based on an Opinion of Counsel if
the Company or the Trustee so request) or (3) pursuant to an
effective registration statement under the Securities Act, a
certification to that effect from the transferor (in
substantially the form of Exhibit B attached hereto); or
(C) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of
the Securities Act, a certification to that effect from the
transferor (in substantially the form of Exhibit B attached
hereto) and an Opinion of Counsel from the transferee or
transferor reasonably acceptable to the Company and to the
Registrar to the effect that such transfer is in compliance
with the Securities Act,
in which case the Trustee or the Note Custodian, at the direction of the
Trustee, shall, in accordance with the standing instructions and procedures
existing between the Depositary and the Note Custodian, cause the aggregate
principal amount of Global Notes to be reduced accordingly and, following such
reduction, the Company shall execute and, upon receipt of an authentication
order in accordance with Section 2.02 hereof, the Trustee shall authenticate
and deliver to the transferee a Definitive Note in the appropriate principal
amount.
(ii) Definitive Notes issued in exchange for a beneficial interest in
a Global Note pursuant to this Section 2.06(d) shall be
registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or
indirect participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Senior Subordinated Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes.
Notwithstanding any other provision of this Indenture (other than the
provisions set forth in subsection (f) of this Section 2.06), a Global Note may
not be transferred as a whole except by the Depositary to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
(f) Authentication of Definitive Notes in Absence of Depositary. If at
any time:
(i) the Depositary for the Senior Subordinated Notes notifies the
Company that the Depositary is unwilling or unable to continue
as Depositary for the Global Notes and a successor Depositary
for the Global Notes is not appointed by the Company within 90
days after delivery of such notice; or
(ii) the Company, at its sole discretion elects to cause the issuance
of Definitive Notes under this Indenture,
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then (1) the Company shall so notify the Trustee in writing, (2) the Trustee
shall cause the Note Custodian to deliver the Global Note held by the
Depositary to the Trustee and upon receipt thereof shall cancel such Global
Notes and (3) the Company shall issue, and the Trustee shall, upon receipt of
an authentication order in accordance with Section 2.02 hereof, authenticate
and deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of such Global Notes in exchange for such Global Notes.
(g) Legends.
(i) Except as permitted by the following paragraphs (ii) and
(iii), each Senior Subordinated Note certificate evidencing
Global Notes and Definitive Notes (and all Senior
Subordinated Notes issued in exchange therefor or
substitution thereof) shall bear legends in substantially the
following form:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS
HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN
PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904
UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE
ISSUER SO REQUESTS), (2) TO THE ISSUERS OR (3) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND
(B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED
TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Note) pursuant to Rule 144 under the Securities Act or
pursuant to an effective registration statement under the
Securities Act:
(A) in the case of any Transfer Restricted Security that is
a Definitive Note, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security
for a Definitive Note that does not bear the legend set
forth in (i) above
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and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security
represented by a Global Note, such Transfer Restricted
Security shall not be required to bear the legend set
forth in (i) above, but shall continue to be subject to
the provisions of Section 2.06(c) hereof; provided,
however, that with respect to any request for an
exchange of a Transfer Restricted Security that is
represented by a Global Note for a Definitive Note that
does not bear the legend set forth in (i) above, which
request is made in reliance upon Rule 144, the Holder
thereof shall certify in writing to the Registrar that
such request is being made pursuant to Rule 144 (such
certification to be substantially in the form of Exhibit
B attached hereto).
(iii) Notwithstanding the foregoing, upon consummation of the
Exchange Offer, the Company shall issue and, upon receipt
of an authentication order in accordance with Section 2.02
hereof, the Trustee shall authenticate, Series B Senior
Subordinated Notes in exchange for Series A Senior
Subordinated Notes accepted for exchange in the Exchange
Offer, which Series B Senior Subordinated Notes shall not
bear the legend set forth in (i) above, and the Registrar
shall rescind any restriction on the transfer of such
Senior Subordinated Notes, in each case unless the Holder
of such Series A Senior Subordinated Notes is either (A) a
broker-dealer who purchased such Series A Senior
Subordinated Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption
under the Securities Act, (B) a Person participating in the
distribution of the Series A Senior Subordinated Notes or
(C) a Person who is an affiliate (as defined in Rule 144)
of the Company.
(h) Cancellation and/or Adjustment of Global Notes. At such time as
all beneficial interests in Global Notes have been exchanged for Definitive
Notes, redeemed, repurchased or cancelled, all Global Notes shall be returned
to or retained and cancelled by the Trustee in accordance with Section 2.11
hereof. At any time prior to such cancellation, if any beneficial interest in a
Global Note is exchanged for Definitive Notes, redeemed, repurchased or
cancelled, the principal amount of Senior Subordinated Notes represented by
such Global Note shall be reduced accordingly and an endorsement shall be made
on such Global Note, by the Trustee or the Note Custodian, at the direction of
the Trustee, to reflect such reduction.
(i) General Provisions Relating to Transfers and Exchanges.
(A) To permit registrations of transfers and exchanges,
the Company shall execute and the Trustee shall
authenticate Definitive Notes and Global Notes at the
Registrar's request.
(B) No service charge shall be made to a Holder for any
registration of transfer or exchange, but the Company
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer
taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 4.10,
4.14 and 9.05 hereof).
(C) Neither the Company nor the Registrar shall be
required to register the transfer of or exchange any
Senior Subordinated Note selected for redemption in
whole or in part,
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except the unredeemed portion of any Senior
Subordinated Note being redeemed in part.
(D) All Definitive Notes and Global Notes issued upon any
registration of transfer or exchange of Definitive
Notes or Global Notes shall be the valid obligations
of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the
Definitive Notes or Global Notes surrendered upon such
registration of transfer or exchange.
(E) The Company shall not be required:
(x) to issue, to register the transfer of, or to
exchange Senior Subordinated Notes during a period
beginning at the opening of business 15 days
before the day of any selection of Senior
Subordinated Notes for redemption under Section
3.02 hereof and ending at the close of business on
the day of selection; or
(y) to register the transfer of, or to exchange any
Senior Subordinated Note so selected for
redemption in whole or in part, except the
unredeemed portion of any Senior Subordinated Note
being redeemed in part; or
(z) to register the transfer of, or to exchange a
Senior Subordinated Note between a record date and
the next succeeding interest payment date.
(F) Prior to due presentment for the registration of a
transfer of any Senior Subordinated Note, the Trustee,
any Agent and the Company may deem and treat the
Person in whose name any Senior Subordinated Note is
registered as the absolute owner of such Senior
Subordinated Note for the purpose of receiving payment
of principal of and interest on such Senior
Subordinated Notes, and none of the Trustee, any Agent
or the Company will be affected by notice to the
contrary.
(G) The Trustee shall authenticate Definitive Notes and
Global Notes in accordance with the provisions of
Section 2.02 hereof.
SECTION 2.07. REPLACEMENT SENIOR SUBORDINATED NOTES.
If any mutilated Senior Subordinated Note is surrendered to the
Trustee, or the Company and the Trustee receives evidence to their satisfaction
of the destruction, loss or theft of any Senior Subordinated Note, the Company
shall issue and the Trustee, upon the written order of the Company signed by
two Officers of the Company, shall authenticate a replacement Senior
Subordinated Note if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent and any authenticating agent from any loss that
any of them may suffer if a Senior Subordinated Note is replaced. The Company
may charge for its expenses in replacing a Senior Subordinated Note.
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Every replacement Senior Subordinated Note is an additional obligation
of the Company and shall be entitled to all of the benefits of this Indenture
equally and proportionately with all other Senior Subordinated Notes duly
issued hereunder.
SECTION 2.08. OUTSTANDING SENIOR SUBORDINATED NOTES.
The Senior Subordinated Notes outstanding at any time are all the
Senior Subordinated Notes authenticated by the Trustee except for those
cancelled by it, those delivered to it for cancellation, those reductions in
the interest in a Global Note effected by the Trustee in accordance with the
provisions hereof, and those described in this Section as not outstanding.
Except as set forth in Section 2.09 hereof, a Senior Subordinated Note does not
cease to be outstanding because the Company or an Affiliate of the Company
holds the Senior Subordinated Note.
If a Senior Subordinated Note is replaced pursuant to Section 2.07
hereof, it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Senior Subordinated Note is held by a bona
fide purchaser.
If the principal amount of any Senior Subordinated Note is considered
paid under Section 4.01 hereof, it ceases to be outstanding and interest on it
ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Senior Subordinated Notes payable on that date, then on and
after that date such Senior Subordinated Notes shall be deemed to be no longer
outstanding and shall cease to accrue interest.
Upon a "legal defeasance" pursuant to Article 8 hereof, the Senior
Subordinated Notes shall be deemed to be outstanding to the extent provided in
the applicable section of Article 8 hereof.
SECTION 2.09. TREASURY SENIOR SUBORDINATED NOTES.
In determining whether the Holders of the required principal amount of
Senior Subordinated Notes have concurred in any direction, waiver or consent,
Senior Subordinated Notes owned by the Company, or by any Affiliate of the
Company, shall be considered as though not outstanding, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Senior Subordinated Notes that the
Trustee knows are so owned shall be so disregarded.
SECTION 2.10. TEMPORARY SENIOR SUBORDINATED NOTES.
Until definitive Senior Subordinated Notes are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Senior
Subordinated Notes upon a written order of the Company signed by an Officer
thereof. Temporary Senior Subordinated Notes shall be substantially in the form
of definitive Senior Subordinated Notes but may have variations that the
Company considers appropriate for temporary Senior Subordinated Notes and as
shall be reasonably acceptable to the Trustee. Without unreasonable delay, the
Company shall prepare, and the Trustee shall authenticate definitive Senior
Subordinated Notes in exchange for temporary Senior Subordinated Notes. Until
such exchange, Holders of temporary Senior Subordinated Notes shall be entitled
to all of the benefits of this Indenture.
SECTION 2.11. CANCELLATION.
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The Company at any time may deliver Senior Subordinated Notes to the
Trustee for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Senior Subordinated Notes surrendered to them for registration of
transfer, exchange or payment. The Trustee and no one else shall cancel all
Senior Subordinated Notes surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy cancelled Senior
Subordinated Notes (subject to the record retention requirements of the
Exchange Act). The Company may not issue new Senior Subordinated Notes to
replace Senior Subordinated Notes that it has paid or that have been delivered
to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Senior
Subordinated Notes, it shall pay the defaulted interest specified in Section
4.01 hereof in any lawful manner plus, to the extent lawful, interest payable
on the defaulted interest, to the Persons who are Holders on a subsequent
special record date, in each case at the rate provided in the Senior
Subordinated Notes and in Section 4.01 hereof. The Company shall notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Senior Subordinated Note and the date of the proposed payment. The Company
shall fix or cause to be fixed each such special record date and payment date,
provided that no such special record date shall be less than 10 days prior to
the related payment date for such defaulted interest. At least 15 days before
the special record date, the Company (or, upon the written request of the
Company, the Trustee in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
SECTION 2.13. CUSIP NUMBER.
The Company in issuing the Senior Subordinated Notes may use "CUSIP"
numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP"
numbers in notices of redemption as a convenience to Holders; provided that any
such notice may state that no representation is made as to the correctness of
such numbers either as printed on the Senior Subordinated Notes or as contained
in any notice of a redemption and that reliance may be placed only on the other
identification numbers printed on the Senior Subordinated Notes, and any such
redemption shall not be affected by any defect in or omission of such numbers.
The Company will promptly notify the Trustee of any change in the CUSIP
numbers.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company is required to make an offer to repurchase Senior
Subordinated Notes pursuant to the provisions of Section 3.09, 4.10 or 4.14
hereof, it shall furnish to the Trustee at least 45 days but not more than 60
days before a repurchase date, an Officers' Certificate setting forth (i) the
Section of this Indenture pursuant to which the repurchase shall occur, (ii)
the repurchase date, (iii) the maximum principal amount of Senior Subordinated
Notes to be repurchased together with CUSIP numbers, (iv) the repurchase price
and (v) further setting forth a statement to the effect that (a) an Excess
Proceeds Offer Triggering Event has occurred and the conditions set forth in
Section 4.10 have been satisfied or (b) a Change of Control has occurred and
the conditions set forth in Section 4.14 have been satisfied.
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SECTION 3.02. SELECTION OF SENIOR SUBORDINATED NOTES TO BE REDEEMED.
If less than all of the Senior Subordinated Notes are to be redeemed
at any time, selection of Senior Subordinated 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 Senior Subordinated Notes are listed,
or, if the Senior Subordinated 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 Senior Subordinated 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 Senior
Subordinated Notes to be redeemed at its registered address. If any Senior
Subordinated Note is to be redeemed in part only, the notice of redemption that
relates to such Senior Subordinated Note shall state the portion of the
principal amount thereof to be redeemed. A new Senior Subordinated 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 Senior
Subordinated Note. On and after the redemption date, interest shall cease to
accrue on Senior Subordinated Notes or portions thereof called for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed, by first class mail, a notice of
redemption to each Holder whose Senior Subordinated Notes are to be redeemed at
its registered address.
The notice shall identify the Senior Subordinated Notes to be redeemed
and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Senior Subordinated Note is being redeemed in part, the
portion of the principal amount of such Senior Subordinated Note to be
redeemed and that, after the redemption date upon surrender of such Senior
Subordinated Note, a new Senior Subordinated Note or Senior Subordinated
Notes in principal amount equal to the unredeemed portion shall be issued
upon cancellation of the original Senior Subordinated Note;
(d) the name and address of the Paying Agent;
(e) that Senior Subordinated Notes called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(f) that, unless the Company defaults in making such redemption
payment, interest on Senior Subordinated Notes or portions thereof called
for redemption ceases to accrue on and after the redemption date;
(g) the paragraph of the Senior Subordinated Notes and Section of this
Indenture pursuant to which the Senior Subordinated Notes called for
redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Senior
Subordinated Notes.
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At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense; provided, however, that
the Company shall have delivered to the Trustee, at least 10 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and that the text of such notice shall be prepared or approved by the
Company.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Senior Subordinated Notes or portions thereof called for redemption
become irrevocably due and payable on the redemption date at the redemption
price. A notice of redemption may not be conditional.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
By 10:00 am on the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent money, in same-day funds, sufficient to pay
the redemption price of and accrued interest on and Liquidated Damages, if any,
and other premiums, if any, on all Senior Subordinated Notes to be redeemed on
that date. The Trustee or the Paying Agent shall promptly return to the Company
any money deposited with the Trustee or the Paying Agent by the Company in
excess of the amounts necessary to pay the redemption price of, and accrued
interest on and Liquidated Damages, if any, and any other premiums, if any, on
all Senior Subordinated Notes to be redeemed.
If the Company complies with the provisions of the preceding
paragraph, on and after the redemption date, whether or not such Senior
Subordinated Notes are presented for payment, interest shall cease to accrue on
the Senior Subordinated Notes or the portions of Senior Subordinated Notes
called for redemption. If a Senior Subordinated Note is redeemed on or after an
interest record date but on or prior to the related interest payment date, then
any accrued and unpaid interest shall be paid to the Person in whose name such
Senior Subordinated Note was registered at the close of business on such record
date. If any Senior Subordinated Note called for redemption shall not be so
paid upon surrender for redemption because of the failure of the Company to
comply with the preceding paragraph, interest shall be paid on the unpaid
principal, from the redemption date until such principal is paid, and to the
extent lawful on any interest not paid on such unpaid principal, in each case
at the rate provided in the Senior Subordinated Notes and in Section 4.01
hereof.
SECTION 3.06. SENIOR SUBORDINATED NOTES REDEEMED IN PART.
Upon surrender of a Senior Subordinated Note that is redeemed in part,
the Company shall issue and, upon the Company's written request, the Trustee
shall authenticate for the Holder at the expense of the Company, a new Senior
Subordinated Note equal in principal amount to the unredeemed portion of the
Senior Subordinated Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) of this Section 3.07,
the Senior Subordinated Notes will not be redeemable at the Company's option
prior to March 1, 2002. Thereafter, the Senior Subordinated 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 and Liquidated Damages, if any, thereon to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
1 of the years indicated below:
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YEAR PERCENTAGE
2002.....................................................104.750%
2003.....................................................103.166%
2004.....................................................101.583%
2005 and thereafter......................................100.0%
(b) Notwithstanding the foregoing, at any time prior to March 1, 2000,
the Company may redeem up to one-third in aggregate principal amount of Senior
Subordinated Notes at a redemption price of 109.5% of the principal amount
thereof, in each case plus accrued and unpaid interest and Liquidated Damages,
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 Senior Subordinated Notes originally issued under this
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.
(c) 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 Senior Subordinated 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.
(d) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 4.10 and 4.14 hereof, the Company
shall not be required to make mandatory redemption, purchase, or sinking fund
payments with respect to the Senior Subordinated Notes.
SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence an offer
to all Holders to repurchase Senior Subordinated Notes (a "Repurchase Offer")
pursuant to Section 4.10 hereof (an "Asset Sale Offer"), or pursuant to Section
4.14 hereof (a "Change of Control Offer") the Company shall follow the
procedures specified below.
A Repurchase Offer shall commence no later than 10 Business Days after
a Change of Control (unless the Company is not required to make such offer
pursuant to Section 4.14(c) hereof) or an Excess Proceeds Offer Triggering
Event, as the case may be, and remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than 5
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Company shall purchase the principal amount of Senior Subordinated Notes
required to be purchased pursuant to Section 4.10 hereof, in the case of an
Excess Proceeds Offer, or 4.14 hereof, in the case of a Change of Control Offer
(the "Offer Amount") or, if less than the Offer Amount has been tendered, all
Senior Subordinated Notes tendered in response to the Repurchase Offer. Payment
for any Senior Subordinated Notes so purchased shall be made in the same manner
as interest payments are made.
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If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Senior Subordinated Note is registered at
the close of business on such record date, and no additional interest shall be
payable to Holders who tender Senior Subordinated Notes pursuant to the
Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Senior Subordinated Notes pursuant
to such Repurchase Offer. The Repurchase Offer shall be made to all Holders.
The notice, which shall govern the terms of the Repurchase Offer, shall
describe the transaction or transactions that constitute the Change of Control
or Excess Proceeds Offer Triggering Event (as defined below), as the case may
be and shall state:
(a) that the Repurchase Offer is being made pursuant to this Section
3.09 and Section 4.10 or 4.14 hereof, as the case may be, and the length of
time the Repurchase Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Senior Subordinated Note not tendered or accepted for
payment shall continue to accrete or accrue interest;
(d) that, unless the Company defaults in making such payment, any
Senior Subordinated Note accepted for payment pursuant to the Repurchase
Offer shall cease to accrete or accrue interest after the Purchase Date;
(e) that Holders electing to have a Senior Subordinated Note purchased
pursuant to a Repurchase Offer may elect to have all or any portion of such
Senior Subordinated Note purchased;
(f) that Holders electing to have a Senior Subordinated Note purchased
pursuant to any Repurchase Offer shall be required to surrender the Senior
Subordinated Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Subordinated Note, or such other
customary documents of surrender and transfer as the Company may reasonably
request, duly completed, or transfer by book-entry transfer, to the
Company, the Depositary, or the Paying Agent at the address specified in
the notice at least three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be, receives,
not later than the expiration of the Offer Period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Senior Subordinated Note the Holder delivered for
purchase and a statement that such Holder is withdrawing his election to
have such Senior Subordinated Note purchased;
(h) that, if the aggregate principal amount of Senior Subordinated
Notes surrendered by Holders exceeds the Offer Amount, the Company shall
select the Senior Subordinated Notes to be purchased on a pro rata basis
(with such adjustments as may be deemed appropriate by the Company so that
only Senior Subordinated Notes in denominations of $1,000, or integral
multiples thereof, shall be purchased); and
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(i) that Holders whose Senior Subordinated Notes were purchased only
in part shall be issued new Senior Subordinated Notes equal in principal
amount to the unpurchased portion of the Senior Subordinated Notes
surrendered (or transferred by book-entry transfer).
On (or at the Company's election, before) the Purchase Date, the
Company shall, to the extent lawful, accept for payment, on a pro rata basis to
the extent necessary, the Offer Amount of Senior Subordinated Notes or portions
thereof tendered pursuant to the Repurchase Offer and not theretofore
withdrawn, or if less than the Offer Amount has been tendered, all Senior
Subordinated Notes tendered, and shall deliver to the Trustee an Officers'
Certificate stating that such Senior Subordinated Notes or portions thereof
were accepted for payment by the Company in accordance with the terms of this
Section 3.09. The Company, the Depositary or the Paying Agent, as the case may
be, shall promptly (but in any case not later than 5 days after the Purchase
Date) mail or deliver to each tendering Holder an amount equal to the purchase
price of the Senior Subordinated Notes tendered by such Holder and accepted by
the Company for purchase, and the Company shall promptly issue a new Senior
Subordinated Note, and the Trustee, upon written request from the Company shall
authenticate and mail or deliver such new Senior Subordinated Note to such
Holder, in a principal amount equal to any unpurchased portion of the Senior
Subordinated Note surrendered. Any Senior Subordinated Note not so accepted
shall be promptly mailed or delivered by the Company to the Holder thereof. All
Senior Subordinated Notes or portions thereof purchased pursuant to the
Repurchase Offer will be cancelled by the Trustee. The Company shall publicly
announce the results of the Repurchase Offer on or as soon as practicable after
the Purchase Date, but in no case more than 5 Business Days after the Purchase
Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SENIOR SUBORDINATED NOTES.
The Company shall pay or cause to be paid the principal of, interest
on, and other premiums, if any, on the Senior Subordinated Notes on the dates
and in the manner provided in the Senior Subordinated Notes. Principal,
premium, if any, and interest shall be considered paid on the applicable date
due if the Paying Agent, if other than the Company or a Subsidiary thereof,
holds as of 10:00 a.m. Eastern Time on the due date money deposited by the
Company in immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. The Company shall pay
all Liquidated Damages, if any, in the same manner on the dates and in the
amounts set forth in the Registration Rights Agreement.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 2% per annum in excess of the then applicable interest rate on the Senior
Subordinated Notes to the extent lawful; it shall pay interest (including
post-petition interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages, if any, or other premiums, if
any, at the same rate to the extent lawful.
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SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain an office or agency (which may be an
office of the Trustee or an affiliate of the Trustee, Registrar or
co-registrar) where Senior Subordinated Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Company in respect of the Senior Subordinated Notes and this Indenture
may be served. The Company shall give prompt written notice to the Trustee of
the location, and any change in the location, of such office or agency. If at
any time the Company shall fail to maintain any such required office or agency
or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Senior Subordinated Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency for such purposes. The Company shall give prompt written notice to the
Trustee of any such designation or rescission and of any change in the location
of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the
Trustee as one such office or agency of the Company in accordance with Section
2.03.
SECTION 4.03. REPORTS.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Senior Subordinated Notes are outstanding, the Company shall
furnish to the Holders of Senior Subordinated Notes (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the SEC 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 SEC 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 SEC, the Company shall file a copy of all such information and reports with
the SEC for public availability (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. The Company shall at all times comply with TIA
[section] 3.14(a). Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
(b) For so long as any Senior Subordinated Notes remain outstanding,
the Company shall 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.
SECTION 4.04. COMPLIANCE CERTIFICATE.
(a) The Company shall deliver to the Trustee, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of the
activities of the Company and its Subsidiaries during
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the preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, observed,
performed and fulfilled its obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, whether to the best
of his or her knowledge the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and whether any Default or
Event of Default shall have occurred under this Indenture (and, if a Default or
Event of Default shall have occurred, describing all such Defaults or Events of
Default of which he or she may have knowledge and what action the Company is
taking or proposes to take with respect thereto) and that to the best of his or
her knowledge no event has occurred and remains in existence by reason of which
payments on account of the principal of or interest, Liquidated Damages, if
any, and other premiums, if any, on the Senior Subordinated Notes is prohibited
or if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by
a written statement of the Company's independent public accountants (who shall
be a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article Four or Article Five hereof or, if any such violation
has occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Company shall, so long as any of the Senior Subordinated Notes
are outstanding, deliver to the Trustee, forthwith upon any Officer becoming
aware of any Default or Event of Default (and, in any event, no later than five
days after such Officer shall become aware of the occurrence of any Event of
Default or an event which, with notice or the lapse of time or both, would
constitute an Event of Default), an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate
proceedings.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it shall not, by resort to any such law, hinder,
delay or impede the execution of any power herein granted to the Trustee, but
shall suffer and permit the execution of every such power as though no such law
has been enacted.
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SECTION 4.07. RESTRICTED PAYMENTS.
The Company shall not, and shall 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 or any of
its Restricted Subsidiaries' 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 Senior Subordinated
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;
(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 first paragraph of Section 4.09
hereof; 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 this 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 this 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 the following transactions:
(i) the payments and applications of the proceeds to be received by
the Company from the issuance of the Senior Subordinated Notes and as described
under "Use of Proceeds" in the Offering Memorandum; (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
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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 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 this 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; (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;
provided further, that no Default or Event of Default shall have occurred and
be continuing immediately after such transaction.
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 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
this Section 4.07 were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 4.08. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company shall not, and shall 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
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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 this Indenture, (b) the Bank Credit
Facility as in effect as of the date of this Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, 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 this Indenture, (c) this Indenture and the
Senior Subordinated 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.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company shall not, and shall 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 $50.0 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 described in Section 4.10;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company and its Restricted Subsidiaries of
Indebtedness represented by the Senior Subordinated Notes and the Guarantees
thereof by any Restricted Subsidiaries pursuant to the provisions in Section
12.01 hereof;
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(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 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 it 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 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, or 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 this Indenture to be incurred;
(viii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt; provided, that if, and to the extent 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 this 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 time outstanding.
SECTION 4.10. ASSET SALES.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company or such
Restricted Subsidiary, as the case 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 Senior Subordinated Notes) that are
assumed by the
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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 in 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 this 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 (an "Excess Proceeds Offer Triggering Event"), the Company
shall make an offer to all Holders of Senior Subordinated Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Senior Subordinated 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 and Liquidated Damages, if any, thereon to the date of purchase, in
accordance with the procedures set forth in Section 3.09 hereof and this
Section 4.10. To the extent that the aggregate amount of Senior Subordinated
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 this Indenture). If the
aggregate principal amount of Senior Subordinated Notes surrendered by Holders
thereof exceeds the amount of Excess Proceeds, the Trustee shall select the
Senior Subordinated 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. The occurrence of an Excess Proceeds Offer Triggering Event could result
in a default under the Senior Debt of the Company.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company shall not, and shall 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
Corporation, Creative Expressions Group, Inc. or any of their respective
subsidiaries; provided that (1)
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the Indenture of Lease dated as of January 1, 1995, between Dennis Mehiel, as
landlord, and the Company, as tenant, relating to the Company's Jacksonville,
Florida facility located in Duval County, Florida, viz., (x) Parcel A: Gov't
lot 2, [section]13, Township 2 south, Range 25 East and (y) Parcel B: Easement
created as per Easement Agreement, dated August 29, 1979, the portion of which
is found at Gov't lot 2, [section]13, Township 2 South, Range 25 east) 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 Section 4.07 of this Indenture in
each case shall not be deemed Affiliate Transactions.
SECTION 4.12. LIENS.
The Company shall not, and shall 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.
SECTION 4.13. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (i) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective
organizational documents (as the same may be amended from time to time) of the
Company or any such Subsidiary and (ii) the rights (charter and statutory),
licenses and franchises of the Company and its Subsidiaries; provided, however,
that the Company shall not be required to preserve any such right, license or
franchise, or the corporate, partnership or other existence of any of its
Restricted Subsidiaries, if the Board of Directors shall determine that the
preservation thereof is no longer desirable in the conduct of the business of
the Company and its Restricted Subsidiaries, taken as a whole, and that the
loss thereof is not adverse in any material respect to the Holders of the
Senior Subordinated Notes.
SECTION 4.14. OFFER TO REPURCHASE UPON CHANGE OF CONTROL.
(a) 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
Senior Subordinated Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, 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 the Senior Subordinated Notes
pursuant to the procedures required by this 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 Senior Subordinated 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 Senior
Subordinated Notes as a result of a Change of Control.
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(b) On the Change of Control Payment Date, the Company will, to the
extent lawful, (i) accept for payment all Senior Subordinated 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 Senior Subordinated Notes or portions thereof so tendered and
(iii) deliver or cause to be delivered to the Trustee the Senior Subordinated
Notes so accepted together with an Officers' Certificate stating the aggregate
principal amount of Senior Subordinated Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
Senior Subordinated Notes so tendered the Change of Control Payment for such
Senior Subordinated Notes, and the Trustee will promptly authenticate and mail
(or cause to be transferred by book entry) to each Holder a new Senior
Subordinated Note equal in principal amount to any unpurchased portion of the
Senior Subordinated Notes surrendered, if any; provided, that each such new
Senior Subordinated 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.
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 Senior Subordinated Notes upon a Change of
Control. In the event a Change of Control occurs at a time when the Company is
prohibited from repurchasing Senior Subordinated Notes, the Company could seek
the consent of its lenders to the repurchase of Senior Subordinated 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 Senior Subordinated Notes. In such
case, the Company's failure to make a Change of Control Offer or to repurchase
the Senior Subordinated Notes tendered in a Change of Control Offer would
constitute an Event of Default under this Indenture, which could, in turn,
constitute a default under the Senior Debt. In such circumstances, the
subordination provisions in Article 10 of this Indenture would likely restrict
payments to the Holders of Senior Subordinated Notes. Finally, the Company's
ability to repurchase Senior Subordinated Notes upon a Change of Control may be
limited by the Company's then existing financial resources.
(c) 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 Senior Subordinated Notes validly tendered and not
withdrawn under such Change of Control Offer.
SECTION 4.15. ISSUANCES AND SALES OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES.
The Company (i) shall not, and shall not permit any of its Restricted
Subsidiaries to, transfer, convey, sell or otherwise dispose of any Capital
Stock of any Restricted 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 Section
4.10 hereof and (ii) shall 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.
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SECTION 4.16. OTHER SENIOR SUBORDINATED DEBT.
Neither the Company nor any of its Restricted Subsidiaries shall
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 Senior Subordinated Notes or
such Restricted Subsidiary's Guarantee.
SECTION 4.17. SUBSIDIARY GUARANTEES.
If the Company or any of its Restricted Subsidiaries shall acquire or
create a Subsidiary after the date of this Indenture, 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 this Indenture;
provided, that this Section 4.17 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 properly been designated as an Unrestricted
Subsidiary in accordance with this Indenture for so long as it continues to
constitute an Unrestricted Subsidiary.
SECTION 4.18. PAYMENTS FOR CONSENT.
The Company shall not, and shall 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 Senior Subordinated Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Senior
Subordinated Notes unless such consideration is offered to be paid or is paid
to all Holders of the Senior Subordinated 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.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION, OR SALE OF ASSETS.
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
Senior Subordinated Notes and this 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)
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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 Section 4.09 hereof.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company in accordance with Section 5.01 hereof, the successor
corporation formed by such consolidation or into or with which the Company is
merged or to which such sale, assignment, transfer, lease, conveyance or other
disposition is made shall succeed to, and be substituted for (so that from and
after the date of such consolidation, merger, sale, lease, conveyance or other
disposition, the provisions of this Indenture referring to the "Company" shall
refer instead to the successor corporation and not to the Company), and may
exercise every right and power of the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
provided, however, that the predecessor Company shall not be relieved from the
obligation to pay the principal of and interest on the Senior Subordinated
Notes except in the case of a sale of all of the Company's assets that meets
the requirements of Section 5.01 hereof.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due of interest on
the Senior Subordinated Notes (whether or not prohibited by the
provisions of Article 10 of this Indenture);
(b) default in payment when due of the principal of or premium,
or Liquidated Damages, if any, on the Senior Subordinated Notes
(whether or not prohibited by the provisions of Article 10 of this
Indenture);
(c) failure by the Company to comply with Sections 4.07, 4.09,
4.10 and 4.14;
(d) failure by the Company for 30 days after notice to comply
with any of its other agreements in this Indenture or the Senior
Subordinated Notes;
(e) 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
this Indenture, which default (1) 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 (2) results
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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;
(f) failure by the Company or any of its Restricted Subsidiaries
to pay final judgments aggregating in excess of $5.0 million and
either (1) any creditor commences enforcement proceedings upon any
such judgment or (2) such judgments are not paid, discharged or stayed
for a period of 45 days; and
(g) the Company or any of its Significant Subsidiaries or any
group of Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary pursuant to or within the meaning of Bankruptcy
Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it
in an involuntary case,
(iii) consents to the appointment of a custodian of it or
for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary in an
involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary or for all
or substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken
as a whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60
consecutive days.
SECTION 6.02. ACCELERATION.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof) occurs and is continuing, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding
Senior Subordinated Notes may declare all the Senior Subordinated Notes to be
due and payable immediately. Notwithstanding the foregoing, if an Event of
Default specified in clause (g)
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or (h) of Section 6.01 hereof occurs, all outstanding Senior Subordinated Notes
shall be due and payable immediately without further action or notice. Holders
of the Senior Subordinated Notes may not enforce this Indenture or the Senior
Subordinated Notes except as provided in this Indenture. Subject to certain
limitations, the Holders of a majority in aggregate principal amount of the
then outstanding Senior Subordinated Notes by written notice to the Trustee may
on behalf of all of the Holders rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal, interest or premium
that has become due solely because of the acceleration) have been cured or
waived. The Trustee may withhold from Holders of the Senior Subordinated 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 Senior Subordinated
Notes pursuant to Section 3.07 hereof, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Senior Subordinated 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 Senior Subordinated Notes prior to such date,
then, upon acceleration of the Senior Subordinated Notes, an additional premium
shall also become and be immediately due and payable in an amount, for each of
the years beginning on June 1 of the years set forth below, as set forth below
(expressed as a percentage of the accreted value to the date of payment that
would otherwise be due but for the provisions of this sentence):
YEAR PERCENTAGE
---- ----------
1997......................................... 112.663%
1998......................................... 111.080%
1999......................................... 109.498%
2000......................................... 107.915%
2001......................................... 106.333%
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal of, interest
on, Liquidated Damages, if any, or any other premiums, if any, on the Senior
Subordinated Notes or to enforce the performance of any provision of the Senior
Subordinated Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Senior Subordinated Notes or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder of a Senior
Subordinated Note in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. All remedies are cumulative to the extent
permitted by law.
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SECTION 6.04. WAIVER OF PAST DEFAULTS.
Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding by notice to the Trustee (and without
notice to any other Holders) may on behalf of the Holders of all of the Senior
Subordinated Notes waive an existing Default or Event of Default and its
consequences hereunder except a continuing Default or Event of Default in the
payment of the principal of or premium, interest or Liquidated Damages, if any,
on the Senior Subordinated Notes (including in connection with an offer to
purchase) (provided, however, that the Holders of a majority in aggregate
principal amount of the then outstanding Senior Subordinated Notes may rescind
an acceleration and its consequences, including any related payment default
that resulted from such acceleration). Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Holders of a majority in aggregate principal amount of the then
outstanding Senior Subordinated Notes may direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of other Holders of
Senior Subordinated Notes or that may involve the Trustee in personal
liability.
SECTION 6.06. LIMITATION ON SUITS.
A Holder of a Senior Subordinated Note may pursue a remedy with
respect to this Indenture or the Senior Subordinated Notes only if:
(a) the Holder of a Senior Subordinated Note gives to the Trustee
written notice of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Senior Subordinated Notes make a written request to the Trustee
to pursue the remedy;
(c) such Holder of a Senior Subordinated Note or Holders of Senior
Subordinated Notes offer and, if requested, provide to the Trustee
indemnity satisfactory to the Trustee against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Senior Subordinated Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Senior Subordinated Note may not use this Indenture to prejudice
the rights of another Holder of a Senior Subordinated Note or to obtain a
preference or priority over another Holder of a Senior Subordinated Note.
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SECTION 6.07. RIGHTS OF HOLDERS OF SENIOR SUBORDINATED NOTES TO RECEIVE
PAYMENT.
Notwithstanding any other provision of this Indenture, but subject to
the provisions of Sections 6.04 and 6.06, the right of any Holder of a Senior
Subordinated Note to receive payment of principal, interest, Liquidated
Damages, if any, or other premiums, if any, on the Senior Subordinated Note, on
or after the respective due dates expressed in the Senior Subordinated Note, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of such
Holder.
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name
and as trustee of an express trust against the Company for the whole amount of
principal of, Liquidated Damages, if any, or other premiums, if any, and
interest remaining unpaid on the Senior Subordinated Notes and interest on
overdue principal and, to the extent lawful, interest along with such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized (a) to file proofs of claim for the whole
amount of the principal of, Liquidated Damages, if any, and other premiums, if
any, and interest on the Senior Subordinated Notes and to file such proof of
claim and other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and the Holders of the Senior Subordinated Notes allowed in such
judicial proceedings and (b) to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof
out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of,
any and all distributions, dividends, money, securities and other properties
that the Holders may be entitled to receive in such proceeding whether in
liquidation or under any plan of reorganization or arrangement or otherwise,
prior to any payment to such Holder. Nothing herein contained shall be deemed
to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Senior Subordinated Notes or the rights of any
Holder, or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Section 6.10, it
shall pay out the money in the following order:
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First: to the Trustee, its agents and attorneys for amounts due under
Section 7.07 hereof, including payment of all compensation, expense and
liabilities incurred, and all advances made, by the Trustee and the costs and
expenses of collection;
Second: to Holders of Senior Subordinated Notes for amounts due and
unpaid on the Senior Subordinated Notes for principal, interest, Liquidated
Damages, if any, other premiums, if any, ratably, without preference or
priority of any kind, according to the amounts due and payable on the Senior
Subordinated Notes for principal, interest, Liquidated Damages, if any, or
other premiums, if any, respectively; and
Third: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Senior Subordinated Notes pursuant to this Section 6.10.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Senior Subordinated Note pursuant to Section 6.07 hereof, or a suit by Holders
of more than 10% in principal amount of the then outstanding Senior
Subordinated Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture and
use the same degree of care and skill in its exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture.
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(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any financial liability. The Trustee shall be
under no obligation to exercise any of its rights and powers under this
Indenture at the request of any Holders, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) Subject to Section 7.01(b)(ii), the Trustee may conclusively rely
upon any document believed by it to be genuine and to have been signed or
presented by the proper Person. The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have
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offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities that might be incurred by it in compliance with such
request or direction.
(g) The Trustee may consult with counsel of its selection and the
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon.
(h) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company, personally or by agent or attorney,
at the sole cost of the Company and shall incur no liability or additional
liability of any kind by reason of such inquiry or investigation.
(i) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(j) The Trustee shall not be deemed to have notice of any Event of
Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a default
is received by the Trustee at the Corporate Trust Office of the Trustee and
such notice references the Senior Subordinated Notes and this Indenture.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Subordinated Notes and may otherwise deal with the
Company or any Affiliate of the Company with the same rights it would have if
it were not Trustee. However, in the event that the Trustee acquires any
conflicting interest it must eliminate such conflict within 90 days, apply to
the SEC for permission to continue as trustee or resign. Any Agent may do the
same with like rights and duties. The Trustee is also subject to Sections 7.10
and 7.11 hereof.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Senior Subordinated
Notes. Furthermore, it shall not be accountable for the Company's Use of the
Proceeds from the Offering other than as specified under Section 4.07 hereof
but in no event shall the Trustee be responsible or accountable to any Person
including a Holder for the actual use or application of any money paid to the
Company, or upon the Company's direction to any Person or otherwise under any
provision of this Indenture; nor shall it be responsible for any statement or
recital herein or any statement in the Senior Subordinated Notes or any
registration statement for the Senior Subordinated Notes (other than statements
in any Form T-1 filed with the SEC under the TIA) or in this Indenture other
than its certificate of authentication. Finally, the Trustee shall not be
responsible for the use or application of any money received by any Paying
Agent other than the Trustee.
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SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Senior Subordinated
Notes a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default or Event of Default in payment of
principal, Liquidated Damages or interest on any Senior Subordinated Note, the
Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of the Holders of the Senior Subordinated Notes.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE SENIOR SUBORDINATED NOTES.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Senior Subordinated Notes remain
outstanding, the Trustee shall mail to the Holders of the Senior Subordinated
Notes a brief report dated as of such reporting date that complies with TIA
[section] 313(a) (but if no event described in TIA [section] 313(a) has
occurred within the twelve months preceding the reporting date, no report need
be transmitted). The Trustee also shall comply with TIA [section] 313(b). The
Trustee shall also transmit by mail all reports as required by TIA [section]
313(c).
A copy of each report at the time of its mailing to the Holders of
Senior Subordinated Notes shall be mailed to the Company and filed with the
SEC, if accepted, and each stock exchange on which the Senior Subordinated
Notes are listed in accordance with TIA [section] 313(d). The Company shall
promptly notify the Trustee when the Senior Subordinated Notes are listed on
any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time compensation
for its acceptance of this Indenture and services in accordance with any
provision of this Indenture as the parties shall agree in writing from time to
time (which compensation shall not be limited by any provision of law in regard
to the compensation of a trustee of an express trust). The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable disbursements, advances and expenses incurred or made by it
in addition to the compensation for its services in accordance with any
provision of this Indenture. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Company (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Company or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Company promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable fees
and expenses of such counsel. The Company need not pay for any settlement made
without its consent, which consent shall not be unreasonably withheld.
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The obligations of the Company under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Senior Subordinated Notes on all money
or property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Senior Subordinated Notes. Such Lien shall
survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(e) or (f) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA [section]
313(b)(2) to the extent applicable.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company at least 45 days prior to
the date of the proposed resignation. The Holders of Senior Subordinated Notes
of a majority in principal amount of the then outstanding Senior Subordinated
Notes may remove the Trustee by so notifying the Trustee and the Company in
writing. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian, receiver or public officer takes charge of the
Trustee or its property; or
(d) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the then outstanding Senior
Subordinated Notes may appoint a successor Trustee to replace the successor
Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of Senior Subordinated Notes of at least 10% in principal amount of
the then outstanding Senior Subordinated Notes may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee, after written request by any Holder of a Senior
Subordinated Note who has been a Holder of a Senior Subordinated Note for at
least six months, fails to comply with Section 7.10, such
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Holder of a Senior Subordinated Note may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders of the Senior Subordinated Notes. The retiring Trustee
shall promptly transfer all property held by it as Trustee to the successor
Trustee; provided that all sums owing to the Trustee hereunder have been paid
and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding
replacement of the Trustee pursuant to this Section 7.08, the Company's
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or
state authorities and that has a combined capital and surplus of at least
$500.0 million as set forth in its most recent published annual report of
condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA [section] 310(a)(1), (2) and (5). The Trustee shall comply
with TIA [section] 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY.
The Trustee shall comply with TIA [section] 311(a), excluding any
creditor relationship listed in TIA [section] 311(b). A Trustee who has
resigned or been removed shall be subject to TIA [section] 311(a) to the extent
indicated therein.
SECTION 7.12. MAY HOLD SENIOR SUBORDINATED NOTES.
The Trustee, any Paying Agent, any Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of the Senior Subordinated Notes and, subject to Sections 6.08 and
6.09, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Registrar or such other agent.
SECTION 7.13. TRUSTEE'S APPLICATION FOR INSTRUCTIONS FROM THE COMPANY.
Any application by the Trustee for written instructions from the
Company may, at the option of the Trustee, set forth in writing any action
proposed to be taken or omitted by the Trustee under this Indenture and the
date on and/or after which such action shall be taken or such omission shall be
effective. The Trustee shall not be liable for any action taken by, or omission
of, the Trustee in
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accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than five Business
Days after the date any Officer of the Company actually receives such
application, unless any such Officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at its option and at any time, elect to have either
Section 8.02 or 8.03 hereof be applied to all outstanding Senior Subordinated
Notes upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Guarantors, if any, shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be deemed to have been discharged from their obligations with respect to all
outstanding Senior Subordinated Notes or Guarantees, as the case may be, on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Company shall
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Senior Subordinated Notes, which shall thereafter be deemed to
be "outstanding" only for the purposes of Section 8.05 hereof and the other
Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Senior Subordinated Notes and
this Indenture (and the Trustee, on demand of and at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following provisions which shall survive until otherwise terminated or
discharged hereunder: (a) the rights of Holders of outstanding Senior
Subordinated Notes to receive payments in respect of the principal of and
premium, interest and Liquidated Damages, if any, on Senior Subordinated Notes
when such payments are due from the trust described in Section 8.04 hereof, (b)
the Company's obligations with respect to the Senior Subordinated Notes
concerning issuing temporary Senior Subordinated Notes, registration of Senior
Subordinated Notes, mutilated, destroyed, lost or stolen Senior Subordinated
Notes and the maintenance of an office or agency for payment and money for
security payments held in trust, (c) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (d) this Article Eight. Subject to compliance with this Article
Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company and the Guarantors, if any, shall,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
be released from their respective obligations under the covenants contained in
Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 5.01
and 5.02 hereof with respect to the outstanding Senior Subordinated Notes on
and after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Senior Subordinated Notes shall thereafter be
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deemed not "outstanding" for the purposes of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder (it being understood that such Senior
Subordinated Notes shall not be deemed outstanding for accounting purposes).
For this purpose, Covenant Defeasance means that, with respect to the
outstanding Senior Subordinated Notes, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference
in any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of
this Indenture and such Senior Subordinated Notes shall be unaffected thereby.
In addition, upon the Company's exercise under Section 8.01 hereof of the
option applicable to this Section 8.03 hereof, subject to the satisfaction of
the conditions set forth in Section 8.04 hereof and Sections 6.01(c) through
6.01(h) shall not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Senior Subordinated Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Senior Subordinated
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, interest and
Liquidated Damages, if any, on the outstanding Senior Subordinated
Notes on the stated maturity or on the applicable redemption date, as
the case may be, and the Company must specify whether the Senior
Subordinated Notes are being defeased to maturity or to a particular
redemption date;
(b) 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 (i) the Company
has received from, or there has been published by, the Internal
Revenue Service a ruling or (ii) since the date of this 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 Senior
Subordinated 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;
(c) 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 Senior Subordinated 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;
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(d) 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;
(e) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under any
material agreement or instrument (other than this 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;
(f) 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;
(g) 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 Senior Subordinated Notes over
the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others;
and
(h) 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.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or
other qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Senior
Subordinated Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Senior Subordinated Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as Paying Agent) as the Trustee may determine, to
the Holders of such Senior Subordinated Notes of all sums due and to become due
thereon in respect of principal, interest, Liquidated Damages, if any, or other
premiums, if any, but such money need not be segregated from other funds except
to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Senior Subordinated Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
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SECTION 8.06. REPAYMENT TO COMPANY.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of, interest, on
Liquidated Damages, and other premiums, if any, on any Senior Subordinated Note
and remaining unclaimed for two years after such principal, interest,
Liquidated Damages, and other premiums, if any, has become due and payable
shall be paid to the Company on its request or (if then held by the Company)
shall be discharged from such trust; and the Holder of such Senior Subordinated
Note shall thereafter, as a creditor, look only to the Company for payment
thereof, and all liability of the Trustee or such Paying Agent with respect to
such trust money, and all liability of the Company as trustee thereof, shall
thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the
Company cause to be published once, in the New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02
or 8.03 hereof, as the case may be, by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Senior Subordinated Notes shall be revived and reinstated as though no deposit
had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if
the Company makes any payment of principal of, premium, if any, or interest on
any Senior Subordinated Note following the reinstatement of its Obligations,
the Company shall be subrogated to the rights of the Holders of such Senior
Subordinated Notes to receive such payment from the money held by the Trustee
or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF SENIOR SUBORDINATED NOTES.
Notwithstanding Section 9.02 hereof, the Company and the Trustee may
amend or supplement this Indenture or the Senior Subordinated Notes without the
consent of any Holder of a Senior Subordinated Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Senior Subordinated Notes in
addition to or in place of certificated Senior Subordinated Notes;
(c) to provide for the assumption of the Company's obligations to
Holders of Senior Subordinated Notes in the case of a merger or
consolidation pursuant to Section 5.01 hereof;
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(d) to make any change that would provide any additional rights or
benefits to the Holders of Senior Subordinated Notes or that does not
adversely affect the legal rights under this Indenture of any such Holder;
or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the Trust Indenture Act.
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 9.06 hereof, the Trustee shall join with the Company in
the execution of any amended or supplemental Indenture authorized or permitted
by the terms of this Indenture and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF SENIOR SUBORDINATED NOTES.
Except as provided below in this Section 9.02, this Indenture or the
Senior Subordinated Notes may be amended or supplemented with the consent of
the Holders of at least a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding (including, without limitation, consents
obtained in connection with a purchase of, tender offer or exchange offer for
the Senior Subordinated Notes), and, subject to Sections 6.04 and 6.07 hereof,
any existing Default or Event of Default (other than a Default or Event of
Default in the payment of the principal of, interest or, Liquidated Damages, if
any, on the Senior Subordinated Notes, except a payment default resulting from
an acceleration that has been rescinded) or compliance with any provision of
this Indenture or the Senior Subordinated Notes may be waived with the consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Senior Subordinated Notes (including, without limitation, consents
obtained in connection with a purchase of, or tender offer or exchange offer
for, the Senior Subordinated Notes).
Upon the request of the Company accompanied by a resolution of its
Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Senior
Subordinated Notes as aforesaid, and upon receipt by the Trustee of the
documents described in Section 9.06 hereof, the Trustee shall join with the
Company in the execution of such amended or supplemental Indenture unless such
amended or supplemental Indenture affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise, in which case the Trustee may in
its discretion, but shall not be obligated to, enter into such amended or
supplemental Indenture.
It shall not be necessary for the consent of the Holders of Senior
Subordinated Notes under this Section 9.02 to approve the particular form of
any proposed amendment or waiver, but it shall be sufficient if such consent
approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders of Senior Subordinated
Notes affected thereby a notice briefly describing the amendment, supplement or
waiver. Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07
hereof, the Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding may waive compliance
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in a particular instance by the Company with any provision of this Indenture or
the Senior Subordinated Notes. However, without the consent of each Holder
affected, an amendment or waiver may not (with respect to any Senior
Subordinated Notes held by a non-consenting Holder):
(a) reduce the principal amount of Senior Subordinated Notes
whose Holders must consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any
Senior Subordinated Note or alter the provisions with respect to the
redemption of the Senior Subordinated Notes (other than provisions
relating to Sections 4.10 and 4.14 hereof);
(c) reduce the rate of or change the time for payment of interest
or Liquidated Damages, if any, on any Senior Subordinated Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, interest or Liquidated Damages, if any, on
the Senior Subordinated Notes (except a rescission of acceleration of
the Senior Subordinated Notes by the Holders of at least a majority in
aggregate principal amount of the Senior Subordinated Notes and a
waiver of the payment default that resulted from such acceleration);
(e) make any Senior Subordinated Note payable in money other than
that stated in the Senior Subordinated Notes;
(f) make any change in the provisions of this Indenture relating
to waivers of past Defaults or the rights of Holders of Senior
Subordinated Notes to receive payments of principal of or premium,
interest or Liquidated Damages, if any, on the Senior Subordinated
Notes;
(g) waive a redemption payment with respect to any Senior
Subordinated Note (other than a payment required Section 4.10 or 4.14
hereof); or
(h) make any change in the foregoing amendment and waiver
provisions.
In addition, any amendment to the provisions of Article 10 of this
Indenture (which relate to Subordination) will require the consent of the
Holders of at least 75% in aggregate principal amount of the Senior
Subordinated Notes then outstanding if such Amendment would adversely affect
the rights of Holders of the Senior Subordinated Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Senior
Subordinated Notes shall be set forth in an amended or supplemental Indenture
that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Senior Subordinated Note is a continuing consent by the
Holder of a Senior Subordinated Note and every subsequent Holder of a Senior
Subordinated Note or portion of a Senior Subordinated Note that evidences the
same debt as the consenting Holder's Senior Subordinated Note, even if notation
of the consent is not made on any Senior Subordinated Note. However, any such
Holder of a Senior
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Subordinated Note or subsequent Holder of a Senior Subordinated Note may revoke
the consent as to its Senior Subordinated Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment
becomes effective. An amendment, supplement or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SENIOR SUBORDINATED NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Senior Subordinated Note thereafter authenticated.
The Company in exchange for all Senior Subordinated Notes may issue and the
Trustee shall authenticate new Senior Subordinated Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Senior
Subordinated Note shall not affect the validity and effect of such amendment,
supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does
not adversely affect the rights, duties, liabilities or immunities of the
Trustee. The Company may not sign an amendment or supplemental Indenture until
the Board of Directors approves it. In executing any amended or supplemental
indenture, the Trustee shall be entitled to receive and (subject to Section
7.01) shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such amended or supplemental
indenture is authorized or permitted by this Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Senior Subordinated Notes by
accepting a Senior Subordinated Note agrees, that the Subordinated Obligations
(as defined in Section 10.02) are subordinated in right of payment, to the
extent and in the manner provided in this Article, to the prior payment in full
in cash of all Obligations with respect to Senior Debt of the Company (whether
outstanding on the date hereof or hereafter created, incurred, assumed or
guaranteed), and that the subordination is for the benefit of the holders of
Senior Debt.
SECTION 10.02. CERTAIN DEFINITIONS.
"Insolvency or Liquidation Proceeding" means, with respect to any
Person, (i) any insolvency or bankruptcy or similar case or proceeding, or any
reorganization, receivership, liquidation, dissolution or winding up of such
Person, whether voluntary or involuntary, or (ii) any assignment for the
benefit of creditors or any other marshalling of assets and liabilities of such
Person.
"Post-Petition Interest" means, with respect to any Indebtedness of
any Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument
creating, evidencing or
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governing such Indebtedness, whether or not, pursuant to applicable law or
otherwise, the claim for such interest is allowed as a claim in such Insolvency
or Liquidation Proceeding.
"Representative" means, with respect to any Senior Debt, the agent or
other representative(s), if any, of holders of such Senior Debt.
"Senior Agent" means (i) until all Indebtedness under the Bank Credit
Facility is paid in full in cash, the agent (or the institution performing
similar functions) under the Bank Credit Facility and (ii) if all Indebtedness
under the Bank Credit Facility has been paid in full, the Person (or
representative of the Persons) holding the greatest amount of Senior Debt.
"Subordinated Obligations" means all Indebtedness and other
Obligations of the Company or any of its Subsidiaries, contingent or otherwise,
now or hereafter existing under or in respect of the Senior Subordinated Notes
(pursuant to the terms thereof or any other agreement or instrument relating
thereto) or this Indenture, other than payments and other distributions made
from any defeasance trust created pursuant to Article 8 hereof, which
obligations, in each case, shall not constitute Subordinated Obligations.
SECTION 10.03. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any distribution to creditors of the Company in an Insolvency or
Liquidation Proceeding relating to the Company or its property;
(1) holders of Senior Debt of the Company shall be entitled to
receive payment in full in cash of all Obligations due in respect of
such Senior Debt (including Post-Petition Interest) before Holders of
the Senior Subordinated Notes shall be entitled to receive any payment
with respect to the Senior Subordinated Notes; and
(2) until all Obligations with respect to Senior Debt of the
Company (as provided in subsection (1) above) are paid in full in
cash, any distribution to which Holders of Senior Subordinated Notes
would be entitled but for this Article shall be made to holders of
such Senior Debt (except that Holders may receive securities that are
subordinated to at least the same extent as the Senior Subordinated
Notes to Senior Debt of the Company and any securities issued in
exchange for Senior Debt of the Company and payments made from any
defeasance trust created pursuant to Article 8 hereof).
SECTION 10.04. DEFAULT ON SENIOR DEBT.
(a) The Company may not make any payment or distribution upon or in
respect of the Senior Subordinated Notes (except in such subordinated
securities or from any defeasance trust created pursuant to Article 8 hereof)
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
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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;
(b) if the Trustee receives any such Payment Blockage Notice, no
subsequent Payment Blockage Notice shall be effective for purposes of this
Section unless and until (i) 360 days shall 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, interest and Liquidated
Damages, if any, on the Senior Subordinated Notes that have come due have been
paid in full in cash. Further, 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.
(c) The Company may and shall resume payments on the Senior
Subordinated Notes upon:
(i) in the case of a default referred to in Section 10.04(i)
hereof, the date upon which such default is cured or waived, or
(ii) in the case of a default referred to in Section 10.04(ii)
hereof, the earlier of the date upon which the default is cured or
waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of such Designated
Senior Debt has been accelerated.
SECTION 10.05. ACCELERATION OF SENIOR SUBORDINATED NOTES.
The Company shall promptly notify holders of Senior Debt of the
Company if payment of the Senior Subordinated Notes is accelerated because of
an Event of Default.
SECTION 10.06. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of Senior Subordinated
Notes receives any payment of any Obligations with respect to the Senior
Subordinated Notes at a time when a Responsible Officer of the Trustee or such
Holder, as applicable, has actual knowledge that such payment is prohibited by
Section 10.04 hereof, such payment shall be held by the Trustee or such Holder,
in trust for the benefit of, and shall be paid forthwith over and delivered,
upon written request, to the holders of Senior Debt of the Company as their
interests may appear under the Indenture or other agreement (if any) pursuant
to which such Senior Debt may have been issued, as set forth in a writing
provided to the Trustee and consented to by all Representatives of the holders
of Senior Debt of the Company, for application to the payment of all
Obligations with respect to such Senior Debt remaining unpaid to the extent
necessary to pay such Obligations in full in accordance with their terms, after
giving affect to any concurrent payment or distribution to or for the holders
of such Senior Debt.
With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of such Senior Debt shall be read into
this Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt of the Company, and shall not be
liable to any such holders if the Trustee shall pay over or distribute to or on
behalf of Holders of Senior Subordinated Notes of the Company or any other
Person money or assets to which any holders of such Senior Debt shall be
entitled by virtue of this Article 10, except if such payment is made at a time
when a Responsible Officer has actual knowledge that the terms of this Article
10 prohibit such payment.
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SECTION 10.07. NOTICE.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts known to the Company that would cause a payment of any
Obligations with respect to the Senior Subordinated Notes to violate this
Article, but failure to give such notice shall not affect the subordination of
the Senior Subordinated Notes to the Senior Debt of the Company as provided in
this Article.
SECTION 10.08. SUBROGATION.
After all Senior Debt of the Company is paid in full in cash and until
the Senior Subordinated Notes are paid in full, Holders of Senior Subordinated
Notes shall be subrogated (equally and ratably with all other Indebtedness pari
passu with the Senior Subordinated Notes) to the rights of holders of such
Senior Debt to receive distributions applicable to such Senior Debt to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of such Senior Debt. A distribution made under this Article to
holders of Senior Debt of the Company that otherwise would have been made to
Holders of Senior Subordinated Notes is not, as between the Company and Holders
of Senior Subordinated Notes, a payment by the Company on the Senior
Subordinated Notes.
SECTION 10.09. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of Senior
Subordinated Notes and holders of Senior Debt of the Company. Nothing in this
Indenture shall:
(1) impair, as between the Company and Holders of Senior
Subordinated Notes, the obligation of the Company, which is absolute
and unconditional, to pay principal, interest and Liquidated Damages,
if any, or other premiums, if any, on the Senior Subordinated Notes in
accordance with their terms;
(2) affect the relative rights of Holders of Senior Subordinated
Notes and creditors of the Company other than their rights in relation
to holders of such Senior Debt; or
(3) prevent the Trustee or any Holder of Senior Subordinated
Notes from exercising its available remedies upon a Default or Event
of Default, subject to the rights of holders of owners of such Senior
Debt to receive distributions and payments otherwise payable to
Holders of Senior Subordinated Notes.
If the Company fails because of this Article to pay principal,
interest, Liquidated Damages, if any, or other premiums, if any, on a Senior
Subordinated Note on the due date (subject to any grace periods provided in
Section 6.01), the failure is still a Default or Event of Default.
SECTION 10.10. SUBORDINATION MAY NOT BE IMPAIRED BY COMPANY.
(a) No right of any holder of Senior Debt of the Company to enforce
the subordination of the Subordinated Obligations shall be impaired by any act
or failure to act by the Company or any Holder of the Senior Subordinated Notes
or the failure of the Company or any Holder of the Senior Subordinated Notes to
comply with this Indenture.
(b) Without in any way limiting Section 10.10(a), the holders of any
Senior Debt of the Company may at any time and from time to time, without the
consent of or notice to any Holders of the
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Senior Subordinated Notes, without incurring any liabilities to any such Holder
and without impairing or releasing the subordination and other benefits
provided in this Indenture or the Holders' obligations to the holders of such
Senior Debt (even if any Holder's right of reimbursement or subrogation or
other right or remedy is affected, impaired or extinguished thereby, but
subject to the proviso contained in the first sentence, and to the second
sentence, of the definition of "Senior Debt,") do any one or more of the
following: (i) amend, renew, exchange, extend, modify, increase or supplement
in any manner such Senior Debt or any instrument evidencing or guaranteeing or
securing such Senior Debt or any agreement under which such Senior Debt is
outstanding (including, but not limited to, changing the manner, place or terms
of payment or changing or extending the time of payment of, or renewing,
exchanging, amending, increasing, releasing, terminating or altering, (1) the
terms of such Senior Debt, (2) any security for, or any guarantee of, such
Senior Debt, (3) any liability of any obligor on such Senior Debt (including
any guarantor) or any liability incurred in respect of such Senior Debt); (ii)
sell, exchange, release, surrender, realize upon, enforce or otherwise deal
with in any manner and in any order any property pledged, mortgaged or
otherwise securing such Senior Debt or any liability of any obligor thereon, to
such holder, or any liability incurred in respect thereof; (iii) settle or
compromise any such Senior Debt or any other liability of any obligor of such
Senior Debt to such holder or any security therefor or any liability incurred
in respect thereof and apply any sums by whomsoever paid and however realized
to any liability (including, without limitation, payment of any Senior Debt) in
any manner or order; and (iv) release, terminate or otherwise cancel, or fail
to take or to record or otherwise perfect, for any reason or for no reason, any
lien or security interest securing such Senior Debt by whomsoever granted; (v)
exercise or delay in or refrain from exercising any right or remedy against any
obligor or any guarantor or any other Person; and (vi) elect any remedy and
otherwise deal freely with any obligor and any security for such Senior Debt or
any liability of any obligor to the holders of such Senior Debt or any
liability incurred in respect to such Senior Debt.
SECTION 10.11. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt of the Company, the distribution may be made and the notice given
to their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of Senior Subordinated Notes
shall be entitled to rely upon any order or decree made by any court of
competent jurisdiction or upon any certificate of such Representative or of the
liquidating trustee or agent or other Person making any distribution to the
Trustee or to the Holders of Senior Subordinated Notes for the purpose of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Debt and other Indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 10.
SECTION 10.12. RIGHTS OF TRUSTEE AND PAYING AGENT.
Neither the Trustee nor any Paying Agent shall at any time be charged
with the knowledge of the existence of any facts that would prohibit the making
of any payment to or by the Trustee or Paying Agent under this Article 10,
unless and until the Trustee or Paying Agent shall have received written notice
thereof from the Company, the Senior Agent, one or more holders of Senior Debt
of the Company or a Representative of any holders of Senior Debt of the
Company; and, prior to the receipt of any such written notice, the Trustee or
Paying Agent shall be entitled to assume conclusively that no such facts exist.
The Trustee shall be entitled to rely on the delivery to it of written notice
by a Person representing itself to be a holder of Senior Debt (or a
Representative thereof) to establish that such notice has been
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given. In the event that the Trustee or Paying Agent determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Debt to participate in any payment or distribution pursuant to
this Article 10, the Trustee or Paying Agent may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee or Paying Agent as to
the amount of Senior Debt held by such Person, the extent to which such Person
is entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article 10, and if such
evidence is not furnished, the Trustee or Paying Agent may defer any payment to
such Person pending judicial determination as to the right of such Person to
receive such payment. Only the Company, a Representative or a holder of Senior
Debt of the Company that has no Representative may give the notice. Nothing in
this Article 10 shall impair the claims of, or payments to, the Trustee under
or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may
do the same with like rights.
SECTION 10.13. AUTHORIZATION TO EFFECT SUBORDINATION.
Each Holder of the Senior Subordinated Notes by the Holder's
acceptance thereof authorizes and directs the Trustee on such Holder's behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 10, and appoints the Trustee to act
as the Holder's attorney-in-fact for any and all such purposes. If the Trustee
does not file a proper proof of claim or proof of debt in the form required in
any proceeding referred to in Section 6.09 hereof at least 30 days before the
expiration of the time to file such claim, the Senior Agent is hereby
authorized to file an appropriate claim for and on behalf of the Holders of
such Senior Subordinated Notes.
SECTION 10.14. PAYMENT.
For all purposes of this Article 10, a "payment or distribution on
account of Subordinated Obligations" shall include, without limitation, any
direct or indirect payment or distribution on account of the purchase,
prepayment, redemption, retirement, defeasance (other than payments and other
distributions made from any defeasance trust created pursuant to Article 8
hereof) or acquisition of any such Senior Subordinated Note, any recovery by
the exercise of any right of set-off, any direct or indirect payment of
principal, premium or interest with respect to or in connection with any
mandatory or optional redemption or purchase provisions, any direct or indirect
payment or distribution payable or distributable by reason of any other
Indebtedness or Obligation being subordinated or any Subordinated Obligations,
and any direct or indirect payment or recovery on any claim (including claims
for Liquidated Damages, if any,) relating to or arising out of this Indenture,
the Senior Subordinated Notes or the issuance Notes.
SECTION 10.15. DEFEASANCE OF THIS ARTICLE 10.
The subordination of the Senior Subordinated Notes provided by this
Article 10 is expressly made subject to the provisions for defeasance in
Article 8 hereof and, anything herein to the contrary notwithstanding, upon the
effectiveness of any such defeasance (provided that any deposit pursuant to
Article 8 was not prohibited by this Article 10 or any other instrument or
agreement governing any Senior Debt of the Company and did not constitute a
default under any such instrument or agreement), the Senior Subordinated Notes
then outstanding shall thereupon cease to be subordinated pursuant to this
Article 10; provided, however, that if the Company's obligations under this
Indenture and the such Senior Subordinated Notes are revived and reinstated in
accordance with the terms of Section 8.07 hereof, the
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subordination provisions of this Article 10 shall be revived and reinstated
with respect to all Subordinated Obligations.
SECTION 10.16. NO CLAIMS AGAINST SUBSIDIARIES.
The Company and the Holders acknowledge and agree as follows: (a) the
Senior Subordinated Notes are an obligation of the Company only, and the
Holders thereof have, and will have, no claim, right or demand against any
Subsidiary of the Company or any assets or properties of any Subsidiary of the
Company on or in respect of the such Senior Subordinated Notes except to the
extent that any Subsidiary is a Guarantor thereunder; (b) the Company is, and
is capitalized as, a separate legal entity such that any claim, right or demand
by the Holders of the Senior Subordinated Notes with respect to the assets and
properties of any Subsidiary of the Company would be solely as a creditor of a
direct or indirect shareholder of such Subsidiary except to the extent that any
Subsidiary is a Guarantor thereunder, and that such arrangement has been relied
upon by and is for the benefit of holders of Senior Debt of the Company or any
Guarantor thereunder; and (c) the Company's direct and indirect Subsidiaries
have no obligation to pay dividends to or to make investments in the Company,
for the purpose of funding payment obligations of the Company to the Holders of
the Senior Subordinated Notes or otherwise.
SECTION 10.17. AMENDMENTS.
The provisions of this Article 10 shall not be amended or modified
without the written consent of the Senior Debt of the Company.
SECTION 10.18. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such holders if the
Trustee shall in good faith mistakenly pay over or distribute to Holders of
Senior Subordinated Debt or to the Company or to any other Person cash,
property or securities to which any holders of Senior Debt shall be entitled by
virtue of this Article 10 or otherwise. The Trustee shall not be charged with
knowledge of the existence of Senior Debt or of any facts that would prohibit
any payment hereunder unless a Responsible Officer shall have received notice
to that effect at the address of the Trustee set forth in Section 11.02. With
respect to the holders of Senior Debt, the Trustee undertakes to perform or to
observe only such of its covenants or obligations as are specifically set forth
in this Section and no implied covenants or obligations with respect to holders
of Senior Debt shall be read into this Indenture against the Trustee.
SECTION 10.19. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR DEBT; PRESERVATION OF
TRUSTEE'S RIGHTS.
The Trustee or any Paying Agent in its individual capacity shall be
entitled to all the rights set forth in this Article 10 with respect to any
Senior Debt which may at any time be held by it, to the same extent as any
other holder of Senior Debt, and nothing in this Indenture shall deprive the
Trustee or any Paying Agent of any of its rights as such holder. Nothing in
this Section shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.07.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA [section]318(c), the imposed duties shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first class
mail (registered or certified, return receipt requested), telex, telecopier or
overnight air courier guaranteeing next day delivery, to the other's address:
If to the Company:
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Telecopier No.: (914) 749-3285
Attention: Harvey L. Friedman, Esq.
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Attention: Michael S. Nelson, Esq.
If to the Trustee:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, New York 10286
Telecopier No.: (212) 815-5915
Attention: Corporate Trust Administration
The Company or the Trustee, by notice to the other may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
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Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register
kept by the Registrar. Any notice or communication shall also be so mailed to
any Person described in TIA [section] 313(c), to the extent required by the
TIA. Failure to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
SECTION 11.03. COMMUNICATION BY HOLDERS OF SENIOR SUBORDINATED NOTES WITH
OTHER HOLDERS OF SENIOR SUBORDINATED NOTES.
Holders may communicate pursuant to TIA [section] 312(b) with other
Holders with respect to their rights under this Indenture or the Senior
Subordinated Notes. The Company, the Trustee, the Registrar and anyone else
shall have the protection of TIA [section] 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth
in Section 11.05 hereof) stating that, in the opinion of such counsel, all
such conditions precedent and covenants have been satisfied.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA [section] 314(a)(4)) shall comply with the provisions
of TIA [section] 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been satisfied; and
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(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
SECTION 11.08. 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 Senior Subordinated Notes or this Indenture or for any claim based
on, in respect of, or by reason of, such Obligations or their creation. Each
Holder of Senior Subordinated Notes by accepting a Senior Subordinated Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Senior Subordinated Notes. Such waiver may
not be effective to waive liabilities under the federal securities laws and it
is the view of the SEC that such a waiver is against public policy.
SECTION 11.09. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE SENIOR SUBORDINATED NOTES AND THE GUARANTEE, IF
ANY, WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF.
SECTION 11.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person.
Any such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 11.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Senior
Subordinated Notes shall bind their respective successors. All agreements of
the Trustee in this Indenture shall bind its successors.
SECTION 11.12. SEVERABILITY.
In case any provision in this Indenture or in the Senior Subordinated
Notes 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.
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SECTION 11.13. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 11.14. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
ARTICLE 12
GUARANTEE OF SENIOR SUBORDINATED NOTES
SECTION 12.01. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
(a) On the date of this Indenture, all existing Restricted
Subsidiaries of the Company shall execute a Guarantee in substantially the form
of Exhibit C (a "Subsidiary Guarantee").
(b) After the date of this Indenture, if the Company, or any of its
Restricted Subsidiaries, shall acquire or create a Restricted Subsidiary, then
such Subsidiary shall execute a Subsidiary Guarantee, except that this
requirement shall not apply to (i) a Restricted Subsidiary formed for the sole
purpose of engaging in accounts receivable financing; and (ii) any Subsidiary
that has been properly designated as an Unrestricted Subsidiary in accordance
with Sections 1.01 and 4.07 for so long as it continues to constitute an
Unrestricted Subsidiary. Such Guarantee shall be substantially in the form of
Exhibit C and shall be accompanied by a Supplemental Indenture substantially in
the form of Exhibit D, along with such other opinions, certificates and
documents as are required under this Indenture.
(c) Except as provided for under the immediately following section, a
Guarantor shall be subject to the provisions of this Indenture from the date of
the Supplemental Indenture to which its Guarantee relates and until such time
as it has been properly designated as an Unrestricted Subsidiary in accordance
with Sections 1.01 and 4.07 hereof.
SECTION 12.02. SUBORDINATION OF GUARANTEE; GUARANTORS MAY CONSOLIDATE, ETC.,
ON CERTAIN TERMS.
(a) The obligations of each Guarantor under its Subsidiary Guarantee
pursuant to this Article 12 shall be junior and subordinated to the Senior Debt
of such Guarantor on the same basis as the Senior Subordinated Notes are junior
and subordinated to the Senior Debt of the Company. For the purposes of the
foregoing sentence, the Trustee and the Holders shall have the right to receive
and/or retain payments by any of the Guarantors in respect of any Subsidiary
Guarantee only at such times as they may receive and/or retain payments in
respect of the Senior Subordinated Notes pursuant to this Indenture, including
Article 10 hereof.
(b) Except as set forth in Articles 4 and 5, nothing contained in this
Indenture or in the Senior Subordinated Notes shall prevent (i) any
consolidation or merger of a Guarantor with or into
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the Company or any other Guarantor or (ii) any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety, to the
Company or any other Guarantor.
(c) No Guarantor may consolidate with or merge with or into (whether
or not such Guarantor is the surviving Person) another corporation, Person or
entity, whether or not affiliated with such Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving
any such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor, pursuant to a supplemental indenture and in form
and substance reasonably satisfactory to the Trustee, under the Senior
Subordinated Notes, and this Indenture; (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists; (iii) such Guarantor,
or any Person formed by or surviving any such consolidation or merger, would
have Consolidated Net Worth (immediately after giving effect to such
transaction) equal to or greater than the Consolidated Net Worth of such
Guarantor immediately preceding the transaction; and (iv) the Company would be
permitted by virtue of the Company's pro forma Fixed Charge Coverage Ratio,
immediately after giving effect to such transaction, to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in Section 4.09 hereof; provided, that the foregoing provisions will not
restrict the ability of a Restricted Subsidiary to consolidate or merge with
the Company or another Restricted Subsidiary.
(d) In the event of a sale or other disposition of all of the assets
of any Guarantor (other than to or with the Company or another Guarantor), by
way of merger, consolidation or otherwise, or a sale or other disposition of
all of the capital stock of any Guarantor (other than to the Company or another
Guarantor), then such Guarantor (in the event of a sale or other disposition,
by way of such a merger, consolidation or otherwise, of all of the capital
stock of such Guarantor) or the corporation acquiring the property (in the
event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary
Guarantee; provided that the Net Proceeds of such sale or other disposition are
applied in accordance with Section 4.10 hereof.
(e) In the event the Company designates a Subsidiary Guarantor to be
an Unrestricted Subsidiary, then such Subsidiary Guarantor will be released and
relieved of any obligations under its Subsidiary Guarantee; provided that such
designation is conducted in accordance with Sections 1.01 and 4.07 hereof.
[Signatures on following page]
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SIGNATURES
Dated as of February 27, 1997 THE FONDA GROUP, INC.
By: /s/ Hans H. Heinsen
-----------------------------------
Name: Hans H. Heinsen
Title: Chief Financial Officer
Dated as of February 27, 1997 THE BANK OF NEW YORK, as
Trustee
By: /s/ Marie E. Trimboli
-----------------------------------
Name: Marie E. Trimboli
Title: Assistant Treasurer
<PAGE>
Exhibit A
===============================================================================
(Face of Senior Subordinated Note)
9 1/2% Series A Senior Subordinated Notes due 2007
No.
CUSIP No. $__________
THE FONDA GROUP, INC.
promises to pay to the order of Cede & Co.
or registered assigns,
the principal sum of
on March 1, 2007.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
THE FONDA GROUP, INC.
By:_____________________________
Name: Hans H. Heinsen
Title: Chief Financial Oficer
By:_____________________________
Name: Harvey L. Friedman
Title: Secretary
This is one of the
Senior Subordinated Notes referred to in the
within-mentioned Indenture:
THE BANK OF NEW YORK,
as Trustee
By:__________________________________
Name:
Title:
Dated: February __, 1997
===============================================================================
<PAGE>
(Back of Senior Subordinated Note)
9 1/2% Series A Senior Subordinated Notes due 2007
Unless and until it is exchanged in whole or in part for Senior
Subordinated Notes in definitive form, this Senior Subordinated Note may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. Unless this certificate is presented
by an authorized representative of The Depository Trust Company (55 Water
Street, New York, New York) ("DTC"), to the issuer or its agent for
registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as may be requested by
an authorized representative of DTC (and any payment is made to Cede & Co. or
such other entity as may be requested by an authorized representative of DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY
ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY
EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY
BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
(AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING
THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE
UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO
REQUESTS), (2) TO THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH
SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A)
ABOVE.
- --------------
1. This paragraph should be included only if the Senior Subordinated Note is
issued in global form.
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1. INTEREST. Interest on the Senior Subordinated 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 (each
such date, an "Interest Payment Date"), to Holders of record on the immediately
preceding February 15 and August 15. Interest on the Senior Subordinated 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 original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal of, interest on, Liquidated Damages, if any, or other premiums, if
any, on the Senior Subordinated 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 and, Liquidated Damages or other premiums, if any, may be
made by check mailed to the Holders of the Senior Subordinated Notes at their
respective addresses set forth in the register of Holders of Senior
Subordinated Notes; provided that all payments with respect to Senior
Subordinated 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 Senior Subordinated
Notes will be issued in denominations of $1,000 and integral multiples thereof.
2. METHOD OF PAYMENT. The Company will pay interest on the Senior
Subordinated Notes (except defaulted interest) and, Liquidated Damages, if any,
or any other premiums, if any, to the Persons who are registered Holders of
Senior Subordinated Notes at the close of business on the February 15 or August
15 next preceding the Interest Payment Date, even if such Senior Subordinated
Notes are cancelled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. Payments in respect of the Senior Subordinated Notes
represented by the Global Note (including principal, premium, interest and
liquidated damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
Certificated Notes, the Company will make all payments in respect of the Senior
Subordinated Notes (including principal, premium, interest and liquidated
damages, 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. Such payment shall
be in such coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the
Trustee under the Indenture, will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar without notice to any Holder.
The Company or any of its Subsidiaries may act in any such capacity.
4. INDENTURE. The Company issued the Senior Subordinated Notes under
an Indenture dated as of February 27, 1997 ("Indenture") between the Company
and the Trustee. The terms of the Senior Subordinated 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 (15 U.S. Code [section][section]
77aaa-77bbbb). The Senior Subordinated Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. The Senior Subordinated Notes are unsecured obligations of the Company
limited to $120.0 million in aggregate principal amount and will mature on
March 1, 2007.
5. OPTIONAL REDEMPTION.
(a) Except as set forth in clauses (b) and (c) of this paragraph 5,
the Senior Subordinated Notes will not be redeemable at the Company's option
prior to March 1, 2002. Thereafter, the Senior Subordinated Notes will be
subject to redemption at the option of the Company, in whole or in
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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 and Liquidated Damages, if any, thereon, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on March 1 of the years indicated below:
YEAR PERCENTAGE
2002.......................................... 104.750%
2003.......................................... 103.166%
2004.......................................... 101.583%
2005 and thereafter........................... 100.0%
(b) Notwithstanding the foregoing, at any time prior to March 1, 2000,
the Company may redeem up to one-third in aggregate principal amount of Senior
Subordinated Notes at a redemption price of 109.5% of the principal amount
thereof, in each case plus accrued and unpaid interest and Liquidated Damages,
if any, to the redemption date, with the net proceeds of any Public Offering of
Common Stock of the Company; provided that at least two-thirds in aggregate
principal amount of the Senior Subordinated Notes originally issued under this
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.
(c) 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 Senior Subordinated 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.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Senior Subordinated Notes.
7. REPURCHASE AT OPTION OF HOLDER.
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
Senior Subordinated Notes at an offer price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, 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 the Senior Subordinated Notes
pursuant to the procedures required by the Indenture and described in such
notice; provided that, prior to complying with the applicable provisions of the
Indenture, 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 Senior Subordinated Notes required by the Indenture.
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
Senior Subordinated 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 Senior Subordinated Notes or portions
thereof properly tendered pursuant to
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<PAGE>
the Change of Control Offer, (ii) deposit with the Paying Agent an amount equal
to the Change of Control Payment in respect of all Senior Subordinated Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Senior Subordinated Notes so accepted together with an Officers'
Certificate stating the aggregate principal amount of Senior Subordinated Notes
or portions thereof being purchased by the Company. The Paying Agent will
promptly mail to each Holder of Senior Subordinated Notes so tendered the
Change of Control Payment for such Senior Subordinated Notes and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each Holder a new Senior Subordinated Note equal in principal amount to any
unpurchased portion of the Senior Subordinated Notes surrendered, if any;
provided, that each such new Senior Subordinated 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.
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 Senior Subordinated Notes validly tendered and not
withdrawn under such Change of Control Offer.
When the aggregate amount of Excess Proceeds exceeds $5.0 million (an
"Excess Proceeds Offer Triggering Event"), the Company shall make an offer to
all Holders of Senior Subordinated Notes (an "Asset Sale Offer") to purchase
the maximum principal amount of Senior Subordinated 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 and
Liquidated Damages if any, thereon to the date of purchase, in accordance with
the procedures set forth in Sections 3.09 hereof and Section 4.10 of the
Indenture. To the extent that the aggregate amount of Senior Subordinated 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 this Indenture). If the aggregate principal
amount of Senior Subordinated Notes surrendered by Holders thereof exceeds the
amount of Excess Proceeds, the Trustee shall select the Senior Subordinated
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.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the redemption date to each Holder
whose Senior Subordinated Notes are to be redeemed at its registered address.
Senior Subordinated Notes in denominations larger than $1,000 may be redeemed
in part but only in whole multiples of $1,000, unless all of the Senior
Subordinated Notes held by a Holder are to be redeemed. On and after the
redemption date interest ceases to accrue on Senior Subordinated Notes or
portions thereof called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Senior Subordinated Notes
are in registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Senior Subordinated Notes may be
registered and Senior Subordinated Notes may be exchanged as provided in 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 need not exchange or register the
transfer of any Senior Subordinated Note or portion of a Senior Subordinated
Note selected for redemption, except for the unredeemed portion of any Senior
Subordinated Note being redeemed in part. Also, it need not exchange or
register the transfer of any Senior Subordinated Notes for a period of 15 days
before a selection of Senior Subordinated Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
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<PAGE>
10. PERSONS DEEMED OWNERS. The registered Holder of a Senior
Subordinated Note may be treated as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions,
the Indenture or the Senior Subordinated Notes may be amended or supplemented
with the consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Senior Subordinated Notes, and any existing
default or compliance with any provision of the Indenture or the Senior
Subordinated Notes may be waived with the consent of the Holders of a majority
in aggregate principal amount of the then outstanding Senior Subordinated
Notes. Without the consent of any Holder of a Senior Subordinated Note, the
Indenture or the Senior Subordinated Notes may be amended or supplemented to
cure any ambiguity, defect or inconsistency, to provide for uncertificated
Senior Subordinated Notes in addition to or in place of certificated Senior
Subordinated Notes, to provide for the assumption of the Company's obligations
to Holders of the Senior Subordinated Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the Holders of the Senior Subordinated Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder or to
comply with the requirements of the SEC in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for
30 days in the payment when due of interest on the Senior Subordinated Notes;
(ii) default in payment when due of the principal of or premium or Liquidated
Damages, if any, on the Senior Subordinated Notes; (iii) failure by the Company
to comply with Sections 4.07, 4.09, 4.10 and 4.14 of the Indenture; (iv)
failure by the Company for 30 days after notice to comply with any of its other
agreements in the Indenture or the Senior Subordinated 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 (other than an Event of Default specified in
clause (vii) above) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Senior Subordinated Notes
may declare all the Senior Subordinated Notes to be due and payable
immediately. Notwithstanding the foregoing, in the case of an Event of Default
specified in clause (vii) above, all outstanding Senior Subordinated Notes will
become due and payable without further action or notice. Holders of Senior
Subordinated Notes may not enforce the Indenture or the Senior Subordinated
Notes except as provided in the Indenture. Subject to certain limitations, the
Holders of a majority in aggregate principal amount of the then outstanding
Senior Subordinated Notes, by written notice to the Trustee, may on behalf of
the Holders rescind an acceleration and its consequences if the rescission
would not conflict with any judgment or decree and if all Events of Default
(except nonpayment of principal, interest or premium that has become due solely
because of acceleration) have been cured or waived. The Trustee may withhold
from Holders of the Senior Subordinated Notes notice of any continuing Default
or Event of Default (except a Default or Event
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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 Senior Subordinated
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 Senior Subordinated 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 Senior
Subordinated Notes prior to such date, then, upon acceleration of the Senior
Subordinated Notes, an additional premium shall also become immediately due and
payable to the extent permitted by law.
The Holders of a majority in aggregate principal amount of the Senior
Subordinated Notes then outstanding by notice to the Trustee may on behalf of
the Holders of all of the Senior Subordinated 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, interest or Liquidated Damages, if any, on the Senior Subordinated
Notes, including in connection with an offer to purchase; provided, however,
that the Holders of a majority in aggregate principal amount of the then
outstanding Senior Subordinated Notes may rescind an acceleration and its
consequences, including any related payment default that resulted from such
acceleration.
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.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Company, as such, shall not have any
liability for any obligations of the Company under the Senior Subordinated
Notes or the Indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each Holder by accepting a Senior
Subordinated Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Senior
Subordinated Notes.
15. AUTHENTICATION. This Senior Subordinated Note shall not be valid
until authenticated by the manual signature of the Trustee or an authenticating
agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of
a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of Senior Subordinated Notes under
the Indenture, Holders of Transferred Restricted Securities shall have all the
rights set forth in the Registration Rights Agreement dated as of February __,
1997 between the Company and the parties named on the signature pages thereof
(the "Registration Rights Agreement").
A-7
<PAGE>
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Senior Subordinated Notes and the Trustee
may use CUSIP numbers in notices of redemption as a convenience to Holders. No
representation is made as to the accuracy of such numbers either as printed on
the Senior Subordinated Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge a copy of the Indenture, and/or the Registration Rights
Agreement. Requests may be made to:
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Attention: Harvey L. Friedman, Esq.
A-8
<PAGE>
ASSIGNMENT FORM
To assign this Senior Subordinated Note, fill in the form below: (I)
or (we) assign and transfer this Senior Subordinated Note to
(Insert assignee's soc. sec. or tax I.D. no.)
(Print or type assignee's name, address and zip code)
and irrevocably appoint
to transfer this Senior Subordinated Note on the books of the Company. The
agent may substitute another to act for him.
Date:
Your Signature:
(Sign exactly as your name appears on the
face of this Senior Subordinated Note)
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Subordinated Note purchased
by the Company pursuant to Section 4.10 or 4.14 of the Indenture, check the box
below:
[ ] Section 4.10 [ ] Section 4.14
If you want to elect to have only part of the Senior Subordinated Note
purchased by the Company pursuant to Section 4.10 or Section 4.14 of the
Indenture, state the amount you elect to have purchased: $___________
Date: Your Signature:
(Sign exactly as your name appears on the
Senior Subordinated Note)
Tax Identification No.:
Signatures must be guaranteed by an "eligible guarantor institution" meeting
the requirements of the [Registrar], which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the
[Registrar] in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as amended.
A-10
<PAGE>
SCHEDULE OF EXCHANGES OF DEFINITIVE NOTE (2)
The following exchanges of a part of this Global Note for Definitive
Notes have been made:
<TABLE>
<CAPTION>
Signature of
Principal Amount of this authorized officer of
Amount of decrease in Amount of increase in Global Note Trustee or Senior
Principal Amount of Principal Amount of following such decrease Subordinated Note
Date of Exchange this Global Note this Global Note (or increase) Custodian
- -------------------- ----------------------- ----------------------- -------------------------- -----------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------
2 This should be included only if the Senior Subordinated Note is issued in
global form.
A-11
<PAGE>
===============================================================================
EXHIBIT B
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER
OF SENIOR SUBORDINATED NOTES
Re: 9 1/2% Senior Subordinated Notes due 2007 of The Fonda Group, Inc.
This Certificate relates to $_____ principal amount of Senior
Subordinated Notes held in * ________ book-entry or *_______ definitive form by
________________ (the "Transferor").
The Transferor*:
[ ] has requested the Trustee by written order to deliver in exchange
for its beneficial interest in the Global Note held by the Depositary a Senior
Subordinated Note or Senior Subordinated Notes in definitive, registered form
of authorized denominations in an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof indicated
above); or
[ ] has requested the Trustee by written order to exchange or register
the transfer of a Senior Subordinated Note or Senior Subordinated Notes.
In connection with such request and in respect of each such Senior
Subordinated Note, the Transferor does hereby certify that Transferor is
familiar with the Indenture relating to the above captioned Senior Subordinated
Notes and as provided in Section 2.06 of such Indenture, the transfer of this
Senior Subordinated Note does not require registration under the Securities Act
(as defined below) because:*
[ ] Such Senior Subordinated Note is being acquired for the
Transferor's own account, without transfer (in satisfaction of Section
2.06(a)(ii)(A) or Section 2.06(d)(i)(A) of the Indenture).
[ ] Such Senior Subordinated Note is being transferred to a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act of 1933,
as amended (the "Securities Act")) in reliance on Rule 144A (in satisfaction of
Section 2.06(a)(ii)(B), Section 2.06(b)(A) or Section 2.06(d)(i) (B) of the
Indenture) or pursuant to an exemption from registration in accordance with
Rule 904 under the Securities Act (in satisfaction of Section 2.06(a)(ii)(B) or
Section 2.06(d)(i)(B) of the Indenture.)
- --------------
* Check applicable box.
B-1
<PAGE>
[ ] Such Senior Subordinated Note is being transferred in accordance
with Rule 144 under the Securities Act, or pursuant to an effective
registration statement under the Securities Act (in satisfaction of
Section 2.06(a)(ii)(B) or Section 2.06(d)(i)(B) of the Indenture).
[ ] Such Senior Subordinated Note is being transferred in reliance
on and in compliance with an exemption from the registration requirements of
the Securities Act, other than Rule 144A, 144 or Rule 904 under the Securities
Act. An Opinion of Counsel to the effect that such transfer does not require
registration under the Securities Act accompanies this Certificate (in
satisfaction of Section 2.06(a)(ii)(C) or Section 2.06(d)(i)(C) of the
Indenture).
-----------------------------------
Name of Transferor:
By:
--------------------------------
Date:
-----------------------------
- ---------------
* Check applicable box.
B-2
<PAGE>
EXHIBIT C
FORM OF SUBSIDIARY GUARANTEE
Each of the Guarantors hereby, jointly and severally, unconditionally
guarantee to each Holder of a Senior Subordinated Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Senior
Subordinated Notes or the obligations of the Company hereunder or thereunder,
that: (a) the principal, interest, premium and Liquidated Damages, if any, on
the Senior Subordinated Notes will be promptly paid in full when due, whether
at maturity, by acceleration, redemption or otherwise, and interest on the
overdue principal, interest, premium and Liquidated Damages, if any, on the
Senior Subordinated Notes, if any, if lawful, and all other Obligations of the
Company to the Holders or the Trustee hereunder or thereunder will be
promptly paid in full or performed, all in accordance with the terms hereof
and thereof; and (b) in case of any extension of time of payment or renewal
of any Senior Subordinated Notes or any of such other obligations, that same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise. Failing payment when due of any amount so
guaranteed or any performance so guaranteed for whatever reason, the
Guarantors will be jointly and severally obligated to pay the same
immediately.
The Obligations of the Guarantors to the Holders of the Senior
Subordinated Notes and to the Trustee pursuant to this Subsidiary Guarantee and
the Indenture are expressly set forth in Article 12 of the Indenture, and
reference is hereby made to such Indenture for the precise terms of this
Subsidiary Guarantee. The terms of Article 12 of the Indenture are
incorporated herein by reference.
This is a continuing Subsidiary Guarantee and shall remain in full force
and effect and shall be binding upon each Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full
and final payment of all of the Company's Obligations under the Senior
Subordinated Notes and the Indenture and shall inure to the benefit of the
successors and assigns of the Trustee and the Holders of Senior Subordinated
Notes and, in the event of any transfer or assignment of rights by any Holder
of Senior Subordinated Notes or the Trustee, the rights and privileges herein
conferred upon that party shall automatically extend to and be vested in such
transferee or assignee, all subject to the terms and conditions hereof. This is
a Subsidiary Guarantee of payment and not a guarantee of collection.
In certain circumstances more fully described in the Indenture, any
Guarantor may be released from its liability under
<PAGE>
this Subsidiary Guarantee, and any such release will be effective whether or
not noted hereon.
This Subsidiary Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Senior Subordinated Note upon
which this Subsidiary Guarantee is noted shall have been executed by the
Trustee under the Indenture by the manual signature of one of its authorized
officers.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
By:
Name:
Title:
2
<PAGE>
EXHIBIT D
- ------------------------------------------------------------------------------
The Fonda Group, Inc.
and
the Guarantors named herein
and
The Bank of New York
Trustee
--------------------
FORM OF SUPPLEMENTAL INDENTURE
AND AMENDMENT -- SUBSIDIARY GUARANTEE
Dated as of ,
--------------------
$120,000,000
9 1/2% Senior Subordinated Notes
due 2007
- ------------------------------------------------------------------------------
<PAGE>
This SUPPLEMENTAL INDENTURE dated as of , , among THE
FONDA GROUP, INC., a Delaware corporation (the "Company"), each party
identified under the caption "Guarantor" on the signature pages hereto (the
"Guarantor") and The Bank of New York, a New York banking corporation, as
Trustee.
RECITALS
WHEREAS, the Company, any and all Guarantors and the Trustee entered
into an Indenture, dated as of , 1997 (the "Indenture"), pursuant to
which the Company issued $120,000,000 in principal amount of . % Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes"); and
WHEREAS, Section 9.01(e) of the Indenture provides that the Company,
the Guarantors, if any, and the Trustee may amend or supplement the Indenture
in order to execute a Subsidiary Guarantee to comply with Section 12.01 thereof
without the consent of the Holders of the Senior Subordinated Notes; and
WHEREAS, pursuant to Section 12.01 of the Indenture, a Guarantor
must execute a Subsidiary Guarantee and a Supplemental Indenture.
WHEREAS, all acts and things prescribed by the Indenture, by law and
by the Certificate of Incorporation and the Bylaws of the Company, the
Guarantor and of the Trustee necessary to make this Supplemental Indenture a
valid instrument legally binding on the Company, the Guarantor and the Trustee,
in accordance with its terms, have been duly done and performed;
NOW THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company, the Guarantor, and the
Trustee covenant and agree for the equal and proportionate benefit of the
respective Holders of the Senior Subordinated Notes as follows:
ARTICLE 1.
Section 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be
construed in connection with and as part of, the Indenture for any and all
purposes.
- 1 -
<PAGE>
Section 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company, the
Guarantor, and the Trustee.
ARTICLE 2.
Section 2.01. From this date, in accordance with Section 12.01 and by
executing this Supplemental Indenture and the accompanying Subsidiary Guarantee
(a copy of which is attached hereto), the Guarantor(s) whose signature appears
below is subject to the provisions of the Indenture to the extent provided for
in Article 12 thereunder.
Section 2.02. The Subsidiary Guarantee constitutes a part of the
Senior Subordinated Note as soon as the certificate of authentication has been
executed by the Trustee.
ARTICLE 3.
Section 3.01. Except as specifically modified herein, the Indenture
and the Senior Subordinated Notes are in all respects ratified and confirmed
(mutatis mutandis) and shall remain in full force and effect in accordance with
their terms with all capitalized terms used herein without definition having
the same respective meanings ascribed to them as in the Indenture.
Section 3.02. Except as otherwise expressly provided herein, no
duties, responsibilities or liabilities are assumed, or shall be construed to
be assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
Section 3.03. The laws of the State of New York shall govern this
Supplemental Indenture without regard to principles of conflicts of law. The
Trustee, the Company and the Guarantor each agree to submit to the jurisdiction
of the courts of the State of New York in any action or proceeding arising out
of or relating to this Supplemental Indenture.
Section 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
-2-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
THE FONDA GROUP, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
GUARANTOR
[ ]
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
TRUSTEE
THE BANK OF NEW YORK, as Trustee
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-3-
<PAGE>
EXECUTION COPY
===============================================================================
THE FONDA GROUP, INC.
SENIOR SUBORDINATED NOTES
REGISTRATION RIGHTS AGREEMENT
February 27, 1997
BEAR, STEARNS & CO. INC.
DILLON, READ & CO. INC.
===============================================================================
<PAGE>
This Senior Subordinated Notes Registration Rights Agreement (this
"Agreement") is made and entered into as of February 27, 1997, by and among The
Fonda Group, Inc., (the "Company"), a Delaware corporation, Bear, Stearns & Co.
Inc. and Dillon, Read & Co. Inc. (the "Purchasers"), who have agreed to
purchase the Company's Series A Senior Subordinated Notes due 2007 pursuant to
the Purchase Agreement.
This Agreement is made pursuant to the Purchase Agreement, dated
February 24, 1997 (the "Purchase Agreement"), by and among the Company and the
Purchasers. In order to induce the Purchasers to purchase the Series A Senior
Subordinated Notes, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution and delivery of this Agreement is a
condition to the obligations of the Purchasers set forth in Section 2 of the
Purchase Agreement.
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
Act: The Securities Act of 1933, as amended.
Broker-Dealer: Any broker or dealer registered under the Exchange Act.
Closing Date: The date of this Agreement.
Commission: The Securities and Exchange Commission.
Consummate: A Registered Exchange Offer shall be deemed "Consummated"
for purposes of this Agreement upon the occurrence of (i) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Senior Subordinated Notes, and the Guarantees thereof,
if any, to be issued in the Exchange Offer, (ii) the maintenance of such
Registration Statement continuously effective and the keeping of the Exchange
Offer open for a period not less than the minimum period required pursuant to
Section 3(b) hereof, and (iii) the delivery by the Company to the Registrar
under the Indenture of Series B Senior Subordinated Notes, and the Guarantees
thereof, if any, in the same aggregate principal amount as the aggregate
principal amount of Series A Senior Subordinated Notes that were tendered by
Holders thereof pursuant to the Exchange Offer.
Damages Payment Date: With respect to the Series A Senior Subordinated
Notes, each Interest Payment Date.
Effectiveness Target Date: As defined in Section 5.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Exchange Offer: The registration by the Company under the Act of the
Series B Senior Subordinated Notes, and the Guarantees thereof, if any,
pursuant to a Registration Statement in which the Company and the Guarantors,
if any, shall offer the Holders of all outstanding Transfer Restricted
Securities the opportunity to exchange all such outstanding Transfer Restricted
Securities held by such Holders for Series B Senior Subordinated Notes in an
aggregate principal amount equal to the aggregate principal amount of the
Transfer Restricted Securities tendered in such exchange offer by such Holders.
<PAGE>
Exchange Offer Registration Statement: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
Exempt Resales: The transactions in which the Purchasers propose to
sell the Series A Senior Subordinated Notes to certain "qualified institutional
buyers," as such term is defined in Rule 144A under the Act, and to certain
institutional "accredited investors," as such term is defined in Rule
501(a)(1), (2), (3) and (7) of Regulation D under the Act ("Accredited
Institutions").
Guarantee: The joint and several guarantee by the Guarantors, if any,
of the obligations of the Company pursuant to the Senior Subordinated Notes.
Guarantor: Any Restricted Subsidiary of the Company (as defined in the
Indenture) required to execute a Guarantee on the Senior Subordinated Notes
under the Indenture. References in this Agreement to the Company shall include
any Guarantor, unless the context requires otherwise.
Holders: As defined in Section 2(b) hereof.
Indemnified Holder: As defined in Section 8(a) hereof.
Indenture: The Indenture, dated as of February 27, 1997, among the
Company and The Bank of New York, as trustee (the "Trustee"), pursuant to which
the Senior Subordinated Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Interest Payment Date: As defined in the Indenture and the Senior
Subordinated Notes.
NASD: National Association of Securities Dealers, Inc.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in a Registration Statement, as
amended or supplemented by any prospectus supplement and by all other
amendments thereto, including post-effective amendments, and all material
incorporated by reference into such Prospectus.
Purchasers: As defined in the preamble hereto.
Record Holder: With respect to any Damages Payment Date relating to
Senior Subordinated Notes, each Person who is a Holder of Senior Subordinated
Notes on the record date with respect to the Interest Payment Date on which
such Damages Payment Date shall occur.
Registration Default: As defined in Section 5 hereof.
Registration Statement: Any registration statement of the Company
relating to (a) an offering of Series B Senior Subordinated Notes, and the
Guarantees thereof, if any, pursuant to an Exchange Offer or (b) the
registration for resale of Transfer Restricted Securities pursuant to the Shelf
Registration Statement, which is filed pursuant to the provisions of this
Agreement, in each case, including the
2
<PAGE>
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
Senior Subordinated Notes: The Series A Senior Subordinated Notes and
the Series B Senior Subordinated Notes including the Guarantee thereof, if any.
Series A Senior Subordinated Notes: The Company's 9 1/2% Series A
Senior Subordinated Notes due 2007 to be sold to the Purchasers pursuant to the
Purchase Agreement and under the Indenture.
Series B Senior Subordinated Notes: The Company's 9 1/2% Series B
Senior Subordinated Notes due 2007 to be issued pursuant to the Indenture in
the Exchange Offer.
Shelf Filing Deadline: As defined in Section 4 hereof.
Shelf Registration Statement: As defined in Section 4 hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the Indenture.
Transfer Restricted Securities: Each Senior Subordinated Note, until
the earliest to occur of (a) the date on which such Senior Subordinated Note is
exchanged in the Exchange Offer and entitled to be resold to the public by the
Holder thereof without complying with the prospectus delivery requirements of
the Act, (b) the date on which such Senior Subordinated Note has been
effectively registered under the Act and disposed of in accordance with a Shelf
Registration Statement and (c) the date on which such Senior Subordinated Note
is distributed to the public pursuant to Rule 144 under the Act or by a Broker-
Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange
Offer Registration Statement (including delivery of the Prospectus contained
therein).
Underwritten Registration or Underwritten Offering: A registration in
which securities of the Company are sold to an underwriter for reoffering to
the public.
SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) Transfer Restricted Securities. The securities entitled to the
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
be a holder of Transfer Restricted Securities (each, a "Holder") whenever such
Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permissible under
applicable law or Commission policy (after the procedures set forth in Section
6(a) below have been complied with), the Company shall (i) cause to be filed
with the Commission as soon as practicable after the Closing Date, but in no
event later than 45 days after the Closing Date, a Registration Statement under
the Act relating to the Series B Senior Subordinated Notes and the Exchange
Offer, (ii) use its best efforts to cause such Registration
3
<PAGE>
Statement to become effective at the earliest possible time, but in no event
later than 120 days after the Closing Date, (iii) in connection with the
foregoing, file (A) all pre-effective amendments to such Registration Statement
as may be necessary in order to cause such Registration Statement to become
effective, (B) if applicable, a post-effective amendment to such Registration
Statement pursuant to Rule 430A under the Act and (C) cause all necessary
filings, if any, in connection with the registration and qualification of the
Series B Senior Subordinated Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer,
except as would subject it to service of process in suits or taxation, in each
case, other than as to matters and transactions relating to the Registration
Statement, Exchange Offer or Exempt Resales, in any jurisdiction where it is
not now so subject and (iv) upon the effectiveness of such Registration
Statement, commence the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting registration of the Series B Senior Subordinated
Notes, to be offered in exchange for the Transfer Restricted Securities and to
permit resales of Senior Subordinated Notes held by Broker-Dealers as
contemplated by Section 3(c) below.
(b) The Company shall cause the Exchange Offer Registration Statement
to be effective continuously and shall keep the Exchange Offer open for a
period of not less than the minimum period required under applicable federal
and state securities laws to Consummate the Exchange Offer; provided, however,
that in no event shall such period be less than 20 business days. The Company
shall cause the Exchange Offer to comply with all applicable federal and state
securities laws. Without the consent of the Purchasers, no securities other
than the Senior Subordinated Notes shall be included in the Exchange Offer
Registration Statement. The Company shall use its best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date after the
Exchange Offer Registration Statement has become effective, but in no event
later than 30 business days thereafter.
(c) The Company shall indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer Registration
Statement that any Broker-Dealer who holds Series A Senior Subordinated Notes
that are Transfer Restricted Securities and that were acquired for its own
account as a result of market-making activities or other trading activities
(other than Transfer Restricted Securities acquired directly from the Company
or an affiliate of the Company), may exchange such Series A Senior Subordinated
Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed
to be an "underwriter" within the meaning of the Act and must, therefore,
deliver a prospectus meeting the requirements of the Act in connection with any
resales of the Series B Senior Subordinated Notes received by such
Broker-Dealer in the Exchange Offer, which prospectus delivery requirement may
be satisfied by the delivery by such Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement. Such "Plan of Distribution"
section shall also contain all other information with respect to such resales
by Broker-Dealers that the Commission may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name any
such Broker-Dealer or disclose the amount of Senior Subordinated Notes held by
any such Broker-Dealer except to the extent required by the Commission as a
result of a change in policy after the date of this Agreement.
The Company shall use its best efforts to keep the Exchange Offer
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary to
ensure that it is available for resales of Senior Subordinated Notes, acquired
by Broker-Dealers for their own accounts as a result of market-making
activities or other trading activities, and to ensure that it conforms with the
requirements of this Agreement, the Act and the policies, rules and regulations
of the Commission as announced from time to time, for a period of 270 days from
the date on which the Exchange Offer Registration Statement is declared
effective.
4
<PAGE>
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon request at any time during such
270 day period in order to facilitate such resales.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Company is not required to file an
Exchange Offer Registration Statement or to Consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with) or (ii) if any Holder of Transfer Restricted Securities shall notify the
Company within 20 business days of the Consummation of the Exchange Offer (A)
that such Holder is prohibited by applicable law or Commission policy from
participating in the Exchange Offer, or (B) that such Holder may not resell the
Series B Senior Subordinated Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and that the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder, or (C) that such Holder is a Broker-Dealer and holds
Series A Senior Subordinated Notes acquired directly from the Company or one of
its affiliates, then the Company shall:
(x) cause to be filed a shelf registration statement pursuant to
Rule 415 under the Act, which may be an amendment to the Exchange
Offer Registration Statement (in either event, the "Shelf Registration
Statement") on or prior to the earliest to occur of (1) the 60th day
after the date on which the Company determines that it is not required
to file the Exchange Offer Registration Statement, (2) the 60th day
after the date on which the Company receives notice from a Holder of
Transfer Restricted Securities as contemplated by clause (ii) above,
and (3) the 120th day after the Closing Date (such earliest date being
the "Shelf Filing Deadline"), which Shelf Registration Statement shall
provide for resales of all Transfer Restricted Securities the Holders
of which shall have provided the information required pursuant to
Section 4(b) hereof; and
(y) use its best efforts to cause such Shelf Registration
Statement to be declared effective by the Commission on or before the
90th day after the Shelf Filing Deadline.
The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended as required by the
provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure
that it is available for resales of Senior Subordinated Notes by the Holders of
Transfer Restricted Securities entitled to the benefit of this Section 4(a),
and to ensure that it conforms with the requirements of this Agreement, the Act
and the policies, rules and regulations of the Commission as announced from
time to time, for a period of three years following the Closing Date.
(b) Provision by Holders of Certain Information in Connection with the
Shelf Registration Statement. No Holder of Transfer Restricted Securities may
include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
Prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have used its best efforts to provide all such reasonably
requested information. Each Holder as to which any Shelf Registration Statement
is being effected agrees to furnish promptly to the Company
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all information required to be disclosed in order to make the information
previously furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any of the Registration Statements required by this Agreement
is not filed with the Commission on or prior to the date specified for such
filing in this Agreement, (ii) any of such Registration Statements has not been
declared effective by the Commission on or prior to the date specified for such
effectiveness in this Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been Consummated within 30 business days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is
filed and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself immediately declared effective (each such event referred to
in clauses (i) through (iv), a "Registration Default"), the Company agrees to
pay to each Holder of Transfer Restricted Securities with respect to the first
90-day period following the occurrence of a Registration Default, liquidated
damages ("Liquidated Damages") in an amount equal to 50 basis points per annum
of the principal amount of the Series A Senior Subordinated Notes held by such
Holder. The amount of the Liquidated Damages will increase by an additional 50
basis points per annum of the principal amount of the Series A Senior
Subordinated Notes held by such Holder for each subsequent 90-day period, or
portion thereof, until all Registration Defaults have been cured, up to a
maximum amount of two hundred basis points per annum. All accrued Liquidated
Damages shall be paid to the affected Record Holders by the Company by wire
transfer of immediately available funds or by federal funds check on each
Damages Payment Date, as provided in the Indenture. As of the date of the cure
of all Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of Liquidated Damages with respect to such Transfer
Restricted Securities will cease.
All obligations of the Company set forth in the preceding paragraph
that are outstanding with respect to any Transfer Restricted Security at the
time such security ceases to be a Transfer Restricted Security shall survive
until such time as all such obligations with respect to such Security shall
have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below, shall use its best efforts to effect such exchange to permit the
sale of Transfer Restricted Securities being sold in accordance with the
intended method or methods of distribution thereof, and shall comply with all
of the following provisions:
(i) If in the reasonable opinion of counsel to the Company there
is a question as to whether the Exchange Offer is permitted by
applicable law, the Company hereby agrees, to the extent reasonably
practicable, to seek a no-action letter or other favorable decision
from the Commission allowing the Company to Consummate an Exchange
Offer for Series A Senior Subordinated Notes. The Company hereby
agrees to pursue the issuance of such a decision to the Commission
staff level but shall not be required to take commercially
unreasonable action to effect a change of Commission policy. The
Company hereby agrees, however, to (A) participate in telephonic
conferences with the
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Commission, (B) deliver to the Commission staff an analysis prepared
by counsel to the Company setting forth the legal bases, if any, upon
which such counsel has concluded that such an Exchange Offer should be
permitted and (C) diligently pursue a resolution (which need not be
favorable) by the Commission staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer
Restricted Securities shall furnish, upon the request of the Company,
prior to the Consummation thereof, a written representation to the
Company (which may be contained in the letter of transmittal
contemplated by the Exchange Offer Registration Statement) to the
effect that (A) it is not an affiliate, directly or indirectly, of the
Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate
in, a distribution of the Series B Senior Subordinated Notes to be
issued in the Exchange Offer, (C) it is acquiring the Series B Senior
Subordinated Notes in its ordinary course of business and (D) it is
not acting on behalf of any Person who could not make the foregoing
representations. In addition, all such Holders of Transfer Restricted
Securities shall otherwise cooperate in the Company's preparations for
the Exchange Offer. Each Holder hereby acknowledges and agrees that
any Broker-Dealer and any such Holder using the Exchange Offer to
participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on
the date of this Agreement rely on the position of the Commission
enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991)
and Exxon Capital Holdings Corporation (available May 13, 1988), as
interpreted in the Commission's letter to Shearman & Sterling
(available July 2, 1993), and similar no-action letters (including, if
applicable, any no-action letter obtained pursuant to clause (i)
above), and (2) must comply with the registration and prospectus
delivery requirements of the Act in connection with a secondary resale
transaction and that such a secondary resale transaction should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as
applicable, of Regulation S-K if the resales are of Series B Senior
Subordinated Notes obtained by such Holder in exchange for Series A
Senior Subordinated Notes acquired by such Holder directly from the
Company.
(iii) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company shall provide a supplemental letter to the
Commission (A) stating that the Company is registering the Exchange
Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) and, if applicable, any
no-action letter obtained pursuant to clause (i) above and (B)
including a representation that neither the Company nor its affiliate
has entered into any arrangement or understanding with any Person to
distribute the Series B Senior Subordinated Notes to be received in
the Exchange Offer and that, to the best of the Company's information
and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Senior Subordinated Notes in its ordinary
course of business and has no arrangement or understanding with any
Person to participate in the distribution of the Series B Senior
Subordinated Notes received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its best efforts to effect such registration
to permit the sale of the Transfer Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof (as
indicated in the information furnished to the Company pursuant to Section 4(b)
hereof), and pursuant thereto the Company will prepare and file with the
Commission a Registration Statement relating to the registration on any
appropriate form under the
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Act, which form shall be available for the sale of the Transfer Restricted
Securities in accordance with the intended method or methods of distribution
thereof.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Senior Subordinated Notes by Broker-Dealers), the Company shall:
(i) use its best efforts to keep such Registration Statement
continuously effective and provide all requisite financial statements
(including, if required by the Act or any regulation thereunder,
financial statements of any Guarantor) for the period specified in
Section 3 or 4 of this Agreement, as applicable; upon the occurrence
of any event that would cause any such Registration Statement or the
Prospectus contained therein (A) to contain a material misstatement or
omission or (B) not to be effective and usable for resale of Transfer
Restricted Securities during the period required by this Agreement,
the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or
(B), use its best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus
to become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be
necessary to keep the Registration Statement effective for the
applicable period set forth in Section 3 or 4 hereof, as applicable,
or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Registration Statement have been sold;
cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply fully with the applicable provisions of
Rules 424 and 430A under the Act in a timely manner; and comply with
the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus;
(iii) advise the underwriter(s), if any, and selling Holders
promptly and, if requested by such Persons, to confirm such advice in
writing, (A) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to any
Registration Statement or any post-effective amendment thereto, when
the same has become effective, (B) of any request by the Commission
for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Act or of the suspension by any state securities commission of the
qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any
of the preceding purposes, and (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact
made in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any document incorporated by reference therein
untrue, or that requires the making of any additions to or changes in
the Registration Statement or the Prospectus in order to make the
statements therein not misleading. If at any time the Commission shall
issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities
under state securities or Blue Sky
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laws, the Company shall use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time;
(iv) furnish to each of the selling Holders named in any
Registration Statement or Prospectus and each of the underwriter(s) in
connection with such sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included
therein or any amendments or supplements to any such Registration
Statement or Prospectus (including all documents incorporated by
reference after the initial filing of such Registration Statement),
which documents will be subject to the review of such Holders and
underwriter(s) in connection with such sale, if any, for a period of
at least five business days, and the Company will not file any such
Registration Statement or Prospectus or any amendment or supplement to
any such Registration Statement or Prospectus (including all such
documents incorporated by reference) to which a selling Holder of
Transfer Restricted Securities covered by such Registration Statement
or the underwriter(s) in connection with such sale, if any, shall
reasonably object within five business days after the receipt thereof.
A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(v) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to the selling Holders covered by such
Registration Statement and to the underwriter(s) in connection with
such sale, if any, make the Company's representatives available for
discussion of such document and other customary due diligence matters
on reasonable prior notice, and include such information in such
document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request within five business
days of the receipt of the proposed filing;
(vi) make available at reasonable times for inspection by the
selling Holders, any underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or
accountant retained by such selling Holders or any of the
underwriter(s), all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's
officers, directors and employees, as applicable, to supply all
information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such Registration Statement
subsequent to the filing thereof and prior to its effectiveness;
(vii) if requested by any selling Holders covered by such
Registration Statement or the underwriter(s) in connection with such
sale, if any, promptly incorporate in any Registration Statement or
Prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as such selling Holders and
underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the
"Plan of Distribution" of the Transfer Restricted Securities,
information with respect to the principal amount of Transfer
Restricted Securities being sold to such underwriter(s), the purchase
price being paid therefor and any other terms of the offering of the
Transfer Restricted Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective
amendment as soon as practicable after the Company is notified of the
matters to be incorporated in such Prospectus supplement or
post-effective amendment;
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<PAGE>
(viii) cause the Transfer Restricted Securities covered by the
Registration Statement to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in aggregate
principal amount of Senior Subordinated Notes covered thereby or the
underwriter(s), if any;
(ix) furnish to each selling Holder covered by such Registration
Statement, on request, and each of the underwriter(s) in connection
with such sale, if any, without charge, at least one copy of the
Registration Statement, as first filed with the Commission, and of
each amendment thereto, including all documents incorporated by
reference therein and all exhibits (including exhibits incorporated
therein by reference);
(x) deliver to each selling Holder and to each of the
underwriter(s), if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the
Company hereby consents to the use of the Prospectus and any amendment
or supplement thereto by each of the selling Holders and each of the
underwriter(s), if any, in connection with the offering and the sale
of the Transfer Restricted Securities covered by the Prospectus or any
amendment or supplement thereto, provided that the Company has not
advised such Persons otherwise pursuant to Section 6(c)(iii);
(xi) enter into such agreements (including an underwriting
agreement), and make such representations and warranties, and take all
such other actions in connection therewith in order to expedite or
facilitate the disposition of the Transfer Restricted Securities
pursuant to any Registration Statement contemplated by this Agreement,
all to such extent as may be requested by any Purchasers or by any
Holder of Transfer Restricted Securities or underwriter in connection
with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and whether or not an underwriting
agreement is entered into and whether or not the registration is an
Underwritten Registration, the Company shall:
(A) furnish to the Purchasers, each selling Holder and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the Consummation of the
Exchange Offer and, if applicable, the effectiveness of the Shelf
Registration Statement:
(1) a certificate, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, signed by (y) the
Chief Executive Officer, President or any Vice President and (z)
a principal financial or accounting officer of the Company
confirming, as of the date thereof, the matters set forth in
paragraphs (a), (b), (c) and (d) of Section 8 of the Purchase
Agreement and such other matters as such parties may reasonably
request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company covering the matters set forth in paragraph (f) of
Section 8 of the Purchase Agreement and such other matters as
such parties may reasonably request, and, in any event, including
a statement to the effect that such counsel has participated in
conferences with officers and other representatives of the
Company, representatives of the independent public accountants
for the Company, the Purchasers' representatives and the
Purchasers' counsel in connection with the preparation of such
Registration Statement and the related Prospectus and have
considered the matters required to be stated therein and the
statements
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contained therein, although such counsel has not independently
verified the accuracy, completeness or fairness of such
statements; and that such counsel advises that, on the basis of
the foregoing (relying as to materiality to a large extent upon
facts provided to such counsel by officers and other
representatives of the Company and without independent check or
verification), no facts came to such counsel's attention that
caused such counsel to believe that the applicable Registration
Statement, at the time such Registration Statement or any
post-effective amendment thereto became effective, and, in the
case of the Exchange Offer Registration Statement, as of the date
of Consummation, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or
that the Prospectus contained in such Registration Statement as
of its date and, in the case of the opinion dated the date of
Consummation of the Exchange Offer, as of the date of
Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. Without limiting the foregoing,
such counsel may state further that such counsel assumes no
responsibility for, and has not independently verified, the
accuracy, completeness or fairness of the financial statements,
notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the
related Prospectus; and
(3) provided that the requesting Holders, underwriters, if
any, or other such financial intermediary furnish the undertaking
required in SAS 72, if required, a customary comfort letter,
dated as of the date of Consummation of the Exchange Offer or the
date of effectiveness of the Shelf Registration Statement, as the
case may be, from the Company's independent accountants, in the
customary form and covering matters of the type customarily
covered in comfort letters to underwriters in connection with
primary underwritten offerings, and affirming the matters set
forth in the comfort letters delivered pursuant to Section 8(i)
and 8(j) of the Purchase Agreement, without exception;
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 8 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the
Company pursuant to this clause (xi), if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the
Company shall so advise the Purchasers and the underwriter(s), if any,
and each selling Holder promptly and, if requested by such Persons, shall
confirm such advice in writing;
(xii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders, the underwriter(s), if
any, and their respective counsel in connection with the registration and
qualification of the Transfer Restricted Securities under the securities
or Blue Sky laws of such jurisdictions as the selling Holders or
underwriter(s), if any, may request and do any and all other acts or
things necessary or advisable to enable the disposition in such
jurisdictions of
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the Transfer Restricted Securities covered by the Shelf Registration
Statement; provided, however, that the Company shall not be required to
register or qualify as a foreign corporation where it is not now so
qualified or to take any action that would subject it to the service of
process in suits or to taxation, other than as to matters and
transactions relating to the Registration Statement, in any jurisdiction
where it is not now so subject;
(xiii) upon the request of any Holder of Series A Senior
Subordinated Notes covered by the Shelf Registration Statement
contemplated by this Agreement, issue Series B Senior Subordinated Notes
having an aggregate principal amount equal to the aggregate principal
amount of Series A Senior Subordinated Notes surrendered to the Company
by such Holder in exchange therefor or being sold by such Holder; such
Series B Senior Subordinated Notes to be registered in the name of such
Holder or in the name of the purchaser(s) of such Senior Subordinated
Notes, as the case may be; in return, the Series A Senior Subordinated
Notes held by such Holder shall be surrendered to the Company for
cancellation;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the selling Holders and the
underwriter(s), if any, to facilitate the timely preparation and delivery
of certificates representing Transfer Restricted Securities to be sold
and not bearing any restrictive legends; and enable such Transfer
Restricted Securities to be in such denominations and registered in such
names as the Holders or the underwriter(s), if any, may request at least
two business days prior to any sale of Transfer Restricted Securities
made by such underwriter(s);
(xv) use its best efforts to cause the Transfer Restricted
Securities covered by the Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof or the underwriter(s),
if any, to consummate the disposition of such Transfer Restricted
Securities;
(xvi) if any fact or event contemplated by clause 6(c)(iii)(D)
hereof shall exist or has occurred, prepare a supplement or
post-effective amendment to the Registration Statement or related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, the Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xvii) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of the Registration
Statement and provide the Trustee under the Indenture with printed
certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(xviii) cooperate and assist in any filings required to be made
with the NASD and in the performance of any due diligence investigation
by any underwriter (including any "qualified independent underwriter")
that is required to be retained in accordance with the rules and
regulations of the NASD, and use its reasonable best efforts to cause
such Registration Statement to become effective and approved by such
governmental agencies or authorities as may be necessary to enable the
Holders selling Transfer Restricted Securities to consummate the
disposition of such Transfer Restricted Securities;
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(xix) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to its security holders, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not
be audited) for the twelve-month period (A) commencing at the end of any
fiscal quarter in which Transfer Restricted Securities are sold to
underwriters in a firm or best efforts Underwritten Offering or (B) if
not sold to underwriters in such an offering, beginning with the first
month of the Company's first fiscal quarter commencing after the
effective date of the Registration Statement;
(xx) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Senior Subordinated Notes to effect such changes to
the Indenture as may be required for such Indenture to be so qualified in
accordance with the terms of the TIA; and execute and use its best
efforts to cause the Trustee to execute, all documents that may be
required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be
so qualified in a timely manner;
(xxi) use its best efforts to cause all Transfer Restricted
Securities covered by the Registration Statement to be listed on each
securities exchange on which similar securities issued by the Company are
then listed if requested by the Holders of a majority in aggregate
principal amount of Senior Subordinated Notes or the managing
underwriter(s), if any; and
(xxii) provide promptly to each Holder upon request each document
filed with the Commission pursuant to the requirements of Section 13 and
Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof, such Holder will
forthwith discontinue disposition of Transfer Restricted Securities pursuant to
the applicable Registration Statement until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 6(c)(xvi)
hereof, or until it is advised in writing (the "Advice") 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 by reference in the
Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice.
In the event the Company shall give any such notice, the time period regarding
the effectiveness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(D) hereof to and including the date when each selling Holder
covered by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xvi) hereof or
shall have received the Advice.
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SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including
filings made by any Purchaser or Holder with the NASD (and, if applicable, the
fees and expenses of any "qualified independent underwriter" and its counsel
that may be required by the rules and regulations of the NASD)); (ii) all fees
and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing
certificates for the Series B Senior Subordinated Notes to be issued in the
Exchange Offer and printing of Prospectuses), messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company and,
subject to Section 7(b) below, the Holders of Transfer Restricted Securities;
(v) all application and filing fees in connection with listing Senior
Subordinated Notes on a national securities exchange or automated quotation
system pursuant to the requirements hereof; and (vi) all fees and disbursements
of independent certified public accountants of the Company (including the
expenses of any special audit and comfort letters required by or incident to
such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and
the fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Purchasers and the Holders of Transfer Restricted Securities being tendered in
the Exchange Offer and/or resold pursuant to the "Plan of Distribution"
contained in the Exchange Offer Registration Statement or registered pursuant
to the Shelf Registration Statement, as applicable, for one-half of the
reasonable fees and disbursements of not more than one counsel, who shall be
Fischbeino Badilloo Wagnero Harding or such other counsel as may be chosen by
the Holders of a majority in principal amount of the Transfer Restricted
Securities for whose benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless (i) each Holder,
(ii) each Person, if any, who controls any Holder within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act and (iii) the respective
officers, directors, partners, employees, representatives and agents of any
Holder or any controlling Person to the fullest extent lawful, from and against
any and all losses, liabilities, claims, damages and expenses whatsoever
(including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
investigation or litigation, commenced or threatened, or any claim whatsoever,
and any and all amounts paid in settlement of any claim or litigation), joint
or several, to which they or any of them may become subject under the Act, the
Exchange Act or otherwise, insofar as such losses, liabilities, claims, damages
or expenses (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made,
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not misleading; provided, however, that the Company will not be liable in any
such case to the extent, but only to the extent, that any such loss, liability,
claim, damage or expense (i) arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Purchasers expressly for use therein or
(ii) is caused by any untrue statement or omission, or any alleged untrue
statement or omission, made in a Prospectus but eliminated or remedied in a
subsequent Prospectus, if (A) the Company shall have previously furnished
copies thereof to the Purchasers in accordance with this agreement, (B) a copy
of the Prospectus was not sent or given by such Purchasers or on their behalf
to such Person at or prior to the written confirmation of the sale of the
Senior Subordinated Notes to such Person, (C) such subsequent Prospectus would
have completely corrected such untrue statement or omission, and (D) such
allegations are upheld by a final judgement of a court of competent
jurisdiction. This indemnity agreement will be in addition to any liability
which the Company may otherwise have, including under this Agreement.
(b) Each Holder, severally and not jointly, agrees to indemnify and
hold harmless (i) each of the Company (ii) each Person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act and (iii) their respective officers, directors, partners, members,
employees, representatives and agents or any controlling Person to the fullest
extent lawful from and against any losses, liabilities, claims, damages and
expenses whatsoever (including but not limited to attorneys' fees and any and
all expenses whatsoever incurred in investigating, preparing or defending
against any investigation or litigation, commenced or threatened, or any claim
whatsoever and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses,
liabilities, claims, damages or expenses (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading, in each case to
the extent, but only to the extent, that any such loss, liability, claim,
damage or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made therein in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of that Holder expressly for use therein; provided,
however, that in no case shall any Holder be liable or responsible for any
amount in excess of the dollar amount of the proceeds received by such Holder
upon the sale of the Transfer Restricted Securities giving rise to such
indemnification obligation. This indemnity will be in addition to any liability
which any Holder may otherwise have, including under this Agreement.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 8 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may otherwise have). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
counsel in any such case, but the fees and
15
<PAGE>
expenses of such counsel shall be at the expense of such indemnified party or
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action, (ii) the indemnifying parties shall not have employed counsel to take
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to one or all of the
indemnifying parties (in which case the indemnifying party or parties shall not
have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
counsel shall be borne by the indemnifying parties; provided, however, that the
indemnifying party under subsection (a) or (b) above shall only be liable for
the legal expenses of one counsel (in addition to any local counsel) for all
indemnified parties in each jurisdiction in which any claim or action is
brought. Anything in this subsection to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim or
action effected without its prior written consent; provided, however, that such
consent was not unreasonably withheld.
(d) In order to provide for contribution in circumstances in which the
indemnification provided for in this Section 8 is for any reason held to be
unavailable from the Company or is insufficient to hold harmless a party
indemnified thereunder, the Company, on the one hand, and the Holders, on the
other hand, shall contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company, any
contribution received by the Company from Persons, other than the Holders, who
may also be liable for contribution, including Persons who control the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act) to which the Company, and any Holder may be subject, in such proportion as
is appropriate to reflect the relative benefits received by the Company, on one
hand, and the Holder, on the other hand, from their sale of Transfer Restricted
Securities or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in this Section 8, in such proportion as is
appropriate to reflect the relative fault of the Company, on one hand, and the
Holder, on the other hand, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the Company,
on one hand, and of the Holder, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Holder and
the parties' relative intent, knowledge and access to information and
opportunity to correct or prevent such statement or omission. The Company and
the Holders agree that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or by any
other method of allocation which does not take into account the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 8, (i) in no case shall any Holder be required to contribute any amount
in excess of the amount by which the total value of the Senior Subordinated
Notes held by such Holder exceeds the amount of any damages which such Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission and (ii) no Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, (A) each Person,
if any, who controls any Holder within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, and (B) the respective officers, directors,
partners, employees, representatives and agents of any Holder or any
controlling Person shall have the same rights
16
<PAGE>
to contribution as such Holder, and each Person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as the Company, subject
in each case to clauses (i) and (ii) of this Section 8(d). Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 8,
notify such party or parties from whom contribution may be sought, but the
failure to so notify such party or parties shall not relieve the party or
parties from whom contribution may be sought from any obligation it or they may
have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its prior
written consent; provided, however, that such written consent was not
unreasonably withheld.
(e) The obligations of the Company and each and every Guarantor, if
any, hereunder shall be joint and several.
SECTION 9. RULE 144A
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available, upon
request, to any Holder or beneficial owner of Transfer Restricted Securities in
connection with any sale thereof and any prospective purchaser of such Transfer
Restricted Securities from such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all reasonable questionnaires, powers of attorney, indemnities,
underwriting agreements, lock-up letters and other documents required under the
terms of such underwriting arrangements.
SECTION 11. SELECTION OF UNDERWRITERS
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided, that such investment bankers and managers must be
reasonably satisfactory to the Company.
17
<PAGE>
SECTION 12. MISCELLANEOUS
(a) Remedies. The Company agrees that monetary damages (including the
Liquidated Damages contemplated hereby) would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive the defense in any action for specific
performance that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company will not, on or after the
date of this Agreement, enter into any agreement with respect to its securities
that is inconsistent with the rights granted to the Holders in this Agreement
or otherwise conflicts with the provisions hereof. The Company has not
previously entered into any agreement granting any registration rights with
respect to its securities to any Person, except to the extent indicated by
Schedule A hereto. The rights granted to the Holders hereunder do not in any
way conflict with and are not inconsistent with the rights granted to the
holders of the Company's securities under any agreement in effect on the date
hereof.
(c) Adjustments Affecting the Senior Subordinated Notes. The Company
and the Guarantors, if any, will not take any action, or permit any change to
occur, with respect to the Senior Subordinated Notes that would materially and
adversely affect the ability of the Holders to Consummate any Exchange Offer.
(d) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given, unless the Company has obtained
the written consent of Holders of a majority of the outstanding principal
amount of Transfer Restricted Securities. Notwithstanding the foregoing, a
waiver or consent to departure from the provisions hereof that relates
exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities being tendered
or registered.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(i) if to a Holder, at the address set forth on the records of the
Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company:
The Fonda Group, Inc.
115 Stevens Avenue
Valhalla, New York 10595
Telecopier No.: (914) 749-3280
Attention: Harvey L. Friedman, Esq.
18
<PAGE>
With a copy to:
Kramer, Levin, Naftalis & Frankel
919 Third Ave
New York, New York 10022
Telecopier No.: (212) 751-8000
Attention: Michael S. Nelson, Esq.
(iii) Notice to the Company shall be deemed notice to any and
every Guarantor.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt acknowledged, if telecopied; and on the
next business day, if timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Transfer Restricted Securities; provided, however, that
this Agreement shall not inure to the benefit of or be binding upon a successor
or assign of a Holder unless and to the extent such successor or assign
acquired Transfer Restricted Securities from such Holder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement together with the other Operative
Documents (as defined in the Purchase Agreement) is intended by the parties as
a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein, with respect to the registration rights granted by the Company with
respect to the Transfer Restricted Securities. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE FONDA GROUP, INC.
By:
-----------------------------
Name:
Title:
BEAR, STEARNS & CO. INC.
By:
-----------------------------
Name:
Title:
DILLON, READ & CO. INC.
By:
-----------------------------
Name:
Title:
20
<PAGE>
SCHEDULE A
1. Registration Rights Agreement between The Fonda Group, Inc. and The
Equitable Life Assurance Society of the United States, dated as of May 24,
1995.
2. Registration Rights pursuant to Exchange Agreement among Four M
Corporation, The Fonda Group, Inc., Dennis Mehiel and American
International Life Assurance Company of New York, dated as of March 30,
1995.
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<PAGE>
- -------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED REVOLVING CREDIT
AND
SECURITY AGREEMENT
- -------------------------------------------------------------------------------
IBJ SCHRODER BANK & TRUST COMPANY
(AS LENDER AND AS AGENT)
- -------------------------------------------------------------------------------
WITH
- -------------------------------------------------------------------------------
THE FONDA GROUP, INC.
(BORROWER)
- -------------------------------------------------------------------------------
February __, 1997
- -------------------------------------------------------------------------------
<PAGE>
SECOND AMENDED AND RESTATED REVOLVING CREDIT
AND
SECURITY AGREEMENT
------------------------------
Second Amended and Restated Revolving Credit and Security Agreement
dated as of February __, 1997 among THE FONDA GROUP, INC., a corporation
organized under the laws of the State of Delaware ("Borrower"), the undersigned
financial institutions (collectively, the "Lenders" and individually a
"Lender") and IBJ SCHRODER BANK & TRUST COMPANY ("IBJS"), a New York banking
corporation, as agent for Lenders (IBJS, in such capacity, the "Agent").
BACKGROUND
----------
Borrower is a party with Lenders and Agent to an Amended and Restated
Revolving Credit, Term Loan and Security Agreement dated May 8, 1996 as the
same has been amended by Waiver and Amendment No. 1 to Amended and Restated
Revolving Credit, Term Loan and Security Agreement dated as of July 31, 1996,
as further amended, restated, supplemented or restated from time to time, the
"Existing Agreement") pursuant to which Agent and Lenders provide Borrower with
certain financial accommodations.
Borrower has informed Lenders that Borrower is prepaying in full Term
Loan A and Term Loan B (as such terms are defined in the Existing Agreement)
and Borrower has requested that Agent and Lenders (i) consent to the issuance
by Borrower of $120,000,000 of 9 1/2% Senior Subordinated Notes due February
__, 2007 (the "Senior Subordinated Notes"), (ii) consent to the release of
Agent's security interest in, among other things, the Equipment and the
discharge of the Mortgages (as such term is defined in the Existing Agreement),
(iii) consent to the prepayment of the Additional Mezzanine Debt, the Mezzanine
Debt and the James River Subordinated Note, (iv) consent to the purchase of
substantially all of the assets constituting the paper and plastic table top
disposable products business of Printed Products Division, a division of Astro
Valcour, Inc, (v) consent to a loan by Borrower to CEG in an amount not to
exceed $2,600,000 and (vi) consent to a tender offer of 74,000 shares of common
stock of Borrower in an amount not to exceed $10,000,000, and Agent and Lenders
are willing to do so on the terms and conditions set forth herein.
By execution of this Agreement, Borrower, Lenders and Agent intend to
amend and restate the Existing Agreement in its entirety and as so amended and
restated the Existing Agreement shall read in full as set forth herein on the
Effective Date.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower, and Lenders Agent hereby agree as follows:
<PAGE>
AMENDMENT AND RESTATEMENT
-------------------------
As of the date of this Agreement, the terms, conditions, covenants,
agreements, representations and warranties contained in the Existing Agreement
shall be deemed amended and restated in their entirety as follows; provided,
however, that nothing contained in this Agreement shall impair, limit or affect
the Liens heretofore granted, pledged and/or assigned to Agent for the ratable
benefit of Lenders with respect to Collateral as security for the Obligations
to Agent and Lenders under the Existing Agreement.
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Notes, or any
certificate, report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP; provided,
however, whenever such accounting terms are used for the purposes of
determining compliance with financial covenants in this Agreement, such
accounting terms shall be defined in accordance with GAAP applied in
preparation of the audited financial statements of Borrower for the fiscal year
ended July 31, 1996.
1.2. General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"Acquired Debt" shall mean, 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.
"Acquisition" shall mean The Fonda Acquisition Group, Inc., a
Delaware Corporation.
"Acquisition Agreement" shall mean the Asset Purchase Agreement
including all exhibits and schedules thereto dated as of December 14, 1994
among Scott Paper Company, a Pennsylvania corporation as seller, Acquisition as
buyer and Borrower as Parent (and, ultimately, the buyer pursuant to an
assignment of rights by Acquisition) as amended by an Amendment dated as of
March 31, 1995.
"Additional Mezzanine Documentation" shall mean, collectively,
the Antidilution Protection Agreement, the Mezzanine Shares, the Additional
Mezzanine Note and the Securities Purchase Agreement dated as of the December
29, 1995 Effective Date between Borrower and Mezzanine Lender.
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<PAGE>
"Additional Mezzanine Note" shall mean the 14% senior
subordinated notes due 2002 dated as of December 29, 1995 in the principal
amount of $6,000,000 executed by Borrower in favor of Mezzanine Lender.
"Affiliate" of any specified Person shall mean 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.
"Affiliate Transaction" shall have the meaning set forth in
Section 7.10 hereof.
"Alternate Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (i) the Base Rate in effect on such day and (ii) the
Federal Funds Rate in effect on such day plus 1/2 of 1%.
"Antidilution Protection Agreement" shall mean the Antidilution
Protection Agreement dated as of December 29, 1995 by and between Mezzanine
Lender and Borrower.
"Appleton Property" shall mean the premises located at 1200 South
Perkins Street, Appleton, Wisconsin.
"Asset Sale" shall mean (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 and (ii) the issue or sale by Borrower or any of
its Restricted Subsidiaries of Equity Interests of any of Borrower'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 Borrower to a Wholly Owned Restricted Subsidiary or by
a Wholly Owned Restricted Subsidiary to Borrower or to another Wholly Owned
Restricted Subsidiary and (ii) a Restricted Payment that is permitted by
Section 7.7 will not be deemed to be Asset Sales.
"Authority" shall have the meaning set forth in Section 4.19(d).
"Base Rate" shall mean the base commercial lending rate of IBJS
as publicly announced to be in effect from time to time, such rate to be
adjusted automatically, without notice, on the effective date of any change in
such rate. This rate of interest is determined from time to time by IBJS as a
means of
- 3 -
<PAGE>
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by IBJS to any particular class or category of customers of
IBJS.
"Bleyer" shall mean Alfred Bleyer & Co., Inc., a New York
corporation.
"Bleyer Acquisition" shall mean the acquisition by Borrower of
certain of the assets and business of Bleyer for an aggregate amount not to
exceed $10,000,000 pursuant to the Bleyer Purchase Agreement.
"Bleyer Purchase Agreement" shall mean that certain Agreement
dated October 12, 1995 between Bleyer and Borrower.
"Blocked Accounts" shall have the meaning set forth in Section
4.15(h).
"Borrower" shall mean The Fonda Group, Inc., a Delaware
corporation, and all permitted successors and assigns.
"Borrower's Account" shall have the meaning set forth in Section
2.8.
"Business Day" shall mean with respect to Eurodollar Rate Loans,
any day on which commercial banks are open for domestic and international
business, including dealings in Dollar deposits in London, England and New
York, New York and with respect to all other loans, any day other than a day on
which commercial banks in New York are authorized or required by law to close.
"Capital Lease Obligations" shall mean, 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" shall mean (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" shall mean (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentally 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
- 4 -
<PAGE>
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 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 Corporation and in each case
maturing within one year after the date of acquisition.
"CEG" shall mean Creative Expressions Group, Inc., a Delaware
corporation.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss.ss.9601 et
seq.
"Change of Control" shall mean 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 Borrower 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 Borrower, (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 Borrower 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 Borrower 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 Borrower 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.
"Charges" shall mean all taxes, charges, fees, imposts, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, value added, transfer, franchise,
profits, inventory, capital stock, license, withholding, payroll, employment,
social security, unemployment, excise, severance, stamp, occupation and
property taxes, custom duties, fees, assessments, liens, claims and charges of
any kind whatsoever, together with any interest and any penalties, additions to
tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral,
Borrower or any of its Affiliates.
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<PAGE>
"Chesapeake" shall mean Chesapeake Consumer Products Company, a
Virginia corporation.
"Chesapeake Acquisition" shall mean the acquisition by Borrower
of all of the stock of Chesapeake pursuant to the Chesapeake Purchase
Agreement.
"Chesapeake Purchase Agreement" shall mean that certain Stock
Purchase Agreement dated October 13, 1995 between Chesapeake Corporation and
Borrower.
"Closing Date" shall mean March 31, 1995 or such other date as
may be agreed to by the parties hereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) Intellectual Property;
(c) all Inventory;
(d) all of Borrower's right, title and interest in and to
(i) all merchandise returned or rejected by Customers, relating to or securing
any of the Receivables; (ii) all of Borrower's rights as a consignor, a
consignee, an unpaid vendor, mechanic, artisan, or other lienor, including
stoppage in transit, setoff, detinue, replevin, reclamation and repurchase;
(iii) all additional amounts due to Borrower from any Customer relating to the
Receivables; (iv) other property, including warranty claims, relating to any
goods securing this Agreement; (v) all of Borrower's contract rights, rights of
payment which have been earned under a contract right, instruments, documents,
chattel paper, warehouse receipts, deposit accounts, money and securities; (vi)
if and when obtained by Borrower, all real and personal property of third
parties in which Borrower has been granted a lien or security interest as
security for the payment or enforcement of Receivables; and (vii) any other
goods, personal property or real property now owned or hereafter acquired in
which Borrower has expressly granted a security interest or may in the future
grant a security interest to Agent hereunder, or in any amendment or supplement
hereto, or under any other agreement between Lenders and Borrower;
(e) all of Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (owned by Borrower or in which it has an interest), computer programs,
tapes, disks and documents relating to (a), (b), (c) or (d) of this Paragraph;
and
(f) all proceeds and products of (a), (c), (d) and (e) in
whatever form, including, but not limited to: cash,
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deposit accounts (whether or not comprised solely of proceeds), certificates of
deposit, insurance proceeds (including hazard, flood and credit insurance),
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
"Commission" shall mean the Securities Exchange Commission.
"Commitment Percentage" of any Lender shall mean the percentage
set forth below such Lender's name on the signature page hereof as same may be
adjusted upon any assignment by a Lender pursuant to Section 15.3(b) hereof.
"Commitment Transfer Supplement" shall mean a document in the
form of Exhibit 15.3 hereto, properly completed and otherwise in form and
substance satisfactory to Agent by which the Purchasing Lender purchases and
assumes a portion of the obligation of Lenders to make Revolving Advances under
this Agreement.
"Consents" shall mean all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties, domestic or foreign, necessary to carry on
Borrower's business, including, without limitation, any Consents required under
all applicable federal, state or other applicable law.
"Consolidated Cash Flow" shall mean, 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 an 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 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
reference 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
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corresponding amount would be permitted at the date of determination to be
dividended, directly or indirectly, to Borrower 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" shall mean, 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
Borrower or one of its Restricted Subsidiaries.
"Consolidated Net Worth" shall mean, 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.
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"Continuing Directors" shall mean, as of any date of
determination, any member of the Board of Directors of Borrower who (i) was a
member of the Board of Directors on the date of this Agreement 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.
"Controlled Group" shall mean all members of a controlled group
of corporations and all trades or businesses (whether or not incorporated)
under common control which, together with Borrower, are treated as a single
employer under Section 414 of the Code.
"Customer" shall mean and include the account debtor with respect
to any Receivable and/or the prospective purchaser of goods, services or both
with respect to any contract or contract right, and/or any party who enters
into or proposes to enter into any contract or other arrangement with Borrower,
pursuant to which Borrower is to deliver any Inventory or perform any services.
"Default" shall mean an event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" shall have the meaning set forth in Section 3.1
hereof.
"Depository Accounts" shall have the meaning set forth in Section
4.15(h) hereof.
"Disqualified Stock" shall mean 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 Senior
Subordinated Notes mature.
"Documents" shall have the meaning set forth in Section 8.3(c)
hereof.
"Dollar" and the sign "$" shall mean lawful money of the United
States of America.
"Domestic Rate Loan" shall mean any Revolving Advance that bears
interest based upon the Alternate Base Rate.
"Earnings Before Interest and Taxes" shall mean for any period
the sum of (i) Borrower's Net Income for such period, (ii) all interest expense
of Borrower for such period and (iii) all charges against Borrower's income for
such period for federal, state and local taxes.
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<PAGE>
"EBITDA" shall mean for any period the sum of (i) Earnings Before
Interest and Taxes, (ii) depreciation expenses for such period and (iii)
amortization expenses for such period.
"Effective Date" shall mean date on which all the conditions
precedent in Section 8.3 have been satisfied.
"Eligible Inventory" shall mean and include Inventory (excluding
work in process), valued at the lower of cost or market value, determined on a
first-in-first-out basis, which is not, in Agent's opinion, obsolete, slow
moving or unmerchantable and which Agent, in its sole discretion, shall not
deem ineligible Inventory, based on such considerations as Agent may from time
to time deem appropriate including, without limitation, whether the Inventory
is subject to a perfected, first priority security interest in favor of Agent
and whether the Inventory conforms to all standards imposed by any governmental
agency, division or department thereof which has regulatory authority over such
goods or the use or sale thereof.
"Eligible Receivables" shall mean each Receivable arising in the
ordinary course of Borrower's business and which Agent, in its sole credit
judgment, shall deem to be an Eligible Receivable, based on such considerations
as Agent may from time to time deem appropriate. A Receivable shall not be
deemed eligible unless such Receivable is subject to Agent's perfected security
interest and no other Lien, and is evidenced by an invoice or other documentary
evidence satisfactory to Lenders. In addition, no Receivable shall be an
Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an Affiliate of
Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than ninety (90) days after the
original invoice date;
(c) fifty percent (50%) or more of the Receivables from such
Customer are not deemed Eligible Receivables hereunder. Such percentage may, in
Agent's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or call
a meeting of its creditors, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of
its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition
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seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
(f) the sale is to a Customer outside the continental United
States of America, unless the sale is on letter of credit, guaranty or
acceptance terms, in each case acceptable to Agent in its sole discretion;
(g) the sale to the Customer is on a bill-and-hold, guaranteed
sale, sale-and-return, sale on approval, consignment or any other repurchase or
return basis or is evidenced by chattel paper; provided, however, Receivables
arising out of bill-and-hold sales in an aggregate amount not to exceed
$300,000 and which otherwise meet the eligibility criteria for Eligible
Receivables shall be deemed to constitute Eligible Receivables;
(h) Agent believes, in its sole judgment, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of the
Customer's financial inability to pay;
(i) the Customer is the United States of America, any state or
any department, agency or instrumentality of any of them, unless Borrower
assigns its right to payment of such Receivable to Agent pursuant to the
Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et
seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other
applicable statutes or ordinances;
(j) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the Customer or the services giving
rise to such Receivable have not been performed by Borrower and accepted by the
Customer or the Receivable otherwise does not represent a final sale;
(k) the Receivables of the Customer exceed a credit limit
determined by Agent, in its sole discretion, to the extent such Receivable
exceeds such limit;
(l) the Receivable is subject to any offset or deduction, to the
extent of such offset or deduction, or defense, dispute, or counterclaim, the
Customer is also a creditor or supplier or the Receivable is contingent in any
respect or for any reason;
(m) Borrower has made any agreement with any Customer for any
deduction therefrom, to the extent of such deduction, except for discounts or
allowances made in the ordinary course of business for prompt payment, all of
which discounts or allowances are reflected in the calculation of the face
value of each respective invoice related thereto;
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<PAGE>
(n) shipment of the merchandise or the rendition of services has
not been completed;
(o) any return, rejection or repossession of the merchandise has
occurred;
(p) such Receivable is not payable to Borrower; or
(q) such Receivable is not otherwise satisfactory to Agent as
determined in good faith by Agent in the exercise of its discretion in a
reasonable manner.
"Environmental Complaint" shall have the meaning set forth in
Section 4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" shall mean and include all of Borrower's goods
(excluding Inventory) whether now owned or hereafter acquired and wherever
located including, without limitation, all equipment, machinery, apparatus,
motor vehicles, fittings, furniture, furnishings, fixtures, parts, accessories
and all replacements and substitutions therefor or accessions thereto.
"Equity Interests" shall mean 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).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the rules and regulations promulgated
thereunder.
"Eurodollar Rate" shall mean for any Eurodollar Rate Loan for the
then current Interest Period relating thereto the rate per annum (such
Eurodollar Rate to be adjusted to the next higher 1/100 of one (1%) percent)
equal to the quotient of (a) LIBOR, divided by (b) a number equal to 1.00 minus
the aggregate of the rates (expressed as a decimal) of reserve requirements
current on the day that is two Business Days prior to the beginning of the
Interest Period (including without limitation basic, supplemental, marginal and
emergency reserves) under any regulation promulgated by the Board of Governors
of the Federal Reserve System (or any other governmental authority having
jurisdiction over IBJS) as in effect from time to time, dealing with reserve
requirements prescribed for Eurocurrency funding including any reserve
requirements with respect to "Eurocurrency liabilities" under
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Regulation D of the Board of Governors of the Federal Reserve System.
"Eurodollar Rate Loan" shall mean a Revolving Advance at any time
that bears interest based on the Eurodollar Rate.
"Event of Default" shall mean any of the events set forth in
Article X hereof.
"Existing Indebtedness" shall mean Indebtedness of Borrower and
its Subsidiaries in existence on the date of this Agreement, until such amounts
are repaid.
"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers, as published for
such day (or if such day is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or if such rate is not so
published for any day which is a Business Day, the average of quotations for
such day on such transactions received by IBJS from three Federal funds brokers
of recognized standing selected by IBJS.
"Fee Letter" shall mean that certain fee letter dated as of the
Effective Date from Borrower to Agent setting forth fees to be paid by Borrower
to Agent.
"Fixed Assets" shall mean, collectively, Equipment and Real
Property including any products and proceeds thereof in whatever form.
"Fixed Charge Coverage Ratio" shall mean 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 Borrower or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or redeems any Indebtedness (other than revolving credit borrowings)
or issues 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 Borrower 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
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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.
"Fixed Charges" shall mean, 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' acceptances 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 Borrower 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.
"Formula Amount" shall have the meaning set forth in Section
2.1(a).
"Four M" shall mean Four M Corporation, a Maryland corporation.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's
general intangibles, whether now owned or hereafter acquired including, without
limitation, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refunds, tax refund claims, computer programs, all claims
under guaranties, security interests
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or other security held by or granted to Borrower to secure payment of any of
the Receivables by a Customer all rights of indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any
state or other political subdivision thereof or any entity exercising the
legislative, judicial, regulatory or administrative functions of or pertaining
to a government.
"Guarantee" shall mean 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.
"Hazardous Discharge" shall have the meaning set forth in Section
4.19(d) hereof.
"Hazardous Substance" shall mean, without limitation, any
flammable explosives, radon, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or toxic substances
or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA,
Articles 15 and 27 of the New York State Environmental Conservation Law or any
other applicable Environmental Law and in the regulations adopted pursuant
thereto.
"Hazardous Wastes" shall mean all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
Federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Hedging Obligations" shall mean, 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.
"IBJS" shall have the meaning given to such term in the
introductory paragraph of this Agreement.
"Indebtedness" shall mean 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
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<PAGE>
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.
"Indenture" shall mean that certain Indenture dated as of the
Effective Date between the Trustee and Borrower.
"Intellectual Property" shall mean and include all of Borrower's
inventions, designs, patents, patent applications, equipment formulations,
manufacturing procedures, quality control procedures, trademarks, trade
secrets, goodwill, copyrights, registrations, licenses, whether now owned or
hereafter acquired.
"Interest Coverage Ratio" shall mean, for any period, without
duplication, the ratio of (x) EBITDA to (y) (i) interest expense for such
period plus (ii) permitted dividends to the extent paid in cash.
"Interest Period" shall mean the period provided for any
Eurodollar Rate Loan pursuant to Section 2.2(b).
"Inventory" shall mean all of Borrower's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to
be furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in
Borrower's business or used in selling or furnishing such goods, merchandise
and other personal property, and all documents of title or other documents
representing them.
"Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.
"Investments" shall mean, 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 Borrower or any of its Restricted Subsidiaries for consideration
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<PAGE>
consisting of common equity securities of Borrower or such Restricted
Subsidiary shall not be deemed to be an Investment.
"James River" shall mean James River Paper Company, Inc., a
Virginia corporation.
"James River Acquisition" shall mean the acquisition by Borrower
of the stock of James River-Long Beach, Inc., a Virginia corporation and the
assets of the Natural Dam division of James River pursuant to the James River
Purchase Agreement.
"James River Purchase Agreement" shall mean that certain Asset
Purchase Agreement dated as of March 22, 1996 between James River and Borrower.
"James River Subordinated Note" shall mean the $7,000,000
Subordinated Note dated as of May 8, 1996 made by Borrower to James River in
connection with the James River Purchase Agreement.
"Lender" and "Lenders" shall have the meaning ascribed to such
term in the Preamble and shall include each person which is a Purchasing
Lender.
"LIBOR" shall mean for any Eurodollar Rate Loan for the then
current Interest Period relating thereto, the rate per annum quoted by Agent to
Borrower two (2) Business Days prior to the first day of such Interest Period
as the rate available to Agent in the interbank market for offshore Dollar
deposits in immediately available funds for a period equal to such Interest
Period and in an amount equal to the amount of such Eurodollar Rate Loan.
"Lien" shall mean, 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).
"Long Beach Property" shall mean the premises located at 18554
Sussana Road, Rancho Dominguez, California 90221.
"Make-Whole Premium" with respect to a Senior Subordinated Note
means an amount equal to the greater of (i) 104.75% of the outstanding
principal amount of such Senior Subordinated Note and (ii) the excess of (a)
the present value of the remaining interest, premium and principal payments due
on such Senior Subordinated Note as if such Senior Subordinated 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
Senior Subordinated Note.
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<PAGE>
"Material Adverse Effect" shall mean a material adverse effect on
(i) the business, assets, operations, prospects or financial condition of
Borrower, (ii) Borrower's ability to pay the Obligations in accordance with the
terms thereof, (iii) the Collateral or Agent's Liens on the Collateral or the
priority of any such Lien, or (iv) Agent's and Lenders' rights and remedies
under this Agreement and the Other Documents.
"Maximum Revolving Advance Amount" shall mean $50,000,000 as
reduced in accordance with Section 2.12 hereof.
"Maximum Revolving Loan Commitment" of any Lender shall mean the
amount set forth below such Lender's name on the signature page hereof which
amount equals the maximum amount of Revolving Advances such Lender is committed
to make hereunder as same may be adjusted upon any assignment by a Lender
pursuant to Section 15.3(b) hereof.
"Mezzanine Debt" shall mean all obligations owed by Borrower to
Mezzanine Lender pursuant to the Mezzanine Documentation and Additional
Mezzanine Documentation.
"Mezzanine Documentation" shall mean, collectively, the Mezzanine
Warrant, the Mezzanine Note and the Securities Purchase Agreement dated as of
May 24, 1995, as amended, between Borrower and Mezzanine Lender.
"Mezzanine Lender" shall mean The Equitable Life Assurance
Society of the United States.
"Mezzanine Note" shall mean the 14% senior subordinated notes due
2002 dated May 24, 1995 in the principal amount of $10,000,000 executed by
Borrower in favor of Mezzanine Lender.
"Mezzanine Shares" shall mean the 3,665.98 shares of Borrower's
Class B Common Stock issued by Borrower to Mezzanine Lender on December 29,
1995.
"Mezzanine Warrant" shall mean the Warrant dated May 24, 1995
issued by Borrower to Mezzanine Lender.
"Monthly Advances" shall have the meaning set forth in Section
3.1 hereof.
"Natural Dam Property" shall mean, collectively, the premises
located at (i) Natural Dam Facility, 4886 State Highway 58, Gouverneur, New
York 13642, (ii) 71 Prospect Street, Gouverneur, New York 13642 and (iii)
Company Houses (4), 4874, 4875, 4886, 4895 State Highway 48, Gouverneur, New
York 13642.
"Net Income" shall mean, 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
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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" shall mean the aggregate cash proceeds received by
Borrower or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale 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
Borrower 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" shall mean Indebtedness (i) as to which
neither Borrower 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 Senior Subordinated Notes) of Borrower 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 Borrower or any of its Restricted
Subsidiaries.
"Note" or "Notes" shall mean the Revolving Credit Notes.
"Obligations" shall mean and include any and all of Borrower's
Indebtedness and/or liabilities to Agent or Lenders or any corporation that
directly or indirectly controls or is controlled by or is under common control
with any Lender of every kind, nature and description, direct or indirect,
secured or unsecured, joint, several, joint and several, absolute or
contingent, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, arising under this
Agreement or under any other related agreement between Agent
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or Lenders and Borrower and all obligations of Borrower to Agent or Lenders to
perform acts or refrain from taking any action.
"Offering Memorandum" shall mean the offering memorandum of
Borrower dated February 24, 1997 with respect to the 9-1/2% Senior Subordinated
Notes due 2007.
"Original Owner" shall mean Dennis Mehiel and any Permitted
Transferee.
"Oshkosh Property" shall mean the premises located at 2920 North
Main Street, Oshkosh, Wisconsin.
"Other Documents" shall mean the Notes and any and all other
agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Agent or
any Lender in respect of the transactions contemplated by this Agreement.
"Participant" shall mean each Person who shall be granted the
right by any Lender to participate in any of the Revolving Advances and who
shall have entered into a participation agreement in form and substance
satisfactory to such Lender.
"Payment Office" shall mean initially One State Street, New York,
New York 10004; thereafter, such other office of Agent, if any, which it may
designate by notice to Borrower and to each Lender to be the Payment Office.
"Permitted Investments" shall mean (i) any Investment in Borrower
or in a Wholly Owned Restricted Subsidiary of Borrower; (ii) any Investment in
Cash Equivalents; (iii) any Investment by Borrower 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 Borrower or a Wholly Owned
Restricted Subsidiary 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, Borrower or a Wholly Owned Restricted Subsidiary of Borrower;
(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 Section 7.1
hereof; and (v) a $2.6 million loan to CEG, as in effect on the Effective Date,
as such loan may be amended or refinanced in a manner not adverse to Borrower
or Lenders.
"Permitted Liens" shall mean (i) Liens in favor of the Agent;
(ii) Liens in favor of Borrower 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 Borrower 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 Borrower or any such Restricted Subsidiary;
(iv) Liens on property existing at the time of acquisition thereof by Borrower
or any of its Restricted
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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 on any asset of Borrower or any of its Subsidiaries (other than the
Collateral), whether now owned or hereafter acquired, to secure Indebtedness
permitted by Section 7.8 hereof, subject to compliance with Section 6.12
hereof; (vii) Liens set forth on Schedule 1.2 hereto (viii) Liens for taxes,
assessments or other governmental charges not delinquent, or, being contested
in good faith and by appropriate proceedings and with respect to which proper
reserves have been taken by Borrower; provided, that, the Lien shall have no
effect on the priority of the Liens in favor of Agent or the value of the
assets in which Agent has such a Lien and a stay of enforcement of any such
Lien shall be in effect; (ix) Liens incurred in the ordinary course of business
of Borrower or any of its Restricted Subsidiaries with respect to obligations
that do not exceed $2 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 Borrower or
any such Restricted 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" shall mean any Indebtedness of
Borrower 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 Borrower 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 Senior Subordinated 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 Senior Subordinated Notes on terms at
least as favorable to the holders of Senior Subordinated 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 Borrower or the Restricted Subsidiary that is the
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obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Permitted Transferee" shall mean the spouse or children of
Dennis Mehiel, or any trusts or custodianships established for the benefit of
one or more of any of them.
"Person" shall mean an individual, a partnership, a corporation,
a business trust, a limited liability company, a joint stock company, a trust,
an unincorporated association, a joint venture, a governmental authority or any
other entity of whatever nature.
"Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA, maintained for employees of Borrower or any member of
the Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Principals" shall 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.
"Private Placement" shall mean the issuance and sale by Borrower
of the Senior Subordinated Notes pursuant to Rule 144A under the Securities Act
of 1933, as amended.
"Pro Forma Balance Sheet" shall have the meaning set forth in
Section 5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set forth
in Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5(b)
hereof.
"Purchasing Lender" shall have the meaning set forth in Section
15.3 hereof.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42
U.S.C. ss.ss. 6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of Borrower's rights, title and
interest in and to the Oshkosh Property, the Three Rivers Property, the
Appleton Property and Natural Dam Property.
"Receivables" shall mean and include all of Borrower's accounts,
contract rights, instruments (including those evidencing indebtedness among
Borrower and its Affiliates), documents, chattel paper, general intangibles
relating to accounts, drafts and acceptances, and all other forms of
obligations owing to Borrower arising out of or in connection with the sale or
lease of Inventory or the rendition of services, all guarantees and other
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security therefor, whether secured or unsecured, now existing or hereafter
created, and whether or not specifically sold or assigned to Lenders hereunder.
"Receivables Advance Rate" shall have the meaning set forth in
Section 2.1(a)(i) hereof.
"Release" shall have the meaning set forth in Section 5.7(c)(i)
hereof.
"Required Lenders" shall mean Lenders holding at least fifty-one
percent (51%) of the Revolving Advances or, if no Revolving Advances are
outstanding Lenders having Commitment Percentages aggregating at least
fifty-one percent (51%) .
"Restricted Investment" shall mean an Investment other than a
Permitted Investment.
"Restricted Payments" shall have the meaning set forth in Section
7.7 hereof.
"Restricted Subsidiary" of a Person shall mean any Subsidiary of
such Person that is not an Unrestricted Subsidiary.
"Revolving Advance Rates" shall have the meaning set forth in
Section 2.1(a) hereof.
"Revolving Advances" shall mean any advances made pursuant to
Section 2.1(a) hereof.
"Revolving Credit Notes" shall have the meaning given to it in
Section 2.1(a) hereof.
"Revolving Interest Rate" shall mean an interest rate per annum
equal to (a) the sum of the Alternate Base Rate plus one-quarter of one percent
(.25%) with respect to Domestic Rate Loans or (b) the sum of the Eurodollar
Rate plus two and one-quarter percent (2.25%) with respect to Eurodollar Rate
Loans.
"Senior Debt" of any Person shall mean (i) any Indebtedness of
such Person incurred under this Agreement, (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 pursuant to Section 7.8 hereof, 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
this Agreement.
"Senior Debt Payments" shall mean and include all cash actually
expended by Borrower to make (a) interest payments on
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any Revolving Advances hereunder, plus, (b) payments for all fees, commissions
and charges set forth herein and with respect to any Revolving Advances.
"Senior Subordinated Notes" shall have the meaning given to such
term in the introductory paragraph of this Agreement.
"Settlement Date" shall mean the Closing Date and thereafter
Wednesday of each week unless such day is not a Business Day in which case it
shall be the next succeeding Business Day.
"Subsidiary" shall mean, 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).
"Subsidiary Guarantees" shall have the meaning set forth in
Section 7.12 hereof.
"Term" shall have the meaning set forth in Section 13.1 hereof.
"Termination Date" shall have the meaning set forth in Section
13.1 hereof.
"Termination Event" shall mean (i) a Reportable Event with
respect to any Plan or Multiemployer Plan; (ii) the withdrawal of either
Borrower or any member of the Controlled Group from a Plan or Multiemployer
Plan during a plan year in which such entity was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA; (iii) the providing of notice of intent
to terminate a Plan in a distress termination described in Section 4041(c) of
ERISA; (iv) the institution by the PBGC of proceedings to terminate a Plan or
Multiemployer Plan; (v) any event or condition (a) which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan or Multiemployer Plan, or (b) that may
result in termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA; or (vi) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of either Borrower or any member of the
Controlled Group from a Multiemployer Plan.
"Three Rivers Property" shall mean the premises located at 612
Fourth Street, Three Rivers, Michigan 49093.
"Toxic Substance" shall mean and include any material present on
the Real Property or the Leasehold Interests which has been shown to have
significant adverse effect on human health or
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which is subject to regulation under the Toxic Substances Control Act (TSCA),
15 U.S.C. ss.ss. 2601 et seq., applicable state law, or any other applicable
Federal or state laws now in force or hereafter enacted relating to toxic
substances. "Toxic substance" includes but is not limited to asbestos,
polychlorinated byphenyls (PCBs) and lead-based paints.
"Transferee" shall have the meaning set forth in Section 16.3(b)
hereof.
"Transactions" shall have the meaning set forth in Section 5.5
hereof.
"Treasury Rate" shall mean 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 Senior
Subordinated 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 Senior Subordinated 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.
"Trustee" shall mean The Bank of New York until a successor
replaces it in accordance with the applicable provisions of the Indenture and,
thereafter, means the successor serving thereunder.
"Trustee Liability Letter" shall mean a letter addressed to Agent
from the trustee of The Paper Industry Union- Management Pension Fund
("PIUMPF") regarding the liability of Borrower should Borrower withdraw from
PIUMPF.
"Undrawn Availability" at a particular date shall mean an amount
equal to (a) the sum of (i) the lesser of (x) the Formula Amount or (y) the
Maximum Revolving Advance Amount, plus (ii) the excess of (x) the Formula
Amount over (y) the Maximum Revolving Advance Amount minus (b) the sum of (i)
the outstanding amount of Revolving Advances plus (ii) all amounts due and
owing to Borrower's trade creditors which are outstanding more than sixty (60)
days after the original due date thereof.
"Unrestricted Subsidiary" shall mean 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
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Non-Recourse Debt; (ii) is not party to any agreement, contract, arrangement or
understanding with Borrower or any of its Restricted Subsidiaries unless the
terms of any such agreement, contract, arrangement or understanding are no less
favorable to Borrower or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates of Borrower, (iii) is
a Person with respect to which neither Borrower 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 Borrower 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 Borrower or any of its
Restricted Subsidiaries and has at least one executive officer who is not a
director or executive officer of Borrower or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Agent by filing with the Agent 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
Section 7.7 hereof. 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 and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Borrower as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under Section 7.8 hereof, Borrower shall be in default
of such Section). 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 Borrower of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such
Indebtedness is permitted under Section 7.8 hereof and (ii) no Default or Event
of Default would be in existence following such designation.
"Weighted Average Life to Maturity" shall mean, 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.
"Week" shall mean the time period commencing with the opening of
business on a Wednesday and ending on the end of business the following
Tuesday.
"Wholly Owned Restricted Subsidiary" of any Person shall mean a
Restricted Subsidiary of such Person all of the outstanding Capital Stock or
other ownership interests of which
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(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.
1.3. Uniform Commercial Code Terms. All terms used herein and defined
in the Uniform Commercial Code as adopted in the State of New York shall have
the meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. Wherever appropriate in the context,
terms used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to this
Agreement or to any of the Other Documents shall include any and all
modifications or amendments hereto or thereto and any and all extensions or
renewals hereof or thereof.
II. REVOLVING ADVANCES, PAYMENTS.
2.1. (a) Revolving Advances. Subject to the terms and conditions set
forth in this Agreement, each Lender, severally and not jointly, will make
Revolving Advances to Borrower in aggregate amounts outstanding at any time
equal to such Lender's Commitment Percentage of the lesser of (x) the Maximum
Revolving Advance Amount or (y) an amount equal to the sum of:
(i) up to 85%, subject to the provisions of Section 2.1(b)
hereof, of Eligible Receivables ("Receivables Advance Rate"),
plus
(ii) up to the lesser of (A) 60%, subject to the provisions of
Section 2.1(b) hereof ("Inventory Advance Rate"), of the value of
the Eligible Inventory (the Receivables Advance Rate and the
Inventory Advance Rate shall be referred to collectively, as the
"Revolving Advance Rates") or (B) $22,000,000 in the aggregate at
any one time, minus
(iii) such reserves as Agent may reasonably deem proper and
necessary from time to time.
The amount derived from the sum of (x) Sections 2.1(a)(y)(i) and
(ii) minus (y) Section 2.1(a)(y)(iii) at any time and from time to
time shall be referred to as the "Formula Amount". The Revolving
Advances shall be evidenced by secured promissory notes in
substantially the form attached hereto as EXHIBIT 2.1(A) executed and
delivered by Borrower to each Lender (collectively, "Revolving Credit
Notes").
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(b) Discretionary Rights. The Revolving Advance Rates may be increased
(subject to the provisions of Section 15.2(b)(ii) of this Agreement) or
decreased by Agent at any time and from time to time in the exercise of its
reasonable discretion. Borrower consents to any such increases or decreases and
acknowledges that decreasing the Revolving Advance Rates or increasing the
reserves may limit or restrict Revolving Advances requested by Borrower.
2.2. Procedure for Revolving Advances Borrowing.
(a) Borrower may notify Agent prior to 11:00 a.m. on a Business
Day of its request to incur, on that day, a Revolving Advance hereunder. Should
any amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement or any other agreement with Agent or Lenders, or
with respect to any other Obligation, become due, same shall be deemed a
request for a Revolving Advance as of the date such payment is due, in the
amount required to pay in full such interest, fee, charge or Obligation under
this Agreement or any other agreement with Agent or Lenders, and such request
shall be irrevocable.
(b) Notwithstanding the provisions of (a) above, in the event
Borrower desires to obtain a Eurodollar Rate Loan, it shall give Agent at least
three (3) Business Days' prior written notice on or before 11:00 A.M.,
specifying (i) the date of the proposed borrowing (which shall be a Business
Day), (ii) the amount on the date of such Revolving Advance to be borrowed,
which amount shall be an integral multiple of $50,000, and (iii) the duration
of the first Interest Period therefor. Interest Periods for Eurodollar Rate
Loans shall be for one, two, three or six months.
(c) Each Interest Period of a Eurodollar Rate Loan shall commence
on the date such Eurodollar Rate Loan is made and shall end on such date as
Borrower may elect as set forth in (b)(iii) above provided, that, the exact
length of each Interest Period shall be determined in accordance with the
practice of the interbank market for offshore Dollar deposits and no Interest
Period shall end after the last day of the Term.
Borrower shall elect the initial Interest Period applicable to a
Eurodollar Rate Loan by its notice of borrowing given to Agent pursuant to
Section 2.2(b) or by its notice of conversion given to Agent pursuant to
Section 2.2(d), as the case may be. Borrower shall elect the duration of each
succeeding Interest Period by giving irrevocable written notice to Agent of
such duration not less than three (3) Business Days prior to the last day of
the then current Interest Period applicable to such Eurodollar Rate Loan. If
Agent does not receive timely notice of the Interest Period elected by
Borrower, Borrower shall be deemed to have elected to convert to a Domestic
Rate Loan subject to Section 2.2(d) hereinbelow.
(d) Provided, that, no Event of Default shall have occurred and
be continuing, Borrower may, on the last Business Day of the then current
Interest Period applicable to any outstanding
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Eurodollar Rate Loan, or on any day with respect to Domestic Rate Loans convert
any such loan into a loan of another type in the same aggregate principal
amount provided, that, any conversion of a Eurodollar Rate Loan shall be made
only on the last Business Day of the then current Interest Period applicable to
such Eurodollar Rate Loan. If Borrower desires to convert a loan, it shall give
Agent not less than three (3) Business Days' prior written notice to convert
from a Domestic Rate Loan to a Eurodollar Rate Loan or one (1) Business Days'
prior written notice to convert from a Eurodollar Rate Loan to a Domestic Rate
Loan, specifying the date of such conversion, the loans to be converted and if
the conversion is from a Domestic Rate Loan to any other type of loan, the
duration of the first Interest Period therefor. After giving effect to each
such conversion, there shall not be outstanding more than three (3) Eurodollar
Rate Loans, in the aggregate.
(e) At its option and upon ninety (90) days' prior written
notice, Borrower may prepay the Revolving Advances in whole at any time, upon
payment of the early termination fee set forth in Section 13.1 with accrued
interest on the principal being prepaid to the date of such repayment and in
the event that any prepayment of a Eurodollar Rate Loan is required or
permitted on a date other than the last Business Day of the then current
Interest Period with respect thereto, Borrower shall indemnify Agent and
Lenders therefor in accordance with Section 2.2(f) hereof.
(f) Borrower shall indemnify Agent and Lenders and hold Agent and
Lenders harmless from and against any and all losses or expenses that Agent and
Lenders may sustain or incur as a consequence of any prepayment or any default
by Borrower in the payment of the principal of or interest on any Eurodollar
Rate Loan or failure by Borrower to complete a borrowing of, a prepayment of or
conversion of or to a Eurodollar Rate Loan after notice thereof has been given,
including (but not limited to) any interest payable by Agent or Lenders to
lenders of funds obtained by it in order to make or maintain its Eurodollar
Rate Loans hereunder.
(g) Notwithstanding any other provision hereof, if any applicable
law, treaty, regulation or directive, or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender
(for purposes of this subsection (g), the term "Lender" shall include any
Lender and the office or branch where any Lender or any corporation or bank
controlling such Lender makes or maintains any Eurodollar Rate Loans, to make
or maintain its Eurodollar Rate Loans, the obligation of Lenders to make
Eurodollar Rate Loans hereunder shall forthwith be cancelled and Borrower
shall, if any affected Eurodollar Rate Loans are then outstanding, promptly
upon request from Lenders, either pay all such affected Eurodollar Rate Loans
or convert such affected Eurodollar Rate Loans into loans of another type. If
any such payment or conversion of any Eurodollar Rate Loan is made on a day
that is not applicable to such Eurodollar Rate Loan Borrower shall pay Lenders,
upon Lenders' request, such amount or amounts as may be necessary to compensate
Lenders for any loss or expense sustained or incurred by Lenders in respect of
such Eurodollar Rate Loan as a result of such payment or conversion, including
(but not
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limited to) any interest or other amounts payable by Lenders to lenders of
funds obtained by Lenders in order to make or maintain such Eurodollar Rate
Loan. A certificate as to any additional amounts payable pursuant to the
foregoing sentence submitted by Lenders to Borrower shall be conclusive absent
manifest error.
2.3. Disbursement of Revolving Advance Proceeds. All Revolving
Advances shall be disbursed from whichever office or other place Agent may
designate from time to time and, together with any and all other Obligations of
Borrower to Agent or Lenders, shall be charged to Borrower's Account on Agent's
books. During the Term, Borrower may use the Revolving Advances by borrowing,
prepaying and reborrowing, all in accordance with the terms and conditions
hereof. The proceeds of each Revolving Advance requested by Borrower or deemed
to have been requested by Borrower under Section 2.2(a) hereof shall, with
respect to requested Revolving Advances to the extent Lenders make such
Revolving Advances, be made available to Borrower on the day so requested by
way of credit to Borrower's operating account at IBJS, or such other bank as
Borrower may designate following notification to Agent, in immediately
available federal funds or other immediately available funds or, with respect
to Revolving Advances deemed to have been requested, be disbursed to Agent to
be applied to the outstanding Obligations giving rise to such deemed request.
2.4. Intentionally Omitted.
2.5. Maximum Revolving Advances. The aggregate balance of Revolving
Advances outstanding at any time shall not exceed the lesser of (a) Maximum
Revolving Advance Amount or (b) the Formula Amount. No Lender shall be
obligated to make Revolving Advances in excess of its Maximum Revolving Loan
Commitment.
2.5.1 Lender Acknowledgment. Each Lender hereby acknowledges its
Commitment Percentage as set forth below such Lender's name on the signature
page hereof as each may be adjusted upon an assignment by a Lender pursuant to
Section 15.3(b) hereof.
2.6. Repayment of Revolving Advances.
(a) The Revolving Advances shall be due and payable in full on
the last day of the Term subject to earlier prepayment as herein provided.
(b) Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by Agent on the date received. In
consideration of Agent's agreement to conditionally credit Borrower's Account
as of the Business Day on which Agent receives those items of payment, Borrower
agrees that, in computing the charges under this Agreement, all items of
payment shall be deemed applied by Agent on account of the Obligations one (1)
Business Day following the Business Day Agent receives such remittances via
wire transfer or electronic depository check from either the Blocked Account
bank, the Depository Account bank or Borrower. Agent is not, however, required
to credit Borrower's Account for the amount of any item of payment which is
unsatisfactory to Agent and Agent may charge Borrower's
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Account for the amount of any item of payment which is returned to Agent
unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to Agent at the
Payment Office not later than 1:00 P.M. (New York Time) on the due date
therefor in lawful money of the United States of America in federal funds or
other funds immediately available to Agent. Agent shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging Borrower's Account or by making Revolving Advances as provided in
Section 2.2 hereof.
(d) Borrower shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.7. Repayment of Excess Revolving Advances. The aggregate balance of
Revolving Advances outstanding at any time in excess of the maximum amount of
Revolving Advances permitted hereunder shall be immediately due and payable
without the necessity of any demand, at the Payment Office, whether or not a
Default or Event of Default has occurred.
2.8. Statement of Account. Agent shall maintain, in accordance with
its customary procedures, a loan account ("Borrower's Account") in the name of
Borrower in which shall be recorded the date and amount of each Revolving
Advance made by Lenders and the date and amount of each payment in respect
thereof; provided, however, the failure by Agent to record the date and amount
of any Revolving Advance shall not adversely affect Agent or any Lender. Each
month, Agent shall send to Borrower a statement showing the accounting for the
Revolving Advances made, payments made or credited in respect thereof, and
other transactions between Lenders and Borrower, during such month. The monthly
statements shall be deemed correct and binding upon Borrower in the absence of
manifest error and shall constitute an account stated between Lenders and
Borrower unless Agent receives a written statement of Borrower's specific
exceptions thereto within thirty (30) days after such statement is received by
Borrower. The records of Agent with respect to the loan account shall be
conclusive evidence absent manifest error of the amounts of Revolving Advances
and other charges thereto and of payments applicable thereto.
2.9. Additional Payments. Any sums expended by Agent or any Lender due
to Borrower's failure to perform or comply with its obligations under this
Agreement or any Other Document including, without limitation, Borrower's
obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be
charged to Borrower's Account as a Revolving Advance and added to the
Obligations.
2.10. Manner of Borrowing and Payment.
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(a) Each borrowing of Revolving Advances shall be advanced
according to the Commitment Percentages of Lenders.
(b) Each payment (including each prepayment) by Borrower on
account of the principal on any Note, shall be applied to the Revolving
Advances pro rata according to the Commitment Percentages of Lenders. Except as
expressly provided herein, all payments (including prepayments) to be made by
Borrower on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to Agent on behalf of Lenders to the
Payment Office, in each case on or prior to 1:00 P.M., New York time, in
Dollars and in immediately available funds.
(c) (i) Notwithstanding anything to the contrary contained in
Sections 2.10(a) and (b) hereof, commencing with the first Business Day
following the Closing Date, each borrowing of Revolving Advances shall be
advanced by Agent and each payment by Borrower on account of Revolving Advances
shall be applied first to those Revolving Advances made by Agent. On or before
1:00 P.M., New York time, on each Settlement Date commencing with the first
Settlement Date following the Closing Date, Agent and Lenders shall make
certain payments as follows: (I) if the aggregate amount of new Revolving
Advances made by Agent during the preceding Week exceeds the aggregate amount
of repayments applied to outstanding Revolving Advances during such preceding
Week, then each Lender shall provide Agent with funds in an amount equal to its
Commitment Percentage of the difference between (w) such Revolving Advances and
(x) such repayments and (II) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall provide each
Lender with its Commitment Percentage of the difference between (y) such
repayments and (z) such Revolving Advances.
(ii) Each Lender shall be entitled to earn interest at the
applicable Revolving Interest Rate on outstanding Revolving Advances which it
has funded.
(iii) Promptly following each Settlement Date, Agent shall
submit to each Lender a certificate with respect to payments received and
Revolving Advances made during the Week immediately preceding such Settlement
Date. Such certificate of Agent shall be conclusive in the absence of manifest
error.
(d) If any Lender or Participant (a "benefitted Lender") shall at
any time receive any payment of all or part of its Revolving Advances, or
interest thereon, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily or by set-off) in a greater proportion than any
such payment to and Collateral received by any other Lender, if any, in respect
of such other Lender's Revolving Advances, or interest thereon, and such
greater proportionate payment or receipt of Collateral is not expressly
permitted hereunder, such benefitted Lender shall purchase for cash from the
other Lenders such portion of each such other Lender's Revolving Advances, or
shall provide such other Lender with the benefits of any such Collateral, or
the proceeds
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thereof, as shall be necessary to cause such benefitted Lender to share the
excess payment or benefits of such Collateral or proceeds ratably with each of
Lenders; provided, however, that if all or any portion of such excess payment
or benefits is thereafter recovered from such benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest. Each Lender so purchasing a portion of
another Lender's Revolving Advances may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such portion
as fully as if such Lender were the direct holder of such portion.
(e) Unless Agent shall have been notified by telephone, confirmed
in writing, by any Lender that such Lender will not make the amount which would
constitute its Commitment Percentage of the Revolving Advances available to
Agent, Agent may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent and, in reliance upon such assumption, make
available to Borrower a corresponding amount. Agent will promptly notify
Borrower of its receipt of any such notice from a Lender. If such amount is
made available to Agent on a date after a Settlement Date, such Lender shall
pay to Agent on demand an amount equal to the product of (i) the daily average
federal funds rate (computed on the basis of a year of 360 days) during such
period as quoted by Agent, times (ii) such amount, times (iii) the number of
days from and including such Settlement Date to the date on which such amount
becomes immediately available to Agent. A certificate of Agent submitted to any
Lender with respect to any amounts owing under this paragraph (e) shall be
conclusive, in the absence of manifest error. If such amount is not in fact
made available to Agent by such Lender within three (3) Business Days after
such Settlement Date, Agent shall be entitled to recover such an amount, with
interest thereon at the rate per annum then applicable to Revolving Advances
hereunder, on demand from Borrower; provided, however, that Agent's right to
such recovery shall not prejudice or otherwise adversely affect Borrower's
rights (if any) against such Lender.
2.11. Mandatory Prepayments. When Borrower sells or otherwise disposes
of any Collateral other than Inventory in the ordinary course of business and
except as permitted in Section 4.3 hereof, Borrower shall repay the Revolving
Advances in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sales or other dispositions), such
repayments to be made promptly but in no event more than one (1) Business Day
following receipt of such net proceeds, and until the date of payment, such
proceeds shall be held in trust for Agent. The foregoing shall not be deemed to
be implied consent to any such sale otherwise prohibited by the terms and
conditions hereof. Such repayments shall be applied to the Revolving Advances,
subject to Borrower's ability to reborrow Revolving Advances in accordance with
the terms hereof.
2.12. Optional Prepayment. During the period commencing on the Closing
Date to and including March 31, 1998, Borrower may, without penalty or premium
and upon five (5) Business Days' notice
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to Agent, permanently reduce the Maximum Revolving Advance Amount in integral
multiples of $1,000,000; provided, however, such reductions shall not exceed an
amount equal to $3,000,000 in the aggregate during such period; provided,
further, the aggregate outstanding amount of Revolving Advances shall not at
any time thereafter exceed the Maximum Revolving Advance Amount as reduced.
2.13. Use of Proceeds. Borrower shall apply the proceeds of Revolving
Advances to provide for its working capital needs and general corporate
purposes (including, without limitation, capital expenditures).
III. INTEREST AND FEES.
3.1. Interest. Interest on Revolving Advances shall be payable in
arrears on the first day of each month with respect to Domestic Rate Loans and,
with respect to Eurodollar Rate Loans, at the end of each Interest Period
provided, however, if a Eurodollar Rate Loan has an Interest Period of six
months, then Interest on such Eurodollar Rate Loan shall be payable at the end
of the first three months of such Interest Period and at the end of such
Interest Period. Except as set forth below, interest charges shall be computed
on the actual principal amount of Revolving Advances outstanding during the
month (the "Monthly Advances") at a rate per annum equal to the applicable
Revolving Interest Rate. Whenever, subsequent to the date of this Agreement,
the Alternate Base Rate is increased or decreased, the applicable Revolving
Interest Rate shall be similarly changed without notice or demand of any kind
by an amount equal to the amount of such change in the Alternate Base Rate
during the time such change or changes remain in effect. Upon and after the
declaration of an Event of Default, and during the continuation thereof, the
Obligations shall bear interest at the applicable Revolving Interest Rate plus
two (2%) percent per annum (the "Default Rate").
3.2. (a) Fee Letter. Borrower shall pay to Agent all of the fees set
forth in the Fee Letter on terms and conditions set forth therein.
(b) Facility Fee. If, for any calendar quarter during the Term,
the average daily unpaid balance of the Revolving Advances for each day of such
quarter does not equal the Maximum Revolving Advance Amount, then Borrower
shall pay to Agent for the ratable benefit of Lenders a fee at a rate equal to
three-eighths of one percent (.375%) per annum on the amount by which the
Maximum Revolving Advance Amount exceeds such average daily unpaid balance.
Such fee shall be payable to Agent in arrears on the last day of each calendar
quarter.
3.3. (a) Intentionally Omitted.
(b) Collateral Monitoring Fee. Borrower shall pay to Agent on
the first day of each month following any month in which Agent performs any
collateral monitoring - namely any field examination, collateral analysis or
other business analysis, the
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need for which is to be determined by Agent and which monitoring is undertaken
by Agent or for Agent's benefit - a collateral monitoring fee in an amount
equal to $600 per day for each person (other than Lenders' management
personnel) employed to perform such monitoring, plus all costs and
disbursements incurred by Agent in the performance of such examination or
analysis; provided, however, so long as no Event of Default shall have occurred
and is then continuing, Agent shall only perform field examinations, collateral
analysis and other business analysis under this Section 3.3(b) one time during
each 210 day business cycle and the aggregate fees incurred under this Section
3.3(b) shall not exceed $50,000 in any fiscal year; provided, further, such
$50,000 shall be pro-rated for any partial fiscal year.
3.4. Computation of Interest and Fees. Interest and fees hereunder
shall be computed on the basis of a year of 360 days and for the actual number
of days elapsed. If any payment to be made hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable Revolving Interest Rate during such extension.
3.5. Maximum Charges. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law. In the
event interest and other charges as computed hereunder would otherwise exceed
the highest rate permitted under law, such excess amount shall be first applied
to any unpaid principal balance owed by Borrower, and if the then remaining
excess amount is greater than the previously unpaid principal balance, Lenders
shall promptly refund such excess amount to Borrower and the provisions hereof
shall be deemed amended to provide for such permissible rate.
3.6. Increased Costs. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by any Lender (for purposes of this Section
3.6, the term "Lender" shall include Agent or any Lender and any corporation or
bank controlling Agent or any Lender) and the office or branch where Agent or
any Lender (as so defined) makes or maintains any Eurodollar Rate Loans with
any request or directive (whether or not having the force of law) from any
central bank or other financial, monetary or other authority, shall:
(a) subject Agent or any Lender to any tax of any kind whatsoever
with respect to this Agreement or any Eurodollar Rate Loan or change the basis
of taxation of payments to Agent or any Lender of principal, fees, interest or
any other amount payable hereunder or under any Other Documents (except for
changes in the rate of tax on the overall net income of Agent or any Lender by
the jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special
deposit, assessment or similar requirement against assets held by, or deposits
in or for the account of, advances or loans by, or other credit extended by,
any office of Agent or any Lender,
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including (without limitation) pursuant to Regulation D of the Board of
Governors of the Federal Reserve System; or
(c) impose on Agent or any Lender or the London interbank
Eurodollar market any other condition with respect to this Agreement, any Other
Documents or any other Eurodollar Rate Loan;
and the result of any of the foregoing is to increase the cost to Agent or any
Lender of making, renewing or maintaining its Revolving Advances hereunder by
an amount that Agent or such Lender deems to be material or to reduce the
amount of any payment (whether of principal, interest or otherwise) in respect
of any of the Revolving Advances by an amount that Agent or such Lender deems
to be material, then, in any case Borrower shall promptly pay Agent or such
Lender, upon its demand, such additional amount as will compensate Agent or
such Lender for such additional cost or such reduction, as the case may be,
provided, that, the foregoing shall not apply to increased costs which are
reflected in the Eurodollar Rate. Agent or such Lender shall certify the amount
of such additional cost or reduced amount to Borrower, and such certification
shall be conclusive absent manifest error.
3.7. Basis For Determining Interest Rate Inadequate or Unfair. In the
event that Agent or any Lender shall have determined that:
(a) reasonable means do not exist for ascertaining the Eurodollar
Rate for any Interest Period; or
(b) Dollar deposits in the relevant amount and for the relevant
maturity are not available in the London interbank Eurodollar market, with
respect to an outstanding Eurodollar Rate Loan, a proposed Eurodollar Rate
Loan, or a proposed conversion of a Domestic Rate Loan into a Eurodollar Rate
Loan,
Agent shall give Borrower prompt written, telephonic or telegraphic notice of
such determination. If such notice is given, (i) any such requested Eurodollar
Rate Loan shall be made as a Domestic Rate Loan, unless Borrower shall notify
Agent no later than 10:00 a.m. (New York City time) two (2) Business Days prior
to the date of such proposed borrowing, that its request for such borrowing
shall be cancelled or made as an unaffected type of Eurodollar Rate Loan (ii)
any Domestic Rate Loan or Eurodollar Rate Loan which was to have been converted
to an affected type of Eurodollar Rate Loan shall be continued as or converted
into a Domestic Rate Loan, or, if Borrower shall notify Agent, no later than
10:00 a.m. (New York City time) two (2) Business Days prior to the proposed
conversion, shall be maintained as an unaffected type of Eurodollar Rate, and
(iii) any outstanding affected Eurodollar Rate Loans shall be converted into a
Domestic Rate Loan, or, if Borrower shall notify Agent, no later than 10:00
a.m. (New York City time) two (2) Business Days prior to the last Business Day
of the then current Interest Period applicable to such affected Eurodollar Rate
Loan, shall be converted into an unaffected type of Eurodollar Rate Loan on the
last Business Day of the then current Interest Period for
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such affected Eurodollar Rate Loans. Until such notice has been withdrawn,
Lenders shall have no obligation to make an affected type of Eurodollar Rate
Loan or maintain outstanding affected Eurodollar Rate Loans and Borrower shall
not have the right to convert a Domestic Rate Loan or an unaffected type of
Eurodollar Rate Loan into an affected type of Eurodollar Rate Loan.
3.8. Capital Adequacy.
(a) In the event that Agent or any Lender shall have determined
that any applicable law, rule, regulation or guideline regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by Agent or any Lender (for purposes of this Section 3.8, the term
"Lender" shall include Agent or any Lender and any corporation or bank
controlling Agent or any Lender) and the office or branch where Agent or any
Lender (as so defined) makes or maintains any Eurodollar Rate Loans with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on Agent or any Lender's
capital as a consequence of its obligations hereunder to a level below that
which Agent or such Lender could have achieved but for such adoption, change or
compliance (taking into consideration Agent's and each Lender's policies with
respect to capital adequacy) by an amount deemed by Agent or any Lender to be
material, then, from time to time, Borrower shall pay upon demand to Agent or
such Lender such additional amount or amounts as will compensate Agent or such
Lender for such reduction. In determining such amount or amounts, Agent or such
Lender may use any reasonable averaging or attribution methods. The protection
of this Section 3.9 shall be available to Agent and each Lender regardless of
any possible contention of invalidity or inapplicability with respect to the
applicable law, regulation or condition.
(b) A certificate of Agent or such Lender setting forth such
amount or amounts as shall be necessary to compensate Agent or such Lender with
respect to Section 3.8(a) hereof when delivered to Borrower shall be conclusive
absent manifest error.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment
and performance to Agent and each Lender of the Obligations, Borrower hereby
acknowledges, confirms and agrees that Agent has and shall continue to have a
Lien upon and security interest in and to all of the Collateral heretofore
granted to Agent under the Existing Agreement, and, to the extent not otherwise
granted thereunder or under the Other Documents or otherwise granted to or held
by Agent, Borrower hereby assigns, pledges and grants to Agent for the ratable
benefit of each Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
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wheresoever located. Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect Agent's security
interest and shall cause its financial statements to reflect such security
interest.
4.2. Perfection of Security Interest. Borrower shall take all action
that may be necessary or desirable, or that Agent may request, so as at all
times to maintain the validity, perfection, enforceability and priority of
Agent's security interest in the Collateral or to enable Agent to protect,
exercise or enforce its rights hereunder and in the Collateral, including, but
not limited to (i) immediately discharging all Liens other than Permitted
Liens, (ii) obtaining landlords' or mortgagees' lien waivers, (iii) delivering
to Agent, endorsed or accompanied by such instruments of assignment as Agent
may specify, and stamping or marking, in such manner as Agent may specify, any
and all chattel paper, instruments, letters of credits and advices thereof and
documents evidencing or forming a part of the Collateral, (iv) entering into
warehousing, lockbox and other custodial arrangements satisfactory to Agent,
and (v) executing and delivering financing statements, instruments of pledge,
mortgages, notices and assignments, in each case in form and substance
satisfactory to Agent, relating to the creation, validity, perfection,
maintenance or continuation of Agent's security interest under the Uniform
Commercial Code or other applicable law. Agent is hereby authorized to file
financing statements signed by Agent instead of Borrower in accordance with
Section 9-402(2) of Uniform Commercial Code as adopted in the State of New
York. All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrower's
Account as a Revolving Advance and added to the Obligations, or, at Agent's
option, shall be paid to Agent for the ratable benefit of Lenders immediately
upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and protect
all Collateral for Agent's general account and make no disposition thereof
whether by sale, lease or otherwise except the sale of Inventory in the
ordinary course of business provided, however, Borrower may retain for its own
purposes up to $100,000 from any such disposition; provided, further, Borrower
shall not retain in excess of $100,000 from all such dispositions in any fiscal
year.
4.4. Preservation of Collateral. Following the occurrence of a Default
or Event of Default, in addition to the rights and remedies set forth in
Section 11.1 hereof, Agent: (a) may at any time take such steps as Agent deems
necessary to protect Agent's interest in and to preserve the Collateral,
including the hiring of such security guards or the placing of other security
protection measures as Agent may deem appropriate; (b) may employ and maintain
at any of Borrower's premises a custodian who shall have full authority to do
all acts necessary to protect Agent's interests in the Collateral; (c) may
lease warehouse facilities to which Agent may move all or part of the
Collateral; (d) may use any of Borrower's owned or leased lifts, hoists, trucks
and other facilities or equipment for handling or removing the Collateral; and
(e) shall have, and is hereby granted, a right of ingress and
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egress to the places where the Collateral is located, and may proceed over and
through any of Borrower's owned or leased property. Borrower shall cooperate
fully with all of Agent's efforts to preserve the Collateral and will take such
actions to preserve the Collateral as Agent may direct. All of Agent's expenses
of preserving the Collateral, including any expenses relating to the bonding of
a custodian, shall be charged to Borrower's Account as a Revolving Advance and
added to the Obligations.
4.5. Ownership of Collateral. With respect to the Collateral, at the
time the Collateral becomes subject to Agent's security interest: (a) Borrower
shall be the sole owner of and fully authorized and able to sell, transfer,
pledge and/or grant a first security interest in each and every item of the
Collateral to Agent; and, except for Permitted Liens the Collateral and each
Fixed Asset shall be free and clear of all Liens and encumbrances whatsoever;
(b) each document and agreement executed by Borrower or delivered to Agent or
any Lender in connection with this Agreement shall be true and correct in all
respects; (c) all signatures and endorsements of Borrower that appear on such
documents and agreements shall be genuine and Borrower shall have full capacity
to execute same; and (d) Borrower's Equipment and Inventory shall be located at
any of the locations set forth on Schedule 4.5 (as amended with the prior
written consent of Agent) and shall not be removed from such location(s) to any
location not set forth on Schedule 4.5 without the prior written consent of
Agent except with respect to the sale of Equipment or sale of Inventory in the
ordinary course of business.
4.6. Defense of Agent's and Lenders' Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's interests in the Collateral shall continue in full force and
effect. During such period Borrower shall not, without Agent's prior written
consent, pledge, sell (except Inventory in the ordinary course of business,
assign, transfer, create or suffer to exist a Lien upon or encumber or allow or
suffer to be encumbered in any way except for Permitted Liens, any part of the
Collateral or any Fixed Asset. Borrower shall defend Agent's interests in the
Collateral against any and all persons whatsoever. At any time following the
occurrence and during the continuance of an Event of Default and demand by
Agent for payment of all Obligations, Agent shall have the right to take
possession of the indicia of the Collateral and the Collateral in whatever
physical form contained, including without limitation: labels, stationery,
documents, instruments and advertising materials. If Agent exercises this right
to take possession of the Collateral, Borrower shall, upon demand, assemble it
in the best manner possible and make it available to Agent at a place
reasonably convenient to Agent. In addition, with respect to all Collateral,
Agent and Lenders shall be entitled to all of the rights and remedies set forth
herein and further provided by the Uniform Commercial Code or other applicable
law. Additionally, following the occurrence and during the continuance of an
Event of Default, Borrower shall, and Agent may, at its option, instruct all
suppliers, carriers, forwarders, warehouses or others receiving or
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holding cash, checks, Inventory, documents or instruments in which Agent holds
a security interest to deliver same to Agent and/or subject to Agent's order
and if they shall come into Borrower's possession, they, and each of them,
shall be held by Borrower in trust as Agent's trustee, and Borrower will
immediately deliver them to Agent in their original form together with any
necessary endorsement.
4.7. Books and Records. Borrower (a) shall keep proper books of record
and account in which full, true and correct entries will be made of all
dealings or transactions of or in relation to its business and affairs; (b) set
up on its books accruals with respect to all taxes, assessments, charges,
levies and claims; and (c) on a reasonably current basis set up on its books,
from its earnings, allowances against doubtful Receivables, advances and
investments and all other proper accruals (including without limitation by
reason of enumeration, accruals for premiums, if any, due on required payments
and accruals for depreciation, obsolescence, or amortization of properties),
which should be set aside from such earnings in connection with its business.
All determinations pursuant to this subsection shall be made in accordance
with, or as required by, GAAP consistently applied in the opinion of such
independent public accountant as shall then be regularly engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during
the Term to exhibit and deliver to Agent and each Lender copies of any of
Borrower's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Agent
and each Lender any information such accountants may have concerning Borrower's
financial status and business operations. Borrower hereby authorizes all
federal, state and municipal authorities to furnish to Agent and each Lender
copies of reports or examinations relating to Borrower, whether made by
Borrower or otherwise; however, Agent and each Lender will attempt to obtain
such information or materials directly from Borrower prior to obtaining such
information or materials from such accountants or such authorities.
4.9. Compliance with Laws. Borrower shall comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to the Collateral or any part thereof or to the operation
of Borrower's business the non-compliance with which could reasonably be
expected to have a Material Adverse Effect. Borrower may, however, contest or
dispute any acts, rules, regulations, orders and directions of those bodies or
officials in any reasonable manner, provided that any related lien is inchoate
or stayed and sufficient reserves are established to the reasonable
satisfaction of Lenders to protect Agent's Lien on or security interest in the
Collateral. The Collateral and each Fixed Asset at all times shall be
maintained in accordance with the requirements of all insurance carriers which
provide insurance with respect to the Collateral or such Fixed Asset so that
such insurance shall remain in full force and effect.
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4.10. Inspection of Premises. At all reasonable times Agent and each
Lender shall have full access to and the right to audit, check, inspect and
make abstracts and copies from Borrower's books, records, audits,
correspondence and all other papers relating to the Collateral and the
operation of Borrower's business. Agent, any Lender and their agents may enter
upon any of Borrower's premises at any time during business hours and at any
other reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of
Borrower's business.
4.11. Insurance. Borrower shall bear the full risk of any loss of any
nature whatsoever with respect to the Collateral and each Fixed Asset. At
Borrower's own cost and expense in amounts and with carriers acceptable to
Agent, Borrower shall (a) keep all its insurable properties and properties in
which Borrower has an interest insured against the hazards of fire, flood,
sprinkler leakage, those hazards covered by extended coverage insurance and
such other hazards, and for such amounts, as is customary in the case of
companies engaged in businesses similar to Borrower's including, without
limitation, business interruption insurance;, (b) maintain a bond in such
amounts as is customary in the case of companies engaged in businesses similar
to Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property
damage suffered by others; (d) maintain all such worker's compensation or
similar insurance as may be required under the laws of any state or
jurisdiction in which Borrower is engaged in business; (e) furnish Agent with
(i) copies of all policies and evidence of the maintenance of such policies by
the renewal thereof at least thirty (30) days before any expiration date, and
(ii) appropriate loss payable endorsements in form and substance satisfactory
to Agent, naming Agent as a co-insured and loss payee as its interests may
appear with respect to all insurance coverage, with respect to the Collateral,
referred to in clauses (a) and (b) above, and providing (A) that all proceeds
thereunder shall be payable to Agent, (B) no such insurance shall be affected
by any act or neglect of the insured or owner of the property described in such
policy, and (C) that such policy and loss payable clauses may not be cancelled,
amended or terminated unless at least thirty (30) days' prior written notice is
given to Agent. In the event of any loss thereunder, the carriers named therein
hereby are directed by Agent and Borrower to make payment for such loss to
Agent and not to Borrower and Agent jointly. If any such insurance losses are
paid by check, draft or other instrument payable to Borrower and Agent jointly,
Agent may endorse Borrower's name thereon and do such other things as Agent may
deem advisable to reduce the same to cash. Agent is hereby authorized to adjust
and compromise such claims in excess of $500,000, and so long as an Event of
Default has not occurred and is continuing, Agent shall not adjust and
compromise such claims in an amount equal to or less than $500,000, under
insurance coverage referred
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to in clauses (a) and (b) above with respect to the Collateral. All loss
recoveries received by Agent upon any such insurance with respect to the
Collateral may be applied to the Obligations, in such order as Agent in its
sole discretion shall determine. Any surplus shall be paid by Agent to Borrower
or applied as may be otherwise required by law. Any deficiency thereon shall be
paid by Borrower to Agent, on demand.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance
as hereinabove provided, or to keep the same in force, Agent, if Agent so
elects, may obtain such insurance and pay the premium therefor for Borrower's
Account, and charge Borrower's Account therefor and such expenses so paid shall
be part of the Obligations.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes,
assessments and other Charges lawfully levied or assessed upon Borrower or any
of the Collateral including, without limitation, real and personal property
taxes, assessments and charges and all franchise, income, employment, social
security benefits, withholding, and sales taxes. If any tax by any governmental
authority is or may be imposed on or as a result of any transaction between
Borrower and Agent or any Lender which Agent or any Lender may be required to
withhold or pay or if any taxes, assessments, or other Charges remain unpaid
after the date fixed for their payment, or if any claim shall be made which, in
Agent's or any Lender's opinion, may possibly create a valid Lien on the
Collateral, Agent may without notice to Borrower pay the taxes, assessments or
other Charges and Borrower hereby indemnifies and holds Agent and each Lender
harmless in respect thereof. Agent will not pay any taxes, assessments or
Charges to the extent that Borrower has contested or disputed those taxes,
assessments or Charges in good faith, by expeditious protest, administrative or
judicial appeal or similar proceeding provided that any related tax lien is
stayed and sufficient reserves are established to the reasonable satisfaction
of Agent to protect Agent's security interest in or Lien on the Collateral. The
amount of any payment by Agent under this Section 4.13 shall be charged to
Borrower's Account as a Revolving Advance and added to the Obligations and,
until Borrower shall furnish Agent with an indemnity therefor (or supply Agent
with evidence satisfactory to Agent that due provision for the payment thereof
has been made), Agent may hold without interest any balance standing to
Borrower's credit and Agent shall retain its security interest in any and all
Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Borrower shall at all times
pay, when and as due, its rental obligations under all leases under which it is
a tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request will provide evidence of having done so.
4.15. Receivables.
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(a) Nature of Receivables. Each of the Receivables shall be a
bona fide and valid account representing a bona fide indebtedness incurred by
the Customer therein named, for a fixed sum as set forth in the invoice
relating thereto (provided immaterial or unintentional invoice errors shall not
be deemed to be a breach hereof) with respect to an absolute sale or lease and
delivery of goods upon stated terms of Borrower, or work, labor or services
theretofore rendered by Borrower as of the date each Receivable is created.
Same shall be due and owing in accordance with Borrower's standard terms of
sale without dispute, setoff or counterclaim except as may be stated on the
accounts receivable schedules delivered by Borrower to Agent.
(b) Solvency of Customers. Each Customer, to the best of
Borrower's knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due or with respect to such Customers of Borrower who are not solvent
Borrower has set up on its books and in its financial records bad debt reserves
adequate to cover such Receivables.
(c) Locations of Borrower. Borrower's chief executive office is
located at 27 Lower Newton Street, St. Albans, Vermont 05478. Until written
notice is given to Agent by Borrower of any other office at which it keeps its
records pertaining to Receivables, all such records shall be kept at such
executive office.
(d) Collection of Receivables. Until Borrower's authority to do
so is terminated by Agent (which notice Agent may give at any time following
the occurrence and during the continuance of an Event of Default or a Default),
Borrower will, at Borrower's sole cost and expense, but on Agent's behalf and
for Agent's account, collect as Agent's property and in trust for Agent all
amounts received on Receivables, and shall not commingle such collections with
Borrower's funds or use the same except to pay Obligations. Borrower shall,
upon request, deliver to Agent or the Blocked Account in original form and on
the date of receipt thereof, all checks, drafts, notes, money orders,
acceptances, cash and other evidences of Indebtedness.
(e) Notification of Assignment of Receivables. At any time
following the occurrence and during the continuance of an Event of Default or a
Default, Agent shall have the right to send notice of the assignment of, and
Agent's security interest in, the Receivables to any and all Customers or any
third party holding or otherwise concerned with any of the Collateral.
Thereafter, Agent shall have the sole right to collect the Receivables, take
possession of the Collateral, or both. Agent's actual collection expenses,
including, but not limited to, stationery and postage, telephone and telegraph,
secretarial and clerical expenses and the salaries of any collection personnel
used for collection, may be charged to Borrower's Account and added to the
Obligations.
(f) Power of Agent to Act on Borrower's Behalf. Agent shall have
the right to receive, endorse, assign and/or
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deliver in the name of Agent or Borrower any and all checks, drafts and other
instruments for the payment of money relating to the Receivables, and Borrower
hereby waives notice of presentment, protest and non-payment of any instrument
so endorsed. Borrower hereby constitutes Agent or Agent's designee as
Borrower's attorney with power (i) to endorse Borrower's name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii) to sign Borrower's name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii) to send verifications of Receivables to any
Customer; (iv) to sign Borrower's name on all financing statements or any other
documents or instruments deemed necessary or appropriate by Agent to preserve,
protect, or perfect Agent's interest in the Collateral and to file same; (v) to
demand payment of the Receivables; (vi) to enforce payment of the Receivables
by legal proceedings or otherwise; (vii) to exercise all of Borrower's rights
and remedies with respect to the collection of the Receivables and any other
Collateral; (viii) to settle, adjust, compromise, extend or renew the
Receivables; (ix) to settle, adjust or compromise any legal proceedings brought
to collect Receivables; (x) to prepare, file and sign Borrower's name on a
proof of claim in bankruptcy or similar document against any Customer; (xi) to
prepare, file and sign Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Receivables;
and (xii) to do all other acts and things necessary to carry out this
Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission nor for any error of judgment or mistake of fact or of
law, unless done maliciously or with gross (not mere) negligence; this power
being coupled with an interest is irrevocable while any of the Obligations
remain unpaid. Agent shall have the right at any time following the occurrence
and during the continuance of an Event of Default or Default, to change the
address for delivery of mail addressed to Borrower to such address as Agent may
designate.
(g) No Liability. Neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or
payment of any of the Receivables or any instrument received in payment
thereof, or for any damage resulting therefrom. Following the occurrence of an
Event of Default or Default Agent may, without notice or consent from Borrower,
sue upon or otherwise collect, extend the time of payment of, compromise or
settle for cash, credit or upon any terms any of the Receivables or any other
securities, instruments or insurance applicable thereto and/or release any
obligor thereof. Agent is authorized and empowered to accept following the
occurrence of an Event of Default or Default the return of the goods
represented by any of the Receivables, without notice to or consent by
Borrower, all without discharging or in any way affecting Borrower's liability
hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. If
Undrawn Availability at any time is less than
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$7,500,000, then all proceeds of Collateral shall, at the direction of Agent,
be deposited by Borrower into a lockbox account, dominion account or such other
"blocked account" ("Blocked Accounts") as Agent may require pursuant to an
arrangement with such bank as may be selected by Borrower and be acceptable to
Agent. Borrower shall issue to any such bank, an irrevocable letter of
instruction directing said bank to transfer such funds so deposited to Agent,
either to any account maintained by Agent at said bank or by wire transfer to
appropriate account(s) of Agent. All funds deposited in such "blocked account"
shall immediately become the property of Agent and Borrower shall obtain the
agreement by such bank to waive any offset rights against the funds so
deposited. Agent assumes no responsibility for such "blocked account"
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any bank thereunder.
Alternatively, Agent may establish depository accounts ("Depository Accounts")
in the name of Agent at a bank or banks for the deposit of such funds and
Borrower shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent in lieu of depositing
same to the Blocked Accounts.
(i) Adjustments. Borrower will not, without each Lender's
consent, compromise or adjust any Receivables (or extend the time for payment
thereof) or accept any returns of merchandise or grant any additional
discounts, allowances or credits thereon except for those compromises,
adjustments, returns, discounts, credits and allowances as have been heretofore
customary in the business of Borrower.
4.16. Inventory. All Inventory held for sale or lease has been, and
will be, produced by Borrower in accordance with the Federal Fair Labor
Standards Act of 1938, as amended, and all rules, regulations and orders
thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained in
good operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrower shall not use or operate the Equipment in material violation of any
law, statute, ordinance, code, rule or regulation.
4.18. Exculpation of Liability. Nothing herein contained shall be
construed to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the
Collateral or any Fixed Asset wherever the same may be located and regardless
of the cause thereof. Neither Agent nor any Lender, whether by anything herein
or in any assignment or otherwise, assume any of Borrower's obligations under
any contract or agreement assigned to Agent or such Lender, and neither Agent
nor any Lender shall be responsible in any way for the performance by Borrower
of any of the terms and conditions thereof.
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4.19. Environmental Matters. (a) Borrower will ensure that the Real
Property remains in compliance with all Environmental Laws and it will not
place or permit to be placed any Hazardous Substances on any Real Property
except as not prohibited by applicable law or appropriate governmental
authorities.
(b) Borrower will establish and maintain a system to assure and
monitor continued compliance with all applicable Environmental Laws which
system shall include periodic reviews of such compliance.
(c) Borrower will (i) employ in connection with its use of the
Real Property appropriate technology necessary to maintain compliance with any
applicable Environmental Laws and (ii) dispose of any and all Hazardous Waste
generated at the Real Property only at facilities and with carriers that
maintain valid permits under RCRA and any other applicable Environmental Laws.
Borrower shall use its best efforts to obtain certificates of disposal, such as
hazardous waste manifest receipts, from all treatment, transport, storage or
disposal facilities or operators employed by Borrower in connection with the
transport or disposal of any Hazardous Waste generated at the Real Property.
(d) In the event Borrower obtains, gives or receives notice of
any Release or threat of Release of a reportable quantity of any Hazardous
Substances at the Real Property (any such event being hereinafter referred to
as a "Hazardous Discharge") or receives any notice of violation, request for
information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with
regard to any Hazardous Discharge or violation of Environmental Laws affecting
the Real Property or Borrower's interest therein (any of the foregoing is
referred to herein as an "Environmental Complaint") from any Person or entity,
including any state agency responsible in whole or in part for environmental
matters in the state in which the Real Property is located or the United States
Environmental Protection Agency (any such person or entity hereinafter the
"Authority"), then Borrower shall, within five (5) Business Days, give written
notice of same to Agent detailing facts and circumstances of which Borrower is
aware giving rise to the Hazardous Discharge or Environmental Complaint. Such
information is to be provided to allow Agent to protect its security interest
in the Collateral and is not intended to create nor shall it create any
obligation upon Agent or any Lender with respect thereto.
(e) Borrower shall promptly forward to Agent copies of any
request for information, notification of potential liability, demand letter
relating to potential responsibility with respect to the investigation or
cleanup of Hazardous Substances at any other site owned, operated or used by
Borrower to dispose of Hazardous Substances and shall continue to forward
copies of correspondence between Borrower and the Authority regarding such
claims to Agent until the claim is settled. Borrower shall promptly forward to
Agent copies of all documents and reports concerning a Hazardous Discharge at
the Real Property that Borrower
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is required to file under any Environmental Laws. Such information is to be
provided solely to allow Agent to protect Agent's security interest in the and
the Collateral.
(f) Borrower shall respond promptly to any Hazardous Discharge
or Environmental Complaint and take all necessary action in order to safeguard
the health of any Person and to avoid subjecting the Collateral or any Fixed
Asset to any Lien. If Borrower shall fail to respond promptly to any Hazardous
Discharge or Environmental Complaint or Borrower shall fail to comply with any
of the requirements of any Environmental Laws, Agent on behalf of Lenders may,
but without the obligation to do so, for the sole purpose of protecting Agent's
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrower, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and Borrower.
(g) Promptly upon the written request of Agent from time to
time, Borrower shall provide Agent, at Borrower's expense, with an
environmental site assessment or environmental audit report prepared by an
environmental engineering firm acceptable in the reasonable opinion of Agent,
to assess with a reasonable degree of certainty the existence of a Hazardous
Discharge and the potential costs in connection with abatement, cleanup and
removal of any Hazardous Substances found on, under, at or within the Real
Property. Any report or investigation of such Hazardous Discharge proposed and
acceptable to an appropriate Authority that is charged to oversee the clean-up
of such Hazardous Discharge shall be acceptable to Agent. If such estimates,
individually or in the aggregate, exceed $100,000, Agent shall have the right
to require Borrower to post a bond, letter of credit or other security
reasonably satisfactory to Agent to secure payment of these costs and expenses.
(h) Borrower shall defend and indemnify Agent and Lenders and
hold Agent, Lenders and their respective employees, agents, directors and
officers harmless from and against all loss, liability, damage and expense,
claims, costs, fines and penalties, including attorney's fees, suffered or
incurred by Agent or Lenders under or on account of any Environmental Laws,
including, without limitation, the assertion of any lien thereunder, with
respect to any Hazardous Discharge, the presence of any Hazardous Substances
affecting the Real Property, whether or not the same originates or emerges from
the Real Property or any contiguous real estate,
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including any loss of value of the Real Property as a result of the foregoing
except to the extent such loss, liability, damage and expenses is attributable
to any Hazardous Discharge resulting from actions on the part of Agent or any
Lender. Borrower's obligations under this Section 4.19 shall arise upon the
discovery of the presence of any Hazardous Substances at the Real Property,
whether or not any federal, state, or local environmental agency has taken or
threatened any action in connection with the presence of any Hazardous
Substances. Borrower's obligation and the indemnifications hereunder shall
survive the termination of this Agreement.
(i) For purposes of Section 4.19 and 5.7, all references to Real
Property shall be deemed to include all of Borrower's right, title and interest
in and to its owned and leased premises.
4.20. Except as respects the financing statements filed by Agent and
the financing statements described on Schedule 1.2, no financing statement
covering any of the Collateral or any proceeds thereof is on file in any public
office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants as follows:
5.1. Authority. Borrower has full power, authority and legal right to
enter into this Agreement and the Other Documents and perform all Obligations
hereunder and thereunder. The execution, delivery and performance hereof and of
the Other Documents (a) are within Borrower's corporate powers, have been duly
authorized, are not in contravention of law or the terms of Borrower's by-laws,
certificate of incorporation or other applicable documents relating to
Borrower's formation or to the conduct of Borrower's business or of any
material agreement or undertaking to which Borrower is a party or by which
Borrower is bound, and (b) will not conflict with nor result in any breach in
any of the provisions of or constitute a default under or result in the
creation of any Lien except Permitted Liens upon any asset of Borrower under
the provisions of any agreement, charter document, instrument, by-law, or other
instrument to which Borrower or its property is a party or by which it may be
bound.
5.2. Formation and Qualification. (a) Borrower is duly incorporated
and in good standing under the laws of the State of Delaware and is qualified
to do business and is in good standing in the states listed on Schedule 5.2
which constitute all states in which qualification and good standing are
necessary for Borrower to conduct its business and own its property except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect. Borrower has delivered to Agent true and complete
copies of its certificate of incorporation and by-laws and will promptly notify
Agent of any amendment or changes thereto.
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(b) The only Subsidiaries of Borrower are listed on Schedule 5.2.
5.3. Survival of Representations and Warranties. All representations
and warranties of Borrower contained in this Agreement and the Other Documents
shall be true at the time of Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by the parties thereto and the closing of the transactions described
therein or related thereto. Any misrepresentation or breach of any
representation or warranty whatsoever contained in this Agreement or the Other
Documents shall be deemed material.
5.4. Tax Returns. Borrower's federal tax identification number is
13-3220732 Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid all taxes,
assessments, fees and other governmental charges that are reflected on such
returns to be due and payable. Federal, state and local income tax returns of
Borrower have been examined and reported upon by the appropriate taxing
authority or closed by applicable statute and satisfied for all fiscal years
prior to and including the fiscal year ending July 31, 1992. The provision for
taxes on the books of Borrower are adequate for all years not closed by
applicable statutes, and for its current fiscal year, and Borrower has no
knowledge of any deficiency or additional assessment in connection therewith
not provided for on its books.
5.5. Financial Statements.
(a) The pro forma balance sheet of Borrower (the "Pro Forma
Balance Sheet") furnished to Agent on the Effective Date reflects the
consummation of the transactions contemplated by the Private Placement, the
Senior Subordinated Notes and under this Agreement (the "Transactions") and is
accurate, complete and correct in all material respects and fairly reflects the
financial condition of Borrower as of the Effective Date after giving effect to
the Transactions, and has been prepared in accordance with GAAP, consistently
applied. The Pro Forma Balance Sheet of Borrower has been certified as
accurate, complete and correct in all material respects by the President and
Chief Financial Officer of Borrower. All financial statements referred to in
this subsection 5.5(a), including the related schedules and notes thereto, have
been prepared in accordance with GAAP, except as may be disclosed in such
financial statements.
(b) The cash flow projections of Borrower and its projected
balance sheets as of the Effective Date, copies of which are annexed hereto as
Exhibit 5.5(b) (the "Projections") were prepared by the Chief Financial Officer
of Borrower, are based on underlying assumptions which provide a reasonable
basis for the projections contained therein and reflect Borrower's judgment
based on present circumstances of the most likely set of conditions and course
of action for the projected period. The cash flow Projections together with the
Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements".
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(c) The balance sheet of Borrower as of July 31, 1996, and the
related statements of income, changes in stockholder's equity, and changes in
cash flow for the period ended on such date, all accompanied by reports thereon
containing opinions without qualification by independent certified public
accountants, copies of which have been delivered to Agent, have been prepared
in accordance with GAAP, consistently applied (except for changes in
application in which such accountants concur and present fairly the financial
position of Borrower at such date and the results of their operations for such
period. Since July 31, 1996 there has been no change in the condition,
financial or otherwise, of Borrower as shown on the balance sheet as of such
date and no change in the aggregate value of machinery, equipment and Real
Property owned by Borrower, except changes in the ordinary course of business,
none of which individually or in the aggregate has been materially adverse.
5.6. Corporate Name. Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on Schedule 5.6, nor has Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5)
years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Borrower has duly complied with, and its facilities,
business, assets, property, leaseholds and Equipment are in compliance in all
material respects with, the provisions of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws; there have been no outstanding citations, notices or orders of
non-compliance issued to Borrower or relating to its business, assets,
property, leaseholds or equipment under any such laws, rules or regulations.
(b) Borrower has been issued all required federal, state and
local licenses, certificates or permits relating to all applicable
Environmental Laws.
(c) (i) There are no visible signs of releases, spills,
discharges, leaks or disposal (collectively referred to as "Releases") of
Hazardous Substances at, upon, under or within any Real Property or any
premises leased by Borrower; (ii) there are no underground storage tanks or
polychlorinated byphenyls on the Real Property or any premises leased by
Borrower; (iii) neither the Real Property nor any premises leased by Borrower
has ever been used as a treatment, storage or disposal facility of Hazardous
Waste; and (iv) no Hazardous Substances are present on the Real Property or any
premises leased by Borrower, excepting such quantities as are handled in
accordance with all applicable manufacturer's instructions and governmental
regulations and in proper storage containers and as are necessary for the
operation of the commercial business of Borrower or of its tenants.
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5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) After giving effect to the Transactions, Borrower will be
solvent, able to pay its debts as they mature, have capital sufficient to carry
on its business and all businesses in which it is about to engage, and (i) as
of the Effective Date, the fair present saleable value of its assets,
calculated on a going concern basis, is in excess of the amount of its
liabilities and (ii) subsequent to the Effective Date, the fair saleable value
of its assets (calculated on a going concern basis) will be in excess of the
amount of its liabilities.
(b) Except as disclosed in Schedule 5.8(b) or the Pro Forma
Balance Sheet, Borrower has (i) no pending or threatened litigation,
arbitration, actions or proceedings which could reasonably be expected to have
a Material Adverse Effect, and (ii) no liabilities nor indebtedness for
borrowed money.
(c) Borrower is not in violation of any applicable statute,
regulation or ordinance in any respect which could reasonably be expected to
have a Material Adverse Effect, nor is Borrower in violation of any order of
any court, governmental authority or arbitration board or tribunal.
(d) Neither Borrower nor any member of the Controlled Group
maintains or contributes to any Plan other than those listed on Schedule 5.8(d)
hereto. Except as set forth in Schedule 5.8(d), (i) no Plan has incurred any
"accumulated funding deficiency," as defined in Section 302(a)(2) of ERISA and
Section 412(a) of the Code, whether or not waived, and Borrower and each member
of the Controlled Group has met all applicable minimum funding requirements
under Section 302 of ERISA in respect of each Plan, (ii) each Plan which is
intended to be a qualified plan under Section 401(a) of the Code as currently
in effect has been determined by the Internal Revenue Service to be qualified
under Section 401(a) of the Code and the trust related thereto is exempt from
federal income tax under Section 501(a) of the Code, (iii) neither Borrower nor
any member of the Controlled Group has incurred any liability to the PBGC other
than for the payment of premiums, and there are no premium payments which have
become due which are unpaid, (iv) no Plan has been terminated by the plan
administrator thereof or by the PBGC, and there is no occurrence which would
cause the PBGC to institute proceedings under Title IV of ERISA to terminate
any Plan, (v) at this time, the current value of the assets of each Plan
exceeds the present value of the accrued benefits and other liabilities of such
Plan and neither Borrower nor any member of the Controlled Group knows of any
facts or circumstances which would materially change the value of such assets
and accrued benefits and other liabilities, (vi) neither Borrower nor any
member of the Controlled Group has breached any of the responsibilities,
obligations or duties imposed on it by ERISA with respect to any Plan, (vii)
neither Borrower nor any member of a Controlled Group has incurred any
liability for any excise tax arising under Section 4972 or 4980B of the Code,
and no fact exists which could give rise to any such liability, (viii) neither
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Borrower nor any member of the Controlled Group nor any fiduciary of, nor any
trustee to, any Plan, has engaged in a "prohibited transaction" described in
Section 406 of the ERISA or Section 4975 of the Code nor taken any action which
would constitute or result in a Termination Event with respect to any such Plan
which is subject to ERISA, (ix) Borrower and each member of the Controlled
Group has made all contributions due and payable with respect to each Plan, (x)
there exists no event described in Section 4043(b) of ERISA, for which the
thirty (30) day notice period contained in 29 CFR ss.2615.3 has not been
waived, (xi) neither Borrower nor any member of the Controlled Group has any
fiduciary responsibility for investments with respect to any plan existing for
the benefit of persons other than employees or former employees of Borrower and
any member of the Controlled Group, and (xii) neither Borrower nor any member
of the Controlled Group has withdrawn, completely or partially, from any
Multiemployer Plan so as to incur liability under the Multiemployer Pension
Plan Amendments Act of 1980.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by Borrower are set
forth on Schedule 5.9, are valid and have been duly registered or filed with
all appropriate governmental authorities and constitute all of the intellectual
property rights which are necessary for the operation of its business; there is
no objection to or pending challenge to the validity of any such material
patent, trademark, copyright, design rights tradename, trade secret or license
and Borrower is not aware of any grounds for any challenge, except as set forth
in Schedule 5.9 hereto. Each patent, patent application, patent license,
trademark, trademark application, trademark license, service mark, service mark
application, service mark license, copyright, copyright application and
copyright license owned or held by Borrower and all trade secrets used by
Borrower consists of original material or property developed by Borrower or was
lawfully acquired by Borrower from the proper and lawful owner thereof. Each of
such items has been maintained so as to preserve the value thereof from the
date of creation or acquisition thereof. With respect to all software used by
Borrower, Borrower is in possession of all source and object codes related to
each piece of software or is the beneficiary of a source code escrow agreement,
each such source code escrow agreement being listed on Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10,
Borrower (a) is in compliance with and (b) has procured and is now in
possession of, all material licenses or permits required by any applicable
federal, state, or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
except where the failure to so comply or to procure such licenses or permits
could not reasonably be expected to have a Material Adverse Effect.
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5.11. Default of Indebtedness. Borrower is not in default in the
payment of the principal of or interest on any Indebtedness or under any
instrument or agreement under or subject to which any Indebtedness has been
issued and no event has occurred under the provisions of any such instrument or
agreement which with or without the lapse of time or the giving of notice, or
both, constitutes or would constitute an event of default thereunder.
5.12. No Default. Borrower is not in default in the payment or
performance of any of its contractual obligations and no Default has occurred.
5.13. No Burdensome Restrictions. Borrower is not party to any
contract or agreement the performance of which could reasonably be expected to
have a Material Adverse Effect. Borrower has not agreed or consented to cause
or permit in the future (upon the happening of a contingency or otherwise) any
of its property, whether now owned or hereafter acquired, to be subject to a
Lien which is not a Permitted Lien.
5.14. No Labor Disputes. Borrower is not involved in any labor
dispute; there are no strikes or walkouts or union organization of any of
Borrower's employees threatened or in existence and no labor contract is
scheduled to expire during the Term other than as set forth on Schedule 5.14
hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U or
Regulation G of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect. No part of the proceeds of any Revolving
Advance will be used for "purchasing" or "carrying" "margin stock" as defined
in Regulation U of such Board of Governors.
5.16. Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. No representation or warranty made by Borrower in
this Agreement or in connection with the Private Placement, or in any financial
statement, report, certificate or any other document furnished in connection
herewith or therewith contains any untrue statement of a material fact or omits
to state any material fact necessary to make the statements herein or therein
not misleading. There is no fact known to Borrower or which reasonably should
be known to Borrower which Borrower has not disclosed to Agent in writing with
respect to the transactions contemplated by the Private Placement or this
Agreement which could reasonably be expected to have a Material Adverse Effect.
5.18. Delivery of Agreements. Agent has received complete copies of
the Mezzanine Documentation, the Additional Mezzanine
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Documentation, the Acquisition Agreement, the Bleyer Purchase Agreement, the
Chesapeake Purchase Agreement, the James River Purchase Agreement, the
Indenture, a form of a Senior Subordinated Note and the Offering Memorandum
prepared in connection with the Private Placement (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto, if any) and all amendments thereto, waivers relating thereto and other
side letters or agreements affecting the terms thereof. None of such documents
and agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, except pursuant to a written agreement or instrument which
has heretofore been delivered to Agent and consented to by Required Lenders.
5.19. Swaps. Borrower is not a party to, nor will it be a party to,
any swap agreement whereby Borrower has agreed or will agree to swap interest
rates or currencies unless same provides that damages upon termination
following an event of default thereunder are payable on an unlimited "two-way
basis" without regard to fault on the part of either party.
5.20. Conflicting Agreements. No provision of any mortgage, indenture,
contract, agreement, judgment, decree or order binding on Borrower or affecting
the Collateral or any Fixed Asset conflicts with, or requires any Consent which
has not already been obtained to, or would in any way prevent the execution,
delivery or performance of, the terms of this Agreement or the Other Documents.
5.21. Application of Certain Laws and Regulations. Neither Borrower
nor any Affiliate of Borrower is subject to any statute, rule or regulation
which regulates the incurrence of any Indebtedness, including without
limitation, statutes or regulations relative to common or interstate carriers
or to the sale of electricity, gas, steam, water, telephone, telegraph or other
public utility services.
5.22. Business and Property of Borrower. Upon and after the Effective
Date, Borrower does not propose to engage in any business other than the
manufacture of disposable paper products and activities necessary to conduct
such business. On the Effective Date, Borrower will own or lease all the
property and possess all of the rights and Consents necessary for the conduct
of the business of Borrower.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and
termination of this Agreement:
6.1. Payment of Fees. Pay to Agent on demand all usual and customary
fees and expenses which Agent incurs in connection with (a) the forwarding of
Revolving Advance proceeds and (b) the establishment and maintenance of any
Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).
Agent may, without making demand and upon one (1) day's notice to Borrower,
charge the account of Borrower for all such fees and expenses.
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6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in
its business in good working order and condition (reasonable wear and tear
excepted and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
necessary to enforce and protect the validity of any intellectual property
right or other right included in the Collateral; (b) keep in full force and
effect its existence and comply in all material respects with the laws and
regulations governing the conduct of its business where the failure to do so
could reasonably be expected to have a Material Adverse Effect; and (c) make
all such reports and pay all such franchise and other taxes and license fees
and do all such other acts and things as may be lawfully required to maintain
its rights, licenses, leases, powers and franchises under the laws of the
United States or any political subdivision thereof.
6.3. Violations. Promptly notify Agent in writing of any violation of
any law, statute, regulation or ordinance of any governmental entity, or of any
agency thereof, applicable to Borrower which could reasonably be expected to
have a Material Adverse Effect.
6.4. Government Receivables. Take all steps necessary to protect
Agent's interest in the Collateral under the Federal Assignment of Claims Act
or other applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between Borrower and the United States, any
state or any department, agency or instrumentality of any of them.
6.5. Interest Coverage Ratio. Cause to be maintained for the period
set forth below, an Interest Coverage Ratio in an amount not less than the
amount set forth opposite such period:
Interest Coverage
Period Ratio
------ -----------------
March 1, 1997 - February 28, 1998 1.75 to 1.00
and for each twelve (12) month
period ending on the last day
of February thereafter 2.00 to 1.00
6.6. Intentionally Omitted.
6.7. Intentionally Omitted.
6.8. Execution of Supplemental Instruments. Execute and deliver to
Agent from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions
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or documents relating to the Collateral, and such other instruments as Agent
may request, in order that the full intent of this Agreement may be carried
into effect.
6.9. Payment of Indebtedness. Pay, discharge or otherwise satisfy at
or before maturity (subject, where applicable, to specified grace periods and,
in the case of the trade payables, to normal payment practices) all its
obligations and liabilities of whatever nature, except when the failure to do
so could not reasonably be expected to have a Material Adverse Effect or when
the amount or validity thereof is currently being contested in good faith by
appropriate proceedings and Borrower shall have provided for such reserves as
Agent may reasonably deem proper and necessary, subject at all times to any
applicable subordination arrangement in favor of Lenders.
6.10. Standards of Financial Statements. Cause all financial
statements referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12, 9.13 and
9.14 as to those to which GAAP is applicable fairly present the financial
condition and result set forth therein (subject, in the case of interim
financial statements, to normal year-end audit adjustments) and to be prepared
in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as concurred in by such
reporting accountants or officer, as the case may be, and disclosed therein).
6.11. Exercise of Rights. Enforce all of its rights under the
Acquisition Agreement, the Bleyer Purchase Agreement, the Chesapeake Purchase
Agreement and the James River Purchase Agreement and pursue all remedies
available to it with diligence and in good faith in connection with the
enforcement of any such rights.
6.12. Intercreditor Agreements. Upon the creation, incurrence or
assumption of any Lien on any Fixed Asset now owned or hereafter acquired by
Borrower, deliver to Agent any intercreditor agreements requested by Agent with
respect to such Fixed Asset, in form and substance reasonably acceptable to
Agent, including, without limitation, mortgagee waivers and equipment use
agreements which shall, among other things, provide for the use or occupancy by
Agent of such Fixed Asset for a reasonable period of time for reasonable
consideration in order to enable Agent to maximize the amount to be realized
upon the Collateral.
6.13. Purchase Price Adjustment. Remit to Agent any adjustment in the
purchase price under any of the Acquisition Agreement, the Bleyer Purchase
Agreement, the Chesapeake Purchase Agreement or the James River Purchase
Agreement for application to the outstanding amount of Revolving Advances.
VII. NEGATIVE COVENANTS.
Borrower shall not and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, until
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satisfaction in full of the Obligations and termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
Consolidate or merge with, 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) Borrower is the surviving entity (ii) immediately after such
transaction, no Default or Event of Default exists; and (iii) except in the
case of a merger of Borrower with or into a Wholly Owned Restricted Subsidiary
of Borrower, Borrower (a) will have Consolidated Net Worth immediately after
the transaction equal to or greater than the Consolidated Net Worth of Borrower
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 Section
7.8 hereof.
7.2. Creation of Liens. 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.
7.3. Guarantees. Become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to
Lenders) except (a) the endorsement of checks in the ordinary course of
business, (b) the obligations of a Restricted Subsidiary and (c) the guaranty
of Permitted Indebtedness.
7.4. Intentionally Omitted.
7.5. Loans. Make advances, loans or extensions of credit to any Person
except with respect to (a) the extension of commercial trade credit in
connection with the sale of Inventory in the ordinary course of its business,
(b) loans to its employees in the ordinary course of business not to exceed the
aggregate amount of $350,000 at any time outstanding and (c) a loan to CEG made
for the sole purpose of satisfying its obligations to James River, in an amount
not to exceed the aggregate amount of $2,600,000.
7.6. Intentionally Omitted.
7.7. Restricted Payment. (i) Declare or pay any dividend or make any
other payment or distribution on account of Borrower's Equity Interests
(including, without limitation, any payment in connection with any merger or
consolidation involving Borrower) or to any direct or indirect holder of
Borrower's Equity Interests in its capacity as such, other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of
Borrower or dividends or distributions payable to Borrower or any Wholly Owned
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Restricted Subsidiary of Borrower (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of Borrower or any Subsidiary or other
Affiliate of Borrower, other than any such Equity Interests owned by Borrower
or any Wholly Owned Restricted Subsidiary of Borrower, (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 Senior Subordinated
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;
(b) Borrower 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 Borrower'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
Section 7.8 hereof; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by Borrower and its Restricted Subsidiaries on or
after the date of this Agreement is less than the sum of (1) 50% of the
Consolidated Net Income of Borrower for the period (taken as one accounting
period) from February 1, 1997 to the end of Borrower'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 Borrower as capital contributions or from the issue or
sale since the date of this Agreement of Equity Interests of Borrower or of
debt securities of Borrower that have been converted into such Equity Interests
(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 Borrower from the issuance of
the Senior Subordinated Notes as described on Schedule 7.7 hereto; (ii) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests held by any member of Borrower'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
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$1.0 million in any twelve-month period plus the aggregate cash proceeds
received by Borrower (or any of its Restricted Subsidiaries) during any such
twelve-month period from any issuance of Equity Interests by Borrower (or any
of its Restricted Subsidiaries to members of management of Borrower (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 this Agreement; (iv) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of Borrower
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of Borrower) of other Equity Interests of Borrower
(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; (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 Borrower) of Equity Interests of Borrower (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;
provided, further, that no Default or Event of Default shall have occurred and
be continuing immediately after such transaction.
The Board of Directors may designate any Restricted Subsidiary to be
an Unrestricted Subsidiary if such designation would not cause a Default or
Event of Default. For purposes of making such determination, all outstanding
Investments by Borrower 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 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 Borrower or
such Subsidiary, as the case may be, pursuant to the Restricted Payment. Not
later
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than the date of making any Restricted Payment, Borrower shall deliver to Agent
an Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this Section
were computed, which calculations may be based upon Borrower's latest available
financial statements.
7.8. Indebtedness. 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, Borrower and its Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) if the Fixed Charge Coverage Ratio for
Borrower'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 Borrower of Indebtedness pursuant to this
Agreement;
(ii) the incurrence by Borrower and its Restricted Subsidiaries
of Existing Indebtedness;
(iii) the incurrence by Borrower and its Restricted Subsidiaries
of Indebtedness represented by the Senior Subordinated Notes and the
Guarantees thereof by any Restricted Subsidiary pursuant to the
provisions of the Indenture;
(iv) the incurrence by Borrower 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 Borrower or such Restricted
Subsidiary, in an aggregate principal amount not to exceed $5.0
million at any one time outstanding;
(v) the incurrence by Borrower 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 Borrower or one of
its Restricted Subsidiaries and was not incurred in connection with,
or in contemplation of, such acquisition by Borrower or one of its
Restricted Subsidiaries and provided, further, that the principal
amount (or accreted value, as applicable) of such
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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
Borrower and any of its Wholly Owned Restricted Subsidiaries;
provided, that, any subsequent issuance or transfer of Equity
Interests that results in any such Indebtedness being held by a Person
other than Borrower or a Wholly Owned Restricted Subsidiary of
Borrower, or any sale or other transfer of any such Indebtedness to a
Person that is neither Borrower nor a Wholly Owned Restricted
Subsidiary of Borrower, shall be deemed to constitute an incurrence of
such Indebtedness by Borrower or such Restricted Subsidiary, as the
case may be;
(vii) the incurrence by Borrower 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 this Agreement to
be incurred;
(viii) the incurrence by Borrower'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 Borrower;
(ix) the incurrence by Borrower 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 this Agreement to
be outstanding; and
(x) the incurrence by Borrower and its Restricted Subsidiaries of
additional Indebtedness in an aggregate amount not to exceed $7.5
million at any one time outstanding.
7.9. Nature of Business. Substantially change the nature of the
business in which it is presently engaged, nor except as specifically permitted
hereby purchase or invest, directly or indirectly, in any assets or property
other than in the ordinary course of business for assets or property which are
useful in, necessary for and are to be used in its business as presently
conducted.
7.10. Transactions with Affiliates. Make payments 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
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(each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to Borrower or the relevant
Restricted Subsidiary than those that would have been obtained in comparable
transaction with an unrelated Person and (ii) Borrower delivers to the Agent
(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 Borrower
of 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, as Landlord, and Borrower, as tenant,
relating to Borrower's Jacksonville, Florida facility except for any purchases
of property by Borrower that may arise thereunder; (2) any employment agreement
entered into between any Person and Borrower or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of Borrower or such Restricted Subsidiary in an amount not to exceed
$500,000 per annum; (3) transactions between or among Borrower and its
Restricted Subsidiaries and (4) Restricted Payments and Permitted Investments
that are permitted by the provisions of this Agreement in each case shall not
be deemed Affiliate Transactions.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof)
if after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $3,750,000 in any one fiscal year.
7.12. Subsidiaries.
(a) Form, acquire or create any Subsidiary unless such newly
formed, acquired or created Subsidiary shall execute a Guarantee (a "Subsidiary
Guarantee") and deliver an opinion of counsel, each in form and substance
satisfactory to Agent and Lenders; 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 (as defined in the Indenture) of each Guarantor of the
Senior Subordinated Notes shall be subordinated in right of payment to all
Obligations of such Guarantor to Agent and
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Lenders pursuant to subordination provisions substantially similar to those
contained in the Indenture as of the Effective Date.
(b) Enter into any partnership, joint venture or similar
arrangement.
7.13. Fiscal Year and Accounting Changes. Change its fiscal year from
a 52-53 week year ending the Saturday closest to July 31 other than to a 52-53
week year ending the Saturday closest to December 31 or make any change (i) in
accounting treatment and reporting practices except as required by GAAP or (ii)
in tax reporting treatment except as required by law.
7.14. Pledge of Credit. Now or hereafter pledge any Lender's credit on
any purchases or for any purpose whatsoever or use any portion of any Revolving
Advance in or for any business other than Borrower's business as conducted on
the date of this Agreement.
7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify
or waive any term or material provision of its Articles of Incorporation or
By-Laws in a manner adverse to Lenders in their discretion.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of
the Controlled Group to maintain, or (y) become obligated to contribute, or
permit any member of the Controlled Group to become obligated to contribute, to
any Plan, other than those Plans disclosed on Schedule 5.8(d), (ii) engage, or
permit any member of the Controlled Group to engage, in any non-exempt
"prohibited transaction", as that term is defined in section 406 of ERISA and
Section 4975 of the Code, (iii) incur, or permit any member of the Controlled
Group to incur, any "accumulated funding deficiency", as that term is defined
in Section 302 of ERISA or Section 412 of the Code, (iv) terminate, or permit
any member of the Controlled Group to terminate, any Plan where such event
could result in any liability of Borrower or any member of the Controlled Group
or the imposition of a lien on the property of Borrower or any member of the
Controlled Group pursuant to Section 4068 of ERISA, (v) assume, or permit any
member of the Controlled Group to assume, any obligation to contribute to any
Multiemployer Plan not disclosed on Schedule 5.8(d), (vi) incur, or permit any
member of the Controlled Group to incur, any withdrawal liability to any
Multiemployer Plan; (vii) fail promptly to notify Agent of the occurrence of
any Termination Event, (viii) fail to comply, or permit a member of the
Controlled Group to fail to comply, with the requirements of ERISA or the Code
or other applicable laws in respect of any Plan, (ix) fail to meet, or permit
any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA or the Code or postpone or delay or allow any member
of the Controlled Group to postpone or delay any funding requirement with
respect of any Plan.
7.17. Senior Subordinated Notes. At any time, directly or indirectly,
pay, prepay, repurchase, redeem, retire or otherwise
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acquire, or make any payment on account of any principal of, interest on or
premium payable in connection with the repayment or redemption of the Senior
Subordinated Notes, as the case may be, except provided, that, so long as no
Default or Event of Default exists prior to or after giving effect to such
payment, Borrower may make regularly scheduled payments of interest on the
Senior Subordinated Notes as in effect on the Effective Date.
7.18. Prepayment of Indebtedness. Except as provided in Section 7.17
and reflected on Schedule 7.7, at any time, directly or indirectly, prepay any
Indebtedness for borrowed money (other than to Lenders), or repurchase, redeem,
retire or otherwise acquire any Indebtedness for borrowed money of Borrower.
7.19. Indebtedness under Senior Subordinated Notes. Pay interest in
cash to any holder of a Senior Subordinated Note at a per annum rate in excess
of thirteen percent (13%).
7.20. Intentionally Omitted.
7.21. Amendments to Bleyer Purchase Agreement, Chesapeake Purchase
Agreement, James River Purchase Agreement, Senior Subordinated Notes or
Indenture. Enter into any amendments to the Bleyer Purchase Agreement, the
Chesapeake Purchase Agreement, the James River Subordinated Note, the Senior
Subordinated Notes or the Indenture, or waive any conditions of closing with
respect thereto, without the prior written consent of Required Lenders.
7.22. Issuance of Capital Stock. Transfer, convey, sell or otherwise
dispose of any Capital Stock of any Restricted Subsidiary of Borrower to any
Person (other than Borrower or a Wholly Owned Restricted Subsidiary of
Borrower), unless (a) such transfer, conveyance, sale or other disposition is
of all of the Capital Stock of such Restricted Subsidiary owned by Borrower and
its Restricted Subsidiaries and (b) such transaction is conducted in accordance
with the provisions of Section 7.1 hereof and (ii) will not permit any
Restricted Subsidiary of Borrower 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 Borrower or a Wholly Owned
Restricted Subsidiary of Borrower.
7.23. Contractual Restrictions. 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 Borrower 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 Borrower or any of its Restricted
Subsidiaries, (ii) make loans or advances to Borrower or any of its Restricted
Subsidiaries or (iii) transfer any of its properties or assets to Borrower 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 this Agreement or any Permitted Refinancing Debt, (b)
this Agreement, (c) the Indenture
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and the Senior Subordinated Notes, (d) applicable law, (e) any instrument
governing Indebtedness or Capital Stock of a Person acquired by Borrower 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.
VIII. CONDITIONS PRECEDENT.
8.1. Intentionally Omitted.
8.2. Conditions to Each Revolving Advance. The agreement of Lenders to
make any Revolving Advance requested to be made on any date (including, without
limitation, its initial Revolving Advance), is subject to the satisfaction of
the following conditions precedent as of the date such Revolving Advance is
made:
(a) Representations and Warranties. Each of the representations
and warranties made by Borrower in or pursuant to this Agreement and any
related agreements to which it is a party, and each of the representations and
warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
any related agreement shall be true and correct in all material respects on and
as of such date as if made on and as of such date;
(b) No Default. No Event of Default or Default shall have
occurred and be continuing on such date, or would exist after giving effect to
the Revolving Advances requested to be made, on such date and, in the case of
the initial Revolving Advance on the Effective Date, after giving effect to the
consummation of the transactions contemplated by the Private Placement;
provided, however, that Agent on behalf of Lenders may continue to make
Revolving Advances notwithstanding the existence of an Event of Default or
Default and that any Revolving Advances so made shall not be deemed a waiver of
any such Event of Default or Default; and
(c) Maximum Revolving Advances. In the case of any Revolving
Advances requested to be made, after giving effect thereto, the aggregate
Revolving Advances shall not exceed the maximum Revolving Advances permitted
under Section 2.1 hereof.
Each request for a Revolving Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date
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of such Revolving Advance that the conditions contained in this subsection
shall have been satisfied.
8.3. Conditions of Effectiveness. This Agreement shall become
effective only upon the satisfaction, or waiver by all Lenders, of the
following conditions precedent:
(a) Notes. Agent shall have received all necessary Revolving
Credit Notes duly executed and delivered by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Agent shall have
received for the ratable benefit of Lenders all documents and instruments as
Lenders and their counsel deem appropriate in form and substance satisfactory
to Lenders in order to perfect Agent's first priority security interest in the
Collateral;
(c) Corporate Proceedings of Borrower. Agent shall have received
a copy of the resolutions in form and substance reasonably satisfactory to
Agent, of the Board of Directors of Borrower authorizing the execution,
delivery and performance of this Agreement and the Private Placement
(collectively the "Documents"); and, such certificate shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded as of the date of such certificate;
(d) No Litigation. (i) No litigation, investigation or proceeding
before or by any arbitrator or governmental authority shall be continuing or
threatened against Borrower or against the officers or directors of Borrower
(A) in connection with the Documents or any of the transactions contemplated
thereby and which, in the reasonable opinion of Lenders, is deemed material or
(B) which could, in the reasonable opinion of Lenders, have a Material Adverse
Effect; and (ii) no injunction, writ, restraining order or other order of any
nature materially adverse to Borrower or the conduct of its business or
inconsistent with the due consummation of the Transactions shall have been
issued by any governmental authority;
(e) Collateral Examination. Agent shall have completed all audits
and examinations of the Collateral and received appraisals with respect
thereto, the results of which shall be satisfactory in form and substance to
Lenders;
(f) Fees. Agent shall have received all fees payable to Agent and
Lenders on or prior to the Effective Date pursuant to Article III hereof;
(g) Pro Forma Financial Statements. Agent shall have received a
copy of the Pro Forma Financial Statements which shall be satisfactory in all
respects to Lenders;
(h) Private Placement Documents. The terms and conditions of the
Senior Subordinated Notes, the Indenture and any
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other document executed in connection with the Private Placement shall in all
respects be satisfactory to Agent;
(i) Consents. Agent shall have received any and all Consents
necessary to permit the effectuation of the transactions contemplated by the
Documents;
(j) No Adverse Material Change. (i) Since July 31, 1996 there
shall not have occurred any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect;
(k) Contract Review. Agent shall have reviewed all material
contracts of Borrower including, without limitation, the Senior Subordinated
Notes, the Indenture and all material contracts executed in connection with the
Private Placement;
(l) Borrowing Base. Agent shall have received evidence from
Borrower that the aggregate amount of Eligible Receivables and Eligible
Inventory is sufficient in value and amount to support Revolving Advances in
the amount requested by Borrower on the Effective Date;
(m) Undrawn Availability. After giving effect to the Revolving
Advances made on the Effective Date (including, without limitation Revolving
Advances for the payment of fees, and all expenses relating to the Private
Placement, if any), Borrower shall have Undrawn Availability of at least
$10,000,000 as evidenced by a borrowing base certificate executed by Borrower,
delivered to Agent and in all respects satisfactory to Agent;
(n) Adequate Cash Flow. After giving effect to the Transactions,
Borrower will be solvent, able to pay its debts as they mature, have capital
sufficient to carry on its business and all businesses in which it is about to
engage, and the fair present saleable value of its assets, calculated on a
going concern basis, will be in excess of the amount of its liabilities;
(o) Approvals. Each Lender shall have received approval from such
Lender's credit committee with respect to the Transactions;
(p) Opinions. Agent shall have received legal opinions from any
counsel requested by Agent or its counsel, all of which shall be in form and
substance satisfactory to Agent and its counsel;
(q) Compliance with Laws. Agent shall have received evidence, in
form and substance satisfactory to Agent, that Borrower is in compliance with
all applicable federal, state and local regulations except where the failure to
be in compliance in the reasonable opinion of Agent would not have a Material
Adverse Effect;
(r) Incumbency Certificates of Borrower. Agent shall have
received a certificate of the Secretary or an Assistant
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Secretary of Borrower, dated the Effective Date, as to the incumbency and
signature of the officers of Borrower executing this Agreement, any certificate
or other documents to be delivered by it pursuant hereto, together with
evidence of the incumbency of such Secretary or Assistant Secretary;
(s) Certificates. Agent shall have received a copy of the
Articles or Certificate of Incorporation of Borrower and all amendments
thereto, certified by the Secretary of State or other appropriate official of
its respective jurisdiction of incorporation together with copies of the By
Laws of Borrower and all agreements of Borrower's shareholders certified as
accurate and complete by the Secretary of Borrower;
(t) Good Standing Certificates. Agent shall have received good
standing certificates for Borrower dated not more than 25 days prior to the
Effective Date, issued by the Secretary of State or other appropriate official
of the jurisdiction of incorporation of Borrower, New York, Florida
Pennsylvania, Michigan, Vermont, Wisconsin and California;
(u) Private Placement. The Private Placement shall have been
completed by Borrower on terms and conditions satisfactory to Agent and Lenders
and Borrower shall have received proceeds equal to at least $75,000,000 from
the Private Placement;
(v) Additional Mezzanine and Mezzanine Debt. The Additional
Mezzanine Debt and the Mezzanine Debt shall have been paid in full in cash with
the proceeds of the Private Placement, the Additional Mezzanine Debt
Documentation and Mezzanine Debt Documentation shall have been irrevocably
terminated, the Additional Mezzanine Note and Mezzanine Note shall have been
cancelled and Borrower shall have delivered any instrument or document Agent
deems necessary in its sole discretion to evidence each of the foregoing;
(w) Prepayment Fee. Borrower shall have paid to Agent for the
ratable benefit of Lenders a Prepayment Fee equal to $134,120 which represents
one-half of one percent (1/2%) of the outstanding principal balance of Term
Loan A and Term Loan B as of the Effective Date;
(x) Repayment of Term Loans. Borrower shall have repaid Term Loan
A and Term Loan B in full;
(y) James River Subordinated Note. The James River Subordinated
Note shall have been satisfied in full in cash and Borrower shall have
delivered a copy of the cancelled James River Subordinated Note to Agent.
(z) Fee Letter. Borrower shall have delivered to Agent an
executed Fee Letter which is acceptable to Agent in all respects.
IX. INFORMATION AS TO BORROWER.
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Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
9.1. Disclosure of Material Matters. Immediately upon learning
thereof, report to Agent all matters materially affecting the value,
enforceability or collectibility of any portion of the Collateral including,
without limitation, Borrower's reclamation or repossession of, or the return to
Borrower of, a material amount of goods or claims or disputes asserted by any
Customer or other obligor. Borrower will not, without Agent's consent,
compromise or adjust any Receivables (or extend the time for payment thereof)
or accept any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of Borrower.
9.2. Schedules. Deliver to Agent on or before the fifteenth (15th) day
of each month as and for the prior month, signed by Borrower's Chief Financial
Officer, (a) accounts receivable ageings, (b) accounts payable schedules, (c)
Inventory reports and (d) borrowing base certificates. In addition, Borrower
will deliver to Agent at such intervals as Agent may require: (i) confirmatory
assignment schedules, (ii) copies of Customer's invoices, (iii) evidence of
shipment or delivery, and (iv) such further schedules, documents and/or
information regarding the Collateral as Agent may require including, without
limitation, trial balances and test verifications. Agent shall have the right
to confirm and verify all Receivables by any manner and through any medium it
considers advisable and do whatever it may deem reasonably necessary to protect
its interests hereunder. The items to be provided under this Section are to be
in form satisfactory to Agent and executed by Borrower and delivered to Agent
from time to time solely for Agent's convenience in maintaining records of the
Collateral, and Borrower's failure to deliver any of such items to Agent shall
not affect, terminate, modify or otherwise limit Agent's Lien with respect to
the Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently with the
delivery of the financial statements referred to in Sections 9.7 and 9.8, with
a certificate of Borrower signed by the President of Borrower stating, to the
best of his knowledge, that Borrower is in compliance in all material respects
with all federal, state and local laws relating to environmental protection and
control and occupational safety and health. To the extent Borrower is not in
compliance with the foregoing laws, the certificate shall set forth with
specificity all areas of non-compliance and the proposed action Borrower will
implement in order to achieve full compliance.
9.4. Litigation. Promptly notify Agent in writing of any litigation,
suit or administrative proceeding affecting Borrower, whether or not the claim
is covered by insurance, and of any suit or administrative proceeding, which in
any such case could reasonably be expected to have a Material Adverse Effect.
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9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any event of default
under the Senior Subordinated Notes or the Indenture; (c) any event which with
the giving of notice or lapse of time, or both, would constitute an event of
default under the Senior Subordinated Notes or the Indenture; (d) any event,
development or circumstance whereby any financial statements or other reports
furnished to Agent fail in any material respect to present fairly, in
accordance with GAAP consistently applied, the financial condition or operating
results of Borrower as of the date of such statements; (e) any accumulated
retirement plan funding deficiency which, if such deficiency continued for two
plan years and was not corrected as provided in Section 4971 of the Internal
Revenue Code, could subject Borrower to a tax imposed by Section 4971 of the
Internal Revenue Code; (f) each and every default by Borrower which might
result in the acceleration of the maturity of any Indebtedness, including the
names and addresses of the holders of such Indebtedness with respect to which
there is a default existing or with respect to which the maturity has been or
could be accelerated, and the amount of such Indebtedness; and (g) any other
development in the business or affairs of Borrower which could reasonably be
expected to have a Material Adverse Effect; in each case describing the nature
thereof and the action Borrower proposes to take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent within ninety (90)
days after the end of each fiscal year of Borrower, financial statements of
Borrower including, but not limited to, statements of income and stockholders'
equity and cash flow from the beginning of the current fiscal year to the end
of such fiscal year and the balance sheet as at the end of such fiscal year,
all prepared in accordance with GAAP applied on a basis consistent with the
prior period (except as concurred in by such reporting accountants or officers,
as the case may be, and disclosed therein), and in reasonable detail and
reported upon without qualification by an independent certified public
accounting firm selected by Borrower and satisfactory to Agent (the
"Accountants"). The report of the Accountants shall be accompanied by a
statement of the Accountants certifying that (i) they have caused this
Agreement to be reviewed, (ii) in making the examination upon which such report
was based either no information came to their attention which to their
knowledge constituted an Event of Default or a Default under this Agreement or
any related agreement or, if such information came to their attention,
specifying any such Default or Event of Default, its nature, when it occurred
and whether it is continuing, and such report shall contain or have appended
thereto calculations which set forth Borrower's compliance with the
requirements or restrictions imposed by Sections 6.5 and 7.11 hereof. In
addition, the reports shall be accompanied by a certificate of Borrower's Chief
Financial Officer which shall state that, based on an examination sufficient to
permit him to make an
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informed statement, no Default or Event of Default exists, or, if such is not
the case, specifying such Default or Event of Default, its nature, when it
occurred, whether it is continuing and the steps being taken by Borrower with
respect to such event and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5 and 7.11 hereof.
9.8. Quarterly Financial Statements. Furnish Agent within forty-five
(45) days after the end of each of the first three (3) fiscal quarters of any
fiscal year, an unaudited balance sheet of Borrower and unaudited statements of
income and stockholders' equity and cash flow of Borrower reflecting results of
operations from the beginning of the fiscal year to the end of such quarter and
for such quarter, prepared on a basis consistent with the prior period and in
accordance with GAAP, subject to normal year end adjustments. The reports shall
be accompanied by a certificate of Borrower's Chief Financial Officer which
shall state that, based on an examination sufficient to permit him to make an
informed statement, no Default or Event of Default exists, or, if such is not
the case, specifying such Default or Event of Default, its nature, when it
occurred, whether it is continuing and the steps being taken by Borrower with
respect to such event and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5 and 7.11 hereof.
9.9. Monthly Financial Statements. Furnish Agent within thirty (30)
days after the end of each month, an unaudited balance sheet of Borrower and
unaudited statements of income and stockholders' equity and cash flow of
Borrower reflecting results of operations from the beginning of the fiscal year
to the end of such month and for such month, prepared on a basis consistent
with the prior period and in accordance with GAAP, subject to normal year end
adjustments. The reports shall be accompanied by a certificate of Borrower's
Chief Financial Officer which shall state that, based on an examination
sufficient to permit him to make an informed statement, no Default or Event of
Default exists, or, if such is not the case, specifying such Default or Event
of Default, its nature, when it occurred, whether it is continuing and the
steps being taken by Borrower with respect to such event and, such certificate
shall have appended thereto calculations which set forth Borrower's compliance
with the requirements or restrictions imposed by Sections 6.5 and 7.11 hereof.
9.10. Other Reports. Furnish Agent as soon as available, but in any
event within ten (10) days after the issuance thereof, (i) with copies of such
financial statements, reports and returns as Borrower shall send to its
stockholders, (ii) copies of all notices sent pursuant to the Senior
Subordinated Notes and the Indenture including, without limitation, (x) 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 Borrower
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
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operations of Borrower and its Restricted Subsidiaries and, with respect to the
annual information only, a report thereon by Borrower's certified independent
accountants and (y) all current reports that would be required to be filed with
the Commission on form 8-K if Borrower were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, Borrower 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, Borrower has agreed that, for
so long as the Obligations remain outstanding and this Agreement remains in
effect, it will furnish to Agent upon its request, the information required to
be delivered pursuant to Rule 144A(4) under the Securities Act.
9.11. Additional Information. Furnish Agent with additional
information as Agent shall reasonably request in order to enable Agent and
Lenders to determine whether the terms, covenants, provisions and conditions of
this Agreement and the Notes have been complied with by Borrower including,
without limitation and without the necessity of any request by Agent, (a)
copies of all environmental audits and reviews, (b) at least thirty (30) days
prior thereto, notice of Borrower's opening of any new office or place of
business or Borrower's closing of any existing office or place of business, and
(c) promptly upon Borrower's learning thereof, of any labor dispute to which
Borrower may become a party, any strikes or walkouts relating to any of its
plants or other facilities, and the expiration of any labor contract to which
Borrower is a party or by which Borrower is bound.
9.12. Projected Operating Budget. Furnish Agent, on or before
September 15th of each Fiscal Year commencing with Fiscal Year 1997, a month by
month projected operating budget and cash flow of Borrower for such Fiscal Year
(including an income statement for each month and a balance sheet as at the end
of the last month in each fiscal quarter), such projections to be accompanied
by a certificate signed by Borrower's President or Chief Financial Officer to
the effect that such projections have been prepared on the basis of sound
financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness
of any material assumptions on which such projections were prepared.
9.13. Variances From Operating Budget. Furnish Agent, concurrently
with the delivery of the financial statements referred to in Section 9.7 and
each quarterly report, a written report summarizing all material variances from
budgets submitted by Borrower pursuant to Section 9.12 and a discussion and
analysis by management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt
notice of (i) any lapse or other termination of any Consent issued to Borrower
by any Governmental Body or any other Person that is material to the operation
of Borrower's business, (ii) any refusal by any Governmental Body or any other
Person to renew or
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extend any such Consent; and (iii) copies of any periodic or special reports
filed by Borrower with any Governmental Body or Person, if such reports
indicate any material change in the business, operations, affairs or condition
of Borrower, or if copies thereof are requested by Agent, and (iv) copies of
any material notices and other communications from any Governmental Body or
Person which specifically relate to Borrower.
9.15. ERISA Notices and Requests. Furnish Agent with immediate written
notice in the event that (i) Borrower or any member of the Controlled Group
knows or has reason to know that a Termination Event has occurred, together
with a written statement describing such Termination Event and the action, if
any, which Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with respect thereto and, when known, any action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (ii) Borrower or any member of the Controlled Group knows or
has reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Internal Revenue Code) has occurred together with a
written statement describing such transaction and the action which Borrower or
any member of the Controlled Group has taken, is taking or proposes to take
with respect thereto, (iii) a funding waiver request has been filed with
respect to any Plan together with all communications received by either
Borrower or any member of the Controlled Group with respect to such request,
(iv) any increase in the benefits of any existing Plan or the establishment of
any new Plan or the commencement of contributions to any Plan to which either
Borrower or any member of the Controlled Group was not previously contributing
shall occur, (v) Borrower or any member of the Controlled Group shall receive
from the PBGC a notice of intention to terminate a Plan or to have a trustee
appointed to administer a Plan, together with copies of each such notice, (vi)
Borrower or any member of the Controlled Group shall receive any favorable or
unfavorable determination letter from the Internal Revenue Service regarding
the qualification of a Plan under Section 401(a) of the Internal Revenue Code,
together with copies of each such letter; (vii) Borrower or any member of the
Controlled Group shall receive a notice regarding the imposition of withdrawal
liability, together with copies of each such notice; (viii) Borrower or any
member of the Controlled Group shall fail to make a required installment or any
other required payment under Section 412 of the Internal Revenue Code on or
before the due date for such installment or payment; (ix) Borrower or any
member of the Controlled Group knows that (a) a Multiemployer Plan has been
terminated, (b) the administrator or plan sponsor of a Multiemploy- er Plan
intends to terminate a Multiemployer Plan, or (c) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multiemployer Plan.
9.16. Additional Documents. Execute and deliver to Agent, upon
request, such documents and agreements as Agent may, from time to time,
reasonably request to carry out the purposes, terms or conditions of this
Agreement.
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X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an "Event of Default":
10.1. failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay when due any other liabilities or make
any other payment, fee or charge provided for herein or in any other Document
when due;
10.2. any representation or warranty made or deemed made by Borrower
in this Agreement or any related agreement or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made or deemed to have been made;
10.3. failure by Borrower to (i) furnish financial information when
due or when requested which is unremedied for a period of fifteen (15) days
following such request, or (ii) permit the inspection of its books or records;
10.4. issuance of a notice of Lien, levy, assessment, injunction or
attachment against a material portion of Borrower's property which is not
stayed or lifted within thirty (30) days;
10.5. failure or neglect of Borrower to perform, keep or observe any
term, provision, condition, covenant herein contained, or contained in any
other agreement or arrangement, now or hereafter entered into between Borrower
and Lenders, other than a failure or neglect of Borrower to perform, keep or
observe any term, provision, condition or covenant, contained in Sections 4.6,
4.7, 4.9, 4.11, 6.1, 6.3, 6.4, 9.4 or 9.6 hereof which is cured within the
earlier of (i) twenty (20) days after the occurrence of such failure or neglect
or (ii) ten (10) days after notice from Agent to Borrower of such failure or
neglect;
10.6. any judgment is rendered or judgment liens filed against
Borrower for an amount in excess of $250,000 which within forty (40) days of
such rendering or filing is not either satisfied, stayed or discharged of
record unless they are being contested in good faith and by appropriate
proceedings and with respect to which proper reserves satisfactory to Agent
have been taken by Borrower;
10.7. Borrower shall (i) apply for, consent to or suffer the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of creditors,
(iii) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (iv) be adjudicated a bankrupt or insolvent, (v)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vi) acquiesce to, or fail to
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have dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) take any action for the
purpose of effecting any of the foregoing;
10.8. Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;
10.9. any Restricted Subsidiary of Borrower shall (i) apply for,
consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (ii) admit in writing its inability,
or be generally unable, to pay its debts as they become due or cease operations
of its present business, (iii) make a general assignment for the benefit of
creditors, (iv) commence a voluntary case under any state or federal bankruptcy
laws (as now or hereafter in effect), (v) be adjudicated a bankrupt or
insolvent, (vi) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (viii) take any action for the
purpose of effecting any of the foregoing;
10.10. any change in Borrower's condition or affairs (financial or
otherwise) which has a Material Adverse Effect;
10.11. any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest (other than Permitted Liens constituting
those Liens referenced in (vi) of the definition thereof);
10.12. an event of default has occurred and been declared under the
Indenture or Senior Subordinated Notes, as the case may be, which default shall
not have been cured or waived within any applicable grace period and for which
the Trustee or any holder of the Senior Subordinated Notes is permitted to take
action under the Indenture or the Senior Subordinated Notes, as the case may
be;
10.13. Intentionally Omitted.
10.14. a default of the obligations of Borrower under any other
agreement to which it is a party shall occur which adversely affects its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;
10.15. any Change of Control or the occurrence of an Excess Proceeds
Offer Triggering Event under the Indenture;
10.16. any material provision of this Agreement shall, for any reason,
cease to be valid and binding on Borrower, or Borrower shall so claim in
writing to Agent;
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10.17. (i) any Governmental Body shall (A) revoke, terminate, suspend
or adversely modify any license, permit, patent trademark or tradename of
Borrower, the continuation of which is material to the continuation of
Borrower's business, or (B) commence proceedings to suspend, revoke, terminate
or adversely modify any such license, permit, trademark, tradename or patent
and such proceedings shall not be dismissed or discharged within sixty (60)
days, or (c) schedule or conduct a hearing on the renewal of any license,
permit, trademark, tradename or patent necessary for the continuation of
Borrower's business and the staff of such Governmental Body issues a report
recommending the termination, revocation, suspension or material, adverse
modification of such license, permit, trademark, tradename or patent; (ii) any
agreement which is necessary or material to the operation of Borrower's
business shall be revoked or terminated and not replaced by a substitute
acceptable to Agent within thirty (30) days after the date of such revocation
or termination, and such revocation or termination and non-replacement would
reasonably be expected to have a Material Adverse Effect;
10.18. any portion of the Collateral or any Fixed Assets shall be
seized or taken by a Governmental Body, or Borrower or the title and rights of
Borrower or any Original Owner which is the owner of any material portion of
the Collateral or any Fixed Asset shall have become the subject matter of
litigation which might, in the opinion of Lenders, upon final determination,
result in impairment or loss of the security provided by this Agreement or the
Other Documents;
10.19. the operations of any of Borrower's manufacturing facilities
are interrupted at any time for more than a period of fifteen (15) consecutive
days (other than Borrower's manufacturing facilities located in (a) Maspeth,
New York and Jacksonville, Florida for which the period shall be thirty (30)
consecutive days and (b) Three Rivers, Michigan), unless Borrower shall (i) be
entitled to receive for such period of interruption, proceeds of business
interruption insurance sufficient to assure that its per diem cash needs during
such period is at least equal to its average per diem cash needs for the
consecutive three month period immediately preceding the initial date of
interruption and (ii) receive such proceeds in the amount described in clause
(i) preceding not later than thirty (30) days following the initial date of any
such interruption; provided, however, that notwithstanding the provisions of
clauses (i) and (ii) of this section, an Event of Default shall be deemed to
have occurred if Borrower shall be receiving the proceeds of business
interruption insurance for a period of ninety (90) consecutive days;
10.20. an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist with respect to any Plan and, as a result of such event or
condition, together with all other such events or conditions, Borrower or any
member of the Controlled Group shall incur, or in the opinion of Agent be
reasonably likely to incur, a liability to a Plan or the PBGC (or both) which,
in the reasonable judgment of Lenders, would have a Material Adverse Effect; or
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10.21. the common or capital stock of Borrower shall be pledged by
Original Owner to a third party other than to Agent for the ratable benefit of
Lenders.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
11.1. Rights and Remedies. Upon the occurrence of (i) an Event of
Default pursuant to Section 10.7 all Obligations shall be immediately due and
payable and this Agreement and the obligation of Lenders to make Revolving
Advances shall be deemed terminated; and, (ii) any of the other Events of
Default and at any time thereafter (such default not having previously been
cured), at the option of Required Lenders all Obligations shall be immediately
due and payable and Lenders shall have the right to terminate this Agreement
and to terminate the obligation of Lenders to make Revolving Advances and (iii)
a filing of a petition against Borrower in any involuntary case under any state
or federal bankruptcy laws the obligation of Lenders to make Revolving Advances
hereunder shall be terminated other than as may be required by an appropriate
order of the bankruptcy court having jurisdiction over Borrower. Upon the
occurrence of any Event of Default, Agent shall have the right to exercise any
and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize
upon any Collateral by any available judicial procedure and/or to take
possession of and sell any or all of the Collateral with or without judicial
process. Agent may enter any of Borrower's premises or other premises without
legal process and without incurring liability to Borrower therefor, and Agent
may thereupon, or at any time thereafter, in its discretion without notice or
demand, take the Collateral and remove the same to such place as Agent may deem
advisable and Agent may require Borrower to make the Collateral available to
Agent at a convenient place. With or without having the Collateral at the time
or place of sale, Agent may sell the Collateral, or any part thereof, at public
or private sale, at any time or place, in one or more sales, at such price or
prices, and upon such terms, either for cash, credit or future delivery, as
Agent may elect. Except as to that part of the Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Agent shall give Borrower reasonable notification of such
sale or sales, it being agreed that in all events written notice mailed to
Borrower at least five (5) days prior to such sale or sales is reasonable
notification. At any public sale Agent or any Lender may bid for and become the
purchaser, and Agent, any Lender or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by Borrower. In connection with
the exercise of the foregoing remedies, Agent is granted permission to use all
of Borrower's (a) trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with Inventory for the purpose of disposing of such
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Inventory and (b) Equipment for the purpose of completing the manufacture of
unfinished goods. The proceeds realized from the sale of any Collateral shall
be applied as follows: first, to the reasonable costs, expenses and attorneys'
fees and expenses incurred by Agent for collection and for acquisition,
completion, protection, removal, storage, sale and delivery of the Collateral;
second, to interest due upon any of the Obligations; and, third, to the
principal of the Obligations. If any deficiency shall arise, Borrower shall
remain liable to Agent and Lenders therefor.
11.2. Agent's Discretion. Agent shall have the right in its sole
discretion to determine which rights, Liens, security interests or remedies
Agent may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any
Lender may have under applicable law, upon the occurrence of an Event of
Default hereunder, Agent and such Lender shall have a right to apply any of
Borrower's property held by Agent and such Lender to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall
be cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of non-payment
of any of the Receivables, demand, presentment, protest and notice thereof with
respect to any and all instruments, notice of acceptance hereof, notice of
loans or advances made, credit extended, Collateral received or delivered, or
any other action taken in reliance hereon, and all other demands and notices of
any description, except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
12.3. Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR
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TORT OR OTHERWISE AND EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and
shall be binding upon the respective successors and permitted assigns of each
of Borrower, Agent and each Lender, shall become effective on the date hereof
and shall continue in full force and effect through March 31, 2000 ("Term")
unless sooner terminated as herein provided. Borrower may terminate this
Agreement at any time upon ninety (90) days' prior written notice (the
effective date of such termination the "Termination Date") upon payment in full
of the Obligations; provided, however, Borrower shall pay to Agent for the
ratable benefit of Lenders a fee equal to (a) two percent (2.00%) of the
Maximum Loan Amount if the Termination Date occurs from the Closing Date to and
including the date immediately preceding the second anniversary of the Closing
Date and (b) one percent (1.00%) of the Maximum Loan Amount if the Termination
Date occurs from the second anniversary of the Closing Date to and including
the date immediately preceding the third anniversary of the Closing Date.
13.2. Termination. The termination of the Agreement shall not affect
any of Borrower's, Agent's or any Lender's rights, or any of the Obligations
having their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully
disposed of, concluded or liquidated. The security interests, Liens and rights
granted to Agent and Lenders hereunder and the financing statements filed
hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrower's Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of Borrower have been paid or performed in full after the
termination of this Agreement or Borrower has furnished Agent and Lenders with
an indemnification satisfactory to Agent and Lenders with respect thereto.
Accordingly, Borrower waives any rights which it may have under Section
9-404(1) of the Uniform Commercial Code to demand the filing of termination
statements with respect to the Collateral, and Agent shall not be required to
send such termination statements to Borrower, or to file them with any filing
office, unless and until this Agreement shall have been terminated in
accordance with its terms and all Obligations paid in full in immediately
available funds. All representations, warranties, covenants, waivers and
agreements contained herein shall survive termination hereof until all
Obligations are paid or performed in full.
XIV. REGARDING AGENT.
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14.1. Appointment. Each Lender hereby designates IBJS to act as Agent
for such Lender under this Agreement and the Other Documents. Each Lender
hereby irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such
powers and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto and Agent shall hold all
Collateral, payments of principal and interest, fees (except the fees set forth
in Section 3.2(a) and 3.3), charges and collections (without giving effect to
any collection days) received pursuant to this Agreement, for the ratable
benefit of Lenders. Agent may perform any of its duties hereunder by or through
its agents or employees. As to any matters not expressly provided for by this
Agreement (including without limitation, collection of the Note) Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Required
Lenders, and such instructions shall be binding; provided, however, that Agent
shall not be required to take any action which exposes Agent to liability or
which is contrary to this Agreement or the Other Documents or applicable law
unless Agent is furnished with an indemnification reasonably satisfactory to
Agent with respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their gross (not mere) negligence or
willful misconduct or gross (not mere) negligence, or (ii) responsible in any
manner for any recitals, statements, representations or warranties made by
Borrower or any officer thereof contained in this Agreement, or in any of the
Other Documents or in any certificate, report, statement or other document
referred to or provided for in, or received by Agent under or in connection
with, this Agreement or any of the Other Documents or for the value, validity,
effectiveness, genuineness, due execution enforceability or sufficiency of this
Agreement, or any of the Other Documents or for any failure of Borrower to
perform its obligations hereunder. Agent shall not be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any of
the Other Documents, or to inspect the properties, books or records of
Borrower. The duties of Agent as respects the Revolving Advances to Borrower
shall be mechanical and administrative in nature; Agent shall not have by
reason of this Agreement a fiduciary relationship in respect of any Lender; and
nothing in this Agreement, expressed or implied, is intended to or shall be so
construed as to impose upon Agent any obligations in respect of this Agreement
except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and
without reliance upon Agent or any other Lender,
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each Lender has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of Borrower in connection
with the making and the continuance of the Revolving Advances hereunder and the
taking or not taking of any action in connection herewith, and (ii) its own
appraisal of the creditworthiness of Borrower. Agent shall have no duty or
responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto, whether
coming into its possession before making of the Revolving Advances or at any
time or times thereafter except as shall be provided by Borrower pursuant to
the terms hereof. Agent shall not be responsible to any Lender for any
recitals, statements, information, representations or warranties herein or in
any agreement, document, certificate or a statement delivered in connection
with or for the execution, effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Other
Document, or of the financial condition of Borrower, or be required to make any
inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement, the Note, the Other Documents or
the financial condition of Borrower, or the existence of any Event of Default
or any Default.
Agent may resign on sixty (60) days' written notice to each of Lenders
and Borrower and upon such resignation, the Required Lenders will promptly
designate a successor Agent reasonably satisfactory to Borrower.
Any such successor Agent shall succeed to the rights, powers and
duties of Agent, and the term "Agent" shall mean such successor agent effective
upon its appointment, and the former Agent's rights, powers and duties as Agent
shall be terminated, without any other or further act or deed on the part of
such former Agent. After any Agent's resignation as Agent, the provisions of
this Article XIV shall inure to its benefit as to any actions taken or omitted
to be taken by it while it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions
from Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled
to refrain from such act or taking such action unless and until Agent shall
have received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance
with the instructions of the Required Lenders.
Agent may consult with legal counsel selected by it in connection with
matters arising under this Agreement or any of the Other Documents and any
action taken or suffered in good faith by it in accordance with the opinion of
such counsel shall be full justification and protection to it. Agent may
exercise any of its powers and rights and perform any duty under this Agreement
or any of the Other Documents through agents or attorneys.
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14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with
respect to all legal matters pertaining to this Agreement and the Other
Documents and its duties hereunder, upon advice of counsel selected by it.
Agent may employ agents and attorneys-in-fact and shall not be liable for the
default or misconduct of any such agents or attorneys-in-fact selected by Agent
with reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder or
under the Other Documents, unless Agent has received notice from a Lender or
Borrower referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice, Agent shall give
notice thereof to Lenders. Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Revolving Advances (or, if no
Revolving Advances are outstanding, according to its Commitment Percentage),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Agent in performing its duties hereunder, or in any way relating to or
arising out of this Agreement or any Other Loan Document; provided that,
Lenders shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross (not mere) negligence or willful
misconduct or gross (not mere) negligence.
14.8. Agent in its Individual Capacity. With respect to the obligation
of Agent to lend under this Agreement, the Revolving Advances made by it shall
have the same rights and powers hereunder as any other Lender and as if it were
not performing the duties as Agent specified herein; and the term "Lender" or
any similar term shall, unless the context clearly otherwise indicates, include
Agent in its individual capacity as a Lender. Agent may engage in business with
Borrower as if it were not performing the duties specified herein, and may
accept fees and other consideration from Borrower for services in connection
with this Agreement or otherwise without having to account for the same to
Lenders.
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14.9. Delivery of Documents. To the extent Agent receives documents
and information from Borrower pursuant to the terms of this Agreement, Agent
will promptly furnish such documents and information to Lenders.
14.10. Borrower's Undertaking to Agent. Without prejudice to their
respective obligations to Lenders under the other provisions of this Agreement,
Borrower hereby undertakes with Agent to pay to Agent from time to time on
demand all amounts from time to time due and payable by it for the account of
Agent or Lenders or any of them pursuant to this Agreement to the extent not
already paid. Any payment made pursuant to any such demand shall pro tanto
satisfy Borrower's obligations to make payments for the account of Lenders or
the relevant one or more of them pursuant to this Agreement.
XIV. MISCELLANEOUS.
15.1. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement
or any related agreement may be brought in any court of competent jurisdiction
in the State of New York, United States of America, and, by execution and
delivery of this Agreement, Borrower accepts for itself and in connection with
its properties, generally and unconditionally, the non-exclusive jurisdiction
of the aforesaid courts, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. Nothing herein shall affect
the right to serve process in any manner permitted by law or shall limit the
right of Lenders to bring proceedings against Borrower in the courts of any
other jurisdiction. Borrower waives any objection to jurisdiction and venue of
any action instituted hereunder and shall not assert any defense based on lack
of jurisdiction or venue or based upon forum non conveniens. Any judicial
proceeding by Borrower against Lenders involving, directly or indirectly, any
matter or claim in any way arising out of, related to or connected with this
Agreement or any related agreement, shall be brought only in a federal or state
court located in the City of New York, State of New York.
15.2. Entire Understanding. (a) This Agreement and the documents
executed concurrently herewith contain the entire understanding between
Borrower, Agent and each Lender and supersedes all prior agreements and
understandings, if any, relating to the subject matter hereof. Any promises,
representations, warranties or guarantees not herein contained or hereafter
made shall have no force and effect unless in writing, and executed by the
party or parties making such representations, warranties or guaranties. Neither
this Agreement nor any portion or provisions hereof may be changed, modified,
amended, waived, supplemented, discharged, cancelled or terminated orally or by
any course of dealing, or in any manner other than by an agreement in writing,
signed by the party to be charged. Borrower acknowledges
- 83 -
<PAGE>
that it has been advised by counsel in connection with the execution of this
Agreement and Other Documents and is not relying upon oral representations or
statements inconsistent with the terms and provisions of this Agreement.
(b) The Required Lenders, Agent with the consent in writing of
the Required Lenders, and Borrower may, subject to the provisions of this
Section 15.2(b), from time to time enter into written supplemental agreements
to this Agreement, the Notes or the Other Documents executed by Borrower, for
the purpose of adding or deleting any provisions or otherwise changing, varying
or waiving in any manner the rights of Lenders, Agent or Borrower thereunder or
the conditions, provisions or terms thereof or waiving any Event of Default
thereunder, but only to the extent specified in such written agreements;
provided, however, that no such supplemental agreement shall, without the
consent of all Lenders:
(i) increase the Commitment Percentage or Maximum Revolving Loan
Commitment;
(ii) increase any of the Revolving Advance Rates to in excess of (x)
85% with respect to the Receivables Advance Rate and (y) 60% with
respect to the Inventory Advance Rate and Agent acknowledges that the
limitations contained in this Section 15(b)(ii) shall apply to Section
2.1(b) hereof;
(iii) extend the maturity of any Note or the due date for any amount
payable hereunder, or decrease the rate of interest or reduce any fee
payable by Borrower to Lenders pursuant to this Agreement;
(iv) release any of the Collateral (other than permitted hereunder);
(v) alter the definition of the term Required Lenders or alter, amend
or modify this Section 15.2(b); or
(vi) change the rights and duties of Agent.
Any such supplemental agreement shall apply equally to each of
Lenders and shall be binding upon Borrower, Lenders and Agent and all
future holders of the Obligations. In the case of any waiver,
Borrower, Agent and Lenders shall be restored to their former
positions and rights, and any Event of Default waived shall be deemed
to be cured and not continuing, but no waiver of a specific Event of
Default shall extend to any subsequent Event of Default (whether or
not the subsequent Event of Default is the same as the Event of
Default which was waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit
of Borrower, Agent, each Lender, all future holders of the Note and their
respective successors and assigns, except
- 84 -
<PAGE>
that Borrower may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of Agent and each Lender.
(b) Borrower acknowledges that in the regular course of
commercial banking business one or more Lenders may at any time and from time
to time sell participating interests in the Revolving Advances to other
financial institutions (each such transferee or purchaser of a participating
interest, a "Transferee"). Each Transferee may exercise all rights of payment
(including without limitation rights of set-off) with respect to the portion of
such Revolving Advances held by it or other Obligations payable hereunder as
fully as if such Transferee were the direct holder thereof provided, that,
Borrower shall not be required to pay to any Transferee more than the amount
which it would have been required to pay to Lender which granted an interest in
its Revolving Advances or other Obligations payable hereunder to such
Transferee had such Lender retained such interest in the Revolving Advances
hereunder or other Obligations payable hereunder and in no event shall Borrower
be required to pay any such amount arising from the same circumstances and with
respect to the same Revolving Advances or other Obligations payable hereunder
to both such Lender and such Transferee. Borrower hereby grants to any
Transferee a continuing security interest in any deposits, moneys or other
property actually or constructively held by such Transferee as security for the
Transferee's interest in the Revolving Advances.
(c) Any Lender may sell, assign or transfer all or any part of
its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Revolving Advances hereunder (each a
"Purchasing Lender"), in minimum amounts of not less than $5,000,000, pursuant
to a Commitment Transfer Supplement, executed by a Purchasing Lender, the
transferor Lender, and Agent and delivered to Agent for recording. Upon such
execution, delivery, acceptance and recording, from and after the transfer
effective date determined pursuant to such Commitment Transfer Supplement, (i)
Purchasing Lender thereunder shall be a party hereto and, to the extent
provided in such Commitment Transfer Supplement, have the rights and
obligations of a Lender thereunder with a Commitment Percentage and Maximum
Revolving Loan Commitment as set forth therein, and (ii) the transferor Lender
thereunder shall, to the extent provided in such Commitment Transfer
Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
and Maximum Revolving Loan Commitments arising from the purchase by such
Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents. Borrower hereby
consents to the addition of such Purchasing Lender and the resulting adjustment
of the Commitment Percentages and Maximum Revolving Loan Commitments arising
from the purchase by such
- 85 -
<PAGE>
Purchasing Lender of all or a portion of the rights and obligations of such
transferor Lender under this Agreement and the Other Documents, and Borrower
hereby agrees that it shall fully cooperate to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of each Commitment
Transfer Supplement delivered to it and a register (the "Register") for the
recordation of the names and addresses of the Revolving Advances owing to each
Lender from time to time. The entries in the Register shall be conclusive, in
the absence of manifest error, and Borrower, Agent and Lenders may treat each
Person whose name is recorded in the Register as the owner of the Revolving
Advance recorded therein for the purposes of this Agreement. The Register shall
be available for inspection by Borrower or any Lender at any reasonable time
and from time to time upon reasonable prior notice. Agent shall receive a fee
in the amount of $2,500 payable by the applicable Purchasing Lender upon the
effective date of each transfer or assignment to such Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to any Transferee
or Purchasing Lender and any prospective Transferee or Purchasing Lender any
and all financial information in such Lender's possession concerning Borrower
which has been delivered to such Lender by or on behalf of Borrower pursuant to
this Agreement or in connection with such Lender's credit evaluation of
Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or
proceeds of the Collateral for Borrower's benefit, which are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
to be repaid to a trustee, debtor in possession, receiver, custodian or any
other party under any bankruptcy law, common law or equitable cause, then, to
such extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
Agent or such Lender.
15.5. Indemnity. Borrower shall indemnify Agent and each Lender and
each of their respective officers, directors, employees, and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Agent or any
Lender in any litigation, proceeding or investigation instituted or conducted
by any governmental agency or instrumentality or any other Person with respect
to any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement, whether or not Agent or any Lender is a
party thereto, except to the extent that any of the foregoing arises out of the
willful misconduct of the party being indemnified.
- 86 -
<PAGE>
15.6. Survival. The obligations of Borrower under Sections 2.2(f),
3.6, 3.7, 3.8, 4.19, 14.7 and 15.5 and of Lenders under Section 14.7 shall
survive termination of this Agreement and the Other Documents and payment in
full of the Obligations.
15.7. Notice. Any notice or request hereunder may be given to Borrower
or to Agent or any Lender at their respective addresses set forth below or at
such other address as may hereafter be specified in a notice designated as a
notice of change of address under this Section. Any notice or request hereunder
shall be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested, (d) telex or telegram, subsequently
confirmed by registered or certified mail, or (e) telecopy to the number set
out below (or such other number as may hereafter be specified in a notice
designated as a notice of change of address) with telephone communication to a
duly authorized officer of the recipient confirming its receipt as subsequently
confirmed by registered or certified mail. Any notice or other communication
required or permitted pursuant to this Agreement shall be deemed given (a) when
personally delivered to any officer of the party to whom it is addressed, (b)
on the earlier of actual receipt thereof or three (3) days following posting
thereof by certified or registered mail, postage prepaid, or (c) upon actual
receipt thereof when sent by a recognized overnight delivery service or (d)
upon actual receipt thereof when sent by telecopier to the number set forth
below with telephone communication confirming receipt and subsequently
confirmed by registered, certified or overnight mail to the address set forth
below, in each case addressed to each party at its address set forth below or
at such other address as has been furnished in writing by a party to the other
by like notice:
(A) If to Agent or IBJ Schroder Bank & Trust Company
IBJS at: One State Street
New York, New York 10004
Attention: Alfred Scoyni
Telephone: (212) 858-2020
Telecopier: (212) 858-2151
with a copy to: Hahn & Hessen LLP
350 Fifth Avenue
New York, New York 10118
Attention: Steven J. Seif, Esq.
Telephone: (212) 736-1000
Telecopier: (212) 594-7167
(B) If to a Lender other than Agent, as specified on the
signature pages hereof
(C) If to Borrower, at: The Fonda Group, Inc.
27 Lower Newton Street
St. Albans, Vermont 05478
Attention: Thomas Uleau
Telephone: (802) 524-5966
Telecopier: (802) 527-2591
- 87 -
<PAGE>
with a copy to: The Fonda Group, Inc.
c/o Four M Corporation
115 Stevens Avenue
Valhalla, New York 10595
Attention: Harvey L. Friedman,
Esq.
Telephone: (914) 749-3202
Telecopier: (914) 749-3280
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated
thereby and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees and disbursements incurred by Agent, Agent on behalf
of Lenders and Lenders (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection with
the entering into, modification, amendment, administration and enforcement of
this Agreement or any consents or waivers hereunder and all related agreements,
documents and instruments, or (c) in instituting, maintaining, preserving,
enforcing and foreclosing on Agent's security interest in or Lien on any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent's or any Lender's transactions with Borrower, or (e) in connection
with any advice given to Agent or any Lender with respect to its rights and
obligations under this Agreement and all related agreements, may be charged to
Borrower's Account and shall be part of the Obligations.
15.10. Injunctive Relief. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lenders; therefore, Agent, if Agent so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the
necessity of proving that actual damages are not an adequate remedy.
15.11. Consequential Damages. Neither Agent nor any agent or attorney
for any of them shall be liable to Borrower for consequential damages arising
from any breach of contract, tort or other wrong relating to the establishment,
administration or collection of the Obligations.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be
interpreted as part of this Agreement.
15.13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the same
instrument. Any signature delivered by a party by
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<PAGE>
facsimile transmission shall be deemed to be an original signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction
to the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or any
amendments, schedules or exhibits thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 89 -
<PAGE>
15.15. Publicity. Borrower hereby authorizes Agent to make appropriate
announcements of the financial arrangement entered into by and among Borrower,
Agent and Lenders, including, without limitation, announcements which are
commonly known as tombstones, in such publications and to such selected parties
as Agent shall in its discretion deem appropriate.
Each of the parties has signed this Agreement as of the day and year
first above written.
THE FONDA GROUP, INC.
By:________________________________
Name:___________________________
Title:__________________________
27 Lower Newton Street
St. Albans, Vermont 05478
IBJ SCHRODER BANK & TRUST COMPANY, as Lender and
as Agent
By:_______________________________
Name: Alfred J. Scoyni
Title: Vice President
One State Street
New York, New York 10004
Commitment Percentage: 33.04198524%
NATIONAL CITY COMMERCIAL FINANCE, INC., as Lender
By:_______________________________
Name:__________________________
Title:_________________________
1900 East Ninth Street
Cleveland, Ohio 44114
Commitment Percentage: 30.00000000%
[SIGNATURES CONTINUED ON NEXT PAGE]
<PAGE>
BTM CAPITAL CORPORATION
(F/K/A BOT FINANCIAL CORPORATION), as Lender
By:_______________________________
Name:__________________________
Title:_________________________
125 Summer Street
Boston, Massachusetts 02110
Commitment Percentage: 18.47900738%
SIGNET BANK, as Lender
By:_______________________________
Name:__________________________
Title:_________________________
7 North Eight Street
Richmond, Virginia 23219
Commitment Percentage: 18.47900738%
<PAGE>
EXHIBITS AND SCHEDULES
----------------------
Exhibits
Exhibit 2.1(a) Form of Fourth Amended and Restated
Revolving Credit Note
Exhibit 5.5(b) Projections
Exhibit 8.1(i) Financial Condition Certificate
Exhibit 15.3 Form of Commitment Transfer Supplement
Schedules
Schedule 1.2 Permitted Liens
Schedule 4.5 Locations of Equipment and Inventory
Schedule 5.2 Qualification and Subsidiaries
Schedule 5.6 Corporate Name
Schedule 5.8(b) Pending Litigation
Schedule 5.8(d) ERISA Matters
Schedule 5.9 Patents, Trademarks, Copyrights and
Licenses
Schedule 5.10 Licenses and Permits
Schedule 5.14 Labor Disputes
Schedule 7.7 Use of Proceeds
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On this ____ day of February, 1997, before me personally came
___________________, to me known, who, being by me duly sworn, did depose and
say that he is a _______________________ 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.
------------------------------
NOTARY PUBLIC
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this ____ day of February, 1997, before me personally came
Alfred J. Scoyni, to me known, who, being by me duly sworn, did depose and say
that he is a Vice President of IBJ Schroder Bank & Trust Company, the
corporation described in and which executed the foregoing instrument and that
he signed his name thereto by order of the board of directors of said
corporation.
------------------------------
NOTARY PUBLIC
STATE OF )
) ss.
COUNTY OF )
On this ____ day of February, 1997, before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he is a ______________ of National City Commercial Finance, Inc., the
corporation described in and which executed the foregoing instrument and that
he signed his name thereto by order of the board of directors of said
corporation.
------------------------------
NOTARY PUBLIC
<PAGE>
STATE OF )
) ss.
COUNTY OF )
On this ____ day of February, 1997, before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he is a ______________ of BTM Capital Corporation (f/k/a/ BOT Financial
Corporation), the corporation described in and which executed the foregoing
instrument and that he signed his name thereto by order of the board of
directors of said corporation.
------------------------------
NOTARY PUBLIC
STATE OF )
) ss.
COUNTY OF )
On this ____ day of February, 1997, before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that he is a ______________ of Signet Bank, the corporation described in and
which executed the foregoing instrument and that he signed his name thereto by
order of the board of directors of said corporation.
------------------------------
NOTARY PUBLIC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
I. DEFINITIONS...........................................................................................- 2 -
1.1. Accounting Terms........................................................................- 2 -
1.2. General Terms...........................................................................- 2 -
1.3. Uniform Commercial Code Terms..........................................................- 27 -
1.4. Certain Matters of Construction........................................................- 27 -
II. REVOLVING ADVANCES, PAYMENTS.........................................................................- 27 -
2.1. (a) Revolving Advances..........................................................- 27 -
(b) Discretionary Rights........................................................- 28 -
2.2. Procedure for Revolving Advances Borrowing.............................................- 28 -
2.3. Disbursement of Revolving Advance Proceeds.............................................- 30 -
2.4. Intentionally Omitted..................................................................- 30 -
2.5. Maximum Revolving Advances.............................................................- 30 -
2.6. Repayment of Revolving Advances........................................................- 30 -
2.7. Repayment of Excess Revolving Advances.................................................- 31 -
2.8. Statement of Account...................................................................- 31 -
2.9. Additional Payments....................................................................- 31 -
2.10. Manner of Borrowing and Payment........................................................- 31 -
2.11. Mandatory Prepayments..................................................................- 33 -
2.12. Optional Prepayment....................................................................- 33 -
2.13. Use of Proceeds........................................................................- 34 -
III. INTEREST AND FEES....................................................................................- 34 -
3.1. Interest...............................................................................- 34 -
3.2. (a) Fee Letter..................................................................- 34 -
(b) Facility Fee................................................................- 34 -
3.3. (a) Intentionally Omitted.......................................................- 34 -
(b) Collateral Monitoring Fee...................................................- 34 -
3.4. Computation of Interest and Fees.......................................................- 35 -
3.5. Maximum Charges........................................................................- 35 -
3.6. Increased Costs........................................................................- 35 -
3.7. Basis For Determining Interest Rate Inadequate
or Unfair..............................................................................- 36 -
3.8. Capital Adequacy.......................................................................- 37 -
IV. COLLATERAL: GENERAL TERMS...........................................................................- 37 -
4.1. Security Interest in the Collateral....................................................- 37 -
4.2. Perfection of Security Interest........................................................- 38 -
4.3. Disposition of Collateral..............................................................- 38 -
4.4. Preservation of Collateral.............................................................- 38 -
4.5. Ownership of Collateral................................................................- 39 -
4.6. Defense of Agent's and Lenders' Interests..............................................- 39 -
4.7. Books and Records......................................................................- 40 -
4.8. Financial Disclosure...................................................................- 40 -
4.9. Compliance with Laws...................................................................- 40 -
4.10. Inspection of Premises.................................................................- 41 -
4.11. Insurance..............................................................................- 41 -
4.12. Failure to Pay Insurance...............................................................- 42 -
4.13. Payment of Taxes.......................................................................- 42 -
4.14. Payment of Leasehold Obligations.......................................................- 42 -
4.15. Receivables............................................................................- 42 -
(a) Nature of Receivables.......................................................- 43 -
(b) Solvency of Customers.......................................................- 43 -
(c) Locations of Borrower.......................................................- 43 -
<PAGE>
(d) Collection of Receivables...................................................- 43 -
(e) Notification of Assignment of
Receivables.................................................................- 43 -
(f) Power of Agent to Act on Borrower's
Behalf......................................................................- 43 -
(g) No Liability................................................................- 44 -
(h) Establishment of a Lockbox Account,
Dominion Account............................................................- 44 -
(i) Adjustments.................................................................- 45 -
4.16. Inventory..............................................................................- 45 -
4.17. Maintenance of Equipment...............................................................- 45 -
4.18. Exculpation of Liability...............................................................- 45 -
4.19. Environmental Matters..................................................................- 46 -
V. REPRESENTATIONS AND WARRANTIES.......................................................................- 48 -
5.1. Authority..............................................................................- 48 -
5.2. Formation and Qualification............................................................- 48 -
5.3. Survival of Representations and Warranties.............................................- 49 -
5.4. Tax Returns............................................................................- 49 -
5.5. Financial Statements...................................................................- 49 -
5.6. Corporate Name.........................................................................- 50 -
5.7. O.S.H.A. and Environmental Compliance..................................................- 50 -
5.8. Solvency; No Litigation, Violation, Indebted-
ness or Default........................................................................- 51 -
5.9. Patents, Trademarks, Copyrights and Licenses...........................................- 52 -
5.10. Licenses and Permits...................................................................- 52 -
5.11. Default of Indebtedness................................................................- 53 -
5.12. No Default.............................................................................- 53 -
5.13. No Burdensome Restrictions.............................................................- 53 -
5.14. No Labor Disputes......................................................................- 53 -
5.15. Margin Regulations.....................................................................- 53 -
5.16. Investment Company Act.................................................................- 53 -
5.17. Disclosure.............................................................................- 53 -
5.18. Delivery of Agreements.................................................................- 53 -
5.19. Swaps..................................................................................- 54 -
5.20. Conflicting Agreements.................................................................- 54 -
5.21. Application of Certain Laws and Regulations............................................- 54 -
5.22. Business and Property of Borrower......................................................- 54 -
VI. AFFIRMATIVE COVENANTS................................................................................- 54 -
6.1. Payment of Fees........................................................................- 54 -
6.2. Conduct of Business and Maintenance of Exis-
tence and Assets.......................................................................- 55 -
6.3. Violations.............................................................................- 55 -
6.4. Government Receivables.................................................................- 55 -
6.5. Interest Coverage Ratio................................................................- 55 -
6.6. Intentionally Omitted..................................................................- 55 -
6.7. Intentionally Omitted..................................................................- 55 -
6.8. Execution of Supplemental Instruments..................................................- 55 -
6.9. Payment of Indebtedness................................................................- 56 -
6.10. Standards of Financial Statements......................................................- 56 -
6.11. Exercise of Rights.....................................................................- 56 -
6.12. Intercreditor Agreements...............................................................- 56 -
6.13. Purchase Price Adjustment..............................................................- 56 -
<PAGE>
VII. NEGATIVE COVENANTS...................................................................................- 56 -
7.1. Merger, Consolidation, Acquisition and Sale of
Assets.................................................................................- 57 -
7.2. Creation of Liens......................................................................- 57 -
7.3. Guarantees.............................................................................- 57 -
7.4. Intentionally Omitted..................................................................- 57 -
7.5. Loans..................................................................................- 57 -
7.6. Intentionally Omitted..................................................................- 57 -
7.7. Restricted Payment.....................................................................- 57 -
7.9. Nature of Business.....................................................................- 61 -
7.10. Transactions with Affiliates...........................................................- 61 -
7.11. Leases.................................................................................- 62 -
7.12. Subsidiaries...........................................................................- 62 -
7.13. Fiscal Year and Accounting Changes.....................................................- 63 -
7.14. Pledge of Credit.......................................................................- 63 -
7.15. Amendment of Articles of Incorporation, By-
Laws...................................................................................- 63 -
7.16. Compliance with ERISA..................................................................- 63 -
7.17. Senior Subordinated Notes..............................................................- 63 -
7.18. Prepayment of Indebtedness.............................................................- 64 -
7.19. Indebtedness under Senior Subordinated Notes...........................................- 64 -
7.20. Intentionally Omitted..................................................................- 64 -
7.21. Amendments to Bleyer Purchase Agreement,
Chesapeake Purchase Agreement, James River
Purchase Agreement, Senior Subordinated Notes
or Indenture...........................................................................- 64 -
VIII. CONDITIONS PRECEDENT.................................................................................- 65 -
8.1. Intentionally Omitted..................................................................- 65 -
8.2. Conditions to Each Revolving Advance...................................................- 65 -
(a) Representations and Warranties..............................................- 65 -
(b) No Default..................................................................- 65 -
(c) Maximum Revolving Advances..................................................- 65 -
8.3. Conditions of Effectiveness............................................................- 66 -
(a) Notes.......................................................................- 66 -
(b) Filings, Registrations and Recordings.......................................- 66 -
(c) Corporate Proceedings of Borrower...........................................- 66 -
(d) No Litigation...............................................................- 66 -
(e) Collateral Examination......................................................- 66 -
(f) Fees........................................................................- 66 -
(g) Pro Forma Financial Statements..............................................- 66 -
(h) Private Placement Documents.................................................- 66 -
(i) Consents....................................................................- 67 -
(j) No Adverse Material Change..................................................- 67 -
(k) Contract Review.............................................................- 67 -
(l) Borrowing Base..............................................................- 67 -
(m) Undrawn Availability........................................................- 67 -
(n) Adequate Cash Flow..........................................................- 67 -
(o) Approvals...................................................................- 67 -
(p) Opinions....................................................................- 67 -
(q) Compliance with Laws........................................................- 67 -
(r) Incumbency Certificates of Borrower.........................................- 67 -
(s) Certificates................................................................- 68 -
(t) Good Standing Certificates..................................................- 68 -
(u) Private Placement...........................................................- 68 -
(v) Additional Mezzanine and Mezzanine Debt.....................................- 68 -
<PAGE>
IX. INFORMATION AS TO BORROWER...........................................................................- 68 -
9.1. Disclosure of Material Matters.........................................................- 69 -
9.2. Schedules..............................................................................- 69 -
9.3. Environmental Reports..................................................................- 69 -
9.4. Litigation.............................................................................- 69 -
9.5. Material Occurrences...................................................................- 69 -
9.6. Government Receivables.................................................................- 70 -
9.7. Annual Financial Statements............................................................- 70 -
9.8. Quarterly Financial Statements.........................................................- 71 -
9.9. Monthly Financial Statements...........................................................- 71 -
9.10. Other Reports..........................................................................- 71 -
9.11. Additional Information.................................................................- 72 -
9.12. Projected Operating Budget.............................................................- 72 -
9.13. Variances From Operating Budget........................................................- 72 -
9.14. Notice of Suits, Adverse Events........................................................- 72 -
9.15. ERISA Notices and Requests.............................................................- 73 -
9.16. Additional Documents...................................................................- 73 -
.......................................................................................- 73 -
X. EVENTS OF DEFAULT....................................................................................- 73 -
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT...........................................................- 77 -
11.1. Rights and Remedies....................................................................- 77 -
11.2. Agent's Discretion.....................................................................- 78 -
11.3. Setoff.................................................................................- 78 -
11.4. Rights and Remedies not Exclusive......................................................- 78 -
XII. WAIVERS AND JUDICIAL PROCEEDINGS.....................................................................- 78 -
12.1. Waiver of Notice.......................................................................- 78 -
12.2. Delay..................................................................................- 78 -
12.3. Jury Waiver............................................................................- 78 -
XIII. EFFECTIVE DATE AND TERMINATION.......................................................................- 79 -
13.1. Term...................................................................................- 79 -
13.2. Termination............................................................................- 79 -
XIV. REGARDING AGENT......................................................................................- 79 -
14.1. Appointment............................................................................- 80 -
14.2. Nature of Duties.......................................................................- 80 -
14.3. Lack of Reliance on Agent and Resignation..............................................- 80 -
14.4. Certain Rights of Agent................................................................- 81 -
14.5. Reliance...............................................................................- 82 -
14.6. Notice of Default......................................................................- 82 -
14.7. Indemnification........................................................................- 82 -
14.8. Agent in its Individual Capacity.......................................................- 82 -
14.9. Delivery of Documents..................................................................- 83 -
14.10. Borrower's Undertaking to Agent........................................................- 83 -
XIV. MISCELLANEOUS........................................................................................- 83 -
15.1. Governing Law..........................................................................- 83 -
15.2. Entire Understanding...................................................................- 83 -
15.3. Successors and Assigns; Participations; New
Lenders................................................................................- 84 -
15.4. Application of Payments................................................................- 86 -
15.5. Indemnity..............................................................................- 86 -
15.6. Survival...............................................................................- 87 -
<PAGE>
15.7. Notice.................................................................................- 87 -
15.8. Severability...........................................................................- 88 -
15.9. Expenses...............................................................................- 88 -
15.10. Injunctive Relief......................................................................- 88 -
15.11. Consequential Damages..................................................................- 88 -
15.12. Captions...............................................................................- 88 -
15.13. Counterparts...........................................................................- 88 -
15.14. Construction...........................................................................- 89 -
15.15. Publicity..............................................................................- 90 -
</TABLE>
<PAGE>
EXHIBIT 12.1
THE FONDA GROUP, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY
-------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Interest expense (1) ............... $1,553 $1,209 $1,276 $3,005 $ 7,934
Rent expense ....................... 1,132 1,122 1,114 1,150 1,775
One third rent expense ............. 377 374 371 383 592
-------- -------- -------- -------- ---------
Fixed charges ...................... $1,930 $1,583 $1,647 $3,388 $ 8,526
Income before taxes ................ $ 832 $1,416 $ 490 $3,767 $ 5,930
Fixed charges from above ........... 1,930 1,583 1,647 3,388 8,526
-------- -------- -------- -------- ---------
Earnings, as defined ............... $2,762 $2,999 $2,137 $7,155 $14,456
Ratio of earnings to fixed charges 1.4x 1.9x 1.3x 2.1x 1.7x
-------- -------- -------- -------- ---------
</TABLE>
- ------------
(1) Before interest income of $22, $8, $8 and $62 for 1992, 1993, 1994 and
1995, respectively.
<PAGE>
EXHIBIT 16.1
April 10, 1997
Securities and Exchange Commission
450 5th Street N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We were previously principal accountants for The Fonda Group, Inc., and,
under the date of January 19, 1995 we reported on the financial statements
of The Fonda Group, Inc. for the year ended July 31, 1994. We have
read The Fonda Group, Inc. statements included under the heading "Change in
Certifying Accountants" on page 84 of its Registration Statement on Form S-4
(333- ) dated April 10, 1997 and we agree with such statements.
Very truly yours,
/s/ BDO SEIDMAN LLP
Valhalla, New York
April 10, 1997
<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 (January 31, 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.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
April 10, 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 January 17, 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.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
April 10, 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.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
April 10, 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 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.
/s/ BDO SEIDMAN, LLP
Valhalla, New York
April 10, 1997
<PAGE>
===============================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [ ]
---------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
The Fonda Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3220732
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
21 Lower Newton Street
St. Albans, Vermont 05478
(Address of principal executive offices) (Zip code)
---------------
9 1/2% Series B Senior Subordinated Notes due 2007
(Title of the indenture securities)
===============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH
IT IS SUBJECT.
---------------------------------------------------------------------------
Name Address
---------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany,
N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION, ARE
INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO RULE
7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND RULE 24 OF THE
COMMISSION'S RULES OF PRACTICE.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)
- 2 -
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
- 3 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 31st day of March, 1997.
THE BANK OF NEW YORK
By: /s/ Paul J. Schmalzel
-----------------------------
Name: Paul J. Schmalzel
Title: Assistant Treasurer
<PAGE>
- -------------------------------------------------------------------------------
EXHIBIT 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........... $ 4,404,522
Interest-bearing balances .................................... 732,833
Securities:
Held-to-maturity securities .................................. 789,964
Available-for-sale securities ................................ 2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold ............................................. 3,364,838
Loans and lease financing receivables:
Loans and leases, net of unearned income ..................... 28,728,602
LESS: Allowance for loan and lease losses .................... 584,525
LESS: Allocated transfer risk reserve ........................ 429
Loans and leases, net of unearned
income, allowance, and reserve ............................. 28,143,648
Assets held in trading accounts ................................ 1,004,242
Premises and fixed assets (including capitalized leases) ....... 605,668
Other real estate owned ........................................ 41,238
Investments in unconsolidated
subsidiaries and associated companies ........................ 205,031
Customers' liability to this bank on acceptances outstanding ... 949,154
Intangible assets .............................................. 490,524
Other assets ................................................... 1,305,839
-----------
Total assets ................................................... $44,043,010
===========
<PAGE>
LIABILITIES
Deposits:
In domestic offices .................................. $20,441,318
Noninterest-bearing .................................. 8,158,472
Interest-bearing ..................................... 12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ..................... 11,710,903
Noninterest-bearing .................................. 46,182
Interest-bearing ..................................... 11,664,721
Federal funds purchased in domestic offices of the bank:
Federal funds purchased .............................. 1,565,288
Demand notes issued to the U.S. Treasury ............... 293,186
Trading liabilities .................................... 826,856
Other borrowed money:
With original maturity of one year or less ........... 2,103,443
With original maturity of more than one year ......... 20,766
Bank's liability on acceptances executed and outstanding 951,116
Subordinated notes and debentures ...................... 1,020,400
Other liabilities ...................................... 1,522,884
-----------
Total liabilities ...................................... 40,456,160
-----------
EQUITY CAPITAL
Common stock ........................................... 942,284
Surplus ................................................ 525,666
Undivided profits and capital
reserves ............................................. 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities ........................................... (2,073)
Cumulative foreign currency transla-
tion adjustments ..................................... (8,403)
-----------
Total equity capital ................................... 3,586,850
-----------
Total liabilities and equity
capital .............................................. $44,043,010
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this
Report of Condition and declare that it has been examined by us and to the best
of our knowledge and belief has been
- 2 -
<PAGE>
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true and correct.
--
J. Carter Bacot |
Thomas A. Renyi | Directors
Alan R. Griffith |
--
- 3 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JUL-28-1996 JUL-27-1997
<PERIOD-START> JUL-31-1995 JUL-29-1996
<PERIOD-END> JUL-28-1996 JAN-26-1997
<CASH> 1,467 327
<SECURITIES> 0 0
<RECEIVABLES> 27,173 24,275
<ALLOWANCES> 549 670
<INVENTORY> 37,467 38,503
<CURRENT-ASSETS> 74,518 72,095
<PP&E> 68,584 69,428
<DEPRECIATION> 15,574 17,708
<TOTAL-ASSETS> 136,168 131,966
<CURRENT-LIABILITIES> 35,587 32,629
<BONDS> 81,740 78,498
0 0
0 0
<COMMON> 2,181 2,213
<OTHER-SE> 11,871 13,771
<TOTAL-LIABILITY-AND-EQUITY> 136,168 131,966
<SALES> 204,903 126,638
<TOTAL-REVENUES> 204,903 126,638
<CGS> 161,304 99,246
<TOTAL-COSTS> 29,735 19,520
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 148 121
<INTEREST-EXPENSE> 7,934 4,540
<INCOME-PRETAX> 5,930 3,332
<INCOME-TAX> 2,500 1,400
<INCOME-CONTINUING> 3,430 1,932
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,430 1,932
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
